White Collar Criminal Defense Group

SCOTUS Asked To Determine Third Party Subpoena Standard In Criminal Cases

A petition for writ of certiorari to the U.S. Supreme Court filed on October 18 could lead to much-needed guidance on the circumstances under which criminal defendants can serve subpoenas on third parties. Michael T. Rand, a former Beazer Homes USA executive convicted of conspiring to commit securities and accounting fraud and sentenced to 10 years’ imprisonment, asked the Court to consider whether the standards set forth United States v. Nixon, 418 U.S. 683 (1974), apply to subpoenas served on third parties pursuant to Federal Rule of Criminal Procedure 17.

Under Rule 17(c)(1), “[a] subpoena may order the witness to produce any books, papers, documents, data, or other objects the subpoena designates.” On a timely filed motion, “the court may quash or modify the subpoena if compliance would be unreasonable or oppressive.” Id. 17(c)(2).

In Nixon, the Supreme Court articulated a heightened standard for subpoenas served on the prosecuting authority, requiring that such subpoenas seek specific, relevant, and admissible evidence. 418 U.S. at 700.  In so holding, the Court recognized that Federal Rule of Criminal Procedure 16 entitles the defendant only to limited discovery from the government. If Rule 17 expanded those limits, it reasoned, Rule 16 would have no meaning.

The Nixon Court expressly left open the question whether “a lower standard exists” when the subpoena “is issued to third parties.” Id. at 699 n.12.  However, many – if not most – courts have applied the heightened Nixon standard to third party subpoenas.  That includes the U.S. District Court for the Western District of North Carolina, which denied Rand’s request to subpoena accounting records from his former employer, and the U.S. Court of Appeals for the Fourth Circuit, which affirmed the denial of the subpoena and Rand’s conviction and sentence.

Other courts have applied a more permissive standard – i.e., the plain language of Rule 17(c) – when evaluating requests to issue third party subpoenas. While no Circuit Court has held that Nixon does not extend to such subpoenas, there are intra-circuit disagreements as to the appropriate standard.  Indeed, even intra-district divisions persist, with judges in districts that handle a substantial number of white collar criminal matters, such as the Southern District of New York and the Western District of North Carolina, imposing different standards on third party subpoenas.

Moreover, there is a strong textual argument that the Fourth Circuit and the other cases that have applied Nixon to third party subpoenas have gotten it wrong. Rule 16’s limitations apply only to the defendant’s right to seek discovery from the government and the government’s reciprocal right to seek discovery from the defendant.  No rule curbs the parties’ ability to seek discovery from third parties; indeed, as stated above, Rule 17 requires the production of “any books, papers, documents, data, or other objects the subpoena designates” and permits court intervention, on timely motion, only when “compliance would be unreasonable or oppressive.”  

The Supreme Court declines many more cases than it hears.  In the last decade, it has granted between 1% and 7% of petitions for a writ of certiorari in criminal cases, depending on the year.  While any individual case is a long shot for high court review, (1) the division among lower courts on whether to apply Nixon to third party subpoenas, and (2) the viable argument that such an application offends the plain language of Rule 17 – and impermissibly curbs a defendant’s right to acquire evidence that would assist in his defense – hopefully will increase the odds that the Court considers this important issue.        

The Yates Memo In Healthcare: Pursuing Civil, Criminal, And Administrative Penalties

It has been a year since the Yates Memo memorialized and clarified the government’s policy on individual accountability for corporate wrongdoing.  Initially, there was some debate whether the Yates Memo would change government practice, as many government officials and others saw it as a continuation of policy, rather than a significant departure from prior practice.  But a year in, it has become apparent that the government has placed a greater emphasis on pursuing individuals.  One arena where that emphasis is particularly apparent is healthcare. Below is a brief summary of some of most significant actions – both criminal and civil – that the government has taken against individuals in the healthcare industry. 

In United States v. Facteau, Case No. 1:15-CR-10076 (D. Mass.), the government charged former Acclarent executives, William Facteau and Patrick Fabian, with felonies relating to the off-label marketing of a nasal device, which the defendants allegedly promoted in an aggressive fashion to make the company attractive for purchase or an initial public stock offering.  On July 20, 2016, Facteau and Fabian, who succeeded in selling the company to Johnson & Johnson, were acquitted of the felony charges but convicted of misdemeanors.

On September 27, 2016, the former CEO of Tuomey Healthcare System, Ralph J. Cox, III, agreed to pay $1 million and to a four-year exclusion from participation in federal healthcare programs to settle claims involving his role in that system’s violation of the Stark Law.  As part of the settlement, Cox did not admit liability.  The resolution against the individual came after Tuomey suffered defeat in a jury trial and the district court entered a judgment under the False Claims Act in favor of the United States for $237.4 million. United States ex rel. Drakeford v. Tuomey Healthcare System, Inc., Case No. 3:05-CV-02858 (D.S.C.). The government later agreed to resolve the judgment against Tuomey for $72.4 million. 

On October 12, 2016, four former executives of American Senior Communities, an Indiana nursing home chain, were indicted for their alleged roles in a kickback and fraudulent overbilling scheme. United States v. Burkhart, Case No. 1:16-CR-212 (S.D. Ind.).  It is unclear whether an investigation against the corporate entity persists.

June 22, 2016, saw an unprecedented nationwide sweep led by the multi-agency Medicare Fraud Strike Force that resulted in the arrest of 301 individuals, including 61 healthcare professionals, in 36 districts.  The individuals were all charged with participating in various fraudulent schemes, which allegedly resulted in approximately $900 million in false billings to Medicare.

Finally, though the case has not yet yielded actions against individuals, Pfizer and Wyeth’s $785 million settlement to resolve allegations of reporting false drug prices to Medicaid included cooperation provisions. United States ex rel. Kieff v. Wyeth Pharmaceuticals Inc., Case Nos. 03-CV-12366, 06-CV-11724 (D. Mass.) Under those provisions, the companies must: cooperate with investigations concerning “individuals and entities not released” from liability in the settlement; make “former directors officers and employees available for interviews and testimony”; and produce to the government non-privileged documents concerning the conduct covered in the settlement.  Thus far, the government has required cooperation provisions in 46% of all corporate settlements in Fiscal Year 2016.