People Ex Rel. Allstate Insurance Co. v. Dahan

Citations: 3 Cal. App. 5th 372; 207 Cal. Rptr. 3d 569; 2016 Cal. App. LEXIS 766Docket: B259799

Court: California Court of Appeal; September 15, 2016; California; State Appellate Court

Original Court Document: View Document

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A qui tam action for insurance fraud under California Insurance Code section 1871.7 allows a private party, like Allstate Insurance Company, to pursue claims on behalf of the State when the district attorney and Insurance Commissioner opt not to intervene. In this case, Allstate, serving as the relator, sued Daniel H. Dahan and his company, Progressive Diagnostic Imaging, Inc., resulting in a judgment awarding $7,010,668.40 for 487 claims of fraud. Following the judgment, Allstate sought to collect the amount but discovered defendants engaged in fraudulent asset transfers. Allstate then filed a separate action to void these transfers, leading defendants to challenge Allstate's standing by arguing that the qui tam judgment had not been properly allocated between Allstate and the State, as required by section 1871.7, subdivision (g)(2)(A). They contended that without this allocation, Allstate could not claim any stake in the judgment. Allstate subsequently sought a court order to allocate the judgment proceeds, reaching a stipulation to divide the civil penalties and assessments equally with the State. The court ultimately ruled that the judgment-debtor defendants lacked standing to appeal the allocation order, leading to the dismissal of their appeal.

Defendants contested the allocation motion, asserting that the trial court lacked jurisdiction due to the finality of the qui tam judgment, which they claimed prevented any material modification. Allstate countered that the allocation order did not alter the judgment but merely distributed the judgment proceeds among creditors, maintaining the defendants' obligation to pay the judgment amount of $7,010,668.40 unchanged. The trial court granted Allstate's allocation motion, leading defendants to file a timely appeal. The court sought supplemental briefing to determine if the defendants had standing to appeal the allocation order, emphasizing that only "aggrieved" parties can appeal under Code of Civil Procedure section 902. A party is deemed aggrieved if their rights or interests are significantly harmed by the judgment, requiring their interest to be immediate, pecuniary, and substantial. The document further outlines the qui tam procedure for insurance fraud claims under Penal Code sections 549, 550, and 551, allowing any interested person, including insurers, to initiate civil actions for fraudulent claims. If the district attorney intervenes, the relator is entitled to a bounty of 30-40% of the proceeds, increasing to 40-50% if the state declines to intervene, along with compensation for reasonable expenses and attorney’s fees assessed against the defendant.

Section 1871.7, subdivision (g)(2)(A) stipulates that if the district attorney or commissioner does not pursue an action, the individual who brings the action or settles the claim is entitled to a court-determined reasonable amount for collecting civil penalties and damages, which must be between 40% and 50% of the proceeds. Additionally, this individual is entitled to reimbursement for necessary expenses and reasonable attorney's fees, all of which will be charged to the defendant. The parties must notify the commissioner and local district attorney of any settlement agreements at least 10 days before filing for allocation with the court. The court may allocate funds as per the settlement agreement if it deems such an action just after considering any objections from the commissioner or local district attorney. 

Defendants are not considered aggrieved by the allocation order and acknowledge that their appeal does not affect the qui tam judgment or their obligation to pay $7 million. They argue, however, that the allocation order alters their legal rights by potentially enabling Allstate to collect on the judgment, claiming that without the allocation, Allstate lacked the standing to enforce the judgment. The defendants suggest that allocation is a prerequisite for the insurer-relator's enforcement of the qui tam judgment when the State has not intervened. Nonetheless, a plain interpretation of section 1871.7, subdivision (g)(2)(A) indicates that the bounty is intended for those attempting to collect the judgment when state intervention is absent. Clear statutory language negates the need for further construction or examination of legislative intent.

To "collect" refers to receiving payment for a debt or claim. In section 1871.7, subdivision (g)(2)(A), the Legislature intended for the insurer-relator to be the plaintiff who levies on the judgment when the State does not intervene. The interpretation of the bounty for the prosecuting relator, which is for trying and collecting the judgment, is supported by comparing subdivisions (g)(2)(A) and (g)(1) of section 1871.7. While subdivision (g)(2)(A) provides a bounty for "collecting the civil penalty and damages," subdivision (g)(1)(A)(i) allows the district attorney to collect a percentage of the action's proceeds when intervening. Thus, subdivision (g)(2)(A) recognizes that the relator, in this case, collects the judgment. After collection, any excess payment beyond the relator's share goes to the State.

Allstate, as the direct victim of the defendants' insurance fraud, retains the right to levy on the $7 million qui tam judgment without needing an allocation order, as it prosecuted the action successfully without the State's involvement. Unlike the federal False Claims Act, California's Insurance Fraud Prevention Act (IFPA) allows direct victims, such as relator-insurers, to pursue claims. Therefore, the relator's right to collect damages is inherent and not contingent upon a court-ordered allocation, countering defendants' arguments referencing the Strathmann case, which does not support the notion that such an order is necessary for collection.

The relator in a qui tam action under California's section 1871.7 represents the interests of the State of California but does not receive personal damages; instead, they earn a significant percentage of the recovery as a bounty. This ruling cited subdivision (g) of section 1871.7 without differentiating between state- and insurer-prosecuted actions. The allocation order does not impede Allstate's ability to enforce the qui tam judgment, and since defendants acknowledged that their appeal does not affect their obligation to pay the $7 million judgment, they lack standing to appeal the allocation order. Citing federal case law, it was noted that qui tam defendants do not have standing in related proceedings, which aligns with California case law regarding apportionment of damages. Although the California False Claims Act is modeled after the federal version, there are notable differences, though both statutes share similar provisions regarding the bounty when the government does not pursue the action. The appeal is dismissed, and Allstate is awarded costs for the proceeding.