Hidden Bias and Fair Trials

You may serve on a jury one day, and if you do, your thought process will mean a lot to the people involved.

Those people, and the system as a whole, will rely on you to give them a fair trial.

To that end, one court has created a video to help potential jurors understand their hidden biases. These are the mental shortcuts we use to make decisions about people or things. We all have them, and they help us make sense of the world around us. We all have them because we’re all human, and we often don’t even realize it.

The thing is, they’re often wrong. For example, one study looked at scientists who were hiring a laboratory manager. The experiment was that all of them were given the exact same resume to review except some copies bore a man’s name and others a woman’s name. Well, guess what? Both male and female scientists scored the male candidate as more competent and worthy of the job even though the resumes were exactly the same. Without realizing it, these scientists harbored a hidden bias about gender, and it clouded their judgment.

The video is shown during jury selection in the U.S. District Court for the Western District of Washington. It features three people: the top federal prosecutor for the district, a senior trial judge there, and a prominent defense lawyer. The lawyer explains the value of talking about hidden bias this way:

“You have two choices: either talk about it or don’t talk about it, and haven’t we seen what happens when we don’t talk about it?”

The upside is that by taking the time to really think about things, and by taking in more information, we all make better decisions.

White-Collar to Blue-Collar in One Day

Last week, the U.S. Supreme Court issued two notable decisions on the same day.

One was a civil white-collar case, the other a criminal drug-trafficking case, and in both cases, the Court reversed the lower-court ruling on appeal.

In the civil case, the Court imposed a five-year statute of limitations on SEC cases that seek to disgorge profits. That’s the same period that applies in cases to enforce a fine, penalty, or forfeiture. Although disgorgement of profits is traditionally a form of restitution that’s measured by a defendant’s wrongful gain, the Court ruled that it’s a penalty in SEC cases for a couple reasons. First, the agency uses it to deter and punish defendants as much as to compensate victims. Sometimes, the money goes to Uncle Sam, and sometimes, the only victim is the public at large. Second, the agency often disgorges more than defendants have gained, leaving them worse off than before they broke the law. That may be the point, but that makes it a penalty.

In a footnote, the Court even seemed to call into question whether courts could order disgorgement at all. That’s something they’ve been doing since the 1970s, so it’s a big deal. For more in-depth analysis of this decision, see here.

In the criminal case, the Court reined in the government’s forfeiture power. Forfeiture allows the government to seize money or property that’s derived from a crime. But the law limits this to what someone actually and personally receives or obtains. That means you can’t be responsible for amounts obtained by someone else. So the hypothetical college student who gets $500 per month to drop off a few packages isn’t on the hook for the whole multimillion-dollar drug enterprise.

Here, two brothers worked in a hardware store together. One of them owned the store, and the other was a salaried employee. The two were charged with selling large amounts of a product they knew or had reason to know was being used to make meth. In three years, the store grossed about $400,000 from selling the stuff and netted $270,000.

The government wanted the $270,000 in profits. The owner agreed to forfeit $200,000 of it when he pleaded guilty, but the employee went to trial. He was acquitted of three counts, convicted of eleven, and sentenced to sixty months in prison. Then the government went after him for the remaining $70,000.

Although the government agreed that the employee had no ownership interest in the store and didn’t personally benefit from the illicit sales, it argued that, in a conspiracy, everyone is responsible for the full proceeds of the conspiracy. And it won that argument on appeal.

But the Supreme Court rejected that and reversed.

 

When Medicare Says You Can’t Sit With Us

Earlier this year, the U.S. Department of Health and Human Services issued new regulations on its power to exclude healthcare providers and suppliers from participation in a federal healthcare program. The agency excludes some 3,500 people or entities per year. You’ll want to avoid being one of them.

Here are some important takeaways.

The agency is empowered to cast a wider net. It may exclude not just the providers and suppliers who submit claims or receive payments but any person or entity that furnishes items or services for which others request or receive payment.

You can be excluded if you’re convicted of interfering with an audit. The agency doesn’t define the term “audit” for this purpose. Before, you had to have obstructed a criminal investigation, not just an audit or the like. The new rule also makes changes to the factors that extend or reduce the presumptive three-year exclusion under this provision.

You can be excluded for not providing information to support a claim even if you didn’t furnish the items or services in question. You can be excluded if you referred the items or services to others to furnish or certified that they were needed.

The agency has ten years to exclude you for false claims or illegal kickbacks. This timeframe follows the outer ten-year statute of limitations for violations of the False Claims Act. Before, there was theoretically no limit on how far back the agency could look to exclude you under these provisions.

The rule makes several changes to the aggravating and mitigating factors that extend or reduce the length of exclusions. Most of these changes affect the dollar-loss thresholds. For example, it’s now aggravating if the government’s loss amounts to $50,000 or more, when it used to be $15,000. And it’s mitigating if the loss is less than $5,000 when it used to be $1,500. Or, for excessive or unnecessary billing, it’s aggravating if the loss is $15,000 or more when that threshold used to be $1,500. Also, in most cases, it’s no longer mitigating if you provide access to care that’s otherwise not available in your area. Instead, the agency will consider that in deciding whether to exclude you rather than for how long.

You may be eligible for early reinstatement. You can request it if you were excluded because your professional license was revoked, suspended, or surrendered in a disciplinary investigation. There’s a presumption against it for the first three years that you’re excluded or for the length of your suspension or revocation, whichever is longer. There’s no such presumption if you’re still licensed in a different state or by a different licensing authority or if you were able to get a new license after full disclosure. But you’re not eligible at all if you lost your license because of patient abuse or neglect.

CMS Puts Out New Physician Self-Referral Disclosure Protocol

If you’re a healthcare provider or supplier, take note.

Starting June 1, 2017, there is a new process for self-reporting actual or potential violations of the Stark Law to the Centers for Medicare & Medicaid Services.

Remember, Stark says that doctors can’t refer certain, designated health services that are payable by Medicare or Medicaid to entities in which they have a financial interest. The same goes if an immediate family member is the one with the financial interest. The entity that receives the referral can’t bill for those services, either. But exceptions apply.

Why in the world would you self-report? Well, if there is discretion to keep you in the program, your cooperation will go a long way. You’ll pay less in penalties. You’ll reduce or eliminate your liability for not reporting and returning the overpayments sooner. And you’ll probably put the matter behind you more quickly than if the government gets wind of it.

Now, there’s a new way to do it. Up to this point, you would submit your self-disclosure to CMS by letter. From June 1, you must submit a packet of forms and enclosures that you certify. You should submit all information necessary for the agency to analyze the actual or potential violation. You may also submit a cover letter with additional, relevant information.

You’re well-advised not to do any of this without appropriate counsel.

The new protocol doesn’t apply to non-Stark-related disclosures of potential fraud, waste, or abuse involving a federal healthcare program.

So if you wish to disclose actual or potential violations of other laws like the Anti-Kickback Statute, you should use a separate process for it.

After you talk to your lawyer.

 

When It Sounds Too Good To Be True

Last week, it was the SEC; this week, it’s the FTC or Federal Trade Commission. That’s the agency that, among other things, enforces federal laws against unfair or deceptive business acts or practices, including false advertising.

So what happened?

The FTC settled a lawsuit against a chiropractor who sold a “breakthrough” weight-loss system for $1,895 a pop. He also licensed and franchised the system to other chiropractors and professionals to sell.

Although the defendant didn’t admit or deny the allegations, he agreed to stop making the following claims about his system:

  1. That you could lose twenty to forty pounds, or more, in forty days.
  2. That you could do that safely and without cutting calories or exercising.
  3. That you could burn between 2,000 and 7,000 calories per day.
  4. That you could treat diabetes, psoriasis, and other conditions.

I’m no doctor, but as far as I know, it’s not possible to lose that much weight or burn that many calories without starving yourself or exercising like you’re on meth. According to the complaint, the people who bought the system were told—only after the fact—to eat about 500 calories per day. To put that in perspective, the bowl of cereal you had this morning was at least 200 calories. Good luck getting through the rest of the day.

The defendant also agreed to pay $2 million in refunds; to pay $30 million more if he violates the settlement agreement; to stop presenting friends, relatives, or business partners as satisfied customers who endorsed his system; and to stop using a non-disparagement clause in his contract that punished people for criticizing the system.

Buyer, beware: All that glitters ain’t gold, and there’s no substitute for good nutrition, exercise, and sleep.

SEC Lights Up Another Cannabis Company

In what may be a sign of maturity for the industry, the Securities and Exchange Commission has sued another marijuana-related business for violating federal securities laws.

Last month, the SEC charged a California-based company and two former executives with a classic pump-and-dump scheme. First, the Commission says, the defendants touted phony revenue to drive up the price of the company’s stock. Then they unloaded their own shares for millions of dollars. According to the complaint, much of the revenue came from a series of sham transactions with a shell company that the executives controlled. So the SEC charged them with fraud as well as offering and selling unregistered securities.

The company and one of the executives have settled the case without admitting or denying liability. The executive agreed to pay more than $12 million, among other penalties.

Meanwhile, the company has turned over a new leaf, so to speak, overhauling its management, business model, and board of directors.

The SEC will continue to scrutinize the market, however, which highlights something cannabis companies should already know: get your ducks in a row, and run your business the right way.

Puff and pass if you want, but don’t pump and dump.

The New Justice of the U.S. Supreme Court

Now that Neil Gorsuch has been sworn in, we’ll begin to find out how he wields the law as a member of the highest court in the land.

Some say he’s a natural successor to the Justice whose seat he fills, Antonin Scalia. Here is a profile of Mr. Gorsuch that compares his views to those of Mr. Scalia on matters of criminal law, interstate commerce, and more.

Justice Scalia’s legacy may be complicated, but he defended the rights of the accused in important ways. He championed the right of confrontation, for example. It’s in the Sixth Amendment, and it means that if you’re charged with a crime, your accusers must take the witness stand, testify under penalty of perjury, and face cross-examination in open court. They can’t hide behind hearsay and innuendo. Scalia also championed your right to a trial by jury—that dwindling bastion of freedom and democracy—and he looked after the Fourth Amendment in an age of new technologies.

We hope Justice Gorsuch hews to that heritage and builds on it. Justice Scalia, for example, didn’t care much for the Miranda rule, but we may come to appreciate it more in this century than we did in the last. We may feel differently about the meaning of due process when we see that governments can exercise total dominion over their citizens. We may value legal limits on their power more as we realize that no other limits exist.

To that end, some point optimistically to Gorsuch’s views on overcriminalization, the rule of mens rea, and the rule of lenity.

Others are less sanguine about him in general.

But left, right, or center, most would agree, in the end, with this comment: “We think that all judges should look to the text and history of the Constitution. But [we hope] he will follow all parts of the Constitution, in particular those parts that were added in the 19th and 20th centuries that made our Constitution more equal, more just, more free and pushed us further down an arc of progress.”

Securities Fraud: But Was It Even A Security?

What is a security, anyway? The California Court of Appeal tackled that question recently in a case about a loan between friends.

A good starting point is that the law considers a security to be an investment contract, but there’s more to it than that. You may be familiar with common examples like publicly-traded stocks and bonds, but sometimes it’s a tougher call.

California law recognizes two tests to determine whether a deal or transaction is a security. One is the state’s risk-capital test, and the other is the federal Howey test (from a U.S. Supreme Court case). California courts may apply either one to your case, their goal being to protect the public from shady investment schemes.

The narrower risk-capital test asks whether you indiscriminately solicited passive investments from the public at large. A passive investment is one whose success depends mainly or exclusively on the efforts of people other than the investors.

The broader federal test simply asks whether you solicited people to invest passively.

In this case, the defendant had persuaded a guy he knew to invest in his land-development deal. The investment was a $280,000 promissory note that promised to pay out as follows:

  1. If the land were sold, the guy would share in the net profits from the sale.
  2. If the land were developed, he would receive one residential acre of his choosing.
  3. If neither event took place within one year, he could call the note and get interest on top of principal at a rate of ten percent.

But things didn’t exactly pan out, and some years later, the local district attorney’s office charged the defendant with securities fraud.

The trial court partly dismissed the case because it ruled that the promissory note wasn’t a security but a simple loan.

The government appealed that ruling, but the appeals court agreed. Even under the federal test, the note wasn’t a security because it was carefully negotiated between the parties, and it called for repayment whether the venture succeeded or not. The defendant had even personally guaranteed it.

So the case could’ve been a breach of contract, or it could’ve been a fraud.

But it wasn’t a securities fraud because the note wasn’t a security.

Saving Basic Civil Justice in America

As you may know, the new administration’s proposed budget aims to eliminate all federal funding for the Legal Services Corporation. As in, no funding at all. Zero. Zilch. Nothing.

Why is that a problem?

The LSC is the single-largest funder of civil legal aid for low-income Americans. In other words, if you’re poor and accused of a crime, you’d have access to a lawyer because we fund a public-defense system for that (albeit poorly); but in civil matters, you’d have nothing to help you deal with a legal problem if it weren’t for the LSC and other agencies like it.

Congress created the LSC in 1974 through a bipartisan vote. At the time, President Nixon said it would address “small claims in the Nation’s eye [that] loom large in the hearts and lives of poor Americans.”

Today, the agency funds over 130 nonprofits that handle more than 750,000 cases each year for low-income clients. Overall, it helps nearly two million people per year for less than $1.20 per taxpayer. It keeps families in their homes, finds affordable housing for veterans, protects seniors from predatory scams, and provides lifelines to victims of natural disasters.

Who qualifies for help?

Households who live at or below 125% of the federal poverty line. That’s about $15,000 for an individual or $30,000 for a family of four.

Already, the legal profession is mobilizing in defense. The American Bar Association immediately issued a statement condemning the plan. Even before the administration unveiled it, the leaders of 157 major law firms wrote to explain why the LSC represented the kind of public-private partnership the government should encourage, not eliminate. That was followed last week by a letter to Congress from the deans of 166 law schools, whose clinical programs work with nonprofits that rely on the LSC. And that was followed this week by a letter to Congress from 185 of corporate America’s chief legal officers. For the latest summary of these developments, see here.

Please lend your voice, too. The ABA has set up an easy way to send a message to your members of Congress, and you can find the campaign on Facebook too. Please call on them to fund the LSC responsibly. The ABA will print these messages and hand-deliver them to each member of Congress between April 25 and 27.

Because there’s no justice without access.

Take the Money and Run?

Kudos to the California Court of Appeal for enforcing due process and the rule of law.

Earlier this month, the Court took another stand on the law of asset forfeiture by siding with people who had sued to get their stuff back.

In three separate cases, the Court ordered the trial court to reinstate lawsuits brought by eight people from whom local police had taken a total of three cars and $28,257 in cash.

In each case, after police seized the property, they didn’t refer the matter to the district attorney’s office like they were supposed to. No one from a prosecutor’s office reviewed the cases beforehand and signed off on them.

Instead, police just issued forfeiture notices themselves and left it to people to file a claim.

But you can’t do that. The law specifically authorizes only a county’s district attorney or the state’s attorney general to file a forfeiture case in court or, for property worth $25,000 or less, to issue a notice of administrative forfeiture like the police did. For more background on California’s forfeiture laws, see here.

None of the people filed claims at first, but they eventually lawyered up and sued.

They lost in the trial court after the government argued that they didn’t file administrative claims before suing in court and that they waited too long to sue when they did.

But they won on appeal. The Court ruled that the government failed to comply with the forfeiture statutes, so the forfeitures were invalid to begin with, and the state had no right to their property. The Court had made this point three years ago in a prior opinion, and apparently, it meant what it said.

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