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Penal Code Prosecution

November 14, 2008                                               Bulletin 2008-No. 09


In its ongoing effort to stop workers’ compensation insurance fraud, Texas Mutual Insurance Company sought the prosecution Carol Wiesman, Donna Iverson, and Timothy Carney.  The State of Texas indicted Carol Wiesman, Donna Iverson, and Timothy Carney for securing by deception the execution of documents, specifically workers' compensation insurance policies, having a value of $200,000 or more. The trial court quashed the indictments after concluding that, under the in pari materia doctrine, the prosecutions must be brought under the Texas Labor Code provision criminalizing fraud in obtaining workers' compensation insurance.  In Cause No. 03-07-00661-CR; The State of Texas v. Carol Wiesman, on appeal from the 299th Judicial District Court of Travis County, Texas, the Austin Court of Appeals reversed the District Court's orders to quash and remand the causes for further proceedings.


The defendants wanted to be prosecuted under the Texas Labor Code as opposed to the Texas Penal Code because the punishment for conviction under the Labor Code was less severe than under the Penal Code.


The Austin Court of Appeals compared Penal Code Section 32.46(a)(1) and Labor Code Section 418.002(a) and found that a critical element of the Penal Code Section is not found in the Labor Code Section.  Penal Code Section 32.46 prohibits the use of deception, broadly defined, to fraudulently induce another to sign or execute any document affecting the property, service, or pecuniary interest of any person. Although the gravamen of the offense is the deception, the offense is not complete unless and until the person deceived signs or executes the document in question. Labor Code Section 418.002(a) prohibits making false or misleading statements, and concealing or destroying material facts and documents, with the intent to obtain workers' compensation coverage or to avoid payment of premiums for that coverage.  There is no requirement that a workers' compensation insurance policy issue as a result of the false statement. Instead, the offense is complete when the false statement is made with the requisite intent. Thus, even though making a false statement on an application for workers' compensation coverage may be a form of deception, and the intent to obtain coverage or avoid payment may be specific forms of fraudulent intent, Labor Code Section 418.002(a) does not proscribe conduct that would otherwise meet every element of and be punishable under Penal Code Section 32.46(a)(1).


The defendants challenged the foregoing reading of Labor Code Section 418.002. They pointed to subsection (b), which provides that an offense under this section is either a class A misdemeanor or a state jail felony depending on the amount of premium avoided. They argue that unless a workers' compensation insurance policy is issued, there can be no premium avoided. They urge that the statute must be read to require the issuance of a policy before the offense is complete. The Court of Appeals found this proposed interpretation of section 418.002 to be not only contrary to the clear language of the statute, but unnecessary to a reasonable interpretation of it. If an applicant's false or misleading statements are discovered and no policy issues, the amount of premium avoided is $0, which is less than $1,500, and the offense is a class A misdemeanor.


The Court of Appeals found that although both Penal Code Section 32.46(a)(1) and Labor Code Section 418.002(a) criminalize deceptive conduct, the statutes differ significantly in their purposes and objectives. As part of a chapter defining fraud offenses, Penal Code Section 32.46(a)(1) prohibits the fraudulent use of a broad variety of deceptive practices to induce a person to sign or execute any document affecting the property, service, or pecuniary interest of any person, who may or may not be the person deceived. The statute thus serves to protect the integrity of documentary transactions by punishing those who use such transactions to defraud or harm another. Labor Code Section 418.002 prohibits false statements or misrepresentations of fact in applications for workers' compensation insurance as part of the broader Texas Workers' Compensation Act. By punishing those who fraudulently apply for workers' compensation insurance, the statute serves to protect the solvency of the workers' compensation insurance system.


The Court of Appeals concluded that Penal Code Section 32.46 and Labor Code Section 418.002 do not have the same purpose or objective. Instead, they were intended to cover different situations and protect different interests. Therefore, the defendants can be prosecuted under the Penal Code Section.



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