December 26, 2014

Colorado Court of Appeals: Statutory Employer Has Standing to Contest Lapse in Insurance Coverage

The Colorado Court of Appeals issued its opinion in Hoff v. Industrial Claim Appeals Office on Thursday, October 9, 2014.

Workers’ Compensation—Standing—Notice of Cancellation Provision—Estoppel.

Hoff owns a house that she uses as a rental property. After the house sustained hail damage to the roof, Hoff and her husband engaged Alliance Construction (Alliance) to negotiate with their insurance company to resolve their damage claim. A successful resolution was reached, and Hoff contracted with Alliance to repair the roof. Without Hoff’s knowledge, Alliance verbally subcontracted the roofing job to MDR Roofing, Inc. (MDR). Claimant was employed by MDR as a roofer.

While working on the roof in March 2011, claimant fell twenty-five feet to the ground and sustained serious injuries. Claimant sought medical and temporary total disability (TTD) benefits for his work-related injuries. Pinnacol, MDR’s insurer, denied the claim because MDR’s policy had lapsed for failure to pay premiums. Neither Alliance nor Hoff carried workers’ compensation insurance.

In October 2010, before starting the roofing job, Alliance obtained a certificate of insurance (certificate) from Pinnacol’s agent, Bradley Insurance Agency (Bradley), that verified that MDR had workers’ compensation insurance through Pinnacol.

On February 10, 2011, Pinnacol sent a certified letter to MDR advising the policy would be cancelled if payment of a past due premium was not received. The policy was canceled effective March 3, 2011 and letters to that effect were sent to MDR and Bradley.

Claimant was injured on March 10, 2011. On March 11, MDR’s owner went to Bradley’s office seeking to reinstate the policy. He was informed it could be reinstated if he paid the past due premium, paid a reinstatement fee, and signed a no-loss letter. The owner knew claimant had been injured, but he submitted the no-loss letter and did not inform Bradley of the accident.

Pinnacol reinstated the policy on March 11. MDR’s owner returned to Bradley’s office to report claimant’s injuries. Pinnacol contested the claim and cancelled the policy.

The administrative law judge (ALJ) determined that the owner’s failure to disclose claimant’s injuries when he signed the no-loss letter was a material misrepresentation, thus voiding the policy. The ALJ held MDR, Alliance, and Hoff jointly liable for claimant’s medical and TTD benefits. The Industrial Claim Appeals Office (Panel) agreed and affirmed.

Hoff appealed, arguing that Pinnacol was stopped from denying benefits to claimant. Pinnacol argued Hoff had no standing to challenge the cancellation of MDR’s policy.

The Court of Appeals held that Hoff had standing and agreed in part with her argument. Standing is established by Hoff demonstrating (1) she has sustained an injury in fact, and (2) the injury is to a legally protected interest. The first prong was clearly met. The liability imposed on Hoff by the ALJ and the Panel exceeded $300,000. The second prong was met because Hoff argued she was a beneficiary of specific promises that there was a workers’ compensation policy issued to MDR that was in force on the dates stated in the certificate. Her claim is independent of the Pinnacol policy and the Workers’ Compensation Act; it is one for promissory estoppel.

The Court found there were factual findings that need to be addressed by the ALJ regarding the estoppel argument. The case was remanded for a hearing, specifically to determine whether (1) Alliance or Hoff relied on the promises contained in the certificate, and (2) whether circumstances exist such that injustice can be avoided only by enforcement of the promises contained in the certificate.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Notice of Mechanics’ Lien Sufficient when Amended Lien Filed Same Day as Original Lien

The Colorado Court of Appeals issued its opinion in Sure-Shock Electric, Inc. v. Diamond Lofts Venture, LLC on Thursday, August 28, 2014.

Property—Mechanics’ Lien—Contract—Foreclosure—Notice—Equitable Apportionment—Prevailing Party—Costs.

Diamond Lofts Venture, LLC (DLV) was the developer and owner of a building project at 2210 Blake Street in Denver (Blake Street property). Sure-Shock Electric, Inc. (Sure-Shock), as the primary electrical contractor on the project, installed the electrical work throughout the building. Thereafter, Sure-Shock filed a mechanics’ lien for the unpaid contract price. Pursuant to their contract, DLV and Sure-Shock participated in arbitration. The arbitrator determined that Sure-Shock had proved its claims, and awarded it the principal amount claimed in the amended lien statement. The trial court affirmed the arbitrator’s award and entered a decree of foreclosure authorizing the sale of the DLV units to satisfy Sure-Shock’s lien.

On appeal, DLV contended that the trial court erred in allowing Sure-Shock to foreclose on its lien because Sure-Shock failed to comply with the statutory requirements necessary to perfect the lien. The Court of Appeals disagreed. Sure-Shock provided DLV proper notice more than ten days before filing the original lien statement. Sure-Shock was not required to provide an additional notice before it filed its amended lien statement the same day as the original lien to correct the amount claimed. Additionally, although DLV only owned seven of the twenty-nine units in the Blake Street property at that time, Sure-Shock’s lien statement sufficiently identified the property by listing the entire Blake Street property and naming only DLV as the property owner. Finally, Sure-Shock was not required to apportion the unpaid contract price according to the amount due for work on the DLV units, rather than claiming the full amount due.

In its cross-appeal, Sure-Shock contended that the trial court abused its discretion in apportioning the lien. A court may equitably apportion a blanket lien. Here, the trial court determined that an equitable apportionment should be based on the actual benefit enjoyed by each unit. Therefore, Sure-Shock was awarded 33.1% of the lien amount, which corresponded to the total square footage of the DLV units relative to the square footage of the entire Blake Street property. Because Sure-Shock’s electrical work benefited the entire Blake Street property, and Sure-Shock chose to encumber only the DLV units, Sure-Shock may not recover the entire unpaid amount of the contract. Therefore, the trial court’s apportionment was not an abuse of its discretion.

In addition, because Sure-Shock’s lien was determined to be valid, Sure-Shock succeeded on a “significant issue in the litigation.” Therefore, the trial court did not abuse its discretion in concluding that Sure-Shock was the prevailing party and awarding it costs. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

SB 14-220: Requiring Mediation or Arbitration of Construction Defect Claims Where Required by Owners’ Association Governing Documents

On April 30, 2014, Sen. Jessie Ulibarri introduced SB 14-220 – Concerning Prerequisites to the Authority of a Unit Owners’ Association to Pursue Resolution of Disputes Involving Construction Defects. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill states that when the declaration, bylaws, or rules of a common interest community require mediation or arbitration of construction defect claims and the requirement is later removed, mediation or arbitration is still required for a construction defect claim based on an alleged act or omission that occurred when the mediation or arbitration requirement was in place. Section 1 also specifies that the arbitration must take place in the judicial district in which the community is located and that the arbitrator must:

  • Be a neutral third party;
  • Make certain disclosures before being selected; and
  • Be selected as specified in the community’s governing documents if possible or, if that is not possible, in accordance with the uniform arbitration act.

The bill adds to the disclosures required prior to the purchase and sale of property in a common interest community a notice that the community’s governing documents may require binding arbitration of certain disputes.

The bill requires that before a construction defect lawsuit is filed on behalf of the association, the executive board of the association must give advance notice to all unit owners, together with a disclosure of the projected costs, duration, and financial impact of the litigation, and must obtain the written consent of a majority of the unit owners.

The bill is assigned to the State, Veterans & Military Affairs and the Judiciary Committees; the State Affairs Committee will take up the bill first at 1:30 p.m. on Monday, May 5.

Since this summary, State, Veterans & Military Affairs Committee referred the bill, unamended, to the Judiciary Committee, which voted to postpone the bill indefinitely.

Tenth Circuit: Fraudulent Concealment of Profits Supported Convictions for Mail Fraud

The Tenth Circuit Court of Appeals issued its opinion in United States v. Sharp on Monday, April 28, 2014.

Co-defendants Sharp and Griggs were convicted of mail fraud and conspiracy to commit mail fraud. They appealed from their convictions. Griggs also challenged a $500,000 fine imposed by the district court. The judgments were affirmed.

Griggs founded Disaster Restoration, Inc. (DRI) in 1986 and became its owner and CEO. DRI was a Colorado corporation that restored and repaired commercial and residential properties in Colorado. In 2003, Griggs hired Sharp to be the CEO and operating manager of DRI. Both Griggs and Sharp established company policies and trained and supervised DRI project managers and estimators. In approximately 2004, Griggs and Sharp began instructing DRI employees who prepared DRI’s estimates to add 20-30% to the price that DRI’s subcontractors were charging DRI. As a result, the estimate sent by DRI to an insurance company would, in the case of a line item relating to subcontractor work, list an amount 20-30% higher than the subcontractor’s bid for the work. Griggs and Sharp also instructed their employees to obtain two invoices from their subcontractors: one showing the 20-30% increase and one reflecting the actual amount paid to the subcontractor. Subsequently, Griggs, Sharp, and several other employees of DRI were charged with mail fraud related to these inflated invoices. Griggs and Sharp were convicted and this appeal followed.

Sharp appealed on five issues: two sufficiency-of-the-evidence issues, two instruction-related issues, and a challenge based on the Tenth Circuit decision in United States v. Cochran, 109 F.3d 660 (10th Cir. 1997). Sharp’s arguments challenging his convictions were based on the fact that the evidentiary standard referenced invoiced amounts, and he had invoices for the amounts billed. Because of the fraudulent nature of the inflated invoices, however, these arguments do not stand.

Griggs raised the same issues as Sharp on appeal and also appealed the $500,000 fine imposed on him.  Like Sharp, Griggs relied on Cochran to reverse his convictions. However, the Tenth Circuit distinguished Cochran because in the DRI case, the fraudulent invoices were prepared as an affirmative act to conceal DRI’s profits from the subcontractor line item invoices submitted to the insurance companies. The Tenth Circuit affirmed the lower court’s judgment because of the fraud perpetrated by Griggs and Sharp. Griggs’ appeal of the fine was unsuccessful because his counsel failed to properly preserve the issue for appeal and there was no plain error.

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.