Opinion
The People appeal from an order granting in part the Penal Code
On appeal, the People contend the trial court erred as a matter of law by dismissing the charges of misappropriation of public funds because the moneys received and disbursed by T-Town are “public moneys” within the meaning of section 424, subdivision (a)(1). The People further contend the court erred as a matter of substantive law and violated their right to due process of law by setting aside the four counts of identity theft.
We conclude, based on the evidence before the grand jury, defendants are “person[s] charged with the receipt, safekeeping, transfer, or disbursement of public moneys” within the meaning of sections 424 and 426, and thus there was probable cause to hold defendants to answer for the misappropriation of public funds counts. We further agree with the People that the trial court erred by dismissing the four identity theft counts. Accordingly, we reverse the order dismissing those counts and remand with directions set forth below.
FACTUAL AND PROCEDURAL BACKGROUND
We state the background facts from the record of testimony before the grand jury, as well as the relevant California law and regulations
Purcell Johnson and Láveme Johnson are the operators of T-Town, a nonprofit group home childcare facility
Because DSS is a federal grant recipient, group homes, which are subrecipients of the federal funds passed down from the state and county, must follow federal rules and regulations. The funds provided to each group home are subject to state and federal regulations that identify allowable and disallowed costs. Federal requirements (Off. of Management and Budget circular No. A-122) provide more details of what are allowable and unallowable costs, and also mandate and provide guidelines for independent audits. Those federal requirements also outline how a provider is to record its direct costs for items such as food and clothing, as well as indirect costs for items such as overhead and insurance.
California regulations require group homes to undergo various audits to ensure compliance with all DSS requirements. (DSS Manual, §§ 11-402.5, 11-402.51, 11-405.1 to 11-405.2; Sacramento Children’s Home v. State Dept, of Social Services, supra,
The Foster Care Program and Financial Audits Bureau (Audits Bureau) of the Branch oversees and receives the financial audits of group homes either annually or triannually. Group home providers are informed at the outset of the audit requirements and are told they must maintain at least five years of receipts and supporting documentation for all expenses to show they are allowable. Providers are required to provide DSS immediate access to its program records or facilities when given notice of a fiscal or program audit, or be subject to termination of its rate. (See DSS Manual, §§ 11-402.524, 11-402.525.)
Starting in 1999, group homes are also required by California law and regulations to submit a financial audit report conducted in accordance with specified government auditing standards by an independent licensed certified public accountant within the State of California in order to receive a rate each year. (See Welf. & Inst. Code, § 11466.21; DSS Manual, §§ 11-405.2, 11-405.211, 11-405.212.) State law and federal regulations determine the frequency and timeframe within which such a report must be submitted, depending on whether the home’s combined federal revenues are above or below a particular amount. (See Welf. & Inst. Code, § 11466.21.) A group home is notified of this requirement, and provided with a copy of the pertinent regulations, at the time it receives its rate letter. This information is also given to applicants interested in becoming a group home provider.
An “overpayment” occurs when a provider receives more benefits than it was entitled to receive. If a group home provider has extra funds that are not spent on 24-hour care for the children in its care, the provider must put the funds back into the program. DSS has a recovery department whose employees collect overpayments in connection with public assistance programs, including foster care group homes.
A group home is selected for a fiscal audit based on a review of its financial audit report and assignment of a risk rating based on matters such as negative cash balances, overpayments, and debt. Providers with a risk rating of 7 or above (out of 10) would be referred for audit. T-Town fell within a high risk rating, in the 7 to 10 range, but it was not audited for some years due to budget constraints.
In May 2010, the Riverside County District Attorney charged defendants with numerous crimes in connection with their operation of T-Town: conspiracy to commit fraud, misappropriation of public funds, grand theft, embezzlement of public funds, identity theft, forgery, and money laundering. Both pleaded not guilty to the charges.
Defendants thereafter separately moved under section 995 to dismiss the misappropriation of public funds charges in the indictment. Purcell Johnson argued for dismissal of all of the counts alleging a violation of section 424, subdivision (a)(1) on the grounds he was neither an officer of the state, county, city, town or district of the state, nor a person charged with the receipt, safekeeping, transfer, or disbursement of public moneys.
Lavem Johnson likewise argued section 424, subdivision (a)(1) did not apply because the funds were not public moneys. She conceded that T-Town obtained its funds from public sources, but maintained once the nonprofit corporation received the funds they were no longer public, even though they were to be used for public purposes.
The People opposed the motion, summarizing much of the evidence presented to the grand jury. Addressing defendants’ assertions regarding the
The trial court found that defendants were not employees, agents or officers of any governmental agency, and that T-Town was not a governmental agency. It found “directly on point” the case of People v. Holtzendorff (1960) 111 Cal.App.2d 788 [
After the People’s ensuing petition for a writ of prohibition/mandate was summarily denied, they filed the present appeal from the trial court’s order partially granting defendants’ motions.
DISCUSSION
I. Standard of Review
Section 995 requires a court to set aside an indictment on a motion where “the defendant has been indicted without reasonable or probable cause.” (§ 995, subd. (a)(1)(B).) “ ‘ ‘ “Evidence that will justify a prosecution need
On appeal from the grant of a defendant’s section 995 motion, we “ ‘in effect disregard!] the ruling of the superior court and directly review [] the determination of the [grand jury] holding the defendant to answer.’ [Citations.] Insofar as the . . . section 995 motion rests on issues of statutory interpretation, our review is de novo. [Citation.] Insofar as it rests on consideration of the evidence adduced, we must draw all reasonable inferences in favor of the [indictment] [citations] and decide whether there is probable cause to hold the defendants to answer, i.e., whether the evidence is such that ‘a reasonable person could harbor a strong suspicion of the defendant’s guilt ....’” (Lexin v. Superior Court (2010)
II. Misappropriation of Public Funds
A. Legal Principles
Section 424 provides; “(a) Each officer of this state, or of any county, city, town, or district of this state, and every other person charged with the receipt, safekeeping, transfer, or disbursement of public moneys, who either: [][] 1. Without authority of law, appropriates the same, or any portion thereof, to his or her own use, or to the use of another ... [f] ... [f] Is punishable by imprisonment in the state prison for two, three, or four years, and is disqualified from holding any office in this state.” (§ 424, subd. (a).) Section 424 “ ‘has to do solely with the protection and safekeeping of public moneys . . . and with the duties of the public officer charged with its custody or control ....’” (Stark v. Superior Court (2011)
The Legislature defines what constitutes public moneys in section 426. That section provides: “The phrase ‘public moneys,’ as used in Sections 424
In determining whether funds are public moneys within the meaning of section 424, the proper criterion is “[t]he official character in which the moneys are received or held.” (People v. Griffin (1959)
Thus, in various contexts, funds misused by defendants in their official capacities such as a public administrator, court clerk or peace officer constitute public moneys as defined in section 426, even if the funds originate from a private source. (See People v. Groat (1993)
B. The Moneys Received by T-Town Remain Government Moneys Due to the High Degree of Supervision and Control over Their Disbursement
The evidence before the grand jury was undisputed that 100 percent of the funds received by group homes generally, and T-Town particularly, are government funds. There is no dispute T-Town is a private nonprofit corporation. No party asserts that defendants are government employees or officers, and there is no claim by the People that either Lavem Johnson or Purcell Johnson received or held funds paid to T-Town in any official capacity. The authorities cited above involving the diversion of moneys received by public officials in their official capacities are therefore inapposite to the case at hand.
The specific question here is one of first impression: When a private nonprofit group home receives government funds for the care of designated children, do those funds thereafter cease to “belong [] to” the government for purposes of section 424? (§ 426.) Pointing to the regulations and guidelines for the use of group home funding, the People maintain the money given to T-Town remained public funds within the meaning of the statute—that is, the moneys belonged to the state, county or other public agency—even after respondents cashed the checks, because the government maintained an extensive degree of control over the money and it was to be used for a specific purpose: providing for the welfare of designated foster children.
Lavem Johnson responds that T-Town’s dependence on public funds is not determinative of its liability under section 424—that the omission of private nonprofit corporations from the definition in section 426 shows that the Legislature intended to exclude nonprofit corporations like T-Town from liability. Purcell Johnson likewise argues that if the Legislature had intended
In Holtzendorff, supra, 177 Cal.App.2d 788, the defendant, who was the executive director, secretary, and treasurer of the Los Angeles Housing Authority (Authority), became interested in a political campaign and persuaded Authority employees to help him, paying them with checks drawn from Authority’s bank accounts. (Id. at p. 793.) A grand jury indicted the defendant with multiple counts of both embezzlement of public moneys and misappropriation under section 424, but those counts were set aside on the defendant’s motion and the People appealed. (177 Cal.App.2d at pp. 791-792.)
The Court of Appeal affirmed the order setting aside the misappropriation counts as without reasonable or probable cause, holding the evidence did not justify the conclusion that the moneys appropriated were public moneys within the meaning of the statute. (Holtzendorff, supra, 177 Cal.App.2d at pp. 796-797.) The court observed the defendant was not an officer of the state, county, district or town, and the money did not belong to the state or any other state subdivisions listed in section 426’s definition, but to Authority, which was a public corporation, an entity not listed in the definition. (177 Cal.App.2d at pp. 797-798.) It concluded, based on the limited definition in section 426, that the misappropriation of public funds offense of section 424 did not apply to an officer or money of Authority despite its public character: “[A] public agency though it is, [Authority] is not the State, nor a county, city, town or district. The Legislature, in adopting the definition it gave in section 426 for the use of the words in section 424, might have included moneys belonging to or officers of a public corporation, but it did not. The moneys and the officers of the Authority are not governed by section 424 .. . .” (Holtzendorff, at p. 797.)
We disagree that Holtzendorff provides a definitive answer to the issue at hand. First, we question the Holtzendorff court’s focus on the omission of particular public agencies from the definition in section 426. As indicated above, in section 424 the Legislature expressly subjected to liability “other person[s]” who are “charged with the receipt, safekeeping, transfer, or
Unlike Holtzendorff, the evidence before the grand jury in the present case established that defendants were paid with federal, state and county moneys to disburse to specified children in their care or on their behalf. There is no question the funds given to T-Town were originally property of the government. The issue is whether they retained this status after transfer to T-Town. Thus, Holtzendorff does not resolve the question presented here.
Instead, we find persuasive the analysis and reasoning of the Ninth Circuit and other federal courts with respect to the federal theft of government property statute, section 641 of title 18 of the United States Code.
In Johnson, supra,
In U.S. v. Kranovich, supra,
In U.S. v. Von Stephens, supra, 774 F.2d 1411, the Ninth Circuit upheld the denial of a motion to dismiss an indictment alleging theft of government property against a defendant who received and cashed Aid to Families with
Here, it is manifest that DSS, via its various divisions, retained an interest in, and extensive control over, all of the funding provided to T-Town through the above described requirements, both under state law and state and federal regulations. The fact the funds were a combination of state, federal and county funds is of no significance. The DSS identifies the recipient child on each check and limits the disbursement of moneys to specified allowable
We conclude as a matter of law that, by virtue of the state’s supervision and regulatory control, group home moneys are moneys belonging to the state, county or other public agency. Further, defendants—the persons who had access to T-Town’s bank accounts and who were obligated to expend the moneys on behalf of the children in their care in accordance with DSS regulations—are unquestionably “person[s] charged with the receipt, safekeeping, transfer, or disbursement of public moneys” within the meaning of sections 424 and 426. Thus, there was probable cause to hold defendants to answer for the misappropriation of public money counts. The trial court’s order dismissing those counts must be reversed.
III. Section 530.5 Identity Theft Counts
Counts 74, 89, 96 and 107 allege that defendants “did wilfully and unlawfully obtain personal identifying information of another person . . . and use that information for an unlawful purpose, including to obtain, or attempt to obtain credit, goods, services and medical information in the name of the other person without the consent of that person.” The People presented evidence to the grand jury suggesting that Purcell Johnson cashed T-Town checks written to four individuals and businesses without their permission, namely, T-Town employee Craig Washington, maintenance worker Larry Jeter, and the businesses of Charles McElhaney and Yong Yang, both mechanics at different shops who worked on defendants’ vehicles. The checks were cashed at a local liquor store frequented by Purcell Johnson.
After dismissing the misappropriation counts, the trial court proceeded on its own motion to dismiss counts 74, 89, 96 and 107. The court said: “Also, I looked very carefully at the [section] 530.5 sections, and while these have not really specifically been addressed by the defense, it’s clear to me that there was no identity theft in these cases, in looking at the evidence. [][] So I am granting the motion as to [counts] 74, 89, 96, 107.” The People asked to be heard on the matter, and the court declined to permit argument, explaining,
The People challenge this order on two grounds. First, they maintain the court’s sua sponte dismissal of the identity theft counts violated the People’s fundamental right to due process of law, namely, notice and an opportunity to be heard on the matter. Second, the People argue the dismissal was erroneous as a matter of substantive law because there is no requirement that the People prove as an element of the offense a victim of identity theft suffered any loss or damage.
As we will explain, we agree with the latter contention. Accordingly, we need not reach the People’s due process argument.
Section 530.5, subdivision (a) provides: “Every person who willfully obtains personal identifying information ... of another person, and uses that information for any unlawful purpose, including to obtain, or attempt to obtain, credit, goods, services, real property, or medical information without the consent of that person, is guilty of a public offense . . . .”
“As originally enacted in 1997, section 530.5 made it a misdemeanor to obtain personal identifying information of another person and use that information to obtain or attempt to obtain credit, goods or services in the name of the other person without their consent. (Stats. 1997, ch. 768, § 6, p. 5205, eff. Jan. 1, 1998.) The statute was later amended to make the offense punishable as a felony or a misdemeanor and to provide some relief to the victim of identity theft. (Stats. 1998, ch. 488, § 1, p. 3531; Stats. 2000, ch. 956, § 1, p. 7043.) In 2002, the Legislature amended section 530.5 again, to make it a misdemeanor offense to acquire, transfer, or retain possession of another’s personal identifying information with the intent to defraud. (Stats. 2002, ch. 254, § 1, p. 1072.) As the author of the bill to amend the statute explained, the problem of identity theft had grown since the original enactment, as identity thieves began to compile lists of victims’ names and other identifying information that could be used to open fraudulent accounts or take over existing accounts. Under then existing law, law enforcement could not charge those thieves with identity theft until they used the information, even if they admitted their intent to sell the information to others or use it themselves. The author explained the amendment was needed to protect the victims of identity fraud, who cannot protect themselves from fraudulent use of their identifying information once it is in the possession of another,
“In order to violate section 530.5, subdivision (a), a defendant must both (1) obtain personal identifying information, and (2) use that information for an unlawful purpose. [Citation.] Thus, it is the use of the identifying information for an unlawful purpose that completes the crime and each separate use constitutes a new crime.” (People v. Mitchell (2008)
In People v. Hagedorn (2005)
The appellate court disagreed: “In our view, [section 530.5,] subdivision (a) clearly and unambiguously does not require an intent to defraud.” (People v. Hagedorn, supra,
The Court of Appeal explained further that the absence of an intent element was not unusual or extraordinary; “ ‘[I]t is beyond question that the
It is evident from the legislative history of section 530.5 and Hagedorn that the purpose of section 530.5, subdivision (a) is to criminalize the willful use of another’s personal identifying information, regardless of whether the user intends to defraud and regardless of whether any actual harm or loss is caused. (Accord, CALCRIM No. 2040 [setting forth elements of identity theft and providing, “It is not necessary that anyone actually be defrauded or actually suffer a financial, legal, or property loss as a result of the defendant’s acts.”].) Because actual injury or loss is not an element of the offense, the trial court erred by dismissing counts 74, 89, 96 and 107 charging defendants with identity theft.
Neither defendant summarizes the evidence on these counts in any specific way. Purcell Johnson merely adopts the arguments made by Lavem Johnson that the alleged victims of the identity theft crimes suffered no financial or emotional harm or injury, and did not suffer any invasion of privacy. Defendants rely on People v. Tillotson, supra,
The contention is meritless. As defendants acknowledge, the issue in People v. Tillotson, supra,
DISPOSITION
The order dismissing the Penal Code section 424, subdivision (a)(1) misappropriation of public moneys counts (counts 2, 5, 8, 11, 14, 17, 20, 23, 26, 29, 32, 35, 38, 41, 44, 47, 50, 53, 56, 59, 62, 65, 68 and 71) and the Penal Code section 530.5, subdivision (a) identity theft counts (counts 74, 89, 96 and 107) is reversed. The matter is remanded to the trial court with directions to enter a new and different order denying the motion to dismiss and for further proceedings according to law.
Nares, Acting P. J., and Irion, J., concurred.
On October 4, 2012, the opinion was modified to read as printed above. Respondents’ petition for review by the Supreme Court was denied January 16, 2013, S206415.
Notes
All statutory references are to the Penal Code unless otherwise indicated.
The People alleged misappropriation of public funds in counts 2, 5, 8, 11, 14, 17, 20, 23, 26, 29, 32, 35, 38, 41, 44, 47, 50, 53, 56, 59, 62, 65, 68 and 71.
Welfare and Institutions Code section 10554 authorizes the State Department of Social Services to print certain of its regulations in publications rather than in the California Code of Regulations. (See Sacramento Children’s Home v. State Dept, of Social Services (2000)
Title 22 of the California Code of Regulations defines “ ‘Group Home’ ” in part as a “facility which provides 24-hour care and supervision to children, provides services specified in this chapter to a specific client group, and maintains a structured environment, with such services provided at least in part by staff employed by the licensee.” (Cal. Code Regs., tit. 22,
Michelle Franklin, the supervisor for DSS’s investigation and recovery unit, testified to the grand jury that starting in 2006, her department had two recovery technicians designated for foster care because overpayments in that area were “out of control.” Prior to that time, group home overpayments, even from the same home, could be handled by multiple recovery technicians. Franklin explained that for the most part, overpayments occurred because children left the home and the provider did not notify the eligibility worker of that occurrence.
Cora Dixon, the bureau chief of the Audits Bureau within the Branch, testified that as of May 2010, the audit office had no staff. However, the Branch performed about 22 fiscal audits per year (at the time referred to as investigation audits) from 1999 through 2003. At the end of 2003, the audit unit was eliminated due to budget constraints, but was reestablished in fiscal years 2006 to 2009. The unit was eliminated again at the end of June 2009.
Title 18 United States Code section 641 provides in part: “Whoever embezzles, steals, purloins or knowingly converts to his use or the use of another . . . any record, voucher, money, or thing of value of the United States or of any department or agency thereof . . . HI • • • HI Shall be fined under this title or imprisoned not more than ten years, or both . . . .”
Other federal courts apply a supervision and control test for determining whether property belongs to the government for purposes of the federal misappropriation statute. (U.S. v. Hall (6th Cir. 2008)