April 16, 2014

e-Legislative Report: April 7, 2014

CBA Legislative Policy Committee

For readers who are new to CBA legislative activity, the Legislative Policy Committee (LPC) is the CBA’s legislative policy-making arm during the legislative session. The LPC meets weekly during the legislative session to determine CBA positions on requests from the various sections and committees of the Bar Association.

The LPC did not meet on Friday, April 4.

At the Capitol—Week of March 31

A scorecard of the committee and floor work follows.

In the House

Monday, March 31

No bills were heard on 3rd reading.

Tuesday, April 1

Passed 3rd Reading:

  • HB 14-1315. Concerning the enactment of certain model acts adopted by the national association of insurance commissioners, and, in connection therewith, enacting the credit for reinsurance model act and the portion of the insurer receivership model act that governs netting agreements. Vote: 65 yes and 0 no.
  • HB 14-1313. Concerning a requirement that the owner of a pet animal provide a valid rabies vaccination certificate prior to registering the animal with a county. Vote: 40 yes and 25 no.
  • HB 14-1045. Concerning the continuation of the breast and cervical cancer prevention and treatment program, and, in connection therewith, making an appropriation. Vote: 50 yes and 15 no.
  • HB 14-1281. Concerning the allowance for terminally ill patients to have access to investigational products that have not been approved by the federal food and drug administration that other patients have access to when they participate in clinical trials. Vote: 65 yes and 0 no.
  • HB 14-1302. Concerning the addition of a judgment against a debtor or transferee who acts with actual intent as an available remedy for a creditor in a fraudulent transfer action. Vote: 65 yes and 0 no.

Wednesday, April 2

No bills were heard on 3rd reading.

Thursday, April 3

Passed 3rd Reading:

  • SB 14-135. Concerning the repeal of certain provisions concerning the purchasing of firearms in states that are contiguous to Colorado. Vote: 61 yes, 1 no, and 3 excused.

Friday, April 4

Passed on 3rd Reading:

  • SB 14-103. Concerning the phase-out of the sale of certain low efficiency plumbing fixtures. Vote: 35 yes, 28 no, and 2 excused.
  • HB 14-1001. Concerning the creation of a property tax reimbursement for a taxpayer that owes property tax on property that has been destroyed by a natural cause, and, in connection therewith, making and reducing appropriations. Vote: 46 yes, 17 no, and 2 excused.

In the Senate

Monday, March 31

Passed on 3rd Reading:

  • HB 14-1195. Concerning the diversion of revenue collected by the division of insurance to cash funds. Vote: 35 yes and 0 no.

Tuesday, April 1

Passed on 3rd Reading:

  • SB 14-163. Concerning clarifying changes to provisions related to the sentencing of persons convicted of drug crimes. Vote: 33 yes, 0 no, and 2 excused.
  • SB 14-160. Concerning removing limitations on a transitional living program for a person with a brain injury. Vote: 33 yes, 0 no, and 2 excused.
  • HB 14-1141. Concerning the confidentiality of social security numbers under statutes protecting the privacy of individuals. Vote: 33 yes, 0 no, and 2 excused.

Wednesday, April 2

No bills were heard on 3rd Reading.

Thursday, April 3

Passed on 3rd Reading:

  • The Senate spent numerous hours debating various 2nd Reading amendments to HB 14-1336. Concerning the provision for payment of the expenses of the executive, legislative, and judicial departments of the state of Colorado, and of its agencies and institutions, for and during the fiscal year beginning July 1, 2014, except as otherwise noted—“the Budget bill.”

Friday, April 4

Passed on 3rd Reading:

  • HB 14-1282. Concerning the specification of what materials may be provided in a language other than English by an insurer to a customer. Vote: 34 yes, 0 no, and 1 excused.
  • HB 14-1336. Concerning the provision for payment of the expenses of the executive, legislative, and judicial departments of the state of Colorado, and of its agencies and institutions, for and during the fiscal year beginning July 1, 2014, except as otherwise noted—“the Budget bill.” Vote: 26 yes, 8 no, and 1 excused.

Stay tuned for 10 Bills of Interest.

 

Colorado Court of Appeals: Actual Knowledge Cannot Be Imputed in Fraudulent Concealment Claim

The Colorado Court of Appeals issued its opinion in Jehly v. Brown on Thursday, March 27, 2014.

Fraudulent Concealment—Imputed Knowledge.

Defendant owned real property and hired a general contractor to build a house on it. Before commencing, the contractor discovered that part of the property was located in a floodplain, but did not inform defendant of that fact.

Plaintiffs David and Peggy Jehly entered into a contact to purchase the house. Defendant filled out a Seller’s Property Disclosure form by writing “New Construction” diagonally across every page and not checking any of the boxes. Before buying the house, plaintiffs were never informed that part of the property was located in a floodplain.

Approximately five years after the home purchase, heavy rains caused severe flooding and damage to the basement of the house. Plaintiffs sued defendant, alleging he fraudulently concealed knowledge of the floodplain to induce plaintiffs to buy the house. During a bench trial, defendant denied having any personal knowledge of the floodplain at the time of the sale and denied that his general contractor or any subcontractors had so informed him. The trial court found in favor of defendant.

On appeal, plaintiffs asserted that it was error not to impute to defendant the general contractor’s knowledge that part of the property was in a floodplain. The Court of Appeals disagreed. To prevail on a claim of fraudulent concealment, a plaintiff must show that a defendant actually knew of a material fact that was not disclosed. It is not enough that defendant should have or might have known the fact.

Plaintiffs did not contest on appeal the trial court’s factual finding that defendant had no active or conscious belief or awareness of the existence of the floodplain. The trial court, therefore, did not apply the wrong legal standard, because defendant did not have the requisite actual knowledge of the information allegedly concealed.

The Court further concluded that the knowledge of the general contractor could not be imputed to defendant. Knowledge of an agent is generally imputed to the principal. However, “actual knowledge” in the context of a fraudulent concealment claim cannot be imputed to a principal through knowledge of its agent. The judgment was affirmed.

Summary and full case available here.

Colorado Court of Appeals: Funds Received in Arbitration Award Determined to be “General Intangibles”; Prevailing Party Entitled to Attorney Fees

The Colorado Court of Appeals issued its opinion in Millenium Bank v. UPS Capital Business Credit on Thursday, March 13, 2014.

Summary Judgment—Creditors’ Rights— Uniform Commercial Code.

UPS Capital Business Credit (UPS) loaned Superior Plaster and Drywall, Inc. (Superior) $1,027,000, secured by Superior’s assets. Millennium Bank (Millennium) loaned Superior $1.5 million, also secured by Superior’s assets. Millennium and UPS entered into an Intercreditor Agreement to establish the respective priority of their secured interests in Superior’s assets. Under the Intercreditor Agreement, (1) Millennium had first priority, and UPS second priority, in Superior’s accounts receivable; and (2) UPS had first priority, and Millennium second priority, in Superior’s general intangibles.

This case arose when Millennium and UPS disputed their rights to funds awarded to Superior in an arbitration proceeding. Superior had subcontracted with Beck Development, LLC (Beck) to perform drywall and paint work as part of the construction of two condominium towers. Superior claimed Akzo Nobel Paints, LLC (Akzo) had supplied defective paint; Akzo countered that Superior’s application techniques were to blame. Superior repainted the project four times at Beck’s insistence. The problem was not fixed, and Beck terminated Superior, without paying Superior for the costs incurred in repainting.

Superior sued Beck and Akzo, claiming (1) breach of contract by Beck and Akzo; (2) breach of warranty by Akzo; and (3) the right to receive payment on a mechanic’s lien it had filed on the condominium towers for work performed on the subcontract. The three entities agreed to arbitrate the claims against Akzo.

The arbitration panel determined that Akzo’s paint was the cause of the paint problems. The panel awarded consequential damages to Beck and Superior. To Superior, the damages encompassed (1) the amount due on Superior’s lien for work performed under the subcontract on the towers; (2) Superior’s costs for excess labor and excess materials in repainting the towers; and (3) punitive damages. Two weeks later, Superior filed for bankruptcy. Approximately one year later, Beck successfully moved, without objection, for dismissal of Superior’s claims against it.

The funds awarded in the arbitration became part of Superior’s bankruptcy estate. Millennium and UPS asserted their rights in those funds as secured creditors under Colorado’s version of the Uniform Commercial Code (UCC). They disputed only the priority rights with respect to the part of the funds representing the excess costs in labor and materials ($638,226.83) incurred by Superior in repainting the towers (challenged funds).

Millennium asserted the challenged funds were the proceeds of an account, on which it had first priority; UPS asserted they were the proceeds of an intangible right, on which it had first priority. The bankruptcy court determined it lacked jurisdiction to adjudicate the priority dispute and ordered the trustee to deliver the challenged funds to Millennium and UPS jointly for state law determination of their interests in the funds.

After the parties filed a statement of undisputed facts and cross-motions for summary judgment, the district court entered summary judgment for UPS, concluding that the challenged funds were general intangibles, rather than accounts. Millennium appealed and the Court of Appeals affirmed.

The parties agreed the resolution of the case depended on whether, as a matter of law, the challenged funds were, under the UCC, proceeds of an “account” or the proceeds of a “general intangible.” The “general intangible” category of assets traditionally encompassed proceeds from the right to pursue many types of lawsuits between a debtor and a party other than the interested creditor. However, this category, under the UCC, does not include “accounts.”

Here, the challenged funds were from an arbitration award Superior recovered from Akzo on a breach of warranty claim, not the right to payment of a monetary obligation for services rendered or to be rendered. Thus, the funds recovered from Akzo were not proceeds from an “account,” but rather proceeds of a “general intangible.” The district court’s classification of the funds was affirmed.

UPS requested its attorney fees incurred on appeal pursuant to a prevailing party fee provision in the Intercreditor Agreement. The Court agreed that UPS was entitled to those fees and remanded the case to the district court to award a reasonable amount of attorney fees incurred on appeal.

Summary and full case available here.

Colorado Court of Appeals Kicks the Can as to Whether HPA Voids Limitations-of-Liability Clauses in Residential A/E Contracts Between Construction Professionals

Tim_GordonBy Timothy Gordon

Colorado’s Homeowner Protection Act (the “HPA”) protects homeowners by voiding any contractual provision that would result in the waiver of a homeowner’s rights under the Construction Defects Action Reform Act. C.R.S. § 13-20-806(7)(a). But some have argued that this same law should also void certain waivers and releases in agreements between construction professionals working on residential projects. Recently, the Colorado Court of Appeals was faced with, but did not decide, this issue.

The HPA provision in question provides as follows:

In order to preserve Colorado residential property owners’ legal rights and remedies, in any civil action or arbitration proceeding described in section 13-20-802.5 (1), any express waiver of, or limitation on, the legal rights, remedies, or damages provided by the “Construction Defect Action Reform Act”, this part 8, or provided by the “Colorado Consumer Protection Act”, article 1 of title 6, C.R.S., as described in this section, or on the ability to enforce such legal rights, remedies, or damages within the time provided by applicable statutes of limitation or repose are void as against public policy.

C.R.S. § 13-20-806(7)(a).

The reference to “section 13-20-802.5(1)” is to the definition of the word “Action”, which is defined as “a civil action or an arbitration proceeding for damages, indemnity, or contribution brought against a construction professional to assert a claim, counterclaim, cross-claim, or third party claim for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in the design or construction of an improvement to real property.” So the basic argument is that construction professionals who bring cross-claims or third party claims for indemnification against other construction professionals should be protected under C.R.S. § 13-20-806(7)(a).

In Taylor Morrison of Colorado, Inc. v. Bemas Construction, Inc., et al., 2014 COA 10, Taylor Morrison hired Terracon to perform certain geotechnical engineering and construction materials testing for a residential subdivision that Taylor Morrison was developing. After many homes were constructed, homeowners began complaining about cracks in the drywall. Taylor Morrison investigated the complaints and ended up spending significant amounts of money to remedy the defective conditions.

Taylor Morrison then sued Terracon to recover the money that it spent remedying the defects. Terracon’s contract with Taylor Morrison limited Terracon’s liability to $550,000, but Taylor Morrison was seeking more. So Taylor Morrison filed a motion with the trial court, asking the trial court to determine whether the HPA invalidated the limitation of liability in its contract with Terracon. The trial court ruled in favor of Terracon, holding that the HPA did not apply to invalidate a limitation of liability clause in a contract between it and Taylor Morrison because the HPA was meant to protect homeowners, not commercial entities. The Court of Appeals affirmed, but on different grounds. Specifically, the Court of Appeals held that the HPA could not apply retroactively to the contract between Terracon and Taylor Morrison. So the issue of whether the HPA would void a limitation of liability in an engineer’s agreement with a developer remains unresolved at the appellate level.

Consider the outstanding issue in light of the Court of Appeals’ decision in Mid Valley Real Estate Solutions V, LLC v. Hepworth-Pawlak Geotechnical, Inc., et al., 2013 COA 119. There, the Court of Appeals held that a bank holding title to residential property qualifies as a “homeowner” for purposes of the economic loss rule, and therefore may bring tort claims against construction professionals for construction defects. The Court’s reasoning in Mid Valley Real Estate Solutions is broad enough to include just about any person or entity holding title to residential property. So query the following:

  • Can developers who still hold title to homes that they have developed sue their own subcontractors and consultants in tort for alleged construction defects under Mid Valley Real Estate Solutions?
  • If so, are the developers bound by limitations of liability in their contracts with their subcontractors and consultants, or does the HPA void such limitations?
  • Finally, does it make sense to make a distinction between developers who still hold title to homes and developers who no longer hold title to homes when deciding whether or not the HPA applies?

Timothy Gordon represents construction and commercial real estate clients in complex disputes, and understands the interrelationship between the long-term real estate development, project construction, and property management. A thought leader in construction law, he currently authors Construction Law in Colorado, a blog that provides insight on key cases and developments relevant to construction law in Colorado, where this post originally appeared on February 21, 2014. He is the Co-Managing Editor of The Practitioner’s Guide to Colorado Construction Law, a three-volume treatise on construction law in Colorado.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

SB 14-145: Creating Incentives for Water Conservation

On Thursday, February 13, 2014, Sen. Mary Hodge introduced SB 14-145 – Concerning Incentives for the Conservation of Water. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires certain local governments to consider whether tap fees should be reduced if a developer commits to the implementation of water efficiency and conservation measures with regard to irrigated landscapes, including open space and residential lawns, within the subdivision. The bill applies to counties and cities differently. The bill also applies to special districts that supply water. The bill also prohibits county and municipal subdivision regulations from mandating a minimum percentage of a subdivision that must consist of irrigated vegetation or requiring the irrigation of medians.

The bill directs the Colorado water conservation board, in its awards of incentive grants for the design and implementation of water efficiency and conservation measures, to give priority to public agencies that require new subdivisions to implement water efficiency and conservation measures with regard to irrigated landscapes, including open space and residential lawns.

The bill has been assigned to the Agriculture, Natural Resources, & Energy Committee.

HB 14-1165: Limiting the Amount of Payment Property Owners Can Withhold from Construction Professionals

On January 21, 2014, Rep. Randy Fischer and Sen. Lois Tochtrop introduced HB 14-1165 – Concerning a Limit on the Retainage Allowed under a Private Construction Contract. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires property owners who contract for improvements to real property to:

  • Pay 95 percent of the amount due, which limits the amount retained to ensure the quality of work to 5 percent; and
  • Pay subcontractors the retainage after the work is finally accepted.

If a person fails to make required payments, the person must pay interest and is liable for attorney fees. These requirements are enforceable in court. Contractual provisions that do not comply with the requirements are unenforceable. A statute of limitations to enforce the bill is set for one year.

The bill is assigned to the Business, Labor, Economic, & Workforce Development Committee; the bill is scheduled for committee review on Thursday, Feb. 27 at 1:30 p.m.

SB 14-103: Phasing Out Low-Efficiency Plumbing Fixtures

On Friday, January 24, 2014, Sen. Lucia Guzman introduced SB 14-103 – Concerning the Phase-Out of the Sale of Certain Low-Efficiency Plumbing Fixtures. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill defines a “watersense-listed plumbing fixture” as one that has been:

  • Tested by an accredited third-party certifying body or laboratory in accordance with the federal environmental protection agency’s WaterSense program;
  • Certified by such body or laboratory as meeting the performance and efficiency requirements of the program; and
  • Authorized by the program to use its label.

Current law requires water-efficient indoor plumbing fixtures in only three contexts:

  • Builders of new single-family detached residences must offer the buyers toilets, faucets, and showerheads that meet the current standards of the WaterSense program;
  • Tank-type water closets and flushometer toilets in new state buildings must meet certain standards that are either less stringent than or as stringent as the current WaterSense standards; and
  • New construction and renovation of residential structures and office, commercial, or industrial buildings must meet standards that are less stringent than the current WaterSense standards.

The bill prohibits the sale of lavatory faucets, shower heads, flushing urinals, tank-type toilets, and tank-type water closets on and after Sept. 1, 2016, unless they are a watersense-listed plumbing. The bill amends or repeals conflicting portions of current law.

On Feb. 13, the Agriculture, Natural Resources, & Energy Committee amended the bill and sent it to the full Senate for review on 2nd Reading.

Since this summary, the bill passed the Senate on Second Reading, with amendments.

Colorado Court of Appeals: Contractual Covenants in Deed of Trust Not Extinguished in Foreclosure

The Colorado Court of Appeals issued its opinion in Top Rail Ranch Estates, LLC v. Walker and Walker Development Co. v. Top Rail Ranch Estates, LLC on Thursday, January 30, 2014.

Issue of First Impression—Motions for Directed Verdict—Doctrine of Claim Preclusion—Pursuit of Same Claim in Two Actions—Fraud—Economic Loss Rule—CRCP 59(a)(4)—Attorney Fees.

Top Rail Real Estates, LLC (Top Rail) entered into a contract with Walker Development Company to purchase a subdivision of platted residential lots. Top Rail paid $200,000 of the purchase price in cash, and executed a promissory note payable for the balance of $1 million. After Walker Development’s failed attempt to change the zoning to sell a portion of the property to a mining company, Top Rail was unable to sell lots in the subdivision, and it halted construction activities. Top Rail stopped making payments on its loan from the bank, and the bank foreclosed on its deed of trust. The parties sued each other in separate actions, and this appeal followed.

Walker Development argued in the first action that the court erred in granting the motion for directed verdict and dismissing its counterclaim. Regardless of whether the lien imposed by the deed of trust was extinguished by foreclosure of the bank’s senior lien, the contractual covenants in the deed of trust were not extinguished by the foreclosure. Therefore, the trial court erred in directing a verdict against Walker Development on its counterclaim.

Ronald Walker and Walker Development also argued that the trial court erred in denying their motion for directed verdict on the fraud claims asserted by Top Rail and Christopher Jenkins. The economic loss rule applied to bar the fraud claims asserted by Top Rail and Jenkins because the relief sought was the same as that sought for breach of contract and breach of the covenant of good faith and fair dealing.

The Court of Appeals agreed that the trial court erred in its calculation of prejudgment interest. The award should have been based on the $500,000 damages award in the final judgment entered by the trial court, and not on the $567,000 damages awarded by the jury.

Walker Development also contended that the trial court improperly granted summary judgment for Top Rail and Jenkins in the second action, based on its ruling that claim preclusion barred Walker Development’s claims. The doctrine of claim preclusion does not bar claims that were permissive counterclaims in a prior action, where the adjudication of those claims would not result in inconsistent judgments or a deprivation of rights established by the first judgment. Here, allowing Walker Development’s claims to be adjudicated in the second action did not nullify the judgment in the first action or impair any rights established by it, nor did inconsistent judgments result. Accordingly, the trial court erred in granting summary judgment against Walker Development based on claim preclusion.

On cross-appeal from the second action, Top Rail and Jenkins argued that the trial court erred in denying their CRCP 59(a)(4) motion for cancellation of the promissory notes, release of the deed of trust, and release of the notice of lis pendens. The Court disagreed. The trial court did not abuse its discretion in determining that it would be inequitable to require Walker Development to file an additional bond on top of the $1.3 million bond that it had already posted in the first action. The judgment was affirmed in part and reversed in part, and the case was remanded with directions.

Summary and full case available here.

Colorado Court of Appeals: Regardless of Homeowner Protection Act’s Application to Commercial Entities, Retrospective Application Not Allowed

The Colorado Court of Appeals issued its opinion in Taylor Morrison of Colorado, Inc. v. Bemas Construction, Inc. on Thursday, January 30, 2014.

Construction Defect—Homeowner Protection Act of 2007.

Taylor Morrison of Colorado, Inc. (Taylor) was the developer of a residential subdivision known as Homestead Hills (Project). Pursuant to written contracts with Taylor, Terracon Consultants, Inc. (Terracon) performed geotechnical engineering and construction material testing services at the Project. Bemas Construction, Inc. (Bemas) performed site grading.

After many of the homes were constructed, Taylor began receiving complaints about cracks in the drywall of homes. Taylor remedied the defective conditions, and then sued Terracon and Bemas for breach of contract and negligence, among other things.

Ten months after the deadline to amend pleadings, Taylor moved for leave to add claims against Terracon for gross negligence, negligent misrepresentation, and fraudulent misrepresentation/concealment, as well as a demand for exemplary damages. These claims were based, in part, on allegations that Terracon had willfully and wantonly breached duties to Taylor when it ignored or concealed inadequate subsurface soil conditions at the Project. The trial court denied the motion to amend the pleadings.

Taylor also moved for determination as to whether the Homeowner Protection Act of 2007 (HPA) invalidated the limitation of liability clauses in the contracts with Terracon. The trial court denied the motion on the ground that the HPA applies to residential property owners but not to commercial entities.

Terracon moved for leave to deposit into the court’s registry $550,000, representing the maximum amount that Taylor could recover from Terracon under the contractual limitation of liability clauses and the court order. It also requested that upon acceptance of such deposit, the court should declare Taylor’s claims against Terracon moot and dismiss them with prejudice. The trial court ruled in favor of Terracon. The money was deposited and the claims were dismissed with prejudice.

Taylor then went to trial against Bemas. The jury returned a verdict in Bemas’s favor on all of Taylor’s claims against it. Taylor appealed.

Taylor argued that it was error to rule that the HPA did not invalidate the limitation of liability clauses in Taylor’s contracts with Terracon. The Court of Appeals affirmed the trial court’s judgment, but for different reasons. The Court held that regardless of whether the HPA applies to commercial entities, retroactive application of the HPA to these facts would be unconstitutionally retrospective. The Courtconcluded, however, that further proceedings were necessary to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct to attempt to overcome Terracon’s assertion of the limitation of liability clauses.

Taylor also argued that if a new trial is ordered against Terracon, a new trial as to Bemas also should be granted. The Court held that the Bemas’s liability was distinct and separable from Terracon’s liability and there would be no injustice or unfairness to Taylor in allowing the verdict for Bemas to stand. The judgment was affirmed and the case was remanded to the trial court to determine whether Taylor should have been permitted to introduce evidence of Terracon’s willful and wanton conduct for the sole purpose of attempting to overcome Terracon’s assertion of the limitation of liability clauses at issue.

Summary and full case available here.

Colorado Court of Appeals: Homeowners’ Association Must Follow Nonprofit Corporation Rules When Amending Declaration Without a Meeting

The Colorado Court of Appeals issued its opinion in Triple Crown at Observatory Village Association, Inc. v. Village Homes of Colorado, Inc. on Thursday, November 7, 2013.

Construction Defect—Interlocutory Review—Revised Nonprofit Corporation Act Relation to Colorado Common Interest Ownership Act—Consumer Protection Act.

Triple Crown at Observatory Village (Triple Crown) is a common interest community organized under the Colorado Common Interest Ownership Act (CCIOA). The developer of Triple Crown, Village Homes of Colorado, Inc. (Village Homes), was Triple Crown’s declarant under CCIOA § 38-33.3-103(12). Village Homes drafted and recorded Triple Crown’s Declaration of Covenants, Conditions, and Restrictions (Declaration). The Declaration created the Triple Crown at Observatory Village Association, Inc. (Association). It was organized as a nonprofit corporation under the Colorado Revised Nonprofit Corporation Act (CRNCA).

Article 14 of the Declaration established a dispute resolution procedure for claims arising from the design or construction of Triple Crown. It required arbitration of claims under American Arbitration Association rules if good faith negotiation and mediation efforts were unsuccessful.

On January 14, 2012, the Association began collecting votes from its members to revoke Article 14. After sixty days, 48% of the members had cast votes in favor of revocation. After another sixty days, the Association had obtained the required 67% of votes to revoke Article 14. The Association recorded the amendment revoking Article 14. The Association then brought this action against Village Homes and several of its principals and employees (collectively, respondents), alleging negligent construction, Colorado Consumer Protection Act (CCPA) violations, and breach of fiduciary duties.

Respondents moved to dismiss for lack of jurisdiction, citing the mandatory arbitration provision in Article 14. They argued that because the Association had not amended Article 14 within the time limits in the CRNCA, they were still bound by the Article 14 dispute resolution procedures. The trial court granted the motion, dismissed the case, and ordered the parties to follow Article 14.

The trial court ruled that when an association amends its declaration without a meeting under CCIOA, the association must comply with the sixty-day time limit provided in CRNCA § 7-127-107. The Court of Appeals agreed. Because the Association did not comply, the amendment was ineffective.

The Court also agreed that CCIOA established the power of unit owners’ associations to “[i]nstitute, defend, or intervene in litigation or administrative proceedings . . . on the matters affecting the common interest community” and that “litigation” includes both judicial proceedings and arbitrations. Therefore, the mandatory arbitration provision did not infringe on the Association’s statutory power to institute litigation.

The Association argued that CCIOA § 38-33.3-302(2) invalidated Article 14. The trial court rejected this argument. The Court agreed with the trial court, finding that the CCIOA section forbids only restrictions unique to the declarant. Article 14 controlled disputes between all parties.

The trial court rejected the Association’s argument that its CCPA claims were not subject to mandatory arbitration, because CCPA provisions “shall be available in a civil action. The Court agreed that such a right can be waived, and Article 14 was such a waiver. The trial court’s order was affirmed and the case was remanded.

Summary and full case available here.

Colorado Court of Appeals: Petition for Interlocutory Review Granted in Construction Defect Case

The Colorado Court of Appeals issued its opinion in Triple Crown at Observatory Village Association, Inc. v. Village Homes of Colorado, Inc. on Thursday, October 24, 2013.

Construction Defect—Interlocutory Review—Arbitration Provision Enforcement.

In this construction-defect action, plaintiff Triple Crown at Observatory Village Association, Inc. (Association) petitioned for interlocutory review of the district court’s order granting defendants’ motion to enforce an arbitration provision in the Association’s declaration. The petition was granted.

Defendants created the Association to manage, maintain, and repair certain properties. Defendant Village Homes of Colorado, Inc. recorded a Declaration of Covenants, Conditions, and Restrictions under the Colorado Common Interest Ownership Act. Article 14 of the Declaration established a dispute resolution procedure for claims arising from the design or construction of the improvements and structures on the property. It required arbitration of such claims if good faith negotiation and mediation efforts were unsuccessful. Disputes arose regarding defendants’ responsibility for construction defects, and the Association sought to revoke Article 14. The Association appeared to have received the requisite votes and recorded an amendment to the declaration and filed this action.

Defendants moved to enforce the arbitration provision, arguing that the revocation was ineffective because the Association did not obtain the written consent from 67% percent of its members within the sixty-day time period required under the Colorado Revised Nonprofit Corporation Act. The district court granted defendants’ motion. The Association then filed an unopposed motion for certification of the order pursuant to CAR 4.2. The district court granted the motion and certified three issues for appeal. The Association then filed the present CAR 4.2 petition for interlocutory review.

The Court of Appeals may grant such an appeal when (1) immediate review may promote a more orderly disposition or establish a final disposition of the litigation; (2) the order from which an appeal is sought involves a controlling question of law; and (3) that question is unresolved. The Court concluded that immediate review could promote a more orderly disposition of the litigation. If it did not grant review, the parties might arbitrate all the issues and then the Association could appeal the order compelling arbitration. Also, the questions certified present unresolved questions of law, none of which has been addressed by the Colorado Supreme Court or Court of Appeals. Finally, the district court’s order compelling arbitration involved a controlling question of law. Accordingly, the petition was granted.

Summary and full case available here.

Colorado Court of Appeals: Notice-Prejudice Rule Properly Applied by Trial Court to Third-Party Settlement

The Colorado Court of Appeals issued its opinion in Stresscon Corp. v. Travelers Property Casualty Company of America on Thursday, September 12, 2013.

Construction—Insurance Policy—Notice–Prejudice Rule—No Voluntary Payment Clause—Settlement—Collateral Source Rule—Damages—Attorney Fees.

Plaintiff Stresscon Corporation (concrete company) and defendant Travelers Property Casualty Company of America (insurance company) appealed the trial court’s judgment. The judgment was affirmed in part and reversed in part, and the case was remanded.

In this complex construction case, the general contractor and the concrete company settled their dispute without litigation. Before entering into the settlement, the concrete company did not inform the insurance company of the settlement or obtain its consent.

The insurance company argued that the notice–prejudice rule adopted in Friedland v. Travelers Indemnity Co., 105 P.3d 639, 643 (Colo. 2005), for example, does not apply to breaches of “no voluntary payment” clauses, and insurers are prejudiced as a matter of law whenever an insured settles with a third-party claimant before that third party has filed a lawsuit. “No voluntary payment” clauses in insurance policies prohibit insureds from voluntarily settling claims and making payment, or from assuming certain expenses, without the insurer’s consent, at the risk of losing insurance benefits. The notice–prejudice rule applies to “no voluntary payment” clauses in insurance policies. The notice–prejudice rule provides that (1) if an insured does not provide the insurer with notice of a claim until after the insured has settled, then (2) the insured will lose benefits after the settlement based on a presumption of prejudice, unless(3) the insured rebuts the presumption that the insurer’s interests were prejudiced by the lack of notice, and(4) the insurer does not then prove that it actually was prejudiced by the lack of notice. Further, an insured’s pre-litigation settlement with a third party does not conclusively establish that an insurer was prejudiced. Here, sufficient evidence was presented at trial to support the jury’s finding that the insurance company was not prejudiced. Therefore, the trial court properly applied the notice–prejudice rule in this case, and the record supports the jury’s verdict that the insurance company unreasonably delayed or denied the claim.

The insurance company argued that the trial court should have granted a judgment notwithstanding the verdict because the court had erroneously allowed the jury to consider conduct that occurred before the effective date of CRS §§ 10-3-1115 and -1116, which was August 5, 2008. The insurance company waived this argument, however, because it did not request a limiting instruction.

On cross-appeal, the concrete company, relying on the collateral source rule, argued that the trial court improperly reduced its damages by the amount that the insurer of one of the members of the crane team paid to satisfy the judgment in the first trial. The unambiguous language of the “other insurance” clauses in the insurance policies, however, states that the concrete company contracted away its right to recover benefits from both the insurance company and the insurer of the member of the crane team. Therefore, the trial court did not err when it reduced the damages by the amount that the insurer for the member of the crane team paid to the concrete company to satisfy the judgment in the first trial.

The concrete company also argued that the trial court incorrectly deducted the fees and costs that it incurred in bringing the fee request—namely, the “fees-on-fees”—from its award under CRS § 10-3-1116(1). A request for fees-on-fees in connection with a § 10-3-1116(1) claim is a request for damages, and the trial court erred in denying this portion of the concrete company’s fees claim. The case was remanded to the trial court for a determination of the reasonable amount of attorney fees and costs that the concrete company incurred in defending the judgment on the statutory claim on appeal.

Summary and full case available here.