Construction Law in Colorado

Trust Fund Claims Are Assignable, But The Treble Damages Are Not

In People v. Adams (Colo. Nov. 30, 2010), the Colorado Supreme Court, in deciding a case regarding the unauthorized practice of law, held that trust fund claims can be assigned, but that the treble damages component of a trust fund claim cannot.

Colorado Court of Appeals Addresses "Actual Damages" Under the Construction Defect Action Reform Act

In Hildebrand v. New Visa Homes II, LLC (Colo. App. Nov. 11, 2010), a division of the Colorado Court of Appeals addressed, among other things, what the proper measure of damages is for a construction defects claim under the Construction Defect Action Reform Act ("CDARA").  In doing so, the Court of Appeals clarified that the plaintiffs need not present alternative methods of computation of damages.  Additionally, the Court of Appeals held that "inconvenience damages" were recoverable under CDARA.  Finally, the Court held that the plaintiffs were not entitled to prejudgment interest for its damages based on cost to repair.

Owner may sue town's engineering consultant for being billed excessive tap fees

Rocky Mountain Festivals, Inc. v. Parsons Corporation (Colo. Nov. 8, 2010).

Today, the Supreme Court cleared the way for a property owner to pursue claims against a town's consulting engineer for issuing a faulty report that resulted in the owner having to litigate with the town regarding over assessment of tap fees.

Capital Infusions Are Now Trust Funds Too

In AC Excavating, Inc. v. Yale (Colo. App. Sept. 2, 2010), the Colorado Court of Appeals held that money loaned to an LLC by its manager qualifies as a disbursement, and can be the basis of a trust fund violation and theft claim against the manager if the funds are not used to pay subcontractors and suppliers.  As the dissent notes, "[a] lawyer familiar with today's holding likely would advise the manager not to recapitalize the company if there was any doubt as to the project's ultimate success."

Fire Itself Triggers Statute Of Limitations, Not Discovery Of Cause

United Fire Group v. Powers Electric, Inc. (Colo. App. 2010)

Today, the Colorado Court of Appeals, construing the statute of limitations for claims against construction professionals (C.R.S. 13-80-104), held that the statute of limitations for a claim against an electrician who performed faulty work that resulted in a fire began to run from the date of the fire, not from when the cause of the fire was determined.

Lis Pendens Still Required, Even If Mechanics' Lien Is Bonded

[EDIT - The Colorado Legislature has since passed, and the Governor has signed, Senate Bill 11-264, which abrogates the holding in Weize for lawsuits brought after July 1, 2011.  See here for details.]

Today, in Weize Company, LLC v. Martz Supply Co., 09CA1369 (Colo. App. June 10, 2010), a division of the Colorado Court of Appeals held that a subcontractor suing to enforce its rights to a mechanics' lien that has been substituted by a bond and thus discharged must still record a lis pendens.  So, according to the Court of Appeals, bonding over a mechanics' lien will not clear title, despite the clear language of the statute.

Repairs Won't Toll The Statute Of Limitations

Smith v. Executive Custom Homes (Colo. 2010)

Reversing the Colorado Court of Appeals, the Colorado Supreme Court holds that the repair doctrine, which is an equitable tolling doctrine, is inconsistent with the Construction Defect Action Reform Act ("CDARA").  As such, ongoing repairs or attempts to repair by a contractor of a construction defect do not equitably toll the statute of limitations.

The finality of arbitration cuts both ways

One reason that parties include arbitration provisions in their contracts is the belief that arbitration is less expensive than litigation.  This is only partially true.  Discovery is typically the most expensive part of any lawuit, and discovery has become common in arbitration.  In fact, under the Colorado Uniform Arbitration Act, arbitrators have authority to permit discovery.  C.R.S. § 13-22-217(3).  Additionally, everyone's tax dollars have already paid for our Judges, whereas the parties to an arbitration have to pay for the arbitration panel's time.

But arbitration can theoretically be less expensive in that an arbitraton panel's decision is almost bullet proof.  And because it is so difficult to challenge an arbitration decision, there is less liklihood of an appeal following arbitration.  This can cut both ways.

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

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.

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."