Restitution Required of Defendant Convicted of Insurance Fraud
California, like most states, requires that a person convicted of a crime against persons or property make restitution to the victims of the crime, including insurance companies as victims of insurance fraud.
In The People v. Cynthia Ann Smith, A153490, Court of Appeal of The State of California First Appellate District Division Five (July 16, 2018) Cynthia Ann Smith pled no contest to workers’ compensation fraud (Ins. Code, § 11760, subd. (a)) and to failure to collect, account, or pay unemployment insurance tax amounts (Unemp. Ins. Code, § 2118.5). The agreed sentence included a requirement that she pay restitution in an amount to be determined by the court. Smith stipulated to restitution amounts awarded to three of four victims. She contested restitution claimed by the fourth victim. Following an evidentiary hearing, the court ordered Smith to pay $14,200 plus interest to that individual.
Smith owned and operated a flower shop in Menlo Park. In 2015, a multi-agency task force investigated Smith’s business, which revealed she failed to pay correct workers’ compensation insurance premiums and related payroll taxes over the course of several years. Smith was charged by information with workers’ compensation fraud; insurance fraud; failure to make unemployment insurance contributions; failure to file a tax return, report, or statement with intent to evade tax; failure to collect, account, or pay over required tax amounts; grand theft of labor; and grand theft of personal property.
Pursuant to a negotiated disposition, Smith pled no contest to counts 1 and 14. Under the terms of the plea agreement it was agreed she would not be sentenced to state prison; she would be granted probation with a maximum of 90 days to be served in county jail; all other counts and allegations would be dismissed; the amount of restitution would be reserved and determined by the court; and the court would consider reducing felony counts 1 and 14 to misdemeanors and terminating probation upon full payment of restitution.
At sentencing, the trial court suspended imposition of sentence, placed Smith on formal probation for five years, with terms and conditions including 90 days in county jail and imposition of statutory fines and fees. Smith objected to the restitution report and requested a restitution hearing.
At the hearing, Smith stipulated to restitution amounts awarded to the California Employment Development Department ($41,187 plus interest); to FTD Company ($61,783 plus interest); and to State Farm Insurance Company ($12,998 plus interest) Smith contested amounts claimed by James Waldschmidt. Waldschmidt asserted a restitution claim for over $100,000.
Waldschmidt testified at the restitution hearing that he met Smith in a bar in San Carlos in 2014. She offered him a place to live at her home in Menlo Park, a full-time job as a driver, and a rate of pay starting at $10 per hour. Waldschmidt totaled his work hours weekly and gave Smith a copy of the wage statement. He was never paid and claimed $45,000 for unpaid work and overtime. His calendars and wage statements were admitted into evidence. Waldschmidt acknowledged he never paid Smith any rent, although he had a written lease agreement calling for rent of $800 per month. Waldschmidt also had previously reported to police he was missing $400 in cash he kept in Smith’s home.
The court ordered Smith to pay Waldschmidt $15,000 in restitution for unpaid wages including overtime hours, less an offset of $800 in unpaid rent, for a total of $14,200 plus interest.
Smith’s notice of appeal challenges only the “sentence or other matters occurring after the plea.” No cognizable issues relate to Smith’s guilt or to her plea. Her sentence was consistent with the agreed terms of her plea bargain. The only contested element of Smith’s sentence was the restitution order to Waldschmidt.
Victim restitution is mandated by the California Constitution. It is the intent of the Legislature that a victim of crime who incurs any economic loss as a result of the commission of a crime shall receive restitution directly from any defendant convicted of that crime. At a victim restitution hearing, a prima facie case for restitution is made by the People based in part on a victim’s testimony on, or other claim or statement of, the amount of his or her economic loss.
The prosecution and defense appeared to agree Waldschmidt’s records showed a total of 1,119 unpaid hours. Smith’s counsel contended Waldschmidt’s records showed, applying a compensation rate of $10 per hour with $15.00 per hour for overtime, a maximum of $14,560 in unpaid compensation. The court found $10 per hour in base compensation to be the appropriate rate. The People’s calculation of the amount due was $16,365 and conceded a rental offset of at least $800. Despite finding the records “a mess,” the court ultimately set restitution at $15,000, with an $800 rental offset.
A court may use any rational method of fixing the amount of restitution which is reasonably calculated to make the victim whole and which is consistent with the purpose of rehabilitation. Even though the amount was contested, the record does not indicate the court awarded anything in excess of the victim’s actual economic losses. Since no evidence was presented to the contrary the order of restitution was allowed to stand.
This case makes clear the importance of restitution to every insurer, and every other victim of a crime, and that the insurer, as did State Farm, must demand restitution. Since restitution is ordered as a condition of probation it is usually paid because the failure to do so will result in incarceration.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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