United States v. Keenan Ferrell , 816 F.3d 433 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 14-2915
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
KEENAN R. FERRELL,
Defendant-Appellant.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:11-CR-595-1 — Virginia M. Kendall, Judge.
ARGUED APRIL 13, 2015 — DECIDED NOVEMBER 4, 2015
Before WOOD, Chief Judge, and ROVNER, Circuit Judge, and
SPRINGMANN, District Judge.*
SPRINGMANN, District Judge. Dr. Keenan Ferrell appeals two
evidentiary rulings made by the district court in connection
with his criminal trial for Medicare fraud. Ferrell wanted to
present statements that the district court barred as hearsay,
*
Of the Northern District of Indiana, sitting by designation.
2 No. 14-2915
rejecting Ferrell’s argument that they qualified as “statements
against interest.” Fed. R. Evid. 804(b)(3). The district court also
admitted evidence offered by the Government after ruling that
witness’s testimony did not constitute impermissible character
evidence. Fed. R. Evid. 404(b). We find the district court did
not abuse its discretion and affirm both rulings.
I. BACKGROUND
On June 25, 2013, a jury found Ferrell and Bryce Woods
guilty of six counts of healthcare fraud for violating 18 U.S.C.
§ 1347. On August 19, 2014, Ferrell was sentenced to eighty-
eight months of imprisonment.
Ferrell filed this appeal to challenge the district court’s
evidentiary rulings. First, Ferrell asks us to determine whether
the district court erred when it refused to admit two out-of-
court statements made by William Woods,1 and contained in
a voicemail and an email. The district court held that these
statements were hearsay and did not fall within Rule
804(b)(3)’s hearsay exception. The district court held that
although Woods was unavailable to testify, Woods’s state-
ments were not against his interest and the corroborating
circumstances did not indicate that his statements were
trustworthy. Thus, the district court granted the Government’s
motion in limine to bar Ferrell from introducing any of
Woods’s recorded statements.
1
Although Bryce Woods was a co-defendant, William Woods is mentioned
throughout this Opinion and will be referred to as “Woods.” Also, William
Woods was identified as “Provider A” in the indictment and district court
filings.
No. 14-2915 3
Second, Ferrell contends that the district court admitted
improper propensity evidence, in violation of Rule 404(b),
when it allowed Dr. Herbert Shriver to testify regarding
Ferrell’s conduct in Texas. Although the district court primar-
ily held Shriver’s testimony was admissible as direct evidence
of the charged offense, the district court held in the alternative
that Shriver’s testimony was admissible under Rule 404(b)(2)
because the testimony: (1) showed Ferrell’s intent and motive
to commit fraud; (2) illustrated the similarity and contempora-
neous nature of Ferrell’s acts; and (3) had high probative value
that was not substantially outweighed by the risk of unfair
prejudice.
Ferrell was a doctor of psychology and a professor of
psychology at Roosevelt University. In 2000, Ferrell became
licensed to practice psychology in Illinois. In December 2000,
Ferrell applied to become a provider in the Medicare program
and was approved. Medicare assigned Ferrell a unique
provider number, which Medicare used to review, process, and
pay claims. No later than 2001, Ferrell owned and operated
two companies: Inner Arts, Inc. (“Inner Arts”) and Take
Action, Inc. (“Take Action”). These companies offered psycho-
logical therapy to individuals and groups in nursing homes,
rehabilitation facilities, and individual homes. Ferrell used his
unique provider number to submit claims to Medicare for
psychotherapy sessions he purportedly conducted.
Brothers Bryce and William Woods worked for Ferrell and
the two companies. Bryce Woods was a co-defendant in this
case and never held a license to practice psychology in Illinois.
William Woods obtained a psychology license in 2004, but
Illinois later suspended the license and disciplined Woods.
4 No. 14-2915
From June 1, 2006 to June 1, 2011, Ferrell and Bryce Woods
caused approximately 33,895 individual claims to be submitted
to Medicare. Each claim listed Ferrell as the provider of the
therapy services and bore Ferrell’s Medicare provider number,
the date or dates of service, the number of services performed,
and a five-digit CPT code that identified the type of service
provided to a beneficiary. Bryce Woods, who operated under
Ferrell’s direction, was responsible for submitting these claims
to Medicare.
The vast majority of the claims submitted to Medicare using
Ferrell’s unique Medicare provider number sought payment
for services rendered under CPT code 90818. To lawfully bill
Medicare for services under CPT code 90818, the psychother-
apy session had to be (1) a face-to-face, in-person meeting with
the patient; (2) forty-five to fifty minutes long; and (3) person-
ally conducted by the licensed provider or conducted by
another licensed person under the provider’s direct supervi-
sion. “Direct supervision” means “the provider had to be in the
nursing home at the time that the session was conducted and
had to be readily available to the therapist conducting the
session.” Gov’t’s/Appellee’s Br. 4.
Although Ferrell was aware of these requirements, Ferrell
and Bryce Woods engaged in a scheme to bill Medicare for
psychotherapy sessions that either did not occur, or did not
meet CPT code 90818’s requirements. Ferrell enlisted his
unlicensed psychology students at Roosevelt University to
work for Inner Arts and Take Action. These unlicensed
students were assigned to patients and visited with patients
who resided at nursing homes. Ferrell did not supervise these
unlicensed students or otherwise visit the nursing homes. The
No. 14-2915 5
unlicensed students prepared notes of their visits with patients,
and gave these notes and other documents to Bryce and
William Woods. At Ferrell’s direction, Bryce Woods then billed
Medicare for these visits. These claims to Medicare listed CPT
code 90818 and represented that Ferrell personally saw each
patient.
Similarly, Bryce Woods, who was not licensed to practice
psychotherapy, would visit with patients and bill Medicare at
Ferrell’s direction using Ferrell’s Medicare provider number.
This mirrored the pattern carried out with the unlicensed
students, however, Bryce Woods’s sessions with patients
included Bryce Woods playing his guitar and singing to
patients. Additionally, Ferrell and Bryce Woods fraudulently
billed Medicare when they knew sessions did not last the
required forty-five minutes, the patient refused to meet, or the
patient was already deceased.2 In total, Ferrell and Bryce
Woods sought approximately $3.5 million from Medicare, and
Medicare paid approximately $1.5 million.
On June 2, 2011, federal agents executed a search warrant
at the office of Inner Arts and Take Action. On July 29, 2011,
nearly a month before Ferrell and Bryce Woods were indicted,
Woods sent an email and left a voicemail for Ferrell’s counsel
at the time. Woods’s email stated he would testify that Ferrell
and Bryce Woods told him that he needed to complete his
notes in a timely manner, but he fell behind and did not inform
either Ferrell or Bryce Woods. Woods also wrote that Medicare
2
At trial, the Government’s exhibit showed that Ferrell’s Medicare provider
number was used on 106 separate claims for face-to-face psychotherapy
sessions with patients who were deceased before the date of service.
6 No. 14-2915
never informed their office about problems with billing
practices, their office was committed to proper practice and
billing, and that Ferrell was a person who would never commit
Medicare fraud. Woods’s voicemail included statements
similar to the email.3 The district court denied Ferrell’s pretrial
motion that sought to admit the entirety of the email and
voicemail at trial.
At trial, the Government relied upon the testimony of
Shriver. Shriver had pled guilty to healthcare fraud in federal
court in Texas and was cooperating with the Government
against Ferrell. Shriver testified about his professional and
personal relationship with Ferrell, as well as certain admissions
Ferrell made to Shriver about Ferrell’s psychotherapy practice.
This included that Ferrell operated psychotherapy practices in
several states and that Ferrell was in a poor financial condition
3
The transcript of Woods’s voicemail reads as follows: “I work with Dr.
Keenan Ferrell and I would like to speak to you if I could please. This
situation with the investigation of Medicare documentation is entirely my
fault. Dr. Ferrell, I have known him over 20 years now, and he loves the
law. He’s a respectful, abiding person and he has told me from the start that
Medicare notes/everything, has to be done properly and on time and I
didn’t take that seriously and he kept telling me that there were serious
consequences and he trusted me to do the right thing with the Medicare
documentation for the clients I was seeing and I didn’t do that and I lied to
him and said that I had been doing the notes on time and I hadn’t and I said
notes were done when they hadn’t been done yet. If your client was seen or
was billed for but I did not do the documentation and keep it up properly
so there is missing documentation, a lot of it. So, please I would like to talk
to you to see if there is anything I can do to implore these investigators to
know that Dr. Ferrell did nothing wrong. It’s entirely my fault. I’m the one
that should be losing my license and facing consequences for this because
I disregarded the law and did this.” Gov’t’s/Appellee’s App. 1.
No. 14-2915 7
during the period of fraudulent billing. The district court had
denied Ferrell’s pretrial motion to bar Shriver’s anticipated
testimony. We now address Ferrell’s arguments on appeal in
turn.
II. DISCUSSION
A. Rule 804(b)(3) Hearsay Exception
To reverse a district court’s decision on the admissibility of
hearsay statements, we must conclude that the district court
abused its discretion. United States v. Love, 706 F.3d 832, 839
(7th Cir. 2013). “Under this standard of review we will not
reverse if we merely conclude that we would have reached a
different decision if asked to consider the issue in the first
instance; rather, ‘the district court’s decision must strike us as
fundamentally wrong.’” Hall v. Norfolk S. Ry., 469 F.3d 590, 594
(7th Cir. 2006) (quoting Johnson v. J.B. Hunt Transp., Inc., 280
F.3d 1125, 1131 (7th Cir. 2002)). The district court receives such
substantial deference regarding the admissibility of evidence
because “we are not in a position to observe the trial proceed-
ings first-hand and gauge the impact of the evidence in the
context of the proceedings as a whole.” United States v. Boswell,
772 F.3d 469, 477 (7th Cir. 2014) (citing United States v. Boone,
628 F.3d 927, 932 (7th Cir. 2010)).
Ferrell argues that the district court abused its discretion
when it denied his motion in limine and excluded Woods’s
out-of-court statements, as contained in his voicemail and
email. Ferrell submits that Woods’s hearsay statements should
8 No. 14-2915
have been admitted under Rule 804(b)(3) because they were
against his penal interest and were sufficiently corroborated.
Although hearsay is generally inadmissible, Rule 804(b)(3)
allows its admission where the proponent demonstrates that
“(1) the declarant is unavailable as a witness, (2) the statement
was against the declarant’s penal interest when made, and (3)
corroborating circumstances clearly suggest that the statement
is trustworthy.” United States v. Jackson, 540 F.3d 578, 588 (7th
Cir. 2008) (quoting United States v. Loggins, 486 F.3d 977, 981
(7th Cir. 2007)). The district court found that Woods was
unavailable to testify because he would assert his Fifth
Amendment right against self-incrimination. Id. The parties do
not dispute this. Therefore, we address only the second and
third prongs. We agree with the district court that Ferrell did
not meet his burden on either prong.
1. Against Declarant’s Penal Interest
To be against the declarant’s penal interest, a remark must
be “individually self-inculpatory.” Williamson v. United States,
512 U.S. 594, 599 (1994). Further, the court must examine a
declarant’s narrative to separate a declarant’s exculpatory
statements from the inculpatory statements, and then exclude
the exculpatory statements. Id. at 600–01; see also United States
v. Nagib, 56 F.3d 798, 804 (7th Cir. 1995). Despite this, the
proponent may not sever the self-inculpatory statements from
their context to alter the meaning of the statements. Williamson,
512 U.S. at 603 (“[W]hether a statement is self-inculpatory or
not can only be determined by viewing it in context.”).
No. 14-2915 9
Woods’s voicemail and lengthy email contain exculpatory
statements and admissions that are unrelated to the charges in
Ferrell’s indictment. Both the voicemail and email convey
Woods’s belief that neither he, Bryce Woods, nor Ferrell
committed healthcare fraud. Woods defended Ferrell by
writing: “Dr. Ferrell consistently speaks about the importance
of ethics and the value of working within the policies and
guidelines that have been set forth by Medicare”; “neither Dr.
Ferrell, nor any of us involved in the company were purpose-
fully defrauding Medicare”; “[b]oth Bryce and I were in
constant contact with Medicare specialists checking on claims,
verifying services, checking on remittances, clarifying policies
regarding documentation, supervision, credentials needed, etc.
We were never told there was a problem.” Gov’t’s/Appellee’s
App. 2–3. In his voicemail, Woods reiterated that “[Dr. Ferrell]
loves the law,” and avowed Ferrell’s innocence by stating that
he wanted “to implore these investigators to know that Dr.
Ferrell did nothing wrong.” Gov’t’s/Appellee’s App. 1. These
repetitive pronouncements exculpating Ferrell are not state-
ments against Woods’s interest. United States v. Bonty, 383 F.3d
575, 579–80 (7th Cir. 2004) (“[Declarant]’s statement—that [the
defendant] had nothing to do with the [criminal events]—did
not tend to implicate [the declarant] and was not against [the
declarant]’s penal interest.”).
Further, the statements by Woods that might be construed
as self-inculpatory are not “individually self-incuplatory.”
Ferrell asserts that “[Woods] admits to falsifying Medicare
billing forms.” Def.’s/Appellant’s Br. 13. The district court
disagreed and we agree that the text, in context, does not
support Ferrell’s view. Although Ferrell’s brief does not
10 No. 14-2915
identify the specific language through which Woods admits to
falsifying Medicare billing forms, Ferrell’s counsel offered
more direction at oral argument. He directed us to Woods’s
voicemail, where Woods states, “[i]t’s entirely my fault. I’m the
one that should be losing my license and facing consequences
for this because I disregarded the law and did this.” These
statements are certainly inculpatory, but as to what depends on
the contextual meaning of “it’s” and “this.” Williamson, 512
U.S. at 603.
Woods’s voicemail details how he did not complete his
Medicare notes in a timely manner and lied to Ferrell about
being caught up, which resulted in missing documentation.
Tellingly, Woods’s voicemail implies that the government’s
investigation of Ferrell is focused on the missing documenta-
tion that Woods was supposed to complete. Several passages
in his email further illustrate Woods’s perception that the
government’s investigation was prompted by missing docu-
mentation that Woods was responsible for completing.4
Contrary to Woods’s perception of events, the government
investigation was not focused on missing documentation. The
government pursued Ferrell and Bryce Woods for documenta-
tion that was extraneous or fraudulent. Thus, Woods incul-
4
Woods’s email began, “I will testify that I was consistently told by both
Dr. Ferrell and Bryce that I was to complete and turn in all of my notes on
time. When I fell behind I did not report this to either Dr. Ferrell or Bryce
as I intended to get the notes caught up and turned in.” Gov’t’s/Appellee’s
App. 2. Similarly, the email ended, “[e]ven though you are not my lawyer,
I have nothing to hide. I got behind with my notes, and I deserve to face the
consequences of that choice, not Dr. Ferrell.” Gov’t’s/Appellee’s App. 4.
No. 14-2915 11
pated himself as to negligently performing his job, not fraudu-
lently submitting Medicare forms.
Ferrell also argues that Woods’s recorded statements are
against his penal interest because they show Woods’s inside
knowledge. Ferrell correctly notes that “[s]tatements that
‘demonstrate a declarant’s inside knowledge of the crime’”
support finding a statement to be sufficiently incuplatory.
Def.’s/Appellant’s Br. 13 (quoting United States v. Volpendesto,
746 F.3d 273, 288 (7th Cir. 2014)). This is not met here. Specific
portions of Woods’s statements actually reveal his ignorance
of the scheme. First, Woods’s inculpatory statements only
reference delayed or missing documentation. Of course, this
would not support a fraud claim, and it is not the conduct for
which the government pursued Ferrell. Although Woods
makes a statement in his email about one instance of billing a
deceased patient,5 this statement is exculpatory and shows that
Woods was unaware of the additional 105 instances of billing
deceased clients. Woods’s portrayal of this incident as merely
an innocent error, rather than as part of an elaborate, fraudu-
lent scheme for which he accepts responsibility, proves Woods
was outside the criminal loop. Second, Woods’s references to
complying with Medicare policies, such as that Medicare never
informed them of a problem, are exculpatory and Woods
accepts no ownership of these actions.
5
Woods accounted for the error by explaining, “[t]he client of ours that was
billed for after he had passed away was an error caused by having not
removed this individual from the client list after their passing. This
individual’s widow was contacted by Bryce who apologized to her, and
explained that this was an unfortunate clerical error, but that Inner
Arts/Take Action was not paid for the service.” Gov’t’s/Appellee’s App. 2.
12 No. 14-2915
Based on this context and the nature of the inculpatory
statements, the confessions to which Ferrell directs us are
admissions of negligent job performance, not healthcare fraud.
The district court did not abuse its discretion in holding that
Woods’s voicemail and email were not against his penal
interest.6
2. Corroborating Circumstances
We also find that the district court correctly held that no
corroborating circumstances existed to clearly suggest the
trustworthiness of Woods’s statements. Jackson, 540 F.3d at 588(“The district judge’s determination as to the trustworthiness
of an out-of-court statement is entitled to considerable defer-
ence and should be upheld unless ‘clearly erroneous.’”) (citing
United States v. Amerson, 185 F.3d 676, 684 (7th Cir. 1999)). Rule
804(b)(3) “expressly requires the exclusion of out-of-court
statements offered to exculpate the accused unless there are
corroborating circumstances that ‘clearly indicate’ the trust-
worthiness of the statement.” Id. at 589 (quoting United States
v. Hall, 165 F.3d 1095, 1112 (7th Cir. 1999)). This is because the
“corroboration requirement reflects ‘a long-standing concern
… that a criminal defendant might get a pal to confess to the
crime the defendant was accused of, the pal figuring that the
probability of his actually being prosecuted either for the crime
6
Ferrell also argues that the jury should have decided whether Woods’s
statements were against Woods’s penal interests for purposes of
admissibility under Rule 804(b)(3). We have repeatedly stated that under
Rule 104, “it is the judge’s role to determine the admissibility of evidence.”
Jackson, 540 F.3d at 590 (collecting cases).
No. 14-2915 13
or for perjury was slight.” United States v. Henderson, 736 F.3d
1128, 1130 (7th Cir. 2013) (quoting United States v. Silverstein,
732 F.2d 1338, 1346 (7th Cir. 1984)); see also United States v.
Garcia, 986 F.2d 1135, 1140 (7th Cir. 1993) (“[I]f the two in-
volved parties do not have a close relationship, one important
corroborating circumstance exists.”) (emphasis added).
The longstanding personal and professional relationship
between Ferrell and Woods triggers the concerns this rule is
designed to guard against. In his voicemail, Woods states he
has known Ferrell for over twenty years. Further, the parties
stipulated that “Woods had worked with Ferrell for years.”
Gov’t’s/Appellee’s Br. 22. Woods’s financial livelihood also
depended upon Ferrell’s companies, Inner Arts and Take
Action, as Woods used the companies’ bank accounts for his
personal expenses. Although the district court’s determination
of a statement’s trustworthiness is based on the totality of the
circumstances, Henderson, 736 F.3d at 1133, we have identified
the relationship between the declarant and the exculpated
party as one of the non-exhaustive factors. Nagib, 56 F.3d at 805(identifying the considerations as (1) the relationship between
the confessing party and the exculpated party; (2) whether the
confessor made a voluntary statement after being advised of
his Miranda rights; and (3) whether there is any evidence that
the statement was made in order to curry favor with authori-
ties); see also Jackson, 540 F.3d at 589 (“We have never said,
however, that the considerations we identified in Nagib were
the only factors to be weighed in determining whether corrob-
orating circumstances exist.”) The close relationship between
Woods and Ferrell strongly supports the district court’s
decision to exclude Woods’s statements. Henderson, 736 F.3d at
14 No. 14-2915
1132–33 (holding that even though some factors supported
corroboration, the district court did not err in excluding the
statement after deciding the declarant was trying to help his
friend).
Also, Woods’s voluntary decision to contact Ferrell’s
counsel does not indicate that Woods’s statements are trust-
worthy. As noted previously, Woods’s voicemail and email did
not contain inculpatory statements regarding healthcare fraud.
Instead, Woods made exculpatory statements that shifted
blame to Medicare and described Ferrell’s honesty. As the
district court noted, Woods’s statements that he did not do
anything wrong do not bolster trustworthiness. In fact, Ferrell
told investigators that Woods would tell “huge lies” and
dismiss those lies as “little white lies.” Gov’t’s/Appellee’s Br.
9, 23. This undermines Ferrell’s argument and supports the
district court’s conclusion that the circumstances did not
clearly indicate trustworthiness.
To rebut the district court’s finding of insufficient corrobo-
ration, Ferrell cites to the testimony of his former student and
employee, Ms. Natalie Hall, who appeared as a Government
witness. Hall testified that she mostly interacted with Bryce
and William Woods, and she gave her notes from patient visits
to both of them. Although Hall’s testimony is consistent with
Woods’s voicemail and email, where he explained his role in
the documentation process, the parties do not dispute that
Woods was involved with documentation. By itself, consis-
tency between Hall’s testimony and Woods’s recorded
statements on this uncontested issue does not amount to
corroborating circumstances clearly indicating trustworthiness.
Henderson, 736 F.3d at 1133 (explaining that declarant’s
No. 14-2915 15
presence in the vehicle when defendant-driver was arrested for
possession of a firearm was merely consistent with declarant’s
statement, in which declarant accepted ownership of the
firearm, and not clearly corroborative); Silverstein, 732 F.2d at
1347 (concluding that declarant being out of his cell—meaning
declarant had the opportunity and ability to commit the
murder to which he confessed—was merely consistent with the
confession (not clearly corroborative) because declarant’s
statement did not show unique knowledge of the murder). In
sum, Hall’s testimony that Woods’s job involved documenta-
tion does not clearly indicate the trustworthiness of Woods’s
statement. Some consistency does not compel the district court
to admit the declarant’s statement. Henderson, 736 F.3d at 1133
(“[I]t is not enough for [the defendant] to show ‘some corrobo-
rative evidence’ of [the declarant’s] statement … .” (citation
omitted) (quoting United States v. Garcia, 897 F.2d 1413, 1421
(7th Cir. 1990))).
Based on the record presented, we hold that the district
court acted well within its discretion when it refused to admit
Woods’s voicemail and email.
B. Rule 404(b)
As with Ferrell’s hearsay question, we apply the same
deferential standard of review and ask whether the district
court abused its discretion by admitting the Government’s
“crimes, wrongs, or other acts” evidence. Fed. R. Evid. 404(b);
Hall, 469 F.3d at 594.
16 No. 14-2915
Ferrell argues that the district court abused its discretion by
admitting impermissible propensity evidence that it should
have excluded under Rule 404(b). Specifically, Ferrell argues
that Shriver’s testimony is not relevant without relying upon
propensity evidence. Ferrell also argues Shriver’s testimony
only addresses Ferrell’s conduct in Texas, which does not
support the charges in the indictment. We disagree.
Under Rule 404(b), relevant evidence of a crime, wrong, or
other act is inadmissible if the proponent offers the evidence to
show a person’s propensity to act a certain way. Fed. R. Evid.
404(b). Regardless, the district court may admit other-act
evidence if the evidence is offered for “another purpose, such
as proving motive, opportunity, intent, preparation, plan,
knowledge, identity, absence of mistake, or lack of accident.”
Id.We recently recrafted this Circuit’s test for evaluating the
admissibility of other-act evidence to create “a more straight-
forward rules-based approach.” United States v. Gomez, 763
F.3d 845, 853 (2014) (en banc) (“This change is less a substan-
tive modification than a shift in paradigm that we hope will
produce clarity and better practice in applying the relevant
rules of evidence.”). Although Gomez clarifies how the district
court should analyze Rule 404(b) evidence, it remains intact
that Rule 404(b) does not apply to direct evidence of the crime
charged. See id. at 863; see also United States v. Adams, 628 F.3d
407, 414 (7th Cir. 2010) (“So, if the evidence is admitted as
direct evidence of the charged offense, Rule 404(b) is not
applicable. Specifically, evidence directly pertaining to the
defendant’s role in a charged conspiracy is not excluded by
Rule 404(b).”) (citation omitted); United States v. Alviar, 573
No. 14-2915 17
F.3d 526, 538 (7th Cir. 2009) (“The contested evidence proved
specific portions of the indictment. It did not concern ‘other
crimes, wrongs or acts,’ but it concerned the charged crime.
When evidence is embraced by the conspiracy in the indict-
ment, the court need not resort to Rule 404(b) analysis.”). Of
course, the district court may still choose to exclude relevant
direct evidence under Rule 403. Adams, 628 F.3d at 414.
Before trial, the district court granted the Government’s
motion to allow Shriver to testify at trial. The theory of
admissibility for much of Shriver’s expected testimony was
that it constituted direct evidence of the charged offense.7 In
this appeal, Ferrell’s brief does not challenge Shriver’s direct
evidence testimony. Further, at oral argument, Ferrell’s counsel
conceded “[c]ertain testimony that Dr. Shriver gave was
indeed direct evidence regarding statements Dr. Ferrell made
about his actions here in Illinois.” Since Ferrell does not argue
that Shriver’s direct evidence testimony was admitted in
violation of Rule 403, we will not address the district court’s
decision to admit portions of Shriver’s testimony as direct
evidence. United States v. Phillips, 745 F.3d 829, 833 (7th Cir.
2014) (refusing to review the district court’s admission of direct
evidence when appellant only appealed claiming inadmissibil-
7
Specifically, the district court ruled that “Ferrell’s alleged admissions to
Shriver that he used the Woods brothers and students to visit patients and
that he billed for those sessions is directly relevant to the scheme charged.
It directly contradicts Ferrell’s defense that he was unaware these practices
were occurring. Therefore, it tends to prove that Ferrell participated in the
scheme knowingly and with the intent to defraud. Ferrell’s alleged
statement regarding his financial needs is also direct evidence of his motive
to engage in the scheme charged.” Def.’s/Appellant’s App. 48.
18 No. 14-2915
ity under Rule 404(b), and instead did not argue independently
that Rule 403 should have barred the direct evidence).
We now turn to Ferrell’s Rule 404(b) arguments. As the
Government notes, Ferrell’s brief does not quote any portions
of Shiver’s testimony that he believes violated Rule 404(b).
Instead, Ferrell’s brief alludes to the points where Shriver
mentioned Texas, Louisiana, Iowa, and Michigan. Ferrell’s
counsel attempted to clarify this point at oral argument by
suggesting the impermissible propensity evidence consisted of
“parts of [Shriver’s] testimony related to Dr. Ferrell’s statement
that he was setting up other practices in Texas, Iowa, Michigan,
and New Mexico.” Ferrell argued that the government did not
indict him for conduct in Texas, so Shriver’s testimony ad-
dressing Ferrell’s state of mind in Texas is irrelevant. Ferrell
further contends that the chain of reasoning supporting the
non-propensity purpose is inseparable from the propensity
effect, meaning that “the inescapable conclusion the jury drew
from Shriver’s testimony is that Mr. Ferrell is a serial
defrauder.” Def.’s/Appellant’s Br. 17. Thus, in Ferrell’s view,
Shriver’s testimony “relied on Ferrell’s propensity to commit
Medicare fraud,” and showed “that if Mr. Ferrell committed
fraud in Illinois, he must have committed similar frauds in
other states.” Def.’s/Appellant’s Br. 18. In light of our recent
decision in Gomez and Shriver’s trial testimony, we find
Ferrell’s arguments unpersuasive.
When an opponent objects to the introduction of other-act
evidence, the proponent of the evidence must first show “that
the other act is relevant to a specific purpose other than the
person’s character or propensity to behave in a certain way.”
Gomez, 763 F.3d at 860 (citing Fed. R. Evid. 402, 402, 404(b)).
No. 14-2915 19
Exclusion is not required merely because some propensity
inference can be drawn from the other-act evidence; rather, the
other-act evidence is admissible provided that the other-act
evidence’s relevance to “another purpose” is established by
“some propensity-free chain of reasoning.” Id. at 856, 860
(“[The other-act evidence’s] relevance to ‘another purpose’
must be established through a chain of reasoning that does not
rely on the forbidden inference that the person has a certain
character and acted in accordance with that character on the
occasion charged in the case.”). Once the proponent makes this
showing, the district court must engage in Rule 403 balancing
to determine whether the probative value of the other-act
evidence is substantially outweighed by the risk of unfair
prejudice. Id. at 860. The court must also be mindful that even
though intent is an element of the offense for a specific intent
crime, Rule 404(b) is not “a rule of automatic admission.” Id. at
858–59 (quoting United States v. Conner, 583 F.3d 1011, 1022 (7th
Cir. 2009)). Thus, with specific intent crimes, “the degree to
which the non-propensity issue actually is contested” may
affect admissibility. Id. at 859 (explaining that Rule 402 and
Rule 403 still apply when other-act evidence is offered to prove
intent (citing United States v. Earls, 704 F.3d 466, 471 (7th Cir.
2012))).
At trial, Shriver testified, “[Ferrell] mentioned that he had
a practice … providing services at nursing homes, in multiple
states … . I thought he might be interested in helping me out
in southwest Texas. And so we would have discussions
concerning the business of coming down.” Shriver explained
that these conversations, where he and Ferrell would “ex-
change information on our practices and also discuss [Ferrell]
20 No. 14-2915
coming down,” occurred during lunches and on the telephone,
and this is when Shriver “found out about what [Ferrell] did.”
When the Government asked Shriver to elaborate on Ferrell’s
activities, Shriver testified:
Well, I found out that—he told me what he was
doing, that he had a practice in evaluating Social
Security claims, from what I understood, in
Florida and another one with Social Security here
in Illinois. I knew about a nursing home he had
in Iowa. I believe there was one in Michigan.
Illinois. And I know he was trying to develop
Louisiana and New Mexico. And I talked to him
about coming to Texas. And during that time, he
also—he told me about what he did in the nurs-
ing homes. And it seemed like he would do
some of the initials, and then he would have
therapists, graduate students, various students
or people that had graduated from Roosevelt
where he taught, and they would fly or drive to
these nursing homes and provide psychological
services, of which he was available by telephone.
This testimony is consistent with the anticipated testimony
upon which the district court based its Rule 404(b) ruling.8
8
The Government informed the district court that it anticipated Shriver
would testify “Ferrell told Shriver that Ferrell ran a practice treating nursing
home patients who lived in several states, and that Ferrell used students,
Defendant Woods, and William Woods to see patients at the nursing
home.” Def.’s/Appellant’s App. 47.
No. 14-2915 21
Contrary to Ferrell’s characterization of Shriver’s testimony, it
is less than obvious how it could cause a jury to only conclude
that Ferrell is a “serial defrauder.” Def.’s/Appellant’s Br. 17.
First, the word “fraud” only appeared three times in Shriver’s
direct examination, and all in reference to the charges against
Shriver. Gov’t’s/Appellee’s App. 15:18, 16:2, 18:8. Second,
Shriver never testified that Ferrell committed fraud—in Illinois
or any other state. Shriver’s testimony showed that Ferrell had
a propensity to practice psychotherapy in multiple states,
which is not equivalent to a propensity to commit Medicare
fraud in multiple states. Third, even if Shriver’s testimony
could be construed as saying Ferrell committed certain acts, the
indictment charged Ferrell and Bryce Woods with carrying out
a criminal scheme in “Illinois, and elsewhere.”
Gov’t’s/Appellee’s Br. 33 (emphasis added).9 Therefore, as the
district court held, much of Shriver’s testimony is direct
evidence of the charged healthcare fraud. Despite this, to
address Ferrell’s Rule 404(b) arguments, we will assume
9
Further, the indictment described this criminal scheme as being accom-
plished (1) by providing psychotherapy services to Medicare beneficiaries
in nursing homes, (2) through unlicensed individuals, (3) when Ferrell was
not directly supervising the sessions, (4) using Ferrell’s Medicare provider
number to bill Medicare, and (5) Ferrell and Bryce Woods submitted over
$3 million in false and fraudulent claims to Medicare.
22 No. 14-2915
arguendo that the challenged portions of Shriver’s testimony
were admitted solely under Rule 404(b).10
The district court held Shriver’s testimony was non-
propensity evidence because it showed Ferrell’s knowledge of
the scheme and intent to defraud the government. Specifically,
the district court found Shriver’s testimony tended to prove
that “Ferrell was aware unlicensed providers were conducting
psychotherapy sessions in his name,” and “that Ferrell knew
claims were submitted to Medicare for these services.”
Def.’s/Appellant’s App. 49. This is a propensity-free chain of
reasoning. The jury was not asked to believe that because
Ferrell “was the type of person who would break the law once,
he must be the type of person who would break the law
again.” United States v. Schmitt, 770 F.3d 524, 534 (7th Cir. 2014),
cert. denied, 135 S. Ct. 1537 (2015) (mem.). Instead, the Govern-
ment was asking the jury to infer that because Ferrell was
aware of how psychotherapy sessions were being conducted,
and that Medicare was billed for them, Ferrell had knowledge
and intended to commit Medicare fraud. United States v.
Anzaldi, — F.3d — , Nos. 14-1206, 13-3844, 2015 WL 5172849, at
*8–9 (7th Cir. Sept. 4, 2015) (holding that, when engaging in
fraudulent tax scheme, defendant’s request that checks be
made out for less than $10,000 to hide her activity from the
government showed propensity-free chain of reasoning that
defendant intended to defraud the government and negated
10
As we mentioned briefly at the outset of this Opinion, during the pretrial
hearings the Government argued and the district court agreed that most of
Shriver’s testimony was admissible as a direct evidence of charges in the
indictment. The district court framed its Rule 404(b) holding as one in the
alternative.
No. 14-2915 23
good faith defense); Schmitt, 770 F.3d at 534–35 (holding the
government offered a propensity-free chain of reasoning when
the charge was felon in possession of firearm and it introduced
evidence that defendant was (1) a drug dealer and (2) had large
quantities of drugs in his home when arrested because it
showed the “motive” for having the gun was to further drug
dealing activities). Accordingly, Gomez makes no difference in
the outcome.
The district court then engaged in Rule 403 balancing and
ruled the testimony admissible. Healthcare fraud is a specific
intent crime, United States v. Natale, 719 F.3d 719, 741–42 (7th
Cir. 2013), cert. denied, 134 S. Ct. 1875 (2014) (mem.), and the
district court found Ferrell’s defense was that “he was unaware
these practices were occurring.” Def.’s/Appellant’s App. 48.
Thus, Ferrell’s intent and knowledge was actually contested.
United States v. Richards, 719 F.3d 746, 759 (7th Cir. 2013) (“[If]
the defendant simply asserts his innocence in a more general
way or argues his conduct failed to satisfy some other element
of the crime besides intent or knowledge, prior bad acts evidence
is inadmissible.”) (emphasis added); United States v. Miller, 673
F.3d 688, 697 (7th Cir. 2012) (“[W]hile intent is at least formally
relevant to all specific intent crimes, intent becomes more
relevant, and evidence tending to prove intent becomes more
probative, when the defense actually works to deny intent,
joining the issue by contesting it.”); United States v. Meislin, —
F. Supp. 3d — , No. 5:14-CR-18, 2015 WL 3645724, at *2–5
(N.D.N.Y. June 11, 2015) (holding former co-worker’s testi-
mony that defendant’s prior conduct—submitting bills to
Medicare indicating a doctor was present when a doctor
actually was not—was proper to show knowledge and intent
24 No. 14-2915
when defendant faced charges for engaging in identical
conduct at a subsequent job and defendant contended she
lacked requisite knowledge and intent for healthcare fraud).
The highly probative value of Shriver’s testimony is readily
apparent, as it revealed Ferrell’s awareness of sending
unlicensed individuals to various nursing homes to conduct
psychotherapy sessions in Ferrell’s name. It also demonstrated
Ferrell’s intent to bill Medicare for these visits. Although this
testimony is obviously prejudicial, we are convinced the
district court engaged in “‘a principled exercise of discretion’”
and thought “through the relevance of and the potential
prejudice posed by the proffered evidence.” United States v. Lee,
724 F.3d 968, 977–78 (7th Cir. 2013) (quoting United States v.
Beasley, 809 F.2d 1273, 1278–79 (7th Cir. 1987)).
Ferrell does not explicitly challenge the district court’s
ruling that Shriver’s testimony about Ferrell’s financial
condition permissibly proved motive. However, since Ferrell
insists the “other states” testimony was improper, and the
discussion of Ferrell’s debts included some references to Texas,
we consider the admissibility of this testimony as well. Shriver
testified that Ferrell said he owed a “debt to the government.”
Further, Shriver’s testimony detailed how Ferrell’s “credit
cards didn’t always work … rooms were problematic and
occasional flight [sic] he couldn’t make or they had to wait
until some money got transferred, et cetera.” Shriver also
reported that Ferrell incurred a lot of expenses by booking last
minute flights for multiple people, and in one instance, took a
three-and-a-half-hour cab ride from San Antonio to Shriver’s
area on the Texas-Mexico border. The district court thought
this testimony showed Ferrell’s motive to commit the fraud
No. 14-2915 25
and that Rule 403 allowed admission because the testimony
was highly probative as to Ferrell’s financial needs driving him
to intentionally submit fraudulent claims to Medicare.
The Government argues that this is not propensity evi-
dence. Rather, Ferrell’s debt drove him to make more money
through unlawful means. The money Ferrell earned at Roose-
velt University, through psychotherapy sessions with
Medicaid patients, and by working for the Social Security
Administration provided some income. In contrast, sixty-six
percent of Ferrell’s and Bryce Woods’s total income came from
Medicare claims, which amounted to approximately $1.5
million from fraudulent claims. Although some person may
conclude a person who would incur and carry debt would also
have a propensity to commit fraud, the proponent is not
required to negate every imaginable propensity inference an
observer might draw. Gomez, 763 F.3d at 856 (“This is not to
say that other-act evidence must be excluded whenever a
propensity inference can be drawn; rather, Rule 404(b) ex-
cludes the evidence if its relevance to ‘another purpose’ is
established only through the forbidden propensity inference.”).
Further, the Government has not relied on such an improper
propensity inference, and this is not the inescapable conclusion
for which Ferrell’s financial situation is being offered into
evidence. Compare United States v. Cunningham, 103 F.3d 553,
556 (7th Cir. 1996) (stating that although propensity evidence
and motive evidence may overlap in certain scenarios, there is
no impermissible overlap when the other-act evidence shows
the defendant’s desire for pecuniary gain, to which the crime
is instrumental, because the pecuniary gain could not be
achieved as easily by lawful means), with Lee, 724 F.3d at 980
26 No. 14-2915
(barring a defendant’s prior conviction for possession of crack
cocaine in defendant’s present trial for possession with intent
to distribute because the government’s argument that the
possession conviction showed defendant’s “familiarity with
the cocaine business” and “was not some hapless fool” only
invited the jury to infer propensity to engage in cocaine-related
offenses). We have also been mindful that loose policing of
Rule 404(b)’s exceptions historically appears in drug cases.
Gomez, 763 F.3d at 853 (quoting Miller, 673 F.3d at 692). The
district court acted reasonably by accepting the Government’s
reasoning centered around motive. Similarly, we are satisfied
that the district court carefully considered whether the proba-
tive value was substantially outweighed by the risk of unfair
prejudice.
Therefore, the district court did not abuse its discretion by
admitting Shriver’s testimony regarding Ferrell’s conduct in
various states as evidence of intent and knowledge. Likewise,
Shriver’s testimony of Ferrell’s debts and expenses went to
motive, not an impermissible propensity inference.11
CONCLUSION
For the reasons set forth above, the district court did not
abuse its discretion in refusing to admit Woods’s recorded
statements pursuant to Rule 804(b)(3). Likewise, the district
court did not abuse its discretion in admitting Shriver’s
testimony describing Ferrell’s other acts. We therefore AFFIRM
the judgment of conviction.
11
Because we hold that the district court did not abuse its discretion, we
need not reach the Government’s harmless error argument.