United States v. Carlos Luna ( 2020 )

United States Court of Appeals
For the Eighth Circuit
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No. 18-1814
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United States of America
Plaintiff - Appellee
v.
Carlos Patricio Luna
Defendant - Appellant
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No. 18-3302
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United States of America
Plaintiff - Appellee
v.
Preston Ellard Forthun
Defendant - Appellant
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No. 18-3304
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United States of America
Plaintiff - Appellee
v.
Abdisalan Abdulahab Hussein
Defendant - Appellant
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Appeals from United States District Court
for the District of Minnesota
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Submitted: October 17, 2019
Filed: August 10, 2020
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Before LOKEN, SHEPHERD, and STRAS, Circuit Judges.
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STRAS, Circuit Judge.
This case is about a recruitment-and-kickback scheme involving car-accident
victims, a chiropractic clinic, and automobile insurers. Three members of the
scheme were convicted of mail and wire fraud. In these consolidated appeals, the
defendants’ convictions stand, but we send several sentencing issues back for
another look.
I.
Before delving into the issues on appeal, we begin with a description of the
fraud itself and the legal backdrop against which it operated.
A.
Minnesota has a unique no-fault automobile-insurance system. Among other
things, the No-Fault Act requires every insurer to provide a minimum of $20,000 per
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person to cover “reasonable” and “necessary” medical expenses, regardless of who
is at fault for an automobile accident. Minn. Stat. § 65B.44, subd. 1(a), 1(a)(1), 2(a).
What this means is that insurers pay the medical expenses of their own policyholder.
Minn. Stat. § 65B.42(1).
From the perspective of health-care providers, there is much to like.
Reimbursements often exceed those from other sources, and there is no limit on the
number of times a policyholder can seek treatment for an injury. It is true that
insurers have ways of uncovering whether medical treatment is unreasonable or
medically unnecessary, such as by requiring a policyholder to provide further
information under oath or undergo an independent medical examination. Minn. Stat.
§ 65B.56, subd. 1. But absent a red flag suggesting possible fraud, insurance
companies typically pay their bills because they assume that they can trust what
providers send them.
There are other safeguards in the statutory scheme, too. For example, one
provision bans certain “[u]nethical practices,” including, with limited exceptions,
“initiat[ing] direct contact” with accident victims in order to “influenc[e them] to
receive treatment.” Minn. Stat. § 65B.54, subd. 6(a). The prohibition also extends
to having others—known in the industry as runners—recruit on a health-care
provider’s behalf. A “runner” is someone who is offered compensation for “directly
. . . solicit[ing] prospective patients . . . at the direction of, or in cooperation with, a
health care provider when [they] know[] or ha[ve] reason to know” that the purpose
is to seek reimbursement under an automobile-insurance policy. Minn. Stat.
§ 609.612, subd. 1(c), (2); see Minn. Stat. § 65B.54, subd. 6(a)–(c) (providing
exceptions). Once a runner recruits someone, all subsequent health-care services are
“noncompensable and unenforceable as a matter of law.” Minn. Stat. § 609.612,
subd. 2.
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B.
The specific cases before us revolve around one clinic in particular: the
Comprehensive Rehab Centers of Minnesota, which was co-owned by two
chiropractors, Dr. Preston Forthun and Dr. Darryl Humenny. From at least 2010
onward, Carlos Luna, Abdisalan Hussein, and others recruited accident victims to
the clinic’s two Minneapolis locations. Recruiters often identified prospects through
accident reports purchased by the clinic and facilitated attendance by providing other
services, such as transportation to and from appointments. The clinic paid them for
their efforts.
Patients were also paid after they attended a certain number of sessions. The
doctors would pay recruiters (typically in cash), who would then pay kickbacks to
patients. Less frequently, accident victims approached the doctors directly and were
brought into the cash-for-treatment scheme without the involvement of recruiters.
In both cases, the hope was that a patient would eventually attend 30 to 40 sessions
and exhaust the entire $20,000 guaranteed by the No-Fault Act.
The treatment for most patients was the same, regardless of their specific type
of injury. Typically, it would involve an x-ray at the first exam, a treatment plan of
three sessions weekly for four weeks, and then a second exam. Repeat, re-exam,
repeat was the practice—until the doctors treated the patient “as many times as
possible.”
C.
Eventually, law enforcement caught on. Operation Backcracker, as it came to
be known, targeted multiple health-care providers across the Twin Cities and led to
a number of indictments. See, e.g., United States v. Kidd, 963 F.3d 742 (8th Cir.
2020). Among those indicted were Forthun, Luna, and Hussein, who were charged
with mail and wire fraud; conspiracy to commit both crimes; and aiding and abetting
the conspiracy. 18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud), 1349
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(conspiracy), 2 (aiding and abetting). Dr. Humenny served as a key government
witness at the defendants’ joint trial.
The jury found the defendants guilty on all counts. Forthun received five
years in prison. Guilty as co-conspirators and accomplices to mail and wire fraud,
Hussein and Luna received 15-month and time-served sentences, respectively. All
three appeal their convictions, and Forthun and Hussein challenge their sentences.
II.
The first issue is the sufficiency of the evidence. The analysis begins with the
mail- and wire-fraud statutes, which as relevant here, require an individual to have
“devised or intend[ed] to devise any scheme or artifice to defraud” using mail or
wire communication “for the purpose of executing” the scheme. 18 U.S.C. §§ 1341,
1343. The defendants start with the argument that the government never proved that
there was a “scheme to defraud.” And even if there were one, Luna and Hussein
claim that they did not play a role in it. We review the sufficiency of the evidence
de novo, “viewing [the] evidence in the light most favorable to the government,
resolving conflicts in the government’s favor, and accepting all reasonable
inferences that support the verdict.” United States v. Washington, 318 F.3d 845, 852
(8th Cir. 2003).
A.
We begin with the scheme-to-defraud requirement. A scheme is a “deliberate
plan of action” or “course of conduct.” United States v. Whitehead, 176 F.3d 1030,
1037–38 (8th Cir. 1999) (approving this definition in a jury instruction); United
States v. Clapp, 46 F.3d 795, 803 (8th Cir. 1995) (same). “To defraud” someone
requires material, affirmative misrepresentations or active concealment of material
information for the purpose of inducing action. United States v. Steffen, 687 F.3d
1104, 1111, 1115 (8th Cir. 2012); see Neder v. United States, 527 U.S. 1, 22–23
(1999) (explaining that the fraud statutes incorporate the materiality element of
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common-law fraud); Restatement (Second) of Torts §§ 525, 550 (Am. Law Inst.
1977). Taken together, the government had to prove that: (1) there was a “deliberate
plan of action” or “course of conduct” to hide or misrepresent information; (2) the
hidden or misrepresented information was material; and (3) the purpose was to get
someone else to act on it. It proved all three here.
First, there was plenty of evidence “of planning” by those involved. United
States v. Goodman, 984 F.2d 235, 237 (8th Cir. 1993) (citation omitted). Forthun
and Humenny created an elaborate web of lies to keep insurance companies in the
dark about their use of recruiters and kickbacks. One example from trial is
particularly illustrative. During a routine inspection, an insurance company
representative asked whether the clinic used runners to attract business. Rather than
answering honestly, Forthun replied that they did not “approach him.” The jury
could have concluded that this misrepresentation, like many others, was part of a
larger “plan” or “course of conduct” aimed at misleading insurers.
Active concealment also played a significant role. Recruiters were paid in
cash to avoid a “paper trail.” If insurance companies questioned patients, recruiters
coached them on what to say, including how to respond to requests for information
under oath or attendance at independent medical examinations. From all
appearances, the operation was a well-oiled machine.
Second, the information withheld had “a natural tendency to influence, or
[was] capable of influencing” an insurer’s decision to pay. Neder, 527 U.S. at 16
(citation omitted). Multiple insurance representatives testified at trial. The
consistent theme was that the use of recruiters and kickbacks creates multiple
concerns for insurers. One is that accident victims might seek treatment, not because
they actually need it, but based on pressure from recruiters or a desire to put money
in their own pockets. Another is that health-care providers may inflate their fees to
cover the extra expenses from compensating recruiters and paying kickbacks to
patients. It creates a vicious cycle: it costs money to get patients in the door, even
more to keep them there, and insurers are left footing the bill.
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All of this information had a bearing on whether insurers had to pay. If
recruiters like Luna and Hussein qualified as “runners,” then insurers had no
obligation to reimburse the clinic for any services provided. Minn. Stat. § 609.612,
subd. 2; Kidd, 963 F.3d at 745–48. It goes without saying that information
completely relieving them of the obligation to pay was material.
Insurers also have no obligation to pay for medical services that are
unreasonable, medically unnecessary, or never provided. See Minn. Stat. § 65B.44,
subd. 1(b), 2(a); see also Kidd, 963 F.3d at 747. Even if recruiters like Luna and
Hussein were not technically “runners” under Minnesota’s restrictive definition,
employing recruiters, setting minimum attendance requirements, and paying
kickbacks made it more likely that the chiropractic services were noncompensable
for one of these reasons. Insurance representatives testified, in fact, that the use of
recruiters and kickbacks is “suspicious” activity, regardless of whether it violates
state law, and often leads to further investigation, sometimes by special units. Even
this underlying information, in other words, was material. 1 See Neder, 527 U.S. at
16; Kidd, 963 F.3d at 747.
It makes no difference, at least in evaluating the sufficiency of the evidence,
that insurance representatives admitted that some claims may still have been
compensable. After all, the same group of insurance representatives testified that,
with a fuller picture of the clinic’s practices, insurers would have investigated. This
fact alone shows that the information withheld had a “tendency to influence” their
1
The government’s evidence supported a single cohesive theory of
materiality, so there was no risk that jurors convicted the defendants based on
inconsistent rationales. United States v. Lasley, 917 F.3d 661, 664–65 (8th Cir.
2019) (per curiam) (reversing when there was a “genuine risk” that the jury did not
agree on a single set of facts supporting liability (citation omitted)); see also United
States v. Davis, 154 F.3d 772, 783 (8th Cir. 1998) (“[A] general unanimity
instruction is usually sufficient to protect a defendant’s [S]ixth [A]mendment right
to a unanimous verdict.”).
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actions, even when it had no effect on whether they ultimately paid. Neder, 527 U.S.
at 16 (citation omitted).
Third, these actions were done “for the purpose of” defrauding insurance
companies. 18 U.S.C. §§ 1341, 1343. Humenny instructed patients to tell insurers
that “a former patient” referred them, because “it was one way [to] deceive” them
into “pay[ing] the bills.” When asked why they screened out accident victims who
had “wait[ed] too much time” to seek treatment, Humenny responded that “it kind
of lends to the fact that you may not have been injured,” which is “a red flag” for
insurance companies. The upshot is that the lies were aimed at keeping the money
flowing.
B.
Even if a scheme to defraud existed, the government still had to establish that
Hussein and Luna played a role in it. Based on the jury verdict, it meant proving
that they were accomplices and co-conspirators in the fraud.
There was plenty of evidence that both men participated in the scheme. They
played an active role in recruiting accident victims, paying kickbacks, and coaching
patients to deceive insurance companies, all in an effort to line their own pockets.
These facts allowed the jury to infer that Luna and Hussein had knowledge of the
illegal scheme and knowingly participated in it. See United States v. Hamilton, 929
F.3d 943, 946 (8th Cir. 2019) (requiring a conspirator to know of the illegal
agreement and knowingly participate); United States v. Hively, 437 F.3d 752, 764
(8th Cir. 2006) (explaining that “knowing[] participat[ion]” is necessary for
accomplice liability).
Moreover, there was evidence separately implicating each man. One former
patient testified that Luna instructed her not to tell anyone that he had initially
approached her about visiting the clinic. See Kidd, 963 F.3d at 750 (noting that some
“irregular behavior” can “support an inference that [the defendant] knew of the illicit
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activity and acted with intent to defraud”). Hussein participated in a similar
arrangement with another clinic, which was properly admitted for the limited
purpose of showing that he understood how these types of schemes work. See Fed.
R. Evid. 404(b)(2).
* * *
Based on the evidence, a jury could conclude beyond a reasonable doubt that
Forthun committed mail and wire fraud, that both Luna and Hussein were his
accomplices, and that all three entered into a conspiracy to defraud insurers. See
Washington, 318 F.3d at 852.
III.
The sentencing issues come next. Forthun challenges all three parts of his
sentence: a 60-month prison term that he is currently serving, $1,553,500 in
restitution, and an order to forfeit $1,180,666. Hussein, for his part, asks us to
reverse the district court’s determination that he owes $187,277 in restitution.2
A.
For both defendants, their primary complaint is the district court’s loss
calculations. They argue that the failure to include an offset for services that were
medically necessary and reasonable led the district court to overestimate the amount
of actual and intended losses from the fraud. In addressing this argument, we review
the court’s legal conclusions de novo and its factual findings for clear error. United
States v. Gammell, 932 F.3d 1175, 1180 (8th Cir. 2019); United States v. Bistrup,
449 F.3d 873, 882 (8th Cir. 2006).
2
Hussein’s challenge to his 15-month prison term became moot once he was
released from prison. See United States v. Hill, 889 F.3d 953, 954 (8th Cir. 2018).
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1.
The district court used “intended loss[es]” to calculate the length of Forthun’s
sentence. U.S.S.G. § 2B1.1, cmt. n.3(A) (explaining that the offense level for fraud
depends in part on “actual loss or intended loss,” whichever is “greater”). These
losses were all about his intent: what the fraud was designed to cause the insurance
companies to lose. United States v. Wells, 127 F.3d 739, 746 (8th Cir. 1997)
(explaining that “intended loss[es]” are those that “the defendant intended to cause
to the victim[s]” of the fraud); accord United States v. Manatau, 647 F.3d 1048,
1050 (10th Cir. 2011) (Gorsuch, J.).
Actual losses came into play when the district court ordered both defendants
to pay restitution. See 18 U.S.C. §§ 3663A(a)(1), (c)(1)(A)(ii) (requiring restitution
for property-offense victims), 3664(f)(1)(A) (specifying that restitution is “the full
amount of each victim’s losses”). Here, the focus was on what actually happened:
how much the insurance companies in fact lost due to each defendant’s fraudulent
actions. Gammell, 932 F.3d at 1180 (describing “actual loss[es]” as “the amount of
loss actually caused by the defendant’s offense” (citation omitted)).
Following these definitions, the district court used the same basic formula for
both. One variable remained constant: the estimated number of patients each man
was responsible for bringing into the clinic through “kickbacks or referrals.” As the
mastermind, Forthun was responsible for all 500 patients offered cash for treatment.
For Hussein it was just 65, the total number of accident victims he directly recruited.3
3
Of the 65 patients, 30 came from his work with another clinic. After the
government agreed to dismiss some charges against him, he agreed that these
patients could be added to his total. The district court did not clearly err in using a
patient ledger from the other clinic and “investigative interviews” to arrive at the 65-
patient total. 18 U.S.C. § 3661 (placing no limits on relevant evidence at
sentencing).
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The second variable changed depending on the type of loss involved. For
intended losses, the court used the average amount billed per patient. See U.S.S.G.
§ 2B1.1, cmt. n.3(C) (“The court need only make a reasonable estimate of the loss.”);
United States v. Lamoreaux, 422 F.3d 750, 756 (8th Cir. 2005) (approving the
district court’s finding that “loss could be estimated” through “basic economics”
under the Guidelines). For actual losses, the choice was average reimbursement
rates. See United States v. Carpenter, 841 F.3d 1057, 1060–61 (8th Cir. 2016)
(describing the “wide discretion” courts have to calculate restitution (citation
omitted)).
Simple multiplication yielded the final figures. The district court estimated
Forthun’s intended losses at $2,726,500 based on 500 patients and an average billing
rate of $5,453. The actual losses were lower, $1,553,500, using an average
reimbursement rate of $3,107. Finally, the district court held Hussein accountable
for 35 patients at an average reimbursement rate of $3,107, and 30 patients at his
prior clinic, with an average reimbursement rate of $2,617. The total came to
$187,277.
2.
These calculations were a reasonable starting point, but as the defendants
explain, the district court did not complete its analysis. It did not make an allowance
for the legitimate, compensable services provided by the clinic. The Sentencing
Guidelines, for example, provide an offset for the “fair market value of . . . the
services rendered . . . to the victim.”4 U.S.S.G. § 2B1.1, cmt. n.3(E)(i) (providing
4
The victims of the fraud are the insurance companies, not those who
underwent treatment for their injuries. The phrase “fair market value of the services
rendered” is an awkward fit with a third-party payor. After all, when third-party
payors are the victims, as in this case, they do not directly receive the services, so
there is arguably no “fair market value” to them. But this line of argument ignores
an insurer’s statutory duty to pay for reasonable and medically necessary treatments.
Minn. Stat. § 65B.44, subd. 2(a). Treatments arising out of a statutory obligation to
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for “[c]redits” in all loss calculations under the Sentencing Guidelines); United
States v. Liveoak, 377 F.3d 859, 867 (8th Cir. 2004). Similarly, with restitution,
anything the insurance companies would have had to pay, regardless of the
defendants’ actions, cannot be a loss caused by the fraud. See United States v.
Frazier, 651 F.3d 899, 904 (8th Cir. 2011) (emphasizing that restitution is
“compensatory” and courts “cannot award the victim a windfall” (internal quotation
marks and citations omitted)). We need not decide whether these two offsets are the
same, only that they both may be available here.
None of the district court’s findings rule out this possibility. Far from
determining that the services lacked fair market value (intended losses) or that
insurers had no obligation to pay (actual losses), the district court did not even sort
out what percentage of the services were noncompensable—as medically
unnecessary; unreasonable; never provided; or for some other reason, like use of a
runner. See Minn. Stat. §§ 65B.44, subd. 2(a), 609.612, subd. 2; see also Kidd, 963
F.3d at 753 (using “the number of patients who were recruited by [the defendant’s]
runners”).
The danger is overinclusiveness. The district court found that the clinic
attracted 500 patients “through kickbacks or referrals.” But some of those patients
approached the clinic on their own and asked for a kickback—a practice that is not
directly prohibited by the No-Fault Act. To the extent that the chiropractic services
provided to them were reasonable and medically necessary, they would have been
compensable.
The same is true even when patients were recruited to the clinic by someone
else. To be sure, once “runner[s]” are involved, it taints the relationship and
automatically relieves insurers of their statutory duty to pay. Minn. Stat. § 609.612,
subd. 2; Kidd, 963 F.3d at 746. But not all recruiters are runners under Minnesota’s
pay arguably have value to insurers. The extent to which they do is an issue for the
district court to consider on remand.
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restrictive statutory definition. See Minn. Stat. §§ 65B.54, subd. 6, 609.612, subd.
1(c). Without any findings distinguishing between the two, we cannot be sure that
the loss calculations are accurate.
The fact that the runner statute changed midway through the scheme only adds
to the difficulty. Toward the end, services were noncompensable once a third party
“directly procure[d] or solicit[ed] prospective patients” for “pecuniary gain” and
“kn[e]w[] or ha[d] reason to know that” the purpose was to “obtain . . . benefits under
or relating to” an automobile-insurance contract. Minn. Stat. § 609.612, subd. 1(c).
Before then, the definition was even more restrictive: the third party also had to
know that the health-care provider’s purpose was to “fraudulently” obtain benefits.
Minn. Stat. § 609.612, subd. 1(c) (2004); see 2012 Minn. Laws 1005–06 (striking
the term “fraudulently” and setting January 1, 2013 as the amendment’s effective
date). This distinction never factored into the district court’s analysis.
In sum, offsets could have made a difference, both to the length of Forthun’s
sentence and to the size of the restitution awards. When the district court failed to
consider the possibility, it created the risk that each may be too high. For this reason,
we vacate and remand for resentencing.
B.
Forfeiture is a different story. The district court ordered Forthun to forfeit
$1,180,666 in proceeds from the fraud. The first two challenges to the order are
procedural: the government waived the opportunity to seek forfeiture and, in any
event, filed its motion too late. First, the government did not waive its right to seek
forfeiture because it provided notice in the indictment. Fed. R. Crim. P. 32.2(a).
Second, forfeiture is mandatory for “[f]ederal health care offense[s],” so the
government was not required to file a motion. See 18 U.S.C. §§ 24(a)(2)–(b),
982(a)(7).
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The third challenge is to the amount, and specifically, whether it was
excessive. The argument is a familiar one: some of the chiropractic services were
compensable, so Forthun should have received some sort of offset. Successful
elsewhere, it fails here, primarily because of the difference between restitution and
forfeiture. See United States v. Hoffman-Vaile, 568 F.3d 1335, 1344–45 (11th Cir.
2009). The focus shifts from the “victim’s losses,” 18 U.S.C. § 3664(f)(1)(A), to the
“gross proceeds traceable to the commission of the offense,” id. § 982(a)(7)
(emphasis added). The reimbursements for all 500 patients were “gross proceeds”
of the fraud itself, so the forfeiture order stands.
IV.
We affirm the judgment of the district court in Luna’s case. In the other two,
we affirm the convictions and the forfeiture order, vacate the restitution orders,
vacate Forthun’s sentence, and remand for resentencing consistent with this opinion.
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