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Recent case expands criminal liability to a deal gone bad

Posted by Michael Horn on Fri, Oct 17, 2014 @ 04:35 PM

Here is an article by Dan Kolber, an Atlanta attorney and owner of Intellivest Securities Research Inc., that highlights the importance understanding the details of borrowing and loaning money.  In class we discuss covenants and their importance.  This article shines a light on the fine print.  A recent criminal case decided by the Georgia Court of Appeals will make it riskier for businesses to raise capital in Georgia because it upheld the use of a criminal statute, “theft by taking,” to what would normally be considered a civil case.

The case is Davis v. State, decided March 6, 2014. Here are the facts. In 2003, Bruce Davis owned a clothing manufacturing plant in Pennsylvania. He wanted to relocate the business to Hazlehurst.

In 2004 he leased a building there and started manufacturing sweaters but soon ceased operations due to lack of capital. Around the same time, Davis agreed to purchase a trouser manufacturing business in Florida. Davis entered into discussions with James “Jimmy” Pruett, an Eastman businessman and state representative, about relocating the Florida trouser plant to a facility that Pruett owned in Dodge County in Georgia.

In 2004, Davis and Pruett signed several agreements whereby Pruett loaned Davis $350,000 and Davis leased Pruett’s building. Rather than using the funds to relocate the trouser plant to Eastman, Davis used the money for various other business interests, including some related to the sweater factory in Hazlehurst. Davis never relocated the Florida plant, never made any rent payments for Pruett’s building and never repaid the loan from Pruett.

Later that year, Davis was indicted in Dodge County with one count of theft by taking pursuant to OCGA Section 16-8-2.

Davis pleaded not guilty. He waived trial by jury. At the trial in 2010, Davis testified that he never agreed that the $350,000 loan was only to be used for relocating the trouser plant and that Pruett knew the loan could be used as working capital while the plant relocation was pending. Davis pointed out that the promissory note and other agreements contained no restrictions as to the use of the loaned funds.

The trial judge found Davis guilty of theft by taking. Davis was sentenced to 10 years’ probation, a fine and restitution.

Davis appealed to the Court of Appeals on two grounds: i) the evidence was insufficient to support his conviction of theft by taking; and ii) improper venue (the trial was held in the wrong county).

The Court of Appeals said that a person commits theft by taking by unlawfully taking another’s property “with the intent of depriving him of the property.”

The Court of Appeals said the judge did not abuse his discretion by finding Davis guilty of theft.

However, the Court of Appeals reversed the conviction due to improper venue, saying that the proper venue for the trial should have been in the county in which “the accused exercised control over the property which was the subject of the theft.”

The Court of Appeals said that should the state decide to retry Davis in the proper county, he may revoke his alleged waiver of a jury trial.

In the meantime, the application of the criminal statute in what many would consider a civil dispute was upheld.

This case gives ammunition to anyone who lends money or invests in a business and doesn’t get his money back. The lender or investor can now argue, at least in Georgia, that the recipient of the loan or investment never intended to repay the loan or distribute profits and is therefore a thief.

The Atlanta attorney for Bruce Davis, who successfully handled his appeal, is Stephen Scarborough. He told me that the state has filed a writ of certiorari to the Supreme Court seeking to appeal the Court of Appeal’s reversal due to improper venue.


1. If you are borrowing money or accepting investments, make sure that all the agreements provide you with broad discretion as to how to use the proceeds.

2. If you have been burned by making a bad loan or investment, you may be able to use Georgia’s theft of taking statute against your adversary. However, if you are not careful, you may be guilty of extortion if you threaten the use of a criminal statute in order to extract some benefit from the alleged wrongdoer. Consult your lawyer.

3. It’s been said that a prosecutor can get a grand jury to indict a ham sandwich. Sometimes the facts of a case are less important to its outcome than one’s standing (or lack thereof) in a particular community.

4. Most investment contracts and promissory notes have a provision whereby the parties waive trial by jury. Think carefully before waiving your right to a jury.

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