Saturday, June 25, 2005

Panel Concludes That District Court Error In Determining Fraud Loss Amount Requires Remand for Resentencing

United States v. Canova, Docket Nos. 03-1291, 03-1300 (2d Cir. June 21, 2005) (Sack & Raggi) (Judge VanGraafeiland passed away after oral argument) (Op. by Raggi): In this lengthy opinion -- issued 1 1/2 years after the case was argued -- the Circuit remanded for resentencing, after the district court had imposed a one-year term of probation premised upon (1) a finding that no pecuniary loss resulted from the defendant's involvement in a Medicare fraud, and (2) a downward departure grounded in the defendant's extraordinary history of public service and good works. The Panel concluded that the district court had erred in calculating the relevant loss amount (by some $5 million) but rejected the Government's challenge to the downward departure. The Court concluded that the error in calculating the loss amount was signficant enough to preclude a finding that the sentence was reasonable notwithstanding the error. But in the course of remanding, the Panel appeared to leave open the possibility that the district court could re-impose the same sentence based on the district court's determination that (1) the $5 million loss amount overstates the serious of the offense, (2) a greater departure from the now-higher offense level was warranted, and/or (3) a non-Guidelines sentence was appropriate based on a consideration of all of the section 3553(a) factors. For reasons that won't be discussed here, the Panel also rejected the defendant's cross-appeal of the district court's denial of its Rule 33 motion. In so doing, however, the Panel reiterated that a Rule 33 motion must be filed within 7 days of the verdict or within such time as the district court sets during the 7-day period. The Court left for another day the question of whether the Government's challenge to a late Rule 33 filing -- such as occurred in this case -- could be forfeited (based on the Government's consent to the late Rule 33 filing) or whether the error is jursidictional, in which case it cannot be forfeited. (See Kontrick v. Ryan, 540 U.S. 443, 454-56 (2004) (noting distinction between rules governing subject-matter jurisidction and "an inflexible claim-processing rule" which can be forfeited)). The take-away for practitioners is to either file your Rule 33 motion within 7 days of the verdict, or make certain that the district court, within the 7-day period, sets a Rule 33 motion deadline that gives you enough time to file your papers; you cannot get a second extension granted outside the 7-day period!

The essential facts are these: Canova, a VP for Raytel Cardiac Services, was charged with conspiring to defraud Medicare, with obstruction of Medicare's investigation, and with a variety of false statement in connection with the same conspiracy/obstruction. Raytel performs "transtelephonic pacemaker testing" for Medicare patients at government expense. Such testing allows a technician at a remote location to test the pacemaker's operation by having the patient use a portable device to transmit telephonic signals that can be converted into an ECG report for review by a cardiologist. Medicare apparently requires that the pacemaker be monitored in 3 functioning modes for 30 seconds each, with the results recorded on a strip of magnetic tape. Without getting bogged down in the details, the opinion makes clear that a cardiologist would typically only look at representative segments of the first 2 test phases. As a result, as Raytel's volume of business increased, its technicians began departing from Medicare specifications by recording only a partial strip, or none at all, for the last 30 second phase, which was deemed less critical.

The evidence at trial reflected that Canova had pressured subordinates to meet higher performance quotas, which, in turn, had led technicians to cut corners with respect to the last 30 second phase of the testing. Canova learned about the non-compliance, but continued pushing for the higher quotas. When Medicare complained about the non-compliance, Canova falsely insisted that Raytel was complying. During an audit, Canova allegedly (1) sent an e-mail to Raytel's managers instructing them to tell auditors that Raytel was complying with all Medicare procedures for producing the strips, and (2) made additional false statements to Medicare representatives asserting that Raytel was complying. Canova was convicted on four of the five counts on which he was tried.

There were a number of key sentencing issues but for our purposes the most important were the issues of (1) loss amount and (2) a departure for extraordinary public service and charitable works. The government argued for and the PSR included a 13-level enhancement under the fraud guidelines, which was premised on a finding that Medicare had paid Raytel $10 million during the two-year period covered by the audit and at least 1/2 of the tests performed were non-compliant. Canova, however, had adduced evidence that the Raytel tests were every bit as clinically sound as those demanded by Medicare, even if they were technically non-compliant. Specifically, the defense offered the opinions of several cardiologists, the fact that the VA did not even record ECG strips for the 3rd phase of the test, and the fact that such testing is not part of the protocol set forth in the guidelines doctors use for managing patients with pacemakers. The district court accepted the defense theory and concluded that Medicare had suffered no real loss. The district court applied the obstruction of justice guideline rather than the fraud guideline (leaving Mr. Canova facing 15 to 21 months), and then departed 6 levels in consideration of his service to his country and his community. Specifically, Canova had served in the Marine for 6 years, had been a volunteer firefighter and risked his life to save others, and had provided emergency medical care to strangers in the course of his civilian life.

On appeal, the Government challenged, among other things, the downward departure and the district court's finding that there was no loss to Medicare resulting from the fraud. Noting that part of Canova's misconduct obstructed Medicare's audit and that, as a matter of Medicare regulations, Medicare could have recouped the monies paid to Raytel based on non-compliance with the contract specifications, the Panel concluded that there was an intended loss here. The Panel reasoned that "although a district court enjoys considerable discretion in calculating the loss attributable to a particular fraud, the record in this case did not permit it to conclude that the government sustained no loss from Canova's fraudulent schemes to substitute an abbreviated pacemaker test for the longer one required by Medicare specifications and to conceal that fraudulent substitution in order to prevent the government from exercising its right to recoupment." The Court noted that the $5 million loss amount should have been factored into the Guidelines "considered" by the district court as part of its section 3553 analysis. As a result, "[b]ecause there is a signficant difference between the Guideline range calculated to include this loss and the Guideline range relied upon by the district court the error might well have affected the ultimate sentence, even though the district court applied a downward departure." Slip op. at 47. The Panel reiterated that even under a discretionary Guidelines regime, the applicable range will serve as a "'benchmark or a point of reference or departure'" as the court exercises its expanded discretion" after Booker and Crosby. Slip op. at 48 (Citing United States v. Rubenstein, 403 F.3d 93, 98 (2d Cir. 2005)). The Panel notably declined to hold that every incorrectly calculated Guidelines sentence will necessarily require a remand, but reasoned that the error in this case was too large to ignore and could affect the sentence upon remand.

In good news for defendants, the Court rejected the Government's claim that the district court had improperly departed, holding that the downward departure for extraordinary public service and good works was fully supported by the record. (The Court also held that the Government had waived any argument challenging the departure by failing to object at the district court level, but considered the issue on the merits in light of the need for resentencing.) At the risk of reading too much into the opinion, the decision also left open the possibility that the district court could resentence Canova to probation even with the substantially higher starting point under the Guidelines. In one footnote, the Court pointed out that the district court (1) "may, of course, reconsider [its decision to impose a 6-level departure] on remand in light of the higher Guidelines range dictated by the proper application of the loss enhancement," and (2) may decided, after considering all of the section 3553 factors, "not to sentence Canova within the Guidelines scheme, but to impose a non-Guidelines sentence." Slip Op. at 55, n. 29. In an earlier footnote, the Panel "expressed no view" as to whether a departure for "loss overstates" would be appropriate on the facts of the case, under then-applicable USSG 2F1.1, cmt. n.11. Slip Op. at 39, n.21. Taken together, these statements would seem to give the district court substantial latitude to reimpose a sentence of probation should it determine (yet again) that such a sentence is reasonable for this particular defendant.


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