Category: Daily News

Edgardo Cabrales Sr., 61, and his son, Edgar Cabrales Jr., 36, both of San Jose, are charged with five felony counts each of insurance fraud after a Department of Insurance investigation found they allegedly underreported $12 million in employee wages and payroll to save on workers’ compensation insurance premiums.

The Cabrales own two commercial cleaning companies in San Jose: Pine Building Maintenance (PBM) and Network Facility Management (NFM).

An investigation by the Department began after the State Compensation Insurance Fraud (SCIF) suspected the businesses of fraud.

The investigation discovered that since 2016 the Cabrales had only secured insurance coverage for a fraction of their PBM employees and they had never secured a workers’ compensation insurance policy to insure their NFM employees, even though the majority of their business was operated through NFM.

The father and son accomplices failed to report approximately $12 million in wages to SCIF in order to save money on insurance, resulting in $4.2 million in lost premiums.

In this case, Cabrales’ underreporting significantly lowered the premiums owed. Businesses that fraudulently lower their premiums benefit from an unfair market advantage, giving them the ability to charge less in labor costs, and thereby underbid businesses who pay the appropriate premiums.

Cabrales Jr. self-surrendered yesterday and his father, Cabrales Sr., was arrested on October 23, 2022, at the San Francisco International Airport. The Santa Clara County District Attorney’s Office is prosecuting this case.

Employers are required to maintain workers’ compensation insurance to cover their employees in the event of an accidental on-the-job injury. To ensure proper coverage, employers are required to accurately report the number of employees, job classifications, and the amount of payroll expended. One of the common ways in which employers avoid paying insurance premiums is to underreport a business’s payroll by providing false payroll reports to their insurance company.

Rebecca Gage sustained injury to the lumbar spine through September 14, 2011 while employed as a deputy sheriff by the County of Sacramento. She requested advanced disability pension payments pursuant to Labor Code section 4850.4.

The employer made payments, but the payments were unreasonably delayed and she was awarded LC. 5814 penalties. The WCAB granted reconsideration and reversed the penalty order. It found that because advance disability retirement payments were not equivalent to regular workers’ compensation benefits, and that these benefits were not subject to a section 5814 penalty. The Court of Appeal reversed in the 2016 published case of Gage v WCAB. ( 6 Cal.App.5th 1128 [81 Cal.Comp.Cases 1127].) and concluded that the WCAB does indeed have jurisdiction to impose penalties under Labor Code section 5814. Subsequently the parties resolved all penalties.

Gage received advanced disability pension payments from May 8, 2015 through October 17, 2018 for a total of $120,144.03. Her disability retirement application was denied on October 17, 2018. The employer designated mediation as its independent level of resolution to recover these payments and scheduled a mediation with a retired judge for April 27, 2020. Gage did not attend. The matter proceeded to a status conference to compel her to attend. The WCJ denied the request finding no jurisdiction to do so, despite the Court of Appeal decision.

The WCAB again granted reconsideration on August 9, 2021, finding that the order was issued without creation of a record, and the case was remanded for further proceedings which occurred on December 13, 2021. The sole issue at trial was “[j]urisdiction to enforce Labor Code, section 4850.4.”

The WCJ concluded that initial jurisdiction over a plan to repay advanced disability retirement benefits vests solely with the local agency who issued payment. And that the Appeals Board has non-exclusive jurisdiction over litigation of any repayment plan or applicant may seek a writ of mandate with the Superior Court, but jurisdiction with the Appeals Board only exists after the parties have completed the first two steps outlined in the statute. And the WCJ found that the parties are expected to meet and confer to reach an agreement on a repayment plan per Labor Code section 4850.4(f). Both parties filed a petition for reconsideration which was granted in the newest WCAB panel decision of Gage v County of Sacramento ADJ8010054 (September 2022).

The employer contends that the Appeals Board has jurisdiction over repayment of applicant’s advanced disability pension payments since the Court of Appeal held that the Appeals Board has jurisdiction to “enforce payment” of advances. The panel responded by saying this “construction of the Court’s holding improperly conflates jurisdiction over section 5814 penalties with jurisdiction over section 4850.4 payments” because these payments are “compensation: under section 3207.

The last sentence of section 4850.4(f) permits the local agency to “take reasonable steps, including litigation” to recover the advanced payments “[i]f repayment is not made according to the repayment plan.” At this juncture, there is no repayment plan in place. Defendant may not pursue litigation to recover the advanced payments it made until applicant has failed to make payments per a repayment plan adopted either by an agreement between the parties or following submission of the issue to defendant’s administrative appeals remedy. It is thus premature to address whether “litigation” as that term is used in the statute entails proceedings before the Appeals Board or in civil court, or both.“

The Order was rescinded, and the case taken off calendar with the WCAB concluding that “The Appeals Board does not have jurisdiction to force applicant’s participation to agree on a repayment plan or in the local agency’s administrative appeals remedy.”

A workers’ compensation applicant attorney was sentenced to four years in state prison and ordered to pay over $700,000 in restitution to seventeen different insurance carriers for participating in two separate insurance fraud referral schemes.

Jon Woods, 61, of Cypress, was convicted in August of 37 felony counts of insurance fraud along with an aggravated white-collar crime sentencing enhancement. Woods was one of ten workers’ compensation applicant attorneys charged by the Orange County District Attorney’s Office in June 2017 as a result of a complex insurance fraud investigation.  

Charges were also filed against Carlos Arguello, Fermin Iglesias, and Edgar Gonzalez, along with four chiropractors, and several employees working for Carlos Arguello.  Carlos Arguello, his employees, and Fermin Iglesias have all pleaded guilty in their Orange County Superior Court cases.  Arguello and Iglesias were also charged in federal court for violating federal laws related to their scheme with medical providers, resulting in a four-year federal sentence for Arguello and a five-year federal prison sentence for Iglesias.

Woods was found guilty of participating in two different insurance fraud schemes – one with a “marketer” named Carlos Arguello, and the other with a subpoena company owner named Edgar Gonzalez.  From 2011 to 2016, Woods paid Carlos Arguello for workers’ compensation clients procured through Arguello’s attorney marketing business, Centro Legal International, and later Tu Justicia Legal, as well as Centro de Abogados.

Targeting mainly Hispanic neighborhoods across the State, Arguello’s business handed out more than four million business-card-sized flyers per month to attract prospective workers’ compensation clients for Arguello’s “marketing” scheme.  The flyers contained different toll-free numbers that all rang to a call center located in Tijuana, Mexico.  The call center operators served as a sales force, responsible for securing clients for Arguello’s attorneys by conferring with staff of various law firms about the callers’ cases, and then dispatching a “sign-up” representative from Arguello’s network to the caller’s home within 24-48 hours to sign legal paperwork to hire the law firm and start the injury claim.  Arguello distributed clients to law firms based on the amount each law firm paid Arguello for clients that month.

In addition to paying a monthly fee for obtaining clients, Woods also sent records subpoena work to companies controlled and operated by Carlos Arguello, in an amount equal to the number of clients he received from Arguello.  These companies billed the workers’ compensation insurance policy of the injured worker’s employer for all the records subpoena services they provided for Woods, because the law requires that cost of an injured worker proving his/her workers’ compensation claim must be paid by the employer’s workers’ compensation insurance.  This includes expense for obtaining records through subpoenas ordered by the injured worker’s lawyer.

Arguello’s scheme required that all clients procured through Arguello’s “marketing” would be sent to clinics chosen by Arguello’s organization.  Like the lawyers participating in his scheme, a group of doctors or chiropractors were also paying Arguello for workers’ compensation patients.  Fermin Iglesias, an associate of Carlos Arguello, oversaw the medical side of the scheme, in which medical service providers issued prescriptions for medical products to businesses owned by Iglesias in exchange for referral of patients to their clinics.

California’s workers’ compensation laws prohibit any person from paying for referral of business that would be billed through workers’ compensation insurance, and prohibit acceptance of such business in exchange for any kind of payment, benefit or compensation.  At trial, representatives of seventeen different workers’ compensation insurance companies testified that their companies would not have paid any of the bills received from a records subpoena company if they knew that the services rendered were a result of an unlawful referral scheme.

Woods was also found guilty of participating in a second fraud scheme in which he referred additional records subpoena work to USA Photocopy, a subpoena company owned by Edgar Gonzalez. Gonzalez paid various business expenses for Woods’ law firm as a bribe to receive the firm’s records subpoena work, including paying salaries for several entry-level employees who worked at Woods’ law firm, and paying bills for shredding costs, copier maintenance, new scanners, as well as an overseas back-office assistant.

Arguello and Gonzalez’s records subpoena companies had offshore offices in El Salvador, where employees reviewed subpoenaed records to identify more businesses that they can serve with more records subpoenas on Woods’ behalf. These companies billed workers’ compensation insurance companies for each individual subpoena.

Senior Deputy District Attorney Noor Hasan of Insurance Fraud prosecuted this case.

Wage theft has been a federal crime for decades but in California, where felony cases are punishable by up to three years in jail, prosecutors across the state rarely filed criminal charges based solely on wage theft.

But according to a report by CalMatters, some prosecutors say that is beginning to change.

Since 2015, the state’s Labor Commissioner’s Office has investigated 16 labor violation cases that resulted in criminal charges, spokesperson Paola Laverde said in an email; 11 of those cases involved wage theft. Five years ago, the criminal investigation unit in the Labor Commissioner’s office forwarded three cases to prosecutors. So far this year, it has referred more than a dozen, Laverde said.

Few local prosecutors contacted across the state could tell CalMatters how many wage theft cases they’ve brought charges for since 2015.

By contrast, the Labor Commissioner’s office conducted investigations of worksites and issued 141 minimum wage violation citations and 102 overtime violation citations in the 2019-2020 fiscal year. Those wage theft citations were handled administratively or in civil court.

Also workers who think their wages were stolen usually file claims with the Labor Commissioner’s office, rather than reporting it to law enforcement. Last year California employees filed 19,000 unpaid wage claims for a total of $320 million, which also are usually handled administratively.

As California continues to grapple with the scope of wage theft, prosecutors say criminal charges could become more common. Several prosecutors’ offices in recent years have announced units that will focus on labor violations such as wage theft.

“The goal here is to increase our prosecutorial attention to wage theft,” said George Gascón, LA’s district attorney who last year agreed to take referrals and investigate wage theft alongside the Labor Commissioner’s Office. “This (wage theft) is bad for the entire community.”

The initiatives coincide with an increase in what some call “progressive prosecutors,” who seek to refocus their offices’ attention on issues that disproportionately affect low-income and minority residents, such as labor violations and human trafficking. Studies show wage theft primarily affects the most vulnerable workers – those who make low wages, often people of color or immigrants.

These efforts often draw on law enforcement that already is targeting related forms of white-collar crime, such as workers compensation fraud or tax evasion – where victims are other businesses or the government, rather than workers.

Last year California lawmakers gave law enforcement additional flexibility when charging wage theft as a felony.

While the state’s felony grand theft statute already includes stolen wages of at least $950 from a single worker in a one-year period, the new statute allows charges if multiple workers lose at least $2,350 in unpaid wages combined. Nationally there is a rise in criminal prosecutions of labor abuses, according to a report released last year by the Economic Policy Institute. The study noted that since 2017 prosecutors in 15 states have brought new criminal cases against employers.

“My strong sense was that the employer community really responded differently to criminal versus civil cases,” said Terri Gerstein, the report’s author and a former labor bureau chief in New York’s Attorney General’s office. “It felt different when there was a criminal case. It was much more scary.”

Some labor experts question whether criminal prosecution is an effective tool for recovering money. After all, many workers who win civil wage judgments against their bosses still end up collecting nothing, and some businesses operating in the so-called underground economy don’t even have liquid assets, workers’ attorneys say.

When a business owner gets convicted, “if they’re behind bars, they’re definitely not paying their workers,” said Tia Koonse, legal and policy research manager at the UCLA Labor Center.

Others say the threat of jail time and the negative press associated with criminal charges are stronger deterrents than other labor enforcement methods.

The prospect of jail also can force a business owner to pay restitution, said Joel McComb, a deputy district attorney in San Mateo County.

Albert Villareal began working for Toyota of Downtown Los Angeles as a car salesman in 2015, and his job performance was satisfactory or better. The parent company of the dealership was Lithia Motors Inc. On February 1, 2018 Villareal injured his knee and back and was unable to walk without difficulty.

He returned to work on March 1, and worked up until June 4, 2018, when he took leave due to recurring pain. He underwent knee surgery in August 2018. Following the surgery, Villareal was placed on medical leave. When he informed the employer that his medical leave was extended for another three months, his employment was terminated the following day.

Villareal filed this action on August 24, 2020, asserting claims under FEHA for discrimination, retaliation, failure to prevent discrimination, failure to provide reasonable accommodation, and failure to engage in a good faith interactive process and other theories.of violation of the Labor Code.

When his employment began, he signed an agreement to resolve employment disputes through binding arbitration. Thus the defendants filed a motion to compel arbitration, A header on the first page of the agreement stated it was “[b]etween DT Los Angeles Toyota and Albert Villareal.” Villareal argued there was no valid arbitration agreement because DT Los Angeles Toyota was neither a legal entity nor a fictitious business name. Thus the dealership lacked the capacity to contract or consent to the agreement. And they could not maintain an action because they had not filed a fictitious business name statement..

The trial court found no merit in any of Villareal’s arguments except for the fictitious business statement problem. Business and Professions Code 17918 provides that a party who fails to file a valid statement cannot “maintain any action upon or on account of any contract made . . . in the fictitious business name in any court of this state until the fictitious business name statement” has been filed. The motion to compel arbitration was denied on that basis.

The employer appealed, and the Court of Appeal vacated the order and remanded in the published case of Published case of Villareal v LAD-T, LLC B313681 (October 2022).

Failure to comply with the fictitious-name statutes does not make the parties’ promises, agreements, and transactions invalid as such. Noncompliance merely prevents a fictitiously named business from enforcing obligations owed to it until it places on record its true nature and ownership.(Hand Rehabilitation Center v. Workers’ Comp. Appeals Bd. (1995) 34 Cal.App.4th 1204, 1214). The requirement similarly applies to motions to compel arbitration.

On May 17, 2022, after the appeal was in progress for many months, LAD-T filed a fictitious business name statement registering the names “DT Los Angeles Toyota” and “Toyota Downtown LA.,

Thus the employer contend that LAD-T’s recent filing of a fictitious business name statement for DT Los Angeles Toyota “resolves any grounds for abatement of [defendants’] petition to compel arbitration under . . . section 17918,” rendering the trial court’s order denying defendants’ motion to compel arbitration moot, and the trial order should be reversed on that basis.

Ultimately the Court of Appeal concluded the trial court did not err in denying defendants’ motion to compel arbitration, but it “must address the appropriate disposition in light of the unusual facts before us.”

It “agree with Villareal that defendants failed to act diligently in filing their fictitious business name statement.” After the June 1, 2021 Order denying the motion to compel arbitration, defendants then filed their notice of appeal on June 18 2021. But it was not until May 17, 2022 that it filed the Fictitious Business Name Statement.

“Defendants provide no explanation for why they would vigorously defend their position that no fictitious business name statement was required, including appealing the trial court’s order, then abandon this position at the eleventh hour by filing the very statement that could have enabled the case to proceed to arbitration a year earlier.” The trial court will need to determine in the first instance whether defendants have by their conduct waived their right to arbitration.

The order denying defendants’ motion to compel arbitration was vacated and the matter remanded for the trial court to address whether defendants have waived their right to compel arbitration. If the court finds waiver, it should again deny the motion to compel arbitration; if it finds no waiver, it should grant the motion.