Money Held by the State Can’t be Given to a Fraud

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Golden State Pharmaceuticals LLC (Golden State), a cancelled limited liability corporation, filed claims with the California State Controller (the Controller) for money the Controller held under the California Unclaimed Property Law (UPL). When the Controller failed to act on the claims, Golden State brought a civil action under the UPL to recover the money. The trial court granted Golden State’s motion for summary judgment, awarding it $121,989.13. The Controller appealed. In Golden State Pharmaceuticals LLC v. Betty T. Yee, California State Controller, B308625, California Court of Appeals, Second District, Fifth Division (November 23, 2021) the trial court ordered the state to pay Golden State and the Controller appealed.

BACKGROUND

Marisa Schermbeck Nelson worked as a personal assistant to Doctor Munir Uwaydah from 2000 to June 2010.

On March 16, 2017, the Los Angeles County District Attorney filed a complaint against Nelson and others for, among other crimes, conspiring to commit insurance fraud. On July 26, 2017, Nelson pleaded guilty to that charge as stated in a third amended felony complaint.

The Insurance Claims

Between May 2015 and June 2016, the Controller received 37 submissions from insurance companies and other entities for insurance claim benefits, insurance claim reimbursements, and workers’ compensation benefits that identified Golden State as the owner of the submission proceeds.

On March 9, 2017, Hunt, on behalf of Golden State, filed claim forms with the Controller concerning the 37 submissions. The trial court granted the motion and, on August 3, 2019, entered judgment for Golden State in the amount of $121,989.13.

DISCUSSION

The UPL governs the state’s handling and disposition, generally through the Controller. Such property by statute escheats (becomes the property of the state), nonpermanently, and the holder must transfer it to the controller.  The Controller contended that the court erred in applying equitable tolling because Golden State failed to provide the Controller with notice of its intent to litigate and failed to conduct itself reasonably and in good faith. The judgment was reversed. The Controller was awarded its costs on appeal.

ZALMA OPINION

The UPL, logically, does not allow the state to pay to a fraud perpetrator funds the state controlled. The fraud was obvious and established. If anyone had a right to the funds were the insurers who were defrauded and paid claims that they did not owe. It should be axiomatic that neither a state agency nor a court should do anything to allow a fraud perpetrator to profit from his crime.

© 2021 – Barry Zalma