Can My Criminal Fraud Case Be Dismissed Based On Statute Of Limitations? Review Of Recent California Case Involving Public Funds (Welfare Fraud)

The government prosecuting agencies often take years to investigate fraud, embezzlement and other types of regulatory and white collar crime cases. Often one of the first tactics considered is filing a motion to dismiss based on the statute of limitation. In California state cases, under Penal Code Section 803(c), any charge in which intent to defraud is an element of the offense (such as grand theft, embezzlement, forgery, etc.) - the statute of limitation does not expire or run out until 4 years after the "date of discovery" by the victim or law enforcement.

The determination of the "date of discovery" and the identification of the person who first discovered the fraud become issues in litigating these cases. Discovery and investigation may yield facts supporting a statute of limitations defense. Ideally, a motion to dismiss on statute of limitation grounds would be filed before trial. Otherwise, the defense have to present the statute of limitation defense to a jury.

The recent California Court of Appeal case of People v. Moore, B207616 (2d Dist., Aug. 11, 2009) demonstrates some of the difficulties of proving when the "victim" discovered the fraud and winning a motion to dismiss based on statute of limitations. An additional twist here is that in cases involving fiscal crimes against a government entity, the "victim" for purposes of statute of limitation analysis is defined as a public employee occupying a supervisorial position who has the responsibility to oversee the fiscal affairs of the governmental entity and thus has a legal duty to report a suspected crime to law enforcement authorities.

In this case, the trial court denied the motion to dismiss on the statute of limitation on the ground that the true victim in this case was a government agency (DPSS )and not the business that distributed the government funds to the defendant. The Court of Appeal upheld the denial of the motion and affirmed the conviction. This case is a good lesson in the operation of California's statute of limitation in a fraud or white collar case where government funds are at issue.

FACTS OF CASE

During the early 2000s, the County of Los Angeles Department of Public Social Services (DPSS) contracted with Crystal Stairs, a nonprofit child development agency, to help the department (along with other agencies) distribute funds to child care providers. Crystal Stairs received funds from DPSS, and then distributed those funds to child care providers in accord with directives from DPSS.

The defendant, Kyron J. Moore, was charged with one count of grand theft and 10 counts of perjury by declaration. Between October 1, 2000, and March 31, 2002, Michelle Davis (Moore’s sister), applied to Crystal Stairs for child care funds. The applications, made under penalty of perjury, falsely reported that Moore was caring for Davis’s four children. Crystal Stairs, in turn, disbursed $44,026 to Moore, and he and Davis split the money. During this same time frame, the Long Beach YMCA actually provided care for Davis’s children.

On May 8, 2002, a child care coordinator at the YMCA mailed a letter to Crystal Stairs, along with supporting documentation, showing that Davis’ children had been receiving child care at the YMCA. Crystal Stairs received the YMCA’s letter on May 10, 2002. On May 28, 2002, a fraud prevention specialist at Crystal Stairs referred the matter to DPSS for investigation, because DPSS was “the only one that [could] conduct an investigation.” [These date and facts are obviously important for statute of limitation analysis on who is the victim and the date of discovery.]

On May 17, 2006—nearly four years after the date that DPSS was notified of the potential fraud—the People filed a criminal complaint against Moore. Thereafter, the People filed an information charging Moore with one count of grand theft (“to wit $44,026 ... in child care funds the property of Crystal Stairs,” which was alleged to have occurred “[o]n or between October 1, 2000 and March 31, 2002”) and with 10 counts of perjury by declaration on specific dates in 2001 and 2002.

In a strategic move, Moore moved to dismiss the charges against him, arguing the charges were barred by the applicable four-year statute of limitations (Penal Code § 801.5). Moore contended that Crystal Stairs, not DPSS, was the "victim" of the alleged crime. Because Crystal Stairs became aware of the alleged fraud on May 8, 2002 (through the letter from the YMCA) and the State didn't file the criminal complaint until May 17, 2006 (over four years later), Moore argued the complaint was untimely and the charges were required to be dismissed.

The trial court rejected that argument and denied the motion to dismiss. Thereafter, Moore pled no contest to one count of grand theft. Among other things, the trial court ordered Moore to pay victim restitution to Crystal Stairs. Moore then appealed his conviction, arguing that the trial court had erred in denying his motion to dismiss. The court of appeal affirmed.

LEGAL ANALYSIS

Penal Code § 801.5 provides that prosecution of grand theft “shall be commenced within four years after discovery of the commission of the offenses....” The four-year limitation period does not commence until the "victim" or a responsible "law enforcement official" learns of facts which, if investigated with reasonable diligence, would have revealed a crime had occurred. Penal Code § 803(c); People v. Kronemyer, 189 Cal. App. 3d 314, 330-331 (1987); People v. Lopez, 52 Cal. App. 4th 233, 246 (1997).

Moore contended Crystal Stairs must be defined as the “victim” because DPSS had already transferred funds to Crystal Stairs when he committed his crimes. Indeed, he cited the fact that the court ordered restitution to be paid to Crystal Stairs established Crystal Stairs' status as the "victim." The appellate court rejected the argument, reasoning that Crystal Stairs never “owned” the money that it disbursed. Therefore, Crystal Stairs was not “directly injured” by Moore’s fraud because it did not lose any money that it owned.

As mentioned above, in cases involving fiscal crimes against a government entity, the "victim" for purposes of statute of limitation analysis is defined as a public employee occupying a supervisorial position who has the responsibility to oversee the fiscal affairs of the governmental entity and thus has a legal duty to report a suspected crime to law enforcement authorities.

Although Crystal Stairs was obligated to report suspected fraud to DPSS, it had no responsibility over DPSS affairs. It was DPSS' responsibility to investigate the matter and to report suspected criminal activity to the appropriate law enforcement authorities. Therefore, DPSS, not Crystal Stairs, was the "victim" of Moore's crime, and the People's filing of the complaint within four years of Crystal Stairs' referral on May 28, 2002 was timely.

Attorney Commentary: There are good public policy reasons for statutes of limitation. Moreover, if we can prove that the statute of limitation has expired or run out - the court has no jurisdiction and the charge must be dismissed. In state fraud cases, however, where date of discovery is an issue, the motions become more complicated. We have sought evidentiary hearings on statute of limitation issues due to the proof issues required in winning such motions.

Any questions or comments should be directed to Ms Green at tgreen@greenassoc.com or 213-233-2260. Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have significant experience in defending individuals, licensed professionals and businesses in fraud cases and investigations. Their website is: http://www.greenassoc.com