People v. Roth, 52 N.Y.2d 300 (1981)
To sustain a conviction for larceny by embezzlement, the defendant must have converted property belonging to another that was entrusted to the defendant on behalf of the owner.
Summary
Roth, the owner-operator of a nursing home, was convicted of larceny for failing to fully refund residents the difference between private rates they paid before Medicare approval and the lower Medicare rates. The New York Court of Appeals reversed, holding that the funds Roth was convicted of embezzling were not the property of the residents. The court reasoned that once the residents paid the private rates, the money became Roth’s property, and his failure to refund the difference was a breach of contract, not embezzlement.
Facts
Roth owned and operated the Endicott Nursing Home, which was funded by private resident payments, Medicaid, and Medicare. To participate in Medicare, Roth had to agree to charge Medicare-eligible residents no more than the Medicare rate. Pending Medicare approval, the home charged private rates, which were higher. Upon Medicare approval, Roth was required to refund the difference between the private and Medicare rates to the residents. Roth made only partial or no refunds. He was then convicted of larceny for embezzling funds he should have refunded.
Procedural History
The Broome County Court convicted Roth of larceny in the second degree. The Appellate Division affirmed the judgment. Roth appealed to the New York Court of Appeals.
Issue(s)
Whether the funds that Roth was convicted of embezzling were held by him on behalf of the nursing home residents, or whether those monies were in fact owned by Roth.
Holding
No, because the money which Roth was convicted of stealing never belonged to the residents of his nursing home, nor was it entrusted to Roth to hold on behalf of the residents.
Court’s Reasoning
The court distinguished between refusing to pay a valid debt and the crime of larceny by embezzlement. The court stated, “The essence of the crime of larceny by embezzlement is the conversion by the embezzler of property belonging to another which has been entrusted to the embezzler to hold on behalf of the owner.” When the residents paid the private rate, the money became Roth’s property, not held in trust. The obligation to refund upon Medicare approval did not change the fact that the funds were Roth’s. The court emphasized that Medicare payments to Roth did not alter this, as they were reimbursements for refunds he should have already made from his own funds. The court stated, “The funds given defendant by Blue Cross on behalf of Medicare were not intended to serve as the source of the refunds due the residents of the home. Rather, the money from Blue Cross was intended to reimburse defendant for the money which he supposedly had previously refunded to the residents from his own funds.” The court distinguished the situation from one where funds are given to be held in trust. Since no trust was created, the residents were not owners of the funds in Roth’s hands, and therefore, he could not be convicted of larceny by embezzlement. The court noted, “It was within the power of the parties to the provider agreement to have created a trust by their agreement, and had they done so defendant might well have been subject to prosecution for the wrongful withholding of trust funds. The parties failed to create such a trust, however, and thus the residents cannot be deemed the owners of any moneys in the hands of the defendant. Accordingly, defendant’s conviction for larceny cannot stand.”