In the Courts

Theft By Clinic Employee Does Not Establish Health Care Fraud

In United States v. Jones, ___ F.3d ___, 2006 WL 3802821 (3rd Cir. Dec. 28, 2006), the Third Circuit held that simple theft by a clinic employee is not sufficient to sustain a conviction for health care fraud under 18 U.S.C. ' 1347 (2) where the theft was not committed in connection with the delivery or payment of health care benefits.

The defendant, a clerk at a methadone clinic's front counter, was convicted of health care fraud based on allegations that she kept for personal use cash payments made to the methadone clinic. On appeal, she argued that the government failed to establish health care fraud within the meaning of ' 1347, because the theft alleged was not committed in connection with the delivery or payment of health care benefits. The Third Circuit agreed, explaining that ' 1347 cannot be interpreted so broadly as to cover simple theft by an employee. The court pointed out that fraud is differentiated from theft and that the facts alleged did not establish that the defendant used false or fraudulent pretenses, representations, or promises to obtain the money. The court specifically rejected the argument that the conviction could be based on a breach of an implicit promise, created when defendant accepted the job, to handle monies given to her for the clinic properly. The court also noted that there was no allegation that the defendant said or did anything that affected the delivery of, or payment for, health care benefits, items or services.

False Statements Must Be Found to Be Material to Support Sentencing Enhancement

In United States v. Jimenez-Ortega, ” F. 3d ”, 2007 WL 29241 (9th Cir. Jan. 5, 2007), the Ninth Circuit held that, in order to give a sentencing enhancement for obstruction of justice based on a defendant's testimony, the sentencing court must not only find that the defendant willfully gave false testimony, but also that the testimony was material.

The defendant was convicted at trial on drug charges. At sentencing, the trial court found that the defendant's testimony at trial was so incredible that it was clearly intended to obstruct justice and therefore imposed an upward adjustment to his sentence. On appeal, the defendant challenged the adequacy of the trial court's finding that he had obstructed justice. The Ninth Circuit agreed, noting that an obstruction enhancement requires a finding that the defendant willfully gave materially false testimony. The trial court found that the defendant had willfully given false testimony, but the trial court failed to find that the false statements were material. The Court noted that the Supreme Court held in United States v. Gaudin, 515 U.S. 506 (1995), that materiality must be decided by the trier of fact, and remanded for resentencing.

SEC Filings Cannot Support Fraud Conviction Without a Showing of Falsity

In United States v. Lake, ” F.3d ”, 2007 WL 30038 (10th Cir. Jan. 5, 2007), the Tenth Circuit held that convictions that depended on the falsity of required reports to the Securities Exchange Commission (SEC) must be set aside because the government failed to show that the information allegedly omitted from the reports was required, and therefore did not show that the reports were false or fraudulent.

Defendants, former executives in an energy company, were convicted in a jury trial of wire fraud, money laundering, circumvention of internal financial controls, and conspiracy. All the counts of the indictment stemmed from the defendants' alleged personal use of company aircraft, and their subsequent failure to report that use to the SEC. Specifically, the government alleged that submitting required, but deceptive, reports to the SEC constitutes mail fraud. On appeal the Tenth Circuit set aside the convictions. The court explained that the government never established that the defendants failed to comply with SEC regulations and that the jury was never instructed on the SEC's reporting requirements. The court held that the reports could not be shown to be false or misleading without a showing that reporting the withheld information was required. Because no such showing was made, the convictions for wire fraud and money laundering were set aside without the opportunity for retrial. The circumvention and conspiracy charges were set aside on other grounds and may be retried.

Theft By Clinic Employee Does Not Establish Health Care Fraud

In United States v. Jones , ___ F.3d ___, 2006 WL 3802821 (3rd Cir. Dec. 28, 2006), the Third Circuit held that simple theft by a clinic employee is not sufficient to sustain a conviction for health care fraud under 18 U.S.C. ' 1347 (2) where the theft was not committed in connection with the delivery or payment of health care benefits.

The defendant, a clerk at a methadone clinic's front counter, was convicted of health care fraud based on allegations that she kept for personal use cash payments made to the methadone clinic. On appeal, she argued that the government failed to establish health care fraud within the meaning of ' 1347, because the theft alleged was not committed in connection with the delivery or payment of health care benefits. The Third Circuit agreed, explaining that ' 1347 cannot be interpreted so broadly as to cover simple theft by an employee. The court pointed out that fraud is differentiated from theft and that the facts alleged did not establish that the defendant used false or fraudulent pretenses, representations, or promises to obtain the money. The court specifically rejected the argument that the conviction could be based on a breach of an implicit promise, created when defendant accepted the job, to handle monies given to her for the clinic properly. The court also noted that there was no allegation that the defendant said or did anything that affected the delivery of, or payment for, health care benefits, items or services.

False Statements Must Be Found to Be Material to Support Sentencing Enhancement

In United States v. Jimenez-Ortega, ” F. 3d ”, 2007 WL 29241 (9th Cir. Jan. 5, 2007), the Ninth Circuit held that, in order to give a sentencing enhancement for obstruction of justice based on a defendant's testimony, the sentencing court must not only find that the defendant willfully gave false testimony, but also that the testimony was material.

The defendant was convicted at trial on drug charges. At sentencing, the trial court found that the defendant's testimony at trial was so incredible that it was clearly intended to obstruct justice and therefore imposed an upward adjustment to his sentence. On appeal, the defendant challenged the adequacy of the trial court's finding that he had obstructed justice. The Ninth Circuit agreed, noting that an obstruction enhancement requires a finding that the defendant willfully gave materially false testimony. The trial court found that the defendant had willfully given false testimony, but the trial court failed to find that the false statements were material. The Court noted that the Supreme Court held in United States v. Gaudin , 515 U.S. 506 (1995), that materiality must be decided by the trier of fact, and remanded for resentencing.