Appeal from the United States District Court for the District of Nevada. Robert C. Jones, District Judge, Presiding. D.C. No. 3:05-CR-0114-RCJ-RAM.
The opinion of the court was delivered by: Trager, District Judge
Argued and Submitted November 17, 2008 -- San Francisco, California
Before: Kim McLane Wardlaw and William C. Canby, Jr., Circuit Judges, and David G. Trager,*fn1 District Judge.
This case arises out of the failed prosecution of Dr. Mark Capener for health care fraud in violation of 18 U.S.C. § 1347, mail fraud in violation of 18 U.S.C. § 1341 and making false statements in violation of 18 U.S.C. § 1001. During the period relevant to this case, Dr. Capener was an otorhinolaryngologist in Nevada. The charges against him involved billing for surgeries that were allegedly either unnecessary, never performed or exaggerated for billing purposes ("upcoded"). After an extended investigation and a lengthy trial, the district court dismissed many of the counts against Capener on the ground that they were insufficiently supported by the evidence and the jury acquitted Capener of the remaining counts.
Following the trial, Capener moved for an award of fees to cover his defense costs under the Hyde Amendment, 18 U.S.C. § 3006A note, which allows an award of fees to a defendant when the prosecution acted in a manner that was "vexatious, frivolous, or in bad faith . . . ." Id. The district court partially granted Capener's motion, awarding fees to cover the costs of defending against certain counts associated with one of the theories advanced by the government on the ground that this theory was frivolous.
Both parties appeal the district court's decision. The government argues that the district court erred by granting fees after considering the government's case piecemeal - rather than viewing the case's alleged faults in the context of the case as a whole. The government also argues that, even viewed piecemeal, no part of government's prosecution meets the Hyde Amendment's standards for an award of fees. Capener cross-appeals, arguing that the district court should have granted fees on the entire case. Capener also argues that the district court should have granted him discovery regarding his Hyde Amendment claim. For the reasons stated below, the district court is reversed and Capener's application for fees is denied in its entirety.
(1) Investigation and Pre-Trial Proceedings
The investigation into Capener's medical practice began after Great-West Insurance Company referred him to the Nevada Attorney General, who, in turn, referred him to federal authorities. Great-West had contacted the Attorney General's office after Great-West's investigation of Capener's insurance claims appeared to reveal a pattern of excessive procedures and suspicious claims. In the course of the investigation, the government consulted Dr. John Dooley. Dr. Dooley reviewed some patient records and computed tomography ("CT") scans and indicated to the government that he believed that Capener had billed for unnecessary and unperformed surgeries.*fn2 Dooley also suggested that the government consult Dr. Dale Rice. Dr. Rice reviewed Capener's patient files, pathology reports and CT scans and concluded that many of the surgeries that Capener billed for were either unnecessary or were not performed.
Capener was indicted in July 2005. The grand jury charged him with 38 counts of health care fraud in violation of 18 U.S.C. § 1347, 13 counts of mail fraud in violation of 18 U.S.C. § 1341 and one count of making false statements in violation of 18 U.S.C. § 1001. The indictment alleged that the challenged procedures had not been performed, were unnecessary or were upcoded to increase the billing rate.
During the investigative phase, Dr. Rice indicated to the government that part of his conclusions were supported by the fact that no bone fragments had been reported in pathology samples taken from some of Dr. Capener's patients. Pathology samples consist of tissue taken from a patient after surgery. These samples are examined by a pathologist who then prepares a report. The bulk of the pathology reports that Dr. Rice reviewed had been prepared by Dr. George Mardini. Of the set of reports that Dr. Rice reviewed, some did not explicitly note the presence of bone fragments in the pathology sample while others specifically mentioned bone fragments. Dr. Rice concluded that, where bone fragments were present in a pathology sample, Dr. Mardini explicitly listed them in his report. The absence of any indication of fragments in the report therefore seemed to Dr. Rice to indicate that there were no fragments in the sample.
Dr. Rice theorized that, because some of the surgeries that Capener claimed to have performed would require breaking bones, bone fragments should have been present in the pathology samples. Where it appeared that they were not present, Dr. Rice reasoned that the surgery must not have been performed. Dr. Rice never indicated to the prosecutors that he needed further information or clarification regarding the presence or absence of bone fragments in these pathology reports.
Prior to trial, the government produced an expert witness disclosure concerning Dr. Rice's expected testimony. This disclosure described Dr. Rice's conclusion that Capener had billed for unnecessary and unperformed surgeries. It also indicated that Dr. Rice would base his testimony on CT scans and his own experience and judgment. However, the disclosure did not indicate that Dr. Rice would be basing any of his conclusions on the belief that bone fragments were absent from the pathology samples. That said, the prosecution had disclosed the fact that the absence of bone fragments was a central part of their theory in discussions with Capener's prior counsel at an earlier stage of the case.
In fact, most, if not all of the pathology samples in question did contain bone fragments. Dr. Mardini simply had not specifically mentioned this fact in some of the reports. Dr. Mardini and another doctor called by the defense, Dr. Steven Skoumal, explained at trial that bone fragments fall under the more general category of "sinosal mucosa." Dr. Skoumal testified that there was nothing wrong with the fact that Dr. Mardini had not specifically mentioned bone fragments in the pathology samples. The government interviewed Dr. Mardini during its investigation but did not discover that the pathology samples actually did contain bone fragments.*fn3
Also, as part of the pretrial proceedings, Capener moved for a subpoena to examine the medical records of the patients mentioned in the indictment. The government opposed his initial motion for subpoenas on the grounds that the proposed subpoenas were procedurally defective under Fed. R. Crim.P. 17, overly broad and non-compliant with protections for patient privacy in the Health Insurance Portability and Accountability Act of 1996 ("HIPAA").
The district court quashed the subpoenas, generally agreeing with the reasons put forth by the government. Later, the defense came forward with a more narrowly drawn request for subpoenas in compliance with HIPPA. The government filed no objection to most of the new, more narrowly drawn subpoenas. A magistrate judge issued subpoenas pursuant to the defense's second request. The material produced in response to these subpoenas indicated that many of the patients Capener had operated on had a history of sinus problems, tending to show that they might have appeared to need surgery.
In its case-in-chief, the government called Dr. Rice. Dr. Rice testified that, in his expert opinion, Capener had billed for unnecessary or unperformed surgeries. The major bases for his opinion were that (1) Capener's records indicated implausibly short times for the claimed surgeries, (2) some of the CT scans indicated that certain nasal bone structures were intact, which Dr. Rice felt would not have been intact if the claimed surgery had been performed, (3) CT scans indicated that some patients did not have frontal sinuses, as that term is medically defined, making it impossible for Capener to have performed frontal sinus surgery on them as he claimed and (4) under Dr. Rice's interpretation of the pathology reports, no bone fragments were found in some pathology samples. Of the seventeen health care fraud counts that would ultimately reach the jury, eleven did not rely at all on the bone fragments theory. With respect to the six counts where Dr. Rice did rely on the bone fragments theory, Dr. Rice also based his conclusion on one or more other theories as additional justifications.
The government called six significant doctors other than Dr. Rice to substantiate the charges against Capener. These other witnesses, however, collectively testified regarding far fewer patients than Dr. Rice. Drs. Bud West, David Mathis, Timothy Dyches, Anthony Zamboni and Michael Kaplan offered opinions regarding one patient each. In each case, they indicated that they did not believe that Capener had performed the claimed surgery. Dr. David Bolick testified that one patient's pathology sample lacked a type of tissue that it normally would have had if the claimed surgery had been performed and that he did not receive a pathology sample for another patient even though he normally would have. All told, these doctors testified about a total of seven patients while Dr. Rice testified regarding at least seventeen patients.*fn4 In addi- tion to these doctors, several of Capener's ...