California Court of Appeals, Fourth District, Third Division
Pub. order 8/6/13
Reposted 8/8/13 to include mod. filed 8/6/13 prior to pub. order
Appeals from a judgment of the Superior Court of Orange County, Super. Ct. No. 09CF1067 Richard M. King, Judge.
Kamala D. Harris, Attorney General, Dane R. Gillette, Chief Assistant Attorney General, Julie L. Garland, Assistant Attorney General, Melissa Mandel and A. Natasha Cortina, Deputy Attorneys General, for Plaintiff and Appellant.
Allison H. Ting, under appointment by the Court of Appeal, for Defendant and Appellant.
Judith D. Sapper, Deputy Chief Counsel, Betty R. Quarles, Assistant Chief Counsel, and Anthony E. Romo, Staff Counsel, for State Compensation Insurance Fund as Amicus Curiae.
RYLAARSDAM, ACTING P. J.
A jury found defendant Michael Vincent Petronella guilty of 33 counts of violating Insurance Code section 11880, subdivision (a). That statute makes it a crime for anyone to knowingly make a “false or fraudulent statement... of any fact material to the determination of the premium, rate, or cost of any policy of workers’ compensation insurance issued or administered by the State Compensation Insurance Fund for the purpose of reducing the premium, rate, or cost of the insurance.” The jury also found defendant’s crimes constituted a pattern of related fraudulent felony conduct involving a loss exceeding $500, 000. (Pen. Code, § 186.11, subd. (a)(2).) The superior court sentenced defendant to 10 years in state prison. It also and ordered him to pay $500, 000 in restitution under Penal Code section 1202.4. Defendant appeals from the judgment raising numerous evidentiary, instructional, and sentencing issues. Both defendant and the People appeal from the trial court’s restitution award. We reverse the trial court’s restitution order, but otherwise affirm the judgment.
FACTS AND PROCEDURAL BACKGROUND
Defendant owned several businesses, including The Reroofing Specialists, Inc., doing business as Petronella Roofing (Petronella Roofing), Western Cleanoff, Inc. (Western), and Petronella Corporation. In September 2000, he obtained a policy of workers’ compensation insurance from the State Compensation Insurance Fund (SCIF) covering Petronella Roofing and Western. Except for a one-month lapse, which resulted in a change in the policy number, SCIF automatically renewed defendant’s policy every year until 2009.
SCIF is a quasi-governmental entity that provides workers’ compensation insurance. It is funded from the premiums paid by insureds. Premiums are determined using a formula that includes: (1) A business’s gross payroll for each job classification employed by it; (2) a rating established by a regulatory agency named The Workers’ Compensation Insurance Rating Bureau (WCIRB) that reflects the expected loss claims for each job classification; and (3) a rating, called an experience modification, which compares the insured’s record of employee injury claims to the injury claims of the particular industry as a whole.
Defendant was required to make monthly premium payments, calculating the amount due by completing a payroll report. The report required him to identify each job classification and its gross payroll, multiply the payroll by that classification’s rating, divide the product by 100, and, if an experience modification was specified, multiply the quotient by it. Defendant also had to sign each report certifying the information provided “accurately reflects the total wages, salaries, and other compensation paid to all employees... during the period.”
SCIF annually conducted audits after each policy period ended. During the audits a SCIF agent met with defendant and, on one or two occasions, his wife. In addition to other matters, the agent verified the accuracy of the monthly payroll reports SCIF received by comparing them with copies of quarterly employee wage reports defendant claimed he had filed with the California Employment Development Department (EDD) and the Internal Revenue Service. During a January 2005 audit, defendant informed the SCIF’s agent that Western had been inactive since the third quarter of 2001. Endorsements were issued removing Western from coverage under the policy.
In September 2006, an SCIF claims adjuster received a telephone call from Petronella Roofing’s secretary, reporting an employee named Morales was still receiving workers’ compensation benefits although he had returned to work. The adjuster asked the secretary to provide documentation. She received a copy of Morales’s pay stub, reflecting he worked for Western. Noticing that Western had been reported to be dormant and removed from coverage under the policy, but was still listed as an active entity on the Secretary of State’s Web site, the adjuster reported the discrepancy to SCIF’s special investigations unit.
The special investigations unit conducted an internal review and referred the matter to the Orange County District Attorney’s Office. In April 2009, defendant was arrested and his house searched.
Investigators advised defendant of his Miranda rights (Miranda v. Arizona (1966) 384 U.S. 436 [86 S.Ct. 1602, 16 L.Ed.2d 694]). He waived them and agreed to speak with the officers. Defendant said he handled “day-to-day operations, ” including “the payrolls.” He acknowledged sending the monthly payroll reports to SCIF, and when asked if these reports were accurate, admitted they were not, claiming, “they’re mostly a[n] estimated payroll.” Defendant also admitted underreporting his payroll during annual audits, explaining “our [experience] modification rate was so out of whack that it... was prohibitive to... pay the premiums that were requested by SCIF.” He stated the payroll reports actually filed with EDD were correct.
An SCIF claims manager compiled a list of 42 persons who filed workers’ compensation claims under Petronella Roofing’s policy whose payroll had not been reported to SCIF. A certified public accountant compared the payroll reports and audit documents defendant provided SCIF with the quarterly employee wage reports actually received by EDD. The accountant prepared a report reflecting the difference between the quarterly payroll defendant reported to EDD and the payroll reports he submitted to SCIF from the fourth quarter of 2000 to the fourth quarter of 2008. Over that 8-year span, the difference in payroll reported to EDD and that reported to SCIF exceeded $29 million.
The prosecution charged defendant with one count of grand theft, 36 counts of violating Insurance Code section 11880, subdivision (a), plus numerous tax evasion crimes. The information also alleged an enhancement under Penal Code section 186.11, subdivision (a). During trial, the court dismissed the grand theft charge at the prosecution’s request and granted defendant’s motion for acquittal on the bulk of the tax evasion charges. The jury found defendant guilty of 33 counts of violating Insurance Code section 11880, subdivision (a), but acquitted him on three other similar counts and the remaining tax evasion charges. As to counts 2 through 20, the jury returned true findings the prosecution of these charges began within four years of when the crime reasonably should have been discovered. Finally, the jury also found defendant engaged in a pattern of related fraudulent felony conduct resulting in over $500, 000 in losses.
1. Insurance Code Section 11880, subdivision (a)
Defendant attacks his convictions for violating Insurance Code section 11880, subdivision (a) on several grounds. First, he challenges the sufficiency of the evidence supporting the jury’s guilty verdicts. Second, citing Labor Code section 3700.5, subdivision (a), which makes “failure to secure the payment of [workers’] compensation [insurance]... a misdemeanor, ” defendant argues his felony convictions under Insurance Code section 11880, subdivision (a) violate his constitutional right to equal protection. Third, he claims the evidence fails to support the jury’s finding the prosecution filed on counts 2 through 20, within the applicable statute of limitations. Finally, in a related argument he asserts the trial court violated his constitutional rights when it denied a pretrial discovery motion for pre-2006 internal e-mails based on SCIF’s assertion of the attorney-client privilege.
a. Insufficiency of the Evidence
Insufficiency of the evidence claims are reviewed under the “clear and well settled” substantial evidence standard of review. (People v. Abilez (2007) 41 Cal.4th 472, 504.) “‘The proper test for determining a claim of insufficiency of evidence in a criminal case is whether, on the entire record, a rational trier of fact could find the defendant guilty beyond a reasonable doubt. [Citations.] On appeal, we must view the evidence in the light most favorable to the People and must presume in support of the judgment the existence of every fact the trier could reasonably deduce from the evidence. [Citation.]’” (People v. Perez (2010) 50 Cal.4th 222, 229.) Further, “‘“‘[c]ircumstantial evidence may be sufficient to connect a defendant with the crime and to prove his guilt beyond a reasonable doubt.’”’ [Citation.]” (People v. Abilez, supra, 41 Cal.4th at p. 504.) Thus, “[i]f the circumstances reasonably justify the trier of fact’s findings, reversal of the judgment is not warranted simply because the circumstances might also reasonably be reconciled with a contrary finding.” (People v. Lindberg (2008) 45 Cal.4th 1, 27.)
As previously noted, Insurance Code section 11880, subdivision (a) makes it a felony to knowingly make a “false or fraudulent statement... of any fact material to the determination of the premium, rate, or cost of any policy of workers’ compensation insurance issued or administered by the State Compensation Insurance Fund for the purpose of reducing the premium, rate, or cost of the insurance.” The Attorney General’s brief demonstrates the trial evidence established the following material facts: (1) “A comparison of the payroll reports [defendant] submitted to SCIF... and SCIF audit reports... with the... forms [defendant] submitted to the EDD... establish that for each policy year [defendant] misreported his payroll” by amounts exceeding $2 million; (2) defendant knew his businesses’ “payroll was material to setting the premium” due SCIF for his workers’ compensation insurance; and (3) defendant “knowingly made false statements concerning his payroll with the intent to reduce the cost of his workers’ compensation insurance.”
Defendant correctly asserts Insurance Code section 11880, subdivision (a) creates a specific intent crime. But he is wrong in claiming it requires the prosecution to establish the correct premium or cost of insurance to support a conviction under the statute. The statute only requires the prosecution to show defendant knowingly made a false oral or written statement to SCIF material to determining the premium, rate, or cost of his insurance with the intent of reducing that figure. The prosecution presented evidence that, from 2000 to 2008, defendant knowingly and repeatedly underreported the payroll for his companies to reduce the premium he owed for workers’ compensation insurance.
To a large extent, defendant’s brief attempts to reargue the facts, asserting he had no intention of deceiving SCIF and blaming his convictions on what he describes as SCIF’s incompetent claims administration. The fact that defendant wanted to remain competitive in the roofing industry did not justify his actions. “The best of motives provides no defense.” (People v. Thomas (1988) 206 Cal.App.3d 689, 697; see also 1 Witkin & Epstein, Cal. Criminal Law (4th ed. 2012) Defenses, § 281, p. 771.) Neither does SCIF’s allegedly poor handling of defendant’s policies or its purported failure to adequately audit them constitute valid defenses. A victim’s contributory negligence is not a defense to a crime. (People v. Marlin (2004) 124 Cal.App.4th 559, 569; People v. Schmies (1996) 44 Cal.App.4th 38, 46.)
We conclude the evidence supports the jury’s guilty verdicts.
b. Equal Protection
Next, defendant contends his felony convictions for violating Insurance Code section 11880, subdivision (a), violated his constitutional right to equal protection. In support of this argument he cites Labor Code section 3700.5, subdivision (a). It provides, “[t]he failure to secure the payment of compensation as required by this article by one who knew, or because of his or her knowledge or experience should be reasonably expected to have known, of the obligation to secure the payment of compensation” constitutes “a misdemeanor....” Describing his actions as “knowingly partially underreport[ing] payroll to [SCIF], ” defendant argues he is similarly situated to an employer “who knowingly completely underreports his payroll by not securing required workers’ compensation coverage....” (Italics omitted.) Thus, he claims the difference in punishment is unjustified. Not so.
Initially, the Attorney General correctly notes defendant waived the issue by failing to raise it in the trial court. (People v. Pecci (1999) 72 Cal.App.4th 1500, 1503 [claim that the defendant’s ineligibility for probation violated equal protection waived by not objecting on that ground in trial court].) But even on the merits his argument is unpersuasive.
To succeed on an equal protection claim a defendant must show “‘“the state has adopted a classification that affects two or more similarly situated groups in an unequal manner”’” and “establish that there is no rational relationship to a legitimate state purpose for the state’s having made a distinction between the two similarly situated groups.” (People v. Cavallaro (2009) 178 Cal.App.4th 103, 110, fn. omitted.) Defendant cannot satisfy the claim’s first requirement, two groups “‘similarly situated for purposes of the law challenged.’ [Citation.]” (Cooley v. Superior Court (2002) 29 Cal.4th 228, 253.) The gravamen of Insurance Code section 11880, subdivision (a) is knowingly concealing a fact material to determine “premium, rate, or cost of the insurance” by one who has a workers’ compensation insurance policy issued or administered by SCIF. Labor Code section 3700.5, subdivision (a) punishes one who merely should have known of his or her obligation to secure workers’ compensation insurance and failed to obtain coverage. The latter statute does not involve any element of concealment or the calculation of a policy’s cost. Thus, one convicted of violating the former statute is not similarly situated to one who is convicted of violating the latter statute.
People v. Cortez (1985) 166 Cal.App.3d 994 presents an analogous circumstance. A defendant convicted of transporting heroin argued it was “‘a violation of equal protection to punish’” more seriously one whose “‘possession of heroin for personal use... was not “stationary, ”’” than “one who possesses heroin for personal use, but is not in motion when arrested....” (Id. at p. 999.) The appellate court rejected this claim, noting “‘“‘The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same.’ [Citations.]”’” (Id. at pp. 999-1000.) The same is true here. Defendant’s repeated fraudulent underreporting of his payroll so as to reduce the workers’ compensation premium owed to SCIF is not the same as merely failing to obtain workers’ compensation insurance at all.
c. Statute of Limitations
Defendant’s prosecution commenced on April 29, 2009. Counts 2 through 20 charged defendant with violating Insurance Code section 11880, subdivision (a) between September 2000 and September 2005. First, defendant claims the evidence fails to support the jury’s finding that, as to counts 2 through 20, the prosecution commenced this action within the applicable statute of limitations. In the alternative, he challenges the trial court’s denial of his pretrial request to review SCIF’s ...