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Thelen Reid Brown Raysman & Steiner LLP
A development corporation, Carriage Homes, contracted with the City of Austin, Minnesota, to develop a 7-acre parcel with 38 residential units. The development corporation hired independent subcontractors to perform engineering, grading and all other construction work. A year after project completion, the city informed the developer that certain homes' elevations were below grade, causing water to run toward the structures and rain to pool in driveways. The city also complained about roofing problems. In response, Carriage Homes attempted to fix the problems. But, city inspectors alleged that the drainage problems remained.
The development corporation was charged with criminal violation of the Uniform Building Code and an ordinance and a statute implementing it. The corporation pled guilty and paid a $1,000 fine. The development corporation's CEO was charged with a crime in his personal capacity under a statute holding corporate officers criminally liable for their companies' violations of "public welfare" statutes. This "Responsible Corporate Officer" doctrine imposes strict liability so that officers can be held liable even when they were unaware of actual violations. The CEO was convicted, and the trial court imposed a fine, ordered the CEO to pay restitution, sentenced him to 90 days jail sentence and suspended part but not all of the jail sentence. It did so even though the CEO contended he had no intention of violating the building code, had no engineering training, and relied on the engineer and grading contractor, as independent contractors, to perform properly.
The CEO appealed the trial court's decision. The issue before the Court of Appeals was whether the building code qualified as a "public welfare statute." If it was, the state could apply the Responsible Corporate Officer doctrine and hold the CEO criminally liable for his corporation's violations of the building code. The Court of Appeals held that the building code was a public welfare statute and affirmed the conviction without oral argument. The CEO then appealed to Minnesota Supreme Court.
The Supreme Court reversed. State v. Arkell, 672 N.W.2d 564 (Minn. 2003). The Supreme Court re-evaluated whether the building code was a public welfare statute imposing strict liability and requiring no proof of intent. The court noted that ".strict liability statutes are generally disfavored, and legislative intent to impose strict criminal liability must be clear." In evaluating the legislative record, the court found that the legislature had not clearly indicated in the building code statute that it intended to create a strict liability statute. As a result, the court refused to so classify the building code statute.
The court also pointed out several reasons why there was not a strong public policy rationale for making building code violations a strict liability crime. First, construction projects are regulated by building code enforcement officers who visit job sites and make evaluations during construction, providing an additional enforcement mechanism. The court reasoned that because "proof of an intentional violation is not insurmountable," prosecutorial difficulty did not create a reason to apply strict liability. Second, because interpretation and enforcement of building codes varies from city to city, the court was concerned that strict liability penalties might be disparately enforced. It noted that enforcement of the building code was not even mandatory statewide. Finally, the court noted that the exact nature of the offense the CEO faced was not clear, even on appeal. It was unclear whether the developer was charged with violating the building code or with failing to correct alleged violations, about which only vague notice was given and then only a year after completion. It also noted that city inspectors relied on the same engineers in approving the foundation work as the defendant did, yet he was held criminally liable. Accordingly, the building code statutes were held not to be strict liability offenses.
The Minnesota Supreme Court did not reach the issue of whether the Responsible Corporate Officer Doctrine would have applied had building code violations been found to warrant strict liability.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2005 Thelen Reid Brown Raysman & Steiner LLP
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