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United States v. Reynolds

United States District Court, E.D. California

February 23, 2018




         The Court has received and reviewed Defendant's motion to dismiss certain charges in the Indictment, ECF No. 23 & 24, the Government's opposition, ECF No. 25, and Defendant's reply. ECF No. 26. Because the arguments are articulated with sufficient clarity in the briefs, the Court VACATES the March 5, 2018 hearing and decides the matter on the papers.

         1. Standard of Decision

         Pursuant to Rule 12, a “party may raise by pretrial motion any defense, objection, or request that the court can determine without a trial on the merits.” Fed. R. Crim. P. 12(b)(1). Rule 12(b)(3) specifies the motions that must be made before trial. Among them is a motion to dismiss for failure to state an offense. Fed. R. Crim. P. 12(b)(3)(B)(v). A pretrial motion to dismiss a criminal case is appropriate when it involves questions of law rather than fact. United States v. Schulman, 817 F.2d 1355, 1358 (9th Cir. 1987).

         In ruling on a pretrial motion to dismiss, “the district court is bound by the four corners of the indictment.” United States v. Lyle, 742 F.3d 434, 436 (9th Cir. 2014); United States v. Boren, 278 F.3d 911, 914 (9th Cir. 2002) (“On a motion to dismiss an indictment for failure to state an offense the court must accept the truth of the allegations in the indictment in analyzing whether a cognizable offense has been charged.”). In determining whether a cognizable offense has been charged, the court asks only whether, accepting the facts as alleged in the indictment as true, a crime has been alleged. United States v. Milovanovic, 678 F.3d 713, 717 (9th Cir. 2012). Rule 12 motions cannot be used to determine “general issues of guilt or innocence, ” which “helps ensure that the respective provinces of the judge and jury are respected.” Boren, 278 F.3d at 914 (citation omitted).

         2. Motion to Dismiss Count One For Failure to State an Offense Re: Health Care Plan Asset Embezzlement

         Defendant moves to dismiss Count One on the ground that the business arrangement alleged in the Indictment cannot state an offense of embezzlement of health care plan assets in violation of 18 U.S.C. § 669 (“Section 669”). Section 669 provides as follows:

Whoever knowingly and willfully embezzles, steals, or otherwise without authority converts to the use of any person other than the rightful owner, or intentionally misapplies any of the moneys, funds, securities, premiums, credits, property, or other assets of a health care benefit program, shall be fined under this title or imprisoned not more than 10 years, or both; but if the value of such property does not exceed the sum of $100 the defendant shall be fined under this title or imprisoned not more than one year, or both.

         The term “health care benefit program” is defined as “any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract.” 18 U.S.C. § 24(b).

         The Indictment alleges that various businesses (“Clients” of Defendant's business “Ben-E-Lect”) purchased for their employees high deductible group health insurance plans from independent insurance carriers and then self-insured their employee beneficiaries for amounts up to the high deductible. ECF No. 1 at ¶ 4. Pursuant to Administrative Service Agreements between the Clients and Ben-E-Lect, Clients would deposit funds into an account managed by Ben-E-Lect to be used for the purpose of covering claims paid to beneficiaries out of the self insurance. Id. at ¶ 5. Specifically, Ben-E-Lect was hired to process health care claims paid out of the self-insured deductible coverage accounts. Id. at ¶ 4.

         It is Defendant's position that Client funds were never deposited into an account opened or controlled by a health benefit plan, and that no health benefit plan supervised or controlled any such funds. Defendant cites United States v. Garcia-Pastrana, 584 F.3d 351 (1st Cir. 2009), for the proposition that the Government must establish that Ben-E-Lect had “sufficient supervision and control” over the funds in question so as to establish that those funds were “assets of a health benefit program.” Id. at 371. Defendant maintains that because Ben-E-Lect acted only as “agent and fiduciary” of the Clients, the Clients maintained the right to exercise control over their funds. This is a question of fact to be resolved at trial. It is alleged that Ben-E-Lect acted “in a fiduciary capacity.” ECF No. 3. Garcia-Pastrana, relied upon by Defendant, itself uses a fiduciary as an example of an entity that did maintain sufficient control over funds to trigger coverage under Section 669. Garcia-Pastrana, 584 F.3d at 372.

         Defendant also points out that under California insurance law, self-insurance is “no insurance” because it does not involve shifting risk. See ECF No. 24 at 3 (citing Cal. Ins. Code § 22, 23; Chambi v. Regents of the University of Cal., 95 Cal.App.4th 822, 826 (2002)). This is a red herring. The statutory definition of “health care benefit program” says nothing about “insurance” and does not require risk shifting. Moreover, the participation of a traditional health insurance entity is not required. Other cases have found Section 669 applicable to medical benefits paid out under a no-fault automobile insurance contract because medical providers received payments under those policies. See United States v. Lucien, 347 F.3d 45, 52 (2d Cir. 2003). The scheme alleged here involved a contract under which medical claims would be paid. That is all that is required.

         The motion to dismiss Count One on the ground that an offense under Section 669 is not stated is DENIED.

         3. Motion to Limit Count One to Allegations that ...

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