Morse v. Fusto, 091115 FED2, 13-4074

Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
Attorney:CECILIA C. CHANG, New York City Law Department, Andrew W. Amend, New York State Office of the Attorney General, New York, NY, for Defendants-Appellants. JON NORINSBERG, Law Offices of Jon L. Norinsberg, New York, NY, for Plaintiff– Appellee.
Judge Panel:Before: Jacobs, Sack, and Droney, Circuit Judges.
Opinion Judge:SACK, CIRCUIT JUDGE.
Party Name:DR. LEONARD MORSE, Plaintiff-Appellee, v. JOHN FUSTO and JOSE CASTILLO, Defendants-Appellants.[*]
Case Date:September 11, 2015
Docket Nº:13-4074
 
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DR. LEONARD MORSE, Plaintiff-Appellee,

v.

JOHN FUSTO and JOSE CASTILLO, Defendants-Appellants.[*]

No. 13-4074

United States Court of Appeals, Second Circuit

September 11, 2015

          Argued: October 7, 2014

         The defendants, John Fusto, a former prosecutor with the New York State Attorney General's Office Medicaid Fraud Control Unit, and Jose Castillo, a former audit-investigator with the Unit, appeal from the September 16, 2013, judgment of the United States District Court for the Eastern District of New York (Carol Bagley Amon, Chief Judge) denying their motions for judgment as a matter of law and a new trial. The defendants argue that the district court erred in failing to accord them qualified immunity as a matter of law and in failing to order a new trial as a result of the court's conclusion that one of the factual bases offered in support of the plaintiff's claims lacked a sufficient evidentiary basis to permit it to be considered by the jury for that purpose. We conclude that the defendants were not entitled to qualified immunity because the plaintiff's constitutional rights were violated and the law giving rise to the violation was clearly established at the time of the violation. We also conclude that the district court did not err by declining to order a new trial despite its conclusion that one of the factual assertions upon which the verdict was based was insufficiently supported by the evidence.

          CECILIA C. CHANG, New York City Law Department, Andrew W. Amend, New York State Office of the Attorney General, New York, NY, for Defendants-Appellants.[1]

          JON NORINSBERG, Law Offices of Jon L. Norinsberg, New York, NY, for Plaintiff– Appellee.

          Before: Jacobs, Sack, and Droney, Circuit Judges.

          SACK, CIRCUIT JUDGE.

         This is an appeal from a judgment of the United States District Court for the Eastern District of New York (Carol Bagley Amon, Chief Judge) in an action involving the alleged fraudulent alteration of evidence by the defendants, John Fusto, then a Special Assistant Attorney General with the Medicaid Fraud Control Unit ("MFCU") of the New York State Attorney General's Office, and Jose Castillo, then an audit-investigator with the MFCU, during the course of MFCU's investigation of the plaintiff, Dr. Leonard Morse.

         The defendants suspected that Morse, a dentist with a practice in Brooklyn, New York, was perpetrating Medicaid fraud by submitting false billing to Medicaid. During the course of their investigation, the defendants conducted an audit of Morse's billings and created spreadsheet summary charts containing the billing details of eight of his patients. Those charts were later presented to a Kings County, New York, grand jury. Based in part on that evidence, Morse was indicted by the grand jury on one count of Grand Larceny in the First Degree and eleven counts of Offering a False Instrument for Filing in the First Degree. Although Morse was later acquitted of all charges, as a result of the prosecution, he lost his dental practice and sustained other injuries.

         After his acquittal Morse filed the instant action against the defendants in federal district court in Brooklyn alleging that the defendants deprived him of his constitutional right to a fair trial by intentionally manipulating the information contained on the spreadsheet summary charts before they were presented to the grand jury in order to create the false impression that Morse billed Medicaid for dental services that he did not provide.

         A jury rendered a verdict in his favor, and the defendants moved for judgment as a matter of law under Fed.R.Civ.P. 50 or, in the alternative, a new trial under Fed.R.Civ.P. 59. The district court concluded that one of the factual bases underpinning Morse's claim was not sufficiently supported by the evidence to have been properly considered by the jury in reaching its verdict, but nonetheless denied both of the defendants' motions.

         On appeal, the defendants principally contend that their conduct was not clearly prohibited by the Constitution, and that they are therefore entitled to qualified immunity as a matter of law. The defendants also assert that the district court should have ordered a new trial pursuant to the so-called general-verdict rule because the court decided as a matter of law that one of the three factual bases upon which Morse's allegation that the defendants "false[ly] or fraudulently altered documents" rested lacked a legally sufficient basis in the evidence.

         We reject these challenges. As the district court held in a careful, detailed, and persuasive post-trial opinion, Morse v. Fusto, No. 07-CV-4793, 2013 WL 4647603, at *7, 2013 U.S. Dist. LEXIS 123823, at *18 (E.D.N.Y. Aug. 29, 2013), the actions of the defendants upon which Morse bases his claims were the knowing creation of false or misleading evidence by a government officer acting in an investigative capacity. We have held that such activity by a government official qualifies as an unconstitutional deprivation of the victim's rights. This right was, moreover, clearly established at the time of the defendants' conduct. The defendants are therefore not entitled to qualified immunity. See Buckley v. Fitzsimmons, 509 U.S. 259, 273 (1993) (immunity for prosecutors performing investigative functions is not absolute). We also conclude that the defendants waived their general-verdict rule argument and are therefore not entitled to a new trial despite the district court's conclusion that one of the three factual bases for the jury's conclusion as to liability was insufficiently substantiated by the evidence presented at trial.

         BACKGROUND

         The Investigation and Prosecution of Dr. Morse

         In 2002, the MFCU initiated an investigation into the professional financial affairs of Morse, a dentist, then practicing with another dentist in the Park Slope neighborhood of Brooklyn as "580 Dental, P.C." The defendant John Fusto, then a Special Assistant Attorney General with the MFCU, was assigned to the case, as was the defendant Jose Castillo, then an MFCU audit-investigator. As part of the investigation, the defendants audited Morse's 2000-2002 patient billings, creating summaries of the billings designed to highlight those they considered suspicious. They also interviewed Morse's patients, inquiring into the professional services that he had rendered to them and the related billings for those services.

         The investigation drew to a close in late 2005. In March 2006, Fusto presented to a Kings County grand jury evidence of Morse's allegedly unlawful billing practices. In the course of the grand jury proceedings, Fusto called Castillo as a witness to testify about a billings analysis that Castillo had prepared which, according to the defendants, showed that through illegal billing, Morse had unlawfully obtained some $1.1 million from New York State Medicaid. Several of Morse's former patients also testified that he had not performed denture work for them, despite billings that appeared to indicate otherwise. Finally, and central to the present case, Fusto presented two exhibits, denominated in those proceedings as Exhibit 7 and Exhibit 11, to the grand jury. They contained spreadsheet summary charts purporting to detail the billings associated with eight of Morse's patients. The summary charts contained the following fields:

• Client identification number (denominated "CIN NUMBER")

• Patient last name

• Patient first name

• Amount paid

• Date of service

• Invoice number

• Julian date2

• Procedure code

• Procedure description

         Fusto called Dr. Linda DeLuca, a dentist, to testify as to her opinion of the legitimacy of the billings based on the summaries contained in these exhibits. Dr. DeLuca testified that the billings struck her as unusual and excessive.

         On April 5, 2006, the grand jury returned an indictment charging Morse with one count of Grand Larceny in the First Degree in violation of New York Penal Law section 155.42 and eleven counts of Offering a False Instrument For Filing in violation of New York Penal Law section 175.35. The charges were predicated on Morse's alleged theft of $1.1 million from Medicaid and his alleged submission of false written statements to the Computer Sciences Corporation, a fiscal agent of the State of New York, with intent to defraud the State of New York, respectively.

         Morse was acquitted of these charges after an August 2007 bench trial before Kings County Supreme Court Justice John Walsh. Despite his ultimate acquittal, Morse suffered serious financial, reputational, and emotional harm as a result of the high-profile indictment and trial.

         The Action Commenced against the Defendants

         On November 16, 2007, following his acquittal, Morse initiated the instant action in the United States District Court for the Eastern District of New York, asserting claims of, inter alia, false arrest, malicious prosecution, and denial of the right to a fair trial. On November 23, 2009, the defendants moved for partial summary judgment under Fed.R.Civ.P. 56(b). The district court granted the defendants' motion for summary judgment on the malicious prosecution and false arrest claims, but denied it with respect to the fabrication of evidence claim.3 Morse v. Spitzer, No. 07-CV-4793, 2013 WL 359326, at *2, 2011 U.S. Dist. LEXIS 112574, at *4 (E.D.N.Y. Sept. 30, 2011, as corrected Jan. 29, 2013). On February 4, 2013, the parties proceeded to trial before a jury on the fabrication of evidence claim.

         At trial Morse focused his fabrication of evidence claim on the billing spreadsheet summaries - labeled Exhibits 7 and 11 - that Castillo and Fusto had prepared...

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