May 7, 2015

Frederick Skillern: Real Estate Case Law — Zoning and Land Use Control (1)

Editor’s note: This is Part 21 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

By Frederick B. Skillernfrederick-b-skillern

Mountain-Plains Investment Corp. v. Parker Jordan Metropolitan District
Colorado Court of Appeals, August 15, 2013
2013 COA 123

Special districts; Colorado Open Records Act; fee; deposit; attorney-client privilege log.

Mountain-Plains Investment Corporation and others appeal a summary judgment entered in favor of defendant Parker Jordan Metropolitan District (District) in a dispute over an open records act claim. The court holds:

  • The special district did not have to reveal a consultant’s emails (that it no longer retained) to Mountain-Plains’ shareholders, under C.R.S. § 24-72-202(7), because the District did not make or keep the emails and the consultant did not keep them for it.
  • Charging a retrieval fee without having in place a records retention policy, and requiring a deposit to cover the retrieval fee, did not violate the Colorado Open Records Act, C.R.S. §§ 24-72-201, et seq. No policy was required at the time the records were sought, and C.R.S. § 24-72-203 allows a fee.
  • A fee can be charged to segregate privileged material because C.R.S. § 24-72-204(3)(a)(IV) bars inspection of privileged matter.
  • A fee for a privilege log was proper because C.R.S. § 24-72-205(3) allows a fee for creating a record, and the fee did not exceed the log’s cost.

 

Friends of Denver Parks, Inc. v. City and County of Denver
Colorado Court of Appeals, December 26, 2013
2013 COA 177

City park; conveyance of park land; Denver Charter § 2.4.5.

Defendant, the City and County of Denver (City), agreed to transfer a parcel of land (southern parcel) to a school district so that the district could build a school on it. Plaintiffs, an organization called Friends of Denver Parks, Inc. and several other interested parties, tried to file a referendum petition to repeal the ordinance transferring the southern parcel; however, the City’s Clerk and Recorder refused to accept the petition. Plaintiffs then filed a motion for a preliminary injunction to enjoin the City’s transfer of the southern parcel to the school district. The court denied both requests.

On appeal, plaintiffs argued that the trial court erred in denying their requested relief because (1) the City’s conduct over the years had dedicated the southern parcel as a park under the common law; and (2) the City’s charter requires that voters approve the transfer of a “park belonging to the city as of December 31, 1955.” The Court of Appeals disagreed on both counts.

Denver Charter § 2.4.5 sets forth the sole mechanism as of December 31, 1955 for creating parks and transferring parks. The City did not pass an ordinance dedicating the southern parcel as a park pursuant to § 2.4.5 after December 31, 1955. Additionally, the record did not clearly establish that the City, through its unambiguous actions, had demonstrated an unequivocal intent to dedicate the southern parcel as a park on or before December 31, 1955. Therefore, Denver Charter § 3.2.6 authorized the City to sell or transfer it without following the requirements of § 2.4.5, and the trial court did not abuse its discretion when it determined that plaintiffs did not establish a reasonable likelihood of success on the merits of this issue. The order was affirmed.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (5)

Editor’s note: This is Part 20 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

By Frederick B. Skillernfrederick-b-skillern

US Bank, N.A. v. Stewart Title Guaranty Company
Civil Action No. 13-cv-00117-PAB-KLM
United States District Court For the District Of Colorado
2014 U.S. Dist. LEXIS 36876 (March 20, 2014)

Because Colorado’s appellate courts tend to not “select for publication” any number of interesting cases involving title insurance, I make a note here of a summary judgment order of Judge Brimmer in the federal district court in Denver. There is an allegation in a case brought by homeowner X that a deed of trust recorded by Wells Fargo securing a loan to Y was not a valid lien, as a recorded quit claim deed from X to Y was forged. X first sues Wells Fargo – by this time the loan has been assigned to U.S, Bank. The court discusses whether there is a duty to defend U.S. Bank’s insured title in a lawsuit before U.S. Bank is added to the litigation – the original title claim was made by Wells Fargo. The court reasons “no,” based on a thorough review of the policy language. Paragraph 4(a) of the Conditions and Stipulations states that Stewart Title’s obligation extends only to “the defense of an insured.”

It also reviews a claim that the insurer had a duty to initiate action to clear title to U.S. Bank’s lien prior to the date that U.S. Bank was served in the underlying litigation. The court surveys the cases on whether the insurer “may” or “must” take an affirmative action when it is notified that an insured may have a title issue. The court agrees that under these facts, no such duty was triggered until U.S. Bank – the real party in interest – was named in the suit. Although a title insurer may take action to clear an insured’s title, any duty is subject to the Conditions and Stipulations in the policy. “These policy provisions do not support U.S. Bank’s assertion that the policy creates a duty to defend the title independent of the insurer’s duty to defend the insured. If anything, these provisions reinforce the interpretation of the policy that Stewart Title’s duties are defined in relationship to the insured. The policy’s stated purpose is “a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured” and Paragraph 7(c) states that Stewart Title will only pay “those costs, attorneys’ fees and expenses incurred in accordance with Section 4 of these Conditions and Stipulations.” (Emphasis added).

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (4)

Editor’s note: This is Part 19 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

By Frederick B. Skillernfrederick-b-skillern

Whiting v. Atlantic Richfield
Colorado Supreme Court, March 3, 2014
2014 CO 16

Rule against perpetuities; options; reformation of option agreement under the USRAP, C.R.S. 15-11-106; common law rule does not void commercial option contract.

This is an important case that addresses much of the change in the law of the rule against perpetuities over the last 25 years. As the case came to Colorado Supreme Court the issue was twofold. First, the court accepted certiorari to examine whether the statutory right to reform a commercial contract under the Colorado version of the statutory rule against perpetuities is unconstitutional because it requires a court to reform a vested contract – in this case the right to declare one’s contract void under the common law rule against perpetuities. Second, the court sought to address as a matter of statutory interpretation whether the right of reformation only applied to what the statute refers to as “donative” transfers of property, as opposed to a commercial contract such as an option to purchase mineral rights.

The supreme court changed to focus of the case and addresses in its decision a different question, thereby avoiding the questions upon which certiorari was granted. It holds instead that the interest in question – a twenty-five year option to purchase mineral rights – does not violate the common law rule against perpetuities. As such, there is no need to resort to the reformation procedure provided in the statute.

ARCO entered into a deal in 1968 with a small oil company (Equity, now owned by Whiting) to explore Colorado shale oil development in Garfield County. It gave development money to Equity, and received a partial ownership interest in the mineral rights. Equity was given an option to repurchase ARCO’s interest within the 25-year term of the deal. In 1983, the agreement (including the option) was extended for another 25 years. The terms are summarized succinctly by the court:

Pursuant to the 1983 amendment, Equity’s right to exercise the option would not expire until 11:59 p.m. on February 1, 2008. Importantly, the parties agreed that “ARCO shall retain the sole and exclusive right to cancel this Option at any time during its term,” with the exception that Equity was granted a right of first refusal if ARCO received an offer from another party to buy its interest in the Boies Block.

Equity exercised the option shortly before the deadline. ARCO claimed that the option was void under the common law rule against perpetuities. The trial court, in a decision affirmed by the court of appeals, agreed but applied the reformation provision in CRS § 15-11-1106(2) to add a “savings clause” in the manner outlined in the statute.

The result here is to put off for another day the constitutional validity of the reformation provision of the USRAP. The court instead finds that the common law has changed sufficiently to determine, consistent with past cases of the Colorado Supreme Court, that the purpose of the common law rule is not served by applying the “21 years after the death of lives in being test” to an arms-length transaction between sophisticated oil companies. More particularly, the court holds, in a well developed decision that explores the recent development of case law in considerable depth, the fact that the option right was revocable at will by ARCO demonstrates that the option was not preventing development of the land. For that reason, the underlying the policy of the common law rule would not be served by voiding the option simply because its term extended longer than 21 years.

The Real Estate Section of the CBA submitted an amicus brief in support of the lower court’s ruling and in support of the right to reform real estate contracts found to violate the rule. This is motivated in part by the obvious liability risks confronting lawyers who may unwittingly accompany their clients into the “RAP trap.” The risk areas center around long term options, rights of first refusal, and other rights or interests contained in deeds or leases that may “walk or talk” like an executory interest or a right of reversion. As a practice point, it is important in dealing with such interests to keep the USRAP in mind, as it treats “donative transactions” differently than commercial transactions.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (3)

Editor’s note: This is Part 18 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

By Frederick B. Skillernfrederick-b-skillern

First Citizens Bank & Trust Co. v. Stewart Title Guaranty Co.
Colorado Court of Appeals, January 2, 2014
2014 COA 1

Title Insurance; Exclusion 3(a) matters “created, suffered, assumed or agreed to by the insured claimant”; closing handled by insured lender; ambiguous; no need to “foreclose first” if deed of trust defective; subrogation to rights of insured lender to sue on note; attorney fees and the American Rule.

Bank commits to make a loan, and gets a commitment for a loan policy of title insurance. The commitment reflects that title is not in borrower, and contains a requirement that a deed be recorded vesting title in borrower before issuance of a new policy. Bank closes the loan in house and does not get a vesting deed. According to the trial court’s findings, the bank assumed the title company issuing the commitment (but not handling the closing) would get and record the deed. The title company assumed the bank would do that. It is not apparent from the decision whether title was searched prior to closing or issuance of a policy.

The borrower defaults on the loan, and files a title claim in the amount of the debt. A separate action is filed by the bank against the borrower, which had not gone to judgment by the time of trial in this action. The trial court enters judgment against the title insurer for the full amount of the balance due on the loan, together with attorney fees incurred by the lender in bringing the action. On appeal, the court affirms the judgment for the full amount of the debt but reverses the award of attorney fees.

The court follows the holding in Sims v. Sperry, 835 P.2d 565 (Colo. App. 1992), that Exclusion 3(a), which excludes coverage for matters “created, suffered, assumed or agreed to” is ambiguous, and that the title insurer must prove that the lender “made a conscious and deliberate act intended to bring about the conflicting claim” in order to successfully resort to this exclusion from coverage. Id. at 570. Like many legal rules stated by courts, this rule itself may overstate the meaning of the court’s ruling in Sims, since if a title company relies on the “agreed to” portion of 3(a), which would seem to mean that the encumbrance, if you will, was “intended.” In any event, the court here held that each party thought the other would satisfy the “requirement,” and the court held that the lender was only negligent in not complying with the requirement. The trial court’s refusal to apply this defense was supported by the record, and the judgment is upheld on liability.

As to damages, the court held that the insurance company could be held liable for the full amount of the indebtedness owed to the insured, as the deed of trust is invalid. The court held that the trial court correctly did not require the lender to attempt foreclosure of the deed of trust under Policy Condition and Limitation 8(b), holding that the limitation does not apply where “it is conceded that the insured’s title is defective. It did not require that this action be stayed pending the outcome of the banks suit on the note – any recovery would reduce the damage claim of the insured lender – because upon payment of judgment in this action, the insurer would be subrogated to the bank’s right to proceed against its borrower.

Perhaps the most significant ruling in this case is the court’s reversal of the insured bank’s claim for its attorney fees incurred in suing the title insurer. It explicitly disapproves of the holding in an earlier case, Hedgecock v. Stewart Title Guaranty Company, 676 P.2d 1208, 1210-11 (Colo. App. 1983), relying to a large extent on the holding of our supreme court in Allstate v. Huizar, 52 P.3d 816, 820-21 (Colo. 2002) (the creation of a new exception to the American Rule is best left to the legislature). In the absence of a contractual or other statutory provision for recovery of attorney fees, no recovery.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (2)

Editor’s note: This is Part 17 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Egelhoff v. Taylor
Colorado Court of Appeals, August 15, 2013
2013 COA 137,
312 P.3d 270

Spurious lien statute; phony lien against judge.

Lest anyone be confused about why the legislature passed the spurious lien statute in 1998, we give you the case of Denver District Judge Egelhoff. In 2008, the judge sentenced Taylor to prison on a felony conviction. After he was sentenced, Taylor began mailing the judge various documents, claiming that Judge Egelhoff was indebted to him. The judge understandably did not respond. Taylor filed suit, claiming that the judge’s failure to respond created liability to Taylor under a terrific doctrine called the “commercial affidavit process.” Robin Hood could not have done better.

Taylor contends that the “commercial affidavit process” permits an individual to send an affidavit to a purported debtor, claiming the recipient owes the sender a debt, and if the recipient does not specifically rebut the alleged debt, he is deemed to have agreed to the debt and its collection by any means. At our social gathering tonight, perhaps someone can advise us from whence this legal doctrine derives. According to Taylor, a recipient’s silence results in a “self-executing contract,” binding the recipient to pay the amount of the alleged debt. Thus, Taylor argues that, because the judge did not respond to his affidavit, his honor “agreed” that the five hundred million dollar debt was valid.

The panel of the court of appeals, seemingly lacking any sense of humor, goes on for several pages as to why this procedure does not form a contract between judge and convict. An opportunity was missed. It is interesting that this case was selected for publication, when many other real estate cases of considerable substance are passed over.

Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust Co. (In re Ute Mesa Lot 1, LLC)
United States District Court, District of Colorado, November 25, 2013
No. 12-1134

Bankruptcy; lis pendens; preferential transfer.

Ute Mesa Lot 1, LLC (Ute Mesa) borrowed $12 million from United Western Bank to finance the construction of a home in Aspen. The deed of trust incorrectly named the property’s owner, so the deed of trust was ineffective in giving the Bank a lien on the property. Later, the Bank filed suit to reform the deed of trust and give it a first priority lien on the property. The Bank then recorded a notice of lis pendens with the county real property records. Two months later, Ute Mesa filed for bankruptcy and sought to avoid the lis pendens as a preferential transfer. The bankruptcy court and district court dismissed Ute Mesa’s claim. Ute Mesa appealed, arguing that the lis pendens would prevent a bona fide purchaser from acquiring an interest in the property superior to the Bank’s. Therefore, it was a “transfer of an interest in property” and an avoidable preferential transfer.

The Tenth Circuit holds that a lis pendens is merely a notice and does not constitute a lien, despite the fact that under Colorado law, a lis pendens renders title unmarketable. The lis pendens is not a transfer, so it was not subject to the bankruptcy provision allowing a debtor-in-possession to avoid a transfer of an interest in property that occurs within ninety days before the filing of the bankruptcy petition. The judgment is affirmed.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (1)

Editor’s note: This is Part 16 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Grosboll v. Grosboll (In re Estate of Grossboll)
Colorado Court of Appeals, October 24, 2013
2013 COA 141

Partnership property; statute of frauds.

Jo Ann Grosboll, decedents’ daughter, appeals the district court’s order finding that the sales proceeds of an apartment building are an asset of the parents’ estates rather than an asset of Grosboll Manor, L.L.L.P., a limited partnership formed by Jo Ann and her parents. Jo Ann’s brother, understandably, argues that the apartments are property of the estate. The key issue revolves around the fact that there is no deed of conveyance to the partnership.

As a matter of first impression, the court considers whether real property owned individually by one who enters into a partnership with others may become a partnership asset without a written conveyance sufficient to satisfy the statute of frauds. The court holds that a written conveyance (such as a deed) from a partner to the partnership is not necessarily required.

The court reviews the historical development of the entity theory of partnerships and the Uniform Partnership Act. The current version of the partnership act allows real property titled in an individual partner’s name to be deemed an asset of the partnership. The trust relationship between partners provides adequate protection against fraud in oral agreements making a partner’s real property a partnership asset. As a result, by statute, the intention of the partners determines whether such real property is a partnership asset. The existence of a written conveyance is a factor for a court to consider in evaluating that intent.

Jo Ann contended that, according to the terms of the written partnership agreement and the intention of the partners, Loma Vista was a partnership asset. The partnership agreement provided that (1) title to all assets of the partnership shall be deemed to be owned by the partnership”; (2) record title to any or all assets of the partnership may be held in the name of . . . one or more nominees”; and (3) all assets of the partnership shall be recorded as the property of the partnership in the books and records of the partnership, irrespective of the name in which record title to such assets is held.” Jo Ann testified that when the partnership was established, she and her parents had agreed to make Loma Vista a partnership asset. Additionally, the accountant for the partnership testified that he treated Loma Vista as a partnership asset on the partnership books. Therefore, Jo Ann asserted she was entitled to the sale proceeds because decedents’ wills devised their interests in the partnership to her.

The partnership act provides a rebuttable presumption that a partner’s property is separate if it is not acquired with partnership assets:

Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of partnership assets is presumed to be separate property, even if used for partnership purposes.

C.R.S. § 7-64-204(4).

Because the UPL and UPA specifically contemplate that real property titled in an individual partner’s name may be deemed an asset of the partnership, the appeals court holds here that a written conveyance from a partner who originally brings real estate into the partnership, although a factor to consider, is not required to convert real property into partnership property.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Property Taxation and Assessments

Editor’s note: This is Part 15 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Roaring Fork Club, LLC v. Pitkin County Board of Equalization
Colorado Court of Appeals, December 5, 2013
2013 COA 167

Valuation of a private golf club property.

The Pitkin County assessor determined the value of the Roaring Fork Club property for tax year 2011, and The Pitkin County Board of Equalization and the Board of Assessment Appeals agrees with the valuation. On appeal, the club asserts that the assessor should not have included the value of sold club memberships in the assessment of the club’s property. The Court of Appeals agrees and reverses.

The club’s property is open only to its members. Membership rights are retained for life unless sold or relinquished or revoked by the club. The club uses membership deposits to improve the property and maintain the improvements. The deposits are treated as a liability for accounting purposes because all or a part of them are refunded if members maintain their membership for at least thirty years or if they resign earlier and replacement members fill their spots.

The club’s amenities were completed in 1999 and the club had sold about 82% of the memberships by 2011. The club argues that the value of the sold memberships should not be considered in determining the actual value of the club’s property for property tax purposes because they are not interests in the real property. The BOE contends that the membership deposits are akin to prepaid rent on leasehold interests and they would escape taxation if not included in the property value.

On appeal, the club and the BOE agree that the income approach is the proper method to value the club’s property. However, the county argues that the memberships are an interest in land, like a leasehold, and should be included in the value under the “unit assessment rule.” The club contends that memberships are licenses, and are not an interest in land. The court agrees, and holds: (1) the membership agreement is not a lease; (2) memberships are not life estates; (3) the membership agreement does not give members any other taxable interest in the club’s property; (4) the membership agreement establishes that memberships are revocable licenses; (5) the unit assessment rule does not apply to these memberships; and (6) the sold memberships are not usufructuary interests. Accordingly, the Board’s order is reversed and the case is remanded to hold a hearing to determine the actual value of the club’s property without taking into account the value of the sold memberships.

 

Village at Treehouse, Inc. v. Property Tax Administrator
Colorado Court of Appeals, January 16, 2014
2014 COA 6.

Property tax; unit assessment rule.

Village paid more than $1 million to purchase certain development rights from the Treehouse Condominium Association (HOA). This supposedly gave Village the right to construct up to nineteen condominium units in the complex. The development rights were created by an amendment to the Treehouse declaration in 2006. The rights were assigned to Village in 2008 in a document entitled “Warranty and Assignment of Supplemental Development Rights”. The question is whether this property right is a taxable interest in real property. The Board of Assessment Appeals found that the right to build new condominium units constituted a taxable interest in real property for ad valorem tax purposes.

On appeal, the court of appeals affirms the BAA, and holds that the assignment, in effect, severed the development rights from the common elements owned by the HOA, creating a new taxable property interest. Because the Village acquired an interest in land, taxation of the development rights was required under C.R.S. § 39-1-102(16) and (14)(a).

Because the Assignment evinced the intent to sever title to the development rights from the common elements, taxing the development rights separately from the common elements did not contravene §§39-1-103(10) or 38-33.3-105. This taxation does not violate the unit assessment rule.

The Assignment created separate interests in real estate as between the interests of the individual unit owners in the common elements and those of the developer. The order was affirmed.

 

Premises Liability, Trespass and Nuisance

S.W. v. Towers Boat Club, Inc.
Colorado Supreme Court, December 23, 2013
2013 CO 72

Attractive nuisance; premises liability statute.

The Supreme Court considers whether, in the context of our premises liability statute, the attractive nuisance doctrine applies to both (a) trespassing children and (b) children who are licensees or invitees. The Court held that the doctrine permits all children, regardless of their classification, to bring a claim for attractive nuisance. C.R.S. § 13-21-115. The court therefore reverses the judgment of the court of appeals, which had found that the doctrine only protects trespassing children.

 

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Lawyers and Professional Liability

Editor’s note: This is Part 14 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Gibbons v. Ludlow
Colorado Supreme Court, July 1, 2013
2013 CO 49

Professional negligence; transactional “case within the case”; causation of damage; “better deal” test.

This case was mentioned in last year’s “supplement” to our outline, and is repeated here for convenience, as it is an important case in the professional liability circles. It involves liability claims against both brokers and transactional attorneys, and the key element of causation. If one is negligent in advising a client in a transaction, and the client gains less from a deal than is anticipated, must the plaintiff prove that a “better deal” could be had? The court is required to find the analog to the “case within a case” that is tried in legal malpractice actions arising out of the litigation process. Although the case addresses the liability of a seller’s broker, the same principles apply to a claim against a seller’s attorney.

The trial court answered the presented question affirmatively, and dismissed a negligence claim against the seller’s broker on summary judgment. The court of appeals reversed, but the supreme court reverses and reinstates the summary judgment ruling. To sustain a professional negligence claim against a transaction real estate broker (or attorney), a plaintiff must show causation of damage, in addition to negligence. That is, it must be shown that but for the alleged negligent acts of the broker, the seller either (1) would have been able to obtain a better deal in the underlying transaction, or (2) would have been better off by walking away from the underlying transaction. In the court’s view, the sellers failed to present evidence that any negligence of the broker caused the seller to suffer damage. They did not establish beyond mere possibility or speculation that they suffered a financial loss as a result of the transactional broker’s professional negligence. Because no injury could be shown, the trial court properly granted summary judgment as a matter of law.

The underlying deal was documented in a contract with a set price, with adjustments for construction of infrastructure and cost-sharing with other developers. The sellers claim that the brokers failed to explain that the net income from the transaction could be substantially less than the stated purchase price as a result of the cost-sharing provisions. The brokers argued that their sellers submitted no evidence that they could have sold the property to someone else for more. This is termed the “better deal” test. The sellers respond that they presented evidence that the property was worth the contract price, or $1.6 million more than the net proceeds of the deal. They argue that they can recover in negligence for this “no deal” scenario. The court of appeals agreed and held that the general measure of damages for a total loss of property is the fair market value of the property at the date of loss. In effect, the Supreme Court says — you must prove you could have sold the property for more, or that you would have made more had you walked away from the deal.

 

Baker v. Wood, Ris & Hames

Petition for Writ of Certiorari GRANTED February 3, 2014.

Summary of the Issues:

  • Whether the court of appeals erred in determining that third-party intended beneficiaries of a deceased testator’s estate plan lack standing to pursue a claim for professional malpractice against the testator’s estate planning attorneys based on either breach of contract or professional negligence.
  • Whether the court of appeals erred in confusing petitioners’ claim for fraudulent concealment with the distinct tort of fraudulent misrepresentation in applying the heightened pleading requirements of C.R.C.P. 9(b) to petitioners’ concealment claim as if it were a claim for fraudulent representation.
Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Judgments and Fraudulent Transfer

Editor’s note: This is Part 13 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Shigo, LLC v. Hocker
Colorado Court of Appeals, February 27, 2014
2014 COA 16

Execution upon water rights; homestead; water rights appurtenant to land.

A creditor obtains a judgment against Hocker for $4.4 million, and seeks to levy and execute upon Hocker’s shares in the Highland Ditch Company. Hocker owns an undivided 50 percent interest in two and three-quarter shares of Highland stock. The Highland shares represent Hocker’s right to use water that runs through a mutually owned ditch, a branch of which leads to a pond on the 35-acre farm that Hocker owns with her husband. Hocker files a claim under the homestead exemption, asserting that the shares, which represent water rights appurtenant to her farm, could not be levied. The court denies Hocker’s claim of exemption, and Hocker appeals.

The district court found that the homestead exemption “does not apply to water stock certificates.” The appeals court holds that the homestead exemption for a “farm” includes not just the farm’s soil, but also the water rights appurtenant to the land.

Shares of stock in a mutual ditch company represent water rights. However, because the record is not clear as to whether the water rights represented by the Highland shares are necessary to the use and enjoyment of the farm, the case was reversed and remanded to the trial court for further findings on that issue.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Foreclosure, Debtor-Creditor, Receivers, Lender Liability

Editor’s note: This is Part 12 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Colorado Community Bank v. Hoffman
Colorado Court of Appeals, November 7, 2013
2013 COA 146

Receiver; order for sale certified as final judgment; C.R.C.P. 54(b); deadline to appeal; abuse of process; civil conspiracy.

This action arises from the judicial dissolution of certain companies in the course of a receivership proceeding. The companies were formed to develop golf courses. The bank sought appointment of a receiver when the companies defaulted on development loans. Certain individuals intervened and joined in the motion for appointment of a receiver. The companies asserted counterclaims for abuse of process and civil conspiracy.

The court granted a motion by the receiver for the companies to sell the golf courses to an entity controlled by the intervening individuals. The district court certified the sale orders as final under C.R.C.P. 54(b) to allow an appeal. The sale orders disposed of an “entire claim for relief” for purposes of C.R.C.P. 54(b) certification. Is a sale order in the course of a receivership action an “entire claim”? It can be, reasons the court. It states that prior cases have suggested that orders concerning property ownership can properly be certified. In Corporon v. Safeway Stores, Inc., 708 P.2d 1385 (Colo. App. 1985), the court held that “a quiet title claim is separable from slander and defamation claims, and therefore, properly certifiable under C.R.C.P. 54(b).” Because defendants did not appeal this order within forty-five days of the certification, but rather waited until the counterclaims had been resolved, the court of appeals lacked jurisdiction over this issue and that portion of the appeal was dismissed.

The court affirms the summary judgment order dismissing the abuse of process and civil conspiracy claims. Although the evidence might have proved that the interveners had an ulterior motive in bringing the receivership action, it did not establish the requisite improper use of process element. The rule was recently stated in Sterenbuch v. Goss, 266 P.3d 428 (Colo. App. 2011):

If the action is confined to its regular and legitimate function in relation to the cause of action stated in the complaint there is no abuse, even if the plaintiff had an ulterior motive in bringing the action or if he knowingly brought suit upon an unfounded claim.

The court agrees with the trial court that the claims failed this test. Because the companies’ conspiracy claims were based on the alleged underlying wrong of abuse of process, this claim also failed.

 

Armed Forces Bank v. Hicks
Colorado Court of Appeals, June 5, 2014
2014 COA 74

Guarantor; waiver of anti-deficiency rights; C.R.S. 38-38-106(6); good faith bid at foreclosure sale.

The bank makes a $6 million loan to a closely held, single asset company to build a condominium project in Glenwood Springs. The loan is personally guaranteed by Mr. and Mrs. Hicks, the principals of the company. After the loan goes into default in 2009, the bank agrees to several loan extensions, after which the company remained in default for failure to make certain payments and failure to obtain planning department approval of a condominium plat. After a trip by the company through bankruptcy court, the bank forecloses. At the foreclosure sale, the bank bids $3.7 million, leaving a $6 million deficiency, after all interest, costs and the like are added to the final tab. The bank files a civil action to collect the deficiency against Hicks. The Hicks attempt to assert defenses based on failure to make a bid based on a good faith estimate of fair market value, and alleging that the bank violated its duty of good faith and fair dealing by refusing to approve the plat ten months after the borrowers’ default. In effect, they argue that the bank failed to mitigate its damages by not allowing the plat to be recorded, even if the borrowers were in default, because the property would be more valuable at that point and the receiver would be able to lease the property, generating income to apply to the loan balance.

The court of appeals affirms the trial court’s grant of summary judgment in favor of the bank, holding that the guaranty contained a specific, and very broad, waiver of any right to challenge the bank’s bid at the foreclosure sale based on a “one action or antideficiency law.” In a case of first impression, the court holds that the statutory duty of a creditor under C.R.S. § 38-38-106(6) to bid its good faith estimate of fair market value may be waived, and that such an agreement is not void for violation of public policy. The court contrasts this statute, which has no provision barring a contractual waiver of its terms, with C.R.S. § 38-38-703, which explicitly prohibits agreements to waive, inter alia, the right of cure and redemption. The court notes that there is still a common law duty to make a good faith bid, under Chew v. Acacia Mutual Life, 165 Colo. 43, 437 P.2d 339 (1968) (bid not made in good faith on the basis of what the security could reasonably be expected to produce on sale at its fair market price), but the guaranty signed by Mr. and Mrs. Hicks included a waiver of “any defenses given to guarantors in law or in equity” except for payment of the indebtedness.

It will be interesting to see if the Supreme Court wants to take a look at this.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Easements and Public Roads (2)

Editor’s note: This is Part 11 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

By Frederick B. Skillernfrederick-b-skillern

Maralex Resources, Inc. v. Chamberlain, Public Trustee of Garfield County Colo. App January 2, 2014 2014 COA 5 Oil and gas lease; prescriptive easement for access to wells; adverse or permissive use of roads; standing. Since 1996, Maralex has been a lessee under a series of federal oil and gas leases in Rio Grande County. Maralex operates and maintains various oil and gas wells located on federal land. To access the wells, Maralex and its predecessors in interest have historically used two roads crossing private property now owned by Nona Jean Powell. The Powell property is adjacent to the federal land. After issues arose between Maralex and Powell regarding use of the roads, Maralex filed a quiet title action seeking a decree that it has prescriptive easements over the roads for ingress and egress to the oil leaseholds. The trial court first found that Maralex lacked standing, as a real property lessee, to assert a prescriptive easement claim. Notwithstanding that finding, the court went on to consider the merits of the easement claims as a matter of judicial economy. It found that Maralex’s use of the roads was permissive and not adverse, and that Maralex did not establish the existence of the asserted prescriptive easements. On appeal, the court reverses the holding on standing. Citing a long string of cases, an oil and gas lessee has standing to bring a quiet title action and to enforce easement rights. One can even draw an analogy to surface cases in which use by a tenant may be tacked on to prior use by the fee owner in proving possession for the prescriptive period. The court finds sufficient evidence in the record to affirm the finding that the use by Maralex and its predecessors was permissive, not adverse. It was conceded that oil operators on the government land openly and continuously used the roads on Powell’s property for the statutory period. However, because Powell previously permitted the use, the use was not adverse. What made the use permissive? Like so many cases of this sort, we have gates on the roads, and cattle on a ranch. At one point a former owner of the Powell property gave keys to the oil company, telling a grazing tenant that he wanted to oil operation to be successful, but that he did not want his tenant’s herd to be impacted. Over the course of decades, there was all manner of evidence of a problematic nature, sufficient that the court could go either way on the “adversity” issue. The trial court resolved it like this – “By giving someone a key, it seems to the Court that the only reasonable interpretation is that ‘I want to keep people out, but not you. You have permission to use my road. Here is a key.’” The appeals court also notes that this could also be a recognition of a right of the user to access, with acquiescence by the easement claimant to blockage of use by others. The court goes along with the trial judge.   Sinclair Transportation Company d/b/a Sinclair Pipeline Company v. Sandberg Colorado Court of Appeals, June 5, 2014 2014 COA 76 Pipeline easement; assignability of easement in gross; proof of assignment of easement rights by parol evidence; abandonment. This is one in a series – one might say a family – of cases involving Sinclair’s pipeline between oil fields in Wyoming and Denver. At one point, the pipeline crosses land in Weld County, creating friction with residential development, and with owners of land such as the Sandbergs. Sinclair seeks to upgrade its pipeline from 6” to 10” according to terms of the written pipeline easement, which dates back to 1963. The easement was in favor of the original servient owner and its “successors and assigns.” In an extensive opinion, the court affirms a partial summary judgment ruling in favor of Sinclair on defenses raised by the landowners, who sought to block any expansion or to require movement of the easement in order to minimize its impact on their residential development. The first issue deals with the use of parol evidence to prove a part of Sinclair’s interest (ownership of a series of assignments from partial owners of the pipeline). The court upholds a ruling that Sinclair could prove a part of its chain of title by proving assignment of one 50 percent interest in the line through testimony of an attorney representing one of the parties to the assignment. The court holds that no statute of frauds bars oral testimony to prove of an assignment of an easement. More importantly, the court holds that an easement in gross, especially one created for commercial uses, is assignable. The court relies on the modern trend in case law and comments in the Restatement of Property (Servitudes) § 4.6(1)(c) (“a benefit in gross is freely transferable”), as well as C.R.S. § 38-30-101 (“any person . . . entitled to hold . . . any interest in real estate whatever, shall be authorized to convey the same to another”). The court cites a Utah case, Crane v. Crane, 683 P.2d 1062 (Utah 1984) which surveys the easement in gross case law as it applies to pipelines and other commercial uses. For those interested in the industry, the court goes on to discuss interpretation of the easement document in regard to how a pipeline company can expand and improve its pipeline – whether a pipeline company must “remove, then replace” or “replace, then remove.” Finally, the court holds that Sinclair’s attempt in a parallel case to condemn a way across the land in question did not effect an abandonment of its deeded easement rights. The attempt to condemn was derailed in a 2012 decision of the Colorado Supreme Court discussed in this space. Another court of appeals decision (not discussed in this outline) deals with the pipeline condemnation issues.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Frederick Skillern: Real Estate Case Law — Easements and Public Roads (1)

Editor’s note: This is Part 10 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Durango & Silverton Narrow Gauge Railroad Company v. Wolf
Colorado Court of Appeals, August 1, 2013
2013 COA 118

Railroad right-of-way; incidental use doctrine.

A property owner whose land is subject to a railroad company’s easement for railroad purposes objects when the railroad company leases a portion of its right-of-way to a local nonprofit for a bicycle path. The owner’s predecessor in title granted the railroad company this right in 1881:

[Grantor] does hereby sell, grant, convey, and release unto the said Denver and Rio Grande Railway Company the right of way for a width of one hundred feet—fifty feet on each side of center line—for the construction of the said Railway. . . . Giving and granting unto [the D&RG] the right to excavate, fill, ditch, drain, erect cattle guards and crossings [etc.].

The property owners appeal the trial court’s summary judgment in favor of the Durango & Silverton Narrow Gauge Railroad. The court of appeals affirms.

In 2009, the Durango & Silverton agreed to grant the City of Durango a nonexclusive easement to extend a public recreation trail over its right-of-way and adjacent to the railroad tracks. The tracks remain in use. Part of the trail crosses the Wolf’s property. Durango paid DSNGRR $1 million specifically for continued operations and maintenance. The trail also will promote safe use of the right-of-way by pedestrians and bicyclists who walk and ride directly on the railroad tracks.

Wolf opposed the agreement, arguing that the 1881 right-of-way permitted use only for “railroad purposes” and that a recreation trail is not such a purpose. On cross-motions for summary judgment, the trial court held that the original deed conveyed an exclusive easement. It held that a railroad right-of-way is an expansive form of easement, giving the railroad company exclusive use and control of the right-of-way as long as it continues to operate a railroad. It also found that the use by the public was a railroad purpose, because it eliminated safety and liability problems and increased efficiency on any rail repairs.

Relying on state and federal case law, the court of appeals agrees that the right-of-way is more expansive than a typical easement, and that the Durango & Silverton has the right to exclusive use and control of the servient tenement. This use includes the right to lease portions of the right-of-way. It therefore affirms the judgment.

The appeals court does not address whether a public recreation trail is a “railroad purpose,” as the district court had found, relying instead on the “incidental use” doctrine. This doctrine, which has never been invoked in Colorado, states that a railroad may lease a portion of its right-of-way where the use is incidental to or not inconsistent with the railroad’s continued use of its right-of-way for railroad purposes. The public recreation trail meets both of these criteria, in the court’s view.

Wolf argues that the trial court erred by not requiring the joinder of five neighbors that he alleges are indispensable parties. Their property is also subject to DSNGRR’s right-of- way and are affected by the public recreation trail. The Court disagrees, holding that this dispute is governed in large part by the interpretation of the deed from Wolf’s predecessor, which is specific to Wolf’s property.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.