Court Opinion

ID: 4034156
Source: CourtListenerOpinion
Date Created: 2016-09-15 23:03:40.968593+00
Date Added: 2024-06-11T07:45:13.131676
License: Public Domain

Filed 9/15/16
                          CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                           SECOND APPELLATE DISTRICT

                                      DIVISION THREE

THE PEOPLE ex rel. ALLSTATE                          B259799
INSURANCE COMPANY et al.,
                                                     (Los Angeles County
        Plaintiffs and Respondents,                  Super. Ct. No. BC397695)

        v.

DANIEL H. DAHAN et al.,

        Defendants and Appellants.

        APPEAL from an order of the Superior Court of Los Angeles County, Ernest M.
Hiroshige, Judge. Appeal dismissed.
        Lerner & McDonald and Kenneth E. McDonald for Defendants and Appellants.
        Knox Ricksen, Thomas E. Fraysse, Reid M. Miller and Ryan G. Jacobson for
Plaintiffs and Respondents.
                                 _________________________
                                     INTRODUCTION
       A private party who brings a qui tam1 action for insurance fraud under Insurance
Code section 1871.7,2 where the district attorney and the Insurance Commissioner
decline to intervene, is entitled to a portion of the proceeds of the action plus fees and
costs. (Id., subd. (g)(2)(A).) In this case we are confronted with the novel question
whether the judgment-debtor defendants in such an action have standing to challenge the
trial court’s post-judgment order allocating the judgment amount between the prevailing
plaintiffs, i.e., the private party and the State. We hold that judgment-debtor defendants
in qui tam insurance fraud actions are not aggrieved by such allocation orders under
section 1871.7, subdivision (g)(2)(A), with the result that they do not have standing to
appeal. Accordingly, we dismiss their appeal.
                   FACTUAL AND PROCEDURAL BACKGROUND
       Allstate Insurance Company, et al. (Allstate)3 as private-party plaintiff or
“relator,”4 brought a qui tam action on behalf of itself and the State of California
(together plaintiffs), against defendants Daniel H. Dahan and his affiliated corporation,
Progressive Diagnostic Imaging, Inc. (together defendants), pursuant to the California
Insurance Frauds Prevention Act (§ 1871.7 (IFPA)). Neither the district attorney nor the

1
       The term “qui tam” is short for the expression “ ‘qui tam pro domino rege quam
pro se ipso in hac parte sequitur,’ ” which in Latin means, “ ‘ “who pursues this action on
our Lord the King’s behalf as well as his own”.’ [Citations.]” (People ex rel. Allstate
Ins. Co. v. Weitzman (2003) 107 Cal. App. 4th 534, 538, italics added (Weitzman).)
2
       All further statutory references are to the Insurance Code, unless otherwise noted.
3
       The private-party plaintiffs are Allstate Insurance Company, Allstate Indemnity
Company, Allstate Property and Casualty Insurance Company, Deerbrook Insurance
Company, Allstate County Mutual Insurance Company, and Allstate Fire and Casualty
Insurance Company.
4
        “A ‘relator’ has been described thus: ‘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.’ ” (Weitzman, supra,
107 Cal.App.4th at p. 538, quoting from Black’s Law Dict. (7th ed. 1999) p. 1292, col. 1
& In re Veterans’ Industries, Inc. (1970) 8 Cal. App. 3d 902, 925.)

                                              2
Insurance Commissioner opted to take over the lawsuit. The trial court entered judgment
against defendants, finding that plaintiffs had proven 487 claims for violation of Penal
Code section 550 by defendants, and awarding a total of $7,010,668.40, comprised of
$5,788,516.78 in civil penalties and assessments, and $1,222,151.62 in attorney fees,
costs, and expenses of investigation. (The qui tam judgment).
       Following entry of the qui tam judgment, Allstate began efforts to collect it.
During its investigation, Allstate learned of a series of real estate transactions conducted
by defendants designed to transfer away their assets. Allstate, on behalf of the State, filed
an action to set aside the fraudulent transfers of real and personal property. (Case No.
BC527960.)
       Defendants demurred to the operative complaint on the ground that Allstate lacked
standing to proceed with the fraudulent transfer suit, in part because the judgment in the
qui tam action was never allocated between Allstate and the People pursuant to section
1871.7, subdivision (g)(2)(A), with the result that Allstate had no stake in the qui tam
judgment or authority to pursue collection of that judgment from defendants. Defendants
argued that section 1871.7, subdivision (g)(2)(A) requires that the court determine the
amount of the qui tam judgment the relator may collect, and the relator may only enforce
the judgment up to that allocated amount, because the remainder of the proceeds belongs
to the State.
       Allstate obtained a stay of the fraudulent conveyance action and returned to the
qui tam court where it filed a motion for an order allocating the qui tam judgment
proceeds. The motion was based on a stipulation entered into between the People and
Allstate allocating to Allstate 50 percent of the civil penalties and assessments
($2,894,258.39), plus the reasonable attorney fees and costs the court had awarded
($1,222,151.62), for a total of $4,116,410.01. (§ 1871.7, subd. (g)(2)(A).) The People
agreed to receive the remaining 50 percent of the civil penalties and assessments.
       Defendants opposed the allocation motion. They argued, inter alia, that the trial
court lacked jurisdiction to enter the order because the qui tam judgment had long since
become final depriving the court of power to “ ‘materially vary[]’ ” it. Allstate responded

                                              3
that the allocation order did not “ ‘materially vary the judgment,’ ” which remained
intact. Rather, Allstate argued that the allocation order simply apportioned the judgment
proceeds between judgment creditors and thus had no impact on either the rights of the
People and Allstate as plaintiffs and judgment creditors on the one hand, or the
obligations of defendants as judgment debtors, on the other hand. Regardless of the
outcome of the allocation motion, Allstate argued, defendants remain obligated to pay the
$7,010,668.40 judgment.
       The trial court in the instant qui tam action granted Allstate’s allocation motion
and entered the stipulation as the judgment. Defendants filed their timely appeal.
       We requested supplemental briefing from the parties (Gov. Code, § 68081) to
address whether defendants were aggrieved by the allocation order such that they would
have standing to appeal it.
                                      DISCUSSION
       The right to appeal is statutory. (Conservatorship of Gregory D. (2013)
214 Cal. App. 4th 62, 67.) Code of Civil Procedure section 902 provides that “[a]ny party
aggrieved may appeal” from a judgment. (Italics added.) “ ‘ “One is considered
‘aggrieved’ whose rights or interests are injuriously affected by the judgment.”
[Citation.]’ ” (Conservatorship of Gregory D., at p. 67.) The appellant’s “interest
‘ “must be immediate, pecuniary, and substantial and not nominal or a remote
consequence of the judgment.” ’ [Citation.]” (County of Alameda v. Carleson (1971)
5 Cal. 3d 730, 737.) Conversely, “ ‘A party who is not aggrieved by an order or judgment
has no standing to attack it on appeal.” [Citation.]’ [Citation.]” (Conservatorship of
Gregory D., at p. 67.) “Thus, notwithstanding an appealable judgment or order, ‘[a]n
appeal may be taken only by a party who has standing to appeal. [Citation.] This rule is
jurisdictional. [Citation.]’ [Citation.] It cannot be waived. [Citation.]” (Ibid.)
       1. The Qui Tam procedure
       Anyone engaging in insurance fraud in violation of Penal Code sections 549, 550,
or 551 is subject to penalties and assessments. (§ 1871.7, subd. (b).) Section 1871.7
provides for civil penalties of not less than $5,000 to $10,000 for each fraudulent claim

                                             4
presented to an insurance company, plus assessments of not more than three times the
amount of each claim for compensation, and equitable relief. (Id., subd. (b).)
       Section 1871.7 authorizes “any interested persons, including an insurer” to bring a
qui tam civil action “for the person and for the State of California” to recover penalties
and equitable relief for fraudulent insurance claims. (Id., subds. (b) & (e)(1), italics
added.) Procedurally, the interested person or relator files a complaint and serves it on
the district attorney and the Insurance Commissioner. (Id., subd. (e)(2).) The complaint
is sealed in camera for at least 60 days, during which time the district attorney and the
Insurance Commissioner may elect to intervene (ibid.) and conduct the action
themselves.
       When the district attorney intervenes in the qui tam insurance fraud action,
subdivision (g)(1) of section 1871.7 entitles the private-party relator to a “bounty” of
between 30 and 40 percent “of the proceeds of the action or settlement of the claim,
depending upon the extent to which the person substantially contributed to the
prosecution of the action.” (Ibid.; see also Weitzman, supra, 107 Cal.App.4th at p. 547.)
       When the state declines to intervene, as in this case, the relator tries the action and
is entitled by subdivision (g)(2)(A) of section 1871.7 to a “bounty” of between 40 and 50
percent of the proceeds of the action “for collecting the civil penalty and damages”
(ibid.), along with “an amount for reasonable expenses that the court finds to have been
necessarily incurred, plus reasonable attorney’s fees and costs” which fees and costs are
imposed against the defendant. (Ibid.)5

5
        Section 1871.7, subdivision (g)(2)(A) reads: “If the district attorney or
commissioner does not proceed with an action under this section, the person bringing the
action or settling the claim shall receive an amount that the court decides is reasonable
for collecting the civil penalty and damages. Except as provided in subparagraph (B), the
amount shall not be less than 40 percent and not more than 50 percent of the proceeds of
the action or settlement and shall be paid out of the proceeds. That person shall also
receive an amount for reasonable expenses that the court finds to have been necessarily
incurred, plus reasonable attorney’s fees and costs. All of those attorney’s fees and costs
shall be imposed against the defendant. The parties shall serve the commissioner and the
local district attorney with complete copies of any and all settlement agreements, and
                                              5
       2. Defendants are not aggrieved by the order they seek to appeal.
       Defendants acknowledge that “this Appeal has no effect on that [qui tam]
Judgment” and does not alter defendants’ obligation to pay the $7 million.
Notwithstanding their apparent concession that they are not aggrieved by the order they
appeal, defendants construct a theory under which they have been injured by the
allocation order: Defendants argue that the allocation order “changed the legal rights of
Allstate to enable Allstate to arguably be able to legally collect on the judgment” because
the allocation order “arguably legitimizes” the insurer’s collection efforts by conferring
standing on Allstate. (Italics added.) Citing no authority, defendants argue that Allstate
could only enforce the judgment up to the amount of the allocation order, and so until the
court allocated the judgment between the People and Allstate, the latter had no right to
collect any proceeds. In essence, defendants assume that an allocation is a prerequisite or
condition precedent to enforcement of a qui tam judgment by an insurer-relator when the
State has not intervened.
       However, based on a plain reading of section 1871.7, subdivision (g)(2)(A), the
bounty in cases in which the People do not intervene is for trying and collecting the
judgment. When the words of a statute are clear and unambiguous, there is no need for
statutory construction or resort to other indicia of legislative intent, such as legislative
history. (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal. 4th
342, 349.) Section 1871.7, subdivision (g)(2)(A) states, “If the district attorney or
commissioner does not proceed with an action under this section, the person bringing the
action or settling the claim shall receive an amount that the court decides is reasonable
for collecting the civil penalty and damages . . . [T]he amount shall not be less than 40
percent and not more than 50 percent of the proceeds of the action . . . and shall be paid

terms and conditions, for actions brought under this article at least 10 days prior to filing
any motion for allocation with the court under this paragraph. The court may allocate the
funds pursuant to the settlement agreement if, after the court’s ruling on objection by the
commissioner or the local district attorney, if any, the court finds it is in the interests of
justice to follow the settlement agreement.” (Italics added.)

                                               6
out of the proceeds.” (Italics added.)6 To “collect” is “[t]o receive payment.” [¶] “To
collect a debt or claim is to obtain payment . . . .” (Black’s Law Dict. (6th ed. 1990)
p. 263, col.1.) Thus, by employing the word “collecting” in section 1871.7, subdivision
(g)(2)(A), the Legislature intended that, when the State does not intervene, the insurer-
relator is the plaintiff who levies on the judgment.
       Our conclusion that the bounty for the prosecuting relator is for trying and
collecting the judgment is bolstered by a comparison of subdivisions (g)(2)(A) with
(g)(1), in section 1871.7. (Bostick v. Flex Equipment Co., Inc. (2007) 147 Cal. App. 4th
80, 107, conc. opn. of Croskey, J. [“A court must harmonize a statute with other laws so
as to give effect to all and avoid anomalies, if possible”].) Whereas the section 1871.7,
subdivision (g)(2)(A) bounty is for “collecting the civil penalty and damages,” the
recovery awarded under subdivision (g)(1)(A)(i) - when the district attorney takes over
the case - is a percentage “of the proceeds of the action or settlement of the claim.”
(Italics added.) Under the latter subdivision, the intervening People, not the relator,
would collect the judgment. Thus, subdivision (g)(2)(A), relevant here because the State
did not adopt the action, recognizes that the relator, in addition to trying the insurance
fraud action, is the party who collects or levies on the ensuing judgment. “The remaining
proceeds revert to the State . . . .” (58 Cal.Jur.3d (2012) State of California, § 126, italics
added.) That is, after collecting on the judgment, Allstate would pay the excess over its
allocation to the People. “[T]he money generated by the cause of action that the [private-
party] plaintiff recovers [in a qui tam action] is property owned by the plaintiff.”
(11 Witkin, Summary of Cal. Law (10th ed. 2005) Community Property, § 111, p. 673,
discussing In re Marriage of Biddle (1997) 52 Cal. App. 4th 396, 399 [community
property interests in a qui tam action].) The reading of section 1871.7, subdivision

6
       Also, in cases where the People opted not to intervene, subdivision (g)(2)(A) of
section 1871.7 awards the direct-victim relator reasonable expenses, attorney’s fees, and
costs “imposed against the defendant,” in addition to the bounty. The judgment here
already awarded Allstate reasonable expenses, attorney fees and costs incurred by
Allstate who has the right to collect that amount also.

                                               7
(g)(2)(A) advocated by defendant would result in the incongruous situation in which the
successful insurer-relator would be unable to levy on the judgment it has won through its
own efforts until the bounty is allocated between it and the People who had abandoned
prosecution of the action.
       The right to levy on the $7 million qui tam judgment was Allstate’s for the
additional reason that the insurer was the direct victim of defendants’ insurance fraud.
Unlike the federal False Claims Act (31 U.S.C. § 3730(d)) where the relators are people
with knowledge of the fraud but not victims of that wrong, under California’s IFPA, the
direct victims of the fraud are the relator-insurers and their insureds. (Weitzman, supra,
107 Cal.App.4th at pp. 561-562.) Allstate, as the direct victim who prosecuted the action
and prevailed without the People’s participation, necessarily had the right to collect the
civil penalty and damages irrespective of an allocation order. To hold otherwise would
be absurd given the California qui tam IFPA action is brought, not merely on behalf of
the People, but “for the person and for the State of California” (§ 1871.7, subd. (e)(1),
italics added), and where the qui tam judgment here, drafted by defendants, was written
in favor of all plaintiffs, not just the People. Therefore, an allocation order is not a
prerequisite to the Allstate’s right to enforce the judgment; it neither “changed” nor
“legitimized” Allstate’s legal right to collect the proceeds of the action from defendants, a
right Allstate always had as relator.
       Defendants argue, citing People ex rel. Strathmann v. Acacia Research Corp.
(2012) 210 Cal. App. 4th 487 (Strathmann) that Allstate admits that the relator is not
entitled to any proceeds absent a court-ordered allocation. Regardless of what Allstate
admits, addressing the legal question de novo (American Liberty Bail Bonds, Inc. v.
Garamendi (2006) 141 Cal. App. 4th 1044, 1052 [we exercise our independent
interpretation of the Insurance Code absent disputed facts]), Strathmann does not stand
for the proposition that an allocation order is a prerequisite to collecting the judgment.
Strathmann stated, “[T]he ‘relator[]’ stands in the shoes of the People of the State of
California, who are deemed to be the real party in interest. [Citations.] The relator in a
qui tam action under section 1871.7 does not personally recover damages but, if

                                               8
successful, receives a substantial percentage of the recovery as a bounty.” (Strathmann,
at p. 500.) For this proposition, Strathmann cited generally to subdivision (g) of section
1871.7, without distinguishing between the wording in subdivisions (g)(1) (State-
prosecuted actions) and (g)(2)(A) (insurer-prosecuted actions).7
         As the allocation order is not a prerequisite to Allstate’s ability to levy on the qui
tam judgment under section 1871.7, subdivision (g)(2)(A), and given defendants’
concession that the appeal has no effect on, and does not alter their obligation to pay the
$7 million qui tam judgment, defendants are not aggrieved by the allocation order and
have no standing to appeal from it. (Cf. U.S. ex rel. Taxpayers Against Fraud v. Gen.
Elec. (6th Cir. 1994) 41 F.3d 1032, 1046 [under federal False Claims Act “the Relators’-
Share Litigation did not directly involve the qui tam defendants . . . [who] had no legal
standing or right to participate in the proceedings,” italics added]; cf. Kim v. Yi (2006)
139 Cal. App. 4th 543, 549-551 [proceeding for apportionment of damages between
judgment creditors is a special proceeding that did not involve any defendants].)8 In the
absence of standing by defendants as appellants, this court has no jurisdiction to hear the
appeal. (Conservatorship of Gregory D., supra, 214 Cal.App.4th at p. 69.)

7
         We are unpersuaded by the remaining cases cited by defendants in their letter
brief.
8
        Allstate argues that the California False Claims Act (Gov. Code, § 12650 et seq.)
was patterned after the federal False Claims Act (31 U.S.C. § 3730) and encourages us to
look to federal cases applying the qui tam provisions of the federal statute. While the
California IFPA in section 1871.7 differs from the federal False Claims Act in “several
significant respects” (Weitzman, supra, 107 Cal.App.4th at p. 561), the two Acts are
identical with respect to the bounty when the government declines to adopt the action.
(Compare § 1871.7, subd. (g)(2)(A) [“the person bringing the action or settling the claim
shall receive an amount that the court decides is reasonable for collecting the civil penalty
and damages”] & 31 U.S.C. § 3730(d)(2) [“the person bringing the action or settling the
claim shall receive an amount which the court decides is reasonable for collecting the
civil penalty and damages”].)

                                                9
                                    DISPOSITION
     The appeal is dismissed. Allstate is to recover its costs of this proceeding.

     CERTIFIED FOR PUBLICATION

                                                ALDRICH, J.

We concur:

             EDMON, P. J.

             LAVIN, J.

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