SOURCE: KaiserLeGrand.com

http://www.nacdl.org/USvClay

March 08, 2016 15:35 ET

WellCare Criminal Prosecution -- An Over-Criminalization Case of Regulatory Offences

WASHINGTON, DC--(Marketwired - March 08, 2016) - The Washington Legal Foundation, a public-interest law firm and policy center devoted to defending and promoting the principles of free enterprise and individual rights, has recently published an article highlighting examples of over-criminalization of the American legal system. Titled 'Clay v. United States: When Executives Receive Jail Time for Ordinary Business Decisions,' author and founding partner at Kaiser, LeGrand & Dillon PLLC, Matthew G. Kaiser, discusses the conviction of C-suite executives in Clay as "a troubling case study in over-criminalization and improper application of prosecutorial discretion" and urges all regulated businesses and their counsel to pay close attention to the case as it goes through the appeals process.

Kaiser's article summarizes the background of Clay v. United States, currently awaiting a decision from a federal appeals court, and explains how a vague regulatory scheme resulted in the prosecution of three executives at WellCare, a publicly-traded managed-care company. Kaiser writes, "according to one estimate, there are more than 300,000 federal regulations that prosecutors can apply criminally. Many of those regulations are unclear, thanks to ambiguities existing in the federal laws that agencies are implementing." Pursuant to the Florida's Medicaid program's so-called "80/20 Statute" and state contracts, WellCare provided health care services to the program's recipients. WellCare's executives, including ex-CEO Todd Farha and ex-CFO Paul Behrens, "relied on sound legal advice and common industry practices" when interpreting the 80/20 Statute and contracts and thus, saw no possibility of their interpretation being misconstrued as unreasonable or 'illegal'. The executives' appellate briefs argue that whether WellCare's interpretation was reasonable "implicates due process, fair notice, and the rule of lenity," and if objectively reasonable under the precedent of Whiteside v. United States, "then there was no criminal act or actus reus." Todd Farha's Brief, in particular, argues "that the evidence at trial did not show that he even had the requisite mens rea."

When discussing "Proliferation of Vague and Ambiguous Laws," Kaiser states "businesses must regularly interpret complex laws, contracts, and regulations impacting their communications with federal and state governments." This issue was compounded in the WellCare Criminal Prosecution case, where the state agency defaulted on its obligations to issue clarifying regulations on how companies could comply with the statutory requirement. Kaiser further explains how "without the protection of judicial precedents like Whiteside, interacting with the federal government becomes a high-stakes game of 'Gotcha!'" He gives a number of examples of prosecutorial indiscretion in his analysis of the "Administrative and Civil Remedies v. Criminal Prosecutions," including the case of insider trading in United States v. Newman and the criminal conviction of a fisherman's violation of the anti-shredding provision of Sarbanes-Oxley for discarding undersized fish in Yates v. United States.

The case of United States v. Clay illustrates how "prosecutors often eschew civil fines for criminal punishment as a way of advancing their preferred interpretation of statutes or regulations." According to the Brief of former WellCare CEO Todd Farha (pp 6-7), "government regulators brought a civil action against another health care provider that interpreted the law similarly to WellCare. Prosecutors have provided no explanation as to why it decided to pursue criminal sanctions against WellCare instead of a breach-of-contract claim." The civil case brought against the other industry participant settled for no payment, and the state of Florida has since eliminated the 80/20 statutory provision entirely. 

Kaiser concludes, "Due process and basic fairness demands that people be on notice that their conduct could be criminally sanctioned… In Clay, the WellCare executives relied on sound legal advice and common industry practices when implementing their method of computing health care costs. Such reliance, simply put, made their interpretation of the 80/20 statue reasonable. The business and legal communities have a substantial stake in the outcome of this appeal" because it raises the prospect that business executives could be criminally prosecuted for making ordinary business decisions after receiving competent legal advice, if the government disagrees with their reasonable interpretation of the law.

'Clay v. United States: When Executives Receive Jail Time for Ordinary Business Decisions' was published by Washington Legal Foundation (WLF). WLF remains dedicated to the preservation of America's free-enterprise system and advocates for free-market principles. It has published many case studies that aim to decrease the power of federal government and expand individual and business civil liberties. Since its publication, several groups are working to bring attention to these cases to reduce over-criminalization and protect Americans from unjust imprisonment and fines.

For more information about the WellCare Criminal Prosecution Case, visit: http://www.nacdl.org/USvClay/

WLF Legal Backgrounder - the Washington Legal Foundation: http://www.wlf.org/upload/legalstudies/legalbackgrounder/031315LB_Kaiser.pdf

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