Pennsylvania contractor-law regulations fall short, say critics

Posted: Monday, March 9, 2015

Part Two

Larry Lukas expected to spend $14,600 for a new roof and a remodeled basement. Instead, he paid $10,000 for bare walls and faced nearly a year of frustration.

He complained to authorities after contractor Charles Gorman abandoned the job at his family’s Southampton home in 2013, but didn't hear back for four months. That's when he was contacted by a police detective who was building a case against Charles R. Gorman Custom Carpentry, of Horsham.

At that point, authorities believed Gorman had ripped off five others.

By the time criminal charges for home improvement-related theft were filed against Gorman in July 2014,there were eight victims. After he was arrested two more homeowners came forward with theft allegations.

Gorman is awaiting sentencing in the Court of Common Pleas in Bucks County. He admitted accepting more than $36,000 from 10 homeowners in exchange for shoddy or incomplete work.

His legal problems aren't over. He's facing trial for the same crime in Carbon County, according to court records.

“Had any of these agencies done anything about this crime other victims may have been saved from losing their money,” Lukas said. “But because nothing happened, Mr. Gorman was allowed to continue to commit the crime of home improvement fraud.”

The Lukas family’s slow road to justice is one reason why some people believe the Pennsylvania Home Improvement Consumer Protection Act doesn’t go far enough to regulate the industry, despite recent tweaks designed to address a few shortfalls such as outdated contractor information in registrations.

The frequent complaints among victims include the difficulty in bringing fraud allegations to the attention of authorities, the snail's pace of investigations that allow contractors to keep working and hiding assets, and no mechanism for a timely restitution.

Charles Gorman

The home improvement trade association doesn’t like the law much either. It wants to see education, training and experience made standard before someone can obtain a contractor registration. It wants money collected through registration fees used to enforce the law, rather than fill state budget gaps.

For ripped-off homeowners like Lukas, cases may appear open and shut. But such investigations are among the most tedious and time consuming, law enforcement and consumer advocates said.

“I sure understand this can be a terribly frustrating problem to residents who have been burnt by contractors,” Bucks County Director of Consumer Protection Michael Bannon said. “I can see in their eyes the pain that they feel and I’m sympathetic to them.”

The case against Gorman started with a homeowner's claim that Gorman took deposit money did not work, said Southampton Detective James Schirmer, who conducted the investigation. Soon, Schirmer found other victims with similar claims.

Gorman's victims stretched from Jim Thorpe to Delaware County, he said, adding he had to contact a lot of people and some turned out not to be viable criminal cases. Each potential victim had to provide copies of relevant documents, but sometimes victims don’t have all the necessary information readily available, leading to delays, he added.

Search warrants had to be obtained for bank records to prove the money came out of the victims’ accounts, he said. Finally, the district attorney had to screen the cases to make sure they are chargeable.

The fact that Gorman kept deposit money from several people but performed no work helped strengthen other victims' cases, including Lukas'. It showed a pattern of intent to defraud, Schirmer said.

“Many of Gorman’s victims had filed civil suits in various district courts and had been awarded judgments,” he added. “However, with Gorman’s lack of assets, the civil judgment was as worthless as the contract he gave them.”

Commonwealth Court judges can — and do — require defendants make restitution as part of a sentence and typically extend probation until restitution is fulfilled. Judges also will require a defendant to stick to a repayment plan under threat of violating probation.

But since 2003, only five of at least 20 contractors sentenced in Bucks and Montgomery counties for theft or fraud fully paid restitution orders, according to court records. Most who owe are required to pay less than $500 each month.

One former Northampton contractor convicted in 2005, who received probation, has repaid less than $90,000 of the more than $200,000 in restitution the court ordered. The repaid amount includes $38,000 he paid the day he was sentenced, according to the court records.

Lower Makefield contractor John Succi, convicted last year in the largest contractor fraud case in recent Bucks County history, started ripping off people in 2005. Half of the 14 people he allegedly bilked were victimized before the 2009 law took effect, authorities say.

When customers sued Succi, he filed for bankruptcy protection, which consumer advocates say is a common way contractors avoid paying restitution or civil awards. He changed the name of his company at least nine times to further avoid collection efforts, authorities said.

Nearly a decade after his deception began, Succi was convicted in December of 27 counts of home improvement-related fraud and theft for stealing $2.5 million. His sentence: 15 to 30 years in a state prison. And he was ordered to pay more than $1.8 million in restitution.

IGNORANCE NOT BLISS

Bannon is blunt with his opinion of how Pennsylvania stacks up among others when it comes to protecting consumers from home improvement fraud.

“For a major Northeast state we are behind,” he said. “I would say our law is not as strong as I would like.”

Other states require home improvement contractors pass a competency test, set standards for maintaining licensing requirements, and mandatory ongoing training, he said.

Michael Bannon

The linchpin that resulted in Pennsylvania’s home improvement contractor law was the one New Jersey put in place in 2005, Bannon said. New Jersey’s law drove unscrupulous contractors across the Delaware River and into Pennsylvania. Bannon’s office saw a spike in complaints involving New Jersey contractors but found tracking down alleged fly-by-night contractors was like chasing ghosts.

“We didn’t know who anyone was,” Bannon said.

In addition to establishing minimum insurance coverage and mandatory registration, Pennsylvania's law requires contractors provide their registration numbers in advertisements and contracts and mandates new contract terms such as a start and completion date, total cost of the project and the exact work to be done.

While the Pennsylvania Attorney General’s Office oversees its enforcement, the law limits its power to pursuing only civil actions, such as fines or restitution agreements, against noncompliant contractors. Criminal prosecutions are handled at the county level.

Last year the AG’s Office doubled the number of legal actions taken against noncompliant contractors. But the number — 31 versus 12 in 2013 — still represents a tiny portion of the complaints, which totaled nearly 3,000 last year. A typical legal action starts with two to eight complaints, but often grows as the investigation progresses, according to the AG’s office.

The state agency has the power to deactivate contractor registrations, something it has done more than 4,600 times since 2009 with one third of those deactivations since 2012 alone, according to the office.

In August, the AG's Office took action against eight home improvement contractors, securing five “assurances of voluntary compliance” and three court orders requiring contractors to pay more than $130,400 in restitution and civil penalties, according to a press release. None of the contractors were located in Bucks or Montgomery counties, the AG's Office said.

The contractors were accused of violations from failure to maintain current registration and failure to use contracts that follow the law, to failure to restrict customer deposits to one-third the total price and failure to provide consumers with a three-day cancellation notice, according to the AG.

An attorney general spokesman said the office mediates every complaint against a home improvement contractor for a material, substantive or contractual violation of duty.

"We will attempt to get some sort of relief for every consumer who may have been victimized by a contractor, even on a single incident," spokeswoman Carolyn Myers said.

Consumer advocates attribute the recent enforcement crackdown to the appointment of Basil Merenda as director of the Bureau of Consumer Protection in April. Among Merenda’s first acts was to start a new regulatory compliance unit, hire more agents and attorneys to investigate complaints and conduct spot audits of registrations for accuracy.

In October, for the first time since 2009, several new pieces of legislation were signed into Pennsylvania law designed to address some loopholes, including one that now gives contractors 30 days to update any changes in registration information, including phone numbers, addresses, or insurance coverage or face fines.

Another change allows so-called “time and materials” contracts, previously banned under the law but still widely used. The new option set a 10 percent ceiling above the initial cost estimate for those using the contracts, and a homeowner must agree to any costs beyond the ceiling in a written change order.

The change was pushed by the home improvement industry, which said it will be helpful with smaller projects and emergency repairs.

State Rep. Thomas Killion, who represents Delaware and Chester counties and authored the updates, believes the time and materials option provided a need for flexibility in the law since contractors can run into unforeseen circumstances with a project.

Killion nailed a change involving the Mechanic’s Lien Law, which will create in the near future an online system so property owners can identify all subcontractors working on projects and avoid double billing. The change will enable a property owner to make sure subcontractors are paid before making a final payment to the general contractor, avoiding potential liens filed against them. The same systems exist in other states such as Ohio and Michigan.

One bill that never made it out of the state Senate Consumer Protection and Professional Licensure Committee would have established a restricted revenue account into which all fees, penalties and interest would be deposited and solely appropriated to the AG’s Office to administer and enforce the contractor law. Contractors are required to pay a $51 registration fee every two years.

Consumer advocates and the 5,400-member Pennsylvania Builders Association believe the AG’s lax enforcement of the law has been a direct result of a lack of funding.

The AG’s Office has no control over money collected under the contractor law. Until 2011, the state Legislature funneled all the money into the general fund to fill budget gaps. But since a 2011 amendment to the law, the AG’s Office can request an annual allocation, though the request is not automatically granted, according to the AG’s Office.

A little more than $5 million of the nearly $11 million in fees collected since 2009 was used to fund the state budget, the attorney general spokesman said. But since the change, the AG’s Office has received $4 million, he said.

“It’s a cash cow for them,” said George W. Edwards, a Chester County contractor and member of the National Association of the Remodeling Industry. “It should go toward enforcement and educating the public in what their rights are and what they expect.”

RIPE FOR RESHAPING

Fran Cleaver who, until recently, headed the Senate Consumer Protection and Professional Licensure Committee, believes lawmakers are open to more changes

John Salvatico in 2013

“There needs to be a very hard look done at this,” Cleaver said. “It’s ripe for that type of debate and reshaping.”

Bucks County prosecutor Marc Furber, chief of economic crimes for the District Attorney’s Office, would like to see more front-end background checks before a registration is issued to a contractor and mandatory reviews of an applicant with theft or fraud convictions.

“Obviously we don’t want people who have theft convictions,” he said. “That person certainly shouldn’t be immediately getting their registration.”

Bannon would like to see an amendment that would keep contractors with multiple civil judgments off the registration list. He’d also like to see criminal penalties for contractors caught working without a registration and requirements that contractors be bonded.

Municipal building and inspection offices should be required to check contractor registrations and insurance coverage before issuing building permits, Bannon said.

“That is a basic common sense thing to me,” he added.

Warminster resident Jeff Goldstein, a victim of a contractor, believes the recent updates are a step in the right direction, but he wants to see more done to compensate victims. He suggested bringing in forensic accountants to review assets of convicted contractors who claim they are bankrupt or appear to have no assets and requiring contractors to take out bonds for projects.

“If they would have stopped John (Succi, the contractor) earlier, he wouldn’t have done that last job in 2013,” Goldstein added. “He could have been put out of business by then.”

Along with changes in the law and enforcement, Bannon would like to see the state do more to increase public awareness and education about the contractor law and its registry. It’s something he hasn’t seen happen since the law took effect.

“The education on this issue needs to be ongoing because consumers may not be interested in the subject unless they're doing a home improvement project themselves,” Bannon said. “Many people say on a regular basis, ‘I didn’t know there was a registration.'”

Bannon isn’t the only one whose noticed the lack of knowledge about the law.

Before the 2009 law required a one-page addendum to contracts informing customers they have three days to cancel, most didn’t know about the option, though the right has been in place since the 1950s, said Edwards, the Chester County contractor.

“Unless you tell them, they have no clue,” Edwards said. “Unless you are upfront — this is who I am, this is my license, my certifications, here is my insurance — they have no clue."

Jo Ciavaglia: 215-949-4181; email: jciavaglia@calkins.com; Twitter: @jociavaglia

A look at some fraudulent contractor cases since 2009

Artur Wryzkowski, of Newtown Township, pleaded guilty in the Court of Common Pleas in Bucks County to taking $3,120 to fix a roof on a Lower Makefield home in 2011, but never doing the work. He did business under the company named Quality #1 Roofing in Newtown. He was sentenced in 2013 to three years of probation and fully repaid his restitution order at the time of his guilty plea.

In 2010, he pleaded guilty to theft by deception and receiving advance payment for services and failing to perform. He was sentenced to one year of probation. He repaid the $7,500 before his guilty plea in that case. According to online court records, he had two civil judgments against him in 2009 totaling $8,675.

Steven Dunner, who owned Doylestown Roofing & Siding, was convicted of home improvement-related fraud in 2011, but managed to obtain a state registration.

In his application, Dunner lied about his previous criminal convictions including the 2011 contractor fraud-related case. After his second conviction in 2012 for stealing more than $28,000 from three Bucks County homeowners, a court order was issued to keep Dunner off the state registry.

Dunner was sentenced to two to 10 years in state prison and appealed. He lost the appeal in November 2013 and disappeared while out on $100,000 unsecured bail. He remains at large. He made almost full restitution at the time of his guilty pleas in both home improvement fraud cases.

John Debrigida was a Warminster contractor convicted of ripping off two Montgomery County homeowners for $10,000 in 2011. His company — Outdoor Dream Spaces — was not state-registered, something that consumer protection advocates consider a bright red flag.

But his name appeared on the state registry, under a company called Dream Scapes, until 2013, a year after he pleaded guilty to home improvement fraud and bad checks. In that registration, Debrigida claimed he had never been successfully sued in civil court within the last decade for home improvement work. But court records tell a different story.

Debrigida or Outdoor Dream Spaces were successfully sued five times between 2008 and 2010 for a combined total of $27,325, according to online court records.

A Montgomery County judge sentenced Debrigida to five years of probation and ordered him to repay $16,156, including money he owed a supply company. But two years later, he still owes just less than $14,000, according to court records.

John Salvatico, of Doylestown, also continued working in home improvement after his a conviction in 2008 for deceptive business practices related to a family contracting business. Salvatico and his brother Joseph pleaded guilty or no contest in Bucks County in 2008 to bilking six homeowners and were each sentenced to 11½ to 23 months of jail time and 10 years of probation.

In 2013, Salvatico was accused of fraud, theft, deceitful business practices, forgery and related offenses in at least four towns in Bucks and Montgomery counties. In at least one of the cases, officials said, Salvatico told the homeowner and township that his name was John Farabella.

After those charges were filed, Salvatico worked for Eastern Construction & Roofing LLC, a registered state contractor. His wife, Virginia Schaffer, was listed on the registry as the company’s owner.

Salvatico eventually pleaded no contest in Bucks County to numerous felony theft charges. As part of a plea agreement, he was sentenced to two to four years in a state prison plus 10 years of probation. The judge also issued a court order banning Salvatico from working in any aspect of construction and added another $10,523 to his 2008 restitution total.

Salvatico still owes much of the $81,000 in restitution he was ordered to pay in 2008.

Arthur Gelembiuk, of Cedars, Montgomery County, pleaded guilty in Bucks County court in 2012 to theft by deception after he took $24,180 in payments from a Wrightstown homeowner but failed to forward the payments to subcontractors hired to construct an in-ground pool. He was sentenced to three years of probation and ordered to pay $24,100 restitution, which he did, according to court records.

Gelembiuk, who was doing business as Platinum Outdoor Living in Cedars, was retained in 2010 as project manager responsible for providing construction drawings, site visits and supply licensed and insurance subcontractors for the pool project. He requested that all the subcontractors be paid through his company. Platinum Outdoor Living and Gelembiuk were not registered as contractors.

Robert A. Wewer, of Warwick, pleaded guilty in Montgomery County to three counts of felony theft by deception in 2013 for bilking three Montgomery County property owners out of $73,000.

Wewer, who was not registered as a contractor, was sentenced to 10 years OF probation and ordered to repay $73,898. he still owes more than $72,000, according to court records. Whitpain police in Montgomery County learned about the fraud in 2011 when a property owner reported he paid him $22,000 in 2009 for work that wasn’t finished. During the investigation into that case, police found Lower Moreland and Cheltenham property owners who made similar fraud complaints.

Source: Calkins Media archives, Pennsylvania online court records