Construction Fraud: Not Just a Civil Matter
In the current turbulent economy there is a proliferation of building contractors being forced into bankruptcy leaving materialmen, laborers and subcontractors unpaid and homeowners with unfinished work. When the contractor files bankruptcy the general rule is that any civil actions pending are stayed and the creditors begin battling for whatever they can get. Mark my words, the unpaid subcontractors and homeowners without the work done that they contracted for will begin to mount pressure on the Commonwealth Attorney’s Office. As a result, it is my prediction that there will invariably be a substantial increase in criminal litigation under the following (relatively unknown) two criminal statutes: Va. Code §§ 18.2-200.1 and 43-13. This article will address only Va. Code § 18.2-200.1 and a subsequent article will address Va. Code § 43-13.
The Code of Virginia, Section 18.2-200.1 is located in the criminal section of the Code covering crimes involving fraud and is a Class 6 Felony. This section of the Code states the following:
If any person obtain from another an advance of money, merchandise or other thing, of value, with fraudulent intent, upon a promise to perform construction, removal, repair or improvement of any building or structure permanently annexed to real property, or any other improvements to such real property, including horticulture, nursery or forest products, and fail or refuse to perform such promise, and also fail to substantially make good such advance, he shall be deemed guilty of the larceny of such money, merchandise or other thing if he fails to return such advance within fifteen days of a request to do so sent by certified mail, return receipt requested, to his last known address or to the address listed in the contract.
The prosecution will have the burden to prove the following beyond a reasonable doubt: 1). the defendant obtained an advance of money from another person; 2). the defendant had a fraudulent intent at the time of the advance; 3). the defendant promised to perform construction or improvements involving real property; 4). the defendant failed to perform the promise; and 5). the defendant failed to return the advance within fifteen days of the request to do so by certified mail to the defendant’s last known address or his address listed in the contract.
The case law in Virginia on this crime indicates that approximately 90% of these cases hinge upon the prosecutions ability to prove beyond a reasonable doubt that the defendant had a “fraudulent intent" at the time of the advance. The Courts have held whether the fraudulent intent actually existed depends on the specific circumstances of each case and will be highly fact intensive. Boothe v. Commonwealth, 4 Va. App. 484 (1987). The Courts of the Commonwealth have, by their previous decisions established certain bits of circumstantial evidence that can be used to prove or disprove fraudulent intent. In fact in nearly every case involving Va. Code § 18.2-200.1 the courts in their decisions cite the following language: “fraudulent intent at the time he obtained the advances depends upon the circumstances of the case . . . intent may, and most often must, be proven by circumstantial evidence and the reasonable inferences to be drawn from the facts that are within the province of the trier of fact." Rader v. Commonwealth, 15 Va. App. 325 (1992).
The following are some of the common examples of circumstantial evidence weighed by the trier of fact: 1). defendant’s failure to perform the work for which the advance was specifically requested, Rader v. Commonwealth, 15 Va. App. 325 (1992); 2). defendant’s failure to apply for necessary permits, Id.; 3). defendant’s general lack of communication with the homeowners, Norman v. Commonwealth, 2 Va. App. 518 (1986); 4). defendant’s failure to contact the homeowner when the defendant realized he was financially unable to perform the construction, Rader, 15 Va. App. at 330; 5). defendant having other similar transactions with other homeowners, Hubbard v. Commonwealth, 201 Va. 61 (1959). However, there is case law that suggest that if the defendant’s conduct was likely to have been caused by poor management, financial distress or both, it can combat a the fraudulent intent necessary to sustain a conviction. Klink v. Commonwealth, 12 Va. App. 815 (1991).
So defense attorneys prepare, if my crystal ball is accurate you will be called upon to defend construction contractors from the Class 6 Felony, Va. Code § 18.2-200.1, better known as construction fraud.
STEPHEN P. PFEIFFER, ESQ.
Wolcott Rivers Gates
301 Bendix Road, Suite 500
Virginia Beach, VA 23452
Telephone: 757 497 6633
Email: [email protected]