United States v. Nancy Smith , 866 F.3d 1130 ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 16-10160
Plaintiff-Appellee,
D.C. No.
v. 2:15-cr-00200-
GEB-1
NEIL A. VAN DYCK,
Defendant,
OPINION
NANCY A. SMITH; WENDY S.
JOHNSON,
Intervenors-Appellants.
Appeal from the United States District Court
for the Eastern District of California
Garland E. Burrell, Jr., District Judge, Presiding
Argued and Submitted May 17, 2017
San Francisco, California
Filed August 10, 2017
Before: Sidney R. Thomas, Chief Judge, Mary H.
Murguia, Circuit Judge, and Jon P. McCalla,*
District Judge.
Opinion by Chief Judge Thomas
*
The Honorable Jon P. McCalla, United States District Judge for the
Western District of Tennessee, sitting by designation.
2 UNITED STATES V. SMITH
SUMMARY**
Criminal Law
The panel affirmed the district court’s denial of a motion
by two qui tam relators to intervene in a criminal forfeiture
action so that they could recover a share of the proceeds.
The relators worked for the criminal defendant, a licensed
podiatrist who was convicted of health care fraud and against
whom the government issued a personal forfeiture money
judgment in the estimated amount of fraudulent claims paid
by victim insurers. The relators filed a qui tam action against
the criminal defendant pursuant to the False Claims Act.
The panel held that the relators lack standing to intervene
in the criminal forfeiture action, as they had no interest in the
property when the criminal acts were committed, and they
were not qualifying bonafide purchasers for value. The panel
rejected the relators’ contention that the “alternate remedy”
provisions of the False Claims Act permit a relator to
intervene in a criminal action for the purpose of asserting a
right to the proceeds of that action. The panel also rejected
the relators’ argument that they have standing to intervene in
the criminal action as “partial assignees of the government’s
claims” under 21 U.S.C. § 853(n). The panel wrote that the
relators’ sole statutory remedy is to commence a civil action.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
UNITED STATES V. SMITH 3
The panel held that the district court did not abuse its
discretion in denying an evidentiary hearing or in declining
to impose sanctions on the government.
COUNSEL
Jeremy L. Friedman (argued), Law Office of Jeremy L.
Friedman, Oakland, California; Tatiana Filippova and Gary
B. Callahan, Clayeo C. Arnold APLC, Sacramento,
California; for Intervenors-Appellants.
Colleen M. Kennedy (argued), Assistant United States
Attorney; Phillip A. Talbert, United States Attorney; United
States Attorney’s Office, Sacramento, California; for
Plaintiff-Appellee.
OPINION
THOMAS, Chief Judge:
In this appeal, we consider whether a criminal forfeiture
action constitutes an “alternate remedy” to a civil qui tam
action under the False Claims Act, entitling a relator to
intervene in the criminal action and recover a share of the
proceeds pursuant to 31 U.S.C. § 3730(c)(5). We hold that it
does not, and we affirm the district court’s order denying
intervention.
I
The criminal defendant, Neil Van Dyck, was a licensed
podiatrist who owned and operated his own podiatry practice
4 UNITED STATES V. SMITH
until October 2014. Relator Wendy Johnson worked as a
medical assistant for Van Dyck from 1986 to 2008, and
Relator Nancy Smith worked as a medical assistant and biller
from 2006 to 2012.
A
In March 2011, Van Dyck’s unusual billings patterns for
surgical nail avulsion,1 skin graft, and ultrasound procedures
prompted an investigation by SafeGuard Services, LLC
(“SafeGuard”), a Medicare contractor that investigates
potential Medicare fraud and refers cases to law enforcement.
In April 2011, SafeGuard notified Van Dyck of its
investigation and requested that he submit medical records
related to his treatment of eight Medicare beneficiaries
between March 1, 2010, and February 28, 2011.
Van Dyck submitted some of the requested records, but
SafeGuard suspected that the records had been improperly
created or altered. Based on its initial investigation,
SafeGuard concluded that Van Dyck had committed
Medicare fraud in violation of 18 U.S.C. § 24. It referred the
matter to the U.S. Department of Health and Human Services
Office of the Inspector General (“the Department”) in June
2011. SafeGuard continued to assist the Department with the
investigation.
SafeGuard sent Van Dyck a supplemental records request
in November 2011 to account for the inconsistencies in Van
1
Nail avulsion involves removing the entire toe nail from the nail
bed. Because it takes several months for the toe nail to grow back, it is
suspect for more than one nail avulsion procedure to be reported for the
same patient within the span of a month or two.
UNITED STATES V. SMITH 5
Dyck’s initial record submission. Shortly thereafter,
SafeGuard received a phone call from Relator Smith—she
identified herself at the time as “Nancy”—asking for more
information on how to fulfill SafeGuard’s supplemental
records request. Van Dyck submitted some of the requested
supplemental records in January 2012. Again, the submitted
records appeared to have been improperly altered.
Shortly before receiving Van Dyck’s supplemental
records, SafeGuard sent Medicare surveys to approximately
forty-seven randomly selected Medicare patients whom Van
Dyck treated. Twenty-three patients responded to the survey.
Although Van Dyck submitted Medicare claims for having
performed surgical avulsions on eighteen of the twenty-three
patients, the surveys revealed that those eighteen patients had
received only routine foot care. Van Dyck began submitting
claims for routine foot and nail care only after SafeGuard’s
initial request for patient records.
On February 9, 2012, the Department received an
anonymous complaint that Van Dyck billed Medicare for nail
avulsions when his patients received only routine foot and
nail care. The caller also stated that the employees
performing the routine care were not licensed or trained to
provide podiatry services. When those employees confronted
Van Dyck about his billing practices, he told them to mind
their own business. The anonymous caller was later
identified as Relator Smith.
On July 29, 2014, government investigators interviewed
Relator Smith to determine her role, if any, in Van Dyck’s
submission of fraudulent claims. During the interview,
Relator Smith explained that, after she sought clarification of
the supplemental records request, she printed patient charts
6 UNITED STATES V. SMITH
and other documents for Van Dyck. After Van Dyck
reviewed and updated the documents, she reprinted them
upon Van Dyck’s request. Relator Smith also confirmed that
the computer system would only mark documents as
“updated” if actual changes were made to the documents;
merely printing would not trigger an update to the patient’s
record. In addition, Relator Smith turned over to the
government a work computer that Van Dyck gave her in
2006, when he updated the podiatry practice’s computer
system. The government contends that the computer has little
to no evidentiary value since it had not been used in Van
Dyck’s podiatry practice or otherwise since 2006, before Van
Dyck’s fraudulent conduct began.
Based on Safeguard’s and the Department’s
investigations, the government sought, under seal, a warrant
to search Van Dyck’s office. During the execution of the
search warrant, Van Dyck confessed to committing the fraud.
The government filed a criminal information on
September 28, 2015, charging Van Dyck with one count of
health care fraud in violation of 18 U.S.C. § 1347. Van Dyck
pled guilty to the charge and agreed to forfeit funds from his
retirement account as part of his plea agreement. On October
27, 2015, the district court issued a personal forfeiture money
judgment against Van Dyck for $1.23 million, the estimated
amount of fraudulent claims paid to Van Dyck by the victim
insurers.
B
On July 6, 2012, over a year after SafeGuard began its
investigation of Van Dyck, Relators filed under seal a qui tam
action against Van Dyck, pursuant to the False Claims Act,
UNITED STATES V. SMITH 7
31 U.S.C. § 3730(b). In their complaint, Relators alleged
that, for ten years, Van Dyck submitted fraudulent claims to
Medicare, Medicaid, and Medi-Cal “for procedures not
performed, for medical material not used, for derma graphs
used illegally . . . , [and] for routine foot care not authorized
for reimbursement . . . .” Relators also alleged that Van Dyck
falsified patient records to reflect procedures not performed,
wrote chart notes to indicate that he saw patients he never
saw, and billed as surgical procedures pedicures given to
patients he never saw.
Relators’ qui tam action remained under seal until late
January 2016, as a result of the government’s seven requests
for six-month seal extensions for the purpose of conducting
further investigations. See 31 U.S.C. § 3730(b)(3). However,
the government did obtain a partial lift on the seal in
November 2014 to disclose the qui tam action to Van Dyck.
According to Relators’ attorney, one of the Assistant U.S.
Attorneys handling the qui tam action told him that Van
Dyck’s defense attorney reported that “Van Dyck wants to
resolve everything but recognizes there won’t be enough
funds to cover all of the loss.” The U.S. Attorney’s Office
proceeded to further investigate Relators’ qui tam claims over
the next year and attempted to negotiate a settlement
agreement for the False Claims Act allegations in the qui tam
suit. In November 2015, Van Dyck’s counsel informed the
U.S. Attorney’s Office that Van Dyck rejected the
government’s qui tam settlement offer and refused to
continue settlement negotiations.
The government declined to intervene in the civil qui tam
action on February 18, 2016. The qui tam action is currently
pending before the district court.
8 UNITED STATES V. SMITH
C
Beginning on November 30, 2015, Relators made several
unsuccessful attempts to intervene in the government’s
criminal forfeiture action against Van Dyck. In their final
amended motion to intervene, Relators sought an unspecified
amount of the funds recovered in the criminal forfeiture
action, as well as “reasonable expenses, attorney fees and
costs, from all the assets obtained” from Van Dyck.
The district court denied Relators’ motion, concluding
that Relators failed to demonstrate a recognized interest in the
criminal forfeiture proceeding, which is required to intervene
under 21 U.S.C. § 853(n). The district court declined
Relators’ oral request for an evidentiary hearing concerning
the propriety of intervention. Finally, the district court
declined to consider Relators’ request that the district court
sanction the government because Relators raised the request
for the first time in their reply brief for the motion to
intervene.
II
Relators lack standing to intervene in the criminal
forfeiture action. Thus, the district court properly denied the
intervention motion. As a general rule, individuals lack
standing to intervene in criminal prosecutions. See Linda R.
S. v. Richard D. and Texas, 410 U.S. 614, 619 (1973) (“[A]
private citizen lacks a judicially cognizable interest in the
prosecution or nonprosecution of another.”). Further, the
specific criminal forfeiture statute at issue, 21 U.S.C. § 853,
imposes a general bar on parties intervening in the criminal
case. 21 U.S.C. § 853(k). The two exceptions to the general
bar are (1) third parties who had a vested interest in the
UNITED STATES V. SMITH 9
property at the time of the commission of the acts that gave
rise to forfeiture, and (2) bona fide purchasers for value
without cause to believe the property was subject to
forfeiture. 21 U.S.C. § 853(n)(6). Relators had no interest in
the property when the criminal acts were committed, and they
were not qualifying bona fide purchasers for value.
Therefore, under the general rule and the specific statutory
provisions, Relators had no right to intervene in the action.
We have reached similar conclusions in other contexts.
For example, in United States v. Kovall, 857 F.3d 1060 (9th
Cir. 2017), we considered whether a victim could appeal a
restitution order under the Criminal Victims Rights Act, and
concluded that the third-party victim did not have standing to
do so. Id. at 1069. In United States v. Mindel, 80 F.3d 394
(9th Cir. 1996) we held that the beneficiary of a criminal
restitution order made pursuant to the Victim and Witness
Protection Act of 1982 did not have standing to appeal a
restitution order. Id. at 396.
The appellants in Kovall and Mindel had better standing
arguments than Relators do here. As we know, to establish
standing, a party must have an “actual or imminent invasion
of a legally protected, concrete, and particularized interest,”
“a causal connection between the injury and the conduct
complained of,” and the likelihood “that the injury will be
redressable by a favorable decision,” Lujan v. Defs. of
Wildlife, 504 U.S. 555, 560–61 (1992). Relators have not
established a right to a share of the proceedings; rather, they
simply assert an unliquidated, undetermined, and speculative
interest in the forfeited money. Indeed, the district court
concluded, based on the parties’ averred evidence, that
Relators did not qualify to assert an interest. It noted that the
government began investigating Van Dyck for fraud before
10 UNITED STATES V. SMITH
Relators filed their qui tam action in July 2012, and that the
results of the investigation—rather than Relators’ disclosed
information—prompted the criminal forfeiture action. It
determined that Relators failed to show the import of the
information they provided to the government or that the
government did not already possess such information. The
district court also concluded that Relators failed to
demonstrate a recognized interest in the criminal forfeiture
proceeding, which is required to intervene under 21 U.S.C.
§ 853(n).
The district court was entirely correct. Intervention
would have violated the general rule against non-parties
intervening in criminal proceedings; intervention was not
permitted under the governing statute; and Relators did not
establish a sufficient interest in the forfeited funds. Relators
lack standing to intervene.
III
Relators argue that they should be permitted to intervene
in the criminal forfeiture action against Van Dyck “for the
limited purpose of adjudicating and obtaining their statutory
relators’ award from the funds forfeited by a qui tam
defendant.” They specifically argue that their motion should
be granted because (1) the government elected to pursue its
claim for recovery through the “alternate remedy” of a
criminal forfeiture action rather than through Relators’ qui
tam action, 31 U.S.C. § 3730(c)(5); and (2) Relators have
standing as “partial assignees of the government’s claims” to
intervene in the criminal forfeiture action, 21 U.S.C. § 853(n).
UNITED STATES V. SMITH 11
A
The “alternate remedy” provisions of the False Claims
Act do not permit a relator to intervene in a criminal action
for the purpose of asserting a right to the proceeds of that
action.
The False Claims Act imposes civil liability on any
person who knowingly submits to the U.S. government a
false or fraudulent claim for payment or approval. 31 U.S.C.
§ 3729(a). Under the Act, either the Attorney General may
file suit to recover lost funds, 31 U.S.C. § 3730(a), or a
private citizen—a “relator”—may bring a qui tam suit on
behalf of the government, 31 U.S.C. § 3730(b).
When a private citizen files a qui tam complaint under the
False Claims Act, it must remain under seal for at least sixty
days. 31 U.S.C. § 3730(b)(2). During that time, the
government must determine whether it will intervene in the
action. 31 U.S.C. § 3730(b)(4). With a showing of good
cause, the government may request extensions of the sixty-
day period during which the suit remains under seal.
31 U.S.C. § 3730(b)(3).
If the government chooses to intervene in the qui tam
action, the relator is entitled to fifteen to twenty-five percent
of the proceeds of the action or settlement. 31 U.S.C.
§ 3730(d)(1). If the government declines to intervene in the
action, the relator is entitled to twenty-five to thirty percent
of the proceeds of the action or settlement. 31 U.S.C.
§ 3730(d)(2).
The government may also pursue an alternate remedy for
recovering funds fraudulently obtained:
12 UNITED STATES V. SMITH
Notwithstanding subsection (b), the
Government may elect to pursue its claim
through any alternate remedy available to the
Government, including any administrative
proceeding to determine a civil money
penalty. If any such alternate remedy is
pursued in another proceeding, the person
initiating the action shall have the same rights
in such proceeding as such person would have
had if the action had continued under this
section.
31 U.S.C. § 3730(c)(5) (emphasis added).
Thus, if the government chooses to pursue an “alternate
remedy,” the relator is entitled to fifteen to twenty-five
percent of the recovered proceeds. Relators argue that a
criminal proceeding is such an “alternate remedy,” and that
they are therefore entitled to intervene to protect their interest
in the proceeds.
As an initial matter, it is an open question as to whether
a criminal proceeding constitutes an “alternate remedy” under
the False Claims Act.2 However, we need not reach the
question in this case as to whether a criminal case constitutes
an “alternate remedy,” because the sole issue before us is
2
Neither the plain words of the statute nor the legislative history is
conclusive. The Senate Report for the False Claims Amendments Act of
1986 suggests that only civil and administrative remedies would be
subject to the “alternate remedy” provision. S. Rep. 99-345, 99th Cong.,
2d. Sess. 27, reprinted in 1986 U.S.C.C.A.N. 5266, 5292. The House
Report references criminal prosecutions. H. Rep. 660, 99th Cong., 2d
Sess. 23 (1986). The Senate Bill was ultimately enacted, not the House
version.
UNITED STATES V. SMITH 13
whether Relators are entitled to intervene in the criminal
proceeding. There is nothing in the False Claims Act that
affords Relators the right to intervene in a criminal
prosecution. The sole remedy afforded relators under the
False Claims Act is to commence “a civil action.” 31 U.S.C.
§ 3730(b)(1).
The conclusion of the criminal forfeiture action does not
preclude Relators from going forward with their qui tam
action and receiving a portion of the proceeds. See, e.g.,
United States v. Lippert, 148 F.3d 974, 975–76 (8th Cir.
1998) (permitting civil damages after defendant previously
paid a criminal fine); United States v. Eghbal, 475 F. Supp.
2d 1008, 1016–19 (C.D. Cal. 2007) (awarding civil damages
and penalties under the False Claims Act after defendant had
paid criminal restitution).
Relators argue that Van Dyck may be judgment proof by
that time. That may well be a practical concern, but it does
not provide Relators with the right to intervene in a criminal
action. Rather, they must establish their right to the proceeds
through an authorized legal proceeding. The question of
collection on a judgment is separate from an intervention
right.3
3
As the government points out, that issue is beyond the scope of this
appeal, and there is nothing that necessarily prohibits Relators from
asserting in their qui tam action that they are entitled to a portion of the
forfeited funds to the extent that Van Dyck is entitled to a damage credit
in that action.
14 UNITED STATES V. SMITH
B
Relators also argue that they have standing to intervene in
the criminal forfeiture action as “partial assignees of the
government’s claims” under 21 U.S.C. § 853(n). However,
as we have previously discussed, they do not qualify under
the statute. To expand the analysis: Section 853 allows a
person to claim an interest in property forfeited if she can
demonstrate by a preponderance of the evidence that:
(A) the petitioner has a legal right, title, or
interest in the property, . . . [which] renders
the order of forfeiture invalid in whole or in
part because the right, title, or interest was
vested in the petitioner rather than the
defendant or was superior to any right, title, or
interest of the defendant at the time of the
commission of the acts which gave rise to the
forfeiture of the property under this section; or
(B) the petitioner is a bona fide purchaser for
value of the right, title, or interest in the
property . . . .
21 U.S.C. § 853(n)(6).
Here, Relators are not alleging that they are bona fide
purchasers for value. Thus, the only question is whether they
have a legal right, title, or interest, established at the time Van
Dyck committed his crimes, in Van Dyck’s forfeited funds.
They do not. Any right they have can only be established
upon completion of the qui tam suit, which remains pending.
And, as the district court determined, they did not tender
sufficient evidence in this case to establish their right to a
UNITED STATES V. SMITH 15
portion of the proceeds. Therefore, Relators cannot intervene
in the criminal forfeiture action under 21 U.S.C. § 853(n).
IV
The district court did not err in denying Relators’ request
for an evidentiary hearing to determine their rights in the
proceedings, a request which was made orally for the first
time at the hearing on Relators’ motion to intervene. As we
have discussed, Relators’ sole statutory remedy is to
commence “a civil action.” 31 U.S.C. § 3730(b)(1). It is not
through a criminal evidentiary hearing. Thus, the district
court did not abuse its discretion in concluding that Relators’
moving papers were not “sufficiently definite, specific,
detailed, and nonconjectural to enable the court to conclude
that contested issues of fact going to the validity of [a
constitutional or statutory right] are in issue.” (quoting United
States v. Walczak, 783 F.3d 852, 857 (9th Cir. 1986))
(emphasis and alteration in district court order).
Nor did the district court abuse its discretion when it
declined to consider Relators’ request for the court to impose
sanctions on the government. Zamani v. Carnes, 491 F.3d
990, 997 (9th Cir. 2007) (“The district court need not
consider arguments raised for the first time in a reply brief.”).
V
The district court correctly denied the Relators’ motion to
intervene in the criminal forfeiture proceeding. Their proper
remedy is through their False Claims Act civil action. The
16 UNITED STATES V. SMITH
district court did not abuse its discretion in denying an
evidentiary hearing or in declining to impose sanctions on the
government.
AFFIRMED.