People ex rel. Allstate v. Weitzman

• Decision Date: 27 March 2003
• Docket Number: No. B151252.,B151252.
• Court: California Court of Appeals Court of Appeals
• Parties: The PEOPLE ex rel. ALLSTATE INSURANCE COMPANY, Plaintiff and Appellant, v. Douglas WEITZMAN et al., Defendants and Respondents.

132 Cal.Rptr.2d 165

107 Cal.App.4th 534

The PEOPLE ex rel. ALLSTATE INSURANCE COMPANY, Plaintiff and Appellant, v. Douglas WEITZMAN et al., Defendants and Respondents.

No. B151252.

Court of Appeal, Second District, Division 5.

March 27, 2003.

As Modified on Denial of Rehearing April 24, 2003.

Review Denied June 11, 2003.^*

Manning & Marder, Kass, Ellrod, Ramirez, Dennis B. Kass, David J. Wilson, and Sylvia Havens, Los Angeles, for Plaintiff and Appellant.

Law Offices of Benjamin L. Hecht and Benjamin L. Hecht, Tarzana, for Defendant and Respondent Isaak Zelyony; Barnhill & Vaynerov, Steven M. Barnhill, Long Beach, and Maxim Vaynerov for Defendant and Respondent Anatoly Bondarev; Bonne, Bridges, Mueller, O'Keefe & Nichols, Joel Bruce Douglas, Los Angeles, and Melissa A. Brunsmann for Defendant and Respondent Merlin Smith; Law Office of Steven L. Zelig and Steven L. Zelig, Los Angeles; Law Office of Bruce Adelstein and Bruce Adelstein, Los Angeles, for Defendant and Respondent Douglas Weitzman; and Stephen F. Guiner for Defendant and Respondent Barbara A. Reid.

TURNER, P.J.

I. INTRODUCTION

This is a qui tam action. A qui tam action has been defined as follows, "An action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive." (Black's Law Diet. (7th ed.1999) p. 1262, col. 1; United States ex rel. Aflatooni v. Kitsap Physicians Service (9th Cir.2002) 314 F.3d 995, 997, fn. 1.) The term "qui tam" comes from the Latin expression "qui tam pro domino rege quam pro se ipso in hac parte sequitur," which means, "who pursues this action on our Lord the King's behalf as well as his own." (Vermont Agency of Natural Resources v. United States ex rel. Stevens (2000) 529 U.S. 765, 768, fn. 1, 120 S.Ct. 1858, 146 L.Ed.2d 836; City of Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 797, fn. 1, 107 Cal. Rptr.2d 710.) The present suit has been brought on behalf of the People of the State of California pursuant to Insurance Code ¹ section 1871.7 by a relator, Allstate Insurance Company (Allstate). A "relator" has been described thusly: "The real party in interest in whose name a state or an attorney general brings a lawsuit.... A person who furnishes information on which a civil or criminal case is based; an informer." (Black's Law Diet. (7th ed.1999) p. 1292, col. 1; In re Veteran's Industries, Inc. (1970) 8 Cal.App.3d 902, 925, 88 Cal. Rptr. 303.) Allstate alleged: defendants participated in an automobile insurance fraud conspiracy; it innocently paid out proceeds to defendants; and it could pursue a qui tam action pursuant to section 1871.7. The trial court found it lacked subject matter jurisdiction because the allegations of the complaint were based upon previously publicly disclosed allegations or transactions. (§ 1871.7, subd. (h)(2)(A).) The trial court further held Allstate was not an original source of the information concerning defendants' participation in acts of insurance fraud because it had previously been disclosed. (§ 1871.7, subds.(h)(2)(A) & (B) (subdivision (h)(2) hereafter).) Accordingly, the trial court dismissed the action. The trial court ruled and defendants contend that the "public disclosure" and "original source" rules applicable to the federal False Claims Act (31 U.S.C. § 3730 et seq.) apply with equal force to an action brought by an insurer pursuant to section 1871.1. We conclude subdivision (h)(2) does not jurisdictionally bar Allstate from pursuing the present case and reverse the dismissal order.

II. BACKGROUND

A. The 1995 Action Brought by Financial Insurance Company

In early 1995, an adjuster with Financial Insurance Company (Financial) became suspicious that a claim filed by an insured might be fraudulent—that the accident involved was staged. The adjuster referred the matter to Financial's special investigations unit. The insured confessed that the claim was fraudulent. Further investigation of Financial's claims files revealed at least 27 purported collisions giving rise to at least 90 fraudulent insurance claims.

On June 25, 1995, Financial filed a section 1871.7 action. Financial was represented by the law firm of what is now Manning & Marder, Kass, Ellrod, Ramirez (the Manning firm). The Manning firm is also counsel for Allstate in the present case. The Financial complaint alleged the existence of an automobile insurance fraud ring led by attorneys Gary A. Laff, Bernard J. Berry, Jerry Widawski, Douglas W. Weitzman, and Barbara A. Reid, aided by a capper, Angel Sepulveda.

As required by section 1871.7, subdivision (e)(2)², the June 25, 1995, Financial complaint was filed under seal and was not disclosed to the public. Because there was an ongoing criminal investigation of some of the defendants in the Financial action, the complaint remained under seal until September 18, 1996. On that date, an unsealed first amended complaint was filed.

Financial's first amended complaint alleged in part, "On information and belief, including information from accomplice or informant interviews, numerous other insurance companies also received false and fraudulent claims from the staged accident ring operated by the named defendants." Allstate's complaint was filed on October 14, 1997, nearly 13 months after Financial filed its first amended complaint.

B. Public Disclosures Relating to the Financial Action

On September 18, 1996, when Financial's first amended complaint was filed, and as part of the criminal investigation of the alleged fraudulent conspiracy, search warrants were executed at several law offices. On October 1, 1996, the Los Angeles Daily Journal published an article discussing the searches. (Harris, Investigations Carried Out At PI Offices, L.A. Daily Journal (Oct. 1, 1996) p. 1, col. 1.) Identified as defendants were Mr. Laff, Mr. Widawski, Mr. Weitzman, Mr. Berry, and Ms. Reid, who were attorneys. Identified as Financial's counsel was Dennis B. Kass of the Manning firm. The article stated: the Financial action was the first to be brought under section 1871.7; defendants had been accused, along with "medical offices," "of being co-conspirators in a large auto insurance fraud ring"; Department of Insurance investigators had executed search warrants at the law offices of Mr. Laff, Mr. Widawski, and Mr. Weitzman. (Ibid.) In a response to the trial court's order to show cause re dismissal in the present case, Mr. Kass declared that while he had been present outside the offices during the searches, he had not entered any of the premises while they were being searched; moreover, he had never seen any of the documents seized in those searches as they had remained under seal.

An October 9, 1996, letter published in the Los Angeles Daily Journal responded to the October 1 article. It described the execution of the search warrant at Mr. Laff's office as follows: "Approximately 30 flak-jacketed `officers,' with guns drawn, came running down office hallways and barged into Mr. Laff's offices to serve the search warrant. What Mr. Kass[, Financial's attorney,] was overseeing was, in effect, `discovery' by Gestapo tactics, [¶] I hav[e] nothing to do with Mr. Laff or any of the issues or subject matter of the underlying case. However, it may well be prophetic for all in society when, as one of the officers was leaving at the end of the day, he said to me in the hall as the elevator door closed, `We're coming for you next.'" (Letters to the Editor, 'Gestapo Tactics' Used In Law Office Search, L.A. Daily Journal (Oct. 9, 1996) p. 7, col. 2.)

In February 1997, copies of the search warrant for Mr. Laff's office and home, and the underlying probable cause affidavit, were filed in People v Laff, Superior Court case No. BC130312. The affiant, a Department of Insurance fraud division investigator, described in detail the results of an investigation initiated in October 1995 on information received from Financial. The affiant identified as suspects, among others: Mr. Laff; Mr. Weitzman; Ms. Reid; an office administrator, Gary Karpel, who was also known as Gary Karp; a physician, Dr. Leonid Modilevsky; Downtown Metro Medical Clinic; a chiropractor, Anatoly Bondarev, D.C.; and ABS Healthcare and Rehabilitation Center. All of these individuals or entities were named as defendants in the present action filed by Allstate. The affiant described in detail 27 allegedly staged accidents as to which claims were filed with Financial.

An April 7, 1997, article in the California Law Business section of the Los Angeles Daily Journal discussed in general terms the Financial case, section 1871.7, and the interplay between private and government resources under the statute. The article contained the following comment, "Kass said that other insurance company clients have also shown an interest in having the firm bring similar suits, particularly given that Manning Marder is now one of the few firms with expertise in this relatively new area of the law." (Citizen's Arrest, LA. Daily Journal (Apr. 7, 1997) California Law Business section.)

C. Allstate's Investigation and Complaint

In October 1996, within six weeks of the unsealing of the Financial complaint and one month after the publication of the Daily Journal article describing the law office searches, a senior special investigations unit analyst for Allstate, Richard Wong, spoke with a number of insurance agents. It bears emphasis that Mr. Wong's following description of Allstate's investigation was uncontradicted. In a declaration filed in opposition to the trial court's order to show cause re dismissal in this case, Mr. Wong stated as follows. He was responsible for spotting patterns of fraudulent insurance claims and reviewing claims paid for indications of fraud. The investigation Mr. Wong initiated in October 1996 revealed a pattern of repetitive accident and medical reports and claims submitted by three of the lawyers named in the Financial...