Contractor Sentenced to Seven Years for Embezzling $3 Million

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Michael Medeiros was not a good guy. Ok, on a scale of 1 to 10, maybe not a 9 or 10 (when you’re including guys like Charles Manson), but a solid 6 or 7 at least.

The next case, People v. Medeiros, Case No. A155648, 1st District Court of Appeals (March 26, 2020), is less important for its legal holding than as a reminder that while most legal disputes on construction projects end up with one party owing the other party money, sometimes, when a party’s conduct has been really bad, it can end in a loss of liberty (i.e., jail time) as well.

People v. Medeiros

Medeiros was a painting contractor operating under the name Professional Painting Company, Inc. In the early 1990s, Medeiros met Susan Lambert, who served as the property manager for a homeowners’ association, Woodlake Association, in Hayward, California.

Lambert was an alcoholic. Following a series of surgeries in 2005 and 2007 she became addicted to opiates as well. She also had a gambling problem. As a result, Lambert regularly found herself in financial difficulty.

And this is where Lambert and Medeiros found that they shared common ground. At some point, Medeiros confided to Lambert that he was having cash flow and tax problems.

So the two of them cooked up a plan.

Lambert would create fake invoices from a fake company named PP, Inc. Lambert would submit these invoices to Woodlake’s bookkeeper who would cut a check to PP, Inc. Lambert and Medeiros would then meet at a bank where Medeiros would deposit the check into a Professional Painting Company account and cut a check payable to a company controlled by Lambert called Castle Management for half of the amount.

It wasn’t a particularly sophisticated plan, but it worked.

From 2007 to 2013, Woodlake paid PP, Inc. or Professional Painting Company the sum of $2,819,868. Of this amount, Professional Painting Company paid Castle Management the sum of $1,336,994. And of this amount, $1,081,827 found its way from Castle Management bank accounts to various casinos.

At some point, Woodlake discovered that they were paying for construction work that was not being performed. The San Mateo District Attorney filed 3 charges against Medeiros, Count 1 for embezzlement under Penal Code Section 508, Count 2 for forgery under Penal Code Section 470, and Count 3 for grand theft of personal property valued at more than $950 under Penal Code Section 487.

Following trial, the jury convicted Medeiros of embezzlement and grand theft and the trial court sentenced Medeiros to seven years in jail which included a three-year enhancement under former Penal Code Section 12022.6 for a three-year enhancement for felonies involving the losses exceeding $1.3 million.

Medeiros, who was sentenced in September 2018, appealed on the ground that Penal Code Section 12022.6 sunsetted on January 1, 2018.

The Appeal

On appeal, Medeiros argued that because Penal Code Section 12022.6 sunsetted on January 1, 2018, it could not be used to enhance his sentence which occurred in September 2018, since the Section had been repealed at the time he was sentenced.

Penal Code Section 12022.6, which included sentencing “enhancements” targeted toward embezzlement and theft claims exceeding certain dollar amounts, was originally enacted in 1977. In 1990, a sunset date was added which was subsequently extended several times, in 1992 (extending the sunset date to 1998), in 1997 (extending the sunset date to 2008), and finally in 2007 (extending the sunset date 2018). In 2018, the State Legislature sought to eliminate the sunset provision, but failed to do so, when Governor Brown vetoed the legislation.

Although Penal Code Section 12022.6 sunsetted before Medeiros was sentenced, the Court of Appeal found that Section 12022.6 nevertheless applied, because Medeiros’ crime occurred at the time that the statute was in effect, finding that:

  1. The purpose of the State Legislature’s insertion of the sunset date was to periodically review the amounts triggering the enhancements not whether the enhancements should be repealed; and
  2. By retroactively repealing the enhancement, although the crime took place at the time the statute was in effect, would incentivize criminal defendants “to delay the finality of a judgment I the hope of eventually receiving the lessened, post-sunset term.”

Conclusion

Medeiros is a reminder that, while most contractor disputes end in one party owing another party money, in some cases, where the conduct is egregiously bad, it can result in a loss of liberty as well.

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