AC Excavating, Inc. v. Yale

• Decision Date: 02 September 2010
• Docket Number: No. 09CA2184.,09CA2184.
• Citation: 297 P.3d 937
• Parties: AC EXCAVATING, INC., a Colorado corporation, Plaintiff–Appellant, v. Donald A. YALE, Defendant–Appellee.
• Court: Colorado Court of Appeals

297 P.3d 937

AC EXCAVATING, INC., a Colorado corporation, Plaintiff–Appellant,

v.Donald A. YALE, Defendant–Appellee.

No. 09CA2184.

Colorado Court of Appeals, Div. VII.

Sept. 2, 2010.

Craig D. Johnson & Associates, P.C., Craig D. Johnson, Henry A. Sand, Broomfield, Colorado, for Plaintiff–Appellant.

Ireland Stapleton Pryor & Pascoe, PC, Timothy G. Atkinson, Kelley A. Bergelt, Denver, Colorado, for Defendant–Appellee.

Opinion by Judge LICHTENSTEIN.

Plaintiff, AC Excavating, Inc., appeals the trial court's judgment in favor of defendant, Donald A. Yale, on an alleged violation of the Trust Fund Statute, section 38–22–127, C.R.S.2009, and the civil theft statute, section 18–4–401, C.R.S.2009. We reverse and remand.

I. Background

This case primarily involves interpretation of Colorado's Trust Fund Statute, section 38–22–127. Specifically, does the Trust Fund Statute limit the source or intended use of funds that must be held in trust for the payment of subcontractors?

A. Antelope Development, LLC

In the late 1990s, Antelope Development, LLC (Antelope) began developing the Antelope Hills Subdivision, a residential golf course community in Bennett, Colorado. At that time, Keystone Development, LLC, managed Antelope. Antelope performed work on the development's home lots and, in turn, formed and managed another entity, Antelope Hills Golf Course LLC (Antelope GC), to build the golf course.

Antelope received initial financing through construction loans from First National Bank of Colorado. In 2003, when First National opted not to renew the loans, Horizon Bank (now Mile High Bank) replaced the loans. The Horizon loan reached its lending limit in early 2004.

In 2005, due to mounting financial problems, Antelope GC sold the golf course to Ironwood Golf Properties of Colorado, LLC. A term of the sale agreement required Antelope to construct a retention pond on the property after the closing date (the Pond Project). In early 2006, AC Excavating entered into an oral agreement with both Keystone and Antelope to perform work on the Pond Project. AC Excavating ultimately received $150,000 of the $190,680.30 it charged on the Pond Project, leaving unpaid charges of $40,680.30.

In mid–2006, AC Excavating entered into a separate oral agreement with both Keystone and Antelope to perform remedial grading work on the development's residential lots (the Coxsey Project). AC Excavating did not receive any of the $7,707.50 it charged on the Coxsey Project.

AC Excavating's unpaid invoices thus amounted to $48,387.80.

B. Donald Yale

Yale was a 44% shareholder in Antelope. On June 30, 2006, Yale replaced Keystone as the manager of Antelope, and became responsible for all financial decisions. When Yale assumed the role of manager, he learned that Antelope's single bank account carried a balance of just under $100,000, but unpaid invoices on the Pond Project alone amounted to more than $250,000.

During the following six months, Yale personally loaned Antelope $157,500. Antelope applied proceeds from Yale's loans to both general business expenses and some of the outstanding subcontractor invoices.

In late 2006, with Antelope's assets depleted and multiple invoices left unpaid, Yale gave up on Antelope and foreclosed on a series of municipal bonds held as collateral for loans he had made to Antelope before assuming the role of sole manager. Yale withdrew $50,000 from the Antelope account to cover the interest on the municipal bonds.

AC Excavating filed a complaint against Yale alleging violations of the trust fund and civil theft statutes. Following a bench trial, the trial court entered judgment in Yale's favor. AC Excavating appeals.

II. Standard of Review

We review de novo whether the trial court applied the correct legal standard in making its findings. People in Interest of J.R.T., 55 P.3d 217, 219 (Colo.App.2002), aff'd sub nom. People v. Martinez, 70 P.3d 474 (Colo.2003); see also People v. Richardson, 58 P.3d 1039, 1048 (Colo.App.2002) (“A determination of the proper legal standard and application of that standard to particular facts is a question of law.”).

Statutory interpretation presents a question of law, which we review de novo. Smith v. Executive Custom Homes, Inc., 230 P.3d 1186, 1189 (Colo.2010) (citing Spahmer v. Gullette, 113 P.3d 158, 162 (Colo.2005)). When interpreting a statute, we strive to adopt an interpretation that best effectuates the legislative purpose. Id. If the plain language of a statute “is clear and the intent of the General Assembly may be discerned with certainty, we need not resort to other rules of statutory interpretation.” Bd. of County Comm'rs v. ExxonMobil Oil Corp., 192 P.3d 582, 585 (Colo.App.2008) (quoting W. Fire Truck, Inc. v. Emergency One, Inc., 134 P.3d 570, 573 (Colo.App.2006)), aff'd,222 P.3d 303 (Colo.2009).

III. The Trust Fund Statute

AC Excavating contends the trial court erred in narrowly interpreting the Trust Fund Statute. We agree and accordingly, we reverse the judgment and remand the case for further proceedings.

A. Applicable Law

Section 38–22–127(1), C.R.S.2009, provides:

All funds disbursed to any contractor or subcontractor under any building, construction, or remodeling contract or on any construction project shall be held in trust for the payment of the subcontractors, laborer or material suppliers, or laborers who have furnished laborers, materials, services, or labor, who have a lien, or may have a lien, against the property, or who claim, or may claim, against a principal and surety under the provisions of this article and for which such disbursement was made.

(Emphasis added.)

The General Assembly's purpose and intent behind the statute is “to protect homeowners, laborers, and providers of construction materials from dishonest or profligate contractors.” Flooring Design Assocs., Inc. v. Novick, 923 P.2d 216, 219 (Colo.App.1995)( Novick ). To meet this purpose, the statute imposes duties on the contractors to see that the subcontractors are paid. Id.

A contractor breaches the statutory trust relationship by diverting the trust funds from the suppliers and laborers on the project to other corporate obligations. Novick, 923 P.2d at 221;Alexander Co. v. Packard, 754 P.2d 780, 782 (Colo.App.1988). Unless and until the suppliers and laborers are paid in full, the contractor cannot use any of the funds on a project to pay corporate overhead, compensation, or put them to any other use. In re Gamboa, 400 B.R. 784, 790 (Bankr.D.Colo.2008); see First Commercial Corp. v. First Nat'l Bancorporation, Inc., 572 F.Supp. 1430, 1434–35 (D.Colo.1983) (because the clear policy underlying the Trust Fund Statute is that laborers and suppliers of materials in construction projects are to be paid, “[a]n unsecured supplier claiming an interest under this Act takes priority over a prior perfected security interest in all present and future accounts receivable and proceeds of accounts.”).

A natural person in complete control of the finances and financial decisions of an entity, including a merchant-homebuilder entity, is personally liable if that entity violates the Trust Fund Statute. See, e.g., Novick, 923 P.2d at 221;Alexander Co., 754 P.2d at 782;Gamboa, 400 B.R. at 792.

B. Analysis

AC Excavating contends the trial court erred in narrowly interpreting the Trust Fund Statute to conclude that Yale's loans to Antelope did not fall under the Trust Fund Statute because his loans were not construction loans, but rather were general purpose “survival loans” for the company. We agree the court erroneously interpreted the statute, and therefore we reverse the judgment and remand the case for further proceedings.

1. The Source of Disbursements on a Project

AC Excavating contends that the trial court erred in construing the Trust Fund Statute's phrase “all funds disbursed to any contractor ... on any construction project” as limited to construction loans. We agree.

Reading the plain language of the statute to discern the legislative intent, see ExxonMobil, 192 P.3d at 585, we observe that the statute does not limit the source of funds disbursed on the construction project to constructionloans only. Rather, the statute employs the words “all funds disbursed.”

In Novick, a division of this court recognized that, “[b]y its language [the Trust Fund Statute] extends to ‘all funds disbursed,’ ” and noted that the objective of the Trust Fund Statute is to see that subcontractors are paid. Accordingly, the court in Novick construed the reach of the statute to include funds originating from the sale proceeds of a home that was built as part of a residential development project, because subcontractors had added value to the home. Id. at 219 (declining to limit the language “all funds disbursed” to comport with the narrow definition of the term “disburser” in a separate statutory section. See§ 38–22–126(1), C.R.S.2009.). We agree that the statutory language requires the broad interpretation applied in Novick, and conclude the statutory language encompasses all funds disbursed on a construction project. Consequently, we conclude the trial court construed the statute too narrowly by determining that Yale's loans were a source of funding that fell outside the reach of the statute.

We are mindful of the dissent's concern that the General Assembly never intended the Trust Fund Statute to reach a manager's voluntary monetary contribution to his own construction company. The statutory language, however, does not limit the source of “funds disbursed” to construction loans. Nor can we. “[W]e must refrain from going beyond the plain meaning of the statute to ‘accomplish something the plain language does not suggest.’ ” Smith, 230 P.3d at 1190 (quoting Scoggins v. Unigard Ins. Co., 869 P.2d 202, 205 (Colo.1994)); see Scoggins, 869 P.2d at 205 (“[E]ven if the intent of the General Assembly can be disputed, if the plain language of the statute is clear, it is controlling.”). We further recognize that any...