Lawsuit Over MEWA’s Fake Coverage

A Fresno area restaurant is suing the illegal American Labor Alliance and its founder Marcus Asay for selling bogus workers’ comp coverage. The trial is scheduled for the fall and comes some two years after Fajita Fiesta Mexican Restaurant filed the compliant.

It will also be three years since the Division of Labor Standards Enforcement said the restaurant’s workers’ comp certificate from ALA was no good and fined it $187,887 for operating without valid workers’ comp coverage.

It is another in a series of lawsuits employers have filed, some of them against brokers.

The complaint includes causes of action for breach of a written contract, breach of fiduciary duty, insurance bad faith, and fraud. Additionally, the restaurant is alleging negligence and negligent misrepresentation by all defendants. It is seeking at least $1.5 million in compensation and interest, punitive damages, and attorney fees.

Attorney Brian Whelan representing Fajita Fiesta, tells Workers’ Comp Executive that the restaurant did not have a broker when it joined the MEWA and that Asay served as the producer. “It’s very frustrating because how was the employer to know [that ALA’s coverage wasn’t legal] when they represent themselves that way,” he says. Whelan notes that while the restaurant was in the program for more than a year, it never incurred any workers’ comp claims during that time, so it never tested the coverage.

X-mod Graphic from Compline
X-mod Graphic from Compline

According to Compline records, Fajita Fiesta’s had an X-Mod of 98 for 2019 (see chart).

Named defendants include Agricultural Contracting Services Association, American Labor Alliance, CompOne USA Interinsurance Services, Marcus Asay, and Omega Community Labor Association.

The California Department of Insurance found the latter to be the alter ego of American Labor Alliance. Omega took over many of ALA’s accounts and liabilities when it became apparent that ALA would lose its appeal of CDI’s cease and desist order. Omega continues to operate under a similar cease and desist order (for extensive previous coverage MEWA Investigations).

Case History

The restaurant’s amended complaint says that Fajita Fiesta owner Raul Gutierrez Sr. opted to purchase the CompOneUSA program after being assured by ALA’s representative, Marisol Serrato, that the program would meet all of its workers’ comp needs. According to the complaint, Whelan says it was Asay who actually sold the policy, and ALA issued a certificate of liability on July 15, 2016.

“Following issuance of what was believed to have been a valid workers’ compensation policy, Plaintiff paid the premiums and canceled the prior valid policy. Thereafter, Plaintiff justifiably believed that their employees were properly and adequately covered in a manner that complied with State Law,” the lawsuit notes.

Fajita operated for over a year under the policy without issue until an August 22, 2017, inspection by the Division of Labor Standards Enforcement generated questions about the validity of the coverage.

Deputy Labor Commissioner Anna Estrada handled the inspection.

“Ms. Estrada contacted Antonio Gastelum of the American Labor Alliance at the time of the inspection,” according to the complaint. “During that call, Mr. Gastelum claimed that Plaintiff did have a workers’ compensation insurance policy with Defendants and that the policy was in effect as of August 22, 2017.”

The deputy then spoke with Marcus Asay, the so-called chairman of the American Labor Alliance, who confirmed what Mr. Gastelum had stated,” the lawsuit notes. Gastelum served as a finance officer for both ALA and Omega.

Estrada initially accepted the information she received from Gastelum and Asay but found out from the California Department of Insurance that ALA “did not, in fact, have the ability to provide, supply, write, participate in, or otherwise have anything to do with workers’ compensation insurance,”

As a result, Estrada issued the restaurant a citation for using labor without a valid workers’ comp policy.

Federal Criminal Charges

Asay and Gastelum both are facing federal money laundering, mail fraud, and conspiracy charges related to ALA’s operations. Whelan notes that it was challenging to depose Asay for the case as most of his records are still in the possession of the FBI. Federal officials raided ALA’s headquarters in early 2017 and seized personnel records and copied hard drives as part of its investigation. The raid followed a grand-jury investigation into the
MEWA’s operations and operators.

$187,000 Bill

Fajita Fiesta says it tried to get ALA to handle and respond to the citation but says the defendants continued to claim that they were operating legally. “Through their attorney, Defendants continued to claim that they had done nothing wrong and that this was part of some larger insider political game being played out at their expense as part of a larger competition with anti-union operations,” the lawsuit states.

The restaurant says it asked ALA to pay the citation or return the premiums it paid for the bogus coverage but says the defendants refused. Now, the Plaintiff is seeking compensatory damages of at least $1.5 million. It is also asking for interest, punitive damages, and reasonable attorney fees and costs.

Department of Industrial Relations officials confirmed the citation against Fajita Fiesta for operating without workers’ comp coverage and the $187,887.38 fine. The officials also note that the citation is unpaid.

See related story Broker Sued.