Author: OIAStaff

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Holden & Reimer: Don’t Reverse Trump’s Overcriminalization EO

Originally published at National Law Journal | February 26, 2021

by Mark V. Holden and Norman L. Reimer

In the final days of his presidency, President Donald Trump signed an executive order entitled “Protecting Americans From Overcriminalization Through Regulatory Reform.” While President Joe Biden has reversed a number of Trump’s executive orders, this is one he should keep. It is an important step in ensuring that criminal laws—specifically those buried in the countless thousands of federal criminal regulations—are clear and that prosecutors focus their tremendous power on enforcing those laws against people who actually intended to do something wrong or illegal.

Prosecuting and imprisoning a person is the greatest power the state routinely exercises over its citizens. In the United States, this power is severely overused. The United States is the most incarcerated country in the world, both in the absolute and per capita numbers of imprisoned individuals.

We also know that the enforcement of criminal laws disproportionately affects people of color. Thankfully, there is a growing movement to enact criminal legal system reform and to begin redressing these systemic inequities in the American criminal legal system. And there are many parts of the criminal legal system that need to be improved upon. One of them is ensuring that the requirements for each criminal offense are clear and that the government meets a sufficiently high bar in order to prove each such element.

At its most basic, a criminal law in the Anglo-American legal tradition requires the government to prove two things: (1) that the defendant committed a wrongful action; and (2) that the defendant acted with criminal intent, sometimes known as a mens rea—a guilty mind.

Some crimes do not require that a person acted intentionally or with a guilty mind at all. A person may be guilty of one of these crimes, called strict liability crimes, without intending to do wrong or even knowing that what they did was against the law. In almost every case, strict liability disconnects the criminal law from its moral anchor.

This executive order sets forth three policies: (1) agencies that issue regulations with criminal penalties should be clear about what conduct is subject to criminal penalties and the mens rea standard for those offenses; (2) strict liability offenses are disfavored; and (3) criminal prosecutions of regulatory offenses should focus on people who knew what they were doing was wrong or prohibited, thereby causing or risking substantial public harm.

This executive order applies only to regulatory crimes, a specific subset of criminal laws that arise when Congress delegates authority to administrative agencies to criminalize conduct. These laws are generally less well known to the public, because they are not enacted by Congress but rather by the dozens of agencies within the federal government. Furthermore, the overall volume of regulatory crimes has never been documented, though there are some estimates that number may be north of 300,000.

It is because these laws are less well known that this order is needed. All laws, particularly criminal laws, should have clear requirements regardless of whether they are statutes passed by Congress or regulations issued by an agency. It makes no sense for prosecutors to enforce these laws against people whose actions were not truly harmful and who did not know they were doing something that violated a criminal regulation.

Some critics might argue that this order would make it more difficult to prosecute white collar crimes. But, making laws more clear, having fewer laws that call for strict liability, and focusing on truly wrongful conduct are laudable. Indeed, it should be the norm in all contexts. Moreover, just as most criminal law is disproportionately enforced against certain groups, regulatory enforcement is the same way. The enforcement burden does not generally fall on Wall Street and C-suite executives, but rather on small businesses and the site managers, engineers and other mid- to low-level workers who work for them.

This executive order is a small, but meaningful, step in requiring the government to clearly lay out the conduct that is criminalized, to focus on persons whose wrongdoing was intentional and harmful, and to not punish people who did not know what they were doing was wrong or criminally prohibited. In the rush to reverse prior policies, a positive step should be preserved. Indeed, Congress should apply its principles to all of the statutory criminal law it enacts as well.

Mark V. Holden serves as chairman of the board of Americans for Prosperity. Norman L. Reimer is the executive director of the National Association of Criminal Defense Lawyers.

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Articles

WLF Q&A with OIA Advisory Board Member Barry Boss

Originally published by Washington Legal Foundation | Feb. 12, 2021

Background

Enforcement of environmental, health care, and many other regulatory statutes is left to the discretion of prosecutors to use administrative, civil, or criminal remedies.  All too often, that discretion is abused when criminal sanctions are sought when more reasonable administrative or civil remedies would be appropriate, considering the vagueness of agency regulations and lack of criminal intent.

Over the last four years, the Trump Administration sought to implement fairer enforcement practices, such as the Department of Justice’s policy that agency informal “guidance” not be used as a basis for enforcement and OMB’s Office of Information and Regulatory Affairs, issuance of a set of “best practices” that federal agencies should use for enforcing the law.  WLF authors have written about these issues and WLF has commented on those developments and how the absence of such policies have resulted in the unfair prosecution of companies and their executives, such as Todd Farha, former CEO of WellCare, and courts’ refusal to hold prosecutors’ to a higher standard of proving criminal intent (here and here).

Below, Barry Boss answers our questions on what we can expect from a Biden Adminstration’s enforcement of regulatory statutes and regulations.

WLF: One of Washington Legal Foundation’s long-standing concerns with white-collar enforcement is government’s pursuit of criminal charges for infractions that could instead be civilly enforced.  This blog has published quite a few posts over the past four years on enforcement policies issued by DOJ and other federal agencies on enforcement discretion and corporate compliance. Which among these documents did you find most welcome?

Boss: Associate Attorney General Rachel Brand issued a memo in January 2018 that provided guidance that the Department of Justice should not use its civil enforcement authority to prosecute violations of informal guidance issued by a government agency, where there was no statute or published regulation that clarified the ambiguity. In December 2018, the DOJ later applied that policy to criminal prosecutions and incorporated the policy into its Justice Manual for federal prosecutors. More recently, in the fall of 2020, the Office of Management and Budget similarly issued guidance to the executive agencies on regulatory enforcement reform and best practices, which included guidance that liability should only be imposed by agencies for violations of statutes and issued regulations. These policies go a long way toward limiting the risks of overcriminalization of reasonable business decisions in the absence of clear published regulatory guidance.

WLF: Is there a particular example of a criminal action that prosecutors would have likely declined to pursue had these policies been in effect at that time?

Boss: One example that immediately comes to mind is a case in which I have been personally involved for many years—the prosecution of WellCare executives in the Middle District of Florida. The executives prosecuted in that case had reported Medicaid expenditures to a state agency under a state statutory provision that was ambiguous, and no formal regulation or law clarified that ambiguity. Despite the absence of formal agency guidance providing clarity, the defendants were convicted because their reasonable interpretation of the state statute differed from the state agency’s informal interpretation, which was never codified into law. All of the defendants in that case, including CEO Todd Farha, recently received pardons. The official statement accompanying those pardons noted that that this case was a core example of overcriminalization. I agree with that, and think this is precisely the kind of case that the DOJ would have declined to pursue under the amended Department of Justice policy. WLF has also published several pieces on this case.

WLF: What should American businesses and entrepreneurs expect from the incoming administration on white-collar enforcement? Do you expect that they will reverse or ignore the enforcement policies you mentioned before?

Boss: Obviously, we don’t have a crystal ball on what the Biden Administration’s DOJ will look like under the leadership of Attorney General nominee Merrick Garland and his team. My personal take, however, is that there’s been a tremendous shift in perspective on criminal justice issues across the aisle over the last few years. Democrats have tended to focus on non-white-collar crimes in their reform efforts, namely drug crimes. That said, the hope is that the focus on criminal justice issues will be broad enough to cover the whole spectrum of necessary reforms to the criminal justice system, including the problem of overcriminalization, which applies not only to drug crimes, but also to white-collar crimes. The hope is that the progress made in criminal justice reform generally, including reducing overcriminalization, will be continued by the Biden Administration.  But I do think we’ll see more emphasis on white-collar prosecutions particularly involving securities, environmental crimes, and PPP and healthcare fraud.  I also expect a focus on political corruption, but these prosecutions have become more challenging after the Supreme Court’s “Bridgegate” decision (Kelly v. United States).

WLF: Do you expect that a new DOJ will increase the use of Deferred and Non-Prosecution Agreements for companies?  Do you expect an increase in prosecuting corporate executives?

Boss: Yes. One of President Biden’s first acts in office was to change the executive policy governing fines collected by the Government in settlements with private parties, including deferred-prosecution agreements, to allow the Government to direct those payments, or a portion of them, to third parties and charities. That suggests to me that President Biden sees deferred-prosecution agreements as an important tool in the Government’s belt and that the administration intends to use this tool actively, with an intent to direct proceeds to organizations working to redress the injuries caused by the conduct at issue. I think Biden specifically has an eye on using these proceeds to tackle climate change by directing fines collected from violations of environmental laws to organizations working to combat climate change and other environmental harms.

With regard to prosecutions of individuals, there is no doubt that we will see a return to something akin to the Yates Memorandum, which directed prosecutors to hold individual executives criminally responsible for a corporation’s criminal conduct.  While I understand the theory behind this policy, I think in practice it is problematic because of the incentives it creates for a company as part of its internal investigation to identify one or more sacrificial lambs to be served up to the DOJ alter in exchange for corporate leniency.

WLF: Do you see the courts becoming less deferential to agency’s interpretations of their organic law by limiting the scope of the Chevron doctrine?

Boss: President Trump filled 25 percent of the seats in the federal judiciary. The remainder are filled by judges who have been sitting for several years. As to the more established members of the bench, their approach to Chevron isn’t likely to dramatically shift in the coming years.  So the question is really how these Trump appointees are likely to apply the Chevron doctrine. There certainly are some prominent conservative jurists, such as Justice Gorsuch, who have signaled a willingness to significantly curb Chevron deference. It’s the natural extension of the overcriminalization movement. However, conservative jurists don’t seem to take a uniform approach to Chevron and there is vigorous debate within the Federalist Society and related conservative groups on the merits of Chevron deference. So, in the absence of an oracle, I think it’s hard to say at this point how the addition of these conservative jurists will influence the scope of this doctrine in the coming years.

WLF: What areas of criminal-enforcement focus have emerged over the past few years, and do you expect those areas continue to be prominent for the new leadership at DOJ and the federal agencies or are there other areas you see that might have priority?

Boss: Over the last few years, prosecuting human and drug trafficking offenses, immigration offenses, Foreign Corrupt Practice Act cases, as well as reinstating capital punishment, have been clear priorities for DOJ criminal enforcement under the Trump Administration. Another priority has been enforcing fraud and abuse of funds distributed under the Paycheck Protection Program (PPP). I think the Biden Administration will continue to prioritize prosecuting PPP fraud. But I think you’ll see a shift in the Administration’s other enforcement priorities to prosecuting domestic terrorism, political corruption, healthcare fraud, and environmental violations.  I expect DOJ to de-emphasize immigration offenses and capital cases due to President Biden’s immediate moratorium on federal executions.

WLF: As someone who’s devoted a lot of time and attention to criminal sentencing, what conclusions can you draw on how prosecutors and judges have addressed sentencing in the past several years? Are there any trends or developments that trouble you?

Boss: There have been both positive and negative developments. The positive developments come from the recognition that people were being sentenced to too much time. The First Step Act and amendments to the Sentencing Guidelines have started to bring a bit of rationality into sentencing decisions, particularly the length of incarceration. On the negative side, prosecutors today have more control than ever and have used the threat of more severe sentences to get targets to plead guilty and punish those who exercise their right to go to trial more severely. There needs to be a shift so that a defendant can contest their guilt through the constitutionally enshrined right to a trial without a severe sentence necessarily being held over their head if they lose at trial. There also needs to be a political reckoning. The way we’ve long dealt with national crises is, in their wake, to increase the penalties for existing crimes. Until we stop that cycle, we will never achieve meaningful sentencing reform.

Federal legislators and the Sentencing Commission have come to recognize that sentences for drug crimes set in the 1990s were out of proportion to the crimes themselves, and they’ve started to change the sentencing guidelines for those offenses. But what they failed to realize was that when those sentences were increased in the 1990s, there was a countervailing effort to make sure white-collar sentences were correspondingly increased in proportion to the increases in the drug sentences. We’ve now started to scale back punishments for those drug crimes, but we haven’t made the same reductions on the white-collar side. In my view, there needs to be a recognition of that and a corresponding adjustment on the white-collar side.

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Blog

Trump Issues EO on Overcriminalization

On his last full day in office, President Donald Trump issued an executive order attacking the scourge of federal overcriminalization.

From the text:

In the interest of fairness, Federal criminal law should be clearly written so that all Americans can understand what is prohibited and act accordingly. Some statutes have authorized executive branch agencies to promulgate thousands of regulations, creating a thicket of requirements that can be difficult to navigate, and many of these regulations are enforceable through criminal processes and penalties. The purpose of this order is to alleviate regulatory burdens on Americans by ensuring that they have notice of potential criminal liability for violations of regulations and by focusing criminal enforcement of regulatory offenses on the most culpable individuals.

Specifically, the order increases agency transparency, provides clarity in liability for violations, and addresses mens rea when absent from the text of a given regulation.

The order is worth reading in full here. Let’s hope President-Elect Biden and his administration respect this important and very welcomed order.

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Cases

Huntress v. United States

Originally published at the Cato Institute Nov 2, 2020 by Ilya Shapiro and William Yeatman

To an unfortunate extent, the modern administrative state has expanded into criminal law enforcement. Many federal regulatory statutes—including those governing antitrust, securities, and the environment—authorize agencies to pursue both civil and criminal penalties. Thus, more than 300,000 federal regulations have been criminalized.

William Huntress became ensnared in such a “hybrid” civil‐​criminal regulatory regime. He alleges that the U.S. Environmental Protection Agency (EPA) brought felony criminal charges against him in order to increase the government’s leverage in a regulatory dispute over the reach of the Clean Water Act. For almost two decades, this controversy has consumed Mr. Huntress’s life, including more than four years of living as an accused felon. All along, he has maintained that the government has no jurisdiction over the putative “wetlands” on his property—seasonal puddles, really—and that he’s being bullied by an overbearing bureaucracy.

After the government’s felony charges against him were dismissed, Mr. Huntress decided to push back. He filed a lawsuit in federal district court, alleging that the government committed malicious prosecution. The district court, however, refused to hear Mr. Huntress’s claim, finding that sovereign immunity shields the EPA’s conduct from judicial scrutiny. The Second Circuit upheld the district court, and thereby deepened a circuit split over how to interpret the Federal Tort Claims Act’s waiver of sovereign immunity. Now, Mr. Huntress seeks Supreme Court review.

The Cato Institute, joined by the NFIB Small Business Center, Rutherford Institute, Mackinac Center for Public Policy, Competitive Enterprise Institute, and Center for Constitutional Jurisprudence, filed a brief in support of Mr. Huntress’s petition. The brief urges the Court to use this case to affirm that the Federal Tort Claims Act remains a viable check on the worst excesses of the administrative state.

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Blog

American Honda Motor Co. v. Walther: A State Court Win Against Agency Deference

On October 29, 2020, the Arkansas Supreme Court issued an opinion limiting the power of administrative agencies to interpret statutory law in American Honda Motor Co. v. Walther. Following up on their April 2020 opinion in Myers v. Yamato Kogyo Co., the court rejected the state agency’s interpretation of “business income,” stating that “Simply put, we will determine what the statute means by construing it just as it reads, giving the words their ordinary and usually accepted meaning in common language.”

This decision is a welcomed one, as our state and federal governments have become overly deferential to administrative agencies to decide what the law says. Although American Honda is a tax case, the principle that the legislature makes the laws and the judiciary interprets those laws is important to rein in the scourge of overcriminalization. Agencies should not be able to manipulate statutory text to punish businesses or individuals for violating the agency’s extra-legal interpretations.

Agency deference is the same principle that was at issue in the WellCare case of Todd Farha. In that case, the court deferred to the agency’s interpretation of what the law required, resulting in unjust prosecutions and convictions. Thankfully, current Department of Justice policy bars such a prosecution from going forward today, but the discretion remains a policy matter that can be changed by future administrations without changing the underlying law.

A tip of the hat to the New Civil Liberties Alliance, which filed an amicus brief in the case.

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Articles

America’s Overcriminalization Problem

Originally posted to Bloomberg Law Insight by Brett Tolman | October 19, 2020

We have too many laws that can land someone in jail. Estimates put the number north of 300,000 federal statutes and regulations that can be criminally enforced, and the consequences of America’s addiction to criminalizing nearly everything are sobering—1 in every 4 Americans has a criminal record.

We incarcerate more than 19% of the world’s prisoners but make up only 4% of the world’s population. And despite what “real crime” TV would have you believe, less than 2% of federal criminal defendants receive a trial in which the government’s case is put to the test; the vast majority of persons feel compelled to bargain away their constitutional rights in order to receive leniency because our criminal system is so unbalanced.

It may come as a surprise to some, but the Trump administration has been consistently taking steps to address these concerns. Unlike the president’s signing of the FIRST STEP Act, other measures seem to have been overlooked. Regulatory law isn’t everyone’s cup of tea, but the administration’s work to increase fairness in regulatory enforcement is worthy of more attention.

Agency ‘Guidance Documents’ Are Not Law

A federal prosecution needs to be based upon a law passed by Congress. But hundreds of thousands of regulatory laws adopted by agencies further expand the conduct that can be prosecuted. Those regulations are required to be adopted in a manner consistent with Constitutional due process principles reflected in the Administrative Procedure Act.

However, regulators started taking shortcuts and creating “guidance documents” that don’t satisfy APA requirements, and then relying on these “guidance documents” to bind Americans to standards that were never lawfully adopted. This practice is particularly unfair in a criminal case given the potential consequences to the accused.

Thankfully, the Department of Justice has amended its Justice Manual, a document that provides guidance to prosecutors, to clarify that agency guidance documents are not a substitute for law and that “mere noncompliance” with one cannot be the basis of criminal enforcement.

Several executive orders have expanded this rule to all federal agencies. As a former U.S. Attorney, I think it makes perfect sense for the DOJ to instruct its lawyers not to seek jail sentences for those who have merely failed to comply with a non-binding document, but sadly that has not always been true.

To understand the type of case that federal prosecutors can no longer bring, consider Todd Farha, a former health-care executive convicted of “defrauding” the Medicaid program. Farha was charged with criminal offenses based on the way his company, WellCare, filed expense forms to Medicaid that reflected its interpretation of the law.

The government had a different interpretation. The prosecution relied on informal agency guidance documents to convict Farha, even though the guidance was not binding and had never been the subject of public notice and comment. Unfortunately, a court rejected Farha’s appeal, stating that the company’s obligations were governed not only by the law but also by the informal guidance.

This had very real consequences—in a case that involved no harm to any patients and no “bogus” Medicaid claims, Farha was incarcerated for three years because his company failed to comply with a document that prosecutors can no longer rely upon. And he isn’t the only one.

‘Best Practices’ for Enforcement Fairness

I am glad to see that under current DOJ policy, the type of reasoning applied in the Farha case would no longer be acceptable. I am also encouraged to see that the administration has instituted other procedural protections, as set forth recently by Paul Ray, head of the Office of Management and Budget’s Office of Information and Regulatory Affairs in a memorandum directing agencies to review their practices in light of “principles of fairness.”

Included among the “best practices”:

  • Enforcement actions should be prompt and fair;
  • Targets of investigations should be informed when an investigation is closed;
  • There shouldn’t be multiple enforcement actions based on a single set of facts;
  • Performance metrics of government lawyers should incentivize fairness;
  • Favorable evidence should be provided to the accused;
  • Penalties should be proportionate; and
  • Enforcement should be free of coercion and unfair surprise.

In response to this directive, the Department of the Interior announced that all future referrals to the DOJ for prosecution will state whether the accused knew their conduct was prohibited and have made it clear that their agency will focus its “scarce enforcement resources on those who do not merely stumble into a violation, but choose to break the law.”

This list of procedural fairness measures might seem mundane to a law student—surely these are just restatements of what is already required when the government prosecutes a person. But those who practice criminal law realize how far from these ideals many cases have strayed.

We should all be heartened to see the executive branch taking these steps. There is a dire need to see these safeguards in all criminal cases. I hope that any future administration takes heed of these fundamental principles as it goes about the business of prosecuting its own people.

Brett Tolman is a former U.S. Attorney for the District of Utah and current founder and attorney at the Tolman Group, a firm focused on public policy and government reform.

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Articles

Former U.S. Attorneys Trumpet Need for Fair Notice in Federal Enforcement

Originally published by Washington Legal Foundation |October 19, 2020

A basic due-process principle for which Washington Legal Foundation has fought for over 40 years is fair notice of one’s responsibilities under the law. Americans can run afoul of hundreds of thousands of laws and regulations, as well as guidance and other informal documents. Government can enforce many laws and regulations through both civil and criminal proceeding. Business entities, just like individuals, deserve fair notice of what is against “the law.” That’s why we’ve worked to popularize the concept of business civil liberties.

One source of rules mentioned above—informal guidance—can easily escape the notice of individuals and businesses. Guidance in the form of letters, internet postings, agency amicus briefs, and advisory opinions need not adhere to the federal Administrative Procedure Act and similar laws at the state level. Regulators can adopt informal guidance without offering public notice or soliciting and reviewing public comment.

Over the past three years, the U.S. Department of Justice has instituted policies that recognize the fair-notice problem posed by enforcing informal guidance. Several senior-level memos directed prosecutors to refrain from civil and criminal enforcement of guidance documents. In 2018, the policies underlying those memos became a formal part of the “Justice Manual” the DOJ’s guide to prosecutors.

As former U.S. Attorney for Utah, Brett Tolman, notes in a Bloomberg Law United States Law Week piece, those important reforms came too late to help those convicted of failing to follow informal regulatory guidance. He spotlights the case of Todd Farha, former CEO of WellCare. Mr. Farha was charged and convicted of defrauding Florida’s Medicaid program because his company’s conduct didn’t conform to informal “guidance” found in the state Medicaid agency’s letters and calculation templates. WLF has examined numerous troublesome aspects of Mr. Farha’s prosecution, including courts’ improper deference to agency determinations (here) and courts’ refusal to hold prosecutors’ to a higher standard of criminal intent (here and here).

Another federal agency, the Office of Information and Regulatory Affairs, a part of the Office of Management and Budget, has recently released a set of “best practices” that federal agencies should embrace when enforcing the law. Mr. Tolman briefly discusses the memo in his Bloomberg piece. Another former U.S. Attorney (for Nevada), Gregory Brower, and fellow Brownstein Hyatt Farber Schreck shareholder Carrie Johnson, describe the memo and what impact it could have in an October 16 WLF Legal Opinion Letter.

After briefly reviewing the memo’s ten pronouncements, Brower and Johnson note:

While these best practices may seem obvious, anyone who has ever represented a client in the context of a federal enforcement action will welcome the Administration’s acknowledgment that basic concepts of fundamental fairness and due process can too often get lost in the zealousness with which many agencies pursue enforcement actions. However, it is not yet clear whether the various agencies will formally adopt these best practices. Some will receive the Memo as mere recommendations that are largely being followed already and that lack the force of law. The more interesting question is whether and how targets of DOJ criminal investigations leverage the Memo.

They conclude:

Whatever the ultimate impact of the Memo on actual government investigations going forward, it is refreshing to see the executive branch at least acknowledge that basic principles of fairness and due process should apply to the enforcement of federal laws and regulations.

Hear, hear.

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Blog

Tolman: Agency Guidance Documents Are Not Law

On Monday, Bloomberg Law’s ‘United States Law Week’ section published a compelling column on overcriminalization by former U.S. Attorney Brett Tolman. In the piece, Tolman describes the broader problem of overcriminalization and also the specific issue of prosecuting individuals for violating administrative interpretations that Congress never passed into law.

An excerpt:

A federal prosecution needs to be based upon a law passed by Congress. But hundreds of thousands of regulatory laws adopted by agencies further expand the conduct that can be prosecuted. Those regulations are required to be adopted in a manner consistent with Constitutional due process principles reflected in the Administrative Procedure Act.

However, regulators started taking shortcuts and creating “guidance documents” that don’t satisfy APA requirements, and then relying on these “guidance documents” to bind Americans to standards that were never lawfully adopted. This practice is particularly unfair in a criminal case given the potential consequences to the accused.

Thankfully, the Department of Justice has amended its Justice Manual, a document that provides guidance to prosecutors, to clarify that agency guidance documents are not a substitute for law and that “mere noncompliance” with one cannot be the basis of criminal enforcement.

Tolman went on to describe the WellCare case and the conviction of Todd Farha under this now-discarded shortcut. The WellCare case is one of several prosecutions highlighted in OIA’s Cases section, that provides instances of administrative agencies and prosecutors abusing the criminal law to serve their own ends.

The Tolman piece is well worth reading in full here.

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Blog Events

Online Event: NACDL Presidential Summit & Symposium on Sentencing

Another OIA-recognized Leader in overcriminalization reform, the National Association of Criminal Defense Lawyers, is hosting an online symposium on criminal sentencing from October 19-22. Although sentencing is not directly related to mens rea and related topics explored here on OIA, the event features legal luminaries from across the political and ideological spectrum that should pique the interest of anyone interested in learning abou criminal law and reform.

For lawyers, the event is worth 5 CLE credit hours, and you can sign up on the NACDL’s website here.

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Blog Uncategorized

Online Event: Due Process Institute’s ‘Two Views’ of SCOTUS Criminal Docket 10/6/20

At 1pm ET on Tuesday October 6, the Due Process Institute (DPI)–one of the Leaders OIA salutes in the fight against overcriminalization–and its sister organization Clause 40 Foundation are co-hosting a free webinar entitled “Two Views: An Exploration of SCOTUS’s Criminal Law Docket.” The event will feature commentary from two esteemed veterans of SCOTUS litigation, Stanford law professor Jeffrey Fisher and Erin Murphy of Kirkland & Ellis’s D.C. office. It should be a great preview of the new SCOTUS term for lawyers and laypersons alike.

For lawyers, the event is eligible for CLE credit. The event is free and available to the public, you can register here. For those unable to tune in, a link to the video will be posted to the OIA Events page when it’s available.

The Due Process Institute and Clause 40 Foundation are led by OIA Advisory Board member Shana-Tara O’Toole.

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Blog Events

Online Event: Cato Constitution Day 9/17/20

Every year on September 17, the Cato Institute puts on a great all-day program celebrating Constitution Day. Geared for lawyers but interesting to anyone concerned with the state of American law, the event focuses on the most compelling cases before the U.S. Supreme Court. The day features several different panels focused on themes the Court addressed during the most recent term, and one panel dedicated to the cases slated for the upcoming October term. To close out the event, Cato brings in a distinguished practitioner or other eminent legal figure to give the annual B. Kenneth Simon Lecture on Constitutional Thought. This year’s lecture, “Flunking the Founding: Civic Illiteracy and the Rule of Law,” will be presented by Fifth Circuit Judge Don Willett.

Perhaps of particular interest to OIA readers, there is a criminal law panel from 1PM-2PM ET, featuring Paul Larkin of the Heritage Foundation, Nick Mosvick of the National Constitution Center, and Jay Schweikert of the Cato Institute. The panel will be moderated by Cato’s Clark Neily.

The full lineup and schedule for the event can be found here. Registration for the event is here. Five hours of CLE credit are available for lawyers in Virginia.

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Blog Blog 2

Challenging Chevron Deference and “Informal Agency Guidance” in Criminal Prosecutions

The Washington Legal Foundation published a Legal Backgrounder by white-collar defense attorney John Lauro on July 16. The article discusses the application of the Chevron doctrine in the criminal law context.

In particular, Mr. Lauro analyzes judicial rulings on deferring to agency’s interpretation of a statute and a recent Justice Department policy that henceforth, agency guidance documents cannot create any additional legal obligations on the regulated community.  

Mr. Lauro applied that analysis retrospectively to U.S. v. Clay 832 F.3d 1259 (11th Cir. 2016), in which federal prosecutors applied an agency’s “informal guidance” regarding its interpretation of a Florida healthcare statute to secure the conviction of WellCare executives, including CEO Todd Farha.

Defense attorneys now have a new weapon in their arsenal to challenge criminal prosecutions based on informal agency guidance.

Here is the WLF Legal Backgrounder:

Originally published at the Washington Legal Foundation by John Lauro | July 16, 2020

Much has been written about the “Chevron Doctrine” and its impact on administrative law. In Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984), decided over a generation ago, the U.S. Supreme Court established a principle of judicial deference to an administrative agency’s interpretation of its operating statute where the agency reached a “reasonable” construction of an otherwise ambiguous statute. Chevron presumes that modern life has become so complicated that experts within agencies need latitude to fill in the details of how a legislative scheme should operate. The ruling became engrained in modern administrative law, while relegating the courts to a secondary role in statutory construction.

Less has been written about how Chevron deference has crept into federal criminal law and how the courts often give wide latitude to agencies to define criminal liability for regulated entities and their employees.1 Indeed, it is not unusual for a court in a criminal case to “defer” to an agency’s interpretation of a statute and accord that interpretation the force of law, even where the agency has not acted through formal rulemaking.

I was counsel in such a case several years ago where healthcare executives were convicted under the federal healthcare fraud statutes for failing to abide by an agency’s “informal guidance” regarding its interpretation of a Florida healthcare statute. The case, U.S. v. Clay, 832 F.3d 1259 (11th Cir. 2016), cert. denied, 137 S. Ct. 1814 (2017), illustrates how criminal liability can be created when the courts go too far in deferring to the administrative state.

Clay involved WellCare Health Plans, Inc., a Tampa-based public holding company for certain HMO plans (“WellCare”) providing healthcare services to Florida Medicaid patients. The Agency for Healthcare Administration (“AHCA”) administered the Florida Medicaid program. In the early 2000s, the Florida legislature decided to engage HMOs in providing health care to Medicare patients under a managed-care system, rather than using an inefficient fee-for-service reimbursement scheme. Florida intended to contain healthcare costs that consumed a substantial part of the state’s budget each year and shift that economic risk to HMOs, while providing a broader array of clinicians for Medicaid recipients.2

In connection with this new regulatory scheme, the Florida legislature passed an “80/20 Statute,” Fla. Stat § 409.912(4)(b) (2006), requiring recipients of Medicaid funds to report back to the state expenditures for the provision of behavioral health care. Under the statute, if an HMO spent less than 80% of the dollars received for the provision of behavioral health care, then it had to return the difference to the state each year. For example, if an HMO received $100 for behavioral health care, but spent only $75 for the provision of that care, then $5 would be returned to the state.3

Although AHCA was responsible for administering this new statute, it chose not to engage in formal rulemaking to determine how to complete the calculation. The agency itself was deeply divided, and many bureaucrats resisted the use of HMOs in the provision of behavioral health care.  Instead of engaging in rulemaking, AHCA merely incorporated the legislative language in its contracts with HMOs and then sent out informal letters and templates suggesting how to complete the calculation. This critical decision to use “informal guidance” led to federal criminal prosecution.

WellCare had established a specialized behavioral healthcare organization (“BHO”) to coordinate all behavioral healthcare services and to hire frontline clinicians such as psychiatrists and community mental health centers. The care the BHO delivered was not in question and state auditors noted that the BHO “exceeded requirements” in providing clinical care. WellCare, in turn, counted the total amounts it paid to the BHO for its “80/20 calculations.” AHCA never adopted a rule prohibiting this methodology and WellCare’s counsel advised the company that other healthcare companies had safely taken a similar approach. Over several years of reporting, AHCA never specifically asked, and WellCare never specifically informed the agency that it was using a BHO for the calculation.

Federal prosecutors indicted the CFO of the company, along with four other executives, including WellCare’s CEO Todd Farha. The prosecution argued that WellCare had misled AHCA by including in its “80/20 calculation” payments made to an affiliated BHO, rather than including only the payments made to “frontline” providers. The prosecution did not rely on the “80/20 Statute” or the Medicaid contracts that actually supported WellCare’s method of calculation. Instead, they pointed to AHCA’s informal “guidance,” which included letters and calculation templates. Testimony from attorneys who had represented WellCare and a medical economics expert, however, confirmed that WellCare’s calculation methodology was “reasonable.”

Following a three-month trial and a deliberation spanning nearly a month, the jury rendered a mixed verdict. Although it convicted three of the executives of healthcare fraud for one of the “80/20 calculations,” the jury acquitted all the defendants of the primary conspiracy charge. The trial judge, recognizing that the case was very unique in that WellCare provided outstanding healthcare, sentenced the defendants to probation and 1-3 years—well below the draconian sentences of over 15 years recommended by the prosecutors. The defendants appealed.

The Eleventh Circuit rendered a problematic decision that upheld the convictions. The court rejected the defendants’ defense articulated in an Eleventh Circuit decision, U.S. v. Whiteside, 285 F. 3d 1345 (11th Cir. 2002), that the government had not proven beyond a reasonable doubt that their interpretation of governing legal authority was not objectively unreasonable. In Whiteside, the Eleventh Circuit held that “where the truth or falsity of the statement centers on an interpretative question of law, the government bears the burden of proving beyond a reasonable doubt that the defendant’s statement is not true under any reasonable interpretation of the law.” Whiteside, 285 F. 3d at 1351.

Not finding any inconsistencies between WellCare’s calculations and the “80/20 Statute” or WellCare’s Medicaid contracts, the Clay court held instead that the defendants had not scrupulously followed AHCA’s informal “guidance” found in its letters and calculation templates. Despite trial testimony from a former high-ranking AHCA official who had advised WellCare that, under Florida law, regulated entities did not have to follow informal guidance that had not been subjected to formal rulemaking, the Eleventh Circuit accorded these informal communications the status of governing law. The court concluded that failing to follow the “strict” interpretation of these informal communications constituted a crime. In other words, administrative agencies could make binding law through informal “guidance” that failing to follow informal agency guidance while not expressly informing the agency of that course of action, could be a criminal violation.

The defendants’ certiorari petition focused on the Eleventh Circuit’s watered-down interpretation of mens rea from a “knowing” violation  to “deliberate indifference.”4 Although the Court denied review, one wonders how the Court would address deference to agency interpretations in connection with criminal law. Justices Thomas, Gorsuch, and Kavanaugh have expressed doubt that Chevron deference can be squared with a republican form of government based upon separation of powers in the administrative and civil context.5 It is likely, therefore, that at least three justices, and perhaps more given the criminal context, would be even less tolerant of administrative agencies “making” federal criminal law.

Providing defense attorneys with some ammunition, the Justice Department issued a memorandum in January 20186 that agency “[g]uidance documents cannot create binding requirements that do not already exist by statute or regulations. . . the Department may not use its enforcement authority to effectively convert agency guidance documents into binding rules.” Although the memorandum was directed primarily at civil enforcement, it has equal (if not more) force with regard to criminal prosecutions, which result in the deprivation of liberty. The memorandum warns federal prosecutors that if “a party fails to comply with agency guidance expanding upon statutory or regulatory requirements [that] does not mean that the party violated those underlying legal requirements; agency guidance documents cannot create any additional legal obligations.” Under current DOJ policy, then, government prosecutors would be precluded—as they did in the Clay case—from arguing that informal agency letters could constitute binding authority on the regulated public.

Deference to informal agency guidance is yet another manifestation of the scourge of overcriminalization, which includes prosecutorial misconduct;7 relaxed standards for mens rea/criminal intent;8 ambiguous jury instructions9 and the use of negligence or conscious avoidance concepts to convict individuals.10

Chevron deference emanated from the belief that administrative agencies are simply following the law and carrying out the directions of elected official in a politically neutral way.  Those days are plainly over. Defense attorneys know all too well that the entrenched bureaucracy has its own agenda—often at odds with elected legislatures. The judiciary should not imbue unaccountable bureaucrats with the authority to create law—let alone criminal law. Citizens’ lives and freedom are at stake. Just ask the WellCare executives.

Notes

  1. See Rachel E. Barkow, Separation of Powers and the Criminal Law, 58 Stan. L. Rev. 989 (2006); Jeffrey B. Wall and Owen R. Wolfe, Why Chevron Deference for Hybrid Statutes Might Be a No-no, WLF Legal Opinion Letter, June 24, 2016.
  2. For more information on Clay, including links to the briefs in the case, see https://overcriminalization.org/todd-farha-wellcare-united-states-v-clay/. See also John Lauro, Supreme Court Cert Grant in Farha v. US Can Clarify Level of Criminal Intent Needed to Prove “Knowledge”, WLF Legal Pulse, Apr. 18, 2017; Matthew G. Kaiser, Clay v. United States: When Executives Receive Jail Time for Ordinary Business Decisions, WLF Legal Backgrounder, Mar. 13, 2015.
  3. The relevant language of the statute is as follows: “all contracts issued pursuant to this paragraph shall require 80 percent of the capitation paid to the managed care plan, including health maintenance organizations, to be expended for the provision of behavioral health care services. In the event the managed care plan expends less than 80 percent of the capitation . . . for the provision of behavioral health care services, the difference shall be returned to the agency. Fla. Stat. § 409.912(4)(b) (2006).”
  4. Lauro, supra note 2.
  5. Valerie C. Brannon and Jared P. Cole, Deference and its Discontents: Will the Supreme Court Overrule Chevron?, CONG. RESEARCH SERV. (Oct. 11, 2018).
  6. Mem. of the Associate Attorney General, Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases, at 1-2 (Jan. 25, 2018).
  7. Richard O. Faulk, Chevron Deference Conflicts with the Administrative Procedure Act, WLF Legal Pulse, Sept. 18, 2015.
  8. Lauro, supra note 2.
  9. Jeffrey Bossert Clark, Sr., Chevron Doctrine Is Opposed to Administrative Procedure Act’s Text and Legislative History, WLF Legal Opinion Letter, Aug. 26, 2016.
  10. Christine Hurt, Is ‘Conscious Avoidance’ the Next ‘Honest Services’?, The Conglomerate, July 13, 2010.
Categories
Articles

The Intersection of Chevron and Federal Prosecutions: Courts Shouldn’t Assist Agency Overcriminalization

Originally published at the Washington Legal Foundation by John Lauro | July 16, 2020

Much has been written about the “Chevron Doctrine” and its impact on administrative law. In Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984), decided over a generation ago, the U.S. Supreme Court established a principle of judicial deference to an administrative agency’s interpretation of its operating statute where the agency reached a “reasonable” construction of an otherwise ambiguous statute. Chevron presumes that modern life has become so complicated that experts within agencies need latitude to fill in the details of how a legislative scheme should operate. The ruling became engrained in modern administrative law, while relegating the courts to a secondary role in statutory construction.

Less has been written about how Chevron deference has crept into federal criminal law and how the courts often give wide latitude to agencies to define criminal liability for regulated entities and their employees.1 Indeed, it is not unusual for a court in a criminal case to “defer” to an agency’s interpretation of a statute and accord that interpretation the force of law, even where the agency has not acted through formal rulemaking.

I was counsel in such a case several years ago where healthcare executives were convicted under the federal healthcare fraud statutes for failing to abide by an agency’s “informal guidance” regarding its interpretation of a Florida healthcare statute. The case, U.S. v. Clay, 832 F.3d 1259 (11th Cir. 2016), cert. denied, 137 S. Ct. 1814 (2017), illustrates how criminal liability can be created when the courts go too far in deferring to the administrative state.

Clay involved WellCare Health Plans, Inc., a Tampa-based public holding company for certain HMO plans (“WellCare”) providing healthcare services to Florida Medicaid patients. The Agency for Healthcare Administration (“AHCA”) administered the Florida Medicaid program. In the early 2000s, the Florida legislature decided to engage HMOs in providing health care to Medicare patients under a managed-care system, rather than using an inefficient fee-for-service reimbursement scheme. Florida intended to contain healthcare costs that consumed a substantial part of the state’s budget each year and shift that economic risk to HMOs, while providing a broader array of clinicians for Medicaid recipients.2

In connection with this new regulatory scheme, the Florida legislature passed an “80/20 Statute,” Fla. Stat § 409.912(4)(b) (2006), requiring recipients of Medicaid funds to report back to the state expenditures for the provision of behavioral health care. Under the statute, if an HMO spent less than 80% of the dollars received for the provision of behavioral health care, then it had to return the difference to the state each year. For example, if an HMO received $100 for behavioral health care, but spent only $75 for the provision of that care, then $5 would be returned to the state.3

Although AHCA was responsible for administering this new statute, it chose not to engage in formal rulemaking to determine how to complete the calculation. The agency itself was deeply divided, and many bureaucrats resisted the use of HMOs in the provision of behavioral health care.  Instead of engaging in rulemaking, AHCA merely incorporated the legislative language in its contracts with HMOs and then sent out informal letters and templates suggesting how to complete the calculation. This critical decision to use “informal guidance” led to federal criminal prosecution.

WellCare had established a specialized behavioral healthcare organization (“BHO”) to coordinate all behavioral healthcare services and to hire frontline clinicians such as psychiatrists and community mental health centers. The care the BHO delivered was not in question and state auditors noted that the BHO “exceeded requirements” in providing clinical care. WellCare, in turn, counted the total amounts it paid to the BHO for its “80/20 calculations.” AHCA never adopted a rule prohibiting this methodology and WellCare’s counsel advised the company that other healthcare companies had safely taken a similar approach. Over several years of reporting, AHCA never specifically asked, and WellCare never specifically informed the agency that it was using a BHO for the calculation.

Federal prosecutors indicted the CFO of the company, along with four other executives, including WellCare’s CEO Todd Farha. The prosecution argued that WellCare had misled AHCA by including in its “80/20 calculation” payments made to an affiliated BHO, rather than including only the payments made to “frontline” providers. The prosecution did not rely on the “80/20 Statute” or the Medicaid contracts that actually supported WellCare’s method of calculation. Instead, they pointed to AHCA’s informal “guidance,” which included letters and calculation templates. Testimony from attorneys who had represented WellCare and a medical economics expert, however, confirmed that WellCare’s calculation methodology was “reasonable.”

Following a three-month trial and a deliberation spanning nearly a month, the jury rendered a mixed verdict. Although it convicted three of the executives of healthcare fraud for one of the “80/20 calculations,” the jury acquitted all the defendants of the primary conspiracy charge. The trial judge, recognizing that the case was very unique in that WellCare provided outstanding healthcare, sentenced the defendants to probation and 1-3 years—well below the draconian sentences of over 15 years recommended by the prosecutors. The defendants appealed.

The Eleventh Circuit rendered a problematic decision that upheld the convictions. The court rejected the defendants’ defense articulated in an Eleventh Circuit decision, U.S. v. Whiteside, 285 F. 3d 1345 (11th Cir. 2002), that the government had not proven beyond a reasonable doubt that their interpretation of governing legal authority was not objectively unreasonable. In Whiteside, the Eleventh Circuit held that “where the truth or falsity of the statement centers on an interpretative question of law, the government bears the burden of proving beyond a reasonable doubt that the defendant’s statement is not true under any reasonable interpretation of the law.” Whiteside, 285 F. 3d at 1351.

Not finding any inconsistencies between WellCare’s calculations and the “80/20 Statute” or WellCare’s Medicaid contracts, the Clay court held instead that the defendants had not scrupulously followed AHCA’s informal “guidance” found in its letters and calculation templates. Despite trial testimony from a former high-ranking AHCA official who had advised WellCare that, under Florida law, regulated entities did not have to follow informal guidance that had not been subjected to formal rulemaking, the Eleventh Circuit accorded these informal communications the status of governing law. The court concluded that failing to follow the “strict” interpretation of these informal communications constituted a crime. In other words, administrative agencies could make binding law through informal “guidance” that failing to follow informal agency guidance while not expressly informing the agency of that course of action, could be a criminal violation.

The defendants’ certiorari petition focused on the Eleventh Circuit’s watered-down interpretation of mens rea from a “knowing” violation  to “deliberate indifference.”4 Although the Court denied review, one wonders how the Court would address deference to agency interpretations in connection with criminal law. Justices Thomas, Gorsuch, and Kavanaugh have expressed doubt that Chevron deference can be squared with a republican form of government based upon separation of powers in the administrative and civil context.5 It is likely, therefore, that at least three justices, and perhaps more given the criminal context, would be even less tolerant of administrative agencies “making” federal criminal law.

Providing defense attorneys with some ammunition, the Justice Department issued a memorandum in January 20186 that agency “[g]uidance documents cannot create binding requirements that do not already exist by statute or regulations. . . the Department may not use its enforcement authority to effectively convert agency guidance documents into binding rules.” Although the memorandum was directed primarily at civil enforcement, it has equal (if not more) force with regard to criminal prosecutions, which result in the deprivation of liberty. The memorandum warns federal prosecutors that if “a party fails to comply with agency guidance expanding upon statutory or regulatory requirements [that] does not mean that the party violated those underlying legal requirements; agency guidance documents cannot create any additional legal obligations.” Under current DOJ policy, then, government prosecutors would be precluded—as they did in the Clay case—from arguing that informal agency letters could constitute binding authority on the regulated public.

Deference to informal agency guidance is yet another manifestation of the scourge of overcriminalization, which includes prosecutorial misconduct;7 relaxed standards for mens rea/criminal intent;8 ambiguous jury instructions9 and the use of negligence or conscious avoidance concepts to convict individuals.10

Chevron deference emanated from the belief that administrative agencies are simply following the law and carrying out the directions of elected official in a politically neutral way.  Those days are plainly over. Defense attorneys know all too well that the entrenched bureaucracy has its own agenda—often at odds with elected legislatures. The judiciary should not imbue unaccountable bureaucrats with the authority to create law—let alone criminal law. Citizens’ lives and freedom are at stake. Just ask the WellCare executives.

Notes

  1. See Rachel E. Barkow, Separation of Powers and the Criminal Law, 58 Stan. L. Rev. 989 (2006); Jeffrey B. Wall and Owen R. Wolfe, Why Chevron Deference for Hybrid Statutes Might Be a No-no, WLF Legal Opinion Letter, June 24, 2016.
  2. For more information on Clay, including links to the briefs in the case, see https://overcriminalization.org/todd-farha-wellcare-united-states-v-clay/. See also John Lauro, Supreme Court Cert Grant in Farha v. US Can Clarify Level of Criminal Intent Needed to Prove “Knowledge”, WLF Legal Pulse, Apr. 18, 2017; Matthew G. Kaiser, Clay v. United States: When Executives Receive Jail Time for Ordinary Business Decisions, WLF Legal Backgrounder, Mar. 13, 2015.
  3. The relevant language of the statute is as follows: “all contracts issued pursuant to this paragraph shall require 80 percent of the capitation paid to the managed care plan, including health maintenance organizations, to be expended for the provision of behavioral health care services. In the event the managed care plan expends less than 80 percent of the capitation . . . for the provision of behavioral health care services, the difference shall be returned to the agency. Fla. Stat. § 409.912(4)(b) (2006).”
  4. Lauro, supra note 2.
  5. Valerie C. Brannon and Jared P. Cole, Deference and its Discontents: Will the Supreme Court Overrule Chevron?, CONG. RESEARCH SERV. (Oct. 11, 2018).
  6. Mem. of the Associate Attorney General, Limiting Use of Agency Guidance Documents in Affirmative Civil Enforcement Cases, at 1-2 (Jan. 25, 2018).
  7. Richard O. Faulk, Chevron Deference Conflicts with the Administrative Procedure Act, WLF Legal Pulse, Sept. 18, 2015.
  8. Lauro, supra note 2.
  9. Jeffrey Bossert Clark, Sr., Chevron Doctrine Is Opposed to Administrative Procedure Act’s Text and Legislative History, WLF Legal Opinion Letter, Aug. 26, 2016.
  10. Christine Hurt, Is ‘Conscious Avoidance’ the Next ‘Honest Services’?, The Conglomerate, July 13, 2010.

Categories
Blog Blog 2

Judge orders Dr. Paulus Released; Conviction Reversed

On March 5, 2020, the U.S. Court of Appeals for the Sixth Circuit vacated the conviction of Doctor Richard Paulus and released him from prison where he was serving a draconian five-year sentence because the federal prosecutor withheld key exculpatory evidence the jury should have considered  in deciding whether to convict him.  The court ruled this was a clear violation of the doctor’s due process rights. 

Doctor Paulus was convicted of medicare fraud because of a dispute with the government over whether his use of stents in patients with narrowing arteries was warranted in a few of his hundreds of patients. 

This case is a clear example of the government second-guessing decisions by professionals and executives over reasonable medical and business decisions where non-criminal remedies are more appropriate.  Similar unjust prosecutions were brought against CEO Todd Farha in the WellCare case and Howard Root of Vascular Solutions, both featured on the Cases section of this website.

Here is a news article describing the Paulus case in more detail.

Originally published at The Daily Independent by Mike James | March 6, 2020

Former Ashland cardiologist Richard Paulus was poised to be released from prison Friday following the reversal of his conviction for health care fraud.

U.S. District Court Judge David L. Bunning ordered his release earlier in the day, court records show.

An appeals court voided his conviction Thursday, court records show.

A three-judge panel of the U.S. Sixth Circuit Court of Appeals issued the ruling, according to court records.

The ruling sends the case back to a lower court for retrial.

Bunning’s order calls for Paulus to be released immediately but to remain on the same bond conditions as before he went to prison, with one exception.

Bunning removed a requirement for electronic monitoring, according to court records.

The appeals court judges ruled that government attorneys withheld evidence and so violated Paulus’ due process constitutional rights. They ruled that the government case was based largely on angiograms — images showing the degree of blockage in blood vessels — showing Paulus overstated the degree of blockage.

But evidence withheld from Paulus and his attorneys showed government experts based their findings on too few samples to make accurate conclusions, and that the angiograms they examined may have been “cherry-picked” by government attorneys, the panel said.

Prosecutors improperly withheld a key piece of evidence, a letter outlining an independent review by King’s Daughters Medical Center of Paulus’ work referred to as the “Shields Letter.”

The letter, from KDMC’s attorneys to government attorneys, was intended to protect the hospital at a time when it was under government scrutiny. The letter outlined a review of more than 1,000 of Paulus’ procedures, of which 75 were flagged as unnecessary.

That number came to about 7%, far lower than the amount government witnesses had testified to during the trial.

“This lower percentage was less consistent with systemic and purposeful fraud and more consistent with occasional mistakes or diagnostic differences of opinion between cardiologists,” judges wrote.

Paulus could have used the review and the letter in his defense, but Bunning “inexplicably” ordered KDMC and government attorneys not to disclose information about the review, judges wrote.

That order was issued in a hearing that included KDMC and the government but did not include Paulus or his legal team.

The judges found indications that not having the letter hampered Paulus’ defense enough to affect the verdict. The indications included a twice-deadlocked jury and Bunning’s reversal of the conviction in 2017.

Paulus’ legal troubles date back to 2015, when he was indicted on 27 counts related to accusations he had performed unnecessary cardiac stent procedures on hundreds of patients as part of a scheme to defraud Medicare, Medicaid and other insurers.

A federal court jury convicted him after a seven-week trial in 2016 of health care fraud and making false statements relating to health care matters.

He sought a new trial, but before the request was decided, Bunning reversed the conviction and acquitted Paulus.

The government appealed and an appeals court reinstated the conviction in 2018.

Bunning denied him a new trial and sentenced him to five years in May 2019.

Paulus reported to the Beckley Federal Correctional Institution in June 2019.

(606) 326-2652 |[email protected]

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Blog Blog 2

Migratory Bird Treaty Act Enforcement Change Would Halt Overcriminalization

By Joe Luppino-Esposito
Director | Rule of Law Initiatives | Due Process Institute

The Department of the Interior and its Fish and Wildlife Service (Fish & Wildlife) have proposed to change their interpretation of a century-old treaty to reflect one of the most basic principles of criminal law. While it may seem obscure to most readers, I have followed the enforcement of the Migratory Bird Treaty Act (MBTA) for a while. This change is a welcomed step towards restoring fairness in certain federal prosecutions.

Historically, two elements are necessary for a person to be guilty of a crime:  actus reus—the “guilty act” —the commission of the crime itself; and mens rea—“guilty mind”—the criminal intent to commit the crime. In other words, a person should not be convicted for just thinking about doing something illegal, and no conviction should result if a person does something illegal by accident. Unfortunately, too many laws today lack mens rea, and are prosecuted as “strict liability” offenses.

The MBTA was signed in 1918 by the U.S. and Great Britain (on behalf of Canada) as a conservation program to protect migratory birds from those who would “take” them—that is, hunt or capture them—without a license. Unfortunately, the MBTA has occasionally been enforced in a way that an “incidental take” is considered a strict liability criminal offense under federal law. This, ahem, flies in the face of due process.

Currently, federal courts disagree whether an incidental take should result in a criminal conviction. On the one hand, consider the case against Brigham Oil and Gas in North Dakota. The federal government charged the company under the MBTA for criminally “taking” two migratory birds that were found dead near one of the company’s legally compliant reserve pits. The court explained why applying the law in the way the prosecutors sought would lead to unfair, and even absurd, results:

If the Migratory Bird Treaty Act concepts of “take” or “kill” were read to prohibit any conduct that proximately results in the death of a migratory bird, then many everyday activities become unlawful– and subject to criminal sanctions – when they cause the death of pigeons, starlings and other common birds. For example, ordinary land uses which may cause bird deaths include cutting brush and trees, and planting and harvesting crops.

In addition, many ordinary activities such as driving a vehicle, owning a building with windows, or owning a cat, inevitably cause migratory bird deaths.

On the other hand, the Colorado federal district court in United States v. Moon Lake Electric Association, Inc. said that criminalization was appropriate for activities that proximately caused the harm—in this case, the birds’ contact with the defendant’s power lines.

A legal memorandum of the Department of the Interior explains that the government cites conduct unrelated to the intentional harming of migratory birds—such as raising a barn that has owls nesting in it—and uses that conduct to prosecute individuals in a way that conflates actus reus and mens rea. Citing a district court opinion, the memo states that  “there appears to be no explicit basis in the language or the development of the MBTA for concluding that [the treaty] was intended to be applied to any and all human activity that causes even unintentional deaths of migratory birds.”

Fish & Wildlife has opened a comment period for a proposed rule that firmly establishes the concept of mens rea in the enforcement of this treaty. The rule would clarify that the MBTA was only meant to “criminalize actions that are specifically directed at migratory birds, their nests, or their eggs.”

I joined the governor of Alaska, criminal law reform advocates, business owners and others in commending this rule change:

“The proposed rule reinvigorates a basic tenet of criminal law: an individual’s criminal intent, or mens rea. The way the Migratory Bird Treaty Act has been enforced has too often ignored this fundamental prerequisite of criminal law. Treating accidental harm to migratory birds as a violation of the treaty unfairly criminalizes unintentional conduct. Protecting the environment is an important function of the federal government, but its enforcement regime should only use criminal sanctions against individuals and institutions who are purposefully inflicting harm on migratory birds. The proposed change aligns with the rule of law and adds credibility to the Department’s enforcement actions.”

Mens rea is a foundation of the just enforcement of criminal law—a principle that the Due Process Institute overwhelmingly supports. Restoring its primacy in the federal criminal justice system, even in a 102-year-old treaty, can spare innocent people the hardship of mounting a criminal defense. Importantly, supporting this rule clarification will do nothing to undermine the ability of the government to continue to enforce laws that protect migratory birds from those who intend to harm them. It merely clarifies that accidental harm to birds caused by otherwise lawful conduct should not serve as the basis for a criminal enforcement action.

For those interested in submitting a comment to the proposed rule, see the dedicated page at the Fish & Wildlife website here (comments due by March 19, 2020).

Categories
Articles

Four Ways the Executive Branch Can Advance Mens Rea Reform

Originally published at The Heritage Foundation | January 28, 2020

With the passage last year of the First Step Act, legislators and policymakers who are passionate about criminal justice reform have been looking for the next issue around which to rally. For years, scholars at The Heritage Foundation, the National Association of Criminal Defense Lawyers, and law schools around the country have hoisted mens rea reform as the rallying banner.

Mens rea—Latin for “guilty mind”—refers to the knowledge or intent that a criminal defendant must possess to be guilty of a crime. Historically, two components made up a crime: a bad action (“actus reus”) and knowledge that the act was wrong (“mens rea”). Intent mattered because the criminal law did not punish honest mistakes or harm caused by accident or negligence. It punished only behavior that was morally blameworthy.

That is no longer the case. Increasingly, the criminal law punishes accidents and criminalizes behavior without any regard to the defendant’s intent. Mens rea reformers are concerned about this trend and want to ensure that the state does not incarcerate “people who engage in conduct without any knowledge of or intent to violate the law and that they could not reasonably have anticipated would violate a criminal law.”

Just a few years ago, in 2013, a bipartisan group of members of the U.S. House of Representatives formed the Over-Criminalization Task Force and agreed on the need for mens rea reform. Ranking Member Robert “Bobby” Scott (D–VA) summed up the Democratic Members’ views:

Federal courts have consistently criticized Congress for imprecise drafting of intent requirements for criminal offenses…. It is clear that the House and Senate need to do better. We can do so by legislating more carefully and articulately regarding mens rea requirements, in order to protect against unintended and unjust conviction. We can also do [so] by ensuring adequate oversight and default rules when we fail to do so.

Robert “Bobby” Scott (D–VA)

Unfortunately, despite these and other efforts, Congress has not succeeded in passing mens rea reform legislation.

Additionally, it is not clear how much bipartisan support mens rea reform still enjoys. To some on the left, notably former President Barack Obama, mens rea reform “could undermine public safety and harm progressive goals.” That argument, however, misunderstands the role mens rea plays in our justice system. Mens rea protects everyone equally from criminal prosecution for honest mistakes or accidents. To call mens rea reform an obstacle to progressive goals reveals a willingness to sacrifice individuals’ liberty—sending them to prison and burdening them with all the consequences that a criminal conviction imposes—in pursuit of policy preferences. That is not an acceptable trade-off, but President Obama’s opinions on this issue are thankfully not ubiquitous on the left. Mens rea reform remains good policy, and policymakers should make it a high priority.

Congress, however, cannot be counted on to act on any mens rea proposals while it is bogged down in impeachment proceedings. That does not mean, however, that mens rea reform is a nonstarter. The executive branch has several options that it can consider to advance this important objective on its own.

Executive Branch Actions

The first three actions that the executive branch can take to advance mens rea reform arise out of what is known as “prosecutorial discretion.” That term refers to the charging discretion that the President and his lieutenants at the U.S. Department of Justice (DOJ) possess. The president has the responsibility to “take Care that the Laws be faithfully executed,” but prosecutors have the authority to decline to charge someone, offer him or her a plea bargain, or seek a death sentence in any particular case. Prosecutorial discretion is broad, and the Supreme Court has imposed few limits on it aside from prohibiting its exercise “to violate constitutionally prescribed guaranties of equality or liberty.”

Although prosecutorial discretion is broad, it should be employed only in individual cases or in a small set of cases. It is “designed to help achieve statutory objectives…not to frustrate statutory objectives or to effectuate a change in policy.” Fundamentally, it is not “an invitation to violate or ignore the law.”

With these guidelines in mind, the executive branch can use its prosecutorial discretion to advance the cause of mens rea reform in three ways, two of which we approve and one of which we do not approve. The fourth option derives not from prosecutorial discretion, but from the President’s authority over executive branch agencies.

1. As a matter of policy and absent extraordinary circumstances, prosecutors should decline to prosecute cases brought under statutes with inadequate mens rea elements unless there is clear evidence of bad intent.

The first option is for the Department of Justice to exercise its prosecutorial discretion to decline to prosecute crimes in any case where the Mens Rea Reform Act of 2018 would have enhanced the existing mens rea requirements. That bill would have added a default mens rea element of willfulness to any criminal offense that otherwise lacked a mens rea element.

The Attorney General could issue a policy directive to the effect that absent extraordinary circumstances, prosecutors should not file criminal charges against anyone unless there is clear evidence of “willfulness,” which would require a government prosecutor to prove that the defendant intended to break a known law or otherwise knew he was doing something wrong.

2. Require prior approval of a high-ranking DOJ official for any prosecution under a strict-liability statute.

The second option is to require approval from a U.S. Attorney or senior DOJ official before any defendant can be prosecuted for a strict-liability crime. This approach would ensure that someone in a position of authority pauses before charges are filed to consider whether a strict-liability prosecution is in the interests of individualized justice.

The Department of Justice already uses a similar approval process for other crimes. For example:

  • A prosecutor must obtain the approval of the Assistant Attorney General for the Criminal Division before initiating a case under the Racketeer Influenced and Corrupt Organizations Act. The same goes for prosecutions of the crime of fleeing to avoid prosecution.
  • Likewise, the Assistant Attorney General for the National Security Division must approve all economic espionage prosecutions.
  • Additionally, no prosecution of crimes against “Federally Protected Activities” (such as voting, serving on a federal jury, or receiving federal financial assistance) may commence until the Attorney General or Deputy Attorney General certifies that “in his or her judgment a prosecution by the United States is in the public interest and necessary to secure substantial justice.”
  • A similar approval requirement once existed for prosecutions of trade secret theft but has since expired.

The DOJ’s Criminal Resource Manual includes dozens more of these prior-approval requirements, so adding another for strict-liability prosecutions would accord with established practices.

3. Forbid prosecutions under statutes that lack any mens rea element.

The third option—which we do not support—is simpler but more dramatic than the first two: Simply refuse to prosecute crimes under any statute that lacks an adequate mens rea element. That policy would be analogous to President Obama’s Deferred Action for Childhood Arrivals (DACA) policy because, like DACA, it amounts to a broad refusal to enforce a law.

Adopting the rationale behind that policy, the executive branch could conclude that prosecuting people for violations of statutes that lack an adequate (or any) mens rea element would be unjust and ought to be a lower priority than prosecuting individuals who violate statutes with an adequate mens rea element and engage in intentional wrongdoing or conduct they know to be dangerous.

Although this option accords with the DACA precedent, we oppose it for the same reasons we opposed that policy. It would be an improper exercise of prosecutorial discretion that violates separation-of-powers principles.

3. Order executive branch agencies to identify all agency regulations that could serve as the basis for a criminal charge and list their mens rea element(s).

The fourth option comes not from the executive’s prosecutorial discretion but from the President’s authority over the executive branch agencies that he oversees. Pursuant to that authority, the President can issue an executive order requiring all executive branch agencies that have criminally enforced regulations to identify those regulations and describe their mens rea elements. The Department of Justice should then review them to determine whether those regulations adequately protect potential defendants from unjust prosecutions.

The task would be daunting—experts estimate that there are 300,000 or more regulatory crimes—but not without precedent.

  • North Carolina’s legislature recently ordered the state’s agencies to compile and report on all of their criminal regulations. The legislature will then review the regulations and determine whether any of them should have their criminal penalties removed.
  • In 2014, Minnesota’s legislature—at the request of its Democratic Governor, Mark Dayton, reviewed and repealed 1,175 obsolete regulations and crimes.
  • The Texas legislature maintains a Sunset Advisory Commission that assesses “the continuing need for a state agency or program to exist.” As part of that ongoing assessment, the legislature reviews and, if appropriate, eliminates certain regulations.

In addition, easily adaptable model language for this executive order already exists. The Mens Rea Reform Act of 2018, which was introduced by then-Senator Orrin Hatch (R–UT), included language that would have required federal agencies to specify a mens rea standard for all regulations that carry criminal penalties and would have automatically invalidated any regulations that lacked a mens rea standard after six years, with some exceptions.

Regardless of whether it is Congress or the President that decides to take action on mens rea reform, rounding up and taking inventory of the vast herd of regulatory crimes would be an important first step.

Conclusion

Mens rea reform remains a high priority for many criminal-justice reformers who are concerned about the expansion and misuse of the criminal laws. Unfortunately, despite bipartisan support, Congress has not acted and, at least for the foreseeable future, is not likely to act. Thankfully, however, the cause is not dead in the water; the executive branch has various options that it can and should consider to advance mens rea reform efforts.

Categories
Cases

Robertson v. United States

Joseph Robertson was a property owner in Montana who sometimes dug ditches from a rivulet to collect water into ponds on his property. In the course of that work, according to the Cato Institute description of the case, “some dirt got into the rivulet, which emptied into a local stream, which emptied into a state river, which entered a river that crossed state lines.” This led the Army Corps of Engineers to criminally charge Robertson with criminal sanctions for failing to get the appropriate permit for his actions under the Clean Water Act.

Robertson’s ponds hardly qualified as navigable waterways of interstate commerce, which is the general rationale that gives the federal government the constitutional authority to regulate such matters.  But the government’s theory of the case was so sweeping that Robertson’s manipulation of the dirt on his own property that may have eventually crossed state lines in a river justified a criminal prosecution. This is textbook overcriminalization.

Robertson was convicted, sentenced to 18 months in prison, and ordered to pay a $180,000 fine. He appealed his case all the way to the Supreme Court, challenging the overbroad reading of the Clean Water Act’s language. Sadly, Robertson passed away while his case was under review. The Supreme Court sent the case back to the appeals court, which eventually threw out his conviction and the fine.

You can read the Cato Institute’s amicus brief in support of Robertson here. You can also read an op-ed about the case written by one of Robertson’s attorneys in The Hill .

Categories
Events

Transparency in Criminal Justice: A 2020 Vision – April 1 – April 3

Register Here

We are excited to announce the Quattrone Center’s Spring Symposium, which will kick off with a conversation with world-famous recording artist and criminal justice reform advocate John Legend and exoneree and member of the Central Park Five Dr. Yusef Salaam on Wednesday, April 1 at the National Constitution Center. The symposium will conclude with a discussion with Sarah Koenig, the Host and Co-Creator of the Serial podcast, at Penn Law on Friday, April 3.

As in past years, the symposium will gather leading criminal justice reformers – practitioners, scholars, activists, and others – to discuss important issues and trends in criminal justice reform. Topics will include:

  •  The role of “court watchers” in reducing incarceration and improving outcomes in pretrial and misdemeanor courts;
  •  How “Big Data” is changing policing;
  •  How plea bargaining affects disclosure of exculpatory evidence;
  •  The role of courts in ensuring accurate eyewitness identifications;
  •  Transparency in prosecutorial accountability; 
  •  Judicial Resistance to Prosecutors’ Conviction Review Efforts; and 
  •  The role of the media in promoting criminal justice transparency
Categories
Articles

LEVICK’s Criminalizing the Boardroom

Overcriminalization is an unfortunate fact of life for business people right now. Until this state of affairs changes, people who work in business—particularly management and executives—need to be aware of how to protect themselves if the wrong prosecutor or government agent looks their way.

LEVICK put together a great guidebook entitled “Criminalizing the Boardroom” that business people should read to learn about the risks and best practices to protect themselves.  You can download here.

Criminalizing the Boardroom: A Communications Guidebook for Prosecutorial Targets from LEVICK . Available at CCBJournal.com

Categories
Cases

United States v. Lawrence Lewis

In 2012,  Lawrence Lewis, an engineer from Washington D.C., was arrested after unknowingly violating the Clean Water Act while doing his job. While most people know when they commit a crime, there are also countless instances where Americans unknowingly break the law while performing what they assume are normal everyday tasks. Worse still, there have been few attempts to stop this type of over-criminalization through reform.

Lawrence Lewis
Lawrence Lewis

At the time of his unwitting violation of the Clean Water Act, Lewis was working at a military retirement home, where he had to handle its backed-up sewage system. When Lewis was first hired at the home, he had been taught to divert the backed-up sewage system to a nearby storm drain, which was thought to empty into the city’s sewer system. Lewis and his staff were misinformed. In fact, the diverted waste ended up in a creek that flowed into the Potomac River, violating the Clean Water Act.

Lawrence Lewis, who had worked hard to escape life in the inner city, wound up facing jail time for performing an everyday task. As Lewis put it: “I couldn’t believe that I was born and raised in the projects and I worked so hard to get out that situation and build a professional career and here I am at work getting arrested for something I had no idea was wrong.” It is a sad reality that Lewis and countless other Americans continue to suffer as a result of overcriminalization. The criminal-justice system should be used to protect the lives, liberty, and property of all Americans and punish truly dangerous offenders, who commit crimes that deserve punishment. The system should not be used to make good, upstanding citizens look and feel like criminals.

For more information on this and similar cases visit the NACDL https://www.nacdl.org/Content/TheFaceofOvercriminalization

Categories
Cases

United States v. Clay

Recent Case Update:
On January 20, 2021, Todd Farha and other WellCare executives were pardoned by President Trump.

 Due to a change in Department of Justice Policy, the WellCare case would not even be charged today.  In 2018, DOJ revised its charging decision policies to reflect that criminal enforcement actions must be based on violations of applicable legal requirements, and not, as in the WellCare case, based “solely on allegations of noncompliance with guidance documents.”  In the WellCare case, prosecutors relied heavily on informal and non-binding state agency “guidance” letters interpreting the 80/20 statute that were issued by AHCA. The prosecution treated these letters as if they constituted the law and as if failing to follow them were a crime. The indictment quoted the letters at length, and the prosecution relied on them in their opening arguments to contend that the WellCare executives had committed a crime – even though the letters were nothing more than AHCA’s position on a disputed issue of law.

United States v. Clay is a 2013 case that demonstrates the troubling effects of overcriminalization. The case revolves around WellCare, a health care company that provided, among other things, behavioral health services to Medicaid patients in Florida. At the time, the state had what was known as the 80/20 statute, which required these providers to spend 80 percent of their funding for the “provision of care.” However, the law provided no guidance as to which expenses fell into the category of providing “care.” This ambiguity, and the lack of clarifying state regulations, served as the basis for federal prosecutors to bring serious criminal charges for what was, at most, a regulatory dispute: Overcriminalization.  

Like many other healthcare providers in Florida, WellCare established a subsidiary – Harmony – that delivered services to patients. WellCare included payments to its subsidiary, a practice that was common among providers with similar structures in its reporting for 80/20 purposes. It was never disputed that these payments were at market rates, nor were there any claims that the subsidiary provide substandard care.  In fact, a state audit of Harmony detailed that Harmony “exceeded requirements” in its care delivery.

todd farha
Todd Farha

In 2007, after a whistleblower complaint, the FBI raided the company, confiscating records and computers, and the government charged five of the organization’s executives.

The WellCare executives argued at trial that they had interpreted Florida’s ambiguous 80/20 law in a way that was reasonable.  In fact, their lawyers had advised them that their interpretation was an available one and was reasonable. Even government officials testified that their interpretation of the law was reasonable. Moreover, the case United States v. Whiteside set a precedent that a statement is not considered false if it is made based on an “objectively reasonable interpretation” of a law. This precedent was not properly applied in United States v. Clay.

The case against WellCare grew murkier when the district court essentially asked the jury to interpret the complexities of the vague 80/20 statute—when typically, judges decide answers to legal questions and juries decide answers to factual questions. In the end, the WellCare executives were convicted of health care fraud and related offenses, and they received jail time. 

Even more troubling was the fact that the prosecution based its case on informal state agency “guidance” letters interpreting the 80/20 statute — even though such guidance is not binding under state law and under current DOJ regulations cannot be used as a basis for prosecution. On January 25, 2018, the U.S. Department of Justice issued a policy memorandum stating that the department  “may not use its enforcement authority to effectively convert agency guidance documents into binding rules.” From that date on, federal prosecutors are no longer permitted to “use noncompliance with guidance documents as a basis for proving violations of applicable law.” Thus, this prosecution, which was inextricably bound up with the theory that the WellCare executives had violated the state agency’s interpretation of the 80/20 statute, as expressed in a guidance document, would never have been brought today.

Another troubling factor is that in the WellCare case, the trial and appellate courts reduced the standard for “knowledge.”   The jury was allowed to convict, not if the executives knew their approach was incorrect, but if the jury believed the executives simply had “deliberate indifference” to the interpretation of the 80/20 requirements.   That level of knowledge standard (or mens rea) was essentially a negligence standard, one that was rejected by the Supreme Court even in a civil patent dispute case as insufficient to show intentional conduct.  Unfortunately, the Supreme Court declined to hear the case despite supporting briefs filed by public policy organizations and over a dozen noted criminal law professors.

This case has been highlighted by public policy organizations, defense lawyers and criminal law professors as a case of overcriminalization for many reasons:

  • The Federal Prosecutor applied criminal law to solve a regulatory interpretive matter. 
  • The state was required to issue clarifying implementing regulations, but never did.
  • The state regulator discussed clarifying the 80/20 requirements but never did.
  • The prosecution was based on informal state agency “guidance” even though such guidance is not is not binding under state law – and under current DOJ regulations cannot be used as a basis for prosecution.
  • Lawyers for the company approved and structured the transaction in question.
  • The Government could not point to any law or regulation that prohibited the company’s interpretation of the 80/20 law. 

In short, CEO Todd Farha and the WellCare executives were prosecuted and convicted for a crime the federal government created, after the state agency failed to fulfill its obligation to provide clear regulation as to what the statute required.   They acted consistent with counsel’s advice and consistent with the practice of competitors, none of whom was prosecuted or even sanctioned.   This case demonstrates the troubling ramifications of overcriminalization by highlighting the government’s ability to punish people for their interpretations of complex, vague laws—even when their interpretations of these laws are reasonable and there is no willful or corrupt intent.

For more information on this case, including briefs and podcasts, visit NACDL –https://www.nacdl.org/Content/usvclay

See also Curing America’s Addiction to Overcriminalization by Brett Tolman, Bloomberg Law (October 19, 2020)

Categories
Cases

Vascular Solutions Fights Overzealous DOJ Prosecution

There is such an unbelievable proliferation of legislation and regulations across the United States, whether federal or state-based, that it can be difficult for companies to know when they might be running afoul of the law. It could be a relatively new piece of legislation that businesses are not aware of, or an obscure law that’s been on the books for some time but is unknown to most CEOs. In addition, some laws and regulations actually don’t require knowledge or intention for a finding of guilt.

Even if they follow due diligence by following the advice of counsel, or interpreting the law the way others in their industry have done, heads of companies are still not assured that prosecutors will interpret the law in the same way. Prosecutors may still decide to charge company leaders with violations—which, of course, can have serious consequences and even result in jail time.

Let’s take a look at the experience of Howard Root and Vascular Solutions.

How it began

Howard Root
Howard Root

Howard Root was the CEO of Vascular Solutions, a highly successful business that created over 100 medical devices and employed well over 500 Americans. During their 20 years in business, the company’s inventions had saved and improved the lives of countless patients. In 2011, a whistleblower came forward to the United States Department of Justice (DOJ) and suggested that Vascular Solutions was fraudulently marketing one of their products: the Vari-Lase Short Kit. The individual was an ex-employee who went to work for a competitor and subsequently alleged that Vascular Solutions was promoting the FDA-approved product for an off-label use.

In 2009, Root had sent this former employee a cease-and-desist letter in relation to breaching the non-compete clause in his contract in his new position. Shortly thereafter, the former employee wrote back claiming that Vascular Solutions was promoting off-label use of the product in question. Root looked into the matter and found the allegation false. He secured and followed the advice of in-house counsel.

Baseless allegations

Doctors are able to prescribe drugs and employ medical devices for uses other than what the FDA has approved—this is an extremely common and legal practice. According to WebMD, more than one in five outpatient prescriptions in the US are for an off-label use. In addition, Vascular Solutions sales representatives were legally permitted to describe the helpful off-label uses of their products, and the company was allowed to ship products to doctors for off-label use. Federal prosecutors acknowledged these facts. Even so, the matter did not end there.

Despite the evidence that the allegations levelled against the business were ill-conceived and had no substance, federal prosecutors persisted to launch a case against Vascular Solutions. The Vari-Lase Short Kit represented less than 1% of the company’s sales—and more importantly, it had never harmed one patient. Moreover, there were no claims made by federal prosecutors that patients were ever harmed. The product was used by doctors in their offices to treat patients with varicose veins. The marketing question centered around how a varicose vein was defined.

Legal consequences

It’s critical to understand that most companies faced with the predicament of being criminally charged in similar circumstances opt for a plea bargain to keep the matter out of court. Not only is going to court cost-prohibitive for most CEOs, but the resulting publicity can have an incredibly negative impact on business. However, Howard Root was in a financial position to choose a different path, and that’s just what he did. All told, it cost him $25 million in legal fees, the efforts of 121 lawyers, and five years to take the legal battle to a jury trial.

What was on the line for Vascular Solutions and its CEO was significant. If convicted, Howard Root was facing years in prison, and the company would have been out of business—a human cost not only for the CEO, but also for the many patients for whom the company’s devices were a lifeline. Furthermore, continued research and invention of products would have halted. It’s also pertinent to note that if Root was found guilty, the whistleblower stood to gain approximately $5 million of the $20 million the government claimed it had been defrauded of with false claims. This would have been a substantial windfall for the former employee.

Fortunately, after only one day of deliberation, the jury returned with a not guilty verdict, meaning that Root and his company were acquitted of all wrongdoing. The prosecution was covered by The Wall Street Journal and commenters expressed outrage at the federal prosecutors. A congressional investigation was convened. Since that time, Root has sold Vascular Solutions for $1 billion, which has paved the way for the good work of the company to continue. He now writes articles and speaks widely on his experiences, to raise awareness of the issue of unchecked prosecutorial misconduct within the DOJ.

“When prosecutors can use false criminal charges to destroy everyone except the few wealthy and unbroken defendants like me, then virtually everyone is in danger—even if you’ve done nothing wrong,” he has said.

Categories
Webinars & Podcasts

Congress’s Overcriminalization Task Force- Podcast

Originally published at NACDL | December 20, 2019

Ep.36 – Congress’s Overcriminalization Task Force — The Congressional Task Force on Overcriminalization held its fourth hearing in November. Composed of five Democrats and five Republicans, the Task Force, which awaits reauthorization after its November 30 expiration, was first created on May 7, 2013, by a unanimous vote of the House Committee on the Judiciary. The Task Force was charged to “conduct hearings and investigations and issue a report on overcriminalization in the federal code, as well as possible solutions.” In this podcast, we hear from Shana-Tara Regon, NACDL’s Director of White Collar Crime Policy, about this groundbreaking task force, the work it has done, and the critically important work that lies ahead. Learn more about NACDL. Ivan J. Dominguez, host; Isaac Kramer and Elsa-Maria Ohman, production assistants; Steven Logan, production supervisor. Music West Bank (Lezet) / CC BY-NC-SA 3.0 and Walkabout (Digital Primitives) / CC BY-NC-ND 3.0.

Listen to the Podcast Here

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Blog Blog 2

The Impact of Overcriminalization in the United States

prison

The federal criminal code has been part of United States law since the First U.S. Congress. The country’s first criminal code featured laws that addressed a mere 30 crimes, in part because the Framers of the Constitution believed that a large criminal code would compromise the United States’ hard-won freedom and the liberties of its people.

In the nearly 250 years since then, Congress has defied the wisdom of the Framers and broadened the criminal code. It now includes over 300,000 regulations and an additional 5,000 federal statutes that can lead to criminal penalties of varying degrees. Where the federal criminal code once focused on serious, immoral acts universally considered to be wrong—murder, piracy, treason, and so on—the federal criminal code of today covers an almost boundless spectrum of potentially criminal conduct. This has led to overcriminalization: the overreliance on criminal law to address myriad social problems and punish people—often severely—for simple mistakes. Overcriminalization has created a countless number of rules such that many Americans may be considered criminals, even if they don’t know it or intend it.

Overcriminalization has led to many Americans facing penalties that far outweigh the gravity of the crime they committed.

Overcriminalization also manifests when prosecutors use the criminal code and prosecution to address regulatory disagreements or infractions. There are numerous examples of such cases, and we highlight two below.

Todd Farha and the Wellcare case, US v. Clay: WellCare was a health care company that provided behavioral health services to Medicaid patients in Florida. The company was faced with interpreting a new state statute that required that 80 percent of funds were required to be spent for the provision of care, establishing a so-called 80/20 rule.  However, the state did not define what was included in the provision of care and the state agency never promulgated rules despite the legal requirement to do so.

Like many other healthcare providers in Florida, WellCare used a subsidiary,  Harmony, to deliver behavioral services services to patients. Per the 80/20 requirement, WellCare reported payments to its subsidiary, a practice that was common among providers in similar circumstances. Harmony was praised by state auditors for “exceeding requirements” in its provision of care.  

The company and CEO Todd Farha, relied on the guidance of in-house and outside counsel to comply with 80/20. The executives who ran WellCare and the counsel they consulted reasonably believed they were complying with the law and moved forward with their business.

Years later, based on a whistleblower seeking a large payout, the FBI raided the company and initiated a federal case. The executives were charged with overstating company expenses through their approach to the 80/20 law. Even though the state agency chose not to clarify the law, and the agency never promulgated rules to guide businesses, the executives were convicted of health care fraud and related offenses in United States v. Clay. The government never suggested that the WellCare rates were out of line with market pricing for their services. Moreover, there were no claims that Harmony dispensed substandard care. Recall from above that auditors had praised Harmony for its standard of care.

What may have been a regulatory conflict to be worked out through contractual dispute mechanisms, this case was instead prosecuted as a federal criminal case, sending executives to jail for reasonable business judgements made in absence of black letter statutory or regulatory guidance.

This case demonstrates the troubling ramifications of overcriminalization by highlighting the government’s ability to punish people for their interpretations of complex, vague laws—even when their interpretations of these laws are reasonable and there is no malicious intent. 

Howard Root and Vascular Solutions: Vascular Solutions was medical device company that made products that have saved countless lives. In 2011, a purported whistleblower told the United States Department of Justice that Vascular Solutions was fraudulently marketing one of their products: the Vari-Lase Short Kit. The individual was an ex-employee who went to work for a competitor and subsequently alleged that Vascular Solutions was promoting the FDA-approved product for what is known as an “off-label use.” An off-label use is an alternative use for a device or drug that is FDA-approved to treat one ailment, but may help treat another problem. While doctors may prescribe drugs and employ devices for these off-label uses—indeed, it is common practice—manufacturers are legally prohibited from promoting those applications of their products.

In 2009, Vascular Solutions CEO Howard Root sought legal counsel and launched an investigation into the allegations of the future would-be “whistleblower” in the aftermath of the ex-employee’s separation from the company. That investigation found no evidence that the company was violating the law.

Nevertheless, federal prosecutors launched a criminal case against Vascular Solutions. The Vari-Lase Short Kit represented less than one percent of the company’s sales —and more importantly, prosecutors never alleged that the product had harmed a patient, nor was there any evidence to that effect.

Root had the financial wherewithal to fight what he believed to be baseless allegations. Most federal defendants are not so fortunate. All told, Root paid $25 million in legal fees for the five years it took to prepare and defend his case before a jury. After one day of deliberation, the jury acquitted Root and his company of all wrongdoing.

These are just two cases in the federal criminal system in which vague laws and zealous prosecutions can upend the lives of executives, managers, and employees who operate their companies in good faith. If the government suspects a regulatory violation—particularly when there are no perceived victims, as in the two cases above—the criminal law and the threat of imprisonment should be the last means used to ensure compliance, not the first. Certainly, major frauds and other egregious wrongdoing should be investigated and prosecuted. But differences of opinion about vague statutes and unsubstantiated accusations of technical violations of law should not lead to $25 million legal bills or imprisonment.

The Framers’ generation knew that a vast criminal code posed a threat to American freedom. The further the law strays from clear cases of right and wrong, the more easily innocent people may be prosecuted for non-wrongful conduct. As a nation, our laws must comport with the principles of fairness and justice. Rolling back overcriminalization is an essential step toward those principles.

Categories
Webinars & Podcasts

CARROTS & STICKS: Trends in White-Collar Compliance and Enforcement

Originally published by the Washington Legal Foundation |September 18, 2019

Over the last two years, the Justice Department and more recently the Treasury Department and increasing numbers of non-US authorities have issued policy statements, guidance documents, and made speeches intending to make white-collar criminal enforcement more transparent. As recent federal prosecutions and consent decrees demonstrate, however, businesses enterprises and their corporate officers should not mistake clarity in the decision-making process for disinterest. Those enforcement actions and DOJ guidance reflect the need for consistent, committed corporate compliance procedures. Our speakers will analyze this year’s most important white-collar developments and trends, forecast future concerns, and discuss key refinements that can improve even the most effective corporate compliance program. 

Watch the presentation Here.