U.S. v. Drury, 82-3054

• Decision Date: 15 September 1982
• Docket Number: No. 82-3054,82-3054
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Edward R. DRURY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 63

687 F.2d 63

UNITED STATES of America, Plaintiff-Appellee, v. Edward R. DRURY, Defendant-Appellant.

No. 82-3054.

United States Court of Appeals, Fifth Circuit.

Sept. 15, 1982.

Michael S. Fawer, Ronda C. Lustman, Clark A. Richard, New Orleans, La., for defendant-appellant.

John Patrick Deveney, Harry W. McSherry, Asst. U. S. Attys., New Orleans, La., for plaintiff-appellee.

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

Before CLARK, Chief Judge, GEE and GARZA, Circuit Judges.

PER CURIAM:

This is an appeal of mail fraud convictions stemming from a kickback scheme between appellant Drury, a Louisiana attorney representing plaintiffs in personal injury actions, and one Macaluso, a New Orleans physician to whom Drury referred most of his clients. The financial arrangements between the two, like most of the facts in this case, are undisputed.

It was Drury's custom to sign contracts with his clients in which he agreed to accept 40% of any settlement of the claim as his fee. Macaluso submitted his medical bills to Drury for payment. On settling with the insurance company, Drury would deduct his 40% fee and 100% of the face amount of the doctor's bill, forwarding the balance to the client. Pursuant to an agreement with Macaluso, however, Drury then remitted to the doctor only 85% of the doctor's medical bill, pocketing the remaining 15% himself. Drury never disclosed to any client that he was skimming Macaluso's fees. Macaluso was the only physician with whom Drury had this arrangement; and, after 1974 or 1975 when a uniform 15% was always taken by Drury off the doctor's collections, two-thirds of Drury's referrals were to Macaluso.

Drury was indicted by a grand jury on 21 counts of mail fraud and one count of conspiracy to commit mail fraud. After a two-day bench trial, the court found Drury not guilty of conspiracy but guilty of the 21 counts of mail fraud. He was sentenced to five years in prison (all but fours months suspended, with three years probation) and fined $1,000 on each count.

Sufficiency of the evidence

As we stated in United States v. Yanes, 628 F.2d 294, 295 (5th Cir. 1980), we must

examine the evidence in the light most favorable to the government, making reasonable inferences and credibility choices in favor of the verdict of the trier of fact .... The verdict must stand if the trial judge is justified in finding the evidence inconsistent with any reasonable hypothesis of the defendant's innocence .... The test is the same whether the evidence is direct or circumstantial.

(citations omitted).

Drury was charged in counts 2-22 with operating a scheme "to cause insurance carriers to pay inflated settlements based on false medical statements, as well as to cause the clients of Mr. Drury to pay expenses in excess of that which were incurred." The district court in effect bifurcated each count, as if Drury had been charged with two schemes to defraud-one directed against the particular insurance company and one against his client. The court first properly set out the two-part proof for a mail fraud conviction: existence of a scheme to defraud and use of the mails in executing the scheme. The court then noted that the second element was essentially undisputed and pointed out that the first is demonstrated by a scheme that deprives the victim of valuable and tangible rights or opportunities, as in, for example, United States v. Goss, 650 F.2d 1336 (5th Cir. 1981) (proof that intended victim actually suffered a loss is unnecessary; proof of potential loss suffices). The district court held that because the referral fee arrangement "did not deprive the insurance companies of any valuable tangible or intangible rights," Drury was not guilty of any violation "with respect to the insurance companies." The court reasoned that:

Dr. Macaluso charged the defendant's clients the same that he would have charged them if they had retained his services on their own initiative, and he treated these patients at the same level of care that he provided his other patients. None of the medical reports were false in the sense that they described treatments that did not occur or injuries that the patient had not, in fact, suffered. Whatever the nature of the arrangement between the doctor and Drury, the client was out-of-pocket to the extent of the doctor's bill. That the doctor chose to pay a portion of his fee to Drury does not lessen in any way the insurance company's obligation to make the client whole.

The only loss the insurance company suffered as a result of the 15% referral fee arrangement was the opportunity to conduct an independent probe of the arrangement. Drury owed no financial duty to the insurance companies. His relationship was that of an adversary.

As we have noted, the court also acquitted Drury of count one-conspiracy with Macaluso and an unnamed third person to defraud insurance companies and Drury's clients-because

no proof was ever introduced that Dr. Macaluso or the unnamed third person knew whether the 15% went completely into Drury's pocket or was shared, in whole or in part, with the client. The government also failed to introduce any evidence as to whether Dr. Macaluso or the unnamed third person knew anything about what Drury did or did not tell his clients.

With regard to the scheme to defraud Drury's clients, however, the court noted that under general Louisiana law and under the Louisiana Code of Professional Responsibility Rule 5-107 (duty to disclose compensation from a third party) he owed a fiduciary duty to his clients and held that Drury had breached this duty by failing to reveal his 15% fee arrangement, in the process depriving his clients of "the opportunity to negotiate with Drury on fair terms regarding the conditions and fee arrangements of their employment with him." The court noted that the opportunity to bargain with full knowledge of all material information is a protected interest, citing United States v. George, 477 F.2d 508 (7th Cir.), cert. denied, 414 U.S. 827, 94 S.Ct. 155, 38 L.Ed.2d 61 (1973). The court further stated that

Drury allowed his financial interests in Dr. Macaluso to affect the professional services that he rendered to his clients. The nondisclosure of the existence of the arrangement and the consequent breaches of Drury's financial duty were not made innocently but with the specific intent to defraud the clients of their rights arising out of the...