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.

New California Criminal Laws in 2017

Let’s get right to it.

We already covered three of them in prior posts. One was Proposition 64, which legalized recreational marijuana. Another was Proposition 57, which expanded parole eligibility for nonviolent felons and cut back on prosecuting kids as adults. A third was Assembly Bill 1909, which made it a felony for prosecutors to commit Brady violations in bad faith.

Here are five more.

Ransomware is a form of extortion. This is Senate Bill 1137. It amended the Penal Code to punish anyone who introduces ransomware into a computer system or network. It doesn’t matter whether you actually got the ransom or not; it’s a felony punishable by two, three, or four years in the county jail. See Pen. Code § 523.

New business search warrants, less drama. This is Senate Bill 1087. It amended the Evidence Code to make it easier for innocent businesses to comply with search warrants for their records. Now, if a business is not a subject of the underlying investigation, it may be able to produce its records by mail or in some other arms-length way. That’s a lot better than having agents show up to go through your stuff. See Evid. Code § 1560(f).

New motion to vacate a conviction or sentence based on immigration consequences or fresh evidence of innocence. This is Assembly Bill 813. It allows you to ask a court to throw out your case in two situations even though you’ve served out your sentence. The first is if you pleaded guilty because of a legal mistake that undermined your ability to understand the immigration consequences of your plea. The second is if you can present fresh evidence that you were innocent. See Pen. Code § 1473.7.

No more possibility of probation for sex offenses where the victim was unconscious or too intoxicated to consent. This is Assembly Bill 2888. It eliminated probation as a possible sentence for rape, sodomy, oral copulation, or sexual penetration with a foreign object if the victim was unconscious or too intoxicated to consent. It extended a rule that already applied to other, serious sex offenses. See Pen. Code § 1203.065.

No more statute of limitations for felony sex and child-molestation cases. This is Senate Bill 813. It eliminated the statute of limitations for a litany of sex crimes, which now may be prosecuted at any time. Previously, they had to be prosecuted within ten years, or if the alleged victim was under 18, before he or she turned 40. See Pen. Code § 799.

Federal Healthcare Fraud Is A Continuing Offense

Which means the statute of limitations won’t matter if the government can characterize your conduct as one, continuous scheme that extended into the limitations period.

So held a decision last week by the U.S. Court of Appeals for the Ninth Circuit, which covers California and eight other states.

The decision affirmed a podiatrist’s conviction for violating the federal healthcare fraud statute, 18 U.S.C. § 1347. That statute punishes you for knowingly executing, or attempting to execute, a scheme to defraud a federal healthcare benefit program like Medicare. If convicted, you face up to ten years in prison, a $250,000 fine, or both. That maximum sentence rises to twenty years if your conduct results in serious bodily injury, and it rises to life in prison if your conduct results in death. This doctor saw his patients through Medicare and Medicaid as well as workers’ compensation and private insurance programs.

After he was indicted, he moved to dismiss sixteen of the counts against him because they were based on allegedly false bills from a single date of service (at a nursing home) that fell outside the five-year statute of limitations.

The court agreed that all but one of the counts fell outside the five-year statute, so it dismissed those counts, but it preserved the one count because the doctor hadn’t submitted and received payment on that bill until a year later, on dates within the five-year period.

The government then returned to the grand jury and got a new indictment—called a superseding indictment—that combined the one surviving count and the several dismissed counts into one count alleging a continuous scheme that extended into the five-year period.

The doctor moved to dismiss this superseding indictment on the same ground, but the court denied his motion this time, and after a seven-day trial, a jury convicted him on multiple counts, including that one.

So can the government do that? Can it simply rewrite an indictment like that to avoid the statute of limitations? Can it simply re-file multiple counts as one continuing offense when it charged them the first time as separate counts?

In this case, the answer was yes.

The court of appeals held that healthcare fraud under section 1347 is a “continuing offense” that punishes each fraudulent scheme as a whole, rather than each act in furtherance of the scheme. The court reasoned that section 1347 was modeled after the federal bank-fraud statute, which is section 1344, so it should be interpreted the same way.

The court did note that, in a prior case, it had permitted the government to charge each bill as a separate execution of a fraudulent scheme on the ground that, with each bill, the defendant owed the insurer an independent obligation to be truthful.

But just because the government could’ve charged the case that way—and even did so, initially—didn’t mean that it had to do it that way. As long as the new indictment alleged one execution of a single, ongoing scheme, the government could charge it that way even though several acts in furtherance of the scheme fell outside the statute of limitations.

In the Light of Perpetual War

Yesterday, the U.S. Supreme Court unanimously decided an important case that was closely watched by lawyers who prosecute and defend whistleblower actions.

The background is the False Claims Act, which was passed in 1863 to fight rampant fraud in Civil War defense contracts. The FCA imposes liability on anyone who knowingly presents a false or fraudulent claim for payment to the government. See 31 U.S.C. § 3729. As we’ve covered here before, the Act empowers whistleblowers, or “relators,” to sue on the government’s behalf and, when successful, to share in a portion of the recovery. Id. § 3730.

Generally, under the FCA, a whistleblower lawsuit must be filed within six years of the alleged violation, or within three years of the date the government should’ve known about it, but in all events, no more than ten years after the violation. 31 U.S.C. § 3731(b).

Another law, however, suspends all statutes of limitations for fraud against the government whenever Congress has declared war or authorized the use of military force. 18 U.S.C. § 3287. It’s called the Wartime Suspension of Limitations Act. The law tolls the statute of limitations until five years after Congress or the President declares an end to hostilities.

There’s no question that this law applied to criminal cases; the question before the Court was whether it applied to civil cases, too.

The backstory was that, in 2005, the relator worked for a defense contractor in Iraq, and later, he filed a whistleblower lawsuit in Virginia alleging that his employer had fraudulently billed the government for services that weren’t performed properly or performed at all.

The government didn’t intervene, but shortly before trial, it alerted the parties to another, similar case in California that had been filed first.

This revelation, according to the Supreme Court’s opinion, “initiated a remarkable sequence of dismissals and filings.”

First, the district court dismissed the complaint under the “first-to-file” rule, which bars whistleblower lawsuits that rely on the same facts as an already-filed case. 31 U.S.C. § 3730(b)(5). The relator appealed that dismissal, and while his appeal was pending, the California case was dismissed for failure to prosecute. The relator then filed a new complaint, but he didn’t dismiss his appeal first, so the district court dismissed the new complaint under the first-to-file rule on the basis of his own, pending appeal. So the relator withdrew his appeal and filed a new case, but by then, others had already filed similar cases in Texas and Maryland, and besides, it was 2011, more than six years after the alleged fraud, so the court dismissed his case again—this time with prejudice.

Finally, the relator appealed the dismissal again and won, when the court of appeals held that he could refile his case for two reasons. First, the Wartime Suspension of Limitations Act applied to civil cases like his and thus tolled the statute of limitations. Second, the first-to-file rule didn’t apply once a related action was dismissed, and by then, both the Texas and Maryland cases had been dismissed.

The Supreme Court agreed on the second point but not the first. It held that the text, structure, and history of the WSLA demonstrated that it applied only to criminal cases, not civil cases, and it reversed the case on that basis. Were it otherwise, in fact, in today’s world, the WSLA could effectively eliminate the statute of limitations. Instead, the Court interpreted the law in favor of repose.

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