568 F.2d 1266 (9th Cir. 1977), 76-2722, United States v. Cella
|Docket Nº:||76-2722, 76-2740, 76-3041.|
|Citation:||568 F.2d 1266|
|Party Name:||UNITED STATES of America, Plaintiff-Appellee, v. Louis J. CELLA, Jr., Stephen R. Evans, Theodore Schiffman, Defendants- Appellants.|
|Case Date:||December 09, 1977|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
As Amended Jun. 18, 1978.
Rehearing and Rehearing En Banc Denied Jan. 30, 1978.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Roger S. Hanson (argued), Keith C. Monroe (argued), of Monroe & Riddet, Santa
Ana, Cal., Bruce I. Hochman (argued), of Hochman, Salkin & DeRoy, Beverly Hills, Cal., for defendants-appellants.
David R. Hinden, Asst. U. S. Atty. (argued), Stephen V. Wilson, Asst. U.S. Atty., Chief Fraud and Special Prosecution Division, Los Angeles, Cal., for plaintiff-appellee.
On Appeal from the United States District Court for the Central District of California.
Before BARNES and GOODWIN, Circuit Judges, and JAMESON, District Judge. [*]
BARNES, Senior Circuit Judge:
This appeal stems from the conviction of the three above named defendants on certain criminal counts arising from their participation in a scheme to misappropriate the funds and facilities of two proprietary hospitals in order to use the monies to sponsor the political campaigns of various local and state politicians and also for the personal purposes of two of the defendants. Given vast amount of materials on appeal (5,791 pages in the record and 328 pages of briefs) and the many points raised in the briefs, a lengthy but unavoidable exposition of the facts is required.
Mission Community Hospital, Inc. ("Mission Hospital"), which commenced operations in 1971, and Mercy General Hospital, Inc. ("Mercy Hospital"), which opened in 1973, are proprietary hospitals 1 located in Southern California. Both were organized and managed as corporations. The stock of each corporation was owned by a partnership respectively the Mission Viejo Medical Company ("Mission partnership") and the Bristol General Hospital Company ("Mercy partnership"). 2 Corporate and partnership income tax returns were filed during the relevant years herein. Both hospitals had agreements with the United States Department of Health, Education and Welfare whereby they were institutional providers of Medicare services and, hence, were required by law to maintain sufficient and adequate financial records for a determination of costs reimbursement under the Medicare program and to submit annual cost reports.
Defendant Dr. Louis Cella was a partner in both the Mission and Mercy partnerships. He also held the position of secretary-treasurer at the hospitals, and was the de facto controlling force in the management of the corporate entities. George Ollendorf (once a defendant) was the administrator of the Mission Hospital. Initially, defendant Stephen Evans was an assistant administrator under Ollendorf at the Mission Hospital, and in early 1972 was assigned the task of supervising the printing operations. In May of 1973, Evans was transferred to the Mercy Hospital as administrator. Defendant Theodore Schiffman was Cella's "business manager or business consultant", and was involved with Cella in the financial operations of the hospitals.
I. B. Unlawful Activities.
Robert Zunich was the controller at Mission Hospital in October, 1971. He later became executive controller at both hospitals, when Mercy Hospital opened. Starting in Mission Hospital's initial fiscal year of operations, Zunich began to receive instructions by phone from Cella to issue checks to various businesses. Cella would inform Zunich as to who the check was to be made payable, the amount, and how the expense was to be reflected on the books of the hospital. This procedure was a deviation from the normal business practice at
the hospital. 3 Those checks were usually drafted in favor of business entities which were subsequently discovered to be sham companies whose accounts were controlled by Cella. Zunich repeatedly requested back-up documentation from Cella but was either put off, told it would be forthcoming, or referred to Schiffman.
Ollendorf received similar instructions from Cella to issue "hand checks". Ollendorf later admitted that Cella indicated to him that the checks were to be used for political purposes. Ollendorf told Evans that Cella was instructing him to issue hospital checks for political purposes, and that these checks were being falsely recorded on the books of Mission Hospital as medical expenses. At the end of the first fiscal year, Ollendorf became concerned about his potential liability for signing the Medicare Cost Reimbursement Report which he knew contained a substantial amount of non-hospital related expenses. He discussed the matter with Zunich and later with Evans.
In 1972, Evans was in charge of the print shop at Mission Hospital. During that election year, the print shop, pursuant to Cella's directives, became extremely involved in the printing of political materials. Two commercial printing presses were ordered at a cost of $20,000 each. The amount of paper consumed rose from approximately 15,000 sheets per month to about seven million sheets for the months of April, May and June. Extra employees were hired and placed on the hospital payroll but essentially worked on political printing. Around this period, Evans told Richard Thompson, the supplier of the machines and materials and the trainer of the employees in the print shop, not to discuss the nature of the work being done at the shop with the other employees of the hospital. Several of the regular staff complained about the length of time required to obtain certain hospital forms printed. Thompson was told by Ollendorf, in Evans' presence, that the purchase orders for printing supplies were not to carry the names of the political candidates for whom they were ultimately intended. The print shop later outgrew its quarters at Mission Hospital and was moved to a separate location away from the hospital. By 1974 it was again relocated in the city of Costa Mesa. The print shop was given an individual name, United Printing, but its rent, materials, machines and employees were paid for by the hospitals.
In early 1973, Donald Ray, am employee at the print shop, attended a meeting with Schiffman and Evans wherein the printing of invoices of hospital supply companies was discussed. Later, Ray received certain invoices and was instructed by either Schiffman or Evans to duplicate them in a given number of copies. On one occasion, Evans assisted Ray in the production of a set of invoices. Ray was ordered not to tell anyone about the copying, and to destroy the extra duplicates. These invoices were later shown either to bear the names of certain sham companies controlled by Cella, or to be counterfeit copies of legitimate hospital supply companies. After the invoices were printed, Ray would put them on
Evans' desk for Schiffman to pick up or would deliver them to Schiffman personally.
Beginning in 1973, Zunich began receiving invoices from Schiffman in response to Zunich's request for documentation for unsubstantiated checks. Schiffman did not supply any additional documentation (such as purchase orders or packing slips). These invoices were later shown to be the ones reproduced in the hospital print shop. Eventually, Zunich approached Schiffman and told him that the invoices he was receiving were not related to medical supplies and that the sums were illegally being recorded as expenses of the hospitals. Zunich testified that he also informed Cella and Evans of this unlawful practice. Schiffman, when confronted by Zunich, allegedly responded that he knew what was being done and that the appearance of the invoices was "the best he could do." In addition to submitting false invoices, Schiffman also persuaded one supplier to conceal the purchase of five million litter bags ordered by Cella, with the names of various political candidates printed on them, by using "phony" invoices which hid the fact that the purchase was a political expenditure.
After Mercy Hospital began operations in June of 1973, Gertrude Podruski, the controller, began receiving requests for "hand checks" from Evans who was installed as the administrator of Mercy Hospital. When she requested documentation for the checks, Evans provided her with invoices similar to the ones received by Zunich at Mission Hospital. Podruski eventually noticed that the invoices supplied by Evans were irregular in their type style, and were often from companies which differed from the companies to whom the "hand checks" had been made payable. Podruski was also instructed by Evans to write out checks to him from the petty cash account of the hospital. These checks were used for political contributions. Podruski later told Evans that hospital funds should not be used in that manner as it was not a reimbursable expense under Medicare, or a deductible expense for tax purposes.
During this period at both hospitals, the hospital payrolls were padded with the addition of "employees" who did political related work rather than medical work on medical jobs. These included, among others, a political survey team which operated out of Evans' office at Mercy Hospital, and the employees of the print shop. Evans, with the knowledge of the extra "employees" and the misuse of hospital funds related above, signed a Medicare Cost Report for Mercy Hospital for the fiscal year ending March 31, 1974, which included such salary payments.
Also during this period, Schiffman was instrumental in setting up bank accounts through which hospital monies improperly obtained could be deposited and later spent. Examples of this activity included a...
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