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United States v. Ferrell

United States District Court, Seventh Circuit

June 12, 2013



VIRGINIA M. KENDALL, District Judge.

A federal Grand Jury indicted Defendants Keenan R. Ferrell and Bryce Woods in a nine count Indictment charging that Ferrell and Woods engaged in a scheme to defraud Medicare in violation of 18 U.S.C. § 1347. Prior to the start of jury selection the Government filed motions in limine (Docs. 100 and 122), a motion to narrow the Indictment (Doc. 124), a motion to admit evidence pursuant to Federal Rule of Evidence 801(d)(2)(E) and United States v. Santiago (Doc. 103), and a motion to introduce evidence of Defendants' conduct and statements (Doc. 135). Defendant Ferrell filed motions in limine (Docs. 107, 118, and 136) and also moved to dismiss the Indictment pursuant to Federal Rule of Criminal Procedure 12(b)(2) on the basis that 18 U.S.C. § 1347 is unconstitutionally vague as it is applied to him (Doc. 140). The Court addresses each of these motions below.


The Indictment alleges that Defendants, through Ferrell's companies Take Action and Inner Arts, engaged in a scheme to defraud Medicare. Specifically, Ferrell, a licensed clinical psychologist, submitted claims to Medicare for providing one-on-one psychotherapy sessions lasting 45-50 minutes to Medicare beneficiaries when, in fact, these sessions lasted for a significantly shorter period of time or did not occur at all. Additionally, Ferrell employed psychology graduate students, other health care providers, and Defendant Woods to provide psychotherapy sessions to patients at various nursing homes. Take Action and Inner Arts then allegedly billed Medicare as if Ferrell provided the patients with the psychotherapy sessions himself. Due to this alleged conduct, the Government has charged the Defendants with violating 18 U.S.C. § 1347.

On May 9, 2013, the Court held a final pretrial conference to address the motions in limine filed by the United States and by Defendant Keenan Ferrell. Defendant Bryce Woods was also present at the final pre-trial conference and his counsel raised oral objections to certain of the Government's motions in limine. However, during the conference the Government informed the Court that Dr. Thomas Shriver, an associate of Ferrell's, had agreed to proffer in a separate case in Texas and was interested in cooperating against Ferrell. At a hearing the next day, the Government informed the Court that Shriver would act as a cooperating witness. The Court then granted Ferrell's motion to reset the trial date so the parties could raise any issues with respect to Shriver's testimony. The Government and Defendant Ferrell then both moved the Court for a ruling on the admissibility of Dr. Shriver's testimony. Finally, despite the fact that the Grand Jury returned the Indictment against him in December 2011, Ferrell moved to dismiss the indictment two weeks before jury selection was scheduled to begin.


I. Motion to Dismiss the Indictment

A. Legal Standard

Federal Rule of Criminal Procedure 12(b)(2) provides that the Court may consider at the pretrial stage "any defense, objection, or request that the court can determine without a trial of the general issue." A motion to dismiss an indictment is properly brought pursuant to Rule 12(b)(2) where the government, as a matter of law, is incapable of proving beyond a reasonable doubt the charges against the defendant, or where the government has violated the defendant's constitutional rights or has committed constitutional error in the prosecution of an indictment. See United v. Levin, 973 F.2d 463, 468 (6th Cir. 1992); see also United States v. Linder, No. 12 CR 122, 2013 WL 812382, at *28 (N.D. Ill. Mar. 5, 2013). Federal courts also possess the power and duty to dismiss indictments obtained in violation of the Constitution and the laws of the United States. See Linder, 2013 WL 812382, at *26 (collecting cases).

Here, Ferrell argues that the Indictment should be dismissed because it was obtained in violation of the Constitution since Title 18 U.S.C. § 1347 is unconstitutionally vague. To be sufficiently vague so as to violate due process rights a statute must: (1) fail to provide a person of ordinary intelligence a reasonable opportunity to know what is prohibited or (2) fail to provide explicit standards to prevent arbitrary and discriminatory enforcement by those enforcing the statute. See United States v. Plummer, 581 F.3d 484, 488 (7th Cir. 2009) (citing United States v. Lim, 444 F.3d 910, 915 (7th Cir. 2006); United States v. Stephenson, 557 F.3d 449, 455-56 (7th Cir. 2009)). A vagueness challenge is analyzed as-applied unless First Amendment interests are threatened. See id. at 488. Since none are threatened here, the Court will analyze Ferrell's challenge as the statute is applied to him.

B. Title 18 U.S.C. § 1347 Is Not Unconstitutionally Vague As Applied to Ferrell

Ferrell appears to challenge the constitutionality of 18 U.S.C. § 1347 under both prongs of the vagueness doctrine: (1) it failed to provide him with fair notice of what constituted prohibited conduct under the statute and (2) it authorizes or encourages arbitrary and discriminatory enforcement. Specifically, he contends that the language of 18 U.S.C. § 1347(b) eliminates the mens rea requirement articulated in 18 U.S.C. § 1347(a) so that he is now exposed to prosecution for errors contained in the claims he submitted to Medicare despite the fact that he never intended to defraud the Government. This argument is contradicted by the plain language of the statute.

Title 18 U.S.C. § 1347(a) provides that "[w]hoever 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 or property owned by, or under the custody or control, any health care benefit program,

in connection with the delivery of or payment for health care benefits, items or services, shall be fined under the this title or imprisoned not more than 10 years, or both. Title 18 U.S.C. § 1347(b) provides that "[w]ith respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section."

The "knowingly and willfully" language in § 1347(a) requires the Government to prove that a defendant acted with specific intent to defraud or misrepresent in order to prove that a defendant violated the statute. See, e.g., United States v. Franklin-El, 554 F.3d 903, 911 (10th Cir. 2009) ("the health care fraud statute requires a specific intent to defraud or misrepresent"); United States v. Patel, 485 Fed.Appx. 702, 708 (5th Cir. 2013) (holding that to prove fraud under § 1347, the Government must establish the defendant acted "knowingly and willfully, that is, with a specific intent to defraud"); United States v. Janati, 237 Fed.Appx. 843, 947 (4th Cir. 2007) ("The health care fraud statute requires a specific intent to defraud"); cf United States v. Choiniere, 517 F.3d 967, 973 (7th Cir. 2008) (holding that district court properly instructed the jury on the elements necessary to convict under 18 U.S.C. § 1347 including instructions that stated: (1) "The defendant must act with intent to defraud"; (2) "the government needs to prove both that there was a scheme to defraud and that [defendant] participated in the scheme knowingly and with intent to defraud"; and (3) that intent to defraud means "that the acts charged were done knowingly with the intent to deceive or cheat the victims in order to cause a gain of money or property to the defendant.").

The language of § 1347(b) does not obviate this requirement. Rather, when Congress amended the statute in 2010 to include § 1347(b)[1], it simply clarified that the Government does not need to prove that a defendant was aware of the existence of or specifically intended to violate § 1347 (as opposed to specifically intending to defraud Medicare) in order to be held liable for violating § 1347. The impetus for this amendment is an opinion issued by the Ninth Circuit that interpreted the "willfulness" requirement in the analogous Federal Anti-Kickback statute in a narrow and specific manner. In The Hanlester Network v. Shalala , the Ninth Circuit construed the phrase "knowingly and willfully" to require a finding that a defendant: (1) knew that the Anti-Kickback statute prohibited offering or paying remuneration to induce referrals; and

(2) engaged in prohibited conduct with the specific intent to disobey the Anti-Kickback statute. See The Hanlester Network v. Shalala, 51 F.3d 1390, 1400 (9th Cir. 1995). No other circuit joined the Ninth Circuit in imposing these stringent requirements on the Government. Compare, e.g., United States Baystate Ambulance & Hospital Rental Services, Inc., 874 F.2d 20 (1st Cir. 1989) (holding that "knowing" means to do something voluntarily or deliberately and "willfully" means to do something the law prohibits); United States v. Jain, 93 F.3d 436, 440-41 (8th Cir. 1996) (holding that the plain language of the Anti-Kickback Statute and the traditional principle of ignorance of the law is no defense defines "willfully" to mean the defendant "knew that his conduct was wrongful, rather than proof that he knew it violated a known duty."); United States v. Starks, 157 F.3d 833, 837-39 (11th Cir. 1998) (holding that knowledge of the Anti-Kickback statute was not required to find a violation); United States v. Davis, 132 F.3d 1092, 1094 (5th Cir. 1998) (same);

When Congress amended the health care fraud and anti-kickback statutes in 2010, it codified the majority view and rejected the Ninth Circuit's position with respect to what is required to prove a violation of § 1347 and the Anti-Kickback Statute. As a result, it drafted subparagraph (b) to specifically state that the Government does not need to prove that a defendant has specific knowledge of § 1347 or intent to specifically violate § 1347 in order to successfully prosecute an individual who engaged in a scheme with the intent to defraud Medicare. See 18 U.S.C. § 1347(b) (stating that a defendant does not need to have "actual knowledge of this section, " i.e., § 1347, or "specific intent to commit a violation of this section, " i.e., § 1347, in order to be liable for violating § 1347) (emphasis added). Indeed, Senator Ted Kaufman, one of the amendment's authors, explained this to Congress when he introduced the bill. Specifically, Senator Kaufman stated that:

The bill also addresses confusion in the case law over the appropriate meaning of "willful" conduct in health care fraud. Both the anti-kickback statute and the health care fraud statute include the term "willfully." In both contexts, the Ninth Circuit Court of Appeals has read the term to require proof that the defendant not only intended to engage in unlawful conduct, but also knew of the particular law in question and intended to violate that particular law. This heightened mental state requirement may be appropriate for criminal violations of hyper-technical regulations, but it is inappropriate for these crimes, which punish simple fraud. The Finance Committee health care reform bill, America's Healthy Future Act, addresses this problem for the anti-kickback statute, but not for the general health care fraud offense. Accordingly, the Health Care Fraud Enforcement Act tracks the Finance bill and clarifies that "willful conduct" in this context does not require proof that the defendant had actual knowledge of the law in question or specific intent to violate that law. As a result, health care fraudsters will not receive special protection that they don't deserve.

155 Cong. Rec. S10852-01 (daily ed. Oct. 28, 2009). Thus, it is clear that subparagraph (b) does not eliminate the mens rea requirement described in subparagraph (a), it clarifies it. See also, e.g., United States v. Mathur, No. 11 CR 312, 2012 WL 4742833, at *14-15 (D. Nev. Sept. 13, 2012) (describing legislative history of the Patient Protection and Affordable Care Act and stating that "PPACA has not removed a specific intent requirement from the Anti-Kickback Act as Mathur claims. In order to prove a violation of the Anti-Kickback Act, the government must still show that a criminal defendant acted knowingly and willfully".... The PPACA simply clarified that the government is not required to show a criminal defendant knew the Anti-Kickback Act prohibited offering or paying consideration to induce referrals and intended to violate the law.").[2]

Title 18 U.S.C. § 1347 does not allow the Government to hold Ferrell liable for unintentional inaccuracies as he contends; rather, the Government must still prove that: (1) Ferrell knowingly engaged in a scheme to defraud; (2) that he acted with intent to defraud; and (3) that he knew that participation in the scheme was unlawful. However, the Government does not need to prove that Ferrell specifically knew his alleged conduct violated 18 U.S.C. § 1347 or that he specifically intended to violate 18 U.S.C. § 1347. As a result, Title 18 U.S.C. § 1347 is clear and not unconstitutionally vague as it applies to Ferrell. See Franklin-El, 554 F.3d at 911 (holding that a specific intent ...

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