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News

 

DMSL Prevails in Builder’s Suit Against Homeowner.

The firm recently prevailed in an arbitration hearing brough 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 and sold 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 reasonble costruction 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.

Recently partner 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.

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. Read More…

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

Introduction

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.
Read More…