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By Barry Zalma
There is a disturbing trend entering the law. Judges, jurors and administrative law courts, if convinced that a fraud was for a good cause, are often giving a pass to the perpetrators of the fraud. It has a name; they call it benign fraud.S Benign fraud, however, is no less a crime and no less a tort. The triers of fact are simply refusing to punish a perpetrator of a benign or soft fraud.
The May 3, 1999, issue of the National Law Journal reported that Chicago attorney William Garland Myers, a former law partner of US Supreme Court Justice John Paul Stevens, had an infirm and incompetent client sign a revised will. He then allowed the will to be probated. When the client signed the document, she did not know, nor was she capable of knowing, what it was she signed.
Mr. Myers admitted he inexcusably helped the client create a fraudulent will, and that he failed to notify the probate court. Mr. Myers admitted to most of the allegations. He insisted, however, that his actions were not punishable misconduct because he was clearly trying to help his client and because no one was financially hurt.
After a one day hearing, peppered with character witnesses (including Justice Stevens), a three-member hearing board unanimously dismissed the charges.
In California, our first elected insurance commissioner decided that there were two types of insurance fraud: soft fraud and hard fraud. Hard fraud was defined as a fraud committed by a dedicated criminal who, from start to finish, intended to cheat an insurer. Soft fraud was a fraud of opportunity committed by a usually honest person who had a legitimate claim and seized the opportunity to add to his legitimate claim and increase his eventual settlement.
The Insurance Commissioner decided it was appropriate to prosecute the perpetrators of hard fraud. He instructed the Fraud Division officers to avoid prosecution of soft fraud. But both types of fraud were, and still are, a crime in California. In fact, what was described as soft fraud, is responsible for the majority of dollars taken from the insurance industry. By refusing to prosecute soft frauds, the Department of Insurance found itself encouraging fraud rather than fulfilling its statutory obligation to deter fraud.
For many years, lawyers and paraprofessionals involved in Medicaid planning advised the elderly to transfer assets to their children. Such a transfer would make the father or mother “poor” enough to collect Medicaid benefits – and not deplete or destroy their estate when taking care of a last illness. Congress was so frustrated by this asset-draining activity that it included a provision in the Balanced Budget Act of 1997, aptly nicknamed the Granny’s Lawyer Goes to Jail Law. The provision made it a misdemeanor for a fee-paid professional to give incorrect advice about transferring the assets of the elderly in order to qualify them for Medicaid benefits.
In 1997, the American Bar Association adopted clarifying amendments to its model ethics rules that very strongly warn attorneys who have clients with disabilities, such as advanced age, to maintain a normal attorney-client relationship. If that is not possible, the attorney is advised to seek judicial guidance.
The National Law Journal quoted Professor Steven H. Resnicoff, of DePaul University College of Law, as stating that a client’s best interests should never be trumped by an attorney’s duty to be totally honest with the court.
Fraud perpetrators from the beginning of time have claimed that their crime was for a good cause. They all think they are Robin Hood, stealing from the rich to give to the poor. What they (along with the empty heads that give a pass to fraud perpetrators because the crime was for a good cause) fail to realize is that Robin Hood knew he was committing a crime and was ready to accept punishment for his crime. Had Good King Richard not pardoned Robin Hood, he would have been hung by the Sheriff of Nottingham.
Attorney Myers did not take the blame for his error. He admitted he did wrong but argued successfully that he should not be punished because he did it for a good reason. Insurance fraud perpetrators even those convicted of the crime will file suit against the insurer for bad faith tort damages and punitive damages because they were caught.
Judges have stated from the bench that an insurer cannot be the victim of a crime.
Insureds believe it is not a crime to inflate an insurance claim. Instead, they believe “the insurance company who has ripped me off for 20 years, should pay me back all of the premium paid over the last few years.” Insureds believe they have been cheated by the insurer because insureds do not understand the risk spreading nature of insurance.
By making a moral judgment to not go after the soft fraud perpetrators (nice people who are only taking a little extra from their claims), the Department of Insurance and the prosecutors encourage small frauds which cost the insurers – which the Fraud Division was created to protect – even more than if there were no Fraud Division.
Those of us who work in the justice system must apply the law as written and leave morality to the priests, pastors, rabbis and mullahs. Only 200 years ago capital punishment could be imposed on a thief – to us, today, an immoral law. While it is perfectly moral to stone an adulterer to death in Saudi Arabia, the red A is worn as a badge of honor in the US.
I believe the law should be obeyed. If it is a bad law, it should be disobeyed by people willing to test it in the courts and suffer the punishment if proven wrong. Martin Luther King disobeyed bad laws, spent time in jail and with the help of lawyers like Thurgood Marshall, changed the law. The law wasn’t changed because the Martin Luther Kings use of a whites only toilet was good … but because the law was bad.
Justice is blind but she isn’t stupid. If you break a law for the good of others, rather than out of avarice, the law has still been broken. The perpetrator should be punished and – if the law is a good law – it should remain the law. Fraud for a good cause is just as legally wrong as fraud for an evil cause. We may honor the person who commits fraud for a good cause as we lead him to jail. Justice will fail if the subjective intent of the criminal becomes a defense.
I am concerned when Americans ignore the tradition and refuse to convict a criminal because he did the crime for a good cause, or he is famous, or he is handsome, or we like him and don’t like his victim. Too often it seems to me that this loss of a rule of law for extraneous reasons is rampant. Examples of giving a pass to criminals might include William Jefferson Clinton, the law enforcement officers who beat up Rodney King, and O.J. Simpson.
Mr. Michael Oths, president of the National Organization of Bar Counsels, told the National Law Journal that rules apply to all of us, whether lawyers or not: He said, We categorically disagree with anyone who would argue that sometimes a lawyer just has to lie for the benefit of the client. That is a dangerous, slippery slope we do not want to follow because it can only lead to more and bigger disciplinary problems in the future.
I conclude, with regard to any fraud, that we must categorically disagree with anyone who would argue that sometimes a person can lie, cheat or defraud … as long as it is done for a good cause. This is a dangerous precedent that will destroy the ability of a modern society to survive.
Anyone who learns of the new exception being carved into the law,may be tempted to commit a crime for a good cause. Examples could be: It wasn’t a crime, I killed my father because he was old, suffered from Alzheimer’s and mother was getting sick caring for him.
It wasn’t a crime, I added two televisions and a fur coat to my burglary claim to my insurance company because my Church needed the money for a new robe for the priest.
It wasn’t a crime, I didn’t report my full income to the IRS so I could put my kids through college at Harvard.
It wasn’t a crime. The rotten skinflint deserved to die.
It wasn’t a crime, I’m the President of the United States.
Barry Zalma, of the Culver City law firm of Barry Zalma, Inc., is also the president of ClaimSchool, Inc. and the publisher of How Your Friends & Neighbors are Screwing You. He can be reached at (310) 390-4455.
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