What PENAL CODE SECTION 550 DEFENSES ARE AVAILABLE?

What is Penal Code Section 550?

Penal Code section 550 defines different types of conduct that constitute the crime of insurance claims fraud. All crimes in California are statutory so that if a law doesn’t define something as a crime - it is not illegal. Section 550 in general focuses on the intentional submission of false or fraudulent claims (or helping someone else submit a fraudulent claim) to an insurance company.

A Vague & Often Unconstitutional (As Applied) Statute

Strangely and inconsistently, one can simply send business, refer clients as patients, hire a company to provide services and you (the referring person) can be liable for the crimes of the other. It is a type of “vicarious liability” where the intent to act criminally is not clear.

The best criminal defense in many 550 cases is to focus on the vagueness of the statute, the inconsistency in how mental state is defined and how district attorneys tend to throw any and all conduct into this statute so that it criminalizes real fraud and it criminalizes “the kitchen sink”.

Here is a quote that attorneys can copy from this cite and include in your 550 challenge briefs:

“The Fourteenth Amendment to the United States Constitution and article I, section 7 of the California Constitution, each guarantee that no person shall be deprived of life, liberty, or property without due process of law. This constitutional command requires “a reasonable degree of certainty in legislation, especially in the criminal law....” [Citation.]”
(People v. Maciel (2003) 113 Cal.App.4th 679, 683)

This is the core rule of criminal law.  Crimes are not created to punish the innocent.  There needs to be a "speed limit".  In other words a person needs to know what is legal and what is not.  Penal Code section 550 is abused by prosecutors.  They take ordinary business disputes and call them "fraud".  The business dispute is not a crime by any commonsense definition.  But ... when a prosecutor calls it a false claim for insurance, suddenly a doctor or patient is accused of a felony.  This is an abuse of power by the prosecutors and it takes place far too often.

How to Interpret & Challenge this Overly Broad Criminal Fraud Statute

Common sense says that the plain meaning of the words in a statute provide the most reliable indication of the Legislature's intent. In other words, it means what it says. But what if what it says is subject to many meanings?

The basic rule of law is that courts “must also avoid a construction that would produce absurd consequences, which we presume the Legislature did not intend.” (Banerjee v. Superior Court (2021) 69 Cal.App.5th 1093, 1113, quoting In re Greg F. (2012) 55 Cal.4th 393, 406.)

One way this type of interpretation becomes relevant to a Penal Code section 550 criminal action is when the defendant has first been sued in a money dispute between a doctor and an insurance company. There may even have been a trial where the civil jury found fraud. Is this an automatic crime under section 550?

In Siry Investment L.P. v. Farkhondepour (2022) 13 Cal.5th 333 at 361-2, the California Supreme Court stated that “[t]o prove theft, a plaintiff must establish criminal intent on the part of the defendant beyond ‘mere proof of nonperformance or actual falsity.” The Court then addressed disputes that were in the civil (money) arena saying that “ not all commercial or consumer disputes alleging that a defendant obtained money or property through fraud, misrepresentation, or breach of a contractual promise will amount to a theft.” (Siry at 361.)

Most prosecutor’s offices do not make this distinction and in a criminal case courts and juries may equate the two. It is important for attorneys to cite the Siry holding early and frequently.

What is the State of Mind that Makes Conduct Criminal? (This is the Intent Defense)

The absence of a guilty intent is a defense to theft crimes because they require not just an intent to act but an intent to act and break the law. A physician billing decision which is wrong but honest is not fraud. This is true even if the billing decision is extreme. This is true in any insurance claim. For example, if one of Donald Trump’s New York buildings burned to the ground his claim as to value would or would not be fraud based upon his INTENT.

In other words, a very high valuation compared to what an “expert” says may be considered by the jury in assessing whether fraud took place but in a criminal trial unless that high valuation was deliberately expanded with the intention to receive a benefit to which Donald Trump was not entitled - it is not a crime.

In fact a jury must (not can - MUST) consider defenses such as innocent intent and necessity. See: People v. Montoya (1994) 7 Cal.4th 1027, 1047; People v. Sedeno (1974) 10 Cal.3d 703, 716.) The failure to do so results in a miscarriage of justice. See: California Constitution, Article VI, section 13.

Going back to the Trump example, many prosecutors seek to argue that under Evidence Code section 665, “[a] person is presumed to intend the ordinary consequences of his voluntary act.” The point being that if someone overstates the value of an item or service they must intend to defraud the other person.

NO!

This argument is not valid in a California Criminal case. Oftentimes this proposition slips into a criminal prosecution not directly (by someone asserting that section 665 applies) but by implication or argument. The best defense attorneys are aware of this and are prepared to cite Evidence Code section 665 where it says, ““This presumption is inapplicable in a criminal action to establish the specific intent of the defendant where specific intent is an element of the crime charged.” (Evid. Code, § 665)

This brings us back to Penal Code section 550. This section requires that “the defendant must specifically intend to defraud a person with a false or fraudulent claim.” (See, e.g., Banerjee v. Superior Court (2021) 69 Cal.App.5th 1093, 1119)

In conclusion the mental state defense to a Penal Code section 550 charge is one of the many critical defenses that must be explored by defense counsel. To obtain the best criminal defense please consider the Horowitz legal team which includes former prosecutors and criminal defense specialists.  Our lawyers have defended criminal fraud cases throughout the State of California.  

Daniel Horowitz and his team of healthcare lawyers have their office in Lafayette, California (Contra Costa County). His work takes him throughout the state. He recently had all charges dismissed in a Riverside (Orange County) workers compensation fraud case charged under PC 550. Daniel represents clients throughout the State of California and he is a criminal defense specialist (certified by the State of California, Board of Legal Specialization)

If your are facing criminal fraud charges under Penal Code section 550, Daniel Horowitz is your best choice an experienced and aggressive defender of your rights.