Opinion ID: 204040
Heading Depth: 4
Heading Rank: 1

Heading: funds ... of a health care benefit program

Text: The Defendants first contend that there is insufficient evidence to establish that the transactions at issue in support of Counts 2 through 139 involved funds ... of a health care benefit program. [26] 18 U.S.C. § 669. They argue that, because the Defendants commingled Health Plan funds with other funds within the custody of the Union, there is insufficient evidence to establish that the Defendants embezzled Health Plan funds as opposed to other Union funds. A first reason for rejecting this contention is that the defendants effectively admitted in their testimony and their arguments to the jury that the moneys they took were essentially payments to them by the Health Plan for services they rendered to it. It was the Defendants' position throughout trial that as officials of the Health Plan, they rendered numerous administrative and executive services to it for which they were entitled to compensation, and that moneys which are the basis of the allegations of the embezzlement were not embezzled at all but were rather taken by them as the Health Plan's proper compensation to them for the services they rendered. Their contention that there was insufficient evidence to prove that the funds were Health Plan moneys is contradicted by their own assertions that these were Health Plan moneys. Even without these admissions, we would reject the Defendants' contention. As a threshold matter, the parties dispute what § 669 requires the government to show in order to prove that the purportedly embezzled funds were funds ... of a health care benefit plan. [27] The language of the statute does not provide any guidance, and the few cases that have concerned convictions under § 669 have not addressed the government's burden in proving that embezzled funds are funds... of a health care benefit program. See, e.g., United States v. Whited, 311 F.3d 259 (3d Cir.2002) (addressing sufficiency of the indictment, meaning of health care benefit program, and Commerce Clause challenges to § 669); United States v. Jackson, 524 F.3d 532, 534 (4th Cir. 2008), vacated on other grounds, ___ U.S. ___, 129 S.Ct. 1307, 173 L.Ed.2d 575 (2009) (mentioning, without discussing, conviction under § 669). The Defendants point out that, in enacting § 669, Congress did not adopt the approach of other federal statutes that relieve the government of proving the character of the funds embezzled. By way of contrast, the Defendants cite 18 U.S.C. § 666, which prohibits the embezzle[ment] of funds owned by, or ... under the care, custody, or control of [an] organization, government, or agency, so long as the organization received in any one year period, benefits in excess of $10,000 under a Federal program. 18 U.S.C. § 666(a) & (b). By its terms, § 666 does not require the government to prove that the funds purportedly embezzled are, in fact, those funds provided by the Federal program as opposed to other funds. In fact, the legislative history of § 666 shows that it was enacted precisely to deal with the difficulty of proving the federal character of funds under the general federal fraud statute, 18 U.S.C. § 641. [28] See S.Rep. No. 98-225, at 369 (1985), reprinted in 1984 U.S.C.C.A.N. 3182, 3510 (noting that § 641 required the government to show that the property stolen is property of the United States, which was impossible in many cases where the funds are so commingled that the federal character of the funds [could] not be shown). By contrast, the Defendants argue that § 669 provides no such language. In fact, in enacting § 669 as part of the Health Insurance Portability and Accountability Act of 1996, (HIPAA), see Pub.L. No. 104-191, 110 Stat. 1936 (1996), [29] Congress had the opportunity to adopt the approach taken by § 666 but chose not to. Instead, and as the government concedes, § 669 was most likely modeled after § 641. See Fabrikant et al., supra, § 3.02[13], at 3-114 to 3-115 (2007) (noting that § 669 was modeled after 18 U.S.C. Section 641, which makes it a crime to embezzle, steal, or convert property or a thing of value belonging to the United States); see also Diana Douglas, Attorneys Caught in the Web of Medicare/Medicaid Fraud, 21 J. Legal. Med. 395, 412 (2000) (Section 669 was patterned after 18 U.S.C. section 641, the federal theft and embezzlement statute, and serves as a companion to it.). [30] Indeed, although not mirror images of each other, both set forth the character of the funds as an element of the offense. We agree with the Defendants' premise that § 641 provides the closest analogue to § 669. However, we disagree with the Defendants' conclusion that embezzled dollars cannot serve as the basis of a conviction under § 669 unless they are proven to have been the property of a health plan. Like § 669, the case law interpreting § 641 is sparse, but courts have generally not required the government to trace the dollars embezzled to a federal source. In United States v. Gibbs, for example, the Ninth Circuit addressed a sufficiency challenge to a § 641 conviction in the context of commingled sources of funding. 704 F.2d 464 (9th Cir.1983) (per curiam). There, the defendant founded a corporation to promote educational opportunities for American Indians that received most of its funds from the federal government. Id. at 465. The defendant was convicted under § 641 despite the fact that the defendant commingled federal funds with nonfederal funds received from state and private sources. Id. The Ninth Circuit upheld the conviction, which involved multiple counts of substantive embezzlement where the amount of nonfederal funds exceeded the amounts embezzled, [such that] it is possible that the funds embezzled were entirely nonfederal. Id. at 465-66 (noting that the defendant was charged with thirty-four counts of embezzlement under 18 U.S.C. § 641 and that the jury convicted him of twenty of the counts.). In doing so, the court rejected the defendant's argument that the government failed to prove the federal nature of the funds embezzled. Id. at 465. The court held, in particular, that the evidence was sufficient because (1) between 80-86% of the funds in the account from which [the defendant] embezzled was federal money and (2) the federal government monitored and controlled these funds. Id. at 466. A number of other courts have adopted the same approach. See, e.g., United States v. Evans, 572 F.2d 455, 474 (5th Cir.1978) (holding that the evidence sufficient to support a conviction under § 641 where more than 75 percent of the funds in the commingled account were federal and were subject to extensive federal controls); United States v. Scott, 784 F.2d 787, 790-91 (7th Cir. 1986) (per curiam) (holding evidence was sufficient to support verdict under § 641 where 98% percent of the commingled funds were federal and the federal government still maintained supervision and control over the funds at the point when the funds were stolen.). Our case law is not to the contrary. Defendants cite United States v. Elías-Rivera, where we noted that, in the bankruptcy context, there is an established presumption that withdrawals for other than trust purposes from an account in which trust funds are commingled with nontrust funds are presumed to be made from nontrust funds. 848 F.2d 16, 19 (1st Cir.1998). But in that case, involving a bankruptcy trustee who commingled all of the estates he supervised in one account, [t]he prosecution failed to prove that funds were even missing, much less missing from funds belonging to the debtors, such that there was a total lack of evidence to rebut [the] presumption. Id. Elías-Rivera, therefore, does not speak to the situation here, which concerns what evidence is sufficient to rebut any such presumption. Comparing this case to Gibbs and Evans, it is clear that the funds embezzled were funds ... of a health care benefit program under § 669. As in those cases, (1) the health care benefit program funds were a substantial portion of the commingled funds; and (2) the health care benefit program exercised sufficient supervision and control over the funds to preserve their character. As the Gibbs court emphasized, the government's supervision and control ... is the critical factor in determining the federal character of the funds in a commingled account. 704 F.2d at 466. We conclude that, based on the evidence in this case, the Health Plan had sufficient supervision and control over the Health Plan contributions to establish that the funds embezzled were funds ... of a health care benefit program. As an initial matter, the Defendants argue that the relevant analogue to federal supervision and control in the § 669 context is control by the AAA. But AAA is only the contributor of the funds. Section 669 protects funds ... of a health care benefit plan, and thus, as in the context of § 641, the relevant entity for purposes of the supervision and control prong is the protected entity. Moreover, as in Gibbs and Evans, the Health Plan was both the source of the funds and the protected entity. Once the Union deposited the funds in the Plan Account, the Health Plan stood in the same position as the federal government in both providing its funds to the Union and in being the victim of the Defendants' embezzlement. The Defendants further argue that the Health Plan did not have a sufficient stake in the funds such that the funds failed to retain their Health Plan character once they were diverted out of the Health Plan Account. In Evans, for example, the court noted that funds in that case ha[d] a federal origin and a federal end, and during their outstanding circulation they [were] subject to extensive federal controls. This [was] not the situation in which the federal monies [were] intended as an outright grant.  572 F.2d at 474 (emphasis added). In particular, the Evans court noted that the federal government (in that case the Office of Education) had a sufficient stake in the funds it provided for a federal program; The federal interest ... is specifically established and preserved by the provision for termination of the program on a date certain and the requirement that the proportionate share of the balance in the special fund be returned to the government.  Id. at 472; see also id. at 474 (It is statutorily contemplated that the ultimate repayment will be to the federal government.). The Defendants specifically argue that, unlike in Evans, the AAA did not have a right to recover any excess funds. But again the correct analogue is the Health Plan, not the AAA, and the funds diverted were not meant to be, even by the Defendants' own admission, outright grants. Rather, the Defendants contend that the funds embezzled were for administrative services rendered, and certainly the Health Plan had a sufficient stake in those funds to ensure that the Plan received fair value for those services. The Defendants further argue that the collective bargaining agreement did not bar the Union from preserving any excess funds from the Health Plan. Even if that is true (which is doubtful), there were no excess funds to claim. The Health Plan throughout the time period of the embezzlement scheme suffered significant impairments, such that there were no excess funds that the Union could claim as its own. Thus, as in Evans, the Health Plan had a right to all funds diverted by the Defendants. The Defendants finally argue that, unlike in Gibbs and Evans, there was no equivalent to federal regulation that mandated oversight. But there was. As required under Puerto Rico law, the Defendants were fiduciarily responsible to the Plan and, thus, required to maintain oversight on how the funds were used. See P.R. Laws Ann. tit. 26, § 1907 (Fiduciary liability[:] Any director, officer or member of a health service[ ] organization who receives, collects, disburses or invests funds related to the activities of said organization, shall be fiducially liable for the funds received from the subscribers.); cf. FDIC v. Sea Pines Co., 692 F.2d 973, 977 (4th Cir.1982) (noting that interlocking directors of two boards have a fiduciary responsibility for assets of both companies). For all of the above reasons, we conclude that the Health Plan exercised supervision and control of the funds, such that they were, in fact, Health Plan funds. Furthermore, the Health Plan funds were a substantial portion of the commingled funds that the Defendants embezzled. As an initial matter, the Defendants argue that the Health Plan contributions made by AAA did not become funds ... of a health care benefit program until they were actually deposited in the Plan Account. They point to a concession made by the government in its brief in United States v. Jackson , S.Ct. No. 08-263, where the government conceded that employer contributions to an ERISA plan themselves are not assets of [a] plan until the contributions are paid to the plan. U.S. Br. at 10 (Jan. 16, 2009); see also Jackson, 524 F.3d at 543 (holding that unpaid employer contributions to the Company and Union Plans constituted `assets' of the Plans under 18 U.S.C. § 664, the ERISA theft statute). The concession, to the extent that it is relevant to this case, [31] does not assist the Defendants. With respect to the convictions occurring from 1998 to 2001, the evidence conclusively demonstrated that, save for one instance, the Union transferred the entire monthly Health Plan contributions to the Plan Account. Thus, there was no question that the funds subsequently diverted were Health Plan funds. Moreover, although, beginning in 2002, the Defendants first deposited the Health Plan in the Welfare Account, a substantial amount of the funds were then deposited into the Plan Account, such that any subsequent diversion of the funds from that Account were Health Plan funds. Turning to the evidence, it conclusively demonstrated that the Health Plan contributions, in the language from one defendant's brief, were the largest regular deposits by far. Based upon the balance sheets provided by the Union, for the years 1998 through 2000, the Union averaged approximately $757,543 per year in income, which translates to a monthly gross income of roughly $63,000 per month. In contrast, during that same time period, and with a contribution rate of $232 per member, the AAA contributed well over $1 million per month in Health Plan contributions during that time period. This percentage alone is well above the 75 to 80 percent threshold established in § 641 cases. [32] Holding the average income of the Union constant, the disparity between the Union's average monthly income as compared to the Health Plan contributions was even greater from 2002 to 2004. During this time period, the rate increased dramatically, such that the Union was receiving between $1.5 million and $2.3 million in Health Plan contributions per month from 2002 to 2004. The Defendants counter by arguing that the balance sheets failed to include SINOT, retirement, and rental income, which were also commingled with Health Plan funds. [33] However, their resort to these additional funds is unavailing. Including these amounts, the evidence showed that the Union contributed approximately $151,041 per month for SINOT and approximately $78,000 per month for the retirement program, and $4,500 per month in income from renting out a parking lot. Combined with the Union's income in dues (as reflected in the average income above), the total amount of non-Health Plan contribution income averaged approximately $300,000 per month. This, again, is only a small percentage of the millions per month the Union was receiving in Health Plan contributions, with the Health Plan contributions representing approximately 77% ($1 million out of $1.3 million total) of the total amount of commingled funds based on the lowest Health Plan contribution. The Defendants further counter by focusing on the specific accounts from which the Defendants paid themselves. Although, as a whole, the funds that the Union received in Health Plan contributions far outweighed the funds that the Union received from other sources, the Defendants argue that the amount of Health Plan contributions contained in the accounts vis-a-vis other funds were not proportionally high enough to support the convictions. For example, the Defendants point to the testimony of Jennifer Griffin, who did a deposit source analysis of the funds contained in the Infrastructure Account, as shown in the table below: 1998: 69% Health Plan 22% SINOT 9% Cultural Trips Account 1999: 74% Health Plan 18% SINOT 8% Cultural Trips Account 2000: 75% Health Plan 16% SINOT 5% Cultural Trips Account 4% Union Account 2001: 47% Health Plan 27% SINOT 15% Union Account 11% Cultural Trips Account 2002: 45% Union Account 36% Health Plan 16% SINOT 3% Cultural Trips Account 2003: 72% Union Account 15% SINOT 8% Cultural Trips Account 5% Health Plan 2004: 57% Investment Redemptions 32% Union Account 8% Health Plan 3% Welfare Account Although for the first three years of the scheme 69 percent (1998), 74 percent (1999), and 75 percent (2000) of the funds contained in the Infrastructure Account were derived from Health Plan funds, the amounts declined in 2001 to 47 percent, and further declined to 36 percent (2002), 5 percent (2003), and 8 percent (2004). The Defendants seize on this decline to argue that, on average, the percentage of Health Plan funds contained in the Infrastructure Account was approximately 44 percent, below the 75 to 80 percent threshold articulated in some § 641 cases. The government counters that the deposit source analysis is somewhat misleading. It notes that, even in those years where the Infrastructure Account contained a small percentage of funds directly diverted from the Health Plan, it still received a significant percentage of funds from the Union Account, which itself contained funds from the Health Plan. In 2003, for example, and as shown by the complicated flow charts prepared by Griffin for trial, $19.4 million of the AAA's Health Plan contributions were deposited into the Union Account. From there, $14.8 million was passed into the Plan Account (via the Welfare Account), with $4.1 million remaining in the Union Account. And then from there, an additional $873,000 was transferred from the Plan Account to the Union Account, which resulted in the Union Account containing well over $5 million of the Health Plan's funds. This exceeded by several million dollars any other sources of funds contained in the Union Account. Thus, the large percentage (72 percent) of Union Account funds contained in the Infrastructure Account itself contained a large percentage of Health Plan funds, such that, combined with the 8 percent of Health Plan funds already contained in the Infrastructure Account, Health Plan funds comprised a substantial portion of the funds in the Infrastructure Account. However, the government did not establish at trial the true total percentage of Health Plan funds contained in the Infrastructure Account. As the above evidence shows, and in contrast to Gibbs, this case involves multiple accounts with commingled funds, with those accounts funneling Health Plan funds into each other. This scenario presents further opportunities for abuse. [34] However, based on our review of the specific evidence in this case, drawing all reasonable inferences in favor of the verdict, we conclude that, as in Gibbs and Evans, Health Plan funds were a substantial portion of the funds in the commingled accounts. First, we stress again that the disparity between the Health Plan contributions as compared to the Union's other sources of funds was staggering. The Union received in the realm of 70 to 80 percent of its funds from Health Plan contributions, as compared to all other sources (including funds, such as SINOT and the funds for the retirement program, that the Union was not permitted to use as income). Moreover, and as the evidence showed, the Health Plan funds were commingled among the accounts from which the Defendants paid themselves, such that a rational juror could conclude that, at any given time, the Accounts contained Health Plan funds. That alone is sufficient under Gibbs to establish the substantial portion prong. Second, we note that the 75 to 80 percent level discussed in Gibbs and Evans is not a threshold. Indeed, the Seventh Circuit upheld a conviction under § 641 where as little as 50 percent of the commingled funds were federal. See United States v. Mitchell, 625 F.2d 158, 161 (7th Cir. 1980) (concerning theft of check from Aid to Families with Dependent Children account containing 50 percent federal funds). Thus, almost all of the years for the Infrastructure Account contained a sufficient portion of Health Plan funds. For all of these reasons, we conclude that, as in Gibbs and Evans, the evidence is sufficient to show that the Health Plan funds were a substantial portion of the funds embezzled from the commingled sources. Based on the above, we conclude that the evidence was sufficient in this case to permit a rational jury to convict the Defendants for each of the substantive embezzlement counts.