While browsing recent news stories involving mechanics liens, a very interesting headline popped up in my search results: “Sixteen People Arrested on Federal Indictment Involving Multi-State Car Theft Conspiracy.” At first, I was surprised that such a story opened up after a search for “mechanics liens,” but after reading a little more about the case, the article explained:
On many occasions, the defendants falsely claimed to have done repair work which wasn’t actually performed on vehicles submitted to their businesses, inducing lien holders to pay the defendants money to avoid the issuance of a mechanics lien. Over 100 vehicles have been fully identified as being involved in the criminal activity, although investigators believe many more were actually involved.
That Missouri case clearly involved vehicular liens, not construction liens, but reading about it piqued my interest: Could criminal liability arise in the construction mechanics liens arena — an arena most often considered to be civil, not criminal? To briefly explore this question, I looked at the lien law in a handful of different states.
Colorado
Colorado’s General Mechanics’ Lien statutes contain the following provisions:
(1) All funds disbursed to any contractor … shall be held in trust for the payment of parties that furnished labor or materials who have a lien, or may have a lien against the property
(5) Any person who violates … subsection (1) … commits theft
The State of Colorado has used these two provisions as a basis for criminal liability in many instances. For example, in People v. Mendro, the Supreme Court of Colorado held that so long as the state was able to prove that the elements of theft were met, it did not have to prove any additional “intent” to misappropriate funds on the contractor’s part. In that case, the defendant, a Colorado Springs-based remodeling contractor used funds advanced to him by clients to pay “ongoing operating expenses and bank loans.” After being held not guilty at the trial court, the Supreme Court reversed the lower court’s finding and essentially found that he was guilty of felony theft.
New York
U.S. ex. rel Roberts v. Ternullo is an example in which falsely filing a mechanics lien — in this example, many mechanics liens — led to criminal charges and even jail time.
David Roberts for many years operated a retail fence business under several corporate names. As the State of New York alleged, Roberts:
“would frequently fail to deliver fencing contracted for by customers or deliver less than called for in the contract, and when full payment was not forthcoming, would file mechanics liens with the County Clerk …”
As a result, Roberts was charged with multiple counts of forgery and the making of an apparently sworn false statement, amongst other charges. Interestingly, it was only after more than 200 unhappy customers complained about Roberts that the county District Attorney got involved. As a result of the charges lodged against him, the defendant was charged with between one and four years in prison. His conviction, after being reversed and remanded on the first appeal, was affirmed at the appellate level the second time around.
As the federal court that heard Roberts’ writ of habeas corpus held, the false mechanics liens the defendant filed were admissible because they were available to the public and, of course, filed by the defendant himself. As the court noted, it would be completely illogical to bar the state from presenting evidence such as a mechanics lien that was already in its public record.
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Delaware
In a case from many years ago, State v. Tabasso Homes, we see another example of how mechanics liens and criminal law can surprisingly intersect sometimes. Delaware’s statute at issue in this case is strikingly similar to the one in the Colorado case discussed above. In that statute, which is contained under the Mechanics Lien Statute of Delaware:
All moneys or funds whatsoever received by an architect, engineer, contractor or sub—contractor … Shall be placed in trust and … It shall be unlawful … to pay out, use or appropriate any of said moneys or funds until the same have first been applied to the payment of the full amount of all claims due.
The statute goes on to state that the penalty for violating this requirement is not only to complete restitution for any misappropriate amounts but also a criminal misdemeanor charge, which could lead to a fine or even three years in prison.
The facts in this case are, again, exceedingly simple. A home construction firm, Tabasso, received thousands of dollars from several different parties to build a private residence, but ended up owing several parties who worked on the residence more than $12,000. (This amount is nearly $170,000 in 2012 dollars).
After being indicted, Tabasso moved to quash its indictment. The court indeed granted Tabasso’s motion. Although the court noted that it was entirely possible that Tabasso owed the parties money, Tabasso was the property owner, and not a “contractor,” to whom the statute applied. Apparently, at least at the time the case was decided, a party could not be an owner/contractor and had to be only one or the other.
Conclusion
As we can see, violating a state’s mechanics lien law can have major consequences in terms of criminal charges and jail time, not just civil lawsuits and penalties. While a state’s law usually makes it quite clear when violating a mechanics lien statute can lead to criminal liability, state courts can impose criminal liability in surprising ways, so be sure to follow each state’s mechanics lien law closely.