Tag: Wellcare

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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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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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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.
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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.