Recent Victories, Deals, & Settlements
Shareholder Bruce Smith and Bill Eikenberry recently settled a six-figure claim against multiple parties responsible for the improper withdrawal and expenditure of funds of a minor child held in a conservatorship account. DMSL was retained by the minor’s successor conservator who was appointed by the Denver Probate Court to pursue recoupment of the funds. The firm then brought an action against the minor’s parent, the parent’s attorney and the bank where the funds were held, for the losses. The settlement restored the minor’s account and paid the fees of DMSL and the successor conservator at minimal cost to the estate. The case, which was vigorously defended by the bank and attorney, was closely followed by the Denver Probate bar.
Firm Prevails In Highly Anticipated Colorado Supreme Court Case
Darling Milligan Smith & Lesch achieved a major victory for injured plaintiffs in a case recently decided by the Colorado Supreme Court. That Court agreed with Rick Lesch’s arguments when it ruled in favor of the firm’s client, Richard Tucker, who was severely injured when he fell while walking around a barrier mistakenly set up by a security detail at a local charity function which forced Tucker to walk about the barrier into a poorly lit area. After Rick obtained a successful jury verdict for Mr. Tucker, the Trial Court reduced the jury award by $34,000 which represented the difference between the amount of his medical bills, $77,000, and the amount paid on those bills by his insurance company, or $43,000. The firm appealed that reduction.
Colorado has a legal principle called the “Collateral Source Doctrine” which says that there should be no deduction for insurance benefits received by an injured person like Mr. Tucker when those benefits are paid on behalf of the injured person as a result of a contract he purchased from another insurance company. The Court of Appeals ruled in favor of the firm’s position that the trial court should not have reduced the jury verdict, but the Defendant’s insurance company appealed that decision to the Supreme Court. No less than four amicus curaie (friend of the court) briefs were filed by insurance companies and defense organizations on behalf of the defendant. The Supreme Court ruled that both the amount paid of $43,000 and relief from the obligation to pay the balance, which was the discounted amount of $34,000, were benefits that Tucker received as a result of his insurance contract. Key to the decision was the Supreme Court’s belief that Defendant’s insurance company should not benefit from the injured person’s foresight to purchase insurance to protect himself.
The decision of the Supreme Court was greatly anticipated by members of the plaintiffs’ bar and defense bar alike, as the issue, whether Colorado’s Collateral Source Doctrine should preclude a deduction for not only the amount actually paid for medical services, but also for the discounted amount of those services (resulting from the insurance policy obtained by the injured person), has great impact on future awards. Some Colorado trial courts’ decisions had substantially reduced verdicts by large “discounted” amounts. Plaintiffs can now be assured that their verdicts will not be reduced by the incorrect application of the Collateral Source Rule.
DMSL Attorney Strikes Blow for Homeowner Enforcement of Colorado Trust Fund Statute
Bill Eikenberry recently prevailed on a motion filed by a general contractor claiming that DMSL’s client, a homeowner who had advanced over $100,000 to a general contractor who later diverted the money away from her construction project, could not enforce the Colorado Trust Fund Statute (“TFS”) to recover those funds because there were no subcontractors, laborers or material suppliers with claims to the funds.
On October 15, 2010, the United States Bankruptcy Court for the District of Colorado ruled that a homeowner has standing to bring a claim under the TFS to recover diverted funds, regardless of whether there are claims to any of those funds by subcontractors, laborers or suppliers. The decision represents a significant expansion of Colorado law, which heretofore, only recognized a homeowners right of enforecement under circumstances where the money being sought was owed to subcontractors, laborers or suppliers.
The TFS, which is part of Colorado’s general mechanics’ lien Statute, provides that all funds disbursed to any contractor or subcontractor under any building, construction or remodeling contract shall be held in trust for payment to subcontractors, suppliers and laborers who have a lien, or may have a lien, against the property where the construction work is performed. Although homeowners are not specifically designated as beneficiaries of the TFS, a homeowner cannot lien his or her own property. Moreover, the essential purpose of the TFS is to protect homeowners from the risk of having to make double payment to complete work on a project. It is this later purpose that is cited by Colorado courts allowing homeowners to enforce the trust even though they are not specifically designated beneficiaries of the TFS.
The decision recognizes that homeowners have a right to recover their own money using the TFS, not just someone else’s money. The decision is also significant because a TFS claim is usually the only recovery option available to a homeowner when a contractor or its principals attempt to shield themselves from liability by filing bankruptcy. In Colorado, trust fund debt is not dischargeable in bankruptcy.
DMSL Prevails in Builder’s Suit Against Homeowner.
The firm recently prevailed in an arbitration hearing brought on behalf of Rocky Mountain Custom Homes, Inc. RMCH is a well known custom home builder in the south Denver area who has also built several “Parade of Homes” residences. The claim was against a homeowner who failed to pay $300,000 in costs in connection with the construction of his $1.2 million custom home. The homeowner had alleged that the work was not authorized and/or the work did not meet reasonable construction standards. Rick Lesch and Lee Darling tried the case on behalf of RMCH. The arbiter awarded RMCH judgment against the landowner in the amount of $287,670.
DMSL Continues to Achieve Favorable Results for Landowner-Clients in Condemnation Actions.
Bruce Smith settled with the Town of Parker on acquisition of a client’s raw land for extension of its parks and open space system. After lengthy negotiation the Town agreed to pay the value concluded by the landowner appraiser selected by Mr. Smith, at $3.5 million.
Big Victory for Client in Malpractice Suit
Bruce Smith and Lee Darling won a $555,000 verdict in Denver District Court on a legal malpractice case against a prominent Colorado real estate firm. The case involved a complicated commercial real estate transaction in which DMSL proved the clients’ prior law firm failed to put in place important protections in the purchase documents. After entry of the verdict the case was then settled for $771,000 with the inclusion of costs and statutory interest. The firm also separately sued the mortgagee of the property to enforce a settlement agreement and prevailed in obtaining judgment and attorney fees.
DMSL Prevails in Estate Suit
The firm prevailed recently in defending a widow in an estate action brought by a supplier of her husband’s business. The District Court in Park County held that account obligations of the husband’s business after his death could not be collected against the estate unless it affirmatively took over the operation of the business or assumed the obligations. Since neither applied, the court held the estate could only be held liable for obligations pre-death, resulting in a substantial financial victory for DMSL’s client. Partner Bruce Smith litigated the case with assistance from associates Ryan Nelson and Bill Eikenberry.
Articles by DMSL Attorneys
Colorado Green – Mechanics’ lien could reduce losses
By William H. Eikenberry, Esq.
Mechanics’ Liens and Other Mechanisms for Payment on a Construction Project
By William H. Eikenberry, Esq.
In a nut shell, the Colorado mechanics’ lien statute, C.R.S. § 38-22-101 et seq., provides that every person who furnishes laborers, machinery, tools or equipment, or who provides work or materials for the construction, alteration, improvement, addition or repair of any building, or other structure or improvement upon land, shall have a lien upon the property where the work or materials were provided for the value of such work or materials.
Timing is everything. The time limits both for filing a mechanics lien and for commencing a legal action to enforce the lien, must be strictly complied with or a lien claim will be lost. Within 4 months after the last work or materials (typically excluding punch-list type items) are provided by a lien claimant, the claimant must file a Lien Statement with the clerk and recorder for the county where the property affected by the lien is located. (If the lien is claimed for labor by the day or piece, and materials were not provided by the claimant, the lien must be filed within two months after completion of the building, structure or other improvement). At least 10 days prior to filing a Lien Statement, the claimant must serve the property owner and the principal contractor with notice of intent to file a lien statement.
The Lien Statement must include a property description sufficient to identify the property, which is typically a street address, and a legal description by metes and bounds, lot and block or both. The Lien Statement must also include the amount due the claimant, and must be signed and sworn to by the claimant. Intentionally overstating the amount actually due, for example, by including non-lienable items such as attorneys’ fees, late charges and tools not consumed on the job (i.e. hammers, power tools and the like), can invalidate the lien. A mechanics’ lien is only effective for one year after filing, unless within thirty days after each annual anniversary of the filing the claimant files an affidavit stating that the improvements on the property subject to the lien have not been completed.
Once a mechanics’ lien is filed, the claimant has just 6 months from the date last work or materials were provided by anyone working on the project, or from completion of the building, structure or other improvement (sometimes referred to as “substantial completion”), to commence a legal action to foreclose the lien. The claimant must also file a Lis Pendens (public notice of a suit pending against real property) with the county clerk and recorder within the same 6 month time period.
Substitution of Bond. If, to avoid a cloud on title caused by the filing of a mechanics’ lien, a property owner files a corporate surety bond or other written undertaking approved in form and amount by the district court where the property affected by the lien is located, the mechanics’ lien will be discharged and released. The claimant must then bring a claim directly against the bond, which must be commenced within the same 6 month time period applicable to commencing the lien foreclosure action. The lien claimant must also still file a Lis Pendens.
Notice to Disburser. In addition to filing a mechanics’ lien, a contractor, supplier or laborer who has not been timely paid can serve written notice on a “disburser” – a lender or property owner who has agreed to disburse proceeds as work progresses on a project, or any person who receives funds from a lender, contractor or owner to be disbursed as work progresses on a project- identifying the property where work or materials have been provided, the claimant’s name, address and phone number, the person with whom the claimant has contracted and a general statement of the claimant’s contract. After receiving the notice, the disburser must, before disbursing any funds to the person with whom the claimant has contracted, ascertain the amount due to the claimant on any future disbursement date and pay that amount directly to the claimant from any undisbursed funds available to pay the claimant. If the amount due the claimant is disputed by the entity the claimant contracted with, the disburser can impound any undisbursed funds until the amount due is settled by agreement or final judicial determination.
Colorado Trust Fund Statute. The Colorado Trust Fund Statute (“TFS”), C.R.S. § 38-22-127, provides that all funds disbursed to any contractor or subcontractor on a construction project must be held in trust for payment to the subcontractors, suppliers and laborers for which the disbursement was made. Under the TFS, a contractor is prohibited from using trust funds to pay general corporate obligations before fully satisfying unpaid claims of subcontractors, suppliers and laborers. Disbursements considered trust funds are not limited to disbursements under a construction loan. “Funds disbursed” has been broadly interpreted to include funds originating from the sale of a home that is part of a residential development project where a claimant provided lienable work, and voluntary loans/capital contributions by a Manager of a property development company who used the funds to pay general overhead expenses before fully paying an unpaid contractor. Violating the TFS constitutes theft, and if legal action is commenced, damages for violating the TFS can include triple the amount wrongfully diverted and attorneys’ fees. The individuals who controlled the offending contractor’s financial decisions at the time of the diversion can also be held personally liable for violating the TFS.
The Colorado Trust Fund Statute – Leveraging a Contractor for Payment with Personal Liability, Treble Damages and Attorneys’ Fees
By William H. Eikenberry, Esq.
Darling Milligan Smith & Lesch, PC
Subcontractors and suppliers who perform work on a construction project and do not get paid typically sue the general contractor for breach of contract and file a mechanics’ lien. (A mechanics’ lien places a lien on the real property where the work was performed). If the owner has already disbursed money to the general contractor for payment to subcontractors or suppliers and the general contractor fails to pass those funds through to the subcontractors and suppliers, the contractor and the individuals who control the contractor’s financial decisions can also be sued for violating Colorado’s Trust Fund Statute, C.R.S. §38-27-127.
The personal liability component of a Trust Fund claim provides critical leverage to an unpaid subcontractor or supplier for compelling payment from the contractor. So too does a provision of the Colorado Theft Statute, C.R.S. §18-4-401, et. seq., which provides for the recovery of treble damages, litigation costs and attorneys’ fees. A Trust Fund claim can also survive in bankruptcy so that money paid for subcontractors or suppliers and still being held by the general contractor is protected from the claims of other creditors.
The Trust Fund Statute
The Trust Fund Statute provides that all funds disbursed to any contractor or subcontractor under any building, construction or remodeling contract shall be held in trust for payment to subcontractors, suppliers and laborers who have a lien, or may have a lien, against the property where the construction work is performed. (Colorado courts have determined that a claimant under the Trust Fund Statute is not required to have a properly perfected mechanics’ lien, or that a claimant still be able to perfect such a lien, in order to assert a claim under the Statute). The Statute does not apply if the general contractor has furnished a performance or payment bond on the project.
Under the Statute, every contractor or subcontractor shall maintain separate records of account for each project or contract. A general contractor that fails to maintain construction funds payable to subcontractors and suppliers automatically commits theft and can also be criminally charged with a felony under the Colorado Theft Statute.
Personal liability is the key
The general contractor is often a corporation or some other legal entity, which means that the individuals controlling the entity are generally shielded from personal liability. Thus, when subcontractors and suppliers do not get paid even though the general contractor has received the funds intended to pay them, an unpaid subcontractor or supplier often sues the general contractor only to learn that the general contractor has ceased operations, leaving no money in the company to satisfy a judgment for the funds. The Trust Fund Statute, however, blocks the escape of those who control the financial decisions of the company by imposing personal liability on them for misappropriating the money originally paid to the general contractor, but intended for subcontractors or supplies.
A property owner can also assert a Trust Fund claim
Colorado courts have determined that the property owner is a “direct beneficiary” of the trust created under the Trust Fund Statute because the Statute protects the owner against the possibility of making double payments for subcontractors and supplies when the general contractor has already been paid for the work and supplies. Thus, when the owner seeks enforcement of the Trust Fund Statute the Statute is typically enforced by courts in cases where a mechanics’ lien is filed or threatened by a subcontractor or supplier who has not been paid. In other words, when the owner is facing double payment to resolve actual or threatened liens.
In some cases, however, the subcontractors and suppliers have been paid, but the general contractor has walked off the project and refuses to return construction funds advanced by the owner. Colorado courts have yet to rule on a case concerning owner-enforcement of the Statute under these circumstances. Nevertheless, the owner still faces the possibility of double payment to complete the work, and the general contractor is still required to hold all construction funds in trust for the owner’s benefit. Therefore, if the general contractor refuses to return construction funds advanced by the owner the general contractor should be in violation of the Statute.
Treble damages, legal costs and attorneys’ fees
If a Trust Fund violation has occurred then a subcontractor, supplier or owner can recover up to three times the amount misappropriated from them by the general contractor, as well as the legal costs and attorneys’ fees incurred by the subcontractor, supplier or owner in the lawsuit against the general contractor to recover their money.
Lee Darling was recently Awarded membership to the National Association of Professional Women 2011-2012 calendar year. She also was recently named one of Colorado’s top attorneys in real estate by Colorado Super Lawyers 2011