Clinton F. Cross
It’s a smart idea to dig deeper with theft-of-services cases that look only civil in nature; sometimes a criminal complaint exists, and prosecuting criminally may be the only way to gain true justice for the victims.
The El Paso County Attorney allots significant resources to prosecuting criminal deceptive business practice cases. Most cases involve home remodelers, pool companies, and landscapers who do not provide the services that consumers pay for. While the sums involved are often small, sometimes hundreds of thousands of dollars are at stake.
The problem has only grown of late. In fiscal year 2006-07, the El Paso County Attorney’s Office handled 396 deceptive business practice cases. In three years, our office’s criminal deceptive business practice caseload has more than doubled.
In two recent cases (which were resolved in December), one complaining witness paid the defendants more than $100,000 to build a home, which was never done. In the second case, another complainant paid over $75,000, and a third paid approximately $50,000, all for real estate and homes that were not delivered.
In El Paso, the district attorney prosecutes theft cases, and the county attorney prosecutes deceptive business practice cases. The division of responsibility for prosecution of criminal cases in El Paso County occurred more than a decade ago to consolidate most of the responsibility for prosecution of criminal cases in the district attorney’s office. In spite of the consolidation, the county attorney retained the right to prosecute a limited number of criminal cases, including deceptive business practice cases.
The DA declined the two cases when presented as thefts (as you will read later, theft is not always the best charge in these situations) but referred them to the county attorney for possible deceptive business practice prosecution. The CA filed charges against both defendants, one of whom pled guilty and was sent to jail for a year. That defendant was the primary wrongdoer. The State dismissed its claims against the second defendant after he made restitution to the victim.
Left to their civil remedies, these victims in all probability would not have seen justice. But they were indeed victims not just of a civil fraud but also of a crime. It made sense for our office to pursue criminal charges in these cases.
What is a criminal deceptive business practice? How it is different from a civil deceptive trade practice?
The Texas Deceptive Trade Practices Consumer Protection Act, §17.41 et. seq. of the Texas Business and Commerce Code (hereinafter referred to as the DTPA [Deceptive Trade Practices Act]) and the deceptive business practice provisions of Texas Penal Code §32.42 (hereinafter referred to as the DBPC [Deceptive Business Penal Code]) appear to be similar statutes. Both statutes are similarly titled, and both enumerate laundry lists of prohibited bad conduct.
Incidentally, district attorneys and county attorneys, as well as individual consumers, are authorized by statute to bring DTPA actions. A district or county attorney may want to file a civil DTPA case when 1) the wrongdoer is solvent, 2) restitution for victimized consumers is the primary goal, 3) more discovery (for instance, of identifiable victims) is desired, 4) injunctive relief (a “cease and desist” order) is sufficient to remedy the misconduct, and/or 5) criminal prosecution would be difficult or inappropriate.
In El Paso, the county attorney works collaboratively with the Texas Attorney General’s Office to file civil DTPA cases in appropriate situations. Indeed, the DTPA statute requires collaboration because a district or county attorney must give the Attorney General’s Office notice of intent to file a DTPA suit before doing so unilaterally. Furthermore, the AG is expressly authorized to obtain remedies that may not be available to district and county attorneys. When in our jurisdiction the Attorney General chooses to join in the litigation, the county attorney and the AG both prosecute the suit, but the Attorney General’s El Paso Regional Office assumes primary responsibility for it.
The DTPA and DBPC statutes are in fact very different. The DTPA is a civil statute and is liberally construed. It is a “buyer protection” statute. Most sections of this act hold the seller to a strict standard of truthfulness in marketing property and services. In only a few situations is the buyer required to prove, as a predicate to recovery, that the seller intended to act in a particular manner.
The DBPC, on the other hand, is in the Penal Code and is construed narrowly. It is a “buyer protection” statute, but because “sell” and “sale” are defined to include “solicit and offer to buy,” it is also a “seller protection” statute. Because it is penal in nature, the State must prove its case beyond a reasonable doubt. Pre-trial discovery is limited. The complaining witness must exit the courtroom during trial when the defendant invokes “the rule” and may thereafter be compelled to return to the courtroom to rebut testimony that he or she never heard.
How does “deceptive business practice” differ from “theft?”
Deceptive business practice is defined by §32.42 of the Texas Penal Code, while theft is governed by §31.03 of the Texas Penal Code. The two statutes have different elements. The Court of Criminal Appeals has held that the offense of deceptive business practice is not a lesser-included offense of theft.1 Concomitantly, theft is not a lesser-included offense of deceptive business practice.
It is possible to prosecute contractors and landscapers for theft.2 However, it’s easier to prove a deceptive business practice case than a theft case. In theft, the intent to steal must exist at or before the time of the initial transaction. By contrast, the crime of “failing to deliver” is committed at the time of delivery, not at the time of the initial solicitation. The prosecutor does not have the burden of proving that intent occurred at the time of or simultaneously with the taking of property or payment. It is only necessary to prove that the defendant intended “not to deliver” when he had a duty to.
There are few reported deceptive business practice cases involving material misrepresentation in the sale of property or services. There are no reported cases dealing with failure to deliver property and services. Therefore, the statutory language is perhaps the most important guide to understanding the law of deceptive business practices at this time.
A defendant violates §32.42 of the Penal Code if he commits one or more specified deceptive practices in the course of business. The statute sets forth 12 prohibited practices. However, there are really two fundamentally distinct ways the statute can be violated: first, by lying about property or services being sold (sometimes, but not always, the specific nature of the lie is defined in the statute), and second, by failing to deliver property or services that a seller has sold, that the seller has a duty to deliver, and that the seller has failed to deliver.
How can “failure to deliver” property or services be a crime?
Section 32.42 (a)(9) of the Penal Code defines “selling,” inter alia, as “delivering after the sale.” Section 32.42 (b)(2) defines a deceptive business practice as “selling less than the represented quantity of a property or service.” When the two subsections are read together, the Penal Code makes it clear that the crime of “deceptive business practice” can be committed when a seller sells a property or service and then delivers to a buyer less than the represented quantity of that property or service.
While many cases arise out of what the parties to the transaction may believe are contracts, §32.42 never mentions the word “contract.” It is not necessary to prove a “contract” or the breach of a contract to prove that the defendant has committed a deceptive business practice. This distinction may be important in cases where the parties never entered into a written agreement or where the terms of the original agreement were frequently changed.
To illustrate the nature of a “failure to deliver” deceptive business practice case, consider the following hypothetical. You go to a store and purchase two pounds of beef; you pay for the meat. Thereafter, the butcher delivers one pound and eight ounces of meat but at the same time does not offer a refund for the eight ounces of meat he failed to deliver.
The butcher delivered less than the represented quantity of beef that was sold. He should have delivered all the beef that he sold, or at least offered to reduce the price to reflect the failure to deliver two pounds of beef. The butcher “sold,” and then “delivered after the sale … less than the represented quantity of a good or service.” He committed a deceptive business practice.
Our office has prosecuted hundreds of cases involving landscapers, home improvement contractors, and other businesses. The facts in these cases are often a bit more complex than the facts described in the hypothetical “failure to deliver” case. Similar principles, however, apply.
Assume, for instance, that a builder contracts to repair a homeowner’s porch. The builder asks for $4,000 to perform the work, $2,000 of which he requests up front. If the contractor does less than half the work and fails to return to the homeowner the difference in value between the amount paid and the property and services delivered, he may have “sold” less than the represented quantity of a good or service (i.e., failed to deliver). If, however, the builder delivers half the property and services and thereafter walks off the job, the homeowner may have a claim for breach of contract—but probably does not have a “deceptive business practice” complaint. The consumer received property and services equivalent to his payment, even if he did not obtain the “benefit of his bargain.”
A deceptive business practice is committed when the defendant intentionally, knowingly, or recklessly fails to deliver property or services that he has a duty to deliver. It is not necessary to prove that the defendant intended to steal the consumer’s money before the initial sale or at the time of the initial sale. It is the “failure to deliver” that constitutes the crime. Criminal intent can attach before the defendant has a duty to deliver or at the time he has a duty to deliver.
If the builder asked for $2,000 up front for materials and did not promptly use the $2,000 to purchase those materials, the State should argue that the defendant’s failure to do what he said he’d do regarding purchase of materials is evidence of bad faith.
Sellers with marginal financial capital sometimes take money from consumers for porches or yards or whatever, use the money for “operating expenses” or other jobs, and end up unable to perform all their obligations. Some of these defendants file for bankruptcy. Others try to excuse their conduct at the time of trial by pleading indigence.
Is bankruptcy, or paucity of money, a defense to a “deceptive business practice” case?
No. It is a crime in Texas to take money in advance for a particular property or service, then fail to deliver that property or service. Consumers give sellers money in advance of performance to pay for the designated property or service and for no other purpose. Sellers have a duty to use that money for those properties or services, and for no other purpose. It is not legal to take Peter’s money to pay Paul or to repair Paul’s house—unless, of course, Peter parted with his money for those reasons.
Why should prosecutors make deceptive business practice prosecutions a priority? Why aren’t civil remedies sufficient?
When the civil remedies are effective (usually when the sums of money involved justify the retention of private counsel and the sellers are solvent), the victims of this crime may be satisfied with that remedy. But we must remember that this misconduct is also a crime, and there are many interests at stake. We want to recover restitution for our victims if we can, but we also want to deter and punish wrongful conduct. In the absence of criminal prosecution for this crime, the offenders get to play an endless game of “heads I win; tails, you lose.” “Catch me if you can” is the con artist’s motto.
If your office decides to make deceptive business practice cases a priority, what challenges will you face?
Law enforcement personnel and prosecutors often view economic disputes as civil in nature. If the police don’t identify a crime and treat it as such, prosecutors are not going to learn about it.
Our office meets regularly with law enforcement agencies, sometimes several times a month. We explain deceptive business practice law and encourage police officers and sheriff’s deputies to investigate cases that appear to violate the law. In training, we have sometimes provided the officers with our own screening sheet forms, which in “failure to deliver” cases ask the complaining witness to provide information about the original transaction, the amounts of money paid, and the amount of work performed and not performed. In addition, we encourage officers to accept cases when they have reason to believe the complaining witnesses have paid for property or services they did not receive. A case can be accepted as a “non-arrest” and referred to the prosecutor for screening. If a case comes to the prosecutor’s office and is probably a crime but not clearly a crime, the prosecutor is ultimately responsible for deciding how to proceed. As a result of this training, our caseload has been steadily increasing. (Incidentally, complaining witnesses have included judges, attorneys, and police officers.)
In a few cases it may be difficult to assess the amount of restitution owed by a defendant to a consumer. Can a prosecutor, sitting in her office, assess the value of property or services that have been delivered? If a prosecutor can’t rationally make this assessment, how can she, in a close case, write a responsible plea recommendation prior to trial?
The solution to this problem is to allow the defendant to arbitrate the value of the property and/or services delivered (usually by the Better Business Bureau) at the defendant’s cost (in this jurisdiction, $500). The rest of the deal then goes as follows: The defendant pays the complaining witness what the arbitrator says is due, if anything, and the State allows the defendant to plead to a lesser-included offense, a fine, or a dismissal. If the arbitrator concludes that the seller has delivered value for the monies paid, the State dismisses.
In fiscal year 2006-07, the El Paso County Attorney referred 16 cases to the Better Business Bureau for arbitration, 10 of which were actually arbitrated. The consumer prevailed in nine cases, and awards totaled $155,950. In one or two cases, the defendant failed to pay the arbitration fee as required by the plea agreement and the case thereafter proceeded to a plea or trial. A few cases referred to arbitration in fiscal year 2006-2007 remain to be arbitrated.
Although an arbitration award can be enforced civilly, as a practical matter it is enforced by our office. The “plea agreement” requires the defendant to arbitrate and for the State and defendant to thereafter abide by the award. If the defendant prevails, the State agrees to dismiss. If the complaining witness prevails, the defendant must pay the complaining witness the amount of the award. If the defendant cannot comply with the terms of the award prior to the court’s deadline (i.e., pay the complaining witness the amount of money awarded), the plea agreement should require that the defendant plead guilty and pay the victim the amount awarded as a condition of probation.
If the defendant thereafter refuses to honor the plea agreement, the State must try the case. In this jurisdiction, defendants have either complied with the arbitrators’ awards prior to entering guilty pleas or they have pled guilty and were placed on probation and ordered to pay the complaining witnesses the amounts of monies awarded.
With repeat offenders or in egregious cases, arbitration is not recommended because it delays prosecution. With repeat offenders, it is usually unrealistic to hope for rehabilitation or for restitution. The priority should be protection of the public. In the long run, recidivists and the worst offenders need to be locked up or run out of the State of Texas.
1 Lasker v. State, 573 S.W. 2d 539, 542 (Tex. Crim. App. 1978).
2 Playton, Christina L., “A Breach of Trust,” The Texas Prosecutor, Vol. 37, No. 2, March-April, 2007, pp. 14-18.