Colorado § 38-26-109 - Moneys for verified claims made - trust funds - disbursements - penalty.

§ 38-26-109. Moneys for verified claims made - trust funds - disbursements - penalty.

(1) All funds disbursed to any contractor or subcontractor under any contract or project subject to the provisions of this article shall be held in trust for the payment of any person that has furnished labor, materials, sustenance, or other supplies used or consumed by the contractor in or about the performance of the work contracted to be done or that supplies laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work where the person has:

(a) Filed or may file a verified statement of a claim arising from the project; or

(b) Asserted or may assert a claim against a principal or surety under the provisions of this article and for whom or which such disbursement was made.

(2) The requirements of this section shall not be construed so as to require a contractor or subcontractor to hold in trust any funds that have been disbursed to him or her for any person that has furnished labor, materials, sustenance, or other supplies used or consumed by the contractor or his or her subcontractor in the performance of the work contracted to be done; supplied laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work; filed or may file a verified statement of a claim arising from the project; or asserted or may assert a claim against a principal or surety that has furnished a bond under the provisions of this article if:

(a) The contractor or subcontractor has a good faith belief that the verified statement of a claim or bond claim is not valid; or

(b) The contractor or subcontractor, in good faith, claims a setoff, to the extent of such setoff.

(3) Each contractor or subcontractor shall maintain separate records of account of each project or account; except that nothing in this section shall be construed to require a contractor or subcontractor to deposit trust funds from a single project in a separate bank account solely for that project as long as the trust funds are not disbursed in a manner that conflicts with the requirements of this section.

(4) Any person who violates the provisions of subsections (1) and (2) of this section commits theft within the meaning of section 18-4-401, C.R.S.

Source: L. 2003: Entire section added, p. 1690, § 2, effective September 1.

ANNOTATION

Person who controlled the financial decisions of subcontractor is personally liable for violation of the statute. In re Dorland, 374 B.R. 765 (Bankr. D. Colo. 2007).

When a matter is pursued as a civil matter, the requisite burden of proof under this statute is the preponderance of the evidence standard, rather than the higher criminal burden of proof. In re Dorland, 374 B.R. 765 (Bankr. D. Colo. 2007).

Plaintiff met its burden of proof demonstrating that defendant failed to pay three of the material and equipment suppliers in a sum certain. Thus, defendant failed to (1) account for the trust funds and (2) demonstrate that the funds were properly applied on the project. In re Dorland, 374 B.R. 765 (Bankr. D. Colo. 2007).

Funds held in trust by a general contractor for payment to a subcontractor constitute an identifiable res, the depletion of which may establish liability for civil theft. The general contractor's depletion of construction trust funds through use of the funds on a separate project would constitute civil theft if it is determined that the general contractor's use of the trust funds made it practically certain that the subcontractor would be deprived of the use of the funds. Franklin Drilling v. Lawrence Constr. Co., 2018 COA 59, 463 P.3d 883; In re McGill, 623 B.R. 876 (Bankr. D. Colo. 2020).

When two state law claims provide duplicative relief, it is useful to frame the analysis as a multi-factor test where no one factor is determinative. The relevant factors include, but are not limited to, the elements of the claims asserted, the wrongful conduct underlying those claims and the statutory framework (if any) of the claims. In re McGill, 623 B.R. 876 (Bankr. D. Colo. 2020).

Claimant may not recover misspent trust funds under both this section and § 18-4-405. In re McGill, 623 B.R. 876 (Bankr. D. Colo. 2020).

Defendant violated this statute, a technical trust imposed under the law. Consequently, a fiduciary relationship was demonstrated for purposes of 11 U.S.C. § 523(a)(4). Moreover, the testimony and evidence at trial demonstrated that a defalcation was committed by defendant in the course of the fiduciary relationship. In re Dorland, 374 B.R. 765 (Bankr. D. Colo. 2007).

Plaintiff did not prove all the components of "theft" by a preponderance of the evidence. Although there was a violation of this statute resulting in an award of actual damages, there was no proof, evidence, or finding of conduct necessary to show criminal conduct or criminal liability under applicable Colorado case law. Thus, there was no justification for assessing the criminal penalty of treble damages, attorney fees, and costs. In re Dorland, 374 B.R. 765 (Bankr. D. Colo. 2007).

Although sub-subcontractor received payment for unpaid invoices from surety, sub-subcontractor still had standing to pursue claims for statutory damages, attorney fees, and costs against debtor subcontractor under the civil theft statute, § 18-4-401. Sub-subcontractor was a real party in interest, at least as to those damages it incurred in excess of the unpaid invoice amount. And there was sufficient evidence to establish that under § 18-4-401, debtor "knowingly used" trust funds in a manner that was certain to deprive the sub-subcontractor of those trust funds. In re McGill, 623 B.R. 876 (Bankr. D. Colo. 2020).

The judgment owed by defendant is non-dischargeable under 11 U.S.C. § 523(a)(4). In re Dorland, 374 B.R. 765 (Bankr. D. Colo. 2007); In re McGill, 623 B.R. 876 (Bankr. D. Colo. 2020).