Colo. Supreme Court Victory for Real Estate Developers, Investors and Lenders

13 Feb 2013

The Colorado Supreme Court handed down a victory for real estate developers, investors and lenders when it reversed the State Court of Appeals in Yale v. AC Excavating, Inc. in late January.

In 2010, a three judge panel of the Colorado Court of Appeals rocked the Colorado real estate community by holding that the manager of a struggling limited liability company, which was involved in a real estate and golf course development, faced personal civil liability and possible criminal charges for loaning the company funds and then using the money to pay general obligations, along with a portion of unpaid bills due subcontractors who had performed work on the project.  Adopting a very broad interpretation of the Colorado Construction Trust Fund Statute, the Court of Appeals ruled that all of the moneys under the manager’s control, regardless of the source or purpose, must be held in trust until the subcontractors’ bills were paid in full.

The dissent in the case pointed out that: “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. That would hurt, not help, the homeowners, subcontractors, and other intended beneficiaries of the Trust Fund Statute.”  Nevertheless, the decision was the law in Colorado for more than two years, until the Colorado Supreme Court reversed the decision in Yale v. AC Excavating, stating that Colorado developers, lenders, investors and contractors could provide funds for general operations, or to try to save a failing business, without running afoul of the Trust Fund Statute.

The large sigh of relief being felt in the real estate community, and among the lawyers who represent them, is the direct result of the manager’s tenacious insistence that he had done nothing untoward when he voluntarily contributed personal funds in an effort to turn the project around.  Ireland Stapleton Pryor & Pascoe litigators, Tim Atkinson and Kelley Duke are proud to have represented that manager, Mr. Donald Yale.