United States v. Schena

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 11 2025 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, No. 23-2989 D.C. No. Plaintiff - Appellee, 5:20-cr-00425-EJD-1 v. MEMORANDUM* MARK SCHENA,

Defendant - Appellant.

Appeal from the United States District Court for the Northern District of California Edward J. Davila, District Judge, Presiding

Argued and Submitted February 11, 2025 Honolulu, Hawaii

Before: S.R. THOMAS, BRESS, and DE ALBA, Circuit Judges.

Mark Schena appeals his convictions for one count of conspiracy to commit

healthcare fraud, 18 U.S.C. § 1349; two counts of healthcare fraud, 18 U.S.C. §§ 2,

1347; one count of conspiracy to violate the Eliminating Kickbacks in Recovery Act

(EKRA), 18 U.S.C. § 371; two counts of EKRA violations, 18 U.S.C. §§ 2,

220(a)(2); and three counts of securities fraud, 15 U.S.C. §§ 78j, 78ff; 17 C.F.R.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. 240.10b-5; 18 U.S.C. § 2. Schena also appeals his restitution order. In an

accompanying opinion, we hold that Schena’s conduct fell within the scope of

EKRA. In this memorandum disposition, we reject Schena’s remaining challenges

to his convictions. But as to his restitution order, we affirm in part, vacate in part,

and remand for further consideration.

1. Schena contends that his EKRA convictions should be reversed

because the district court improperly allowed expert and lay witnesses to offer legal

opinions about EKRA’s scope. We review preserved evidentiary objections for

abuse of discretion and unpreserved objections for plain error. United States v.

Alahmedalabdaloklah, 94 F.4th 782, 835–36 (9th Cir. 2024). In this case, it is not

apparent that Schena objected to much of the challenged testimony. But even

assuming he did, there was no reversible error.

In the case of the expert witnesses, Quindoza and Kondratenko, some of the

testimony in question concerned either basic background on healthcare fraud based

on the witnesses’ training and experience, or else the witnesses’ views on Medicare

policy. To the extent their testimony veered into impermissible legal conclusions,

Schena for the most part did not object. And in the context of the trial as a whole—

which involved extensive evidence of healthcare fraud—the experts’ allegedly

objectionable testimony did not materially affect the verdict. Even assuming the

government bore the burden given the lack of objections, it has demonstrated that

2 23-2989 “it is more probable than not that the jury would have reached the same verdict”

absent the disputed testimony. United States v. Wells, 879 F.3d 900, 923–24 (9th

Cir. 2018). In addition, and further minimizing any prejudice, the district court

instructed the jury on the law, and we presume that jurors followed the court’s

instructions. See United States v. Ovsepian, 113 F.4th 1193, 1201–02 (9th Cir.

2024).

In the case of the lay witness testimony, that testimony was relevant to

showing Schena’s wrongful intent. The lay witnesses testified that they knew about

EKRA and shared their concerns about possible EKRA violations with Schena. The

statute requires the government to prove that Schena acted “willfully,” 18 U.S.C.

§ 220(a), which means that the government must show that Schena had “knowledge

that his conduct was unlawful,” not just that he had “knowledge of the facts that

constitute the offense.” Bryan v. United States, 524 U.S. 184, 193 (1998). The lay

witnesses’ testimony was thus probative of an element of the offense that the

government had to prove. And once again, even assuming some of the testimony

crossed the line into legal opinion, it did not materially affect the verdict. Wells, 879

F.3d at 923–24. Nor was any cumulative error from the challenged expert and lay

testimony (whether preserved or not) prejudicial. See United States v. Wallace, 848

F.2d 1464, 1475 (9th Cir. 1988) (noting that errors can be reversible in the aggregate

even when any individual error is not).

3 23-2989 2. We reject Schena’s challenge to the jury instructions on the healthcare

fraud and EKRA counts. Because Schena did not sufficiently object to the

instruction in question, we review for plain error. United States v. Rodriguez, 971

F.3d 1005, 1012 (9th Cir. 2020). To establish plain error, Schena must show “(1)

error, (2) that is plain, (3) that affected substantial rights, and (4) that seriously

affected the fairness, integrity or public reputation of the judicial proceedings.”

United States v. Ferguson, 8 F.4th 1143, 1145–46 (9th Cir. 2021) (quoting United

States v. Borowy, 595 F.3d 1045, 1049 (9th Cir. 2010) (per curiam)).

Both the EKRA and healthcare fraud charges required the government to

prove that Schena acted “knowingly and willfully.” 18 U.S.C. § 220(a), 1347(a).

While “willfully” in this context requires the government to show that the defendant

knew his behavior was illegal, “knowingly” only requires “knowledge of the facts

that constitute the offense.” Bryan, 524 U.S. at 193. To avoid the potential for

confusion, when the government is required to prove that the defendant knew his

conduct was unlawful, our model jury instructions direct district courts to omit from

the “knowingly” instruction certain language stating that “[t]he government is not

required to prove that the defendant knew that [his] . . . acts or omissions were

unlawful.” Ninth Cir. Model Jury Inst. 4.8 cmt.

In this case, the “knowingly” instruction included this language, apparently

inadvertently, and neither the parties nor the district court caught the issue at the

4 23-2989 time. Nevertheless, we discern no plain error. The instructions did not logically

conflict because they applied to different mens rea. The jury was instructed that it

had to find that Schena acted both knowingly and willfully. And the jury was

properly instructed that, as to the counts in question, “willfully” required the

government to prove that Schena knew his conduct was unlawful. When the jury

raised questions about the mens rea requirements, the district court reminded jurors

that “[t]he Government must prove each element of each offense.” There was also

extensive evidence showing that Schena knew his conduct was unlawful. Our

decision in United States v. Liu, 731 F.3d 982 (9th Cir. 2013), does not require a

different result because there, unlike here, the district court “never clarified what

[the defendant] needed to know.” Id. at 995.

3. Schena next challenges the sufficiency of the evidence on his securities

fraud convictions. For such a challenge, we view the evidence in the light most

favorable to the government. United States v. Nevils, 598 F.3d 1158, 1163–64 (9th

Cir. 2010) (en banc). Schena concedes he did not move for acquittal on these counts

below, and so we review for plain error. United States v. Lopez, 4 F.4th 706, 719

(9th Cir. 2021).

a. Schena’s challenge to Count 7 is without merit. This charge was based

on an Arrayit press release “announc[ing] an allergy testing agreement . . . with

Sutter Health,” a large healthcare provider. In reality, Arrayit had only received

5 23-2989 interest from a few doctors at Sutter-owned Palo Alto Medical Foundation (PAMF),

and the only contact Arrayit had with Sutter itself was when Sutter sent Arrayit a

cease-and-desist letter. While the body of the press release does state that the

machines are to be provided to the PAMF doctors, it also references to an “agreement

with Sutter Health,” says that the company’s allergy testing now “include[s] a major

healthcare provider,” and states that Arrayit is “[p]artnering with healthcare leader

Sutter Health.” A reasonable jury could find that investors would interpret the press

release to falsely imply that Arrayit had an agreement with Sutter.

b. Schena’s challenge to Count 8 is similarly meritless. This charge

stemmed from a tweet in which Arrayit announced it had started a $240 million “test

kit manufacturing run.” Schena does not appear to challenge the falsity of the

statement and only argues that the statement was not material. He points to the fact

that the two investors who testified at trial said the tweet did not immediately lead

them to trade Arrayit stock. But the witnesses did not say the tweet did not matter

to them. In fact, one said it would have affected “long term” trades. Moreover,

Arrayit received a significant number of inquiries from investors asking about the

tweet. Taken together, the evidence is sufficient to support a reasonable jury’s

determination that there was a “substantial likelihood that a reasonable shareholder

would consider [the tweet] important.” Basic Inc. v. Levinson, 485 U.S. 224, 231

(1988) (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).

6 23-2989 c. Schena’s challenge to Count 9 also fails. This count involved a series

of emails that Schena sent telling investors that Arrayit had received “more than

50,000 requests” for its COVID test. At the time, it had received fewer than 1,000

requests, and no test was ready or approved by the Food and Drug Administration.

Schena argues that the 50,000 figure was not material and the emails should be read

to imply that the tests were in development and not necessarily ready. But a

reasonable investor at the outset of the pandemic could have found the 50,000 figure

material. Nor was the jury required to credit Schena’s explanation that he meant

only that the test was still in development.

4. The district court ordered $24,289,540 in restitution, based on

$21,562,300 in losses associated with the securities fraud violations and $2,772,240

in losses by insurers in connection with the healthcare fraud counts (the district court

ordered forfeiture of this same latter amount). We address each component of the

restitution order in turn.

a. We vacate the restitution order to the extent of the $21,562,300

allegedly attributable to the securities fraud violations. A restitution award “can

compensate ‘only for the loss caused by the specific conduct that is the basis of the

offense of conviction,’ so long as that offense does not involve an element of

scheme, conspiracy or pattern of criminal activity.” United States v. Batson, 608

F.3d 630, 637 (9th Cir. 2010) (quoting Hughey v. United States, 495 U.S. 411, 413

7 23-2989 (1990)); see also United States v. Reed, 80 F.3d 1419, 1422 (9th Cir. 1996)

(explaining that circuit precedent “prohibit[s] the trial court from ordering restitution

for conduct that is related to the offense of conviction, but that is not an element of

the offense”).

In this case, a fraudulent scheme was not a necessary element of the offense,

but the government maintains it was the basis of Schena’s conviction, thus justifying

a restitution award based on the claimed duration of the scheme, which allegedly

spanned July 15, 2015, to April 14, 2020. Although the indictment contains

allegations of such a scheme, Counts 7–9 were more specifically based on three false

and misleading statements made on November 19, 2018, August 8, 2019, and March

19, 2020, respectively.

Between the indictment, jury instructions, verdict form, and record as a whole,

the parties debate whether the broader five-year scheme can be said to reflect “the

specific conduct that is the basis of the offense of conviction” on the securities fraud

counts. Batson, 608 F.3d at 637 (quoting Hughey, 495 U.S. at 413). But in assessing

loss for purposes of the Sentencing Guidelines, the district court already recognized

that it could not determine whether the claimed $21,562,300 loss to investors was

tethered to “the three instances of securities fraud conduct charged in the

Superseding Indictment.” In so finding, the district court treated “Mr. Schena’s

conduct of conviction” as the “three instances” of false disclosures identified in

8 23-2989 Counts 7–9. Even with the different burden of proof applied to the loss calculation,

the district court’s characterization of Schena’s conduct of conviction undermines

the government’s reliance on a five-year scheme as the basis for the securities fraud

convictions. We accordingly vacate the restitution award as to the securities fraud

violations and remand for the district court to calculate it based on the specific

conduct that was the basis for these three counts of conviction. See Batson, 608 F.3d

at 637.

Schena also points out that the district court, in rejecting the government’s

loss calculation for Guidelines purposes, questioned the basis for the government’s

assertion that Arrayit’s stock became worthless upon Schena’s arrest, as well as the

government’s reliance on a “first-in, first-out” methodology that was, in the district

court’s view, “devoid of any data or calculations” that would permit meaningful

judicial evaluation. On remand, the district court may consider these objections in

reevaluating this portion of the restitution award.

b. We affirm the district court’s $2.7 million restitution award for

healthcare fraud and its related forfeiture award. Schena argues that the district court

erred because the allergy testing was not entirely worthless. We review this factual

issue for clear error. United States v. Dadyan, 76 F.4th 955, 961 (9th Cir. 2023).

Testimony at trial supported the government’s theory that insurers would not have

paid any claims had they known that Arrayit was performing more tests than

9 23-2989 medically necessary and was otherwise engaging in fraudulent conduct. Therefore,

the district court did not clearly err in concluding that all the money received from

insurers could be considered the result of Schena’s healthcare fraud.

* * *

We affirm Schena’s convictions and the $2.7 million restitution and forfeiture

orders associated with the healthcare fraud counts. We vacate only the $21.5 million

restitution award for the securities law violations and remand solely for a

redetermination of that portion of the restitution award.

AFFIRMED IN PART, VACATED AND REMANDED IN PART.

10 23-2989