Civil Theft Claims
Often on construction projects money is misappropriated. Colorado's civil theft statute, C.R.S. sec. 18-4-405, provides a powerful remedy.
What Constitutes "Theft"?
The statute's application is wider than its language suggests. The definition of "theft" is broad. "A person commits theft when he or she knowingly obtains, retains, or exercises control over anything of value of another without authorization or by threat or deception," and (as relevant to the construction context):
Intends to deprive the other person permanently of the use or benefit of the thing of value;
Knowingly uses, conceals, or abandons the thing of value in such manner as to deprive the other person permanently of its use or benefit;
Uses, conceals, or abandons a thing of value intending that such use, concealment, or abandonment will deprive the other person permanently of its use or benefit; or
Demands any consideration to which he or she is not legally entitled as a condition of restoring the thing of value to the other person.
The most common context for a civil theft claim on a construction project occurs when a general contractor or upper tier subcontractor receives payment or proceeds intended for a subcontractor or a material supplier and diverts the funds. In fact, a separate statute, the Contractor's Trust Fund Statute, C.R.S. sec. 38-22-127, is intended to address this situation and specifically invokes the Civil Theft Statute. The Trust Fund Statute requires contractors and subcontractors to hold construction proceeds in trust for the benefit of subcontractors and suppliers. Anyone who violates this statute is guilty of civil theft. More on that here.
A civil theft claim can also be raised against owners. Contractors often include assignments of benefits in their contracts, particularly in the disaster mitigation, remediation, and abatement industries where payment often comes in the form of insurance proceeds. Once the work is performed, the insurance proceeds become the contractor's property. All too often, owners, with the insurance proceeds in hand, attempt to negotiate a reduction of the contractor's fee, especially where there are coverage shortfalls. Many owners and their attorneys fail to recognize the liability in such a course of conduct, even taking precautions such as placing the funds in an escrow account to demonstrate that they do not intend "to deprive the other person permanently of the use or benefit of the thing of value." But that is short sighted and dangerous. Withholding the funds to leverage a reduction constitutes a demand for "consideration to which he or she is not legally entitled as a condition of restoring the thing of value to the other person," an often overlooked element of this cause of action.
What are the Remedies?
The statute provides that the owner of any property "obtained by theft, robbery, or burglary" may recover "three times the actual damages sustained by him," and "may also recover costs of the action and reasonable attorney fees." The former is commonly referred to as "treble damages."
For example, if an owner or contractor wrongfully diverted $20,000 in construction proceeds, the claimant would be entitled to $60,000, plus attorney fees. Suddenly a smaller claim that might otherwise be written off as a bad debt becomes worth pursuing. The downside risk also often greases the wheels of settlement negotiations.
Because of its powerful remedies, including treble damages and attorney fees, many construction dispute complaints include a claim for civil theft. It is critical for every party on a construction project to know the opportunities and limitations of this remedy.