Perhaps the most important remedy in a payment claim in Colorado is the right to recover attorney fees. Litigation is expensive. Without an attorney fee provision, the pursuit of a claim could be cost prohibitive. These provisions also create downside risk for the defending party, often leading to an early resolution. But the default rule is that each party bears its own attorney fees and costs. The rule can be modified by both contracts and statutes. Here are a few ways.
The parties to a construction contract in Colorado can agree to shift the burden of attorney fees. There are two types of such provisions: (1) unilateral attorney fee provisions; and (2) bilateral/prevailing party attorney fee provisions.
Unilateral attorney fee provisions look something like this: "Should it become necessary for Contractor to engage counsel and/or initiate a legal proceeding to enforce the rights of this agreement, Contractor shall be entitled to all costs of such litigation, including reasonable attorney fees." Often the drafter of the contract includes for itself the right to recover attorney fees while not conveying the same benefit to the other party. In Colorado, this is permissible. In many states it is not. But the power of this provision is undisputable. A lot of contractors write off smaller payment claims. An attorney free provision such as this makes it financially practical to pursue those claims. Even if the amount due is only $10,000, a court will not flinch at awarding $25,000 in attorney fees to a prevailing contractor (assuming those fees were reasonably incurred).
Bilateral/prevailing party attorney fees usually look something like this: "In the event either party to this Agreement initiates a legal proceeding to enforce the provisions thereof, the prevailing party shall be entitled to recover from the other party the costs incurred in said proceeding, including reasonable attorney fees." While this language seems pretty straightforward, it can be complicated, especially where the parties have asserted claims against each other. There is an entire body of case law aimed at helping courts to determine which party has prevailed. But again, the impact of such a provision is undisputable. Where a claimant has a strong case against a solvent defendant, either payment will flow quickly or there is a strong likelihood of recovering the fees incurred in the action. Where it is a closer call, both parties have downside risk. Neither party wants to lose and also suffer the indignity of paying their adversary's attorney. Even obstinate, entrenched parties tend to find a path toward settlement.
Contractor's Trust Fund Statute.
The Contractor's Trust Fund Statute, C.R.S. sec. 38-22-127, contains an attorney fee shifting provision. More on this statute here. In sum, the Trust Fund Statute requires any person who receives construction proceeds to hold those proceeds in trust for the benefit of subcontractors and suppliers. Any person who violates the Trust Fund Statute is liable for three times the amount wrongfully diverted and attorney fees. The statute invokes the civil penalties of the Civil Theft Statute, C.R.S. sec. 18-4-405, discussed next.
Civil Theft Statute.
The Civil Theft Statute, C.R.S. sec. 18-4-405, formally known as the "Rights in Stolen Property" statute, contains an attorney fee shifting provision. The statute provides that any person who commits "theft" as defined by C.R.S. sec. 18-4-401 is liable for three times the stolen amount and attorney fees. A party seeking compensation on a construction project can often allege facts meeting one of the various definitions of theft. More on this statute here.
The mechanic's lien statute contains a provision that requires any party who knowingly records an excessive mechanic's lien against a property to pay the attorney fees the owner incurs to remove the lien. C.R.S. sec. 38-22-128. More on that statute and remedy here.
Finally, Colorado has a statute penalizing those who assert frivolous claims or defenses. C.R.S. sec. 13-17-102 requires a court to assess attorney fees if "it finds that an attorney or party brought or defended an action, or any part thereof, that lacked substantial justification, or that the action, or any part thereof, was interposed for delay or harassment." A claim or defense lacks substantial justification if it is "substantially frivolous, substantially groundless, or substantially vexatious." The construction community is full of strong personalities. An inordinate amount of claims and defenses are founded on nothing but petty hostilities. Those who attempt to use the courts to strong arm others often run into this unexpected buzz saw.
Even where there is a clear cut right to attorney fees, it is not usually that simple. When deciding how much to invest to pursue a claim, a party should proceed as if it will never recover its attorney fees. First, attorney fees are often the first damage category to be tossed during settlement negotiations. And most cases settle. The only way to truly force a party to pay your attorney fees is to go the distance and obtain a judgment after trial. That is often an expensive, uncertain investment. Additionally, all too often a party will incur a significant amount of attorney fees to obtain a sizeable judgment only to find that the adverse party is insolvent for all practical purposes. They had thrown good money after bad. But if you have a solvent defendant and a strong claim, an attorney fee provision is truly the best leverage available.