Sting comes back to bite ’em

A young woman pulls up to a body shop …Sounds like the set-up to a joke, right? It may be a set-up, all right, but not too many people are laughing.

For the past five years or so, the California Department of Insurance—sometimes in conjunction with counties—has run a series of undercover investigations to ferret out insurance fraud. The “victim” may change, but the operation stays basically the same:

A young woman pulls up to a body shop. Her car has damage on both the left and right sides. She says the damage on the left came from an accident; the damage on the right was there when she bought the car. She’s short on money and asks the shop owner/ employee to put all the damage on the insurance claim. Whether she hears “Yes” or “No,” she drives away. Later, those who said “Yes” find their names on arrest warrants.

Dale Banda, CDI’s deputy commissioner of enforcement, says the insurance department has conducted hundreds of these stings, and “the conviction rates are very high in these investigations.”

Not in the North State—at least this time around. On Aug. 30, 2006, seven Butte County repairmen were arrested. Another surrendered to authorities, as did 12 charged in Shasta County.

Three Shasta defendants pleaded no contest rather than fight the charges. That is the most success the district attorneys have had so far. Three Butte County defendants had charges dropped. The one in Shasta who went to trial represented himself and got acquitted by the jury; after that, the district attorney dropped charges against four others.

Butte County Assistant District Attorney A. J. Haggard says he plans to pursue the remaining five cases on his docket. “The statements made by these people are stronger,” he said. “All agreed to participate in fraud.”

But he and his boss, District Attorney Mike Ramsey, may have to answer charges themselves. Danny and Marilyn Scott, owners of California Classics in Paradise, have filed a claim for damages, the first step in potential lawsuits against the county and the state. Their attorney, Larry Baumbach, is waiting for the response to the claim notice before deciding whether to file wrongful-arrest or civil-rights-violation suits.

“I hate to see that kind of abuse,” Baumbach said.

Danny Scott was the first in Butte County to have his case dismissed, but that’s been small consolation to him and his wife.

As detailed in the CN&R ("Poster boy for fraud finds vindication,” Newslines, Dec. 21, 2006), media outlets accompanied authorities to Scott’s body shop, and his arrest became front-page news. He kept the clippings with pictures of him in handcuffs—tangible reminders of his Aug. 30 ordeal.

At his preliminary hearing on Dec. 13, Ramsey elected to drop the charges.

For the Scotts, though, the damage had been done. Their business declined just at the time they needed money for legal fees.

“It’s hard,” Marilyn said, “just a struggle trying to catch up on bills. We’re trying to catch up; I don’t know when we’ll catch up.”

The Scotts said they just started getting busy last week. “We haven’t had our normal flow at all,” Danny lamented. “We only got one job from GMAC, and they were our biggest customer. I don’t know what the long-term effect will be.”

The Butte County district attorney’s office also dismissed charges against Ryan Collins, an employee at Concours Elite in Chico.

Ryan Edwards, who owns Dimensions Collision Center in Chico, won’t face charges, either. Because his wife, Stacy, is on Ramsey’s staff, Edwards’ case got transferred to the state attorney general’s office, which declined to file charges.

“We felt the allegation of insurance fraud couldn’t be proved beyond a reasonable doubt,” said spokesman Gareth Lacey, after reviewing the case with an attorney general investigator. “The evidence was ambiguous.”

Even more cases in Shasta County have fallen by the wayside, particularly since Richard Hammerbeck’s acquittal.

Hammerbeck, an employee at Golden Auto Body in Anderson, is a formal paralegal who decided to represent himself so that, as he put it, very little could get lost in translation.

In Shasta County, the undercover officer was a man who asked the repairmen to include a bent bumper on the tab, after he made it clear that the damage had occurred on a separate occasion. At least three defendants claim the officer was unrelenting even after they refused to comply with his requests.

Hammerbeck maintains that the officer who approached him never specifically asked him to put the bumper work on the insurance estimate—"It was all very vague.” Hammerbeck says he talked to the officer about fixing it at a low cost, but never submitted the estimate with the bumper included.

Hammerbeck subsequently paid for a Bureau of Automotive Repair (BAR) expert to validate that the estimate he gave was legitimate.

Although he triumphed in court, he estimated his cost at $100,000 in lost work and legal costs, and he remains displeased by the actions of the district attorney’s office. “This investigation was ill conceived and poorly orchestrated,” he said.

Hammerbeck’s case was considered the weakest of the 12, Assistant District Attorney Ben Hanna said, but it prompted the district attorney to drop four others.

“When 12 people found Hammerbeck not guilty at trial,” Hanna said, “it caused us to re-evaluate the information on additional cases.”

Arthur Hobbs’ was among them. The owner of Hobbs Auto Body in Shasta Lake said he was shocked when he was placed under arrest for fraud charges, and claims he has never acted illegally when charging customers and insurance companies.

“There was no evidence. Unless you write it on your sheet and actually charge the insurance, no crime has been committed,” he said.

Much like Danny Scott, Hobbs found himself in newspapers and on TV newscasts when he was arrested. Unlike Scott, whose exoneration made the front page as well, Hobbs says the dropped charges barely made an appearance in the paper. He spent $750 in court fees and would like to see some compensation.

“I thought you were innocent until proven guilty,” he said. “That was not the case in this matter.”

The California Department of Insurance defends these “proactive investigations.” Banda says the department gets an average of 2,500 to 3,000 complaints of insurance fraud each month, ranging from automotive to workers’ compensation. Complaints from insurance companies prompted the auto-body investigations.

“What we’ve done,” Banda explained, “is put these stings together to determine whether local body shops are committing insurance fraud.”

He concedes that “the difference between abuse and fraud is a fine line"—abuse being defined as exploiting loopholes in the system, fraud as conspiring to or filing a false claim. “What we’ve seen statewide is a large amount of attempts to commit fraud.”

There’s one key difference to what his agents do and what district attorneys do: “As peace officers, we can arrest on probable cause. Prosecutors must prove guilt beyond a reasonable doubt.”

Butte County had a district attorney’s investigator participate in the sting operation, but ultimately the decision to charge falls on the district attorney and assistant district attorneys.

Baumbach, the Scotts’ attorney for their civil action, says there’s a danger of a sting becoming a self-fulfilling prophesy.

“They were looking for somebody who would cheat on insurance,” he said. “Worse then that, it didn’t bother them that when my client said, “I won’t do that [commit fraud] but I’ll take care of it,” because he felt sorry for her, that’s not a statement of fraud. That’s been borne out by the fact that they didn’t pursue it [in court].”