Lying Isn't Always Fraud - the Sixth Circuit Sends A Case Back Because Buying Drugs From a Drug Distributor Is What The Drug Distributor Wants
Lester and Nancy Sadler, a husband and wife, ran a series of pain management clinics in Ohio.
As the Sixth Circuit explained, "these were not conventional plain clinics." For example, at one clinic
patients would arrive well before it opened, filling the clinic's parking lot and the lots of nearby businesses. While waiting for the clinic to open, the patients used drugs and traded prescription forms for cash in the parking lots. The patients often traveled long distances (and in large groups) to come to the Sadlers' shops, sometimes as much as 316 miles in a roundtrip, even though most of the patients lived much closer to other clinics.
It's impressive to have a client base that loyal. Many businesses would do a lot to be known as the company that folks would travel many miles to visit.
How did the pain management clinics distinguish themselves? Perhaps it was their service. Here's how the Sixth Circuit described what happened when patients got inside the clinic:
After paying their $150 appointment fee (cash only), they met an "assessor" who would review the patients' healthfacts "day sheet" and hand the patients an already completed prescription form. Clinic staff sometimes filled out these day sheets and prescription forms weeks in advance, pulling the content from the patients' last day sheet and prescription and altering them slightly to make sure they didn't look the same. Patients then stepped into an office, where they met the doctor for a minute or two. After that, they left the clinic (some "almost skipping," reported one witness) with a signed prescription for a fresh supply of hydrocodone, oxycodone or other pain medications in hand. As many as 100 people per day completed this "five minute" process of assessment and prescription
With customers leaving your office "almost skipping" you can see why people would drive from miles around. What business wouldn't want such a reaction?
Though, as it happens, the Sadler's clinics may have gone too far in their quest for client service. You know you've crossed a line when you start making up clients to help. That's not good customer service; that's hubris.
The clinics also treated phantom patients. Each month, Nancy would announce to the clinic staff that "it was time to do the charts," meaning it was time to update the medical treatment files for a long list of people who had never set foot in the clinics. R. 326 at 35. The Sadlers used the names of family members for these charts. Lester's dad had a chart, as did two of the Sadlers' children, Kyle and Levi, though none of them ever needed the clinics' services. Staff members would then write prescriptions for these non-existent patients, the doctor would sign the prescriptions, and clinic staff would fill the prescriptions at a local pharmacy. The pain pills found their way to David Michael Journey, a relative of the Sadlers and an occasional clinic employee, who sold the pills on the street at a significant profit.
Doubtless Mr. Journey's clients were also happy with his service, but at that point the business does seem to be shifting from its retail base into wholesaling. It's a too common journey - a company gets good at one thing, then wants to expand into something it has no business doing - like when J. Peterman opened stores. (Because, of course, the whole point of J. Peterman was the catalog? If you see they're stuff in a store you know its just overpriced cloth)
At some point, unfortunately, the DEA began to think that the Sadler's pain clinics were not completely in compliance with all applicable regulations. And, to make things worse, some of those regulations were found in Title 18 of the United States Code.
The Sadlers were charged with a number of controlled substances offenses. And Nancy Sadler was charged with wire fraud and money laundering.
After a trial, the jury found them both guilty of most of the controlled substances charges and found Nancy Sadler guilty of wire fraud and money laundering.
Lester was sentenced to 151 months, and Nancy was sentenced to 210 months.
Though, on appeal, the Sixth Circuit, in United States v. Sadler, reversed Nancy's conviction on the wire fraud count. It's a cool issue - here's what happened.
First, to prove wire fraud, the government has to prove that Nancy "knowingly used an interstate wire communication to further a scheme to defraud [someone] of their money or property."
The government argued that the "someone" here are the drug companies that distrubute the drugs that Nancy, in turn, distributed. There's no question that Nancy lied to the drug companies - the only interesting issue is whether she deprived them of property.
The government says she did - after all, the don't have the pills anymore. The Sixth Circuit smacks it down. Here's how:
The government's opening bid offers this answer: Nancy deprived the distributors of their pills. Well, yes, in one sense: The pills were gone after the transaction. But paying the going rate for a product does not square with the conventional understanding of "deprive." Cleveland, 531 U.S. at 19; Webster's Third New International Dictionary 606 (2002). Stealing the pills would be one thing; paying full price for them is another. Case law reinforces that the conventional meaning of "deprive" applies in the fraud context. To be guilty of fraud, an offender's "purpose must be to injure," Horman v. United States, 116 F. 350, 352 (6th Cir. 1902), a common-law root of the federal fraud statutes, see Neder v. United States, 527 U.S. 1, 21-25 (1999); Restatement (Second) of Torts § 531 ("One who makes a fraudulent misrepresentation is subject to liability . . . for pecuniary losses suffered."). Nancy may have had many unflattering motives in mind in buying the pills, but unfairly depriving the distributors of their property was not one of them. As to the wire-fraud count, she ordered pills and paid the distributors' asking price, nothing more.
Lying isn't always fraud.