United States v. Davis

Opinion

United States Court of Appeals Fifth Circuit F I L E D IN THE UNITED STATES COURT OF APPEALS June 12, 2006 FOR THE FIFTH CIRCUIT Charles R. Fulbruge III )))))))))))))))))))))))))) Clerk

No. 05-10045

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UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

CHARLES WILLIAM HAMES; JAMES MICHAEL DAVIS; and ROBBIE LESA HAMES,

Defendants-Appellants.

______________________

No. 05-10375 Summary Calendar ______________________

Plaintiff-Appellant,

JAMES MICHAEL DAVIS,

Defendant-Appellee.

Appeals from the United States District Court for the Northern District of Texas USDC No. 3:01-CR-323-2-P Before JONES, Chief Judge, and WIENER and PRADO, Circuit Judges.

PER CURIAM:*

Appellants Charles Williams Hames (“Pete Hames”), Robbie Lesa

Hames (“Lesa Hames”), and James Michael Davis were convicted of

conspiracy to commit healthcare fraud, mail fraud, making false

statements, and other charges listed in a seventeen-count

superseding indictment arising from a healthcare fraud scheme. Pete

and Lesa Hames (collectively, “the Hameses”) claim that the district

court erred by excluding the impeachment testimony offered by one of

their witnesses. All of the Appellants contend that evidence is

insufficient to support their convictions and that their sentences

violate United States v. Booker, 543 U.S. 220 (2005). For the

following reasons, we AFFIRM Appellants’s convictions, VACATE their

sentences and REMAND for resentencing.

I. BACKGROUND

Pete Hames and his wife, Lesa Hames, an attorney, owned and

operated Alternate Nursing Care (“ANC”), a Medicare-funded home

healthcare agency. Medicare reimbursed ANC for the cost of care for

Medicare patients through Palmetto Government Benefits

Administrators (“Palmetto”), a subsidiary of South Carolina Blue

Cross/Blue Shield, which contracted with the Health Care Financing

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

2 Administration (“HCFA”)1 to administer the Medicare program in Texas.

Medicare reimburses only certain expenses, does not reimburse the

costs associated with “related parties” or shell corporations, and

does not allow providers to make a profit. At trial, the Government

argued that, in 1996, the Hameses discovered that their reportable

expenses were $600,000 less than what they had already received

through estimated advances. The Government contended that instead

of repaying this amount, with the help of Davis, a family friend and

full-time maintenance worker at an apartment complex, they padded

their expenses to keep the money.

At trial, the Government presented evidence suggesting that

Davis assisted Lesa Hames to claim $120,000 in consulting services

by signing a false, backdated contract purporting to show that Davis

was earning $20,000 per month for healthcare consulting work.

The Government also argued that Davis assisted Lesa Hames by

acting as the straw owner of Accelerated Home Health Personnel

(“Accelerated”), a fake employee leasing company that Lesa Hames

created. According to the Government, although Accelerated did not

exist until March 1996, Davis signed backdated documents created in

1996 to make it appear that the company entered into employee

leasing contracts with ANC in mid-1995 and early 1996. After Lesa

opened Accelerated, she transferred almost all of ANC’s employees to

the company and leased them back to ANC at an inflated rate. The

1 HCFA is now the Centers for Medicare and Medicaid Services.

3 Government suggests that ANC did not pay Accelerated the claimed

employee leasing expenses. In addition, ANC did not actually pay

Accelerated’s employees more money. Instead, it continued to pay

them the same amount as before the leasing agreement was executed.2

The Hameses, through their corporation RALA, also purchased a

dilapidated office building in Irving (“Irving building”) for

$140,000 and began costly renovations to it. Shortly thereafter,

the Hameses transferred RALA and its only asset, the Irving

building, to Davis in exchange for a promissory note for $1.2

million. At trial, the Government presented evidence that Davis

later represented to the Bank of the West that he had made $700,000

in payments on this $1.2 million note to secure a $500,000 loan when

the money actually came from the Hameses. In connection with this

scheme, Davis signed blank checks, backdated documents, and various

lease agreements used to pad the Hameses’ expenses for Medicare

reporting purposes.

According to the Government, some of the Hameses’ other

fraudulent acts were simpler. For instance, Lesa Hames claimed as

Medicare expenses the renovation of their home and the Irving

building. In addition, while she used the Irving building for some

2 The Government claimed that, notwithstanding the fact that Davis was Accelerated’s owner, his sole task was to sign paychecks. He did not hire, fire, or otherwise manage the leased employees. In addition, evidence reflects that, even after Accelerated and ANC discontinued their purported lessor-lessee relationship, Davis routed ANC’s Medicare funds from Accelerated to the Hameses’ personal accounts.

4 non-Medicare related purposes, Lesa Hames claimed as a Medicare

expense the entire amount of rent on the Irving building.

The Government argued that Davis and the Hameses operated these

schemes until 1998, when Palmetto’s auditors discovered and

disallowed the fraudulent expenses. Larry Seals, the Palmetto

investigator, determined that between 1996 and 1998, Medicare

overpaid Appellants $2.2 million. Davis and his wife received over

$500,000 of that amount.

At trial, the Government called twenty-three witnesses in its

case-in-chief, including David Hames, Pete Hames’s brother who also

served as the accountant for the Hameses’ companies. He testified

that many of the Hameses’ expenses were falsified in order to avoid

reimbursing Medicare for being overpaid. During David Hames’s

cross-examination, the defense did not question him about any prior

inconsistent statements. A week later, near the end of the

defense’s case-in-chief, Lesa Hames sought to introduce the

testimony of Max Wayman, a defense investigator who interviewed

David Hames before he began cooperating with the government

investigation into ANC. Wayman was expected to testify that David

Hames told him Appellants had not committed any crimes and that he

believed the reported expenses were all legitimate. The Government

objected to Wayman’s testimony because the defense had not

questioned David Hames about any prior inconsistent statements

before attempting to proffer extrinsic evidence about them. The

trial court sustained the objection.

5 On December 15, 2004, pursuant to the jury’s guilty verdicts on

all counts charged in the indictment, the district court sentenced

Lesa Hames to 102 months imprisonment and Pete Hames and Davis to 70

months imprisonment each. The court also ordered Lesa Hames and

Davis to serve three years of supervised release. Finally, the

court ordered Appellants to pay, jointly and severally, $2,885,020

in restitution.

This appeal followed. Davis also filed a motion for release

pending appeal in which he argued that there was a substantial

question whether the evidence was sufficient to prove that he

knowingly committed fraud. The district court granted release, and

the Government’s appeal of this issue has been consolidated with

this case.

II. DISCUSSION

A. The Trial Court Did Not Err by Excluding Wayman’s Testimony

First, the Hameses contend that the trial court erred by

excluding Wayman’s testimony because the advisory committee’s notes

on the Federal Rules of Evidence suggest that the traditional

requirement of providing the witness an opportunity to explain the

contradictions before the admission of extrinsic evidence has been

abolished.3

3 The advisory committee’s notes relax “the traditional insistence that the attendance of the witness be directed to the statement on cross-examination . . . in favor of simply providing the witness an opportunity to explain . . ., with no

6 We review a district court’s ruling on exclusion of evidence

for abuse of discretion. United States v. Ragsdale, 426 F.3d 765,

774 (5th Cir. 2005). “A trial court abuses its discretion when its

ruling is based on an erroneous view of the law or a clearly

erroneous assessment of the evidence.” Id. (quoting Bocanegra v.

Vicmar Servs., Inc., 320 F.3d 581, 584 (5th Cir. 2003)). If the

district court abused its discretion in excluding the testimony, we

will review that error for harmlessness. Id.

When the Hameses proposed to offer the testimony of Max Wayman

to impeach David Hames with his prior inconsistent statements, the

district court excluded Wayman’s testimony under FED. R. EVID. 613(b).

That rule provides:

Extrinsic evidence of a prior inconsistent statement by a witness is not admissible unless the witness is afforded an opportunity to explain or deny the same and the opposite party is afforded an opportunity to interrogate the witness thereon, or the interests of justice otherwise require.

The Hameses point to the advisory committee’s notes on the

Federal Rules of Evidence and United States v. Bibbs, 564 F.2d 1165

(5th Cir. 1977), to support their argument that the trial court

erred by excluding Wayman’s testimony. In light of the Hameses’

specification of any particular time or sequence,” FED. R. EVID. 613(b) advisory committee’s note.

7 obfuscation of the issue in Bibbs, our standard of review, and the

amount of discretion afforded to the trial court, their reliance on

Bibbs and the committee’s notes is misguided. In Bibbs, the

district court admitted extrinsic evidence of inconsistent

statements made by a witness after she had testified, even though

the proponent had not cross-examined her on the yet-to-be-made

statements while she was still on the stand. Id. This Court

affirmed, noting that the trial judge has wide discretion; and, even

if the case had fallen under Rule 613(b), that rule does not

“require that impeachment foundation precede the impeaching witness’

testimony.” Id. at 1169 (emphasis added). Bibbs does not stand for

the proposition that a district court abuses its discretion when it

in fact requires a foundation before admitting extrinsic evidence of

the impeachment. In Bibbs, we merely cited the Rule 613(b) in

suggesting that it would not be reversible error for a court to

allow the impeaching witness’ testimony to precede the impeachment

foundation. To hold otherwise would severely limit the trial

courts’ broad discretion in controlling the manner and presentation

of evidence at trial.4 See FED. R. EVID. 611. Thus, we conclude

4 Other circuits have concluded that, although trial courts have the option to allow extrinsic evidence without a prior foundation, it is not an abuse of discretion to refuse to admit it without that foundation. See United States v. Surdow, No. 04- 2459CR, 2005 WL 332805 (2d Cir. Feb. 9, 2005) (unpublished) (“[A]n impeaching party that does not itself intend to confront a witness with the particulars of a purportedly inconsistent statement will, at the very least, ‘inform[ ] the court and opposing counsel, at the time the witness testifies, of the

8 that the trial court did not abuse its discretion by excluding

Wayman’s testimony.5

B. Evidence is Sufficient to Sustain the Hameses’ Convictions For Making False Statements

The Hameses also argue that, because they made false statements

only to Palmetto, a private contractor, and Larry Seals, an auditor

for Palmetto, they cannot be convicted under 18 U.S.C. §§ 1001 and

1516. Specifically, they contend that their convictions cannot

stand because the statutes require that falsehoods be made directly

to a government agency or to an agent of the executive branch. The

intention to introduce’ impeaching extrinsic evidence . . . .(emphasis deleted)(quoting Weinstein’s Federal Evidence § 613.05[5] at 613-28)); United States v. Schnapp, 322 F.3d 567, 572 (8th Cir. 2003) (finding no abuse of discretion when judge did not exercise his option to permit extrinsic evidence before confrontation of the original witness); United States v. Sutton, 41 F.3d 1257, 1260 (8th Cir. 1994) (finding no abuse of discretion to exclude extrinsic evidence testimony because the relaxation of the timing rule “is not mandatory, but is optional at the trial judge’s discretion”). 5 The government maintains that David Hames likely would have admitted that he made the prior inconsistent statement to Wayman. At the time Wayman interviewed David Hames, he was not yet cooperating with the government; indeed, he admitted on the stand that he had lied to a federal auditor about the very same subject matter. If David Hames would have admitted making the inconsistent statement to Wayman, the Hameses’ purported extrinsic evidence of Wayman’s testimony would have been inadmissible. See United States v. Greer, 806 F.2d 556, 559 (5th Cir. 1986) (tape of prior inconsistent statement was inadmissible when the witness admitted he made the statement); United States v. Roger, 465 F.2d 996, 997-98 (5th Cir. 1972) (same); cf. United States v. Avants, 367 F.3d 433, 447-48 (5th Cir. 2004)(“In order for a prior inconsistent statement to be admissible for impeachment purposes, there must be a preliminary finding that statements are inconsistent.”).

9 Government argues that, although Palmetto is a private company,

because it acts as Medicare’s agent, the evidence is sufficient to

affirm the Hameses’ convictions under §§ 1001 and 1516.

We review the sufficiency of the Government’s evidence to

determine whether a rational trier of fact could have found

Appellants guilty of their charged offenses beyond a reasonable

doubt. United States v. Gray, 105 F.3d 956, 965 (5th Cir. 1997).

“The evidence is viewed ‘in the light most favorable to the verdict,

accepting all credibility choices and reasonable inferences made by

the jury.’” Id. (quoting United States v. Blount, 98 F.3d 1489,

1494 (5th Cir. 1996)). “The jury is free to choose among reasonable

constructions of the evidence and the evidence need not exclude

every reasonable hypothesis of innocence or be wholly inconsistent

with every conclusion except that of guilt.” United States v.

Ferguson, 211 F.3d 878, 883 (5th Cir. 2000).

Section 1001 permits for punishment of: “[W]hoever, in any

matter within the jurisdiction of the executive, legislative, or

judicial branch of the Government of the United States, knowingly

and willfully——... (2) makes any materially false, fictitious, or

fraudulent statement or representation.” 18 U.S.C. § 1001. The

Supreme Court has ruled that jurisdiction must be defined in a

nontechnical manner and “covers all matters confided to the

authority of an agency or department.” United States v. Rodgers,

466 U.S. 475, 479 (1984). Accordingly, this Court has consistently

10 held that false statements need not be made directly to the

government to fall “within the jurisdiction of” the government.

See, e.g., United States v. Montemayor, 712 F.2d 104, 106-09 (5th

Cir. 1983) (finding that false statements to procure Texas birth

certificates fell within the jurisdiction of § 1001 because “these

false statements, although not made directly to the federal agency

itself, may factually be held to be a matter within the jurisdiction

of the federal agency”); United States v. Uni Oil, 646 F.2d 946,

954-55 (5th Cir. 1981) (noting that “it is well settled that a false

statement need not be made directly to a federal agency in order to

sustain a § 1001 conviction” and finding no deficiencies in an

indictment charging false statements that were made to refiners who

ultimately used those statements to submit calculations as required

by an executive agency).

The HCFA administers Medicare for the government. In so doing,

HCFA contracts with local companies to perform audits and distribute

funds. Pursuant to HCFA’s contract, Palmetto administers the

Medicare program in Texas. Palmetto’s contractual responsibilities

include receiving, adjudicating and paying Medicare claims with

government money. Accordingly, because Palmetto acts as Medicare’s

agent, a rational trier of fact could have found the Hameses guilty

of 18 U.S.C. § 1001 beyond a reasonable doubt.

Similarly, a rational trier of fact could have found Lesa Hames

guilty beyond a reasonable doubt of 18 U.S.C. § 1516, which

11 criminalizes the deception of a Federal auditor. The statute

expressly defines “Federal auditor” as “any person employed on a .

. . contractual basis to perform an audit or a quality assurance

inspect for or on behalf of the United States.” 18 U.S.C. § 1516

(emphasis added). Relying on United States v. Plasser American

Corporation, 57 F. Supp. 2d 140 (E. Dist. Pa. 1999), however, Lesa

Hames argues that only auditors paid directly by the United States,

as opposed to auditors paid by an outside company who are then

reimbursed by the United States, qualify under the statute. Her

reliance on Plasser is misplaced. Plasser held that an auditor

acting on behalf of federally funded Amtrak is not a Federal auditor

for purposes of § 1516. Here, Palmetto is both federally funded and

performing an audit at the direct behest of, and certainly on behalf

of, the United States. Thus, the evidence presented at trial is

sufficient to support Lesa Hames’s conviction under 18 U.S.C. §

1516.

C. Evidence is Sufficient to Sustain the Jury’s Verdict on Davis’s Intent to Defraud

Davis argues he lacked an intent to defraud, and that

consequently, the jury’s verdict against him must be overturned for

lack of sufficient evidence. “The requisite intent to defraud is

established if the defendant acted knowingly and with the specific

intent to deceive, ordinarily for the purpose of causing some

financial loss to another or bringing about some financial gain to

himself.” United States v. Doke, 171 F.3d 240, 243 (5th Cir. 1999).

12 Specific intent can be proven through circumstantial evidence and

inferences. United States v. Ismoila, 100 F.3d 380, 387 (5th Cir.

1996) (“[P]roof of [] intent can arise ‘by inference from all of the

facts and circumstances surrounding the transactions.’” (quoting

United States v. Keller, 14 F.3d 1051, 1056 (5th Cir. 1994))); see

also United States v. Bieganowski, 313 F.3d 264, 277 (5th Cir.

2002)(noting that “[c]ircumstances altogether inconclusive, if

separately considered, may, by their number and joint operation,

especially when corroborated by moral coincidences, be sufficient to

constitute conclusive proof [of intent]” (quoting United States v.

Lechuga, 888 F.2d 1472 (5th Cir. 1989))).

The jury simply did not believe that Davis lacked the intent to

defraud. A reasonable construction of the evidence is such that a

rational trier of fact could conclude that Davis at some point

formed an intent to defraud. See Bieganowski, 313 F.3d at 289-90

(sufficient evidence for jury to infer deliberate indifference to

fraud when defendant was aware of billing mistakes but simply

directed a consultant to fix them); United States v. Pennington, 20

F.3d 593, 599 (sufficient evidence for jury to disbelieve

defendants’ story because of their circuitous route and disheveled

appearance at the time of the crime). The record is replete with

evidence that Davis had the intent to defraud. The record reflects

that Davis signed numerous false, backdated contracts to help the

Hameses pad their expenses for Medicare reporting purposes. In

13 addition, the jury could have believed that Davis routed ANC’s

Medicare funds to the Hameses’ personal accounts and represented to

the Bank of West that he had made $700,000 in payments on a $1.2

million note for the Irving building to secure a $500,000 loan. As

a result, Davis and his wife received nearly $500,000 from all of

these activities.

Given the evidence and the fact that this court does “not

lightly overturn a determination by the trier of fact that the

accused possessed the requisite intent,” we affirm the jury’s

verdict against Davis. See United States v. Robichaux, 995 F.3d

565, 570 (5th Cir. 1993) (quoting United States v. Aubrey, 878 F.2d

825, 827 (5th Cir. 1989)).

D. Evidence is Sufficient to Sustain the Jury’s Verdict on the Materiality of Davis’s Misrepresentations

Davis also claims that his conviction for bank fraud must be

reversed because the evidence was insufficient for a jury to find

that his misrepresentations to the Bank of the West were material.

Davis represented to the bank that he had purchased a building for

$1.2 million and made $700,000 in payments on it, even though the

original purchase price was only $140,000 and the Hameses supplied

the money. He validated these representations through falsified

documents.

A statement is material if it “has a natural tendency to

influence, or was capable of influencing the decision of” the

lending institution. United States v. Heath, 970 F.2d 1397, 1403

14 (5th Cir. 1992)(quoting Kungys v. United States, 485 U.S. 759, 770

(1988)).

Bill Wood, a Bank of the West employee testified that the fact

that Davis stated that he paid $700,000 on the $1.2 million note

influenced the decision to approve Davis’s loan. This alone is

sufficient for a jury to conclude that Davis’s misrepresentations

were material, viewing the evidence in the light most favorable to

the verdict.

E. Appellants’ Sentences Violate Booker

Appellants were sentenced pre-Booker. They argue that their

sentences violate the Sixth Amendment because they were based in

part on facts that were neither admitted by them nor found beyond a

reasonable doubt by the jury. Additionally, they argue that the

district court erred by sentencing them pursuant to a mandatory

application of the United States Sentencing Guidelines. See United

States v. Booker, 543 U.S. 220 (2005). The Government concedes that

Appellants all preserved their Booker objections at the district

court by citing Blakely v. Washington, 542 U.S. 296 (2004). It

further concedes that it cannot demonstrate that the Booker error

was harmless. See United States v, Akpan, 407 F.3d 360, 377 (5th

Cir. 2005). Accordingly, the cases must be remanded for

resentencing in accordance with Booker.

Appellants also argue that ex post facto and due process

concerns preclude the district court from applying Justice Breyer’s

15 remedial opinion in Booker on remand. Those arguments are

foreclosed by United States v. Scroggins, 411 F.3d 572, 575-77 (5th

Cir. 2005). See also United States v. Cruz, 418 F.3d 481, 484 n.2

(5th Cir. 2005) (not considering ex post facto/due process

challenges because the case was remanded for resentencing, but

noting that those challenges were foreclosed).

III. CONCLUSION

For the foregoing reasons, we AFFIRM Appellants’s convictions,

VACATE their sentences, and REMAND for resentencing. Having

affirmed Davis’s conviction, we refer the Government’s appeal of

the motion for his release pending appeal to the district court for

consideration in light of this opinion.