The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter
Reversing a Court of Appeals' decision, the Supreme Court of Colorado has held that capital infusions by an LLC's manager to keep the LLC afloat are not trust funds, even when the sole purpose of the LLC is to develop a single project. Furthermore, the Court reiterated that there is nothing wrong with a contractor having only a single bank account.
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.
NOTE: The Supreme Court of Colorado reversed the Court of Appeals' decision in AC Excavating, Inc. v. Yale. See here.
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."
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.
