United States v. Keenan Ferrell

In the

United States Court of Appeals

For the Seventh Circuit

No. 14-2915

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

KEENAN R. FERRELL,

Defendant-Appellant.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:11-CR-595-1 — Virginia M. Kendall, Judge.

ARGUED APRIL 13, 2015 — DECIDED NOVEMBER 4, 2015

Before WOOD, Chief Judge, and ROVNER, Circuit Judge, and

SPRINGMANN, District Judge.*

SPRINGMANN, District Judge. Dr. Keenan Ferrell appeals two

evidentiary rulings made by the district court in connection

with his criminal trial for Medicare fraud. Ferrell wanted to

present statements that the district court barred as hearsay,

*

Of the Northern District of Indiana, sitting by designation.

2 No. 14-2915

rejecting Ferrell’s argument that they qualified as “statements

against interest.” Fed. R. Evid. 804(b)(3). The district court also

admitted evidence offered by the Government after ruling that

witness’s testimony did not constitute impermissible character

evidence. Fed. R. Evid. 404(b). We find the district court did

not abuse its discretion and affirm both rulings.

I. BACKGROUND

On June 25, 2013, a jury found Ferrell and Bryce Woods

guilty of six counts of healthcare fraud for violating 18 U.S.C.

§ 1347. On August 19, 2014, Ferrell was sentenced to eighty-

eight months of imprisonment.

Ferrell filed this appeal to challenge the district court’s

evidentiary rulings. First, Ferrell asks us to determine whether

the district court erred when it refused to admit two out-of-

court statements made by William Woods,1 and contained in

a voicemail and an email. The district court held that these

statements were hearsay and did not fall within Rule

804(b)(3)’s hearsay exception. The district court held that

although Woods was unavailable to testify, Woods’s state-

ments were not against his interest and the corroborating

circumstances did not indicate that his statements were

trustworthy. Thus, the district court granted the Government’s

motion in limine to bar Ferrell from introducing any of

Woods’s recorded statements.

1

Although Bryce Woods was a co-defendant, William Woods is mentioned

throughout this Opinion and will be referred to as “Woods.” Also, William

Woods was identified as “Provider A” in the indictment and district court

filings.

No. 14-2915 3

Second, Ferrell contends that the district court admitted

improper propensity evidence, in violation of Rule 404(b),

when it allowed Dr. Herbert Shriver to testify regarding

Ferrell’s conduct in Texas. Although the district court primar-

ily held Shriver’s testimony was admissible as direct evidence

of the charged offense, the district court held in the alternative

that Shriver’s testimony was admissible under Rule 404(b)(2)

because the testimony: (1) showed Ferrell’s intent and motive

to commit fraud; (2) illustrated the similarity and contempora-

neous nature of Ferrell’s acts; and (3) had high probative value

that was not substantially outweighed by the risk of unfair

prejudice.

Ferrell was a doctor of psychology and a professor of

psychology at Roosevelt University. In 2000, Ferrell became

licensed to practice psychology in Illinois. In December 2000,

Ferrell applied to become a provider in the Medicare program

and was approved. Medicare assigned Ferrell a unique

provider number, which Medicare used to review, process, and

pay claims. No later than 2001, Ferrell owned and operated

two companies: Inner Arts, Inc. (“Inner Arts”) and Take

Action, Inc. (“Take Action”). These companies offered psycho-

logical therapy to individuals and groups in nursing homes,

rehabilitation facilities, and individual homes. Ferrell used his

unique provider number to submit claims to Medicare for

psychotherapy sessions he purportedly conducted.

Brothers Bryce and William Woods worked for Ferrell and

the two companies. Bryce Woods was a co-defendant in this

case and never held a license to practice psychology in Illinois.

William Woods obtained a psychology license in 2004, but

Illinois later suspended the license and disciplined Woods.

4 No. 14-2915

From June 1, 2006 to June 1, 2011, Ferrell and Bryce Woods

caused approximately 33,895 individual claims to be submitted

to Medicare. Each claim listed Ferrell as the provider of the

therapy services and bore Ferrell’s Medicare provider number,

the date or dates of service, the number of services performed,

and a five-digit CPT code that identified the type of service

provided to a beneficiary. Bryce Woods, who operated under

Ferrell’s direction, was responsible for submitting these claims

to Medicare.

The vast majority of the claims submitted to Medicare using

Ferrell’s unique Medicare provider number sought payment

for services rendered under CPT code 90818. To lawfully bill

Medicare for services under CPT code 90818, the psychother-

apy session had to be (1) a face-to-face, in-person meeting with

the patient; (2) forty-five to fifty minutes long; and (3) person-

ally conducted by the licensed provider or conducted by

another licensed person under the provider’s direct supervi-

sion. “Direct supervision” means “the provider had to be in the

nursing home at the time that the session was conducted and

had to be readily available to the therapist conducting the

session.” Gov’t’s/Appellee’s Br. 4.

Although Ferrell was aware of these requirements, Ferrell

and Bryce Woods engaged in a scheme to bill Medicare for

psychotherapy sessions that either did not occur, or did not

meet CPT code 90818’s requirements. Ferrell enlisted his

unlicensed psychology students at Roosevelt University to

work for Inner Arts and Take Action. These unlicensed

students were assigned to patients and visited with patients

who resided at nursing homes. Ferrell did not supervise these

unlicensed students or otherwise visit the nursing homes. The

No. 14-2915 5

unlicensed students prepared notes of their visits with patients,

and gave these notes and other documents to Bryce and

William Woods. At Ferrell’s direction, Bryce Woods then billed

Medicare for these visits. These claims to Medicare listed CPT

code 90818 and represented that Ferrell personally saw each

patient.

Similarly, Bryce Woods, who was not licensed to practice

psychotherapy, would visit with patients and bill Medicare at

Ferrell’s direction using Ferrell’s Medicare provider number.

This mirrored the pattern carried out with the unlicensed

students, however, Bryce Woods’s sessions with patients

included Bryce Woods playing his guitar and singing to

patients. Additionally, Ferrell and Bryce Woods fraudulently

billed Medicare when they knew sessions did not last the

required forty-five minutes, the patient refused to meet, or the

patient was already deceased.2 In total, Ferrell and Bryce

Woods sought approximately $3.5 million from Medicare, and

Medicare paid approximately $1.5 million.

On June 2, 2011, federal agents executed a search warrant

at the office of Inner Arts and Take Action. On July 29, 2011,

nearly a month before Ferrell and Bryce Woods were indicted,

Woods sent an email and left a voicemail for Ferrell’s counsel

at the time. Woods’s email stated he would testify that Ferrell

and Bryce Woods told him that he needed to complete his

notes in a timely manner, but he fell behind and did not inform

either Ferrell or Bryce Woods. Woods also wrote that Medicare

2

At trial, the Government’s exhibit showed that Ferrell’s Medicare provider

number was used on 106 separate claims for face-to-face psychotherapy

sessions with patients who were deceased before the date of service.

6 No. 14-2915

never informed their office about problems with billing

practices, their office was committed to proper practice and

billing, and that Ferrell was a person who would never commit

Medicare fraud. Woods’s voicemail included statements

similar to the email.3 The district court denied Ferrell’s pretrial

motion that sought to admit the entirety of the email and

voicemail at trial.

At trial, the Government relied upon the testimony of

Shriver. Shriver had pled guilty to healthcare fraud in federal

court in Texas and was cooperating with the Government

against Ferrell. Shriver testified about his professional and

personal relationship with Ferrell, as well as certain admissions

Ferrell made to Shriver about Ferrell’s psychotherapy practice.

This included that Ferrell operated psychotherapy practices in

several states and that Ferrell was in a poor financial condition

3

The transcript of Woods’s voicemail reads as follows: “I work with Dr.

Keenan Ferrell and I would like to speak to you if I could please. This

situation with the investigation of Medicare documentation is entirely my

fault. Dr. Ferrell, I have known him over 20 years now, and he loves the

law. He’s a respectful, abiding person and he has told me from the start that

Medicare notes/everything, has to be done properly and on time and I

didn’t take that seriously and he kept telling me that there were serious

consequences and he trusted me to do the right thing with the Medicare

documentation for the clients I was seeing and I didn’t do that and I lied to

him and said that I had been doing the notes on time and I hadn’t and I said

notes were done when they hadn’t been done yet. If your client was seen or

was billed for but I did not do the documentation and keep it up properly

so there is missing documentation, a lot of it. So, please I would like to talk

to you to see if there is anything I can do to implore these investigators to

know that Dr. Ferrell did nothing wrong. It’s entirely my fault. I’m the one

that should be losing my license and facing consequences for this because

I disregarded the law and did this.” Gov’t’s/Appellee’s App. 1.

No. 14-2915 7

during the period of fraudulent billing. The district court had

denied Ferrell’s pretrial motion to bar Shriver’s anticipated

testimony. We now address Ferrell’s arguments on appeal in

turn.

II. DISCUSSION

A. Rule 804(b)(3) Hearsay Exception

To reverse a district court’s decision on the admissibility of

hearsay statements, we must conclude that the district court

abused its discretion. United States v. Love, 706 F.3d 832, 839

(7th Cir. 2013). “Under this standard of review we will not

reverse if we merely conclude that we would have reached a

different decision if asked to consider the issue in the first

instance; rather, ‘the district court’s decision must strike us as

fundamentally wrong.’” Hall v. Norfolk S. Ry., 469 F.3d 590, 594

(7th Cir. 2006) (quoting Johnson v. J.B. Hunt Transp., Inc., 280

F.3d 1125, 1131 (7th Cir. 2002)). The district court receives such

substantial deference regarding the admissibility of evidence

because “we are not in a position to observe the trial proceed-

ings first-hand and gauge the impact of the evidence in the

context of the proceedings as a whole.” United States v. Boswell,

772 F.3d 469, 477 (7th Cir. 2014) (citing United States v. Boone,

628 F.3d 927, 932 (7th Cir. 2010)).

Ferrell argues that the district court abused its discretion

when it denied his motion in limine and excluded Woods’s

out-of-court statements, as contained in his voicemail and

email. Ferrell submits that Woods’s hearsay statements should

8 No. 14-2915

have been admitted under Rule 804(b)(3) because they were

against his penal interest and were sufficiently corroborated.

Although hearsay is generally inadmissible, Rule 804(b)(3)

allows its admission where the proponent demonstrates that

“(1) the declarant is unavailable as a witness, (2) the statement

was against the declarant’s penal interest when made, and (3)

corroborating circumstances clearly suggest that the statement

is trustworthy.” United States v. Jackson, 540 F.3d 578, 588 (7th

Cir. 2008) (quoting United States v. Loggins, 486 F.3d 977, 981

(7th Cir. 2007)). The district court found that Woods was

unavailable to testify because he would assert his Fifth

Amendment right against self-incrimination. Id. The parties do

not dispute this. Therefore, we address only the second and

third prongs. We agree with the district court that Ferrell did

not meet his burden on either prong.

1. Against Declarant’s Penal Interest

To be against the declarant’s penal interest, a remark must

be “individually self-inculpatory.” Williamson v. United States,

512 U.S. 594, 599 (1994). Further, the court must examine a

declarant’s narrative to separate a declarant’s exculpatory

statements from the inculpatory statements, and then exclude

the exculpatory statements. Id. at 600–01; see also United States

v. Nagib, 56 F.3d 798, 804 (7th Cir. 1995). Despite this, the

proponent may not sever the self-inculpatory statements from

their context to alter the meaning of the statements. Williamson,

512 U.S. at 603 (“[W]hether a statement is self-inculpatory or

not can only be determined by viewing it in context.”).

No. 14-2915 9

Woods’s voicemail and lengthy email contain exculpatory

statements and admissions that are unrelated to the charges in

Ferrell’s indictment. Both the voicemail and email convey

Woods’s belief that neither he, Bryce Woods, nor Ferrell

committed healthcare fraud. Woods defended Ferrell by

writing: “Dr. Ferrell consistently speaks about the importance

of ethics and the value of working within the policies and

guidelines that have been set forth by Medicare”; “neither Dr.

Ferrell, nor any of us involved in the company were purpose-

fully defrauding Medicare”; “[b]oth Bryce and I were in

constant contact with Medicare specialists checking on claims,

verifying services, checking on remittances, clarifying policies

regarding documentation, supervision, credentials needed, etc.

We were never told there was a problem.” Gov’t’s/Appellee’s

App. 2–3. In his voicemail, Woods reiterated that “[Dr. Ferrell]

loves the law,” and avowed Ferrell’s innocence by stating that

he wanted “to implore these investigators to know that Dr.

Ferrell did nothing wrong.” Gov’t’s/Appellee’s App. 1. These

repetitive pronouncements exculpating Ferrell are not state-

ments against Woods’s interest. United States v. Bonty, 383 F.3d

575, 579–80 (7th Cir. 2004) (“[Declarant]’s statement—that [the

defendant] had nothing to do with the [criminal events]—did

not tend to implicate [the declarant] and was not against [the

declarant]’s penal interest.”).

Further, the statements by Woods that might be construed

as self-inculpatory are not “individually self-incuplatory.”

Ferrell asserts that “[Woods] admits to falsifying Medicare

billing forms.” Def.’s/Appellant’s Br. 13. The district court

disagreed and we agree that the text, in context, does not

support Ferrell’s view. Although Ferrell’s brief does not

10 No. 14-2915

identify the specific language through which Woods admits to

falsifying Medicare billing forms, Ferrell’s counsel offered

more direction at oral argument. He directed us to Woods’s

voicemail, where Woods states, “[i]t’s entirely my fault. I’m the

one that should be losing my license and facing consequences

for this because I disregarded the law and did this.” These

statements are certainly inculpatory, but as to what depends on

the contextual meaning of “it’s” and “this.” Williamson, 512

U.S. at 603.

Woods’s voicemail details how he did not complete his

Medicare notes in a timely manner and lied to Ferrell about

being caught up, which resulted in missing documentation.

Tellingly, Woods’s voicemail implies that the government’s

investigation of Ferrell is focused on the missing documenta-

tion that Woods was supposed to complete. Several passages

in his email further illustrate Woods’s perception that the

government’s investigation was prompted by missing docu-

mentation that Woods was responsible for completing.4

Contrary to Woods’s perception of events, the government

investigation was not focused on missing documentation. The

government pursued Ferrell and Bryce Woods for documenta-

tion that was extraneous or fraudulent. Thus, Woods incul-

4

Woods’s email began, “I will testify that I was consistently told by both

Dr. Ferrell and Bryce that I was to complete and turn in all of my notes on

time. When I fell behind I did not report this to either Dr. Ferrell or Bryce

as I intended to get the notes caught up and turned in.” Gov’t’s/Appellee’s

App. 2. Similarly, the email ended, “[e]ven though you are not my lawyer,

I have nothing to hide. I got behind with my notes, and I deserve to face the

consequences of that choice, not Dr. Ferrell.” Gov’t’s/Appellee’s App. 4.

No. 14-2915 11

pated himself as to negligently performing his job, not fraudu-

lently submitting Medicare forms.

Ferrell also argues that Woods’s recorded statements are

against his penal interest because they show Woods’s inside

knowledge. Ferrell correctly notes that “[s]tatements that

‘demonstrate a declarant’s inside knowledge of the crime’”

support finding a statement to be sufficiently incuplatory.

Def.’s/Appellant’s Br. 13 (quoting United States v. Volpendesto,

746 F.3d 273, 288 (7th Cir. 2014)). This is not met here. Specific

portions of Woods’s statements actually reveal his ignorance

of the scheme. First, Woods’s inculpatory statements only

reference delayed or missing documentation. Of course, this

would not support a fraud claim, and it is not the conduct for

which the government pursued Ferrell. Although Woods

makes a statement in his email about one instance of billing a

deceased patient,5 this statement is exculpatory and shows that

Woods was unaware of the additional 105 instances of billing

deceased clients. Woods’s portrayal of this incident as merely

an innocent error, rather than as part of an elaborate, fraudu-

lent scheme for which he accepts responsibility, proves Woods

was outside the criminal loop. Second, Woods’s references to

complying with Medicare policies, such as that Medicare never

informed them of a problem, are exculpatory and Woods

accepts no ownership of these actions.

5

Woods accounted for the error by explaining, “[t]he client of ours that was

billed for after he had passed away was an error caused by having not

removed this individual from the client list after their passing. This

individual’s widow was contacted by Bryce who apologized to her, and

explained that this was an unfortunate clerical error, but that Inner

Arts/Take Action was not paid for the service.” Gov’t’s/Appellee’s App. 2.

12 No. 14-2915

Based on this context and the nature of the inculpatory

statements, the confessions to which Ferrell directs us are

admissions of negligent job performance, not healthcare fraud.

The district court did not abuse its discretion in holding that

Woods’s voicemail and email were not against his penal

interest.6

2. Corroborating Circumstances

We also find that the district court correctly held that no

corroborating circumstances existed to clearly suggest the

trustworthiness of Woods’s statements. Jackson, 540 F.3d at 588

(“The district judge’s determination as to the trustworthiness

of an out-of-court statement is entitled to considerable defer-

ence and should be upheld unless ‘clearly erroneous.’”) (citing

United States v. Amerson, 185 F.3d 676, 684 (7th Cir. 1999)). Rule

804(b)(3) “expressly requires the exclusion of out-of-court

statements offered to exculpate the accused unless there are

corroborating circumstances that ‘clearly indicate’ the trust-

worthiness of the statement.” Id. at 589 (quoting United States

v. Hall, 165 F.3d 1095, 1112 (7th Cir. 1999)). This is because the

“corroboration requirement reflects ‘a long-standing concern

… that a criminal defendant might get a pal to confess to the

crime the defendant was accused of, the pal figuring that the

probability of his actually being prosecuted either for the crime

6

Ferrell also argues that the jury should have decided whether Woods’s

statements were against Woods’s penal interests for purposes of

admissibility under Rule 804(b)(3). We have repeatedly stated that under

Rule 104, “it is the judge’s role to determine the admissibility of evidence.”

Jackson, 540 F.3d at 590 (collecting cases).

No. 14-2915 13

or for perjury was slight.” United States v. Henderson, 736 F.3d

1128, 1130 (7th Cir. 2013) (quoting United States v. Silverstein,

732 F.2d 1338, 1346 (7th Cir. 1984)); see also United States v.

Garcia, 986 F.2d 1135, 1140 (7th Cir. 1993) (“[I]f the two in-

volved parties do not have a close relationship, one important

corroborating circumstance exists.”) (emphasis added).

The longstanding personal and professional relationship

between Ferrell and Woods triggers the concerns this rule is

designed to guard against. In his voicemail, Woods states he

has known Ferrell for over twenty years. Further, the parties

stipulated that “Woods had worked with Ferrell for years.”

Gov’t’s/Appellee’s Br. 22. Woods’s financial livelihood also

depended upon Ferrell’s companies, Inner Arts and Take

Action, as Woods used the companies’ bank accounts for his

personal expenses. Although the district court’s determination

of a statement’s trustworthiness is based on the totality of the

circumstances, Henderson, 736 F.3d at 1133, we have identified

the relationship between the declarant and the exculpated

party as one of the non-exhaustive factors. Nagib, 56 F.3d at 805

(identifying the considerations as (1) the relationship between

the confessing party and the exculpated party; (2) whether the

confessor made a voluntary statement after being advised of

his Miranda rights; and (3) whether there is any evidence that

the statement was made in order to curry favor with authori-

ties); see also Jackson, 540 F.3d at 589 (“We have never said,

however, that the considerations we identified in Nagib were

the only factors to be weighed in determining whether corrob-

orating circumstances exist.”) The close relationship between

Woods and Ferrell strongly supports the district court’s

decision to exclude Woods’s statements. Henderson, 736 F.3d at

14 No. 14-2915

1132–33 (holding that even though some factors supported

corroboration, the district court did not err in excluding the

statement after deciding the declarant was trying to help his

friend).

Also, Woods’s voluntary decision to contact Ferrell’s

counsel does not indicate that Woods’s statements are trust-

worthy. As noted previously, Woods’s voicemail and email did

not contain inculpatory statements regarding healthcare fraud.

Instead, Woods made exculpatory statements that shifted

blame to Medicare and described Ferrell’s honesty. As the

district court noted, Woods’s statements that he did not do

anything wrong do not bolster trustworthiness. In fact, Ferrell

told investigators that Woods would tell “huge lies” and

dismiss those lies as “little white lies.” Gov’t’s/Appellee’s Br.

9, 23. This undermines Ferrell’s argument and supports the

district court’s conclusion that the circumstances did not

clearly indicate trustworthiness.

To rebut the district court’s finding of insufficient corrobo-

ration, Ferrell cites to the testimony of his former student and

employee, Ms. Natalie Hall, who appeared as a Government

witness. Hall testified that she mostly interacted with Bryce

and William Woods, and she gave her notes from patient visits

to both of them. Although Hall’s testimony is consistent with

Woods’s voicemail and email, where he explained his role in

the documentation process, the parties do not dispute that

Woods was involved with documentation. By itself, consis-

tency between Hall’s testimony and Woods’s recorded

statements on this uncontested issue does not amount to

corroborating circumstances clearly indicating trustworthiness.

Henderson, 736 F.3d at 1133 (explaining that declarant’s

No. 14-2915 15

presence in the vehicle when defendant-driver was arrested for

possession of a firearm was merely consistent with declarant’s

statement, in which declarant accepted ownership of the

firearm, and not clearly corroborative); Silverstein, 732 F.2d at

1347 (concluding that declarant being out of his cell—meaning

declarant had the opportunity and ability to commit the

murder to which he confessed—was merely consistent with the

confession (not clearly corroborative) because declarant’s

statement did not show unique knowledge of the murder). In

sum, Hall’s testimony that Woods’s job involved documenta-

tion does not clearly indicate the trustworthiness of Woods’s

statement. Some consistency does not compel the district court

to admit the declarant’s statement. Henderson, 736 F.3d at 1133

(“[I]t is not enough for [the defendant] to show ‘some corrobo-

rative evidence’ of [the declarant’s] statement … .” (citation

omitted) (quoting United States v. Garcia, 897 F.2d 1413, 1421

(7th Cir. 1990))).

Based on the record presented, we hold that the district

court acted well within its discretion when it refused to admit

Woods’s voicemail and email.

B. Rule 404(b)

As with Ferrell’s hearsay question, we apply the same

deferential standard of review and ask whether the district

court abused its discretion by admitting the Government’s

“crimes, wrongs, or other acts” evidence. Fed. R. Evid. 404(b);

Hall, 469 F.3d at 594.

16 No. 14-2915

Ferrell argues that the district court abused its discretion by

admitting impermissible propensity evidence that it should

have excluded under Rule 404(b). Specifically, Ferrell argues

that Shriver’s testimony is not relevant without relying upon

propensity evidence. Ferrell also argues Shriver’s testimony

only addresses Ferrell’s conduct in Texas, which does not

support the charges in the indictment. We disagree.

Under Rule 404(b), relevant evidence of a crime, wrong, or

other act is inadmissible if the proponent offers the evidence to

show a person’s propensity to act a certain way. Fed. R. Evid.

404(b). Regardless, the district court may admit other-act

evidence if the evidence is offered for “another purpose, such

as proving motive, opportunity, intent, preparation, plan,

knowledge, identity, absence of mistake, or lack of accident.”

Id.

We recently recrafted this Circuit’s test for evaluating the

admissibility of other-act evidence to create “a more straight-

forward rules-based approach.” United States v. Gomez, 763

F.3d 845, 853 (2014) (en banc) (“This change is less a substan-

tive modification than a shift in paradigm that we hope will

produce clarity and better practice in applying the relevant

rules of evidence.”). Although Gomez clarifies how the district

court should analyze Rule 404(b) evidence, it remains intact

that Rule 404(b) does not apply to direct evidence of the crime

charged. See id. at 863; see also United States v. Adams, 628 F.3d

407, 414 (7th Cir. 2010) (“So, if the evidence is admitted as

direct evidence of the charged offense, Rule 404(b) is not

applicable. Specifically, evidence directly pertaining to the

defendant’s role in a charged conspiracy is not excluded by

Rule 404(b).”) (citation omitted); United States v. Alviar, 573

No. 14-2915 17

F.3d 526, 538 (7th Cir. 2009) (“The contested evidence proved

specific portions of the indictment. It did not concern ‘other

crimes, wrongs or acts,’ but it concerned the charged crime.

When evidence is embraced by the conspiracy in the indict-

ment, the court need not resort to Rule 404(b) analysis.”). Of

course, the district court may still choose to exclude relevant

direct evidence under Rule 403. Adams, 628 F.3d at 414.

Before trial, the district court granted the Government’s

motion to allow Shriver to testify at trial. The theory of

admissibility for much of Shriver’s expected testimony was

that it constituted direct evidence of the charged offense.7 In

this appeal, Ferrell’s brief does not challenge Shriver’s direct

evidence testimony. Further, at oral argument, Ferrell’s counsel

conceded “[c]ertain testimony that Dr. Shriver gave was

indeed direct evidence regarding statements Dr. Ferrell made

about his actions here in Illinois.” Since Ferrell does not argue

that Shriver’s direct evidence testimony was admitted in

violation of Rule 403, we will not address the district court’s

decision to admit portions of Shriver’s testimony as direct

evidence. United States v. Phillips, 745 F.3d 829, 833 (7th Cir.

2014) (refusing to review the district court’s admission of direct

evidence when appellant only appealed claiming inadmissibil-

7

Specifically, the district court ruled that “Ferrell’s alleged admissions to

Shriver that he used the Woods brothers and students to visit patients and

that he billed for those sessions is directly relevant to the scheme charged.

It directly contradicts Ferrell’s defense that he was unaware these practices

were occurring. Therefore, it tends to prove that Ferrell participated in the

scheme knowingly and with the intent to defraud. Ferrell’s alleged

statement regarding his financial needs is also direct evidence of his motive

to engage in the scheme charged.” Def.’s/Appellant’s App. 48.

18 No. 14-2915

ity under Rule 404(b), and instead did not argue independently

that Rule 403 should have barred the direct evidence).

We now turn to Ferrell’s Rule 404(b) arguments. As the

Government notes, Ferrell’s brief does not quote any portions

of Shiver’s testimony that he believes violated Rule 404(b).

Instead, Ferrell’s brief alludes to the points where Shriver

mentioned Texas, Louisiana, Iowa, and Michigan. Ferrell’s

counsel attempted to clarify this point at oral argument by

suggesting the impermissible propensity evidence consisted of

“parts of [Shriver’s] testimony related to Dr. Ferrell’s statement

that he was setting up other practices in Texas, Iowa, Michigan,

and New Mexico.” Ferrell argued that the government did not

indict him for conduct in Texas, so Shriver’s testimony ad-

dressing Ferrell’s state of mind in Texas is irrelevant. Ferrell

further contends that the chain of reasoning supporting the

non-propensity purpose is inseparable from the propensity

effect, meaning that “the inescapable conclusion the jury drew

from Shriver’s testimony is that Mr. Ferrell is a serial

defrauder.” Def.’s/Appellant’s Br. 17. Thus, in Ferrell’s view,

Shriver’s testimony “relied on Ferrell’s propensity to commit

Medicare fraud,” and showed “that if Mr. Ferrell committed

fraud in Illinois, he must have committed similar frauds in

other states.” Def.’s/Appellant’s Br. 18. In light of our recent

decision in Gomez and Shriver’s trial testimony, we find

Ferrell’s arguments unpersuasive.

When an opponent objects to the introduction of other-act

evidence, the proponent of the evidence must first show “that

the other act is relevant to a specific purpose other than the

person’s character or propensity to behave in a certain way.”

Gomez, 763 F.3d at 860 (citing Fed. R. Evid. 402, 402, 404(b)).

No. 14-2915 19

Exclusion is not required merely because some propensity

inference can be drawn from the other-act evidence; rather, the

other-act evidence is admissible provided that the other-act

evidence’s relevance to “another purpose” is established by

“some propensity-free chain of reasoning.” Id. at 856, 860

(“[The other-act evidence’s] relevance to ‘another purpose’

must be established through a chain of reasoning that does not

rely on the forbidden inference that the person has a certain

character and acted in accordance with that character on the

occasion charged in the case.”). Once the proponent makes this

showing, the district court must engage in Rule 403 balancing

to determine whether the probative value of the other-act

evidence is substantially outweighed by the risk of unfair

prejudice. Id. at 860. The court must also be mindful that even

though intent is an element of the offense for a specific intent

crime, Rule 404(b) is not “a rule of automatic admission.” Id. at

858–59 (quoting United States v. Conner, 583 F.3d 1011, 1022 (7th

Cir. 2009)). Thus, with specific intent crimes, “the degree to

which the non-propensity issue actually is contested” may

affect admissibility. Id. at 859 (explaining that Rule 402 and

Rule 403 still apply when other-act evidence is offered to prove

intent (citing United States v. Earls, 704 F.3d 466, 471 (7th Cir.

2012))).

At trial, Shriver testified, “[Ferrell] mentioned that he had

a practice … providing services at nursing homes, in multiple

states … . I thought he might be interested in helping me out

in southwest Texas. And so we would have discussions

concerning the business of coming down.” Shriver explained

that these conversations, where he and Ferrell would “ex-

change information on our practices and also discuss [Ferrell]

20 No. 14-2915

coming down,” occurred during lunches and on the telephone,

and this is when Shriver “found out about what [Ferrell] did.”

When the Government asked Shriver to elaborate on Ferrell’s

activities, Shriver testified:

Well, I found out that—he told me what he was

doing, that he had a practice in evaluating Social

Security claims, from what I understood, in

Florida and another one with Social Security here

in Illinois. I knew about a nursing home he had

in Iowa. I believe there was one in Michigan.

Illinois. And I know he was trying to develop

Louisiana and New Mexico. And I talked to him

about coming to Texas. And during that time, he

also—he told me about what he did in the nurs-

ing homes. And it seemed like he would do

some of the initials, and then he would have

therapists, graduate students, various students

or people that had graduated from Roosevelt

where he taught, and they would fly or drive to

these nursing homes and provide psychological

services, of which he was available by telephone.

This testimony is consistent with the anticipated testimony

upon which the district court based its Rule 404(b) ruling.8

8

The Government informed the district court that it anticipated Shriver

would testify “Ferrell told Shriver that Ferrell ran a practice treating nursing

home patients who lived in several states, and that Ferrell used students,

Defendant Woods, and William Woods to see patients at the nursing

home.” Def.’s/Appellant’s App. 47.

No. 14-2915 21

Contrary to Ferrell’s characterization of Shriver’s testimony, it

is less than obvious how it could cause a jury to only conclude

that Ferrell is a “serial defrauder.” Def.’s/Appellant’s Br. 17.

First, the word “fraud” only appeared three times in Shriver’s

direct examination, and all in reference to the charges against

Shriver. Gov’t’s/Appellee’s App. 15:18, 16:2, 18:8. Second,

Shriver never testified that Ferrell committed fraud—in Illinois

or any other state. Shriver’s testimony showed that Ferrell had

a propensity to practice psychotherapy in multiple states,

which is not equivalent to a propensity to commit Medicare

fraud in multiple states. Third, even if Shriver’s testimony

could be construed as saying Ferrell committed certain acts, the

indictment charged Ferrell and Bryce Woods with carrying out

a criminal scheme in “Illinois, and elsewhere.”

Gov’t’s/Appellee’s Br. 33 (emphasis added).9 Therefore, as the

district court held, much of Shriver’s testimony is direct

evidence of the charged healthcare fraud. Despite this, to

address Ferrell’s Rule 404(b) arguments, we will assume

9

Further, the indictment described this criminal scheme as being accom-

plished (1) by providing psychotherapy services to Medicare beneficiaries

in nursing homes, (2) through unlicensed individuals, (3) when Ferrell was

not directly supervising the sessions, (4) using Ferrell’s Medicare provider

number to bill Medicare, and (5) Ferrell and Bryce Woods submitted over

$3 million in false and fraudulent claims to Medicare.

22 No. 14-2915

arguendo that the challenged portions of Shriver’s testimony

were admitted solely under Rule 404(b).10

The district court held Shriver’s testimony was non-

propensity evidence because it showed Ferrell’s knowledge of

the scheme and intent to defraud the government. Specifically,

the district court found Shriver’s testimony tended to prove

that “Ferrell was aware unlicensed providers were conducting

psychotherapy sessions in his name,” and “that Ferrell knew

claims were submitted to Medicare for these services.”

Def.’s/Appellant’s App. 49. This is a propensity-free chain of

reasoning. The jury was not asked to believe that because

Ferrell “was the type of person who would break the law once,

he must be the type of person who would break the law

again.” United States v. Schmitt, 770 F.3d 524, 534 (7th Cir. 2014),

cert. denied, 135 S. Ct. 1537 (2015) (mem.). Instead, the Govern-

ment was asking the jury to infer that because Ferrell was

aware of how psychotherapy sessions were being conducted,

and that Medicare was billed for them, Ferrell had knowledge

and intended to commit Medicare fraud. United States v.

Anzaldi, — F.3d — , Nos. 14-1206, 13-3844, 2015 WL 5172849, at

*8–9 (7th Cir. Sept. 4, 2015) (holding that, when engaging in

fraudulent tax scheme, defendant’s request that checks be

made out for less than $10,000 to hide her activity from the

government showed propensity-free chain of reasoning that

defendant intended to defraud the government and negated

10

As we mentioned briefly at the outset of this Opinion, during the pretrial

hearings the Government argued and the district court agreed that most of

Shriver’s testimony was admissible as a direct evidence of charges in the

indictment. The district court framed its Rule 404(b) holding as one in the

alternative.

No. 14-2915 23

good faith defense); Schmitt, 770 F.3d at 534–35 (holding the

government offered a propensity-free chain of reasoning when

the charge was felon in possession of firearm and it introduced

evidence that defendant was (1) a drug dealer and (2) had large

quantities of drugs in his home when arrested because it

showed the “motive” for having the gun was to further drug

dealing activities). Accordingly, Gomez makes no difference in

the outcome.

The district court then engaged in Rule 403 balancing and

ruled the testimony admissible. Healthcare fraud is a specific

intent crime, United States v. Natale, 719 F.3d 719, 741–42 (7th

Cir. 2013), cert. denied, 134 S. Ct. 1875 (2014) (mem.), and the

district court found Ferrell’s defense was that “he was unaware

these practices were occurring.” Def.’s/Appellant’s App. 48.

Thus, Ferrell’s intent and knowledge was actually contested.

United States v. Richards, 719 F.3d 746, 759 (7th Cir. 2013) (“[If]

the defendant simply asserts his innocence in a more general

way or argues his conduct failed to satisfy some other element

of the crime besides intent or knowledge, prior bad acts evidence

is inadmissible.”) (emphasis added); United States v. Miller, 673

F.3d 688, 697 (7th Cir. 2012) (“[W]hile intent is at least formally

relevant to all specific intent crimes, intent becomes more

relevant, and evidence tending to prove intent becomes more

probative, when the defense actually works to deny intent,

joining the issue by contesting it.”); United States v. Meislin, —

F. Supp. 3d — , No. 5:14-CR-18, 2015 WL 3645724, at *2–5

(N.D.N.Y. June 11, 2015) (holding former co-worker’s testi-

mony that defendant’s prior conduct—submitting bills to

Medicare indicating a doctor was present when a doctor

actually was not—was proper to show knowledge and intent

24 No. 14-2915

when defendant faced charges for engaging in identical

conduct at a subsequent job and defendant contended she

lacked requisite knowledge and intent for healthcare fraud).

The highly probative value of Shriver’s testimony is readily

apparent, as it revealed Ferrell’s awareness of sending

unlicensed individuals to various nursing homes to conduct

psychotherapy sessions in Ferrell’s name. It also demonstrated

Ferrell’s intent to bill Medicare for these visits. Although this

testimony is obviously prejudicial, we are convinced the

district court engaged in “‘a principled exercise of discretion’”

and thought “through the relevance of and the potential

prejudice posed by the proffered evidence.” United States v. Lee,

724 F.3d 968, 977–78 (7th Cir. 2013) (quoting United States v.

Beasley, 809 F.2d 1273, 1278–79 (7th Cir. 1987)).

Ferrell does not explicitly challenge the district court’s

ruling that Shriver’s testimony about Ferrell’s financial

condition permissibly proved motive. However, since Ferrell

insists the “other states” testimony was improper, and the

discussion of Ferrell’s debts included some references to Texas,

we consider the admissibility of this testimony as well. Shriver

testified that Ferrell said he owed a “debt to the government.”

Further, Shriver’s testimony detailed how Ferrell’s “credit

cards didn’t always work … rooms were problematic and

occasional flight [sic] he couldn’t make or they had to wait

until some money got transferred, et cetera.” Shriver also

reported that Ferrell incurred a lot of expenses by booking last

minute flights for multiple people, and in one instance, took a

three-and-a-half-hour cab ride from San Antonio to Shriver’s

area on the Texas-Mexico border. The district court thought

this testimony showed Ferrell’s motive to commit the fraud

No. 14-2915 25

and that Rule 403 allowed admission because the testimony

was highly probative as to Ferrell’s financial needs driving him

to intentionally submit fraudulent claims to Medicare.

The Government argues that this is not propensity evi-

dence. Rather, Ferrell’s debt drove him to make more money

through unlawful means. The money Ferrell earned at Roose-

velt University, through psychotherapy sessions with

Medicaid patients, and by working for the Social Security

Administration provided some income. In contrast, sixty-six

percent of Ferrell’s and Bryce Woods’s total income came from

Medicare claims, which amounted to approximately $1.5

million from fraudulent claims. Although some person may

conclude a person who would incur and carry debt would also

have a propensity to commit fraud, the proponent is not

required to negate every imaginable propensity inference an

observer might draw. Gomez, 763 F.3d at 856 (“This is not to

say that other-act evidence must be excluded whenever a

propensity inference can be drawn; rather, Rule 404(b) ex-

cludes the evidence if its relevance to ‘another purpose’ is

established only through the forbidden propensity inference.”).

Further, the Government has not relied on such an improper

propensity inference, and this is not the inescapable conclusion

for which Ferrell’s financial situation is being offered into

evidence. Compare United States v. Cunningham, 103 F.3d 553,

556 (7th Cir. 1996) (stating that although propensity evidence

and motive evidence may overlap in certain scenarios, there is

no impermissible overlap when the other-act evidence shows

the defendant’s desire for pecuniary gain, to which the crime

is instrumental, because the pecuniary gain could not be

achieved as easily by lawful means), with Lee, 724 F.3d at 980

26 No. 14-2915

(barring a defendant’s prior conviction for possession of crack

cocaine in defendant’s present trial for possession with intent

to distribute because the government’s argument that the

possession conviction showed defendant’s “familiarity with

the cocaine business” and “was not some hapless fool” only

invited the jury to infer propensity to engage in cocaine-related

offenses). We have also been mindful that loose policing of

Rule 404(b)’s exceptions historically appears in drug cases.

Gomez, 763 F.3d at 853 (quoting Miller, 673 F.3d at 692). The

district court acted reasonably by accepting the Government’s

reasoning centered around motive. Similarly, we are satisfied

that the district court carefully considered whether the proba-

tive value was substantially outweighed by the risk of unfair

prejudice.

Therefore, the district court did not abuse its discretion by

admitting Shriver’s testimony regarding Ferrell’s conduct in

various states as evidence of intent and knowledge. Likewise,

Shriver’s testimony of Ferrell’s debts and expenses went to

motive, not an impermissible propensity inference.11

CONCLUSION

For the reasons set forth above, the district court did not

abuse its discretion in refusing to admit Woods’s recorded

statements pursuant to Rule 804(b)(3). Likewise, the district

court did not abuse its discretion in admitting Shriver’s

testimony describing Ferrell’s other acts. We therefore AFFIRM

the judgment of conviction.

11

Because we hold that the district court did not abuse its discretion, we

need not reach the Government’s harmless error argument.