EMPLOYEE BENEFITS COMMITTEE SECTION OF LABOR AND EMPLOYMENT LAW AMERICAN BAR ASSOCIATION REPORT OF SUBCOMMITTEE ON CRIMINAL ENFORCEMENT AND CIVIL RICO Midwinter Meeting February 8-11, 2017 Co-Chairs Robert A. Fisher Seyfarth Shaw LLP Boston, MA Kimberly Jones Ogletree, Deakins, Nash, Smoak & Stewart, P.C. Chicago, IL Contributors Rebecca Bryant Ogletree, Deakins, Nash, Smoak & Stewart, P.C. Chicago, IL
II. ERISA Title I Crimes (Section II) A. 29 U.S.C. 1111 None. B. 29. U.S.C. 1141 None. III. ERISA-Specific Crimes in Title 18 (Crimes and Criminal Procedure) Sections 287, 371, 664, 666, 1001, 1027, 1341, 1343, or 1954 of Title 18 may apply to conduct relating to an ERISA plan, more specifically: Section 287: False claims upon or against U.S. Section 371: Conspiracy to commit an offense or defraud U.S. Sections 664, 666: Theft or embezzlement from employee benefit plan or generally Section 1011: Theft or bribery concerning programs receiving federal funds Section 1027: False statements/concealment in ERISA documents Sections 1341, 1343: Mail fraud or wire fraud Section 1954: Solicitation to influence employee benefit plan A. Section 664: Theft or embezzlement from employee benefit plan United States v. Christine Bodouva, No. 16-CR-214 (01)(VEC) (S.D.N.Y. Nov. 14, 2016) (Jury Verdict available on PACER at Docket #91) Defendant, CEO of an architectural design firm and trustee of the firm s retirement fund (the Fund ), was convicted by a jury for embezzling approximately $125,000 in 401(k) contributions that were withheld from her employees paychecks but not deposited into the Fund in violation of 18 U.S.C. 664. The Government established that the defendant used the misappropriated monies for personal purposes by tracing money from the firm s accounts to payment of the defendant s personal credit cards, golf club memberships for her and her family, her parents vacation homes in St. Maarten and Vermont, and her father s yacht club membership. Before being indicted, the defendant had been contacted several times by the DOL and the Fund s third party administrator, who testified that he sent the defendant at least ten letters between 2012 and 2013 warning her that failure to make required remittances to the Fund violated ERISA. The Court sentenced the defendant to a term of incarceration of 366 days, a fine of $5,000, and forfeiture of $127,854.22.
B. Section 1027: False statements/concealment in ERISA documents United States v. Thompson, No. CR 16-10014-PBS, 2016 WL 4771060 (D. Mass. Sept. 13, 2016) Defendants, spouses who jointly owned and operated their own company, were charged with eighteen counts of mail fraud under 18 U.S.C. 1341, one count of theft or embezzlement from an employee benefit plan under 18 U.S.C. 664, and eighteen counts of making false ERISA statements under 18 U.S.C. 1027. The indictment alleged that the defendants made false reports to the Massachusetts Laborers Benefit Fund ( MLBF ) to which they had agreed to be bound and, based on those reports, failed to make payments due to the MLBF. The defendants moved to dismiss the indictment, arguing that based on the facts as alleged, their representations were not false and they did not fail to pay any money to which the alleged victims were entitled. In relevant part the indictment alleged that the defendants failed to report and to make benefit contributions for shop hours (time spent preparing for and traveling to a job site at the beginning of a workday, and returning and unloading trucks and equipment at the end of a workday). The district court held the indictment was sufficient with respect to required elements of each offense, and the indictment sufficiently alleged that the defendants violated the controlling collective bargaining agreement when they failed to make contributions to the MLBF fund for employees shop hours. United States v. Whitfield, No. 15-5668, 2016 WL 5682708 (6th Cir. Oct. 3, 2016) Defendant-appellant, who owned and managed a human resources and payroll processing company, was indicted after a federal investigation revealed that he stole $25 million from his customers and the government. A jury convicted the defendant for multiple acts of wire fraud, ERISA plan embezzlement under 18 U.S.C. 664, IRS fraud, and money laundering. Most clients had allowed the defendant or his company to transfer funds directly from their bank accounts into the defendant s company operational account in an amount necessary to cover the client s payroll, tax, and benefit obligations. The defendant maintained that there was no evidence that tied the 401(k)-dedicated funds to any inappropriate withdrawals from his company s operating account and no money went missing from the plan. Upon appeal, the Sixth Circuit found that the government presented ample evidence to show just that. Testimony showed that the defendant withdrew money from his company s clients accounts, took 401(k) contributions from the employee paychecks it processed, and failed to pass all of the designated funds to the 401(k) recipients. The defendant also used the company account for a variety of non-client expenditures. Finding that a rational juror could conclude that these actions violated 18 U.S.C. 664, the Sixth Circuit affirmed on all counts. C. Sections 1341, 1343: Mail fraud or wire fraud Peters v. Aetna, Inc., No. 1:15-CV-00109-MR, 2016 WL 4547151 (W.D.N.C. Aug. 31, 2016) Plaintiff, an insured under an Aetna health insurance plan, filed a putative class action against the defendants Aetna, Inc., Aetna Life Insurance Company (collectively, Aetna ), and OptumHealth Care Solutions, Inc. ( Optum ), asserting various claims pursuant to RICO and ERISA. In relevant part, the plaintiff asserted two claims based on RICO violations. In Count I of the complaint, the plaintiff alleged that Aetna and its subcontractors, including Optum, violated 18
U.S.C. 1962(c) by engaging in acts of mail and wire fraud in furtherance of a common purpose to collect administrative fees from Aetna insureds and plans by improperly characterizing them as payment for covered medical expenses, which, constituted an associated-in-fact enterprise as defined in 18 U.S.C. 1961(4). Alternatively, the plaintiff alleged that Aetna had conducted multiple bilateral association-in-fact RICO enterprises with each of its subcontractors. In Count II of the complaint, the plaintiff alleged that the defendants conspired to violate 18 U.S.C. 1962(c), in violation of 18 U.S.C. 1962(d). The court dismissed the RICO claims. The court found that a contractual arrangement through which a claims administrator contracts with a network of providers at a negotiated flat rate hardly suggests the existence of a RICO enterprise. Further, Aetna s purpose in its contractual relationship with Optum was to have insurance claims administered and Optum s purpose was to provide claims administration services for a fee. The fact that a small part of their arrangement deflected responsibility for the fee to an improper party did not transform their otherwise legitimate contractual arrangement into a criminal enterprise. IV. Criminal Liability Under the Taft-Hartley Act, Section 302 (28 U.S.C. 186) Daly v. United States, No. 15-3300, 2016 WL 5386773 (2d Cir. Sept. 27, 2016) (summary order) The Second Circuit affirmed the district court s decision to uphold the recommendation of an Independent Monitor (the Monitor ), made pursuant to a consent order, to end the plaintiffappellant s tenure as a shop steward and executive delegate of the District Council of New York City and Vicinity of the United Brotherhood of Carpenters and Joiners of America (the Union ). The Monitor s recommendation to remove the plaintiff-appellant was based on the conclusion that he had received benefit payments from his employer for hours he did not work, in violation of 29 U.S.C. 186. The Monitor relied on the results of an investigation that included review of shop steward reports, remittance reports, sign-in sheets, transcripts of Union proceedings, and financial records, and cellsite records (evidencing the plaintiff-appellant s location during the hours in question). The court held the finding that plaintiff-appellant received unlawful payments as defined by Taft-Hartley from his employer was supported by substantial evidence and would not be disturbed. V. Health Care Fraud A. Fraud United States v. Barson, 2016 U.S. App. LEXIS 23355 (5th Cir. Dec. 28, 2016) The defendants appealed their conviction for nineteen counts of health care fraud and one count of conspiracy to commit health care fraud, claiming that they had no knowledge of any fraudulent activity. Both defendants had worked for medical clinics that had billed Medicare for tests that were not performed. One defendant, Dennis Barson, argued that he had no prior experience with Medicare or medical billing practices and had no way knowing of any fraudulent scheme because he never saw any patient files that included the improperly billed tests. The other defendant, Dario Juarez, argued that although he was impersonating a physician s assistant, he had no knowledge of any billing practice. The Fifth Circuit affirmed their convictions, concluding that there was ample evidence that the defendants knew about the fraud. It held that Barson had signed
documents in blank allowing the clinic to bill under his Medicare identification number and had opened a bank account in his name to receive Medicare reimbursements. As to Juarez, the Court held that he had falsely held himself out as a doctor and physician s assistant, had seen almost all of the patients, and had turned a blind eye to the fact that most of the patients had no need for medical care. United States v. Kuthuru, 2016 U.S. App. LEXIS 19765 (2d Cir. Nov. 3, 2016) Defendant Bonnie Meislin appealed her conviction for 23 counts of health care fraud and one count of conspiracy to commit health care fraud. The defendant had worked as the billing manager for a New York pain management clinic. Because the nurse practitioners and physician assistants at the clinic were not credentialed, Meislin could not seek reimbursement under their names and instead submitted false claims to Medicare stating that a physician in Nevada had seen the patients. The Court of Appeals held that the evidence was sufficient for the jury to conclude that Meislin had knowledge of and participated in the fraudulent scheme. United States v. Griffith, 2016 U.S. App. LEXIS 19514 (6th Cir. Oct. 28, 2016) The defendant appealed his conviction for conspiracy to commit health care fraud. The defendant had attended medical school in the Caribbean but was not a licensed physician and did not have a Medicare provider number. The defendant participated in a scheme to defraud Medicare, whereby he met with Medicare beneficiaries and then billed Medicare for fake services using a form pre-signed by a licensed physician. At trial, the defendant attempted to present an advice of counsel defense -- that an attorney had advised him that he could practice medicine in Michigan under the supervision of another physician -- and sought to introduce the Michigan statute into evidence. The district court precluded the introduction of the statute into evidence. On appeal, the Sixth Circuit held that the exclusion of the statute did not alter the verdict, given the evidence presented by the government. United States v. Williams, 2016 U.S. App. LEXIS 19424 (6th Cir. Oct. 25, 2016) The defendants were involved in the management and ownership of businesses that existed primarily as tools to defraud Medicare. As to both defendants, the Sixth Circuit held that there was ample evidence that they directed employees of the clinics to fabricate records for services that were never provided. Defendant Felicar Williams argued that the district court s decision to allow introduction of a chart showing Medicare claims relevant to the clinic s operations violated her rights under the Sixth Amendment s confrontation clause because the Government did not present the individuals who billed the claims. The Court rejected this argument, explaining that the documents were business records and thus not testimonial for purposes of the Sixth Amendment. United States v. Jafari, 2016 U.S. App. LEXIS 17302 (2d Cir. Sept. 21, 2016) The defendant challenged her convictions on four counts of health care fraud, claiming that the government failed to show that she executed a fraudulent scheme with the requisite mens rea. The Second Circuit rejected this argument, holding that a jury could reasonably conclude that the defendant knowingly defrauded Blue Cross Blue Shield of Western New York. Evidence presented at trial demonstrated that she had encouraged a patient to not talk to the insurer, instructed the patient to withhold information from the insurer relating to dates of appointments,
offered to provide the patient with information to report to the insurer and instructed the patient to state that patient sessions lasted 75 to 80 minutes in length. United States v. Foster, 2016 U.S. App. LEXIS 17164 (11th Cir. Sept. 20, 2016) The defendant was convicted of conspiracy to commit health care fraud, but the district court granted the defendant s motion for acquittal. The government appealed. The Court of Appeals reversed the judgment of acquittal, holding that the trial court failed to consider the evidence in a light most favorable to the government. Specifically, there was evidence that the defendant had not withdrawn from the conspiracy more than five years before the indictment. United States v. Gonzalez, 834 F.3d 1206 (11th Cir. 2016) The defendant challenged her conviction for conspiracy to commit health care fraud, claiming that that the evidence was insufficient to establish that she knew of the conspiracy or that she voluntarily joined it. The defendant was a nurse at a clinic that ostensibly treated HIV patients. The clinic did not look like a medical office; it had little medical equipment and patients were directed to sit in home recliners. Evidence at trial showed that the defendant had given patients envelopes of cash behind locked doors while they were supposedly receiving infusion treatments. It also showed that the defendant signed forms indicating that patients received treatment between 30 and 90 minutes in length, despite that the actual treatment took less than five minutes to administer. While defendant argued that she lacked medical training and did not know that the treatments were not medically necessary, the Eleventh Circuit concluded that the jury had ample evidence to conclude that she was aware of and participated in the conspiracy. United States v. Perry, 659 Fed. Appx. 146 (4th Cir. 2016) The defendants, husband and wife, were convicted of health care fraud, conspiracy to commit health care fraud and making a false statement in connection with a health care benefit program. The defendants had owned and operated a home healthcare company and engaged in a practice to bill by the plan, meaning that that they billed the state for in-home health services by the maximum number of hours authorized by the patient s care plan rather than by the actual number of documented hours on aides timesheets. They had attempted to conceal their fraud by altering timesheets and other records. On appeal, the Court of Appeals held that there was ample evidence to support their convictions. While the defendants argued that they did not willfully engage in fraud or make a false statement involving a health care benefit program and challenged the district court s instructions to the jury on this issue, the Fourth Circuit held that the district court s jury instructions did not warrant reversal of their convictions. United States v. Gabinskaya, 829 F.3d 127 (2d Cir. 2016) The defendant, Tatyana Gabinskaya, appealed her conviction for health care fraud and conspiracy to commit health care fraud. Her co-defendants had engaged in a scheme to defraud the New York State no-fault insurance system by submitting false claims for medical services. Gabinskaya, a medical doctor, acted as a front for the scheme by allowing her co-defendants to use her medical license to submit the false claims. While she argued on appeal that the evidence was insufficient to establish her knowledge of the fraud, the Second Circuit held that the evidence was sufficient for a jury to conclude that she knowingly and willfully participated in the scheme.
United States v. Mahmood, 820 F.3d 177 (5th Cir. 2016) The defendant was convicted on seven counts of health care fraud and one count of conspiracy to commit health care fraud. The defendant was a licensed physician who owned a number of Texas hospitals. Evidence at trial showed that he had manipulated Medicare billing procedures by changing the billing codes to be used on reimbursement forms in order to overbill Medicare. On appeal, the defendant argued that the government failed to show that the changed billing codes were false or that patient medical records did not support the changes. The Fifth Circuit rejected this argument, holding that it ignores the Government s overwhelming evidence that he had engaged in a scheme to defraud. United States v. Tellison, 637 Fed. Appx. 186 (5th Cir. 2016) The defendant was convicted on fourteen counts of health care fraud. The record established that the defendant owned and managed a company that had submitted fraudulent claims to Medicare. On appeal, the defendant argued that the Government had failed to establish that she submitted the fraudulent claims, assisted someone else in doing so, or even knew about them. The Fifth Circuit rejected this, explaining that her signature was on the reimbursement forms and she had admitted to investigators that she knew that the company was billing Medicare for services that were not medically necessary or never delivered. United States v. Nowlin, 640 Fed. Appx. 337 (5th Cir. 2016) The defendant, the owner and operator of a medical equipment company, was convicted on four counts of health care fraud. On appeal, she argued that there was insufficient evidence to establish her knowledge or specific intent to commit the charged offenses. The Court of Appeals rejected this argument, explaining that substantial evidence demonstrated she knew and intended for the company to seek reimbursement for medical equipment that was not medically necessary, that was not delivered or that was not new. United States v. Reeves, 636 Fed. Appx. 350 (6th Cir. 2016) The defendant was convicted of aiding and abetting health care fraud and, on appeal, challenged the sufficiency of the evidence. The Sixth Circuit upheld the conviction, explaining that a jury could have concluded that she intentionally recruited her cousin to purchase OxyContin with a forged prescription and gave her cousin her insurance card. United States v. Delia, 2016 U.S. Dist. LEXIS 109102 (E.D. Ok. Aug. 17, 2016) The defendant moved to dismiss the indictment for one count of health care fraud on the basis of the five-year statute of limitations. The government argued that the applicable statute of limitations was tolled by the Wartime Suspension of Limitations Act (18 U.S.C. 3287) ( WSLA ). Under the WSLA, the statute of limitations is suspended against the government under certain circumstances when the United States is at war or Congress has authorized the use of the armed forces. The district court held that the WSLA was not limited to war-related frauds and thus could apply to the defendant. It thus denied the motion to dismiss. United States v. Palin, 2016 U.S. Dist. LEXIS 100743 (W.D. Va. Aug. 2, 2016)
The defendants were convicted by a jury of health care fraud and conspiracy to commit health care fraud. They moved for acquittal or for a new trial, arguing that under Universal Health Services, Inc. v. United States, 136 S.Ct. 1989 (2016), their conduct had to constitute material misrepresentations to support a conviction. Assuming without deciding that the decision in Universal Health Services applied to 18 U.S.C 1347, the district court held that the misrepresentations at issue were material and thus that the jury verdicts were supported by substantial evidence. United States v. Wallace, 2016 U.S. Dist. LEXIS 969930 (S.D. Ga. June 10, 2016) The defendant moved to dismiss her indictment for health care fraud, arguing that the statute was unconstitutionally vague as applied to her. According to the defendant, the statute was vague because subsection (b) of 18 U.S.C 1347 does not contain an intent requirement, but refers to subsection (a), which does require intent. The district court held that subsection (b) did not remove the scienter requirement for health care fraud or conflict with subsection (a). United States v. Benko, 2016 U.S. Dist. LEXIS 18463 (M.D. Penn. Feb. 16, 2016) The defendant moved to dismiss his indictment for one count of health care fraud and two counts for making a false statement in health care matters. He argued that the indictment failed to allege that he personally profited from the alleged fraud. The district court rejected this argument, explaining that while pecuniary gain to the defendant may be probative of injury or loss due to the fraud, that is not the only way to establish fraud. The Government alleged that the defendant sought to undermine the integrity of the Medicare billing system, and the court held that this was sufficient. Second, the defendant argued that the indictment alleged that he failed to follow his employer s standard operating procedures, but that did not amount to a crime. The district court rejected this argument too, explaining that the allegations were sufficient to form a health care fraud offense. B. Theft or Embezzlement United States v. Morrison, 653 Fed. Appx. 499 (9th Cir. 2016) The defendant appealed her conviction for theft from a health care program in violation of 18 U.S.C. 669. She argued that her employer, the Rocky Boy Health Board Clinic was not a health care benefit program within the meaning of the statute. Because the clinic provided medical treatment and received insurance reimbursements, the Court of Appeals held that the statute applied. C. False Statements United States v. Clay, 832 F.3d 1259 (11th Cir. 2016) The defendants challenged their convictions for health care fraud and for filing false statements. The Eleventh Circuit held that the evidence sufficiently established that the defendants understood their representations in expense reports submitted for Medicare reimbursement were
false. While the defendants argued that they relied on a reasonable interpretation of their reporting obligation under Florida law, the Court characterized this as a post-hoc interpretation, because the evidence demonstrated that the defendants never believed they could report expenses this way. Further, while the defendants claimed to have relied on the advice of counsel, the Court found that this hurt rather than helped their position, since outside counsel had warned them against the manner in which they had reported expenses. United States v. Henderson, 2016 U.S. Dist. LEXIS 113184 (S.D. Ga. Aug, 24, 2016) A jury convicted the defendant of fifty counts of a making a false statement in connection with health care matters. The defendant moved for acquittal arguing that the evidence was insufficient to establish the necessary mens rea. The district court denied the motion. It explained that the government demonstrated that the defendant knew how to properly close records of patient consultations in contrast to the false statements contained in the changed consults. Further, the government presented evidence showing that the defendant was aware that improperly using the medical records could be a federal offense. VI. Racketeer Influenced and Corrupt Organizations (RICO) C. Elements of RICO Actions 1. Establishing a Pattern of Racketeering Activity a. Predicate Offense for Racketeering Saunders v. Davis, 2016 U.S. Dist. LEXIS 125304 (D. D.C. Sept. 15, 2016) The plaintiff alleged that the defendants engaged in misconduct in connection with a governmental plan created to provide supplemental unemployment benefits to public school teachers. Among other claims, the plaintiff asserted a claim under civil RICO. The complaint alleged that the defendants had engaged in the predicate acts of mail fraud, wire fraud, credit card fraud, bank fraud and computer fraud by embezzling union funds. On defendants motion to dismiss, the district court held that the plaintiff had failed to allege fraud with sufficient particularity, as required by Rule 9(b) of the Federal Rules of Civil Procedure, and dismissed the RICO claim. Stampone v. Walker, 2016 U.S. Dist. LEXIS 29638 (D. N.J. Mar. 8, 2016) The plaintiff alleged that he was removed as a Certified Carpenter Steward from the United Brotherhood of Carpenters after missing a meeting and later learned that he did not have enough credits to have a vested benefit under a pension fund. Among other claims, the plaintiff asserted a civil RICO claim against the defendants, arguing that the pension rules adopted by the defendants constituted debt by deception. While RICO provides that it is unlawful for a person to attempt to collect an unlawful debt, the district court held that the allegations of the complaint were insufficient to establish a predicate act. 2. Identifying the Injury
Franco v. Connecticut Gen. Life Ins. Co., 647 Fed. Appx. 76, 2016 U.S. App. LEXIS 7886 (3d Cir. May 2, 2016) Three sets of plaintiffs -- participants in employer-sponsored group health plans, healthcare providers who are members of CIGNA s network, and medical associations that are not part of CIGNA s provider network -- alleged that the defendants artificially reduced usual, customary, and reasonable ( UCR ) schedules for reimbursements of out-of-network services by using a flawed database operated by Ingenix, Inc. As a result, CIGNA paid substantially less than the UCR under its employer-sponsored health plans. Among other claims, the plaintiffs asserted a claim under civil RICO, alleging that CIGNA and Ingenix engaged in a conspiracy to underpay claims. The district court granted summary judgment to the defendants. The participant-plaintiffs and the medical association-plaintiffs appealed the dismissal of their RICO claims. As to the plan participants, the Third Circuit affirmed that they failed to allege an injury under RICO, because they were not billed by the out-of-network providers for the difference between the UCR and the amount paid by CIGNA. As to the medical association-plaintiffs, they sought to pursue RICO claims on behalf of their members. However, the Third Circuit held that the associations did not have standing to sue on behalf of their members because participation of individual members of the associations was required. The Court explained that the RICO claim would require a detailed inquiry into healthcare providers billing practices. 3. Identifying The Enterprise Peters v. Aetna, Inc., 2016 U.S. Dist. LEXIS 117326 (W.D.N.C. Aug. 31, 2016) The plaintiff alleged that Aetna engaged in a fraudulent scheme with Optum Health Solutions and other subcontractors to cause insureds to pay administrative fees in connection with the processing of claims for benefits. According the plaintiff, the fees were mislabeled as medical expenses. The plaintiff asserted a civil RICO claim and a RICO conspiracy claim. The district court dismissed both claims because the allegations of the complaint failed to suggest that the defendants carried out a criminal enterprise. The court held that the plaintiff s allegations failed to assert anything more than an ordinary commercial relationship between Aetna and Optum.