Medical mafia indictments reinstated

A Federal Appeals Court rules that a consultant and a plaintiffs lawyer must face conspiracy charges.

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NEW YORK (Fortune) -- In its star-crossed effort to prosecute an elite group of Las Vegas surgeons and plaintiff lawyers for an alleged conspiracy, the federal government just won a round.

On Thursday, the U.S. Court of Appeals for the Ninth Circuit ruled that indictments against two of the government's principal targets, a plaintiffs lawyer and a medical consultant, be reinstated immediately.

So far, the case has had enough twists and turns to fill a John Grisham novel. Five years ago, the U.S. Attorney in Nevada began an investigation into whether top plaintiffs lawyers and surgeons in Las Vegas had conspired to inflate hundreds of insurance settlements worth many millions of dollars, allegedly by convincing plaintiffs to undergo needless surgery. According to government witnesses, the group called itself the "Medical Mafia."

The professionals were brought together by a former army medic, Howard Awand, who boasted of being a CIA operative, according to government witnesses. Prosecutors charge that Awand allegedly recruited top doctors to serve as expert witnesses and to treat injured plaintiffs, by arranging kickbacks and by using his sway over lawyers in his orbit to offer the doctors protection from malpractice suits. The doctors allegedly performed complex and sometimes unnecessary spine surgeries that in several cases left patients paralyzed.

In its initial salvo in 2007, the government charged Awand and personal injury lawyer Noel Gage with conspiring to protect two complicit surgeons from a malpractice lawsuit, after their patient, a former Olympic volleyball player, underwent spine surgery and became a paraplegic. One of the surgeons, Dr. John Thalgott, became a cooperating government witness. The other surgeon, Dr. Mark Kabins, became a target. (Kabins himself was indicted earlier this year and is awaiting trial.)

Gage's lawyers argued that only Kabins could refute Thalgott's testimony. But Kabins would not agree to testify unless he was given immunity. When the government refused to grant that immunity, the judge, Justin Quackenbush, dismissed the cases against Gage and Awand, ruling that their right to a fair trial would be violated without Kabins' testimony.

It was one of numerous setbacks in what has seemed like a snake-bitten case for prosecutors. After five years of FBI investigation, three indictments, and a highly publicized trial, no one has been found guilty so far, making clear that it is one thing to allege a conspiracy, another thing to prove it.

But yesterday the appeals court slapped down Judge Quackenbush's ruling. The appeals court found that the government is not obligated to grant immunity to a witness who would merely put a different spin on the same set of facts. The "indictment must be reinstated," the court ruled.

The brevity of the ruling -- a mere three sentences long -- and the fact that it was issued with lightning speed by judicial standards (barely more than two weeks after oral arguments) suggest a not-so-subtle rebuke of the trial judge was intended.

U.S. Attorney Gregory Brower acknowledges in an interview that, up till now, his lawyers have sometimes been "pummeled" in court in this case. But as he puts it, today's decision "gets us back on track towards a resolution -- we are very pleased."

The defendants Awand and Gage, are obviously displeased. (Both pleaded not guilty to the original indictments and Awand himself no longer lives in Las Vegas; he operates a bed-and-breakfast in Vevay, Ind.) Awand's lawyer Harland Braun says, "This whole thing is pretty weird." He adds that while the government has alleged a conspiracy between doctors and lawyers to fleece insurance companies, "Our position is that it's doctors and lawyers working together to protect injured patients."

The plaintiffs lawyer, Noel Gage, who has denied wrongdoing, says, "I understand that appellate judges have a job to do and they look at the bland record, but I am disappointed in their opinion. I am very confident I will get my acquittal. I want to get to trial tomorrow." To top of page

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