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Employer Wage Theft is First State Premium Fraud Case

A San Diego grand jury indictment has been returned charging two defendants with a total of 21 felony counts in an ongoing payroll scheme at a College Area restaurant that violated minimum wage laws and California theft laws. Over a two-year period, the defendants hired more than 20 servers and cooks, many of them college students, to work at State Street Grill but refused to pay them after a week of work or offered them a wage that amounted to less than $5 per hour.

This is believed to be the first case in California where wages stolen from employees that were then not reported to the insurance company as payroll is being used as the basis to charge premium fraud.

David Dadon, 61, and his son Barry Dadon, 27, have both been charged with workers’ compensation premium fraud, payroll tax evasion, sales tax evasion and grand theft of labor from 23 victims. David Dadon was also indicted on one count of the fraudulent removal of property under a lease and two counts of attempted extortion. If convicted of all the charges, David Dadon faces up to 21 years in prison and Barry Dadon faces up to 18 years and possible restitution to the victims.

The case was originally referred to the DA’s Insurance Fraud Division from the California Labor Commissioner, whose Criminal Investigation Unit launched an investigation of State Street Grill, located at 5131 College Avenue in San Diego. The investigation revealed wages earned but not received by at least 23 individuals. As many as 50 potential additional victims are being encouraged to come forward. The DA’s Office worked closely with the Labor Commission to investigate the case. The Labor Commissioner’s office, also known as the Division of Labor Standards Enforcement (DLSE), is the state agency charged with labor law enforcement in California.

The men advertised on Craigslist for immediate placement of server and cook positions. They would offer the applicant the position if they accepted to work without pay for the first seven days. This was considered to be the “training period.” If, after the first seven days of unpaid work, the Dadons were satisfied by the employees’ performance, they indicated the workers would be “put on the schedule” and paid wages. In desperate need of income, many accepted the offer. The trainees described working in excess of 40 hours per week (many 50 to 60) and were never paid. In addition, the Dadons took some of the tips the workers earned.

Employees who were hired after the training period continued to work 50 to 60 hours per week and were fired if they refused to accept a $400 semi-monthly salary. Based on the number of hours worked many employees were working for less than five dollars per hour.

Orthomed Lien Claim Dismissed Over Activation Fee Issue

Applicant Eliezer Figueroa , a machine operator, injured his back, neck and psyche. His claim was resolved in 2011 by a Findings, Award and Order. On July 30, 2012, a lien claimant, (not Orthomed), filed a Declaration of Readiness to Proceed requesting a lien conference.

The lien conference was set for January 9, 2013, at 8:30 a.m. Orthomed did not appear at the conference. Because Orthomed did not submit proof of prior timely payment of the lien activation fee, and because the WCJ reviewed the record and determined that the lien activation fee had not in fact been paid, the WCJ dismissed Orthomed’s lien with prejudice, without first issuing a notice of intention.

On reconsideration, Orthomed argued that the activation fee is not payable where the defendant has not served supporting documents, thus depriving them of the opportunity to resolve the lien. Orthomed also contends that “the new lien regulations lacks [sic] latitude in allowing certain circumstances that are not just black and white.” The WCAB in the significant panel decision of Eliezer Figueroa v B.C. Doering Co., Employers Compensation Insurance Co. sustained the dismissal of Orthomed’s lien.

Section 4903.06, effective January 1, 2013, provides that with certain exceptions “[a]ny lien filed pursuant to subdivision (b) of Section 4903 prior to January 1, 2013, and any cost that was filed as a lien prior to January 1, 2013, shall be subject to a lien activation fee.” (Lab. Code, § 4903.06(a).) The lien activation fee is $100. (Lab. Code, § 4903.06(a)(1).) A lien claimant that files a DOR must include proof of payment of the fee with the DOR. (Lab. Code, § 4903.06(a)(2).): In relevant part, section 4903.06 further provides: “All lien claimants that did not file the declaration of readiness to proceed and that remain a lien claimant at the time of a lien conference shall submit proof of payment of the activation fee at the lien conference. If the fee has not been paid or no proof of payment is available, the lien shall be dismissed with prejudice.” (Lab. Code, 4903.06(a)(4).)

Administrative Director Rule 10208(a) (Cal. Code Regs., tit. 8, § 10208(a)), which is an emergency regulation that became operative January 1, 2013, provides in relevant part: “Any lien filed pursuant to Labor Code section 4903(b) filed prior to January 1, 2013, and any cost filed as a lien prior to January 1, 2013, shall be subject to a lien activation fee in the sum of one hundred dollars ($100.00), payable to the Division of Workers’ Compensation prior to filing a Declaration of Readiness to Proceed for a lien conference by that party, prior to appearing at a lien conference for a case, or on or before January 1, 2014, whichever occurs first.”

The WCAB interpreted the payment “at the lien conference” language of section 4903.06(a)(4) and the payment “prior to appearing at a lien conference” language of emergency Rule 10208(a) to mean that a lien activation fee must be paid prior to the commencement of a lien conference, which is the time that the conference is scheduled to begin, not the time when the case is actually called. Any payment made after the noticed hearing time is not timely. Therefore, the lien of Orthomed was correctly dismissed with prejudice.

The Appeals Board panel held that, where a lien claim falls within the lien activation fee requirements of Labor Code section 4903.06: (1) the lien activation fee must be paid prior to the commencement of a lien conference, which is the time that the conference is scheduled to begin, not the time when the case is actually called; (2) if the lien claimant fails to pay the lien activation fee prior to the commencement of a lien conference and/or fails to provide proof of payment at the conference, its lien must be dismissed with prejudice; (3) a breach of a defendant’s duty to serve required documents or to engage in settlement negotiations does not excuse a lien claimant’s obligation to pay the lien activation fee; and (4) a notice of intention is not required prior to dismissing a lien with prejudice for failure to pay the lien activation fee or failure to present proof of payment of the lien activation fee at a lien conference.

Owner of Security Company Faces Fraud Charges

The owner of a private security company hired to patrol Oldtown Salinas and help clean up the homeless problem is now facing prison time for tax evasion and insurance fraud.

The report on KBSW.com says that Monterey County prosecutors charged Anthony Vincent with four felony and two misdemeanor counts of not providing workers comp insurance to employees, and failing to pay employee taxes. Vincent is the owner of ESA International, a Salinas-based private security company. They were hired by the Salinas Oldtown Association 18 months ago to patrol downtown.

The director of the association, Amit Pandya, was surprised by the allegations against Vincent. Pandya said Vincent’s company has been a good partner and helped crack down on crime. The company is paid $200 a month to patrol the area, but the director says the partnership will be reconsidered when the association has it’s next regular meeting Thursday. One possibility is to terminate the contract with ESA International. The current contract is set to expire at the end of June.

Vincent’s attorney says his client was advised by his accountant to hire his security guards as independent contractors to avoid paying worker’s comp. But that’s against the law.

Vincent will be arraigned April 30. A conviction on all counts could mean 12 years in prison.

Federal Search Warrant Served at Pacific Hospital of Long Beach

FBI and IRS agents arrived at Pacific Hospital of Long Beach last week to serve a warrant as part of an investigation involving possible fraud against the institution. According to the Press-Telegram, the warrant was served at 8AM on Friday and agents were reportedly looking through computer files

The Long Beach Post says that FBI spokesperson Laura Emiller confirmed that a search warrant was served for possible allegations of fraud at Pacific Hospital of Long Beach, but she was unable to provide further details, noting that the search was sealed by the court. Though the nature of the possible allegations are still unclear, agencies that are also involved in the investigation include the IRS, California Department of Labor, California Department of Insurance, USPS Inspector General’s Office and the DCIS.

Given the number of agencies involved, it appears that the incident being investigated is larger in scope than the self-reported employee fraud discovered by the hospital in 2009, which was investigated by local law enforcement and the California Department of Public Health

In 2010, the hospital was fined $225,000 for a self-reported fraud incident in which an employee had obtained patients’ personal information–including names and social security numbers–and used it to open fraudulent telephone service accounts. Even though the employee was terminated from the hospital in 2009 and the hospital worked closely with law enforcement on the case, Pacific Hospital was fined by the California Department of Public Health, which alleged that the facility “failed to prevent unauthorized access.”

“Our hospital takes patient safety very seriously and has done nothing wrong,” a statement from Pacific Hospital public relations director Laura Salas said at the time. “At Pacific Hospital of Long Beach, we work diligently to serve our community by continually monitoring and improving patient safety programs and are proud of our ability to keep patient information safe from access by unauthorized persons.”

It is not known if that case is related to the current search warrant. Pacific Hospital has yet to return calls for comment.

Arrests Made in Forged Insurance Certificates Case

The California Department of Insurance (CDI) arrested Robinson Yang, 44, Roland Yang, 43, and Sotheany “Teny” Hul, 42, of Diamond Bar on multiple counts of theft, fraud and forgery. The three suspects are accused of producing and selling hundreds of false certificates of insurance for workers’ compensation insurance. All three were booked between March 22 and April 3, 2013 and are being held pending bail hearings.

In April 2009, the CDI Fraud Division and the Employee Development Department (EDD) began investigating Optima Staffing for defrauding their clients by producing and selling hundreds of false certificates of insurance. RJC Insurance Brokerage and Optima Staffing were allegedly selling forged certificates of insurance for workers’ compensation insurance coverage.

According to detectives, the suspects facilitate the theft by establishing three payroll service companies, Optima Staffing, United Employer Services (UES) and National Employer Services (NES), in the effort to provide a legitimate facade for their fraudulent scheme.

In addition to the insurance fraud and forged certificates of insurance, Optima also allegedly evaded income and unemployment insurance taxes. In addition to the failure to pay taxes, EDD also discovered that Robinson Yang was collecting unemployment benefits while being compensated by the Optima, UES and NES.

The four-year investigation involved hundreds of victims in 19 states and losses exceeding $700,000

DIR Posts Updated Guidebook for Injured Workers

The Department of Industrial Relations is pleased to announce the recent release of “Workers’ Compensation in California: A Guidebook for Injured Workers.”

“This fourth edition of the injured workers’ guidebook helps workers and others understand the sometimes complicated process of workers’ compensation,” said DIR Director Christine Baker. “The guidebook has been updated to reflect the latest changes to California’s workers’ compensation system.”

The guidebook gives an overview of the California workers’ compensation system. It is meant to help workers with job injuries understand their basic legal rights, the steps to take to request workers’ compensation benefits, and where to seek further information and help if necessary. Also included are references to important laws and regulations and a glossary.

The fourth edition includes important changes since 2006 in the following areas:

  • Pre-designation of one’s treating physician or a medical group
  • Treatment under the medical treatment utilization schedule (MTUS) adopted by the Division of Workers’ Compensation (DWC)
  • Independent medical review (IMR) to resolve disputes over denial of treatment
  • Extension of time limits on receiving temporary disability (TD) benefits
  • Return-to-work procedures
  • Permanent disability (PD) benefits
  • Supplemental job displacement benefits (SJDB)

The guidebook is available online in English, with a Spanish translation available soon. Because the workers’ compensation system is undergoing many changes with the implementation of Senate Bill 863, workers using the guidebook are urged to check updates posted at the DIR’s Division of Workers’ Compensation website. Injured workers may also obtain a printed copy at a local DWC district office.

The California Department of Industrial Relations enforces the state’s labor laws to improve the workplaces of over 18 million wage earners and their employers. Its mission is to improve working conditions for California’s wage earners, and to advance opportunities for profitable employment in California. DIR administers and enforces laws governing wages, hours and breaks, overtime, retaliation, workplace safety and health, medical care and other benefits for injured workers, and apprenticeship training programs.

Walter Hesse Returns to Floyd, Skeren and Kelly

Floyd, Skeren and Kelly is pleased to announce the return of Walter Hesse as of April 5, 2013.

After an approximate year of employment at another law firm, he is once again a welcomed addition to the firm’s new Westlake Village office. He brings with him over 35 years of Workers’ Compensation claims experience.

As he worked his way up the ranks of the California insurance industry, Walter was tapped by FS&K to create its lien unit over a decade ago. Due to his efforts, the lien unit now flourishes and maintains over a dozen lien specialists throughout California. Recognized early in his career as a lien litigator, the IEA tapped him as an instructor. His special insight towards lien defense, coupled with his recognition, respect, and goodwill within our community, allows FS&K this proud opportunity to announce his “coming home” after a year at another law firm.

Welcome back Walter!

SCIF 2012 Annual Report Shows Surge in Income

State Fund’s Annual Report for 2012 was just released. The report shows a significant increase in net income for California’s largest workers’ comp insurer. For 2012, State Fund’s income before dividends totaled $458 million, which was $279 million more than the prior year.

The report also indicates that State Fund reduced annual fixed expenses by $150 million dollars compared to 2009, and expects to achieve annual savings of more than $300 million by the end of 2014. These savings will help State Fund maintain fair pricing and bring value to a larger swath of the available market. State Fund announced a rate reduction of 7% effective March 1, 2013.

State Fund maintained a balanced investment portfolio that was focused on both credit quality and investment yield (99.3% of the $18.2 billion bond portfolio was rated NAIC 1, the NAIC’s highest quality credit class). The weighted average credit quality of the overall bond portfolio was Aa1/AA by Moody’s and Standard and Poor’s, respectively. Book yield at December 31, 2012 was 4.10%, down from 4.43% at December 31, 2011.

“I am proud to report that at the end of 2012, we began to realize our vision of a more effective State Fund, and that we are on a sustainable path to become the competitive, agile workers’ compensation carrier envisioned by our core mission,” remarked Tom Rowe, State Fund President and CEO in the report.

Rowe added that, “State Fund is emerging from its restructuring stronger, more efficient, and better able to deliver value to our policyholders, and injured workers – the greatest thing we can do for Californians.”

The report comes as State Fund approaches the three-year mark of implementing a comprehensive restructuring plan aimed at consolidating operations, shrinking its real estate footprint, and reducing operating expenses.

Pfizer Loses Appeal of $142 Million Judgment For Unapproved Neurontin Marketing

A federal appeals court said Pfizer Inc should pay about $142 million to cover costs for the marketing and prescribing of epilepsy drug Neurontin for unapproved uses, a practice that has also earned it a hefty criminal fine.

Reuters Health reports that a panel of appellate judges in Boston on Wednesday refused to overturn a ruling in favor of Kaiser Foundation Health Plan, which claimed it had been damaged after prescribing Neurontin for conditions it did not effectively treat, based on fraudulent marketing by Pfizer, the largest U.S. drugmaker.

In related appeals, the panel also revived similar claims from insurer Aetna and class action allegations from Harden Manufacturing Corp, restoring lawsuits that had been thrown out by a lower court. The ruling in the Kaiser case, which deals the biggest immediate blow to Pfizer, upholds a lower court’s decision not to grant Pfizer a new trial after a jury had awarded it $142 million. The jury found that Pfizer had marketed Neurontin for bipolar disorder, migraines and neuropathic pain, none of which had been approved by the U.S. Food and Drug Administration. The verdict followed a $240 million criminal fine in 2004 paid by Pfizer’s Warner-Lambert unit, as well as a $190 million civil fine paid by Pfizer in connection with the off-label marketing.

Neurontin, developed by a Warner-Lambert unit, was approved in 1993 to treat seizures at a maximum dose of 1800 milligrams per day. Warner-Lambert was later acquired by Pfizer. The drugmaker initially forecast about $500 million in revenue generated by Neurontin, but in 1995 began marketing it for off-label uses in an attempt to increase its earning potential — a move that apparently worked, reaping $2 billion from Neurontin sales in 2003 alone, the appellate court said. Pfizer marketed Neurontin for off-label uses directly to doctors, sponsored misleading informational supplements and suppressed negative information about the drug, the opinion said. The company’s internal marketing plan for certain drugs, including Neurontin, called for the development of relationships with Kaiser officials “who are not considered whistle blowers,” according to the opinion.

In a statement, Kaiser said it was “very pleased” and that “justice has been achieved for our members and the physicians, pharmacists and staff who care for them.” David Frederick, an attorney for Kaiser, said he was “gratified by the court’s carefully crafted decision.”

Pfizer was less satisfied, saying in a statement it believes “there was no basis in fact or law” for the awards in the Kaiser case. In the Aetna and Harden cases, Pfizer said it believed the lower court’s dismissals were the right move and that it “disagrees with the conclusions” of the appeals court. “We are exploring our appellate options in all three of these cases,” the company said.

Pfizer’s attorneys in the case, from law firms Skadden Arps Slate Meagher and Flom and Quinn Emanuel Urquhart and Sullivan, could not be reached. The Kaiser cases are Kaiser Foundation Health Plan et al v. Pfizer Inc et al, U.S. Court of Appeals for the First Circuit, Nos. 11-1904 and 11-2096.

Carson Woman Gets 13 Year Sentence for $8 Million Fraud Scheme

A Carson woman has been sentenced to 156 months in federal prison in an $8 million Medicare fraud case in which she illegally paid kickbacks for referrals to patients whose beneficiary information was used to make bogus claims to the government health care program.

Uben Ogbu Rush, 54, received the 13-year sentence from United States District Judge George H. King. During the sentencing hearing, Judge King said Rush was motivated by greed and the lengthy sentence was necessary, in part, to send a message of deterrence to others who might commit crimes against Medicare.

Rush owned or controlled six companies that ostensibly sold durable medical equipment, such as motorized wheelchairs and powered pressure-reducing mattresses. The companies were located in Carson, Gardena, Torrance, and Paramount.

At a trial in November 2011, federal prosecutors showed a jury how Rush paid marketers to recruit Medicare beneficiaries who would allow their identities and Medicare numbers to be used for the submission of false claims. The evidence also showed how Rush paid kickbacks to marketers, who in turn paid kickbacks to doctors who fraudulently wrote prescriptions, even though the physicians had not examined the patients or an examination revealed that the medical equipment was not medically necessary.

During the course of a scheme that ran from 1999 until 2008, Rush submitted more than $15 million in fraudulent claims to Medicare seeking payment for motorized wheelchairs, hospital beds, air pressure mattresses, and other items for patients who did not need the equipment. Medicare paid more than $8.1 on the bogus claims.

A co-defendant in the case, Carlos Alberto Rezabala, 60, of Downey, was sentenced by Judge King in June 2012 to 41 months in federal prison. Rezabala was a recruiter who brought Medicare beneficiaries into the scheme so their information could be used to submit fraudulent bills.

Another co-defendant, Phitsamay Syvoravong, 58, of Orange County, another recruiter who brought Medicare beneficiaries into the scheme, is scheduled to be sentenced by Judge King on May 20.

A related defendant, Dr. Alfred Glover, 57, of Playa Vista, testified at trial that he was paid for writing fraudulent prescriptions for Medicare beneficiaries, many of whom he never saw. Glover is schedule to be sentenced on May 28.

The investigation into Rush and her Medicare fraud scheme was conducted by the Federal Bureau of Investigation.