Most contractors represent a shining example of the all-American hardworking small business owner. Unfortunately, a few bad apples have a tendency to poison the public’s perception of the whole bunch. Thus, the Wisconsin Legislature has codified its “Theft by Contractor” statute under Wis. Stat. 779.02 setting forth very draconian rules about the use of customer funds, and very severe penalties for the violation thereof. If you are a contractor, tread lightly, as it is easier than you think to commit a theft by contractor.
Under Wisconsin law, monies paid by an owner to a contractor or subcontractor on a construction project are considered a trust fund in the hands of the contractor or subcontractor until all claims by suppliers of labor and materials used in the improvements have been paid.
The Wisconsin Supreme Court confirmed that the statute can be violated even if the contractor obtained no benefit from the use of the money,
In Burmeister, it was held to be immaterial that the defendant had gained no personal benefit from the use of the money. The misappropriation of the funds came about because the supplier was not paid in full from the funds which had been borrowed for that purpose.
State v. Blaisdell, 85 Wis. 2d 172, 179, 270 N.W.2d 69, 73 (1978)
Violation of that statute exposes the contractor, personally, not only to potential criminal prosecution but also civil liability.
Under the statute, any officer, director, member or agent responsible for the misappropriation is liable in civil court for (1) up to three times the amount of the unpaid amount, and (2) reimbursement of attorney fees incurred by the property owner in obtaining a judgment.
The most common example of a violation is a contractor who gets behind on his bills and ends up robbing Peter to pay Paul, using the money from the newest project to pay off amounts owed to suppliers or subcontractors from the last project. This scenario can snowball into a very serious situation and constitutes a violation of the statute. If you are accepting funds on behalf of your clients it is imperative that you maintain those funds in trust for their proper purpose or there may be serious consequences. If you are a contractor you should speak with an attorney to ensure that the system you have in place for handling client funds is in compliance with the statutory requirements. If you are a property owner that believes your funds have been misused, you should contact an attorney right away as well.
Sean M. Sweeney is a shareholder at Halling & Cayo. His practice focuses on business litigation, civil litigation, stock broker fraud, business transnational law, and real estate law. Sean represents investors, small business owners, and companies locally in Wisconsin, all over the United States, as well as internationally with clients in Canada, Germany, and Australia.
Email Sean: [email protected]