781 F.2d 229 (1st Cir. 1985), 83-1713, United States v. Alemany Rivera

• Docket Number: 83-1733.,83-1713
• Citation: 781 F.2d 229
• Date: 26 December 1985
• Parties: UNITED STATES of America, Appellee, v. Guillermo A. ALEMANY RIVERA, Defendant, Appellant. UNITED STATES of America, Appellee, v. Edgar M. STELLA PEREZ, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 229

781 F.2d 229 (1st Cir. 1985)

UNITED STATES of America, Appellee,

v.

Guillermo A. ALEMANY RIVERA, Defendant, Appellant.

UNITED STATES of America, Appellee,

v.

Edgar M. STELLA PEREZ, Defendant, Appellant.

Nos. 83-1713, 83-1733.

United States Court of Appeals, First Circuit

December 26, 1985

Heard Sept. 13, 1985.

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Pedro J. Varela, Hato Rey, P.R., for defendant, appellant Guillermo A. Alemany Rivera.

Harvey B. Nachman, Santurce, P.R., with whom Eduardo Morales-Coll, Hato Rey, P.R., was on brief, for defendant, appellant Edgar M. Stella Perez.

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John C. Carver, Trial Atty., Fraud Section, Criminal Div., U.S. Dept. of Justice, with whom Daniel F. Lopez-Romo, U.S. Atty., Hato Rey, P.R., was on brief, for appellee.

Before CAMPBELL, Chief Judge, ALDRICH and TORRUELLA, Circuit Judges.

LEVIN H. CAMPBELL, Chief Judge.

Defendants-appellants Dr. Edgar M. Stella-Perez and Guillermo A. Alemany-Rivera appeal from their convictions in the United States District Court for the District of Puerto Rico. We affirm.

I.

On July 7, 1982, defendants-appellants Stella and Alemany were jointly charged in a nine-count indictment. Count one charged Stella, the President, Chairman of the Board of Directors, and former Medical Director of the Hospital Nuestra Senora de la Guadalupe in Hato Rey, Puerto Rico (the "Hospital"), and Alemany, the former controller of the Hospital, with conspiracy to defraud the Departments of Housing and Urban Development ("HUD") and Health and Human Services ("HHS") in connection with a federally insured $12.46 million mortgage loan obtained by the Hospital for remodeling and expansion. Count one alleged that Stella and an unindicted co-conspirator named Jose A. Cardona-Alvarez, the Hospital's former assistant administrator, controlled a furniture company known as Casa Cardona, Inc., and its subsidiary, an equipment company by the name of AAA Hospital Supply, Inc. Stella and Cardona allegedly used these two corporations, with Alemany's assistance, to siphon off the Hospital's mortgage funds by selling equipment and furnishings to the Hospital at inflated prices, and by charging the Hospital for equipment that the corporations never furnished.

Counts two through four of the indictment charged Stella and Alemany with submitting and causing to be submitted false documents to HUD to procure mortgage funds. Counts five through seven charged the defendants with submitting and causing to be submitted false Medicare cost reports for the years 1977, 1978, and 1979. Counts eight and nine charged Stella and Alemany with making, aiding, and abetting false oaths in bankruptcy in connection with personal bankruptcy petitions filed by Stella and his wife in 1979.

After a 30-day jury trial, Stella was found guilty on all counts, sentenced to a 20-year term of imprisonment, and placed on probation for another five years on condition that he make restitution of $686,349. Alemany was found guilty on counts one, five, and six of the indictment, sentenced to ten years in prison, and fined $10,000. This appeal followed.

II.

Stella and Alemany ¹ were charged under counts five, six, and seven with submitting and causing to be submitted false Medicare cost reports on the Hospital's behalf for the years 1977, 1978, and 1979, in violation of 18 U.S.C. Secs. 1001 & 2 (1982). ² It was alleged in these counts, inter alia, that the cost reports falsely represented to HHS's fiscal intermediaries, Blue Cross of Florida and Cooperativa de Seguros de Vida de Puerto Rico, that none of the costs for

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which the Hospital sought reimbursement "resulted from transactions with related organizations as defined in the Provider Reimbursement Manual, Part I, Chapter 10," when in fact a number of expenses included in the cost reports arose out of transactions with AAA Hospital Supply.

The significance of whether the Hospital had transacted business with a related organization was that equipment acquired from such a source could only be reimbursed "at the cost to the related organization." 1 Medicare & Medicaid Guide (CCH) p 5,679, at 1181 (1983). The Provider Reimbursement Manual contained the following definitions pertaining to related organizations:

Definitions.--The term "related to the provider" means that the provider to a significant extent is associated or affiliated with, or has control of, or is controlled by, the organization furnishing the services, facilities, or supplies to the provider.... Common ownership arises when an individual, or individuals, holds significant ownership or equity in both the provider and the organization serving the provider.... The term "control" means that an individual or an organization has the power to influence or direct the actions or policies of both a provider and a related organization to a significant extent....

Id., p 5,677, at 1879-3. These definitions substantially track the definitions of "related to the provider," "common ownership," and "control" contained in 42 C.F.R. Sec. 405.427(b) (1984). At trial, the government introduced testimony explaining what related organizations were within the meaning of the Medicare Regulations. ³

Stella and Alemany argue that counts five, six, and seven of the indictment should have been dismissed, because there was never any finding by HHS or its intermediaries, Blue Cross of Florida and Cooperativa de Seguros de Vida de Puerto Rico, that AAA Hospital Supply was "related to" the Hospital as that term is defined in the Medicare Regulations and the Provider Reimbursement Manual. ⁴ Both defendants contend that, because the Medicare Regulations provide that, in the event of question, a determination of whether a provider has acquired supplies or services from a related organization is to be made in the first instance by an intermediary, and the provider then has a right of appeal to a Provider Reimbursement Review Board, see 42 C.F.R. Secs. 405.1801-07, 405.1835 (1984), the district court was without jurisdiction to decide whether, contrary to the representations in the cost reports, the Hospital was "related to" AAA Hospital Supply.

We disagree. The district court's jurisdiction over counts five, six, and seven was predicated on allegations that the defendants had violated a criminal statute, 18 U.S.C. Sec. 1001. See 18 U.S.C. Sec. 3231 (1982). Patently, the district court's assumption

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of criminal jurisdiction over these counts did not usurp HHS's primary, civil jurisdiction over any claims made by the Hospital for reimbursement. Compare, e.g., Kechijian v. Califano, 621 F.2d 1 (1st Cir.1980) (sustaining district court's refusal to exercise jurisdiction over physician's claims for reimbursement under the Medicare Act where physician had failed to first avail himself of administrative remedies).

Whether or not it was clear that AAA Hospital Supply was related to the Hospital would, of course, bear on whether or not the defendants had the requisite criminal intent. If the relationship was sufficiently questionable, the defendants could not be held criminally accountable for denying its existence. But there was overwhelming evidence in this case that the Hospital was "related to" AAA Hospital Supply within the meaning of the Medicare Regulations and the Provider Reimbursement Manual. For example, testimonial and documentary evidence introduced at trial tended to show that (1) Stella was the corporate president of both the Hospital and AAA; (2) Jose Cardona, the Hospital's assistant administrator with responsibility for equipment purchases, was also the sole employee of AAA; and (3) AAA had no stock and no capitalization, and its only source of income was the Hospital's mortgage fund. See Burnham v. United States, 297 F.2d 523, 524-25 (1st Cir.1961); cf. Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 305-06, 96 S.Ct. 1978, 1987-88, 48 L.Ed.2d 643 (1976) ("The standards to be applied in an action for fraudulent misrepresentation are well within the conventional competence of the courts, and the judgment of a technically expert body is not likely to be helpful in the application of these standards....").

Alemany contends that the district court's assumption of jurisdiction over these counts prevented him from showing that Casa Cardona, AAA Hospital Supply, and the Hospital fell within the exception to the rules governing related organizations. See 42 C.F.R. Sec. 405.427(d) (1984). ⁵ Nothing would have prevented Alemany, however, from presenting this issue to the district court. There is no indication he did so. There is, moreover, little if anything to indicate that the exception was applicable. We find no error on this score.

Alemany asserts that our ruling will open a veritable Pandora's box, and result in criminal fraud prosecutions whenever an intermediary determines that a provider has sought reimbursement for supplies or services provided by a related organization. But as we have indicated, a good-faith claim for reimbursement, made without intent to defraud the government, would not support a conviction under 18 U.S.C. Sec. 1001. See, e.g., United States v. Weatherspoon, 581 F.2d 595, 601 (7th Cir.1978) ("[T]he intent element of 18 U.S.C. Sec. 1001 ... precludes a conviction for an honest misinterpretation of a government form.").

III.

Stella raises principally four additional arguments on appeal:

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1. First, Stella contends, as he did in his motion for judgment notwithstanding the verdict below, that the conspiracy count of the indictment should have been dismissed because Jose A. Cardona-Alvarez, an unindicted co-conspirator and a chief witness for the prosecution, testified on cross-examination that the defendants neither intended nor agreed to defraud the government. Stella argues that, in the face of Cardona's denials, no rational finder of fact could have found him guilty of conspiracy beyond a reasonable doubt.

We disagree. As...