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U.S. Supreme Court Rules ‘Untainted’ Assets in Health Care and Banking Fraud Cases Can’t Be Frozen

PRACTICE AREA / INDUSTRY: BANKING; HEALTHCARE; WHITE COLLAR LITIGATION & GOVERNEMENT INVESTIGATIONS

Brian E. Dickerson Anthony J. Calamuncibrian.dickerson@fisherbroyles.com anthony.calamunci@fisherbroyles.com202.570.0248 419.376.1776

Nicole Hughes Waidnicole.waid@fisherbroyles.com202.906.9572

March 31, 2016

The U.S. Supreme Court delivered an opinion yesterday in Luis v. United States, case number 14-419, a Sixth Amendment case that addressed a defendant’s right to access untainted assets to retain counsel of choice. In a 5-3 ruling, the Court found that the government cannot freeze assets not related to the alleged wrongdoing therefore, classifying the assets as ‘untainted’ and overturning an Eleventh Circuit ruling. Chief Justice Roberts and Justices Stephen Beyer, Ruth Bader Ginsburg and Sonia Sotomayor voted to overturn the lower court decision. Justice Clarence Thomas concurred in a separate opinion and Justices Samuel Alito, Anthony Kennedy and Elena Kagan dissented but agreed with Luis that the freeze kept her from paying for legal counsel. (Click here to view the opinion)

A federal statute allows the government before a trial, to freeze assets belonging to a defendant accused of violations of federal health care or banking laws. Those assets can include (1) property “obtained as a result of” a crime, (2) property “traceable” to the crime, and (3) other “property of equivalent value. The Sixth Amendment right to counsel grants a defendant “a fair opportunity to secure counsel of his own choice.”

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“We conclude that the defendant in this case has a Sixth Amendment right to use her own 'innocent' property to pay a reasonable fee for the assistance of counsel," Justice Breyer wrote. "On the assumptions made here, the District Court’s order prevents Luis from exercising that right."

In this case, a federal grand jury indicted petitioner, Sila Luis, in October 2012 with paying kickbacks, conspiring to commit fraud, and engaging in other crimes all related to health care. She is accused of paying patients of her at-home health agencies so that she could bill the government for services that were either not provided or medically unnecessary in violation of the Anti-Kickback Statute. The government claimed that Luis had obtained and spent close to $45 million from her fraudulent schemes, thus leaving little of the alleged fraudulent funds available to make restitution. At the time of her arrest, Luis had approximately $2 million in her possession. While the government and Luis stipulated that Luis used “revenue not connected to the indictment” to pay for real property that she possessed, the government sought to freeze those funds to guarantee that funds would be available later to help pay for statutory penalties and restitution. Luis argued that doing so prevented her from obtaining legal counsel of her choice, a violation of her Sixth Amendment right.

Believing it would convict Luis, the government sought a pretrial order to prevent Luis from selling her assets. Although the District Court recognized that the order might prevent Luis from obtaining counsel of her choice, it held “that there is no Sixth Amendment right to use untainted, substitute assets to hire counsel.” The Eleventh Circuit upheld the District Court citing Caplin & Drysdale and Monsanto, which in the government’s view, hold that the Sixth Amendment does not pose an obstacle to its doing so here. Luis’ criminal trial was put on hold pending the outcome of the Supreme Court appeal.

Justice Breyer wrote that the nature of the assets in Caplin & Drysdale and Monsanto and those in this case differ and that distinction makes a difference. The relevant difference is that the property here is untainted: i.e., it belongs to the defendant, pure and simple. Justice Breyer said, “In this respect it differs from a robber’s loot, a drug seller’s cocaine, a burglar’s tools, or other property associated with the planning, implementing, or concealing of a crime.” The property at issue in Caplin & Drysdale and Monsato was “tainted,” i.e. derived from proceeds obtained from a crime therefore, forfeitable under federal statute.

Justice Thomas wrote that the freeze is improper based purely on the text of the Sixth Amendment and of common law, which he said draws a clear distinction between untainted and tainted assets. Without constitutional protection for at least some of a defendant’s assets, the Government could nullify the right to counsel of choice.

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In the dissenting opinion, Justice Kennedy wrote, “Today’s ruling abandons the principle established in Caplin & Drysdale and Monsanto. In its place is an approach that creates perverse incentives and provides protection for defendants who spend stolen money rather than their own.” He noted in declarations relied on by the District Court, the FBI agent investigating the case explained that “Luis transferred monies or caused the transfer of monies received from Medicare to . . . family members and companies owned by family members,” including $1,471,000 to her husband, and over a million dollars to her children and former daughter-in-law.

Both Justices Kennedy and Alito called today’s ruling an “unprecedented” holding that ignores high court precedent finding assets broadly freezable. Currently asset freezes are allowed under health care and banking law violations however, Congress could expand pretrial asset holds to other cases.

For further information on the subject matter of this alert, please contact the following FisherBroyles attorneys:

Washington, D.C.Brian E. Dickersonbrian.dickerson@fisherbroyles.com202.570.0248

Washington, D.C.Nicole Hughes Waidnicole.waid@fisherbroyles.com202.906.9572

Cleveland / ToledoAnthony J. Calamuncianthony.calamunci@fisherbroyles.com419.376.1776