Criminalizing Construction?
By: DAVID L. LILLEHAUG
November 2003
Traditionally, construction disputes — whether about contracts or personal injuries — have played out in arbitration, civil court, or worker’s compensation hearings. But owners and contractors should be aware that seemingly routine disputes may contain the seeds of criminal charges.
For example, last spring the Minnesota Court of Appeals upheld the conviction of a president of a general contractor for violations of the Uniform Building Code.
City building inspectors determined that the foundations on a condominium project built by the president’s company didn’t comply with the Code, causing water to pool. When the problem didn’t get solved, the State of Minnesota charged the company and the president with misdemeanors. The company pleaded guilty and paid a $1,000 fine, but the president went to trial, arguing that he was not personally liable.
He was convicted. The Court of Appeals affirmed, holding that the president was a corporate officer, and was thus responsible because he had the ability to prevent or cure the Code violations.
Contractors who receive payments for the work of subcontractors or the material of suppliers and fail to pass on the money may also face criminal charges. Under the Minnesota law strengthened in 2000, the contractor who keeps the payment may be guilty of theft. If the project is residential, a contractor’s responsible officer, director, or shareholder may be convicted.
Finally, a variety of general statutes not specific to the construction industry, such as the laws against frauds and swindles, may be used to prosecute allegedly dishonest conduct in a real estate development project. All participants should be aware that false statements to a lender or title company may arouse the interest of both federal and state investigators.