Construction Law

Court of Appeals Addresses Unjust Enrichment Claims by Subcontractors and Suppliers

By Tim Gordon

Redd Iron, Inc. v. Int'l Sales and Service Corp. (Colo. App. Dec. 24, 2008).

In DCB Construction Co., Inc., v. Central City Development Co., 965 P.2d 115 (Colo. 1998), the Supreme Court of Colorado held that, in order for a property owner to be liable under a theory of unjust enrichment to a tenant's contractor, the contractor must show some type of improper, misleading, or deceitful conduct by the owner.  Now in Redd Iron, Inc., a division of the Colorado Court of Appeals held that the requisite showing of improper, misleading, or deceitful conduct by the owner is not a required element outside the context of a claim against a landlord by a party working at the tenant's behest, and that malfeasance need not invariably be shown to establish unjust enrichment.

In Redd Iron, the project owner (ALSCO) had paid its general (CBS), and CBS had paid its steel subcontractor (Excel), but excel had not paid its sub-subcontractor/supplier (Redd).  So Redd filed, among other claims, an unjust enrichment claim against CBS and ALSCO.  And the trial court granted Redd's motion for judgment on the pleadings on its unjust enrichment claim.

On appeal, the Court of Appeals affirmed the trial court's ruling that Redd did not have to prove the "improper conduct" element in DCB Construction for its unjust enrichment claim.  But the Court of Appeals reversed the trial court's entry of judgment on the pleadings in Redd's favor on its unjust enrichment claim.

According to the Court of Appeals, "a subcontractor seeking recovery from a property owner or a general contractor on an unjust enrichment theory must . . . establish some basis for finding injustice beyond the simple facts that (1) the owner or contractor benefitted (sic) from the services the subcontractor provided, and (2) the subcontractor was not paid for its work."  The Court reiterated the "general rule" "that property owners are ordinarily not liable to unpaid subcontractors on an unjust enrichment claim merely because they benefitted (sic) from the services provided."

The fact that the owner has actually paid the general for the work is a big consideration.  But the Court held that payment in full by defendants is not enough to defeat, as a matter of law, Redd's claim for unjust enrichment:

Although CBS's president has attested that all amounts owing were paid, we cannot determine as a matter of law that Redd will be unable to show that other circumstances would render defendants' retention of the benefits unjust.

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Full post as published by Colorado Construction Law on December 24, 2008 (boomark / email).