Defense loses attempt to get Hertel & Brown federal indictment dismissed over disclosures

A trial date has yet to be set in the Hertel & Brown federal fraud case, but a judge has made clear that the largest-ever white-collar criminal prosecution in Erie will indeed go forward.

U.S. District Judge Susan Paradise Baxter has denied a defense request that she dismiss the indictment against about half of the 21 defendants in the case, including the Erie-based Hertel & Brown Physical & Aquatic Therapy as a corporation and the practice's co-founders and owners, Aaron W. Hertel and Michael R. Brown.

In a 22-page opinion filed in U.S. District Court in Erie on Friday, Baxter rejected the defense's argument that she throw out the case due to the prosecutor's disclosure, in a July 17 court filing, of summaries of statements that the U.S. Attorney's Office said two of the defendants made to the FBI.

The prosecutor, Assistant U.S. Attorney Christian Trabold, has characterized the statements as incriminating. The two defendants — physical therapists Jacqueline Renee Exley and Julie Ann Johnson — are denying that they told the FBI what the agents said they did.

Exley and Johnson claimed the Erie Times-News' coverage of the disclosures, in an article on July 19, prejudiced the potential jury pool against them to such an extent that Baxter should toss the indictment. Exley and Johnson also argued that Trabold's disclosures of the summaries of the statements was so improper that a dismissal of the indictment was warranted.

Baxter disagreed.

"The Court has determined that the relevant pretrial publicity, particularly the July 19, 2023, Erie Times-News article, does not provide grounds for a presumption of prejudice," Baxter said in her ruling. "The Court also finds the prosecution's disclosures do not rise to the level of outrageous conduct as would necessitate the dismissal of the instant criminal charges as a matter of due process."

Disputed statements still subject of suppression hearing

The defendants are accused of conspiring to overbill Medicare, Medicaid and private insurers a total of $22 million over 14 years, starting shortly after Hertel & Brown launched in January 2007 and ending in October 2021. A federal grand jury in Erie indicted the 21 defendants in November 2021 and issued a superseding indictment against them in May 2022.

Exley and Johnson, according to Trabold's July 17 filing, told FBI agents that they and other employees at Hertel & Brown regularly overbilled for services at the direction of the business' owners, Hertel and Brown. Also according to what Trabold said in the filing, Exley and Johnson told the FBI that Hertel and Brown told the employees how to bill for services in the improper manner. Johnson also told the FBI "that at Hertel & Brown that is the way it has always been done and we turned a blind eye," according to the filing.

Exley and Johnson want the statements tossed, and Baxter has scheduled a suppression hearing on Oct. 19. That hearing remains on schedule following Baxter's refusal to dismiss the indictment. Baxter has not set a trial date while she deals with the suppression request and other pretrial matters.

Exley and Johnson filed their suppression motion on May 15. Trabold on July 17 filed his response, in which he disclosed the summaries of the disputed statements.

Trabold said the disclosures were necessary to counter Exley and Johnson's claims that the FBI violated their rights by taking statements from them when agents searched Hertel & Brown's offices on Feb. 23, 2021. The interviews were not recorded. They are citing, in part, their Miranda rights, about warnings that interview subjects must receive when they are in custody. Whether the two were ever in custody is a major issue in their suppression fight.

Exley and Johnson argued that Trabold's disclosures were unnecessary and damaging to their cases. As Baxter said in her ruling, "The Government has maintained that both Exley and Johnson made incriminating statements..., an allegation which Exley and Johnson strenuously deny." She also said that Exley and Johnson "insist that the Government's disclosure was particularly prejudicial in this case because it concerns alleged confessions which they deny making and which may ultimately prove to be inadmissible at trial."

The lawyer for Exley is Jennifer Bouriat, and the lawyers for Johnson are Efrem Grail and Julia Gitelman, all of Pittsburgh.

Baxter did not discount their arguments outright.

"This Court can certainly appreciate the Defendants' concerns about the content of the July 19, 2023, news article" on disclosures, she said in her ruling. "The central issue before this Court is whether the defendants can receive a fair trial notwithstanding any news accounts that have been published concerning this case or whether, on the contrary, the trial atmosphere has been 'utterly corrupted' by press coverage."

Baxter found that the defendants could still get a fair trial, especially from a jury that would be would be drawn from seven counties in northwestern Pennsylvania — a 520,000-person area that makes up the Erie Division of the Pittsburgh-based federal Western District of Pennsylvania. Baxter also said the July 19 news article did not create an undue prejudice. She said it was "not salacious" and that it reported the positions of the prosecution and defense, including that Exley and Johnson had denied making the statements that the FBI attributed to them.

"On balance," Baxter said, "the article is factual in the sense that it reports on information obtained from the parties' filings and/ore court proceedings."

Judge sides with prosecutor, but urges 'greater caution'

Baxter also evaluated Trabold's reasoning for making the disclosures in the July 17 filing.

"In defending its disclosures, the Government insists that Exley and Johnson's joint suppression motion fairly brought the substance of their challenged statements into play," Baxter said in her ruling. "The Government further posits that the contents of their statements is relevant to the Court's analysis of whether they were subject to custodial interrogations.

"This is not manifestly obvious, as it is possible the Court may be able to resolve the disputed Miranda issues without either side weighing in on what was actually said during the alleged interrogations. Moreover, to the extent that consideration of the statements themselves is necessary, the Government could have exercised greater caution by seeking to place that information under seal.

"But even if the prosecution can be faulted for its disclosures, it does not follow that dismissal of the Superseding Indictment is warranted."

Start of trial in Hertel & Brown case still 'months away'

Eight defendants joined Exley and Johson in the failed dismissal request. They are — in addition to Hertel & Brown as a corporation and the two owners — Patricia Berchtold, Austin Dudenhoefer, Jeremy R. Bowes, Marissa Sue Hull and Jessica Jeanne Morphy.

Berchtold was a billing specialist at Hertel & Brown who typically worked remotely from Florida, according to court records. Dudenhoefer and Morphy are physical therapists and Bowes and Hull are physical therapy assistants.

Trabold's July 17 filing focused on the disputed statements of Exley and Johnson alone, and the number and names of other defendants who gave statements to the FBI have not been disclosed in court records.

But the other defendants who wanted the indictment dismissed argued Trabold's inclusion of the summaries of the statements also harmed them. The other defendants focused on Johnson's purported statements that Hertel and Brown told the employees how to bill for services in the improper manner and "that at Hertel & Brown that is the way it has always been done and we turned a blind eye."

Baxter also decided against the eight other defendants. But she also said that "she will revisit any concerns about pretrial publicity, to the extent necessary, to a later stage of these proceedings." And she ordered Trabold to place his July 17 filing under seal, "in an abundance of caution," and to submit a redacted version of the filing that omits "any reference to the content of Exley's or Johnson's alleged confessions."

The indictment in the Hertel & Brown case charges all the defendants with one count each of the felonies of health care fraud and criminal conspiracy to commit wire fraud and health care fraud.

All the defendants have pleaded not guilty and are free on unsecured bonds.

Hertel & Brown remains in business, but is down to one office from five. Its main office had been at the West Erie Plaza in Millcreek Township. Its remaining office is in what had been the Iron Oxygen fitness center in the plaza on the east side of Pittsburgh Avenue at West 12th Street, just southeast of the West Erie Plaza.

The Oct. 19 suppression hearing is one of several pretrial hearings that Baxter is expected to hold ahead of a trial. Though her decision on the disclosures ended a major dispute, Baxter will have to clear up other matters before she sets a trial date.

"A definitive trial date has not yet been established due to ongoing motions ... and various impending pretrial rulings," Baxter said in Friday's ruling. "The commencement of trial is likely to be months away."

Contact Ed Palattella at epalattella@timesnews.com. Follow him on X @ETNpalattella.

This article originally appeared on Erie Times-News: Judge refuses to toss charges in Erie-based Hertel & Brown fraud case