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Corporate Officers May Face Personal Criminal Liability for Building Code Violations

Speeding is a crime. Stealing is a crime. Murder is a crime. But violating the building code – a crime? Until recently, criminal liability did not come into play for building code violations. However, in March 2003, the Minnesota Court of Appeals affirmed the criminal conviction of a construction company's CEO for violations of the Uniform Building Code. The CEO was sentenced to pay a fine, make restitution to condominium owners and serve 90 days in jail (with 80 days stayed pending compliance with sentencing conditions). State v. Arkell, 657 N.W.2d 883 (Minn. Ct. App. 2003).

The defendant was the CEO, president and sole shareholder of Carriage Homes, Inc. The company acted as general contractor on a condominium development in Austin, Minnesota. Carriage Homes subcontracted out the project labor, but directly employed project managers to handle day-to-day operations and supervise subcontractors.

Underlying Facts

When the condominium development was substantially complete, building officials determined that the foundation elevations in some of the units were lower than permitted under the Uniform Building Code. The deficient elevations allowed foundation water to pool in units, driveways and garages. City building officials alerted the CEO to the Code problems and repeatedly wrote letters regarding the situation. Although the CEO passed those letters along to the project managers, the Code problems were never resolved.

In 2001, the state charged Carriage Homes and the CEO individually with three misdemeanor counts for Building Code violations. Two of the charges were dismissed, leaving a charge of violating UBC § 1806.5.5 based on the noncompliant foundation elevations. The company, Carriage Homes, pleaded guilty to the charge and received a $1,000 fine. However, the CEO pleaded not guilty to the charges against him, arguing that he could not be personally criminally liable for the Code violations.

Trial Court Conviction

The trial court convicted the CEO, and based its decision on Minn. Stat. § 16B.69. This statute provides for enforcement of the State Building Code and sets forth a misdemeanor penalty for Code violations. The court found that Section 16B.69 is a public welfare statute, therefore warranting application of both strict liability and the "responsible corporate officer doctrine ." Public welfare statutes are those that regulate conduct that is "potentially harmful or injurious" to human health and safety. The court held that Section 16B.69 falls within this definition because the Building Code is "intended to protect the health, safety, and welfare of the citizens of this state."

Public Welfare Statutes

Generally speaking, public welfare statutes impose strict liability (i.e. liability regardless of intent), unless the statute explicitly requires culpable intent. In this case, the CEO argued that strict liability was not proper because Section 16B.69 states that "liability cannot attach unless the [state] shows the defendant knowingly or intentionally committed a building code violation."

However, the court noted that several other states have imposed criminal liability for building code violations without a showing of culpable intent. Affirming the conviction on appeal, the Minnesota Court of Appeals held that criminal intent is not required for liability under Section 16B.69 because the punishment imposed for violation is relatively light – a misdemeanor with fines or relatively short jail sentences. Accordingly, violators of the Minnesota State Building Code can be held strictly liable.

Court of Appeals Affirmed

The Court of Appeals went on to address the "responsible corporate officer doctrine" which allows for criminal liability of a corporate officer for violation of a strict liability public welfare statute. A corporate officer may be criminally liable where the officer had the power to prevent or cure the violation. An officer's liability is not dependent on knowledge or participation in the criminal act. A failure to act is sufficient to impose liability when an officer is aware of wrongdoing.

The Court of Appeals affirmed that in this case the CEO had a non-delegable duty to either prevent or promptly correct the Building Code violations at issue. The Court found a causal link between the CEO's position with Carriage Homes and the Code violations, because city building officials had informed the CEO of the violations in writing on seven separate occasions. Although the CEO passed the letters on to his project managers, the violations were not remedied and the CEO failed to take any additional action. Based on these facts, the Minnesota Court of Appeals held that the CEO was personally liable as the "responsible corporate officer."

Supreme Court Reversed

The Arkell case was reversed by the Minnesota Supreme Court, State v. Arkell, 672 NW 2d 564. (Minn. Sup. Ct. 2003). The Minnesota Supreme court stated that strict liability statutes were disfavored and was not inclined to find criminal liability unless the legislative intent were clear. In this case, the Minnesota Supreme Court found that legislative history of the Minn. Stat. §16B.69 did not indicate that the legislature intended to create a strict liability crime. The Supreme Court, therefore, reversed the appellate court's decision and vacated all findings and holdings of the district court and the appellate court regarding the responsible corporate offer doctrine.

Implications for Construction Industry

While the Arkell decision was ultimately reversed by the Minnesota Supreme Court, it should still be a warning for the construction industry. Other jurisdictions have criminal penalties for building code violations. Construction company owners, officers and shareholders need to be aware that they may face personal criminal liability for unremedied building code violations. Therefore, the lessons of Arkell should be taken to heart.

Construction company principals and officers cannot afford to ignore notifications of code violations by building officials. Code violations should be promptly addressed, with all corrective action adequately documented. Delegating responsibility for correction of code violations to project managers may not protect company principals or officers from criminal liability. Construction companies should ensure they have adequate controls and checks in place to address any code violations that may arise.


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