Petition — Goldstein v. United States

Supreme Court brief1983

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APR 8 1983

No.

ALEXANIDep STEVAS

CLERK y

In the Supreme Court of the United States

October Term, 1982

LAWRENCE GOLDSTEIN,

Petitioner.

vs.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

JAMES R. WyYRSCH

Counsel of Record

KOENIGSDORF, KUSNETZKY & WYRSCH

1050 Home Savings Building

1006 Grand Avenue

Kansas City, Missouri 64106

(816) 221-0080

Attorneys for Petitioner

Of Counsel:

Mont! L. BELoT

WEEKS, THOMAS & LYSAUGHT, CHARTERED

420-14 Corporate Woods

8717 W. 110 Street

P.O. Box 12245

Overland Park, Kansas 66212

(913) 642-7770

E. L. Menvennacr, Inc., 926 Cherry Street, Kansas City, Mo. 64106, (816) 421-3020

QUESTIONS PRESENTED

The Court of Appeals erred in affirming the federal

mail fraud and false statement convictions of Petitioner:

(A) on the theory that there was a federal fiduciary

duty to disclose certain matters to both the United

States Government and to the State of Kansas

certain facts relating to Petitioner’s business

when there was no federal or state law or regu-

lation expressly imposing a fiduciary duty or re-

quiring such disclosure;

(B) when, under the constructive fraud doctrine of

some circuit courts of appeal, Petitioner’s appeals

cannot stand;

ing arguably ambiguous statements, Petitioner’s

convictions for false statements and mail fraud

cannot stand;

(D) when, under the facts of the case, there was no

fair notice and warning to the Petitioner that his

conduct violated the criminal statutes of the

United States.

TABLE OF CONTENTS

MR ANCED FRRMMIMRN EMD o.cececscsscocecscssecanesccnscscnsesocscscenens

I MELT dcsiesinsvescininietishkecnsessienaimntembiinnnes tinsaniainans

IIIT - “issn dsselaeibainnbbiacasebcacie

BEATUTORE PROVIBIONS, onccccccccsccccccccsesscscscssscsscsosecsese

STATEMENT OF THE CASE .........c.cccccccsccsescesssscsssesceseeces

REASONS FOR GRANTING THE WRIT—

I, The decision below raises an issue of great

importance to the criminal justice system—is

there a federal common law fiduciary duty

under the mail fraud and federal false state-

ment statutes to disclose certain facts when

under federal and state law or regulation such

a duty is not imposed upon a defendant ............

II. The decision below is inconsistent with this

Court’s prior decisions and is in conflict with

other Circuits.

A. The decision below holding that there is a

federal fiduciary duty is inconsistent with

this Court’s prior decisions ........00.0000.000000...

B. The decision of the Tenth Circuit is also

in direct conflict with other Circuits

which have held that mere constructive

fraud, as opposed to actual fraud, cannot

constitute a violation of the mail fraud

UD coissensenainesansensnitsenstsssnincemninantznnntionisitalenabins

C. The decision of the Tenth Circuit conflicts

with the decisions of this Court and other

Circuits as regards its interpretation of

18 U.S.C. Section 1001, and, by implica-

tion, 18 U.S.C. Section 1341.00.00.

III. The decision below is in conflict with the Fifth

and Sixth Amendment rights to fair notice

and warning, with prior decisions of this

Court, and with the decision of at least one

I IIE cicatasstasbacecsnnicnsavcnenciacasnctrsaseaeibijantentinns 19

ICON enccsasecccescipsonpacsansasssecbosnaonebotnssecnannsannionsconscnsens 24

TABLE OF AUTHORITIES

Cases

Aptheker v, Secretary, 378 U.S. 500 (1964) 00... 19

Bell v. U.S., 678 F.2d 547 (5th Cir, 1982) (en banc),

cert. granted, Case No, 82-5119, Nov. 29, 1982 ............ 13

Bouie v. Columbia, 378 U.S. 347 (1964) 0.0... 19

Dirks v. Securities & Exchange Commission, 681 F.2d

824 (D.C. Cir. 1982), cert. granted, No. 82-276 (Nov.

Ag GRIER Irs SA inercnc steel eee RN ed 13

Epstein v. U.S., 174 F.2d 754 (6th Cir. 1949) ............ 15, 16, 17

Erie R. Co. v. Tompkins, 304 U.S. 64 (1988) o...cccsseo 14

Fasulo v. U.S., 272 U.S. 620 (1926) ..cccccscsscssssssssssesseseee 14

Hammer v. U.S., 134 F.2d 592 (5th Cir, 1943) ...ccccccce. 24

Margiotta v. U.S., 688 F.2d 108 (2nd Cir. 1982), petition

for certiorari pending, Case No. 82-1126, filed Jan.

Oh TRIED scsaictisinicssaeesciaceleainateieiscnaniadeetiaseatilianatakasenwessibinstieda 13

Parratt v. Taylor, 451 U.S. 527 (1981) oe 14

Post v. U.S., 407 F.2d 319 (D.C. Cir. 1968), cert. de-

nied, 393 U.S. 1092 (1969) . ssiicscecancnaniaiatadassean 17

Rowan v. U.S. Post Office, 397 U.S. 728 (1970) ............ 19

Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977) 14

U.S. v. Anderson, 579 F.2d 455 (8th Cir. 1978) ............ 18, 19

U.S. v. Ballard, 663 F.2d 534 (5th Cir. 1981), modified

on reh'g, 680 F.2d 352 (Sth Cir. 1982) ow 17

U.S. v. Barta, 635 F.2d 999 (2nd Cir. 1980), cert. de-

OI ee Piet IN CIID ciccnscosintccctacccncncnssesiesotinsacsnens 16-17

Pies We GR, GR TT, BO CUTE) eee ccncesscccscnscsntccecssercvtcns 20

U.S. v. Bronston, 409 U.S. 352 (1972) ou... 18

U.S. v. Clifford, 426 F.Supp. 696 (EDNY 1976) ............ 18

U.S. v. Diogo, 320 F.2d 898 (2nd Cir. 1963) oo... 18

U.S. v. George, 477 F.2d 508 (7th Cir.), cert. denied,

TT CI eapipnanabuniee 17

U.S. v. Lange, 528 F.2d 1280 (5th Cir. 1976) 0.00.0. 8

, ©. EMD, BOG UB. GTB CUGGR) ccccnceececsccsscncrsescccaseaseces: 19

U.S. v. London, 550 F.2d 206 (Sth Cir. 1977) oo... 8

U.S. v. McNeive, 586 F.2d 1245 (8th Cir. 1976) ............ 16

U.S. v. Mandel, 591 F.2d 1347 (4th Cir.), aff'd in rele-

vant part on reh’s en banc, 602 F.2d 653 (4th Cir.

1979), cert. denied, 445 U.S. 961 (1980) 00... 17

U.S. v. Maze, 414 U.S. 395 (1974) 0... ceeceeee 14

U.S. v. Porter, 591 F.2d 1048 (5th Cir. 1979) .......... 20, 21, 22,

23, 24

U.S. v. Rabbitt, 583 F.2d 1014 (8th Cir. 1978), cert.

II, GR UE. REID CIITD) wecseseccisecsecenscccccosscsccssscscsas 16

U.S. v. Race, 632 F.2d 1114 (4th Cir. 1980) 20000000000... . 19

U.S. v. Vesaas, 586 F.2d 101 (8th Cir. 1978) 0000000... 18

Williams v. U.S., 458 USS. ........ < ; Gee gE Eni 20

Constitutional Provisions

Fifth Amendment to the United States Constitution ....2, 19

Sixth Amendment to the United States Constitution ....2, 19

Statutes

fo ee eee: 2, 3, 8, 18, 19, 23

I ed TIME TIITID Sesenecsconcoteccertcerucsieosseeteenne 2, 3, 12, 19, 23

OE. Ee

Si Mies, WUIUUD UII cnncoccsncsceccacenscoccsiccsuonasanainsenonecntel 13

ee MI MII: CII cscnsisrsscisssitintnsscenesicdbesemininuetesnsinsnscbienisnni jean

Be eee MOUEIOED GEECA) CD) accecercscscccsecsccsnscscecnscsccsnsessancies 2

Be Chas TIOBEROM TBR E) ccciccccasccciccssinpincsscesccasseenccesesccnses 2

Texts

Coffee, “From Tort to Crime: Some Reflections on

the Criminalization of Fiduciary Breaches and the

Problematic Line Between Law and Ethics”, 19

American Criminal Law Review 117 (1981) ........ 8-9, 10,

11,12

Hurson, “LIMITING THE FepeRAL Mau. Fraup Strat-

ute - A LEGISLATIVE APPROACH”, 20 American Crim-

inal Law Review 423 (1983) .............:.ccccccccceccecsseeeseeeeeees 9,12

Morano, “THe Mart-FrAup Statute: A PROCRUSTEAN

Bep”, 14 John Marshall Law Review 45 (1980) ....8, 9, 10,

12, 20

Other

Kansas Medicaid Regulations KAR 30-5-21 ............ 2, 6, 7, 23

Kansas Medicaid Regulations KAR 30-5-26 ...0000000....... 2, 6, 23

Rule 10(b)-5 of the Federal Securities Act ........0000........ 14

No.

In the Supreme Court of the United States

October Term, 1982

LAWRENCE GOLDSTEIN,

Petitioner,

VS.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Petitioner, Lawrence Goldstein, prays that a Writ of

Certiorari issue to review the Judgment of the United

States Court of Appeals for the Tenth Circuit entered in

this case.

OPINION BELOW

The Opinion of the Court of Appeals below (Appendix,

p. Al) initially was reported at 649 F.2d 799 (10th Cir.

1981). The Opinion was withdrawn from publication in

the bound volume. (Appendix, p. Al). There was no

Opinion of the District Court.

JURISDICTION

The Judgment of the Court of Appeals was entered

on May 22, 1981, affirming Petitioner’s convictions for

violations of both 18 U.S.C. Sections 1001 and 1341. Pe-

titioner’s conviction under 21 U.S.C. Section 841(a) (1)

was reversed. The United States did not seek review of

the reversal of the conviction by rehearing or certiorari.

Petitioner’s timely motion for rehearing by the panel

was denied on January 21, 1983. Petitioner’s timely motion

for rehearing en banc was denied by the Court on February

18, 1983. This petition is filed within sixty (60) days

of that denial. This Court has jurisdiction pursuant to

28 U.S.C. Section 1254(1). The District Court had juris-

diction over this cause under 18 U.S.C. Section 3231.

STATUTORY PROVISIONS

The Fifth Amendment to the United States Constitu-

tion is set forth in the Appendix, p. A20. The Sixth

Amendment to the United States Constitution is set forth

in the Appendix, p. A21. The Federal Mail Fraud Statute,

18 U.S.C. Section 1341, is set forth in Appendix, p. A22.

The Federal False Statement Act, 18 U.S.C. Section 1001,

is set forth in the Appendix, p. A23. Kansas Medicaid

Regulations KAR 30-5-21 and 30-5-26 are set out in the

Appendix, pp. A24-A27.

STATEMENT OF THE CASE

Petitioner, who ultimately received a sixty (60) day

sentence and fine for his convictions' in the District Court,

was a registered pharmacist in the State of Kansas. Co-

Defendant, Silberg, an employee of Petitioner’s business,

was also a registered pharmacist and manager of Pe-

titioner’s pharmacy. Co-Defendant Jones was an osteo-

pathic physician. All three Defendants were fully licensed

to dispense drugs.”

Defendant Jones operated the Central Clinic in Kansas

City, Kansas. In his practice, Jones frequently dispensed

drugs to his patients. Many of these patients were eligible

to receive the benefits of the Medicare/Medicaid Programs

which included certain prescription drugs. Petitioner’s

pharmacy was a few blocks away from Jones’ clinic. In

1975, Petitioner and Jones agreed that Petitioner’s phar-

macy would furnish Jones a stock of drugs at the Central

Clinic and Jones would receive a small fee for dispensing

the drugs. The fee was to reimburse Jones for the cost

of supplies (such as bottles) as well as certain overhead-

related costs - costs which otherwise would have been

incurred by Petitioner’s pharmacy. The fees were paid

monthly by check.

Reimbursement to those who furnished prescription

drugs to eligible recipients was administered by the Kansas

Department of Social and Rehabilitation Services (SRS),

an agency of the State of Kansas. Reimbursement was

made from combined Federal and State funds. The amount

1. Counts 1-10 of the Information charged violations of 18

U.S.C. Sec. 1341; Counts 11-14 charged violations of 18 U.S.C.

Sec. 1001.

2. The facts mentioned in this statement are contained in

the Court of Appeals Opinion unless otherwise noted.

of reimbursement to Petitioner’s pharmacy was determined

by cost studies prepared by Co-Defendant Silberg. The

cost studies submitted to SRS by Petitioner’s pharmacy

did not reflect the dispensing fee to Jones nor the fact

that the drugs were dispensed at the Central Clinic.

Petitioner’s employee, Co-Defendant Silberg, prepared

these studies; Petitioner was not personally knowledgeable

of the facts and figures used by Silberg to prepare the

forms. ROA,’ Vol. 2, pp. 212-222 (Gov’t Ex. 20); Vol. 3,

pp. 225-236 (Gov’t Ex. 22); 239-257 (Gov’t Ex. 24); Vol. 5,

pp. 35-42, 41, 89; Vol. 7, pp. 425, 426, 578, 582.

Petitioner or his employees believed that a person

they had originally understood to be an employee of SRS

had in fact approved the arrangement with Jones. In

addition, Jones’ attorney thought the arrangement was

legal. ROA, Volume 6, pp. 232, 253, 256, 271, 277-78, 317;

Volume 7, pp. 426, 432-33, 478-80, 484, 491-93, 520, 541-47,

550-57, 569-72; Volume 8, jyp. 634-37, 653, 663, 664, 492-99,

716-720, 723-29.

Petitioner, after the arrangement commenced, went

only occasionally to the Central Clinic, never filled a

prescription there, and took no part in the billing pro-

cedures. ROA, Vol. 6, pp. 244, 247, 274, 284; Vol. 7, pp.

481, 547-548, 561; Vol. 8, p. 654. Contrary to the implica-

tions of the Court of Appeals decision, there was in fact

no discussion between Petitioner and Jones that the Cen-

tral Clinic pharmacy would not be registered so that

the State could be billed at a higher rate for Medicaid

prescriptions. ROA, Vol. 6, p. 265; Vol. 7, pp. 484, 485,

561; Vol. 8, pp. 630-632. Petitioner’s pharmacy was

validly registered with both the Federai and State Gov-

ernments. In addition, Petitioner’s pharmacy had a “pro-

3. ROA: Record on Appeal.

vider number” issued by SRS, which identified it as a

participant in the SRS administered pharmacy reimburse-

ment plan. A “provider number” was different than a

federal or state registration of a pharmacy. The claims

were made to SRS for prescriptions filled at the Central

Clinic by Petitioner’s pharmacy using Petitioner's “pro-

vider number”. ROA, Vol. 2, pp. 208-09 (Gov't Ex. 16

and 17); Vol. 5, pp. 27-31, 61-62, 70.

When the arrangement started in 1975, Central Clinic

was not registered with the Federal Government as an

“authorized” location where drugs could be kept. At trial,

Jones disputed the government’s claims that his clinic

was not validly registered. There was no evidence that

either Petitioner or any of his employees knew or should

have suspected the Central Clinic was not registered.

On the coritrary, all believed that it was.

The Central Clinic was not registered as a pharmacy

with the Drug Enforcement Administration or with the

Board of Pharmacy of the State of Kansas because the

“pharmacy” there differed substantially from other retail

pharmacies such as those operated by Petitioner. It was

not open to the public, but rather existed solely to serve

Jones’ patients. It was not advertised nor were there

any signs or physical indications either outside or inside

Jones’ clinic to indicate that it existed. No one could

come into the clinic pharmacy “off the street’ with their

prescription and have it filled. The clinic pharmacy

was stocked with drugs preferred by Jones and routinely

prescribed to his patients. It was not a “fully stocked”

pharmacy prepared to meet the varying prescription re-

quirements of many physicians. Those involved in the

arrangements stated that they did not believe the clinic

pharmacy had to be registered because of its unique

characteristics. ROA, Volume 6, pp. 248, 249, 266-268,

312; Volume 7, pp. 474-478, 559, 560.

Several government witnesses testified that both the

federal and state law required the registration of any

location where controlled substances were maintained or

from which they were dispensed. However, the wit-

nesses who testified had been to the clinic pharmacy and

each declined to say whether the clinic pharmacy was

required to be registered. In addition, while several

government witnesses were called in rebuttal for the pur-

pose of showing that Jones may or should have known as

early as 1977 that he did not have a proper Drug En-

forcement Administration registration at the clinic, no

evidence was offered that any of the Defendants were

aware of this deficiency prior to 1977 or that Petitioner

or any of his employees were made aware of it after 1977.

As far as Petitioner or any of his employees were con-

cerned, Jones at all times was fully authorized to possess

and dispense controlled substances at the Central Clinic.

ROA, Volume 5, pp. 89, 155, 166, 167; Volume 6, pp. 271, 284,

312, 322-364; Volume 7, pp. 381-406, 478, 496, 550-559;

Volume 8, pp. 604-618, 659-661, 671-678, 745-752.

The government thus charged and convicted Defen-

dants on the grounds that claim forms submitted by Peti-

tioner’s pharmacy for drugs dispensed at the Central Clinic

constituted false statements and mail fraud in that the

Central Clinic was not properly registered and did not have

a SRS “provider number’. The government’s theory was

that Defendants should have known how SRS intended the

form to be filled out, even though neither the applicable

regulations issued by SRS (Kansas Administrative Regula-

tions 30-5-21 and 30-5-26) required that there be a separate

“provider number” nor in fact any “provider number”

4. All Defendants’ convictions for dispensing controlled

substances for valid medical reasons from an unregistered loca-

tion were reversed.

whatsoever.” In 1979, amendments were made to KAR

30-5-21 which provided this requirement but, prior to this

time, there was no such requirement. Indeed, the claim

forms themselves did not state that the “provider number”

reflect the location of the pharmacy from which the drugs

were dispensed.

The government did not contend that the drugs in fact

were not actually dispensed properly. It was the govern-

ment’s essential contention that, under the Kansas Medi-

caid system for reimbursing pharmacies, Petitioner’s

pharmacy received a higher fee for dispensing the drugs

than would have been the case if reimbursement would

have been sought for dispensing drugs at the Central Clinic

only. However, the fees received by Petitioner’s clinic

were never greater than those permitted under the Kansas

Medicaid program, and, for the period 7/77 to 7/78, were

below the maximum permitted by the program. ROA, Vol.

4 (Gov't Ex. 18); Vol. 5, pp. 46, 62, 53, 120.

5. The government’s trial attorney stated to the Court in

response to defense counsels’ arguments on motions for judgment

of acquittal:

“Most mail fraud schemes are not by themselves proscribed

anywhere specifically and such is the case here. The ques-

tion of whether or not this specific conduct was a scheme

was a question that was properly put to the jury and a

question that they properly decided

“Notwithstanding that, Your Honor, I think the defendants

would have adequate notice that the conduct that they en-

gaged in was not proper in that the basis of the entire

Medic-Aid system requires the separate provider number

for each separate location where drugs are being dispensed.

= apparent that the fee structure of the Medic-Aid system

is dependent upon this separate provider number since the

fee, that is, the dispensing fee, is determined based upon

the overhead cost for that particular location.

“The fact that it’s a false statement to indicate to Medic-Aid

that a prescription filied one place was, in fact, filled some

place else goes without saying. I think it’s so obvious that

it isn’t going to be put anywhere in the regulation.” (Sup-

plemental ROA, pp. 18-19). (Emphasis added).

REASONS FOR GRANTING THE WRIT

The decision below raises an issue of great im-

portance to the criminal justice system—is there a

federal common law fiduciary duty under the mail

fraud and federal false statement statutes to disclose

certain facts when under federal and state law or

regulation such a duty is not imposed upon a defen-

dant.

The decision of the Court of Appeals implicitly found

a federal fiduciary duty to disclose certain facts to SRS

when no such duty was imposed under federal or state law

or regulation, and thus upheld Petitioner’s convictions

under the mail fraud statutes.’ The Court of Appeals up-

held the false statement convictions based on the same

reasoning that was used to affirm Petitioner’s convictions

under the mail fraud statute.

Whether there is in fact a “fiduciary duty” which is

governed by “federal” standards and the scope of such

duty has attracted the attention of several authors who

have criticized judicial decisions in this area and have

proposed judicial or legislative solutions to the problem.

See, e.g., Morano, “THe Mait-Fraup Statute: A Pro-

CRUSTEAN Bep”, 14 John Marshall Law Review 45 (1980);

Coffee, “From Tort To Crrme: Some Reflections on the

Criminalization of Fiduciary Breaches and the Problematic

Line Between Law and Ethics”, 19 American Criminal

6. Some courts define the specific intent required for a con-

viction under 18 U.S.C. Section 1001 as an intent to deceive as

opposed to an intent to defraud. See, e.g., U.S. v. Lange, 528 F.2d

1280, 1288 (5th Cir. 1976). However, courts tend to use the

term “intent to defraud” and “intent to deve) ve” interchangeably.

See, e.g., U.S. v. London, 550 F.2d 206, 213, n. 6 (5th Cir. 1977).

Law Review 117 (1981); Hurson, “LIMITING THE FEDERAL

Mai. Fraup Statute - A LEGISLATIVE APPROACH”, 20 Amer-

ican Criminal Law Review 423 (1983). Thus, Morano

states:

“Through analysis of the expansive use of the mail-

fraud statute, especially as a result of the strained,

Pickwickian meaning that has been given by the courts

to a ‘scheme to defraud’, this article will show that

concern for due process requires that the courts cease

prosecuting fiduciary fraud under Section 1341,

Furthermore, the criminal sanctions of Section 1341

should not be imposed on those whose conduct merely

falls short of absolute honesty towards others. One

way to avoid such an excess in construing Section

1341 is not to allow an indictment which alleges only

that the defendant’s practices prevented the victim

from making a better bargain than he did, even though

the bargain struck was well within the going rate.”

Morano, op. cit., at pp. 41-50."

Morano observes that:

“If someone can be convicted of mail fraud for the

vague reason that his ‘conduct .. . fails to match the

reflection of moral uprightness, of fundamental hon-

esty, fair play and right dealing in the general busi-

ness life of members of society’, then everyone is at

the mercy of changing community moral values of

honesty, loyalty, and trust. One is threatened by the

prospect of prosecution for mail fraud, notwithstand-

ing a transaction’s fairness, if only because a per-

sonal interest in the transaction was not disclosed.

7. In the instant case, the government’s principal complaint

was that SRS paid too much for the services rendered - even

though Petitioner’s pharmacy was reimbursed at or below the

going rate under SRS regulations.

Of course, openness and loyalty on the part of an

employee, whether in the private or public sector, is

commendable. However, only in a theocracy like

Calvin’s Geneva or colonial Salem would criminal

sanctions be expected for such nondisclosure.” Foot-

notes omitted. Op. cit. at p. 81.

Morano has several solutions to the problem which are

in part (as relevant to the instant case):

“Because convicti n for mail fraud, a felony, may

bring imprisonment for five years on each count, and

because each mailing may constitute a separate count,

it seems much too harsh to convict a defendant under

this statute for any thing less than seriously criminal

conduct. Accordingly, a court should reverse the con-

viction of any defendant charged with violating section

1341 through no more than a violation of fiduciary

duty. To be sufficient, an indictment should allege

that the defendant used a fraudulent scheme to ob-

tain tangible gain at another’s expense.

“Moreover, the willingness of courts to find the requi-

site intent to defraud from mere nondisclosure of

relevant information should be obviated by a jury

instruction that does not beg the question. The jury

instruction should explain that when the defendant's

conduct can be explained by other than fraudulent

intent, then the prosecution has not met its burden

of proof of fraudulent intent beyond a reasonable

doubt.”* (Emphasis added) (Footnotes omitted) Op.

cit., at p. 82.

Professor Coffee states:

“Nevertheless, before one accepts the equation that a

knowing fiduciary breach equals a ‘scheme to defraud’,

8. No such instruction was given in the instant case.

some troubling consequences with this proposition

need to be considered. Four stand out and will be

briefly examined below:

“(1) The concept of a fiduciary relationship is an

inherently vague one, which is far more expansive

than it first appears;

“(2) Significant differences exist among state ju-

risdictions in terms of the duties that fiduciaries owe,

thereby possibly creating significant disparities in

the coverage of federal criminal law depending upon

the applicable state civil law;

“(3) If the result of criminalization of fiduciary

breaches is also their federalization, this conflicts with

the principle of deference to state corporate law

which recent Supreme Court decisions have estab-

lished;

“(4) Perhaps most important, the ‘internal affairs’

rule of corporate law under which the law of the

jurisdiction of incorporation controls as to all intra-

corporate disputes seems unreconcilable with the

policies underlying the traditional criminal law rule

that one jurisdiction will not enforce the penal statutes

of another.” Coffee, op. cit., at p. 150.

Coffee suggests as a solution to the problem a “causa-

tion” standard and a requirement that federal law enforce-

ment should not ensue until after state and private rem-

edies have been exhausted.

In the instant case, did the law of Kansas impose upon

Petitioner, who was the operating head of his pharmacy,

a corporation, a duty to know and properly interpret the

regulations governing the Kansas Medicaid program and

to check personally the forms and data submitted by one

of his employees? In fact, there was no evidence that

any Kansas law imposed any such duty upon Petitioner.

Review of this case would provide the lower courts,

prosecutors, defendants and their lawyers with some

clear idea of what acts are criminal under the mail fraud

and false statement statutes.

And see generally, Morano, op. cit., at pp. 60-75; Coffee,

op. cit., pp. 130-42; and Hurson, op. cit., pp. 444-448, dis-

cussing the broad reach of judicial decisions under the

mail fraud statute interpreting a fiduciary duty to dis-

close. Hurson views the status of judicial decisions thusly:

“What emerges from this review is the absence of

meaningful judicial limitation on the mail fraud statute.

Hundreds of convictions have been affirmed for the

handful that have gone awry. Few courts have chosen

to grapple with what constitutes a ‘scheme to defraud’.

The most one can conclude is that, motivated by con-

victions that seem unfair to begin with, some courts

have felt compelled to find that certain facts do not

constitute such a scheme. The expansive growth of

the statute has proceeded apace.” At p. 448.

The importance of resolving these issues is illustrated

by the fact that for the fiscal year ending June 30, 1981,

some 4,276 defendants were charged with fraud in the fed-

eral court, excluding income tax fraud. See Table H 15,

p. H-30, “Federal offenders in the United States District

Courts” (1981), Administrative Office of U.S. Courts. Sta-

tistics published by the Department of Justice show that

in fiscal 1981, filings under the mail and wire fraud statutes

accounted for 3.8% of the toial criminal filings. (See U.S.

Attorneys Office, Statistical Report, Fiscal Year 1981,

Table 3). The administrative office of the U.S. Courts

shows, for the fiscal year ended June 30, 1981, that some

857 defendants were charged with violation of 18 U.S.C.

Section 1341. Pp. 116, 118, “United States District Courts

Sentences Imposed Charts’, Administrative Office of U.S.

Courts.

This Court has recently recognized the problems pre-

sented in this case in other contexts. In this term, this

Court has granted certiorari to decide (1) the question

whether or not, under the anti-fraud provisions of the

Federal Securities Laws, fiduciary duties may be imposed

upon securities analysts: Dirks v. Securities & Exchange

Commission, 681 F.2d 824 (D.C. Cir. 1982), cert. granted,

No. 82-276 (Nov. 15, 1982), and (2) the question of the

reach of 18 U.S.C, Section 2113(b) (Federal bank robbery

statute), i.e., does it reach fraud by false pretenses and/or

does the rule of lenity require a narrower construction

so as to prohibit application of the statute where there is

no sufficient (at common law) evidence of false pretenses.

Bell v, U.S., 678 F.2d 547 (5th Cir. 1982) (en banc), cert.

granted, Case No. 82-5119, Nov. 29, 1982. Since this case

involves the imposition of criminal sanctions in the fi-

duciary setting, this case likewise demands that certiorari

be granted. And, in another case involving the construc-

tion of the mail fraud statute in the political context, this

Court now has before it the case of Margiotta v. U.S., 688

F.2d 108 (2nd Cir. 1982), petition for certiorari pending,

Case No, 82-1126, filed Jan. 4, 1983. The Margiotta case

involves somewhat similar issues to the instant case in

that, over a strong dissenting opinion, the Second Circuit

found that a federal fiduciary duty should be imposed

upon a political leader for purposes of the mail fraud

statute even though state law arguably imposed no such

duty.

In short, because this case involves issues of great im-

portance to the criminal! justice system, and to settle many

questions concerning the application of a federal fiduciary

duty in the criminal law context, this Honorable Court

should grant certiorari to review Petitioner’s conviction.

II.

The decision below is inconsistent with this Court’s

prior decisions and is in conflict with other Circuits.

A. The decision below holding that there is a

federal fiduciary duty is inconsistent with this Court’s

prior decisions.

The Court of Appeals Decision is in direct conflict with

applicable decisions of this Court. The Court has held that

there is no federal general common law. Erie R. Co. v.

Tompkins, 304 U.S. 64, 78 (1938). This Court has also

held that there is no federal common law of crimes to be

developed by the federal courts. Parratt v. Taylor, 451

U.S. 527, 531 (1981). This Court has refused to create fed-

eral fiduciary standards under the anti-fraud provisions of

Rule 10(b)-5 of the Federal Securities Act. Santa Fe In-

dustries, Inc. v. Green, 430 U.S. 462 (1977). The Court

in Santa Fe, held that:

“There may well be a need for uniform federal fidu-

ciary standards ... (b)ut those standards should not

be supplied by judicial extension of 10(b) and Rule

10(b)-5....” Id., at 479-80.

This Court has also held that the mail fraud statute

cannot be used to make criminal conduct that is not “in the

nature of deceit or fraud as known to the law or yenerally

understood.” Fasulo v. U.S., 272 U.S. 620, 629 (1926).

This Court has also held that any expansion of the mail

fraud statute “must... (be) at the initiative of Congress

and not of this Court.” U.S. v. Maze, 414 U.S. 395, 405, n.

10 (1974).

By imposing a federal fiduciary standard upon Peti-

tioner where none was expressly imposed by federal or

state law or regulation, the Tenth Circuit’s Opinion is

thus in conflict with decisions of this Court.

B. The decision of the Tenth Circuit is also in

direct conflict with other Circuits which have held that

mere constructive fraud, as opposed to actual fraud,

cannot constitute a violation of the mail fraud statute.

In Epstein v. U.S., 174 F.2d 754, at p. 765 (6th Cir.

1949), the Court stated as follows:

“Courts speak of actual or active fraud as contrasted

with constructive fraud. Actual fraud has been de-

fined as intentional fraud, consisting in deception in-

tentionally practiced to induce another to part with

property or to surrender some legal right, and which

accomplishes the end designed. It requires intent to

deceive or defraud. Goodrich v. Waller, 324 Mich.

456, 22 N.W.2d 862; Stern v. National City Co., D.C.,

25 F.Supp. 948. To constitute actual fraud, there must

be such a fraud as affects the conscience. Lake Hia-

watha Park Association v. Agricultural Society, 28

Ohio App. 289, 162 N.E. 653. Constructive fraud is a

breach of legal or equitable duty which, in spite of the

fact that there is no moral guilt resulting from the

breach of duty, the law deciares fraudulent because

of its tendency to deceive others, to violate public or

private confidence, or to injure public interests.

Goodrich v. Waller, supra; Stern v. National City Co.,

supra. Constructive fraud may be found merely from

the relation of the parties to a transaction or from cir-

cumstances and surroundings under which it takes

place. Lake Hiawatha Park Association v. Agricultural

Society, supra. It is said that constructive fraud is a

term that means, essentially, nothing more than the

receipt and reteution of unmerited benefits. Olitkow-

ski v. Loan Association, 302 Mich. 303, 4 N.W.2d 664.

“In order to prove a scheme to defraud under the

mail fraud statute, there must be proof of a scheme

embracing active or actual fraud. A charge of using

the mails to carry out a scheme to defraud cannot be

maintained on proof of mere constructive fraud. In

Shushan v. U.S., 5 Cir., 117 F.2d 110, 115, which

was a case concerned with a fraudulent scheme to bribe

public officials to secure excessive fees from the state,

the court, in holding that this constituted an active

fraud, said: ‘We agree with appellants that the con-

structive frauds which equity in civil cases sometimes

sets up to do justice will not suffice under this crim-

inal statute; and that there must be a purpose to do

wrong which is inconsistent with moral uprightness.’

The same rule was emphasized and the foregoing

statement adopted by the court in the subsequent case

of Bradford v. U.S., 5 Cir. 129 F.2d 274.”

The Court in Epstein held that a mere nondisclosure of

certain facts concerning a conflict of interest cannot con-

stitute actual fraud. This doctrine has been followed in

several circuits: In the Eighth Circuit where the Court

held in U.S. v. McNeive, 536 F.2d 1245, 1250, 1251 (8th

Cir. 1976) (the Court held, inter alia, not every breach

of fiduciary duty makes a criminal fraud; no duty on part

of plumbing inspector for city to disclose receipt of “tips”

to city; no violation of mail fraud statute where there were

no material misrepresentations to city regarding receipt

of gratuities); see also U.S. v. Rabbitt, 583 F.2d 1014, 1024,

1026 (8th Cir. 1978), cert. denied, 439 U.S. 1116 (1979)

(mail fraud convictions of state legislator reversed where,

inter alia, court found no certain standard of conduct re-

quiring a legislator to disclose interest in certain contracts),

The District of Columbia, the Second and Seventh Cir-

cuits, while giving lip-service to the Epstein doctrine, have

nonetheless effectively rejected constructive fraud as a

defense. See, e.g., U.S. v. Barta, 635 F.2d 999, 1005 (2nd

Cir. 1980), cert. denied, 101 S.Ct. 1703 (1981) (what trans-

forms a mere fiduciary breach into a criminal offense is a

violation of a duty to disclose); U.S. v. George, 477 F.2d

508, 512 (7th Cir.), cert. denied, 414 U.S. 827 (1973); Post

v. U.S., 407 F.2d 319, 329, n. 59 (DC Cir. 1968), cert. denied,

393 U.S. 1092 (1969). The Fifth Circuit in U.S. v. Ballard,

663 F.2d 534 (5th Cir. 1981), modified on reh’g, 680 F.2d

352 (5th Cir. 1982), citing Epstein with approval, reversed

mail fraud convictions but held that a breach of fiduciary

duty is fraud where detriment is shown, and detriment

could consist of duty to disclose material information.

The Fourth Circuit in U.S. v. Mandel, 591 F.2d 1347 (4th

Cir.), aff'd in relevant part on reh’s en banc, 602 F.2d 653

(4th Cir. 1979), cert. denied, 445 U.S. 961 (1980) held that

a failure of public official to disclose material information

can constitute a breach of fiduciary duty but is not enough

for a mail fraud conviction; there must in addition be some

“actionable fraud”.

This Honorable Court should grant review of this

case to decide the applicability and meaning of the doctrine

of constructive fraud as there is a conflict in the circuits

on this issue.

C. The decision of the Tenth Circuit conflicts

with the decisions of this Court and other Circuits as

regards its interpretation of 18 U.S.C. Section 1001,

and, by implication, 18 U.S.C. Section 1341.

The false statement charges in Counts 11-14 of the

Indictment related to the fact that the placement of Pe-

titioner’s pharmacy provider number on the claim forms

was a knowing and intentionai false representaiion.

The government is required, where an allegedly false

statement is arguably ambiguous, to offer proof negating

any reasonable interpretation that would make the state-

ment true. If the defendant has not intended by his

statement to assert the proposition which the government

has alleged to be false, he cannot ordinarily be said to

have knowingly uttered a false statement. U.S. v. An-

derson, 579 F.2d 455 (8th Cir. 1978), at pp. 459-60; U.S. v.

Diogo, 320 F.2d 898 (2nd Cir. 1963). In determining

whether a statement is made with the knowledge of its

falsity, the courts have held that they must look to the

meaning intended by the defendant rather than to the

interpretation of the statements which the authorities

did in fact make, or even to the interpretation which

the authorities might reasonably have made. U.S. v. Diogo,

supra, 320 F.2d 905-906.

In the instant case, the government to prove its false

statement charges elicited from one of its witnesses that

the intent of the form as to the space provided for the

“provider number” was the place where the prescriptions

were filled and thus Petitioner’s claim forms were false

but produced no evidence as to what Petitioner or his

employees intended. All of Petitioner’s evidence was to

the effect that the entries were made to show that Peti-

tioner’s pharmacy was the provider submitting the claim.

Neither the form itself, nor federal or state law or regu-

lations stated what the forms should state. The govern-

ment thus failed to meet its burden under the cases. The

Tenth Circuit overlooked this point.

This Court has held, in a perjury prosecution under

18 U.S.C. Section 1621, that an unresponsive answer which,

though, literally true on its face, was untrue by negative

implication could not serve as a predicate for a perjury

conviction under the statute. U.S. v. Bronston, 409 U.S. 352

(1972). Several courts have relied on Bronston to hold

that there was insufficient evidence in 18 U.S.C. Section

1001 prosecutions. U.S. v. Clifford, 426 F.Supp. 696 (EDNY

1976); U.S. v. Vesaas, 586 F.2d 101 (8th Cir. 1978); U.S.

v. Anderson, op. cit.; U.S. v. Race, 632 F.2d 1114 (4th

Cir. 1980).

This Court should also, as a restriction upon the reach

of 18 U.S.C. Section 1341, apply this same body of law

that has developed under 18 U.S.C. Section 1001 to the

instant mail fraud offenses in circumstances such as the

instant case where prosecutions under 18 U.S.C. Section

1341 are bottomed upon allegedly false statements. To

so construe the statute would permit the mail fraud

statute to be applied to a defendant within the confines

of due process of law and fair notice as required under

the Fifth and Sixth Amendments to the United States

Constitution.

III.

The decision below is in conflict with the Fifth

and Sixth Amendment rights to fair notice and warn-

ing, with prior decisions of this Court, and with the

decision of at least one other Circuit.

This Court has held that crimes which are punishable

by statute must be definitely defined. Aptheker v. Sec-

retary, 378 U.S. 500 (1964). A person acting within the

scope of the law must have fair warning of the proscribed

conduct. Rowan v. U.S. Post Office, 397 U.S. 728 (1970).

Crimes cannot be created by inference nor can they be

constructed nunc pro tunc. U.S. v. Laub, 385 U.S. 475

(1966). An act which was not proscribed by statute

both at the time of the offense and at the time of the

prosecution cannot be prosecuted. Bouie v. Columbia,

378 U.S. 347 (1964).

As one author has noted in the context of the mail

fraud statute:

“Invocation of fiduciary fraud to justify Section 1341

conviction violates not only substantive due process

(since it equates moral notions of ‘disloyalty’, ‘faith-

lessness’, and ‘subordination of the interest of another

towards whom one has a duty in the pursuit of one’s

own interest’ with criminal conduct) but also pro-

cedural due process. The Sixth Amendment requires

that criminal offenses be precisely defined to provide

reasonable forewarning of what acts are criminal and

what are not. Furthermore, to prevent arbitrary and

discriminatory enforcement, the laws must provide

explicit standards for those who apply them.

“The courts, however, have deliberately left the mean-

ing ‘scheme to defraud’ so vague and all-encompassing

that any deceptive conduct in which there has been

an incidental mailing fits this procrustean statute.”

(Footnotes omitted) Morano, op. cit., pp. 77-78.

This Court has also held that, where there is an am-

biguity concerning the ambit of a criminal statute, any such

ambiguity should be resolved in favor of lenity. See, U.S.

v. Bass, 404 U.S. 336 (1971); Williams v. U.S., 458 U.S.

aaaian (1982) (check not a false statement under 18 U.S.C.

Section 1014; Rule of Lenity requires reversal of conviction

where the scope of the statute is ambiguous; this Court

rejected interpretation of the statute which “would make

a surprisingly broad range of unremarkable conduct a vio-

lation of federal law.”). Certainly, there was ambigu-

ity in the instant case as to whether or not there was a

fiduciary duty to disclose and whether there was, in fact,

a scheme to defraud.

The situation in this case is quite similar to that in

U.S. v. Porter, 591 F.2d 1048 (5th Cir. 1979). Both cases

involve payments for Medicaid services under plans allow-

ing for variable reimbursement rates to providers and the

government charged in both cases that by a scheme to

defraud and through the use of false statements, the de-

fendants obtained higher reimbursements than they were

entitled to receive. In both cases, the government con-

tended that the defendants were placed on notice of their

wrongful conduct through non-statutory and non-regula-

tory methods. When the Porter court directed the govern-

ment to produce a statute or a regulation prohibiting de-

fendants’ conduct, the government failed to do so. This

failure was fatal to the government’s charges. As ex-

plained by the Court (at pp. 1057-1058):

“The response failed to identify any statute or reg-

ulation which prohibited physicians from receiving

handling fees from the labs. Instead, the government

asserted that ‘(d)uring the time period covered by the

indictment, the Medicare carrier provided that charges

for the drawing or handling of blood should be sub-

mitted by a physician to the carrier as a separate

charge. ...’ The two exhibits cited by the govern-

ment are a March, 1974 Blue Shield publication en-

titled ‘Medicare Notes’, which outlined the procedure

to be followed when doctors bill Medicare for lab tests,

and an August 27, 1979 letter from Blue Shield on the

same subject. Neither letter prohibited doctors from

receiving payments from labs, and, even if there had

been some proof at trial that these defendants had

received and read these documents, and there was no

such proof, we do not think that mere letters from Blue

Shield could form the basis for a criminal prosecution.

In short, no statute or regulation formed the basis for

the allegation in paragraph 10 of the indictment.

“We must hold that the indictment failed to charge a

conspiracy to defraud the United States and that the

government failed to prove any such conspiracy at

trial.” (Footnote omitted)

The Mail Fraud Counts

“It necessarily follows that Counts 2 through 67 of the

indictment failed to charge the defendants with mail

fraud in violation of 18 U.S.C. Section 1341. That

statute prohibits the use of the mails for the purpose

of executing any scheme or artifice to defraud, and

the indictment charged that the defendants ‘did know-

ingly, wilfully and unlawfully devise and intend to

devise a scheme and artifice to defraud the United

States ... of its right to have its Medicare programs

for providing health insurance to the aged . . . con-

ducted honestly, fairly, impartially, and free from

deceit, craft, trickery, corruption, dishonesty, fraud and

kickbacks . .. .’ No other scheme to defraud was

charged and proved, and there are no persuasive rea-

sons for analyzing a crime of defrauding the United

States in a different manner under Section 1341 than

we have previously done under Section 371. There-

fore, the mail fraud convictions of the appellants are

reversed.”

The same situation exists in Petitioner’s case. No

statute or regulation prohibited the defendants from using

Petitioner’s pharmacy’s provider number to bill for Medi-

caid prescriptions filled at the clinic pharmacy. While it

may be that this was not the way SRS intended its system

to work, uncodified ideas of state officials, like the ‘“Medi-

care Notes” mentioned in Porter, cannot constitute the type

of notice of unlawful conduct required for a criminal pros-

ecution.

This conclusion applies by implication to the false

statement charges alleged in Counts 11-14 of the Infor-

mation: that placing Petitioner’s pharmacy’s provider

number in the space on the form labeled “pharmacy num-

ber” (ROA, Vol. 2, Exhibits 11-14) constituted a false state-

ment because it misrepresented that the prescriptions set

forth on the form were filled at Petitioner’s pharmacy

rather than at the Central Clinic.

There is presumed in this false statement charge a

requirement that the space on the form labeled “pharmacy

number” identified the number of the pharmacy where

the prescription is filled, rather than the number of the

pharmacy submitting the claim. As stated supra, no such

requirement existed in any federal or state statute or regula-

tion, including KAR 30-5-21 or 30-5-26, supra. Without

such a requirement, the form itself becomes the only point

of reference to what is meant by “pharmacy number” and

the form is silent on the point. Since the “pharmacy num-

ber” placed on the form was Petitioner’s pharmacy’s, there

is no fraudulent statement because there was nothing to

instruct or warn a user of the form that the “pharmacy

number” must be the provider number of the pharmacy

where the prescription is filled, not the provider number of

the pharmacy submitting the claim.

In this situation, the mere existence of 18 U.S.C.

Sections 1001 and 1341 was not sufficient to warn the Peti-

tioner. Since the requirements relied upon by the govern-

ment® did not exist as a matter of undisputed fact, then

as a matter of law the mail fraud statute did not afford

Petitioner a constitutionally-adequate warning of pro-

hibited conduct. For similar reasons, as a matter of law

the allegations contained in both the mail fraud and false

statement counts of the Information fail to state an offense.

As stated by the Court in Porter (at p. 1053):

“.., If there is a fair doubt as to whether a defendant’s

conduct is embraced in the prohibition, the policy of

lenity requires that the doubt be resolved in favor of

9. See footnote 5, supra.

the accused. Ladner v. U.S., 358 U.S. 169, 178, 79

S.Ct. 209, 3 L.Ed.2d 199 (1958).”

To like effect, see Hammer v. U.S., 134 F.2d 592

(5th Cir. 1943). The Tenth Circuit, also, in U.S. v. Alvarez,

a case with similar facts to the instant case, in an opinion

“not for routine publication”, reversed Medicare/Medicaid

fraud charges, citing U.S. v. Porter, Case Nos. 79-1806,

79-1807, March 3, 1981, pet. for reh’g denied, Jan. 18, 1983.

The same panel which decided the instant case decided

Alvarez.

CONCLUSION

For the reasons stated, the Petition should be granted.

Respectfully submitted,

JAMES R. WyRSCH

KoENIGSDORF, KUSNETZKY & WyYRSCH

Counsel of Record

1050 Home Savings Building

1006 Grand Avenue

Kansas City, Missouri 64106

(816) 221-0080

Attorneys for Petitioner

Of Counsel:

Mont! L. BELoT

WEEKS, THomMaAsS & LYSAUGHT, CHARTERED

420-14 Corporate Woods

8717 W. 110 Street

P.O. Box 12245

Overland Park, Kansas 66212

(913) 642-7770

(April —_, 1983)

APPENDIX

APPENDIX A

[Editor’s Note: The opinion of the United States Court

of Appeals, Tenth Circuit in United States v. Goldstein

published at this citation, 649 F.2d 799-808 was withdrawn

from bound volume because rehearing is pending.]

UNITED STATES of America,

Plaintiff-Appellee,

Vv.

Lawrence GOLDSTEIN, Richard I.

Silberg, and Frank J. Jones,

Defendants-Appellants.

Nos. 79-1769 to 79-1771.

United States Court of Appeals,

Tenth Circuit.

Argued and Submitted Nov. 17, 1980.

Decided May 22, 1981.

Defendants were convicted in the United States Dis-

trict Court for the District of Kansas, Earl E. O’Connor, J.,

of mail fraud, of making false statements and of unautho-

rized distribution and possession of controlled substances

and they appealed. The Court of Appeals, Seymour, Cir-

cuit Judge, held that: (1) dispensing of controlled sub-

stances by registered practitioners for valid medical reasons

did not constitute unauthorized distribution and possession

of controlled substances, even though the controlled sub-

stances were dispensed from an unregistered location; (2)

evidence sustained conviction for mail fraud; and (3) with

respect to charge that defendant had made false statement

as to matter within jurisdiction of department or agency

of United States, trial court properly decided as matter

of law the issue of whether the false statements were

made in matter within jurisdiction of United States.

Affirmed in part and reversed in part.

1. Criminal Law (Key) 1169.1(2)

In prosecution based on scheme to defraud state and

United States by making false claims for payments for

drugs under state medicaid program, wherein Government

began by describing fraudulent scheme as intent by defen-

dants to recover higher reimbursement fees than those to

which they were entitled, no prejudicial error was com-

mitted when, in response to defendants’ claim made at

trial that place where goods were dispensed was not a

pharmacy under state law, Government was allowed to

offer evidence to show that defendants were entitled to

no reimbursement at all for prescriptions not filled at

licensed pharmacy. 18 U.S.C.A. §§ 1001, 1341.

2. Drugs and Narcotics (Key) 73

Only drug transactions occurring outside legitimate

distribution channels may be prosecuted under statute

prescribing unauthorized distribution and possession of

controlled substances. Comprehensive Drug Abuse Pre-

vention and Control Act of 1970, § 401(a)(1), 21 U.S.C.A.

§ 841(a) (1).

3. Drugs and Narcotics (Key) 73

Dispensing of controlled substances by registered

practitioners for valid medical reasons did not constitute

unauthorized distribution and possession of controlled sub-

stances, even though the controlled substances were dis-

pensed from an unregistered location. Comprehensive

Drug Abuse Prevention and Control Act of 1970. § 401

(a)(1), 21 U.S.C.A. § 841(a) (1).

4. Post Office (Key) 35

Application of mail fraud statute was not improper

on theory that, since the fraud involved violation of state

statute, the province of the state was invaded. 18 U.S.C.A.

§ 1341.

5. Post Office (Key) 49(11)

Evidence sustained conviction for mail fraud by mail-

ing medicaid drug reimbursement claim that deliberately

misstated the facts, or aided and abetted in such mis-

statement, in order to receive medicaid reimbursement

at rate higher than permitted by regulations. 18 U.S.C.A.

§ 1341.

6. Criminal Law (Key) 738

Where intent is element of crime charged, issue is

strictly one for jury which must determine whether de-

fendant knew his conduct was illegal and must weigh

evidence and draw reasonable inferences therefrom in

making its judgment, and in so doing, determination of

credibility is jury’s function.

7. Criminal Law (Key) 1144.13(2)

Appellate court must view evidence and all its rea-

sonable inferences most favorably to verdict in deter-

mining whether substantial evidence supports it.

8. Fraud (Key) 69(6)

With respect to charge that defendant had made false

statement as to matter within jurisdiction of department

or agency of United States, trial court properly decided

as matter of law the issue of whether the false statements

were made in matter within jurisdiction of United States.

18 U.S.C.A. §§ 2, 1001.

Monti L. Belot of Weeks, Thomas, Lysaught & Mus-

tain, Chartered, Kansas City, Kan., for defendant-appellant

Lawrence Goldstein.

Thomas A. Hamill of Hamill, Lentz, Neill & Dwyer,

Shawnee Mission, Kan., for defendant-appellant Richard

I. Silberg.

Michael Lerner of Barnett & Lerner, Chartered, Kan-

sas City, Kan., for defendant-appellant Frank J. Jones.

John Oliver Martin, Asst. U. S. Atty., Kansas City,

Kan. (James P. Buchele, U. S. Atty., Kansas City, Kan.,

with him, on brief), for plaintiff-appellee.

Before SETH, Chief Judge, and BARRETT, and SEY-

MOUR, Circuit Judges.

SEYMOUR, Circuit Judge.

These companion appeals arise from the convictions

of defendants Lawrence Goldstein, Richard Silberg and

Frank Jones on ten counts of mail fraud in violation of

18 U.S.C. §§ 2, 1341, and four counts of making false

statements in violation of 18 U.S.C. §§ 2, 1001. In addition,

defendants were convicted of one count of unauthorized

distribution and possession of controlled substances in

violation of 21 U.S.C, § 841(a)(1). We affirm in part

and reverse in part.

Defendants were charged with devising a scheme to

defraud the the state of Kansas and the United States

by making false claims for payments under the Kansas

medicaid program. Defendants were also charged with

distributing drugs from a pharmacy not registered as re-

quired by the United States Drug Enforcement Adminis-

tration (DEA). The alleged fraudulent scheme involved

the clinic of Dr. Jones, an osteopathic physician. Gold-

stein, a pharmacist registered with the DEA and the state

of Kansas, owned the Morrow & Keeling pharmacy, which

was also registered in compliance with federal and state

law. Morrow & Keeling was located several blocks from

Jones’ clinic. Silberg, a registered pharmacist, was em-

ployed by Goldstein as the manager of Morrow & Keeling.

The Morrow & Keeling pharmacy was a participant

in the Kansas medicaid program. Pursuant to the relevant

Kansas regulations, reimbursement under the program

was provided only for drugs prescribed by the recipient’s

attending physician and dispensed in a licensed pharmacy

by a licensed pharmacist. Providers of pharmaceutical

items under the medicaid program were reimbursed by

the state according to a payment formula based on each

individual pharmacy’s operating costs. Each pharmacy

was required to submit yearly data from which the state

determined the appropriate fee. Doctors who themselves

filled prescriptions could not be reimbursed under the

program for the drugs they provided except under circum-

stances not relevant here.

Dr. Jones operated the Riverside Clinic in Kansas

City, Missouri, and the Central Clinic in Kansas City,

Kansas, We are concerned here with the operation of

the Central Clinic. During the relevant time, the River-

side Clinic was registered to possess controlled substances

pursuant to federal and state law; the Central Clinic was

not so registered. Dr. Jones himself was registered to

prescribe controlled substances. Shipments of controlled

drugs were received at the Riverside Clinic and trans-

ferred as needed to the Central Clinic.

In the fall of 1975, Goldberg and Dr. Jones reached

an “greement under which Morrow & Keeling maintained

a stock of drugs at the Central Clinic. Dr. Jones hims«lf

filled prescriptions for medicaid recipients from this stock.

However, Morrow & Keeling submitted the claims for

medicaid reimbursement for these drugs using its own

provider number. Dr. Jones received a dispensing fee of

25¢ for every prescription that was processed this way.

The fee was later raised to 50¢.

In March of 1977, Gilbert Emick, a registered phar-

macist employed by Morrow & Keeling, began to work

at the Central Clinic two days a week, filling prescriptions

from the Morrow & Keeling stock at the clinic and sub-

mitting medicaid claims on the Morrow & Keeling number.

These claims were authorized by Silberg, the manager

of Morrow & Keeling, who also prepared the yearly phar-

macy cost studies that the state required each pharmacy

claiming medicaid reimbursement to submit. Silberg re-

ceived a monthly salary plus 50% of the gross profits of

the store. In 1975 Medicaid reimbursed Morrow & Keeling

$31,862, which represented payment for 5,706 claims.

Medicaid paid Morrow & Keeling $189,319 for 31,231 claims

in 1976, $282,375 for 44,406 claims in 1977, and $282,058

for 39,435 claims in 1978. During this period Dr. Jones

received a total of approximately $27,195 in payments

from Morrow & Keeling, representing some 60,000 pre-

scriptions.

[1] The essence of the fraudulent scheme charged

by the Government in the section 1341' counts is that

1. The mail fraud statute provides in pertinent part:

“Whoever, having devised or intending to devise any

scheme or artifice to defraud, or for obtaining money or

property by means of false or fraudulent pretenses, repre-

sentations, or promises, . . . for the purpose of executing

such scheme or artifice or attempting so to do, places in

any post office or authorized depository for mail matter,

any matter or thing whatever to be sent or delivered by

the Postal Service, or takes or receives therefrom, any such

matter or thing, or knowingly causes to be delivered by

mail according to the direction thereon, or at the place at

which it is directed to be delivered by the person to whom

it is addressed, any such matter or thing, shall be fined

not more than $1,000 or imprisoned not more than five

years, or both.”

18 U.S.C. § 1341.

by using the Morrow & Keeling provider number in sub-

mitting claims for prescriptions actually filled at the Cen-

tral Clinic, defendants were able to receive reimburse-

ments higher than those to which they were entitled, or

reimbursements for prescriptions excluded entirely from

medicaid coverage.” Each of the three defendants alleg-

edly agreed to the scheme, aided in its success, and ben-

efitted financially from it. The charges of making false

statements in violation of 18 U.S.C. § 1001° resulted from

defendants’ use of the Morrow & Keeling provider num-

ber, name, and address in the pharmaceutical claim forms

submitted for the Central Clinic prescriptions. The al-

leged violations of 21 U.S.C. § 841(a)(1)* rest on the fact

that the Central Clinic was not registered with the DEA

to possess or dispense controlled drugs.

2. We note defendant Silberg’s argument that prejudicial

error occurred when the Government presented an alternative

theory of fraud during the course of the trial. The Government

began by describing the fraudulent scheme as the intent by

defendants to recover higher reimbursement fees than those to

which they were entitled. In response to defendants’ position

at trial that the Central Clinic was not a pharmacy under Kansas

law, the Government offered evidence to show that the defendants

were entitled to no reimbursements at all for prescriptions not

filled at a licensed pharmacy. We find no prejudicial error in

allowing the Government to counter a defense expressly raised

by defendants, who can hardly claim surprise.

3. 18 U.S.C. § 1001 provides:

“Whoever, in any matter within the jurisdiction of any

department or agency of the United States knowingly and

willfully falsifies, conceals or covers up by any trick scheme,

or device a material fact, or makes any false, fictitious or

fraudulent statements or representations, or makes or uses

any false writing or document knowing the same to contain

any false, fictitious or fraudulent statement or entry, shall

be fined not more than $10,000 or imprisoned not more than

five years, or both.”

4. 21 U.S.C. § 841(a)(1) provides:

“(a) Except as authorized by this subchapter, it shall

be unlawful for any person knowingly or intentionally—

(1) to manufacture, distribute, or dispense, or possess

with intent to manufacture, distribute, or dispense, a con-

trolled substance... .”

We affirm defendants’ convictions on the counts al-

leging violations of 18 U.S.C. §§ 2, 1001, and 1341. How-

ever, we reverse their convictions on the count alleging

violations of 21 U.S.C. § 841(a)(1) and remand with

directions to dismiss that count.

The Section 841(a)(1) Count

Defendants Goldstein, Jones, and Silberg were all

properly registered with the DEA to dispense controlled

substances. The Government made no allegation in the

indictment and presented no evidence at trial that the

prescriptions written by Dr. Jones and filled at the Central

Clinic were not prescribed for legitimate medical purposes

in the usual course of professional treatment. Indeed,

the evidence showed that the drugs were properly dis-

pensed as part of Dr. Jones’ professional practice. How-

ever, the Central Clinic itself was not registered with

the DEA as a location to maintain controlled substances

until April 1978. Thus, the issue before us is whether

the dispensing of controlled substances by registered prac-

titioners for valid medical reasons is a violation of 21

U.S.C. § 841(a)(1) when the controlled substances are

dispensed from an unregistered location.

Defendants contend that their conduct does not consti-

tute an offense under section 841(a) (1) because the legis-

lative intent behind the enactment of that section was

to subject to prosecution only those persons, registered

and unregistered, who traffic in or “push” controlled sub-

stances by dispensing them for profit rather than in the

usual course of professional practice. They argue that

registered practitioners are not covered by section 841

unless they divert drugs from legitimate medical purposes.

The Government responds that the purpose of the

Controlled Substances Act, 21 U.S.C. §§ 801 et seq., is to

maintain complete control over all drug transfers by pro-

viding for a closed system of legitimate drug distribution.

An essential element of this closed system is registration.

The Government essentially contends that if any link in

the transfer of a controlled substance is not properly

registered, the transfer is not authorized and therefore

violates section 841(a) (1).

Section 841(a)(1) provides: ‘“[e]xcept as authorized

by this subchapter, it shall be unlawful for any person

knowingly or intentionally—(1) to manufacture, distrib-

ute, or dispense, or possess with intent to manufacture,

distribute, or dispense, a controlled substance... .” Au-

thorized activities are defined by 21 U.S.C. § 822(b) as

follows:

“Persons registered by the Attorney General under

this subchapter to manufacture, distribute, or dispense

controlled substances are authorized to possess, manu-

facture, distribute, or dispense such substances .. .

to the extent authorized by their registration and in

conformity with the other provisions of this subchap-

ter.”

We can find no case in which these provisions have been

construed in the precise factual setting presented by this

appeal. Numerous decisions of this and other circuits

have held that a physician or pharmacist who is registered

and who dispenses controlled substances in the usual

course of professional conduct is immune from prosecution

under section 841(a)(1). See, e. g., United States v.

Seelig, 622 F.2d 207, 213 (6th Cir. 1980), cert. denied,

isi USS. ......... 101 S.Ct. 206, 66 L.Ed.2d 89 (1981),

(“[RJegistered doctors (or other practitioners) are ex-

empt from criminal liability under § 841(a)(1) unless

Al0

they were acting outside the usual course of professional

practice.”); United States v. Smurthwaite, 590 F.2d 889,

891 (10th Cir. 1979); United States v. Kirk, 584 F.2d 773,

784 (6th Cir.), cert. denied, 439 U.S. 1048, 99 S.Ct. 726,

58 L.Ed.2d 708 (1978); United States v. Black, 512 F.2d

864, 868 (9th Cir. 1975); United States v. Bartee, 479 F.2d

484, 487 (10th Cir. 1973). This immunity has been in-

ferred either from 21 U.S.C. § 822(b) or from a joint

reading of 21 U.S.C. §§ 829(a), (b)° and 2i C.F.R. § 306.04

(a) (1973) (redesignated as 21 C.F.R. § 1306.04(a)

(1973) ).°

5. 21 U.S.C. § 829 in relevant part provides:

“(a) Except when dispensed directly by a practitioner,

other than a pharmacist, to an ultimate user, no controlled

substance in schedule II, which is a prescription drug as

determined under the Federal Food, Drug, and Cosmetic Act,

may be dispensed without the written prescription of a

practitioner, except that in emergency situations, as pre-

scribed by the Secretary by regulation after consultation with

the Attorney General, such drug may be dispensed upon oral

prescription in accordance with section 353(b) of this title.

Prescriptions shall be retained in conformity with the re-

quirements of section 827 of this title. No prescription for

a controlled substance in schedule II may be refilled.

“(b) Except when dispensed directly by a practitioner,

other than a pharmacist, to an ultimate user, no controlled

substance in schedule III or IV, which is a prescription drug

as determined under the Federal Food, Drug, and Cosmetic

Act, may be dispensed without a written or oral prescription

in conformity with section 353(b) of this title. Such pre-

scriptions may not be filled or refilled more than six months

after the date thereof or be refilled more than five times

after the date of the prescription unless renewed by the

practitioner.”

6. This regulation provides in pertinent part:

“A prescription for a controlled substance to be ef-

fective must be issued for a legitimate medical purpose by

an individual practitioner acting in the usual course of his

professional practice. The responsibility for the proper

prescribing and dispensing of controlled substances is upon

the prescribing practitioner, but a corresponding responsibility

rests with the pharmacist who fills the prescription. An

order purporting to be a prescription issued not in the usual

course of professional treatment or in legitimate and au-

(Continued on following page)

All

Although the courts have consistently limited pros-

ecution of registered practitioners under section 841 (a)

(1) to those acting outside the scope of legitimate medical

practice, the Government argues that these cases are not

controlling here because they do not involve dispensing

drugs from an unregistered pharmacy. This distinction

is not persuasive in view of the significant observations

made by the Supreme Court in United States v. Moore,

423 U.S. 122, 96 S.Ct. 335, 46 L.Ed.2d 333 (1975). There

the Court held that registered physicians can be pros-

ecuted under section 841 when their activities fall outside

the usual course of professional practice, reversing the

court of appeals decision that a physician is exempted

from prosecution by virtue of his status as a registrant.

But in so holding, the Court emphasized that “Congress

was concerned with the nature of the drug transaction,

rather than with the status of the defendant.” Id. at 134,

96 S.Ct. at 341. In fact, the Report of the Senate Judiciary

Committee on an earlier controlled substances act had

described the counterpart of § 841 as applying to “traf-

fickers.”” See id. The Court also pointed out that

“the penalty to be imposed for a violation was in-

tended to turn on whether the ‘transaction’ falls with-

in or without legitimate channels. All persons who

engage in legitimate transactions must be registered

and are subject to penalties under §§ 842 and 843

for ‘[mJore or less technical violations.’ HR Rep.

No. 91-1444, p. 10. But ‘severe criminal penalties’

were imposed on those, like respondent, who sold

Footnote continued—

thorized research is not a prescription within the meaning

and intent of section 309 of the Act (21 U.S.C. 829) and

the person knowingly filling such a purported prescription,

as well as the person issuing it, shall be subject to the

penalties provided for violations of the provisions of law

relating to controlled substances.”

Al2

drugs, not for legitimate purposes, but ‘primarily for

the profits to be derived therefrom.’”

Id, at 135, 96 S.Ct, at 342.

[2, 3] We find this language a clear indication that

only those drug transactions occurring outside legitimate

distribution channels may be prosecuted under section

841(a) (1). Accordingly, we hold that the transfers here

were not subject to the sanctions of that section. Whether

the defendants could have been properly charged under

another section of the Controlled Substances Act is not

before us. The convictions of defendants for violating

21 U.S.C. § 841(a) (1) are reversed.

II.

The Mail Fraud Counts

[4] Defendants contend that applying the mail fraud

statute, 18 U.S.C. § 1341, to the facts of this case was

constitutionally invalid because defendants did not have

fair warning that their conduct was criminal.’ They

correctly concede that a fraudulent scheme charged under

section 1341 need not violate state law. See, e. g., United

States v. Mandel, 591 F.2d 1347, 1361 (4th Cir. 1979),

cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236

(1980), and cases cited therein. Nonetheless, they argue

that where, as here, the fraudulent scheme arises out of

an activity regulated by the state, the relevant state law

7. We reject defendant Silberg’s argument that applying

the mail fraud statute was improper because it invaded the

province of the state. ‘Even if the substance of the scheme to

defraud involves matters normally within the purview of state

control or regulation, once the mails are utilized to effectuate

the scheme, the federal government has the right to prosecute

the schemer under the mail fraud statute.” United States v.

Mandel, 591 F.2d 1347, 1358 (4th Cir. 1979), cert. denied, 445

U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980).

Al3

and regulations must be shown to provide adequate notice

of prohibited conduct. They contend that the relevant

state regulations governing medicaid payments for phar-

maceutical items did not require the Central Clinic opera-

tion to have its own provider number, nor did they pro-

hibit Morrow & Keeling from submitting claims for drugs

dispensed at the Central Clinic under the Morrow &

Keeling provider number.

We begin by noting that defendants were charged

with the crime of mail fraud, not with violating the

Kansas medicaid program. The essence of an offense

under section 1341 is use of the mails to execute a fraud-

ulent scheme. See United States v. Allen, 554 F.2d 398,

408 (10th Cir.), cert. denied, 434 U.S. 836, 98 S.Ct. 124,

54 L.Ed.2d 97 (1977). In determining whether conduct

is to be considered a scheme to defraud we have stated

that “fraudulent representations, as the term is used in

18 U.S.C.A, § 1341, may be effected by deceitful statements

of half-truths or the concealment of material facts and

[that] the devising of a scheme for obtaining money or

property by such statements or concealments is within the

prohibition of the statute.” Id, at 410. The Kansas medic-

aid laws and regulations are relevant to the frauds charged

only insofar as they establish adequate guidelines under

which defendants should have known what material facts

they had a duty to disclose in claiming medicaid reim-

bursements.

Under Kansas law “the term ‘pharmacy’ means and

includes every drugstore or shop or other place where

(1) drugs are dispensed or sold at retail... .” Kan.Stat.

§ 65-1626(e). Webster’s Third New International Dic-

tionary (1976) defines “retail” as ‘the sale of commod-

ities or goods in small quantities to ultimate consumers.”

Thus, it appears that the Central Clinic operation was a

Al4

pharmacy under Kansas law. It is illegal to operate, main-

tain, open, or establish any pharmacy in Kansas without

first obtaining a permit from the state board of pharmacy.

Kan.Stat. § 65-1643(a). Furthermore, in 1975, a Kansas

regulation was adopted providing that “[n]o pharmacy

nor pharmacist shall have, participate in, or permit an

arrangement, branch, connection or affiliation whereby

prescriptions are solicited, accepted, collected, or picked

up... from or at any location other than a pharmacy

for which a registration in good standing has been issued

by the board.” Kansas Administrative Regulations

(K.A.R.) 68-2-16.

Under the Kansas medicaid regulations in effect dur-

ing the relevant periods in this case, pharmaceutical goods

eligible for state reimbursement were limited to drugs dis-

pensed in a licensed pharmacy. See K.A.R. 30-5-21. A

physician dispensing pharmaceutcials could not be reim-

bursed for such drugs unless he practiced in an area that

did not have a licensed pharmacy, Id. This exception

does not apply here. The fees paid to pharmacies for

medicaid prescriptions were “based upon the individual

pharmacy’s operating cost determined by data submitted

by the pharmacy plus a reasonable profit, subject to the

department’s budgetary limitations.” K.A.R. 30-5-26.

The above cited statutes and regulations plainly spec-

ified that medicaid claims could be submitted only for

prescriptions dispensed by a registered pharmacy. Those

dispensed by a physician under the present circumstances

were not eligible. The program created a duty in those

submitting medicaid claims to disclose the facts relevant

to a determination of eligibility, such as whether the pre-

scriptions were filled at a licensed pharmacy by a licensed

pharmacist.

Al5

We do not find persuasive defendants’ argument that

the pertinent Kansas regulations did not require the clinic

pharmacy to have its own provider number. The Kansas

medicaid program was designed to reimburse each “indi-

vidual pharmacy” with a dispensing fee corresponding

to the cost incurred by that pharmacy to fill each pre-

scription, The fee determination was based on such oper-

ating expenses as real estate taxes, rental, repairs, insur-

ance, and utilities fees. The medicaid program anticipated

that each separate physical location was to receive a fee

based on its own individual operating expenses. Thus

defendants had a corresponding duty to disclose operating

expenses for each individual location where medicaid pre-

scriptions were dispensed. Even assuming arguendo that

the regulations could be construed to permit a dispensing

fee based on the combined operating costs of the Central

Clinic and the Morrow & Keeling pharmacy, defendants

would nonetheless have had a duty to disclose those oper-

ating costs resulting from the dispensing of medicaid

prescriptions at the Central Clinic.

In summary, the Kansas medicaid program required

participants to disclose whether the prescriptions were

filled at a licensed pharmacy, whether they were filled

by a licensed pharmacist, and what operating expenses

were incurred at the physical location from which the

drugs were dispensed.” If defendants failed to disclose

those material facts intending thereby to aid the execution

of a fraudulent scheme, their conduct clearly falls within

section 1341.

8. Accordingly, we find this case factually distinguishable

from United States v. Porter, 591 F.2d 1048 (5th Cir. 1979). In

Porter the court found that no materally false statements were

filed concerning the claims made. See id. at 1055, 1057 n.7.

The regulations simply did not impose a duty tw disclose the

information allegedly forming the basis of the fraudulent scheme.

Here, to the contrary, the Kansas regulations did impose the

duties to disclose set out above.

Al6

[5-7] We therefore turn to defendants’ argument that

the evidence of intent to defraud was insufficient to sup-

port their convictions. Where intent is an element of the

crime charged, the issue is particularly one for the jury.

It is the jury’s province to determine whether a defendant

knew his conduct was an illegal act, and its duty to weigh

evidence and draw reasonable inferences therefrom in

making its judgment. In so doing, the determination of

credibility is the jury’s function. United States v. Dennett,

551 F.2d 261, 262 (10th Cir. 1977); United States v. Downen,

496 F.2d 314, 319 (10th Cir.), cert. denied, 419 U.S. 897,

95 S.Ct. 177, 42 L.Ed.2d 142 (1974). The appellate court

must view the evidence and all its reasonable inferences

most favorably to the verdict in determining whether sub-

stantial evidence supports it. United States v. Brinklow,

560 F.2d 1008, 1009 (10th Cir. 1977); Downen, 496 F.2d

at 318.

The evidence that substantially supports the jury’s

conclusion may be summarized as follows. It is undis-

puted that the Central Clinic was not licensed as required

by state and federal law. The existence of the clinic was

not revealed in the cost studies submitted by Morrow &

Keeling, even though a large percentage of the prescrip-

tions for which it submitted claims were filled there.

The payments made by Morrow & Keeling to Dr. Jones

were likewise not set out in the cost studies.” For many

months, Dr. Jones filled the prescriptions himself knowing

he could not have been reimbursed for them had he ap-

plied directly, because he did not have a provider number

for dispensing drugs. Thus, he agreed with Goldstein

and Silberg to seek reimbursement through Morrow &

9. Silberg testified that when he filled out the cost studies

he worked in the payments made to Dr. Jones “[a] little here

and a little there.” Rec, vol. 7, at 588, and that the payments

were never set out and identified as such. See id. at 586-89.

Al7

Keeling. From this evidence the jury could reasonably

infer that defendants deliberately misstated the facts, or

aided and abetted in such misstatement,’” thereby con-

cealing the existence of the Central Clinic operation from

the Kansas medciaid authorities.

The record contains evidence that the Morrow &

Keeling pharmacy received the maximum fee for each

prescription allowed to medicaid providers in fiscal 1976

and 1977: $2.25 and $2.35 respectively. A medicaid

provider who failed to submit the operating cost study

used to determine the fee could only receive reimburse-

ment based on the lowest filed fee for all pharmacies

submitting a cost report. This fee was $1.29 for fiscal

1976 and $1.30 for fiscal 1977. A new pharmacy with

less than six months of operating costs would receive

a fee based on the state-wide average. In fiscal 1976

this fee was $1.85, and in fiscal 1977 it was $2.00. Fur-

thermore, there were facts presented from which the jury

10. The jury was instructed under 18 U.S.C. § 2 that

“[w]hoever commits an offense against the United States,

or aids, abets, counsels, commands, induces or procures its com-

mission, is punishable as a principal.” Rec., vol, IX, at 893. We

believe this instruction was particularly pertinent to Dr. Jones

because he did not submit any medicaid claims for drug reim-

bursement directly to the state of Kansas. In United States v.

Taylor, 612 F.2d 1272, 1274 (10th Cir.), cert. denied 444 U.S.

1092, 100 S.Ct. 1060, 62 L.Ed.2d 782 (1980), we recently said:

“To be guilty of aiding and abetting, the defendant must

be found to have willfully associated himself in some positive

way with the criminal venture by showing that he has

joined the enterprise as something he wishes to bring about

and by seeking to make it succeed by some action on his

part.... However, ‘evidence of an act of relatively slight

moment may warrant a jury’s finding participation.’ United

States v. Garguilo, 310 F.2d 249 (2d Cir. 1962). It is

necessary only that the defendant knowingly associate him-

self in some way with the criminal venture in order to be

an aider and abetter. Nye & Nissen v. United States, 336 U.S.

613, 69 S.Ct. 766, 93 L.Ed. 919 (1949).”

It is for the jury to evaluate the evidence and to determine

whether a particular defendant willingly aided the commission

of a crime. See id. at 1276.

Al8

could have concluded that the operating expenses of the

Morrow & Keeling pharmacy were higher than those

resulting from the filling of prescriptions at the Central

Clinic, and that a dispensing fee based only on the oper-

ating costs of the Central Clinic would have been lower

than the fee assigned to Morrow & Keeling. From this

evidence the jury could reasonably have inferred that

defendants deliberately misstated the facts in their medic-

aid claims in order to receive medicaid reimbursement

at a rate higher than permitted by the regulations, “In-

tent may be inferred from conduct and circumstantial

evidence, upon which reasonable inferences may be based.”

United States v. Curtis, 537 F.2d 1091, 1097 (10th Cir.),

cert. denied, 429 U.S. 962, 97 S.Ct. 389, 50 L.Ed.2d 330

(1976).

The jury was properly instructed that an honest, good

faith belief that the conduct was lawful and legitimate

is a complete defense to the charge of mail fraud. It was

also instructed that a defendant who in good faith relies

on the advice of his attorney after a full and accurate

disclosure does not act with the intent necessary to com-

mit mail fraud. Defendants presented these defense

theories vigorously, but the jury rejected them. It is

the jury’s duty to assess credibility and to determine the

weight to be given any testimony. Downen, 496 F.2d

at 319. We have carefully reviewed the record, and we

conclude that substantial evidence supports the verdict.

III.

The False Statements Counts

Defendants were convicted on four counts of violating

18 U.S.C. §§ 2, 1001 by making a false statement, or by

aiding and abetting such crime, in a matter within the

jurisdiction of a department or agency of the United

States. The Government contends that defendants vio-

Alg

lated the statute by putting the Morrow & Keeling pro-

vider number, name, and address on the pharmaceutical

claim forms submitted for Central Clinic prescriptions.

We reject defendants’ claim that they lacked the intent

to commit the crime for the same reasons we sustained

the jury verdict on the mail fraud counts. Their argu-

ment that there was insufficient evidence to show the

location where the prescriptions were filled similarly lacks

merit.

[8] Defendants contend, in addition, that the false

statements were not made in a matter within the jurisdic-

tion of the United States. However, this court has held

that where the federal government reimburses a non-

federal agency and false statements are made on an

application for benefits under such a program, the juris-

dictional element of section 1001 is satisfied. See United

States v. Wolf, 645 F.2d 23, 24-25 (10th Cir. 1981); United

States v. Radetsky, 535 F.2d 556, 567-68 (10th Cir.), cert.

denied, 429 U.S. 820, 97 S.Ct. 68, 50 L.Ed.2d 81 (1976)

(prosecution under 18 U.S.C. § 1001 proper in case of

medicaid fraud). We also reject defendants’ argument

that the trial court improperly decided this issue as a

matter of law. Whether a statement established by the

evidence is within the jurisdiction of an agency or depart-

ment of the United States is a question of law to be

decided by the court. Gonzales v. United States, 286 F.2d

118, 123 (10th Cir. 1960). Accordingly, the convictions

on the false statement counts are affirmed.

We have carefully considered defendants’ remaining

contention that prosecutorial misconduct in closing argu-

ment created prejudice requiring a new trial. Our review

of the record reveals this claim to be without merit.

Defendants’ convictions under 21 U.S.C. § 841(a) (1)

are reversed. The convictions on the counts charging

violations of 18 U.S.C. §§ 2, 1341, and 1001 are affirmed.

A20

APPENDIX B

U.S. Constitution

Amendment V

No person shall be held to answer for a capital, or

otherwise infamous crime, unless on a presentment or

indictment of a Grand Jury, except in cases arising in

the land or naval forces, or in the Militia, when in actual

service in time of War or public danger; nor shall any

person be subject for the same offence to be twice put

in jeopardy of life or limb; nor shall be compelled in

any criminal case to be a witness against himself, nor

be deprived of life, liberty, or property, without due

process of law; nor shall private property be taken for

public use, without just compensation.

A21

APPENDIX C

U.S. Constitution

Amendment VI

In all criminal prosecutions, the accused shall enjoy

the right to a speedy and public trial, by an impartial

jury of the State and district wherein the crime shall

have been committed, which district shall have been

previously ascertained by Jaw, and to be informed of the

nature and cause of the accusation; to be confronted with

the witnesses against him; to have compulsory process

for obtaining witnesses in his favor, and to have the

Assistance of Counsel for his defence.

A22

APPENDIX D

Mail Fraud Statute

18 U.S.C. § 1341. Frauds and swindles

Whoever, having devised or intending to devise any

scheme or artifice to defraud, or for obtaining money or

property by means of false or fraudulent pretenses, repre-

sentations, or promises, or to sell, dispose of, loan, ex-

change, alter, give away, distribute, supply, or furnish

or procure for unlawful use any counterfeit or spurious

coin, obligation, security, or other article, or anything

represented to be or intimated or held out to be such

counterfeit or spurious article, for the purpose of ex-

ecuting such scheme or artifice or attempting so to do,

places in any post office or authorized depository for

mail matter, any matter or thing whatever to be sent

or delivered by the Postal Service, or takes or receives

therefrom, any such matter or thing, or knowingly causes

to be delivered by mail according to the direction thereon,

or at the place at which it is directed to be delivered

by the person to whom it is addressed, any such matter

or thing, shall be fined not more than $1,000 or imprisoned

not more than five years, or both.

A23

APPENDIX E

False Statement Statute

18 U.S.C, § 1001.

Whoever, in any matter within the jurisdiction of

any department or agency of the United States knowingly

and willfully falsifies, conceals or covers up by any trick,

scheme, or device a material fact, or makes any false,

fictitious or fraudulent statements or representations, or

makes or uses any false writing or document knowing

the same to contain any false, fictitious or fraudulent

statement or entry, shall be fined not more than $10,000

or imprisoned not more than five years, or both.

A24

APPENDIX F

K.A.R. 30-5-21 provides:

“Scope of pharmaceutical goods and services.

The scope of medical services provided to the cat-

egorically needy (including recipients of general assis-

tance) and the medically needy shall include pharma-

ceuticals as described below:

A. The recipient shall be entitled to legend drugs

or medications, except certain ineffective or possibly

effective drugs which at the discretion of the state

agency have been denied reimbursement under the

program and which are prescribed by his attending

physician or dentist or doctor of dental surgery and

which are dispensed in a licensed pharmacy by a

licensed pharmacist and which have been accepted

for inclusion on any formulary or drug listing which

might be adopted and distributed by the agency to

eligible providers of service, subject to the limitations

of 30-5-19H. The recipient shall be entitled to the

medication or devices outlined in 30-5-20J when or-

dered by the attending physician. Reimbursement

shall be made to the pharmacy only when the material

is prescribed by the attending physician. The recip-

ient shall be required to pay the first fifty cents ($.50)

of reimbursement due the pharmacy for each pre-

scription, new and refill, eligible for payment by the

state agency. The co-pay fee requirement shall not

be imposed on al! charges for services as exempted

by the provisions of Section 1905(a), clauses 1,2,3,4,

5 and 7 as made applicable by the provisions of 45

CFR 249.40; the aforesaid federal statutory and reg-

ulatory provisions, as stated on July 1, 1976, being

A25

herein adopted by reference. Selected nonlegend

drugs, devices and supplies will be payable when

prescribed by a physician and dispensed by a phar-

macist for the disease entities and conditions listed

below. All other nonlegend drugs are excluded from

payment.

1. Asthma and emphysema

Acute or subacute bronchitis and rhinitis

Pregnancy

Vitamin deficiencies

Digestive deficiencies

Anemia

Dermatologic Conditions

Allergic Conditions

Vasodilators

_—

Administrative devices

Diabetes

Stomach ulcers

Arthritis

14. Family planning medications and devices

—e —

- Ff >

1. In areas which do not have a licensed phar-

macy, a physician dispensing pharmaceuticals will be

paid for such drugs and medications after a drug

dispensing permit has been issued by the state de-

partment of social and rehabilitation services. Such

payment does not apply to injectable materials except

as included in the charge for the professional services

of the physician.”

K.A.R. 30-5-26 provides:

“Fees for pharmaceutical items. Pharmacies shall

be paid on the basis of acquisition cost of materials

plus a professional fee. The fees paid to pharmacies

shall be based upon the individual pharmacy’s oper-

ating cost determined by data submitted by the phar-

macy plus a reasonable profit, subject to the depart-

ment’s budgetary limitations. Acquisition cost is de-

fined as the allowable price determined by the state

for each covered drug in accordance with federal

regulations.

“The effective date for change of professional

fees shall be July 1 of each year based upon studies

of eosts for the previous calendar year. Failure or

refusal by a Kansas pharmacy, or when required of

out-of-state pharmacies to file cost reports will result

in the assignment to the pharmacy of a professional

fee equal to the lowest professional fee filed by any

Kansas pharmacy.

“Occasional out-of-state pharmacies will be re-

imbursed on the basis of cost plus the average pro-

fessional fee of Kansas pharmacies. Once the annual

volume of payments to out-of-state pharmacies reaches

a substantial level, the filing of cost schedules will

be required.

“The above payment formula will apply to eligible

legend drugs. Eligible non-legend drugs, when pre-

scribed by a physician, will be payable at acquisition

cost plus 50 percent plus 35¢ or acquisition cost plus

professional fee, whichever is lower.

“Physicians holding dispensing permits issued by

the department will be reimbursed at acquisition cost

plus a dispensing fee of $1.00. This pricing formula

A27

includes compounded prescriptions and over the

counter items but excludes injectables not intended

for self-administration by the recipient.

“Reimbursement to pharmacy providers will be

for the balance due after the determination of the

total charges appropriate for the services provided,

less the fifty cents ($.50) co-pay fee for each pre-

scription when applicable under the provisions of

K.A.R. 30-5-21. The pharmacy provider shall collect

the co-pay fee when appropriate.”

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.