United States v. Gehrmann

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS April 24, 2018
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court
UNITED STATES OF AMERICA,
Plaintiff - Appellant,
v. No. 16-1208
(D.C. Nos. 1:15-CR-00303-RBJ-1 and
THOMAS FORSTER GEHRMANN, 1:15-CR-00303-RBJ-2)
JR.; ERIC WILLIAM CARLSON, (D. Colo.)
Defendants - Appellees.
ORDER AND JUDGMENT *
Before HOLMES, MURPHY, and PHILLIPS, Circuit Judges.
During a criminal investigation into two chiropractors, Thomas F.
Gehrmann, Jr. and Eric William Carlson (collectively, “Defendants”), the
government obtained warrants to search Defendants’ businesses and associated
storage facility for evidence supporting allegations of criminal tax offenses and
healthcare fraud. In support of the warrants, a federal agent furnished a forty-three
page probable-cause affidavit; it outlined the government’s existing evidence,
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
described certain aspects of independent investigations that had been conducted by
other entities, including a state regulatory body, and concluded with the agent’s
opinion that probable cause existed to believe that Defendants committed various
criminal tax and healthcare-fraud offenses and that evidence of those offenses
would be found at certain identified locations. A few months earlier, the Colorado
Department of Regulatory Agencies (“DORA”) had investigated similar allegations
of healthcare fraud against Dr. Carlson, and had ultimately issued an admonition
letter (“Admonition Letter”) that made no mention of the healthcare-fraud
allegations. Rather, DORA’s Admonition Letter noted Dr. Carlson’s failure to
“make essential entries on patient records,” but declined, largely without
explanation, to pursue any “formal action.” In crafting the probable-cause
affidavit, the agent mentioned DORA’s underlying investigation into allegations of
healthcare fraud, but omitted any reference to DORA’s Admonition Letter.
During the warrants’ execution, federal agents and investigators seized
responsive materials, and a federal grand jury subsequently charged Defendants
with seven separate criminal tax offenses but, notably, no healthcare-fraud
offenses. In advance of trial, Defendants moved to suppress the seized evidence
and requested a Franks hearing,1 arguing that the federal agent intentionally or
recklessly omitted from his affidavit DORA’s Admonition Letter and that the
1
See Franks v. Delaware, 438 U.S. 154 (1978).
2
warrant would not have issued if that correspondence had appropriately been
included.
The government opposed suppression. Following a Franks hearing, the
district court found DORA’s Admonition Letter material to the probable-cause
determination for the suspected healthcare offenses but not the tax offenses. It
further concluded that the invalid healthcare portions of the warrants were not
severable from the valid tax portions, and suppressed all evidence seized under the
warrants. The government filed this interlocutory appeal from this suppression
ruling, attacking the district court’s materiality and severability determinations, but
not the court’s antecedent conclusion that the agent intentionally or recklessly
omitted DORA’s Admonition Letter.
Exercising jurisdiction over this appeal pursuant to 18 U.S.C. § 3731, we
reverse the district court’s suppression order on materiality grounds, and remand
for further proceedings.
I
Drs. Gehrmann and Carlson, along with a nonparty John Davis (“Dr.
Davis”), owned and operated Atlas Chiropractic Center at Briargate, Inc. (“Atlas”)
and SpineMed Decompression Centers of Colorado, LLC (“SpineMed”)—two
adjacent chiropractic businesses with separate storefronts, but shared internal office
space, employees, bank accounts, and other resources.
In December 2007, a former patient of Dr. Carlson called United
3
Healthcare’s (“United”) fraud hotline to report Dr. Carlson for overbilling, among
other allegedly improper practices. United’s special investigative unit, Ingenix,
initiated an investigation into Dr. Carlson, Atlas, and SpineMed, ultimately
identifying a number of alleged billing improprieties—namely, requiring up-front
payment for covered services and submitting duplicate or triplicate billings for
certain services. In the end, “Ingenix’s analysis disclosed” that Dr. Carlson, Atlas,
and SpineMed received “a total of $460,338.10” due to various billing
“misrepresentations.” Aplt.’s App., Vol. I, at 64 (Rutkowski Aff., dated Sept. 16,
2011).
Ingenix referred these investigative findings to DORA, which opened an
investigation and retained Dr. Ben Elder as an investigator. In that capacity, Dr.
Elder reviewed eleven patient files and authored a comprehensive report detailing
his concerns about Dr. Carlson’s failure to maintain adequate patient records, and
the evidence that “Dr. Carlson potentially misdiagnosed patients.” Id. at 275 (Elder
Report, dated Apr. 27, 2009). As for allegations of double billing by Dr. Carlson,
Dr. Elder explained that the ostensible scheme “involved the patient paying cash to
Dr. Carlson, as well as him receiving insurance reimbursement . . . for the same
services,” without redistributing the “alleged insurance payments . . . to the
patients.” Id. Given “the limited documentation concerning [Dr. Carlson’s
financial transactions],” however, Dr. Elder found that “this aspect of the case
could not be concluded.” Id. at 276. Nonetheless, Dr. Elder expressed his belief
4
that, given the “great deal of essential documentation that was missing from every
file reviewed in th[e] case[,]. . . . Dr. Carlson and/or his attorney were
intentionally trying to defraud [DORA].” Id. at 275. He suggested that Dr.
Carlson’s “absolute[]” failure to maintain financial records “warrant[ed] possible
consultation with the Internal Revenue Service,” id. at 276. Indeed, Dr. Elder
encouraged DORA to “pass [his findings] along to the appropriate authorities.” Id.
DORA subsequently provided Investigator Galeassi, a Senior Investigator
with the Department of Labor (“DOL”), several documents regarding DORA’s
investigation into Dr. Carlson, including Dr. Elder’s report. Upon receipt,
Investigator Galeassi forwarded the materials to the U.S. Attorney’s Office. See
Aplt.’s App., Vol. I, at 144–45 (Letter from Investigator Galeassi to an Assistant
U.S. Attorney, dated May 14, 2009). Agent Rutkowski, a Special Agent with the
Internal Revenue Service (“IRS”) Criminal Investigation Unit, appears to have
received the DORA investigative documents in the fall of 2010. After that, the
DOL and the IRS proceeded with a joint investigation into Dr. Carlson—and,
ultimately also Dr. Gehrmann, Atlas, SpineMed, and non-party Dr. Davis—with
Investigator Galeassi focusing on the healthcare-fraud aspect of the investigation,
while Agent Rutkowski focused on the tax-fraud dimension.
On March 23, 2011, DORA issued an Admonition Letter to Dr. Carlson. Id.
at 147 (Letter of Admonition, dated Mar. 23, 2011). DORA indicated that it was
doing so in lieu of initiating a “formal action” against Dr. Carlson. Id. In the
5
single-page letter, DORA found that Dr. Carlson violated DORA regulations, by
failing to “make essential entries on patient records including family and social
history and appropriate intake examination information.” Id. Pointing only to
issues with patient documentation—and, importantly, without mentioning the
healthcare-fraud allegations that gave rise to the investigation—DORA
“admonishe[d] [Dr. Carlson] and warn[ed] [him] that repetition of such conduct
[might] lead to imposition of more severe disciplinary sanctions.” Id. Finally,
DORA described the Admonition Letter as “a full and final resolution of the issues
raised” in DORA’s investigation—but not “any other cases, complaints, or
matters”—and stated that, “[p]ursuant to an agreement with [DORA],” Dr. Carlson
had “agreed to waive the right . . . to contest th[e] Letter of Admonition through a
formal disciplinary proceeding and appeal.” Id.
Shortly thereafter, on September 16, 2011, Agent Rutkowski executed a
forty-three page probable-cause affidavit as part of a search-warrant application for
Atlas’s and SpineMed’s office. At the outset of the affidavit, Agent Rutkowski
detailed the outstanding investigation into Drs. Carlson and Gehrmann, and their
affiliated businesses, Atlas and SpineMed, for possible violations of the following
criminal statutes: (1) 26 U.S.C. § 7201 (Attempt to Evade or Defeat Tax); (2) 26
U.S.C. § 7206(1) (Filing False Income Tax Returns Under Penalties of Perjury); (3)
18 U.S.C. § 371 (Conspiracy); (4) 18 U.S.C. § 1035 (False Statements Related to
Health Care Matters); (5) 18 U.S.C. § 1341 (Mail Fraud (Frauds and Swindles));
6
(6) 18 U.S.C. § 1343 (Wire Fraud); (7) 18 U.S.C. § 1347 (Health Care Fraud); and
(8) 18 U.S.C. § 2 (Aiding and Abetting).2
As the basis for these alleged violations, Agent Rutkowski traced the
investigation from its beginning, starting with the initial “patient complaint
regarding double billing,” Aplt.’s App., Vol. I, at 63, Ingenix’s investigation and
finding, see id. at 64, and the subsequent referral of Ingenix’s “investigative
findings” to DORA, id. at 65. Turning then to the results of the investigative
subpoenas, Agent Rutkowski stated that a review of Defendants’ financial
documents—specifically, their personal bank accounts, personal tax returns, and
corporate tax returns—revealed that Defendants took part “in a conspiracy to divert
corporate receipts from medical patients into their various personal bank accounts,
for the purpose of Tax Evasion.” Id. Agent Rutkowski explained that:
A review of the deposited checks indicate[d] [that] patients [were]
given instructions to make the checks payable to a specific doctor.
On some of the checks, the patient started to make the check
payable to the business, but then crossed out the name of the
2
In separate attachments, Agent Rutkowski listed the locations to be
searched, Atlas and SpineMed, and described the items to be seized—a wide array
of financial, business, and patient records. The thirty-one point description of
items to be seized included some items seemingly relevant only to tax fraud, others
that appeared to relate solely to healthcare fraud, and then some categories of
information that were arguably relevant to both offenses. During the Franks
hearing, Agent Rutkowski expressed his opinion on how to characterize certain
categories of seized items. Nonetheless, because we resolve this appeal on
materiality grounds, we need not—and thus do not—determine the appropriate
characterization of each category of seized evidence, as we would if we were
obliged to conduct a severability analysis.
7
business and made the check payable to the doctor. It also appears
that someone made a designation on the top portion of many of the
checks, writing the letter “C”, “D”, or “G” along with other
miscellaneous alpha characters.
Id. at 66. Marrying these checks to the bank account statements of Atlas,
SpineMed, and Defendants, Agent Rutkowski classified “the money being
deposited into the various personal bank accounts . . . as a ‘corporate diversion’”
because Atlas and SpineMed “never recorded [the checks] in the books” and
Defendants did “not report[]” them “on their individual tax returns.” Id.; see also
id. at 69 (estimating the amounts of diverted funds). Against that backdrop, Agent
Rutkowski claimed probable cause to believe that Defendants committed various
criminal tax-fraud offenses, and that evidence of these offenses would likely be
uncovered at the offices of Atlas and SpineMed.
Under a separate heading titled “Federal Health Care Benefit Programs:
Employee Benefit Plans,” Agent Rutkowski offered further information regarding
DORA’s investigation.3 Id. at 70. Focusing on the allegations of healthcare fraud,
Agent Rutkowski recounted United’s investigation, through Ingenix, and Dr.
Elder’s report (discussing it in considerable detail over several pages). Agent
Rutkowski ultimately relied on the findings of both investigations (i.e., of Ingenix
3
Although not apparent from the face of the affidavit, Investigator
Galeassi drafted the healthcare-related allegations, and provided them to Agent
Rutkowski for incorporation into a single affidavit concerning both sets of alleged
offenses (i.e., tax and healthcare).
8
and Dr. Elder) in averring that Dr. Carlson exhibited a “pattern of misrepresenting
the actual services [he] provided” in connection with insurance reimbursement, id.
at 77. Importantly, however, Agent Rutkowski made no mention of the “full and
final resolution” embodied in DORA’s Admonition Letter—“a disciplinary action”
that DORA took nearly six months before Agent Rutkowski executed his affidavit.
Id. at 147. Nonetheless, as in the tax-offenses portion of the affidavit, Agent
Rutkowski stated his view that there was probable cause to believe that the offices
of Atlas and SpineMed contained evidence of the specified healthcare offenses.
A magistrate judge issued the search and seizure warrant on the same day,
and Agent Rutkowski (along with other agents from the IRS and the DOL)
executed the warrant on September 22, 2011, seizing patient files, business records,
and the like. During the search, the agents learned of a separate storage unit,
containing additional business records. Relying on the same underlying affidavit
(including its attachments), Agent Rutkowski obtained an additional warrant to
search the storage unit and, there, seized responsive materials.
On July 22, 2015, a federal grand jury returned a seven-count indictment,
charging Drs. Carlson and Gehrmann each with one count of conspiracy to defraud
the United States, in violation of 18 U.S.C. § 371, and three counts each of filing
false tax returns, in violation of 26 U.S.C. § 7206(1). Notably, the indictment did
not charge the Defendants with healthcare-fraud offenses.
Following the indictment, Defendants moved “to suppress [any and all]
9
evidence recovered pursuant to the search of their place of business and related
storage unit,” id. at 33 (Defs.’ Mot. to Suppress Evid., filed Nov. 9, 2015), on the
theory, as relevant here, that Agent Rutkowski premised his probable-cause
affidavit principally “upon the DORA allegations and investigation,” id. at 52; see
also id. at 41–43, but “[a]t no time . . . . explain[ed] that ultimately the DORA
matter resolved with findings that most of the initial accusations were unfounded,”
id. at 51–52. Pressing this position, Defendants argued that Agent Rutkowski’s
“fail[ure] to provide a full, fair and frank picture” of DORA’s investigation cast
doubt on the overall veracity of his affidavit, id. at 52, requiring a Franks hearing
and ultimately the suppression of all evidence “obtained pursuant to the warrants
issued based on th[e] affidavit,” id. at 53; see also id. at 176–96 (Defs.’ Reply to
Mot. to Suppress Evid., filed Jan. 29, 2016) (restating Defendants’ position on the
materiality of the DORA letter, and asserting that the affidavit failed to establish
probable cause for any tax or healthcare offenses). Opposing Defendants’ motion,
the government countered, in relevant part,4 that Agent Rutkowski “accurately
recounted the genesis of the DORA proceeding as to defendant [Dr.] Carlson and
4
Aside from contesting the merits of Defendants’ suppression motion,
the government challenged Defendants’ “standing” to contest the warrants,
asserting that Defendants lacked a reasonable expectation of privacy in the
searched commercial premises. Aplt.’s App., Vol. I, at 155–59. The district court
rejected the government’s position, and the government mounts no challenge to
this determination on appeal. Thus, we deem any such argument to be abandoned
and, thus, waived here.
10
Atlas,” id. at 172 (Gov’t’s Opp’n, filed Nov. 20, 2015), and asserted that Agent
Rutkowski’s “innocent” omission of DORA’s Admonition Letter was immaterial to
the magistrate judge’s probable-cause determination, id. at 173–74. In any event,
the government reasoned that DORA’s Admonition Letter would have “no
relevance” to the probable-cause showing regarding the alleged tax violations. Id.
at 173.
The district court decided that Defendants had made a sufficient showing to
warrant a Franks hearing and conducted it on April 13, 2016. The court received
testimony from Agent Rutkowski concerning the preparation of his probable-cause
affidavit, along with follow-up legal argument. Briefly recounted, Agent
Rutkowski testified that he knew of and had reviewed DORA’s Admonition Letter
during his preparation of the affidavit, and acknowledged that, though he “included
the underlying documents that went along with [DORA’s] investigation,” he
elected not to include the resulting Admonition Letter. Id., Vol. II, at 319 (Franks
Hr’g Tr., dated Apr. 13, 2016).
Nonetheless, Agent Rutkowski attempted to explain away his omission of the
Admonition Letter on the following grounds: first, he viewed the correspondence as
a “settlement letter” or “letter of punishment” with “no bearing on any criminal
investigation,” id.; accord id. at 332; second, he emphasized that Investigator
Galeassi acted as “the primary input mechanism” for the healthcare-related (and
thus, presumably, DORA-related) allegations, id. at 319–20; and finally, he stated
11
that the admonition letter was “ultra vague,” in that “[i]t [didn’t] tell [him] much
about the investigation, the character of it, [or] what happened,” id. at 335. Rather,
he viewed the underlying materials as the “original” and “best” method of
“present[ing] [the magistrate judge] with the facts and circumstances behind the
investigation.” Id. at 337.
On April 25, 2016, the district court granted Defendants’ suppression
motion, making two findings relevant to our disposition. First, the district court
concluded that “Agent Rutkowski misrepresented the health care fraud allegations
as though they had not yet been resolved and omitted the Admonition Letter with
the intent to mislead—or, at the very least, with a reckless disregard of whether it
would mislead—the magistrate judge.” Id. at 390 (Order, filed Apr. 25, 2016).
And, second, the district court found the omission of the letter to be material,
because an explanation that “DORA had investigated the health care fraud
allegations, subsequently decided not to sustain the health care fraud charges, and
issued the Admonition letter . . . would have vitiated probable cause to search the
Atlas/SpineMed Office and Storage Unit . . . for evidence of that crime,” i.e.,
healthcare fraud. Id. at 391 (emphases added). The district court concluded,
however, that the affidavit “set[] forth facts establishing probable cause of tax
evasion,” id. at 392, but ultimately deemed “the valid portions of the warrant (tax
evasion)” inseverable “from the invalid portions of the warrant (health care fraud),”
12
id. at 394.5 Accordingly, the district court reasoned that “[t]he search warrants
must be voided completely and the fruits of the searches suppressed in their
entirety.” Id. The government timely filed this interlocutory appeal from the
suppression ruling.
III
Under Franks v. Delaware,
[w]e exclude evidence discovered pursuant to a search warrant
when (1) a defendant proves by a preponderance of the evidence
“the affiant knowingly or recklessly included false statements in
or omitted material information from an affidavit in support of a
search warrant and (2) after excising such false statements and
considering such material omissions we conclude the corrected
affidavit does not support a finding of probable cause.”
United States v. Campbell, 603 F.3d 1218, 1228 (10th Cir. 2010) (alterations
omitted) (quoting United States v. Garcia–Zambrano, 530 F.3d 1249, 1254 (10th
Cir. 2008)); see also United States v. Kennedy, 131 F.3d 1371, 1376 (10th Cir.
1997). “The standards of deliberate falsehood and reckless disregard set forth in
Franks apply to material omissions as well as affirmative falsehoods.” United
States v. Ruiz, 664 F.3d 833, 838 (10th Cir. 2012) (quoting United States v.
McKissick, 204 F.3d 1282, 1297 (10th Cir. 2000)). “An omission is material if it is
5
In reaching the severability determination, the district court
questioned “whether the severability doctrine applies to a Franks challenge,” and
construed the affidavit as comprised of valid and invalid “portion[s]” but without
specifying any dividing line. Aplt.’s App., Vol. II, at 394. The parties
substantively discuss these findings on appeal, but our resolution of this appeal on
materiality grounds obviates the need to resolve these severability questions.
13
‘so probative as to negate probable cause.’” Id. (quoting Stewart v. Donges, 915
F.2d 572, 582 n.13 (10th Cir. 1990)).
Probable cause exists to support a search warrant when, “given all the
circumstances set forth in the affidavit . . ., there is a fair probability that
contraband or evidence of a crime will be found in a particular place.” United
States v. Artez, 389 F.3d 1106, 1111 (10th Cir. 2004) (emphasis added) (quoting
Illinois v. Gates, 462 U.S. 213, 238 (1983)). Probable cause does not require a
showing of “proof beyond a reasonable doubt or by a preponderance of the
evidence.” See id. (quoting Gates, 462 U.S. at 235); see also Spinelli v. United
States, 393 U.S. 410, 419 (1969) (“[O]nly the probability, and not a prima facie
showing, of criminal activity is the standard of probable cause.”), abrogated on
other grounds by Gates, 462 U.S. at 238. Probable cause is not a rigid formula, but
rather a “fluid concept—turning on the assessment of probabilities in particular
factual contexts—not readily, or even usefully, reduced to a neat set of legal rules.”
Gates, 462 U.S. at 232; see also United States v. Leon, 468 U.S. 897, 958 (1984)
(Brennan, J., dissenting) (probable cause is a “relaxed standard”).
An “affidavit in support of a search warrant must contain facts sufficient to
lead a prudent person to believe that a search would uncover contraband or
evidence of criminal activity.” United States v. Edwards, 813 F.3d 953, 960 (10th
Cir. 2015) (quoting United States v. Danhauer, 229 F.3d 1002, 1006 (10th Cir.
2000)). We simply must make a “practical, common-sense determination,” id.,
14
whether, under the totality of the circumstances presented in the affidavit, there is a
“substantial basis” to conclude that “there is a fair probability that contraband or
evidence of a crime will be found will be found in a particular place.” United
States v. Long, 774 F.3d 653, 658 (10th Cir. 2014) (emphases added) (quoting
Gates, 462 U.S. at 236, 238); cf. United States v. Martin, 426 F.3d 68, 77 (2d Cir.
2005) (“The fact that an innocent explanation may be consistent with the facts
alleged . . . does not negate probable cause.”).
As for a district court’s ruling regarding suppression after a Franks hearing,
“we review for clear error the district court’s findings regarding the truth or falsity
of statements in the affidavit and regarding the intentional or reckless character of
such falsehoods.” Ruiz, 664 F.3d at 838 (quoting Garcia-Zambrano, 530 F.3d at
1254). However, we “review the district court’s ultimate determination that the
corrected affidavit supports a finding of probable cause de novo.” Campbell, 603
F.3d at 1228. It ineluctably follows that this same standard (i.e., de novo) governs
our review of a district court’s essentially obverse ruling that the omitted
information, which is incorporated into the corrected affidavit, is material—viz.,
the court’s ruling that the information “is ‘so probative as to negate probable
cause.’” Ruiz, 664 F.3d 833, 838 (quoting Stewart, 915 F.2d at 582 n.13); see
United States v. Ippolito, 774 F.2d 1482, 1484 (9th Cir. 1985) (“The ultimate
question, whether the misstatements are material, . . . should be reviewed de
novo.”).
15
IV
The district court’s suppression decision was based on a series of sequential
determinations: first, the district court concluded that Agent Rutkowski
intentionally or recklessly misled the magistrate judge through his omission of
DORA’s Admonition Letter; second, the court found that Agent Rutkowski’s
omission was material, because the letter’s inclusion would have vitiated probable
cause to search for evidence with respect to the healthcare-fraud offenses; third, the
court opined that the affidavit contained independent probable cause for the tax-
based offenses, even if the affidavit included DORA’s Admonition Letter; and
finally, the court found that the valid tax-related portions of the warrant could not
be severed from the invalid healthcare-focused portions.
On appeal, the government challenges only the district court’s severability
and materiality determinations, arguing that the district court committed reversible
error “in holding that the tax portion of the warrant in this case was not severable,”
Aplt.’s Opening Br. at 14, and that the court also erred when it “characterized the
admonition letter as a finding of ‘not guilty’ to the fraud allegations,” and that the
letter was actually immaterial “to the probable cause for the suspected healthcare
offenses,” id. at 15. Defendants strongly disagree, contending that the “valid
portions of the warrant are not sufficiently distinguishable from the invalid portions
to permit severance,” Aplees.’ Response Br. at 31, and that the government’s
16
materiality argument is “meritless,” id. at 38 (capitalization altered).6
Although the parties’ appellate briefing places greater emphasis on the
district court’s severability determination, we conclude that the court erred in its
materiality determination. This conclusion is sufficient to resolve this appeal.
Specifically, by concluding that Defendants have not shown that the Admonition
Letter was material to the probable-cause determination regarding the healthcare-
6
We note that Defendants begin their attack on the government’s materiality
argument by claiming that it is “waived.” Aplee.’s Response Br. at 38 (capitalization
altered). However, this argument is patently misguided and merits little attention.
Specifically, Defendants argue that the government “conceded the issue of materiality”
through a “Notice of Clarification” that the government filed after the Franks hearing.
Aplees.’ Response Br. at 39. The “Notice of Clarification” stated that,
[i]n reviewing the transcript of the hearing, undersigned counsel
became concerned that the government’s focus on materiality may have
been understood as signaling approval of the agent’s decision to omit
the letter. The government recognizes that the warrant affidavit should
have included information about DORA’s resolution of a claim. It
believes that the omission was the result of poor judgment by a new
agent, and nothing more. But regardless of the agent’s intention, the
information should have been included.
Aplees.’ Suppl. App. at 1 (emphasis added) (Gov’t’s Notice of Clarification, filed Apr.
15, 2016). Seizing on the “should have included” language, Defendants argue that the
“government’s clarification conceded . . . that information about the Admonition Letter”
was material to the probable cause determination. Aplees.’ Response Br. at 39. Not so.
Nothing in the government’s clarification suggests it was conceding the materiality of the
Admonition Letter. On the contrary, the notice restates “the government’s focus on
materiality.” Aplees.’ Suppl. App. at 1. At most, the notice could be read as a concession
by the government that the DORA letter was relevant (as opposed to material)—and,
consequently, should have been included in the affidavit for the magistrate judge’s
consideration—and that the Admonition Letter was omitted with reckless disregard (the
first prong of Franks). Neither the relevancy of the letter nor the agent’s intent, however,
is at issue here.
17
fraud offenses, we are essentially saying that Agent Rutkowski’s inclusion of the
Admonition Letter in the affidavit would not have vitiated the probable cause
regarding these offenses. And the affidavit’s probable-cause showing regarding the
tax-related offenses is not at issue here. Consequently, our decision to overturn the
district court’s materiality determination, related to the healthcare-fraud portion of
the affidavit, effectively rejects the only challenge to the probable-cause basis of
the affidavit, and this provides a sufficient basis for reversing the district court’s
suppression order.
A
The Admonition Letter was indisputably relevant and should have been
included in Agent Rutkowski’s affidavit; however, relevance does not equate to
materiality. In our view, the letter was not “so probative as to negate probable
cause.” Ruiz, 664 F.3d at 838. In concluding otherwise, the district court erred in
at least two ways. First, it imparted a meaning to the letter that simply is not
evident on its face. Second, it focused solely on the letter, rather than the totality
of the circumstances, when evaluating the corrected affidavit.
1
The Admonition Letter does not draw any conclusions or make any findings
regarding the healthcare-fraud allegations that precipitated DORA’s investigation. 7
7
Defendants do not even attempt to dispute that DORA did not make
(continued...)
18
In spite of this, the district court construed the letter as an affirmative adjudication
of these allegations. Indeed, during the Franks hearing, the district court
described the Admonition Letter as a finding that Dr. Carlson “was not guilty” of
healthcare fraud. Aplt.’s App., Vol. II, at 368. In its suppression decision,
moreover, the district court reiterated the same belief, stating that “DORA did not
sustain the health care fraud charges that it investigated.” Id. at 389; accord id.
(finding that “DORA examined and investigated those allegations and did not
sustain the health care fraud charges”).
We discern no significant basis in the text of the Admonition Letter for the
meaning the district court attributed to it. True, the letter states that it is a “full
and final resolution of the issues raised in” the case before it—which was premised
on healthcare-fraud allegations—and DORA ultimately did not take action against
Dr. Carlson for healthcare fraud. But aside from referencing the case, the letter is
silent regarding the healthcare-fraud allegations. It does not describe the
allegations. It does not state what evidence DORA considered. It does not state
what findings, if any, DORA made regarding the healthcare-fraud allegations.
7
(...continued)
“specific findings about alleged healthcare fraud” in the Admonition Letter. Aplee.’s
Response Br. at 40 n.10. Nor could they. They simply ask us to follow the district
court’s lead by inferring from this decisional silence that DORA exculpated Dr. Carlson
and his related entities with respect to the healthcare-fraud allegations. In this regard,
they tell us that it matters not “why DORA might have resolved its investigation” of these
allegations in this manner, “[w]hat matters” is that it did so. Id. As we explain infra, we
are not persuaded.
19
And, most importantly, it does not state that, after considering all of the evidence
before it, DORA found the healthcare-fraud allegations to be meritless.
The letter appears to be a quasi-settlement, and is seemingly drafted in an
intentionally vague manner as a result. The district court even acknowledged that
“in some sense the Admonition Letter is a ‘settlement letter.’”8 Id. at 389. Yet, the
court then seemed to conflate the relevance of the letter—which is uncontested
here—with its materiality. It is not clear why the district court believed that a state
licensing board’s unexplained decision to settle a case would vitiate probable cause
for the underlying criminal conduct that gave rise to the case. Generally,
settlement provides a means of efficiently resolving a case without incurring the
expense of litigation,9 but it does not typically involve an adjudication on the
8
The Admonition Letter states, “Pursuant to agreement with [DORA], you
have agreed to waive the right provided by § 12-33-119(a), C.R.S., to contest this Letter
of Admonition through a formal disciplinary proceeding and appeal.” Aplt.’s App. at
147.
9
DORA is authorized to discipline licensees for violations of state
healthcare-fraud laws. See COLO. REV. STAT. § 12-33-117(1)(k) (“[T]he board may issue
a letter of admonition to a licensee or may revoke, suspend, deny, refuse to renew, or
impose conditions on such licensee’s license . . . [for] [v]iolation [or] abuse of health
insurance pursuant to COLO. REV. STAT. § 18-13-119 [i.e., criminal healthcare fraud], or
commission of a fraudulent insurance act, as defined in COLO. REV. STAT. § 10-1-128
[i.e., civil insurance fraud] . . . .”). However, Dr. Carlson and his affiliated entities would
have been entitled to a formal hearing to challenge any such allegations, at which DORA
would bear the burden of proof. See id. § 12-33-119(9)(a) (giving recipients of
admonition letters the “right to . . . formal disciplinary proceedings . . . to adjudicate the
propriety of the conduct upon which the letter of admonition is based”); id. §
12-33-119(4) (“Disciplinary proceedings and hearings shall be conducted in the manner
prescribed by [COLO. REV. STAT. § 24-4-105].”); id. § 24-4-105(7) (“[T]he proponent of
(continued...)
20
merits of all matters within the scope of the case, let alone a sub silentio
adjudication of these matters.
Moreover, it strains credulity to believe that the explicit and strong
suggestions of healthcare fraud communicated by Dr. Elder in his report prior to
the release of DORA’s Admonition Letter could have been addressed and rejected
by DORA through such silence. Specifically, Dr. Elder strongly suggested that Dr.
Carlson and his affiliated entities were involved in healthcare fraud. Indeed,
although the limited documentation provided by Dr. Carlson constrained Dr. Elder
from reaching a conclusive determination, he found evidence of a scheme that
“involved the patient paying cash to Dr. Carlson, as well as him receiving
insurance reimbursement . . . for the same services,” without redistributing the
“alleged insurance payments . . . to the patients.” Aplt.’s App., Vol. I, at 275. Dr.
Elder then expressed his belief that “Dr. Carlson and/or his attorney were
intentionally trying to defraud [DORA],” id. (emphasis added), and suggested that
Dr. Carlson’s “absolute[]” failure to maintain financial records “warrant[ed]
possible consultation with the Internal Revenue Service,” id. at 276. If DORA had
9
(...continued)
an order shall have the burden of proof.”). And that burden would have been by a
preponderance of the evidence. See id. § 24–4–105(7) (“The rules of evidence and
requirements of proof shall conform, to the extent practicable, with those in civil nonjury
cases in the district courts.”); id. § 13–25–127(1) (“[T]he burden of proof in any civil
action shall be by a preponderance of the evidence.”); see generally Gerner v. Sullivan,
768 P.2d 701, 703–04 (Colo. 1989) (en banc) (discussing the burden-of-proof
requirements of § 13–25–127(1)).
21
actually tackled and rejected these very serious allegations from the person it
charged and entrusted with conducting the misconduct investigation (i.e., Dr.
Elder) we find it hard to believe that it would have done so through silence.10
To be sure, Defendants suggest that we should defer under a clear-error
standard of review to the district court’s “characterization” of DORA’s Admonition
Letter, Aplee.’s Response Br. at 40—specifically, as a finding that Dr. Carlson
“was not guilty” of the healthcare-fraud allegations, Aplt.’s App., Vol. II, at 368.
This suggestion, however, is misguided. The district court’s interpretation of the
meaning of the DORA letter was inextricably intertwined with its materiality
determination. And our standard of review of a materiality determination—that is,
whether the information in a corrected affidavit (here, the DORA Admonition
Letter) “is ‘so probative as to negate probable cause’”—is de novo. Ruiz, 664 F.3d
at 838 (quoting Stewart, 915 F.2d at 582 n.13); see Ippolito, 774 F.2d at 1484.
Accordingly, it logically and necessarily follows that our consideration of the
meaning of the DORA Admonition Letter also must be de novo. Moreover,
applying the standard of review that is typically associated with legal
10
It seems much more likely that, because Dr. Elder could not definitively
bring to a close the “aspect of the case” involving double-billing and other healthcare
fraud, because of the “great deal of essential documentation that was missing from every
file” that Dr. Carlson supplied during the investigation, DORA decided to side-step the
issue of healthcare fraud and secure instead Dr. Carlson’s agreement not to contest a
disciplinary sanction for the clear and concrete record-keeping violations that Dr. Elder
unearthed. Aplt.’s App., Vol. I, at 275–76.
22
questions—i.e., de novo—seems most appropriate for our consideration of the
meaning of DORA’s Admonition Letter, for it is effectively a settlement
agreement. See, e.g., Flying J Inc. v. Comdata Network, Inc., 405 F.3d 821,
831–32 (10th Cir. 2005) (noting that “[t]he general rules of contract interpretation
under state law apply to settlement agreements” and that, under Utah law, “[e]ven
if the court refers to extrinsic evidence to make th[e] determination, contractual
ambiguity presents a question of law that we review de novo”); Dillard & Sons,
Const., Inc. v. Burnup & Sims Comtec, Inc., 51 F.3d 910, 914 (10th Cir. 1995)
(“Under Oklahoma law, it is well-settled that the interpretation of an unambiguous
contract is a question of law for the court.”); see also 5 AM. JUR.2d Appellate
Review § 647, Westlaw (database updated Feb. 2018) (noting that the
“[d]eterminations of law subject to plenary review on appeal” include “the proper
interpretation of the provisions of a consent decree or settlement agreement,
contract, or other written instrument” (footnotes omitted)). Furthermore, even
assuming arguendo that this interpretive task has some embedded, appreciable
factual component, we have no doubt that the task still “entails primarily legal . . .
work” and, therefore, de novo review nevertheless would be appropriate. U.S.
Bank Nat’l Ass’n ex rel. CW Capital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, --
- U.S. ----, 138 S. Ct. 960, 967 (2018) (emphasis added). Applying that standard,
we conclude that the district court erred in construing the DORA Admonition
Letter as a finding that Dr. Carlson was “not guilty” of healthcare fraud. Aplt.’s
23
App., Vol. II, at 368.
2
The district court also erred in failing to consider “all the circumstances set
forth in the [corrected] affidavit,” Artez, 389 F.3d at 1111; instead, it focused
solely on the Admonition Letter. After citing the general standard for probable
cause the court simply concluded in one sentence that,
had the affidavit explained that DORA had investigated the health
care fraud allegations, subsequently decided not to sustain the
health care fraud charges, and issued the Admonition Letter, then
that information would have vitiated probable cause to search the
Atlas/SpineMed Office and Storage Unit 412 for evidence of that
crime.
Aplt.’s App., Vol. II, at 391. The court did not weigh the letter—even under its
erroneous interpretation of its meaning—against the other evidence of healthcare
fraud included in the affidavit. Rather, the court essentially accorded dispositive
effect to DORA’s admonition letter. This was error. A proper probable-cause
determination requires consideration of “the totality of the information” contained
in the affidavit. Barajas, 710 F.3d at 1108 (emphasis added) (quoting Roach, 582
F.3d at 1200). Put differently, a determination of “whether probable cause exists to
support a search warrant” requires engagement with “all the circumstances set forth
in the affidavit.” Artez, 389 F.3d at 1111 (emphasis added) (quoting Gates, 462
U.S. at 238). The district court’s failure to engage in this way was error and likely
resulted in the court reaching the wrong conclusion (as discussed infra) regarding
24
the materiality of the Admonition Letter. In any event, once we consider “all the
circumstances set forth in the affidavit,” including the Admonition Letter, we
conclude infra that there is at least a “substantial basis” to conclude that there was
a “fair probability” that evidence of healthcare fraud would be found at Atlas,
SpineMed and the storage unit. Long, 774 F.3d at 658 (quoting Gates, 462 U.S. at
236, 238).
B
In our probable cause determination, we consider whether “all the
circumstances set forth in the affidavit” give rise to “a fair probability that
contraband or evidence” will be found in the places specified to be searched.
Artez, 389 F.3d at 1111 (quoting Gates, 462 U.S. at 238). Here, based on our
review of Agent Rutkowski’s affidavit—corrected to include DORA’s Admonition
Letter—we conclude that there was a fair probability that evidence of healthcare
fraud would be found at Atlas, SpineMed, and the storage unit. Under our reading
of the Admonition Letter, explicated supra, we arrive at this conclusion with no
difficulty. We acknowledge that the conclusion would be somewhat less patent if
we adopted the district court’s erroneous reading of the Admonition Letter—that is,
as an affirmative (albeit silent) determination that Dr. Carlson and his related
entities were not culpable for the investigated healthcare fraud; however, we
nevertheless would arrive at the same destination, given the abundance of evidence
of potential healthcare fraud that Agent Rutkowski detailed in his affidavit.
25
Because the inclusion of the Admonition Letter in the (corrected) affidavit would
not have negated probable cause of healthcare fraud—under our interpretation, or
even the district court’s—the letter cannot be material. And the district court erred
by concluding to the contrary.
Turning to the ample evidence of healthcare fraud found in the affidavit, we
highlight the following, substantively salient paragraphs (numbered as they appear
in Agent Rutkowski’s affidavit):
13. During the course of this investigation, records were
obtained from United Healthcare (United) relating to a
patient complaint regarding double billing. Specifically, in
December 2007, United received a fraud hotline tip from a
patient of Carlson’s alleging Carlson charged the patient
$3,500.00 up front for services that he told the patient
United would not cover. Later, the patient received her
explanation of benefits (EOBs) from United showing that
Carlson did submit billings to United for the services and
failed to reimburse the patient for the overpayments. The
patient confronted Carlson about the double billing and he
admitted he had done this. When the patient requested a
reimbursement check, he stated that he didn’t do anything
wrong. Nevertheless, Carlson gave the patient $1,700.00 of
the $3,500.00.
14. Subsequent to the fraud hotline tip, United’s Special
Investigative Unit, Ingenix, initiated an investigation into
the billing practices of Carlson, Atlas, and SpineMed.
Ingenix determined through ten more patient interviews that
Carlson received upfront payments for a treatment plan
from nine of the ten patients. Carlson charged these
patients approximately $3,500.00 each for the treatment
plans and advised each patient the treatment would not be
covered by United. However, Carlson did bill United,
retained the insurance reimbursements, and failed to
reimburse the nine patients.
26
15. Ingenix also learned through the patient interviews the
patients received Vax-D/Decompression Table Therapy.
Vax-D/Decompression Table therapy is a non-covered
service by United. Ingenix found that Carlson, Atlas, and
SpineMed submitted billings for Vax-D/Decompression
Table Therapy under codes other than the appropriate code
in order to obtain payment for this non-covered treatment.
Ingenix alleged Carlson, Atlas, and SpineMed billed under
twelve other codes to mask, disguise, and misrepresent the
services actually rendered. Ingenix’s analysis disclosed a
total of $460,338.10 was possibly paid in error due to these
misrepresentations.
16. Ingenix also determined Carlson, Atlas, and SpineMed
submitted duplicate billings and triplicate billings for
services provided under both Carlson’s name and one or
both of the business names.
....
23(e). The persons listed in the “Patient List” contained within
Attachment B, numbered 254–262, represent a list of
persons identified by Ingenix, and subsequently investigated
by the Colorado State Board of Chiropractic. According to
the investigation performed by Ingenix and The Colorado
State Board of Chiropractic, there is a likelihood the
Doctors submitted billing to United Healthcare for these
patients multiple times under various company names and
Employer Identification Numbers, constituting the illegal
practice known as double-billing.
....
29(b). Dr. Elder requested the attorney review patient contracts for
Vax-D treatment and the attorney responded that all
contracts were verbal. Dr. Elder found this highly unusual
considering the large amounts of cash required from
patients to pay for the treatments.
29(c). No patient records contained a diagnosis. The only
27
diagnosis Dr. Elder could find was contained on the claim
forms submitted by Dr. Carlson to United Healthcare. Dr.
Elder found no documentation in any file to justify why the
patients needed Vax-D treatment and speculated that most
patients were existing patients and that after Carlson
purchased the Vax-D tables, the patients were all of a
sudden candidates for Vax-D without proper work-up or
establishing the medical necessity of the treatment.
29(d). Dr. Elder found evidence that Dr. Carlson billed United
Healthcare for Vax-D treatments under different procedural
codes and also determined numerous cases involved
duplicate billing as alleged by United Healthcare.
....
29(f). In comparing the patient files to the claim forms received
by United Healthcare, Dr. Elder found the United
Healthcare claims showed nearly every patient had a
diagnosis of stenosis in the lumbar and thoracic spines yet
there was absolutely no documentation to justify such a
diagnosis in the patient file.
29(g). Dr. Elder found that well over 100 patient visits were billed
to United Healthcare, yet Dr. Carlson’s patient files
contained absolutely no documentation or records for the
dates of service as billed.
Aplt.’s App., Vol. I, at 63–64, 68, 71–73 (emphases added).
Simply stated, Agent Rutkowski’s affidavit contained detailed allegations of
healthcare fraud from two independent reviews of Defendants’ files—one by
United and the other by Dr. Elder, an expert that DORA retained for purposes of
investigating the allegations of healthcare fraud. Importantly, both of these
reviews concluded that there was at least a “likelihood,” id. at 73, that Dr. Carlson,
Atlas, and SpineMed were submitting fraudulent claims to United and other
28
insurers— i.e., engaging in healthcare fraud. It is patent that, standing alone, these
allegations would have presented to the magistrate judge “a fair probability that
contraband or evidence” of healthcare fraud would be found at Atlas, SpineMed
and the storage unit, Artez, 389 F.3d at 1111 (quoting Gates, 462 U.S. at 238).
And, though unquestionably relevant, we conclude that DORA’s Admonition
Letter—as we understand it—would not have had an appreciable effect on the
probable-cause calculus. More specifically, we conclude that the letter would not
have negated probable cause and, therefore, was not material. The Admonition
Letter did not address the healthcare fraud allegations, did not state that there was
insufficient evidence to pursue them, and certainly did not bless Defendants’
billing practices. It simply identified a distinct, record-keeping violation and
disciplined Dr. Carlson for it. Under our view of the letter, it was not material.
Moreover, even under the district court’s erroneous interpretation of
DORA’s Admonition Letter, we would reach the same conclusion, given the
expansive and detailed evidence in the affidavit that strongly suggested that
Defendants had committed healthcare fraud. Admittedly, the decisional outcome
would be less crystal clear, given that the district court interpreted the Admonition
Letter as an affirmative determination by DORA that Dr. Carlson and his related
entities were not culpable with respect to the investigated allegations of healthcare
fraud. But that determination would have constituted just one data point, which the
magistrate judge would have weighed against all of the other affidavit evidence, in
29
applying the fair-probability standard—including evidence of two independent
investigations that reached conclusions contrary to the one we attribute here to
DORA, regarding Dr. Carlson’s involvement in healthcare fraud.
Indeed, in cases where panels of our court—including a panel in a
precedential decision—have properly considered the totality of the affidavit
evidence and found that it pointed with some strength in favor of a finding of
criminal conduct under the fair-probability standard, analogous omissions of
seemingly exculpatory evidence have been deemed not material. See United States
v. McKissik, 204 F.3d 1282, 1288–89, 1297–98 (10th Cir. 2000) (holding that
where detective “stated in the affidavit that he had personally observed the bag of
cocaine in plain view in the car when he looked at the sealed car in the
impoundment lot,” “the facts contained in the affidavit would have supported the
issuance of a search warrant even if [the detective] had noted the other officers
failed to mention the cocaine they observed in plain view in their reports”); see
also United States v. Wright, 350 F. App’x 243, 247–48 (10th Cir. 2009)
(unpublished) (concluding that a detective’s omission of “several unsuccessful
attempts to corroborate allegations” of drug activity against the defendant was
immaterial, because the affidavit independently established probable cause through
anonymous complaints and confidential informants and information regarding
defendant’s “failure to report income to federal and state tax agencies for a number
of years”); United States v. Brinlee, 146 F. App’x 235, 239 (10th Cir. 2005)
30
(unpublished) (holding that an officer’s omission of details that allegedly could
have led the magistrate judge to infer from “[a cooperating witness’s] behavior that
she was under the influence of drugs or had a motive to lie,” was not material
where “the affidavit contained detailed descriptions given by [the witness] along
with information from other sources, which enhanced her credibility and
corroborated her statements about the presence of drugs in the house”); United
States v. Hutto, 84 F. App’x 6, 8 (10th Cir. 2003) (unpublished) (concluding that a
“factual inaccuracy” in an affidavit was immaterial, because the “affidavit
contain[ed] several facts that combine[d] to support a finding of probable cause”);
United States v. Kiister, 208 F.3d 227, *6 (10th Cir. 2000) (unpublished)
(concluding that a detective’s omission of prior searches that failed to reveal “drugs
or indisputable evidence of drug trafficking” was immaterial, because other
information in the affidavit “overwhelmingly provided probable cause for the
issuance of a warrant, even [with] the omitted material”).11
Finally, our conclusion that DORA’s Admonition Letter was not material is
fortified by our recognition that, even assuming DORA exculpated Dr. Carlson and
his related entities of the investigated allegations of healthcare fraud in its
Admonition Letter, DORA would have been making that decision under a different,
11
Although nonprecedential, we find the foregoing decisions by panels
of our court persuasive to the extent they address analogous omissions under a
Franks analysis.
31
higher standard of proof than probable cause—specifically, a preponderance-of-the-
evidence standard. Compare COLO. REV. STAT. § 24-4-105(7) (“The rules of
evidence and requirements of proof shall conform, to the extent practicable, with
those in civil nonjury cases in the district courts.”), and id. § 13–25–127(1) (“[T]he
burden of proof in any civil action shall be by a preponderance of the evidence.”),
with Artez, 389 F.3d at 1111 (noting that probable cause does not require a showing
of “proof beyond a reasonable doubt or by a preponderance of the evidence”
(emphasis added) (quoting Gates, 462 U.S. at 235)), and United States v. Patane,
304 F.3d 1013, 1018 (10th Cir. 2002) (explaining that probable cause “does not
require certainty of guilt or even a preponderance of evidence of guilt, but rather
only reasonably trustworthy information that would lead a reasonable person to
believe an offense was committed” (emphasis added)), rev’d on other grounds, 542
U.S. 630 (2004).
Therefore, DORA’s ostensibly exculpatory finding regarding the healthcare-
fraud allegations would not be logically inconsistent with a determination by the
magistrate judge that, considering the totality of the circumstances, there was
probable cause to criminally investigate those same or similar allegations. Put
another way, even assuming arguendo that it is reasonable to infer from DORA’s
Admonition Letter that the agency considered the healthcare-fraud allegations and
decided that it could not establish them in a formal action—thus, effectively
exculpating Dr. Carlson—that would not necessarily mean that a magistrate judge
32
could not have reasonably concluded that there was probable cause to believe that
criminal offenses related to those allegations had been committed. And, more to
the point, Defendants have failed to make an adequate showing that the magistrate
judge could not have reached this probable-cause conclusion.
In sum, for the foregoing reasons, we conclude that the district court erred in
finding that DORA’s Admonition Letter was material—viz., “so probative as to
negate probable cause.” Ruiz, 664 F.3d at 838 (quoting Stewart, 915 F.2d at 582
n.13); see Ippolito, 774 F.2d at 1484. Because the court ultimately based its
decision to grant Defendants’ suppression motion on this materiality finding, its
suppression order cannot stand.
V
Based on the foregoing, we REVERSE the district court’s suppression order
on materiality grounds, and REMAND for further proceedings consistent with this
Order and Judgment.
ENTERED FOR THE COURT
Jerome A. Holmes
Circuit Judge
33