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Seventh Circuit White Collar Litigation Update – May 2017

Sacred Heart Execs’ Anti-Kickback Convictions Affirmed

United States v. Nagelvoort, No. 15-2766 (May 12, 2017)

The Anti-Kickback Statute prohibits paying for referrals of Medicare patients.  42 U.S.C. § 1320a–7b(b)(2)(A).  The government’s wide-ranging investigation of Sacred Heart Hospital resulted in numerous prosecutions of hospital executives, ownership, and doctors for AKS violations.  In the main case, Clarence Nagelvoort, Sacred Heart’s owner/CEO, and his chief lieutenant Edward Novak were convicted of orchestrating that scheme.  At trial, the government focused on Sacred Heart’s payments to doctors under supposed “personal services” contracts, as well as other purportedly legitimate arrangements such as office leases.  Some of the government’s best evidence was provided by cooperating doctors – both in testimony and recorded conversations – of conversations with defendants about referring patients as part of their “contracts” with the hospital.  

On appeal, defendants tried to convince the Court to reconsider a long-standing, though perhaps controversial, interpretation of the AKS:  A payment is unlawful if “any part or purpose” of it was to induce referrals, as opposed to requiring that inducing referrals be a “primary” or “substantial” purpose of the payment.  Defendants argued that the “any part or purpose” test made the statute unconstitutionally vague.  The Court rejected the vagueness challenge, pointing to its opinion in a 2011 case when it first affirmed that test (United States v. Borrasi, 639 F.3d 774). 

The Court’s ruling serves as another warning to health care providers about the perils of entering into financial relationships with one another and of the need to have health care counsel thoroughly vet arrangements where one provider also refers patients to the other.

Blago Loses Second Appeal – Post-Conviction Good Conduct Remains Important 

United States v. Blagojevich, No. 16-3254 (April 21, 2017)

Rod Blagojevich’s first appellate victory has proved pyrrhic.  In response to his initial salvo two years ago, the Court reversed convictions on five counts that included allegations that the Court said amounted to lawful political log-rolling (Blago offered to appoint President Obama’s pick for the vacant Senate seat in exchange for a cabinet position for himself).  794 F.3d 729 (2015).  The Court distinguished those counts from the ones it affirmed, where Blago schemed to obtain personal pecuniary benefits such the promise of future employment in the private sector. 

In remanding for resentencing, the Court observed that the original sentence would not have been unreasonably high when just looking at the surviving convictions.  Taking that cue, the district court imposed the same punishment on resentencing.  In doing so, the sentencing court rejected Blago’s contention that his post-conviction rehabilitation and good conduct in prison, as demonstrated by letters from fellow inmates, warranted a lower sentence on remand. 

Affirming, the Court addressed Blago’s contention and concluded that the district court was not compelled to reduce his sentence based on that factor alone.  Nevertheless, the Court re-emphasized that when a sentencing is set aside on appeal, the defendant’s post-conviction rehabilitation must be considered and can be a basis for a reduced sentence.

No Shortened Sentence for Fraudster to Earn Money for Restitution

United States v. Gold, No. 16-3678 (April 27, 2017)

Alan Gold ran an investment fund.  But instead of putting his victims’ money in equities as he promised, he gambled it away – to the tune of over a million dollars.  He was sentenced to 75 months imprisonment and ordered to pay restitution.  His appeal focused on the length of his sentence.  Gold’s logic was that he couldn’t earn enough to pay restitution if he were incarcerated for so long.  The Court easily rejected that argument, holding that the district court was correct to give “no weight” to it.

Acquittal Not Prerequisite for Fee-Shifting under Hyde Amendment

United States v. Terzakis , No. 16-3340 (April 27, 2017)

The Hyde Amendment – a rarely used but powerful tool – allows a criminal defendant to recoup attorneys fees if he is the “prevailing party” and the prosecution was “vexatious, frivolous, or in bad faith.”  18 U.S.C. §3006A.  The issue here was whether a defendant must be acquitted to be a “prevailing party.”  The Court held that an acquittal is not essential. 

The government indicted Terzakis based on the testimony of a witness who the government knew had a serious cognitive disability.  That witness later was also diagnosed with terminal brain cancer.  The government reconsidered its prosecution and voluntarily dismissed the indictment, meaning that any re-prosecution would be barred because the statute of limitations had run. 

Terzakis moved for fees under the Hyde Amendment.  The government’s primary challenge was that Terzakis was not a “prevailing party” because the dismissal was voluntary and did not result from an acquittal or any adverse finding.  The Court disagreed.  Because the dismissal effectively prevented the government from bringing another prosecution due to the statute of limitations, it “materially altered the legal relationship of the parties” such that defendant won the case.  The Court nevertheless affirmed the district court’s refusal to award fees because it found that the government’s initiation of the prosecution was not objectively frivolous.

This article was first published in the May 2017 issue of the Seventh Circuit White Collar Litigation Update on the 7th Circuit Bar Association’s website.

Loeb & Loeb partner Corey Rubenstein authors this monthly newsletter containing helpful summaries and practice pointers for key Seventh Circuit Court opinions involving civil and criminal white collar matters.