Source: https://www.tdcaa.com/journal/when-civil-liability-gives-rise-to-criminal-prosecution/
Timestamp: 2019-12-06 18:29:56
Document Index: 134546387

Matched Legal Cases: ['§31', '§31', '§32', '§31', '§32', '§32', '§32', '§162', '§162', '§162', '§32', '§31', '§32', '§31', '§32', '§32', '§162', '§162', '§32', '§31', '§162']

When civil liability gives rise to criminal prosecution | Texas District & County Attorneys Association
When civil liability gives rise to criminal prosecution
﻿By Ty Stimpson
﻿“I paid this contractor $20,000 to update my kitchen, and I have been calling and texting him for about six months, and he never showed back up after doing the demolition. I want to press charges against him!”
Prosecutors hear such stories from people in our communities all too often, and these tales traditionally end with law enforcement and even some of our offices telling the complainants, “I’m sorry, but we can’t help you—that’s a civil matter.”
But what if I told you that there could possibly be criminal prosecution as a recourse for consumers who find themselves in these situations? There is!
During my time handling white-collar cases, I came across many individuals who either hired a contractor who did not complete the job or who never even started the project after receiving funds at the initial consultation. Another common scenario is after a severe storm that caused roof damage to many houses in an area—contractors would have individuals sign over their insurance checks to repair their roofs, and then they’d abscond with the funds. Victims are left without a roof and have no insurance money to fix it.
With Texas weather being so unpredictable and hurricane season upon us, I feel the need to equip my fellow prosecutors with the knowledge I’ve obtained handling these types of cases for the next time you receive such calls.
Approaching each case
Typically, when I receive a complaint regarding a contractor, the first question I ask is: Did the contractor perform any work? The reason I ask this question is to determine if the citizen is complaining about the quality of the work, incomplete work, or no work performed at all—each scenario should be handled differently. When the complaint is about the poor quality of the work, that is likely a civil matter. Where things get tricky is when complaints involve partial performance of a job.
With complaints where a contractor has done some work, I first look to see what the contract language says (if there is a contract). Many times, these cases involve a homeowner paying a contractor to complete a remodeling project on a home. The homeowner usually pays half the cost upfront and the other half upon completion of the job. What prosecutors often see is the contractor takes the initial payment, completes demolition, and disappears. The victim calls and calls the contractor and receives excuse after excuse as to why work has stopped, until finally all communication ceases. The victim is now left with part of his home demolished and his money gone. What makes partial performance difficult to prove is showing that the contractor had the intent to deprive the victim of her property—money in these cases—and the intent to deprive is what makes this situation criminal, as opposed to negligent actions that would be the basis for a civil case.
What tends to help prosecutors with “partial performance” complaints is the contractor usually has a history of doing this to other people. How do you go about finding additional potential victims? I’m glad you asked. In a case I once handled, our office received a complaint from a homeowner who contracted with Richard Wallace to install an iron rod door and staircase. Wallace abandoned the job after completing about 30 percent of it, but he took 100 percent of the payment. After my initial review, I was hesitant to accept the complaint due to the contract language. In the contract, there was nothing specific to designate what work was to be completed before the contractor could submit a draw for additional funding or what exact work was to be completed for the amount contracted, but I decided to investigate more before rejecting the case. I conducted an online search of Wallace’s business name and found multiple negative reviews accusing him of stealing money from consumers.
What happened next some may call “luck,” but I like to call it “great investigative skills.” I decided to contact one of the consumers complaining about Wallace online, and this man turned out to be a retired commercial airline pilot who kept a spreadsheet of other people who had fallen victim to Wallace’s shady business tactics. Armed with this information, I sent letters to the individuals on the spreadsheet inquiring if they suffered loss after Wallace abandoned a job. My letter was not quite on the level of “Have you or a family member been affected by mesothelioma?” but I did provide my investigator’s contact information to make a complaint against Wallace. That letter and subsequent investigation resulted in nine victims from five neighboring counties with a combined loss of over $100,000 listed in the indictment, with an additional six victims who were not included in the indictment for various reasons. Everyone shared the same story: They contracted with Wallace to perform a job he would start, then he inevitably came up with numerous excuses as to why he wasn’t working on it, before ceasing all communication—leaving the victims without their money and with an incomplete project. What started off as one complaint ballooned into many, and it ultimately led to a plea agreement that included a substantial amount of restitution paid upfront.
“No work performed” scenarios tend to be more straightforward than “partial performance” complaints. Unlike partial performance, where some work has been done and the State must show the contractor’s intent to deprive the homeowner of money, jobs where no work has been performed tend to be easier to show the contractor intended to rip off the consumer. Another case I handled may be classified as “luck” as opposed to “great investigative skills.” Mario Vila was a contractor who specialized in residential outdoor construction and advertised his business on Craigslist. Various homeowners paid substantial down payments to Vila for materials, but he never performed any of the work. One of the homeowners located other victims and had a sit-down interview with a local news station’s consumer protection reporter. Upon seeing the news, Vila himself contacted the station to tell his side of the story. In the end, the case was presented to me essentially gift-wrapped—with the victims having already conducted their own investigation along with supporting documents and a video-recording of the defendant explaining why he never performed any work. As you would expect when the State is armed with this great evidence, the case led to a guilty plea with full restitution paid upfront.
Now, not every contractor fraud case is going to be that simple and straightforward, but it does go to show that there are painless ways to effectively prosecute these kinds of cases.
Traditionally the statute prosecutors use to try individuals accused of stealing money from others is Penal Code §31.03 (theft). With contractor fraud cases, not only do I include §31.03 in my indictment, but I also include a count for §32.45 (misapplication of fiduciary property). On its face, §31.03 would seem like the more straightforward statute, but from my experience, §32.45 may be just as effective. Unlike theft, which requires a culpable mental state, you can secure a conviction under §32.45 without necessarily proving a culpable mental state. When you dissect §32.45, misapplication involves dealing with property contrary to an agreement under which the fiduciary holds the property.[1] Under §162.006 of the Texas Property Code, contractors are required to deposit money into a construction trust fund for contracts over $5,000. How many contractors do you believe abide by this requirement? If you answered, “Very few,” you would be correct. In my experience, rarely are contractors compliant with §162.006.
The way I determine if the contractor deposited the victim’s funds into a trust account is by tracing the funds through bank records. This is where effectively using grand jury subpoenas comes in handy. If a victim paid for a contractor’s services by check, subpoena the victim’s bank records to see into which account at what financial institution the check was deposited. (In the subpoena, be sure to request the check images. Typically, financial institutions usually just send statements unless you specify otherwise.) In my experience, what you will uncover is that the account contains comingled funds—construction trust funds and the contractor’s personal expenses—which violates §162.006. As a result, the contractor’s lack of compliance gives you the basis for a §32.45 charge.
Both §31.03 and §32.45 allow the State to aggregate the total loss for the victims,[2] which is helpful when contractors have ripped off multiple people along the lines of $3,000 here and $5,000 there. Instead of multiple counts of lesser theft charges, the ability to aggregate gives prosecutors the potential to reach the third- or second-degree felony range.
The biggest difference between §31.03 and §32.45 is the notice requirement under §32.45.[3] An indictment for misapplication of fiduciary property must state the specific transactions that allegedly violate the statute.[4] What I do to fulfill this requirement is file a notice of specific acts—once the case is indicted—showing the amounts associated with each victim and the date the misapplication occurred. The reason I prefer to file a notice of specific acts after an indictment and not include it in the indictment is that if, for some reason, the accounting changes with a loss associated with a specific victim, you can file an amended notice of specific acts rather than having to amend or dismiss the indictment.
Another charging option to consider is §162.031 of the Texas Property Code (misapplication of trust funds). Under this statute, misapplication of trust funds over $500 gives rises to criminal prosecution. I have used §162.031 in situations where, despite my investigating for additional victims, there’s only the one complainant. If I’m able to show the contractor had the intent to defraud with a loss over $500, the offense is a third-degree felony.[5]
Every month across the state we see news stories involving contractors who bilk tens of thousands of dollars out of citizens in our communities. Before we are quick to reject these complaints due to unfamiliarity, it’s important that we take the time to investigate them and use the Penal Code and other legal statutes to our advantage.
Traditionally, we prosecutors try to steer clear of gray areas of the law, especially with regard to contractor fraud cases. But rather than being quick to declare a complaint a civil matter, conduct some investigation before rejecting it. You never know how many consumers in your county you will protect by prosecuting that shady contractor.
[1] Tex. Penal Code §32.45(a)(2)(A).
[2] Tex. Penal Code §31.09.
[3] State v. Moff, 154 S.W.3d 599 (Tex.Crim.App.2004).
[5] Tex. Prop. Code §162.032(b).