By Angelica A. Zabanal, Knox Ricksen LLP
Allstate Insurance Company and the People of the State of California were awarded $11.5 million and permanent injunctive relief after prevailing in a qui tam lawsuit filed in Los Angeles County Superior Court against defendants involved in a scheme to defraud insurance companies through phony or “sham” law offices. The Final Judgment and Permanent Injunction in the matter of People of the State of California ex rel., Allstate Insurance Company, et al. v. Wonguen Chang et al. (Los Angeles County Superior Court Case No. BC541476), ordered by Superior Court Judge Michael L. Stern on November 22, 2016, follows Allstate’s favorable jury verdict against defendants Christina Chang (“Chang”) and Christine Suh (“Suh”) in the matter on July 13, 2016.
The matter was handled by Knox Ricksen LLP’s qui tam practice group, including Thomas E. Fraysse, Richard A. DiCorrado, Angelica A. Zabanal and Ryan G. Jacobson.
Allstate alleged that Chang and Suh knowingly engaged in a fraud scheme in which they used the identity of practicing lawyers to create eight “sham” law offices to make false, fraudulent or misleading claims against insurance companies, so that settlement payments could be converted to their own use. Evidence presented at trial showed that several California lawyers were paid $3,000 per month for the use of their names and law licenses, which resulted in the creation of at least eight “sham” law offices in the Los Angeles area, over which the lawyers exercised no significant direction, management or control over the operation of the law office or the making and processing of claims. Chang and Suh rented office space, named the firms using the lawyers’ names, hired staff, opened firm bank accounts, obtained clients, presented demands to insurance companies for settlement and negotiated settlements, all in the name of licensed California attorneys, falsely making it appear as if a lawyer represented the client and claimant. Settlement payments from Allstate and other insurance companies were deposited in the “sham” law firm client-trust accounts (IOLTA accounts) opened by Chang and Suh, who then used remote check-cashing facilities, including a check-cashing facility owned by Suh, to convert the settlement proceeds to untraceable cash. Four lawyers whose names were used testified that they did not procure any clients for the law offices that they purportedly owned, did not create the law firms, did not authorize demand letters that were sent to insurance companies under their signature, were unware that settlements had been negotiated and paid by insurance companies, and had no access to client files, firm records and firm bank accounts. One lawyer testified that when he first appeared to work at a law office bearing his name, he was told to go home and was not allowed to review client files.
Allstate contended that Chang and Suh knowingly misrepresented that the law offices were lawful enterprises and that they concealed the fact that they were “sham” law offices, owned, operated, managed and controlled by unlicensed persons, all in violation of California law, including California’s Insurance Frauds Prevention Act. Allstate also contended that the settlements were procured so that Chang and Suh could convert the settlement proceeds for their own use by “structuring” checks out of the firms’ client trust accounts which were cashed in bulk at remote check cashing facilities, including liquor stores and small local markets.
At trial, Chang testified in her own defense, but her daughter, Suh, invoked her Fifth Amendment Privilege Against Self-Incrimination.
On July 13, 2016, after a two-week trial, a Los Angeles jury agreed with Allstate, finding that Chang and Suh knowingly made false claims against Allstate in 241 and 313 claims, respectively, and imposed civil penalties and assessments totaling $6,407,859.39. In post-trial motions, Judge Stern imposed further civil penalties and assessments against defendants Charles Rhyu, Robynnie Byon, Eunjin Chang and Wonguen “Steve” Chang in the amount of $1,734,948.26, and ordered the defendants to pay $3,401,229.38 in attorney’s fees, expenses and costs. The total monetary judgment is $11,544,037.03.
Judge Stern also issued a permanent injunction, prohibiting Chang and Suh from owning, operating or controlling a law firm; from hiring lawyers to work in a law firm; from practicing law without a license; from representing persons making claims against insurance companies; from advertising legal services; from issuing checks from law firm operating and client-trust accounts; from splitting fees with lawyers; from handling or processing insurance settlement checks; and from opening or using any bank account for a business engaged in the practice of law.
“This trial was notable as it represents one of the highest jury verdicts in a qui tam action brought on behalf of the State of California,” says Thomas E. Fraysse. “We are very pleased with the outcome of the matter, especially with respect to jury verdict and the injunctive relief ordered by the Court.”
Chang and Suh have filed an appeal.
A copy of Allstate’s Complaint and the Final Judgment and Permanent Injunction is attached and can be accessed by clicking the following links: Allstate’s Complaint is posted here and the Final Judgement and Permanent Injunction is posted here.