P. v. Petronella

 

 

 

 

 

 

 

 

Filed 8/6/13  P. v. Petronella CA4/3

 

 

 

 

 

 

 

 

 

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

 

 

 

California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b).  This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

 

 

IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA

 

FOURTH APPELLATE
DISTRICT

 

DIVISION THREE

 

 
>

THE PEOPLE,         Plaintiff and Appellant,                           v.   MICHAEL VINCENT PETRONELLA,         Defendant and Appellant.

G044628            (Super. Ct. No. 09CF1067)            ORDER MODIFYING OPINION          AND DENYING PETITION FOR          REHEARING; NO CHANGE IN          JUDGMENT

 

                        It is ordered that the
opinion filed herein on July 17, 2013,
be modified as follows: 

                        On page 24, in the
second full paragraph, beginning “The first issue is,” delete the second and
third sentences and accompanying case citations. 

 



 

                        There
is no change in the judgment.  The
petition for rehearing is DENIED. 

 

 

 

                                                                                   

                                                                                    RYLAARSDAM,
ACTING P. J.

 

WE CONCUR:

 

 

 

BEDSWORTH, J.

 

 

 

THOMPSON, J.

 

Filed 7/17/13  P. v.
Petronella CA4/3 (unmodified version)

 

 

 

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

 


 

IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA

 

FOURTH APPELLATE
DISTRICT

 

DIVISION THREE

 

 
>

THE PEOPLE,         Plaintiff and Appellant,                           v.   MICHAEL VINCENT PETRONELLA,         Defendant and Appellant.

G044628            (Super. Ct. No. 09CF1067)            O P I N I O N

                        Appeals from a judgment
of the Superior Court
of Orange County,
Richard M. King, Judge.  Affirmed in part
and reversed in part.

                        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.

 

                        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. 

 

DISCUSSION

 

>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 name="SR;3415">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 under[]report[ing] payroll to [SCIF],”
defendant argues he is similarly situated to an employer “who knowingly
completely under[]reports 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 whoname=FN2> 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 name="SDU_1000">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 pre-2006 internal
e-mail communications, arguing this ruling violated his constitutional rights
to confrontation and due process. 

 

(1) Timeliness

                        The statute of
limitations for defendant’s crimes was four years “after discovery of the
commission of the offense . . . .”  (Pen. Code, §§ 801.5, 803, subd.
(c).)  In applying the discovery requirement,
“[L]ack of actual knowledge is not required to bring the ‘discovery’ provision
. . . into play.  The
crucial determination is whether law enforcement name="SDU_572">authorities
or the victim had actual notice of circumstances sufficient to make them
suspicious of fraud thereby leading them to make inquiries which might have
revealed the fraud.”  (>People v. Zamora (1976) 18
Cal.3d 538, 571-572, italics omitted.) 
“However, discovery of a loss by the victim alone is insufficient
to trigger the running of the limitations period:  ‘Literally, . . . name="SR;3699">discovery name="SR;3700">of name="SR;3701">a name="SR;3702">loss, name="SR;3703">without name="SR;3704">discovery name="SR;3705">of name="SR;3706">a name="SR;3707">criminal name="SR;3708">agency, name="SR;3709">is name="SR;3710">not name="SR;3711">enough.’  [Citation.]” 
(People v. Soni (2005) 134
Cal.App.4th 1510, 1518; see also People
v. Lopez (1997) 52 Cal.App.4th 233, 246, fn. 4.)  “The question is whether there is sufficient
knowledge that a crime has been committed.” 
(People v. Crossman (1989) 210
Cal.App.3d 476, 481.) 

                        The issues of when SCIF
actually learned of defendant’s fraud and whether, through the exercise of
reasonable diligence, it could have discovered the fraud earlier, presented
questions for the jury to decide.  (>People v. Swinney (1975) 46
Cal.App.3d 332, 345, disapproved on another point in People v. Zamora, supra, 18 Cal.3d at pp. 564-565, fn.
26.)  “When an issue involving the
statute of limitations has been tried, we review the record to determine
whether substantial evidence supports the findings of the trier of fact.  [Citations.]”   (People
v. Castillo (2008) 168 Cal.App.4th 364, 369.) 

                        Migdalia Martin, an
investigator with SCIF’s special investigations unit testified the insurer has
“an online fraud investigation management system.”  If “an employee within the company finds
. . . unusual activity . . . they are mandated to
report that activity to the special investigations unit.”  Reports from persons outside SCIF are also
placed into this system.  She checked the
department’s system and found the first tip received concerning defendant’s
businesses was from the claims adjuster handling the Morales case in September
2006. 

                        Again, defendant’s
assertions primarily amount to rearguing the facts.  Martin testified discrepancies, referred to
as “‘red flags’” “should be” reported to her department.  But she stated “a red flag doesn’t mean that
there is fraud.”  Defendant also cites to
evidence indicating a dramatic increase in Petronella Roofing’s experience
modification and an SCIF underwriter’s comment agreeing this constituted “a
huge red flag.”  What he ignores is the
underwriter’s further response that he “would want to know what’s going on” and
“see what we can do to stop these losses.” 
Thus, the underwriter’s focus was on improving the insured’s safety
record, not investigating the possibility of fraud. 

                        Defendant also refers to
the reports prepared by several auditors going back to the policy’s first
annual review that indicated discrepancies in his payroll records.  The testimony suggests these witnesses relied
on their supervisors to determine whether discrepancies were serious enough to
contact SCIF’s special investigations unit. 
Two auditors, Alma Alexander and Gina King testified it was up to their
supervisors to follow up on red flags. 
Alexander claimed her supervisor never questioned her about the
audits.  Another auditor, William Rainey,
testified his supervisor was required to review audit reports submitted by
him.  Rainey claimed that if a supervisor
found mistakes in the audit, it would have been returned to him, but he did not
recall being questioned about any of the audits. 

                        Thus, while defendant
notes there was some evidence SCIF agents noticed incorrect reporting by him,
he fails to establish SCIF reasonably should have suspected he was
underreporting his payroll before September 2006.  We conclude the evidence supports the jury’s
finding the prosecution timely charged defendant with the counts pre-dating
October 2005. 

 

(2) Pretrial Discovery

                        Before trial, the
defense served a subpoena on SCIF that, in part, sought all internal e-mails
concerning defendant’s insurance policies sent between September 2000 and
August 2009.  SCIF gave the defense a
compact disk, but it did not contain any pre-2006 e-mails.  SCIF claimed that, except for two 2007
e-mails listed on its privilege log as non-core attorney work product, all of
the earlier e-mails were covered by the attorney-client and attorney work
product privileges.  The defense sought
an in camera review of the validity of SCIF’s privilege claims, arguing a
failure to do so would violate defendant’s constitutional rights.  The court allowed discovery of the two
non-core attorney work product e-mails, but otherwise sustained SCIF’s
privilege claim without conducting an in camera review. 

                        Defendant now contends
the trial court’s ruling violated his constitutional rights to confrontation
and due process.  The Attorney General
disagrees.  We conclude the trial court
properly ruled on this issue. 

                        As noted, SCIF asserted
the attorney-client privilege to all but the two e-mails listed on its
privilege log the court found subject to discovery.  Confidential communications between an
attorney and a client are protected by the attorney-client privilege.  (Evid. Code, §§ 952, 954.)  Evidence Code section 915, subdivision
(a) bars “disclosure of information claimed to be privileged
. . . in order to rule on the claim of privilege
. . . .” 

                        The case law also
supports the trial court’s ruling.  In >People v. Hammon (1997) 15
Cal.4th 1117, the Supreme Court held the trial court properly quashed a
subpoena duces tecum the defendant served on psychotherapists treating the
alleged victim without first conducting an in camera review of the material.  “[R]eject[ing the] defendant’s claim that
pretrial access to such information was necessary to vindicate his federal
constitutional rights to confront and cross-examine the complaining witness at
trial or to receive a fair trial” (id.
at p. 1119), Hammon held “the
trial court was not required, at the pretrial stage of the proceedings, to
review or grant discovery of privileged information in the hands of third party
psychotherapy providers” (ibid.). 

                        In so ruling, >Hammon disapproved prior case law,
including People v. Reber (1986) 177
Cal.App.3d 523, that had authorized pretrial in camera review of material
claimed to be privileged and disclosure of the material if the court found a
criminal defendant’s confrontation right outweighed the asserted privilege.  Hammon
noted those cases relied on a United States Supreme Court decision involving a
criminal defendant’s trial rights (Davis
v. Alaska (1974) 415 U.S. 308 [94 S.Ct. 1105, 39 L.Ed.2d 347]), and that in
a subsequent case (Pennsylvania v.
Ritchie (1987) 480 U.S. 39 [107 S.Ct. 989, 94 L.Ed.2d 40]), “no majority
consensus emerged concerning the proper application of the confrontation clause
of the Sixth Amendment to the pretrial discovery issue
. . . .”  (>People v. Hammon, supra, 15
Cal.4th at p. 1126.)  Thus, >Hammon concluded “[w]e do not
. . . see an adequate justification for taking such a long step
in a direction the United States Supreme Court has not gone.”  (Id.
at p. 1127.) 

                        The Supreme Court
confronted the attorney-client privilege in People
v. Gurule (2002) 28 Cal.4th 557. 
Garrison, the defendant’s accomplice, entered into a plea deal that
required him to testify for the prosecution. 
Due to concerns about Garrison’s mental stability the court ordered him
examined by several psychiatrists. 
Before trial, the defendant sought discovery of the psychiatrists’
records.  Garrison’s attorney
objected.  Noting that he had retained
two of the psychiatrists before the court ordered them to examine Garrison,
counsel claimed the reports were confidential under both the psychotherapist-patient
and attorney-client privileges.  The
trial court concluded some of the court-ordered examinations were discoverable,
conducted an in camera review of these materials, and ordered the records
disclosed to the defense.  As to all of
the other records, the trial court found them covered by the attorney-client
privilege and thus not subject to review. 


                        Rejecting the
defendant’s claim, “denying him full access to

Garrison’s
psychiatric records” violated his federal constitutional rights, the Supreme
Court affirmed.  (People v. Gurule, supra, 28 Cal.4th at p. 591.)  First, “[u]nder

>Hammon . . . psychiatric
material is generally undiscoverable prior to trial.  Defendant, then, received more discovery than
he was legally entitled to . . . .”  (Id.
at p. 592.)  Second, as for the
materials found to be covered by the attorney-client privilege, >Gurule held the trial court properly
declined to conduct an in camera review to determine their materiality.  (Id.
at p. 593.)  “‘The attorney-client
privilege is one of the oldest recognized privileges for confidential
communications’ [citation] and is ‘one which our judicial system has carefully
safeguarded with only a few specific exceptions’ [citation].  We have held that a criminal defendant’s
right to due process does not entitle him to invade the attorney-client
privilege of another.  [Citation.]  name=f1e2002457077>To the extent defendant claims his right to
confrontation or due process entitles him to gain access to the confidential
communications between Garrison, his attorney, and his defense experts, he is
thus mistaken.”  (Id. at p. 594.) 

                        The same result applies
in this case.  Defendant seeks to
distinguish the foregoing cases by arguing he was seeking information relevant
to the statute of limitations issue, not to impeach the prosecution’s
witnesses.  But neither >Hammon nor Gurule limited its holding to pretrial discovery concerning witness
impeachment. 

                        Defendant cites >People v. Mincey (1992) 2
Cal.4th 408 and Vela v. Superior
Court (1989) 208 Cal.App.3d 141 in support of his argument.  Mincey
involved the trial court’s restriction of defense counsel’s questioning of a
witness concerning her state of mind that occurred during trial, not pretrial discovery of what her attorney told
her.  (People v. Mincey, supra, 2 Cal.4th at pp. 462-463.)  Vela
held a city could not use the attorney-client privilege to bar criminal
defendants from seeking pretrial discovery of “statements made by its police
officers to an investigating team organized by the city’s police department to
gather and preserve evidence for use by the city attorney in the defense of a
possible future civil action.”  (>Vela v. Superior Court, supra, 208
Cal.App.3d at p. 144.)  But >Vela was decided before the Supreme
Court’s decision in Hammon and relied
on both Davis v. Alaska, supra, 415
U.S. 308 and People v. Reber, supra,
177 Cal.App.3d 523 to reach its conclusion.  As noted, both the United States and
California Supreme Courts have recognized Davis
is inapplicable to pretrial discovery claims and Reber is no longer the law. 
Thus, defendant was not entitled to have the court conduct an in camera
review of SCIF’s e-mails claimed to be covered by the attorney-client privilege
or to obtain disclosure of them. 

                        Furthermore, defendant
was allowed to fully question SCIF employees about the scope of their audits of
his business.  In addition, he questioned
SCIF’s investigator about when the investigations unit received reports about
defendant’s possible fraudulent activity. 
As mentioned, she testified the first report appeared in the September
2006 e-mail from the claims adjuster handling the Morales file.  Thus, we conclude the trial court did not err
in denying defendant’s pretrial request to review SCIF’s e-mails covered by the
attorney-client and attorney work product privileges. 

 

>2. 
Penal Code section 186.11

                        Penal Code
section 186.11, “known as the aggravated white collar crime enhancement”
(Pen. Code, § 186.11, subd. (a)(1)), imposes increased punishment on
“[a]ny person who commits two or more related felonies, a material element of
which is fraud or embezzlement, which involve a pattern of related felony
conduct” (ibid.), including where
“the pattern of related felony conduct involves the taking of, or results in
the loss by another person or entity of, more than five hundred thousand
dollars ($500,000) . . . . 
(Pen. Code, § 186.11, subd. (a)(2)).  At the close of the prosecution’s case, the
defense made a motion for acquittal under Penal Code section 1118.1 on
this enhancement allegation.  The court
denied the motion and the jury returned a true finding on it. 

                        Defendant now challenges
the sufficiency of the evidence supporting the finding on two grounds.  First, he argues “there was no competent
calculation of [the] proper premium payable, and that calculation was beyond
the jurors’ capabilities.”  Second,
defendant claims since he “was convicted of 33 counts of violating Insurance
Code section 11880[, subdivision (a)],” he “was not convicted of two or
more ‘related felonies,’ within the meaning of . . . Penal Code
section 186.11 . . . .” 
Both contentions lack merit. 

                        “The standard applied by
the trial court under [Penal Code] section 1118.1 in ruling on a motion
for judgment of acquittal is the same as the standard applied by an appellate
court in reviewing the sufficiency of the evidence to support a
conviction.  [Citation.]”  (People
v. Whisenhunt (2008) 44 Cal.4th 174, 200.)  “Review of the denial of a section 1118.1
motion made at the close of a prosecutor’s case-in-chief focuses on the state
of the evidence as it stood at that point. 
[Citation.]”  (>People v. Houston (2012) 54
Cal.4th 1186, 1215; see also People
v. Roldan (2011) 197 Cal.App.4th 920, 924.) 

                        The prosecution’s
evidence included testimony concerning the process used by an insured to
calculate its premium on a payroll report as well as copies of defendant’s
payroll reports.  In addition, the People
introduced copies of the quarterly wage and withholding reports defendant
submitted to the EDD.  As the trial court
concluded “it may take [some] work [by] the jurors, but there is evidence [of]
the amount of loss . . . of premiums” and consequently “there
[are] facts to support a true finding.” 
We agree with this conclusion. 

                        As for defendant’s
second argument, he claims “‘related felonies’ can only be different felonies;
they cannot be the same [felony].”  This
argument ignores the definitions of the phrases “a pattern of related felony
conduct” and “two or more related felonies” appearing in Penal Code
section 186.11, subdivision (a)(1). 
The first phrase “means engaging in at least two felonies that have the
same or similar purpose, result, principals, victims, or methods of commission,
or are otherwise interrelated by distinguishing characteristics, and that are
not isolated events.”  (>Ibid.) 
The latter phrase is defined as “felonies committed against two or more
separate victims, or against the same victim on two or more separate
occasions.”  (Ibid.; see also People v.
Mozes (2011) 192 Cal.App.4th 1124, 1129 [applying statute where the
defendant pleaded guilty to 17 counts of theft by false pretenses].)  Under these definitions, defendant’s multiple
convictions for violating Insurance Code section 11880, subdivision (a)
satisfied the enhancement’s statutory requirements. 

                        Thus, we reject
defendant’s attack on the jury’s true finding under Penal Code
section 186.11, subdivision (a)(2). 


 

 

 

>3. 
Mistake of Fact

                        Next, defendant claims
the trial court had a duty to instruct the jury sua sponte on mistake of fact
as a defense and its failure to do so prejudiced him.  He argues his statements to the investigators
indicated “[h]e believed he was paying proper premiums, avoiding inflated out
of ‘whack’ premiums.”  Consequently,
defendant argues he “lacked factual knowledge of what the proper premiums
should have been” and “therefore, he lacked the intent to reduce them.”  This argument lacks merit. 

                        Penal Code
section 26 declares, “All persons are capable of committing crimes except
those belonging to the following classes: 
[¶] . . . [¶] Three -- Persons who committed the act or
made the omission charged under an ignorance or mistake of fact, which
disproves any criminal intent.”  As the
Attorney General argues, the case law defeats his reliance on a trial court’s
duty to instruct sua sponte on mistake as a defense. 

                        In People v. Anderson (2011) 51 Cal.4th 989, the Supreme Court
affirmed a felony murder conviction with a true finding the killing occurred
during the course of a robbery, rejecting a claim the trial court erred by
failing to instruct on accident as a defense where, in the process of stealing
the victim’s car, the defendant ran over her. 
“That the law recognizes a defense of accident does not, however,
establish that trial courts have a duty to instruct on accident sua sponte.  ‘In criminal cases, even in the absence of a
request, a trial court must instruct on general principles of law relevant to
the issues raised by the evidence and necessary for the jury’s understanding of
the case.’  [Citation.]  That duty extends to ‘“instructions on the
defendant’s theory of the case, including instructions ‘as to defenses “‘that
the defendant is relying on . . . , or if there is substantial
evidence supportive of such a defense and the defense is not inconsistent with
the defendant’s theory of the case.’”’”’ 
[Citation.]”  But “‘“when a
defendant presents evidence to attempt to negate or rebut the prosecution’s
proof of an element of the offense, a defendant is not presenting a special
defense invoking sua sponte instructional duties.  While a court may well have a duty to give a
‘pinpoint’ instruction relating such evidence to the elements of the offense
and to the jury’s duty to acquit if the evidence produces a reasonable doubt,
such ‘pinpoint’ instructions are not required to be given sua sponte and
must be given only upon request.”’”  (>Id. at pp. 996-997.) 

                        People v. Lawson (2013) 215 Cal.App.4th 108 recently applied >Anderson’s holding to a claim the trial
court erred in failing to, sua sponte, instruct on mistake of fact.  First, Lawson
noted “[t]he mistake-of-fact defense operates to negate the requisite criminal
intent or mens rea element of the crime, . . . specifically when
the defendant holds a mistaken belief in a fact or set of circumstances which,
if existent or true, would render the defendant’s otherwise criminal conduct
lawful.  [Citations.]”  (Id.
at p. 111.)  The court then held
“[l]ike the defense of accident, an instruction on the defense of mistake of
fact would have served only to negate the mental state element of the
crime.  Thus, at least as asserted here,
the defense of mistake of fact was not a true affirmative defense.”  (Id.
at p. p. 118.) 

                        As in the foregoing
cases, defendant did not request a “pinpoint” instruction on whether he
mistakenly believed he was paying the proper premiums.  Furthermore, it is doubtful such an
instruction would result in a different verdict.  Defendant acknowledged the information he
provided to SCIF on the payroll reports and during the annual audits was not
accurate and that he was aware of the inaccuracies.  Assuming defendant was correct in complaining
about SCIF’s handling of workers’ compensation claims and in calculating his
company’s experience modification rate, it would not authorize his falsely
representing the size of payroll simply to “clean it up by balancing out some
of the employees into another company . . . .”  Consequently, even if a mistake of fact
theory was consistent with the defense theory of the case, the evidence failed
to support giving an instruction on it.  

 

 

 

>4. 
Penal Code section 654

                        The prosecution charged
defendant with violating Insurance Code section 11880, subdivision (a)
based on the false payroll reports he submitted to SCIF for each quarter that
he filed an accurate employee wage report with EDD.  In sentencing defendant on the 33 counts
where the jury returned guilty verdicts, the trial court selected count 2 as
the principal term, imposed the three-year midterm plus a consecutive
three-year term for the white collar crime enhancement under Penal Code
section 186.11, subdivision (a)(2), and consecutive one-year terms on
counts 7, 12, 16, and 20.  On the
remaining counts, the trial court imposed concurrent three-year terms. 

                        Arguing he “was not
charged with making false statements to EDD,” but “with making false statements
to SCIF,” which “audited him on an annual basis,” defendant argues “[t]he
record . . . reflects, at most, five separate courses of
conduct” and the concurrent counts on the remaining charges violated Penal Code
section 654.  Again, we find his
argument unpersuasive. 

                        Penal Code
section 654, subdivision (a) declares, “[a]n act or omission that is
punishable in different ways by different provisions of law shall be punished
under the provision that provides for the longest potential term of
imprisonment, but in no case shall the act or omission be punished under more
than one provision.”  This statute
“limit[s] punishment for multiple convictions arising out of either an act or
omission or a course of conduct deemed to be indivisible in time,name=F011111973121672> in those instances wherein the accused entertained a
principal objective to which other objectives, if any, were merely
incidental.”  (People v. Beamon (1973) 8 Cal.3d 625, 639, fn. omitted.)  But “‘a course of conductname="SDU_657"> divisible
in time, although directed to one objective, may give rise to multiple
violations and punishment.’ 
[Citation.]  ‘This is particularly
so where the offenses are temporally separated in such a way as to afford the
defendant opportunity to reflect and to renew his or her intent before
committing the next one, thereby aggravating the violation of public security
or policy already undertaken.’”  (>People v. Kurtenbach (2012) 204
Cal.App.4th 1264, 1289 [applying exception to arson and insurance
fraud].) 

                        “The defendant’s intent
and objective present factual questions for the trial court, and its findings
will be upheld if supported by substantial evidence.  [Citation.] 
‘We review the court’s determination of [a defendant’s] “separate
intents” for sufficient evidence in a light most favorable to the judgment, and
presume in support of the
court’s conclusion the existence of every fact the trier of fact could
reasonably deduce from name="citeas((Cite_as:_156_Cal.App.4th_638,_*6">the evidence.  [Citation.]’ 
[Citation.]”  (>People v. Andra (2007) 156
Cal.App.4th 638, 640-641.)  Here,
the evidence supports a conclusion defendant provided false monthly payroll
reports and forged EDD documents to SCIF agents during annual policy reviews
over an extended period of time and, before submitting these documents, had the
opportunity to reflect on his conduct. 
Thus, the record supports a conclusion the trial court’s sentence did
not violate the prohibition on multiple punishment. 

 

>5. 
The Restitution Award

                        a.  Introduction

                        As noted, the trial
court awarded SCIF victim restitution of $500,000.  Both parties challenge the correctness of
this ruling.  They agree the amount of
the restitution order was arbitrary and it should be reversed, but disagree as
to the reasons why and what should happen upon remand. 

                        Defendant repeats his
arguments that (1) the evidence fails to support the jury’s finding on the
Penal Code section 186.11 enhancement, and (2) the losses incurred
resulted from SCIF’s allegedly incompetent claims handling.  Thus, he contends the prosecution “failed to
sustain [its] burden of proof” and seeks a reversal of the restitution award
“on the ground[] of insufficient evidence.” 
In his reply brief defendant for the first time argues the People’s
appeal should be dismissed because it lacked a valid statutory basis for taking
an appeal.  Citing the court’s “refusal
to find SCIF’s statements of loss sufficient to establish a prima facie case
and its insistence that the People perform essentially a forensic audit of
[defendant’s] records . . . in order to substantiate [its] loss,”
the Attorney General complains the trial court “improperly placed a higher
burden on the People than required” by the victim restitution statute.  

                        We conclude the People
can appeal from the restitution order and, based on the appellate record, the trial
court abused its discretion by relying on irrelevant factors and without
considering all of the evidence presented to it to order $500,000 in
restitution to SCIF. 

 

                        b.  Background

                        At the sentencing and
restitution hearing, the trial court received briefs and documents, including
declarations and letters presented by the parties and SCIF, plus defendant’s
testimony. 

                        The prosecution’s
evidence included a letter from a SCIF senior vice-president providing a
general review of workers’ compensation insurance.  It also introduced premium statements based
on a final audit of defendant’s business. 
(Display Bills.) 

                        In addition, the
prosecution introduced two letters from Randy Hogan, an underwriting manager
with SCIF, summarizing the financial impact of defendant’s fraud.  Hogan’s letters contained two separate
calculations of defendant’s underpayment of premiums.  First, “[b]ased on the payroll figures
reported to the State of California (i.e., EDD quarterly employee wage reports)
and the job duties provided by [defendant’s] office managers,” Hogan concluded
“the total premium owed for the coverage provided by [SCIF]” for the 2000 to
2008 policies was a little over $37 million. 
During this period defendant paid approximately $1.75 million in
premiums, leaving a difference between the amount paid and what should have
been paid of over $35.2 million.  Hogan’s
second calculation, described as a “hypothetical ‘best case’ model,” was based
on an assumption defendant “had reported the actual payroll and such would have
[been] available to the WCIRB for use in the calculation of the [experience
modifications].”  Under this approach
Hogan concluded “the total premium owed for the coverage provided by [SCIF]
would have been” about $13.4 million which, after deducting the premiums
defendant paid, left “an amount due of” approximately $11.6 million.  The court accepted the prosecution’s
additional request to consider the trial exhibits, particularly the EDD
quarterly wage and withholding reports for Petronella Roofing and Western, for
the purpose of determining restitution. 

                        The prosecution also
argued the court should apply an approach based on the Uniform Statistical
Rating Plan (USRP) in determining the amount of unpaid premiums.  The USRP provides that if an employer fails
to maintain accurate records of its employee payroll, an insurer may use the
highest possible rating for each job classification in calculating the premium
owed. 

                        The defense introduced
two declarations from Dr. Arthur J. Levine, an attorney and author, concerning
workers’ compensation insurance premium issues. 
In his first declaration, Levine stated he had reviewed numerous
documents and concluded, “[h]ad the proper payroll and classifications been reported”
by defendant the WCIRB’s experience modification ratios would have resulted in
a drastic reduction in the actual premium owed. 
He claimed a calculation using the “amended experience modifications
alone would reduce the amount of SCIF’s premium over the period 2000-2008 by
two-thirds.”  However, since “rating
regulations do not permit the WCIRB to use estimated payrolls for experience
modification calculations,” it was necessary for “SCIF [to] conduct a physical
payroll audit of [defendant’s] records for each applicable year” and, “[u]ntil
then, . . . the amount that [defendant] owes to SCIF cannot be
accurately determined.”  Levine’s second
declaration repeated much of what appeared in the first.  But he supplemented it with opinions derived
from an interview with defendant.  Levine
“conclude[d] that there are many other material (or potentially material) facts
that, if determined to be true, would very substantially further reduce the
total amount of [the] premium[s].” 

                        Defendant testified SCIF
insisted all of his employees be classified as roofers regardless of the nature
of their work simply because he operated a roofing business.  Thus, defendant claimed he segregated his
employees, placing the roofers under Petronella Roofing covered under SCIF’s
policies, and the remaining employees under Western which he self-insured.  In 2001, defendant added Western to SCIF’s
policy after it agreed to allowed him to use two additional employee
classifications.  But four months later
SCIF eliminated the new classifications. 
Defendant claimed he then terminated SCIF’s coverage of Western and
again personally assumed the risk, insisting he “paid every claim.”  According to defendant, he later contracted
with an employment leasing business to cover Western’s employees. 

                        Defendant asserted SCIF
failed to adequately instruct him on its policy requirements.  He further claimed the SCIF policies
contained erroneous experience modification ratings.  In part, this resulted from SCIF either
“overreserv[ing]” claims or “le[aving] [them] open too long.”   No one with SCIF ever discussed the matter
with him.  He insisted SCIF’s remedy for
improper payroll reporting was rescission, not criminal prosecution.  Defendant also believed SCIF’s right to
recover for lost premiums between 2000 and 2004 was barred by the statute of
limitations.  He asserted Morales’s claim
was a mistake caused by SCIF’s failure to “ask the right questions.”  Finally, defendant introduced a chart of his
own calculations on the amount of premiums he owed under the second policy
covering 2004 to 2009, claiming SCIF “profited” from what he paid it. 

                        In ruling on the victim
restitution issue, the court agreed “the loss of premiums is a proper basis for
restitution.”  But it rejected Hogan’s
calculations, describing them as “not credible.”  “[W]ith respect to the first calculation,
. . . it’s the

highest
[experience modification factor].  If the
court were to impose that, there would

be
. . . in the court’s opinion . . . error because
. . . restitution cannot be punitive” and “in excess of what the
actual loss is.”  The court rejected
Hogan’s second calculation, noting it was based on hypothetical experience
modifications.  “The calculation has to
be based on what the actual loss was, and . . . it doesn’t have
to be exact, but it can’t be based on speculation. . . .  [T]here . . . isn’t any basis
. . . as to how [Hogan] came up with the calculations.” 

                        The court concluded,
“From the record that I have before me, I cannot conclude what was owed, except
for the jury finding [on the enhancement that the loss exceeded
$500,000.]”  It gave the following
reasons for this decision:  “One, the
calculation problems and the credibility rejection of
. . . Hogan’s . . . opinions”; “[T]wo, the
. . . fact that sometime in 2006, . . . the
[policy]. . . should have [been
cancelled]. . . .  [¶] Number three,
. . . I do feel that SCIF also can pursue this issue of
restitution in a civil court . . . .  Four,
. . . when we get to sentencing, the court is going to be
imposing a substantial fine . . . .  [¶] But finally,
as I indicated, it’s time to move on. . . .” 

 

                        c.  Analysis

(1)  People’s Right to Appeal

                        The first issue is
defendant’s claim the People’s appeal must be dismissed because the appeal is
not authorized by statute.  Generally, we
ignore arguments raised for the first time in a party’s reply brief.  (Reichardt
v. Hoffman (1997) 52 Cal.App.4th 754, 764.)  But since, as defendant notes “[t]he People
have no right of appeal except as provided by statute” (People v. Douglas (1999) 20 Cal.4th 85, 89), which raises a
jurisdictional issue, we shall consider his claim. 

                        The rulings from which
the People may appeal are contained in Penal Code section 1238.  The Attorney General cites Penal Code
section 1238, subdivision (a)(5), allowing an appeal from “[a]n order made
after judgment, affecting the substantial rights of the people,” as the basis
for the appeal in this case.  

                        We conclude the People
may maintain this appeal.  In >People v. Hamilton (2003) 114
Cal.App.4th 932, the prosecution appealed from an order at a probation
revocation hearing where the trial court ruled insurance payments a victim
received from insurers could be used to offset the defendant’s victim
restitution obligation.  The Court of
Appeal held the People could appeal under Penal Code section 1238,
subdivision (a)(5).  (>People v. Hamilton, supra, 114
Cal.App.4th at p. 938.) 

                        In Hamilton, the order modifying defendant’s victim restitution was
entered after the defendant had been
sentenced.  Here, the restitution order
was made during a combined hearing on sentencing and restitution.  However, in People v. Akins (2005) 128 Cal.App.4th 1376, the court
followed Hamilton and allowed the
People to appeal a restitution order even though it was entered at the
sentencing hearing.  (>Id. at p. 1381, fn. 3.) 

                        While “the primary
purpose of mandatory restitution . . . is reimbursement for the
economic loss and disruption caused to a crime victim by the defendant’s
criminal conduct” (People v. Runyan
(2012) 54 Cal.4th 849, 865), “the requirement that a convicted criminal
defendant pay restitution for the losses caused by his crime has aims beyond
strict compensation that include deterrence and rehabilitation” (>ibid.). 
Consequently, “[r]estitution hearings held pursuant to [Penal Code]
section 1202.4 are sentencing hearings and are thus hearings which are a
significant part of a criminal prosecution.” 
(People v. Dehle (2008) 166
Cal.App.4th 1380, 1386.)  In >Dehle, the court reversed a restitution
order where the victim’s private counsel conducted the restitution hearing
without a prosecutor being present. 
Noting that, “‘[i]n California, all criminal prosecutions are conducted
in the name of the People of the State of California and by their authority’” (>id. at p. 1386), and that “‘[t]he
district attorney of each county is the public prosecutor, vested with the
power to conduct on behalf of the People all prosecutions for public offenses’”
(id. at p. 1387), >Dehle held “[t]he trial court abused its
discretion when it allowed the restitution hearing to go forward without the
presence of the people” (id. at
p. 1390). 

                        Given the importance of
the prosecution’s presence at victim restitution hearings conducted under Penal
Code section 1202.4 and the state’s interest in ensuring the
constitutional right to victim restitution be properly enforced (Cal. Const.,
art. I, § 28, subd. (b)(13)), we conclude the People have a right to
appeal the trial court’s restitution order in this case. 

 

(2)  The Restitution Order

                        Penal Code
section 1202.4, subdivision (f) declares “in every case in which a victim
has suffered economic loss as a result of the defendant’s conduct, the court
shall require that the defendant make restitution to the victim or victims in
an amount established by court order, based on the amount of loss claimed by
the victim or victims or any other showing to the
court. . . .  The court shall order full restitution
unless it finds compelling and extraordinary reasons for not doing so and
states them on the record.”  In addition,
“[a] defendant’s inability to pay shall not be considered a compelling and
extraordinary reason not to impose a restitution order, nor shall inability to
pay be a consideration in determining the amount of a restitution order.”  (Pen. Code, § 1202.4, subd. (g).) 

                        No California case
appears to have held the willful underpayment of insurance premiums constitutes
an economic loss under Penal Code section 1202.4.  But since “the statute uses the language
‘including, but not limited to’ the[] enumerated losses, a trial court may compensate
a victim for any economic loss which is proved to be the direct result of the
defendant’s criminal behavior, even if not specifically enumerated in the
statute.”  (People v. Keichler (2005) 129 Cal.App.4th 1039, 1046.)  In United
States v. Simpson (6th Cir. 2008) 538 F.3d 459, the court held “unpaid
[workers’ compensation] premiums fall squarely within the definition of ‘loss’”
under federal sentencing guidelines.  (>Id. at p.