UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: SEARCH WARRANTS SERVED ON

HOME HEALTH AND HOSPICE CARE,

INCORPORATED

UNITED STATES OF AMERICA,

No. 96-4813

Appellant,

v.

HOME HEALTH AND HOSPICE CARE,

INCORPORATED,

Appellee.

Appeal from the United States District Court

for the Eastern District of North Carolina, at Raleigh.

Malcolm J. Howard, District Judge.

(MISC-95-18-5-H)

Argued: June 2, 1997

Decided: September 5, 1997

Before HALL and NIEMEYER, Circuit Judges, and

BUTZNER, Senior Circuit Judge.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

_________________________________________________________________

COUNSEL

ARGUED: G. Norman Acker, III, Assistant United States Attorney,

Raleigh, North Carolina, for Appellant. David Dart Queen, OBER,
KALER, GRIMES & SHRIVER, Baltimore, Maryland, for Appellee.

ON BRIEF: Janice McKenzie Cole, United States Attorney, John S.

Bowler, Assistant United States Attorney, Anne M. Haynes, Assistant

United States Attorney, Raleigh, North Carolina, for Appellant. Robert W. Biddle, OBER, KALER, GRIMES & SHRIVER, Baltimore,

Maryland, for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Home Health and Hospice Care, Inc., successfully challenged eight

search warrants under Franks v. Delaware, 438 U.S. 154 (1978). The

magistrate judge who initially issued the warrants found not only that

the supporting affidavit contained recklessly false material, but also

that without the false material, he would not have found probable

cause and issued the warrants. The district court agreed and ordered

the return of the seized property. The government appeals contending

(1) that the district court's findings of fact were clearly erroneous, and

(2) that even when redacted to delete the false material, the warrants

were supported by probable cause. Because we find no clear error in

fact finding and agree with the magistrate judge who originally issued

the warrants that as redacted they are not supported by probable

cause, we affirm the order of the district court.

I

On January 13, 1995, the government applied to Magistrate Judge

Alexander B. Denson for eight warrants to search eight offices of

Home Health and Hospice Care, Inc. ("Home Health") for evidence

of Medicare fraud, Medicaid fraud, wire fraud and mail fraud. In support of the application, the government submitted a"Master Affidavit" signed by Jimmie L. Burgess, an Internal Revenue Service

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Special Agent, and Teresa E. Gwiazdowski, a Federal Bureau of

Investigations Special Agent, both of whom were part of a joint statefederal task force. William Berlin, a Financial Investigator with the

Medicaid Investigation Unit of the North Carolina Department of Justice, was also identified in the Master Affidavit as having participated

in the investigation. The Master Affidavit asserted that there was

probable cause to believe that criminal fraud had been committed at

the eight Home Health locations. Magistrate Judge Denson issued the

warrants, which were executed on January 19, 1995. Approximately

5 million documents were seized.

Three months later, the Master Affidavit was unsealed and examined by Home Health and its attorneys. On August 16, 1995, Home

Health filed a motion for a hearing under Franks v. Delaware, 438

U.S. 154 (1978), and for return of property under Federal Rule of

Criminal Procedure 41(e), contending that the Master Affidavit contained several false statements made with reckless disregard for the

truth and that without those statements the affidavit did not sufficiently establish probable cause. On August 28, the United States

filed its opposition to the motion, arguing that Home Health had not

made the substantial preliminary showing necessary to entitle it to a

Franks hearing. The motion was assigned to Magistrate Judge Denson, who ruled on September 25 that Home Health had made the preliminary showing required by Franks and ordered a hearing.

Before the hearing, the government filed a motion on October 24,

1995, for reconsideration of the court's September 25 order granting

a Franks hearing, arguing that Home Health had not established that

the Master Affidavit would be insufficient to show probable cause if

the alleged falsehoods and omissions were corrected. The motion for

reconsideration was denied, and the government appealed to the district court. Home Health moved to strike the appeal because it actually challenged the September 25 order granting a Franks hearing, not

the denial of the motion for reconsideration. Accordingly, Home

Health argued the appeal was untimely, having been filed well

beyond the 10-day deadline imposed by local rule. Home Health also

maintained that the government's appeal was not from a final order,

but from a procedural order granting a hearing. The district court

struck the appeal, concluding that the magistrate judge had granted no

substantive relief and that therefore there was no appealable order.

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Magistrate Judge Denson conducted a Franks hearing on October

31 and November 7, 1995, and allowed the parties to file supplemental briefs based on evidence received at the hearing. On April 4, 1996,

the magistrate judge granted Home Health's motion for return of

property. He ruled that the Master Affidavit contained false statements and omitted important facts and that in making the statements

and omitting the facts the affiants showed reckless disregard for the

truth. He concluded that when false statements and material omissions

were corrected, the Master Affidavit failed to demonstrate probable

cause that a crime had been committed. The magistrate judge found

the following facts:

1. The Master Affidavit claimed that Confidential Informant number 1 (CI-1), described Home Health's practice of

using Post-itTM Notes "to identify caregiver notes that need

to be changed, altered, and/or falsified . . . to meet billing

standards." CI-1 later identified himself to Home Health as

Bobby Shoemake, a Home Health employee. Investigators

admitted that Mr. Shoemake did not say that Home Health

used the Post-itTM Notes to identify records that needed to be

falsified. Instead, that was an inference drawn by law

enforcement agents, which, the magistrate judge concluded,

was attributed to Mr. Shoemake with at least reckless disregard for the truth. The magistrate judge also found, based on

Mr. Shoemake's testimony and Investigator Berlin's interview notes, that Mr. Shoemake had not stated that the PostitTM Notes were used to identify records which needed to be

changed to meet billing standards, and that the Master Affidavit's contrary assertion was made with at least reckless

disregard for the truth.

2. The Master Affidavit asserted that "CI-1 stated that the

caregiver notes are returned to the original caregiver whenever possible to be altered by that caregiver so that when

they are placed into the chart it would be very difficult to

detect the alterations at a later time." The magistrate judge,

however, found that Investigator Berlin's interview notes

recorded that difficulty of detection was merely a possible

consequence of Home Health's practices, not the motivation

for it. Investigator Berlin admitted that this was a more

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accurate description of what Mr. Shoemake had said. The

magistrate judge found that the inaccurate attribution to Mr.

Shoemake was made with at least reckless disregard for the

truth.

3. The Master Affidavit asserted that CI-1 (Mr. Shoemake) had "personal knowledge of employees working after

hours for the purposes of altering and/or changing documents relative to alleged care provided to recipients." The

magistrate judge, however, found that "Mr. Shoemake stated

that although he was concerned about Home Health employees working on charts after hours because he believed there

was adequate time to work on charts during the work day,

he did not know why the employees were there or what they

were doing." Investigators testified that they had no recollection of Mr. Shoemake ever asserting personal knowledge

of why Home Health employees were working after hours.

The magistrate judge found that Mr. Shoemake's reports to

law enforcement had been misrepresented with at least reckless disregard for the truth.

4. The Master Affidavit asserts that Medicare and Medicaid require a signed plan of treatment before initial care can

be given. Part of the fraud attributed to Home Health in the

Master Affidavit was the provision of initial care before

treatment plans were signed. Investigator Berlin admitted at

the hearing, however, that initial care may be given based

on verbal orders from a physician, and testified that he had

informed Special Agents Burgess and Gwiazdowski of that

fact. Special Agent Burgess admitted that he had known as

much. The magistrate judge concluded that the Medicare

and Medicaid requirements had been misrepresented with at

least reckless disregard for the truth.

5. The Master Affidavit set forth examples of records from

six Home Health offices of patient records that allegedly

lacked proper documentation. The Master Affidavit then

asserted that "in all the above cited instances, Medicare

and/or Medicaid were billed for services not rendered."

Investigator Berlin admitted that there was no evidence of

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billing for services not rendered, although there may have

been problems with documentation. Although Agents Burgess and Gwiazdowski asserted that there were instances of

bills for services not rendered, they did not identify any. The

magistrate judge concluded that the statement, "Home

Health billed for services not rendered," was inaccurate and

included in the Master Affidavit with at least reckless disregard for the truth.

6. The Master Affidavit introduced Home Health as having been the subject of a 1989 investigation into false

claims. Home Health was said to have engaged in"inappropriate and incorrect billings and submissions" resulting in

payments to which Home Health was not entitled. What the

final draft of the Master Affidavit did not include, but prior

drafts did, was the fact that the investigation did not reveal

any fraudulent intent, did not result in a criminal prosecution, and was settled voluntarily by Home Health repaying

the relevant amounts. Though Investigator Berlin testified

that the resolution of the 1989 investigation was removed

from the final draft to present a neutral opinion, the magistrate judge found that implausible, especially in light of the

testimony that the 1989 investigation had been described in

the Master Affidavit in order to support a finding of probable cause. The magistrate judge concluded that information

on the 1989 investigation was omitted with reckless disregard for the misleading effect its absence would have in the

probable cause determination.

7. The Master Affidavit included information given by CI3 relative to Home Health's billing practices. The dates of

CI-3's employment at Home Health were not given, but the

recent dates of CI-3's interviews with law enforcement officials were given, creating the impression that CI-3's information was recent. In fact, CI-3 had not worked for Home

Health since 1992, and when government agents stipulated

that it knew as much, the magistrate judge announced without objection that information attributed to CI-3 was stale

and would not be considered. The magistrate judge found

that CI-3's employment dates were omitted with at least

 6
reckless disregard for the misleading effect such omission

would have.

8. The Master Affidavit asserted that Home Health had

billed for services to a patient which were (or would have

been) provided after the patient's death. However, Home

Health presented "persuasive evidence that it had not

claimed to render any services after this patient's death nor

had it billed for any such services." Although the investigating agents did not know this, they also made no attempt to

verify their information before including it in the Master

Affidavit, which they admitted they very easily could have

done by contacting the state agency. The magistrate judge

noted that the "validity of a search warrant must be assessed

on the basis of the information that the officers disclosed, or

had a duty to discover and disclose," and concluded that the

agents included the information about the "dead patient"

with at least reckless disregard for the truth.

Under these factual findings and after setting aside the false information and considering the omitted information, the magistrate judge

noted that the affidavit "takes on a totally different character." He

concluded that the corrected Master Affidavit did not support a finding of probable cause and thereupon granted Home Health's motion

for return of seized property.

On appeal to the district court, the government gave as its only

grounds for appeal that "the Court's finding following a Franks hearing that false information was included in the search warrant knowingly and intentionally or with reckless disregard for the truth is

contrary to fact and law." In its brief, however, filed more than two

months after its appeal time had expired, the government shifted its

argument, no longer contesting the magistrate judge's ultimate factual

findings but contending that Home Health should not have been given

a Franks hearing because it had not made"a proper `substantial preliminary showing' that the alleged false statements were made `knowingly and intentionally,' or in `reckless disregard for the truth.'" With

respect to the omissions, the government also contended that Home

Health was not entitled to a Franks hearing because it failed to make

the preliminary showing that "such omissions would have affected the

 7
finding of probable cause," arguing that "[e]ven if these alleged omissions had been included in the search warrant affidavit, probable

cause would still have existed."

Affirming the magistrate judge, the district court noted that it had

not found a single case where "otherwise justified relief" was vacated

on the basis that the hearing from which it stemmed should not have

been held. The court found no reason to disturb its earlier conclusion

that the order granting a Franks hearing was not appealable.

On August 12, 1996, the government filed a motion for reconsideration, in which it asked the district court to hold a new hearing and

revisit the merits of the order directing a return of property. Despite

Home Health's objection, the district court ordered a hearing and specifically informed the parties that it wanted to hear their assessment

of the procedural aspects of the case, a synopsis of"why the government persists in continuing to fight this battle in view of Magistrate

Judge Denson's clear order of April 4, 1996," and other matters as the

parties desired.

Following that hearing, the district court denied the motion for

reconsideration and ordered the government to "forthwith return the

property to Home Health." The district court noted that while parties

are generally entitled to have the district court's de novo review of a

magistrate judge's decision, a failure to object timely would constitute

a waiver of that right and would preclude its appellate review of the

magistrate judge's decision. Nevertheless, the district court "decided

that under United States v. George, and in an abundance of caution

and fairness, the government did not waive the right to a substantive

review and will revisit the appeal of Magistrate Judge Denson's order

. . . on the substantive/meritorious aspects of the[Franks] hearing."

On the merits, the court concluded that the Franks hearing was properly ordered, and it agreed "in all respects with the findings of Magistrate Judge Denson's order." This appeal followed.

II

In appealing to this court, the government relies on jurisdiction

granted by 18 U.S.C. § 3731 as well as by 28 U.S.C. § 1291. Our

appellate jurisdiction under § 3731, however, depends on a certifica-

 8
tion to the district court by "the United States attorney . . . that the

appeal is not taken for purpose of delay and that the evidence is a substantial proof of a fact material in the proceeding," and no such certification appears in the record in this matter. More importantly, no

criminal proceeding has yet been initiated, and therefore § 3731 is not

even applicable. See 18 U.S.C. § 3731 ("An appeal by the United

States . . . from a decision or order . . . in a criminal proceeding").

The motion for return of property was a civil proceeding, notwithstanding that it was brought pursuant to the Federal Rules of Criminal

Procedure. See United States v. Garcia, 65 F.3d 17, 18 n.2 (4th Cir.

1995). Accordingly, our jurisdiction is proper only under 28 U.S.C.

§ 1291, since the district court entered a final order disposing of a

proceeding under Federal Rule of Criminal Procedure 41(e).

III

Federal Rule of Criminal Procedure 41(e) provides that "[a] person

aggrieved by an unlawful search and seizure . . . may move the district court for the district in which the property was seized for the

return of the property on the ground that such person is entitled to

lawful possession of the property." In Franks v. Delaware, 438 U.S.

154 (1978), the Supreme Court held that defendants may challenge

the affidavits upon which search warrants are based under the Fourth

and Fourteenth Amendments, and that properly challenged warrants

may be voided. To entitle a defendant to a Franks hearing, he must

make a substantial preliminary showing that a warrant was procured

through false statements intentionally or recklessly made, and that

such statements were necessary for establishing probable cause. False

statements include information intentionally or recklessly omitted.

See United States v. Colkley, 899 F.2d 297, 301-02 (4th Cir. 1990).

Because other pre-trial mechanisms exist to protect innocent citizens,

the defendant's burden in establishing the need for a Franks hearing,

based on either false statements or material omissions, is a heavy one.

See United States v. Jeffus, 22 F.3d 554, 558 (4th Cir. 1994). At a

Franks hearing, the moving party must prove by a preponderance of

the evidence (1) that statements in the affidavit supporting the warrant

were false (or that omissions were misleading) and were included

intentionally or at least with reckless disregard for the truth and (2)

that the corrected affidavit does not satisfy the legal requirements for

probable cause that "there is a fair probability that contraband or evi-

 9
dence of a crime will be found in a particular place." Illinois v. Gates,

462 U.S. 213, 238 (1983). If that showing is made,"the search warrant must be voided and the fruits of the search excluded to the same

extent as if probable cause was lacking on the face of the affidavit."

Franks, 438 U.S. at 156.

While we review de novo the legal question of whether a search

warrant and its supporting affidavit are legally sufficient, we accord

a neutral and detached magistrate judge's judgment about whether

probable cause exists substantial deference. United States v. Oloyede,

982 F.2d 133, 138 (4th Cir. 1992).

IV

On the first prong of the Franks inquiry-- whether the Master

Affidavit contained false statements or material omissions, and

whether their inclusion (or omission) amounted to intentional falsehood or reckless disregard for the truth -- the government contends

that the magistrate judge's factual findings, which the district court

adopted entirely, are clearly erroneous. We address each part of this

prong, first the findings of false statements and then the findings of

the requisite intent.

The government argues first that many of the statements which the

magistrate judge found to be false were in fact true. But our review

of the statements in question indicate that the magistrate judge was

not clearly erroneous. Investigator Berlin's notes record that Mr.

Shoemake said the use of Post-it Notes was to identify caregiver notes

which are "incomplete, incorrect, or not signed" and need to be

"pulled out to be corrected." He did not say that their use was to falsify records, as the Master Affidavit suggested. And all three investigating agents testified that Mr. Shoemake did not use the word

"falsify." Further, it appears that Mr. Shoemake never said the use of

Post-it Notes was to meet billing standards as the affidavit indicates.

Although the government now argues, perhaps correctly, that Home

Health's practice does in fact relate to billing, that observation has little to do with whether a corporate insider reported that fact. The Master Warrant's assertion that documents were changed to meet billing

standards clearly connotes wrong-doing, a connotation that Mr. Shoemake did not in fact communicate to government agents.

 10
Likewise, Investigator Berlin's interview memorandum and the

hearing testimony support the magistrate judge's conclusion that Mr.

Shoemake never said that Home Health chose to make changes as it

did because that method would be difficult to recognize. Instead, the

investigating agents agreed that Mr. Shoemake had merely said that

difficulty of distinguishing original notes from subsequent changes

was a result of Home Health's practice. Again, the difference is significant: one connotes a fraudulent intent which Mr. Shoemake did

not assert or imply.

The magistrate judge was likewise on firm ground in finding that

the Master Warrant falsely asserted that "CI-1 has personal knowledge of Home Health . . . employees working after hours for the purposes of altering and/or changing documents." At the hearing, the

magistrate judge could find no evidence to support the assertion. To

the contrary, Mr. Shoemake testified that he knew employees were

working after hours but did not know what they were doing. Investigator Berlin's notes and the other agents' testimony corroborated

Shoemake's claim. The magistrate judge had clear support for the

conclusion that the Master Affidavit falsely reported those facts.

Finally, the government appropriately admits (1) that the magistrate judge was correct in finding that the Master Affidavit inaccurately described Medicare and Medicaid requirements that plans for

treatment be signed before treatment may begin, and (2) that the Master Affidavit falsely asserted that "Medicare and/or Medicaid were

billed for services not rendered."

The government contends, however, that even if the various statements described above were false, the magistrate judge was clearly

erroneous in finding that the statements were placed in the Master

Affidavit with reckless disregard for the truth. Again we conclude that

the magistrate judge's findings are not clearly erroneous.

With respect to the statements imputed to Mr. Shoemake, the

agents generally agreed that the statements had been falsely attributed. In light of the totality of the circumstances which the magistrate judge viewed in the hearings, including multiple misstatements

and apparent gamesmanship on the government's part, it was not

unreasonable to conclude that the investigation of Home Health was

 11
carried out in a way which displayed a reckless disregard for the truth.

In fact, it appears that Mr. Shoemake was attributed knowledge which

he explicitly told the agents he did not have, at least with regard to

after-hours activities at Home Health. The magistrate judge reasonably concluded that the facts indicated a decision by the agents to "reword[ ] Mr. Shoemake's statement to make Home Health's conduct

appear more suspect . . . with at least reckless disregard for the truth."

With regard to the misstatements which the government concedes,

the government contends that the mistakes were made inadvertently.

First, the government asserts that rather than stating that Home Health

had billed for services not rendered, the "language should have read

`billed for services not authorized.'" That distinction, however, is substantive, and no evidence supports the assertion. Indeed, inadvertence

was not the government's position before the magistrate judge, where

Agents Burgess and Gwiazdowski asserted that Home Health had in

fact billed for services not rendered. Likewise, the government's

assertion that Investigator Berlin thought that the Master Affidavit

contained a correct description of Medicare and Medicaid regulations

does not render the magistrate judge's conclusions clearly erroneous.

Indeed, it merely points out that although the investigatory team correctly understood the law, they were, at the least, careless in stating

it. In light of the government's admitted understanding of the law, and

the fact that the investigating agents said the Master Affidavit was

prepared collaboratively, the magistrate judge was not clearly erroneous in concluding that the misstatements were made with reckless disregard for the truth.

The government also takes issue with the magistrate judge's findings that the Master Affidavit contained material omissions. It objects

first to treatment of omitted information relating to the 1989 investigation, citing United States v. Colkley, 899 F.2d 297 (4th Cir. 1990),

to support its claim that magistrate judge Denson"did not apply th[e]

heightened burden of proving `impermissible official conduct' on the

part of the agents" in omitting the results of the 1989 investigation.

We cannot agree with this argument. Magistrate Judge Denson explicitly recognized that "omissions are less likely to raise concerns

regarding official misconduct," expressly citing Colkley. Moreover,

Magistrate Judge Denson did not base his findings on the "mere

absence of the information in the affidavit," as the government con-

 12
tends. Instead, he noted (1) that earlier drafts of the Master Affidavit

actually included the results of the 1989 investigation which found

Home Health not guilty of fraud, but that information was deleted

from the final draft, and (2) that Agent Gwiazdowski described the

1989 investigation in order to support a finding of probable cause.

Magistrate Judge Denson was also able to hear and assess the credibility of the government's explanation that information about the

1989 investigation was removed in order to present a"neutral" view

of that investigation. In the totality of these circumstances, we believe

there was sufficient evidence to conclude that omitting information

about the result of the 1989 investigation was misleading and

amounted to deliberate falsehood or reckless disregard for the truth.

The government also contends that omitting the results of the 1989

investigation was not material and should not justify either a Franks

hearing or an order to return property. As we said in Colkley,

"[o]mitted information that is potentially relevant but not dispositive

is not enough to warrant a Franks hearing," 899 F.2d at 301, or to

warrant ordering a return of property. And while we agree that omitting the results of the 1989 investigation was alone not dispositive in

eliminating probable cause, we do not believe that is the only inquiry.

Where the only problem with a warrant affidavit is an omission, as

was the case in Colkley, the inquiry is properly focused on whether

correcting that omission will destroy probable cause. But where an

omission is one of many problems with an affidavit, the inquiry must

be whether correcting that omission together with all other problems

will destroy probable cause. We believe that omitting the results of

the 1989 investigation was material when considered in its larger context.

The government next contends that the magistrate judge erred in

requiring that information not known to the government -- that Home

Health had not in fact billed for services supposedly rendered after a

patient's death -- be included in the corrected Master Affidavit when

determining whether probable cause exists. As we stated in Colkley,

predicating Franks relief on "a failure to include a matter that might

be construed as exculpatory . . . potentially opens officers to endless

conjecture about investigative leads, fragments of information, or

other matter that might, if included, have redounded to defendant's

benefit." 899 F.2d at 301. That, however, does not mean that a court

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may never predicate Franks relief on the failure to present evidence

not known to the government. What it does mean is that the omission

of evidence not known to the government may form the basis for

Franks relief only when the government's failure to discover and

report that evidence amounts to a reckless disregard for the truth.

We believe that the magistrate judge properly understood these

limits on evidence not known to the government. He noted that "the

validity of the search warrant must be assessed on the basis of the

information that the officers disclosed, or had a duty to discover and

disclose, to the issuing Magistrate," quoting Maryland v. Garrison,

480 U.S. 79, 85 (1987). He also noted that the federal agents admitted

they could have verified their information, a particularly telling observation in light of the fact that they were already coordinating their

investigation with state agencies on the particular question of whether

Home Health was improperly billing state Medicare and Medicaid

agencies. In view of this, and the totality of the circumstances surrounding the preparation of the Master Affidavit, we cannot conclude

that the magistrate judge was clearly erroneous in finding that the

agents' failure to verify readily available information amounted to a

reckless disregard for the truth.

The government does not directly contest the magistrate judge's

finding that "the agents' conscious decision to omit CI 3's employment dates was made with at least reckless disregard of whether the

failure to include such information would mislead." On the basis of

information about CI-3's employment dates, the magistrate judge

concluded that information provided by CI-3 was stale and would not

be considered in determining whether the corrected Master Affidavit

established probable cause. The government now contends, however,

that even with that information supplied in the Master Affidavit, the

information provided by CI-3 was not stale.

As an initial matter, we note that when the magistrate judge

announced that he would not consider information provided by CI-3

because it was stale, the government did not object. Likewise, in noting its appeal to the district court, the government contended only that

the magistrate judge's "finding following a Franks hearing that false

information was included in the search warrant affidavit knowingly

and intentionally or with reckless disregard for the truth is contrary

 14
to fact and law." The government did not appeal the magistrate

judge's ruling that CI-3's information was stale. The staleness determination was only raised when on June 18, 1996, the government

filed a memorandum in the district court, some two months after the

magistrate's order of April 4, 1996, and far beyond the applicable

time limitations for written and specific objections. See 28 U.S.C.

§ 636(b)(1) (limiting assignment of error to objections filed within 10

days of being served with magistrate judge's decision and according

to rules of court); Fed. R. Civ. P. 72(a), (b) (reiterating 10 day limit;

requiring specific written objections and requiring de novo district

court review of portions of magistrate judge's disposition "to which

specific written objection has been made in accordance with this

rule"); E.D.N.C. R. 63.01, 63.02 (requiring "written objections which

shall specifically identify the portions of the proposed findings . . .

and the basis for such objections" within 10 days or as otherwise

ordered). Although the district court revisited the staleness determination, we believe that the government's failure specifically to identify

the issue within the ten-day time period provided by statute, the Federal Rules of Civil Procedure, and local rules constitutes a wavier of

the right to appellate review. See United States v. Schronce, 727 F.2d

91, 93-94 (4th Cir. 1984); see also United States v. One Parcel of

Real Property, 73 F.3d 1057, 1059-60 (10th Cir. 1996) (citing

Schronce and holding that general, rather than specific objections do

not preserve right to appellate review).

Even considering the issue, however, we have no reason to conclude that the district court acted beyond his authority in finding CI3's information stale. The government admitted that CI-3 had not

worked for Home Health since 1992, and on that basis the magistrate

judge concluded that CI-3's information would not establish whether

there was probable cause to find present criminal behavior. And

although it is true that Medicare and Medicaid records must be maintained for five years, see 42 C.F.R. § 484.48(a), there was nothing in

the Master Affidavit to indicate that CI-3's information related to

records created within that five year period. In fact, although the parties agree that CI-3 ceased working for Home Health in 1992, the

government has still not provided evidence of when the reported falsification of documents occurred. While CI-3 may have been reporting

a potentially non-stale 1992 incident, CI-3 may just as well have been

reporting a 1985 incident.

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V

The second prong of the Franks inquiry required the court below

to correct the false statements, include material improperly omitted,

and determine whether the corrected Master Affidavit is sufficient to

establish probable cause. Both parties agree that this is a legal question which we review de novo. While we review de novo for legal sufficiency, however, the legal question is whether there is a "substantial

basis" for the magistrate judge's decision. See United States v.

Oloyede, 982 F.2d 133, 138 (4th Cir. 1992). We show "substantial

deference" to the overall determination of a neutral magistrate of

whether probable cause exists. See United States v. Ventresca, 380

U.S. 102, 109 (1965).

Moreover, in this case, we have the additional fact that the magistrate judge who issued the warrant is also the judge who concluded

that the warrant, as corrected, would not have justified a finding of

probable cause. As the district court said in granting the government

a hearing on its August 12, 1996 motion for reconsideration, we are

"impressed with the fact that the magistrate judge who conducted the

Franks hearing . . . was in fact the same magistrate judge who had

originally considered the search warrant and granted same." For that

reason, we do not face the problem of having to guess whether Magistrate Judge Denson would have issued a warrant based on the corrected Master Affidavit. Under these circumstances, we believe

"substantial deference" to the magistrate judge's decision is even

more appropriate.

So considered, we agree with the magistrate judge's conclusion

that once the false statements and material omissions are corrected,

the Master Affidavit "takes on a totally different character." It first

lays out the investigating officers' qualifications, which are not relevant to whether probable cause exists to search Home Health's

offices, although they are properly included in the affidavit. It then

introduces Home Health, revealing that Home Health was investigated in 1989 and returned money found to have been improperly

billed, but noting that the investigation revealed no fraudulent intent

and resulted in no criminal prosecution.

The Master Affidavit then asserts what it summarizes as the fraud

in Home Health's business practices. It notes that CI-1 reported that

 16
Home Health has a practice of using Post-it Notes to identify caregiver notes that need to be altered or corrected for documentation purposes. According to CI-1, caregiver notes were usually returned to the

original caregiver for such corrections, but CI-1 reported that other

employees knew of office managers sometimes making the needed

alterations when the original caregiver was not available. CI-1

reported that some employees worked after hours, but for purposes

unknown to CI-1. But, the Master Affidavit then notes that relevant

regulations allow care to be given based on either written or oral

orders. Before any billing may occur, however, the ordering physician

must sign a written order.

The Master Affidavit reports that CI-2 reported to investigators that

Beverly Withrow, Home Health's CEO, requested that Home Health

employees falsify the records of twenty patients. CI-2 also reported

that Michelle Fox, Ms. Withrow's daughter, directed two employees

in Home Health's Smithfield office to work on Saturday to alter, correct, and/or create documents for patient records. But CI-2 is nowhere

identified. Nor is CI-2's connection to Home Health, or personal

knowledge of the reported incident, ever asserted or explained. Moreover, the location of the office where the twenty patients' files were

falsified is not given.

The Master Affidavit asserts that on-site reviews of Home Health

offices revealed several treatment plans lacking doctor's signatures,

others which had been altered or contained no doctor's orders, some

patients who were not eligible for Medicare, and others who were not

home-bound and thus not eligible for home health services.

With the exception of the information attributed to CI-2, all of the

information given by the Master Affidavit is consistent with an innocent, though imperfect system of maintaining millions of records. The

information attributed to CI-2, however, was unquestionably incriminating. But assessing the credibility of CI-2's information is difficult

or impossible. The only aspect of CI-2's information that finds corroboration is the assertion that some employees were working after

hours, allegedly to alter or correct certain documents. Under these circumstances, we believe that the information given was undoubtedly

sufficient to raise suspicions about Home Health billing and documentation practices. However, because most of the information in the

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Master Affidavit is consistent with Home Health's innocence, we

agree with the magistrate judge and the district court that the Master

Affidavit was insufficient to establish probable cause to believe that

evidence of criminal activity could be found at eight Home Health

offices.

VI

Although we agree with the district court and the magistrate judge

on the merits, we would also affirm the district court's order because

the government has waived its right to appellate review of the magistrate judge's legal conclusions. Although the district court must give

a full de novo review, including consideration of matters which were

not presented before the magistrate judge, parties must still make

proper objection to establish the right to district court review.

Compare United States v. George, 971 F.2d 1113, 1118 (4th Cir.

1992) (holding that district court must consider all arguments directed

at issue, including those not presented to the magistrate, "provided

that proper objection to the magistrate's proposed finding . . . has

been made and the appellant's right to de novo review by the district

court thereby established"), with United States v. Schronce, 727 F.2d

91, 9374 (4th Cir. 1984) (holding that failure to file objections to

magistrate's report within 10 days constituted waiver of appellate

review of the magistrate's decision). We do not believe the government followed the necessary procedures to establish its right to de

novo review of the magistrate judge's legal conclusions.

Rule 72 of the Federal Rules of Civil Procedure governs matters

assigned to a magistrate judge. Under either subsection (a) or subsection (b), the parties must object to the magistrate judge's determinations "[w]ithin 10 days after being served with a copy of the" order

or proposed findings and recommendations. "[A] party may not thereafter assign as error a defect in the magistrate judge's order to which

objection was not timely made." Fed. R. Civ. P. 72(a). Similarly,

when objection is made to a magistrate judge's proposed findings and

recommendations, the court is required to make a de novo determination only of "any portion of the magistrate judge's disposition to

which specific written objection has been made in accordance with

this rule." Fed. R. Civ. P. 72(b). Local rules in the Eastern District of

North Carolina likewise impose a ten-day limitation on objections to

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a magistrate judge's determinations, see E.D.N.C. R. 63.01, 63.02,

"unless a different time is prescribed by the magistrate judge or a

judge." E.D.N.C. R. 63.01.

In this matter, the court ordered deadline for the government to file

its appeal to the magistrate judge's determination was April 19, 1996.

Thus, the government established its right to de novo review only to

those portions of the magistrate judge's order to which specific objection was made on or before April 19. Before that deadline, the only

objection made to the magistrate judge's order was that its "finding

following a Franks hearing that false information was included in the

search warrant affidavit knowingly and intentionally or with reckless

disregard for the truth is contrary to fact and law." No objection was

made to the magistrate judge's legal conclusion that the corrected

Master Affidavit was insufficient to establish probable cause.

The government contends that it did not waive its right to appellate

review of the magistrate judge's legal conclusion, citing (1) its October 24, 1995 Motion for Reconsideration, (2) its June 18, 1996 brief

filed in support of its appeal, and (3) its August 12, 1996 brief filed

with the district court in support of another Motion for Reconsideration. With respect to the two briefs, filed in June and August of 1996,

it is clear that they were not filed in time to comply with the requirements of Rule 72 and Local Rule 63.00, which required that specific

written objections to the magistrate judge's order be filed no later

than April 19, 1996. Furthermore, an examination of the June 18 brief

reveals that the government objected that a Franks hearing should not

have been held, not that the post-hearing legal conclusions were erroneous. Similarly, the October 24, 1995 motion cannot be viewed as

compliance with Rule 72 and Local Rule 63.00. That motion was

presented to the magistrate judge, not the district court, and it was

filed before there was ever a Franks hearing, not after the magistrate

judge issued his order. Moreover, like the June 18 brief, the October

24 motion objected only to the holding of a Franks hearing. In short,

we find nothing in the record to suggest that the government made

timely and specific written objection to the magistrate judge's order

on the second prong of the Franks inquiry.

The district court, nonetheless, found that "under United States v.

George, and in an abundance of caution and fairness, the government

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did not waive the right to a substantive review." However, we do not

think that George required district court review in this matter. In

George, we held that the district court must consider all arguments

presented on an issue -- including those not presented to the magistrate judge -- so long as the objecting party has properly established

its right to de novo district court review. We did not hold that parties

can ignore the requirements of Rule 72 and nonetheless preserve their

right to review of issues not properly appealed. 971 F.2d at 1118; see

also United States v. Schronce, 727 F.2d 91, 93-94 (4th Cir. 1984);

United States v. One Parcel of Real Property, 73 F.3d 1057, 1059-60

(10th Cir. 1996) (applying Schronce's "firm waiver rule" in spite of

district court's sua sponte consideration of issues not specifically

raised in objection).

AFFIRMED

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