Wednesday, March 12, 2014

Texas Jury Sentences General Contractor to Three Years in Prison for Fraudulent Nonpayment of Subcontractors

The Dallas Morning News reports that a jury in Fort Worth, Texas recently gave the principal of a general contractor a three-year prison sentence for fraud in connection with his failure to pay amounts due to subcontractors for work performed on the construction of a car dealership. According to the article, the Tarrant County District Attorney's Office stated that the criminal conviction, which came after a week-long trial, was the first of its kind in the country.

The press release from the Tarrant County District Attorney's Office offers some additional details about the case. It states that the general contractor had submitted payment applications to the owner claiming all subcontractors were being paid. This turned out not to be the case, as subcontractors filed seven liens totaling about $100,000 against the owner's property. The owner filed a complaint against the general contractor's principal with the Tarrant County District Attorney's Office. The principal was then indicted, arrested, and tried on a felony charge of making a false statement to obtain property or credit.

The defendant had no prior felony convictions, and therefore faced punishment ranging from probation to ten years in prison. During the punishment phase, prosecutors presented evidence of prior civil lawsuits against the defendant filed by subcontractors, as well as repeated bankruptcy filings to avoid liability. After considering this evidence, the jury sentenced the defendant to three years in prison with a $10,000 fine.

As civil defense attorneys, we often view potential liability for nonpayment on construction projects in civil, rather than criminal terms. Has anyone else experienced situations where criminal charges were asserted? Is this the type of conduct that merits criminal punishment rather than civil liability for damages?

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