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By
Scott S. Shepardson
Thelen Reid Brown Raysman & Steiner LLP
A
corporate officer may be held criminally liable for violating
a statute regarding appropriation of contracting funds even
though the officer never worked as a contractor herself.
In
State of Michigan v. Brown, 610 N.W.2d 234 (2000),
the Michigan Court of Appeals affirmed the lower court's
finding that Deborah Brown, a corporate officer for Home
Port Construction Services, Inc. (HPCS), was criminally
liable for fraudulent retention of building contract funds.
The court also affirmed the lower court's sentencing of
Brown to five years of probation, with the first year to
be served in jail.
The
case arose when HPCS contracted with a homeowner to construct
a single family home. Brown, as the qualifying officer for
HPCS, signed the contract with the homeowner. Michigan law
requires a building contracting corporation to designate
one of its officers, members or managing agents to serve
as a "qualifying officer." The qualifying officer
is responsible for ensuring that the corporation complies
with regulations governing contractors in Michigan.
During
construction, HPCS encountered financial difficulties, eventually
filing for bankruptcy protection. Brown also filed for personal
bankruptcy. Before the bankruptcy filings, however, Brown
withdrew at least $2,000 from HPCS' account, which she then
deposited into her personal account. At that time, at least
one subcontractor on the project was owed $1,000 for work
it had performed.
Pursuant
to Michigan Compiled Laws §570.152, any contractor
who, with intent to defraud, retains proceeds for any purpose
other than to first pay laborers, subcontractors and materialmen
is guilty of a felony in appropriating such funds. Brown
argued that the statute was not applicable to her because
HPCS was, in fact, the contractor. The court, however, held
that while there are instances when a corporate officer
participates in a tortious act, she may be held personally
liable for the consequences of that act. Consequently, Brown
could not use HPCS as a shield from application of the statute.
Brown
also argued that there was insufficient evidence demonstrating
that she had any intent to defraud the subcontractor. The
court, however, noted that the language of the statute was
specific in that appropriation of money by a contractor
before the payment of a subcontractor "shall be evidence
of intent to defraud." Michigan Compiled Laws §570.153
(2000). Brown's transfer of the money from HPCS' account
to her own when the money was owed to a subcontractor was
sufficient under the statute to support her conviction.
Accordingly, her conviction was affirmed, and Brown was
sentenced to five years probation with the first year to
be served in jail.
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For more information about the issues covered in this report, please contact Scott S. Shepardson in our San Francisco office at 415-369-7184 or at sshepardson@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2001 Thelen Reid Brown Raysman & Steiner LLP
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