U.S. v. Woodley, s. 92-30295

• Decision Date: 18 November 1993
• Docket Number: Nos. 92-30295,92-30337 and 92-30309,s. 92-30295
• Citation: 9 F.3d 774
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. John WOODLEY, Defendant-Appellee. UNITED STATES of America, Plaintiff-Appellee, v. John WOODLEY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 774

9 F.3d 774

UNITED STATES of America, Plaintiff-Appellant, v. John WOODLEY, Defendant-Appellee.

UNITED STATES of America, Plaintiff-Appellee, v. John WOODLEY, Defendant-Appellant.

Nos. 92-30295, 92-30337 and 92-30309.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Aug. 2, 1993.

Decided Nov. 3, 1993.

As Amended Nov. 18, 1993.

John C. Carver, Carl Blackstone, Robert H. Westinghouse, Asst. U.S. Attys., Seattle, WA, for plaintiff-appellant-cross-appellee.

Peter D. Byrnes, Byrnes & Keller, Seattle, WA, for defendant-appellee-cross-appellant.

Appeal from the United States District Court for the Western District of Washington.

Before: WRIGHT, BEEZER, and HALL, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge.

The United States appeals an order imposing monetary sanctions against it. John M. Woodley cross-appeals his convictions for 36 counts of mail fraud, 18 U.S.C. Sec. 1341, four counts of tax evasion, 26 U.S.C. Sec. 7201, and four counts of filing false tax returns, 26 U.S.C. Sec. 7206, as well as court-ordered restitution.

The parties raise a multitude of issues. We affirm in part and reverse in part.

BACKGROUND

I. Offenses

Woodley was an attorney driven by greed. His convictions stem from his representation of a former client, Elizabeth Lynn. Before her death, she formed a trust and appointed herself sole trustee. The trust became landlord of the White Pine Care Center, a Nevada nursing home, and charged White Pine rent for the use of its real property. She named her accountant, Gerald Shaw, Woodley and Thomas Stephens as successor co-trustees.

She also formed Imperial Bristlecone, Inc. and owned all of its 500 shares. Imperial took over White Pine's operation in 1984 after Lynn evicted her lessees. After her death in 1984, Woodley fraudulently converted Imperial's stock ownership by altering and falsifying corporate documents. He split the ownership with Shaw. As the "stockholders," Shaw and Woodley operated White Pine with the trust as its landlord.

In 1985, Woodley had his 250 shares appraised at $250,000 and donated them to the Elizabeth A. Lynn Foundation, a charitable entity formed by Lynn. Woodley claimed a $250,000 charitable deduction on his 1985 tax return, which he carried over from 1986 to 1988.

The government indicted him for mail fraud, tax evasion, filing false tax returns and conspiracy to defraud the United States.

II. Government Misconduct

The government failed to timely disclose Brady and Rule 16 materials. The alleged Brady violations involved the government's late disclosure of four documents: the Fay letter, the Lynch note, the Vargas memo, and the Stephens note.

The Fay letter was an annotated copy of correspondence sent from White Pine's administrator, Russell Fay, to the Nevada Bureau of Health Facilities' administrator. Fay had described in it a proposed restructuring of Imperial and asked how this proposal would affect Imperial's entitlement to Medicaid and Medicare reimbursement. There was no corporate restructure. The Nevada Bureau forwarded the letter to the Health Care Financing Administration in San Francisco and noted on its copy where it had sent the letter.

In the Lynch note, the government's expert observed that the trust might qualify for Medicare and Medicaid reimbursement under a regulatory exception to the related organization principle. The Vargas memo recorded Shaw's attorney as saying that Shaw could not make up his mind on the facts. The Stephens note detailed a federal agent's interview with co-trustee Stephens.

Woodley requested Brady and Rule 16 materials late in 1991. The government disclosed the annotated Fay letter in February 1992, the Lynch and Vargas documents ten days before trial began, and the Stephens note when Woodley testified.

ANALYSIS

We first address the merits of Woodley's appeal.

I. Untimely Brady Disclosures and Prosecutorial Misconduct

Woodley argues that prosecutorial misconduct and untimely disclosure of exculpatory evidence prejudiced his defense, requiring reversal. Alternatively, he contends that the court should have used its supervisory powers to dismiss the indictment.

a. Reversal of Conviction

Woodley asserts that the late disclosures prejudiced his defense in two ways: (1) he was unable to refer to some documents in his opening statement and (2) he could not prepare adequately his experts before trial.

Contrary to the government's assertion, we find that these prejudice claims were timely raised. No "bright line rule" exists to determine whether a matter has been properly raised at trial. Rather, "the argument must be raised sufficiently for the trial court to rule on it." In re E.R. Fegert, Inc., 887 F.2d 955, 957 (9th Cir.1989). Woodley moved for judgment of acquittal or for a new trial based partly on the government's actions. The court had an opportunity to review the validity of its prior orders.

We review de novo challenges to a conviction based on alleged Brady violations. United States v. Aichele, 941 F.2d 761, 764 (9th Cir.1991). Evidence is material under the Brady rule only if "there is a reasonable probability that, had [it] been disclosed to the defense, the result of the proceeding would have been different." United States v. Bagley, 473 U.S. 667, 682, 105 S.Ct. 3375, 3383, 87 L.Ed.2d 481 (1984). Although disclosure must be made when it is still of substantial value to the accused, the prosecution need not produce Brady material before trial. Aichele, 941 F.2d at 764.

Woodley was not materially prejudiced. He used all of the disputed evidence effectively at trial. See United States v. Gordon, 844 F.2d 1397, 1403 (9th Cir.1988). The court also took the unusual step of allowing him to depose witnesses linked to the Fay letter. The court's action cured any potential for resulting prejudice.

b. Dismissal of Indictment

Woodley argues that the court erred in failing to dismiss his indictment under its supervisory powers. We are divided as to whether the denial of a motion to dismiss an indictment is reviewed de novo or for an abuse of discretion. See United States v. Lunstedt, 997 F.2d 665, 667 (9th Cir.1993). We need not decide which standard applies here because we affirm the ruling under either standard. Id.

A court may use its supervisory powers to dismiss an indictment for three reasons: " to remedy the violation of recognized rights, to deter illegal conduct and 'to preserve judicial integrity by ensuring that a conviction rests on appropriate considerations validly before the jury.' " United States v. Garza-Juarez, 992 F.2d 896, 905 (9th Cir.1993).

"The Court's power to dismiss an indictment [for] prosecutorial misconduct is ... rarely invoked." United States v. Samango, 607 F.2d 877, 881 (9th Cir.1979). Dismissing an indictment is so intrusive on a prosecutor's charging authority that it is justified only when the government's conduct substantially prejudiced the defendant and the government flagrantly disregarded the limits of professional conduct. United States v. Lopez, 989 F.2d 1032, 1041 (9th Cir.1993), amended and superseded, 4 F.3d 1455 (9th Cir.1993).

Judge Zilly clearly was irritated and concerned by the government's untimely disclosure of Brady material, its misrepresentation to the court and its inadequate investigation of the Health Care Financing Administration files. But he found that the government's "conduct was not widespread or flagrant." He also did not believe that such actions demonstrated a "long-standing pattern of misconduct" or that they prejudiced Woodley. He concluded correctly that these actions did not affect the trial's outcome substantially.

II. Void for Vagueness

Woodley's mail fraud convictions were based on a violation of the "related-party" regulation. ¹ 42 C.F.R. Sec. 413.17 (1992). This regulation limits reimbursement to providers from related suppliers. Woodley argues that the convictions should be dismissed because the related party regulation as applied is void for vagueness and violates due process. His argument is meritless.

"Whether a statute or regulation is unconstitutionally vague is a question of law," which we review de novo. United States v. Helmy, 951 F.2d 988, 993 (9th Cir.1991) (inner quotations omitted), cert. denied, --- U.S. ----, 112 S.Ct. 2287, 119 L.Ed.2d 211 (1992).

a. Regulatory Reimbursement Scheme

As White Pine's operator, Imperial was a "provider" of services under the Medicare Act. Its rent payments were reimbursable. 42 C.F.R. Sec. 413.130(b).

If a provider receives services from a related organization, its repayment is limited to the supplier's cost, not the provider's expended amount. 42 C.F.R. Sec. 413.17(a). The regulation limits a related party's rental reimbursement to the related supplier's actual costs, such as depreciation, mortgage interest and taxes. Organizations are "related" by common ownership or control. 42 C.F.R. Sec. 413.17(b)(1)-(3).

b. Analysis

Woodley argues that 42 C.F.R. Sec. 413.17 as applied violated due process because (1) its application to these facts is unsettled, (2) it gives no warning of what is permitted, and (3) it permits arbitrary and discriminatory enforcement.

He relies on United States v. Dahlstrom, 713 F.2d 1423 (9th Cir.1983), cert. denied, 466 U.S. 980, 104 S.Ct. 2363, 80 L.Ed.2d 835 (1984). We have limited Dahlstrom "as a case barring the [p]rosecution for advocacy of a tax shelter program in the absence of any evidence of a specific intent to violate the law because such prosecution is offensive to the first and fifth amendments." United States v. Schulman, 817 F.2d 1355, 1359 (9th Cir.1987) (alteration in original) (inner quotations omitted), cert. denied, 498 U.S. 813, 111 S.Ct. 51, 112 L.Ed.2d 27 (1990).

The critical question is whether the related party regulation "is unconstitutionally vague [because] it fails to provide a person of ordinary intelligence with notice of its meaning and the conduct it prohibits." Helmy, 951 F.2d at 993.

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