Detectives with the California Department of Insurance arrested Gina Marie Gregori of Lafayette, for allegedly underreporting payroll and ripping off insurers to the tune of $32 million. Gregori was charged with multiple counts of worker’s compensation insurance fraud and associated thefts. The complaint alleged the white-collar criminal enhancement pursuant to Penal Code section 186.11 and named as criminal defendants several of Gregori’s companies, including Apex Janitorial Solutions.

The department’s investigation revealed Gregori was keeping two sets of books, using a payroll processing service to report to Employment Development Department and pay her employees, and keeping a fraudulent set of books that she provided to insurers and insurance auditors, which showed a significantly lower payroll amount.

The People moved for appointment of a receiver to manage and preserve Gregori’s assets pursuant to Penal Code section 186.11. The court granted the motion and issued an order appointing the Receiver, identifying the assets subject to the receivership, and specifying the Receiver’s powers.

Among other things, the Receiver was authorized to take possession of, collect income from, and otherwise operate, manage, preserve, and control Gregori’s properties. The order also authorized the Receiver to request court approval and confirmation of all fees and expenses incurred by the receivership in executing its duties. The court “reserve[d] jurisdiction to allocate the receivership costs of administration as between the parties.”

One of the real properties in the receivership estate was located on Dolores Street in San Francisco and owned by Gregori’s former romantic partner, Richard Bertero,with whom Gregori had commingled funds. Bertero used the Dolores Street property as collateral for a loan from Avalon Funding Corporation.

Later, Bertero filed for Chapter 11 bankruptcy; the Dolores Street property became part of the bankruptcy estate. The bankruptcy court released the Dolores Street property from the automatic bankruptcy stay to allow foreclosing lenders to sell it. When both Avalon and the Receiver made claims to the surplus proceeds from that sale, the trial court ordered the surplus turned over to it to resolve the priority of their claims. Relying on section 186.11, the court ordered that the bulk of the surplus be used to pay the Receiver’s fees and expenses incurred in administering the receivership estate which was roughly $148,000.

The Court of Appeal Affirmed in the unpublished case of People v. Gregori -A164081 (February 2024)

On appeal, Avalon argues that the Receiver had no valid claim to the surplus; that the court erred by applying section 186.11 rather than the nonjudicial foreclosure statute, Civil Code section 2924k; that the court lacked jurisdiction over the surplus; and that the court misapplied section 186.11. The Receiver argues that the trial court had jurisdiction over the surplus as part of the receivership estate and that the court properly exercised its discretion by finding that section 186.11 authorized it to pay the Receiver before paying Avalon.

Penal Code section 186.11, the “Freeze and Seize’ statute, authorizes a trial court to appoint a receiver to preserve the assets of a criminal defendant subject to an “aggravated white collar crime enhancement’ because the defendant was “charged with having committed two or more related felonies involving fraud . . ., a pattern of related felony conduct, and the taking of more than $100,000.”

The court’s goal in the pendent receivership proceedings is to prevent defendants from “dissipat[ing] or secreting [their] assets or property” while the criminal proceedings are pending, and then to use “those assets to pay restitution to victims if the People secure a conviction.”

Subdivision (b) of Civil Code section 2924j specifies that “[n]othing in this section shall preclude any person from pursuing other remedies or claims as to surplus proceeds.” Thus the trial court did not abuse its discretion in declining to adhere to the claim priorities in Civil Code section 2924k.

The trial court’s interpretation of section 186.11 to permit compensation to the Receiver was not an abuse of discretion or contrary to law. The court reviewed the plain language of section 186.11, harmonized the language of the statute to give force and effect to its distinct provisions, and interpreted it to further the policy interests embodied therein.