United States v. Home Health ( 1997 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: SEARCH WARRANTS SERVED ON
HOME HEALTH AND HOSPICE CARE,
INCORPORATED
UNITED STATES OF AMERICA,
No. 96-4813
Appellant,
v.
HOME HEALTH AND HOSPICE CARE,
INCORPORATED,
Appellee.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
Malcolm J. Howard, District Judge.
(MISC-95-18-5-H)
Argued: June 2, 1997
Decided: September 5, 1997
Before HALL and NIEMEYER, Circuit Judges, and
BUTZNER, Senior Circuit Judge.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: G. Norman Acker, III, Assistant United States Attorney,
Raleigh, North Carolina, for Appellant. David Dart Queen, OBER,
KALER, GRIMES & SHRIVER, Baltimore, Maryland, for Appellee.
ON BRIEF: Janice McKenzie Cole, United States Attorney, John S.
Bowler, Assistant United States Attorney, Anne M. Haynes, Assistant
United States Attorney, Raleigh, North Carolina, for Appellant. Rob-
ert W. Biddle, OBER, KALER, GRIMES & SHRIVER, Baltimore,
Maryland, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Home Health and Hospice Care, Inc., successfully challenged eight
search warrants under Franks v. Delaware, 438 U.S. 154 (1978). The
magistrate judge who initially issued the warrants found not only that
the supporting affidavit contained recklessly false material, but also
that without the false material, he would not have found probable
cause and issued the warrants. The district court agreed and ordered
the return of the seized property. The government appeals contending
(1) that the district court's findings of fact were clearly erroneous, and
(2) that even when redacted to delete the false material, the warrants
were supported by probable cause. Because we find no clear error in
fact finding and agree with the magistrate judge who originally issued
the warrants that as redacted they are not supported by probable
cause, we affirm the order of the district court.
I
On January 13, 1995, the government applied to Magistrate Judge
Alexander B. Denson for eight warrants to search eight offices of
Home Health and Hospice Care, Inc. ("Home Health") for evidence
of Medicare fraud, Medicaid fraud, wire fraud and mail fraud. In sup-
port of the application, the government submitted a"Master Affida-
vit" signed by Jimmie L. Burgess, an Internal Revenue Service
2
Special Agent, and Teresa E. Gwiazdowski, a Federal Bureau of
Investigations Special Agent, both of whom were part of a joint state-
federal task force. William Berlin, a Financial Investigator with the
Medicaid Investigation Unit of the North Carolina Department of Jus-
tice, was also identified in the Master Affidavit as having participated
in the investigation. The Master Affidavit asserted that there was
probable cause to believe that criminal fraud had been committed at
the eight Home Health locations. Magistrate Judge Denson issued the
warrants, which were executed on January 19, 1995. Approximately
5 million documents were seized.
Three months later, the Master Affidavit was unsealed and exam-
ined by Home Health and its attorneys. On August 16, 1995, Home
Health filed a motion for a hearing under Franks v. Delaware, 438
U.S. 154 (1978), and for return of property under Federal Rule of
Criminal Procedure 41(e), contending that the Master Affidavit con-
tained several false statements made with reckless disregard for the
truth and that without those statements the affidavit did not suffi-
ciently establish probable cause. On August 28, the United States
filed its opposition to the motion, arguing that Home Health had not
made the substantial preliminary showing necessary to entitle it to a
Franks hearing. The motion was assigned to Magistrate Judge Den-
son, who ruled on September 25 that Home Health had made the pre-
liminary showing required by Franks and ordered a hearing.
Before the hearing, the government filed a motion on October 24,
1995, for reconsideration of the court's September 25 order granting
a Franks hearing, arguing that Home Health had not established that
the Master Affidavit would be insufficient to show probable cause if
the alleged falsehoods and omissions were corrected. The motion for
reconsideration was denied, and the government appealed to the dis-
trict court. Home Health moved to strike the appeal because it actu-
ally challenged the September 25 order granting a Franks hearing, not
the denial of the motion for reconsideration. Accordingly, Home
Health argued the appeal was untimely, having been filed well
beyond the 10-day deadline imposed by local rule. Home Health also
maintained that the government's appeal was not from a final order,
but from a procedural order granting a hearing. The district court
struck the appeal, concluding that the magistrate judge had granted no
substantive relief and that therefore there was no appealable order.
3
Magistrate Judge Denson conducted a Franks hearing on October
31 and November 7, 1995, and allowed the parties to file supplemen-
tal briefs based on evidence received at the hearing. On April 4, 1996,
the magistrate judge granted Home Health's motion for return of
property. He ruled that the Master Affidavit contained false state-
ments and omitted important facts and that in making the statements
and omitting the facts the affiants showed reckless disregard for the
truth. He concluded that when false statements and material omissions
were corrected, the Master Affidavit failed to demonstrate probable
cause that a crime had been committed. The magistrate judge found
the following facts:
1. The Master Affidavit claimed that Confidential Infor-
mant number 1 (CI-1), described Home Health's practice of
using Post-itTM Notes "to identify caregiver notes that need
to be changed, altered, and/or falsified . . . to meet billing
standards." CI-1 later identified himself to Home Health as
Bobby Shoemake, a Home Health employee. Investigators
admitted that Mr. Shoemake did not say that Home Health
used the Post-itTM Notes to identify records that needed to be
falsified. Instead, that was an inference drawn by law
enforcement agents, which, the magistrate judge concluded,
was attributed to Mr. Shoemake with at least reckless disre-
gard for the truth. The magistrate judge also found, based on
Mr. Shoemake's testimony and Investigator Berlin's inter-
view notes, that Mr. Shoemake had not stated that the Post-
itTM Notes were used to identify records which needed to be
changed to meet billing standards, and that the Master Affi-
davit's contrary assertion was made with at least reckless
disregard for the truth.
2. The Master Affidavit asserted that "CI-1 stated that the
caregiver notes are returned to the original caregiver when-
ever possible to be altered by that caregiver so that when
they are placed into the chart it would be very difficult to
detect the alterations at a later time." The magistrate judge,
however, found that Investigator Berlin's interview notes
recorded that difficulty of detection was merely a possible
consequence of Home Health's practices, not the motivation
for it. Investigator Berlin admitted that this was a more
4
accurate description of what Mr. Shoemake had said. The
magistrate judge found that the inaccurate attribution to Mr.
Shoemake was made with at least reckless disregard for the
truth.
3. The Master Affidavit asserted that CI-1 (Mr. Shoe-
make) had "personal knowledge of employees working after
hours for the purposes of altering and/or changing docu-
ments relative to alleged care provided to recipients." The
magistrate judge, however, found that "Mr. Shoemake stated
that although he was concerned about Home Health employ-
ees working on charts after hours because he believed there
was adequate time to work on charts during the work day,
he did not know why the employees were there or what they
were doing." Investigators testified that they had no recol-
lection of Mr. Shoemake ever asserting personal knowledge
of why Home Health employees were working after hours.
The magistrate judge found that Mr. Shoemake's reports to
law enforcement had been misrepresented with at least reck-
less disregard for the truth.
4. The Master Affidavit asserts that Medicare and Medic-
aid require a signed plan of treatment before initial care can
be given. Part of the fraud attributed to Home Health in the
Master Affidavit was the provision of initial care before
treatment plans were signed. Investigator Berlin admitted at
the hearing, however, that initial care may be given based
on verbal orders from a physician, and testified that he had
informed Special Agents Burgess and Gwiazdowski of that
fact. Special Agent Burgess admitted that he had known as
much. The magistrate judge concluded that the Medicare
and Medicaid requirements had been misrepresented with at
least reckless disregard for the truth.
5. The Master Affidavit set forth examples of records from
six Home Health offices of patient records that allegedly
lacked proper documentation. The Master Affidavit then
asserted that "in all the above cited instances, Medicare
and/or Medicaid were billed for services not rendered."
Investigator Berlin admitted that there was no evidence of
5
billing for services not rendered, although there may have
been problems with documentation. Although Agents Bur-
gess and Gwiazdowski asserted that there were instances of
bills for services not rendered, they did not identify any. The
magistrate judge concluded that the statement, "Home
Health billed for services not rendered," was inaccurate and
included in the Master Affidavit with at least reckless disre-
gard for the truth.
6. The Master Affidavit introduced Home Health as hav-
ing been the subject of a 1989 investigation into false
claims. Home Health was said to have engaged in"inappro-
priate and incorrect billings and submissions" resulting in
payments to which Home Health was not entitled. What the
final draft of the Master Affidavit did not include, but prior
drafts did, was the fact that the investigation did not reveal
any fraudulent intent, did not result in a criminal prosecu-
tion, and was settled voluntarily by Home Health repaying
the relevant amounts. Though Investigator Berlin testified
that the resolution of the 1989 investigation was removed
from the final draft to present a neutral opinion, the magis-
trate judge found that implausible, especially in light of the
testimony that the 1989 investigation had been described in
the Master Affidavit in order to support a finding of proba-
ble cause. The magistrate judge concluded that information
on the 1989 investigation was omitted with reckless disre-
gard for the misleading effect its absence would have in the
probable cause determination.
7. The Master Affidavit included information given by CI-
3 relative to Home Health's billing practices. The dates of
CI-3's employment at Home Health were not given, but the
recent dates of CI-3's interviews with law enforcement offi-
cials were given, creating the impression that CI-3's infor-
mation was recent. In fact, CI-3 had not worked for Home
Health since 1992, and when government agents stipulated
that it knew as much, the magistrate judge announced with-
out objection that information attributed to CI-3 was stale
and would not be considered. The magistrate judge found
that CI-3's employment dates were omitted with at least
6
reckless disregard for the misleading effect such omission
would have.
8. The Master Affidavit asserted that Home Health had
billed for services to a patient which were (or would have
been) provided after the patient's death. However, Home
Health presented "persuasive evidence that it had not
claimed to render any services after this patient's death nor
had it billed for any such services." Although the investigat-
ing agents did not know this, they also made no attempt to
verify their information before including it in the Master
Affidavit, which they admitted they very easily could have
done by contacting the state agency. The magistrate judge
noted that the "validity of a search warrant must be assessed
on the basis of the information that the officers disclosed, or
had a duty to discover and disclose," and concluded that the
agents included the information about the "dead patient"
with at least reckless disregard for the truth.
Under these factual findings and after setting aside the false infor-
mation and considering the omitted information, the magistrate judge
noted that the affidavit "takes on a totally different character." He
concluded that the corrected Master Affidavit did not support a find-
ing of probable cause and thereupon granted Home Health's motion
for return of seized property.
On appeal to the district court, the government gave as its only
grounds for appeal that "the Court's finding following a Franks hear-
ing that false information was included in the search warrant know-
ingly and intentionally or with reckless disregard for the truth is
contrary to fact and law." In its brief, however, filed more than two
months after its appeal time had expired, the government shifted its
argument, no longer contesting the magistrate judge's ultimate factual
findings but contending that Home Health should not have been given
a Franks hearing because it had not made"a proper ``substantial pre-
liminary showing' that the alleged false statements were made ``know-
ingly and intentionally,' or in ``reckless disregard for the truth.'" With
respect to the omissions, the government also contended that Home
Health was not entitled to a Franks hearing because it failed to make
the preliminary showing that "such omissions would have affected the
7
finding of probable cause," arguing that "[e]ven if these alleged omis-
sions had been included in the search warrant affidavit, probable
cause would still have existed."
Affirming the magistrate judge, the district court noted that it had
not found a single case where "otherwise justified relief" was vacated
on the basis that the hearing from which it stemmed should not have
been held. The court found no reason to disturb its earlier conclusion
that the order granting a Franks hearing was not appealable.
On August 12, 1996, the government filed a motion for reconsider-
ation, in which it asked the district court to hold a new hearing and
revisit the merits of the order directing a return of property. Despite
Home Health's objection, the district court ordered a hearing and spe-
cifically informed the parties that it wanted to hear their assessment
of the procedural aspects of the case, a synopsis of"why the govern-
ment persists in continuing to fight this battle in view of Magistrate
Judge Denson's clear order of April 4, 1996," and other matters as the
parties desired.
Following that hearing, the district court denied the motion for
reconsideration and ordered the government to "forthwith return the
property to Home Health." The district court noted that while parties
are generally entitled to have the district court's de novo review of a
magistrate judge's decision, a failure to object timely would constitute
a waiver of that right and would preclude its appellate review of the
magistrate judge's decision. Nevertheless, the district court "decided
that under United States v. George, and in an abundance of caution
and fairness, the government did not waive the right to a substantive
review and will revisit the appeal of Magistrate Judge Denson's order
. . . on the substantive/meritorious aspects of the[Franks] hearing."
On the merits, the court concluded that the Franks hearing was prop-
erly ordered, and it agreed "in all respects with the findings of Magis-
trate Judge Denson's order." This appeal followed.
II
In appealing to this court, the government relies on jurisdiction
granted by 18 U.S.C. § 3731 as well as by 28 U.S.C. § 1291. Our
appellate jurisdiction under § 3731, however, depends on a certifica-
8
tion to the district court by "the United States attorney . . . that the
appeal is not taken for purpose of delay and that the evidence is a sub-
stantial proof of a fact material in the proceeding," and no such certi-
fication appears in the record in this matter. More importantly, no
criminal proceeding has yet been initiated, and therefore § 3731 is not
even applicable. See 18 U.S.C. § 3731 ("An appeal by the United
States . . . from a decision or order . . . in a criminal proceeding").
The motion for return of property was a civil proceeding, notwith-
standing that it was brought pursuant to the Federal Rules of Criminal
Procedure. See United States v. Garcia, 65 F.3d 17, 18 n.2 (4th Cir.
1995). Accordingly, our jurisdiction is proper only under 28 U.S.C.
§ 1291, since the district court entered a final order disposing of a
proceeding under Federal Rule of Criminal Procedure 41(e).
III
Federal Rule of Criminal Procedure 41(e) provides that "[a] person
aggrieved by an unlawful search and seizure . . . may move the dis-
trict court for the district in which the property was seized for the
return of the property on the ground that such person is entitled to
lawful possession of the property." In Franks v. Delaware, 438 U.S.
154 (1978), the Supreme Court held that defendants may challenge
the affidavits upon which search warrants are based under the Fourth
and Fourteenth Amendments, and that properly challenged warrants
may be voided. To entitle a defendant to a Franks hearing, he must
make a substantial preliminary showing that a warrant was procured
through false statements intentionally or recklessly made, and that
such statements were necessary for establishing probable cause. False
statements include information intentionally or recklessly omitted.
See United States v. Colkley, 899 F.2d 297, 301-02 (4th Cir. 1990).
Because other pre-trial mechanisms exist to protect innocent citizens,
the defendant's burden in establishing the need for a Franks hearing,
based on either false statements or material omissions, is a heavy one.
See United States v. Jeffus, 22 F.3d 554, 558 (4th Cir. 1994). At a
Franks hearing, the moving party must prove by a preponderance of
the evidence (1) that statements in the affidavit supporting the warrant
were false (or that omissions were misleading) and were included
intentionally or at least with reckless disregard for the truth and (2)
that the corrected affidavit does not satisfy the legal requirements for
probable cause that "there is a fair probability that contraband or evi-
9
dence of a crime will be found in a particular place." Illinois v. Gates,
462 U.S. 213, 238 (1983). If that showing is made,"the search war-
rant must be voided and the fruits of the search excluded to the same
extent as if probable cause was lacking on the face of the affidavit."
Franks, 438 U.S. at 156.
While we review de novo the legal question of whether a search
warrant and its supporting affidavit are legally sufficient, we accord
a neutral and detached magistrate judge's judgment about whether
probable cause exists substantial deference. United States v. Oloyede,
982 F.2d 133, 138 (4th Cir. 1992).
IV
On the first prong of the Franks inquiry-- whether the Master
Affidavit contained false statements or material omissions, and
whether their inclusion (or omission) amounted to intentional false-
hood or reckless disregard for the truth -- the government contends
that the magistrate judge's factual findings, which the district court
adopted entirely, are clearly erroneous. We address each part of this
prong, first the findings of false statements and then the findings of
the requisite intent.
The government argues first that many of the statements which the
magistrate judge found to be false were in fact true. But our review
of the statements in question indicate that the magistrate judge was
not clearly erroneous. Investigator Berlin's notes record that Mr.
Shoemake said the use of Post-it Notes was to identify caregiver notes
which are "incomplete, incorrect, or not signed" and need to be
"pulled out to be corrected." He did not say that their use was to fal-
sify records, as the Master Affidavit suggested. And all three investi-
gating agents testified that Mr. Shoemake did not use the word
"falsify." Further, it appears that Mr. Shoemake never said the use of
Post-it Notes was to meet billing standards as the affidavit indicates.
Although the government now argues, perhaps correctly, that Home
Health's practice does in fact relate to billing, that observation has lit-
tle to do with whether a corporate insider reported that fact. The Mas-
ter Warrant's assertion that documents were changed to meet billing
standards clearly connotes wrong-doing, a connotation that Mr. Shoe-
make did not in fact communicate to government agents.
10
Likewise, Investigator Berlin's interview memorandum and the
hearing testimony support the magistrate judge's conclusion that Mr.
Shoemake never said that Home Health chose to make changes as it
did because that method would be difficult to recognize. Instead, the
investigating agents agreed that Mr. Shoemake had merely said that
difficulty of distinguishing original notes from subsequent changes
was a result of Home Health's practice. Again, the difference is sig-
nificant: one connotes a fraudulent intent which Mr. Shoemake did
not assert or imply.
The magistrate judge was likewise on firm ground in finding that
the Master Warrant falsely asserted that "CI-1 has personal knowl-
edge of Home Health . . . employees working after hours for the pur-
poses of altering and/or changing documents." At the hearing, the
magistrate judge could find no evidence to support the assertion. To
the contrary, Mr. Shoemake testified that he knew employees were
working after hours but did not know what they were doing. Investi-
gator Berlin's notes and the other agents' testimony corroborated
Shoemake's claim. The magistrate judge had clear support for the
conclusion that the Master Affidavit falsely reported those facts.
Finally, the government appropriately admits (1) that the magis-
trate judge was correct in finding that the Master Affidavit inaccu-
rately described Medicare and Medicaid requirements that plans for
treatment be signed before treatment may begin, and (2) that the Mas-
ter Affidavit falsely asserted that "Medicare and/or Medicaid were
billed for services not rendered."
The government contends, however, that even if the various state-
ments described above were false, the magistrate judge was clearly
erroneous in finding that the statements were placed in the Master
Affidavit with reckless disregard for the truth. Again we conclude that
the magistrate judge's findings are not clearly erroneous.
With respect to the statements imputed to Mr. Shoemake, the
agents generally agreed that the statements had been falsely attri-
buted. In light of the totality of the circumstances which the magis-
trate judge viewed in the hearings, including multiple misstatements
and apparent gamesmanship on the government's part, it was not
unreasonable to conclude that the investigation of Home Health was
11
carried out in a way which displayed a reckless disregard for the truth.
In fact, it appears that Mr. Shoemake was attributed knowledge which
he explicitly told the agents he did not have, at least with regard to
after-hours activities at Home Health. The magistrate judge reason-
ably concluded that the facts indicated a decision by the agents to "re-
word[ ] Mr. Shoemake's statement to make Home Health's conduct
appear more suspect . . . with at least reckless disregard for the truth."
With regard to the misstatements which the government concedes,
the government contends that the mistakes were made inadvertently.
First, the government asserts that rather than stating that Home Health
had billed for services not rendered, the "language should have read
``billed for services not authorized.'" That distinction, however, is sub-
stantive, and no evidence supports the assertion. Indeed, inadvertence
was not the government's position before the magistrate judge, where
Agents Burgess and Gwiazdowski asserted that Home Health had in
fact billed for services not rendered. Likewise, the government's
assertion that Investigator Berlin thought that the Master Affidavit
contained a correct description of Medicare and Medicaid regulations
does not render the magistrate judge's conclusions clearly erroneous.
Indeed, it merely points out that although the investigatory team cor-
rectly understood the law, they were, at the least, careless in stating
it. In light of the government's admitted understanding of the law, and
the fact that the investigating agents said the Master Affidavit was
prepared collaboratively, the magistrate judge was not clearly errone-
ous in concluding that the misstatements were made with reckless dis-
regard for the truth.
The government also takes issue with the magistrate judge's find-
ings that the Master Affidavit contained material omissions. It objects
first to treatment of omitted information relating to the 1989 investi-
gation, citing United States v. Colkley, 899 F.2d 297 (4th Cir. 1990),
to support its claim that magistrate judge Denson"did not apply th[e]
heightened burden of proving ``impermissible official conduct' on the
part of the agents" in omitting the results of the 1989 investigation.
We cannot agree with this argument. Magistrate Judge Denson explic-
itly recognized that "omissions are less likely to raise concerns
regarding official misconduct," expressly citing Colkley. Moreover,
Magistrate Judge Denson did not base his findings on the "mere
absence of the information in the affidavit," as the government con-
12
tends. Instead, he noted (1) that earlier drafts of the Master Affidavit
actually included the results of the 1989 investigation which found
Home Health not guilty of fraud, but that information was deleted
from the final draft, and (2) that Agent Gwiazdowski described the
1989 investigation in order to support a finding of probable cause.
Magistrate Judge Denson was also able to hear and assess the credi-
bility of the government's explanation that information about the
1989 investigation was removed in order to present a"neutral" view
of that investigation. In the totality of these circumstances, we believe
there was sufficient evidence to conclude that omitting information
about the result of the 1989 investigation was misleading and
amounted to deliberate falsehood or reckless disregard for the truth.
The government also contends that omitting the results of the 1989
investigation was not material and should not justify either a Franks
hearing or an order to return property. As we said in Colkley,
"[o]mitted information that is potentially relevant but not dispositive
is not enough to warrant a Franks hearing," 899 F.2d at 301, or to
warrant ordering a return of property. And while we agree that omit-
ting the results of the 1989 investigation was alone not dispositive in
eliminating probable cause, we do not believe that is the only inquiry.
Where the only problem with a warrant affidavit is an omission, as
was the case in Colkley, the inquiry is properly focused on whether
correcting that omission will destroy probable cause. But where an
omission is one of many problems with an affidavit, the inquiry must
be whether correcting that omission together with all other problems
will destroy probable cause. We believe that omitting the results of
the 1989 investigation was material when considered in its larger con-
text.
The government next contends that the magistrate judge erred in
requiring that information not known to the government -- that Home
Health had not in fact billed for services supposedly rendered after a
patient's death -- be included in the corrected Master Affidavit when
determining whether probable cause exists. As we stated in Colkley,
predicating Franks relief on "a failure to include a matter that might
be construed as exculpatory . . . potentially opens officers to endless
conjecture about investigative leads, fragments of information, or
other matter that might, if included, have redounded to defendant's
benefit." 899 F.2d at 301. That, however, does not mean that a court
13
may never predicate Franks relief on the failure to present evidence
not known to the government. What it does mean is that the omission
of evidence not known to the government may form the basis for
Franks relief only when the government's failure to discover and
report that evidence amounts to a reckless disregard for the truth.
We believe that the magistrate judge properly understood these
limits on evidence not known to the government. He noted that "the
validity of the search warrant must be assessed on the basis of the
information that the officers disclosed, or had a duty to discover and
disclose, to the issuing Magistrate," quoting Maryland v. Garrison,
480 U.S. 79, 85 (1987). He also noted that the federal agents admitted
they could have verified their information, a particularly telling obser-
vation in light of the fact that they were already coordinating their
investigation with state agencies on the particular question of whether
Home Health was improperly billing state Medicare and Medicaid
agencies. In view of this, and the totality of the circumstances sur-
rounding the preparation of the Master Affidavit, we cannot conclude
that the magistrate judge was clearly erroneous in finding that the
agents' failure to verify readily available information amounted to a
reckless disregard for the truth.
The government does not directly contest the magistrate judge's
finding that "the agents' conscious decision to omit CI 3's employ-
ment dates was made with at least reckless disregard of whether the
failure to include such information would mislead." On the basis of
information about CI-3's employment dates, the magistrate judge
concluded that information provided by CI-3 was stale and would not
be considered in determining whether the corrected Master Affidavit
established probable cause. The government now contends, however,
that even with that information supplied in the Master Affidavit, the
information provided by CI-3 was not stale.
As an initial matter, we note that when the magistrate judge
announced that he would not consider information provided by CI-3
because it was stale, the government did not object. Likewise, in not-
ing its appeal to the district court, the government contended only that
the magistrate judge's "finding following a Franks hearing that false
information was included in the search warrant affidavit knowingly
and intentionally or with reckless disregard for the truth is contrary
14
to fact and law." The government did not appeal the magistrate
judge's ruling that CI-3's information was stale. The staleness deter-
mination was only raised when on June 18, 1996, the government
filed a memorandum in the district court, some two months after the
magistrate's order of April 4, 1996, and far beyond the applicable
time limitations for written and specific objections. See 28 U.S.C.
§ 636(b)(1) (limiting assignment of error to objections filed within 10
days of being served with magistrate judge's decision and according
to rules of court); Fed. R. Civ. P. 72(a), (b) (reiterating 10 day limit;
requiring specific written objections and requiring de novo district
court review of portions of magistrate judge's disposition "to which
specific written objection has been made in accordance with this
rule"); E.D.N.C. R. 63.01, 63.02 (requiring "written objections which
shall specifically identify the portions of the proposed findings . . .
and the basis for such objections" within 10 days or as otherwise
ordered). Although the district court revisited the staleness determina-
tion, we believe that the government's failure specifically to identify
the issue within the ten-day time period provided by statute, the Fed-
eral Rules of Civil Procedure, and local rules constitutes a wavier of
the right to appellate review. See United States v. Schronce, 727 F.2d
91, 93-94 (4th Cir. 1984); see also United States v. One Parcel of
Real Property, 73 F.3d 1057, 1059-60 (10th Cir. 1996) (citing
Schronce and holding that general, rather than specific objections do
not preserve right to appellate review).
Even considering the issue, however, we have no reason to con-
clude that the district court acted beyond his authority in finding CI-
3's information stale. The government admitted that CI-3 had not
worked for Home Health since 1992, and on that basis the magistrate
judge concluded that CI-3's information would not establish whether
there was probable cause to find present criminal behavior. And
although it is true that Medicare and Medicaid records must be main-
tained for five years, see 42 C.F.R. § 484.48(a), there was nothing in
the Master Affidavit to indicate that CI-3's information related to
records created within that five year period. In fact, although the par-
ties agree that CI-3 ceased working for Home Health in 1992, the
government has still not provided evidence of when the reported falsi-
fication of documents occurred. While CI-3 may have been reporting
a potentially non-stale 1992 incident, CI-3 may just as well have been
reporting a 1985 incident.
15
V
The second prong of the Franks inquiry required the court below
to correct the false statements, include material improperly omitted,
and determine whether the corrected Master Affidavit is sufficient to
establish probable cause. Both parties agree that this is a legal ques-
tion which we review de novo. While we review de novo for legal suf-
ficiency, however, the legal question is whether there is a "substantial
basis" for the magistrate judge's decision. See United States v.
Oloyede, 982 F.2d 133, 138 (4th Cir. 1992). We show "substantial
deference" to the overall determination of a neutral magistrate of
whether probable cause exists. See United States v. Ventresca, 380
U.S. 102, 109 (1965).
Moreover, in this case, we have the additional fact that the magis-
trate judge who issued the warrant is also the judge who concluded
that the warrant, as corrected, would not have justified a finding of
probable cause. As the district court said in granting the government
a hearing on its August 12, 1996 motion for reconsideration, we are
"impressed with the fact that the magistrate judge who conducted the
Franks hearing . . . was in fact the same magistrate judge who had
originally considered the search warrant and granted same." For that
reason, we do not face the problem of having to guess whether Magis-
trate Judge Denson would have issued a warrant based on the cor-
rected Master Affidavit. Under these circumstances, we believe
"substantial deference" to the magistrate judge's decision is even
more appropriate.
So considered, we agree with the magistrate judge's conclusion
that once the false statements and material omissions are corrected,
the Master Affidavit "takes on a totally different character." It first
lays out the investigating officers' qualifications, which are not rele-
vant to whether probable cause exists to search Home Health's
offices, although they are properly included in the affidavit. It then
introduces Home Health, revealing that Home Health was investi-
gated in 1989 and returned money found to have been improperly
billed, but noting that the investigation revealed no fraudulent intent
and resulted in no criminal prosecution.
The Master Affidavit then asserts what it summarizes as the fraud
in Home Health's business practices. It notes that CI-1 reported that
16
Home Health has a practice of using Post-it Notes to identify care-
giver notes that need to be altered or corrected for documentation pur-
poses. According to CI-1, caregiver notes were usually returned to the
original caregiver for such corrections, but CI-1 reported that other
employees knew of office managers sometimes making the needed
alterations when the original caregiver was not available. CI-1
reported that some employees worked after hours, but for purposes
unknown to CI-1. But, the Master Affidavit then notes that relevant
regulations allow care to be given based on either written or oral
orders. Before any billing may occur, however, the ordering physician
must sign a written order.
The Master Affidavit reports that CI-2 reported to investigators that
Beverly Withrow, Home Health's CEO, requested that Home Health
employees falsify the records of twenty patients. CI-2 also reported
that Michelle Fox, Ms. Withrow's daughter, directed two employees
in Home Health's Smithfield office to work on Saturday to alter, cor-
rect, and/or create documents for patient records. But CI-2 is nowhere
identified. Nor is CI-2's connection to Home Health, or personal
knowledge of the reported incident, ever asserted or explained. More-
over, the location of the office where the twenty patients' files were
falsified is not given.
The Master Affidavit asserts that on-site reviews of Home Health
offices revealed several treatment plans lacking doctor's signatures,
others which had been altered or contained no doctor's orders, some
patients who were not eligible for Medicare, and others who were not
home-bound and thus not eligible for home health services.
With the exception of the information attributed to CI-2, all of the
information given by the Master Affidavit is consistent with an inno-
cent, though imperfect system of maintaining millions of records. The
information attributed to CI-2, however, was unquestionably incrimi-
nating. But assessing the credibility of CI-2's information is difficult
or impossible. The only aspect of CI-2's information that finds cor-
roboration is the assertion that some employees were working after
hours, allegedly to alter or correct certain documents. Under these cir-
cumstances, we believe that the information given was undoubtedly
sufficient to raise suspicions about Home Health billing and docu-
mentation practices. However, because most of the information in the
17
Master Affidavit is consistent with Home Health's innocence, we
agree with the magistrate judge and the district court that the Master
Affidavit was insufficient to establish probable cause to believe that
evidence of criminal activity could be found at eight Home Health
offices.
VI
Although we agree with the district court and the magistrate judge
on the merits, we would also affirm the district court's order because
the government has waived its right to appellate review of the magis-
trate judge's legal conclusions. Although the district court must give
a full de novo review, including consideration of matters which were
not presented before the magistrate judge, parties must still make
proper objection to establish the right to district court review.
Compare United States v. George, 971 F.2d 1113, 1118 (4th Cir.
1992) (holding that district court must consider all arguments directed
at issue, including those not presented to the magistrate, "provided
that proper objection to the magistrate's proposed finding . . . has
been made and the appellant's right to de novo review by the district
court thereby established"), with United States v. Schronce, 727 F.2d
91, 9374 (4th Cir. 1984) (holding that failure to file objections to
magistrate's report within 10 days constituted waiver of appellate
review of the magistrate's decision). We do not believe the govern-
ment followed the necessary procedures to establish its right to de
novo review of the magistrate judge's legal conclusions.
Rule 72 of the Federal Rules of Civil Procedure governs matters
assigned to a magistrate judge. Under either subsection (a) or subsec-
tion (b), the parties must object to the magistrate judge's determina-
tions "[w]ithin 10 days after being served with a copy of the" order
or proposed findings and recommendations. "[A] party may not there-
after assign as error a defect in the magistrate judge's order to which
objection was not timely made." Fed. R. Civ. P. 72(a). Similarly,
when objection is made to a magistrate judge's proposed findings and
recommendations, the court is required to make a de novo determina-
tion only of "any portion of the magistrate judge's disposition to
which specific written objection has been made in accordance with
this rule." Fed. R. Civ. P. 72(b). Local rules in the Eastern District of
North Carolina likewise impose a ten-day limitation on objections to
18
a magistrate judge's determinations, see E.D.N.C. R. 63.01, 63.02,
"unless a different time is prescribed by the magistrate judge or a
judge." E.D.N.C. R. 63.01.
In this matter, the court ordered deadline for the government to file
its appeal to the magistrate judge's determination was April 19, 1996.
Thus, the government established its right to de novo review only to
those portions of the magistrate judge's order to which specific objec-
tion was made on or before April 19. Before that deadline, the only
objection made to the magistrate judge's order was that its "finding
following a Franks hearing that false information was included in the
search warrant affidavit knowingly and intentionally or with reckless
disregard for the truth is contrary to fact and law." No objection was
made to the magistrate judge's legal conclusion that the corrected
Master Affidavit was insufficient to establish probable cause.
The government contends that it did not waive its right to appellate
review of the magistrate judge's legal conclusion, citing (1) its Octo-
ber 24, 1995 Motion for Reconsideration, (2) its June 18, 1996 brief
filed in support of its appeal, and (3) its August 12, 1996 brief filed
with the district court in support of another Motion for Reconsidera-
tion. With respect to the two briefs, filed in June and August of 1996,
it is clear that they were not filed in time to comply with the require-
ments of Rule 72 and Local Rule 63.00, which required that specific
written objections to the magistrate judge's order be filed no later
than April 19, 1996. Furthermore, an examination of the June 18 brief
reveals that the government objected that a Franks hearing should not
have been held, not that the post-hearing legal conclusions were erro-
neous. Similarly, the October 24, 1995 motion cannot be viewed as
compliance with Rule 72 and Local Rule 63.00. That motion was
presented to the magistrate judge, not the district court, and it was
filed before there was ever a Franks hearing, not after the magistrate
judge issued his order. Moreover, like the June 18 brief, the October
24 motion objected only to the holding of a Franks hearing. In short,
we find nothing in the record to suggest that the government made
timely and specific written objection to the magistrate judge's order
on the second prong of the Franks inquiry.
The district court, nonetheless, found that "under United States v.
George, and in an abundance of caution and fairness, the government
19
did not waive the right to a substantive review." However, we do not
think that George required district court review in this matter. In
George, we held that the district court must consider all arguments
presented on an issue -- including those not presented to the magis-
trate judge -- so long as the objecting party has properly established
its right to de novo district court review. We did not hold that parties
can ignore the requirements of Rule 72 and nonetheless preserve their
right to review of issues not properly appealed. 971 F.2d at 1118; see
also United States v. Schronce, 727 F.2d 91, 93-94 (4th Cir. 1984);
United States v. One Parcel of Real Property, 73 F.3d 1057, 1059-60
(10th Cir. 1996) (applying Schronce's "firm waiver rule" in spite of
district court's sua sponte consideration of issues not specifically
raised in objection).
AFFIRMED
20