United States v. Dearing ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,  No. 06-30606
Plaintiff-Appellee,
v.  D.C. No.
CR-05-00216-WLO
ARTHUR HERBERT DEARING, III,
OPINION
Defendant-Appellant.

Appeal from the United States District Court
for the District of Idaho
William L. Osteen, District Judge, Presiding
Argued and Submitted
August 8, 2007—Seattle, Washington
Filed September 25, 2007
Before: William C. Canby, Jr., Cynthia Holcomb Hall, and
Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Hall
13127
UNITED STATES v. DEARING 13129
COUNSEL
Scott C. Williams and Jon D. Williams, Salt Lake City, Utah,
for the appellant.
Wendy J. Olson, Assistant United States Attorney, Boise,
Idaho, for the appellee.
OPINION
HALL, Senior Circuit Judge:
Arthur Herbert Dearing III appeals his conviction on thirty-
two counts of aiding and abetting health care fraud, in viola-
tion of 18 U.S.C. § 1347, arising from a scheme to defraud
Idaho Medicaid by submitting false billings from a mental
13130 UNITED STATES v. DEARING
health clinic that Dearing owned and operated with his
brother. The district court had jurisdiction pursuant to 18
U.S.C. § 3231. This court has jurisdiction pursuant to 28
U.S.C. § 1291. We affirm.
I. Background
In December 2001 Arthur Dearing (“Art” or “Dearing”)
and his brother Rodger opened a mental health clinic called
Life Springs Mental Health L.L.C. in Nampa, Idaho. The
facility was designed to provide services to patients at Valley
Plaza, a residential care facility that Rodger owned. Rodger
was a registered nurse but lacked prior mental health experi-
ence. He ran the clinic’s day-to-day operations along with
Greg Hassakis, a mental health consultant hired to set up the
program. Art, whose background was in civil engineering,
served as part-owner and visited the facility once or twice a
month for business meetings.
Life Springs’ business model depended upon billing Med-
icaid for the care provided to its patients for revenue. To that
end, Art executed a Medicaid Provider agreement on behalf
of Life Springs. This agreement included a contract between
Life Springs and licensed physician Dr. Frances Wreggles-
worth, who agreed to provide supervising physician services.
Art signed the contract with Dr. Wregglesworth on behalf of
the company. The application also included a note, affixed to
the Wregglesworth contract, indicating that Medicaid
employee Jack Weinberg informed Art that a licensed physi-
cian must sign all treatment plans, and that Art acknowledged
the requirement. After the application was approved, Art pro-
vided a copy of Medicaid’s billing rules and regulations to
Kathy McKenney, who served as administrator of the Valley
Plaza facility and would initially handle Medicaid billing for
Life Springs.
In October 2002, Medicaid investigator Greg Snider
audited Life Springs. In an exit interview, he explained to Art
UNITED STATES v. DEARING 13131
and Rodger that the audit identified three improper billing
practices: (1) billing for services performed by employee
Mike Adamson, who lacked the necessary qualifications to
provide Medicaid-funded services; (2) billing for services
provided without a treatment plan signed by a physician; and
(3) billing for services provided outside the Life Springs facil-
ity.
Although the audit put Art on official notice of problems
with Life Springs’ billing practices, it was not the first time
that these issues had been brought to his attention. McKenney
testified that she regularly provided Art with information
regarding Medicaid billings and had raised each of these three
issues with Art during early 2002. Greg Hassakis also testified
that he had raised these issues prior to the audit at staff meet-
ings where Art was present. At each of these meetings, Rod-
ger assured the staff that he had checked the appropriate
regulations and that the company’s practices were legal. As
the audit approached, however, Art and Rodger held a meet-
ing at a local restaurant with Hassakis, McKenney and
another employee at which Rodger asked Hassakis to “take
the fall” for any illegal behavior that the audit would uncover.
Hassakis promptly rose and left the restaurant. Although Art
claims that he did not hear Rodger’s statement, the other par-
ticipants testified that he was in close proximity and was
actively participating in the discussion when the comment
was made.
Life Springs continued its fraudulent business practices
even following the October 2002 audit. For example, Art
hired Marge Stallings in December 2002 to correct Life
Springs’ billing problems. She quickly brought to Art’s atten-
tion that the company continued to bill illegally for Adam-
son’s services, for services provided without a treatment plan,
and for services provided off the premises. Art convened a
meeting at which Rodger warned Stallings that “loose lips
sink ships.” Art assured Stallings that he would correct these
billing issues, but when he took no additional action, Stallings
13132 UNITED STATES v. DEARING
quit. Similarly, Life Springs employees Wendy Reynolds and
Krissy Munson informed Art that the company was still
engaging in fraudulent billing practices. In response to Reyn-
olds’ concerns, Art warned her that Rodger felt she was
focusing too much on legal issues and not enough on the busi-
ness side.
Medicaid continued to investigate the company throughout
2003 and early 2004. Investigator Eileen Williams testified
that during a July 24, 2003, phone interview, Art disclosed to
Williams that he was considering removing Rodger from the
business and wanted to know how it would affect the investi-
gation. Williams interviewed Art in greater depth on April 16,
2004, during which he acknowledged Life Springs’ past prob-
lems but claimed that he thought Rodger had corrected them.
On October 13, 2005, Art, Rodger, and Adamson were
indicted on fifty counts of aiding and abetting health care
fraud in violation of 18 U.S.C. § 1347, based upon Life
Springs’ fraudulent billing practices as discussed in the Octo-
ber 2002 audit. A superseding indictment included only forty
counts. Rodger pled guilty prior to trial, and Adamson pled
guilty to one misdemeanor count on the third day of trial, so
only Art proceeded to a verdict. The jury found Art guilty on
thirty-two of the forty counts, acquitting him for conduct
before the October 2002 audit but convicting him for all con-
duct after that date. Art received a five-month sentence on
each count, to run concurrently, and timely appealed.
II. Standard of Review
We review de novo the district court’s denial of a motion
for judgment of acquittal based on insufficient evidence.
United States v. Carranza, 289 F.3d 634, 641 (9th Cir. 2002).
Our review of the underlying jury verdict, however, is “highly
deferential.” United States v. Terry, 911 F.2d 272, 278 (9th
Cir. 1990). “The evidence is sufficient to support a conviction
if, ‘viewing the evidence in the light most favorable to the
UNITED STATES v. DEARING 13133
prosecution, any rational trier of fact could have found the
essential elements of the crime beyond a reasonable doubt.’ ”
United States v. Milwitt, 475 F.3d 1150, 1154 (9th Cir. 2007)
(quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)
(emphasis in original)). We review the district court’s formu-
lation of a jury instruction for abuse of discretion, although
we review de novo the question whether a jury instruction
misstates an element of the crime. United States v. Chastain,
84 F.3d 321, 323 (9th Cir. 1996); United States v. Tagalicud,
84 F.3d 1180, 1183 (9th Cir. 1996).
III. Discussion
A. Sufficiency of the Evidence
[1] Dearing first argues that the evidence adduced at trial
is insufficient because there is no evidence that he acted with
willful intent. Dearing was convicted of violating 18 U.S.C.
§ 1347, which provides that one commits health care fraud
when he:
knowingly and willfully executes, or attempts to exe-
cute, a scheme or artifice—
(1) to defraud any health care benefit program; or
(2) to obtain, by means of false or fraudulent pre-
tenses, representations, or promises, any of the
money . . . owned by . . . any health care benefit pro-
gram,
in connection with the delivery of or payment for
health care benefits, items or services.
“As a general matter, when used in the criminal context, a
‘willful’ act is one undertaken with a ‘bad purpose.’ In other
words, in order to establish a ‘willful’ violation of a statute,
‘the Government must prove that the defendant acted with
13134 UNITED STATES v. DEARING
knowledge that his conduct was unlawful.’ ” Bryan v. United
States, 524 U.S. 184, 191-92 (1998) (footnote omitted) (quot-
ing Ratzlaf v. United States, 510 U.S. 135, 137 (1994)). To
prove that the defendant acted as an aider and abetter, the
government must show that the defendant knowingly pro-
vided substantial assistance to another’s violation. United
States v. Kessi, 868 F.2d 1097, 1103 (9th Cir. 1989).
[2] As we have acknowledged in connection with other
statutes containing a willfulness requirement, “direct proof”
of one’s specific wrongful intent is “rarely available.” United
States v. Marabelles, 724 F.2d 1374, 1379 (9th Cir. 1984).
But willfulness may be inferred from circumstantial evidence
of fraudulent intent. Id. at 1379-80; see also United States v.
Tucker, 133 F.3d 1208, 1218 (9th Cir. 1998). A recent Sixth
Circuit opinion has applied this reasoning to a section 1347
conviction similar to this case, explaining that “[i]ntent can be
inferred from efforts to conceal the unlawful activity, from
misrepresentations, from proof of knowledge, and from prof-
its.” United States v. Davis, 490 F.3d 541, 549 (6th Cir. 2007)
(internal quotation marks and citation omitted). Davis held
that a jury could infer willful intent to defraud where the
defendant owned the company, hired and fired employees,
frequently visited the offices where the fraudulent conduct
occurred, was present during a session where fraudulent activ-
ity took place, and covered up evidence of the fraudulent con-
duct. Id. at 549-50.
[3] We similarly conclude that the evidence supports a
finding that Dearing willfully participated in Life Springs’
fraudulent billing scheme. Specifically, a reasonable juror
could have found that Art was put on notice of Life Springs’
fraudulent billing practices by the October 2002 audit, knew
that the company continued these practices after the audit, yet
took no action to correct these actions and, in fact, dissuaded
serious investigation into the company’s problems, all while
continuing to profit from the company’s illegal conduct. Art’s
knowledge of the company’s ongoing fraud was established
UNITED STATES v. DEARING 13135
by the testimony of Stallings, Munson, and Reynolds, each of
whom raised ongoing billing issues with Art after the audit
was completed.1 In addition, the jury could have found knowl-
edge of the company’s continuing illegal practices based upon
Art’s presence at meetings in which Rodger warned Stallings
that “loose lips sink ships” in response to her billing concerns.
[4] The jury could also have inferred willful intent from
Art’s misrepresentations and efforts to conceal the activity.
Despite his knowledge of these ongoing transgressions, Art
told investigator Williams that he was unaware of any ongo-
ing fraudulent billing. Art also personally discouraged Reyn-
olds from pursuing her billing concerns with the admonition
that she was looking too much at the legal side and not
enough at the business side. And although he ostensibly hired
Stallings to correct the problems identified in the audit, he
disregarded her repeated warnings about ongoing fraud and
eventually let her quit rather than implement the changes she
recommended. While Art apparently considered firing Rodger
in mid-2003—a fact that itself suggests knowledge of the
ongoing fraud—he ultimately declined to do so. He also did
not terminate his own stake in the business, instead continuing
to share the company’s profits equally with his brother.
[5] When evaluating the sufficiency of the evidence, this
court asks not “whether it believes that the evidence at the
trial established guilt beyond a reasonable doubt,” but rather
whether “any rational trier of fact” could do so. Jackson, 443
U.S. at 318-19 (emphasis in original). As in the Sixth Cir-
cuit’s Davis opinion, the evidence shows that Art had knowl-
edge of the ongoing fraud and misrepresented or covered up
inquiries into that fraud, while continuing to profit from the
venture. On these facts, we conclude that a reasonable juror
1
Art’s knowledge may also be inferred from the fact that McKenney
regularly provided Art with billing information. McKenney’s successor,
Dana Vanderbrink, acknowledged doing the same at least once during
August or September of 2003.
13136 UNITED STATES v. DEARING
could have inferred that Art willfully participated in the
scheme to defraud Medicare.
B. Jury Instructions
Dearing also claims that the district court erred in permit-
ting a jury instruction that allowed a finding of guilt based
upon reckless indifference rather than willful intent. We find
this argument unavailing. The district court instructed the jury
that it could not convict Dearing unless it found beyond a rea-
sonable doubt, as the first element of the crime, “that the
defendant knowingly and willingly executed, or attempted to
execute a scheme to defraud any healthcare benefit program.”
It then defined “willfully” as meaning “that the act was com-
mitted voluntarily and purposely with the specific intent to do
something the law forbids. That is to say, with bad purpose
either to disobey or to disregard the law, and not through
ignorance, mistake, or accident.” Therefore the instructions
correctly stated that the jury could not find Dearing guilty
unless it concluded that he specifically intended to act with a
bad purpose in executing a scheme to defraud Medicaid.
Dearing seemingly does not challenge this conclusion, but
instead asserts that a second instruction effectively lowered
the mens rea requirement from willfulness to recklessness. In
addition to the instruction given above, the district court also
stated that the jury had to find beyond a reasonable doubt that
“the defendant acted with intent to defraud.” The instruction
defined “intent to defraud” as acting “knowingly and with the
specific intent to deceive or cheat.” Because “[d]irect proof of
knowledge and fraudulent intent—of what a person is
thinking—is almost never available . . . [t]he state of mind of
the defendant may be proved by circumstantial evidence” and
can be met either “by showing that the defendant knowingly
lied with intent to defraud” or that he “acted with reckless
indifference to the truth or falsity of the statements.”
UNITED STATES v. DEARING 13137
[6] We hold that the phrasing of this additional instruction
was not erroneous and did not effectively relieve the govern-
ment of its burden of proving that Dearing’s actions were
willful. The “intent to defraud” element is common to the fed-
eral fraud statutes. We have repeatedly held that the intent to
defraud may be proven through reckless indifference to the
truth or falsity of statements. United States v. Munoz, 233
F.3d 1117, 1136 (9th Cir. 2000) (mail fraud); United States v.
Ely, 142 F.3d 1113, 1121 (9th Cir. 1997) (bank fraud). We
have also upheld a reckless indifference instruction in connec-
tion with securities fraud, which, like section 1347, requires
that the defendant acted willfully: we explained that “a defen-
dant could ‘willfully’ violate § 78ff by willfully acting with
reckless indifference to the truth of statements made in the
course of the fraud.” United States v. Tarallo, 380 F.3d 1174,
1189 & n.5 (9th Cir. 2004).2 More importantly, the “reckless
indifference” instruction that Dearing challenges was tethered
to the “specific intent to defraud” element, which the govern-
ment was required to prove in addition to the first element.
Therefore its inclusion did not negate the separate instruction
that to convict, the jury had to find that Dearing acted “know-
ingly and willfully.”
[7] “In reviewing jury instructions, the relevant inquiry is
whether the instructions as a whole are adequate to guide the
jury’s deliberation.” Munoz, 233 F.3d at 1130. Because we
have previously held that the government may prove willful-
ness by showing that the defendant acted with reckless indif-
ference to the truth or falsity of a statement, and because the
“reckless indifference” instruction here did not negate the sep-
arate “knowing and willfully” instruction, we find no error.
Reviewed as a whole, the instructions adequately conveyed
2
Similarly, the Sixth Circuit in Davis noted that the judge instructed the
jury that “false or fraudulent pretenses, representations, or premises”
under Section 1347 may be established by material false statements that
“were either known to be untrue when made or made with reckless indif-
ference to their truth.” Davis, 490 F.3d at 547.
13138 UNITED STATES v. DEARING
that conviction required the jury to find that Dearing acted
“voluntarily and purposely” with “bad purpose either to dis-
obey or disregard the law, and not through ignorance, mis-
take, or accident.”
Arthur Dearing’s conviction is therefore
AFFIRMED.