Is Income Earned Through Criminal Activity Fraud under Section 114-A?

Joseph MelchionneNew York injured workers are compensated through their employer’s workers’ compensation insurance policies for all lost time and medical treatment that is causally related to their work-related injury. However, an injured worker can be precluded from receiving continuing and prior benefits if he or she acts fraudulently for the purpose of obtaining such benefits.

New York Workers’ Compensation Law (WCL) Section 114-a governs fraud and describes significant penalties for those who are caught committing fraud such as a permanent ban on their eligibility to receive indemnity benefits and/or a permanency award.

WCL Section 114-a directs that a claimant is to be penalized if he or she
“. . . for the purpose of obtaining compensation . . . or for the purpose of influencing any determination regarding any such payment. . . knowingly makes a false statement or representation as to a material fact, such person shall be disqualified from receiving any compensation directly attributable to such statement or representation.”
See Matter of Hadzaj v. Harvard Cleaning Serv., 77 AD3d 1000, 1001, 908 N.Y.S.2d 320, 917 N.Y.S.2d 109 (3rd Dept. 2010), LV lv denied 16 NY3d 702, 942 N.E.2d 320, 917 N.Y.S.2d 109 (3rd Dept. 2011).

The penalty is a forfeiture of all compensation that is directly attributed to the false statement. Workers’ compensation fraud penalties only apply to indemnity benefits and permanency awards, paid medical benefits are not subject to forfeiture in a fraud determination. See Jacob v. New York City Transit Auth., 26 A.D.3d 631, 809 N.Y.S.2d 618 (App. Div. 2006). In making determinations regarding fraud, the Board is the sole arbiter of witness credibility and its determination as to whether or not the claimant violated WCL Section 114-a will be upheld if supported by substantial evidence. See Matter of Cirrincione v. Scissors Wizard, 145 AD3d 1325, 1326, 43 N.Y.S.3d 610 (3rd Dept. 2016); Matter of Kodra v. Mondelez Intl., Inc., 145 AD3d 1131, 1132, 42 N.Y.S.3d 467 (3rd Dept. 2014).
Although, a “false statement or representation as to a material fact” can take many forms, it very commonly arises when a claimant represents to the Workers’ Compensation Board that he or she is not working and earning money, when in fact the worker is working and earning money and not reporting the income to the Board. In a recent New York State Appellate Division case, Matter of Pompeo v. Auction Direct USA LP, 152 AD3d 1143, 61 N.Y.S.3d 168, (3rd Dept. 2017), The issue of fraud was litigated when a claimant who was entitled to lost time indemnity benefits in association with a work-related accident was convicted of the crime of selling narcotics, thus indicating that the claimant was earning income through the sale of illicit substances, while maintaining that he was not working as a result of a work-related injury. The overall disposition of the claimant turned on the reliability of the evidence submitted to the record.

The Facts of the case.

In the case cited above, the claim was established for the claimant’s work-related injury to his low back and he was awarded ongoing indemnity benefits for lost time. The claimant’s benefits were suspended in August of 2012 based upon his failure to produce updated medical evidence to support his disability. In January of 2013, the claimant pleaded guilty to violating his probation in a criminal matter by committing a crime that involved the sale of a narcotic. The claimant was subsequently sentenced to three (3) concurrent prison terms of three (3) years. The claimant was released from prison in 2014 and proceeded to make an application for the re-instatement of his workers’ compensation benefits. The workers’ compensation insurance carrier opposed the claimant’s application for benefits by alleging that the claimant committed fraud under WCL Section 114-a because he failed to report the income that he earned from the sale of narcotics while he was previously receiving workers’ compensation benefits. A Workers’ Compensation Law Judge determined that the claimant had committed fraud for failing to disclose the income that he received from the sale of the narcotics and permanently barred the claimant from ever receiving lost time indemnity benefits after February of 2012.

On appeal, a panel of Workers’ Compensation Law Judges reversed the prior determination that the claimant committed fraud, holding that there was insufficient proof submitted to the record that the claimant actually received any income from the sale of narcotics. This decision was appealed to the full Board which subsequently affirmed the Board Panel decision that there was not enough information presented that the claimant committed fraud. The employer/carrier then appealed to the New York State Appellate Division.

The Legal Disposition.

The Appellate Division declined to disturb the Workers’ Compensation Board’s prior decisions and affirmed those decisions which held that there was insufficient evidence to support a finding that the claimant committed fraud.

In the opinion, the Appellate Division noted that the employer/carrier submitted transcripts of the claimant’s 2012 plea allocutions which resulted in the claimant’s convictions for the criminal sale of a controlled substance in violation of his probation to support its argument that the claimant committed workers’ compensation fraud under WCL Section 114-a. According to the Court’s opinion, the 2012 transcripts of the claimant’s allocution were indecipherable as result of recording and/or transcription errors and therefore were insufficient to support the underlying argument that the claimant committed fraud. In addition, the Court noted that the carrier/employer did not submit the claimant’s certificate of conviction. As a result, the Court determined that there simply was not enough evidence to warrant the reversal of the Board Panel or full Board determinations that there was insufficient evidence to support a fraud finding.

Practical Application.

It is clear based upon a review of the procedural history of the aforementioned case that the Board Panel, full Board, and Appellate Division were not able to render decisions based upon the complete facts and evidence submitted in support of the carrier/employer’s argument that the claimant committed fraud because the evidence submitted was incomplete due to a recording and/or transcription error. However, it should be noted that if the 2012 transcripts of the claimant’s criminal convictions were complete and, in fact, did clearly prove that the claimant had actually earned income as a result of the criminal sale of narcotics than perhaps the Workers’ Compensation Law Judge’s initial determination that the claimant had committed fraud may have been upheld. In fact, the production of such proof, if uncontroverted, would have demanded a finding that the claimant violated WCL Section 114-a because his earning of unreported income (by any means) while continuing to receive workers’ compensation indemnity benefits directed to compensate him for his inability to work as a result of his work-related injury clearly supports a finding that the claimant committed fraud.

A practical implication that can be derived from the final disposition of this case is that it is important to preserve and carefully document any form of testimonial, documentary, or surveillance evidence that a party may wish to use in its defense of a claim. It is of paramount importance to submit clear, verifiable, and reliable evidence in order to prove or disprove element of any workers’ compensation defense in relation to all issues involved in a claim.

Joseph Melchionne is an associate attorney at Lois LLC where he defends employers and carriers in New York workers’ compensation claims. Joseph can be reached directly at jmelchionne@loisllc.com or 201-880-7213.