United States v. Jones

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 11a0088p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellee, -
UNITED STATES OF AMERICA,
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No. 09-3664
v.
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Defendant-Appellant. -
HAROLD JONES,
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Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 08-00168-001—Dan A. Polster, District Judge.
Argued: March 10, 2011
Decided and Filed: April 12, 2011
Before: KENNEDY and MARTIN, Circuit Judges; MURPHY, District Judge.*

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COUNSEL
ARGUED: Brian P. Downey, SCHWARTZ DOWNEY & CO., L.P.A., Cleveland,
Ohio, for Appellant. Laura McMullen Ford, ASSISTANT UNITED STATES
ATTORNEY, Cleveland, Ohio, for Appellee. ON BRIEF: Brian P. Downey,
SCHWARTZ DOWNEY & CO., L.P.A., Cleveland, Ohio, for Appellant. Laura
McMullen Ford, ASSISTANT UNITED STATES ATTORNEY, Cleveland, Ohio, for
Appellee.
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OPINION
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BOYCE F. MARTIN, JR., Circuit Judge. Defendant-appellant Harold Jones
appeals the sufficiency of the evidence supporting his convictions and his sentence. For

*
The Honorable Stephen J. Murphy, III, United States District Judge for the Eastern District of
Michigan, sitting by designation.

1
No. 09-3664 United States v. Jones Page 2

the following reasons, we AFFIRM Jones’s convictions, but VACATE his sentence and
REMAND for resentencing.

I. BACKGROUND

Harold Jones is a podiatrist who served a large, mostly elderly client base in
Cleveland, Ohio. On April 9, 2008, a grand jury in United States District Court for the
Northern District of Ohio indicted Jones with twenty-seven counts of mail fraud in
violation of 18 U.S.C. § 1341, twenty-three counts of healthcare fraud in violation of
18 U.S.C. § 1347, and four counts of aggravated identity theft in violation of 18 U.S.C.
§ 1028(a). Upon motion by the United States, the court dismissed two counts of
healthcare fraud and all of the identity theft counts. Jones proceeded to trial by jury on
the remaining charges. The jury convicted him of two counts of mail fraud and one
count of healthcare fraud and acquitted him of the other counts.

The substance underlying Jones’s convictions involved charging Medicare for
services that he did not actually perform for two patients, Mary Carter and James Tubbs.
Jones billed Medicare for debriding six or more toenails for Carter on October 14, 2004,
but Carter testified that Jones had not treated her since 2000 or 2001. A note in Jones’s
file for Carter showed that she was last treated on December 13, 2000. The 2004 bill
resulted in Medicare paying Jones $29.70. Jones also billed Medicare claiming that his
former employee, Cheryl Stewart, treated Tubbs on July 19, 2005. However, this date
came five days after Jones fired Stewart. This bill resulted in Medicare paying Jones
$91.06. Jones had no notes in his files to corroborate the bills for Carter and Tubbs,
which he attributed to sloppy bookkeeping.

The jury acquitted Jones of all the other charges against him. These charges
alleged that Jones often performed non-reimbursable services such as nail-trimming and
corn- and callus-shaving, but then billed Medicare and Medicaid for those services using
codes for reimbursable services, otherwise known as “up-coding.” Jones initially billed
for these services under codes 11055 and 11056, which cover the paring or cutting of
corns and calluses. These codes are only reimbursable if the patient has certain systemic
No. 09-3664 United States v. Jones Page 3

conditions, not if the service is routine. The Healthcare Finance Administration sent
Jones a letter explaining that his use of codes 11055 and 11056 appeared to be for
routine services and instructing him to cease billing Medicare and Medicaid under these
codes for routine services. After receiving this letter, the United States alleged that
Jones stopped using those codes and instead used code 11421, the code for excision of
a benign lesion, when he cut and pared calluses and corns.

The district court sentenced Jones to one and a half years of imprisonment
followed by three years of supervised release. Although the loss from Jones’s convicted
counts totaled only $120.76, the court ordered Jones to pay a $300 special assessment
and $224,133 in restitution for the conduct associated with his acquitted counts. In
determining both the imprisonment and restitution components of Jones’s sentence, the
district court relied on the relevant conduct underlying Jones’s acquitted charges. More
specifically, it relied upon the amount of loss to Medicare and Medicaid caused by
Jones’s acquitted conduct.

To establish the amount of loss to Medicare and Medicaid caused by Jones’s up-
coding, a statistician for the United States identified a representative sample of Jones’s
bills from 2001 to 2004 that charged code 11421. This sample consisted of 357 bills
spread across 264 patients. The United States located Jones’s patient files for only 210
out of the 264 patients in the sample size. Taking those 210 files, the United States’s
podiatry expert, John Stephens, testified that Jones had up-coded the bills in each of
them. In forming his conclusion, Stephens noted that certain procedures were missing
entirely from the bills that would have accompanied a code 11421 if an excision had
actually been performed, such as post-operative procedures, anesthesia, and lab reports.
The United States alleged that this statistical extrapolation method established that one
hundred percent of Jones’s bills for code 11421 from 2001 to mid-2005 were fraudulent,
resulting in a loss of $224,133.

Additionally, Stewart testified that while she worked for Jones, he instructed
her to bill code 11421 when she shaved calluses. Furthermore, an investigator from the
Department of Health and Human Services, Special Agent Fairbanks, testified that
No. 09-3664 United States v. Jones Page 4

Jones’s bills for code 11421 cost Medicare and Medicaid more than $200,000, but he did
not supply an explanation for this figure. Jones based his incorrect billing history on a
misunderstanding of the billing codes.

The district court accepted the United States’s statistical evidence and determined
by a preponderance of the evidence that one hundred percent of Jones’s bills for code
11421 from 2001 to mid-2005 were fraudulent. It found that Jones’s acquitted conduct
resulted in a loss of $224,133.

II. DISCUSSION

A. The Sufficiency of the Evidence Supporting Jones’s Convictions

Jones claims that there was insufficient evidence to support his healthcare fraud
and mail fraud convictions. When reviewing convictions for sufficiency of evidence,
we ask “whether, after viewing the evidence in the light most favorable to the
prosecution, and after giving the government the benefit of all inferences that could
reasonably be drawn from the testimony, any rational trier of fact could find the elements
of the crime beyond a reasonable doubt.” United States v. Ross, 502 F.3d 521, 529 (6th
Cir. 2007) (quoting United States v. M/G Trans. Servs., Inc., 173 F.3d 584, 589 (6th Cir.
1999)) (internal quotation marks omitted). This is a “very heavy burden.” Id. (quoting
United States v. Davis, 397 F.3d 340, 344 (6th Cir. 2005)) (internal quotation marks
omitted).

There was sufficient evidence to support Jones’s healthcare fraud conviction. A
defendant violates section 1347, the healthcare fraud statute, if he “(1) knowingly
devised a scheme or artifice to defraud a health care benefit program in connection with
the delivery of or payment for health care benefits, items, or services; (2) executed or
attempted to execute this scheme or artifice to defraud; and (3) acted with intent to
defraud.” United States v. Martinez, 588 F.3d 301, 314 (6th Cir. 2009) (internal
quotation marks and citation omitted). Here, there was evidence that Jones submitted
a bill to Medicare for debriding Carter’s toenails on October 14, 2004. However, Carter
testified that she only saw Jones once in either 2000 or 2001. Jones’s medical files for
No. 09-3664 United States v. Jones Page 5

Carter corroborate that she saw him on December 13, 2000, but contain no record of a
2004 visit. Additionally, there is evidence that Jones billed Medicare under Stewart’s
billing identification number for services provided to Tubbs on July 19, 2005 even
though Jones had fired Stewart five days earlier. And, as with Carter, no part of Jones’s
medical file for Tubbs contained a record of this service. Therefore, when viewing the
evidence in the light most favorable to the prosecution, and giving the government the
benefit of all reasonable inferences, a rational trier of fact could find that Jones
intentionally devised a scheme to defraud Medicare when he submitted the bills for
Carter and Tubbs.

Similarly, there was sufficient evidence to support Jones’s mail fraud conviction.
A defendant violates section 1341, the mail fraud statute, if he had “(1) a scheme to
defraud, and (2) [caused] the mailing of a letter, etc., for the purpose of executing the
scheme.” Id. at 316 (internal quotation marks and citation omitted). Because there was
a scheme to defraud regarding Jones’s section 1347 violation, it is an easy step to satisfy
the remaining requirement of section 1341—using the mail to effect the scheme. Jones
received payment from Medicare and Medicaid for his fraudulently billed services via
the mail. Therefore, when viewing the evidence in the light most favorable to the
prosecution, and giving the government the benefit of all reasonable inferences, a
rational trier of fact could find that Jones intended to use the mails to commit fraud when
he submitted the bills for Carter and Tubbs. Accordingly, sufficient evidence supported
Jones’s convictions.

B. Whether Jones’s Prison Sentence Is Reasonable

The district court calculated Jones’s base offense level at seven based on United
States Sentencing Guidelines § 2B1.1. According to section 2B1.1(b)(1)(G) and section
1B1.3, the court then added twelve levels after finding that Jones had caused more than
$200,000 of loss to Medicare and Medicaid through the conduct underlying his acquitted
charges. Additionally, the court added two levels because Jones had abused a position
of trust to commit his offenses. See U.S.S.G. § 3B1.3. These additions created a total
offense level of twenty-one. Jones’s criminal history category was I, so his
No. 09-3664 United States v. Jones Page 6

corresponding sentencing range was three years and one month to three years and ten
months of imprisonment.

However, the district court was not quite comfortable with the sentencing range
because it was so largely a product of Jones’s acquitted conduct. The court sentenced
Jones to one and a half years of imprisonment. This prison term equated to the term that
would have been applicable if the twelve-level enhancement had been cut in half.1

Jones claims that his sentence is procedurally unreasonable because the court
calculated his total offense level incorrectly by applying the twelve-level enhancement
for the amount of loss associated with his acquitted conduct. He also claims that the
enhancement made his sentence substantively unreasonable because his acquitted
conduct had an inordinately high effect on his sentence. He argues that statistical
extrapolation should not have been used because there was not enough evidence
presented regarding the method, the sample size was too small compared to the large
number of patients Jones had, and the jury had acquitted him of the conduct that caused
this loss. Essentially, these claims boil down to whether the court could properly
calculate the amount of loss using the statistical extrapolation presented by the United
States.

This Court reviews sentences for both procedural and substantive reasonableness
under the abuse of discretion standard. Gall v. United States, 552 U.S. 38, 51 (2007).
Sentences are procedurally unreasonable if the district court does not calculate the
Guidelines range or calculates it improperly, treats the Guidelines as mandatory, fails to
consider the factors in 18 U.S.C. § 3553(a), selects a sentence based on clearly erroneous
facts, or gives an inadequate explanation for the sentence. United States v. Peebles, 624
F.3d 344, 347 (6th Cir. 2010).

1
It is unclear from the record whether the district court applied an offense level reduction or
varied downward from the sentencing range. See United States v. Douglas, --- F.3d ----, 2011 WL 447039,
at *9 (6th Cir. 2011) (explaining the difference between an improper offense level reduction and a proper
downward variance).
No. 09-3664 United States v. Jones Page 7

When applying section 2B1.1(b)(1) to determine the amount of loss, the district
court “need only make a reasonable estimate” of the amount. U.S.S.G. § 2B1.1 cmt.
n.3(C). The United States’s burden is to prove the amount of loss by a preponderance
of the evidence. See United States v. Zimmer, 14 F.3d 286, 290 (6th Cir. 1994) (holding
that the United States must prove the amount of drugs by a preponderance of the
evidence when applying a sentencing enhancement for relevant drug activity). When
reviewing a district court’s application of section 2B1.1(b)(1), we review the district
court’s factual finding as to amount of loss for clear error. United States v. Warshak,
631 F.3d 266, 328 (6th Cir. 2010) (citations omitted). “An error with respect to the loss
calculation is a procedural infirmity that typically requires remand.” Id. (citation
omitted).

The court found that Jones had caused a loss of approximately $224,133,2 and
did so by adopting the statistical extrapolation evidence presented by the United States
at trial. The district court provided no other explanation for how it reached that figure.
Furthermore, the exhibits used by the United States at trial to explain how that figure
was calculated were not introduced into the trial record or explained at the sentencing
hearing. As a result, the only evidence relied upon by the district court in making its
amount of loss determination at sentencing are the scant details regarding the statistical
extrapolation.

A statistical estimate may provide a sufficient basis for calculating the amount
of loss caused by a defendant, e.g., United States v. Kohlbach, 38 F.3d 832, 841 (6th Cir.
1994); Zimmer, 14 F.3d at 290, but here, the United States’s statistical analysis was
flawed. The United States’s statistician identified a representative statistical sample
encompassing 357 bills contained throughout 264 patient files, but the United States
found only 210 of those files. The United States did not present evidence that the 210
patient files still formed a representative sample of bills without the missing fifty-four
files. Furthermore, it does not appear that the district court even realized that the fifty-

2
Although the district court did not state this exact figure at the sentencing hearing, it did state
that the amount was approximately $224,000, and the amount ordered for restitution in the district court’s
judgment is $224,133.
No. 09-3664 United States v. Jones Page 8

four files were missing and it definitely did not make a finding as to whether they were
fraudulent. Therefore, the accuracy of the extrapolation method is called into question.

If the United States had presented evidence that the 210 patient files contained
a representative sample of bills, then the analysis could have reliably established that one
hundred percent of Jones’s claims billing code 11421 were fraudulent. However, the
United States did not present any such evidence. The only statistically reliable sample
group was the 357 bills. For the district court to determine the amount of loss was
$224,133, it would have had to rely upon other evidence in addition to the statistical
analysis, but it did not as far as we can tell from the sentencing record.

There is no rule that a district court must rely upon statistical analysis in a
situation such as this to determine the amount of loss pursuant to section 2B1.1.
However, here, the district court relied solely upon a statistical analysis. Without a
sound representative sample, that analysis was flawed. As a result, the amount of loss
calculation was clearly erroneous. We remand this case so that the correct amount of
loss may be established by a preponderance of the evidence. Because the sentence is
procedurally unreasonable, we do not reach the question of substantive reasonableness.
See Warshak, 631 F.3d at 330 (citing Gall, 552 U.S. at 51).

C. Jones’s Fifth Amendment Due Process Rights and Sixth Amendment Right
to Trial by Jury
Jones argues that being sentenced for his acquitted counts without having been
convicted of them violates his Fifth Amendment due process rights and his Sixth
Amendment right to a trial by jury. This Court reviews de novo constitutional
challenges to a sentence. United States v. Graham, 622 F.3d 445, 452 (6th Cir. 2010).

This question is controlled by our en banc opinion in United States v. White,
551 F.3d 381 (6th Cir. 2008) (en banc). There, considering a Sixth Amendment
challenge, we held that a “district court’s consideration of acquitted conduct in
sentencing passes constitutional muster . . . insofar as enhancements based on acquitted
conduct do not increase a sentence beyond the maximum penalty provided by the United
States Code.” Id. at 386. Furthermore, the Guidelines permit a sentencing court to
No. 09-3664 United States v. Jones Page 9

“consider[] conduct underlying . . . acquitted charge[s], so long as that conduct has been
proved by a preponderance of the evidence.” United States v. Watts, 519 U.S. 148, 157
(1997) (per curiam); accord White, 551 F.3d at 383 (citing Watts, 519 U.S. at 157).

Following White, the district court could properly consider Jones’s acquitted
conduct in determining his prison sentence. However, because we have decided here
that the United States did not establish by a preponderance of the evidence that Jones
caused more than $200,000 in loss through his acquitted conduct, Jones’s constitutional
claims are not completely precluded by White. We, nonetheless, need not address these
claims in light of our decision to remand for resentencing. Should the district court
again make findings on remand that are not supported by a preponderance of the
evidence, Jones may reassert these claims in a later appeal.

D. Whether Restitution Was Permissible

Jones contests the district court’s order that he pay $224,133 in restitution,
raising the same objections he stated with respect to his prison sentence: that the amount
is premised on acquitted conduct and was calculated using a faulty statistical
extrapolation method. The Presentence Report recommended, and the district court
ordered, that Jones pay restitution to Medicare and Medicaid pursuant to the Mandatory
Restitution Act of 1996, 18 U.S.C. § 3663A, for both the fraudulent acts of which he was
convicted and the ones of which he was acquitted. The amount of restitution was
$224,133. We have already concluded that the district court employed a faulty statistical
analysis, albeit for reasons different from Jones’s, and that the case must be remanded
so that the district court may recalculate the amount of loss caused by Jones’s acquitted
conduct. Thus, we need not reach his claim inasmuch as it attacks the amount of
restitution ordered. That leaves intact, however, the question of whether the district
court may order restitution at all for Jones’s acquitted charges. “We review de novo the
question of whether restitution is permitted under the law . . . .” United States v. Elson,
577 F.3d 713, 725 (6th Cir. 2009) (citing United States v. Boring, 557 F.3d 707, 713 (6th
Cir. 2009)) (internal quotation marks omitted).

Section 3663A(a)(1) states:
No. 09-3664 United States v. Jones Page 10

Notwithstanding any other provision of law, when sentencing a
defendant convicted of an offense described in subsection (c), the court
shall order, in addition to, or in the case of a misdemeanor, in addition to
or in lieu of, any other penalty authorized by law, that the defendant
make restitution to the victim of the offense . . . .

Section 3663A(a)(2) further defines the term “victim” as follows:

For the purposes of this section, the term “victim” means a person
directly and proximately harmed as a result of the commission of an
offense for which restitution may be ordered including, in the case of an
offense that involves as an element a scheme, conspiracy, or pattern of
criminal activity, any person directly harmed by the defendant’s criminal
conduct in the course of the scheme, conspiracy, or pattern.

In the context of mail fraud convictions, we have read this statutory definition of
“victim” to allow for restitution for the loss attributable to all the victims of a
defendant’s scheme to defraud, even when the defendant was not indicted or convicted
of fraud with respect to each victim. United States v. Davis, 170 F.3d 617, 627 (6th Cir.
1999); see also United States v. Jewett, 978 F.2d 248, 253 (6th Cir. 1992). However,
this precedent applies only when the loss is attributable to the precise scheme that was
an element of the defendant’s convicted offense. The Supreme Court’s decision in
Hughey v. United States, 495 U.S. 411 (1990), which was partially superseded when
Congress expanded the meaning of “victim” in § 3663A(a)(2) to its present definition,
“continues to ‘require the court to exclude injuries caused by offenses that are not part
of the [scheme] of which the defendant has been convicted.’” Elson, 577 F.3d at 723
(quoting United States v. George, 403 F.3d 470, 474 (7th Cir. 2005)).

Jones’s healthcare fraud and mail fraud convictions contain as elements schemes
to defraud. The district court may, therefore, order restitution for any loss suffered by
a victim of Jones’s scheme. The next issue, then, is defining the scope of the scheme.
We have encountered this issue before, but in the context of a conviction following a
plea agreement. See id. (holding that the scope of the scheme is defined by “the plea
agreement, the plea colloquy, and other statements made by the parties” when a
conviction follows a plea agreement rather than a jury trial). When a defendant is
convicted by a jury, however, the scope of the scheme is defined by the indictment for
No. 09-3664 United States v. Jones Page 11

purposes of restitution. United States v. Adams, 363 F.3d 363, 366 (5th Cir. 2004);
United States v. Ramirez, 196 F.3d 895, 900 (8th Cir. 1999); United States v. Henoud,
81 F.3d 484, 489 (4th Cir. 1996) (quoting United States v. Brothers, 955 F.2d 493, 497
(7th Cir. 1992)).

Jones’s indictment defined his scheme as a broad, over-arching plan “to defraud
and to obtain money by means of false and fraudulent pretenses, representations and
promises.” The indictment listed as components the more specific acts falling under that
plan such as up-coding, billing for services not rendered to Carter and Tubbs, billing
under Stewart’s Medicare Provider Number, and others. Therefore, the grand jury
defined Jones’s scheme as a general plan to defraud Medicare and Medicaid by
committing many different distinct acts. The scheme included not only the acts of which
he was convicted, but also the ones of which he was acquitted.

Accordingly, once the district court correctly determines the amount of loss
caused by Jones on remand, it may properly order him to pay restitution for both his
convicted and acquitted conduct.

III. CONCLUSION

Sufficient evidence supported Jones’s convictions, but his sentencing went awry.
The United States presented flawed statistical evidence to prove what amount of loss
Jones had caused through his acquitted conduct. Accordingly, Jones’s convictions are
AFFIRMED, but his sentence is VACATED. We REMAND the case for resentencing.