Sheppard Mullin Obtains Decision of $14.6 Million Judgment
The State Fund 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. The judgment represents an estimated $1.3 million in unpaid premium owed to State Fund, interest and costs, and a $13 million penalty pursuant to Insurance Code 756.
Cronthall commented, "This judgment is significant because it relied on Insurance Code 756 which permits recovery of a penalty amounting to ten times the amount of premium owed when the policyholder willfully reports false payroll information to insurers in order to reduce workers' compensation insurance premium."
San Bernardino 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 Bernardino County resident David W. Clancy Jr. formed the PEOs, which underreported payroll to the State Fund and other government agencies.
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 the policies issued to the PEOs and filed suit for damages.
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