00 CR 809 (S-1)(ILG)
April 17, 2002
The defendants in this case — Hugh Nastasi, Anthony Nastasi, Robert Nastasi, and Jose Davila, along with a number of companies (the "Nastasi Companies") purportedly owned by them — have pleaded guilty to conspiring to defraud the United States Department of Health and Human Services ("HHS") by concealing Hugh Nastasi's true ownership of the Nastasi Companies, in violation of 18 U.S.C. § 371. The question currently before the Court is how to calculate the amount of "loss" resulting from the defendants' conduct in this case, which directly affects the defendants' sentencing guideline ranges under Section 2F1.1 of the United States Sentencing Guidelines.
Another defendant, Carl Bowen, has pleaded guilty to a related misdemeanor offense. This Memorandum and Order therefore does not apply to Bowen.
The Court notes that the Guidelines were amended, effective November 1, 2001, and that Section 2F1.1 of the Guidelines was deleted as part of that amendment. Under the revised version of the Guidelines, "loss" in fraud cases is calculated under a revised version of Section 2B1.1 of the Guidelines. Under this new version of Section 2B1.1, each of the defendants would fare worse than he would have under the prior version of the Guidelines. Accordingly, the Court will sentence the defendants under the version of the Guidelines that existed at the time the defendants pleaded guilty. See United States v. Keller, 58 F.3d 884, 889 (2d Cir. 1995) ("Generally, a sentencing court must use the version of the guidelines in effect at the time of the defendant's sentencing, not that extant at the time of the offense. Yet, when the guidelines are amended after the defendant commits a criminal offense, but before he is sentenced, and the amended provision calls for a more severe penalty than the original one, those guidelines in effect at the time the offense was committed govern the imposition of sentence.") (internal citations omitted). The Guidelines referred to herein therefore are the Guidelines in existence on February 22, 2001.
The defendants argue that "loss" should be calculated in accordance with application note 8(b) of Section 2F1.1 of the Guidelines. Application note 8(b), entitled "Fraudulent Loan Application and Contract Procurement Cases," states, in pertinent part:
In fraudulent loan application cases and contract procurement cases, the loss is the actual loss to the victim (or if the loss has not yet come about, the expected loss). For example, if a defendant fraudulently obtains a loan by misrepresenting the value of his assets, the loss is the amount of the loan not repaid at the time the offense is discovered, reduced by the amount the lending institution has recovered (or can expect to recover) from any assets pledged to secure the loan. However, where the intended loss is greater than the actual loss, the intended loss is to be used.
The government, on the other hand, argues that "loss" should be calculated pursuant to application note 8(d) of Section 2F1.1 of the Guidelines. That application note, entitled "Diversion of Government Program Benefits," simply states that "[i]n a case involving diversion of government program benefits, loss is the value of the benefits diverted from intended recipients or uses."
For the reasons set forth below, the Court will apply application note 8(d) of Section 2F1.1 with respect to the amount of "loss" caused by defendants Hugh and Robert Nastasi. Because the involvement of defendants Anthony Nastasi and Jose Davila in the defendants' scheme appears to be markedly less substantial than that of Hugh and Robert Nastasi, the Court will not attribute any "loss" to those defendants.
On November 14, 1989, Hugh Nastasi was convicted in the United States District Court for the Southern District of New York of conspiring to defraud the Medicare and Medicaid programs, and making a false statement in an application for Medicare benefits, in connection with the provision of ambulance and ambulette services by companies he owned in Brooklyn, New York. As a result of that conviction, HHS notified Nastasi that he was excluded from participating in the Medicare and Medicaid programs for a period of 25 years.
Because of his exclusion from the Medicare and Medicaid programs, Nastasi was unable to obtain a Medicare or Medicaid provider number for any entity which he owned or controlled. Accordingly, Nastasi participated in a scheme pursuant to which a number of entities (the Nastasi Companies) were set-up to provide and bill for ambulance and ambulette services. Although the Nastasi Companies were, in actuality, owned and operated by Nastasi, other individuals, including defendants Anthony Nastasi (Hugh Nastasi's brother), Robert Nastasi (Hugh and Anthony Nastasi's other brother), and Jose Davila were listed on the Medicare/Medicaid applications as owners of the Nastasi Companies. As a result of this scheme, Medicare and Medicaid paid approximately $57 million to the Nastasi Companies.
Each of the individual defendants pleaded guilty to conspiring to defraud HHS as a result of the scheme described above. The United States Probation Department then prepared presentence reports ("PSR's") for each of the individual defendants. In the PSR's, the Probation Department calculated the amount of "loss" attributable to each of the defendants as follows: Hugh Nastasi, $57.060.402 (including the entire amount paid to the Nastasi Companies by Medicare and Medicaid); Robert Nastasi, $57,125,252 (including the entire amount paid to the Nastasi Companies by Medicare and Medicaid); Anthony Nastasi, $24,982,982 (representing the entire amount paid by Medicare and Medicaid to the particular Nastasi Companies with which Anthony Nastasi was associated); and Jose Davila, $3,914,675 (representing the entire amount paid by Medicare and Medicaid to the particular Nastasi Company with which Davila was associated). These figures appear to have been calculated pursuant to application note 8(d) of Section 2F.1.1 of the Guidelines. The government asserts that this is the proper way to calculate the "loss" in this case, because "Medicare and Medica[id] reimbursements were diverted from lawful provider recipients to the Nastasi companies, who properly were excluded from participation in these programs." (August 3, 2001 letter from AUSA Timothy Macht to Hon. I. Leo Glasser, at 4.)
Because of the pronounced impact these amounts have on the defendants' calculated offense levels under Section 2F1.1 of the Guidelines, the defendants have objected to the calculation of "loss" in the PSR's. According to the defendants, this case does not involve the diversion of government program benefits. Rather, the defendants assert that "what actually took place was that [the defendants were] able to fraudulently procure Medicaid and Medicare provider contracts by virtue of certain misrepresentations as to the ownership and control of [the companies], made in the 1998 and 1999 health care provider enrollment application forms." (August 15, 2001 letter from John W. Mitchell, Esq. to Hon. I. Leo Glasser, at 4.) Therefore, the defendants argue that application note 8(b) to Section 2F1.1 should apply, and, calculated pursuant to that application note, no loss is properly attributable to the defendants.
Pursuant to Section 2F1.1(b)(1) of the Guidelines, the base offense level for offenses involving fraud or deceit is increased based on the amount of "loss." The obvious question, then, is: how should the Court calculate the "loss" in this case? To answer this question, the Court first looks to application note 8 of Section 2F1.1. That note states "[v]aluation of loss is discussed in the commentary to § 2B1.1 (Larceny, Embezzlement, and Other Forms of Theft). As in theft cases, loss is the value of the money, property or services unlawfully taken; it does not, for example, include interest the victim could have earned on such funds had the offense not occurred." However, application note 8 goes on to say that there are certain instances where additional factors should be considered to calculate "loss" and then lists "Fraudulent Loan Application and Contract Procurement Cases" (application note 8(b)) and "Diversion of Government Program Benefits" (application note 8(d)) as specific types of cases where the "loss" should be calculated differently.
Application note 2 to Section 2B1.1 uses the same definition of "loss," i.e., "the value of the property taken, damaged or destroyed."
Thus, the question the Court must answer is whether this case involves the "Diversion of Government Program Benefits," as the government argues, or rather involves the fraudulent procurement of contracts by the defendants, as defendants argue. While at first blush answering this question may appear to be complicated, the Court finds that resolution of this issue is simple.
There can be no serious dispute (and the defendants do not argue otherwise) that the Medicare and Medicaid payments received by the defendants are "government program benefits." Although this term is undefined in the Guidelines, it is patently obvious that Medicare and Medicaid are "government programs" that provide "benefits" by paying for certain basic medical care rendered to indigent persons or persons over 65. Accordingly, if those "benefits" were "diverted from intended recipients," application note 8(d) should apply.
The defendants argue that there has been no "diversion" in this case, because the "intended recipients" of the Medicare and Medicaid benefits are the individuals on whose behalf health care services were provided. In other words, because the Nastasi Companies actually provided services to individuals qualified for Medicare or Medicaid benefits, there has been no "diversion" of benefits. (See August 15, 2001 letter from John W. Mitchell. Esq. to Hon. I. Leo Glasser, at 4.) The Court rejects this argument, as it is belied by the language of the application note.
The critical word in the application note is "recipients." Recipients are persons who receive, or come into possession of, something. Webster's New World Dictionary, College Edition 1213 (1959). Medicare and Medicaid qualified individuals do not receive anything directly from those programs, as the programs do not provide healthcare directly to qualified individuals. Rather, those programs reimburse health care providers for services rendered on behalf of qualified individuals. Therefore, the "recipients" of the "benefits" provided by the Medicare and Medicaid programs are the entities which receive payments from those programs on behalf of Medicare or Medicaid qualified individuals. Accordingly, the "intended recipients' of those benefits are not, as the defendants argue, individuals qualified for Medicare or Medicaid. but instead are entities qualified to participate in, and receive reimbursement from, those programs. Because the Nastasi Companies should have been excluded from participation in the Medicare and Medicaid programs, they were not "intended recipients" under the programs. and thus the "benefits" of those programs were "diverted."
This is not to say that, under different facts, individuals cannot be the "intended recipients" of "benefits" under the Medicare and Medicaid programs. For the purposes of calculating "loss" under the facts of this case, however, the Court finds that the "intended recipients" of the "benefits" provided by the programs are the health care providers.
The defendants assert that "[t]his is not a case . . . where a benefit intended for one person or class of persons was fraudulently diverted to some different or ineligible person or class of persons." (Id.) The defendants are wrong; that is precisely what occurred in this case. The flaw in defendants' logic has been exposed by the analysis set forth above: Medicare and Medicaid payments were fraudulently diverted from intended recipients — qualified providers under the Medicare and Medicaid programs — to the Nastasi Companies.
The Court's conclusion is bolstered by Section 2F1.1(b)(4)(C) of the Guidelines. That section states that if an offense involves "a violation of any prior, specific judicial or administrative order, injunction, decree or process not addressed elsewhere in the guidelines," the base offense level is increased by 2 levels. The conduct of the defendants in this case implicates Section 2F1.1(b)(4)(C), because that conduct was undertaken to circumvent HHS' s prior order excluding Nastasi from participating in the Medicare and Medicaid programs. The Guidelines therefore suggest that the conduct involved in this case should be treated more harshly than that in a garden-variety fraud case, reinforcing the conclusion that the entire amount paid by Medicare and Medicaid constitutes the appropriate amount of the "loss."
For all these reasons, this case falls squarely within the Sixth Circuit's holding in United States v. Brown, 151 F.3d 476 (6th Cir. 1998). There, the defendants were convicted of fraud relating to the provision of Section 8 housing benefits. The defendants, who administered the program. were supposed to place applicants for benefits on a waiting list, and then select persons from that waiting list in a particular order. However, the defendants accepted bribes and other consideration from a number of friends and other individuals in return for choosing those individuals, out of order, off the waiting list. At sentencing, the district court calculated HUD's loss as all the funds paid to persons improperly selected from the waiting list, notwithstanding the fact that those persons were qualified to receive Section 8 benefits. On appeal, the defendants argued — as do the defendants here — that HUD had not incurred a loss, because all the persons selected for Section 8 benefits were qualified to receive those benefits, even though those persons were selected out of order. The Sixth Circuit rejected this argument, and affirmed the district court's loss calculation. The appellate court held that by choosing persons out of order, the defendants "diverted or attempted to divert funds from the recipients contemplated by the application regulations; as the district court observed, it is irrelevant that the actual recipients were financially eligible, give the fact that they were certainly not `next in line' for benefits. There was, therefore, an actual diversion of funds . . . ." 151 F.3d at 489 (emphasis added). The same result must obtain here: because the Nastasi Companies were not eligible to receive Medicare and Medicaid payments, it is irrelevant that they actually provided services on behalf of individuals qualified to receive benefits under those programs. See also United States v. Bros. Constr. Co. of Ohio, 219 F.3d 300, 318 (4th Cir. 2000) (rejecting argument that government entity sustained no loss because funds ultimately were received by entity qualified to receive them).
The defendants cite a number of cases in support of their argument that application note 8(b) should apply. (See August 15, 2001 letter from John W. Mitchell, Esq. to Hon. I. Leo Glasser, at 6-7.) None of those cases, however, involved the diversion of government benefits. For example,United States v. Hayes, 242 F.3d 114 (3d Cir. 2001), concerned an individual who misrepresented her background in order to obtain a job with the New Jersey Division of Youth and Family Services. United States v. Vivit, 214 F.3d 908 (7th Cir. 2000), involved the submission of false claims to insurance companies, while United States v. Maurello, 76 F.3d 1304 (3d Cir. 1996), involved the unauthorized practice of law by a disbarred attorney. Accordingly, these cases are inapposite.
The defendants also argue that calculating "loss" in accordance with application note 8(b) conforms with the Guidelines' intention that "calculation of `loss' should be tied to the "actual" or "net loss" the defendant's conduct caused." (August 15, 2001 letter from John W. Mitchell, Esq. to Hon. I. Leo Glasser, at 2-3.) This argument is meritless. Clearly, the Guidelines frequently contemplate that something other than "actual" or "net loss" should be used to determine "loss."See, e.g., U.S.S.G. § 2F1.1 cmt. n. 8(b) (where intended loss greater than actual loss, intended loss is to be used); U.S.S.G. § 2B1.1 cmt. n. 2 ("In the case of a defendant apprehended taking a vehicle, the loss is the value of the vehicle even if the vehicle is recovered immediately.") (emphasis added); United States v. Mucciante, 21 F.3d 1228, 1238 (2d Cir. 1994) ("Under section 2F1.1, loss does not always equal the actual financial harm suffered by the victim. . . . Under the Guidelines, loss includes the value of all property taken, even though all or part of it was returned.") (internal quotation marks and citations omitted). Furthermore, holding the defendants responsible for the entire amount billed to Medicare would be consistent with the definition of "loss" provided in application note 8, because that sum would equal "the value of the money . . . unlawfully taken"
For the foregoing reasons, the Court will calculate "loss" in this case in accordance with application note 8(d) to Section 2F1.1 of the Guidelines. However, the Court will attribute the loss calculated pursuant to that application note only to defendants Hugh and Robert Nastasi, and not defendant Anthony Nastasi or defendant Jose Davila. The evidence in this case suggests that Anthony Nastasi and Jose Davila were not involved in the management or operation of the Nastasi Companies, but rather simply allowed their names to be listed as nominal owners of certain of the Nastasi Companies as part of the scheme to obtain Medicare and Medicaid billing numbers. In the absence of any evidence indicating that Anthony Nastasi and Jose Davila were anything more than mere employees of the Nastasi Companies, the Court will not attribute any loss to those defendants.
The Court notes that, to the extent that either Hugh or Robert Nastasi believes that attributing the entire amount paid by Medicare and Medicaid to him "overstate[s] the seriousness of [his] offense," he can ask the Court for a downward departure. U.S.S.G. § 2F1.1 cmt. n. 11. Similarly, if the government believes that attributing no loss to Anthony Nastasi or Jose Davila "does not fully capture the harmfulness and seriousness of [their] conduct," it can request an upward departure. Id.
Finally, the Court will briefly address the defendants' Apprendi arguments. In their submissions, the defendants argue that, because the government did not present the amount of any "loss" to the grand jury, "pursuant to the holding in Apprendi v. New Jersey, 530 U.S. 466 (2000). [the government] may not now seek to enhance the defendants['] sentence on the basis of the alleged magnitude of the loss caused." (August 15, 2001 letter from John W. Mitchell, Esq. to Hon. I. Leo Glasser, at 7.) In support of this argument, the defendants cite two opinions of Judge Nickerson, United States v. Norris, 128 F. Supp.2d 739 (E.D.N.Y. 2001), and United States v. Norris, 143 F. Supp.2d 243 (E.D.N.Y. 2001), where Judge Nickerson held that Apprendi applied to factors used to enhance sentences under the Guidelines. This Court, however, rejects the defendants' argument for two reasons. First, since the defendants submitted their briefs to the Court, the Second Circuit vacated Judge Nickerson's opinions in the Norris case, and held that "Apprendi has no application to Guidelines enhancements." United States v. Norris, 281 F.3d 357, 360 (2d Cir. 2002); see also United States v. Thomas, 274 F.3d 655, 663-64 (2d Cir. 2001). Second, the Court notes that none of the defendants have yet been sentenced. and thus any Apprendi claim is premature. In any event, only Hugh Nastasi's guideline range has been calculated as possibly exceeding the statutory maximum. Accordingly,Apprendi is inapplicable with respect to the other defendants, and. as for Hugh Nastasi, no Apprendi claim will lie so long as the sentence imposed, which has not yet been determined, does not exceed the statutory maximum.