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Palo Alto contractor faces felony charges

Original post made on Jan 24, 2013

The owner and chief financial officer of a Palo Alto construction company have been charged with several felonies in a scheme that allegedly defrauded an Atherton homeowner, according to the San Mateo County District Attorney's Office.

Read the full story here Web Link posted Thursday, January 24, 2013, 9:31 AM

Comments (25)

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Posted by Resident
a resident of Another Palo Alto neighborhood
on Jan 24, 2013 at 10:25 am

I fear that this may be quite a common practice. The stories and anecdotes I have heard about contractors and sub-contractors, the various types of goings on and backhanders, seem to be the norm as far as I can see.


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Posted by William
a resident of Midtown
on Jan 24, 2013 at 10:56 am

What a shame. This was once a really good company.


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Posted by commonsense
a resident of Duveneck/St. Francis
on Jan 24, 2013 at 11:04 am

Resident - I believe this is only the norm for dishonest contractors. To label all contractors as lying cheaters is not fair. There are many great, honest ones out there. Smith has had a reputation for doing this for many years to subcontractors and homeowners alike.


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Posted by Mark L.
a resident of another community
on Jan 24, 2013 at 11:37 am

It's contractors like James Smith that create bias against honest hard working contractors. He is the minute percentage that is dirty, most contractors are like any other working proffesional, hard working honest people doing a job that is very hard to make a profit these days. They should put him in jail


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Posted by homeowner
a resident of Another Palo Alto neighborhood
on Jan 24, 2013 at 11:43 am

The practices are common, and it happened to us. Our only recourse was civil, where contractors are defended by aggressive insurers and there is no default to recovery of huge legal costs in contracts in this state. So, while we "won", the lawyers did quite well and we lost the badly built house anyway. There was no justice to the perpetrator, as the contractor was covered by insurance, who sued his subs who really hadn't done anything wrong. The whole thing was a travesty, and the contractor never had to answer for his crimes.

The amounts we were overcharged was far in excess of what is at issue here, and no one pursued it. I'm glad to see the DA involved in this case. If this kind of crime isn't just accepted and overlooked anymore, it will become much more rare. And that can only help the honest contractors be more competitive.


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Posted by would be victim
a resident of another community
on Jan 24, 2013 at 11:56 am

we had a similar situation with a contractor and it was only due to our lead builder calling this contractor on the overcharges that we were able (we think) to avoid being ripped off. I think more of this goes on than anyone suspects. This is why it is important to thoroughly check out the contractor ahead of time. Unfortunately, others who had not been aware of anything amiss (later they found out about things that they were overcharged for) were the ones who recommended the contractor we used. Beware! Check out as many references (the contractor would only give you names of satisfied customers of course) as you can. I know there are many very honest and good contractors out there as we have also had the experience of hiring one of them. Unfortunately it is the bad ones that give the profession a bad reputation (just like lawyers....there are plenty of good and honest ones out there!).


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Posted by anotherhomeowner
a resident of Another Palo Alto neighborhood
on Jan 24, 2013 at 12:07 pm

I fear this happens and it's good to know that I'm not just being paranoid. I don't think even checking out the contractor thoroughly will protect you, as rjsmith has a good reputation around palo alto.

As a rule, find general contractors that will let you pay the subs directly. They are out there, you just need to look for them!


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Posted by Rommel
a resident of Barron Park
on Jan 24, 2013 at 12:14 pm

This IS a too-common practice. Several people in Palo Alto, myself included, have given advance deposits to contractors who never return to finish, or sometimes even start, the project.

It has literally taken me twenty years, after two previous contractor ripoffs, to bring another contractor into my home to finish a remodeling project started twenty years ago!!!! I have serious trust issues concerning contractors.


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Posted by Theresa
a resident of Crescent Park
on Jan 24, 2013 at 2:04 pm

Really sad to see RJ Smith involved in this situation. RJ and his son have both done quite a bit of work on my house over the last decade (kitchen remodel, wall reconstruction, exterior painting, bathroom remodel, plumbing work) and I have always felt we were treated honestly. I know he had a major family issue that came up around the time period of this episode and that he has since turned the operation of the business over to his son.

I hope for the sake of the Smith family that the whole situation turns out to be a massive misunderstanding, but I fear the pressure he was under at the time may have altered his usual behavior. Really sad to see this story.


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Posted by Contractor
a resident of Los Altos Hills
on Jan 24, 2013 at 2:10 pm

As a Contractor I hear about this type of issue every week.
Most of these problems can be avoided, if the Homeowner takes sometime and goes to: www.cslb.ca.gov/ and gets a clear understanding of the Lien Law. They are designed to protect the Homeowners. There is also information at your Building Department about Hiring Contractors.
The important thing is, to follow the payment recommendations of the Licence Board and not the Contractor.


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Posted by Mark Samson
a resident of Palo Verde
on Jan 24, 2013 at 3:16 pm

Working with a contractor whether for painting a home, remodeling or building homes or multi units complexes takes a tremendous amount of trust.the relationship between the contractor and the client can feel kind of like friendship-but that is where a dis honest contractor gets the opportunity to add hour to job they didn't work, mark up thing they buy but the client doesn't get the receipt.

What have I learned? Once you find a contractor, watch them carefully, listen to them both when they speak to you and others, get to know the subs. Go not only on what you can see is being done but the feeling you get. Does it seem like the guy is too nice to be true? Prolly is. Does the guy seem like his subs like him? Hesitate when asked about him? Can the hours be substantiated by fact? Get involved. Hang around the job site. Watch. Ask questions. Stay involved. Don't forget you are the boss. Don't give the power away. Nice guys are taken advantage of.


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Posted by Marianne
a resident of College Terrace
on Jan 24, 2013 at 3:35 pm

Many contractors are cheaters. They cannot be trusted and they cannot be left to their own devices. They will figure out how much money you have and how little you know about details and take advantage by charging more or replacing with cheaper products. Then to top it off, they will go over budget and force you to pay them more. Not only that, they use illegal laborers and pay them at extremely low wages, people who risk their health and safety because they don't know better. Often, they don't even have the proper insurance papers, leaving the home owners at risk of liability for the welfare of the cheap labor they hire.

This is one of the most problematic industries in the US. And the problem starts with us growing up not knowing the difference between a hammer and a nail; a whole different issue.


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Posted by jm
a resident of Evergreen Park
on Jan 24, 2013 at 3:39 pm

What makes me mad is that if a case is settled out of court there is always a GAG order so no one knows, the contractor/builder keeps his/her professional reputation, and their listings on the professional associations such as NARI, (National Association of Remodelers ?), are in good standing.

I know personally of a contractor who was padding then carefully altering the original receipts, showing the home owners only copies of the receipts. It wasn't until the home owners were dealing with a sub-contractor who hadn't been paid and gave them a copy of the receipt that they realized it didn't match the copy provided by the contractor. They settled out of court so there is absolutely no way anyone checking out this contractor can find out.

So when you check out a contractor you CAN FIND OUT NOTHING. And the homeowner in question can't tell you because of the gag order.


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Posted by homeowner
a resident of Another Palo Alto neighborhood
on Jan 24, 2013 at 6:19 pm

@jm,
It's even worse than that. If you are in litigation with a contractor, and it gets to court, the homeowner's lawyers are BY LAW not allowed to tell the jury that the contractor's defense is being paid for by his insurer and that the damages will be covered, too, even though his insurance interests usually control every thing from day one. It's such a racket for lawyers!

We refused to sign any kind of nondisclosure, though. I'm not sure it makes much difference to whether anyone else gets taken in by the same contractor. We did it mostly because what happened will affect us negatively financially for the rest of our lives and we just didn't want to have any strings on what we could talk about, especially in regards to the insurer.

By the way, we thought we checked out the contractor pretty well before we hired. I don't think you could do more than we did. The laws need to be enforced as here.


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Posted by pares
a resident of Another Palo Alto neighborhood
on Jan 24, 2013 at 7:53 pm

We also thought we had checked out our contractor but we ended up paying way over the original contract. Some of the subcontractors seemed to want to do too much -- instead of repairing a leak we were told we needed to completely repipe the house. Then there was an electrical problem and we were told we needed to rewire the house. In both cases, we insisted on getting our own estimate and in both those cases it was resolved by a much smaller job. There were many other problems as well and finally we had to fire that contractor. We finally found a contractor we could trust and he did a great job, so the good contractors are out there. Just beware! And our architect (well know Palo Alto too) was a problem with shoddy plans.


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Posted by Disgusted
a resident of Old Palo Alto
on Jan 25, 2013 at 8:38 am

My friend and neighbor had an architect design a new home for her and her family a few years ago. The architect recommended the builder, contractors, and subcontractors!

The house that should have been built within a year took FOUR years to complete. The excuses were: someone stole the marble for the floors; someone stole the granite for the counter tops; someone stole the copper sinks, etc, etc, and all of them have to be reordered from Italy, Brazil, the East Coast, etc, etc. Meanwhile, my friend's family is stuck in a holding pattern paying the old mortgage, the new mortgage, a lease payment on the house they should have only been in for a year, and their dog is in a kennel for four years!

Our suspicions are that someone was selling building materials meant for my friends house and pocketing the money. And dragging their heels on the work to run up the expenses. They had to draw their life savings down to zero to pay for the cost overruns.

I would love to tear down my house and build a nicer, bigger, newer one in its places, but I just cannot take that risk in light of the experience of other neighbors (not just my friend).


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Posted by Bob
a resident of Community Center
on Jan 25, 2013 at 9:30 am

This past year we had a contractor submit a bid for a relatively small job . His business card and bid gave his license #. Past experience told me to check everything over $500. He had not had a license for two years and had no performance bond. But the realtor who recommend him said he did. Check everything and get references. It's a jungle out there.
And be careful of YELP. Anybody can put in a 'reference'.


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Posted by Dean
a resident of Midtown
on Jan 25, 2013 at 10:25 am

That's too bad - RJSMith remodeled my house around 9 nears ago, did a great job and was very honest. I really enjoyed working with him at the time. He also remodeled several other homes in my neighborhood before and since then.


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Posted by An Honest Contractor
a resident of Another Palo Alto neighborhood
on Jan 25, 2013 at 10:43 am

I work for an honest contractor, who tends to bid things as he honestly sees them costing. The problem is, he sometimes isn't hired because the homeowner doesn't want to believe what the true costs will be. The owner will then hire the contractor who under bid the project, who may cheat. lie and steal in order to make his own wages.

The more complete and thorough the bid is, the better everyone is in understanding the costs. Also, owners, do your homework.

And, I agree, double check the contractor's references and CSLB license. Also, ask how they are going to handle change orders, or changes in scope of work. If they don't have a plan or process, it can get confusing.


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Posted by Contractors_SUX
a resident of Charleston Meadows
on Jan 25, 2013 at 11:26 am

This happens all the time. We had no idea what our contractor spent but he freely increased our costs without any proof of his increases in cost.


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Posted by Good Builder
a resident of Crescent Park
on Jan 25, 2013 at 1:41 pm

There are sooo many of you that have had problems that could have been avoided. Please read this before Hiring a Contractor:

Web Link

And follow the recommendations.


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Posted by Subcontractor
a resident of another community
on Jan 26, 2013 at 12:31 am

I'm a subcontractor that worked with R.J. Smith for many years. Up until around 2008 he was able to run profitable and successful business. After the economy slowed down and the construction industry came to crawl, Rich was forced to lower his profit margins in order to stay competitive. This tactic, along with trimming some fat from his operations team, would have kept him afloat. Accept he had the bright idea to save money by having his company self perform the majority of the work which they previously subcontracted.

He hired a few trade professionals, added them to his payroll, opened accounts with supply houses which furnished materials for the said trades, and began self performing the majority of the construction. With subcontractors he had the comfort of delaying payment until he was paid, but now he was responsible for covering the weekly salaries of all of his new skilled employees and paying upfront for materials used because he had no line of credit with his new suppliers.

He was never able to catch up financially; so when he was paid by his clients, instead of using that money to pay off any previous debts, he used it to finance current construction. It became a Ponzi scheme type of operation which eventually drove him to bankruptcy. Now he has this to deal with.

Myself and many other subcontractors that worked with him never received payment on our final invoices. I'd venture to say that most of us are owed over $20,000.


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Posted by the_punnisher
a resident of Mountain View
on Jan 26, 2013 at 11:40 am

the_punnisher is a registered user.

This is a nationwide problem; My parents were going to surprise me with a new garage built on the CO land we own. They checked some references and picked one that was approved by a nationwide troubleshooter which supposedly did a thorough check on the business.

The trouble started right away. In retrospect, I should have gone with my gut feelings.
The on-site manager DEMANDED to open my house main breaker panel to wire into the house electrics rather than use the GFI safe external outlets, threatening to quit the job without access. When I allowed him into the garage and he did his work, he manage to trip several breakers AND LEFT THEM OFF!
When I got out to the garage HIS ADDITION VIOLATED SEVERAL OSHA AND NEC REQUIREMENTS! This was the start of many " corners cut " to build a proper and code passing built structure.

The final issue: Snow loading requirements by the County require roof trusses and stronger roof building materials...

When I check the building codes and the ones submitted by the contractor THE CODE REQUIREMENTS WERE WHITED OUT AND NEW NUMBERS ADDED. There was a set of initials approving the change on the whited out numbers. We have had heavy snow loads the last several years, with many of the " code approved " house and business properties losing their roofs due to snow.

When I brought up the subject of proper roof trusses. he basically said " FU " and gave me the finger as he walked out. A LOCAL contractor partially finished the job by making the additions to create the proper trusses and finished the roof.

When an " Code Engineer " from the county came up to ok the building's usesabiliy, I pointed out the original whited out code numbers and asked him " Would YOU store your expensive car collection in this building? " He got a scared look and without another word, quickly signed off on the permit and quickly left. WITHOUT DOING A COMPLETE INSPECTION!

I asked the same thing when several county asessors showed up to add the ( still unfinished ) garage to the taxes I pay. Their response: " Contact the Zoning and Permits Department ".

The garage still sits in an unfinished state. I may have to finish it myself if I can get over the remaining stroke related issues.

I have the required knowledge. My adult child has her certs in building construction too. She used to mange the Lumber Department for our local Home Despot. Like father, like daughter....


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Posted by old employee
a resident of Barron Park
on Apr 26, 2013 at 11:13 am

used to work for rj smith. this does not surprise me at all. i seen him do this in the past. it was only a matter of time before everything collapsed around him. someone was for sure to notice that they were over billed or change orders inflated. rj's gift is that he is a likeable guy. he can make you like him even tho you may suspect that he is cheating you. you begin to think that surely he wouldn't do that to me. but rj's only friend is money. he loved living high on the hog. to bad for all of his employees and sub's tho. unfortunately guys like him can take others down with him.


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Posted by Bob
a resident of Old Palo Alto
on Aug 13, 2013 at 10:28 am

We used RJSmith for a remodel. He came as a design-build package deal with the designer Kristen Harrison - shame on us for not looking into this more carefully. During the course of the remodel, we uncovered several "issues" such as... right after demo started he came to us with a big change order claiming that his "as is" inspection failed to identify the extra work required; the "supervisor" who was supposed to be overseeing our project was in reality moonlighting and paying no attention to the subs; the plumbing sub was incredibly inept, destroying the floor joists as they laid the drain line without proper repair; foundation was done incorrectly; our chimney fire blocking was left incomplete. Fixing all of the code violations required many more months of work and inconvenience for us.


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