Lawyer Stays In Jail As a Result of Health Care Fraud Scheme

When the FBI continually failed to find evidence to prosecute Al Capone for his many criminal activities they were able to put him out of business by charging and convicting him of tax fraud. Insurance fraud perpetrators, similarly, find it impossible to report their true earnings from their fraudulent activities, exposing them to charges of tax fraud and conviction of felonies for failing to report the money made from insurance fraud.

In People v. Francis, Not Reported in Cal.Rptr.3d, 2015 WL 5047786 (Cal.App. 4 Dist., 8/26/15), the California Court of Appeal was requested to deal with sentencing of individuals, including an experienced lawyer, who made millions from insurance fraud and did not report the earnings on their tax returns.

FACTS

A jury convicted Dee Francis, Andrew Robert Harnen, and Roy Chester Dickson of multiple felony tax offenses related to an insurance fraud scheme. Specifically, the jury convicted Francis and Harnen of filing false personal income tax returns; failing to file personal income tax returns, and failing to file corporate income tax returns. The jury also convicted Harnen of filing a false corporate return, and convicted Dickson of two counts of filing a false personal income tax return. The trial court sentenced Francis to an aggregate prison term of six years, Harnen to five years and four months, and Dickson to two years and eight months.

In 2001, the Orange County District Attorney’s Office uncovered a health insurance scam at Unity Outpatient Surgery Center, LLC (Unity), which paid bounties to patients and to patient recruiters, known as “cappers,” to sign up healthy individuals for unnecessary surgical procedures. The bounties were substantial, totaling more than a $110,000 a year for one recruiter, for example. Unity, in turn, then billed the patients’ insurers for millions of dollars. The bounties violated state and federal law and therefore insurance companies were not obligated to pay for the resulting procedures.

The investigation implicated both men and Dickson in the fraud scheme: Francis as vice president of operations, and Harnen in accounting, and Dickson to a lesser degree, for which they were later prosecuted. In the meantime, the trio’s criminal troubles also led to the tax prosecution in this case.

DISCUSSION

Dickson contends the trial court erred by allowing the prosecutor to impeach his claim that he “always” erred on the side of overstating his income when filing his taxes, including in 2003 when he filed his original return that reported gross income of $85,173 and when he filed his amended return that year reporting gross income of $188,926. Specifically, Dickson testified he “always felt that I overestimated” income in filing his taxes, and on cross-examination characterized his manner of filing his annual return: “I always felt that the numbers I gave were an overestimate of what I had earned.”

When the prosecutor asked, “Where [did] you come up with the cash to pay for about 29,000 in itemized deductions,” Dickson answered in a manner the jury could consider evasive, stating that he had “no recollection” about “specific numbers.”

The crux of Dickson’s appellate challenge is his correct observation that a taxpayer does not have to pay expenses with income earned in the same year, and therefore a low reported income in comparison to claimed expenses does not necessarily indicate unreported income. The flaw in Dickson’s argument is simply that the prosecutor did ask him where he “c[a]me up with the cash” to pay his claimed expenses, and when Dickson answered evasively, the jury could infer he lacked the independent resources to pay those expenses and instead underreported his actual income. There was no missing predicate in the prosecutor’s impeachment theory.

In particular, noting that several of the original codefendants had pleaded guilty and received lengthy prison sentences, the court observed regarding Francis, Harnen, and Dickson that people involved in similar conduct should receive similar sentences unless there’s something extraordinary to differ. The court found nothing significantly different about Dickson in the tax prosecution because, like the others, he had committed tax fraud.

The court treated defendants’ ages in their 50’s and 60’s as a mitigating factor, and noted they had little or no prior criminal history, although Dickson had a prior offense in Michigan when he was younger and had been disciplined by the California State Bar. However, the court viewed defendants’ active participation in a major fraud and their lack of remorse as aggravating factors.

The reasoning of the trial court is worth reading in full:

“I was going to talk to you a little more but I’ve gone on longer than I intended to. I will only observe that, frankly, you are in a different position in a positive way for the reasons I’ve noted. You came on the scene later. You were not as integral a part of the massive fraud but Mr. Pham Vu [the principal fraud mastermind, charged in the underlying offenses] needed a good aggressive lawyer to do what he was doing and you were the guy.

“You have a higher responsibility. You know it and I know it. The reason that lawyers in our justice system do not receive from members of this community and the public in general the level of respect that they should receive, since this is a country based on the rule of law, is because members of the community thinks—think that lawyers by and large do their job by lying and cheating and stealing.

“And the reason, at least one reason they have that perception is they read about cases like this in the newspaper, which they’ll probably do tomorrow in the Register or the Times or some of our local newspapers or on the Internet. And they’ll see, unfortunately, a lawyer with your education, training, and experience went to UCLA law school, practiced in this community for, what, 30 years, has been convicted of felonies and sentenced to prison because he got caught lying, cheating, or stealing.

“So it reinforces the impression that people have of this profession in the most negative way possible. You and I both know that most lawyers don’t practice that way; that most lawyers are mindful of their ethical and legal obligations. And they’re vigorous advocates but they practice with professionalism and integrity, which is lost on members of the public because they don’t see it. What members of the public see are ugly situations like this.

“So if you go on the Register Website tomorrow, you’ll probably see people who don’t know what they’re talking about talking about the system and another lawyer getting convicted. And I don’t know you well, Mr. Dickson, but your—our paths have crossed professionally over the years. And it’s particularly sad for me to send you to prison all things considered. You always in my court seemed to vigorously and professionally represent your clients, and now here you are.

“It’s a very sad situation, Mr. Dickson. And I don’t get any great pleasure of sentencing any of you folks to prison today, but perhaps Mr. Dickson I regret the most. The rest of you folks were in it for a long time up to your elbows and you know what you were into. Maybe at least initially Mr. Dickson didn’t know what he was getting himself into, but at some point he certainly did. And he knew he had income and he knew he wasn’t filing tax returns.”

The court’s comments reflected that it knew and respected Dickson’s legal acumen from prior court appearances, and that it understood how the case might reflect poorly on lawyers in the court of public opinion, but that, ultimately, Dickson’s sentence turned on the acts he committed and his personal culpability. The court did not err factually or legally in mentioning Dickson’s role as a lawyer in the underlying fraud, nor did the court abuse its discretion in imposing the middle term.

ZALMA OPINION

Dickson, an experienced and respected lawyer fell in with “clients” who were engaged in a multi-million dollar fraud scheme. He accepted their money and because the fraud proceeds would increase his annual reported income logarithmically and raise suspicions of criminal activity. He was not convicted of the insurance fraud but will spend more than two years in state prison for his crime. He will, as a result, never practice law again. Thus fell a mighty lawyer.

© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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