Construction Law in Colorado

The Economic Loss Rule Still Bars Tort Claims, Even Those Pleaded As Fruad

Hamon Contractors, Inc., v. Carter & Burgess, Inc. (Colo. App. 2009)

In this April 30, 2009, opinion, the Court of Appeals rejects the position that alleging fraud is enough to avoid application of the economic loss rule.  Instead, the Court holds that the economic loss rule bars even a claim for alleged fraud where the acts complained of took place during a party's performance of its contractual duties.  This holding is consistent with BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004) (holding that the economic loss rule bars misrepresentation claim by subcontractor against design professional, where alleged misrepresentation took place during the performance of the work).  The Court also holds that alleging that fraud took place before the contracts were entered into may not be sufficient to avoid dismissal, since a duty might not exist as a matter of law.

Silence by Developer in Response to Demand to Repair Might Be Enough to Toll Statute of Limitations

Smith v. Executive Custom Homes (Colo. App. 2009)

In this construction defects case, the plaintiff admittedly filed the complaint beyond the statute-of-limitations period.  But the plaintiff argued that the statute of limitations should be equitably tolled under the repair doctrine.  The trial court disagreed, and granted summary judgment for the developer.  The Court of Appeals reversed.

Loss-of-Bonding-Capacity Claims Are Back in Colorado

Denny Construction v. Denver (Colo. 2009)

Reversing a Court of Appeals opinion, the Colorado Supreme Court holds that impaired bonding capacity claims are not speculative as a matter of law.  Instead, like all claims for lost profits, they must be established with reasonable certainty.  Far from finding such a claim speculative as a matter of law as the Court of Appeals did, the Colorado Supreme Court lends support for such a claim:

"At bottom, then, a reduction in bonding capacity indicates a reduction in responsibility, which, in turn, will impair a contractor’s ability to obtain public works contracts. This is not speculation; on the contrary, it is the intended function of the bonding system."

Court of Appeals Addresses Unjust Enrichment Claims by Subcontractors and Suppliers

Redd Iron, Inc. v. Int'l Sales and Service Corp. (Colo. App. Dec. 24, 2008).

In DCB Construction Co., Inc., v. Central City Development Co., 965 P.2d 115 (Colo. 1998), the Supreme Court of Colorado held that, in order for a property owner to be liable under a theory of unjust enrichment to a tenant's contractor, the contractor must show some type of improper, misleading, or deceitful conduct by the owner.  Now in Redd Iron, Inc., a division of the Colorado Court of Appeals held that the requisite showing of improper, misleading, or deceitful conduct by the owner is not a required element outside the context of a claim against a landlord by a party working at the tenant's behest, and that malfeasance need not invariably be shown to establish unjust enrichment.

Owner Can Pursue Trust-Fund Claim Against General Without First Paying Subcontractors

Syfrett v. Pullen (Colo. App. Dec. 24, 2008).

A division of the Court of Appeals held that a project owner has standing to sue a general contractor for violation of the trust fund statute due to the general contractor's failure to pay its subcontractors, even though the owner had not paid any of the unpaid subcontractors, laborers, or suppliers.

But the Court of Appeals also held that when an owner recovers against a general contractor for violation of the trust fund statute, and the subcontractors and suppliers remain unpaid, then the owner is only entitled to judgment for a constructive trust on the funds.  Thus, the owner becomes the constructive trustee of any funds collected, and must hold the funds for the benefit of the subcontractors, laborers, and suppliers who are unpaid and have claims on those funds.  This includes any treble damages awarded.

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