Nothing Criminal in Breaching a Contract

State v. Atwood (HSC June 3, 2013)
Background. Terrance Atwood was indicted with one count of theft in the first degree. HRS § 708-830.5. The prosecution presented an indictment before the grand jury. Witnesses testified that Atwood entered into a contract to remodel a bathroom in a Kihei home in exchange for $89,394. Atwood went to work. In the middle of the job, the homeowner learned that Atwood was not a licensed contractor, but nonetheless kept him on the job because he had already paid him. However, due to a dispute over the purchasing of certain materials, the homeowner fired Atwood before the job was finished and another contractor finished the job. The grand jury returned a true bill alleging theft in the first degree and an unlicensed activity charge (a misdemeanor). HRS § 436B-27.

Atwood moved to dismiss the indictment on the grounds that there was no probable cause to sustain the charge. He argued that the prosecution failed to prove that there was no evidence showing that Atwood had no intention of fulfilling his part of the contract. The prosecution countered that Atwood’s conduct constituted “deception” under the theft statute. The circuit court denied the motion, but permitted Atwood to proceed on an interlocutory appeal. The ICA affirmed. Atwood petitioned for certiorari.

The Offense of Theft by Deception Requires Proof of Deception. “A person commits the offense of theft in the first degree if the person commits theft . . . [o]f property or services, the value of which exceeds $20,000.” HRS § 708-830.5(1)(a). Theft arises when “[a] person obtains, or exerts control over, the property of another by deception with the intent to deprive the other of the property.” HRS § 708-830.  There are five different ways to “deprive” another. HRS § 708-800.

“Deception” Requires more than Nonperformance. The HSC reviewed the theft statute and its definitions and observed that the commentary addressed contractual obligations. “With respect to contractual obligations, a present intent not to perform would constitute deception, although mere breach at some future time, without such present intent, would not.” HRS § 708-833 cmt. The HSC also looked to courts from other jurisdictions and agreed that the indictment required probable cause that Atwood had the intent to “deprive” through nonperformance. See Smith v. State, 665 So.2d 1002, 1003 (Ala. Crim. App. 1995); Commonwealth v. Layaou, 405 A.2d 500, 501 (Pa. Super. 1979); State v. Jackson, 765 N.W.2d 541, 542-44 (S.D. 2009).

Here, the HSC held that Atwood spent considerable time in attempting to meet his contractual duties. Although the quality of his work may have been lacking, he did spent time and effort in exchange for the fees. Moreover, it appeared that he tried to finish the bathroom job, but could not because he was fired by the complainant. This is not proof of intentional nonperformance. Accordingly, there was no proof of an intent to “deprive” the owner.

No Evidence of Value Either. Another essential element to theft is value. Theft in the first degree requires proof that the property or services at issue exceeded a value of $20,000. HRS § 708-830.5(1)(a). According to the HSC, there was no evidence of the value of the property or services. The contract required the owner to pay Atwood over a period of several months in exchange for the benefit of the remodeled bathroom. The record failed to show the value of the remodeling work actually performed by Atwood from May 2006 through February 2007—the period in which Atwood was on the job working for his pay.

The prosecution tried to get around this by presenting several theories to get to $20K. First, the prosecution argued that the owner would have never hired Atwood in the first place had it not been for Atwood’s representation that he was a licensed contractor. The HSC disagreed that this was the kind of value contemplated by the theft statute. This is not evidence of deprived property or services. The prosecution then argued that the $38K paid to another contractor to finish the job should count. Again, the HSC disagreed. The amount paid to the replacement contractor was immaterial. In the end, all amounts paid to Atwood show that it was in exchange for the actual work done in the bathroom. There was no evidence of value.

The HSC vacated the ICA’s judgment and remanded the case to the circuit court with specific instructions to dismiss the theft count.


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