United States v. White ( 2007 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 07a0215p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellee, -
UNITED STATES OF AMERICA,
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Nos. 05-3403/3442;
v.
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06-3239/3240
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RICHARD B. WHITE; MICHAEL A. SUHADOLNIK, -
Defendants-Appellants. -
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Appeal from the United States District Court
for the Northern District of Ohio at Youngstown.
No. 03-00001—Patricia A. Gaughan, District Judge.
Argued: January 31, 2007
Decided and Filed: June 11, 2007
Before: NORRIS, COLE, and CLAY, Circuit Judges.
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COUNSEL
ARGUED: Jon A. Van Steenis, DAIGLE, FISSE & KESSENICH, Madisonville, Louisiana, Amy
B. Cleary, FEDERAL PUBLIC DEFENDER’S OFFICE, Cleveland, Ohio, for Appellants. James
C. Lynch, ASSISTANT UNITED STATES ATTORNEY, Cleveland, Ohio, for Appellee.
ON BRIEF: Jon A. Van Steenis, DAIGLE, FISSE & KESSENICH, Madisonville, Louisiana, Amy
B. Cleary, FEDERAL PUBLIC DEFENDER’S OFFICE, Cleveland, Ohio, Jaime P. Serrat,
Cleveland, Ohio, for Appellants. James C. Lynch, ASSISTANT UNITED STATES ATTORNEY,
Cleveland, Ohio, for Appellee.
CLAY, J., delivered the opinion of the court, in which COLE, J., joined. NORRIS, J. (p. 30),
delivered a separate opinion concurring in part and dissenting in part.
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OPINION
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CLAY, Circuit Judge. Defendant Richard B. White appeals his conviction for fourteen
separate criminal counts, his sentence of 90-months imprisonment, $7,290,202 in restitution, and
two years of supervised release, as well as the district court’s order denying his motion for new trial.
Defendant Michael A. Suhadolnik appeals his related conviction for one count of wire fraud, as well
as the district court’s order denying his motion for new trial. For the reasons that follow, we
AFFIRM Defendants’ convictions; VACATE the district court’s order denying Defendants’
1
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 2
motions for new trial and REMAND for an evidentiary hearing; and VACATE Defendant White’s
sentence and REMAND for resentencing.
BACKGROUND
A. The Medicare Program
This case arises from a complex scheme to defraud Medicare by violating the Medicare
“related party” rule. Accordingly, we repeat below a helpful overview of the Medicare program to
set the scene before exploring the procedural and substantive facts of this case.1
The Medicare program is codified in Title XVIII of the Social Security Act,
42 U.S.C. § 1395 et seq., which establishes a federally-funded health insurance
program for the elderly and disabled. The United States Department of Health and
Human Services (“HHS”) runs Medicare. HHS has delegated the operation of
Medicare to its component entity, the Health Care Financing Administration
(“HCFA”) [recently renamed the Centers for Medicare and Medicaid Services
(“CMS”)].
HCFA contracts with experienced insurance carriers in various regions of the
country to act for HHS in reviewing, processing, and paying Medicare claims. These
insurance carriers are called Fiscal Intermediaries (“FI”). Thus, the Fiscal
Intermediary acts as the agent of HHS for purposes of auditing claims for
reimbursement and administering payments.
Medicare is divided into two parts, Medicare Part A and Medicare Part B.
Part A of the Medicare statute authorizes direct payment for covered hospital
services to a hospital or other providers of health services. In essence, a provider of
services does not bill eligible patients under Medicare for covered services. Rather,
the provider is reimbursed by the government for its reasonable costs in providing
services (or the customary charges for those services if the customary charges are
lower). Medicare Part B is primarily medical insurance which helps pay for doctors
and outpatient services.
Providers under Medicare Part A may include: hospitals providing hospital
services; home health agencies providing skilled nursing services to “home-bound”
patients; and community mental health centers providing psychiatric services under
the Medicare Partial Hospitalization Program. All Medicare providers must execute
a written agreement with HCFA agreeing to comply with all Medicare laws and
regulations.
Once certified as a Medicare provider, such provider may make claims for
reimbursement of its costs of operation in providing necessary services. Providers
may receive payments on such claims based upon a pre-determined percentage of
costs associated with the provider’s costs. Claims may be based upon a daily rate of
costs per patient or an hourly rate of costs per patient. New providers submit
estimates of future costs, and thereafter, the cost report filed by the providers is used
to estimate future costs. Medicare reimbursement payments are made on a
continuing basis throughout the year based upon claims filed by the provider and are
called “interim payments.” Annually, the provider must file a Provider Cost Report
1
This background on Medicare appears in the government’s brief on appeal, and was contained in the
preliminary and final jury instructions at trial without objection.
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with the Fiscal Intermediary to permit the Intermediary to audit the claimed costs and
determine whether the costs claimed are proper. Once adjustments are made, the FI
determines whether the provider has been overpaid or underpaid for the costs
allowable for the year.
Pursuant to its statutory authority, the Secretary of HHS has promulgated
regulations, codified at 42 C.F.R. § 413, governing the reimbursement of health care
providers for reasonable costs. In addition, the Secretary has published
interpretations of the governing statute and regulations in the Provider
Reimbursement Manual in order to assist these providers as well as the Fiscal
Intermediaries in understanding how the government applies this regulatory
framework.
The Medicare reimbursement program is structured around the concept of
allowable “reasonable costs.” “Reasonable costs” are the costs actually incurred by
the provider, and excludes any costs found to be unnecessary in the efficient delivery
of needed health services. 42 U.S.C. § 1395x(v)(1)(A). Providers are expected by
Medicare regulations to minimize costs and not pay any more than what a “prudent
buyer” would pay for goods or services.
To prevent unnecessary costs from being claimed, when goods or services are
purchased from a party related to the provider, Medicare regulations only permit
reimbursement to a provider of the actual costs incurred by that “related party.”
Thus, a “related party” cannot make a profit from a transaction with a Medicare
provider. A “related party” is defined as including a situation where the provider,
to a significant extent, has control or is controlled by the organization furnishing the
services, facilities, or supplies. Control exists if an individual or an organization has
the power, directly or indirectly, to significantly influence or direct the actions or
policies of an organization. 42 C.F.R. § 413.17.
Providers are required to identify any costs attributable to a “related party”
on the annual Cost Report and elsewhere to permit the Fiscal Intermediary to
determine whether there are any “related party” costs which might be adjusted. 42
C.F.R. § 413.20. In addition, with the filing of the cost report, an officer or
administrator of the provider must give written responses to a questionnaire that
asks, among other things, whether the provider or the management personnel are
associated with related organizations and, if so, to identify such related
organizations.
(Pl.’s Br. at 14-17)
B. Procedural Facts
Defendants Richard B. White (“Defendant White” or “White”) and Michael A. Suhadolnik
(“Defendant Suhadolnik” or “Suhadolnik”), along with other defendants not involved in this appeal,2
were indicted on January 8, 2003 on fourteen charges, including (1) Conspiracy to Commit
Medicare Fraud (Count 1), (2) Scheme to Defraud the Medicare Program (Counts 2 through 4), (3)
Use of a False Document (Count 5), (4) Money Laundering Conspiracy (Count 6), (5) Money
Laundering (Counts 7 through 13), and (6) Wire Fraud (Count 14).
2
Charges against defendants Patricia Macejko, Maryann Barnett, and Raul Sanchez DeVarona were separately
and variously disposed of without trial.
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Prior to trial, Defendants requested a list of the expert witnesses the government planned to
call, along with a description of their opinions and the bases therefor. The government responded
three weeks after the deadline with a list of intended witnesses and one potential witness, but no
information about the opinions to be rendered. Defendants then brought motions in limine to
exclude the expert testimony alleging the government had failed to comply with Federal Rule of
Criminal Procedure 16’s notice requirements. The district court ruled off the record and permitted
the government to call the identified individuals at trial. In doing so, the district court stated that
the witnesses “weren’t experts per se, [but] they were people who worked in the [Medicare]
industry,” as well as fact witnesses. (J.A. at 909)
A jury trial of the charges against Defendants White and Suhadolnik commenced on March
15, 2004. During the trial, the government put forth the testimony of witnesses who discussed their
understanding of concepts contained in the Medicare statutes and regulations as they pertained to
the case. The government called Luz Reyes (“Reyes”), an audit reimbursement supervisor for one
of Medicare’s fiscal intermediaries.3 Reyes testified to her understanding of various terms used in
the Medicare Provider Reimbursement Manual (“PRM”), including “cost-related organization,”
“related,” and “control.” (J.A. at 1194-97) The government additionally called several other
Medicare auditors who had worked on cost reports for Defendant-affiliated companies to testify to
their understanding of Medicare concepts, including Cynthia MacDonald, Stephen Shields and
David Eve. The defense called a Certified Fraud Examiner, Eva Jo Sparks (“Sparks”), at trial.
Sparks had reviewed the government’s documents and testified that the Medicare auditors reviewing
the case against Defendant White’s company, Montrose Management (“Montrose”), did not make
a determination that Montrose was a “related party” under Medicare. Sparks further put forth her
conclusion that Montrose, in fact, was not a “related party.”
On March 30, 2004, the jury found Defendant White guilty on all counts. Subsequently, the
district court sentenced White to sixty months imprisonment on Counts 1 and 5, ninety months
imprisonment on all other counts (to run concurrently), ordered him to pay $7,290,202 in restitution,
and imposed a period of two years supervised release. White timely appealed. On that same day,
the jury found Defendant Suhadolnik guilty of wire fraud, and acquitted Defendant Suhadolnik of
all other counts against him. Suhadolnik was sentenced to 37 months imprisonment and $10,000
in restitution. Suhadolnik also timely appealed to this Court.
Before their sentencing hearings, however, Defendants learned that Charles Potter (“Potter”),
the government’s “potential” witness in this case, had received an award for fraud examination and,
among his list of “successful cases” had cited the convictions of Defendant White and Raul Sanchez
DeVarona (“DeVarona”). Defendants White and Suhadolnik brought a motion to compel Potter to
produce any documents he reviewed at the government’s request in preparing to testify and to appear
for examination. The district court denied the motion, finding Defendants had no “right to discovery
of a witness who was not called at trial absent Brady material.” (J.A. at 40) Defendant White,
Sparks, and Defendant Suhadolnik’s counsel all separately filed Freedom of Information Act
(“FOIA”) requests with the Department of Health and Human Services (“HHS”) to obtain
documents pertaining to the case which were either prepared or received by Potter. They
encountered various obstacles to securing the documents and, in the end, received only some small
portion of the documents requested. As a result of new evidence, on two occasions, Defendants filed
motions for a new trial and a request for an evidentiary hearing. The district court denied these
motions both times. Defendants appeal those denials. This Court consolidated White’s appeals from
3
As noted above, fiscal intermediaries are insurance carriers that contract with the Center for Medicare and
Medicaid Services (CMS) (formerly “HCFA”) to review, process, and pay Medicare claims. Among other things, fiscal
intermediaries review cost reports filed by Medicare providers to determine the propriety of costs claimed.
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 5
his conviction, his sentence, and the denial of his motion for new trial, along with Defendant
Suhadolnik’s appeals.
C. Substantive Facts
Defendant White was extensively involved in healthcare management in the mid-1990s and
owned and operated several health-related businesses. As owner of Reliance Healthcare
Management, White operated both nursing homes and community mental health centers. In so
doing, White participated in the “day-to-day hands-on operation” of Medicare providers. (J.A. at
871-73) At the same time, White owned Montrose, a financial management and consulting
company. Facing financial troubles in 1995, Youngstown Osteopathic Hospital (“YOH”) retained
Montrose, which agreed to provide management services to YOH in early 1996 and, in exchange,
received a monthly fee of $25,000 and an additional $5,000 for expenses. In addition, YOH hired
new leadership, naming John Weir (“Weir”) its new Chief Executive Officer, and Defendant
Suhadolnik its new Chief Financial Officer (“CFO”).
At some point in 1996, White convened a group of YOH’s primary care physicians and
proposed the formation of a new company, to be known as HealthSecure, Inc. (“HealthSecure”).
Each of the participating physicians contributed $2,000 in start up money and became part owners
of the company. According to Defendant White, the purpose of the venture was to increase patient
admissions and services utilized by those patients at YOH, thereby improving the financial stability
of the hospital. The group endeavored to achieve this purpose, White claimed, by establishing
subsidiary medical billing and staffing companies. Ultimately, HealthSecure incorporated
subsidiaries including HealthSecure Clinical Staffing, Inc. (“HSCS”), Riverlake Home Health, Inc.,
Cardio-Pulmonary Management, Inc., National Healthcare Solutions (“NHS”), Pathways of Boynton
Beach, Inc. (“PBB”), and HealthSecure of Jackson, Inc. Defendants White and Suhadolnik took
charge of the underlying operations of this venture. Defendant Suhadolnik was named Secretary-
Treasurer of HealthSecure. In addition to the group’s start up funds, White solicited and gained
approval of a $750,000 loan from the YOH Board of Directors. Ultimately, HealthSecure borrowed
sums far exceeding this figure, totaling close to $2 million.
Also that year, Defendant White proposed the construction of an independent psychiatric unit
at YOH. That facility, known as Pathways Center for Geriatric Psychiatry, Inc. (“Pathways”), was
later acquired by Patricia Macejko (“Macejko”) and Maryann Barnett (“Barnett”), sisters who were4
the principals of a nursing home and who also owned community mental health centers in Florida.
Macejko and Barnett became owners of Pathways when they executed a promissory note to YOH
for between $250,000 and $450,000 – the costs to YOH of developing the center. Pathways rented
space from YOH for its facility. Although Macejko and Barnett owned Pathways, White – through
Montrose – essentially operated and controlled the center. Under a management agreement between
Pathways and Montrose, Montrose received $30,000 per month for its management activities.
Additionally, Montrose received $16,500 per month to provide billing services. Pathways
contracted with NHS, a second healthcare consulting business then owned as a sole proprietorship
by Richard Feldman (“Feldman”), for management of its clinical operations. Pathways also had a
contract with NHS, under which it payed $55,000 per month for its day-to-day operation of the
center. According to Feldman’s testimony, Defendant White later “took over” operations of NHS
and incorporated the company, leaving Feldman in place as nominal head. Defendant Suhadolnik
became CFO of NHS.
4
Defendant White, through Montrose, additionally provided management services to Macejko and Barnett’s
nursing home, Ashley Place.
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In connection with the day-to-day operations of Pathways, Feldman prepared an application
for certification as a Medicare provider and, therein, indicated that Pathways had no transactions
with any related organizations. Feldman did not understand at the time what “related transactions”
meant and marked “no” only after asking White. When asked, White expressly indicated there were
no “related transactions.” Pathways became a certified Medicare provider in 1997. As a Medicare
provider, Pathways submitted the management fees charged by both Montrose and NHS for
reimbursement, and Montrose itself prepared the cost reports submitted. Those cost reports
specifically disclaimed the inclusion of any related organization costs.
Also in early 1996, DeVarona contacted Defendant White to obtain financial management
services from one of White’s companies for Douglas Mental Health Center (“Douglas”) in Florida.
Together, White and DeVarona subsequently became involved with additional Medicare providers
via third party service and management agreements. According to DeVarona’s testimony at trial,
he attended a September 1996 meeting called by Defendant White wherein White proposed that a
network of Medicare facilities be created which he would control, and stated that the owners of those
facilities would enter into agreements at rates he established (along with DeVarona). DeVarona
further testified that HSCS, which later provided staffing to Medicare providers controlled by
Defendant White and DeVarona, charged providers a 300 percent mark up.
In May or June of 1997, Defendant White also engineered the sale of two Medicare-certified
community mental health care facilities in Florida to Macejko and Barnett. The genesis of these
deals was a meeting between White, Suhadolnik, Feldman, and DeVarona, among others. At that
meeting, White proposed that those community mental health facilities – New Hope and Douglas
– enter into third-party service agreements and management contracts with several companies,
including Montrose, HSCS, Behavior Solutions, and NHS. Macejko and Barnett agreed to pay
$200,000 over a period of five years for New Hope and Douglas. Those facilities subsequently
contracted with HSCS, Montrose, and two of DeVarona’s companies – Behavioral Billing and
Behavioral Solutions – for various third-party services and management services. Douglas and New
Hope, both certified Medicare providers, included the costs of those management and third-party
service agreements on their Medicare cost reports. Again, as with Pathways, Montrose prepared
those reports for submission. The cost reports submitted from 1996 to 1998 failed to identify the
third-party and management service providers as “related parties,” as required by the Medicare
regulations (42 C.F.R. § 413.17).
Some time in 1996, two separate community mental health centers in Florida – All
Professional and Renaissance – sought Medicare certification, but lacked the financial backing to
pay their respective staffs in the interim. DeVarona approached White and proposed that HSCS
provide clinical staffing for All Professional and Renaissance until they were certified. White
agreed to do so, and the two health centers entered into several agreements, including clinical
staffing agreements with HSCS, and contracts with Montrose, Behavioral Billings, Behavior
Solutions, and NHS. In return, the suppliers agreed to carry receivables due until the health centers
were certified by Medicare. In billing the two health centers, the record indicates that HSCS marked
up certain nursing and social work services by a factor of 3.2. When All Professional and
Renaissance were finally Medicare certified, they submitted the costs associated with these
agreements for reimbursement. Those cost reports were also prepared by Montrose, however Larry
Belcher (“Belcher”), and not Defendant White, prepared them on that occasion.
At trial, DeVarona testified that the various third-party service providers carried the
receivables until All Professional and Renaissance were certified by borrowing funds from Pathways
or from YOH (via HealthSecure or HSCS). During this time, Renaissance incurred $2 million in
receivables from HSCS, and Pathways became indebted to YOH in the amount of $2.5 million.
Evidence adduced at trial shows that Defendant Suhadolnik approved transfers of funds from YOH
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to HealthSecure, and from HealthSecure to several other service providers. The government further
introduced evidence of a $10,000 wire transfer from HealthSecure to Montrose.
When a member of the Board of Trustees at YOH, Eugene Fox (“Fox”), reviewed the
hospital’s financial statements, he grew concerned and approached Defendant Suhadolnik.
Suhadolnik informed Fox that Pathways had been loaning its Medicare revenue to HealthSecure
instead of satisfying its obligations to YOH, and that HealthSecure in turn was loaning funds to the
two health centers in Florida. Later that evening, Fox further explored the situation by questioning
Defendant White at the monthly Board of Trustees meeting. Ultimately, YOH terminated its
agreement with Montrose and severed ties with White. Macejko and Barnett also ended their
agreement with Montrose. The government introduced evidence at trial that Medicare reimbursed
over $14 million in 1997 and 1998 to providers controlled by Defendant White and DeVarona.
DISCUSSION
I. SUFFICIENCY OF THE EVIDENCE
A. Standard of Review
We review sufficiency of the evidence claims to determine whether “any rational trier of fact
could find the elements of the crime beyond a reasonable doubt” and, in doing so, we “view[] the
evidence in the light most favorable to the prosecution, . . . giving the government the benefit of all
inferences that could reasonably be drawn from the testimony.” United States v. M/G Transp.
Servs., Inc., 173 F.3d 584, 589 (6th Cir. 1999) (citing Jackson v. Virginia, 443 U.S. 307, 319
(1979)). “A defendant claiming insufficiency of the evidence bears a very heavy burden.” United
States v. Vannerson, 786 F.2d 221, 225 (6th Cir.1986) (quoting United States v. Soto, 716 F.2d 989,
991 (2d Cir. 1983)) (internal quotation marks omitted).
B. Sufficient Evidence Supports Defendant White’s Conviction
Defendant White raises a sufficiency of the evidence challenge to his conviction on Counts
1 - 5 (Conspiracy to Commit Medicare Fraud (Count 1), Scheme5 to Defraud the Medicare Program
(Counts 2 through 4), and Use of a False Document (Count 5)). White insists that his convictions
cannot be sustained because nothing in the record suggests that his “interpretation of the related-
party regulation . . . was incorrect, much less ‘knowingly and willfully’ false or fraudulent,” and
accordingly, the evidence was insufficient to show he possessed “the requisite fraudulent intent . . .
to accomplish the substantive crimes at issue.” (Def. White’s Br. at 44-45) Additionally, Defendant
White challenges his conviction for money laundering and money laundering conspiracy (Counts
6 through 13). Viewing the evidence in the light most favorable to the prosecution, we find that a
rational trier of fact could find the essential elements of each of the offenses underlying Defendant
White’s conviction beyond a reasonable doubt.
1. Scheme to Defraud Medicare (18 U.S.C. § 1347)
A rational finder of fact could conclude beyond a reasonable doubt that Defendant White
engaged in a scheme to defraud Medicare. Title 18 U.S.C. § 1347 criminalizes Medicare fraud and,
by its terms, provides that:
5
Defendant White first argues that, as a matter of statutory and regulatory interpretation, his management
companies and the Medicare providers were not “related parties;” and, in the alternative, White advances the sufficiency
of the evidence argument. In view of the evidence presented at trial that, in fact, White knew and believed the
management companies and providers to be related parties, this argument strikes this Court as particularly disingenuous.
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Whoever knowingly and willfully executes, or attempts to execute, a scheme or
artiface –
(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 of, any health care benefit program,
in connection with the delivery of or payment for health care benefits, items, or
services, shall be fined under this title or imprisoned not more than 10 years, or both.
18 U.S.C. § 1347. To sustain a Medicare fraud conviction under § 1347, the government must prove
that the defendant “(1) knowingly devised a scheme or artifice to defraud [Medicare] in connection
with the delivery of or payment for [Medicare] benefits, items, or services; (2) executed or attempted
to execute this scheme or artifice to defraud; and (3) acted with intent to defraud.” United States
v. Raithatha, 385 F.3d 1013, 1021 (6th Cir. 2004), judgment vacated on other grounds, 543 U.S.
1136 (2005). Thus, the government must prove the defendant’s “specific intent to deceive or
defraud.” United States v. Frost, 125 F.3d 346, 354 (6th Cir. 1997).
On appeal, Defendant White primarily argues he did not have the requisite intent because
he apparently did not know the transactions were “related party” transactions under the Medicare
statute and regulations. At the outset, it should be noted that “the question of intent is generally
considered to be one of fact to be resolved by the trier of the facts . . . and the determination thereof
should not be lightly overturned.” United States v. Wagner, 382 F.3d 598, 612 (6th Cir. 2004)
(quoting United States v. Daniel, 329 F.3d 480, 487 (6th Cir. 2003)). Moreover, testimony adduced
at trial supports more than a reasonable inference that Defendant White intended to defraud
Medicare. Specifically, DeVarona’s trial testimony substantially supports such a view:6
Q. . . . [C]an you please outline in very brief terms what exactly you did to make
yourself guilty of [conspiracy to defraud Medicare]?
...
A. We – – I, participated in a scheme designed by [Defendant] White to submit
inflated contracts to Medicare so the Medicare dollars would flow to our
companies.
Q. And how was that accomplished . . . ?
A. By submitting inflated contracts amongst related parties to Medicare and not
disclosing the fact that these companies were related parties.
Q. And you said they were related parties. How were they related?
A. Because Mr. White and ourselves controlled these Medicare providers even
though we were not the officers nor directors of these companies.
Q. Were any of the other defendants involved in this?
6
DeVarona himself pled guilty and, thus, did not stand trial.
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A. . . . Barnett and . . . Macejko were the nominee [sic] owners of the Medicare
licensed facilities, and [Defendant] Suhadolnik was the person in charge of
the finances for all the operations here in Ohio to get the money to the
companies.
...
[Barnett and Macejko] were placed in an ownership position so that they
could sign off on documents that would tell Medicare that these were
independent facilities, where in reality they weren’t. They were placed there
and served at the direction of Mr. White.
(J.A. at 924-25) A reasonable jury could certainly have taken DeVarona’s testimony to establish
White’s intent and knowledge that the Medicare “related party” rule applied to the transactions
between companies they controlled.
Feldman’s testimony on the development of Pathways and the Pathways–YOH transactions
provides additional support for such a finding. He stated that White had asked Barnett and Macejko
to become owners of Pathways “because they would do whatever he asked them to do, and they
would be in a sense absentee landlords.” (J.A. at 1051) Additionally, Feldman testified that White
had set the terms of an agreement for NHS to provide day-to-day management services to Pathways,
with Barnett, Macejko, and himself – as nominal President of NHS – merely signing off. The
evidence further supports a finding of intent to defraud Medicare by concealing “related party”
status. Defendant White accomplished this both by failing to disclose the status on cost reports
submitted to Medicare, many of which White directly controlled, and by essentially recruiting sham
owners for facilities certified as Medicare providers, which later contracted with third-party service
and management providers also under his control.
Viewing the evidence in the light most favorable to the prosecution, a reasonable jury could
find Defendant White knowingly and willfully devised this scheme. White had developed a
reputation as a “Medicare guru” over years of extensive involvement in health care services and with
Medicare providers. He spearheaded the formation of HealthSecure and its various subsidiary
medical billing and staffing companies. White proposed the Pathways facility, later acquired by
Macejko and Barnett, and then entered into a management agreement (via Montrose) with Pathways.
Most directly on point, DeVarona testified about a meeting White called in September 1996 at which
he proposed the creation of a network of Medicare facilities. These facilities, according to White’s
proposal, would be owned by third parties but controlled by him, would enter into agreements with
third party medical service providers also under his control, and would pay those facilities at
significantly inflated rates. The trial record additionally shows that White executed this scheme by
actually entering into the transactions, and submitting and receiving reimbursement for management
fees billed to the Medicare providers he controlled.
2. Conspiracy to Commit Medicare Fraud (18 U.S.C. § 371)
A reasonable trier of fact could also find beyond a reasonable doubt that Defendant White
conspired to commit Medicare fraud. Title 18 U.S.C. § 371 proscribes conspiracy to defraud the
federal government. To prove conspiracy to defraud, the government must show “(1) an agreement
to accomplish an illegal objective against the United States; (2) one or more overt acts in furtherance
of the illegal purpose; and (3) the intent to commit the substantive offense, i.e., to defraud the United
States.” United States v. Douglas, 398 F.3d 407, 413 (6th Cir. 2005). The agreement need not be
explicit; rather, a “tacit or mutual understanding among the parties will suffice.” United States v.
Ellzey, 874 F.2d 324, 328 (6th Cir. 1989) (citing United States v. Bavers, 787 F.2d 1022, 1026 (6th
Cir.1985)). Further, conspiracy to defraud may be proven by circumstantial evidence that
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reasonably supports an inference of participation in some common plan. Ellzey, 874 F.2d at 328;
see also United States v. Suba, 132 F.3d 662, 672 (11th Cir. 1998).
First, DeVarona’s testimony, which we reviewed at length in the preceding discussion,
establishes an explicit agreement to criminally defraud the Medicare program. Yet, even if not taken
as an express agreement, a reasonable jury could find that the testimony of DeVarona and of
Feldman demonstrates the type of “tacit or mutual understanding among the parties” required to
establish an implicit conspiracy to defraud. See Ellzey, 874 F.2d at 328.
Second, on the evidence adduced at trial, Defendant White plainly committed overt acts in
furtherance of his scheme to defraud Medicare. This is evidenced by Defendant White’s prominent
role in several of the companies involved, including HealthSecure, Montrose, Pathways, and NHS;
a financial services agreement between Montrose and Pathways, executed by White and Barnett,
whereby Montrose contracted to provide billing and management services in exchange for fees
totaling $46,500 a month; Feldman’s testimony that Defendant White directed him to sign an
agreement on behalf of NHS to provide oversight services to Pathways at a fee of $55,000 per
month; additional testimony that Defendant White later took control of operations at NHS and
installed Defendant Suhadolnik as CFO of the company; and Medicare cost reports submitted on
Pathways’ behalf including management fees charged by Montrose and NHS alike, expressly
indicating those parties were not “related” under the “related party” rule.
Third, we have already determined that a reasonable jury could find Defendant White
intended to defraud the Medicare program and need not revisit that point here. Of course, an
exhaustive recitation of the evidence is neither necessary nor desirable here. Suffice it to say the
government put forth a substantial body of evidence, we have reviewed it, and, viewing that
evidence in the light most favorable to the government, it amply supports Defendant White’s
conviction for conspiracy to commit Medicare fraud.
3. Use of a False Document (18 U.S.C. § 1001(a)(3))
Sufficient evidence also supports Defendant White’s conviction for use of a false document.
Title 18 U.S.C. § 1001(a)(3) prohibits knowingly and willfully “mak[ing] or us[ing] any false
writing or document knowing the same to contain any materially false, fictitious, or fraudulent
statement or entry.” 18 U.S.C. § 1001(a)(3). Here, the government must prove “(1) the defendant
made a statement; (2) the statement is false or fraudulent; (3) the statement is material; (4) the
defendant made the statement knowingly and willfully; and (5) the statement pertained to an activity
within the jurisdiction of a federal agency.” Raithatha, 385 F.3d at 1022. Thus, the government
must prove that the defendant knew the statement was false or fraudulent. 18 U.S.C. § 1001(a)(3);
United States v. Brown, 151 F.3d 476, 486 (6th Cir. 1998).
The 1998 Medicare cost report submitted on behalf of Pathways contained the false
statement that Pathways had no “related party” costs. Belcher had prepared the cost report at
White’s direction and, in so doing – as he testified at trial – had approached White about the “related
party” question. Belcher expressed his concern that Montrose and Pathways were related parties
and that, accordingly, “the full management fee should not be included in the cost report.” (J.A. at
851) Belcher testified that Defendant White responded by directing him to include the full charge
in the report. In view of the foregoing, we find that Defendant White has failed to sustain his “heavy
burden” on this issue, and that there was sufficient evidence at trial to support his convictions for
Medicare fraud, conspiracy to commit Medicare fraud, and use of a false document.
4. Money Laundering and Conspiracy (18 U.S.C. §§ 1956, 1957)
Finally, we find that, viewing the evidence in the light most favorable to the prosecution,
sufficient evidence supports Defendant White’s conviction for money laundering. Here, Defendant
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White argues that the payments were used not in furtherance of unlawful activity but to pay
legitimate business expenses, and that there was no unlawful activity (Medicare fraud). White
further asserts that § 1957(a) requires the acts of money laundering to be distinct from the unlawful
activity and that the transactions challenged here would be part of a purported scheme to defraud
Medicare, and thus not distinct.
Title 18 U.S.C. § 1956(a)(1)(A)(i) makes it a violation to knowingly “conduct[] or attempt[]
to conduct . . . a financial transaction which in fact involves the proceeds of specified unlawful
activity . . . (A)(i) with the intent to promote the carrying on of specified unlawful activity.” To
prove money laundering under this Section, the government must show that Defendant
“(1) conducted a financial transaction that involved the proceeds of unlawful activity; (2) knew the
property involved was proceeds of unlawful activity; and (3) intended to promote that unlawful
activity.” United States v. McGahee, 257 F.3d 520, 526 (6th Cir. 2001) (citing United States v.
King, 169 F.3d 1035, 1039 (6th Cir.1999)). Similarly, 18 U.S.C. § 1957(a) makes it a crime for
parties to “knowingly engage[] or attempt[] to engage in a monetary transaction in criminally
derived property of a value greater than $10,000 [which] is derived from specified unlawful
activity.” 18 U.S.C. § 1957(a). The government must demonstrate that the Defendant (1) engaged
in a financial transaction involving the proceeds of unlawful activity; (2) knew the proceeds derived
from unlawful activity; and (3) the proceeds exceeded $10,000 in value. Id.
Finally, 18 U.S.C. § 1956(h) separately proscribes conspiracy to commit money laundering
under 18 U.S.C. §§ 1956 and 1957. The elements of conspiracy to commit money laundering
include (1) an agreement or understanding entered into by two or more persons to commit money
laundering, (2) the performance of an overt act in furtherance of the agreement, and (3) Defendant’s
knowing and deliberate participation in the conspiracy. United States v. Conley, 37 F.3d 970, 976-
77 (3d Cir. 1994) (citing United States v. Rankin, 870 F.2d 109, 113 (3d Cir.1989)).
Viewing the evidence in the light most favorable to the prosecution, a reasonable jury could
convict Defendant White of the offense of money laundering under both §§ 1956 and 1957, and
conspiracy to commit money laundering. DeVarona testified at trial that NHS and later HSCS billed
Douglas at inflated rates for staffing services. Douglas would then submit those costs to Medicare
for reimbursement and would pay NHS or HSCS their inflated staff charges. Evidence of one such
payment was introduced at trial, and the transfer was in the amount of $62,477. Subsequently, as
DeVarona testified, Defendant White engineered agreements with two Florida community mental
health centers: All Professional and Renaissance. With respect to each, Defendant agreed to provide
staffing to the facilities and to hold their bills until they became Medicare certified, in exchange for
the facilities agreeing to use HSCS, NHS and Montrose as their third-party service and management
service providers. Defendant White set the rates for the services. The record indicates that White
marked up certain of HSCS’ nursing and social work services by a factor of 3.2. Further, DeVarona
testified that the various third-party service providers carried the receivables until All Professional
and Renaissance were certified by borrowing funds from Pathways or from YOH (via HealthSecure
or HSCS).
Defendant White argues that Sparks’s testimony at trial shows that Montrose used the funds
to pay legitimate business expenses, not to further unlawful activity. During cross-examination,
however, Sparks admitted that although the Montrose payroll records revealed “a draw of money[]”
to Defendant White’s wife, as well as loans to both Defendant White and Mrs. White, she did not
audit those loans and advances. (J.A. at 1328-29) At any rate, Sparks’ testimony does not
necessarily defeat the overwhelming evidence introduced at trial to show proceeds from unlawful
activity being filtered back into funding further unlawful activity. Further, Defendant White argues
the transactions were part of the criminal offense of defrauding Medicare and “not subsequent
laundering of those proceeds.” (Def. White’s Br. at 75) This argument lacks merit inasmuch as the
criminal offense of defrauding Medicare occurred when Defendant knowingly engaged in related
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party transactions billing for services at an inflated rate. The offense of money laundering, however,
as discussed above, occurred when Defendant directed the transfer of fraudulently obtained funds
to organizations which subsequently engaged in further fraud – charging Medicare inflated rates for
payment to an undisclosed related party.7 Consequently, sufficient evidence supports Defendant
White’s conviction on Counts 6 through 13 of the indictment for the money laundering and money
laundering conspiracy.
II. THE GOVERNMENT’S WITNESS TESTIMONY
A. Standard of Review
We review for abuse of discretion a district court’s evidentiary rulings, including rulings on
witness testimony under Rules 701 and 702 of the Federal Rules of Evidence. JGR, Inc. v.
Thomasville Furniture Indus., Inc., 370 F.3d 519, 524 (6th Cir. 2004); see also United States v.
Bartholomew, 310 F.3d 912, 920 (6th Cir. 2002). We reverse only where the district court’s
erroneous admission of evidence affects a substantial right of the party. Fed. R. Evid. 103(a); see
also United States v. Whittington, 455 F.3d 736, 738 (6th Cir. 2006) (citation omitted).
Additionally, we review the district court’s rulings on issues raised under Federal Rule of Criminal
Procedure 16(a)(1)(G) – if any – for abuse of discretion. United States v. Harris, Nos. 04-3996, 04-
3997, 04-4030, 2006 WL 2873398 (6th Cir. Oct. 10, 2006) (unpublished).
B. Witness Testimony Did Not Affect Defendants’ Substantial Rights
Defendant White assigns error on three bases: first, that the district court improperly denied
White’s motion in limine to exclude the testimony of several government witnesses; second, that the
district court abused its discretion in permitting witnesses with specialized knowledge to proffer lay
testimony at trial; and third, that the government failed to provide adequate notice under Federal
Rule of Criminal Procedure 16(a)(1)(G). Defendant Suhadolnik advances substantially the same
challenge.
Defendants requested “a written summary of any expert testimony which the government
intend[ed] to offer in evidence under Rules 702, 703, or 705 [of the] Federal Rules of Evidence . . . ,
to include a description of the witnesses’ opinions, the bases and reasons therefor and the witnesses’
qualifications.” (J.A. at 102, 115, 117) The government responded – three weeks after the
discovery deadline had run – that it expected seven witnesses to testify at trial either as expert or fact
witnesses. In its response, the government offered only generalized information about the nature
of the expected testimony, along with the witnesses’ contact information and one sentence detailing
their qualifications. During pretrial proceedings, the district court decided that the witnesses who
worked as Medicare auditors “really weren’t experts per se, [but rather] that they were people who
work in the industry.” (J.A. at 909) At trial, the government did not qualify the challenged
witnesses as experts, although preliminary questions to the Medicare auditors established their work
experience and background.8 Rather, the district court permitted each challenged witness to testify
as lay witnesses pursuant to Federal Rule of Evidence 701.
7
Defendant cites the Second Circuit’s opinion in United States v. McCarthy in support of this argument. What
Defendant fails to state, however, is that McCarthy also provides that “when the underlying crime is completed, a
transaction conducted with the proceeds from that crime may provide the basis for a money laundering conviction,” and
further notes, citing Third Circuit law, that “funds became proceeds of fraud when removed from the control of the
victims and placed under control of defendants.” 271 F.3d 387, 395 (2d Cir. 2001).
8
On appeal, Defendants specifically cite to testimony put forth by Reyes, Cynthia MacDonald (“MacDonald”),
Steven Shields (“Shields”), David Eve (“Eve”), all of whom were Medicare auditors, and to the testimony of DeVarona
and Feldman.
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At the outset, we hold that DeVarona and Feldman properly testified as lay witnesses.
Defendant White’s challenge to the admissibility of DeVarona’s testimony hinges on DeVarona’s
statement, “All these contracts contained a significant profit margin which rendered them
unreasonable.” (Def. White’s Br. at 66 (citing J.A. at 985-86)) At a sidebar to discuss defense
counsel’s objections to this statement, the district judge admonished the government counsel that
DeVarona could “testify as to what he believed he did wrong and the co-conspirators,” but not “in
general what a related party is and were there related parties.” (J.A. at 984) Challenging the
admissibility of Feldman’s testimony, Defendant White takes issue with Feldman’s testimony that
White had “control” over certain of the businesses. (Def. White’s Br. at 66 (citing J.A. at 1040-41))
Defendants’ challenge to the testimony of DeVarona and Feldman, fact witnesses directly involved
in the transactions at issue in this case, cannot seriously be sustained. Moreover, the district judge
instructed the prosecutor to avoid questioning that would enter the unauthorized waters of expert
testimony. Accordingly, we find no abuse of discretion inasmuch as the court properly confined
DeVarona and Feldman to lay testimony.
We turn now to the closer question – whether the Medicare auditors properly testified as lay
witnesses. Reyes was employed as an audit manager by AdminaStar Federal, the Medicare Fiscal
Intermediary responsible for Pathways and Ashley Place (a nursing home formerly owned by
Barnett and Macejko). As the government described in its Rule 16 response, Reyes was “involved
with the Medicare interim rate setting and Medicare cost report auditing” for Pathways. (J.A. at 83)
Also in that response, the government indicated that Reyes might be called as a fact witness.
Ultimately, Reyes did testify as a fact witness. She testified about the structure of the Medicare
program generally, the work performed by her employer as a Fiscal Intermediary, the process for
paying claims, her personal contact with Defendant Suhadolnik, and her work on the Pathways
audits. Reyes reviewed Pathways’ cost reports on the record, as well as relevant parts of the
Medicare Provider Reimbursement Manual. At several points during Reyes’ testimony, defense
counsel objected – specifically, when the government asked9Reyes: (1) what “reasonable cost”
means; and (2) what constitutes a “related-party transaction.” (J.A. at 1182, 1186) With respect
to defense counsel’s objection to the question regarding “related-party transactions,” the district
judge conducted a side-bar on the record. She requested that the government explain how such a
definition would relate to Reyes’ duties at AdminiStar. The prosecutor replied that, as a part of her
auditing duties, Reyes “examin[es] th[e] issue, a question of were there related parties involved.”
(J.A. at 1186) The district judge then permitted Reyes to testify to “her own understanding of
related parties.” (J.A. at 1187)
MacDonald was an auditor/supervisor employed by Mutual of Omaha, and worked on audits
for the Douglas and New Hope facilities. At trial, MacDonald testified to the Medicare provider
reimbursement process generally, and more specifically, to “[her] understanding of . . . various
Medicare concepts,” including reasonable costs and related party transactions. (J.A. at 1107-09,
1112) MacDonald further reviewed New Hope’s cost reports in court and discussed related-party
searches conducted during the audit process. Shields likewise worked at Mutual of Omaha as an
auditor for the Douglas and New Hope facilities. Like MacDonald, Shields testified at trial to “[his]
understanding . . . of [various Medicare] concepts as [he] experienced them” while working for
Mutual of Omaha. (J.A. at 1251) Shields’ testimony included an overview of the Medicare program
and the audit process. Additionally, Shields specifically testified to his understanding of the concept
related-party transaction and to his role in auditing the Douglas facility’s cost reports. Finally, Eve
worked as an auditor at AdminaStar Federal along with Reyes. At trial, he described the type of
work performed by a Fiscal Intermediary, as well as the parameters of his job as an auditor. Eve
9
Defendant Suhadolnik’s brief alleges that Reyes “explained the term ‘cost-related organization’ . . . by
referencing specific portions of the PRM.” (Def. Suhadolnik’s Br. at 43-44) In fact, she was reading verbatim from the
PRM, an exhibit admitted into evidence, at that point.
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testified to his understanding of the Medicare regulations with respect to the basis for
reimbursement, the prudent buyer concept, and the term related-party transactions. Eve discussed
the initial process for certifying new Medicare providers and the reporting requirements applicable
to related-party transactions. Further, he read portions of the Provider Reimbursement Manual
applicable to related-party transactions.
We find the district court erred in part in allowing Reyes, MacDonald, Shields, and Eve
(collectively, “the Fiscal Intermediary witnesses”) to testify as lay witnesses. Rule 701 provides that
[i]f the witness is not testifying as an expert, the witness’ testimony in the form of
opinions or inferences is limited to those opinions or inferences which are (a)
rationally based on the perception of the witness, (b) helpful to a clear understanding
of the witness’ testimony or the determination of a fact in issue, and (c) not based on
scientific, technical, or other specialized knowledge within the scope of Rule 702.
Fed. R. Evid. 701 (emphasis added). In 2000, the drafters amended Rule 701 to foreclose lay
witness testimony “based on scientific, technical, or other specialized knowledge” – testimony more
properly given by a qualified expert. In amending the Rule, the drafters intended to preclude a party
from surreptitiously circumventing “the reliability requirements set forth in Rule 702 . . . through
the simple expedient of proffering an expert in lay witness clothing” and to “ensure[] that a party
will not evade the expert witness disclosure requirements set forth in . . . Fed. R. Crim. P. 16 by
simply calling an expert witness in the guise of a layperson.” Fed. R. Evid. 701 advisory
committee’s note (2000).
To distinguish lay witness testimony from expert testimony, the Advisory Committee
incorporated the Tennessee Supreme Court’s treatment of the issue in State v. Brown, 836 S.W.2d
530, 549 (Tenn. 1992). Under Brown, lay testimony “results from a process of reasoning familiar
in everyday life,” whereas “an expert’s testimony results from a process of reasoning which can be
mastered only by specialists in the field.” Brown, 836 S.W.2d at 549 (citation omitted).
Accordingly, a lay witness could testify, for example, that “a footprint in snow looked like someone
had slipped, or that a substance appeared to be blood.” Id. at 550 (internal citations omitted). Yet,
lay testimony is improper where it encompasses opinions that “call[] for specialized skill or
expertise” – such as a paramedic’s testimony that skull trauma caused the bruises on a victim’s face.
Id. at 550. The distinction is far from clear in cases where, as here, a witness with specialized or
technical knowledge was also personally involved in the factual underpinnings of the case. See
United States v. Ayala-Pizarro, 407 F.3d 25, 28 (1st Cir. 2005) (citation omitted) (observing that
“[t]he line between expert testimony under Fed. R. Evid. 702 . . . and lay opinion testimony under
Fed. R. Evid. 701 . . . is not easy to draw”); United States v. Cruz, 363 F.3d 187, 194 (2d Cir. 2004)
(“District courts must be especially vigilant in evaluating the admissibility of expert testimony
where . . . a [witness] is called on to testify as a fact witness but also functions as an expert.”);
United States v. Perkins, 470 F.3d 150, 155 (4th Cir. 2006) (citations omitted).
Since the effective date of the 2000 amendment, we have had few opportunities to explore
this distinction. In United States v. Ganier, 468 F.3d 920, 922 (6th Cir. 2006), the government
challenged the district court’s decision to exclude a government computer specialist’s expert
testimony at trial for failure to provide adequate notice under Federal Rule of Criminal Procedure
16(a)(1)(G). There, the government argued that the computer specialist would offer “lay testimony
available by ‘running commercially-available software, obtaining results, and reciting them.’” Id.
at 925. We rejected this claim, finding that “such an interpretation would require [the witness] to
apply knowledge and familiarity with computers and the particular forensic software well beyond
that of the average layperson.” Id. In so doing, we acknowledged our previous decision in United
States v. Wells, 211 F.3d 988, 997-98 (6th Cir. 2000), wherein we “allowed witnesses to apply
specialized knowledge while giving lay testimony.” Id. at 926-27. Nevertheless, we ultimately
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concluded that the computer specialist’s testimony fell outside the proper bounds of Rule 701 in
light of the 2000 amendment, which went into effect following Wells. Id. Accordingly, we found
that the government violated Federal Rule of Criminal Procedure 16(a)(1)(G). Id. at 927.
Our sister circuits have also probed the issue. In United States v. Cruz, 363 F.3d 187, 189
(2d Cir. 2004), the Second Circuit held that the district court improperly admitted expert testimony
of a Special Agent for the Drug Enforcement Administration (DEA). Because the DEA agent
participated in surveillance of the drug operation at issue, the government called him as a fact
witness at trial. Id. at 193. However, the district court permitted the DEA agent to proceed as
though qualified as an expert and to testify to the meaning of the phrase “to watch someone’s back”
as used in a drug transaction. Id. at 191, 193. The DEA agent “relied on his expert opinion to
interpret the meaning of the phrase . . . after [the defendant] used those terms to describe his role”
in the transaction, effectively drawing conclusions about the defendant’s conduct. Id. at 194. The
Cruz court concluded that the district court erred in permitting the DEA agent to offer expert
opinions on the meaning of an ambiguous phrase, noting that the government had failed to proffer
evidence that the phrase was used as a “drug code.” Id. at 197. Additionally, the court found that,
in any event, the district court “failed to fulfill its gatekeeping functions” by permitting the DEA
agent to testify as though an expert when the government had not given notice under Federal Rule
of Criminal Procedure 16. Id. at 196 n.2.
In United States v. Garcia, 413 F.3d 201, 215 (2d Cir. 2005), the Second Circuit explored
the 2000 amendment to Rule 701 in some detail. At the outset, the Garcia court observed that “a
lay opinion must be the product of reasoning processes familiar to the average person in everyday
life.” Id. (citing Fed. R. Evid. 701 advisory committee’s notes (2000)). The drafters incorporated
the “final foundation requirement . . . to prevent a party from conflating expert and lay opinion
testimony thereby conferring an aura of expertise on a witness without satisfying the reliability
standard . . . in Rule 702 and the pre-trial disclosure requirements set forth in Fed. R. Crim. P. 16.”
Id. The challenged testimony in Garcia was that of a DEA agent who had investigated the
defendant’s case and who testified at trial as to the defendant’s role in the charged conspiracy. Id.
at 210 (recounting the agent’s testimony that “in his opinion, [Defendant] was a ‘partner . . . in
receiving cocaine from [a supplier]’”). There, the court found the agent’s testimony inadmissible
under Rule 701 because “his reasoning process was not that of an average person in everyday life;
rather, it was that of a law enforcement officer with considerable specialized training and experience
in narcotics trafficking.” Id. at 217.
The Fourth Circuit considered whether police officers properly testified as lay witnesses,
having observed the defendant (a fellow officer) kick and injure a motorist who fled from a routine
traffic stop, in United States v. Perkins, 470 F.3d 150, 151-52, 156 (4th Cir. 2006). The officers
testified “in terms of their eyewitness observations and particularized experience” to matters
common in nature, which “required . . . a limited amount of expertise.” Id. at 156 (internal brackets
and quotations omitted). Thus, the Perkins court held the testimony properly admitted under R. 701.
In United States v. Griffin, 324 F.3d 330, 347 (5th Cir. 2003), the Fifth Circuit considered claims
that the district court erred in permitting the former director of the Texas Department of Housing
and Community Affairs (TDHCA) to testify to the applicability of state law. The challenged witness
“testified as to her understanding of the state ethics rules and what TDHCA employees were
instructed about those rules.” Id. at 347. The court found that although the witness’s testimony met
with the requirements of Rule 701, the district court erred in admitting it since it constitutes “[the
witness’] own interpretation of the law.” Id. at 347-48 (citing Huff v. United States, 273 F.2d 56,
61 (5th Cir. 1959)).
Finally, in Tampa Bay Shipbuilding & Repair Co. v. Cedar Shipping Co., Ltd., 320 F.3d
1213, 1217-18 (11th Cir. 2003), the defendant shipping company objected to the lay testimony of
plaintiff repair company’s project manager and superintendent, which characterized plaintiff’s repair
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charges as reasonable. According to the defendant, “any testimony as to ‘industry standards’ and
reasonableness are necessarily precluded due to Rule 701’s 2000 amendment.” Id. at 1217. The
defendant similarly objected to testimony of the plaintiff’s subcontractor, cost-estimating consultant,
and chief executive officer. Id. at 1218-20. The Cedar Shipping court reviewed the 2000
amendment to Rule 701, along with the Advisory Committee’s note, and concluded that “opinion
testimony by business owners and officers is one of the prototypical areas intended to remain
undisturbed.” Id. at 1221-22. The court found that the plaintiff’s owners, officers, and employees
properly testified under Rule 701 because of their “particularized knowledge” acquired over years
working with the business.10 Id. at 1223.
As the precedent clarifies, the Federal Rules of Evidence distinguish between lay and expert
testimony, not witnesses. See Fed. R. Evid. 701; id. at advisory committee’s notes (2000); Fed. R.
Evid. 702. One witness may properly offer lay testimony and, at the same time, may be precluded
from putting forth expert testimony. Defendants do not argue – nor could they – that the district
court should have entirely precluded each of the challenged witnesses from testifying. Each
challenged witness had personal knowledge of facts relevant to the case – whether from their role
auditing cost reports submitted by Defendants, or from their personal interactions with Defendants.
Much of their testimony fits squarely within the proper bounds of Rule 701 and we do not discuss
at length the propriety of that portion of the witness testimony.
Nonetheless, the district court erred when it allowed the Fiscal Intermediary witnesses to
testify without being qualified as experts. Often times, the testimony elicited from the Fiscal
Intermediary witnesses “require[d] [them] to apply knowledge and familiarity . . . well beyond that
of the average lay person.” See Ganier, 468 F.3d at 925; see also Brown, 836 S.W.2d at 550 (lay
testimony is improper where it encompasses opinions that “call[] for specialized skill or expertise”).
The Medicare program operates within a complex and intricate regulatory scheme and we cannot
say that the average lay person, including any Medicare beneficiary, commands a working
knowledge of Medicare reimbursement procedures. Cf. United States v. Strange, 23 F. App’x 715,
717 (9th Cir. 2001) (observing that testimony regarding Medicare regulations and reimbursement
procedures was “entirely appropriate for an expert”). The Fiscal Intermediary witnesses relied to
a significant degree on specialized knowledge acquired over years of experience as Medicare
auditors in testifying to the structure and procedures inherent in the Medicare program, as well as
their understanding of various terms. See Cruz, 363 F.3d at 194. An average lay person would be
incapable of making sense of the various exhibits which the Fiscal Intermediary witnesses helped
to clarify and link together on the basis of the “reasoning process” employed daily in their highly
specialized jobs. See Garcia, 413 F.3d at 217. Indeed, as in Garcia, “the government made no
attempt to demonstrate that [the witnesses’] challenged opinion[s] [were] informed by reasoning
processes familiar to the average person in everyday life rather than by . . . technical, or other
10
In JGR, Inc. v. Thomasville Furniture Industries, Inc., 370 F.3d 519, 524 (6th Cir. 2004), a case similar to
Cedar Shipping, we reviewed a district court’s decision to admit under Rule 701 the testimony of a certified public
accountant and lawyer on the loss of profits and business value incurred by the plaintiff following the defendant’s alleged
breach of contract. Although the challenged witness rendered accounting services to the plaintiff company, he had no
ownership stake in the company, nor did he serve as an officer or director. Id. at 526. Because the witness relied solely
on information provided by the plaintiff company to calculate projected loss, we concluded that he lacked the basis
necessary to offer such lay testimony. Id. JGR, Inc. thus turned on the witness’s lack of personal perception.
Nevertheless, it bears noting that the accountant there contracted to provide services to plaintiff company because of his
expertise. Additionally, he acquired this expertise not through personal involvement in the company, but through
education and training.
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 17
specialized knowledge.” See id. at 216. Thus, the district court erred in permitting the Fiscal
Intermediary witnesses to effectively testify as experts without first being qualified.11
Yet, such error is not in all cases reversible; rather, reversible error occurs only where the
district court’s erroneous admission of evidence affects a substantial right of the party. Fed. R. Evid.
103(a); see also Whittington, 455 F.3d at 738 (quoting United States v. Cope, 312 F.3d 757, 775 (6th
Cir. 2002)); Field v. Trigg County Hosp., Inc., 386 F.3d 729, 736 (6th Cir. 2004) (citing Argentine
v. United Steelworkers of Am., AFL-CIO, 287 F.3d 476, 486 (6th Cir. 2002)). “An error affects a
defendant’s substantial rights if it is likely to have had any substantial effect on his conviction.”
Whittington, 455 F.3d at 740 (citing United States v. Gibbs, 182 F.3d 408, 430 (6th Cir. 1999)); see
also United States v. Baldwin, 418 F.3d 575, 582 (6th Cir. 2005) (quoting Mitchell v. Esparza, 540
U.S. 12, 17-18 (2003)) (“An error is harmless ‘when it appears beyond a reasonable doubt that the
error complained of did not contribute to the verdict obtained.’”). It follows, then, that our “inquiry
involves an assessment of the likelihood that the error affected the outcome of the case.” Schrand
v. Federal Pac. Elec. Co., 851 F.2d 152, 157 (6th Cir. 1988) (citation omitted). We look, then, to
“the proceedings in their entirety, in the light of the proofs at trial.” Beck v. Haik, 377 F.3d 624, 635
(6th Cir. 2004) (internal citations and quotations omitted).
Defendants preserved their objections for appellate review by filing a motion in limine before
trial to exclude expert testimony from the Fiscal Intermediary witnesses, and by renewing their
objections outside the hearing of the jury at trial. See Fed. R. Evid. 103(a). Additionally, they
timely and specifically objected at various points during the government’s examination of the Fiscal
Intermediary witnesses in an attempt to more narrowly cabin the witnesses’ testimony. Although
the district court erred and Defendants preserved the error for review, we find Defendants’
substantial rights were not harmed.
To assess the error’s effect, we consider the relation of the wrongfully admitted (or excluded)
evidence to the critical question for the jury, the importance of the evidence, and the closeness of
the case. Field v. Trigg County Hosp., Inc., 386 F.3d 729, 736 (6th Cir. 2004). The improperly
admitted evidence here largely consisted of background information apparently intended to aid the
jury in developing a basic understanding of Medicare, effectively enabling the jury members to
make sense of other properly admitted evidence. By any stretch of the imagination, this was not a
close case. In fact, the government adduced overwhelming evidence of Defendants’ guilt at trial
beyond that testimony erroneously admitted by the district court. See Whittington, 455 F.3d at 740
(finding two witnesses’ “testimony alone . . . sufficient to sustain the jury verdict”); Baldwin, 418
F.3d at 582 (finding error harmless in face of “overwhelming evidence of guilt beyond the
erroneously admitted testimony”).
First, the bulk of the Fiscal Intermediary witnesses’ testimony properly constitutes lay
testimony since they discussed the facts as they personally perceived them while auditing the
Medicare cost reports submitted by Defendants on behalf of the providers. Those witnesses testified
concerning various government exhibits, including cost reports and supporting documentation
submitted for Medicare audits of Pathways, Douglas, and New Hope. The Fiscal Intermediary
witnesses additionally read from the Medicare Provider Reimbursement Manual, which had
previously been admitted into evidence, those portions intended to clarify and explain the related-
party rule. Second, Feldman and De Varona testified at some length about the transactions between
the Medicare providers and the various third party staffing and supply companies, and about
11
On appeal, the government primarily relies on two cases to support its claim that its Fiscal Intermediary
witnesses properly gave lay witness testimony – United States v. Erickson, 75 F.3d 470 (9th Cir. 1996) and United States
v. Gold, 743 F.2d 800 (11th Cir. 1984). However, both Erickson and Gold were decided before the 2000 amendments
to Rule 701 and, although somewhat instructive factually, these cases do not consider whether the challenged testimony
more properly fell within the ambit of Rule 702.
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Defendants’ involvement in those transactions and in making representations to the Medicare Fiscal
Intermediaries. Third, many additional witnesses gave proper lay testimony describing the parties’
interactions. Further, the government tendered a list of over three hundred exhibits to the district
court prior to trial. In view of the overwhelming evidence adduced at trial, even “stripping the
erroneous action from the whole,” we find “the judgment was not substantially swayed by the error.”
See Kotteakos v. United States, 328 U.S. 750, 765 (1946). We turn next to the question of
compliance with Federal Rule of Criminal Procedure 16.
The district court did not rule on Defendants’ claims that the government rendered
insufficient notice under Rule 16 because it found the Fiscal Intermediary witnesses were not
“experts per se.” (See J.A. at 909) Accordingly, we examine the government’s notice only
inasmuch as it informs and impacts our harmless error analysis. Federal Rule of Criminal Procedure
16(a)(1)(G) requires the government to “give to the defendant a written summary of any testimony
that [it] intends to use under Rules 702, 703, and 705 of the Federal Rules of Evidence during its
case-in-chief at trial” upon request. Fed. R. Crim. P. 16(a)(1)(G). The Rule goes on to require a
description of “the witness’s opinions, the bases and reasons for those opinions, and the witness’s
qualifications.” Id. Correspondingly, for failure to comply, Rule 16(d)(2)(C) gives the district court
discretion to prohibit the introduction of the evidence. Fed. R. Crim. P. 16(d)(2)(C). Of course,
Federal Rule of Criminal Procedure 16 does not require a similar response for testimony of a lay
witness offered under Federal Rule of Evidence 701. United States v. Wells, 211 F.3d 988, 998 (6th
Cir. 2000); United States v. Perry, 438 F.3d 642, 650 (6th Cir. 2006).
The government’s notice provided Defendants pursuant to Federal Rule of Criminal
Procedure 16(a)(1)(G) stated that the Fiscal Intermediary witnesses would testify along the
following lines:
They are familiar with Medicare rules, regulations, and procedures with respect to
cost reporting and costs allowable as reimbursement to providers of medical services
to Medicare patients. Costs reimbursed under the Medicare program include the
reasonable costs actually incurred but excludes any costs unnecessary to the efficient
delivery of needed health services. “Related Party” costs are only allowed for the
actual cost to the party related to the provider if otherwise reasonable and necessary.
A related party may include a person or entity which has significant influence over
the provider. Medicare is keenly interested in knowing whether there were any costs
attributable to a “related party” in order to determine what costs would be properly
allowed to the provider.
(J.A. at 82) For each Fiscal Intermediary witness, the government indicated their title and employer,
their contact information and, with respect to Reyes and Eve, their experience in Medicare cost
report auditing. The government did not attach their resumes or any additional documentation.
The record clearly reflects that the government’s Rule 16 response did not describe in great
detail “the witness’s opinions, the bases and reasons for those opinions, and the witness’s
qualifications.” See Fed. R. Crim. P. 16(a)(1)(G). In 1993, the drafters amended Rule 16 to require
such disclosure “to minimize surprise that often results from unexpected expert testimony . . . and
to provide the opponent with a fair opportunity to test the merit of the expert’s testimony through
focused cross-examination.” Fed. R. Crim. P. 16 advisory committee’s note (1993). To that end,
the summary contemplated under Rule 16(a) “should inform the requesting party whether the expert
will be providing only background information on a particular issue or whether the witness will
actually offer an opinion.” Fed. R. Crim. P. 16 advisory committee’s note (1993). “In some
instances, a generic description of the likely witness and that witness’s qualifications may be
sufficient, e.g., where a DEA laboratory chemist will testify, but it is not clear which particular
chemist will be available.” Id. The summary of the bases of the expert’s opinion must be provided
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 19
even where the proffered experts prepared no reports, and can include “any information that might
be recognized as a legitimate basis for an opinion under Federal Rule of Evidence 703.” Id. Rule
16 further gives the district court discretion to impose an appropriate remedy on the non-compliant
party for violations of the Rule, including an order to permit the discovery sought, a continuance,
an order precluding the party from introducing the challenged evidence, or any other just relief. Fed.
R. Crim. P. 16(d)(2)(A)-(D).
Here, we find the government failed to comply with Rule 16’s minimal notice requirements.
First, notice of the Fiscal Intermediary witnesses’ qualifications was insufficient. The government’s
Rule 16 disclosure included only a vague avowal of experience concerning cost report issues and
Medicare audits, along with the witnesses’ titles, employers, and contact information. This case is
not like that contemplated by the Advisory Committee where a generic description of the witnesses’
qualifications would suffice, as the government had already identified the witnesses. Cf. Fed. R.
Crim. P. 16 advisory committee’s note (1993). The disclosure made no attempt to quantify the
witnesses’ experience, nor to attach so much as a resume. See United States v. Jackson, 51 F.3d
646, 650-51 (7th Cir. 1995) ( finding the disclosure of witness qualifications – that opinions would
be based “on their years of training and experience in the area of drug investigations” – sufficient);
United States v. Duvall, 272 F.3d 825, 828 n.1 (7th Cir. 2001) (concluding that one sentence
indicating the expert’s testimony would be “based on his education, training and experience” with
his employer police department and the DEA, along with a copy of his resume, “conforms to the
minimum that we have found adequate”). In short, it left Defendants no better prepared to challenge
the witnesses’ qualifications at trial. Second, the summary of the witnesses’ expected testimony was
also lacking. The summary did generally inform Defendants that the witnesses would give
background testimony relevant to the “Medicare rules, regulations, and procedures with respect to
cost reporting and costs allowable as reimbursement to providers.” (See J.A. at 82) Additionally,
it mentioned the concepts of “reasonable costs” and “related party” costs. (Id.) The government’s
notice here essentially listed “general subject matters to be covered, but did not identify what
opinion the expert would offer on those subjects.” See Duvall, 272 F.3d at 828 (finding notice
insufficient).
Notwithstanding this failure to comply, we find nothing to support reversal. See Fed. R.
Crim. P. 52(a) (“Any error . . . that does not affect substantial rights must be disregarded.”); United
States v. Basinger, 60 F.3d 1400, 1407 (9th Cir. 1995) (citation omitted). Defendants here “did not
suffer any surprise” and, on appeal, failed to “suggest how the outcome of the case would have been
different” had they been provided with a more detailed summary of the Fiscal Intermediaries’
testimony or documentation related to that testimony, if any. Cf. United States v. Tarwater, 308
F.3d 494, 515 (6th Cir. 2002) (finding no abuse in district court’s decision to allow testimony
notwithstanding a Rule 16 violation); United States v. Figueroa-Lopez, 125 F.3d 1241, 1247 (9th
Cir. 1997) (finding non-compliance with Rule 16 did not affect the defendant’s substantial rights
as he did “not demonstrate[] how or why the verdict would have been different if he had been given
notice that [the witness] planned to testify about his drug trafficking modus operandi”); United
States v. Tinoco, 304 F.3d 1088, 1119 (11th Cir. 2002) (holding that even if the district court erred
in admitting lay testimony and the government failed to comply with Rule 16’s disclosure
requirements, the defendants did not show how this failure “actually affected their ability to present
a defense”). Indeed, Defendants undoubtedly had notice of the exhibits that the Fiscal Intermediary
witnesses reviewed on the stand, including the Provider Reimbursement Manual and cost reports
filed for the various providers, prior to trial. Moreover, they presumably had access to those exhibits
and were prepared to cross-examine witnesses in that regard. See Fed. R. Crim. P. 16 advisory
committee’s note (1993). Defendants also put on a witness of their own – Sparks, the certified fraud
examiner – to counter the testimony of the Fiscal Intermediary witnesses. As previously discussed,
those witnesses primarily gave proper lay testimony, and only part of their testimony required
qualification as an expert. Finally, to the extent that the testimony of the Fiscal Intermediary
witnesses could be taken to support an inference that Defendant White knew of the related party
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 20
rule, other evidence at trial served the very same purpose.12 Consequently, we hold Defendants’
substantial rights were unaffected by the district court’s error.
III. DEFENDANTS’ MOTIONS FOR NEW TRIAL
A. Standard of Review
We review the district court’s decision to deny a motion for new trial on the basis of newly
discovered evidence or Brady violations under an abuse of discretion standard. Frost, 125 F.3d at
382; United States v. Jones, 399 F.3d 640, 647 (6th Cir. 2005). The district court abuses its
discretion when it relies on clearly erroneous findings of fact, uses an erroneous legal standard, or
improperly applies the law. United States v. Heavrin, 330 F.3d 723, 727 (6th Cir. 2003).
B. Motion for New Trial
On appeal, Defendants argue that the district court erred in denying their motions for new
trial, made on the basis of newly discovered evidence. In the alternative, Defendants 13 argue that the
district court erred in declining to hold an evidentiary hearing on their Brady claim. Defendant
White refers to (1) allegedly exculpatory information Weir (former CEO of YOH) communicated
to the government during the trial, and (2) information reviewed and produced by Potter, the fraud
examiner who had purportedly worked on Defendants’ case but who was not introduced as a
government witness (“the Potter materials”). Defendant Suhadolnik primarily relies on the Potter
materials. We find the district court abused its discretion in failing to conduct an evidentiary hearing
to explore the nature of the Potter materials.
Following conviction but before sentencing, Defendants learned that Potter, the
government’s “potential” witness in this case, had received an award for fraud examination and,
among his list of “successful cases” had cited the convictions of Defendant White and DeVarona.
Defendants White and Suhadolnik brought a motion to compel Potter to produce any documents he
reviewed at the government’s request in preparing to testify and to appear for examination. The
district court denied the motion, finding Defendants had no “right to discovery of a witness who was
not called at trial absent Brady material.” (J.A. at 40) Post-trial, Defendant White filed a FOIA
request with HHS seeking any documents “created, prepared by or received by IntegriGuard
[Potter’s employer] . . . [or] Charles Potter” with respect to Defendants’ cases. (J.A. at 247)
Defendant White received a response on January 10, 2005 indicating that the request yielded 57,436
pages of documentation, which White could not afford to obtain because of the duplication fee.
On February 4, 2005, Defendants White and Suhadolnik filed a motion for new trial on the
basis of newly discovered evidence. The district court denied this motion. On September 15, 2005,
12
For example, a substantially redacted version of Defendant White’s deposition transcript from a related civil
case (Youngstown Osteopathic Hosp. v. Pathways Center) was admitted into evidence as Government Exhibit 224. (See
J.A. at 101-A, 1733) Therein, Defendant White stated that his involvement in healthcare began in 1966, and that he
“wrote the original Medicare audit program and did the first Medicare audit that was ever done in the U.S.,” adding “I
been with Medicare longer than I care to remember.” (J.A. at 1764)
13
Defendant Suhadolnik’s brief on appeal also recasts this issue as a violation of his Sixth Amendment Right
to Present a Defense. It is, however, more properly treated here, as part of his challenge to the district court’s denial of
a motion for new trial. We note additionally that Defendant Suhadolnik advances a rather perfunctory argument that
cumulative trial errors violated his due process rights, requesting this Court “to review the entire trial,” but failing to cite
specific errors save the newly discovered Potter evidence. We deem Defendant Suhadolnik’s argument that cumulative
errors violated his due process rights waived. See Moore v. LaFayette Life Ins. Co., 458 F.3d 416, 448 (6th Cir. 2006)
(“[The courts of appeals] are not self-directed boards of legal inquiry and research, but essentially arbiters of legal
questions presented and argued by the parties.”) (internal citations omitted).
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 21
counsel for Defendant Suhadolnik submitted a separate FOIA request to HHS. In response, HHS
disclosed an allegedly altered version of an expert reported prepared by Defendant’s expert, Sparks.
Exculpatory opinions and conclusions had been extracted from the report before it was allegedly
given to Potter for review. Defendant White’s counsel also submitted a revised FOIA request, and
in response HHS produced copies of e-mail communications indicating that Potter had worked on
the case. Additionally, HHS identified 42 pages responsive to the request, but entirely withheld 24
of them.
Working in conjunction with Defendants even after their convictions, Sparks avers that she
made a FOIA request with IntegriGuard, to which it identified 400 responsive documents. Of those,
IntegriGuard sent only a few. In the documents produced to Sparks, she identified that the version
of her expert report provided by CMS to Potter had been edited to exclude opinions, bases, and
testimony exculpatory to Defendants. Sparks further filed FOIA requests with CMS. CMS
responded by sending 16 of 70 pages to Sparks and withholding 54 pages entirely. A letter from
CMS indicates that 46 documents were withheld due to privilege, as they “constitute internal agency
communications that are both predecisional . . . and deliberative.” (J.A. at 407-08) CMS further
withheld 8 pages which contained Potter’s resume and biography, citing an exemption set forth in
5 U.S.C. § 552(b)(6), which permits withholding of “personnel . . . files,” among other things. (J.A.
at 408)
Among the documents Sparks received was the allegedly edited version of her expert report.
When Sparks contacted CMS to obtain the additional 8 pages of the report – or an explanation – she
received a phone call from CMS indicating that the agency had provided her “with the exact same
expert report that IntegriGuard provided [their] office.” (J.A. at 429) Apparently, after following
up with IntegriGuard, Sparks learned that the edited version had been given to them by the Assistant
U.S. Attorney working with CMS. On that basis, Defendants again moved for a new trial, and in
the alternative for an evidentiary hearing, alleging Brady violations. The district court again denied
the motion, and Defendants appeal that denial.
Prosecutorial suppression of evidence favorable to the accused implicates the Due Process
Clause of the Fifth and Fourteenth Amendments. In Brady v. Maryland, 373 U.S. 83, 87 (1963), the
Supreme Court held that, where the accused makes a pre-trial request for evidence favorable to his
case, the government violates his due process rights in suppressing such evidence “where [it] is
material either to guilt or to punishment, irrespective of the good faith or bad faith of the
prosecution.” It matters little whether the government suppresses the evidence out of oversight or
guile. Id. at 88; see also Giglio v. United States, 405 U.S. 150, 154 (1972); United States v. Agurs,
427 U.S. 97, 110 (1976) (“Nor do we believe the constitutional obligation is measured by the moral
culpability, or the willfulness, of the prosecutor.”). Exculpatory evidence and impeaching evidence
alike can be “favorable to [the] accused” within the meaning of Brady and the defendant need not
show the evidence would likely lead to acquittal. United States v. Bagley, 473 U.S. 667, 676 (1985);
Giglio, 405 U.S. at 154; Agurs, 427 U.S. at 111; Frost, 125 F.3d at 382.
Rather, the evidence must be material. “The proper standard of materiality must reflect our
overriding concern with the justice of the finding of guilt.” Agurs, 427 U.S. at 112. Accordingly,
the “touchstone of materiality” is “a reasonable probability that, had the evidence been disclosed to
the defense, the result of the proceeding would have been different.” Bagley, 473 U.S. at 682
(plurality); Kyles v. Whitley, 514 U.S. 419, 434 (1995); see also Giglio, 405 U.S. at 154; Jones, 399
F.3d at 648. Further, whether the accused requests the suppressed evidence – in words however
broad – or makes no request at all, the government nevertheless has a duty to disclose material
evidence. Bagley, 473 U.S. at 676; Strickler v. Greene, 527 U.S. 263, 280 (1999); Frost, 125 F.3d
at 382. As the Supreme Court recently summarized, a “true Brady violation” has three aspects.
Strickler, 527 U.S. at 281. “The evidence at issue must be favorable to the accused, either because
it is exculpatory, or because it is impeaching; that evidence must have been suppressed by the State,
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either willfully or inadvertently; and prejudice must have ensued.” Id. at 281-82. A deprivation of
due process occurs where all three aspects are present.
However, in camera review of the evidence sought may be appropriate upon a lesser
showing. In Pennsylvania v. Ritchie, 480 U.S. 39, 43 (1987), a defendant charged with sexually
abusing his daughter sought access to her Children and Youth Services (CYS) records during pretrial
discovery. The state refused access, and the defendant charged that the state thereby violated his
Sixth Amendment rights because the records could contain exculpatory evidence or leads to
favorable witnesses. Id. at 44-45. The Supreme Court construed the defendant’s challenge as a
Fourteenth Amendment Due Process claim and applied the “clear framework” of Brady and its
progeny to assess the fundamental fairness of the defendant’s trial. Id. at 56. There, the Court
stated:
At this stage, of course, it is impossible to say whether any information in the CYS
records may be relevant to Ritchie’s claim of innocence, because neither the
prosecution nor defense counsel has seen the information, and the trial judge
acknowledged that he had not reviewed the full file. The Commonwealth, however,
argues that no materiality inquiry is required, because a statute renders the contents
of the file privileged.
Id. at 57. As a result, the Court found remand for in camera review of the file appropriate and
necessary to the district court’s “determin[ation] whether it contains information that probably
would have changed the outcome of [the defendant’s] trial.” Id. at 58. Notably, the Court did not
hold that the government must give defense counsel unbridled access to the information; only that
the court be permitted to examine it. Id. at 58-59. Accordingly, once a defendant “establish[es] a
basis for his claim that [the records sought] contain[] material evidence,” even though he cannot
articulate with specificity the materiality of those records, remand for in camera review may be
appropriate.14 See id. at 58 n.15.
In United States v. Hernandez, 31 F.3d 354, 360 (6th Cir. 1994), the defendant alleged a
Brady violation when the government filed a sealed document the day before sentencing in relation
to a co-defendant who had pled guilty and testified against him. The district court declined to
review the document in camera prior to sentencing, relying on the prosecutor’s statement that he had
reviewed the document and it contained no Brady material. Id. at 360-61. Acknowledging the
prosecutor’s role as a representative of the United States, we found no abuse of discretion in the
district court’s decision not to review the document in camera inasmuch as “absent some indication
of misconduct, the court is entitled to accept [the prosecutor’s] representations on this issue.” Id.
(emphasis added). Notably, in Hernandez, the prosecutor made no attempt to conceal its plea deal
with the co-defendant and the jury had been informed of the details of that deal. Id. In United States
v. Carmichael, 232 F.3d 510, 516-17 (6th Cir. 2000), we reaffirmed the principle that where the
prosecutor clearly represents to the district court that all Brady material has been disclosed to the
defendant, there exists no basis to require an in camera review by the district court.
14
Our sister circuits have signaled approval of remand for in camera proceedings to ascertain the materiality
of the evidence sought in various circumstances. See United States v. Kiszewski, 877 F.2d 210, 216 (2d Cir. 1989)
(finding remand for in camera examination of an FBI agent witness’s personnel files appropriate because they “ha[d]
only the government’s description of the allegations contained” therein); United States v. Leung, 40 F.3d 577, 582 (2d
Cir. 1994) (“[I]n some circumstances the trial court should not rely on the Government’s representations as to the
materiality of potential impeachment evidence, but should instead undertake an independent in camera review . . . .”);
Anderson v. United States, 788 F.2d 517, 519 (8th Cir. 1986) (“Whether the statements were material to [the defendant’s]
guilt or punishment is a question that the district court should have determined by reviewing the tapes and the polygraph
statements in camera.”).
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 23
Hernandez and Carmichael do not control the instant case. Very clearly, the prosecutor here
made misrepresentations to the district court. Prior to trial, the government did not provide
Defendants with any documents produced by or given to Potter because, the government says, they
were not “material.” Defendants learned of Potter’s assistance to the government only after trial
when industry publications touted his successful investigation in their case. Defendants promptly
brought a motion to compel production of “any and all information surrounding Mr. Potter’s
services” regarding their cases at that time. In his response to Defendant White’s Motion to Compel,
the government responded that it “(to the best recollection of [the Assistant United States Attorney
(“AUSA”)]) contacted Mr. Potter to discuss the potential of his rendering an opinion regarding
‘related parties,’ but never asked him to review evidence.” (J.A. at 617 (emphasis added)) The
AUSA later reversed course, indicating in his response to Defendant White’s second motion for a
new trial
The government did, in fact, inaccurately state, in its response (filed on October 6,
2004) to the defendant White’s Motion to Compel production of records, that it had
sent no material to Charles Potter. At that time, the undersigned counsel had simply
forgotten that he had sent a redacted version of the report prepared by Eva Jo Sparks
to Mr. Potter.
(J.A. at 812) Notwithstanding the AUSA’s admission, the government and Potter alike have
persistently given incomplete responses to Defendants’ FOIA requests citing privilege as the reason.
Over the course of a complex fraud trial, it is not beyond the pale that the AUSA
inadvertently failed to disclose the material at issue. Having failed to disclose the material it sent
to Potter – whether intentionally or inadvertently – the AUSA now asks this Court to take his word
that the evidence was not favorable to Defendants, was not material to their respective cases, and
that its suppression did not prejudice them in any way. As the Supreme Court has stated time and
again,
the United States Attorney is ‘the representative not of an ordinary party to a
controversy, but of a sovereignty whose obligation to govern impartially is as
compelling as its obligation to govern at all; and whose interest, therefore, in a
criminal prosecution is not that it shall win a case, but that justice shall be done.’
Strickler, 527 U.S. at 281 (quoting Berger v. United States, 295 U.S. 78, 88 (1935)); see also Kyles,
514 U.S. at 439 (noting that proper “disclosure will serve to justify trust in the prosecutor”). The
United States Attorney’s word is worth considerably less when, as here, it is manifest that he made
conflicting representations to the court below.15
In United States v. Alexander, 748 F.2d 185, 187, 191 (4th Cir. 1984), the Fourth Circuit
considered the Brady claim of a doctor convicted of submitting fraudulent claims to various insurers,
including Medicaid and the military health plan. The doctor’s pretrial discovery request broadly
sought “all documents ‘which refer or relate to the claim forms of Blue Cross/Blue Shield.’” Id. at
191. The government had command of a Blue Cross/Blue Shield patient survey which, among other
things, contained “patient responses . . . concerning whether services . . . submitted [for payment]
. . . had actually been performed.” Id. The survey revealed that only thirteen out of forty-eight
patients reported the services submitted had not been performed. Id. Following the doctor’s
conviction, he again requested the survey or, alternatively, the identity of the patients surveyed. Id.
at 192.
15
Incidentally, confidence in the AUSA is not restored by the use of language characterizing Brady allegations
as “bogus speculations” or “cries of ‘fowl,’” [sic] nor by rhetorical questions intended to belittle such claims (e.g., “So
What?”). (See J.A. at 617-20)
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 24
Attempts to secure voluntary disclosure failed, and the district court denied a subsequent
motion for discovery, proceeding to hear the doctor’s motion for new trial. Id. Before hearing on
that motion, the government represented to the doctor that it never had the survey results in its
possession. Id. During the hearing, however, the government changed course, telling the court that
it did, in fact, have the survey results at the time the doctor requested them, but that they had given
the doctor access to the survey results in files open for the doctor’s counsel to inspect. Id. The
government told yet another story at oral argument on appeal, then representing that Blue Cross/Blue
Shield maintained control of the survey at the relevant time. Id. In an investigative case summary
submitted at the court’s request, the Fourth Circuit then learned that the government did have the
survey materials at the relevant times. Id.
The Fourth Circuit in Alexander found “the Government’s equivocation in making critical
factual representations to defense counsel and to the district court concerning its possession of
certain of the requested materials fatally compromised the integrity of the proceedings on the new
trial motion.” Id. at 191. Accordingly, they remanded to the district court, directing it to reconsider
the doctor’s motion for new trial. Id. Importantly, they did so notwithstanding some question as
to whether the survey actually constituted Brady material, noting “that neither the defendant, nor this
court, nor the district court could properly address that question without inspecting the survey
responses and related . . . materials that the Government now presumably concedes it has had in its
possession all along.” Id. at 193. Unlike Alexander, where the government’s equivocation first
came to light on appeal, in the instant case, the district court had full knowledge of the government’s
failure to produce the Potter materials. See Alexander, 748 F.2d at 191. Much as in Alexander
though, the district court could not properly determine here whether the Potter materials rose to the
level of material evidence, whether exculpatory or impeaching and, thus, lacked information critical
to the determination of whether a Brady violation had occurred.
Here, the supporting evidence detailed the government’s rather great lengths to deny
Defendants access to the requested documents. Because Defendants succeeded in obtaining only
relatively few of the documents notwithstanding their persistent and diligent attempts, the
government effectively foreclosed them from making the requisite showing that the documents were
material and favorable (whether exculpatory or impeaching), and that the suppression prejudiced
them.16 Admittedly, “the prosecutor is not required to deliver his entire file to defense counsel, but
only to disclose evidence favorable to the accused that, if suppressed, would deprive the defendant
of a fair trial.” Bagley, 473 U.S. at 675. Defendants have established a sufficient basis for their
claim that the Potter documents constitute “material” evidence inasmuch as Potter cites their
conviction among his “successes” and in that their FOIA requests reveal a substantial body of
responsive documents. Upon inspection, the district court may find the Potter materials “lack . . .
Brady-Agurs relevance,” as the government claims. See Alexander, 748 F.2d at 193. The point, of
course, is that absent more detailed examination, we cannot know whether the government violated
Defendants’ Fifth Amendment Due Process rights in withholding the materials. Absent a more
searching inquiry of claims as serious as those lodged by Defendants here, we effectively permit the
government to ride roughshod over the accused, stripping the accused of both sword and shield.
Accordingly, we find the district court abused its discretion in failing to hold an evidentiary
hearing to more carefully consider the nature of the documents and the information contained
therein. We vacate the district court’s order denying the motion for new trial and remand this matter
to the district court with instructions that the court conduct an evidentiary hearing wherein
16
The district court dismissed this as a mere “fishing expedition.” Yet, here, the fish swim just below the
surface of the pond and, for reasons squarely within the government’s control, the waters run cloudy, rendering
Defendants unable to discern the nature of the fish. Defendants allege a serious constitutional violation. We will not
so easily and off-handedly dismiss Defendants’ claim, and the district court abused its discretion in doing so without first
peering below the surface.
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 25
Defendants may properly probe the nature of the Potter evidence. The hearing should include an
in camera inspection of additional documents withheld on grounds of asserted privilege. Following
the evidentiary hearing, of course, it is up to the district court in the first instance to determine
whether a Brady violation actually occurred. Insofar as Defendant White appeals the district court’s
denial of his motion for new trial on the basis of the purported Weir testimony, we find no abuse of
discretion.17 Further, because we remand for an evidentiary hearing under Brady and its progeny,
we do not rule on Defendants’ alternative claim under Federal Rule of Criminal Procedure 33.
IV. DEFENDANT WHITE’S SENTENCE
Defendant White raises several challenges to his sentence on appeal, including claims that
(1) the district court failed to rule on a disputed portion of his Presentence Report (“PSR”) in
contravention of Federal Rule of Criminal Procedure 32(i)(3)(b); (2) the district court improperly
calculated the amount of loss used to determine the advisory sentencing range under the United
States Sentencing Guidelines (“the Guidelines”); (3) the district court abused its discretion in
calculating the amount of loss used to set restitution; and (4) his sentence was unreasonable under
United States v. Booker, 543 U.S. 220 (2005).
A. Standard of Review
We review the district court’s compliance with Federal Rule of Criminal Procedure 32(i) de
novo. United States v. Bowker, 372 F.3d 365, 393 (6th Cir. 2004), partially vacated on other
grounds, 543 U.S. 1182 (2005) (vacated in part following Booker). We also review de novo the
district court’s method of calculating loss for purposes of sentencing enhancements under the
Guidelines. United States v. Triana, 468 F.3d 308, 320 (6th Cir. 2006) (citing United States v.
Rothwell, 387 F.3d 579, 582 (6th Cir. 2004)). However, the findings of fact underlying the district
court’s loss calculations – both for Guidelines enhancement and restitution purposes – will be
overturned only if clearly erroneous. Id. A finding that the calculations were clearly erroneous will
follow only if this Court “on the entire evidence is left with the definite and firm conviction that a
mistake has been committed.” United States v. Ware, 282 F.3d 902, 907 (6th Cir. 2002) (citing
United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). When faced with a challenge to the
amount of restitution ordered, we reverse only if the district court abused its discretion. United
States v. Wood, 364 F.3d 704, 714 (6th Cir. 2004). Finally, we review the defendants’ sentences for
reasonableness. United States v. Booker, 543 U.S. 220, 261 (2005); United States v. Webb, 403 F.3d
373, 383 (6th Cir. 2005).
B. Rule 32(i)(3)(B) and Loss Calculation
Defendant White posits that the “district court failed to meet its obligations under Fed. R.
Cr. [sic] P. 32(i)(3)(B) by summarily adopting the government’s factual findings concerning amount
of loss” and alleges the district court abused its discretion in calculating that loss. (Def. White’s Br.
at 76) Additionally, Defendant White asserts that the district court failed to respond to his
objections and calculations. Reviewing de novo, we agree with Defendant White that the district
court erred in failing to explain this factual determination and erred in calculating the amount of
loss.
At sentencing, the district judge began by reviewing Defendant White’s PSR. There were
two versions of the PSR prepared for sentencing – one based on the fraud counts, and the other
based on the money laundering counts. The first PSR “used the fraud counts to establish a base
offense level of 6, with an increase of 15 levels, due to the alleged loss of over $14 million,
17
Defendant Suhadolnik’s Brady claim relates only to the Potter materials.
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 26
specifically, $14,604,754.”18 (J.A. at 1337) After adjustments, the PSR set forth a total offense
level of 29. This yielded a Guidelines range of 78 to 97 months. The second PSR relied on the
money laundering counts, establishing “a base offense level of 23, with an increase of six levels, for
a loss of $2.6 million, based on the money laundering counts.” (J.A. at 1338-39) The base level was
enhanced by four levels for leadership role, and by two levels for abuse of a position of trust,
resulting in a total offense level of 35. The second PSR thus yielded an advisory Guidelines range
of 188 to 235 months. The calculation ultimately embraced by the district court, upon the
government’s alternative proposed loss amount, incorporates a fourteen-level enhancement to
Defendant’s base offense level of 6 pursuant to the Guidelines provision on loss calculation for
crimes of fraud, then U.S.S.G. § 2F1.1 (1998).19 This is based on “loss exceed[ing] $5 million.”
See U.S.S.G. § 2F1.1(b)(1)(O). The district judge sentenced Defendant using $7,290,202 as the loss
figure. This yielded an advisory Guidelines range of 78 to 97 months imprisonment and, ultimately,
the judge sentenced Defendant to serve 90 months in prison.
1. Federal Rule of Criminal Procedure 32(i)(3)(B)
Federal Rule of Criminal Procedure 32(i)(3)(B) requires the district court at sentencing to
rule on “any disputed portion of the presentence report or other controverted matter.” As a threshold
matter, the defendant must actively raise the dispute during the sentencing hearing before the district
court’s duty to find facts arises. United States v. Hurst, 228 F.3d 751, (6th Cir. 2000); United States
v. Lang, 333 F.3d 678, (6th Cir. 2003); United States v. Solorio, 337 F.3d 580, 598 n.15 (6th Cir.
2003) (noting the advisory committee revised the Rule, in part, to “narrow the requirement for court
findings to those instances when the objection addresses a controverted matter”) (internal quotations
and brackets omitted). Once the defendant calls the matter to the court’s attention, the “court may
not merely summarily adopt the factual findings in the presentence report or simply declare that the
facts are supported by a preponderance of the evidence.” Solorio, 337 F.3d at 598 (quoting
Tarwater, 308 F.3d at 518); see also United States v. Monus, 128 F.3d 376, 396 (6th Cir. 1997).
Rather, the district court must affirmatively rule on a controverted matter where it could potentially
impact the defendant’s sentence. Monus, 128 F.3d at 396. We hasten to note, as we have done
many times, that we require “literal compliance” with this Rule “for a variety of reasons, such as
enhancing the accuracy of the sentence and the clarity of the record.” United States v. Treadway,
328 F.3d 878, 886 (6th Cir. 2003); see also Monus, 128 F.3d at 396.
We hold that the district court erred in failing to explain its determination that Defendant
White be held accountable for loss in the amount of $7,290,202. Defendant White initially objected
to the loss calculations put forth in his Sentencing Memorandum. (See J.A. at 161 (“Defendant . . .
has also objected and/o[r] disputed the actual amounts of money involved in these crimes.”))
Defendant White again disputed the matter of loss calculation at his sentencing hearing, arguing that
the “figure was pulled out of thin air.”20 (J.A. at 1358) The district court obviously heard these
18
The government’s sentencing memorandum proposed an alternative loss calculation of $10,261,508. At the
sentencing hearing, however, the government “suggest[ed] a more conservative basis by using a formula since some of
the claims were in fact legitimate to arrive at a figure of $7,290,202.” (J.A. at 1338)
19
The calculations in the PSR reflect provisions of the 1998 version of the Guidelines. Additionally, we note
that the PSR provides two separate calculations – one based on Defendant’s money laundering convictions, and the other
based on the fraud counts. The district court followed the PSR calculations for the fraud counts.
20
We note here that Defendant White made this argument during the course of a discussion of the second PSR
which reflected the money laundering charges. However, the district court never engaged in a discussion on the record
of the first PSR, upon which the district judge ultimately relied. Accordingly, Defendant White never had the
opportunity to raise the argument with reference to the first PSR. Nevertheless, we find Defendant White sufficiently
disputed the loss calculation such that the district court had a duty to find facts under Federal Rule of Criminal Procedure
32.
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objections from defense counsel as to the amount of loss and, yet, failed to articulate on the record
any rationale supporting her factual determination. See United States v. Nelson, 356 F.3d 719, 723-
24 (6th Cir. 2004) (citing United States v. Orlando, 281 F.3d 586, 601 (6th Cir.2002)) (“[A]lthough
the evidence may justify holding [the defendant] accountable for $593,366.60 in loss, the district
court’s failure to explain its factual determination requires . . . remand . . . for his resentencing.”).
On the record before this Court, it appears that the district judge blindly embraced the figures set
forth in Defendant White’s PSR – figures, we hasten to add, that the AUSA provided to the U.S.
Probation Officer preparing the PSR. “[R]eliance on the PSR is insufficient when the facts are in
dispute.” Treadway, 328 F.3d at 886. Rather, the district court must actually find facts, and it must
do so by a preponderance of the evidence.
2. Calculating the Amount of Loss
We also find that the district court erred in calculating the loss. U.S.S.G. § 2F1.1 provides
for an increase in a defendant’s sentence corresponding to the amount of loss occasioned by his
fraudulent conduct. Application Note 7 to § 2F1.1 defines “loss” as “the value of money, property,
or services unlawfully taken.” U.S.S.G. § 2F1.1, cmt. n.7 (1998). Note 7 goes on to discuss fraud
“involv[ing] the misrepresentation of the value of an item that does have some value” and instructs
that “the loss is the amount by which the [item] was overvalued.” Id. Application Note 8 indicates
that “loss need not be determined with precision. The court need only make a reasonable estimate
of the loss, given the available information.” Id. at cmt. n.8 (1998); see also United States v. Triana,
468 F.3d 308, 320 (6th Cir. 2006) (considering challenge to loss calculation in Medicare fraud
context, but under U.S.S.G. § 2B1.1) (“In situations where the losses occasioned by financial frauds
are not easy to quantify, the district court need only make a reasonable estimate of the loss, given
the available information.”). “Under the Guidelines, the district court is to determine the amount
of loss by a preponderance of the evidence.” Triana, 468 F.3d at 321.
In United States v. Triana, 468 F.3d at 310, the defendant was convicted of health care fraud,
conspiracy to defraud both the Medicare and Medicaid programs, and use of a false statement,
among other things. On appeal, the defendant challenged the district court’s loss calculation under
§ 2B1.1 of the Guidelines on the basis that the court used gross Medicare receipts instead of actual
losses to the Medicare program. Id. at 310-311. At the defendant’s sentencing, the government
proposed an 18-point enhancement for substantial loss to the Medicare program and, as the basis for
that enhancement, suggested that the court use the total amount billed to Medicare by the
defendant’s fraudulent companies as the loss amount. Id. at 314. The defendant argued that his
companies provided legitimate services to the Medicare patients and, accordingly, that the Medicare
program had suffered no loss. Id. The district court ultimately set the loss amount in accordance
with the total amount received by defendant’s companies in payment of its Medicare claims. Id.
On appeal, this Court found no error in the district court’s calculation of loss. Id. at 322.
However, because the facts underlying the defendant’s fraud conviction in Triana are readily
distinguishable from the instant case, Triana cannot be taken for the proposition that the total
amount paid by the Medicare program necessarily constitutes the loss amount for sentencing
purposes. There, the defendant had previously pled guilty to one count of health fraud for
submitting inflated bills to Medicare for reimbursement. Triana, 468 F.3d at 311. His plea
agreement and corresponding settlement agreements with the Department of Health and Human
Services (HHS) essentially precluded further participation in federal health care programs for a
specified period of time. Id. Notwithstanding the terms of these agreements, upon release from a
half-way house, the defendant formed two new companies, acquired ‘puppet’ owners, and through
them, obtained new Medicare and Medicaid provider status. Id. Accordingly, because the defendant
expressly violated agreements forbidding his participation as a Medicare provider, the entire amount
reimbursed was improper gain. Id. at 322.
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 28
In our view, the Fifth Circuit recently adopted a more appropriate approach to the specific
question at hand in United States v. Jones, 475 F.3d 701 (5th Cir. 2007), and one more closely
aligned with Application Note 7 to U.S.S.G. § 2F1.1. The defendants in Jones pled guilty to one
count of Medicare fraud each for conduct violating the “related party” rule. Jones, 475 F.3d at 704.
Their respective PSRs listed the total amount paid by the Medicare provider to the related party
which, of course, the provider paid from its Medicare reimbursements. Id. The defendants objected
to the amount of loss listed in their PSRs. Id. At sentencing, the district court “accepted the PSR
as evidence regarding the actual costs incurred by” the provider and, then, “reduced the loss amount
by the estimated value of performed services.” Id. Ultimately, the Jones court adopted a “net gain
method for calculating loss” and, accordingly, found reliance on Medicare’s total reimbursement
costs inappropriate. Id. at 706. Rather, for the Jones court, the loss amount should be based on
evidence of “amounts paid to [the related party that] were either unreasonable or greater than its
actual cost.” Id.
We agree with the Fifth Circuit’s rationale in Jones and, to the extent practicable, adopt the
“net gain” method for calculating loss where a party is convicted of Medicare fraud due to violations
of the “related party” rule. See Jones, 475 F.3d at 706; U.S.S.G. § 2F1.1 cmt. n.7 (1998). We remain
mindful of the nature of complex fraud schemes, however. As the commentary to the Guidelines
instructs, “loss need not be determined with precision;” rather, the district court must “make a
reasonable estimate of the loss, given the available information.” U.S.S.G. § 2F1.1 cmt. n.8. The
government implicitly acknowledges that the “net gain” method is the proper method in its brief on
appeal where, on the basis of available evidence, it reduces loss figures by the “mark up” factor.
In any event, the government expressly concedes on appeal that the loss amount proposed
and adopted by the district court was in error and, in the alternative, now claims the correct loss
amount should have been $6,754,885 as opposed to $7,290,202. This follows two previous
reductions in the government’s proposed loss calculation – the first reduction occurring between the
numbers it submitted to the U.S. Probation Officer for inclusion in the PSR and the number
suggested in its sentencing memorandum, and the second between the sentencing memorandum and
the figure it put forth at Defendant White’s actual sentencing hearing. This only buttresses the need
for the district judge, on remand, to make some record of her factual findings in support of the loss
calculation, and to cite the government’s evidence where appropriate. Moreover, we find nothing
to preclude Defendant White from offering evidence at sentencing on remand of actual costs or
comparables to aid the district court in its decision. Accordingly, we vacate Defendant White’s
sentence and remand to the district court for resentencing.
C. Loss Calculation - Restitution
We review the amount of a restitution award for abuse of discretion. United States v. Adams,
214 F.3d 724, 730 (6th Cir. 2000); Wood, 364 F.3d at 714 (citation omitted). Title 18 U.S.C.
§ 3663A(a)(1) directs the district court to order “that the defendant make restitution to the victim
of the offense.” The government bears the burden to demonstrate “the amount of loss sustained by
a victim as a result of the offense.” Id. at § 3664(e). Where proven by a preponderance of the
evidence, the statute provides for “restitution to each victim in the full amount of [their] losses.”
Id. at §§ 3664(e), 3664(f)(1)(A). Thus, “the loss caused by the conduct underlying the offense of
conviction establishes the outer limits of a restitution order.” Hughey v. United States, 495 U.S. 411,
420 (1990); see also United States v. Jamieson, 427 F.3d 394, 418 (6th Cir. 2005); United States v.
Rothwell, 387 F.3d 579, 585 (6th Cir. 2004).
As previously noted, the government concedes on appeal that the loss amount proposed and
adopted by the district court was in error and, instead of the $7,290,202 figure employed by the
district court, now claims the correct loss amount should have been $6,754,885. The district court’s
restitution order therefore relied upon a fact that the government now admits was clear error.
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 29
Because it was based on clearly erroneous facts, and because a restitution award may not exceed the
“loss caused by the conduct underlying the offense,” see Hughey, 495 U.S. at 420, we also find the
district court abused its discretion in determining the amount of restitution.
D. Reasonableness under Booker
Having determined remand for resentencing is necessary on other grounds, we decline to
engage in a protracted discussion of the reasonableness of Defendant White’s sentence under Booker
and its progeny. We note, however, our view that the district court properly acknowledged the
advisory nature of the Guidelines, and the need to take the § 3553(a) factors into account. See
Booker, 543 U.S. at 245-46; United States v. Williams, 436 F.3d 706, 708 (6th Cir. 2006); United
States v. Richardson, 437 F.3d 550, 553 (6th Cir. 2006). The district court ruled that it would use
the Guideline range focusing on fraud. In sentencing Defendant, the district court stated that it took
into account the relevant statutory maximums and the § 3553(a) factors. In doing so, the district
court stated that a sentence of 90 months “reflect[s] the seriousness of the criminal activity” and
would serve as “adequate deterrence” both to Defendant White and to others. The court further
indicated that it had considered the sentences imposed on White’s co-defendants and distinguished
their situations. Having heard Defendant’s § 3553 arguments, the district court properly
acknowledged the advisory nature of the Guidelines range and proceeded to specifically consider
the § 3553 factors as applied to Defendant. See United States v. Jackson, 408 F.3d 301, 304 (6th
Cir. 2005); Richardson, 437 F.3d at 553; Williams, 436 F.3d at 708.
Nevertheless, because the district court erred in failing to explain the factual determination
supporting its loss calculation, Defendant White’s sentence cannot be deemed “properly calculated”
under the Guidelines. Even though the district court engaged in thorough review and consideration
of Defendant’s § 3553 arguments before issuing its sentence, the district court’s loss calculation
calls into question the procedural reasonableness of Defendant’s sentence. Accordingly, we decline
to say whether Defendant White’s sentence meets the procedural or substantive reasonableness
requirements of Booker.
CONCLUSION
For the foregoing reasons, we AFFIRM Defendants’ convictions; VACATE the district
court’s order denying Defendants’ motions for new trial and REMAND for an evidentiary hearing;
and VACATE Defendant White’s sentence and REMAND for resentencing.
Nos. 05-3403/3442; 06-3239/3240 United States v. White, et al. Page 30
_____________________________________________
CONCURRING IN PART, DISSENTING IN PART
_____________________________________________
ALAN E. NORRIS, Circuit Judge, concurring in part, dissenting in part. I concur in the
result reached by the majority with one exception: I do not believe that remand for an evidentiary
hearing with respect to the “Potter materials” is required, and I would therefore affirm the district
court’s denial of the motion for a new trial. While it would have undeniably been preferable for the
government, in an abundance of caution, to have turned over the disputed material, as the district
court pointed out in its opinion denying the motion, “it is impossible to conclude that the
government’s failure to turn over the altered report somehow undermines the confidence in the
outcome of the trial,” nor is there any indication that “Mr. Potter would have testified favorably to
the defendants had he been called as a witness.” Memorandum of Opinion and Order, Feb. 2, 2006,
at 7.
We review the denial of a motion for a new trial based on Brady violations under an abuse
of discretion standard. United States v. Graham, 484 F.3d 413, 416, (6th Cir. Apr. 20, 2007) (citing
United States v. Jones, 399 F.3d 640, 647 (6th Cir. 2005)). Under normal circumstances, a
defendant seeking a new trial based upon new evidence must show inter alia that the evidence
would “likely produce an acquittal.” United States v. Frost, 125 F.3d 346, 382 (6th Cir. 1997)
(citing United States v. O’Dell, 805 F.2d 637, 640 (6th Cir. 1986)). When a Brady violation is
alleged, however, the standard is less onerous: a defendant must only show that the favorable
evidence was “material,” which “does not depend upon ‘whether the defendant would more likely
than not have received a different verdict with the evidence, but whether in its absence he received
a fair trial, understood as a trial resulting in a verdict worthy of confidence.’” Id. at 382-83 (quoting
Kyles v. Whitley, 514 U.S. 419, 434 (1995)).
Like the district court, I believe that defendants have not shown that the materials that came
belatedly to light would have undermined confidence in the verdict. On the contrary, it is more
likely than not, as the district court explained, that the opinion of Mr. Potter and the materials related
to its formation would have been unfavorable to defendants’ position. After all, he cited this case
in promoting the value of his professional services, taking “credit for the convictions.”
Memorandum of Opinion and Order at 7. In short, I detect no abuse of discretion on the part of the
district court and would therefore affirm its denial of a new trial.