United States v. Thurston , 358 F.3d 51 ( 2003 )

United States Court of Appeals
For the First Circuit
Nos. 02-1966, 02-1967
UNITED STATES OF AMERICA,
Appellant / Cross-Appellee,
v.
WILLIAM THURSTON,
Defendant, Appellee / Cross-Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, Senior U.S. District Judge]
Before
Lynch, Lipez, and Howard, Circuit Judges.
Michael K. Loucks, Assistant U.S. Attorney, with whom
Michael J. Sullivan, U.S. Attorney, and Susan G. Winkler and Gary
S. Katzmann, Assistant U.S. Attorneys, were on brief for the United
States.
Matthew D. Brown, with whom Joseph P. Russoniello and
Cooley Godward LLP were on brief for Thurston.
August 4, 2003
LYNCH, Circuit Judge. A jury convicted William Thurston,
a vice president of Damon Clinical Testing Laboratories, Inc., of
conspiring to defraud the Medicare program of over five million
dollars. The fraud charged involved the manipulation of physicians
into ordering unnecessary ferritin blood tests1 for Medicare
beneficiaries, in violation of 18 U.S.C. § 371 (2000).
The essence of the scheme charged was that Damon, through
Thurston and others, bundled the ferritin blood test -- previously
ordered by doctors less than two percent of the time -- into a
panel of blood tests known as the LabScan -- which was ordered
thirty to forty percent of the time. When doctors or patients
(instead of insurers) paid for the bundled LabScan, Damon provided
the ferritin test for free, leading doctors to believe there was no
extra charge for this test. Doctors were not told that, when
Medicare paid for the bundled LabScan, Medicare was charged extra
for the ferritin test. Indeed, both a letter and marketing
materials indicated the added ferritin test was "free"; that is,
that there was no charge beyond the standard LabScan charge. Those
unnecessary ferritin tests were not free to Medicare. Damon
charged Medicare roughly $21 per ferritin test on top of the
approximately $24 charged for the LabScan. Nor were doctors told
that the ferritin test could be ordered separately; the test
1
The ferritin iron test measures the number of atoms per
molecule of circulating ferritin. Ferritin is a binding protein
which delivers iron to iron storage cells.
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requisition form did not offer that option. The physicians, then,
were induced to order and to certify as medically necessary a large
number of ferritin tests which were not medically necessary.
The government's theory was that Damon did this to offset
Medicare's 1988 reduction in reimbursement rates of sixteen
percent, which was projected to cause Damon an estimated annual
loss of $800,000 in revenues. In just one of Thurston's labs, the
orders for ferritin tests were expected to increase from
approximately three hundred per month to roughly ten thousand per
month. Thurston testified that he was innocent, and neither had
knowledge of nor responsibility for key components of the
conspiracy. The jury disagreed.
Although the sentencing guidelines called for a sentence
of sixty-three to seventy-eight months, the district court
sentenced Thurston to only three months' imprisonment. It did so
by granting a downward departure to "correct" a perceived disparity
between a five-year sentence of imprisonment for Thurston and the
sentence of three years' probation given to the company President,
Joseph Isola, who had pled nolo contendere and assisted the
government. Its second ground for departure was its sense that the
good works Thurston did for his church and community were
extraordinary.
This sentence outraged the prosecutors, who appealed,
arguing that the district court lacked the power to depart downward
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for any of the reasons it gave, and that, even if a departure were
appropriate, the extent of the departure was excessive. The
government also appeals the district court's failure to impose a
fine, on the basis that the Sentencing Guidelines, if not the
statute, mandated a fine. Finally, the prosecution argues that if
some departure for good works was warranted, the district court was
required to address an issue it avoided: the government's request
for an upward departure on the basis that Thurston had obstructed
justice by committing perjury on the witness stand.
Thurston also appeals, arguing that the conviction must
be vacated because the prosecution was barred by the statute of
limitations, because he was entitled to a jury instruction and to
acquittal on the basis that he reasonably interpreted the law to
mean he could rely on the physicians' certifications of medical
necessity, and because of other errors. In addition, Thurston
argues his sentence was too high because the sentencing base
offense level calculation for amount of loss, either actual or
intended, was unproven and excessive. Thurston also defends the
downward departure.
Several important issues are raised by these appeals.
The government's appeal requires us to address the effect of the
new Prosecutorial Remedies and Tools Against the Exploitation of
Children Today Act of 2003 (PROTECT Act), Pub. L. No. 108-21, 117
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Stat. 650,2 on the standard the courts of appeals use to review
downward departure decisions by district judges in sentencing, as
well as the availability of a downward departure for a record of
good works, U.S.S.G. § 5H1.11. Thurston's appeal invites, inter
alia, clarification of the defense doctrine concerning a
defendant's reasonable interpretation of the law; the issue of when
a statute of limitations defense must be raised; the ramifications
of a trial judge's failure to respond to jury instructions proposed
by counsel; the evidence needed to show an intended loss; and the
question of whether fines are mandatory.
In the end we sustain the conviction but find the
sentence was in error.
I. Facts
We state the facts as the jury could reasonably have
found them, including a fair description of the defense evidence.
A. Background
Medicare provides certain medical services and care,
including clinical laboratory testing services, to persons aged
sixty-five and older and to persons with disabilities. At the time
of the conspiracy, Medicare was administered by the Health Care
Financing Administration (HCFA), a division of the U.S. Department
of Health and Human Services. HCFA in turn contracted with private
2
This Act is also known as the Amber Alert bill. It includes
changes put forward in the so-called Feeney Amendment.
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insurance companies ("carriers" and "intermediaries") to handle
claims for reimbursement to Medicare program beneficiaries. By
law, Medicare only reimburses clinical laboratory services if those
services were medically necessary for the treatment or diagnosis of
a beneficiary's illness or injury. 42 U.S.C. § 1395y(a)(1)(A)
(2000); see also 42 C.F.R. § 424.10(a) (1988). Medicare did not
generally reimburse screening tests. Medicare reimbursed one-
hundred percent of the cost of necessary clinical blood tests.
Damon was, at the time, a Massachusetts corporation that
provided clinical laboratory testing services to physicians,
hospitals, health maintenance organizations, and their patients
nationwide. Approximately thirty percent of Damon's revenues were
from Medicare. Damon owned and operated a national system of
clinical laboratories, and Damon was an approved Medicare provider.
When Damon billed the Medicare program, it submitted to the
carriers a HCFA 1500 form saying that it certified the lab tests
were medically necessary. Physicians did not see those bills.
Thurston served as Regional Vice President of Damon from
1987 to 1990, and was responsible during all or part of this time
for Damon's regional laboratories in Newbury Park, California;
Phoenix; Chicago; and San Francisco. His office was at the Newbury
Park lab; he traveled to the other labs and was in regular phone
contact. Thurston was promoted to Senior Vice President of
Operations in 1990. Thereafter, he relocated to the company
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headquarters in Needham, Massachusetts and supervised only the San
Francisco lab. Another company purchased Damon in August 1993;
Thurston later switched employers and moved to Utah.
B. Theories of Prosecution and Defense
The government's theory was that the defendants tricked
doctors into ordering medically unnecessary tests, for which
Medicare paid. Damon added little-used tests to more popular
panels of tests; it then tricked doctors by concealing that the
panels could be ordered without the added tests and that Medicare
was being charged for the tests. To conceal from doctors
that Medicare was being charged, and to encourage doctors to order
ferritin tests regardless of medical necessity, the defendants
charged doctors and patients little or no extra fee for the added
tests; provided literature saying that ferritin was provided free;
otherwise failed to disclose to doctors the cost to Medicare of the
expanded LabScan; and made it difficult to order the bundled test
without ferritin.
The defense theories were that there was no conspiracy
and, if there were, then Thurston was not a knowing participant.
The defense contended that Damon complied with existing Medicare
regulations, which neither prohibited bundling nor imposed a
requirement on the lab to disregard a physician's certification
that tests were medically necessary. It further argued that even
if Thurston's interpretation of the regulations was incorrect, it
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was objectively reasonable, and so Thurston lacked the required
criminal intent. Thurston's defense was also that any fraud was
carried out by his subordinates, without his knowledge. He
testified that he did not instruct the labs to add ferritin; did
not authorize or condone any decision to forego a fee increase for
doctors or private-pay patients on the expanded LabScan; did not
instruct subordinates to conceal that doctors could order a LabScan
without ferritin; and had nothing to do with requisition forms or
particular pieces of marketing literature.
C. Evidence of Conspiracy to Defraud
1. Addition of Ferritin
In late 1987, HCFA announced that effective April 1,
1988, Medicare would reduce by almost sixteen percent the fees paid
to laboratories, including Damon, for providing clinical laboratory
services to beneficiaries. If Damon maintained its existing
practices and fee structure, then Damon would lose $800,000 in
revenues during the first year alone, as Thurston knew. Of that
amount, more than $500,000 of the annual losses would occur at
Thurston's four regional laboratories.
There were corporate discussions, which included
Thurston, about how to offset this loss. As a result, Damon added
its ferritin test to the LabScan, a panel of more than a dozen
blood chemistry tests performed by a single machine on one blood
sample. The ferritin test was performed on separate equipment.
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Damon bundled ferritin with the LabScan from 1988 to at least mid-
1993. The LabScan had been requested on at least thirty-five to
forty percent of the orders submitted to Thurston's regional
laboratories. By contrast, doctors rarely ordered the ferritin
test. The general manager of one of the laboratories Thurston
oversaw estimated that only one to two percent of the orders for
blood tests included a request for a ferritin test.
Nothing in the medical literature at the time showed
ferritin was necessary for all persons receiving LabScans. Indeed,
it was not. A family practitioner testified that he needed
ferritin less than ten percent of the time it was included as part
of the LabScan. Similarly, an internist testified that he needed
the ferritin test for very few of his Medicare patients.
The plan to add ferritin to the LabScan was discussed at
a general managers meeting in January 1988 and at a mid-year
financial meeting for the western region in March 1988. Thurston
attended both meetings. In late March, Thurston personally
approved the addition of ferritin to the LabScans offered by the
Newbury Park, San Francisco, and Phoenix labs.3 Thurston initially
acquiesced when the Phoenix lab sought permission not to add
3
There was abundant evidence that Thurston instructed his
subordinates to add ferritin. For example, the general manager of
the Chicago lab had contemporaneous notes of a conversation with
Thurston in 1988 indicating that Thurston told him to add ferritin
to the LabScan. The manager of the San Francisco lab also
testified that Thurston called him and told him to add the ferritin
test to the LabScan.
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ferritin; in August 1988, however, after Thurston saw the financial
results from the addition of ferritin at his other labs, Thurston
ordered the Phoenix lab to add the test to the LabScan.
Thurston presented evidence that the decision to add
ferritin was made at a lower level for legitimate reasons.
Thurston and Isola testified that at the general managers meeting
in early 1988, management decided to allow individual laboratories
to determine whether to add ferritin to the LabScan. There was
also testimony that Damon's sales force made requests to the sales
managers and general managers of individual labs to add ferritin to
the LabScan, on the grounds that the new test would make the panel
more competitive.
2. Differential Charging for Ferritin Test
a. Thurston's Knowledge of Price Differential
Medicare provided one reimbursement for the ferritin test
and a separate reimbursement for the LabScan panel. In 1988, for
example, Medicare paid $24.05 for a LabScan and $20.86 for a
ferritin test.
Thurston's labs submitted to him capital expenditure
requests (CERs) to help with the decision whether to bundle the
tests. CERs were financial projections comparing the additional
revenues (from Medicare reimbursements) and costs (partly from the
purchase of new equipment) that would result from the addition of
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ferritin to the LabScan.4 These CERs assumed there would be no
increase in the charge to doctors and patients for a LabScan with
ferritin. Thurston discussed and then signed the CERs. They
projected losses of revenue from doctors and patients (who would
receive free ferritin tests) and massive increases in revenue from
Medicare reimbursements. One lab, for example, projected that the
number of ferritin tests performed for Medicare beneficiaries would
grow from 25 per month to 1,946 per month -- increasing revenues by
$10,308 per month. Overall, Thurston's labs projected that they
would increase their Medicare reimbursements by approximately $1.16
million per year by adding ferritin to the LabScan; if multiplied
by five years, this increase would be $5.8 million. The capital
expenditure requests were best-case projections, assuming that
every doctor who would otherwise have ordered a LabScan without
ferritin would now order a LabScan with ferritin.
Damon sought reimbursement (at different rates) for
ferritin tests from Medicare, CHAMPUS,5 and other insurers, but
provided them for free to doctors and patients. Thurston said he
was unaware doctors were not being charged. But Thurston approved
4
The defense argues that the CERs were prepared for the
related purpose of justifying, to Damon executives, the purchase of
equipment to carry out a higher volume of ferritin tests.
5
CHAMPUS is the Civilian Health and Medical Program of the
Uniformed Services, a health benefit and insurance program for
dependants of military personnel that is administered by the
Department of Defense.
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the decision by a number of his labs to adopt this policy of
differential pricing depending on the client, and the CERs assumed
no price increase for doctors and patients. Thurston instructed a
subordinate to add ferritin at no charge to doctors; Thurston was
present at a meeting in which another executive announced the no-
charge policy; and Thurston received a memo saying that there was
no price increase for doctors at a lab he oversaw. Witnesses
testified that physicians are highly price-sensitive about charges
for lab work and might object to the automatic inclusion of
ferritin unless the test were provided for free. At least
initially, many or all of Thurston's labs increased the charge to
private insurance companies for a LabScan based on the addition of
ferritin. However, any price increase for private insurers on the
expanded LabScan was much smaller than the cost increase to
Medicare.
Thurston presented evidence that two of his labs did
increase the price for physicians; that this price increase
provoked complaints by doctors; that he was informed of these
complaints; and that he responded that doctors could not obtain a
LabScan with ferritin unless they paid the higher price. He also
presented evidence that the no-charge approach was a deviation from
corporate policy and was initiated by the heads of individual labs;
that he did not find out about any price differential until years
after it had been implemented; and that he sought to correct any
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price differential as soon as he discovered it. Thurston testified
that he did not authorize, condone, or ratify a decision not to
increase the price of the LabScan based on the addition of
ferritin.
b. Concealing Price Differential from Doctors
Thurston's labs took steps to conceal from doctors that,
in addition to the LabScan charge, Medicare would pay an extra fee
for the ferritin tests. No letters were sent to doctors advising
them that Medicare would be charged separately for the ferritin
test. To the contrary, in April and May 1988, letters were sent to
physicians notifying them that the ferritin test was going to be
automatically added at "no extra cost." In Newbury Park, stickers
were also printed and added to physicians' brochures and
directories saying, "Ferritin Automatically Included at No Charge."
Of course, as to Medicare patients, these statements were untrue.
Thurston testified that he did not pre-approve the
letters or stickers saying ferritin would be provided free to
customers. Thurston portrayed himself as a hands-off manager who
trusted subordinates to build in a charge to physicians and to
accurately promote the expanded LabScan.
Several physicians testified they were initially unaware
that Damon charged Medicare for the ferritin component of the
expanded LabScan. A number of Damon customers protested, and even
switched labs, when they belatedly discovered Damon was charging
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Medicare for ferritin tests conducted as part of the LabScan. When
doctors told Damon sales representatives that they did not need the
additional test, some were told that a LabScan without ferritin
would cost more than a LabScan with ferritin. A major client
referred Damon to a newspaper article criticizing the practice of
bundling tests into panels and profiles, and warned Damon that its
failure to educate doctors about the composition of and
alternatives to its panels would subject it to ongoing criticism.
Thurston was informed of these complaints, which were written up in
monthly management reports he received in 1989 and 1990. Despite
these complaints, Thurston did not cause a letter to be sent to
doctors informing them of the extra charge for ferritin to
Medicare.
Damon also collaborated with HMOs operating on a
capitation basis (i.e., paying a flat monthly fee for each HMO
member) to reduce utilization of bundled tests such as the LabScan.
For example, one of Thurston's labs added to its HMO requisition
form a checkbox for a LabScan without ferritin. Damon made no such
effort to assist Medicare.
3. Availability of LabScan Without Ferritin
Thurston instructed subordinates to take specific steps
that hid the fact that the LabScan could be ordered without
ferritin and made it difficult for doctors to order the LabScan
separately. For example, Thurston told the general manager of the
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Newbury Park lab not to advertise or promote the fact that doctors
could still order a LabScan without ferritin. Similarly, Thurston
helped make the decision to omit, from the Newbury Park letter
announcing to doctors the addition of ferritin to the LabScan, the
test code for ordering a LabScan without ferritin. The standard
requisition forms used by Thurston's labs did not change following
the addition of ferritin to the LabScan; there was a checkbox for
the "LabScan" (which now included ferritin) but no box for the
"LabScan without ferritin" or the "LabScan with ferritin."
During the conspiracy period, there were at least two
ways for doctors to order the LabScan without ferritin. They could
handwrite such an order on a standard requisition form, or they
could request and obtain a customized requisition form with a
checkbox for the LabScan without ferritin. A number of doctors and
institutions took advantage of these options.
Thurston testified that he did not tell anyone to conceal
or refrain from advertising that the LabScan could be ordered
without ferritin. There was testimony that, after Thurston learned
in 1991 that the front of a requisition form used by one of his
labs did not disclose the inclusion of ferritin in the LabScan, he
instructed a subordinate to list it on the front and the form was
so amended.
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4. Apolipoprotein
Damon also added an apolipoprotein test to its coronary
risk panel in 1989. Before apolipoprotein was added to the panel,
clients ordered it very rarely. The standard requisition forms
Damon used after adding apolipoprotein to the panel also did not
offer a checkbox for a coronary risk panel without apolipoprotein.
Following the addition of apolipoprotein, the cost to doctors of
the coronary risk panel increased by five dollars. Medicare
reimbursed apolipoprotein separately at a rate well above five
dollars. Thurston participated in the decisions about the
addition, the requisition forms for, and the extra charges for
apolipoprotein.
D. Thurston's "Reasonable Interpretation" as Evidence of Lack of
Criminal Intent
Thurston presented evidence that from 1988 to 1993 it was
an industry-wide practice for labs to rely on the doctors who
ordered tests to make determinations of medical necessity.
Because, prior to 1994, doctors did not normally share their
diagnoses with labs, labs did not have the information required to
gauge medical necessity. Damon employees did not believe that they
certified tests as medically necessary when they submitted HCFA
1500 forms with Medicare bills. Instead, they believed it was the
doctors who ordered LabScans who made the certification.
Two expert witnesses testified that it was appropriate in
1988 to include ferritin in a blood chemistry panel. The bundling
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of different tests into panels was lawful under Medicare
regulations. There was testimony that technological changes during
the 1980s made it possible to automate the ferritin test, which
presumably made it much cheaper to conduct. Witnesses for both
sides testified that by 1988 some of Damon's competitors offered
ferritin as part of their blood chemistry panel and so Damon added
the test to stay competitive.
II. Procedural History
A. Indictment and Trial
On January 22, 1998, a thirty-nine paragraph single-count
indictment charged Thurston and three other former Damon executives
-- Joseph Isola, Beno Kon, and Gerald Cullen -- with conspiring to
defraud HCFA in violation of 18 U.S.C. § 3716 by causing doctors to
order unnecessary tests by adding a test for ferritin to a pre-
existing panel of diagnostic blood tests, and by adding a test for
apolipoproteins to a profile used to assess coronary artery
disease. The conspiracy period was from July 1987 to August 1993.
Isola, President of Damon, pled no contest and, pursuant
to his plea agreement, was sentenced to three years' probation and
a one-hundred dollar special assessment. Kon, Corporate
Controller, died during the proceedings. Cullen, Senior Vice
President for Operations, was tried before the district court in
6
Damon was separately indicted for conspiracy to defraud
HCFA, on the basis of the same events.
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October 2001 and acquitted at the close of the government's
evidence. In addition, Damon pled guilty on October 11, 1996 to
conspiracy to defraud by bundling ferritin with the LabScan and
apolipoprotein with the cardiac risk panel. The company was
sentenced to pay a $35,273,141 fine, and later entered into a civil
settlement under which it paid the United States and the state
Medicaid programs an additional $83,756,904.
Thurston was tried before a jury in November and December
2001. The trial lasted three weeks. At the close of the
government's evidence, the district court granted Thurston's motion
for judgment of acquittal as to the indictment's apolipoprotein
allegations, ordered these allegations stricken, and explained to
the jury that only the ferritin allegations remained. The jury
found Thurston guilty. Thurston's subsequent motions for judgment
of acquittal and for new trial were denied. The procedural rulings
at trial which Thurston attacks are described below.
B. Sentencing
The district court sentenced Thurston to three months'
imprisonment (with a judicial recommendation that the term be
served in a halfway house), followed by twenty-four months of
supervised release (of which the first three months were to be
served in home detention). The court imposed a one-hundred dollar
special assessment and no fine. The Pre-Sentence Report (PSR) had
recommended a Total Offense Level of twenty-six and a Criminal
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History Category of one. The PSR identified the base offense level
as six. It recommended a fourteen-level upward enhancement for an
intended loss of at least five million dollars; a two-level
enhancement for more than minimal planning; and a four-level
enhancement for a leadership role. It also suggested that an
enhancement for obstruction of justice was appropriate, on the
grounds that Thurston perjured himself at his trial. The PSR
recommended the statutory maximum term of sixty months'
imprisonment and noted that both the statute and the guideline
allowed for a fine. It calculated that Thurston had a net worth of
$1,526,904.
The defense contested the PSR's recommendations.
Thurston requested a three-level decrease because the substantive
offense of defrauding the United States was incomplete; a four-
level decrease because Thurston was a minimal participant; and a
two-level decrease for acceptance of responsibility. Thurston
requested a downward departure on the grounds that he had an
extraordinary record of charitable work and community service; that
the offense constituted aberrant behavior; and that there was the
potential for a large disparity with Isola's sentence.
The government argued that Thurston should receive a two-
level upward enhancement for obstruction of justice. Otherwise, it
accepted the recommendations of the PSR. The parties agreed that
any restitution had been made by Damon, the corporate defendant.
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The district court sentenced Thurston at a hearing on
June 26, 2002 to three months' imprisonment, a period of supervised
release, and no fine. The district court granted a fourteen-level
enhancement for the size of the intended loss, see U.S.S.G.
§ 2F1.1(b)(0) (1992 version),7 a four-level enhancement for an
aggravated role in the offense, see U.S.S.G. § 3B1.1(a) (1992
version), and a two-level enhancement for more than minimal
planning, see U.S.S.G. § 2F1.1(b)(2) (1992 version). The court did
not explicitly rule on the government's request for an obstruction
of justice enhancement, see U.S.S.G. § 3C1.1 (1992 version), or
Thurston's request for a three-level decrease for failure to show
completion of the substantive offense, see § 2X1.1 (1992 version).
Thurston's adjusted offense level of twenty-six and criminal
history category of one yielded a guidelines sentencing range of
sixty-three to seventy-eight months' imprisonment; this range was
trumped by the statutory maximum of sixty months for a violation of
18 U.S.C. § 371.
7
U.S.S.G. § 2F1.1 was deleted by consolidation with U.S.S.G.
§ 2B1.1 effective November 1, 2001. See United States v. Gonzalez-
Alvarez, 277 F.3d 73, 77 n.3 (1st Cir. 2002). Under the current
Guidelines, a loss exceeding $2.5 million warrants an eighteen-
level upward enhancement. U.S.S.G. § 2B1.1(b)(1). When the
Guidelines in effect at the time of sentencing are more stringent
than those in effect at the time of the offense, the latter are
normally used, partly to avoid any hint of an ex post facto
increase in penalty. United States v. Maldonado, 242 F.3d 1, 5
(1st Cir. 2001) (citing United States v. Harotunian, 920 F.2d 1040,
1041-42 (1st Cir. 1990)).
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During the hearing, the government confirmed that
Thurston had been offered (and had rejected) a plea agreement
"along the lines" of the one that Isola had accepted. Over the
government's objections and arguments, the district court then
departed downward on the basis of Thurston's record of charitable
work and community service and the disparity between Thurston's and
Isola's sentences. The court then solicited the government's
recommendation about the extent of the departure. The government
responded that, if the court chose to depart, then it should depart
no further than the sentencing guidelines for a perjury conviction,
which would be an offense level of twenty (six less than that of
the underlying offense), for a sentencing range of thirty-three to
forty-one months' imprisonment. The court then departed by at
least sixteen levels.
The government appealed the sentence and Thurston
appealed his conviction and sentence.
III. Thurston's Appeal from his Conviction
Thurston was convicted under 18 U.S.C. § 371, which
provides:
If two or more persons conspire either to commit any
offense against the United States, or to defraud the
United States, or any agency thereof in any manner or for
any purpose, and one or more of such persons do any act
to effect the object of the conspiracy, each shall be
fined under this title or imprisoned not more than five
years, or both.
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A. Statute of limitations
Thurston argues that the trial court erred in not
granting his post-verdict Rule 29 motion for acquittal, because the
government had not proved an overt act during the limitations
period, and in not sua sponte instructing the jury on the statute
of limitations.
The statute of limitations for 18 U.S.C. § 371 crimes is
the general five-year statute of limitations contained in 18 U.S.C.
§ 3282. Here, that five years ran back from January 22, 1998, the
date of the indictment, less the six weeks during which Thurston
agreed to toll the limitation period. The government, therefore,
had to prove an overt act was done on or after December 11, 1992.
The indictment properly alleged at least eight overt acts within
the limitations period.
Thurston did not raise the defense of statute of
limitations either before or at trial, did not request an
instruction on the defense, and did not object when the judge
instructed without addressing the issue. Thurston first raised the
issue by Rule 29 motion after the verdict. The government says
Thurston raised the issue too late. There is a preliminary
question of when such a motion should be raised, a question
affecting our standard of review.
"The statute of limitations is a defense and must be
asserted on the trial by the defendant in criminal cases . . . ."
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Biddinger v. Comm'r of Police, 245 U.S. 128, 135 (1917). Here the
indictment adequately pled facts to establish that the crime was
within the limitations period. Thurston was not required to raise
the defense before trial under Rule 12(b)(3), Fed. R. Crim P. Nor
would it have made sense for him to do so, since the defense
depended on what the government proved or failed to prove at trial.
In a criminal case a defendant need only plead as to the accusation
of guilt in the indictment and need not raise the statute of
limitations as an affirmative defense before trial.8 Thurston
mistakes these truisms for an argument that he need not raise the
limitations defense at all before the jury delivers a verdict of
guilt.
The government says Thurston has waived9 the issue and
may not raise it at all. Absent an explicit agreement to waive the
defense, we treat the issue as a forfeiture and not a waiver,
contrary to the government's argument. This was not an intentional
relinquishment or abandonment of a known right, the definition of
a waiver. The issue of failure to assert the defense was viewed as
8
By contrast, in a civil case, a defense of statute of
limitations must be raised in an answer or it is lost. Fed. R.
Civ. P. 8(c); In re Cumberland Farms, Inc., 284 F.3d 216, 225-27
(1st Cir. 2002).
9
A defendant may waive the defense of statute of limitations
by several means, including by entry of plea of guilty, see
Acevedo-Ramos v. United States, 961 F.2d 305, 308 (1st Cir. 1992),
or by a voluntary agreement, usually written, such as in a tolling
agreement, see United States v. Spector, 55 F.3d 22, 24 (1st Cir.
1995). None of those situations is present here.
-23-
forfeiture in United States v. O'Bryant, 998 F.2d 21, 23 n.1 (1st
Cir. 1993). The rule we use -- that the defense of statute of
limitations must be raised at trial and, if not, is forfeited but
not waived -- is the rule in most circuits. See United States v.
Ross, 77 F.3d 1525, 1536 (7th Cir. 1996) ("[I]t is widely accepted
that a statute of limitations defense is forfeited if not raised at
the trial itself.") (citing cases).
Thurston has indeed forfeited10 the defense that the
government did not prove facts that an overt act occurred within
the limitations period. The defense should have been raised at
trial. Waiting until after the jury has rendered a verdict of
guilt to raise a limitations defense for the first time is
inconsistent with the characterization of the statute of
limitations as an affirmative defense and would unfairly sandbag
the government.
Because this was a forfeiture and not a waiver, there is
still plain error review available under Rule 52, Fed. R. Crim. P.
United States v. Olano, 507 U.S. 725, 731-32 (1993). Our
conclusion is straightforward. The government's evidence
established overt acts by the conspirators within the limitations
10
Our reasoning that the argument has been forfeited would be
different if compliance with the limitations period were either
jurisdictional or an element of the offense which the government
had the burden of proving. Here, when the limitations defense is
not an issue of law but is based on facts to be proven, the defense
must be raised at trial at the latest.
-24-
period, so there was no error at all as to the statute of
limitations, much less plain error.
The government showed that labs overseen by Thurston (and
his co-conspirators) submitted tens of thousands of reimbursement
claims to Medicare after December 11, 1992 for ferritin tests
conducted as part of LabScan orders. The government also presented
ample evidence that many of these tests were medically unnecessary
and were submitted by doctors unaware that Medicare would be
charged separately for ferritin.11 It was not credible that the
ferritin test, ordered less than two percent of the time, suddenly
became medically necessary thirty to forty percent of the time
within the life span of the conspiracy.
Thurston also argues he was entitled to a jury
instruction on the limitations point. By failing to request a jury
instruction and failing to object to the lack of an instruction, he
has forfeited the argument. Fed. R. Crim. P. 30; see United States
v. Gallant, 306 F.3d 1181, 1187 (1st Cir. 2002) ("[A] party unhappy
with a trial court's jury instruction [must] promptly state the
precise objection after the instruction has been given."). As
11
For example, government witness Dr. Johnson testified that
he ordered the LabScan regularly for Medicare patients; rarely
needed a ferritin test; and, when he discovered that Damon charged
Medicare separately for ferritin, demanded that ferritin be removed
from panels he ordered. As demonstrated by a lab report the
defense introduced into evidence, Dr. Johnson continued ordering
the LabScan with ferritin for Medicare patients through mid-1993.
-25-
there was no error, the plain error standard was not met. See Fed.
R. Crim. P. 30, 52(b).
B. Purported Lack of Criminal Intent and the Requested Reasonable
Interpretation Regulation
Procedurally, the issue of reasonable interpretation
comes up in two ways: denial of Thurston's Rule 29 motions and
denial of his request for a jury instruction. Thurston's three
Rule 29 motions -- at the end of the government's case, at the end
of the defense case, and after the verdict -- all argued that he
lacked the needed criminal intent. Our review is of whether a
rational fact finder could conclude, beyond a reasonable doubt,
that the government proved the elements of the crime, including
intent. United States v. Moran, 312 F.3d 480, 487 (1st Cir. 2002).
Thurston also requested a jury instruction on reasonable
-26-
interpretation of the law12 and preserved his objection to the
court's rejection of the instruction.
Thurston argued he reasonably interpreted the law as
requiring that the treating physician, not the test lab, certify to
the HCFA that the test ordered was medically necessary and
reasonable, and that he and the company were entitled to rely on
that physician certification. Specifically, Thurston contended
that in the relevant time period an independent clinical lab did
not violate any aspect of Medicare law by: (1) providing physicians
with a panel containing a ferritin test, so long as the physician
was given reliable and accurate information about the test and
12
The instruction he requested stated in part:
Mr. Thurston contends that an independent clinical
laboratory does not violate any aspect of Medicare law in
providing physicians with a profile or panel that contains a
serum ferritin test, so long as the physician is given
reliable and accurate information about the test and the
choice to select the profile or panel with or without the
added test.
Mr. Thurston also contends that an independent clinical
laboratory does not violate any aspect of Medicare law in
submitting a claim for reimbursement, using a HCFA form or
otherwise, so long as the blood tests performed were ordered
by a physician.
I instruct you as a matter of law that these are
reasonable interpretations of the Medicare statutes,
regulations and rules.
In order for you to find Mr. Thurston guilty on the basis
that he caused physicians to order medically unnecessary tests
for their patients, the government must prove beyond a
reasonable doubt that these were not Mr. Thurston's
interpretations of the pertinent Medicare laws.
-27-
could select the panel without the test; or (2) submitting a
reimbursement claim, using a HCFA form or otherwise, so long as a
physician ordered the test performed. This is one of his primary
arguments on appeal.
Whether a particular defense doctrine is germane depends
on the crime charged and the facts of the case. This is where
Thurston's argument falters. He argues that he could not have had
the needed intent because employees of clinical labs, including
Thurston, "were unaware that they were actually certifying the
medical necessity of each test performed for every patient" and
they could reasonably interpret the law to mean that the treating
physician, not the laboratory, made the certification. The
argument is beside the point.13
Thurston was not charged with making a false statement to
the United States, the falsity of which turned on an ambiguity in
what the law required. Nor was he charged with failing to make a
statement required by law in a situation of parallel ambiguity. He
was not charged with falsely certifying the medical necessity of
the tests ordered. He was charged with the crime of conspiracy to
defraud the United States by inducing physicians through deceit and
trickery into certifying tests as medically necessary when the
13
Thurston argues it would be nonsensical to ask clinical
testing laboratories to guarantee that a test ordered by a doctor
was in fact medically necessary. That question simply is not
raised here.
-28-
ferritin tests were not necessary, thus leading Medicare to pay for
unnecessary services.
Thurston's knowledge of the Medicare regulations and of
the fact that the ordering physicians would certify the medical
necessity of the tests was, ironically, part of the proof of the
crime, not a defense. Thurston cannot, under 18 U.S.C. § 371,
knowingly conspire to mislead and manipulate doctors into
certifying medically unnecessary tests which led to improper
payment of Medicare funds and then defend on the basis that he
committed no fraud because the doctors, not he, were the ones who
certified the tests as necessary.
Thurston's reliance on United States v. Prigmore, 243
F.3d 1 (1st Cir. 2001), is misplaced. Prigmore is part of a line
of cases charging false statements or failure to make required
statements, holding that intent should be measured against an
objectively reasonable understanding of the legal requirements to
be met, and that a statement is not in fact false or fraudulent if
it is based on an objectively reasonable interpretation of that
legal requirement. See id. at 17-18. This court first applied
this principle in United States v. Rowe, 144 F.3d 15, 21-23 (1st
Cir. 1998), to a statement that was not in fact false under an
objectively reasonable interpretation of a disclosure requirement.
In Prigmore, the conspiracy charged was to defraud and impair the
functioning of the Food and Drug Administration, in connection with
-29-
its oversight and regulation of medical devices, through failure to
file reports which were required under certain conditions. The
fraud alleged was the failure to submit a pre-market approval
information supplement to the FDA, but whether such a supplement
was required depended on the interpretation of certain regulations.
The same conditional requirement was true of certain testing
reports. The question was whether defendants could objectively and
reasonably understand one regulatory phrase, "affecting the safety
or effectiveness of the device," as being circumscribed by another
regulatory phrase, "intended . . . conditions of use." See 243
F.3d at 15.
No similar question was presented here. Here, the
underlying crime was one of manipulating doctors into making false
certifications so Damon could receive unwarranted Medicare
payments. There is no material question about ambiguity in the
underlying legal requirements and no germane question about the
meaning of the law. There was also no issue of lack of fair notice
of what the law requires, a concern underlying the Prigmore/Rowe
line of cases. A reasonable person knows it is wrong to trick
others into doing something wrong which one does not do directly
oneself, especially in order to obtain personal gain. The Prigmore
doctrine has no application given the crimes charged and the facts
involved. Because the nature of the crime charged made the
-30-
reasonable interpretation doctrine irrelevant, the jury instruction
issue disappears.
C. Failure of District Court to Respond To All of Thurston's
Requested Instructions
Thurston argues that the district court violated Rule 30,
Fed. R. Crim. P., which provides that
(a) In General. Any party may request in writing
that the court instruct the jury on the law as
specified in the request. The request must be
made at the close of the evidence or at any
earlier time that the court reasonably sets.
When the request is made, the requesting party
must furnish a copy to every other party.
(b) Ruling on a Request. The court must inform the
parties before closing arguments how it intends
to rule on the requested instructions.
Thurston is correct: the district court failed to inform the
parties of how it intended to rule on each of the requested
instructions before closing arguments, as required by the rule.
A description of the interactions of court and counsel
sets the stage. Each side submitted extensive requests for
instructions, and there were disagreements.14 The court did resolve
14
As examples of disagreements, Thurston gives the following.
The government filed objections to Thurston's requested
instructions concerning character evidence and reputation (No. 7);
Thurston's status as vice-president (No. 10); the definition of
"knowingly" (No. 16); the definition of "willfully" (No. 17); proof
of specific intent to participate (No. 18); the definition of
"overt act" (No. 21); the good-faith defense (No. 22); and
Thurston's reasonable interpretation of Medicare laws (No. 23).
Counsel for Thurston objected to three of the government's
requested instructions, each of which concerned an element of the
offense: conspiracy (No. 18); unlawful objectives (No. 19); and
overt acts (No. 22).
-31-
the most serious disputes over some of the instructions (for
instance, on the reasonable interpretation/Prigmore question) and
told counsel these rulings before closing argument. The court did
not, though, review all of the requests. Thurston's counsel did
not object to this silence before giving his closing.
Defense counsel did raise an issue after closing, and
before the jury was instructed, that he wanted to put on record his
specific objections to the government's requests. He did not say
he had been prejudiced in any way by the court's failure to rule on
the requested instructions before he gave his closing. The court
replied that it would neither rule on nor hear argument on the
proposed instructions. Rather, the court stated its understanding
that the appropriate time to object was at the end of the
instructions. Nonetheless, it did hear argument on the
government's Request No. 8 (the compelled witness rule), and
declined to give the instruction. It also heard argument on the
government's proposed instructions No. 18 (conspiracy); No. 19
(unlawful objectives); and No. 22 (overt act). The only proposed
defense instruction called to the court's attention was No. 24, on
missing witnesses.
The district court did not, as Rule 30 requires, tell
counsel before closing argument its disposition of all of the
requested instructions. But counsel for Thurston had an obligation
-32-
to bring this to the court's attention before the closing and did
not do so.
Without addressing the issue of whether Thurston has thus
forfeited the Rule 30 argument, we choose to simply evaluate
whether defense counsel's closing argument was adversely affected.
See United States v. Owens, 167 F.3d 739, 753 (1st Cir. 1999). It
was not. One telling indicium that there was no prejudice is that
trial counsel did not ever say to the court he would be prejudiced
if he had to proceed with his closing without knowing the court's
disposition of the remaining requested instructions.
An even more telling indicium of lack of prejudice is
that Thurston's appellate counsel has been unable to identify any
specific areas of prejudice occasioned by the trial court's lapse.
While in theory such a lapse could cause prejudice, the most that
is argued here is that there was "no detailed reference to
important legal concepts regarding criminal conspiracy and the
state of mind by which Thurston would be judged." Appellate
counsel does not identify those "important legal concepts," and we
see none. As to Thurston's state of mind, the trial judge did
instruct on the government's burden to show Thurston had a specific
intent to participate in the conspiracy and to defraud the United
States. The court instructed the jury to consider Thurston
individually to determine if he willfully joined the conspiracy.
The court, in turn, defined "willfully." The court also explicitly
-33-
rejected Thurston's reasonable interpretation instruction, and it
instructed on good faith. These circumstances belie any claim of
prejudice and Thurston's claim fails.
D. Motion for New Trial Based on Dismissal of Apolipoprotein
Charge
Thurston and his co-defendants were originally charged
with conspiracy to commit fraud as to both the ferritin and the
apolipoprotein tests. At the close of the government's case the
court granted Thurston's motion for judgment of acquittal on the
apolipoprotein test, struck those references from the indictment,
and instructed the jury that this issue was no longer before it.
The government did not thereafter refer to this issue.
Thurston now argues that the court should have granted
Thurston a new trial after the jury returned because the
apolipoprotein evidence irretrievably tainted the trial. The
government rejoins that counsel should have raised the issue
sooner.
Again, we bypass the issue of forfeiture and reject the
argument that dismissal of the apolipoprotein charges tainted the
proceedings. Thurston's argument that none of this evidence would
have been admitted if the ferritin charges were tried alone is
based on an unlikely premise. Where the evidence admitted as to a
dismissed count would have been admissible as to a remaining count,
the defendant has not suffered prejudice. United States v. Rooney,
37 F.3d 847, 855-56 (2d Cir. 1994) (collecting cases); see United
-34-
States v. Weiner, 3 F.3d 17, 22 (1st Cir. 1993) (jury properly
considered evidence relating to counts dismissed prior to verdict,
since evidence was relevant to remaining counts).
The government would have introduced such evidence in any
event as relevant to rebut central defense themes that, because
Damon had such a decentralized decision-making structure, Thurston
was not involved in key decisions. The apolipoprotein evidence
contradicted Thurston's claims about the extent and consequences of
Damon's decentralized approach to the make-up, pricing, and
marketing of its panels.
There was little risk of prejudice for other reasons.
The government did not mention the apolipoprotein evidence in its
closing, and exhibits pertaining only to apolipoprotein were
removed before the documents were submitted to the jury. Further,
most of the testimony and documentary evidence in the first half of
the case, before the court ruled on the Rule 29 motion, dealt with
ferritin. These factors further minimized the likelihood of any
taint.
Thurston's conviction is affirmed.
IV. Sentencing Appeals
A. Thurston's Appeal from Loss Calculation
Much of Thurston's guidelines sentence range (sixty-three
to seventy-eight months) was driven by the loss calculation. Both
the PSR and the government recommended an intended loss figure of
-35-
more than five million dollars but less than ten million dollars.
This resulted in a fourteen-level increase in the base offense
level.
Thurston, not surprisingly, targets this loss
calculation. He makes two arguments. The first is that the
government was precluded by a comment to U.S.S.G. § 2F1.1 from ever
relying on intended loss unless the government first established
what the actual loss was and then established that the intended
loss was greater. This is a pure issue of guidelines
interpretation, which we review de novo. See United States v.
Gonzalez-Alvarez, 277 F.3d 73, 77 (1st Cir. 2002). The second
argument is that the court's conclusion had insufficient factual
support for a number of reasons, a contention reviewed for clear
error.
The guidelines interpretation argument turns on a comment
which provides:
Consistent with the provisions of § 2X1.1 (Attempt,
Solicitation or Conspiracy), if an intended loss that the
defendant was attempting to inflict can be determined,
this figure will be used if it is greater than the actual
loss.
U.S.S.G. § 2F1.1, cmt. n.7 (Fraud and Deceit).
Thurston argues that because the government did not show
actual loss, it cannot turn to intended loss. The argument is
simply wrong as a matter of the wording of the comment. The
comment directs the use of an intended loss figure when it is
-36-
greater than the actual loss figure; the comment does not restrict
the sentencing court's ability to rely on intended loss when there
is no actual loss calculation available. Defendant's reading also
makes little sense: it may be easier as a matter of proof to show
intended loss than actual loss. Conspirators are held accountable
for the loss they intend to commit. Finally, it is obvious on
these facts that the intended loss was greater than the actual loss
-- some doctors quit using Damon when, to their disgust, they
realized what the scheme was.
Thurston next mounts a series of fact-based attacks on
the intended loss figure of more than five million dollars. That
figure is supported by the capital expenditure requests each of the
labs prepared to obtain funding to buy the equipment needed to
perform the increased ferritin testing the labs anticipated. Each
CER included a financial analysis, one component of which was the
estimated new revenue from bundling the tests. Thus, the intended
loss calculation was based on the conspirators' own financial
calculations.
Thurston argues the CERs, being mere financial
projections, are not an adequate basis for an intended loss figure;
that the CERs were based on an assumed best case scenario in which
no physician who ordered Labscans would decline to get ferritin
tests; that, in any event, not all physicians who ordered the
bundled test were tricked into doing so; that the conspiracy was
-37-
not proven to last five years; that the conspiracy ended before
five years had elapsed for several labs, given the different dates
on which the labs bundled the tests; and that later, only one lab
reported to Thurston.
A number of these are quickly dispatched. The jury
verdict of guilt disposes of the question of the length of the
conspiracy. Thurston's promotion out of management of three of the
labs is irrelevant since he earlier conspired to produce losses
intended to go on for years.
Thurston also argues the intended loss had to be reduced
under U.S.S.G. § 2X1.1(b)(2) because the government's proof did not
establish that the conspirators had "completed all the acts the
conspirators believed necessary on their part for the successful
completion of the substantive offense." Id. There is no merit to
the argument. There was successful completion of the offense: the
tests were bundled and doctors were misled into ordering
unnecessary ferritin tests. The complaints from customers about
Damon's practices were confirmation the scheme had worked.
The closer question is the degree of precision the
government must reach in showing intended loss. It is true that
the CERs set forth best case scenarios which assumed all doctors
would order the bundled test without culling out the ferritin test.
If the CERs stood alone, defendant would have a better argument.
But they are supplemented by the fact that Damon made it extremely
-38-
difficult for doctors to cull out the ferritin and order the
Labscan without a ferritin test.
Further, the conspirators tried to hide from doctors the
fact that there was a significant cost to Medicare associated with
the bundling. The conspirators were maximizing the probability
that all doctors would accept the bundling, without culling and
without protest. The fact that the conspirators were not entirely
successful in fooling all doctors does not lessen their intent.
We have noted before that intended loss does not have to
be determined with precision; the court needs only to make a
reasonable estimate in light of the available information. United
States v. Blastos, 258 F.3d 25, 30 (1st Cir. 2001). There was good
evidence of intent and some "prospect of success" for the fraud to
reap over five million dollars, and that is all that the case law
requires. United States v. Orlando-Figueroa, 229 F.3d 33, 48 (1st
Cir. 2000). The best case CER projection was a loss to Medicare
over the charged five-year life of the conspiracy of $5,800,230.
It was reasonable for the district court to estimate that the
intended loss exceeded five million dollars, even allowing for the
one to two percent normal order rate for ferritin tests. The
government met its burden and Thurston offered little in rebuttal
except his protestations of innocence. There was no clear error.
-39-
B. Government's Sentencing Appeal
Given an intended loss of five million dollars,
Thurston's crime led to the statutory maximum sentence of five
years. The district court departed downward from the Guidelines
range by sixteen levels, however, sentencing Thurston to three
months' imprisonment to be followed by twenty-four months of
supervised release. The court imposed no fine and recommended that
the term of imprisonment be served in a halfway house.
1. Appeal from Grant of Downward Departures
The government argues that each of the stated grounds for
downward departure was in error.15 First, it contends that the
15
The court stated:
[I]n granting the motion for downward departure, I'm
basing it on two grounds.
First, the downward departure is justified because of the
defendant Thurston's record of charitable work and community
service[, which] is unique, extensive and extraordinary. I
think the record should reflect that in over fourteen years of
sentencing defendants, it's my judgment that no one had a more
extraordinary devotion to charitable work, community service,
and especially his dedication to his church.
And the second ground is that which is set out in the
United States Sentencing Commission Guidelines Manual under
Chapter 1, Part A, Section 3, which is entitled . . . "The
Basic Approach, paren, policy statement, closed paren,"
setting forth the rationale of the guidelines, it's cited here
that Congress sought reasonable uniformity in sentencing by
narrowing the wide disparity in sentences imposed for similar
criminal offenses committed by similar offenders.
Congress sought proportionality in sentencing through a
system that imposes appropriately different sentences for
criminal conduct of differing severity.
-40-
district court was forbidden to depart downward based on a
disparity between Thurston's sentence and the sentence of the
company president, a cooperating co-conspirator who pled guilty.
Next, it argues that departure for good deeds is discouraged and
that the facts provide no basis to warrant a finding that
Thurston's good deeds are so exceptional as to make such a
departure appropriate.
a. Standard of Review: Effect of the PROTECT Act
On April 30, 2003, certain provisions of a new statute
affecting the courts of appeals' review of sentencing provisions
became effective. The PROTECT Act changes the applicable standard
of review on certain issues in appeals from departures from the
sentencing guidelines.
Section 401 of the PROTECT Act amends 18 U.S.C.
§ 3742(e), which now reads:
(e) Consideration. -- Upon review of the record, the
court of appeals shall determine whether the sentence --
. . . .
(3) is outside the applicable guideline range, and
We have a situation here where coconspirator Isola, the
president of Damon and the architect, at least the prime
architect of this conspiracy, received a sentence of three
years' probation, and it is, in my judgment, a violation of
the fundamental purpose of the Sentencing Commission
Guidelines to impose a sentence which is not at least somewhat
similar to that incurred by a coconspirator who was more
involved in the conspiracy t[h]an this defendant.
-41-
(A) the district court failed to provide the
written statement of reasons required by
section 3553(c);
(B) the sentence departs from the applicable
guideline range based on a factor that --
(i) does not advance the objectives set
forth in section 3553(a)(2); or
(ii) is not authorized under section
3553(b); or
(iii) is not justified by the facts of
this case; or
(C) the sentence departs to an unreasonable
degree from the applicable guidelines range,
having regard for the factors to be
considered in imposing a sentence, as set
forth in section 3553(a) of this title and
the reasons for the imposition of the
particular sentence, as stated by the
district court pursuant to the provisions of
section 3553(c); . . . .
. . . .
The court of appeals shall give due regard to the
opportunity of the district court to judge the
credibility of the witnesses, and shall accept the
findings of fact of the district court unless they are
clearly erroneous and, except with respect to
determinations under subsection (3)(A) or (3)(B), shall
give due deference to the district court's application of
the guidelines to the facts. With respect to
determinations under subsection (3)(A) or (3)(B), the
court of appeals shall review de novo the district
court's application of the guidelines to the facts.
(emphasis added).
This changed the prior law. Under Koon v. United States,
518 U.S. 81 (1996), the appellate courts were not to review a
departure decision de novo, but were to ask whether the sentencing
-42-
court abused its discretion.16 Id. at 91, 96-100. Where a district
court grants a departure, we have, before the PROTECT Act, engaged
in a three-part review: "(1) we determine whether the stated ground
for departure is theoretically permissible under the guidelines;
(2) if so, we examine the record to assess whether there is
adequate factual support; and (3) we determine the appropriateness
of the degree of departure." United States v. Bogdan, 302 F.3d 12,
16 (1st Cir. 2002). Whether a stated ground for departure was
theoretically permissible (part (1)) was a question of law reviewed
de novo. United States v. Bradstreet, 207 F.3d 76, 81 (1st Cir.
2000); cf. United States v. Diaz, 285 F.3d 92, 98-99 (1st Cir.
2002) ("We review de novo whether the district court utilized a
proper basis for [an upward] departure."). Under Koon, we then
reviewed the remaining two parts for abuse of discretion.
See Koon, 518 U.S. 96-100; United States v. Lujan, 324 F.3d 27, 31
n.5 (1st Cir. 2003); United States v. Martin, 221 F.3d 55 (1st Cir.
2000).
The courts of appeals are now charged with de novo review
of the second issue: whether the facts are exceptional (or outside
16
Before Koon was decided in 1996, the rule in this circuit
was that we would review de novo whether, "taking the reasons for
departure stated by the district court at face value, those reasons
will as a matter of law justify abandonment of the guidelines."
United States v. Wogan, 938 F.2d 1446, 1447 (1st Cir. 1991). We
point this out because Thurston's fraudulent conduct took place
before Koon and when this court used a de novo standard of review,
as is now mandated by the PROTECT Act.
-43-
the heartland), thus warranting consideration of a departure.
Congress requires the courts of appeals to consider whether a
sentence that departs from the applicable guideline range is based
on a factor that:
(i) does not advance the objectives set forth in
section 3553(a)(2); or
(ii) is not authorized under section 3553(b); or
(iii) is not justified by the facts of the case[.]
18 U.S.C. § 3742(e)(3)(B).
Thurston argues that the PROTECT Act should not be
interpreted to apply to this case and that, if it did apply, it
would be retroactive and invalid. He makes two statutory intent
arguments: (1) that the internal structure of the statute means it
should not be applied to cases already pending on appeal; and (2)
that the presumption against retroactivity should apply.
First, Thurston argues that Congress meant application of
the de novo review provisions in the PROTECT Act to be deferred
until appeals arise from sentences entered after the Act became
effective. This is evident, Thurston says, since the Act imposed
a new requirement for the district judge to give a written
statement of reasons. From this, Thurston argues, all provisions
of the Act were meant to apply only to post-Act sentencing. The
argument is plausible, but we are unpersuaded. Even before the
PROTECT Act, a trial court was required to give some reasons,
though not necessarily in writing, for a downward departure. See
18 U.S.C. § 3553(c) (2000) (pre-PROTECT Act version); United States
-44-
v. Sclamo, 997 F.2d 970, 973 (1st Cir. 1993) (discussing
discouraged ground for departure); United States v. DeMasi, 40 F.3d
1306, 1324 (1st Cir. 1994) (same). A requirement that this
statement of reasons be written, rather than oral, has no
particular connection to the appellate standard of review.
Although the Act does not expressly say that its de novo
review provision applies to pending appeals, it does give an
effective date of April 30, 2003. The effective date of a statute
does not by itself establish that it has any application to conduct
that occurred at an earlier date. See INS v. St. Cyr, 533 U.S.
289, 317 (2001) (quoting Landgraf v. USI Film Prods., 511 U.S. 244,
257 (1994)). Still, we agree with the Eighth Circuit that the new
statute applies to appeals pending as of the effective date of the
statute. See United States v. Aguilar-Lopez, 329 F.3d 960, 962-63
(8th Cir. 2003). Subject to constitutionally-based retroactivity
concerns, it is certainly within Congress's power to change a
standard of review. See, e.g., Hines v. Sec'y of Dep't of Health
& Human Servs., 940 F.2d 1518, 1523 (Fed. Cir. 1991); Consumers
Union of U.S. v. FTC, 801 F.2d 417 (D.C. Cir. 1986); cf. Bierce v.
Waterhouse, 219 U.S. 320, 336-37 (1911). Much of the conduct
regulated by this part of the PROTECT Act is that of the courts of
appeals (and indirectly, the district courts now under closer
scrutiny), and that involves conduct dating from April 30, 2003
forward.
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Thurston's fall-back argument is that applying a changed
standard of review to a case already on appeal would have an
impermissible effect on him under the Supreme Court's retroactivity
jurisprudence. See Landgraf, 511 U.S. at 264. Not so. The change
of a standard of appellate review is one in procedure for the
courts; procedural changes that do not affect substantial rights
are not usually considered retroactive. This legislation is little
different than the Supreme Court's changing the standard of review
by directing the courts of appeals to decide ultimate Fourth
Amendment questions by de novo review. See Ornelas v. United
States, 517 U.S. 690, 697 (1996). When the Supreme Court applies
a rule of federal law to the parties before it, that rule is the
controlling interpretation that must be applied "retroactively" to
all criminal cases on direct review. See Harper v. Va. Dep't of
Taxation, 509 U.S. 86, 95 (1993) (citing Griffith v. Kentucky, 479
U.S. 314, 322 (1987)). Changing the appellate standard of review,
as done here, could upset no legitimate reliance interest by a
defendant,17 could not have induced alteration of the behavior that
led to the crime, and could not have upset settled expectations.
We see no unfairness to defendants in Congress's requiring a closer
look by appellate courts at whether a district court committed an
error in deciding that the guidelines permitted a departure. It is
17
In Thurston's case, there could be no reliance interest in
any event, since this court used a de novo standard of review at
the time he committed the crime.
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the substance of the sentencing rules, both Guidelines and
statutory, that impacts defendants.
Thurston makes a cursory argument that the PROTECT Act
presents serious constitutional separation-of-powers questions. At
the request of the Senate, the Chief Justice, expressing the views
of the U.S. Judicial Conference, did advise the Senate of the
Conference's opposition to portions of the bill, including
alteration of the standard of review. See Letter from Chief
Justice William H. Rehnquist to Senator Patrick Leahy (undated),
available at http://www.nacdl.org/public.nsf/2cdd02b415ea
3a64852566d6000daa79/departures/$FILE/Rehnquist_letter.pdf. The
U.S. Sentencing Commission requested that Congress not act until
the Commission had the opportunity to analyze data and study the
matter. See Letter from Judge Diana Murphy, Chair of the U.S.
Sentencing Commission, et al. to Senators Orrin Hatch and Patrick
Leahy (April 2, 2003), available at http://www.nacdl.org/
public.nsf/2cdd02b415ea3a64852566d6000daa79/departures/$FILE/stcg
_comm_current.pdf. But judicial opposition to legislation on
policy grounds is one thing, and unconstitutionality of the
legislation is another. No real theory of unconstitutionality has
been presented by this appeal, and so the issue is waived. See
United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
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b. Application of De Novo Standard of Review
i. Disparity With Co-Defendant
The district court felt there was an unfair disparity
between a five-year sentence of imprisonment for Thurston and the
three-year probation sentence for co-conspirator Isola. It viewed
Isola as "the architect, at least the prime architect of this
conspiracy." Apparently the district court felt that Isola,
Thurston's superior, was the guiltier of the two, and that this
fact overshadowed other differences between their cases. Isola
pled nolo contendere to willful blindness about the apolipoprotein
conspiracy.
As the law of this circuit makes clear, basing the
departure on grounds of disparity in sentence alone between
Thurston and Isola was beyond the district court's authority.
United States v. Wogan, 938 F.2d 1446, 1448 (1st Cir. 1991); see
also United States v. Romolo, 937 F.2d 20, 25 n.5 (1st Cir. 1991).
Sidestepping circuit precedent, the district court referred to a
statute that requires a sentencing court to consider not only the
Commission's Sentencing Guidelines and policy statements, but also
"the need to avoid unwarranted sentence disparities among
defendants with similar records who have been found guilty of
similar conduct." 18 U.S.C. § 3553(a)(6). This provision was
unchanged by the PROTECT Act.
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Yet the same statute also requires that the court "shall
impose a sentence of the kind, and within the range [of the
pertinent Guidelines], unless the court finds that there exists an
aggravating or mitigating circumstance of a kind, or to a degree,
not adequately taken into consideration by the Sentencing
Commission." 18 U.S.C. § 3553(b)(1). That is why, since as early
as 1991, this court has interpreted the statute to preclude
sentencing judges from departing downward based on "a perceived
need to equalize sentencing outcomes for similarly situated co-
defendants, without more." Wogan, 938 F.2d at 1448 (emphasis
added).
The "more" that is needed refers to circumstances not
adequately considered by the Commission, and none have been shown
here with regard to disparity. In the pre-Guidelines era, the
district court's attempt to avoid perceived unfairness would have
had greater weight. The Guidelines bind us and they bind the
district court. The downward departure based on disparity in
sentences among co-defendants was impermissible.
ii. Good Works
The second ground, based on Thurston's good works, poses
the most difficult issue in the case. We have found disparity
alone an impermissible ground; it is possible the trial court would
not have granted so extensive a departure based on good works
alone. It may also be that if the court had granted a modest
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departure on the second ground, the government would not have
appealed. But the trial court did not differentiate and the
government on appeal argues that any departure at all based on good
works (like the departure for disparity) was contrary to law.
The Sentencing Guidelines discourage downward departures
from the normal sentencing range based on good works -- that is,
civic, charitable, or public service. U.S.S.G. § 5H1.11. Such
departures are permitted only when the good works are exceptional.18
See United States v. Pereira, 272 F.3d 76, 80 (1st Cir. 2001). The
district court based its finding that Thurston's good works were
exceptional on Thurston's "record of charitable work and community
service[, which is] unique, extensive and extraordinary." The
court continued, "I think the record should reflect that in over
fourteen years of sentencing defendants, it's my judgment that no
one had a more extraordinary devotion to charitable work, community
service, and especially . . . to his church." Thurston is a member
of the Church of Latter Day Saints, tithes ten percent of his
income (as his church encourages him to do), and devotes hours
every week to unpaid service with the church in a variety of
positions. Letters from his fellow congregants characterize him as
18
Good works may also be considered in setting a sentence
within the Guidelines range or in setting certain conditions. This
does Thurston no good, however, since the applicable Guidelines
range is sixty-three to seventy-eight months, all above the
statutory maximum of sixty months.
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a man of principle and impeccable character19 -– characterizations
undermined, of course, by the jury's finding of guilt. In any
event, it is good works, objectively measured, and not good
character that is at issue.
In addition, Thurston has taken family members and others
into his home and has been helpful to his neighbors. For example,
the parents of a woman undergoing rehabilitation at a local medical
center stayed at Thurston's home for several weeks. On another
occasion, Thurston and his family laid sod for an infirm neighbor.
Save for his crime, Thurston appears to have lived a creditworthy
life.
The issue then becomes, as we engage in de novo review,
the point of reference by which to determine whether Thurston's
good works provide a basis for a departure. Earlier, under Koon,
518 U.S. 81, the very sensible rationale was that the district
courts, which saw far more sentencing cases than the courts of
appeals, were better positioned to determine what was exceptional,
and appellate courts owed deference to that more expert
determination. See id. at 96-100. The PROTECT Act has abrogated
19
During the trial, numerous witnesses for both sides
testified to Thurston's reputation for honesty and integrity.
During the sentencing phase, many of Thurston's friends and family
members explicitly or implicitly said they thought the jury verdict
was incorrect.
Good character is covered by the aberrant behavior guidelines,
and here is no claim on appeal that Thurston was entitled to a
departure on those grounds.
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that deference. There are many policy arguments in favor of
deference to the district court, which were presented to Congress
by the Judicial Conference of the United States. But Congress
chose to decide the balance differently, expressing concern that
the departure rate for certain crimes and within certain districts
threatened to undermine the Guidelines regime. See, e.g., H.R.
Rep. No. 108-66, at 58-59, available at
http://thomas.loc.gov/cgi-bin/cpquery/T?&report=hr066&dbname=cp10
8&; 149 Cong. Rec. H3059, H3066 (daily ed. April 10, 2003)
(statement of Rep. Sensenbrenner).
In reviewing de novo whether any departure is
permissible, the PROTECT Act and the case law require courts of
appeals to consider three sources: other decisions under the
Guidelines; the Commission's relevant Guidelines and statements;
and the congressional purposes behind sentencing. Even before the
PROTECT Act, the question of whether a discouraged factor was
present in an exceptional way was determined in large part by
comparison with other Guidelines cases. See Pereira, 272 F.3d at80 (citing Koon, 518 U.S. at 98). Such other cases are not limited
to cases involving convictions for the same offense. See United
States v. DeMasi, 40 F.3d 1306, 1324 (1st Cir. 1994). Second,
appellate courts are also to consider policy statements and
official commentary by the Sentencing Commission. 18 U.S.C. §
3553(b). Third, Section 401 of the PROTECT Act instructs courts of
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appeals to consider whether a departure is consistent with the
purposes of sentencing stated in 18 U.S.C. § 3553(a)(2) -- that is,
retribution, deterrence, incapacitation, and rehabilitation.
As to comparisons with other reported cases, each side
has some circuit authority in support of its position; the
government's cases are a closer fit. The government cites United
States v. Morken, 133 F.3d 628, 629-30 (8th Cir. 1998) (divided
court reverses a downward departure because good works are not
exceptional for someone of defendant's income and preeminence in a
small town); United States v. Kolbach, 38 F.3d 832, 838-39 (6th
Cir. 1994) (vacating a good works departure because "it is usual
and ordinary, in the prosecution of similar white collar crimes
involving high-ranking corporate executives . . . to find that a
defendant was involved as a leader in community charities, civic
organizations, and church efforts"); and United States v.
Haverstat, 22 F.3d 790, 795-96 (8th Cir. 1994) (vacating a
departure for good works where the defendant's charitable and
volunteer activities did not make him an atypical defendant in an
antitrust price-fixing case).
In United States v. Bogdan, 284 F.3d 324 (1st Cir. 2002),
this court found no basis for a downward departure for a caring and
generous father who made efforts to improve his relationship with
his ex-wife and supported her financially and who was introspective
and remorseful about his crime. Id. at 329-30. When the district
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court again granted a downward departure because it thought the
sentence "unconscionable," this court again reversed. United
States v. Bogdan, 302 F.3d 12, 16-17 (1st Cir. 2002).
In turn, Thurston relies on several circuit decisions
affirming good works downward departures. These cases are less
persuasive than those cited by the government, since the circuit
courts merely hold that there was no abuse of discretion and since
the facts are less analogous. See United States v. Serafini, 233
F.3d 758, 775-76 (3d Cir. 2000) (affirming a downward departure
based on exceptional charitable works in light of the defendant's
meager resources); United States v. Woods, 159 F.3d 1132, 1136-37
(8th Cir. 1998) (in a bankruptcy fraud case involving a defendant
who transformed the lives of two girls and cared for an elderly
friend, a one-level downward departure was not an abuse of
discretion); United States v. Rioux, 97 F.3d 648, 662-63 (2d Cir.
1996) (no abuse of discretion to depart downward based on a
combination of medical condition and civic good deeds). We would
find the expertise reflected in the decisions of the district
courts to be useful as well in determining whether particular good
works are exceptional. But the parties have not cited any such
cases.
As the government's cases indicate, corporate executives
are usually better situated to make large financial contributions
and are often expected, by virtue of their positions, to engage in
-54-
civic and charitable activities. The ability to make large
contributions should not keep a defendant out of jail. See United
States v. McHan, 920 F.2d 244, 248 (4th Cir. 1990). And those
whose place in life does not give them similar opportunities should
not be disadvantaged. See U.S.S.G. § 5H1.10.
For similar reasons, we would be reluctant to find a
defendant's good works exceptional solely on the basis of actions
that were required or encouraged as a condition of membership in a
religious institution. Such a result -- which would seemingly
entitle all members in good standing to a downward departure --
could undercut the principle that religion (like socio-economic
status) is a forbidden basis for departure. See U.S.S.G. § 5H1.10.
On the other hand, good works should not have less weight because
a defendant was motivated by religious belief. Thurston should not
be disadvantaged by his church involvement. It would, in any
event, do a disservice to Thurston to categorize him entirely in
terms of his economic or religious status. His good works predated
his executive status and continued over time; they exceeded the
bare requirements for church membership; and they involved costs to
him in terms of time and effort.
In sum, the comparison to other case law is not
dispositive and is, in any event, only one part of the analysis.
We move on to the Guidelines and to the purposes of sentencing.
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Two salient principles emerge from the Guidelines: the
goal of parity between white collar and other criminal defendants
and the goal of discouraging departures based on good works.
Congress and the Sentencing Commission were clear that under the
pre-Guidelines regime, sentences for white collar crimes were too
lenient.20 The Sentencing Commission intended to "equalize
punishments for 'white collar' and 'blue collar' crime." United
States v. Rivera, 994 F.2d 942, 955 (1st Cir. 1993) (Breyer, J.).
Viewing the departure in terms of the purposes of
sentencing also militates against the departure. Thurston was
convicted of a serious crime, a massive fraud at public expense
involving deceit, trickery, and sophistication. The federal
government spent approximately $249 billion on Medicare last year.
20
See Mary Kreiner Ramirez, Just in Crime: Guiding Economic
Crime Reform After the Sarbanes-Oxley Act of 2002, 34 Loy. U. Chi.
L.J. 359, 372-76 (2003) (discussing the Sentencing Commission's
concern that white-collar crimes have been "grossly under-
sentenced"); id. at 396-401 (collecting data on the under-
sentencing of white-collar crimes and arguing that the prevalence
of downward departures in white collar cases threatens to undermine
the integrity of the Sentencing Guidelines); see also Testimony of
Sentencing Commissioner Stephen Breyer Before the Senate Committee
on the Judiciary, Oct. 22, 1987, reproduced in 146 PLI/Crim 811,
824 (1987) ("[T]he Commission considers present sentencing
practices, in which white collar criminals receive probation more
often than other offenders who committed crimes of comparable
severity, to be unfair."); 28 U.S.C. § 994(m) (2000) ("The
[Sentencing] Commission shall insure that the guidelines reflect
the fact that, in many cases, current sentences do not accurately
reflect the seriousness of the offense."). The recent enactment of
enhanced penalties for many white collar crimes only underscores
Congress's disinclination towards leniency for white collar
criminals. See Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204,
§§ 801-1107, 116 Stat. 745, 800-10.
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One group has estimated that about three percent of the $1.4
trillion the country spent on health care in 2001 was lost to
fraud.21 "A Sick Business," The Economist, June 28, 2003, at 64
(citing data from National Health Care Anti-Fraud Association); see
National Health Care Anti-Fraud Association, Health Care Fraud, at
p. 2, available at http://www.nhcaa.org/pdf/all_about_hcf.pdf
(n.d.). The retribution and deterrent interests in sentencing
would be significantly undercut by permitting a good works
departure on this record.
"Good works" do not stand alone. They must be evaluated
in the context of the crime and the purposes of sentencing. Health
care fraud, a form of white collar fraud, is a serious national
problem, affecting the financial integrity of programs meant to aid
tens of millions of people in need of health care. Every dollar
lost to fraud is a dollar that could have provided medical care to
the elderly or the disabled. By definition, Medicare fraud will
most likely be white collar fraud, committed by educated people
with responsible jobs. Thurston's executive position at Damon,
which gave him the resources to undertake many of his charitable
21
For other circuit court cases involving Medicare and
Medicaid fraud, see United States v. Baxtonbrown-Smith, 278 F.3d
1348 (D.C. Cir. 2002) (fraud exceeding two million dollars); United
States v. Liss, 265 F.3d 1220 (11th Cir. 2001) (kickback scheme for
referrals); United States v. Regueiro, 240 F.3d 1321 (11th Cir.
2001) (fraud exceeding fifteen million dollars); United States v.
McClendon, 195 F.3d 598 (11th Cir. 1999) (fraud exceeding three
million dollars); and United States v. Polin, 194 F.3d 863 (7th
Cir. 1999) (Medicare kickback scheme).
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works, also enabled him to perform the crime. Were it not for the
statutory maximum, he would, under the Guidelines, have been
sentenced to imprisonment for more than five years. A five-year
term of imprisonment in light of the nature of the crime reflects
the seriousness of the offense, the need for congruity with "blue
collar" crime, and the need to deter other executives from similar
law-breaking. Thurston's admirable good works simply are not so
exceptional, in context, as to provide a basis to depart.
The government's argument that Thurston's conduct
warranted an upward adjustment for obstruction of justice based on
perjury at trial need not be resolved, given our disposition of the
other issues. The statute caps his period of incarceration at
sixty months. It is noteworthy, though, that Thurston's testimony
on key matters of fact was contradicted by multiple witnesses.
c. Fine
The government argues that the sentencing judge erred by
failing to impose a fine on Thurston in accordance with the
Guidelines. Thurston argued, and the district court accepted, that
he should not receive a fine because that would create an
unacceptable disparity between his sentence and that of co-
defendant Isola. Sentence disparity is an unacceptable basis for
refusing to impose a fine and is plain error for the reasons
discussed earlier.
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Thurston contends that the government has forfeited its
argument that a fine must be imposed by failing to object after the
judge ruled. The government earlier took the position that a fine
must be imposed and also argued that the court could not refuse to
impose a fine on the basis of disparity -- the only argument
Thurston presented. In these circumstances, the issue was not
forfeited. See Gallant, 306 F.3d at 1187-88 (holding that a
sentencing issue was not forfeited as a result of counsel's failure
to object after the court's ruling); cf. United States v. Meserve,
271 F.3d 314, 325 (1st Cir. 2001) (motion to strike unnecessary to
preserve evidentiary issue where party objected prior to trial
court's ruling). Even were this an instance of forfeiture, the
district court committed plain error in its rationale.
Before this court, Thurston attempts to defend the
decision not to impose a fine on the basis that the statutory
definition of his crime, which provides that a fine may be
assigned, trumps the Guidelines, which provide that a fine must be
assigned barring special circumstances. The crime of which
Thurston was convicted, 18 U.S.C. § 371, provides for a prison
term, a fine, or both. By contrast, U.S.S.G. § 5E1.2(a) says, "The
court shall impose a fine in all cases, except where the defendant
establishes that he is unable to pay and is not likely to become
able to pay any fine." (emphasis added). The defendant did not
establish, or even seek to establish, inability to pay. The
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sentencing judge made no finding, implicit or explicit, that
Thurston could not pay. The PSR estimated that Thurston had a net
worth of over $1.5 million, and the minimum fine under the
Guidelines was $12,500.
Because the sentence fixed by U.S.S.G. § 5E1.2(a) is
within the range contemplated by 18 U.S.C. § 371, the Guideline is
not trumped by the statute. See United States v. Page, 84 F.3d 38,
43 (1st Cir. 1996) ("There is no reason why the Guidelines may not
make their own classifications within the statutes, and hence
definitions which the courts must observe, so long as these are not
internally inconsistent or in violation of the Constitution or a
federal statute."). Here there is no inconsistency and the
district court was required to impose a fine.
V. Conclusion
Thurston's conviction is affirmed. Thurston's sentence
is vacated; the downward departure based on good works and
purported disparity is reversed; and the order that no fine be
imposed is reversed. The case is remanded for imposition of the
statutory maximum sentence of sixty months in prison and for
imposition of an appropriate fine. So ordered.
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