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March 15, 2000


The opinion of the court was delivered by: Scheindlin, District Judge.


This opinion addresses several pre-trial motions filed by the defendants in this prosecution for Medicare fraud. First, defendant Alan Barton Nachamie moves to prevent the Government from introducing evidence of two prior convictions. Second, if the Court grants Nachamie's motion, defendants Kenneth Schrager, Donna Vining, and Ghanshyam Kalani move to sever their trials from Nachamie's trial. On the other hand, if the Court denies Nachamie's motion, defendant Edwin Tunick moves to sever his trial from Nachamie's trial. Third, defendants Edwin Tunick and Jose Hernandez move to sever an object of the alleged conspiracy that was added by the Government in a recent superseding indictment. The Government opposes each defense motion, including the conditional severance motions. In addition, the Court addresses an unanticipated problem with the scheduled trial date.


The background of this prosecution can be found in this Court's opinion on the Government's motion to quash a number of subpoenas served by Hernandez pursuant to Rule 17(c). See United States v. Nachamie, et al., 91 F. Supp.2d 552, 554-57 (S.D.N.Y. 2000) ("Nachamie I"). On February 8, 2000, the grand jury returned a Third Superseding Indictment in this case. As in the previous indictments, Count One of the Third Superseding Indictment alleged that the defendants had conspired to commit offenses against the United States. The Third Superseding Indictment, however, contained a new allegation regarding the object of the alleged conspiracy:

It was a part and object of said conspiracy that ALAN BARTON NACHAMIE, a/k/a "Alan Barton," a/k/a "Dr. Lewellyn," EDWIN TUNICK, LYDIA MARTINEZ, and JOSE HERNANDEZ, the defendants, together with co-conspirators not named as defendants herein, unlawfully, willfully and knowingly, would and did solicit and receive remuneration (including kickbacks, bribes and rebates) directly and indirectly, overtly and covertly, in cash and in kind in return for purchasing, leasing, ordering, and arranging for and recommending purchasing, leasing, and ordering a good, facility, service, and item for which payment may be made in whole or in part under a Federal health care program, to wit, the defendants, and their co-conspirators, solicited kickback payments from an individual associated with a medical laboratory located in Florida in return for ordering and arranging for that medical laboratory to conduct tests that were to be billed to Medicare, in violation of Section 1320a-7b(b)(1)(A) of Title 42, United States Code.

Third Superseding Indictment, ¶ 14. In addition, the Third Superseding Indictment states that, as one of the "means and methods of the conspiracy:"

ALAN BARTON NACHAMIE, a/k/a "Alan Barton," a/k/a "Dr. Lewellyn," EDWIN TUNICK, LYDIA MARTINEZ, JOSE HERNANDEZ, and others, also solicited kickback payments from an individual associated with a medical laboratory located in Florida in return for ordering and arranging for that medical laboratory to conduct laboratory tests on the beneficiaries that were to be billed to Medicare.

Id., ¶ 15(i). Finally, the Third Superseding Indictment alleges the following incident as one of the overt acts of the conspiracy:

On or about October 21, 1997, JOSE HERNANDEZ received a check made payable to "Julie Hernandez," for $8,150 and drawn on the account of Key Biscayne Clinical Laboratories Inc.

Id., ¶ 16(ff). Notably, these new allegations involve only the four defendants who are not doctors (the "non-doctor defendants").


Defendant Nachamie moves to preclude the Government from introducing two prior convictions, both from 1977:(1) attempted arson in the third degree, in New York State Court, Bronx County; and (2) conspiracy to commit health care fraud, in United States District Court, Southern District of New York.*fn1 According to the Government, the attempted arson conviction was connected to the health care fraud, because it involved Nachamie's attempt to burn down one of his clinics. See March 7 Tr., at 25. Nachamie argues that the Government should be prevented from introducing these prior convictions because they are not relevant under Fed.R.Evid. 404(b) and are substantially more prejudicial than probative under Fed.R.Evid. 403. The Government opposes Nachamie's motion.

Rule 404(b) states:

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident. . . .

Fed.R.Evid. 404(b). "In Huddleston v. United States, [485 U.S. 681, 108 S.Ct. 1496, 99 L.Ed.2d 771 (1988),] the Supreme Court outlined the test for admission of other acts evidence under Rule 404(b)." United States v. Gilan, 967 F.2d 776, 780 (2d Cir. 1992).

First, the evidence must be introduced for a proper purpose, such as proof of knowledge or identity. Second, the offered evidence must be relevant to an issue in the case pursuant to Rule 402, as enforced through Rule 104(b). Third, the evidence must satisfy the probative-prejudice balancing test of Rule 403. Fourth, if the evidence of other acts is admitted, the district court must, if requested, provide a limiting instruction for the jury.

Id. (citations omitted).

The Government bears the burden of demonstrating the admissibility of evidence under Rule 404(b), although the Second Circuit has never stated it in those precise terms. See United States v. Zackson, 12 F.3d 1178, 1182 (2d Cir. 1993) ("Under Federal Rules of Evidence 403 and 404(b), the government may introduce evidence of a defendant's prior crime if that evidence is relevant for a reason other than to show criminal propensity, and if the probative value of that evidence is not substantially outweighed by the danger of unfair prejudice."); United States v. Levy, 731 F.2d 997, 1002 (2d Cir. 1984) ("The government . . . must explain in detail the purposes for which the evidence is sought to be admitted."); see also United States v. Garcia-Montalvo, 885 F. Supp. 99, 101 (S.D.N.Y. 1995) ("The Government has clearly met three of the four requirements for admissibility under Rules 404(b) and 403."). At least one circuit has placed the burden on the Government explicitly. See United States v. Arambula-Ruiz, 987 F.2d 599, 602 (9th Cir. 1993) ("The Government has the burden of proving that the evidence meets all of the [Rule 404(b)'s] requirements."); See also 2 J. Weinstein, M. Berger, & J. McLaughlin, Weinstein's Evidence, § 404.23[5][b], at 404-138 (2d ed. Aug. 1997) ("Once the question of admissibility has been raised, the party offering the evidence has the burden of convincing the court that it is relevant to a consequential fact in issue other than propensity, and that Rule 403 does not require exclusion."). Finally, the Supreme Court's decision in Huddleston suggests that, at least for the first two requirements of proper purpose and relevancy, the Government bears the burden. See Huddleston, 485 U.S. at 691, 108 S.Ct. 1496 (evidence must be offered for proper purpose and must be relevant).

A. Proper Purpose

The Government argues that both of Nachamie's prior convictions will help explain the background of the conspiracy because an accomplice witness will testify at trial that he participated in both the health care fraud conspiracy for which both he and Nachamie were convicted and the alleged Medicare conspiracy at issue in this case. According to the Government, Nachamie's prior criminal relationship with the accomplice witness will help explain why Nachamie invited that witness into the alleged conspiracy and why the other defendants trusted the accomplice witness enough to speak openly about their own criminal conduct. The Second Circuit has stated repeatedly:

Prior act evidence may be admitted to inform the jury of the background of the conspiracy charged, to complete the story of the crimes charged, and to help explain to the jury how the illegal relationship between participants in the crime developed.

United States v. Pitre, 960 F.2d 1112, 1119 (2d Cir. 1992); see also United States v. Williams, 205 F.3d 23, 32 (2d Cir. 2000). The Government has established that both convictions are being offered for the proper purpose of establishing the background of the conspiracy.

In addition, the Government argues that the conspiracy conviction is being offered to prove his knowledge or intent, both of which are proper purposes under the explicit language of Rule 404(b). In response, Nachamie argues that neither his knowledge nor his intent are disputed issues in this case. The Second Circuit has explained that, if a defendant removes the element of intent or knowledge from a case, prior act evidence cannot be introduced for the purpose of establishing that element. See United States v. Colon, 880 F.2d 650, 656-57 (2d Cir. 1989); United States v. Figueroa, 618 F.2d 934, 941-42 (2d Cir. 1980). But the defendant must clearly and unequivocally remove the element from the case:

Whether an issue remains sufficiently in dispute for similar acts evidence to be material and hence admissible, unless the prejudicial effect of the evidence substantially outweighs its probative value, depends not on the form of words used by counsel but on the consequences that the trial court may properly attach to those words. When the Government offers prior act evidence to prove an issue, counsel must express a decision not to dispute that issue with sufficient clarity that the trial court will be justified (a) in sustaining objection to any subsequent cross-examination or jury argument that seeks to raise the issue and (b) in charging the jury that if they find all the other elements established beyond a reasonable doubt, they can resolve the issue against the defendant because it is not disputed.

Figueroa, 618 F.2d at 942; see also United States v. Mohel, 604 F.2d 748, 754 (2d Cir. 1979) ("It is enough that defendant has unequivocally offered the concession and then acts accordingly.").

In his initial attempt to remove the elements of knowledge and intent from the case, counsel for Nachamie wrote, in a letter to the Court dated March 6, 2000: "In this case, it is defendant Nachamie's contention that he did not commit any acts giving rise to criminal liability, not that he committed acts by mistake or without criminal intent or knowledge." March 6, 2000 Letter from Gerald J. McMahon, counsel for Nachamie. At oral argument, however, it became clear that Nachamie was not removing the element of knowledge from this case:

THE COURT: . . . Are you going to open and say, ladies and gentlemen, if you hear the doctors that he recruited did things here that were wrong, that is for those doctors to worry about. My client did not know it, didn't encourage it, they didn't ask him to do it, did no part of it. That is what the doctors did. My client knew nothing about it. Isn't that the theory of your defense?
MR. McMAHON [Nachamie's counsel]: Well, Judge, if my client's function was to be in the clinic supervising the doctors —


MR. McMAHON: — then I think that the component of his knowledge would be more relevant. The government is well aware that that was not his role. The people whose role that was to deal with the doctors are government witnesses Aziz, Sinabi and Hassan. That was never my client's role. It is not a question of his knowledge. Judge, if somebody is carrying a package of narcotics to an undercover and his defense is well, I didn't know, that is one situation. I am in a situation where I am not in a clinic, I am not supervising the doctors, I am not seeing what they are doing, nor am I obligated to see what they were doing.
THE COURT: That is all true, but the defense is, so whatever went on there is something I didn't know about. I recruited doctors, I set up clinics, but I had no day-to-day supervision, I didn't know it was going on there. Isn't that putting his knowledge directly in contention, knowledge of the scheme, knowledge of the wrongdoing, the issue of knowledge is the defense?
MR. McMAHON: I don't think that is the kind of knowledge that allows the introduction of other crimes evidence.
THE COURT: I haven't seen cases that distinguish one kind of knowledge from another kind that has to do with knowledge.
MR. McMAHON: I gave the example of a person who carries contraband.

THE COURT: That is very nice.

MR. McMAHON: He has physical presence, he has the contraband.
THE COURT: That is one example. Knowledge is an issue. You're saying well, he knew these people, he recruited these doctors, he set up clinics and went to nursing homes and suggested patients go into those very clinics. He didn't know the false claims were being submitted. I don't know how that is not knowledge of the scheme. I don't think you can answer the question because I think it is an issue of knowledge.
MR. McMAHON: I don't think it is an issue of knowledge because the distinction is the physical presence.
THE COURT: Do you? I don't think I understand that distinction. Does the government think knowledge is an issue?

MR. STRANG [Assistant U.S. Attorney]: Yes.

MR. HALPERN [Assistant U.S. Attorney]: More so now since Mr. McMahon has been speaking, knowledge is more of an issue than he set forth in his letter.
MR. [McMAHON]:*fn2 Judge, the bulk of my argument is with respect to the prejudice component.

Mar. 7 Tr., at 73-75. This colloquy demonstrates that Nachamie has failed to remove the element of knowledge from this case. See Colon, 880 F.2d at 659 ("A defendant may not purposely use ambiguity tactically, seeking to gain the one advantage of barring admission of prior acts evidence by proffering a particular defense theory, only to later seek the additional advantages stemming from arguing lack of intent to the jury."); see also United States v. Coyle, No. 1S 93 Cr. 68(SS), 1993 WL 378332, at *6 & n. 5 (S.D.N.Y. Sep. 17, 1993) (allowing admission of prior act evidence because defendant's attempts to remove elements of knowledge and intent from case were not sufficient). As a result, Nachamie's conviction for conspiracy to commit health care fraud is offered for the proper purpose of demonstrating his knowledge of the Medicare fraud conspiracy alleged in this case.*fn3

B. Relevance

Next, the Court must determine whether Nachamie's prior convictions are "relevant to an issue in the case." Gilan, 967 F.2d at 780. This factor involves an examination of whether "the jury could reasonably find by a preponderance of the evidence that the [prior] act occurred and that the defendant committed the act." United States v. Ramirez, 894 F.2d 565, 569 (2d Cir. 1990); see also Huddleston, 485 U.S. at 689, 108 S.Ct. 1496 ("In the Rule 404(b) context, similar act evidence is relevant only if the jury can reasonably conclude that the [prior] act occurred and that the defendant was the actor."). In this case, Nachamie does not dispute that he was convicted of both attempted arson and conspiracy to commit health care fraud; indeed, he pled guilty to both charges. See Mar. 7 Tr., at 77-78. Thus, Nachamie's prior convictions are relevant.

C. Prejudice

Rule 404(b) explicitly prohibits the admission of evidence of other crimes "to prove the character of a person in order to show action in conformity therewith." Fed.R.Evid. 404(b). The danger inherent in Rule 404(b) is that, even though the evidence of other crimes is admissible for a proper purpose, the jury still might use it as evidence of the defendant's bad character. See Figueroa, 618 F.2d at 943 ("A prior conviction is material to a defendant's intent (when intent is in issue), but it is also prejudicial to the extent that it also tends to prove a defendant's propensity to commit crimes."). Recognizing the importance of this concern, the Supreme Court has emphasized "the assessment the trial court must make under Rule 403 to determine whether the probative value of the similar acts evidence is substantially outweighed by its potential for unfair prejudice." Huddleston, 485 U.S. at 691, 108 S.Ct. 1496; see also Gilan, 967 F.2d at 780 ...

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