Opinion
NOT TO BE PUBLISHED
Napa County Super. Ct. No. CR138779
Marchiano, P.J.
Defendant Harold Daniel Schultz contracted with a homeowner to remodel a kitchen and a bathroom, and add a room to the house. Defendant left the project uncompleted after receiving significant payments from the homeowner. After a court trial he was convicted of diversion of construction funds (Pen. Code, § 484b) and receiving an excessive down payment (Bus. & Prof. Code, § 7159.5, subd. (a)(3)). Imposition of sentence was suspended. Defendant was granted probation and ordered to pay $40,320 in restitution to the victim.
Unless otherwise indicated, subsequent statutory references are to the Penal Code.
Defendant argues that he was erroneously convicted of diverting construction funds because no evidence was presented that he diverted money received under the contract to another project, which he contends is a requirement of Penal code section 484b. This argument lacks merit and we affirm the judgment.
I. BACKGROUND
Defendant entered into a contract with Luella Petree in December 2005 under which she was to pay him $45,000 for the improvements to her home. The contract provided for payment of $10,000 upon execution, and four bi-weekly installment payments of $8,750 beginning on January 13, 2006. Ms. Petree made the $10,000 down payment, and installment payments of $8,750 by checks dated January 20 and January 31, 2006, giving defendant $27,500 of the $45,000 due under the contract. Petree testified that when defendant asked for another payment after finishing work on March 11, 2006, she refused and asked him to meet the next day with her and her family. She “felt we needed to get things straight as to why I kept paying him and nothing was getting done.” Defendant said, “No, we’re not going to have a meeting. You violated the contract. I’ll see you in court.” Defendant was “very angry when he left” the home, and did no further work on the project.
Petree reported the matter to the Contractor’s State Licensing Board (CSLB). CSLB investigator Robin Caton, citing the threat to defendant’s license and the potential for criminal prosecution, repeatedly asked defendant to submit receipts for his expenditures on the project, but he provided no documentation. CSLB industry expert David Jackness examined defendant’s work and deemed it of “not a very high quality”; Napa Building Inspector Dan Kavarian testified that the work was not up to industry standards. Dennis Dunne, the contractor Petree originally hired for the project, also described defendant’s work as “substandard.” Dunne performed some excavation work before withdrawing from the project and refunding the money Petree had paid him. Dunne placed the value of the labor and materials defendant furnished to Petree at between $4,000 and $5,000. Petree’s daughter testified that a motion activated security camera on the premises recorded defendant’s arrivals and departures, and the tape showed that defendant spent 55 hours on the project.
Defendant testified that he spent seven or eight 30- to 40-hour weeks working on the project, and that he had no other projects going at the time. He had lost the daily log where he recorded his hours. Four and one-half to five of the weeks were spent doing termite work, which he performed pursuant to a verbal agreement with Petree. He did not mention the termite work to the CSLB because they did not ask him about it. He furnished over $4,000 worth of materials to the project, and he attempted many times to contact Caton to give her receipts for the materials, but Caton “was impossible to nail down.”
The prosecutor argued in closing that “[t]he job was left incomplete as a result of his leaving the site in the manner that he did and he kept the money thus diverting it to his own use.”
II. DISCUSSION
Section 484b provides in pertinent part: “Any person who receives money for the purpose of obtaining or paying for services, labor, materials or equipment and willfully fails to apply such money for such purpose by either willfully failing to complete the improvements for which funds were provided or willfully failing to pay for services, labor, materials or equipment provided incident to such construction, and wrongfully diverts the funds to a use other than that for which the funds were received, shall be guilty of a public offense....”
Defendant contends that wrongful diversion of funds within the meaning of the statute is limited to situations where the defendant has diverted construction funds from one project to another. If that were true, then defendant should have been acquitted of the section 484b charge because no such diversion occurred here—he did not have any other projects when he was working for Petree and taking her money.
Precedent establishes that the type of diversion defendant describes is indeed criminal under the statute. Section 484b’s “legislative purpose... is to prevent any possibility of homeowner harm resulting from the diversion of construction funds. The statute should be read as preventing the use of one construction project’s funds for another project on the grounds that such use leaves open the possibility of harm to the homeowner if the business is short on cash and unable to complete the job at a later date.” (People v. Worrell (1980) 107 Cal.App.3d 50, 55.) “The statute thus prevents a contractor from finishing old jobs with new money....” (Id. at p. 56; see also People v. Wooten (1996) 44 Cal.App.4th 1834, 1847 [“section 484b criminalizes the diversion of construction funds from one project to another”].)
But it is equally clear from the case law that criminal diversion includes simply pocketing money received for a project without providing the services or materials for which the payment was made, as could be found to have occurred here.
People v. Howard (1969) 70 Cal.2d 618, 621 (Howard), for example, affirmed a conviction under section 484b where the defendant “and an associate had a practice of anticipating expected profits and of paying themselves commissions and ‘supervision’ fees, thus stripping their venture of funds to complete the projects.”
In People v. Butcher (1986) 185 Cal.App.3d 929 (Butcher), the defendant used the proceeds of a progress payment to cover expenses on another project and to purchase a Porsche. The court held that a contractor is entitled to payment for “bona fide costs of the project.” (Id. at p. 938.) If the contractor has earned a progress payment by providing services and materials to the project, and can thus “lawfully recoup” the amount of the payment, then “he may use the recoupment as he likes, i.e., to purchase a Porsche or to fund another construction project.” (Ibid.) Conversely, if the payment has not been earned, then the contractor would presumably be guilty of conversion whether the proceeds are used for a Porsche or for another project.
Our point is also apparent from the discussion in People v. Thompson (1995) 36 Cal.App.4th 843. There, the prosecution presented three distinct theories of diversion, that the defendant had: (1) diverted funds to other projects; (2) accepted payment for a fixture he did not purchase; and (3) taken money for personal use. The defendant offered different defenses to each theory, including, as to the third theory, that “he was entitled to his personal draws.” (Id. at p. 852.) Under these circumstances, the defendant was entitled to a unanimity instruction to insure that the jury agreed on which criminal diversion had occurred. (Id. at pp. 845−846.) The court’s analysis establishes that diversions of project funds for personal use, as well as diversions for use on other projects, violate the statute.
The limitation on section 484b that defendant proposes is not supported by either the language or the rationale of the statute. The statute broadly prohibits diversion for “a use other than that for which the funds were received, ” not any specific use such as the one defendant identifies. “The interest section 484b seeks to protect is the economic security provided by a direct transmutation of construction funds into project assets.” (Butcher, supra, 185 Cal.App.3d at p. 938.) The statute must be read to prohibit any diversion “to a use other than bona fide project costs.” (Ibid.) Whether that diversion is to buy a Porche or fund another project is immaterial from the standpoint of the victim. In either case, the defendant has failed to use the entrusted funds for their intended purpose, and committed a “fraudulent conversion” the statute was enacted to punish. (Howard, supra, 70 Cal.2d at p. 623.)
III. CONCLUSION
The order for probation is affirmed.
We concur: Margulies, J., Dondero, J.