Yale v. AC Excavating, Inc.

• Decision Date: 04 February 2013
• Docket Number: Supreme Court Case No. 10SC709
• Citation: 295 P.3d 470
• Parties: Donald A. YALE, Petitioner v. AC EXCAVATING, INC., a Colorado Corporation, Respondent
• Court: Colorado Supreme Court

295 P.3d 470

Donald A. YALE, Petitioner

v.AC EXCAVATING, INC., a Colorado Corporation, Respondent

Supreme Court Case No. 10SC709

Supreme Court of Colorado.

February 4, 2013

Colorado Court of Appeals Case No. 09CA2184

Attorneys for Petitioner: Ireland Stapleton Pryor & Pascoe, PC, Timothy G. Atkinson, Kelley B. Duke, Denver, Colorado.

Attorneys for Respondent: Craig D. Johnson & Associates, P.C., Henry A. Sand, Craig D. Johnson, Broomfield, Colorado.

Attorneys for Amicus Curiae Colorado Association of Home Builders: Holley, Albertson & Polk, P.C., Dennis B. Polk, Melissa R. Liff, Golden, Colorado.

En Banc

JUSTICE MÁRQUEZ delivered the Opinion of the Court.

¶ 1 In this case, we address whether funds received by a limited liability company from one of its members to capitalize the company must be held in trust for the payment of subcontractors, laborers, and material suppliers under Colorado's construction trust fund statute, section 38–22–127, C.R.S. (2012). We conclude that the LLC member's voluntary injection of capital into the company in this case did not constitute “funds disbursed to [a] contractor ... on [a] construction project” under section 38–22–127(1), C.R.S. (2012), and, therefore, such money was not required to be held in trust under that provision. Because such funds were not required to be held in trust, the court of appeals erred in remanding the case for further proceedings to determine whether the petitioner, a member and manager of the LLC, is civilly liable for theft under sections 38–22–127(5), 18–4–401, and 18–4–405, C.R.S. (2012), for using the funds to pay other corporate obligations rather than paying the respondent subcontractor in full for the work it did for the LLC. We therefore reverse the judgment of the court of appeals.

I.

¶ 2 Antelope Development, LLC (the “LLC”) was formed in the late 1990s for the purpose of developing and operating the Antelope Hills subdivision, a residential golf course community near Bennett, Colorado. To finance the construction of the residential development and golf course, the LLC received construction loans from First National Bank and, later, Horizon Bank. By 2005, however, the LLC had exhausted its construction financing and was in financial dire straits.

¶ 3 In 2006, the LLC entered into oral agreements with Respondent AC Excavating, Inc., for excavation work on a golf course retention pond and for remedial grading work on several Antelope Hills residential lots owned by the Coxsey family. AC Excavating completed work on both the pond and Coxsey projects. The LLC paid AC Excavating $150,000 of the $190,680.30 invoiced for the pond project, and nothing on the $7,707.50 invoiced for the Coxsey Project. AC Excavating's unpaid invoices totaled $48,387.80.

¶ 4 Petitioner Donald A. Yale, a member of the LLC, became the sole manager of the LLC on June 30, 2006. At that time, the LLC's single bank account contained about $100,000. Realizing that the LLC had insufficient funds to meet its obligations, Yale voluntarily deposited a total of $157,500 ¹ of his own money into the LLC's account in several installments. He testified at trial that these personal funds were “survival loans” made in an attempt to keep the LLC in business. In his discretion as manager, Yale then applied these funds to the LLC's general business expenses and some of the outstanding subcontractor invoices. Although Yale used some of these “survival loan” proceeds to pay AC Excavating (as well as other subcontractors), AC Excavating was not paid in full.

¶ 5 Yale gave up on the LLC in late 2006. Thereafter, AC Excavating sued Yale,² alleging, among other things, that the LLC violated Colorado's construction trust fund statute, section 38–22–127(1), by failing to hold the funds in the LLC's bank account in trust for payment to AC Excavating and instead using those funds for other purposes. AC Excavating further alleged that Yale thereby had committed theft, permitting it to claim treble damages, attorney fees, and costs against Yale under the Rights in Stolen Property statute, section 18–4–405.

¶ 6 Following a one-day bench trial, the trial court issued a detailed written order and entered judgment for Yale. Relevant here, the trial court noted that AC Excavating asserted for the first time at trial that the $157,500 in personal funds that Yale voluntarily deposited into the LLC's account constituted the corpus of a trust subject to the obligations of section 38–22–127(1).³ The trial court held that, even assuming the argument was properly raised, the LLC was not required to hold the $157,500 in trust under section 38–22–127. Based on the evidence presented at trial, including Yale's undisputed testimony, the trial court concluded that these funds were not disbursed on a construction project but instead were a “survival loan” to capitalize a struggling company:

Even assuming AC Excavating could properly advance this assertion [regarding Yale's $157,500 voluntary deposit] for the first time at trial, the Court refuses its invitation to extend C.R.S. § 38–22–127 to such funds. An investor or lender, who is under no current obligation to fund a developer, has the right to dictate the terms of the funds provided. If he is also serving as manager, how that new investment is used should be within his sole discretion. Any contrary result would provide an incentive to business managers to abstain from investing additional funds into struggling development companies in order to salvage them.

The $157,500 funds Mr. Yale deposited into the [LLC] account ... were not part of a construction loan or a loan for a construction project. Rather, they were part of a survival loan to attempt to salvage a struggling company.

¶ 7 The trial court also rejected AC Excavating's theft claim, finding that “no evidence was presented that Mr. Yale intended to exercise control over anything of value, or intended to intentionally deprive AC Excavating of money.” See § 18–4–401(1)(a), C.R.S. (2012) (providing that “[a] person commits theft when he knowingly obtains or exercises control over anything of value of another without authorization” and “[i]ntends to deprive the other person permanently of the use or benefit of the thing of value”). To the contrary, the trial court reasoned, the testimony and exhibits reflected that Yale “did just the opposite when he deposited the $157,500 into [the LLC's] general operating account in an effort to extend [the LLC's] life and provide some measure of reimbursement to creditors like AC Excavating in this case.” The trial court concluded that Yale could not be held personally liable for the LLC's debt to AC Excavating.

¶ 8 The court of appeals reversed, holding that Yale's loans fell within the scope of the statute because section 38–22–127(1) “encompasses all funds disbursed on a construction project.” AC Excavating, Inc. v. Yale, No. 09CA2184, 297 P.3d 937, 2010 WL 3432219, at *3 (Colo.App. Sept. 2, 2010). It concluded that the trial court erred in relying on Yale's stated intent for the use of the money. Id. at 940-41, at *4. Relying on Flooring Design Associates, Inc. v. Novick, 923 P.2d 216 (Colo.App.1995), the court of appeals observed that a subcontractor “need not show that the disburser of the funds specifically intended that a trust be created; nor need it show that the disburser intended the disbursements to be allocated for the payment of subcontractors.” AC Excavating, 297 P.3d at 940, 2010 WL 3432219, at *4 (citing Novick, 923 P.2d at 220). Therefore, the court of appeals reasoned, the trust fund statute applies “irrespective of the disburser's intended use for the funds.” Id.

¶ 9 The court of appeals also rejected Yale's contention that the trust fund statute does not apply to his loans because the loans were made to the LLC itself, and not specifically for a “construction project.” The court observed that the record contained no evidence that the LLC was formed or operated for any purpose other than developing the Antelope Hills subdivision, or that the LLC's business operations consisted of anything other than facilitating that project. It therefore concluded that the money Yale deposited into the LLC's single bank account was used “to pay bills that arose only as a result of the project.” Id. at 941, at *5.

¶ 10 The court of appeals further held that the trial court reversibly erred when it applied only subsection (1)(a) of the theft statute and failed to consider, under subsection (1)(b), whether Yale “knowingly use[d]” the funds he deposited into the LLC's account in such a manner as to deprive AC Excavating permanently of their use or benefit. Id. at 941-42, at *5–6 (quoting § 18–4–401(1)(b), C.R.S. (2012)). It therefore remanded the case for further proceedings on the theft claim.

¶ 11 In dissent, Judge Connelly reasoned that the construction trust fund statute does not apply to the $157,500 Yale deposited into the LLC's account because Yale's “voluntary injection of his own money into his company did not disburse funds on a construction project.” Id. at *6 (Connelly, J., dissenting). Judge Connelly relied on the dictionary definition of “disbursement” as the “ ‘act of paying out, commonly from a fund or in settlement of a debt or account payable,’ ” id. (quoting Black's Law Dictionary 495 (8th ed. 2004)), and reasoned that, in the context of construction projects, a disbursement is most naturally construed as funds paid out by an external source for past or future work or costs. Id.

¶ 12 We granted Yale's petition for writ of certiorari to review both the construction trust fund and civil theft issues.⁴

II.

¶ 13 We review the court of appeals' interpretation of a statute de novo. Dworkin, Chambers & Williams, P.C. v. Provo, 81 P.3d 1053, 1057 (Colo.2003). Our primary duty in construing statutes is to give effect to the intent of the general assembly. Lombard v. Colo. Outdoor Educ. Ctr., Inc., 187 P.3d 565, 570 (Colo.2008). When...