U.S. v. Melrose East Subdivision

Citation357 F.3d 493
Decision Date13 January 2004
Docket NumberNo. 02-30743.,02-30743.
PartiesUNITED STATES of America, Plaintiff-Appellee, v. MELROSE EAST SUBDIVISION, Third Filing, East Baton Rouge Parish Louisiana; et al., Defendants, Lyman D. White, Claimant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Stefan Dante Cassella (argued), U.S. Dept. of Justice, Asset Forfeiture & Money Laundering, Washington, DC, Lyman Edgar Thornton, III, Asst. U.S. Atty., Baton Rouge, LA, for Plaintiff-Appellee.

John E. Di Giulio, New Orleans, LA, Richard William Westling (argued), Law Offices of Richard W. Westling, New Orleans, LA, for Claimant-Appellant.

Appeal from the United States District Court for the Middle District of Louisiana.

Before KING, Chief Judge, DENNIS, Circuit Judge, and LYNN, District Judge.*

KING, Chief Judge:

The United States filed a civil forfeiture complaint in the district court and on the same day obtained a pretrial restraining order under 18 U.S.C. § 983(j)(1)(A) enjoining the transfer of the defendant property. A claimant to the property, who was indicted on federal charges as part of the same investigation that led to the civil forfeiture complaint, filed a motion in the district court seeking to modify the restraining order to release funds needed to retain an attorney in the related criminal case. After an evidentiary hearing, the district court denied the motion, finding that the government had established probable cause to restrain the assets. The claimant appeals.

We decide that the standard of proof to be employed in ruling on such a motion is probable cause, and we agree with the district court that the government satisfied that standard. We accordingly affirm the district court's denial of the motion to modify the restraining order.

I. BACKGROUND

This civil forfeiture proceeding arises from a Medicaid fraud investigation into the activities of Drug and Alcohol Counseling, Inc. ("DAC"), a corporation owned and operated by Claimant-Appellant Lyman D. White. In addition to spawning this forfeiture action, the investigation has led to the indictment of White and three others connected to DAC.

Located in Baton Rouge, DAC received Medicaid reimbursements for providing substance abuse treatment to local youths. Medicaid paid DAC a total of approximately $175,000 for all of 1998. DAC's activities therefore aroused suspicion when, by September 1999, DAC's billings had risen to over $1 million for the year to date, with many of DAC's monthly billings rivaling the total for the whole of the previous year. The Louisiana Department of Health and Hospitals ("DHH"), which administers the state's Medicaid program, instructed Unisys, the private company that serves as DHH's claims intermediary, to examine DAC's billing activity. Unisys determined that an on-site review was warranted. At that review, held in October 1999, Unisys analysts noted that DAC employees were inordinately slow in providing the patient charts that the analysts requested. The government has since suggested, based on interviews with DAC employees, that the suspicious delay resulted from the employees needing time to falsify the charts that were requested by the Unisys analysts. By early November 1999, Unisys decided that the situation at DAC was sufficiently serious to justify withholding future Medicaid payments. This determination was upheld after a hearing conducted later that month.

The investigation then continued at higher levels. Beginning in late December 1999, DHH's Program Integrity Staff began calling some of the clients reflected on DAC's Medicaid billings. Of the twenty-five clients selected, only thirteen could be located. Seven of those contacted were unaware of DAC, five said that they attended DAC but only for tutoring or recreational programs (activities which, while laudable, did not entitle DAC to Medicaid payments), and only one mentioned a drug addiction. Based on these phone calls, together with the on-site review, the case was referred to the Medicaid Fraud Control Unit, which launched a criminal investigation in January 2000. The FBI soon joined the effort as well. Federal and state investigators eventually interviewed a total of thirty-nine youths who had supposedly received substance abuse counseling at DAC. Ten denied any knowledge of DAC, and the rest referred to DAC as a camp or youth program where they went for tutoring and recreational activities. None of them said they received substance abuse treatment at DAC of the type for which DAC was billing Medicaid.

The investigation later spread beyond DAC and White. Agents learned that White had formed a personal relationship with Marion Slaton, a manager in a department of Unisys responsible for fraud detection. They learned that, at some point in February 1999, she had given White a list of juvenile Medicaid recipients in East Baton Rouge Parish. Slaton knew that it was illegal to give White this list, which contained all of the identifying information necessary to file Medicaid claims in the juveniles' names. The spike in DAC's Medicaid billings, noted earlier, began shortly after Slaton gave White the list. Slaton used her position at Unisys to shield DAC's questionable billings from review. She later accepted several thousand dollars from White, though at least some of this money might be attributable to Slaton's status as White's "girlfriend," rather than to kickbacks.

Investigators also learned that White contacted Dana White (no relation) in April 1999 about an opportunity to expand the business of Dana White's company, Healthcare Laboratory Services, LLC ("HLS"). HLS soon began filing false Medicaid claims using patient information supplied by White, and Dana White in turn paid kickbacks to DAC. At White's behest, Dana White also made payments to Slaton to ensure that HLS's increased Medicaid billings would not come under scrutiny.

As part of the growing investigation, agents examined DAC's financial records. During the early part of 1999, Unisys electronically deposited DAC's Medicaid reimbursements into DAC's account at Liberty Bank. At some point in April, White opened an account at Dryades Bank, and the deposits began to flow there instead. The agents formed a basis to believe that White had funneled DAC's increased (and fraudulent) Medicaid revenues from those bank accounts into purchases of real estate and annuities. As a result, on August 22, 2001, the government filed a civil complaint for forfeiture, under 18 U.S.C. § 981 and § 985, against six parcels of real property and three annuities purchased with funds allegedly derived from the DAC scheme. According to the government, the property was subject to forfeiture under both § 981(a)(1)(A) as property involved in a money laundering offense and § 981(a)(1)(C) as property that "constitutes or is derived from proceeds traceable to" a federal health care offense. The complaint was accompanied by a declaration by one of the investigating FBI agents, which recounted facts that avowedly showed probable cause to believe that the government's forfeiture claim was meritorious. The government simultaneously requested, and the district court on the same day issued, an ex parte pretrial restraining order under § 983(j)(1)(A). The restraining order generally enjoined the sale, pledge, or any other means of disposing of the property without the court's approval. The order further provided that any person wishing to transfer the property could do so, with the government's permission, as long as the proceeds were put into an escrow account which would itself be forfeited to the government if the government prevailed on the merits of the case. According to the terms of the order, it remained in force "until judgment is rendered on the civil forfeiture complaint... or until further order of the Court."

White was indicted a few months later, on October 31, 2001, for offenses arising from the same events described in the civil forfeiture complaint. On November 26, White filed a motion seeking either an adversary hearing on the restraining order or the release of restrained funds to the extent that he needed the funds to pay for his defense attorney in the criminal case. The government opposed the motion. The government contended that funds needed to pay counsel are not exempt from forfeiture, and, moreover, the government argued that White was not even entitled to a hearing on the restraining order unless he first showed both that he lacked any other funds with which to pay counsel and that there was no probable cause to believe that the restrained assets were subject to forfeiture.1 The district judge held a hearing on March 22, 2002. The hearing transcript shows that the parties and the court were at times uncertain as to the standards and procedures that should be employed in ruling on White's motion. The court appears to have orally ruled that White need not make the threshold showings requested by the government and that the government would instead bear the initial burden of showing that it was substantially likely to prevail on the merits of its forfeiture claim. To satisfy that burden, the government tendered the declaration that accompanied the forfeiture complaint, White's indictment, the factual statements adopted by Dana White and Slaton as part of their plea bargains, and several charts tracing the connections between DAC's Medicaid receipts and the restrained assets. The court did not receive any live testimony during the hearing, although White asked to question some of the government witnesses. Both sides filed post-hearing briefs arguing whether the government had met the burden set forth by the district court, and the government additionally filed a motion asking the court to reconsider its procedural rulings on the allocation of the burden of proof.

In a written order dated April 17, 2002, the district court ruled that the government had met its initial burden and that it was therefore necessary for...

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