Claims for treble damages under Colorado’s Trust Fund Statute are not assignable

Mechanics liens exist to protect contractors who add value to property but do not receive payment from a homeowner or general contractor.  Any person who violates the Trust Fund Statute commits the crime of theft and is liable for treble damages (three times the amount of the actual damages sustained).

David Adams ran a collections business; subcontractors who had not been paid for their work would assign to Adams their rights to pursue payment in exchange for Adams’ promise to pay 50% of any amount he collected on their claims.  In legal terminology, these subcontractors would “assign” their claims to Adams, who in turn would assert a violation of the Trust Fund Statute (with an eye toward treble damages).

The Colorado Supreme Court addressed the assignability of claims brought under the Trust Fund Statute contained within Colorado’s General Mechanics’ Lien laws in People v. David J. Adams (November, 2010).  The Court held that claims to payment due may be assigned on a contingency payment basis and therefore the contingent payment portion of the agreements Adams drafted was not problematic.  However, because a claim for a penalty is not assignable, and the right to treble damages under the Trust Fund Statute is the right to a penalty, Adams could not pursue the claim of treble damages on behalf of subcontractors.

The lesson for anyone who wants to pursue a Trust Fund claim on behalf of another is this: a claim to the right to obtain payment of funds that should have been paid to a subcontractor is assignable, but a claim to treble damages is not because one cannot stand “in the shoes of someone who has a right to collect the penalty.”