| IN RE: ROBERT A. CARDER | ) | DOCKET NO. 69461 |
| ) | ||
| CLAIM NO. H-716161 | ) | DECISION AND ORDER |
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- APPEARANCES
- Claimant, Robert A. Carder, by
- Shea, Kuffel, Lindsay & Flynn, per
- John N. Lindsay
- Employer, B & T Construction Specialities,
- None
- Department of Labor and Industries, by
- The Attorney General, per
- Harold P. Dygert, Assistant
This is an appeal filed by the claimant on December 24, 1984 from an order of the Department of Labor and Industries dated October 24, 1984 which adhered to the provisions of a prior order of August 16, 1984. The August order stated that a Departmental investigation revealed that the claimant was gainfully employed from August 31, 1981 through May 17, 1982 creating an overpayment of time loss compensation in the amount of $7,498.08. This amount was alleged to have been obtained fraudulently by misrepresentation by the claimant and by concealment of his employment capability from the Department. It was, therefore, further ordered that the claimant repay the amount indicated plus a 50% penalty pursuant to RCW 51.32.240 in the amount of $3,749.04. Total demand for repayment was $11,247.12. Reversed. [2]
DECISION
Pursuant to RCW 51.52.104 and RCW 51.52.106, this matter is before the Board for review and decision on a timely Petition for Review filed by the Department of Labor and Industries to a Proposed Decision and Order issued on December 15, 1987 in which the order of the Department dated October 24, 1984 was reversed and the claim remanded to the Department for action in accordance therewith.
The Board has reviewed the evidentiary rulings in the record of proceedings and finds that no prejudicial error was committed and said rulings are hereby affirmed.
The issue presented by this appeal is whether or not the Department properly demanded repayment of time loss compensation benefits allegedly obtained fraudulently by the claimant. The Proposed Decision and Order found, correctly, that the claimant did in fact fraudulently obtain benefits from the Department between the dates of August 31, 1981 and May 17, 1982. The Proposed Decision and Order also determined that, contrary to the provisions of RCW 51.32.240(4), the Department did not initiate the demand for repayment within a year of the discovery of the fraud. While we feel the Proposed Decision and Order is correct in its result, we feel that further comment upon the meaning of the term "discovery of the fraud," and further findings concerning that issue, are in order.
First of all, we are not concerned here with the basic elements of the allegation of fraud. Those are dealt with sufficiently by the Proposed Decision and Order. What is at issue here is the right of the Department to make a demand for sums fraudulently obtained. RCW 51.32.240(4) provides that: [3]
"Whenever any payment of benefits under this title has been induced by fraud the recipient thereof shall repay any such payment together with a penalty of fifty percent of the total of any such payments and the amount of such total sum may be recouped from any future payments due to the recipient on any claim with the state fund or self-insurer against whom the fraud was committed, as the case may be, and the amount of such penalty shall be placed in the supplemental pension fund. Such repayment or recoupment must be demanded or ordered within one year of the discovery of the fraud." (Emphasis added)
Thus the Department must make a timely demand for repayment for sums fraudulently obtained within one year of the date it discovers the fraudulent circumstances underlying the receipt of benefits.
The Department, in its Petition for Review from the Proposed Decision and Order, raises two points regarding this issue. First, it states that the findings did not include a statement regarding the date when the Department was supposed to have "discovered" Mr. Carder's fraud. With this point we agree and it is for this reason we have granted review in this case.
Second, the Department contends that it was not advised that the timeliness of demand would be an issue in the case and that therefore it was unable to defend properly. We reject this second contention as being without merit. The very statute which gives the Department the right to demand repayment of fraudulently obtained sums also provides that such demand must be made within a year of the date of discovery. Therefore an essential element of the demand for repayment is its timeliness. The Department cannot contend that it was unaware of its statutory obligation to make its demand for payment within the period provided by RCW 51.32.240(4). [4]
As the statute gives the Department a limited period of time to demand repayment in cases such as this, it is of critical importance to set, with some particularity, the date from which the time limitation begins to run.
There is much evidence in this case about the Department's procedures in following up on an allegation of fraud. When the Department receives information that suggests the possibility of fraud it initiates what it calls a "pre-fraud investigation". Thereafter, according to the Department's evidence, if there is sufficient substantiation of the information or tip as to fraud, the Department will pursue it further with a "full fraud investigation". In this case, the Department's full fraud investigation was completed in January of 1984 and the order demanding repayment was issued in August of that same year. We believe, however, that the Department's "staged" or "layered" investigatory process clouds the issue of discovery, and frustrates the purpose of the demand portion of the statute to provide a limited period for collecting improperly paid benefits.
The statute requires the Department to make a demand for repayment within one year of the "discovery" of the fraudulent circumstances. In the present case the Department was advised by telephone that Mr. Carder was employed as a minister or pastor at a church in Centerville, Washington. On July 19, 1983 a Departmental investigator met with the individuals making this complaint and was provided with 95 canceled "payroll" checks as evidence of the claimant's employment. In all of the Department's subsequent investigative activities, the only other actions taken were to interview Mr. Carder is September of 1983 and his attending physician in December of 1983. All the truly incriminating [5] evidence, however, was in the investigator's possession by at least July 19, 1983 when the 95 canceled checks were turned over. This was the Department's first substantial evidence as to the facts in the case.
The cases in Washington discussing the point at which it may be said fraud is "discovered" contain no language about "pre-fraud" or "full fraud" investigations. Rather, fraud is said to be discovered when the party to be charged with its knowledge is aware of facts or circumstances which are calculated to lead to an inquiry, which inquiry would lead to a belief in, or knowledge of, the fraud. Columbia International Corp. v. Perry, 54 Wn. 2d 876 (1959); Corliss v. Hartge, 180 Wash. 685 (1935). While it appears that mere suspicion is insufficient to generate the kind of inquiry referred to above, possession of specific facts or evidence is enough to require the party investigating the fraud to exercise due diligence in pursing those facts further. Columbia International Corp. at 879; Davison v. Hewitt, 6 Wn.2d 131 (1940); Larson v. McMillan, 99 Wash. 626 (1918). Indeed, a party in possession of sufficient facts will be deemed to have a knowledge of fraud if due diligence in the investigation of those facts would have led to a knowledge of the fraud. Interlake Porsche v. Bucholz, 45 Wn. App. 502 (1986). In the present case it is clear that by July 19, 1983 the Department had "discovered" important documentary evidence which demonstrated that the claimant had been working during the time he was receiving time-loss compensation from the Department.
The chief distinction between the cases cited above and the Department's investigative procedure is in the question of when the [6] discovery process starts and stops. The discovery of fraud, rather than making conclusive knowledge, signifies the earliest point at which an investigation should start. The Department's investigative stages represent the completion of the inquiry when all the evidence is in hand. It is clear that "discovery," as set forth in RCW 51.32.040(4), marks the beginning of inquiry, not the end. The Department does not have one year from the date its investigation is finally complete to demand repayment. The Department discovers fraud when it has sufficient facts in hand to commence an investigation. Any subsequent demand for repayment under RCW 51.32.240(4) must be made one year from that date.
It is not necessary for our purposes to determine whether or not a telephone tip amounts to the kind of information which would constitute "discovery" of fraud. In this case there is an objective basis to determine when the Department had discovered Mr. Carder's fraud. The documentary evidence in the form of the numerous canceled checks constituted sufficient facts demanding the Department's further inquiry and action. When these were received, the Department had discovered the fraud.
After consideration of the Proposed Decision and Order and the Petition for Review filed thereto, and a careful review of the entire record before us, we are persuaded that the result in the Proposed Decision and Order is supported by the preponderance of the evidence and is correct. Based on the foregoing, however, the Board adopts proposed Findings of Fact 1 through 6 as our final findings, deletes proposed Finding of Fact No. 8, and substitutes a new Finding of Fact No. 7 for that entered by the Proposed Decision and Order. Further, [7] the Board adopts proposed Conclusion of Law 1 as our final conclusion. Proposed Conclusions of Law Nos. 2 through 4 are deleted. New Conclusions of Law Nos. 2 through 5 are entered as set forth below.
FINDINGS OF FACT
7. In June of 1983 the Department of Labor and Industries received a telephone call informing the Department of Mr. Carder's employment as a pastor or minister at the Church of Christ at Centerville, Washington. On July 19, 1983 the Department's investigator, Phillip Z. Whitman, received 95 canceled checks from the Church of Christ at Centerville made out either to the claimant, Robert A. Carder, or to his daughter, for services as the congregation's minister from July 1981 through June of 1983.
CONCLUSIONS OF LAW
2. Payment of time-loss compensation to Robert A. Carder between August 31, 1981 and May 17, 1982 was induced by fraud within the meaning of RCW 51.32.240(4).
3. The Department of Labor and Industries discovered Robert A. Carder's fraudulent misrepresentation of his work activities on July 19, 1983.
4. The Department's demand on August 16, 1984 for repayment of benefits fraudulently paid to Robert A. Carder between August 31, 1981 and May 17, 1982 was not made within a year of the discovery thereof as required by RCW 51.32.240(4).
5. The Department order of October 24, 1984 which adhered to the provisions of a prior order of August 16, 1984 is incorrect and is reversed and remanded to the Department to issue an order stating that claimant fraudulently obtained time-loss compensation benefits during the period of August 31, 1981 through May 17, 1982 in the amount of $7,498.08; that the Department discovered the fraud on July 19, 1983; that the Department failed to demand repayment within one year of the discovery of the fraud; and that demand for repayment of time-loss compensation and penalties for that period is time-barred pursuant to the provisions of RCW 51.32.240(4). [8]
It is so ORDERED.
Dated this 18th day of April, 1988.
BOARD OF INDUSTRIAL INSURANCE APPEALS
/s/
SARA T. HARMONChairperson
/s/
FRANK E. FENNERTY, JR.Member
/s/
PHILLIP T. BORKMember