The opinion of the court was delivered by: Dalzell, J.
It became apparent from the record adduced in this criminal health care fraud prosecution that there were difficult questions regarding restitution that inevitably would arise at the sentencings of the nine defendants who either pleaded guilty or were convicted after the month-long jury trial on March 3, 2010. These complexities focused primarily on two issues. The first is whether the City of Philadelphia should be regarded as a "victim" under the Mandatory Victims Restitution Act ("MVRA"), 18 U.S.C. § 3663A. The second involves the calculus of the amount of restitution that should be ordered from the over-$3.6 million the City paid to the private provider whose four principals and five social workers were adjudicated guilty.
As will be seen, although the City is a public entity, it is by no means certain that, given the record in this case, it should reflexively be regarded as a "victim" under the MVRA. In fact, the four defendants who contested the charges contend that the City should not be regarded as such a "victim", and that, in any event, the amount of restitution is unascertainable and therefore should not be imposed upon them.
As the first question is one that has received little attention in the MVRA jurisprudence, we shall analyze it at some length. The second question is more easily disposed of.
On April 30, 2009, a Grand Jury returned an Indictment that in twenty-one counts charged eight defendants with multiple counts of wire fraud, in violation of 18 U.S.C. § 1343, and health care fraud, in violation of 18 U.S.C. § 1347. In addition, these eight defendants were also charged with conspiracy to impede, obstruct and influence the investigation of a matter within the jurisdiction of the United States Department of Health and Human Services ("HHS"), in violation of 18 U.S.C. § 1519, which was, in turn, a violation of 18 U.S.C. § 371. One of these eight defendants, Mariam Coulibaly, was also charged with making materially false statements, in violation of 18 U.S.C. § 1001. A ninth defendant, Patricia Burch, was charged only with one count of perjury, in violation of 18 U.S.C. § 1623.
These nine defendants were all officers or employees of a firm known as Multi-Ethnic Behavioral Health, Inc. ("MEBH"), a non-profit entity that was formed to contract with the Philadelphia Department of Human Services ("DHS") to provide what are known as "Services to Children in Their Own Homes" ("SCOH"). Such services are extended to "at risk" children in the City of Philadelphia. Ninety-five percent of the funds the City used to pay SCOH providers came from a federal program that exists to provide Temporary Assistance to Needy Families (the "TANF program"). The Commonwealth of Pennsylvania each year at issue received millions of dollars in federal funds as part of the TANF program and the Commonwealth, in turn, allocated these funds to counties such as Philadelphia.
In the summer of 2000, largely through the efforts of defendant Earle McNeill, MEBH, a start-up company, won the contract from DHS to provide SCOH services. MEBH was co-founded by McNeill and defendants Mickal Kamuvaka, Solomon Manamela and Manuelita Buenaflor. MEBH's contract with DHS lasted over six years, until its termination on October 31, 2006. Defendants Julius Juma Murray, Mariam Coulibaly, Christiana Nimpson, Sotheary Chan and Patricia Burch were SCOH workers at MEBH at various times from about November of 2001 through the termination of MEBH's contract in October of 2006.
This prosecution was triggered when HHS Agent William McDonald read in the Philadelphia Inquirer about the appalling circumstances leading to the August 4, 2006 death of Danieal Kelly, a fourteen-year-old child with cerebral palsy who was first brought to DHS's attention as an "at risk" child in 2002. In September of 2005, DHS assigned the Kelly family to MEBH at the highest level of SCOH supervision -- known as "Level III" --which required at least two in-person visits per week to assure the welfare of the several Kelly children, most notably, Danieal, who was palpably in extreme need and wheelchair-bound.
When Danieal's dead body was found in horrific condition on August 4, 2006, MEBH's staff, led by Kamuvaka, began furious efforts to cover up the fact that MEBH's SCOH workers had failed to visit the Kelly family. Worse, on the day Kamuvaka learned of the child's death, they energetically fabricated dozens of papers purporting to document visits to the Kelly family that never occurred.
As noted, Agent McDonald learned of the institutional fiasco leading to Ms. Kelly's horrid death only after reading articles about it in the Philadelphia Inquirer. Notably, DHS did not bring the matter to his or HHS's attention.
After the Grand Jury on April 30, 2009 returned the Indictment here, five of the defendants pled guilty to some of the charges. Specifically, co-founder Earle McNeill pled guilty to one count of wire fraud, and co-founder Manuelita Buenaflor pled guilty to one count of wire fraud, one of health care fraud, and one of conspiracy as detailed above. SCOH worker Christiana Nimpson pled guilty to the same charges as Manualita Buenaflor. SCOH worker Sotheary Chan pled guilty to one count of wire fraud and one of health care fraud, and SCOH worker Patricia Burch pled guilty to the one count of perjury that she was charged with in the Indictment. We shall refer to these people as the "Plea Defendants".
Defendants Kamuvaka, Manamela, Murray, and Coulibaly contested the charges. On March 3, 2010, Kamuvaka and Manamela were convicted of all the charges against them, and defendants Murray and Coulibaly were convicted of most of the counts against them. We shall refer to these four as the "Trial Defendants".
As the trial progressed, it became apparent to us from the evidence that the City of Philadelphia, through DHS, was no ordinary "victim" within the meaning of the MVRA. As Kamuvaka's able counsel argued to the jury, there was plenty of blame to be found for Danieal's grotesque demise, starting with her mother, Andrea Kelly, who now serves a twenty to forty year prison sentence for her wanton neglect. And there can be no question that defense counsel's generalization includes the abject institutional failure of DHS in its (at best) supine indifference to this young victim. We therefore on March 4, 2010 posed three questions in an Order to all the parties in anticipation of the sentencings that commenced in April of this year.
The first question asked whether the City could indeed be a "victim of the offense" with the meaning of the MVRA. As we explained in footnote one of that Order,
This question is predicated on the record of the recent trial in which it was disclosed, inter alia, that:
(a) DHS retained Multi-Ethnic Behavioral Health, Inc.("MEBH"), which at the time was a start-up company with no experience in serving "at risk" children, and which, throughout the period, appeared to have only one client, DHS;
(b) DHS maintained a so-called "audit" program wherein MEBH received up to six weeks' advance notice of such "audits" and also received advance identification, albeit on shorter notice, of the particular families to be "audited";
(c) The Assistant Medical Examiner's testimony regarding the directive, unique in the Assistant Medical Examiner's experience, from the then-Acting Health Commissioner, that the doctor should "say nothing" about his autopsy of Danieal Kelly "to inquiring people"; and
(d) The testimony of Agent William McDonald that he learned of MEBH's involvement with the Kelly family from reading the Philadelphia Inquirer and not from any disclosure to him or his agency from DHS.
Mar. 4, 2010 Order at ¶ 1, n.1 (doc. no. 228).
We then asked that if the City was indeed a "victim" within the meaning of the MVRA, "should the City nevertheless not be regarded as a 'victim' based on the applicability of other legal grounds?". Id. at ¶ 2. To this question we appended another footnote:
For example, whether under the circumstances suggested in note 1, treating the City as a "victim" would be inconsistent with Congressional intent under the restitution statute or whether such treatment would be inconsistent with doctrines of, e.g., unclean hands and in pari delecto, particularly where, as here, it is undisputed that the funds misused ultimately came from HHS through its TANF program.
Lastly, we asked, "[i]n any case, what is the proper amount of restitution that should be imposed?". Id. at ¶ 3. Again, we provided an explanatory footnote:
This question is predicated on the divergence in the record regarding the extent of phantom visits to the "at risk" children and families. For example, while he was a SCOH worker, it appears that Alan Speed duly visited the Kelly family consistent with that family's Level III classification, but that after his involvement ceased these visits did not occur with any regularity. Additionally, former SCOH workers' testimony varied in percentages of phantom visits from twenty percent to more than fifty percent. Thus, it would appear that the "harm" for purposes of restitution -- whether suffered by the City of Philadelphia or by HHS as surrogate for "the families and children at risk" referred to in ¶ 25 on page 7 of the Indictment should be less than the $3,650,145.36 that Michael Kauffman testified the City paid to MEBH during the "scheme".
The Government filed a Memorandum in response to that Order (doc. no. 242) and the Trial Defendants thereafter filed their Joint Defense Response (doc. no. 292).
Upon further review of the record, we noted the July 15, 2009 guilty plea of DHS social worker Laura Sommerer in the Philadelphia Court of Common Pleas to endangering the welfare of children, in particular, Danieal Kelly, in violation of 18 Pa. C.S.A. § 4304. Sommerer was the second DHS social worker assigned to oversee the Kelly family.*fn1 As a result, on May 3, 2010, we ordered further briefing on the significance of Sommerer's admission to this crime which, under Pennsylvania law, consists of "each of the following elements:
1) the accused is aware of his/her duty to protect the child; 2) the accused is aware that the child is in circumstances that could threaten the child's physical or psychological welfare; and 3) the accused has either failed to act or has taken action so lame or meager that such actions cannot reasonably be expected to protect the child's welfare," Commonwealth v. Mackert, 781 A.2d 178, 187 (Pa. Super. 2001), abrogation on other grounds recognized by Commonwealth v. Dent, 837 A.2d 571, 588 (Pa. Super. 2003).[*fn2 ]
Order of May 3, 2010 (doc. no. 293). The Government duly responded on May 24, 2010 (doc. no. 303), and the Trial Defendants did so shortly thereafter (doc. nos. 304 and 305) ("Defs' Jt. Resp.").
While the Government agrees with "the Court's concern about the City's failure to assure that MEBH was delivering services and its failure to detect MEBH's fraud," it nevertheless "believes that the City is entitled to restitution despite its own failings and the misconduct of some of its employees." Gov't Mem. Per Order of Mar. 4, 2010 ("Gov't's First Mem.") at 2. By contrast, the Trial Defendants' joint response contends that the City's conduct through DHS was sufficiently "unconscionable, inequitable, or the like" as to preclude its being regarded as an MVRA "victim", essentially applying the doctrine of unclean hands to the City in this context. Defs' Jt. Resp. at 4.
With respect to the amount of restitution, the Government acknowledges that "[l]oss in this case is not easily calculated." Gov't's First Mem. at 10. After canvassing the trial testimony of more than a dozen former SCOH workers who worked at MEBH, the Government concludes that "as a conservative estimate, the Court should estimate that 1/3 of the visits MEBH was required to do were not done." Id. at 13. Thus, the loss --i.e., the public money paid for services not rendered -- would be a third of the $3.65 million the City remitted to MEBH, or $1,216,000.
On this issue, the defendants have sharply divided. At the sentencings of the five Plea Defendants, no one took issue with the Government's calculus of this restitution. The Judgments for these defendants -- at least for those Plea Defendants like Buenaflor and McNeill who were active and on the scene throughout the conspiracy -- accordingly imposed a $1,216,000 joint and several restitution obligation.
Of greater interest is that, perhaps in recognition of the concerns described in our March 4, 2010 Order, the Government has entered into an agreement with the City of Philadelphia in which "DHS agrees to assign its approximately 1% interest in any restitution payments, along with the federal government's portion, to the Crime Victim's Fund. See 18 U.S.C. § 3664(g)(2)." Ltr. from Christopher A. Iacono, Esq. to AUSA Bea L. Witzleben, Apr. 7, 2010, Att. A of Gov't's First Mem. By the time of the April sentencings of the Plea Defendants, the Government had also reached an agreement with the Commonwealth of Pennsylvania that it, too, would assign its four percent interest in any restitution payments to the Crime Victims Fund maintained in the United States Treasury.*fn3
Thus, with the City's and Commonwealth's agreement, the questions we raised in our March 4, 2010 Order have been compromised, or, if one prefers, finessed. But in view of the Trial Defendants' vigorous opposition to treating the City as an MVRA victim, the issue is still very much alive as far as they are concerned. That is to say, if the City is not an MVRA victim, it has, from the Trial Defendants' point of view, nothing to assign to the Crime Victims Fund. As to the question of "loss" -- to whatever MVRA victim -- the Trial Defendants believe the Government's calculus is too speculative and therefore should not be imposed on them at all.
We therefore address this issue in advance of the Trial Defendants' sentencings later this week.
Can the City Be Regarded as an MVRA "Victim"?
The Government and the Trial Defendants do agree on one point, and that is the breadth of the MVRA's definition of "victim". Specifically, the statute defines a victim as "a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity [for which all of the Trial Defendants were indeed convicted], any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern," 18 U.S.C. § 3663A(a)(2). In construing this restitution statute, we bear in mind the persuasive teaching of the Seventh Circuit that federal criminal restitution law carries "not a history marked by steady congressional erosion, but rather by constant expansion of the restitution remedy." United States v. Martin, 128 F.3d 1188, 1190 (7th Cir. 1997). The Trial Defendants correctly point out that the Second Circuit has held that governmental entities, including the Government itself, may be considered MVRA "victims", United States v. Ekanem, 383 F.3d 40, 43 (2d Cir. 2004), an unsurprising holding in view of the "constant expansion" that Martin describes. See also United States v. Kress, 944 F.2d. 155, 159-60 (3d Cir. 1991) (Dept. of Defense as victim under pre-MVRA restitution statute).
There is no controversy that the City treasury in fact remitted $3,650,145.36 to MEBH during the over six years of its contract with DHS. To be sure, $3,467,638 (i.e., 95%) came from TANF funds, and $146,006 (i.e., 4%) came from Commonwealth funds. But $36,501.45 (i.e., 1%) came from the City itself, and thus the City was, even to this narrow extent, "directly ...