State v. Diebert , 2014 Ohio 5588 ( 2014 )

[Cite as State v. Diebert, 2014-Ohio-5588.]
IN THE COURT OF APPEALS OF OHIO
SIXTH APPELLATE DISTRICT
WOOD COUNTY
State of Ohio Court of Appeals No. WD-13-069
Appellee Trial Court No. 2013CR0191
v.
Frederick Diebert DECISION AND JUDGMENT
Appellant Decided: December 15, 2014
*****
Paul A. Dobson, Wood County Prosecuting Attorney, Thomas A.
Matuszak and David T. Harold, Assistant Prosecuting Attorneys,
for appellee.
Lawrence A. Gold, for appellant.
*****
JENSEN, J.
{¶ 1} Frederick V. Diebert appeals from a judgment of conviction and sentence
following a jury verdict finding him and his co-defendant, Michelle Scaggs, guilty of
workers’ compensation fraud in violation of R.C. 2913.48(A)(5), a felony of the third
degree. For the reasons that follow, we reverse and vacate the judgment of the Wood
County Court of Common Pleas, and vacate appellant’s conviction.
{¶ 2} On April 18, 2013, the Wood County Grand Jury returned true-bill
indictments against Mr. Diebert and Ms. Scaggs, charging each with one count of
workers’ compensation fraud in violation of R.C. 2913.48(A)(5), a felony of the third
degree. The indictments alleged that “[o]n or about July 1, 2006 to February 28, 2009”
Mr. Diebert and Ms. Scaggs did, “with purpose to defraud or knowing that [they] were
facilitating a fraud, make * * * a false statement concerning * * * payroll * * * or number
of personnel, when information of that nature was necessary to determine the actual
workers’ compensation premium” owed to the Bureau of Workers’ Compensation
(“BWC”) and the value of the unpaid premiums was $150,000 or more.
{¶ 3} The case proceeded to trial by jury in July 2013. The state called three
witnesses; the defense called none.
{¶ 4} The state’s first witness was Craig Matthews, special agent in charge of the
BWC’s employer fraud team. Mr. Matthews testified that Fred Diebert dba Triple Star
Roofing Company submitted an application to the BWC on August 25, 2000, for a
workers’ compensation policy. In the application, Mr. Diebert indicated he was in the
business of residential construction and described his primary services as follows:
Tear off Roofing w/ shingle eaters (hand held) and Dispose in
dumpster or haul to the dump. Install 3lb (always) felt paper w/staples.
2.
Install Asphalt (always) shingles w/ nails. Clean up. On occasion, Replace
Sheeting.
On the application, Mr. Diebert indicated Triple Star Roofing would employ one to three
laborers who would be responsible for tearing off roofs and one to three laborers who
would be responsible for installing new roofs. The estimated eight-month payroll for the
described laborers was $14,400. As a sole proprietor, Mr. Diebert elected not to cover
himself. He claimed no office personnel on the application but listed Michelle Scaggs as
the “business contact.”
{¶ 5} The BWC assigned a policy number and forwarded a certificate of coverage
to Triple Star Roofing. Following the initial application, Mr. Diebert and Ms. Scaggs
submitted numerous semi-annual payroll reports indicating “zero” payroll. Because they
reported no payroll expenses, Triple Star Roofing was required to pay no premiums.
{¶ 6} In 2007, the BWC received a complaint on its tip hotline against Triple Star
Roofing. The complaint was referred to the BWC’s premium audit department. The
department attempted to schedule audits on two occasions, but both audits were cancelled
by Triple Star’s authorized business contact, Michelle Scaggs. Subsequent calls to Triple
Star Roofing were not returned.
{¶ 7} On June 11, 2008, in response to a second complaint, Mr. Matthews traveled
to a re-roofing jobsite in Millbury, Wood County, Ohio. Upon arrival, he noticed two
Triple Star trucks in the driveway and an unmarked tool trailer. Mr. Matthews asked the
jobsite supervisor for proof of workers’ compensation coverage. The supervisor was not
3.
able to provide the requisite documentation and suggested that Mr. Matthews speak with
Ms. Scaggs. Shortly thereafter, Mr. Matthews called the BWC. During the call he was
able to confirm that Triple Star Roofing did in fact have a workers’ compensation policy.
He was advised, however that Triple Star Roofing was reporting “zero payroll.”
{¶ 8} Mr. Matthews made a visit to a second re-roofing jobsite in early 2009. He
could not recall how many laborers were there. He did recall, however, speaking with a
laborer who indicated he was “an employee” of Triple Star Roofing.
{¶ 9} Mr. Matthews testified that he spoke with only three laborers during his
investigation of Triple Star Roofing. He had no opinion as to how many of those laborers
would be classified as “employees” by the BWC. He stated, instead, that it was his
responsibility to gather information and that it was the auditor’s responsibility to
determine “whether or not the person is picked up as an employee.”
{¶ 10} After explaining the payroll reporting system to the jury, Mr. Matthews
testified that Ms. Scaggs submitted a payroll report for the period of July 1 through
December 31, 2006. The report indicated zero payroll. Ms. Scaggs submitted similar
reports for the periods of January 1 through June 30, 2007; July 1 through December 31,
2007; and July 1 through December 31, 2008. Mr. Diebert submitted a zero payroll report
on behalf of Triple Star for the period of January 1, 2008 through June 30, 2008. On
March 5, 2009, Mr. Diebert submitted an amended payroll report for the period of July 1,
2008 through December 31, 2008. The amendment included $419.16 in payroll under a
clerical classification.
4.
{¶ 11} On March 25, 2009, Special Agent Matthews met with Mr. Diebert, Ms.
Scaggs, and the company’s legal counsel. During the meeting, Mr. Matthews reviewed
business records including bank statements and cancelled checks. Mr. Matthews
explained:
We broke down all the payroll records and there were several checks
that were going out on a weekly or biweekly basis to the same people. We
also noted that there were several checks going out for equipment, tool
repairs, ladders, air hammers. There was [sic] purchases made for enclosed
work trailers, things that would lead us to believe that they were operating a
business with employees.
Mr. Matthews testified that in 2004—before the time included by the indictment—checks
“were actually processed by paychecks and they said payroll checks all the way across
the check.” He indicated that several checks—including checks written during the time
period included in the indictment—included the word “payroll” in the memo line.
Special Agent Matthews explained:
[S]everal of the checks did say payroll in the memo line. There was
a few people that would say Payroll 006, Payroll 007, Payroll 008, like they
were the employee identification number assigned to them. I believe 008
was assigned to Jason Foos. All of his checks said Payroll 008 until the
date that I was out there on June 11th, 2008. After that point, it became
Subcontractor 008 * * *.
5.
{¶ 12} Mr. Matthews testified that Mr. Diebert and Ms. Scaggs asserted that not
all checks that indicated “payroll” in the memo-line were in fact payroll checks. Rather,
the couple admitted they had engaged in a “check kiting” scheme to obtain cash to
operate the business. Mr. Matthews explained,
There were several checks that were cashed at Kroger. The checks
indicated payroll on the memo line. The checks were usually in the amount
of $700 or near that. We questioned [Scaggs and Diebert] about these
checks as well. They indicated what they were doing is they were cashing
checks --they were having workers go in and cash checks at Kroger. They
had to say payroll on them because that was the only way Kroger would
cash them, but there was a five-day turnaround by the time they received
the cash from Kroger before the check would clear the Triple Star bank
account. So they stated what they were doing is they were having people
go in and cash checks to get money to operate their business because they
knew they would have the money within five days to put back into their
account to cover the checks once they cleared their bank.
{¶ 13} The state’s second witness was Melody Hernandez. Ms. Hernandez
testified that she “worked with the – worked for [Triple Star Roofing] maybe four days a
week on average.” While she could not remember the exact time period, she indicated it
was sometime in “2006, 2007, 2008.”
6.
{¶ 14} Ms. Hernandez indicated that “they” would tell her what needed to be done
and that she would “put together” a crew that consisted of her husband, her husband’s
brother, and a couple of cousins. While Ms. Hernandez never actually performed any
work at a job site, it was her responsibility to “let the guys know where to go, collect the
checks,” and go out and check on her crew whenever they needed something.
{¶ 15} Ms. Hernandez indicated that she spent very little time at the jobsites. Yet,
when she did go to a jobsite assigned to her crew, she usually saw at least one vehicle
with Triple Star markings. Her crew did not travel in Triple Star vehicles. Rather, they
drove to the job sites in their own vehicles. Generally, Ms. Hernandez’s crew used their
own tools, but if they did not have a tool they needed, Triple Star would “let [them] use
it.” Triple Star supplied the new roofing materials and provided dumpsters to dispose of
the waste. A Triple Star sign would be placed in the yard of the home that was being re-
roofed. At the completion of a job, Triple Star would pay Ms. Hernandez—generally by
check but sometimes with cash—and then Ms. Hernandez would pay her crew.
{¶ 16} During cross-examination, Ms. Hernandez stated that toward the end of her
relationship with Triple Star, her husband did not work exclusively for Triple Star but
performed some work for another roofing company.
{¶ 17} The state’s final witness was BWC auditor, Benjamin Croley. Mr. Croley
explained that the Ohio Administrative Code requires businesses to keep certain records
as part of “their deal” with BWC.
7.
{¶ 18} Mr. Croley testified that the BWC had attempted, on several occasions, to
schedule audits in the second half of 2007, to no avail. These attempts continued until
April 17, 2009, when Mr. Croley met with Ms. Scaggs and her attorney.
{¶ 19} Mr. Croley explained that he reviewed several Triple Star business records,
including bank statements and cancelled checks. Thereafter, he prepared a list of roughly
90 individuals whose names were found in the company’s “Quick Book” reports and/or
were found on cancelled checks (“the 90 person list”).1 He then asked Michelle Scaggs
to give him evidence “as to what these people were doing, how they were being paid,
[and] what was being done.” In response, Ms. Scaggs informed Mr. Croley that she had
no records from 2004 and 2005 except for the previously disclosed records from Quick
Books. She indicated that “records from part of 2008, all of 2007 & 2006 were turned
into electronic files and most are not legible.” She returned the 90 person list with
several handwritten notations. These notations included one to five word descriptions
such as “sub,” “drywaller-painter,” “loaned money,” “sub painter,” “siding sub,” “sub –
did one chimney repair,” “primarily worked on our home,” “poured concrete in our
home,” “my aunt,” “nephew,” “casual labor,” “customer commission,” “chimney
fabricator, Tiny Tom,” “did drywall work in our home,” “niece purchased camper from,”
“father’s brother” and “no record of him.” Throughout the audit, Ms. Scaggs posited that
most of the laborers were independent contractors or subcontractors and not employees.
1
The list referenced throughout Mr. Croley’s testimony as “the 90 person list” was
attached to a letter marked state’s exhibit 4-B. While Mr. Croley testified that the list
contained 75-90 names, it actually included the names of 112 individuals.
8.
{¶ 20} Mr. Croley explained that in every audit, in order to determine whether a
worker is an employee or an independent contractor, the BWC applies a 20 point test. At
that time, the state produced exhibit 5-B entitled “Independent Contractor/Employee
Questionnaire.” “Triple Star Roofing & Home Improvement” was listed under the
questionnaire’s caption entitled “Name of person for whom determination is to be made.”
Mr. Croley noted that when he applied the test to Triple Star Roofing, he found 15 of the
20 criteria listed on the questionnaire.2 Mr. Croley was then asked if he could share with
the jury which 15 criteria were met and the following testimony was elicited:
A. Okay. Number 1 the factor, “Is the person required to comply
with instructions from the employer regarding the manner or method of
performing services?” Yes, they are required to do the roof in the way that
2
A review of the questionnaire, reveals Mr. Croley indicated “yes” to the following
questions during the audit process: (1) Is the person required to comply with instructions
from the employer regarding the manner or method of performing services? (3) Are the
person’s services integrated into the regular functioning of the employer? (4) Is the
person required to perform the work personally? (5) Is the person hired, supervised, or
paid by the employer? (6) Does a continuing relationship that contemplated continuing or
recurring work exist between the person and the employer even if the work is not full
time? (9) Is the person required to perform the work on the premises of the employer?
(11) Is the person required to make oral or written progress reports to the employer? (12)
Is the person paid on a regular basis such as hourly, weekly, or monthly? (13) Are the
person’s expenses paid by the employer? (14) Are the person’s tools and materials
furnished by the employer? (15) Is the person provided with facilities to perform the
services? (16) Does the person NOT realize a profit or loss as a result of the services
provided? (19) Does the employer have the right to discharge the person? (20) Does the
person have the right to end the relationship with the employer without incurring liability
pursuant to an employment contract or agreement?
9.
Triple Star prescribes, use the materials that they were purchased to use on
that job.
***
Q. Okay. Based upon what information were you able to make that
conclusion?
A. By the questions I was asking Michelle Scaggs and [her attorney]
while I was performing the audit. I ran through this list with them at their
garage or office above the garage.
***
Q. Okay. So all of this is based upon information that you got from
Ms. Scaggs as representative of Mr. Diebert?
A. Yes.
Q. Factor number 2, “Are the person’s services integrated into the
regular functioning of the employer?
A. Yes.
***
Q. Ben, when you were doing this, are you considering all of the
various individuals whose names were in the payroll records for Triple
Star?
A. I went through the list that they provided based on that. But,
then I did my due diligence beyond that fact of going back to the office and
10.
verifying each individual person off that list to see whether or not A, they
had a Workers’ Comp policy or not. Some of the people did have Workers’
Comp policies and they are noted on my work papers. If the people had a
company name, I put that on the work papers as well.
Q. So what happened with somebody if they had a Workers’ Comp
policy, did you include them in your determination?
A. They were not included.
***
Q. All right. If the jury will bear [sic] with us. Number 4, “Is the
person required to perform the work personally?”
A. Yes.
Q. And, again, you made these yes determination based upon the
information provided by the defendants?
A. Correct.
{¶ 21} At that point in the testimony, the state deviated from the results of Mr.
Croley’s 20 point test and began questioning Mr. Croley as to his wage and premium
calculations. The state presented exhibit 5-C captioned “Schedule of Audit Findings.”
{¶ 22} Summarizing his audit findings, Mr. Croley indicated that Triple Star
reported $464 in wages for the second half of 2006, but that he found $93,021 in wages
for a difference of $92,557. He further indicated that he found $113,111 in wages for the
first half of 2007; $113,111 in wages for the second half of 2007; $123,782 in wages for
11.
the first half of 2008 and $123,782 for the second half of 2008. Finally, Mr. Croley
opined that unpaid premiums due to the BWC was $201,813.
{¶ 23} On cross-examination, Mr. Croley admitted he did not apply the 20
criterion listed in R.C. 4123.01(A)(1)(c) to all of the individuals on the 90 person list
because he “was never provided the information from [Ms. Scaggs] to perform all of that
test.” Rather, “[i]t was done as an overall sum of how the business operated and was
handled.”
{¶ 24} Mr. Croley admitted that he did not question any laborers during his audit
process. He only spoke with Ms. Scaggs, Mr. Diebert, and their attorney. Mr. Croley
expressed, on several occasions, that Ms. Scaggs and Mr. Diebert failed to produce
sufficient records. When asked what the lack of sufficient documentation meant to his
investigation, Mr. Croley indicated the failure to produce the requisite information
required him to use his best judgment to determine what amounts were due to the BWC.
When asked about the integrity of the audit process and the certainty of his premium
calculations, the following exchange occurred:
Q. * * * [D]id you talk to Michelle Scaggs, my client?
A. Yes.
Q. Okay. And did she tell you that these were subcontractors?
She made a comment that some of them are subcontractors, some were
casual labor, some were personal payment to personal expenses for her and
Fred.
12.
Q. Did you include those, too, in your audit?
A. Yes, I did.
Q. So someone that would do work on their own home, you
included that in your audit?
A. Yes, I did.
Q. Or if they wrote a check to a family member as a loan, you put
that in your own audit, didn’t you?
A. Yes, I did.
***
Q. Well, can you look at the documents in your box right there and
tell me what money was business money and what money was personal
money?
A. Again, if they would have provided me the records, I could have
done that.
{¶ 25} Following the presentation of evidence, the jury found both Mr. Diebert
and Ms. Scaggs guilty as charged. The trial court ordered a presentence report. At the
sentencing hearing, the state presented evidence relating to the amount of restitution
owed to BWC and the court took the matter under advisement. At the conclusion of the
hearing, the trial court sentenced each defendant to 30 months of imprisonment in the
Ohio Department of Rehabilitation and Corrections.
13.
{¶ 26} In his appeal, Mr. Diebert raises four assignments of error for our
consideration:
I. The statute under which Appellant is charged, R.C. 2913.48, is
void for vagueness under Article I, Sections 1 and 16 the Ohio Constitution
and the Fourteenth Amendment of United States Constitution
II. The state committed prosecutorial misconduct during direct
examination and closing argument.
III. The trial court erred in overruling Appellant’s Rule 29 Motion
for Acquittal.
IV. The jury’s verdict was against the manifest weight of the
evidence introduced at trial.
{¶ 27} We will address appellant’s third assignment of error first.
{¶ 28} In his third assignment of error, appellant asserts that the trial court erred in
overruling appellant’s Civ.R. 29 motion for judgment of acquittal. Civ.R. 29(A)
provides:
The court on motion of a defendant or on its own motion, after the
evidence on either side is closed, shall order the entry of a judgment of
acquittal of one or more offenses charged in the indictment, information, or
complaint, if the evidence is insufficient to sustain a conviction of such
offense or offenses. The court may not reserve ruling on a motion for
judgment of acquittal made at the close of the state’s case.
14.
{¶ 29} Sufficiency of the evidence is a legal standard that tests whether the
evidence introduced at trial is legally adequate to support a jury verdict as to all elements
of the crime. State v. Thompkins, 78 Ohio St. 3d 380, 386, 678 N.E.2d 541 (1997). The
proper analysis under a sufficiency of the evidence standard is “‘whether, after viewing
the evidence in a light most favorable to the prosecution, any rational trier of fact could
have found the essential elements of the crime proven beyond a reasonable doubt.’”
State v. Williams, 74 Ohio St. 3d 569, 576, 660 N.E.2d 724 (1996), quoting State v. Jenks,
61 Ohio St. 3d 259, 574 N.E.2d 492 (1991), paragraph two of the syllabus. In order to
affirm the denial of a Crim.R. 29 motion, we need only find that there was legally
sufficient evidence to sustain the guilty verdict. Thompkins at 386.
{¶ 30} With that standard in mind, we examine whether there is sufficient
evidence to support the jury finding Mr. Diebert guilty of workers’ compensation fraud.
{¶ 31} R.C. 2913.48 defines workers’ compensation fraud and incorporates, by
reference, workers’ compensation coverage and benefits established in Chapters 4121.,
4123., 4127., and 4131. of the Ohio Revised Code. R.C. 2913.48(A)(5) states that “[n]o
person, with purpose to defraud or knowing that the person is facilitating a fraud shall
* * * [m]ake or present or cause to be made or presented a false statement concerning
* * * payroll, paid compensation, or number of personnel, when information of that
nature is necessary to determine the actual workers’ compensation premium or
assessment owed to the bureau by an employer[.]” In turn, R.C. 2913.48(B) provides:
15.
Except as otherwise provided in this division, a violation of this
section is a misdemeanor of the first degree. If the value of premiums and
assessments unpaid pursuant to actions described in division (A)(5), (6), or
(7) of this section, or of goods, services, property, or money stolen is one
thousand dollars or more and is less than seven thousand five hundred
dollars, a violation of this section is a felony of the fifth degree. If the
value of premiums and assessments unpaid * * * is less than one hundred
fifty thousand dollars, a violation of this section is a felony of the fourth
degree. If the value of premiums and assessments unpaid * * * is one
hundred fifty thousand dollars or more, a violation of this section is a
felony of the third degree.
{¶ 32} The charges against Ms. Scaggs pertain to payroll reports submitted to the
BWC during reporting periods covering July 31, 2006 through December 31, 2008. At
trial, the state alleged that “zero payroll” was reported to the BWC when, in fact,
$566,343 was paid to Triple Star employees. The state alleged that the premiums due to
the BWC exceed $150,000.
{¶ 33} Under his third assignment of error, Mr. Diebert contends, in part, that the
state did not present sufficient evidence to prove that the amount of premiums owed to
BWC exceeds $150,000. In response, the state declares that its evidence is
“overwhelming and unrebutted.” Yet, it fails to pinpoint any evidence presented at trial
that would support its premium calculation. Instead it makes only passing mention of the
16.
issue when it states “Diebert and Scaggs reaped the benefits: they undercut their
competition in the roofing business for years; they procured customers; their workers
obtained BWC coverage; and they saved $201,813 in unpaid BWC premiums.”
{¶ 34} Given the state’s perfunctory response to Mr. Diebert’s third assignment of
error, we are compelled to emphasize that one of the essential elements of felony
workers’ compensation fraud is the value of unpaid premiums and assessments. See State
v. Allen, 29 Ohio St. 3d 53, 55, 506 N.E.2d 199 (1987) (a factor that increased the degree
of a crime is an essential element of the crime and must be proved by the state). Thus,
the state must prove, beyond a reasonable doubt, the value of unpaid premiums and
assessments due to the BWC.
{¶ 35} Upon our review of the record, we find that BWC auditor Ben Croley is the
only witness who testified as to the amount of unpaid premiums. Mr. Croley explained
that his role as BWC auditor was to “go out to businesses and review their records in the
way of payroll through State Unemployment, Medicare, general journal entries, [and] any
type of cash checking accounts.” According to Croley, the purpose of an audit “is to
make sure everyone is reporting properly to payroll and everyone is on the same legal
playing field as everybody else.”
{¶ 36} As a general proposition, “[t]he factual predicate for participation in the
[insurance fund] is the existence of an employer-employee relationship.” Walters v.
Americab, 118 Ohio App. 3d 180, 182, 692 N.E.2d 234 (8th Dist.1997). In other words, if
an employer/employee relationship does not exist, the provisions of the workers’
17.
compensation law do not apply. “Whether someone is an employee or an independent
contractor is ordinarily an issue to be determined by the trier of fact.” Bostic v. Conner,
37 Ohio St. 3d 144, 146, 524 N.E.2d 881 (1988).
{¶ 37} R.C. 4123.01(B) defines “employer” for purposes of the workers’
compensation system as:
Every person, firm, and private corporation * * * that (a) has in
service one or more employees regularly in the same business or in or about
the same establishment under any contract of hire, express or implied, oral
or written, or (b) is bound by any such contract of hire or by any other
written contract, to pay into the insurance fund the premiums provided by
the chapter.
{¶ 38} R.C. 4123.01 defines “employee” for purposes of the workers’
compensation system as:
Every person in the service of a person, firm, or private corporation
* * * that (i) employs one or more persons regularly in the same business or
in or about the same establishment under any contract of hire, express or
implied, oral or written, including aliens and minors * * * and casual
workers who earn one hundred sixty dollars or more in cash in any calendar
quarter from a single employer, or (ii) is bound by any such contract of hire
or by any other written contract, to pay into the state insurance fund the
premiums provided by this chapter.
18.
In turn, R.C. 4123.01(A)(1)(c) sets forth 20 criteria to be used in determining whether a
person who performs labor or provides services pursuant to a construction contract is an
employee for purposes of the workers’ compensation system. R.C. 4123.01(A)(1)(c)
states:
Every person who performs labor or provides services pursuant to a
construction contract, as defined in section 4123.79 of the Revised Code, if
at least ten of the following criteria apply:
(i) The person is required to comply with instructions from the other
contracting party regarding the manner or method of performing services;
(ii) The person is required by the other contracting party to have
particular training;
(iii) The person’s services are integrated into the regular functioning
of the other contracting party;
(iv) The person is required to perform the work personally;
(v) The person is hired, supervised, or paid by the other contracting
party;
(vi) A continuing relationship exists between the person and the
other contracting party that contemplates continuing or recurring work even
if the work is not full time;
(vii) The person’s hours of work are established by the other
contracting party;
19.
(viii) The person is required to devote full time to the business of the
other contracting party;
(ix) The person is required to perform the work on the premises of
the other contracting party;
(x) The person is required to follow the order of work set by the
other contracting party;
(xi) The person is required to make oral or written reports of
progress to the other contracting party;
(xii) The person is paid for services on a regular basis such as
hourly, weekly, or monthly;
(xiii) The person’s expenses are paid for by the other contracting
party;
(xiv) The person’s tools and materials are furnished by the other
contracting party;
(xv) The person is provided with the facilities used to perform
services;
(xvi) The person does not realize a profit or suffer a loss as a result
of the services provided;
(xvii) The person is not performing services for a number of
employers at the same time;
20.
(xviii) The person does not make the same services available to the
general public;
(xix) The other contracting party has a right to discharge the person;
(xx) The person has the right to end the relationship with the other
contracting party without incurring liability pursuant to an employment
contract or agreement.
{¶ 39} In Ohio, every employer amenable to the workers’ compensation law is
required to keep detailed records “showing in detail all expenditures for payroll
reportable to Ohio and the division of such expenditures in the various divisions and
classifications of the employer’s business.” Ohio Adm.Code 4123-17-17(A). In turn, the
BWC has the right to inspect such records and determine the amount of premiums due
from the employer. Ohio Adm.Code 4123-17-17(B) and R.C. 4123.24. If an employer
fails to keep the detailed records, BWC findings upon review of “such information as is
available to it * * * shall constitute prima facie evidence of the amount of premium due
from the employer.” Id.
{¶ 40} Courts generally afford great deference to the BWC’s expertise in premium
matters. State ex rel. Progressive Sweeping Contractors, Inc. v. Ohio Bur. of Workers’
Comp., 68 Ohio St. 3d 393, 396, 627 N.E.2d 550 (1994). However, in an action alleging
felony workers’ compensation fraud, the state must demonstrate every element beyond a
reasonable doubt. Thus, BWC findings utilized for adjustment of payroll reports under
21.
Ohio Adm.Code 4123-17-17 and R.C. 4123.24 are not automatically sufficient to prove
felony workers’ compensation fraud to the requisite level of proof.
{¶ 41} It has been argued that a rational trier of fact could have found Mr.
Croley’s determination that an employer-employee relationship existed was “believable”
because it was based on information provided to Mr. Croley by Ms. Scaggs during the
audit process. However, Mr. Croley’s believability is not a consideration in our
determination of the sufficiency of the evidence as it relates to the elements necessary to
prove the existence of an employer-employee relationship. “[S]ufficiency of the
evidence is a test of adequacy as to whether the evidence is legally sufficient to support a
verdict as a matter of law.” State v. Wilson, 113 Ohio St. 3d 382, 2007-Ohio-2202, 865
N.E.2d 1264, ¶ 25. “A conviction based on legally insufficient evidence constitutes a
denial of due process.” State v. Ferguson, 6th Dist. No. F-00-018, 2001 WL 256131, *2
(Mar. 16, 2001), citing Tibbs v. Florida, 457 U.S. 31, 45, 102 S. Ct. 2211, 72 L. Ed. 2d 652
(1982). See generally State v. Kareski, 137 Ohio St. 3d 92, 2013-Ohio-4008, 998 N.E.2d
410.
{¶ 42} Here, Mr. Croley admitted that he did not apply the 20 point test to all
individuals on the 90 person list because he “was never provided the information from
[Ms. Scaggs] to perform all of that test.” Mr. Croley indicated, instead, that the test was
applied “as an overall sum of how the business operated and was handled.” Even
assuming that it was acceptable to group all of the individuals on the 90 person list into
one “class of people” absent evidence of identical or even similar working relationships,
22.
we find that Mr. Croley’s conclusory opinion that 15 of the 20 criteria listed in R.C.
4123.01(A)(1)(c) existed was gravely insufficient. During trial, Mr. Croley was only
questioned as to the existence of 3 of the 15 criteria before the prosecutor diverted the
line of questioning to Mr. Croley’s unpaid premium calculations. This court has
previously held that “[a]ssumptions upon which the expert bases his or her opinions must
be supported by evidence in the factual record.” Wallace v. Kalniz, Choksy Dental-
Ralston, Inc., 6th Dist. Wood No. WD-12-048, 2013-Ohio-2944, ¶ 36, citing Rose v.
Truck Centers, Inc., 611 F. Supp. 2d 745, 750 (N.D.Ohio 2009). While this point of law
typically triggers a credibility argument, in this case, the lack of evidence in the factual
record supporting Mr. Croley’s conclusory opinion only underscores the state’s failure to
introduce sufficient evidence in support of the statutory criteria necessary for the fact-
finder to conclude, on its own accord, the existence of an employer-employee
relationship.
{¶ 43} In other words, the jury was never given an opportunity to hear evidence
relating to all of the 15 criteria Mr. Croley claimed existed. Evidence, including
conclusory “expert” testimony from a BWC auditor about the existence of an employer-
employee relationship based upon assumptions not supported by the factual record is
insufficient to prove beyond a reasonable doubt that at least 10 of the criteria specified
under R.C. 4123.01(A)(1)(c) were met. Thus, the state failed to present sufficient
evidence to support the predicate finding of an employer-employee relationship.
23.
{¶ 44} As to the amount of unpaid premiums due to the BWC, Mr. Croley testified
that he specifically excluded from his premium calculation all payments made to
individuals or companies that had a valid workers’ compensation policy. However, he
included in his premium calculation monies paid to individuals who did not have a
worker’s compensation policy in the BWC system. He made this determination despite
knowing he had insufficient data to separately classify each individual as an employee
under the 20 point test.
{¶ 45} Mr. Croley testified that he included in his premium calculation monies
paid to individuals to whom Michelle Scaggs had listed as monies paid for services
performed or labor provided on the home she shared with Mr. Diebert, monies she loaned
to family members, monies she paid to her sister for a camper, and monies she paid to
individuals she specifically identified as independent contractors.
{¶ 46} Finally, despite the couple’s admission to a check kiting scheme, Mr.
Croley testified that he included in his premium calculation all checks cashed at Kroger
with “payroll” in the memo line.
{¶ 47} As stated above, in order to prove felony workers’ compensation fraud, the
state must prove, beyond a reasonable doubt, the amount of unpaid premiums due to the
BWC from the employer. An employer’s obligation to pay premiums into the state
insurance fund is triggered solely by the existence of an employer-employee relationship.
In order to demonstrate that an employer-employee relationship exists when labor is
performed pursuant to a construction contract, the state must prove that 10 of the 20
24.
criteria listed in R.C. 4123.01(A)(1)(c) exist. Then, once an employer-employee
relationship is found, the state must show that monies included in the premium
calculation only took into account monies paid to employees for wages and not, as in this
case, for undocumented or unexplained expenses or check kiting.
{¶ 48} Mr. Croley’s conclusory opinion as to the amount due to the BWC for
unpaid premiums was not based upon facts in evidence, but upon (a) his unsupported
assumption that all unexplained checks written to individuals, including Ms. Scaggs,
were compensation for labor performed or services provided Triple Star Roofing; and
(b) upon his unsupported assumption that all individuals on the 90 person list had
identical working relationships with Triple Star Roofing and thus similarly qualified as
employees under R.C. 4123.01(A)(1)(c). Other than Mr. Croley’s opinion and work
product, there was no other evidence admitted in support of the value of the unpaid
premiums. Thus, reviewing the evidence in a light most favorable to the prosecution, we
find that the evidence presented by the state was not sufficient to convince a rational trier
of fact of the value of unpaid premiums, an essential element of workers’ compensation
fraud. Accordingly, Mr. Diebert’s third assignment of error is well-taken.
{¶ 49} App.R. 12(A)(1)(c) requires this court to decide each assignment of error
and give reasons in writing, unless an assignment of error is rendered moot by a ruling on
another assignment of error. Based upon our disposition of the third assignment of error,
we find all remaining assignments of error are rendered moot.
25.
{¶ 50} For the foregoing reasons, the judgment of the Wood County Court of
Common Pleas is reversed and vacated and appellant’s conviction is vacated. The state is
ordered to pay the costs of this appeal pursuant to App.R. 24.
Judgment reversed.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27.
See also 6th Dist.Loc.App.R. 4.
Mark L. Pietrykowski, J. _______________________________
JUDGE
James D. Jensen, J.
CONCUR. _______________________________
JUDGE
Stephen A. Yarbrough, P.J.,
DISSENTS.
YARBROUGH, P.J.
{¶ 51} Because I find that sufficient evidence exists to support Frederick Diebert’s
conviction, I respectfully dissent.
{¶ 52} Mr. Diebert was convicted for defrauding Ohio’s Bureau of Workers’
Compensation in violation of R.C. 2913.48(A)(5) and (B), a felony of the third degree.
One element of that crime is that “the value of premiums and assessments unpaid * * * is
one hundred fifty thousand dollars or more.” To satisfy this element, the state introduced
26.
the testimony of the BWC auditor, Benjamin Croley, who testified that the value of the
unpaid premiums is $201,813. No other evidence was presented attempting to establish a
different amount. Based on this, when viewing the evidence in a light most favorable to
the prosecution, I disagree with the majority that a rational trier of fact could not
conclude beyond a reasonable doubt that the value of the unpaid premiums is greater than
$150,000.
{¶ 53} Mr. Diebert’s argument, and the majority’s reasoning, focuses not on the
existence of testimony supporting a value greater than $150,000, but rather its credibility.
In effect, Mr. Diebert contends that Mr. Croley’s statement as to the value of the unpaid
premiums is so unreliable that it should not be considered. He bases his argument on the
fact that Mr. Croley did not individually apply the 20-point test to each worker on the 90-
person list to determine if he or she was an employee or an independent contractor.
{¶ 54} Notably, “the weight to be given the evidence and the credibility of the
witnesses are primarily for the trier of the facts.” State v. DeHass, 10 Ohio St. 2d 230,
231, 227 N.E.2d 212 (1967). The trier of fact may believe all, some, or none of what a
witness says. State v. Antill, 176 Ohio St. 61, 67, 197 N.E.2d 548 (1964).
{¶ 55} Here, the state presented evidence and testimony to the jury that on
April 17, 2009, Mr. Croley appeared at Triple Star Roofing’s business location, where he
met with Michelle Scaggs and her attorney. Mr. Croley testified that, at that time, he
reviewed Triple Star’s records, including its 1099 forms, unemployment forms, W2
forms, and its general ledger maintained in QuickBooks. Mr. Croley testified that he also
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went through the 20-point test with Ms. Scaggs. Based on her responses regarding the
operation of the company, Mr. Croley determined that 15 of the 20 criteria had been met,
thus indicating that Triple Star’s workers were employees. Mr. Croley admitted on cross-
examination, however, that he did not apply the test to any of the workers individually.
The jury, upon hearing all of his testimony, chose to believe Mr. Croley’s determination
that the workers were employees.
{¶ 56} I conclude that a rational trier of fact could find that Mr. Croley’s
determination was believable because it was based on information provided by Triple
Star’s representative, who undoubtedly would be in a position to describe the nature of
Triple Star’s relationship with its workers. Although Mr. Croley could have unearthed
additional information by interviewing each of the workers, his failure to do so does not
render his determination unreliable. Further, the fact that he did not apply the test at an
individual level does not invalidate his result because, in effect, he applied the test to the
class of people who worked for Triple Star based on the overall operation of the business
and its treatment and handling of that group. Mr. Croley’s conclusion as to who
belonged to that class—i.e., Ms. Scaggs and those individuals listed as “subs” or “casual
labor”— is supported by his interview with Ms. Scaggs, his review of the business
records, and Ms. Scaggs’ notations on the 90-person list. Moreover, Mr. Croley then
went through that group and excluded any person who had their own workers’
compensation policy, thereby giving the benefit of the doubt to Triple Star that such a
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person was an independent contractor and not an employee. Therefore, Mr. Croley’s
determination as to who were employees of Triple Star is not incredible.
{¶ 57} In determining the value of the unpaid premiums, Mr. Croley utilized the
90-person list, along with the banking and QuickBooks records and the information
provided by Ms. Scaggs, to calculate the amount of money that was paid to each
employee in a calendar year, the results of which were entered into evidence without
objection. For example, in 2007, Triple Star paid $53,725 to Ms. Scaggs,3 $148,382 to
workers listed on the 90-person list as “sub” or “casual labor,”4 $16,220 to people listed
as doing work on the defendants’ home, $5,495 to people listed as friends and family, and
$2,400 to people with miscellaneous other descriptions.5 Ultimately, Mr. Croley testified
to the total amount that was captured as payroll by the BWC, and based on those
numbers, he calculated that the amount due in unpaid premiums was $201,813.
{¶ 58} A rational trier of fact, when viewing this testimony in a light most
favorable to the prosecution, could find beyond a reasonable doubt that the people
employed by Triple Star to do work were indeed employees for purposes of workers’
3
Checks were either payable to Ms. Scaggs, or payable to “cash” and endorsed by Ms.
Scaggs.
4
Of that amount, $125,435 was paid to two workers: Larry Dukeshire and Luis
Hernandez.
5
The payments for the remaining portion of the indictment period include: Ms. Scaggs -
$21,600 (2006-half), $18,973 (2008); workers listed as “sub” or “casual labor” - $64,301
(2006-half), $206,003 (2008); people doing work on the defendants’ home - $163 (2006-
half), $16,150 (2008); friends and family - $1,860 (2006-half); $1,625 (2008); and
miscellaneous - $4,633 (2006-half), $4,812 (2008).
29.
compensation, that they were paid a specific amount that went unreported, and that the
amount of unpaid premium on that unreported payroll is greater than $150,000.
{¶ 59} The majority relies in part on Mr. Croley’s inclusion of the payments to
friends and family or for work done on the defendants’ home, and his inclusion of payroll
checks that were cashed as part of a check-kiting scheme, as support for its conclusion
that he took into account more than just the money paid to employees for wages. As to
the former, Mr. Croley testified that those amounts should be included because they were
payments out of the business account for personal expenses and would be considered as
payment “in-kind” to Ms. Scaggs. Nevertheless, even if those amounts are excluded, the
payments to Ms. Scaggs—either directly or through checks made out to “cash” and
endorsed by her—and the payments to the people listed as “subs” or “casual labor”
comprise 90 percent of the total payroll captured in the audit. Thus, the unpaid workers’
compensation premium on such an amount still exceeds the $150,000 threshold for a
third degree felony. As to the latter, I find it reasonable that Mr. Croley did not apply an
exception to the BWC payroll reporting requirements for payroll checks that were cashed
by employees just because those checks were cashed as part of an illegal check-kiting
scheme.
{¶ 60} Accordingly, I would hold that Mr. Croley’s testimony was sufficient to
enable a rational trier of fact to find the essential element of the value of the unpaid
premiums proven beyond a reasonable doubt, and therefore would find Mr. Diebert’s
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third assignment of error not-well taken. Furthermore, finding no merit to Mr. Diebert’s
other assignments of error, I would affirm the judgment of the Wood County Court of
Common Pleas.
This decision is subject to further editing by the Supreme Court of
Ohio’s Reporter of Decisions. Parties interested in viewing the final reported
version are advised to visit the Ohio Supreme Court’s web site at:
http://www.sconet.state.oh.us/rod/newpdf/?source=6.
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