Vermont Legislature SmartTranscripts:

[Speaker 0]: We are live. Good morning. This is senate judiciary, and welcome.

[Robert Norris (Vice Chair)]: It is January 28 this morning. We'll be talking about f one eighty three, an act related to home improvement in latest rumor fraud. This is definitely a walkthrough, making any changes or whatever necessary. And joining us this morning is Ledge Counsel. So without further ado, guess we'll be fine. Fair o'-mutely.

[Hillary Chittenden (Legislative Counsel)]: Right. For the record, Hillary Chittenden, for the office of Ledge City of Counsel.

[Robert Norris (Vice Chair)]: Do happen have another copy of

[Hillary Chittenden (Legislative Counsel)]: the bill? My abortion do not. Emory, any chance that

[Speaker 0]: you have extra coverage? Good. That's perfect.

[Hillary Chittenden (Legislative Counsel)]: She should make it part of my crack. Always have an extra. You can put me a concern about with her too. Awesome.

[Robert Norris (Vice Chair)]: Thank you. So

[Hillary Chittenden (Legislative Counsel)]: I think Michelle mentioned this in our initial walkthrough, this bill was changed in 2015, and these new changes kind of revert back to something closer to the pre 2015 version. So the version before the 2015 changes had an intent to defraud requirement that was very clear, knowingly enters into a contract. It also had a presumption such that if a person did not complete a contract, the jury could presume that they entered into the contract with an intent to defraud. In 2015, the legislature removed the word knowingly from the phrase of the person entering into the contract. And some trial courts recently have read that as removing an intent to defraud requirement. And if it can be heard testimony, that's that that is not the way everyone reads it. But if the home improvement fraud statute did not have an intent to defraud requirement, several trial court decisions based on the United States Supreme Court precedent had found that there would be an issue with the thirteenth amendment. Happy to walk through that, the power of decisions were issues that the committee would like to kind of run through them again. But the bill would clarify the intent that intention of fraud is a requirement under the statute. So it kind of returns to something closer to what the statute was prior to 2015, but it does so kind of in line with what those trial court decisions found regarding sort of the right of constitutional statute.

[Speaker 0]: Hillary, excuse me,

[Robert Norris (Vice Chair)]: before you go any further, that was what trying to thought, obviously. The new proposal in S-one 183, it says that it's required that a person knowingly intend.

[Speaker 0]: So are we saying that if we struck the word knowingly, that the intent would still remain, or how do

[Robert Norris (Vice Chair)]: they work? Page are you on file? Page one. I'll place it to the bottom. Wouldn't know what that is. Point seven.

[Speaker 0]: Well, that's just a statement of purpose, right? So that's not Yeah,

[Hillary Chittenden (Legislative Counsel)]: so I think one way to think about the language, And if you look on page also, think knowingly raises, not lowers, the standard of proof. Yes. If, generally, in terms of, like, the kind of tiers of mens rea, knowingly is a lower standard of standard of proof than intends. But I think the language here is intent to defraud refers to, like, when you're entering into the contract, not when you don't complete the contract. So knowingly means that you, like, without mistake entering into the contract, do not intend to complete it in whole or in part. But I appreciate how putting knowingly and intent together is confusing. But I think the idea is intent to abroad just means at the time of contract, you not mistakenly are not planning on doing what you said you do in the contract. Does that look a little bit?

[Speaker 0]: There was one too many negatives in that. Fair enough. The problem I'm having is I don't know if in the bill I don't think it pairs knowingly and Ted. Right? Correct. So I don't, it's not really an issue what the subject piece says on lines up, because that's not conforming for most.

[Hillary Chittenden (Legislative Counsel)]: Yeah, think intent to confraud as a requirement is a way that trial courts have talked about what it means to require at the time of contracting that you don't intend to do the work

[Speaker 0]: you said you do on the contract.

[Robert Norris (Vice Chair)]: And following up on Doctor. Baruth, on page two, this is where it was, line 18.

[Speaker 0]: Yes.

[Robert Norris (Vice Chair)]: This is when the person knowingly enters into contract.

[Speaker 0]: And if you go to page three, on lines ten and eleven, if you read that, promises performance that the person does not intend to perform or knows. I mean, so what's wooshed? What I'm talking about is on line seven, page one, I think knowingly intend is just redundant. Like, you can't intend without knowingly. So you can either say knowingly enters into a contract with intent to defraud or separate them out somehow. That works for me, and that's the way the actual page two and three work is knowingly, and then later on, as a different way of sending the same thing, intends to do. So it's just using synonyms to synonyms.

[Hillary Chittenden (Legislative Counsel)]: I think that is right. I think another way of responding to your question, Senator Norris, is that intent to debride is actually only one of several possible ways that you can violate the statute. So if you look on page three, where you have subdivisions one, two, three, and four. One, two, three, and four are each separate independent possible ways to violate the statute. We've really been focused on talking about one, because that is where these trial court decisions have focused, that is what the prosecutors were bringing cases under. That's intention of fraud, right? That's where we see the intent language. A person knowingly promises performance that the person does not intend to perform or knows will not be performed in whole or in part, that really is intent to defraud. Two, three, and four on lines twelve, fourteen, and 17 are kind of alternative ways that you could violate the statute. There are also versions of fraud, right, like a misrepresentation of a material fact using an unfair or deceptive act. So it's all still sound in fraud, but they're not precisely the same as an intention to fraud. But for all of them, the requirement is that you have to have the state of mind entering into the contract that you either intend not to perform it in March, or that you know you are making a statement about a material fact that it's false, or that you know you are engaging some kind of deceptive act to get the person to agree to the document.

[Speaker 0]: Sergeant Walsh, please.

[Hillary Chittenden (Legislative Counsel)]: So, have a couple questions. I was wondering, and I can't remember who it was that spoke to this. It might have been the Attorney General's office, but I don't want to put words in their mouth if it wasn't them. It sort of spoke to the idea that if somewhere along the way someone makes the intentional decision to not complete the work, that that should also be considered, and my understanding is under the current language it wouldn't be. Is there a way to loop that in?

[Speaker 0]: So the 1A on three, right?

[Hillary Chittenden (Legislative Counsel)]: The removed one a. Correct. Right. So that's the this is the constitutional challenge of the trial court decisions I've been talking about, that what we heard from Kim McManus was that many cases, in many cases, the contractor does not intend to not complete the contract at the start, but at some point along the way, they realize they won't be able to move the contract and they don't do it. The challenge is that if you do not require an intent to defraud or some fraudulent mindset at the start of the contract, what you're effectively doing is criminalizing breach of a labor contract. So you're saying that regardless of what you intend to do in entering into the contract, you're not completing a labor contract and we're criminalizing your act of not completing it, and that's the thirteenth amendment challenge according to these trial court decisions. Right, and guess what I was hearing is that there's a difference between not being able to complete it because you went bankrupt because your office burns down versus deciding along the way, like, Actually, I can make more money if I just sit here and don't. You know what I mean? I don't know if there's a way. Maybe there isn't a way to thread that needle. I think we haven't heard a way to thread That's that the challenge. Okay. And then my other question is around as I'm reading through this, sort of the intent to broaden a way that is perhaps using subpar materials, and I don't know if there's a way to address that, or using known unsafe materials, you know, to cut corners and save money. If the person, if the contractor intended to do that from the beginning and a prosecutor could point to evidence that suggested that was the case, like they had already purchased the substandard material when they went to the contract, for example, then I think it would be covered by one of the Okay. Subdivisions in existing law. I think you'd have to hear from a witness who prosecutes these cases to talk more about the kinds of cases they generally run into, if that's the kind of thing that they feel like they can win and that they do prosecute, they run into, I'm not sure about those.

[Speaker 0]: Anything else? Go ahead, Tanya.

[Hillary Chittenden (Legislative Counsel)]: Think not much further from me unless the committee wanted to kind of run through the constitutional issue again. Just to kind of rehab the key changes in this bill on pages two and three, adding knowingly on page or on page two, line 18, when the person knowingly enters a contract, it's clarifying that this fraudulent mindset has to be there from the time of entering into the contract. And then on page three, this is removing the stricken language on lines three through 10, is removing what was added in 2015, which the trial court decisions have read as criminalizing breach of a labor contract in a way that creates the thirteenth amendment issue, and returns to this focus on unintentional fraud from the time of contract, promises performance that the person does not intend to perform or knows will not be performed or impart. So the bill returns to the 2015 language and adding knowingly, removing what was 1A and adding this language. The only difference would be it does not add back in that presumption that if someone doesn't complete the contract, a jury can presume they never intended to complete it, because that is part

[Speaker 0]: of what the court, the trial court decisions found to be part of their two fifty issue. Senator Baruth? To go to Senator Patosky's point, page three, Strictly language taken out. We will still have line 14 and line 12, those two and three. So the the situation where they use substandard materials seems like could fall under two. They misrepresent a material fact about what they're what they're using in the construction. If that doesn't hold the copper, it seems like unfair or deceptive practice in three is built around getting them to enter a new contract, but could that be broadened so that it was further into the contract?

[Hillary Chittenden (Legislative Counsel)]: So it's an interesting question. I think the language of three includes using an unfair or deceptive act or practice to modify the terms of the original contract, which I think captures kind of the idea that if you are changing the terms of the contract, you're in essence creating a new contract. So if in doing that, you would misrepresent something, then even at the current statute, that would be something you would pursue. I think the challenge is that if you promise to use good materials in the contract and then you just don't use good materials, unless a prosecutor could show that the person knew at the time that they were never gonna use good materials. Right. That's just breach of contract. That's not fraud. And that's the real tension is that, like, when you're criminalizing not following through on the contract because of the labor contract, you have the thirteenth amendment issue. But if you're focused on fraud and entering into the contract or making the contract or eventually modifying the contract.

[Speaker 0]: So this wouldn't prevent, maybe I'm, maybe I have this wrong, but this wouldn't prevent the AG's office from pursuing consumer fraud charges.

[Hillary Chittenden (Legislative Counsel)]: My understanding is that no, would not. Okay. But I would want the AG's office to implement.

[Speaker 0]: So this is just purely revising down the way of the cravings that Charm didn't line with these, according to these. Absolutely. Alright, so people have other remedies, Correct? That's my understanding. Okay. Great.

[Hillary Chittenden (Legislative Counsel)]: But there are still civil remedies. The challenges with new civil breach of contract remedies, I think you just heard from, probably the committee heard from someone since that that could be slow or it's not as big deal as.

[Robert Norris (Vice Chair)]: Under this new existing proposal, the Defender General may testify that he doesn't propose this. So that would mean to me that it's going to be very difficult for the state's attorney's office to prove intent on this particular situation as written right here.

[Hillary Chittenden (Legislative Counsel)]: I think proving intention of fraud is always is almost always circumstantial. Right? The committee heard testimony that unless you happen upon a diary of something saying, I intend to never to exist, It's proved based on evidence. And I think the McManus testified that that can be a challenge. The kind of tension is that that requirement that is challenging is also the requirement that has to be in a statute for it to be constitutional according to these trial court decisions. And as I think Senator Hashim's question flagged, we haven't seen a suggestion of language that would thread the needle, that would kind of address what makes these cases hard to prosecute while also colliding

[Speaker 0]: within the constitutional rights or these trial court decisions.

[Robert Norris (Vice Chair)]: So I have one more question. In reference to, we took testimony where we talked about, well, witness said that part of the fees were supposedly for a specialized window or whatever else. Six weeks later, they went and checked with the

[Speaker 0]: whatever firm they ordered it from and they hadn't ordered it yet. So we're looking at fraud there, breach of contract, neither. After six weeks the individual never ordered this special window and then they take it from this? So I

[Hillary Chittenden (Legislative Counsel)]: think that's one of the kinds of facts that a prosecutor could have went to in trying to say, based on all of the conduct of this contractor, even in entering into the contract, they never intended to follow through. I think the one Supreme Court case, recent one that I'm aware of, it's still just 2011, the fact pattern there, The contractor basically, like, kept asking for advances for various things and kept not doing what the advances were supposed to be for. And a jury found that that indicated he never intended to complete the contract, in part at least, and he was convicted. The Supreme Court decision said, yep, that kind of evidence is sufficient to find an intent to defraud. They paid the conviction for other reasons, but those are the kinds of facts that a prosecutor could point to to try to explain to a jury that the person never intended to complete the contract. But pointing to it alone, it wouldn't be enough. It would all have to be towards in furtherance of showing that the person did not intend to complete the contract at the start of the contract. Under the statute, it wouldn't be relevant to show that they just didn't do what they said they'd do under the contract. That's not

[Robert Norris (Vice Chair)]: further questions from my committee? Well, I guess we're getting to the point now where it doesn't appear as well if we have made any changes or significant changes on the bill as it was entered presently. Thoughts on it mostly had some ideas on this, so please go ahead.

[Hillary Chittenden (Legislative Counsel)]: We did. So one of the things we heard from Kim McManus is that it would make sense to sort of move this fully under the purview of the attorney generals of this to let them sort of decide where it would best go. And I think I agree. And so if the committee supports it, I would certainly support adding language that does that into this bill.

[Speaker 0]: When you say move it into this, this is

[Hillary Chittenden (Legislative Counsel)]: So contractor fraud is a bull. What they what sort of happens now when they were testifying is that there's sort of a question, does it go to the state's attorney, does it go to the attorney general? The attorney general has sort of oversight, and Jim and McMahon has testified that it might make sense to sort of fully move this into their purview to decide where to put it out to, to to just be a little more clear Mhmm. That these cases originate in the attorney general's office. And their team of civil and criminal litigators would then decide what to do with them.

[Speaker 0]: But correct me if I'm wrong, it's a criminal statute. We don't say what the state's attorney can. They Or

[Hillary Chittenden (Legislative Counsel)]: do we? So the AG's office and district attorney's offices would have a concurrent jurisdiction. They both have jurisdiction. I'm happy, I'm not aware, but that doesn't mean there is not somewhere else where we say for a statute, the AG's office has exclusive jurisdiction. Right. I'm not sure what language would look short of that. I'm not sure what language would look like.

[Speaker 0]: Because we're just talking about the criminal statute. Mhmm. Mhmm.

[Hillary Chittenden (Legislative Counsel)]: Yeah. When I asked Kim McManus if if that would be more sensible and sort of eliminate some of the confusion, and and I recall the testimony being like, yeah, that would make sense.

[Speaker 0]: I'm just confused, though. How would we move a criminal statute? So that only the AG could prosecute it. I think,

[Hillary Chittenden (Legislative Counsel)]: I suspect, and I'm happy to look into this further, if the committee is interested in pursuing this, there is another statutory provision that I think lays out the jurisdiction of the attorney general's office, and it, that is probably the place to make a change of that nature. There might also be something here to say, like, these offenses prosecution of these offenses shall be the exclusive jurisdiction of the attorney general or something like that. I mean- But it really

[Speaker 0]: would be making a change too. The fraud division that, that's breaking civil charges, yes? So I don't know how it would help things if we limit the number of people who could bring the charges. Seems like then you've gone into backlog problems with not having enough people as it would stand out you could have a DAG or a state's attorney bring the case, right?

[Hillary Chittenden (Legislative Counsel)]: Yes, I think that's a policy question. And I am not confident on the numbers of people doing these things in

[Speaker 0]: both What

[Hillary Chittenden (Legislative Counsel)]: was it that

[Speaker 0]: ever given past this time? I

[Hillary Chittenden (Legislative Counsel)]: wonder. So a couple of things. It is my understanding we have sole jurisdiction to do to tell the attorney general what they do and what they don't do. But I wonder, given that we've heard from the attorney general saying this might make sense, if it might also make sense to hear from the Department of State of Attorneys and Tariffs, if it makes sense to them as well. You know, these are those are the two entities that are at play here, and so maybe we should hear from them and and hear their thoughts on on whether that would make sense to them before we take any next steps. I just like I said, I just heard that from the attorney general, and so I'm like, well, know, that makes sense to me given that they're sort of the oversight mechanism. They're the ones doing consumer protection. But I think it would make sense to hear from the Department of States of Tramets and Sheriffs on that point. And just in case I'm misremembering, was it who suggested that? So it would be hearing from the Chittenden's office. Oh, right. But I also think it might make sense to hear from Chittenden or Stuttenden. Certainly.

[Robert Norris (Vice Chair)]: I'm not I'm not opposed to that idea. I just my thought process here is does it slow the process down once again as far as this case

[Speaker 0]: AAG's office, and now it gets six to eight weeks away. I think Todd testified when he was spared that they do have this counter jurisdiction,

[Robert Norris (Vice Chair)]: but basically the only thing they convulved it in with is this homicide investigation and prosecution of such, and they're really somewhat overwhelmed presently, but I'm not opposed to the idea, just want to make sure it doesn't slow this down for the alleged victims in such a good place.

[Hillary Chittenden (Legislative Counsel)]: Yeah. Yeah, absolutely. Well, and I just, I think about the case loads. Like, when I think about our state's attorneys with, you know, an algorithm of 400, and I, we've heard from them too that, you know, they're not not director fraud, they're prioritizing the big violent stuff, whereas I am under the understanding that Adrian General about the size of a smaller caseload. So I'd just like to explore it.

[Speaker 0]: Yeah. I'm just wondering, right now it's in their discretion whether to do it or not. We can. Whether to bring charges or not. They can, they don't have to. Saying the attorney general can, but doesn't have to. So I'm wondering why we're make it so that Only the attorney general can do it. Anyway, we can ask those questions of those folks.

[Robert Norris (Vice Chair)]: Dictate as for the Right. Case you'll

[Speaker 0]: I just don't remember ever us are there other places where we do that where we

[Hillary Chittenden (Legislative Counsel)]: I'm not aware of it. That does not mean So there is if, as the committee, the committee wants to continue to explore this, then have

[Speaker 0]: to look into that particular question. That's it. Yeah. Any further comments, suggestions, questions? So

[Robert Norris (Vice Chair)]: I guess we're not quite done with S-one agency. We will set up and I'll brief out the AT and office along with the SAS and your policy based on the question. So doctor, up and running on the ancillary, I'm assuming you're gonna come back on the same building the next time.

[Hillary Chittenden (Legislative Counsel)]: Sure will, if you're not stopping me on this one,

[Robert Norris (Vice Chair)]: how's that? Okay, thank you. If there's no

[Speaker 0]: more questions on this, Our next witness is 10:30, so we can

[Robert Norris (Vice Chair)]: be back here about twenty five after ten.