Universal Health Services, Inc. v. Ex Rel. Escobar– SCOTUS opinion, 136 S. Ct. 1484 (2016); Implied False Certification and “Materiality” under the False Claims Act

Having recently attended a fabulous qui tam seminar sponsored by the Charleston School of Law and the Federal Bar Association (and masterfully put together by Joe Griffith of the Charleston County bar), I thought it appropriate to revisit last year’s SCOTUS opinion in Escobar to assess just how much this case changed the landscape on materiality issues in the context of the federal False Claims Act.

The case takes up two, related issues. First, can liability even be predicated on a theory of “implied false certification”? And then, what is the definition of “materiality” under the False Claims Act?

A brief factual background of the case is helpful.  In short, a young girl, on Medicaid, was receiving mental health treatment through a subsidiary of Universal Health Services.  She was treated and prescribed medications during the course of that treatment.  She died.  Her family later discovered that these mental health practitioners lacked basic certifications to be performing the kind of work they were performing.  Her family brought a qui tam action against Universal Health Services, alleging that the Universal Health Services’ subsidiary made false claims when they filed for Medicaid reimbursement because, by filing for those payments, they “implied” they complied with all applicable statutory and regulatory provisions when they clearly did not.

As to the “implied false certification” theory of liability– the Court held that, “at least in some circumstances” there can be liability predicated on this particular theory.   In this case, yes, and that is because the claims presented in this case (to Medicaid, for reimbursement) did more than “merely demand payment.”  Instead, these statements “fall squarely within the rule that half-truths– representations that state the truth only so far as it goes, while omitting critical qualifying information– can be actionable misrepresentations.”  Id.  In other words, in egregious situations like this, there will be liability.  The Court held that liability will attach where two conditions are satisfied: “1) the claim does not merely request payment, but also makes specific representations about the goods or services provided, and 2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

As to the materiality standard under the FCA, the Court notes that the standard is “demanding” and that the FCA is not “an all-purpose antifraud statute” or a vehicle for punishing garden-variety breaches of contract or regulatory violations. The Court tells us quite about what materiality is NOT:

A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.  Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance…Likewise, proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement.  Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.  Of, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.

In other words, and I think this is good news for defendants, just because the Governments says it’s material, it does not make it so.  It appears to me that the Court intends for the lower courts to take a realistic view of the facts on the ground in individual cases to decide if the misrepresentations amount to “half-truths” that are, in the end, “material” to the provider for purposes of the FCA.


United States v. Steve Hale (4th Cir, 5/17/17): Fences, Addicts, and Stolen Goods, Oh My! The Fourth Circuit Upholds Denial of Willful Blindness Jury Instruction.

This is an important case because of the attention it directs to the willful blindness jury instruction. Steve Hale was convicted of a whole host of violations– transporting stolen property in interstate commerce, knowing the goods to have been stolen, conspiring to do the same, of making false statements on his tax returns, failing to collect and pay employee taxes, and obstructing justice. His main argument on appeal was that the District Court judge erred in giving the jury a willful blindness instruction that informed the jury that he knew the property at issue was stolen. He raised other challenges, but the most interesting other claim (in my humble opinion) relates to the statements the government made to the jury during closing argument.

Essentially this scheme involved a number of drug addicts in and around the Gastonia, North Carolina area who would go into stores and shoplift large amounts of over the counter medications and health and beauty aids.  They operated in groups of 2-4 people. These addicts would then take their bounty and hand them over to a fence. The fence would then remove the stickers and other identifying information that showed that the goods were coming from a particular store. Then these fences would sell the materials to Hale who would then sell these products on the secondary market.

During the course of its investigation, law-enforcement surveillance showed that one particular fence, “Bridges”, regularly delivered stolen merchandise to Hale’s warehouse. Bridges and others delivered their products in plastic garbage bags, plastic storage bins, and boxes. Hale paid cash for the merchandise that was delivered. On October 20, 2010, agents intercepted a FedEx shipment from the warehouse to another person in the Boca Raton, Florida area. In that shipment were items that the officers had marked with an ultraviolet light prior to having a cooperating witness sell the items to Bridges. In short, law enforcement was tracking where some of these materials were being transported. Later, law-enforcement executed a search warrant at Hale’s warehouse and found numerous shelves with merchandise, and a “cleaning station” where there were different products for use to remove stickers, sensors, and glue.

At trial, numerous witnesses testified to their relationships with one another and with Hale. A number of these people met at flea markets, where apparently there is a vibrant trade in moving stolen goods. Who knew? One witness testified that Hale told him that he made $18,000 in a “bad month.” Apparently trafficking in stolen goods can be a very lucrative endeavor.

At the end of the government’s case, Hale made a motion for a judgment of acquittal that the district court denied. Hale’s attorney also objected to the district court’s decision to provide the jury with a willful blindness instruction. After conviction, Hale received a 97 month prison sentence.

On appeal, Hale argued that the District Court judge erred in giving the jury a willful blindness jury instruction. As the Court notes, for a jury to convict Hale of transporting stolen goods in interstate commerce, the government had to prove that Hale knew that the goods he was transporting were stolen.  See 18 U.S.C. §2314.   In order to meet this burden of proof, the government could either show that Hale actually knew the materials were stolen, or by presenting evidence that he had made himself deliberately ignorant of the fact that the goods were stolen.  It is a deeply rooted principle of law that criminal defendants cannot escape the reach of criminal statutes by shielding themselves from clear evidence of critical facts that are so strongly suggested by the circumstances.  Global-Tech Appliances, Inc. v. SEB S.A, 563 U.S.754, 766 (2011); see also United States v. Jinwright, 683 F.3d 471 (4th Cir. 2012).  The application of the willful blindness doctrine has two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists, and (2) the defendant must take deliberate actions to avoid learning of that fact.”  Global-Tech Appliances, 563 U.S. at 769.   Here, the Court found there was ample evidence to support that Hale knew there was a high probability that the goods he was buying and selling were stolen. He testified at trial that based on his prior experience he knew there was a very big risk of people selling over the counter medicine and health and beauty aids at flea markets could be first level fences who had bought the goods at deep discounts from professional shoplifters. And the Court also found that Hale took deliberate actions to avoid confirming the goods were stolen because he was careful never to ask his fence about where she was receiving her items or why so many of her goods were marked with stickers indicating that they belonged on the shelves of local stores. The Court also continued to show that Hale fully knew the goods were stolen, including evidence that he tried to disguise his suppliers’ identities.  In short, the Court found sufficient evidence existed to support the willful blindness jury instruction.

Hale also argued that the willful blindness instruction that the District Court judge gave was inaccurate, but the Fourth Circuit disagreed, finding that, considered as a whole, the jury instruction “accurately and fairly state[d] the controlling law.” United States v. Rahman, 83 F.3d 89, 92 (4th Cir. 1996).

Hale also raised on appeal the argument that the prosecutor engaged in misconduct by presenting a closing argument that focused on how Hale denigrated the community by feeding individuals’ addiction, and by indirectly lining the pockets of drug dealers. He argued that this blatant appeal the passions and prejudices of the jury was improper and deprived him of a fair trial. Unfortunately for Mr. Hale, he did not object to this argument at trial. For that reason, the Fourth Circuit reviewed the claim under the plain error standard. The court rejected the claim and found that in light of the strength of the government’s case, the prosecutor’s remarks did not substantially prejudice Hale’s substantial rights resulting in the deprivation of his right to a fair trial.  That’s too bad, because this argument was clearly improper.

An unfortunate conviction for Hale, but a good primer on the willful blindness jury instruction for others.


US v. Karen Kimble (4th Cir, filed 5/2/17): Search and Seizure Issue– Agents Empowered to Take Cash If Reasonable Agent Would Have Thought It Covered by the Warrant (and even when the Agents thought it related to crime beyond the scope of the warrant).

This is a really interesting search issue, in my opinion, and confirms that hard cases sometimes make for bad law. I don’t think I agree with this decision, frankly, although it’s easy to see how the Court would not be inclined to suppress the fruits of this search.

Kimble was convicted after a bench trial during which the Government proved that she committed a number of schemes involving tax and visa application fraud, and aggravated identity theft.  Here’s how the series of events unfolded:  In 2007, Kimble participated in an immigration scheme with Tamim Mamah, a native of Ghana.  Mamah earlier attempted to get a green card by way of a fraudulent marriage.  When that didn’t work, Kimble filed, under the former wife’s name, for a divorce from Mamah. Then Kimble submitted a new green card application on Mamah’s behalf, using a marriage certificate listing herself as Mamah’s wife. During that same time frame, she also committed perjury when Mamah’s brother was charged in connection with heroin distribution.  She took the stand in that trial and essentially testified to facts she claimed she witnessed while in Africa. Only, she was not in Africa during that relevant time frame.  Then, Kimble offered herself as a tax preparer. She prepared taxes, but she inflated numbers, gave her clients different returns, and pocketed the difference to the total of $222,000 of skimmed monies. Very naughty behavior.

In July 2011, the Department of Homeland Security obtained a search warrant in connection with its investigation into Kimble’s marriage and immigration fraud and perjury.  In its affidavit, it asserted probable cause to believe her home contained evidence of perjury, marriage and immigration fraud, and false statements.  An attachment to that warrant stated that the search would enable the government to seize “[a]ny and all records and documents relating to the travel of [Defendant] to Ghana in 2006 including but not limited to… documents, correspondence, notes, statements, receipts or other records that reference or indicate fraudulent activity and items evidencing the obtaining, secretly, transferring, concealment and or expenditure illegal proceeds and currency to include cash.”

The agents executed a search warrant on July 29, 2011. At the beginning of the search, the agents asked Kimbel if she had any valuables in the house. She told him that she had some cash in a laundry basket. The agents searched the basket and found $41,000. When the agents asked her about the source of the funds, she told them that the money did not belong to her and that she had received the money from a stranger about a week earlier and that she was holding it for her husband. The officers were aware that her husband had been detained on a narcotics distribution charge, and so they took the money on suspicion that it derived from illegal drug activity.

Several months later Kimbel filed a claim to recover the seized funds. This time she told the officers that the money was proceeds of an insurance claim she filed after her home was damaged in a fire. Based on her changing account of the source of the funds, investigators subpoenaed her bank records in an attempt to confirm the source of the seized funds.  Once they reviewed those records, they found the numerous deposits from the IRS which they later figured out were the inflated refunds from her tax scheme.  In other words, they discovered her tax fraud, about which, until then, they had been unaware.

Kimbel was then indicted. She motioned the Court to suppress all the evidence obtained from the search of her house. Specifically, she argued that the government exceeded the scope of the warrant when it seized money it believed was related to drugs when the warrant itself only pertained to the perjury and immigration charges. Campbell argued that because the cash was improperly seized, any evidence obtained as a result of her efforts to reclaim that money amounted to the fruit of the illegal seizure and therefore was subject to exclusion at trial.

In this appeal, the Court assessed whether the government agents exceeded the scope of the search warrant. The court reviews the district courts legal conclusions regarding the scope of the warrant de novo and a factual findings underlying the conclusions for clear error.  United States v. Phillips, 588 F.3d 218, 223 (4th Cir. 2009).

The Fourth Amendment protects “[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures” and provides that “no Warrants shall issue, but upon probable cause, supported by Oath or  affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”  U.S. Const. amend. IV. The particularity requirement protects against a general, exploratory rummaging in a person’s belongings to the extent that a valid warrant leaves nothing to the discretion of the officers performing the search.  See United States v. Robinson, 275 F.3d 371 (4th Cir. 2001).

Here, Kimbel argued that the seizure of the cash violated the Fourth Amendment because the warrant permitted the agents to seize evidence relating only to her travel to Ghana, the subject of her perjured testimony. In support of this argument, she pointed to the language of Attachment B to the warrant which included the phrase “any and all records and documents relating to the travel of defendant to Ghana and 2006.”   She argued that the money, which the agents initially believed was linked to unrelated drug activity, exceeded the scope of the warrant because it could not have been related to her alleged perjury. The Court disagreed.   According to the Court, the scope of the search conducted pursuant to a warrant is defined objectively by the terms of the warrant in the oven and sought, not by the subjective motivations of an officer.  See United States v. Srivastava, 540 F.3d 277, 287 (4th Cir. 2008) (“In analyzing the constitutionality of a search warrant execution, we must conduct an objective assessment of the executing officers’ actions in light of the facts and circumstances confronting him at the time, rather than make a subjective a valuation of the officers’ actual state of mind at the time the challenged action was taken”).  In upholding the constitutionality of this search and seizure, the Court concluded that a reasonable officer could have found that the $41,000 could have constituted potential evidence of the marriage fraud, false statements, unlawful procurement of citizenship, or perjury charges.  In other words, it didn’t matter that the officers actually intended to exceed the scope of the warrant, so long as a reasonable agent would have thought these additional items were relevant to the search.  Therefore, the seizure did not exceed the scope of the warrant, and the district court correctly denied Kimbel’s motion to suppress.

The Court also addressed a sufficiency of the evidence claim relating to the tax and wire fraud charges.  The Court rejected those arguments as well.  Not a good outcome for Ms. Kimble, nor anyone else challenging the scope of a search warrant.  But here, some artwork from Nanart Agyemang, a Ghanian artist:






United States v. Shalhoub (11th Cir., 4/28/17); Fugitive Disenfranchisement Doctrine, and a Bunch of Remedies that the Eleventh Circuit Declines to Apply to Appellant’s Case

I like this case because it implicates a number of legal remedies that one does not ordinarily encounter during the course of things, and legal remedies are fun. Here, Shalhoub is a citizen of Saudi Arabia and lives there now.  Formerly, he was married to an American citizen with whom he had a child.  The specifics are not laid out, but it appears that while he and his child were in Saudi Arabia, a decision was made to stay there in violation of the child custody arrangements made during the course of their divorce.  All this happened roughly 20 years ago and Shalhoub was indicted on one count of international parental kidnapping in violation of 18 USC §1204.

Fast forward and Shalhoub wanted to hire a lawyer to appear for him in the United States and contest the indictment.  He did not want to show up himself.  The district court said, “no way” and Shalhoub appealed arguing that the denial of his right to have a lawyer appear on his behalf while he is a fugitive from justice is an immediately appealable collateral order and, if not, that the 11th Circuit should issue a writ of mandamus to compel a ruling on the motion to dismiss the indictment without requiring him to appear in court.

The fugitive disentitlement doctrine allows a district court to “sanction or enter judgment against parties on the basis of their fugitive status.”  Magluta v. Samples, 162 F.3d 662, 664 (11th Cir. 1998).  Essentially, courts do not like it when people flee from their jurisdiction.  This doctrine discourages flights from justice and protects the dignity of the courts.  Ortega-Rodriguez v. United States, 507 U.S. 234 (1993).  Shalhoub argued that application of this doctrine to his case was error.  The 11th Circuit found that it lacked jurisdiction over this case because a final judgment has not been entered.  The “final judgment rule” prohibits appellate review of a pretrial order in a criminal case “until conviction and imposition of sentence.”  Flanagan v. United States, 465 U.S. 259, 263 (1984).  An exception to the final judgment rule is the “collateral order doctrine” which allows review of an order that (1) conclusively determines the disputed question, (2) resolves an important issue completely separate from the merits of the action, and (3) is effectively unreviewable on appeal from a final judgment.”  Since Shalhoub was neither convicted nor sentenced, the Eleventh Circuit found it did not have jurisdiction.

Shalhoub also argued the Court could decide the case under the doctrine of “marginal finality.” An order that presents a question of “marginal” finality “fundamental to the further conduct of the case” is immediately appealable.  Gillespie v. U.S. Steel Corp., 379 U.S. 148, 152, 154 (1964).  As the Court notes, however, that case was limited to the unique facts of that particular case. The Court once again declined and found that it was inconsistent for a litigant to assert that the Court has appellate jurisdiction under the collateral order doctrine, which requires the issue resolved to be completely separate from the merits, and the marginal finality doctrine which addresses the review of intermediate issues “fundamental to the further conduct of the case.”  See Alt. Fed. Sav. & Loan Ass’n of Ft. Launderdale v. Blythe Eastman Paine Webber, Inc., 890 F.2d 371, 377 (11th Cir. 1989).

And lastly, the Court declined the petition for writ of mandamus, noting that such a “drastic and extraordinary” remedy that they are clearly NOT going to extend to someone who stole his kid and refuses to submit to the jurisdiction of the United States courts.  As the Court noted on a few occasions in this opinion, Shalhoub just needs to come to court and figure out this whole mess.  My guess is that he will continue in his fugitive status.  No love for Shalhoub from the 11th Circuit.  Great lawyering, though.


United States v. Fathia-Anna Davis (4th Cir. 1/5/17): Manufactured Jurisdiction Argument. Also, Don’t Try to Murder Your Husband.

So, this case raises an interesting claim in the context of a murder-for-hire scheme. Davis apparently loathed her husband.  So much so that she repeatedly tried to murder him.  Her first attempt, giving him an overdose of Ambien, did not work. The husband merely ended up in the hospital. Seeking a more certain outcome, Davis reached out to a friend of hers who worked at a car dealership that catered to the local gang members and drug dealer milieu.  This friend, instead of helping her solicit a murderer, instead went to law enforcement. Law enforcement, in conjunction with this friend set up a sting operation. This friend sent a text message to Davis, at the behest of law enforcement, informing her that he found someone for the job. This text message is the basis for Davis’s argument that her conviction and sentence should be vacated under the manufactured jurisdiction doctrine.

Under the manufactured jurisdiction doctrine, federal law enforcement officers essentially cannot use an instrumentality of interstate commerce in order to elevate what would normally be a local concern into a federal one. Davis relied primarily on United States v. Coates, 949 F.2d 104 (4th Cir. 1991) for this analysis. In that case, the court found that despite investigating Coates for a month, the government “had no evidence of his use of interstate mail or wire facilities in connection in the murder-for-hire scheme. To cure this problem, the government agent drove to Virginia for the sole purpose of making a telephone call across state lines in order to induce Coates to ‘use’ that interstate facility to discuss the scheme.”  Id. at 105.

The Court found the reliance on Coates misplaced.  First, the manufactured jurisdiction argument does not categorically prohibit government agents from using a facility of interstate or foreign commerce to initiate contact.  Instead, it only prohibits them from doing so for the sole purpose of turning a state crime into a federal crime.  Two, in this case, the record is silent as to the officers’ intent in asking the car-dealership friend to send the initial text.  It’s quite likely it was done for convenience sake, and not as a ploy to confer federal jurisdiction over the case.  And lastly, unlike Coates, this is not a case where there was a one-time direct response to a government agent’s invitation.  Instead, the record shows that Davis voluntarily used her car and mobile phones, repeatedly, to meet and communicate with the detectives regarding the plot to murder her husband.

The Court also found that Davis’s sentence of 120 months was completely reasonable under the facts of this case. Appellate counsel made the important argument that Davis was improperly enhanced in her sentencing for facts that actually constitute elements of the offense. For example, because the offer or receipt of something of pecuniary value is an element of the offense (Section 1958), everyone convicted under that statute will receive a four-level enhancement under 2A1.5.  This argument, however, was not presented to the sentencing court, so the Fourth Circuit assessed it under plain error review.  Under that stringent standard she did not prevail. The Court notes in footnote 7 that other circuits have also rejected the 2E1.5 cross reference to 2A1.5 (specifically, the 2nd and 8th circuits).  The Court also rejected other, preserved issues regarding the substantive reasonableness of her sentence.

An interesting legal issue with some highly unsavory facts.  Ten years seems very reasonable to this completely defense-oriented-never-even-thought-about-being-a-prosecutor attorney.


US v. Roderrete McClure (5th Cir., 4/25/17): When Does a Plea Agreement in Federal Court Prevent Additional Indictments?

Tough, tough lesson here for McClure, and all criminal defense lawyers should be aware of this case.  Here, McClure appeals the denial of his motion to dismiss his indictment for narcotics trafficking, arguing that the Government was barred from pursuing the indictment based on a plea agreement he entered into in an earlier case.  In 2012, McClure pleaded guilty to 18 USC 922(g)(1), Felon in Possession of a Firearm.   Information leading to this charge was obtained during the course of the Government’s investigation of McClure for public corruption and narcotics trafficking which eventually led to these charges.

Essentially, McClure and others stole drugs on several occasions from the Tenaha, Texas Marshal’s Office to sell.  He and others eventually staged a burglary of the evidence room to cover up the crime.  They stole drugs and gun and dumped the guns in a creek outside of Tenaha.  The FBI got involved after McClure’s confederate forwarded extortion letters that he and McClure received.  The letters were signed “Jack Frost” who purported to be a DEA agent and threatened to expose the thefts at the Marshal’s Office unless they paid him money.  The FBI concluded, after investigation, that Tracy Forman wrote the letters. Fortman confessed and said he needed the money because he couldn’t move the drugs that McClure and his buddy gave him.  He also showed the FBI agent a picture of a ‘well-stocked” gun cabinet in McClure’s house.  Shortly before interviewing Fortman, the FBI agent also interviewed McClure about the burglary of the Marshal’s office.  McClure told the agent he had installed recording equipment at the Marshal’s Office and City Hall and that he kept copies of these recordings on computers and hard drives in his home.  Based on this information, the agents got a search warrant.  And that’s when they found the guns (and other stuff not directly pertinent to this issue).

Two days later, McClure is indicted for the guns.  The Government filed a 404(b) motion regarding the guns stolen from the Marshal’s Office.  The judge excluded that evidence finding it concerned another “crime which is still under investigation” and was “peripheral” to the gun charge.  McClure pleaded guilty to a single count of being a felon in possession of a fire arm.  The plea agreement stated:

  1. Government’s Agreement: The United States Attorney for the Eastern District of Texas agrees not to prosecute the defendant for any additional non-tax-related charges based upon the conduct underlying and related to the defendant’s plea of guilty.

After this, the Government continued its investigation into public corruption and narcotics trafficking.  The investigation was transferred to another district. In August, 2013, McClure was indicted for drug conspiracy, possession with intent to distribute and distribution of marijuana, cocaine, prescription drugs and firearms charges.  A whole bunch of Texas-sized trouble.  McClure moved to dismiss the indictment on the basis that the earlier plea agreement precluded his prosecution.

At a hearing on the matter, McClure’s lawyer testified it was her understanding during the plea negotiations that the plea agreement would preclude any charges related to the Tenaha narcotics investigation, and that’s what she advised her client.  She also testified, however, that she did not recall any specific conversation with the AUSA on the issue.  The AUSA testified that she never suggested to counsel or anyone else that McClure’s guilty plea would dispose of these other charges.  The AUSA also testified that defense counsel never received any discovery relating to the narcotics investigation, other than evidence relating to the guns.  The district court judge denied the motion to dismiss the indictment.  He appealed.

The Fifth Circuit essentially adopted the district court’s reasoning.  The 2012 plea agreement stated that the Government could not bring additional charges “based upon the conduct underlying and related to the defendant’s plea of guilty.”  The two sets of charges are separate and distinct because 1) the two cases involved separate and distinct courses of conduct, 2) In the gun case, the crime was possession of the stolen guns while he was a felon; the narcotics case involved stolen drugs and guns from the Marshal’s Office, 3) the relevant time frames were different– August 15, 2011 for the guns, August 2009 to the end of 2010 for the narcotics case, 4) they happened at different places, 5) they implicated different statutory provisions, and 5) there’s a co-conspirator in the narcotics case not present in the gun case.

McClure argued that since the charges arose out of the same investigation, they are “inextricably intertwined.”  Per the Court, this argument misses the point.  The focus of the Government’s promise not to bring any additional charges is on the conduct “underlying and related to the” McClure’s guilty plea, and not on the Government’s investigation of it.  Additionally, in another case, United States v. Elashyi, 554 F.3d 480 (5th Cir. 2008) the Fifth Circuit found a breach of a plea agreement where the language of the agreement was that the Government agreed not to “seek, prefer or prosecute any further criminal charges against [the defendant] arising out of the facts and circumstances known by the government at this time surrounding [the defendant’s] involvement in the crimes addressed in the …indictment.”  As noted in that opinion, the phrase “arising out of” has a very broad meaning.  And also, a defense counsel’s subjective belief that a defendant’s plea will preclude future prosecuted related to an ongoing investigation, even if the defendant relies on it, does not, without more, immunize him from prosecution.”  See United States v. Williams, 809 F.2d 1072, 1079-80 (5th Cir. 1987).

So, really tough result here, and serves as a reminder that one set of charges, arising out of an investigation, does not necessarily immunize a client from a second set of charges from that same investigation.  Language is key, and make sure there’s no wiggle room in the plea agreement.


US v. Kimberly Hastie (11th Cir., filed 4/25/17) Email addresses are “personal information” under the Driver’s Privacy Protection Act. Judge Jordan disagrees; argues it is a jury issue.

File this in the Things Not to do When You Hold a Position of Trust in the Government file. Ms. Hastie was the License Commissioner of Mobile, Alabama. She was responsible for issuing driver’s licenses and automobile titles, and she maintained motor vehicle registrations for the citizens of Mobile County.  She also supported a particular candidate for Mayor!  She asked her manager of information technology to send her the emails addresses from the License Commission’s database to her so she could use that list in her endorsement of Sandy Stimpson for Mayor.  The manager at first refused, saying that “everybody would know that we just used our E-mail database to send out this list.”  Instead, he downloaded the addresses onto a flash drive that was given to Hastie’s secretary who then gave those addresses to the Stimpson campaign.  Forthwith, the campaign used those addresses delivering Hastie’s personal endorsement of Sandy Stimpson for Mayor!

For this, Hastie was indicted for violating the Driver’s Privacy Protection Act.  She valiantly fought this case at trial, but lost.  She was sentenced to a fine of $5,000.  Damn right she appealed.  She first argued that the statutory definition of “personal information” did not include email addresses and that “the Government…failed to present sufficient evidence from which the jury could find beyond a reasonable doubt that she is an ‘officer, employee, or contractor of a STATE department of motor vehicles.”  Over both statutory construction issues and sufficiency of the evidence, the appellate court reviews de novo.  See United States v. Jiminez, 564 F.3d 1280 (11th Cir. 2009); Boca Ciega Hotel, Inc. v. Bouchard Transp. Co., 51 F.3d 235 (11th Cir. 1997).

The Court rejected both claims.  First, the Court notes there was specific testimony presented that addressed the relationship between Mobile County License Commission and the State of Alabama.  The jury heard, for instance, that the State oversees aspects of the License Commission. The Court noted other things, too.  In short, the jury could properly find that she was a state employee.  As to the privacy of the email issues, the Court notes that the Driver’s Privacy Protection Act defines “personal information” as “information that identifies an individual, including an individual’s photograph, social security number, driver identification number, name, address, telephone number, and medical or disability information, but does not include information on vehicular accidents, driving violations, and driver’s status.”  18 USC §2725(3).  The Court found that email addresses fall within the ordinary meaning of “information that identifies an individual.”  They can “prove” or “establish the identity of” an individual.  It is of no relevance that “email addresses” is not explicitly enumerated since the language of the statute states “including . . .” and then specifically exempts information on car wrecks, driving violations and a driver’s status.  There’s a nice discussion in the opinion about statutory construction.

Judge Gordon offered a thoughtful dissent.  He notes that Hastie asked the district court to give the jury the statutory definition of “personal information” and allow it to decide whether email addresses constitute “information that identifies an individual.”  Instead, the district court decided, as a matter of law, that email addressed did, in fact, identify the individual. In Judge Gordon’s view, this failure to give the requested jury charge constituted reversible error:

That, in my view, was reversible constitutional error.  It is undisputed that the disclosure of “personal information” is an element of a DPPA offense, and the Sixth Amendment and the Due Process Clause require that “each element of the crime be proved to the jury beyond a reasonable doubt.”  Alleyne v. United States, 133 S. Ct. 2151, 2156 (2013).  As a result, the jury should have been allowed to decide whether the email addresses provided by Ms. Hastie constitute “personal information.”

Judge Jordan pointed to prior appellate court precedent that militates in favor of submitting the issue to the jury.  Two courts of appeal earlier reversed two other cases where the district court judges found, as a matter of law, that certain documents filed with the IRS did not constitute “returns” (US v. Goetz, 746 F.2d 705 (11th Cir 1984), and that certain oil leases constituted “investment contracts” and therefore “securities” (Roe v. United States, 287 F.2d 435 (5th Cir. 1961).  Judge Jordan would grant Ms. Hastie a new trial.

I sense a petition for rehearing en banc in Ms. Hastie’s near future with a robust dissent such as this.


United States v. Philip Swaby, 4th Circuit Court of Appeals (filed 4/24/17): Court’s “general” immigration warnings did not cure lawyer’s erroneous advice regarding consequences of guilty plea.

A very important case for lawyers representing defendants facing possible deportation as a consequence of criminal convictions.  The facts here are very similar to those SCOTUS addressed in Padilla v. Kentucky, 559 U.S. 356 (2010).  Counsel was appointed to represent a client who had lawful permanent resident status.  He was married to a citizen and has two daughters who are citizens.  He also has a step-daughter.  He and his wife were indicted for trafficking counterfeit goods.  Recognizing possible immigration consequences, counsel reached out to another attorney, one who specialized in immigration law.  Counsel sent the indictment and what he believed was the applicable statute to the immigration lawyer.  Unfortunately, he inadvertently sent the wrong statute so the immigration lawyer erroneously advised plea counsel that a plea to the crime would not be considered an aggravated felony for immigration purposes under 8 U.S.C. 1101(a)(43)(M)(i).  The plea agreement ultimately entered into by Petitioner and the Government was predicated on their understandings that Swaby would be free from deportation if he secured a sentence for less than 365 days.  The plea agreement itself contained boilerplate warnings about possible immigration consequences.  And, at the plea itself, the district court judge informed Petitioner that his guilty plea could lead to his deportation or removal from the United States.

The short of it is that the Fourth Circuit found that the general warnings by the district court judge did not mitigate the prejudice of plea counsel’s deficient performance.  In United States v. Akinsade, 686 F.3d 248 (4th Cir. 2012), the Court also found that a district court’s general warnings of risk of deportation do not correct counsel’s deficient performance, although a “careful explanation” specifically correcting misadvice may cure any prejudice that misadvice may cause.  Id. at 253-54.

As to the prejudice prong of the Strickland inquiry, the Court notes that a defendant is prejudiced if “there is a reasonable probability that, but for counsel’s errors, [a defendant] would not have pleaded guilty and would have insisted on going to trial.  Hill v. Lockhart, 474 U.S. 52 (1985).  In the context of a guilty plea, the Fourth Circuit recognizes that a defendant is prejudiced if there is a reasonable probability that the defendant would have negotiated a plea agreement that did not affect his immigration status. United States v. Rodriguez-Vega, 797 F.3d 781, 788-89 (9th Cir. 2015); Kovacs v. United States, 744 F.3d 44, 52-53 (2d Cir. 2014).  Under these tests, and assessing Petitioner’s situation, the Court found that Petitioner demonstrated a reasonable likelihood that he would have negotiated for, and the government would have been amenable to, a plea agreement that had no immigration consequences.  Alternatively, Petitioner could have shown prejudice by showing a reasonable likelihood that, absent his counsel’s error, he would have gone to trial instead.  The Court reversed, vacated, and remanded Petitioner’s case for further proceedings consistent with this opinion.  It looks like Petitioner is going to be able to stay in the United States with his wife and children, a very humane result under the facts of this case.  Chief Judge Gregory, Judge Wynn and Judge Thacker on the opinion.


US v. Kenneth and Kimberly Horner (11th Circuit, filed 4/13/17), Tax Fraud Convictions Affirmed– What NOT to do this Tax Season.

At this time of year, as everyone files tax returns, it’s good to keep in mind the kinds of conduct that is illegal. Do not do the things that the Horners have been convicted of doing unless you would like to do a stint in your local federal pen.

Here, the Horners had a towing and recovery business in an area outside of Atlanta.  They received a fair amount of cash for its services from its clients. Simply, they did not report these cash payments on their taxes, which they had prepared by H&R Block.  Indeed, they did not inform H&R Block of this money at all. Instead, they deposited those monies into their personal accounts. The IRS concluded these monies were diverted receipts from their business. The Horners were indicted for assisting in the preparation of fraudulent corporate tax returns and for filing false individual income tax returns (for the years 2007 and 2008; they were not charged for 2005 and 2006 tax returns).

Pretrial, the Horners sought to exclude certain pieces of evidence, including evidence that they “structured” their deposits to avoid having to file Currency Transaction Reports (CTR’s, which must be filed for cash deposits over $10K). They also argued that evidence relating to their 2005 and 2006 returns was inadmissible. Lastly, they argued that testimony from an IRS agent, relating what the proper tax amounts were had the Horners not engaged in the fraud, was inadmissible.  The Horners also requested a jury instruction on good faith reliance on the advice of accountants (which the district court did give a modified instruction as to reliance on the advice of attorneys but replaced “attorneys” with “accoutants”), and the due diligence obligations of tax preparers generally (which the district court did not give).

On appeal, the Horners raised the following claims:

1) the Government elicited and failed to correct false testimony from the IRS agent regarding the extent of unclaimed deductions, 2) the district court should have given the requested jury instructions on good faith reliance on accountants’ advice and due diligence on the part of tax preparers, 3) the district court should have excluded the testimony on deposit “structuring” as irrelevant and unduly prejudicial; and 4) the district court should have excluded evidence of allegedly fraudulent tax returns from 2005 and 2006 as irrelevant, unduly cumulative, confusing, and prejudicial.

As to the IRS agent’s testimony, the Court found that the Horners failed to show that the agent’s testimony was false (let alone, intentionally false). Typically, a claim of prosecutorial misconduct is viewed de novoUnited States v. McNair, 605 F.3d 1152 (11th Cir. 2010).  Here, since the Horners did not object to this testimony at trial, it is reviewed for plain error.  United States v. Nixon, 918 F.2d 895 (11th Cir. 1990).  The Court did not perceive a problem with the agent’s testimony. The agent, in fact, repeatedly acknowledged the limitations of her analysis during cross-examination. For example, she agreed with defense counsel that her numbers “assumed no business expenses were paid from the personal account” and that “the unreported income would be reduced” to the extent any “business expenses were paid by the Horners.” The Court did not find that a Giglio violation occurred.

As to the jury instruction issue, the Court found that the district court did not abuse its discretion by giving the instruction that it did since it accurately reflected the law. The district court’s charge informed the jury that 1) good faith, including good faith reliance on the advice of professionals, is a complete defense to the charges of the indictment, 2) the Government has the burden to prove intent beyond a reasonable doubt, 3) good faith and intent were issues for the jury to decide; 4) evidence of good faith is inconsistent with the unlawful intent; 5) the defendants must have made a full disclosure of the relevant facts to the accountant for their reliance to have been in good faith; and 6) the defendants must have actually received and relied upon an accountant’s advice.  See United States v. Kottwitz, 614 F.3d 1241 (11th Cir. 2010), opinion withdrawn in part on denial of reh’g, 627 F.3d 1383 (11th Cir. 2010); Eleventh Circuit Pattern Jury Instructions, Special Instruction 18.  As to the jury instruction regarding the due diligence of the tax preparers, the Court found that where the evidence provides no support for a given instruction, it is not error to fail to give it.  See United States v. Hill, 643 F.3d 807 (11th Cir. 2011).

Regarding the Horners’ claims of 1) the alleged structuring of cash deposits and 2) the false tax returns of 2005 and 2006, the Court reviews these evidentiary rulings for an abuse of discretion.  Al-Amin v. Smith, 637 F.3d 1192 (11th Cir. 2011). The Court ruled there was no problem with admitting the evidence of structuring since that evidence was inextricably linked to the tax fraud because the cash deposits were unreported income and the structuring of those deposits potentially demonstrated a conscious effort to avoid the reporting requirements.  Also, the probative value of the evidence clearly outweighed any undue prejudice.  For the same reason, the earlier tax returns were admissible– they were closely related to the tax fraud in these cases, and any unfair prejudice from the evidence did not outweigh its probative value, especially since the Horners vigorously contested the issue of intent at trial.  Alternatively, the Court also found that the admission of this evidence would be– at worst– harmless error.

In short, getting cash from the clients may be a good thing, but you need to make sure that you’re reporting it as income to avoid not only tax penalties, but also a criminal conviction.