Victims of Fraud Should Always Fight Back Proactively
Post 5398
Posted on July 21, 2026 by Barry Zalma
Cross-Claim Against Fraudsters Successful
In Dual Diagnosis Treatment Center, Inc., et al. v. Health Net, Inc., et al., Health Net Life Insurance Company, B331260, California Court of Appeals, Second District, Third Division (July 16, 2026) a trial verdict in favor of Health Net and against Sovereign, a network of mental health and substance use disorder treatment centers, and Health Net, Inc., Health Net of California, Inc., Health Net Life Insurance Company, and Managed Health Network, Inc. (collectively, Health Net) was appealed to the California Court of Appeals.
FACTUAL BACKGROUND
Between 2014 and 2016, Sovereign submitted claims to Health Net for medical care provided to more than 400 patients. Health Net paid some claims but rejected many others. Sovereign, as the patients' assignee, sued Health Net for breach of contract, insurance bad faith, and breach of the Employee Retirement Income Security Act of 1974 (ERISA).
Health Net cross-claimed for fraud, intentional interference with contractual relations, and unfair competition, among other things.
Health Net paid some claims but rejected many others. Health Net alleged Sovereign carried out a broad insurance-fraud scheme involving illegal patient referral fees, false residency information, premium payments and cost-sharing waivers concealed from Health Net, unnecessary services, falsified records, and inflated billing.
Before trial, the court found Sovereign had paid unlawful referral fees for more than 300 patients. After a seven-week jury trial and a later bench trial on equitable claims, judgment was entered for Health Net, including substantial damages and restitution against Sovereign and Dr. Sharma.
LAW:
The court applied California rules governing summary adjudication, the Unfair Competition Law (UCL), Insurance Code section 750, unclean hands, fraud, insurance bad faith damages, ERISA exhaustion principles, and appellate prejudice. A UCL plaintiff must show economic injury and loss of money or property but need not prove a precise amount at the standing stage.
The UCL may reach unlawful, unfair, or fraudulent business practices. The unclean-hands doctrine may bar relief in legal and equitable actions when the plaintiff’s misconduct directly relates to the transaction at issue and makes recovery inequitable.
Civil judgments are not reversed for procedural, evidentiary, instructional, or damages-related error absent a showing of prejudice.
DISCUSSION:
On appeal, Sovereign challenged the pretrial UCL ruling, the summary adjudication of Health Net’s fraud and unclean-hands defenses, several jury instructions, exclusion of California Department of Insurance materials, the ruling limiting bad-faith damages, and the judgment on ERISA claims.
The Court of Appeal emphasized that Sovereign’s briefing failed to fairly summarize the extensive trial record, limiting appellate review. The court held that any possible error in the pretrial UCL ruling was harmless because the trial court later found, after trial, an independent basis for restitution under the unfair and fraudulent prongs of the UCL. It also concluded Sovereign failed to show error in the unclean-hands ruling, because the illegal referral payments directly related to the claims for payment arising from those same referred patients.
ANALYSIS:
The decision turned on Sovereign’s inability to show reversible prejudice. The appellate court repeatedly held that even if certain rulings were questionable, Sovereign did not demonstrate a reasonable probability of a more favorable result.
The unclean-hands holding is especially important because it allowed the court to bar recovery by the assignee based on the assignee’s own misconduct, even though the patients themselves were not alleged to have acted wrongfully.
The court also treated the trial findings of pervasive fraudulent business practices as supporting restitution beyond the patients obtained through illegal referral fees.
CONCLUSION
Sovereign admitted that it paid consultants for patient referrals, but contended that the practice was lawful and known to Health Net. Sovereign thus urged that Health Net was not harmed by the payment of referral fees because it would have been responsible for claims in the same amounts even if treatment had been rendered by other providers.
The Court of Appeal affirmed the judgment in full. Sovereign did not establish prejudicial error as to the UCL ruling, unclean-hands defense, jury instructions, evidentiary exclusions, Brandt-fee ruling, or ERISA claims. In addition Respondents were awarded appellate costs.
ZALMA OPINION
People who have perpetrated insurance fraud and deceived their clients have the unmitigated gall to sue the clients they were defrauding. Usually, the victims will defend aggressively or seek to negotiate a settlement. Healthnet did not settle, did not negotiate, it cross-claimed and established the unlawful conduct, an action that worked and took the profit out of the fraud and attempted fraud.
(c) 2026 Barry Zalma & ClaimSchool, Inc.
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Chutzpah is not Enough
Post 5397
Posted on July 20, 2026 by Barry Zalma
See the video and at https://lnkd.in/gNUs2XzT and at https://lnkd.in/g2MawyzX
Magistrate Issues a Search Warrant if there is a Fair Probability that Contraband or Evidence of a Crime will be Found in a Particular Place.
In United States Of America v. Frank Suess, et al., CRIMINAL No. 3:24-308, United States District Court, M.D. Pennsylvania (July 16, 2026) a federal grand jury indicted Frank Suess, Melissa Driscoll, and others in a 55-count health care fraud and anti-kickback prosecution arising from an alleged scheme involving medically unnecessary prescription “foot baths.”
As part of the investigation, the FBI obtained an August 19, 2022 warrant to search Driscoll’s Sterling Pharmacy Yahoo email account for emails from January 1, 2018 through December 31, 2020. Driscoll moved to suppress the resulting evidence, arguing that the warrant lacked probable cause, was overbroad, and rested on material misstatements and omissions.
LAW:
The ...
Fraud Shouldn’t Pay
Post 5396
See the video and at https://rumble.com/v7ctgmq-the-great-jewel-theft.html at https://youtu.be/aRbQ2sJfGwA
This is a Fictionalized True Crime Story of Insurance Fraud explaining why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is one of a collection designed to help to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the ¬¬¬Perpetrators than any Other Crime.
The Insured purchased, for the first time in his life, a policy of Personal Articles Floater Insurance (PAF) scheduling $125,000 worth of ladies jewelry. He advised the insurer that the jewelry was always kept in a class E safe at his residence. He also told the insurer that he was employed full time as the owner of a gasoline service station and that he had never been canceled or suffered a previous loss.
One month after the policy was ...
To Prove Fraud Material False Statements Must be Proved
Post number 5389
Posted on July 8, 2026 by Barry Zalma
See the video at and at
Materiality Must Be Judged Objectively.
In People Of The State Of California Ex Rel. Heath & Yuen, APC v. Silver Bird Auto Leasing, LLC et al., B342847, California Court of Appeals, Second District, Eighth Division (June 5, 2026) Heath & Yuen, APC defended a tour van driver and related defendants in an underlying auto-collision action brought by Silver Bird Auto Leasing, LLC after a low-speed collision involving Silver Bird’s McLaren and a tour van.
Silver Bird alleged the McLaren was making a legal turn and sought damages including repair costs, loss of use, and diminution in value. The defendants’ insurer later became insolvent, and CIGA took over the defense and ultimately paid $25,000 to settle the underlying action.
After settlement, Heath & Yuen filed a ...
The Only Solution to Fraud is to Take the Profit Out of the Crime
It Takes Courage to Fight the Fraudster
Post number 5395
Posted on July 16, 2026 by Barry Zalma
In Vivian Maritza Triana Marin, Sebastian Arroyave Penagos, and Daniel Arroyave Penagos v. Marc J. Paynter and Transport Marc Paynter Inc., No. 23-CV-6498, United States District Court, E.D. New York (July 10, 2026) Plaintiffs sued Defendants in diversity after a rear-end collision on the Whitestone Expressway in Queens, New York. Plaintiffs were in a Subaru driven by Vivian Maritza Triana Marin, while Defendant Marc J. Paynter drove a Transport Marc Paynter Inc. tractor-trailer.
Facts:
Dashcam footage from Defendants’ vehicle showed Plaintiffs’ vehicle braking suddenly in the left lane despite an open roadway ahead. Marin could not identify a specific reason for braking, the passenger plaintiffs did not know why she braked, and a non-party witness testified that Plaintiffs’ vehicle stopped abruptly for no apparent reason.
The Accident occurred when ...
Swoop & Squat Fails
Posted on July 16, 2026 by Barry Zalma
The Only Solution to Fraud is to Take the Profit Out of the Crime
It Takes Courage to Fight the Fraudster
Post number 5395
In Vivian Maritza Triana Marin, Sebastian Arroyave Penagos, and Daniel Arroyave Penagos v. Marc J. Paynter and Transport Marc Paynter Inc., No. 23-CV-6498, United States District Court, E.D. New York (July 10, 2026) Plaintiffs sued Defendants in diversity after a rear-end collision on the Whitestone Expressway in Queens, New York. Plaintiffs were in a Subaru driven by Vivian Maritza Triana Marin, while Defendant Marc J. Paynter drove a Transport Marc Paynter Inc. tractor-trailer.
Facts:
Dashcam footage from Defendants’ vehicle showed Plaintiffs’ vehicle braking suddenly in the left lane despite an open roadway ahead. Marin could not identify a specific reason for braking, the passenger plaintiffs did not know why she braked, and a non-party witness testified that Plaintiffs’ vehicle stopped abruptly for no apparent reason.
The ...
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
Posted on July 15, 2026 by Barry Zalma
ZIFL Volume 30, Issue 14
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.
It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/
This issue contains the following articles about insurance fraud:Zalma’s Insurance Fraud Letter – July 15, 2026
Posted on July 15, 2026 by Barry Zalma
ZIFL Volume 30, Issue 14
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma.
It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/
This issue contains the following articles ...
