AVOID CONTRACTOR THEFT
Minnesota's Contractor Theft law is alive and well. Recently, the law was challenged on various constitutional grounds. The Court rejected all of the challenges, however, and instead affirmed the validity of the law aimed at protecting homeowners. Minnesota's Contractor Theft law (Minnesota Statute ' 514.02) requires the recipient of a payment from a homeowner to use that money for the benefit of those providing labor and material for the improvement of the property. Contractors can't use a down payment from a homeowner to pay off unrelated debt, or to buy material for another project. The law places an obligation on the contractor to see to it that all money received from the homeowner is actually used for improvement of the property and not for some other purpose. A common temptation is to "borrow" money from one project to cover expenses on another. Frequently this is done with honest intentions of paying the money back, but all too often that doesn't happen. Compliance with the Contractor Theft Statute protects a number of parties, including the builder. Subcontractors and suppliers have increased assurance of being paid by the contractor. Homeowners are less likely to have a mechanic's lien filed against their property and face the risk of paying for improvements twice. General contractors complying with the rule significantly reduce the risk of having to pay a subcontractor and having no money to do it. One of the more important things demonstrated by State v. Boyce is that criminal liability under the statute can exist even if the contractor has no bad intentions. The statute focuses specifically on the contractor's receipt of money from the homeowner and whether all of it is used to pay subcontractors and suppliers working on the job. Any diversion of funds away from people working on the project is a violation of the statute. Intent is irrelevant. In order to determine liability, it is basically a "follow the money" approach. If the contractor can show that everything received was distributed to people working on the project, then there should be no problem. Absent that proof, however, the contractor runs the risk of criminal liability. When the words "contractor theft" are used, some sort of evil connotation is often associated with it. The point that needs to be remembers from this case is that a violation can occur innocently or even inadvertently. Following the requirements of the Contractor Theft statute offers protection for everyone involved in the building process. It makes good business sense to follow it, and may very well spare someone a criminal conviction. Ben Bohnsack is an associate attorney with Rinke Noonan and practices in the areas of construction litigation, employment litigation and general civil litigation. ©2007- Ben Bohnsack and the Rinke-Noonan Law Firm |
