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June 6, 2001


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


I. Introduction

II. Factual and Procedural Background

On May 31, 2001, Barbour and Moran entered pleas of guilty to separate one-count informations charging each defendant with conspiracy to defraud Nationwide Insurance Company ("Nationwide") through use of the mails in violation of 18 U.S.C. § 371. The facts under which these pleas arose are as follows: Defendant Paul Barbour, a licensed attorney, was employed as in-house claims counsel for Nationwide from November 1987 until his discharge in December 1998 due to circumstances resulting from the instant criminal matter. Defendant Kellie Moran is a Registered Nurse with whom Barbour had been in a long-term friendship/romantic relationship. In a scheme to defraud Nationwide, Barbour and Moran conspired to create a medical records consulting service which they used to steal money paid by the insurance company on claim files assigned to Barbour. To wit, Barbour had the authority to make payment in claim files on behalf of Nationwide in amounts up to $50,000. Moran filed a d.b.a. entitled "Medical Evaluation Services of CNY" ("MES") on April 3, 1998, listing the company address as a post office box in the Carousel Mall in Syracuse, New York. On the same date, Moran also executed a Power of Attorney granting Barbour authority over all of her business and personal transactions Finally, Moran opened a bank account at Fulton Savings Bank in the name of MES.

Between April 7, 1998 and November 19, 1998, Barbour authorized and issued 144 claim payments in amounts between $400 and $1,800, for a total of $213,800 to MES. Barbour created the checks on his laptop computer which had the capacity to generate company drafts from Nationwide's office in Columbus, Ohio. After generating the checks, Barbour mailed them to the above-referenced mall post office box. Barbour failed to record the tax identification number for MES on the checks which was required by Nationwide on all payments to medical providers. These checks were purportedly payment for 144 medical records evaluations in cases where a claim was made against one of its insureds. However, Nationwide received only one such written evaluation from MES. A review of the claim files found 143 of the payments issued by Barbour to MES were issued after the claim files had been closed. In addition, many of the claim files contained independent medical exam and record review reports from other providers. Only one claim file had a medical records review report from MES to substantiate payment, but the check that was issued reflected payment was made seven days before the date that the report was completed. Additionally, investigators found no invoices from MES in any of the subject claim files.*fn1

A review of the checks issued by Barbour showed each were cashed and/or deposited at Fulton Savings Bank to the account set up by Moran in the name of MES, with endorsements of "Kellie Moran or For Deposit Only." In June 1998, Moran temporarily relocated to Virginia, but maintained the post office box at the Carousel Mall in the name of MES. During the time she was in Virginia, Barbour collected the checks mailed to the mall post office box and deposited them in the Fulton Savings Bank account on behalf of Moran. In addition, Barbour completed numerous ATM withdrawal transactions on this account. Nationwide's internal investigation revealed that Barbour and Moran used the proceeds of the aforementioned checks from Nationwide to pay for personal items and expenses. Barbour also used his Nationwide corporate credit card to pay for charges incurred by him and Moran locally and while on vacation. These credit card bills were paid with funds issued to MES by Nationwide.

Defendants appeared initially for arraignment on August 10, 1999, with Emil Rossi, Esq., who stated on the record that he was jointly representing defendants for the sole purpose of the arraignment. Mr. Rossi advised the Court that otherwise he would be appearing only for defendant Barbour while Ms. Moran would thereafter be represented by Patricia Campbell, Esq.. Following the arraignment, defense counsel requested further discovery from the government. Specifically, defendants sought full access to each of the claim files involved in the case in which allegedly fraudulent payments had been made, including access to the medical records in such claim files. The U.S. Attorney's Office moved for a protective order denying defense counsel access to this information but ultimately consented to the relief sought and made all of the requested documents available for review by defendants.

Pursuant to identical written plea agreements executed on May 31, 2000, defendants Barbour and Moran conceded their participation in the above-described scheme in the section entitled "Factual Basis for the Plea" which stated as follows:

[DEFENDANT] admits the following facts, which establish [his/her] guilt on the offense stated in the one-count Information:
a. In 1998, [PAUL R. BARBOUR and KELLIE A. MORAN] willfully agreed . . . to attempt to defraud Barbour's employer, Nationwide Insurance Company by paying KELLIE A. MORAN for medical evaluation services purportedly performed by her, doing business as "Medical Evaluation Services of CNY," which services were not, in fact, performed.
b. In his capacity as an employee of Nationwide, PAUL R. BARBOUR caused checks totaling approximately $213,800 to be issued by Nationwide, all made payable to "Medical Evaluation Services of CNY." These checks were purportedly issued in payment for approximately 140 medical evaluations; but, in fact Nationwide only ever received one written evaluation from KELLIE A. MORAN or Medical Evaluation Services of CNY.
c. KELLIE A. MORAN collected approximately $195,650 of the funds of Nationwide which PAUL R. BARBOUR caused to be paid to Medical Evaluation Services of CNY, and KELLIE A. MORAN conducted further financial transactions specified in the Information in order to share illegal proceeds with Barbour.
d. In furtherance of the conspiracy, PAUL R. BARBOUR, with the knowledge and approval of KELLIE A. MORAN, caused to be delivered by mail, according to the direction thereon, to 10148 Carousel Center, Syracuse, New York, envelopes containing the checks from Nationwide payable to "Medical Evaluation Services of CNY," on or about the dates specified in the Information.

In exchange for the defendants' execution of waivers of indictment on the informations and pleas of guilty, the government agreed to move to dismiss an earlier indictment issued against defendants and not to oppose the imposition of the least severe sentence permitted within the applicable guideline range. Notably, both defendants and the government stipulated in the plea agreements that the offense charged and relevant conduct involved "more than minimal planning" warranting a two-level increase to the offense level pursuant to U.S.S.G. § 2F1.1(b)(2). In addition, defendant Barbour stipulated to a two-level enhancement of his total offense level pursuant to U.S.S.G. § 3B1.3 because he "abused a position of private trust, [as staff counsel to Nationwide] which significantly facilitated the commission and concealment of the offense." The plea agreements also stated that if the defendants demonstrated "acceptance of responsibility" for the offense through the time of sentencing, the government would recommend a three-level decrease in the offense level for both defendants pursuant to U.S.S.G. § 3E1.1. The only issue not settled by the plea agreements was the amount of loss involved in the crime on which the parties agreed to argue and submit evidence at or before the time of sentencing.*fn2

On May 31, 2000, the same day they executed the plea agreements, defendants appeared before this Court, along with their attorneys Mr. Rossi and Ms. Campbell, to enter pleas of guilty on the record. The transcript of the proceeding clearly demonstrates that defendants' pleas to the charged offense and relevant conduct were voluntary and unequivocal. Moreover, both defendants stated on the record that they were satisfied with the performance of their counsel. After defendants and their counsel provided sufficient information to satisfy the Court that defendants were voluntarily waiving their right to a trial on the charged offense with full knowledge of the possible consequences of such action, the Court accepted their guilty pleas.*fn3 The Court set the date for sentencing as September 29, 2000. At the request of defense counsel, the Court then adjourned the sentencing four times to afford defendants and their attorneys ample time and opportunity to review the insurance claims files involved in the case for the purpose of obtaining evidence regarding the amount of loss sustained by Nationwide as a result of defendants' conduct.

On February 16, 2001, defendants appeared for what was scheduled as a sentencing hearing with a new attorney, Christina Cagnina, Esq.. Ms. Cagnina advised the Court that after developing "communication problems" with Mr. Rossi and Ms. Campbell, defendants had decided to retain new joint counsel. Ms. Cagnina requested an adjournment of the sentencing to afford her the opportunity to review her clients' files thoroughly along with any relevant documents concerning sentencing. The government readily agreed to a six-week adjournment which the Court granted. On March 1, 2001, Ms. Cagnina filed fully executed consent to change attorney forms with the Clerk's office along with a notarized "Acknowledgment and Waiver of Conflict or Appearance Thereof" signed by her and both defendants which stated as follows:

I, Paul Barbour and I, Kellie Moran do hereby acknowledge by retaining and requesting representation by Christina Cagnina, Esq. in the manner [sic] of criminal representation, in Federal Court, Northern District of New York, that I acknowledge and waive any conflict or appearance thereof in her representation of me in this matter. I have been informed of the risks of joint representation, possible conflicts and consequences and hereby choose to have Christina Cagnina, Esq. represent me for the matter with knowledge and understanding that she will be representing the other above named person in the same matter. I hereby, by my signature, Waive my right to separate counsel and any claim of possible prejudice from joint representation.

Other than reviewing this Acknowledgment and Waiver, at no time during the February 16, 2001, hearing or subsequent sentencing hearing did the Court acknowledge or explore on the record the issue of defendants' joint representation by Ms. Cagnina.

In August 2000, the United States Probation Department filed its presentence investigation reports with respect to both defendants. The reports were identical in connection with describing the offense and relevant conduct for each defendant. The reports differed slightly with respect to discussing aspects of the defendants' plea agreements since defendant Barbour had stipulated to an additional two-level enhancement of his base offense level based on abuse of his position of trust with Nationwide. The reports also differed in assessing each defendant's acceptance of responsibility for the crime.*fn4 Insofar as computation of the offense level for sentencing purposes, the probation department determined that the base offense level for both defendants was 16. To wit, both reports stated as follows:

The United States Sentencing Commission Guideline for violation of 18 U.S.C. § 371 is found in U.S.S.G. § 2XI.I which instructs the base offense level is the offense level from the guideline for the substantive offense, plus any adjustments from such guideline for any intended offense conduct that can be established with reasonable certainty. The guideline applicable to the substantive offense is found under U.S.S.G. § 2F1.1, and calls for a base offense level of 6. The loss in this case is $213,800, the amount of money Barbour attempted to fraudulently pay to Moran.*fn5 Pursuant to U.S.S.G. § 2F1.1(b)(1)(1), if the loss was more than $200,000, but not more than $350,000, the offense level is increased by 8 levels. Barbour authorized 143 fraudulent payments to Moran's business, Medical Evaluation Services of CNY, over a period of seven months. Pursuant to U.S.S.G. § 2F1.1(2), if the offense involved more than minimal planning, the offense level is increased by 2 levels. Therefore, the base offense level under U.S.S.G. § 2X1.1 is 16.

According to this calculation, both defendants began with a base offense level of 16. Added to Barbour's base was the additional two-level enhancement pursuant to U.S.S.G. § 3B1.3 for abuse of his fiduciary responsibility to his employer, Nationwide, bringing his total offense level to 18. Based on the defendants' equally marginal acceptance of responsibility for engaging in the offense conduct, the probation department determined that the promised three-level downward departure was not warranted. After completing his investigation, the assigned probation officer determined that both defendants had a criminal history category of I and that Barbour's total offense level was 18 while Moran's was 16.

On March 26, 2001, Ms. Cagnina filed separate sentencing memoranda with regard to each defendant. In the case of Mr. Barbour, Ms. Cagnina argued that he had demonstrated acceptance of responsibility by cooperating with the investigation and executing the plea agreement. Further, she argued that Barbour had admitted his failure to obtain approval from Nationwide to use MES as an outside service provider as well as his failure to properly document his agreement to pay Moran for services rendered three years before her d.b.a. was established. Cagnina averred that Barbour also acknowledged his payments to MES were "overly generous" in comparison to other providers. Cagnina argued that Barbour's actions were driven in part by "his own pride in not wishing to appear unable to handle his work-load due to his lack of some basic medical knowledge. He now admits this was wrong and that he mislead [sic] the company by supplanting his lack of knowledge on company money."

In connection with the issue of the amount of loss, Cagnina argued that "the basis for which these payments [to MES] were deemed to be `unauthorized' is not clear in the plea agreement." Defense counsel contended that based on various factors, it was "especially difficult to ascertain a specific amount of loss" in the case.*fn6 Ms. Cagnina also argued that the Court should decline to accept the stipulation in the plea agreement concerning "more than minimal planning" as such was duplicative of Mr. Barbour's stipulation to an upward departure based on his abuse of a position of trust. According to Ms. Cagnina, application of the "more than minimal planning" enhancement could be refuted upon proof that the repetitive acts completed by Barbour in furtherance of the crime were "purely opportune." Cagnina contended that it was within Barbour's range of job duties to disburse funds up to ...

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