Clearwater drywall company faces workers' comp fraud charges

A husband and wife team who ran a drywall company that worked on large-scale projects cheated their employees out of workers' compensation insurance in order to make more money, according to authorities.

Leroy and Joyce Mehr, 50 and 49, respectively, of Annandale, Minn., were each charged Tuesday in Hennepin County District Court with two counts of insurance fraud and one count of theft by swindle.

"Why is this wrong?" Hennepin County Attorney Mike Freeman said. "Well, first it cheats the workers and the health care insurance they're entitled to. Second, it cheats the insurance company who is supposed to provide the coverage, and third it cheats the companies that compete with the fraudulent corporation, because [the fraudulent company] can bid cheaper or take more money home."

Authorities allege that from April 2016 to April 2017, the Mehrs mischaracterized "dozens" of employees as independent contractors in order to save about $300,000 money on workers' compensation insurance premiums. Independent contractors supply their own workers' compensation insurance.

"It's not a new scheme," Freeman said, "but we've rarely seen it in the kind of level we have here."

The case was investigated by the Minnesota Department of Commerce with help from the North Central States Regional Council of Carpenters union.

The Mehrs ran Merit Insulation and Drywall in Clearwater, Minn. The Hennepin County Attorney's Office said that the company recently closed.

The Mehrs were charged via summons, which means they will turn themselves in for booking at a future date. They are not in custody.

"Defendant Leroy Mehr stated that he was aware that workers at construction sites have been injured and been told not to file claims," according to the criminal complaint.

The company has worked on "thousands of offices, apartments, and homes" for more than 30 years, according to its website.

"Merit Insulation and Drywall have grown to be one of the preferred commercial and residential drywall and insulation contractors in Minnesota," the website said. "Our reputation rests on quality, solid work and excellent customer service."

The company promoted its rates, noting it offered "quality materials and expert tradespeople at competitive prices."

Burt Johnson, an attorney for the North Central States Regional Council of Carpenters union, said low bids by companies like Merit push out firms that obey the law and, as a result, have to charge more for their work.

"This is a big deal in our industry," Johnson said of the case.

Such predatory practices are "widespread" in both single-family home construction and large projects, he said, adding that developers can no longer "bury their head in the sand" when they receive bids that cost several hundred thousand dollars less than other bids.

Chao Xiong • 612-270-4708

Twitter: @ChaoStrib