The Acquittal of Dr. Nick
The Interview
On a Wednesday morning in February, five doctors and four other health care professionals walked into an austere courtroom on the 15th floor of the federal building in downtown Dallas. They found their appointed seats on the long wooden benches on the right side of the spectators’ area, and they waited. In a few minutes, the judge would make his entrance, and the nine would be on trial in the Forest Park medical fraud case.
Seven weeks later, when the trial ended, seven of those nine defendants walked out of the courtroom convicted felons. One wouldn’t yet know her fate; the jurors had been unable to agree on it.
Only one was exonerated: Dr. Nick Nicholson, a bariatric surgeon and the founding director of the Nicholson Clinic for Weight Loss Surgery in North Dallas and Plano.
In an exclusive interview with The Texas Lawbook, Nicholson discussed the Forest Park case for the first time publicly since his arrest in December 2016. He was one of 21 people indicted in what federal regulators called a pivotal offensive against “medical providers who enrich themselves through bribes and kickbacks” and “manipulate and defraud our healthcare system.”
Also taking part in the interview was Thomas Melsheimer, the lawyer who directed Nicholson’s successful defense and the managing partner of the Dallas office of Winston & Strawn. Melsheimer, whose hourly rate exceeds $1,000 an hour, and his small team of lawyers billed their client more than 4,000 hours – a fee that garners no complaints from the doctor.
On The Record: Click here to read and watch more of the Nicholson/Melsheimer Interview
Nicholson, 48, is a Texas native and the son of a surgeon. Recognized as one of the nation’s top medical experts on obesity and its treatment, he has lectured to physicians throughout the country on bariatric surgery techniques and is a frequent guest on popular television and radio programs. He earned his medical degree at the University of Texas Medical Branch at Galveston and completed his residency at the University of Texas Southwestern Medical Center. Nicholson is the co-author of a 2013 book, Weight Loss Surgery: The Real Skinny. He and the other surgeons at his Nicholson Clinic have served more than 15,000 patients from 48 states and 10 countries.
Melsheimer, like his client, is an acknowledged leader in his field, one of the most sought-after trial lawyers in Texas. The 58-year-old is perhaps best known as lead trial counsel for billionaire Mark Cuban in a widely publicized 2013 insider trading case brought by the U.S. Securities and Exchange Commission. After a three-week trial – which took place, coincidentally, in the same courtroom as the Forest Park trial – a federal jury cleared Cuban, the owner of the Dallas Mavericks. Before entering private practice, Melsheimer was an assistant U.S. attorney for the Northern District of Texas, the office that prosecuted the Forest Park defendants. A graduate of the University of Notre Dame and the University of Texas School of Law, he is well known known to friends as a dedicated fan of the Fighting Irish.
In their interview with The Lawbook, the two men talked about the bonds they’ve formed in the past 2½ years, how they shaped Nicholson’s defense, what distinguished his case from the others, how they dealt with the ups and downs of the lengthy trial, and how it felt to hear the judge say, “Not guilty.”
The interview was conducted and videotaped at the Uptown offices of the Dallas Business Journal.
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Hearing The Verdict
As the judge was reading the verdicts, Nicholson had one thought: Get to Count Sixteen.
The verdict form was 19 pages long. The jury had to consider 17 counts. Only the first, conspiracy, involved all nine defendants. Each of the others applied to some defendants but not others.
Keeping it all straight was “a very surreal experience,” Nicholson said.
“I was on Count One, Count Thirteen, and Count Sixteen,” he said. He was relieved at his acquittal on the first count, but then all he could do was wait. His name wouldn’t come up again until Count Thirteen.
“Then it’s kind of like, well, is that a cruel joke? Now I’ve got to wait through Counts Two through Twelve.”
On County Thirteen, not guilty. One to go.
At last, the judge got to Count Sixteen. He called Nicholson’s name for the final time. Not guilty.
“I looked at my wife, and we neither of us said anything,” Nicholson said. “We both kind of nodded, like, ‘That just happened.’”
Then they left the courtroom as quickly as they could.
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Moments After
Melsheimer had the same idea. Normally gracious and accommodating to reporters, he had no desire to revel in his victory. Not when other defense lawyers – and their clients – were still absorbing defeat.
“I wanted to get out,” he said. “I wanted to breathe some fresh air, and I wanted to be able to sit back and realize this was finally over now.”
“It was a big weight off my shoulders,” he added. “I’ve long ago quit trying to predict what juries would do. I felt very good about the way our evidence had come in. … But you don’t know. You don’t know what they’re thinking. You can’t know for sure.”
Nicholson and Melsheimer hugged after hearing the verdict.
“Thank you for giving me my life back,” the doctor said.
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The Scheme
The trial of Nicholson and his co-defendants arose from a sweeping federal investigation into what was, by all accounts, a brazen (and, for a while, staggeringly successful) health-insurance scam at Forest Park Medical Center of Dallas, a physician-owned surgical hospital that opened in 2009 on North Central Expressway near Forest Lane. It was closed by 2015.
Forest Park’s business model was as uncomplicated as it was unethical. The hospital bribed surgeons and others to send well-insured patients its way, then billed those patients’ surgeries out to insurance carriers at far higher rates than what large, established hospitals would have charged.
Overnight, the hospital became a soaring financial success. With referrals from a network of doctors, nurses, clinics, chiropractors, workers’ compensation lawyers and others – and not just in the Dallas area, but in Midland and Odessa, in San Antonio and Austin and Tyler – Forest Park kept its operating rooms whirring. The small hospital was soon swimming in cash.
According to government records, Forest Park paid out $40 million in bribes and kickbacks between its opening in 2009 and the end of 2012, when the hospital was starting to draw the attention of fraud investigators. Over the same period, it billed patients’ insurance companies more than $500 million, of which it collected at least $200 million.
The architect, builder and supervisor of Forest Park’s bribery-and-kickback enterprise was Alan Beauchamp, the hospital’s top administrator. He was among the 21 defendants named in the original Forest Park indictment, and one of 10 who cut plea deals to cooperate with authorities.
Testifying for the government at trial, he boasted about “making millions” for himself and for Forest Park’s physician-investors by “buying surgeries.” He described in detail how he would identify surgeons who were potential accomplices in his scheme; how he would recruit them, often over drinks or meals at expensive restaurants; and how he negotiated the terms of each doctor’s under-the-table arrangement with Forest Park: how many surgeries a month for how much money.
He seemed to have little difficulty finding eager participants.
To Alan Beauchamp, surgeries weren’t the healer’s highest art, the patient’s release from chronic pain or disability. Surgeries were a commodity. You buy them from doctors. You sell them at a profit to insurance companies.
Somewhere in the copious Forest Park case file, there’s a statement attributed to Beauchamp, something he would shout at underlings, that captures the ethos of the hospital he ran:
“We need more bodies on the table!”
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‘Out of my element’
Seven of Nicholson’s co-defendants were found guilty, including three surgeons, a pain-management physician, and a $1 million-a-year Forest Park executive. All were convicted of conspiracy; additional charges varied from defendant to defendant among an array of counts involving bribery, kickbacks and money laundering.
The jury deadlocked regarding an eighth defendant, Carli Hempel, a supervisor in Forest Park’s bariatric surgery department.
According to court documents filed on July 3, Hempel agreed to plead guilty to one count of conspiracy to misapply property of a healthcare benefit program, an offense that carries a maximum penalty of one year in prison. As part of her plea deal, she agreed, if called upon, to testify about “her participation in the offense of conviction.” Her sentencing is pending.
Sentencing of the guilty defendants is still weeks, if not months, away. And appeals of their convictions are all but certain. Still, lost on none of them is the prospect of spending years in a federal penitentiary. Highly skilled, highly trained, highly paid doctors may well find themselves swapping hospital scrubs for orange prison uniforms.
Nicholson said he didn’t fully comprehend “the finality” of what he was facing until the reading of the verdicts. Each line of the judge’s unbroken, staccato chorus of “guilty,” “guilty,” “guilty,” “guilty” was, Nicholson understood, a “door slamming on somebody’s life.”
“It really hit home, I hate to say it, for the first time in this whole 2½- or 3-year process,” he said. “I realized just how much my life had been on hold.”
He couldn’t make long-term plans as long as the trial loomed. And once it began, his future depended entirely on the judgment of 12 strangers.
As a surgeon, Nicholson said, “I like to be able to control the outcome of what happens. … I like to know that we’re going to have a definitive outcome. And usually, I’m the guy in charge of that.”
In court, he said, “I was out of my element for not being in control of the situation.”
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Peer Anxiety
In the weeks since the trial, Nicholson said, he’s been pleasantly surprised at the community support he’s gotten. He knew he could count on family and friends, but part of him worried that, acquittal or not, people who didn’t know him well, people who’d only read his name in the paper or seen him on TV, would always think of him as “the weight-loss doctor who was indicted for taking bribes.”
“That was a huge concern of mine,” he said. So far, so good. “My peers and colleagues were very supportive.”
His trepidation called to mind the case of Raymond Donovan, President Ronald Reagan’s labor secretary from 1981 to 1985. After leaving office, Donovan, a New Jersey business executive, was indicted and tried with six others on larceny and fraud charges related to a public works project in New York City. Donovan’s indictment made national headlines.
After jurors in his state trial found him not guilty, the former Cabinet secretary famously asked, “Which office do I go to to get my reputation back?”
Nicholson said it’s a point of pride for him that for three straight years, while the criminal case was hanging over him, his peers voted him onto D Magazine’s Best Doctors list. “I never would have dreamed that would be the case,” he said.
Patients haven’t abandoned him, and the other surgeons at his clinic were able to cover for him while he was preparing for the trial then attending it every day.
“We were very, very fortunate that it didn’t have a terrible impact on us, which, again, I really thought it would,” he said. “I’m eternally grateful for everybody that believed in us.”
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The Right ‘Fluff’
It’s a lawyer’s duty, Melsheimer said, to help clients stay centered throughout a long trial. They can’t anguish over every setback. Neither can they find false hope in tiny victories.
“You’ve got a lot of ups and downs,” he said. “You’ve got good days and bad days, and, frankly, a lot of boring days. And something that happened three weeks ago, maybe it was negative, maybe you didn’t like it. You can’t forget about it, but you can’t obsess and dwell on it, either.
“It’s part of my job to say, ‘Look, we’re going to get through this to the next day.’ There’s really only one day in the trial that’s critical. That’s when the verdict comes back.”
He commended Nicholson for leaving the law to his lawyers. That’s something not all clients can do, even those whose legal training consists of having read a few John Grisham novels.
“That was the beauty of representing Dr. Nick,” Melsheimer said. “He wasn’t in my world trying to tell me what to do, just like I wouldn’t be in an operating room telling him what to do.”
Nicholson, in turn, thanked Melsheimer and the rest of his defense team, including Winston & Strawn partner Scott Thomas and associate Grant Schmidt, for patiently answering his “very silly questions” – and for doing so candidly.
“They never once lied to me,” Nicholson said. “To be honest with you, I sure would have preferred it be sugar-coated at times, but it never was.”
There were days when the prosecution landed a lot of punches, some of them on Nicholson’s nose. At the end of those days, he said, “I could have used a little fluff and being told everything’s going to be OK.
“But when you don’t know that, you can’t tell somebody that.”
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The Nervous Spectator
The Forest Park indictment was filed under seal in Dallas on Nov. 16, 2016, and made public 15 days later.
By the time the case came to trial, almost half of the original defendants had entered guilty pleas and agreed to cooperate with the government.
Nicholson said he never considered cutting a deal. “I didn’t feel that there was anything that I had done wrong,” he said.
Melsheimer said he always assumed he’d be going to trial. A plea bargain would have left Nicholson with a criminal record, something socially, economically and professionally devastating to someone of his station.
“Especially when you have a professional as a client, like a doctor, a lawyer or an accountant … those are cases you typically realize you’re going to have to try,” he said.
They agreed that Nicholson would not testify, despite the surgeon’s emotional desire to “get to up and tell my story.” Melsheimer’s response was, “Ideally, I’m going to tell your story.”
Whether to put a defendant on the stand “is one of most important things you have decide in any kind of criminal case,” Melsheimer said. In this case, he said, “we had so much to argue in terms of the absence of evidence, we felt very comfortable keeping him as a spectator.”
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Unethical and Illegal
There was one glaring flaw in Forest Park’s plan: Doctors aren’t allowed to accept money for referring patients.
The practice, known as fee splitting, is unethical and illegal.
The reason is spelled out in the American Medical Association’s Code of Ethics:
“Patients must be able to trust that their physicians will be honest with them and will make treatment recommendations, including referrals, based on medical need, the skill of other health care professionals or facilities to whom the patient is referred, and the quality of products or services provided.”
The stricture extends beyond referrals to hospitals. Drug companies can’t pay a doctor to prescribe their medicines. Doctors can’t order blood tests then send their patients to a lab that pays them a commission. A doctor can’t fit a patient with a medical device, like a pacemaker or an artificial hip, then accept Super Bowl tickets from the device manufacturer.
To get around the fee-splitting rules, Beauchamp and others testified, Forest Park disguised its bribes to doctors as monthly “marketing payments” or, sometimes, “consulting fees.” (To further cover its tracks, Forest Park funneled the money through shell companies, rather than paying the doctors directly.)
Beauchamp had the doctors on his payroll sign contracts that appeared to describe legitimate marketing or consulting arrangements with Forest Park. The contracts spelled out in fine legal detail the services to be performed, compensation, duration and terms of renewal and termination They even included boilerplate language saying the parties would comply with all applicable federal and state laws.
The contracts were meaningless, Beauchamp said, and the doctors who signed them knew it. “We papered it up to make it look good,” he testified.
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The Fates of Others
One of Nicholson’s co-defendants, Dr. Shawn Henry, a Fort Worth back surgeon, was paid $30,000 a month – $840,000 in all – to serve as a consultant to a real estate company owned by two of Forest Park’s principal investors. In truth, prosecutors said, Henry was getting paid to perform surgeries at Forest Park.
Government witnesses said Henry never consulted with anyone about anything. In 28 months, he never turned in a time sheet, wrote a report, attended a meeting or took part in a conference call. One employee of the small real estate company was unable to identify Henry in the courtroom.
Henry was convicted on all three counts he faced.
Two defendants, Dr. Douglas Won and Dr. Michael Rimlawi, were co-founders of the Minimally Invasive Spine Institute, a surgery center that once advertised heavily on television, billboards and the internet. In 3½ years, first as partners and then when they went their separate ways, the two spinal surgeons received almost $10 million in “marketing money” from Forest Park.
A lot of the money was indeed spent on marketing – though Won did use $158,000 of it to pay construction bills on his Inwood Road mansion. But it was marketing of their institute, of their practices, not joint marketing, jointly paid for, to benefit both Forest Park and the doctors.
Joint marketing by hospitals and doctors is an accepted practice in the health care industry. An example might be an ad campaign promoting a program of care developed by a hospital in collaboration with a doctor.
Forest Park had no such partnership with Won and Rimlawi, the government said. The payments to them were bribes, which they used to cover a major business expense of theirs: their ad buys. That was no more legitimate, prosecutors argued, than if Forest Park had picked up their monthly mortgage payments or bought them matching Bentleys.
Won was convicted on one of two counts, Rimlawi on three of four.
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The Same Money…
Nick Nicholson took Forest Park’s money, too – $70,000 a month, more than $3.6 million in all, according to court records.
The payments, like those to Won and Rimlawi, were made through the hospital’s “marketing program.”
Like the other surgeons on trial, Nicholson was implicated by government witnesses who were intimately familiar with Forest Park’s money-for-surgeries scheme because, by their own admission, they had either taken bribes or paid them.
Beauchamp testified that Nicholson was being paid for surgeries. Dr. Wade Barker, a weight-loss surgeon who was one of the founders of Forest Park, offered similar testimony against Nicholson. So did Dr. David Kim, a weight-loss surgeon who knew Nicholson professionally and who was himself an eager, early recipient of Forest Park’s payoffs. So did Andrea Smith, a Forest Park administrator who maintained spreadsheets for Beauchamp, tracking month-by-month the surgeries credited to everyone getting marketing money. (All four of those witnesses were originally defendants in the case who testified under plea agreements.)
Nicholson’s monthly payments, like those of others, were conveyed through third-party entities.
Like others, he was recruited to Forest Park by Beauchamp – in Nicholson’s case, over dinner at the Capital Grille in the Crescent.
And while he was receiving his monthly marketing checks – money his ad agency used to greatly amplify public awareness of the Nicholson Clinic – he performed hundreds of surgeries at Forest Park.
Looks, said Melsheimer, can be deceiving.
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…Only Different
The differences between Nicholson and the other Forest Park defendants far outweighed the similarities, Melsheimer said. (For one thing, he said, his client is innocent.) Emphasizing those differences to the jury – again and again and again – was a pillar of his successful defense.
“We needed to distinguish Dr. Nick from the very beginning,” he said. “We did it in the opening statement, and we did it in all our cross-examinations. We wanted to make sure we introduced ourselves as Dr. Nick’s lawyers. We wanted to make sure we asked questions related to Dr. Nick and not to anyone else. And we wanted to emphasize again and again that the jury needed to put the evidence about him in a separate box from everyone else.”
The prosecutors’ strategy, he said, was the opposite: to tar everyone with the same broad brush.
“‘The doctors,’ they would say. ‘The defendants,’ they would say. They even told us before the case was tried that that’s what they were going to do.
“So it was our job – assiduously and in a disciplined way – to make sure we stuck out in a good way.”
Nicholson’s accusers – Beauchamp, Barker, Kim, et al. – were crooks. By their own admission.
“Dr. Nick,” as Melsheimer made it a point to call him, was a good guy, a dedicated surgeon, a hardworking, honest businessman, a devoted husband, father and son.
“Dr. Nick is different,” Melsheimer said in his closing argument (a 40-minute clinic for the lawyers who crowded into the courtroom to watch it). “He’s not like Dr. Kim. He’s not like Dr. Barker.”
Melsheimer went on to quote Proverbs 18:17: “He that pleadeth his cause first seemeth just; but his neighbor cometh and searcheth him out.” (Exegesis for litigators: The first witness called sounds right – until the cross-examination begins.)
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The Matter of Intent
The crimes alleged in the Forest Park case required a finding of intent: To convict, jurors had to conclude that a defendant “knowingly and willfully” acted unlawfully.
Nicholson, Melsheimer argued, had acted with nothing but good intent.
He’d hired a health care lawyer to review his marketing agreement with Forest Park. The lawyer concluded that the arrangement was permissible.
Nicholson’s longtime practice manager, Denise Cleere, testified that he never steered patients to Forest Park and never told his staff to do so. Where a particular surgery took place, she said, depended on lots of factors, including the patient’s medical needs and insurance coverage, Nicholson’s schedule and the availability of operating rooms. Some patients went to Forest Park. Many went elsewhere.
Nicholson kept operating at Forest Park long after the marketing payments had stopped around the end of 2012. That, Melsheimer argued, undercut the government’s claim of a surgeries-for-dollars quid pro quo.
Moreover, Nicholson was an investor in Forest Park. If the hospital did well, his interest rose in value. That alone would be incentive for him to support Forest Park.
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‘Why would Alan leave them?’
The most revealing glimpse into Nicholson’s state of mind, Melsheimer said, was found in a brief father-and-son email exchange from Dec. 29, 2008. The exchange was entered into evidence by Melsheimer on the final day of testimony in the trial.
In late 2008, Forest Park was signing up surgeons in advance of its opening. Beauchamp had reached out to Nicholson, who was considering Beauchamp’s offer of a marketing deal.
Nicholson sought out his most trusted business adviser: his father. Dr. Dan Nicholson, also a surgeon, had run his own medical practice for decades. He’d helped his son get the Nicholson Clinic up and running.
In their Dec. 29 email exchange, Dan Nicholson said he’d looked into the finances of a Garland hospital where Beauchamp had been chief executive officer. Dan had some concerns.
“It seems that they are reporting very little profit. … I wonder where the money is going?” he wrote. He noted that Beauchamp, as COO, had been paid $450,000 in 2007. “Why would Alan leave them?”
Nick Nicholson replied that he, too, smelled something fishy.
Whatever Beauchamp’s reported compensation had been, “I bet the real number is somewhat different,” he wrote. He shared his father’s suspicion that the Garland hospital was cooking the books: “We all know they’re probably functioning in the grey zones.”
One might ask – as Assistant U.S. Attorney Katherine Pfeifle did in the government’s closing argument – why, if Nicholson believed he was dealing with someone of questionable character, he didn’t just tell Beauchamp “no thanks” and walk away?
But Melsheimer said the crux of the email exchange, the part that revealed his client’s true state of mind, was this:
“As long as we behave in an ethical fashion and take care of the patients,” Nick Nicholson wrote to his father, “I think we can leave them to their own creative reporting of their P & L statements to the public.
“We just need … to make sure we’re acting ethically and within all legal bounds.”
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No To. No From. No CC.
In the end, the critical difference between Nicholson and the others might not have involved quality of character or purity of motive so much as use of keyboard.
Much of the government’s case was built on emails seized during the investigation. Many of those emails were written by, to, or about the people accused of taking part in Forest Park’s bribery ring. Many contained damning or, at least, suspicious admissions.
None of them were written by Nick Nicholson. None of them were sent to him.
The only Nicholson email that jurors would see was the one the defense had shown them – the one in which Nicholson told his dad they would “behave in an ethical fashion and take care of the patients.”
“The mountain of emails with respect to everyone else helped us,” Melsheimer said, “because … when there were emails between other people doing bad things, they were pretty open about it.”
On Dec. 26, 2011, for example, Beauchamp warned an Austin chiropractor that he was falling “wholly-fully short” of his monthly quota of referrals. Beauchamp said he intended to “find out why my $150K investment has not produced Jack.”
On Jan. 16, 2009, an advertising executive wrote to Beauchamp in behalf of Drs. Won and Rimlawi, saying the two surgeons were wondering “what the sliding scale for marketing dollars looks like.” They understood they’d be paid $100,000 a month for 20 to 25 cases, the executive said. They wanted to know “the levels that can be achieved when they bring in even more cases.”
In September 2012, Dr. Kim, the weight-loss surgeon, wrote to complain that Beauchamp had cut his monthly payoff to $125,000 from $175,000. Kim, whose medical office was in Colleyville, said he was doing his best to push patients to Forest Park, even if that meant they had to drive past six other suitable hospitals.
Melsheimer knew the conspicuous absence of incriminating emails by or to Nicholson was a hole in the government’s case against his client.
So he poked his finger through it whenever he could.
When prosecution witnesses testified about emails involving other defendants, he would ask them on cross-examination if Nick Nicholson’s name appeared on the emails. In the “To” line? The “From” line? The “CC” line?
Was there any indication, he’d ask, that the emails were forwarded to Dr. Nicholson? Any reason to believe he’d seen them? Or knew anything about them?
“I made the point, as they would say, ad nauseam. … My experience taught me that it was going to be a persuasive point to the jury,” Melsheimer said.
And when the government called witnesses to testify about nefarious things Nicholson had supposedly said or done, Melsheimer would ask if they were aware of any emails – any among these thousands the prosecution has produced – that supported their testimony. He knew the answer. He wanted to make sure the jurors did, too.
Returning (ad nauseam) to the subject may have helped blunt the unequivocal testimony from cooperating witnesses – Beauchamp, Kim, Barker, and others – who implicated Nicholson in the bribery scheme.
“We knew they were going to say bad things. We knew they were going to try to do everything they could to convict him,” Melsheimer said.
“And we knew that whatever they were going to say, No. 1, was not true, and, No. 2, was not going to be corroborated by any contemporaneous documents.”
Whatever they claimed, whatever “words they might put in Dr. Nick’s mouth,” he said, “the truth is, there was not a single document in the case from him that implicated him in any wrongdoing, and there wasn’t a single document in the case directed to him that implicated him in any kind of wrongdoing.”
Sometimes, the best evidence a defense lawyer can hope for is no evidence at all.