Sunday, September 30, 2007

Case o' The Week: Loose Lips Sink Fraud Ship, US v. Dearing, "reckless indifference" and health care fraud


"Loose lips might sink ships." A great motto for wartime discretion, bad evidence when it comes from a boss, speaking to a health care employee during the midst of a fraud investigation. See United States v. Dearing, __ F.3d. __, 2007 WL 2769657 (9th Cir. Sept. 25, 2007), decision available here. This disappointing Hall decision is primarily concerned with the adequacy of evidence in a health care fraud trial. Buried in some -- terse -- analysis, however, is a troubling erosion of mens rea requirements in fraud cases (with implications for other white-collar fraud cases, such as securities fraud).

Players: Judge Hall authors, Canby and Callahan join.

Facts: Art Dearing was a part-owner of a health care facility with his brother. 2007 WL 276957, *1. Art’s brother ran the place, and had repeated problems with (fraudulent) Medicaid billing. Id. Evidence at trial suggested that Art was aware of these problems, although he wasn’t involved in day-to-day operations and didn’t personally submit for reimbursements. Id. at *1-*2. For example, he allegedly told an employee complaining about fraudulent activity, "loose lips sink ships." The health care fraud statute requires that the defendant “knowingly and willfully executes . . . a scheme” to defraud a health care benefit program. Id. at *3. The trial court, however, instructed the jury that the “intent to defraud” could be shown if the defendant acted “with reckless indifference to the truth or falsity of the statements.” Id. at *4. After conviction, Dearing challenged this instruction (among other issues) on appeal.

Issue(s): “Dearing . . . claims that the district court erred in permitting a jury instruction that allowed a finding of guilt based upon reckless indifference rather than willful intent.” Id. at *4. “Dearing . . . asserts that a second instruction effectively lowered the mens rea requirement from willfulness to recklessness.”

Held: “We hold that the phrasing of this additional instruction was not erroneous and did not effectively relieve the government of its burden of proving that Dearing’s actions were willful. . . .” Id. at *5. “We have repeatedly held that the intent to defraud may be proven through reckless indifference to the truth or falsity of statements.” Id. “[T]he ‘reckless indifference’ instruction that Dearing challenges was tethered to the ‘specific intent to defraud’ element, which the government was required to prove in addition to the first element. Therefore its inclusion did not negate the separate instruction that to convict, the jury had to find that Dearing acted ‘knowingly and willfully.’” Id. (emphasis in original).

Of Note: Buried in Dearing is some bad law for white collar and fraud cases – and it doesn’t help that the analysis isn’t the model of clarity. The specific instruction at issue was a definition of “intent to defraud.” Id. at *4. The contested instruction allowed the government to show “intent to defraud” by proving the defendant acted with “reckless indifference to the truth or falsity of the statements.” Id. Dearing persuasively argued that this means that a defendant who acted with reckless indifference could be convicted of the crime of knowingly and willfully executing a scheme to defraud. In rejecting this argument, Judge Hall relied on a footnote from a prior Ninth Circuit case for the proposition that a “reckless indifference” instruction can support a securities fraud conviction. Id. at *5, quoting United States v. Tarallo, 380 F.3d 1174, 1189 & n.5 (9th Cir. 2004).

Backdating folks, take note: Dearing solidifies a suspect trend in law, that allows the “willful” element to be satisfied by mere reckless indifference in fraud cases (including securities fraud). See Tarralo, 380 F.3d at 1188-89. This doesn’t make sense – willful action, and reckless indifference, are traditionally very different mental states. This deteriorating mens rea trend in fraud cases is fertile ground for a law review article, and cries out for a cert. petition.

How to Use: One thing that saved the conviction in Dearing was that the “reckless indifference” instruction was “tethered” to other instructions requiring higher mens rea showings. Id. at *5. Don’t let the government argue that a “reckless indifference” instruction – standing alone – suffices for a fraud case: in Dearing, the jury could not have relied on reckless indifference alone to find the required mental state, given other instructions that were structured to also require proof of a “specific
intent to defraud.” Id.

For Further Reading: We’ve reviewed the oddities of federal mens rea requirements in the Lombera-Valdovinos blog. See blog here. Try to explain this area to a lay person: attempted illegal reentry requires specific intent, but simple illegal reentry has no mens rea requirement. Health care fraud requires the defendant “knowingly and willfully” executed a scheme to defraud – but “reckless indifference” is close enough for a conviction? For an interesting article criticizing the American approach to the concept of mens rea, see Keren Shapira-Ettinger, The Conundrum of Mental States: Substantive Rules and Evidence Combined, 28 Cardozo L. Rev. 2577 (2007).



Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org


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4 Comments:

Blogger Jay Draiman said...

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Tuesday, October 02, 2007 9:38:00 AM  
Blogger Yehuda Draiman said...

Nachshon Draiman, Chicago – nursing home administrator license (044001323) revoked and fined
Illinois Department of Financial and
Professional Regulation NEWS
IDFPR
Disciplinary Actions for January 2008 SPRINGFIELD
The Illinois Department of Financial and Professional Regulation (IDFPR)
announced today that the Directors of the Division of Professional Regulation, Daniel E. Bluthardt, and Insurance, Michael T. McRaith, signed the following disciplinary orders in January. Orders for the Division of Banking were authorized by Director Jorge Solis.

NURSING HOME ADMINISTRATOR

Nachshon Draiman, Chicago – nursing home administrator license (044001323)
revoked and fined $2,000 for misrepresenting information in his application concerning postgraduate education degree, to obtain nursing home administrator licensure from the Department.

Monday, May 19, 2008 5:09:00 AM  
Blogger Jay Draiman said...

Nachshon Draiman and Multiut charged with a $15 million judgment for fraud
Honorable John A. Nordberg: Enter Memorandum Opinion and Order.
For the reasons set forth above, defendants motion for summary judgment is granted, and judgment is granted to plaintiff Dynegy, and against defendants Multiut and Nachshon Draiman, Future Associates
Case 1:02-cv-07446 Document 228 Filed 06/11/2008 Page 1 of 1
UNITED STATES DISTRICT COURT
FOR THE Northern District of Illinois − CM/ECF LIVE, Ver 3.2.1
Eastern Division
Dynegy Marketing and Trade
Plaintiff,
v. Case No.: 1:02−cv−07446
Hon. John A. Nordberg
Multiut Corporation, Nachshon Draiman, Future Associates, et al.
Defendant.
NOTIFICATION OF DOCKET ENTRY
This docket entry was made by the Clerk on Wednesday, June 11, 2008:
MINUTE entry before the Honorable John A. Nordberg: Enter Memorandum
Opinion and Order. For the reasons set forth above, defendants motion for summary judgment is granted, and judgment is granted to plaintiff, and against defendants Multiut and Nachshon Draiman, Future Associates on Counts I and II of plaintiffs amended complaint, in the amount of
$15,348,244.72 plus interest accruing from October 1, 2004. Judgment is granted for plaintiff and against defendants Nachshon Draiman on Counts I through VI of defendants
counterclaims.Status hearing set for 10/2/2008 at 2:30 PM. [183],[196]Mailed notice(tlp, )
ATTENTION: This notice is being sent pursuant to Rule 77(d) of the Federal Rules of Civil Procedure or Rule 49(c) of the Federal Rules of Criminal Procedure. It was generated by CM/ECF, the automated docketing system used to maintain the civil and criminal dockets of this District. If a minute order or other document is enclosed, please refer to it for additional information.
For scheduled events, motion practices, recent opinions and other information, visit our web site at www.ilnd.uscourts.gov.
CONCLUSION

For the reasons set forth above, defendant's motion for summary judgment is granted, and judgment is granted to plaintiff, and against defendants Multiut and Nachshon Draiman, on Counts I and II of plaintiff's amended complaint, in the amount of $15,348,244.72 plus interest ($21 million) accruing from October 1, 2004. Judgment is granted for plaintiff and against defendants on Counts I through VI of defendants' counterclaims.
FN1. Dynegy has also filed several fraudulent transfer counts alleging that Nachshon Draiman caused Multiut to transfer over $21 million to himself, his family, and related business entities and that most of this money came from the sale of gas delivered by Dynegy. But the present summary judgment motion does not address these counts. (with interest it is $21,000,000 million)


N.D.Ill.,2008.
Dynegy Marketing and Trade v. Multiut Corp.
Slip Copy, 2008 WL 2410425 (N.D.Ill.)
See: www.nachshondraiman.net

Nachshon Draiman aka Nachson Draiman, N Draiman
END OF DOCUMENT
Nachshon Draiman, Chicago – nursing home administrator license (044001323). revoked
Illinois Department of Financial and Professional Regulation 2008
File Format: PDF/Adobe Acrobat - View as HTML
Nachshon Draiman, Chicago – nursing home administrator license (044001323). revoked and fined $2000 for misrepresenting information in his application ...
www.idfpr.com/Forms/DISCPLN/0108_dis.pdf - Similar pages

See: www.nachshondraiman.net

Sunday, October 12, 2008 6:41:00 AM  
Blogger Jay Draiman said...

NACHSHON DRAIMAN 09-17582 and Multiut 09-17575 file for bankruptcy
ilnbke
09-17582

ilnbke
09-17575


On May 14, 2009, NACHSHON DRAIMAN filed for Chapter 11 bankruptcy. The filer is being represented by Michael L Ralph, Sr of the firm Ralph, Schwab & Schiever, Chtd.
A bankruptcy petition preparer’s failure to comply with the provisions of
title 11 and the Federal Rules of Bankruptcy Procedure may result in
fines or imprisonment or both 11 U.S.C. §110; 18 U.S.C. §156.
Multiut Corporation
/s/ SCOTT R. CLAR
SCOTT R. CLAR 06183741
Crane, Heyman, Simon, Welch & Clar
Suite 3705
135 South LaSalle Street
Chicago, IL 60603-4297
312-641-6777 Fax: 312-641-7114
May 14, 2009
Nachshon Draiman
/s/ Nachshon Draiman
President
May 14, 2009

I certify under penalty of perjury that the information provided above is true and correct.
Signature of Debtor: /s/ Nachshon Draiman
Nachshon Draiman
Date: May 14, 2009
Software

B4 (Official Form 4) (12/07)
United States Bankruptcy Court
Northern District of Illinois
In re Nachshon Draiman Case No.
Debtor(s) Chapter 11
LIST OF CREDITORS HOLDING 20 LARGEST UNSECURED CLAIMS
Following is the list of the debtor's creditors holding the 20 largest unsecured claims. The list is prepared in
accordance with Fed. R. Bankr. P. 1007(d) for filing in this chapter 11 [or chapter 9] case. The list does not include (1)
persons who come within the definition of "insider" set forth in 11 U.S.C. § 101, or (2) secured creditors unless the value of
the collateral is such that the unsecured deficiency places the creditor among the holders of the 20 largest unsecured claims.
If a minor child is one of the creditors holding the 20 largest unsecured claims, state the child's initials and the name and
address of the child's parent or guardian, such as "A.B., a minor child, by John Doe, guardian." Do not disclose the child's
name. See 11 U.S.C. § 112; Fed. R. Bankr. P. 1007(m).
(1)
Name of creditor and complete
mailing address including zip
code
(2)
Name, telephone number and complete
mailing address, including zip code, of
employee, agent, or department of creditor
familiar with claim who may be contacted
(3)
Nature of claim (trade
debt, bank loan,
government contract,
etc.)
(4)
Indicate if claim is
contingent,
unliquidated,
disputed, or subject
to setoff
(5)
Amount of claim [if
secured, also state
value of security]
Alan Mandel
7520 N. Skokie Blvd.
Skokie, IL 60077
Alan Mandel
7520 N. Skokie Blvd.
Skokie, IL 60077
Attorney's Fees and
Costs
Disputed
Subject to Setoff
193,963.62
BankFinancial, F.S.B.
3443 W. Touhy Avenue
Lincolnwood, IL 60712
Bank Financial
3443 W. Touhy Avenue
Lincolnwood, IL 60712
Personal Line of
Credit
120,000.00
BankFinancial, F.S.B.
3443 W. Touhy Avenue
Lincolnwood, IL 60712
Bank Financial
3443 W. Touhy Avenue
Lincolnwood, IL 60712
Guaranty on Bank
Loan, Lifescan
Laboratiries, Inc.
Contingent
Unliquidated
259,748.58
BankFinancial, F.S.B.
3443 W. Touhy Avenue
Lincolnwood, IL 60712
Bank Financial
3443 W. Touhy Avenue
Lincolnwood, IL 60712

Wednesday, May 20, 2009 7:05:00 AM  

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