U.S. v. Dearing

• Citation: 504 F.3d 897
• Decision Date: 25 September 2007
• Docket Number: No. 06-30606.,06-30606.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Arthur Herbert DEARING, III, Defendant-Appellant.

504 F.3d 897

UNITED STATES of America, Plaintiff-Appellee, v. Arthur Herbert DEARING, III, Defendant-Appellant.

No. 06-30606.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 8, 2007.

Filed September 25, 2007.

Scott C. Williams and Jon D. Williams, Salt Lake City, UT, for the appellant.

Wendy J. Olson, Assistant United States Attorney, Boise, ID, for the appellee.

Appeal from the United States District Court for the District of Idaho; William L. Osteen, District Judge, Presiding. D.C. No. CR-05-00216-WLO.

Before: WILLIAM C. CANBY, JR., CYNTHIA HOLCOMB HALL, and CONSUELO M. CALLAHAN, Circuit Judges.

HALL, Senior Circuit Judge:

Arthur Herbert Dearing III appeals his conviction on thirty-two counts of aiding and abetting health care fraud, in violation of 18 U.S.C. § 1347, arising from a scheme to defraud Idaho Medicaid by submitting false billings from a mental health clinic that Dearing owned and operated with his brother. The district court had jurisdiction pursuant to 18 U.S.C. § 3231. This court has jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.

I. Background

In December 2001 Arthur Dearing ("Art" or "Dearing") and his brother Rodger opened a mental health clinic called Life Springs Mental Health L.L.C. in Nampa, Idaho. The facility was designed to provide services to patients at Valley Plaza, a residential care facility that Rodger owned. Rodger was a registered nurse but lacked prior mental health experience. He ran the clinic's day-to-day operations along with Greg Hassakis, a mental health consultant hired to set up the program. Art, whose background was in civil engineering, served as part-owner and visited the facility once or twice a month for business meetings.

Life Springs' business model depended upon billing Medicaid for the care provided to its patients for revenue. To that end, Art executed a Medicaid Provider agreement on behalf of Life Springs. This agreement included a contract between Life Springs and licensed physician Dr. Frances Wregglesworth, who agreed to provide supervising physician services. Art signed the contract with Dr. Wregglesworth on behalf of the company. The application also included a note, affixed to the Wregglesworth contract, indicating that Medicaid employee Jack Weinberg informed Art that a licensed physician must sign all treatment plans, and that Art acknowledged the requirement. After the application was approved, Art provided a copy of Medicaid's billing rules and regulations to Kathy McKenney, who served as administrator of the Valley Plaza facility and would initially handle Medicaid billing for Life Springs.

In October 2002, Medicaid investigator Greg Snider audited Life Springs. In an exit interview, he explained to Art and Rodger that the audit identified three improper billing practices: (1) billing for services performed by employee Mike Adamson, who lacked the necessary qualifications to provide Medicaid-funded services; (2) billing for services provided without a treatment plan signed by a physician; and (3) billing for services provided outside the Life Springs facility.

Although the audit put Art on official notice of problems with Life Springs' billing practices, it was not the first time that these issues had been brought to his attention. McKenney testified that she regularly provided Art with information regarding Medicaid billings and had raised each of these three issues with Art during early 2002. Greg Hassakis also testified that he had raised these issues prior to the audit at staff meetings where Art was present. At each of these meetings, Rodger assured the staff that he had checked the appropriate regulations and that the company's practices were legal. As the audit approached however, Art and Rodger held a meeting at a local restaurant with Hassakis, McKenney and another employee at which Rodger asked Hassakis to "take the fall" for any illegal behavior that the audit would uncover. Hassakis promptly rose and left the restaurant. Although Art claims that he did not hear Rodger's statement, the other participants testified that he was in close proximity and was actively participating in the discussion when the comment was made.

Life Springs continued its fraudulent business practices even following the October 2002 audit. For example, Art hired Marge Stallings in December 2002 to correct Life Springs' billing problems. She quickly brought to Art's attention that the company continued to bill illegally for Adamson's services, for services provided without a treatment plan, and for services provided off the premises. Art convened a meeting at which Rodger warned Stallings that "loose lips sink ships." Art assured Stallings that he would correct these billing issues, but when he took no additional action, Stallings quit. Similarly, Life Springs employees Wendy Reynolds and Krissy Munson informed Art that the company was still engaging in fraudulent billing practices. In response to Reynolds' concerns, Art warned her that Rodger felt she was focusing too much on legal issues and not enough on the business side.

Medicaid continued to investigate the company throughout 2003 and early 2004. Investigator Eileen Williams testified that during a July 24, 2003, phone interview, Art disclosed to Williams that he was considering removing Rodger from the business and wanted to know how it would affect the investigation. Williams interviewed Art in greater depth on April 16, 2004, during which he acknowledged Life Springs' past problems but claimed that he thought Rodger had corrected them.

On October 13, 2005, Art, Rodger, and Adamson were indicted on fifty counts of aiding and abetting health care fraud in violation of 18 U.S.C. § 1347, based upon Life Springs' fraudulent billing practices as discussed in the October 2002 audit. A superseding indictment included only forty counts. Rodger pled guilty prior to trial, and Adamson pled guilty to one misdemeanor count on the third day of trial, so only Art proceeded to a verdict. The jury found Art guilty on thirty-two of the forty counts, acquitting him for conduct before the October 2002 audit but convicting him for all conduct after that date. Art received a five-month sentence on each count, to run concurrently, and timely appealed.

II. Standard of Review

We review de novo the district court's denial of a motion for judgment of acquittal based on insufficient evidence. United States v. Carranza, 289 F.3d 634, 641 (9th Cir.2002). Our review of the underlying jury verdict, however, is "highly deferential." United States v. Terry, 911 F.2d 272, 278 (9th Cir.1990). "The evidence is sufficient to support a conviction if, `viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.'" United States v. Milwitt, 475 F.3d 1150, 1154 (9th Cir.2007) (quoting Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979) (emphasis in original)). We review the district court's formulation of a jury instruction for abuse of discretion, although we review de novo the question whether a jury instruction misstates an element of the crime. United States v. Chastain, 84 F.3d 321, 323 (9th Cir.1996); United States v. Tagalicud, 84 F.3d 1180, 1183 (9th Cir.1996).

III. Discussion

A. Sufficiency of the Evidence

Dearing first argues that the evidence adduced at trial is insufficient because there is no evidence that he acted with willful intent. Dearing was convicted of violating 18 U.S.C. § 1347, which provides that one commits health care fraud when he:

knowingly and willfully executes, or attempts to execute, a scheme or artifice—

(1) to defraud any health care benefit program; or

(2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money . . . owned by . . . any health care benefit program, in connection with the delivery of or payment for health care benefits, items or services.

"As a general matter, when used in the criminal context, a `willful' act is one undertaken with a `bad purpose.' In other words, in order to establish a `willful' violation of a statute, `the Government must prove that the defendant acted with knowledge that his conduct was unlawful.'" Bryan v. United States, 524 U.S. 184, 191-92, 118 S.Ct. 1939, 141 L.Ed.2d 197 (1998) (footnote omitted) (quoting Ratzlaf v. United States, 510 U.S. 135, 137, 114 S.Ct. 655, 126 L.Ed.2d 615 (1994)). To prove that the defendant acted as an aider and abetter, the government must show that the defendant knowingly provided substantial assistance to another's violation. United States v. Kessi, 868 F.2d 1097, 1103 (9th Cir.1989).

As we have acknowledged in connection with other statutes containing a willfulness requirement, "direct proof" of one's specific wrongful intent is "rarely available." United States v. Marabelles, 724 F.2d 1374, 1379 (9th Cir.1984). But willfulness may be inferred from circumstantial evidence of fraudulent intent. Id. at 1379-80; see also United States v. Tucker, 133 F.3d 1208, 1218 (9th Cir.1998). A recent Sixth Circuit opinion has applied this reasoning to a section 1347 conviction similar to this case, explaining that "[i]ntent can be inferred from efforts to conceal the unlawful activity, from misrepresentations, from proof of knowledge, and from profits." United States v. Davis, 490 F.3d 541, 549 (6th Cir.2007) (internal quotation marks and citation omitted). Davis held that a jury could infer willful intent to defraud where the defendant owned the company, hired and fired employees, frequently visited the offices where the fraudulent conduct occurred, was present during a session where fraudulent activity took place, and covered up evidence of the fraudulent conduct. Id. at 549-50.

We similarly conclude that the evidence supports a finding that Dearing willfully participated in Life Springs' fraudulent...