United States v. Edward Novak
856 F.3d 1117
| 7th Cir. | 2017Background
- From 2001–2013 Sacred Heart Hospital paid physicians under various written arrangements (personal services, teaching contracts, a lease, and staffing of PAs/NPs) that the government alleged were concealed kickbacks to induce patient referrals.
- Novak (owner/CEO) and Nagelvoort (outside consultant; later VP/COO) oversaw, signed, or directed many of these contracts and staffing arrangements; recorded conversations and hospital documents were seized in a 2013 search.
- Witnesses (physicians, administrators, PAs/NPs) testified that contracted duties were often not performed, time sheets were fabricated, and payments correlated with referrals or admission expectations.
- Outside counsel Joan Lebow repeatedly advised that certain arrangements did not fall within Anti‑Kickback safe harbors and warned about referral-based inducements; Nagelvoort provided misleading information to counsel about how services would be billed/paid.
- Novak and Nagelvoort were indicted for substantive violations of the Anti‑Kickback Statute (42 U.S.C. § 1320a‑7b(b)(2)(A)) and conspiracy (18 U.S.C. § 371); after a seven‑week trial a jury convicted both on the conspiracy count and most substantive counts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether agreements fell outside the Anti‑Kickback safe harbors | Gov’t: Contracts/rents/staffing took into account referrals and thus are outside safe harbors | Novak/Nagelvoort: Agreements met safe‑harbor criteria (written, fair market value, services rendered) | Jury reasonably found contracts considered referrals; safe harbors did not apply |
| Whether defendants acted knowingly/willfully | Gov’t: defendants knew statute, received counsel, controlled arrangements, and concealed facts — hence knowledge/willfulness proven | Defendants: consultations with counsel and recorded admonitions show intent to comply, not to violate law | Sufficient evidence for jury to conclude knowing and willful violations |
| Admissibility of coconspirator statements after April 28, 2011 (withdrawal) | Gov’t: Nagelvoort remained part of conspiracy; post‑date statements admissible unless jury finds withdrawal | Nagelvoort: termination from employment effected withdrawal as matter of law; post‑date statements inadmissible | Termination alone is insufficient; no legal withdrawal proved; admission was not an abuse of discretion |
| Vagueness challenge to Anti‑Kickback statute ("any part or purpose" instruction) | Nagelvoort: statute vague if any part/purpose suffices; urges "primary or substantial purpose" test | Gov’t/Court: longstanding circuit precedent permits liability if payment partly compensates for past or induces future referrals | Court upheld existing test; statute not unconstitutionally vague as applied |
Key Cases Cited
- Salinas v. United States, 763 F.3d 869 (7th Cir.) (standard for sufficiency review)
- Jackson v. Virginia, 443 U.S. 307 (1979) (reasonable‑doubt sufficiency standard)
- Galati v. United States, 230 F.3d 254 (7th Cir.) (deference to jury when record supports verdict)
- Hale v. United States, 448 F.3d 971 (7th Cir.) (evaluating competing views of evidence)
- Pust v. United States, 798 F.3d 597 (7th Cir.) (abuse‑of‑discretion review for admission of coconspirator statements)
- Powers v. United States, 75 F.3d 335 (7th Cir.) (Rule 801(d)(2)(E) elements)
- Hall v. United States, 212 F.3d 1016 (7th Cir.) (burden on defendant to prove withdrawal)
- Vallone v. United States, 752 F.3d 690 (7th Cir.) (withdrawal requires disavowal/affirmative act)
- Morales v. United States, 655 F.3d 608 (7th Cir.) (mere inactivity/retirement inadequate for withdrawal)
- Julian v. United States, 427 F.3d 471 (7th Cir.) (same principle on withdrawal)
- Wilson v. United States, 134 F.3d 855 (7th Cir.) (communication of withdrawal may suffice if it disavows conspiracy)
- Borrasi v. United States, 639 F.3d 774 (7th Cir.) (Anti‑Kickback liability if payment partly compensates for or induces referrals)
- Bay State Ambulance & Hospital Rental Serv., Inc. v. United States, 874 F.2d 20 (1st Cir.) (alternative instruction requiring primary purpose was rejected by 7th Circuit precedent)
- Ford v. United States, 798 F.3d 655 (7th Cir.) (statutory interpretation reviewed de novo)
- Sylla v. United States, 790 F.3d 772 (7th Cir.) (constitutional challenges reviewed de novo)
- Plummer v. United States, 581 F.3d 484 (7th Cir.) (vagueness test and as‑applied analysis)