United States District Court, E.D. California
MEMORANDUM DECISION AND ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO DISMISS AND VACATING MARCH 5, 2018
HEARING (ECF NO. 23 & 24)
LAWRENCE J. O'NEILL UNITED STATES CHIEF DISTRICT JUDGE.
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
Standard of Decision
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
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).
Motion to Dismiss Count One For Failure to State an
Offense Re: Health Care Plan Asset
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.
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).
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.
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.
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.
motion to dismiss Count One on the ground that an offense
under Section 669 is not stated is DENIED.
Motion to Limit Count One to Allegations that ...