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On the 3rd U.S. Circuit Court of Appeals, some dissenting opinions never see the light of day. Because the court’s internal rules call for all opinions to be circulated among the active judges before they are issued, an especially persuasive dissent can sometimes cause the entire court to vote against ever releasing the majority opinion in favor of rehearing the case before the full court. When such an “internal en banc” occurs, the roles of the judges on the original panel of three are often reversed, with the once-dissenting judge suddenly writing for the majority, and the former majority cast as dissenters. That’s exactly what happened in United States v. Pharis, in which the court has now voted 11-2 to dismiss a government appeal on double jeopardy grounds, with the practical effect that four defendants will walk away from a serious mail fraud indictment. The original three-judge panel in the Pharis case — 3rd Circuit Judges Dolores K. Sloviter, Robert E. Cowen and Julio M. Fuentes — heard oral argument in May 2001. But before any decision was released, the court announced that it would hold reargument before a 13-judge en banc panel in February 2002. Now the court has issued a decision in which Sloviter writes for an 11-judge majority and Cowen authors a dissent that is joined only by Fuentes. At issue in the appeal were a series of rulings made by U.S. District Judge Herbert J. Hutton, of the Eastern District of Pennsylvania, during the first few days of trial in September 2000. Prosecutors argued that when Hutton granted a defense motion on the first day of trial — but after the jury had already been sworn in — he effectively “gutted” the prosecution’s case and that his ruling should, therefore, be treated like a dismissal of the indictment. But Sloviter found that while Hutton’s rulings were wrong, they were nothing more than evidentiary rulings — since he didn’t dismiss any of the six counts — and that the prosecution, therefore, had no right to seek an immediate appeal. Under � 3731 of the Criminal Appeals Act, Sloviter found that the government is never allowed to appeal an evidentiary ruling once a jury has been sworn in and jeopardy has therefore attached. “Because the government failed to timely invoke the procedural rule and the statutory provision designed for the specific situation in which it found itself, the government seeks to turn S. 3731 upside down, inside out, and have this court become the first to call the exclusion of evidence a dismissal of the indictment, just so it can appeal,” Sloviter wrote. In dissent, Cowen said he would have reversed Hutton and ordered a new trial because the effect of Hutton’s trial rulings was to “reshape” the indictment and make it impossible for the government to prove its case. Cowen complained that his colleagues were setting a dangerous precedent that threatened the separation of powers doctrine, which gives the executive branch and the grand jury the exclusive power to draft indictments and decide the scope of the charges to be alleged. “The upshot of the majority’s rule is that district courts in this circuit now possess unchanneled discretion to rewrite indictments without having the effect of dismissing them, even though the changes to the offense elements are substantial enough to prevent the government from proving the defendants’ crimes,” Cowen wrote. In the indictment, the grand jury charged four men — David Pharis, Edward Habina, William Dull and Harry Gangloff — with mail fraud over the alleged inflating of consulting bills that they submitted to insurance companies. All four men worked for S.T. Hudson International Inc., a company that specialized in providing services to insurance companies that had large influxes of claims following disasters. Pharis was the CEO and president; Habina was the vice president; Dull was an associate; and Gangloff was a computer consultant. According to the indictment, the scheme began in 1989 when company officers instructed employees to begin manually altering bills to inflate the number of hours worked. But in February 1994, the indictment alleged that the scheme got high-tech when Pharis directed Gangloff to develop a computerized billing program, known as the “gooser,” that automatically multiplied the hours each consultant worked by a factor of 1.15 and then added an additional half-hour to the total hours billed. The six counts of mail fraud each related to the payment of a bill that had allegedly been inflated by the “gooser” program. On the Friday before trial was set to begin, defense lawyers asked Hutton to “redact” the indictment, arguing that there were really two separate schemes — the manual billing scheme which ended in February 1993 and the computerized billing scheme which began in February 1994. The defense argued that the schemes differed in methodology, scope and participants and that the statute of limitations barred criminal liability for the manual billing scheme. Prosecutors filed a response to the motion the following Monday just before jury selection got underway and insisted that the indictment alleged a single scheme. Later that day, the jury was sworn in. The next morning, after the jury had been given preliminary instructions but before opening statements in the trial, Hutton granted the defense motion by issuing an opinion that referred to the evidence of the manual billing scheme as “uncharged conduct” and holding that the government was barred from presenting any such evidence because its probative value outweighed its unfair prejudicial effect. Prosecutors asked for a sidebar conference on the ruling before giving their opening statements, but Hutton refused to hold one. On the third day of trial, prosecutors filed a motion for reconsideration, but Hutton denied that, too. At that point, the government filed a notice of appeal and asked that the case be stayed. Defense lawyers moved for acquittal or a continuance of the trial with the same jury. Hutton denied all three requests and dismissed the jury. Now the 3rd Circuit has ruled that it lacks jurisdiction to hear the government’s appeal — even though Hutton made a series of errors. “Despite the various mistakes that the district court made, this court lacks jurisdiction to hear the government’s appeal under Section 3731 both because the district court did not dismiss the indictment and because a retrial is barred by the Double Jeopardy Clause,” Sloviter wrote. Sloviter found that in granting the defense motion to redact the indictment, Hutton “appears to have operated under a misunderstanding as to the nature of the government’s charge and the applicable law.” The misunderstanding, she said, “was likely initiated by defendants’ mischaracterization of the indictment in their motion to redact.” Hutton, she said, was “plainly mistaken” in holding that since all six counts of the indictment rested on mailings in 1994 and 1995, the earlier manually changed bills could not be part of the mail fraud scheme. “It is not of any legal significance that the mailings used to bring the scheme under the mail fraud statute occurred at the end of this single scheme. A fraudulent scheme can span many years with the mailings occurring only at the end of the period,” Sloviter wrote. “The fact that in 1994 defendants changed the method that they used to make increases to the bills they sent their clients does not establish that there were two different schemes. The district court was in error if it believed that the shift from increasing bills manually to increasing them by use of the ‘gooser’ computer program gave rise to a different scheme. By itself, changing the method used to commit a fraud does not inaugurate a new fraudulent scheme,” Sloviter wrote. Sloviter noted that both the prosecution and defense agreed on appeal that Hutton had erred. “What should be done about these mistakes is, however, a question we can reach only if we have jurisdiction to hear this appeal,” Sloviter wrote. And on that point, Sloviter found that the prosecution was asking the court to stretch the law too far. “The government argues that the district court’s order amounted to a dismissal of the indictment by preventing it from proving substantial, material allegations of the indictment. However, nothing in the district court’s order purports to dismiss the indictment, all six counts alleged in the indictment constituting the mail fraud charges remained in the indictment as returned by the grand jury, and defendants’ motion to redact, which the court granted, did not ask for dismissal of the indictment,” Sloviter wrote. “We cannot allow the government’s concern about the impact of an order in a particular case to lead us to overlook the distinction between the first and second paragraphs of Section 3731. The distinction between an evidentiary ruling and a dismissal exists and has meaning,” Sloviter wrote. “In effect,” Sloviter wrote, “the government is claiming that a dismissal occurred simply because it lost an evidentiary ruling important to its case.” Assistant U.S. Attorney Robert A. Zauzmer argued the appeal for the government and was joined on the brief by Assistant U.S. Attorneys Amy L. Kurland and Kathleen Rice. Attorney Peter Goldberger represented Pharis and argued the case for all four defendants. Dull was represented by attorneys John Rogers Carroll and Ellen C. Brotman of Carroll & Carroll, along with Thomas A. Bergstrom; Gangloff was represented by the late Thomas Colas Carroll of Philadelphia’s Carroll & Cedrone; and Habina was represented by attorney John W. Morris.

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