SAN FRANCISCO, Dec. 27 2004 – LAWFUEL – Best for law news – In one of the largest awards of its type in the history of California’s workers’ compensation system, State Fund has won a $14.6 million judgment against two Rancho Cucamonga businesses that used an elaborate ‘shell game’ to avoid paying correct workers’ compensation
premiums and payroll taxes.
San Bernadino County Superior Court Judge Ben Kayashima awarded the
judgment against Ideal Payroll Plus, Ltd. and Ideal Management LP — both
Professional Employer Organizations (PEOs) formerly insured by State Fund.
San Bernadino County resident David W. Clancy Jr. formed the PEOs, which
underreported payroll to the State Fund, the Internal Revenue Service and the
State Franchise Tax Board. Under the scheme, Clancy enrolled workers in an
alleged ‘K-1 Dividend Distribution Plan’ in which employees received two
checks — one for what Clancy called ‘W-2 wages’ and another referred to as a
‘dividend.’
Clancy, the general partner of Ideal entities, claimed that he could
reduce premiums by 50 percent and provide complete workers’ compensation
coverage through State Fund. As part of the scheme, Clancy failed to disclose
the amount of the so-called K-1 dividend paid to each employee, which usually
amounted to more than half of the employee’s income and thereby avoided paying
correct premiums to State Fund. State Fund uncovered Clancy’s scheme during
an audit. State Fund then cancelled his policy and filed suit for damages.
The judgment represents an estimated $1.3 million in unpaid premium owed
to State Fund — as well as interest and costs — and 10 times the premium
amount pursuant to Insurance Code 756. That code section authorizes State
Fund to pursue a civil action for 10 times the difference between the lower
premium paid and the premium properly payable against an employer who
knowingly procures a lower premium by willfully misrepresenting the amount or
segregation of payroll.
“We hope that this judgment will send a strong message and serve as a
deterrent against other companies who are considering defrauding California’s
workers’ compensation insurance system,” said State Fund Vice President and
General Counsel Charles Savage.
The judgment is against two of four defendants in the case. State Fund
will continue to pursue legal action against the non-defaulting defendants:
David Clancy Jr. and San Bernadino County resident Telma Moguel who is the
trustee of the Ideal Alliance Trust established to pay the alleged ‘K-1
dividends’ to employees.
State Fund’s Fraud Investigation Program (FIP) addresses all aspects of
workers’ compensation insurance fraud, including employee, employer, medical,
legal and internal. In the last decade, State Fund’s FIP has produced hundreds
of arrests and convictions in a wide range of workers’ compensation cases,
including some considered milestones in California’s fight against fraud.
EDITOR’S NOTE: State Fund is headquartered in San Francisco. For more
information about State Fund, please visit http://www.scif.com.
Contacts:
Vicente Hernandez – State Fund Jim Zelinski (For State Fund)
415/565-1683 or 415/565-1065 415/882-7787 or
415/420-6050 (cell phone)
SOURCE State Fund
Web Site: http://www.scif.com
