Trial set for two in fraud case

When a federal appeals court reinstated the fraud case against a Las Vegas lawyer and a former medical consultant last year, then-U.S. Attorney Greg Brower called the decision "a big win for the government in a very important case."

Starting this week, prosecutors will try to turn that victory into criminal convictions for the two defendants, personal injury lawyer Noel Gage and former consultant Howard Awand.

Prospective jurors are scheduled to arrive at the Lloyd George U.S. Courthouse on Wednesday, three years after a federal indictment made Awand the first defendant in the case.

Las Vegas attorney Stan Hunterton said the legal community once had high expectations for the fraud case. He recalled hearing talk on the street five-plus years ago about impending indictments that would bring charges against hundreds of defendants.

"Literally, the number was hundreds of doctors and lawyers were going to go down for this," Hunterton said.

To date, the case has resulted in criminal charges against three people and a single conviction. Mark Kabins, an orthopedic surgeon, accepted a plea bargain in November that allowed him to avoid prison time.

"This was supposed to be massive insurance fraud," Hunterton said.

The original indictment against Awand claimed he conspired for two years with unidentified attorneys and health care providers to inflate personal injury settlements and judgments "to the detriment of the best interests of the clients they were hired to represent and serve."

According to the indictment, Awand "directed excessive and aggressive medical care of clients, promised and paid kickbacks to others, and promised and provided protection from mal­practice lawsuits to healthcare providers," while concealing those activities from clients.

Gage later was added to the indictment, and the case has traveled a turbulent path since then.

After Nevada's judges declined to hear the case, it was assigned to Senior U.S. District Judge Justin Quackenbush of Spokane, Wash.

Gage went to trial alone two years ago, but after hearing the evidence, Quackenbush acquitted the lawyer of all counts other than those involving client Melodie Simon, who was paralyzed after Kabins and another surgeon operated on her in 2000.

The counts involving Simon then went to the jury, which could not reach a unanimous verdict.

Quackenbush later dismissed the charges against both Gage and Awand after prosecutors refused to grant limited immunity to Kabins, described at the time as a target of the fraud investigation.

Kabins was indicted in March on conspiracy and fraud charges, and in August, the 9th U.S. Circuit Court of Appeals in San Francisco reinstated the charges against Gage and Awand.

In November, Kabins pleaded guilty to "misprision of felony," which Quackenbush defined as "a failure to report an alleged crime committed by others." The misprision charge is a felony, and the conviction was the first in the case.

According to a statement issued by U.S. Attorney Daniel Bogden after Kabins entered his plea, the surgeon "acknowledged that he used Awand to corruptly influence Gage not to sue him, and that he concealed the crime that Awand and Gage thereafter committed."

Gage represented Simon in her medical malpractice case. Rather than sue Kabins or the other surgeon who operated on her, the lawyer sued an anesthesiologist.

The malpractice case settled for $2.3 million, but prosecutors argued it was worth much more.

After attorney fees and costs were deducted, Simon received $1.3 million. Kabins' plea agreement requires him to pay her another $3.5 million.

In December, a grand jury returned a fourth version of the indictment that originally was returned against Awand. The original indictment was 24 pages, but the latest version is just 13 pages, and Quackenbush has threatened to pare it down even further.

The current indictment, which includes only the allegations involving Simon, claims Gage and Awand conspired from about August 2000 to about October 2004 "to deprive Ms. Simon of her right to the honest services of her lawyer."

Each defendant faces four counts of mail fraud/honest services fraud and one count of wire fraud/honest services fraud. Gage also is charged with obstruction of justice.

In December, the U.S. Supreme Court heard arguments in two cases in which the "honest services fraud" law was used to obtain convictions, and a third case is set for argument on March 1.

Observers have said they expect justices to strike down or scale back the law, which often is used to prosecute political corruption cases.

"That law should only apply to public officials," Hunterton said. "I think that when you and I elect someone to public office, we're entitled to their honest services."

Arthur Hellman, a law professor at the University of Pittsburgh, said the honest services fraud law is not limited to public officials. He agrees that, based on the justices' questions at the December arguments, the statute seems to be in trouble.

"It's written in such broad language," he said.

Hellman said the law's vagueness could violate the basic due process requirement that people be given fair warning of what constitutes criminal behavior. The law also raises a concern "about giving too much discretion to federal prosecutors."

"I think one of the reasons for concern today is because we've seen so many high-profile prosecutions collapse because of prosecutorial misconduct," Hellman said.

He specifically cited the case of Republican Sen. Ted Stevens of Alaska, who was convicted of lying on Senate ethics forms shortly before losing his bid for re-election. The convictions later were set aside amid allegations of prosecutorial misconduct.

The honest services law was enacted in 1988. According to the statute, "The term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."

"The statute, because it is so broadly written, gives enormous discretion to federal prosecutors, and federal prosecutors are not as trusted as they were 10 or 20 years ago," Hellman said.

Gage's attorneys have asked Quackenbush to dismiss the "honest services" allegations in the indictment.

According to a recent order issued by the judge, "This court is disposed to grant the motion to dismiss the intangible right to honest services fraud allegations, but will reserve ruling thereon."

Quackenbush will advise counsel of his final ruling before the lawyers present their opening statements to the jury, according to the order.

Prosecutors want to proceed under both the traditional theory of fraud -- that Simon was deprived of money and property -- and the theory that Simon was deprived of honest services. They have argued that "controlling precedent" precludes dismissal of the honest services charges.

"Although the Supreme Court is presently reviewing whether the honest services fraud statute is unconstitutionally vague, the Ninth Circuit has decided previously that it is not," prosecutors wrote in their response to the defense motion.

According to the response, the 9th Circuit previously has decided that the statute is neither vague as applied to public officials nor as applied to private parties.

"Because the Ninth Circuit's decisions bind this Court, this Court cannot dismiss the honest services charges on vagueness grounds," prosecutors wrote.

However, prosecutors suggested providing "special verdict forms" to the jury in case the Supreme Court finds the statute unconstitutional in the future. Such a form would allow the jury to specify, in the event of a conviction, which theory of liability it relied on.

"That will save the parties and the court time and resources in the event the honest services fraud statute is ruled to be unconstitutional," prosecutors wrote.

Contact reporter Carri Geer Thevenot at cgeer@reviewjournal.com or 702-384-8710.