Filed: Jul. 17, 2003
Latest Update: Feb. 21, 2020
Summary: United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS July 17, 2003 For the Fifth Circuit _ Charles R. Fulbruge III Clerk No. 02-30533 _ UNITED STATES OF AMERICA, Plaintiff-Appellee, versus JOHN HERRING, also known as JOHN MORRIS HERRING, SR. and MARTHA SEWELL, also known as MARTHA HERRING, Defendants-Appellants. Appeal from the United States District Court for the Eastern District of Louisiana U.S.D.C. No.00-171(K) Before DAVIS, JONES and BENAVIDES, Circuit Judge
Summary: United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS July 17, 2003 For the Fifth Circuit _ Charles R. Fulbruge III Clerk No. 02-30533 _ UNITED STATES OF AMERICA, Plaintiff-Appellee, versus JOHN HERRING, also known as JOHN MORRIS HERRING, SR. and MARTHA SEWELL, also known as MARTHA HERRING, Defendants-Appellants. Appeal from the United States District Court for the Eastern District of Louisiana U.S.D.C. No.00-171(K) Before DAVIS, JONES and BENAVIDES, Circuit Judges..
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United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
July 17, 2003
For the Fifth Circuit
___________________________
Charles R. Fulbruge III
Clerk
No. 02-30533
___________________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JOHN HERRING, also known as JOHN MORRIS HERRING, SR.
and MARTHA SEWELL, also known as MARTHA HERRING,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Louisiana
U.S.D.C. No.00-171(K)
Before DAVIS, JONES and BENAVIDES, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:1
John Herring and Martha Sewell Herring appeal their convictions and sentences for
conspiracy, theft from pension plans, health care fraud and bankruptcy fraud arising out of their
relationship with a chain of home health agencies they owned. They challenge the district court’s
instructions to the jury, admission of certain testimony and calculation of loss for sentencing
purposes.2 Finding no error, we affirm.
1
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
2
We decline to consider the issues raised by the defendants in their letter submitted under
Rule 28(j) that were neither raised in the district court or argued in their initial brief.
I.
John and Martha Herring were charged and convicted of violating 18 U.S.C. §§ 371
(conspiracy), 664 (theft from pension plans), 1347 (health care fraud), and 157(1) and
(2)(bankruptcy fraud). Martha Herring was charged and convicted of two additional counts of
bankruptcy fraud in violation of 18 U.S.C. §§ 157(1) and (2). The Herrings’ affiliated entities,
Home Care Center, Inc. (“HCC”), Southern Style Success, Inc. (“SSS, Inc.”), Success Southern
Style, L.L.C. (“SSS, LLC”), Golden Goose Enterprises, Inc. (“the Goose”), and Goldco
International, Ltd. (“Goldco”), were also charged with conspiracy. Most of the charges relate to
the Herrings’ ownership of a chain of home health agencies in Louisiana - Golden Age of Baton
Rouge, Golden Age of Shreveport, Golden Age of Monroe, Golden Age of Houma and Golden
Age of the South (located in Hammond) (collectively, the “Agencies”). HCC served as the
Agencies’ home office and was owned by and employed the Herrings.
The Agencies served mainly Medicare patients. To obtain reimbursement from Medicare,
at the end of each fiscal year, a cost report was prepared by each Agency and submitted to
Medicare. Under the reporting procedure, all costs associated with running the Agencies are
included on the reports, but Medicare reimburses only those costs that are reasonable, necessary
and related to patient care. Employee benefits such as pension plans, paid days off and bonuses,
and certain employee appreciation expenditures are costs allowed by Medicare. The cost reports
are used to derive pay rates for different care services. Services are then billed to Medicare at
those rates. When Medicare pays for patient care visits, it is reimbursing the Agencies for
allowable expenses submitted on the cost reports. Some costs are allowed to be accrued and
listed as debts on the cost report, including paid days off, retropay and pension plan contributions.
2
Medicare allows the Agencies one year from the end of the reporting year to pay these debts
unless the Agency provides an acceptable reason for an extension. All funds collected from
Medicare are destined to be paid out for approved expenses. The Agencies were thus all non-
profit ventures.
HCC provided administrative and management services to the Agencies. HCC’s operating
costs were allocated to the individual Agencies. Before allocation, HCC subtracted the costs of
services provided to related entities which did not provide patient related services from its cost
report because Medicare does not pay for non-patient related services. In addition to serving the
Agencies, HCC served SSS, Inc., the Goose, Goldco and SSS, LLC. SSS, Inc was a real estate
holding company which purchased property to rent to the Agencies. Goldco was a consulting
business that was designed to be a cash generating business. The Herrings billed it as offering
expertise in all things related to Medicare and home health agencies. The Goose, another profit
seeking venture, was a day care center providing Medicare-reimbursed services as benefits to
employees of the Baton Rouge agency and HCC.
The Herrings created pension plans for the Agencies and HCC. The plans were purchased
between 1990 and 1992 from Pension Administrators & Consultants, a company headed by
Dwight Cenac. Cenac marketed the plans as having the benefit that employers could borrow from
the plan assets. That position might be defensible in some circumstances under Medicare
regulations, but did not consider ERISA rules. In the fall of 1992, Chris Uhland, one of Cenac’s
accountants determined that ERISA did apply to the plans and prohibited the loans. Cenac
testified that he had his company send a “Client Alert” regarding the matter to all of his pension
clients, including the Agencies, in October 1992. Uhland testified that on December 1, 1992, he
3
mailed or faxed a letter to the Herrings in which he repeated this information. The Herrings claim
that they never received this information. They testified that they learned of the possible
prohibition of these loans under ERISA regulations in September 1994, when, after firing Cenac’s
company, their new accountants investigated the situation and concluded that the plans were
covered by ERISA and that ERISA regulations prohibited loans to the employers without the
approval of the Department of Labor.
Prior to September 1994, the Herrings directed that contributions be made to the pension
plans. They also caused their related businesses to borrow money from the various pension plans
in the following series of transactions:
(1) In 1992, SSS, Inc. purchased property in Houma, Louisiana for $200,000 with bank
financing. Certificates of deposit owned by three agency pension plans were pledged as
collateral for the loan.
(2) Shortly thereafter, HCC funded the down-payment on property in Sherwood Forest in
Baton Rouge. The purchase price was paid with $368,000 from the Monroe Agency
which had been earmarked to fund the pension plan and pay other accrued debts.
(3) SSS, Inc. renovated a floor of the Sherwood Forest property as a conference facility for
Goldco. HCC deposited Medicare funds into various plan accounts. The funds were then
transferred to SSS, Inc., which paid the contractor.
(4) In 1993, SSS, Inc. purchased a building in Bastrop for $87,000. The Herrings caused the
pension plans to be funded, then transferred funds to SSS, Inc. which paid for the building.
(5) Also in 1993, SSS, Inc. purchased a building in Monroe for $200,000 with a $25,000
4
deposit. The deposit came from funds funded into a pension plan and then transferred to
SSS, Inc.
(6) In 1994, SSS, Inc. purchased two lots near the Sherwood Forest building for $49,000 to
build a facility for the Goose. Funding came from HCC to one of the pension plans and
then to SSS, Inc.
In simple terms, when the Herrings wished to purchase property for the use of the Agencies or
their related for-profit businesses, they would transfer funds due to the pension plans from the
Agencies or HCC (which held Agency funds) into the plan accounts and then immediately
withdraw the funds from the plans to purchase property or pay for improvements. The pension
plans were granted secured mortgages on most of the properties purchased with plan funds.
In December 1993, to raise additional funds for the Goose, the Herrings had the pension
plans funded and then had the funds purchase $250,000 in Goose preferred stock. In June 1994,
this process was repeated and the funds used to purchase an additional $250,000 in Goose
preferred stock.
At the urging of Harvey Rennhoff, then HCC director of operations who was concerned
about the loans, the Herrings pledged all of their stock in SSS, Inc., the Goose, Goldco and HCC
and the Agencies to the pension plans. The plan trustees were not aware of the pledge. They
learned of it when the Herrings later altered the agreement to substitute newly created SSS, LLC
units for stock of SSS, Inc.
At the end of 1995, it was time to pay the 1994 accrued liability to the pension plans. The
Herrings filed for an extension claiming Medicare-related cash flow problems. Two months later
in February 1996, the Herrings withdrew $500,000 from HCC and deposited it in SSS, Inc.,
5
which used the funds to make a partial payment on a house on Highland Road for the Herrings.
The total purchase price was approximately $1.2 million. In June 1996, John Herring directed
HCC to transfer funds to SSS, Inc. to cover the balance of the purchase price. Since the Agencies
are non-profit businesses, every dollar that the Herrings withdrew reduced the funds available to
pay the costs of the Agencies.
To pay the pension funds owed, the Herrings discounted the Agencies’ Medicare
receivables with Healthcare Capital Resources. At the end of 1996, the pension plan liability was
paid for 1994 but extended for 1995. At the end of 1997, Medicare denied a request for an
extension to pay the 1996 pension debt because the Agencies had misdirected available funds to
related third parties.
At trial, the government presented evidence that the Herrings used Agency funds for first
class travel, expensive dinners, and personal expenses. A Medicare audit resulted in some of
these expenses being disallowed. By the time of the audit and disallowance, the Agencies had
already been reimbursed. As a result, the government withheld the disallowed amounts from
future reimbursements. This led to cash flow problems which caused the Herrings to put the
Golden Age Agencies into Chapter 11 bankruptcy.
At the time of the bankruptcy, the Herrings, Goldco and the Goose owed the Agencies
significant amounts of money. Herring refinanced the Highland Road house but it is not clear if
any of the funds went to the Agencies. Funds due from the Herrings, Goldco and the Goose were
not disclosed as assets on the Agencies’ bankruptcy schedules.
The Herrings found a buyer for the Agencies and HCC. The buyer required that the
pledges against the Agencies’ stock in favor of the pension plans be released. The Herrings
6
caused the pledges to be released without replacing the stock with any other security. They
received employment contracts with the buyers.
Martha Herring anticipated having to file for personal bankruptcy due to lingering debts
related to her prior ownership of a New Orleans area home health agency. In an attempt to
protect a house she owned in Pass Christian, Mississippi, she donated it to an LLC she created in
her son’s and daughter’s names. She testified that her attorney had advised her that property
transferred more than one year prior to filing bankruptcy would be excluded from the bankruptcy
estate. The LLC was created in May 1995. The organization documents for the LLC included
Martha Herring as a member of the LLC, although her intent was that only her children be
members. The LLC documents were later amended to remove her as a member on October 8,
1995. The Pass Christian property was donated to the LLC by a document executed on June 8,
1995, but recorded June 23, 1995. Although listed as a member of the LLC, her son had no
knowledge of his membership interest in the LLC or the donation. Martha Herring filed for
bankruptcy on June 21, 1995, short of the one-year period from the recordation of the property
transfer. Martha Herring did not list the Mississippi property as an asset on her schedule of assets
filed in her bankruptcy petition.
As a result of their convictions, the Herrings were sentenced to 84 months imprisonment
on the health care fraud count and to 60 months imprisonment on each of the other counts to be
served concurrently. They were each ordered to pay restitution to Stanford Trust, the fiduciary
for the Agencies’ pension plans, in the amount of $4,390,832, Home Care Center Pension Plan in
the amount of $970,761, Medicare in the amount of $405,738, and Healthcare Capital Resources
in the amount of $1,856,895. The Herrings timely appealed.
7
II.
The Herrings complain first that the district court’s jury instructions allowed them to be
convicted of pension plan theft without a finding of criminal mens rea. The statute they were
charged under, 18 U.S.C. § 664, provides that “[a]ny person who embezzles, steals, or unlawfully
and willfully abstracts or converts to his own use or to the use of another, any of the moneys,
funds, securities, premiums, credits, property, or other assets of any employee welfare benefit plan
or employee pension benefit plan or of any fund connected therewith, shall be fined under this title
or imprisoned not more than 5 years, or both.” The Herrings requested the following willfulness
instruction:
As used in these instructions regarding allegations of Pension Plan Fraud and
Medicare Fraud, the term “willfulness” requires the Government to prove that the
law imposed a duty on the defendant, that the defendant knew of this duty, and
that he voluntarily and intentionally violated that duty.
The district court accepted, in principle, the Herrings’ suggestion and charged the jury that
“willful” for purposes of this count means “the voluntary and intentional violation of a known
legal duty - in this instance, the defendants’ fiduciary duties under ERISA.” Except for an
explanation of the nature of the legal duty the government contended the Herrings violated, the
court’s charge is substantially the same as the one the Herrings requested. The court summarized
the instructions as follows:
[i]f you find that a defendant was (1) a fiduciary of the employee benefit plans, (2)
that the defendant was aware of his or her fiduciary duties with respect to the
handling of assets of the employee benefit plans as described in Counts 1 or 2, and
(3) that the defendant’s unlawful taking of the assets of the employee benefit plans
voluntarily and intentionally violated those fiduciary duties, then you may also find
that the defendant possessed the criminal intent to deprive the employee benefit
plans of the use of their assets and property.
8
The Herrings did not object to the instructions as given. Thus, if these instructions were
erroneous at all, which is doubtful, the error was invited by the appellants and they are precluded
from challenging it. United States v. Baytank (Houston), Inc., 934 F.2d 599, 606-07 (5th Cir.
1991).3
III.
The defendants argue next that the trial was tainted by evidence of civil regulatory
violations, personal attacks on the Herrings and misleading testimony, both by individual claims of
error and by the cumulative effect of the alleged errors.
A.
The defendants argue first that the district court abused its discretion in admitting
testimony regarding the Department of Labor’s (“DOL”) civil proceedings against the Herrings as
to pension plan liability and in admitting testimony regarding DOL’s complaints that charges the
Herrings submitted on the Agencies’ Medicare cost reports were improper. This testimony, they
submit, was more prejudicial than probative and resulted in the Government bootstrapping civil
regulatory violations into felony convictions. The district court’s decision to admit or exclude this
evidence over the defendants’ objections is reviewed for an abuse of discretion. United States v.
Gutierrez-Farias, 294 F.3d 657, 662 (5th Cir. 2002).
Specifically, the defendants argue that the testimony of two government witnesses was
3
Although the defendants focus on this single charge, the district court in explaining the
specific terms of §664 gave the jury further guidance on the elements of the offense, specifically the
definitions of conversion and embezzlement. The instructions properly defined criminal conversion
as “the wrongful taking of money or property belonging to someone else with intent to deprive the
owner of its use or benefit either temporarily or permanently.” The instructions also properly defined
embezzlement as “the wro ngful or willful taking of money or property of someone else after the
money or property has lawfully come into the possession or control of the person taking it.”
9
more prejudicial than probative in violation of Rule 403 and its admission requires reversal of their
convictions. The first witness was Mary Witherow, the DOL attorney in charge of the civil suit
against the Herrings. Over the objections of the defendants, Ms. Witherow testified about the
civil suit against the Herrings, particularly that the Herrings had admitted that they violated
ERISA. She also testified about settlement negotiations between DOL and the Herrings. Ms.
Witherow identified a series of exhibits related to the civil case consisting of correspondence
between the DOL and the Herrings discussing purported ERISA violations and various settlement
proposals. Two limiting instructions were given by the court during her testimony. In the first,
the court instructed the jury that “merely because civil proceedings were instituted against the
Herrings and related health care entities does not mean or indicate that they were in any way
guilty of the criminal charges that are filed here.” Later the court instructed the jury that the
words “good faith” in the civil case scheduling order admitted into evidence had nothing to do
with the criminal case, rather that they related to discovery in the civil case only. In addition the
district court reviewed the exhibits, excluding those it found to be unfairly prejudicial.
The second witness was Bruce Ruud, an ERISA expert. Over the defendants’ objections
that he was testifying regarding legal opinions as to the ultimate issue in the case, Ruud testified
that the loans from the pension plans were prohibited transactions under ERISA. Again the
district court gave a limiting instruction that “simply because his opinions and his testimony may
be to the effect that the defendant, some or all of the defendants engaged in prohibited
transactions under ERISA does not necessarily mean that they are guilty of the crimes charged
here in this indictment.”
The defendants’ complaint is that this testimony, like the jury instruction addressed
10
previously, equated civil violations with guilt of the charged criminal offenses. The defendants
rely on two cases from this circuit, United States v. Christo, 614 F.2d at 494-95, and United
States v. Riddle,
103 F.3d 423 (5th Cir. 1997). The defendants’ reliance on these cases is
misplaced as they are factually distinguishable from facts in this case. In Christo, a former bank
officer was charged with misapplication of bank funds. The government repeatedly attempted to
introduce certain Cease and Desist Orders issued by the Controller of the Currency against the
bank and was successful in bringing them up eight times before the jury. This court found that the
government failed to demonstrate the relevance of these orders to the charges against the officer
and that they were highly
prejudicial. 612 F.2d at 494-95. In Riddle, this court found that reports
of bank examiners, even if admissible, had limited relevance to the charged crimes, were overly
prejudicial and should not have been admitted at trial of former chairman of bank’s board charged
with bank fraud and other
crimes. 103 F.3d at 430-31. Riddle also addressed opinion testimony by
an unqualified lay witness regarding the propriety of certain banking practices and his opinion that
those practices caused the bank to fail.
The challenged testimony in this case differs from that in Christo and Riddle in several
respects. First, the testimony of both Ms. Witherow and Mr. Ruud was relevant to the issue of
the Herrings’ intent. Ms. Witherow’s testimony shows that when she confronted the Herrings
with the illegality of their actions, they rejected several opportunities to correct the problem and
refund the pension plans. Their stalling tactics negated a good faith defense. Mr. Ruud’s
testimony demonstrated the Herrings’ knowledge that their transactions violated the plans and
ERISA regulations and that the Herrings falsified forms to conceal the transactions. This
testimony was probative on the Herrings’ knowledge, bad faith and the willful nature of their
11
actions. See United States v. Grote, 632 F.2d 387, 390 (5th Cir. 1980) (Allowing IRS official to
testify comparing defendant’s tax returns characterizing some as “acceptable” and some
“unacceptable” in order to show defendant’s prior knowledge of what was required of him.)
Second, based on our review of the record, the district court was careful to redact exhibits and
streamline testimony to reduce any prejudicial effect. Finally, the district court gave appropriate
and timely limiting instructions to the jury to caution them that testimony regarding charges of
civil violations does not mean that the defendants are guilty of the crimes charged.
The defendants also complain about evidence that certain submitted expenses were
disallowed or disallowable by Medicare. Gerald Fink, an FBI financial analyst, testified regarding
the results of certain analysis he did at the direction of the government. He reviewed 1995 and
1996 credit card charges focusing on charges for travel and meals incurred by the Herrings and
charged to the Agencies. He first totaled all charges for those types of expenses. Then he
calculated a subset of those charges in several categories including charges for meals when a per
diem allowance was claimed, charges for airfare or meals when no documentation of a business
reason was in the file, charges for hotel suites and extensions of hotel stays before and after
business conferences, and the difference between first class airfare and coach tickets. By his
calculations, those excessive charges totaled $99,535.
Mr. Fink was not called as an expert. He summarized and analyzed record evidence of the
Herrings credit card receipts and Medicare audits. Some of his calculations included amounts that
had been disallowed in the Medicare audit. His calculations added items that met the same
criteria as the disallowed charges but were not identified in the audit because of the random
nature of the audit. Mr. Fink’s analysis was significantly more extensive than the audit.
12
The Herrings objected that Mr. Fink’s testimony extended beyond that of a summary
witness because he was asked to draw conclusions as to costs disallowed or disallowable by
Medicare. Based on our review of the record, we conclude that the district court did not abuse its
discretion in admitting this testimony. After traversing the witness outside the presence of the
jury, his testimony was carefully limited to presenting his summary calculations of charges that
met criteria given to the witness by the government. The defense vigorously cross examined the
witness and made the point that he was not an expert and that his calculations did not take into
account the Medicare appeals process that could impact his conclusions.
The district court did not abuse its discretion in admitting this testimony.
B.
The Herrings argue that their convictions should be reversed because the government
elicited material testimony that it knew was untrue and allowed misleading testimony to go
uncorrected. This argument is predicated on the testimony of former agency employees who
testified that they had lost their pensions. The defendants contend that this testimony is false
because the government knew that the plans had substantial assets. The Herrings also complain
of testimony about their lifestyle, including a large ring worn by Martha Herring, the furnishings
of their Highland Road home and whether they made any payments on that home loan. The
defendants suggest this testimony was designed to create jury resentment.
Based on our review of the trial testimony, these contentions are without merit. The
government did not sponsor false, misleading or uncorrected testimony. The former employees’
testimony about the solvency of their pension accounts is supported by other testimony in the
record that no payments were being made from the fund to the beneficiaries. Testimony regarding
13
the Herrings’ lifestyle was very limited and relevant to illustrate how the Herrings personally
benefitted from the funds the government charged was misappropriated from Medicare and the
pension funds. Whether any payments were actually made towards the Highland Road home loan
was an area of factual dispute at the trial. None of this disputed testimony establishes a basis for a
due process violation.
IV.
Next, the Herrings challenge the sufficiency of the evidence supporting their convictions
for bankruptcy fraud. A party who acts in good faith reliance on the advice of an attorney does
not have the fraudulent intent necessary to support a conviction for bankruptcy fraud. United
States v. West, 22 F.3d 586, 598 n.34 (5th Cir. 1994).
Ms. Herring was charged with bankruptcy fraud relating to her transfer of property she
owned in Pass Christian, Mississippi to an LLC for the benefit of her son and daughter before she
filed her Chapter 7 petition. In order to demonstrate bankruptcy fraud, the government must
show that she knowingly and fraudulently transferred property in contemplation of bankruptcy.
18 U.S.C. § 152(7). According to the government, the transfer was made within one year of Ms.
Herring’s filing for bankruptcy and not listed in her bankruptcy filings. Although Ms. Herring
submits that she relied upon the advice of counsel in setting up the transfer, she did not call any of
them as witnesses and her own testimony establishes that she made the transfer to protect her
property from bankruptcy. Her son, one of the transferees, had no knowledge of the transaction.
This evidence is sufficient to support her conviction of bankruptcy fraud.
The Herrings’ convictions for bankruptcy fraud on behalf of their corporation was based
on testimony that they omitted two assets from their bankruptcy schedules - (1) a hospice license
14
which was disclosed when the Herrings sought permission to sell it in the proceedings for
$10,000, and (2) accounts receivable for monies owed by Goldco, the Goose, or the Herrings to
the Agencies. They argue that the omission of these assets failed to establish the requisite intent
to defraud creditors as is required to support a conviction, citing In re Humphries, 469 F.2d 643,
644 (5th Cir. 1972). They argue further that they relied on their accountant and bankruptcy
attorney to ensure that the assets of the Agencies were properly disclosed. Again the Herrings
failed to call either the accountant or the bankruptcy attorney at trial. Testimony from several
witnesses at trial demonstrated that the Herrings were in sole joint control of all business
decisions affecting the Agencies and as well as Goldco and the Goose. They affirmed under oath
their obligation to disclose all assets and to correct any errors or omissions in the bankruptcy
proceedings. This issue is without merit.
V.
Finally, the Herrings argue that the district court misapplied the Sentencing Guidelines by
overstating the amount of loss and the corresponding offense level. A determination of the loss
for calculating the applicable guideline range is a legal question reviewed de novo. United States
v. Izydore, 167 F.3d 213, 223 (5th Cir. 1999). Factual determinations regarding losses are
reviewed for clear error. United States v. Bieganowski,
313 F.3d 264, 294 (5th Cir. 2002). The
government calculated the loss based on the harm inflicted on the victims of the fraud, i.e. the
pension plans and Medicare. In a case involving diversion of government program benefits, loss is
the value of the benefits diverted from intended recipients or uses. U.S.S.G. 2F1.1 Comment 8(d)
(2000).
Applying that comment, the district court found a total loss of $7,324,266. The Herrings
15
suggest that the loss calculation should be offset by the value of the property securing the loans
from the pension plans, which they estimate at $1.5 million and the value of the Golden Goose
preferred stock, which they set at $500,000. The district court relied instead on the valuations set
by the plan fiduciary who unequivocally valued all collateral at zero. This is a credibility call that
is within the discretion of the district court and based on credible evidence in the record. It is not
clearly erroneous. The Herrings will receive the benefit of any recovery on these assets as offsets
to their restitution obligation.
The Herrings also contend that the loss should not include the following items:
a. $212,236 in interest.
The Herrings argue that the loss calculation should not include interest on the unpaid 1995
and 1996 contributions to the pension plans. Their position is based on the assumption that the
interest in the loss calculation is “opportunity cost” interest that the plan could have earned on the
funds had they been timely deposited, which, they submit, the guidelines do not allow to be
included in the loss. The government counters that the interest included in the loss calculation
instead reflects interest that the Herrings fraudulently included on their Medicare cost reports.
The Herrings received reimbursement for this claimed expense, which was disallowed and now
cannot be recovered from the Agencies. This fraud was alleged in the indictment. Accordingly,
because most of the Herrings’ argument on this point is based on their incorrect assumption, their
authorities are inapplicable. The district court properly included this loss in the calculation of
amounts diverted from the Medicare program.
b. $1.2 million disallowed charge for paid days off in 1995 and 1996.
The loss calculation also includes over $1 million representing paid days off for staff
16
claimed in the 1995 and 1996 cost reports. These claims were disallowed as being claimed too
early. The government justifies their inclusion in the loss calculation because Medicare has no
mechanism for collecting these amounts. Accordingly, like the interest improperly claimed, this
amount should be included in the loss calculation because it was diverted from the Medicare
program.
c. $105,000 in disallowed or disallowable travel expenses.
The final challenge to the loss calculation involves the inclusion of excess and unallowable
travel reimbursements. The defendants characterize these as simple disallowances which did not
result in a loss. However, the Agencies received the funds claimed for these travel expenses and
there is no evidence that these monies were repaid or recouped by Medicare. Given our
conclusion as to the Herrings’ other challenges to the loss calculation, even if this amount were
removed from the loss calculation it would not impact their sentences as it would not lower the
loss to an amount below $5,000,000. U.S.S.G. 2F1.1(b).
For reasons stated above, the district court did not err in its calculation of the loss for
sentencing purposes.
IV.
In summary, we find no error in the convictions or sentences of the Herrings as found by
the district court. The judgment of the district court is therefore AFFIRMED.
17
