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Tenth Circuit Reverses Downward Departure Of CEO's Sentence For Involvement In Anti-Kickback Scheme


HLD, v. 31, n. 3 (March 2003)

Tenth Circuit Reverses Downward Departure Of CEO's Sentence For Involvement In Anti-Kickback Scheme

Dennis McClatchey was the chief operating officer of Baptist Medical Center (Baptist) until October 1993. Beginning in 1985, Baptist entered into various contracts with physicians Robert and Ronald LaHue under which Baptist would pay each physician $75,000 per year. Once the contracts were in place, the LaHues began referring to Baptist their nursing home patients who required hospital care. The parties renewed the contracts in 1986 and in 1993, although the hospital continued to pay the LaHues after the various contracts had technically expired. Before the parties entered into the 1993 contract, one of Baptist's attorneys discussed with McClatchey and other Baptist executives ways to draft a new contract that would fall within the Department of Health and Human Services Office of Inspector General's safe harbor regulations, which had recently been promulgated. McClatchey oversaw the ensuing negotiations with the LaHues. During negotiations, McClatchey learned that the LaHues had not performed some of the services set forth in previous contracts. McClatchey later met with a Medicaid fraud investigator and a Federal Bureau of Investigation agent to discuss the hospital's relationship with the LaHues. McClatchey and others discussed terminating their relationship with the LaHues, but ultimately decided to renew the contract.

In 1998, the federal government charged McClatchey and others with having violated the Anti-Kickback Statute. A jury convicted McClatchy of (1) conspiring to offer or pay remuneration to the LaHues in exchange for Medicare and Medicaid patient referrals, and (2) offering or paying remuneration to the LaHues to induce such referrals, in violation of the Anti-Kickback Statute. A federal district court in Kansas granted McClatchey's motion for acquittal on both counts, holding that "no reasonable jury could find McClatchy [had] deliberately intended to violate the [Anti-Kickback Statute] based on the evidence at trial." The government appealed and the Tenth Circuit reversed. See HLD, v. 28, n. 8, p. 39. In so holding, the appeals court agreed that the government had failed to demonstrate beyond a reasonable doubt that McClatchey possessed the requisite intent for the 1985 and 1986 contracts. However, the appeals court found that the evidence surrounding the 1993 contract supported a reasonable inference that McClatchey "knowingly, voluntarily, and purposefully entered into an agreement with the specific intent to induce the LaHues to refer their Medicaid patients to Baptist." The appeals court remanded to the district court with instructions to reinstate the jury's verdict against McClatchey.

On remand, the district court calculated McClatchey's offense level as thirteen under the United States Sentencing Guidelines (USSG). The court then granted McClatchey a three-level downward departure based on extraordinary family circumstances and aberrant behavior. The court sentenced McClatchey to three years probation and imposed a $30,000 fine. The government appealed the sentence.

The Tenth Circuit affirmed the district court's calculation of the offense level, reversed the downward departure, and remanded for resentencing. First, as to the offense level calculation, the appeals court examined the relevant sentencing guideline and comments and determined that the government failed to prove by a preponderance of the evidence that the conduct of McClatchey's co-conspirators should be attributed to him for sentencing purposes. According to the appeals court, while it had previously determined that the evidence supported McClatchey's conviction as a member of the conspiracy to violate the Anti-Kickback Statute, "such a determination, by itself, is not sufficient to hold him responsible for all reasonably foreseeable bribes paid by his coconspirators." Thus, the appeals court found no clear error in the district court's decision to limit the scope of McClatchey's relevant conduct under the USSG to bribes paid in connection with the 1993 contract. The appeals court also found that the district court did not err in calculating the amount of the bribe paid to the LaHues under the 1993 contract as $50,000. The district court determined that the LaHues rendered $100,000 worth of services and subtracted that amount from the $150,000 paid to the physicians under the contract. The appeals court noted evidence in the record supporting the $100,000 value placed on the LaHues' services and relied on by the lower court. Accordingly, the appeals court affirmed the lower court's conclusion on this issue as well.

Next, the appeals court held that the lower court improperly granted McClatchey a three-level downward departure from the USSG. The fact that McClatchey's son suffered from various mental disorders and required a certain amount of additional care was not sufficient to warrant a downward departure on the "discouraged" basis of extraordinary family circumstances. The appeals court also concluded that the district court erred in granting the downward departure based on a finding of aberrant behavior--i.e. that McClatchey's criminal conduct was totally out of character. The appeals court said McClatchey's prior law abiding life, while a prerequisite for granting an aberrant-behavior departure, did "not in itself distinguish him from other first offenders and is not a permissible factor to consider in granting such a departure." Moreover, although McClatchey received no "direct pecuniary gain," the indirect gain he did receive was substantial. The appeals court pointed out that "he was a highly compensated executive . . . of a company whose financial security was closely linked to the success of the referral scheme," and added that it was "not inclined to view an executive's conduct benefiting the employer as selfless." The appeals court also found McClatchey's education and "enviable career" weighed against the downward departure, suggesting he should have "known better." Finally, the appeals court concluded that the combination of family circumstances and aberrant behavior considered together was not a sufficient basis for granting the downward departure. Thus, the appeals court reversed McClatchey's sentence and remanded to the district court to impose a sentence using an offense level of thirteen.

United States v. McClatchey, No. 01-3327, 2003 WL 125362 (10th Cir. Jan. 16, 2003) (12 pages).

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