May 19, 2013

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Colorado Court of Appeals: Actions of County Requiring Posting of Bond Discriminatory Against Same-Sex Couple

May 2, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Rodgers v. Board of County Commissioners of Summit County on Thursday, April 25, 2013.

Building Regulations—Same-Sex Couple Discrimination—Colorado Civil Rights Act—Exhaustion of Administrative Remedies—Inverse Condemnation—Directed Verdict—Section 1983.

Plaintiffs Jason L. Rodgers and James R. Hazel, a same-sex couple, appealed the trial court’s judgment dismissing two of their claims and its entry of a directed verdict in favor of Summit County on their inverse condemnation claim. The judgment was affirmed in part and reversed in part, and the case was remanded with directions.

Plaintiffs built a home in Summit County that included a septic system. County employees found it did not comply with the County’s regulations or the approved building plan obtained by the previous owner. The County found that the septic tank was too small and required a subsurface drain that had not been installed. It also found that during the installation, the subcontractor had damaged wetlands on the property.

Winter was approaching and the issues couldn’t be fixed until spring, so the County offered a temporary certificate of occupancy requiring plaintiffs to fix the septic system, mitigate the wetlands damages, and post a bond for the estimated costs. Plaintiffs did not post the bond, the certificate of occupancy was not issued, and plaintiffs lost their home in foreclosure.

The trial court dismissed three of plaintiffs’ five claims under CRCP 8 and 12(b)(5). The parties agreed to bifurcate the inverse condemnation claim from the 42 USC § 1983 equal protection claim. The court entered a directed verdict on the inverse condemnation claim in the County’s favor during a bench trial. After plaintiffs rested in the jury trial on the § 1983 claim, the court directed a verdict in favor of the County on three of the four actions on the basis of which the plaintiffs asked that the jury be instructed that “taken as a whole collectively establish[] that the County treated them in a discriminatory manner.” The jury returned a verdict for the County on what remained of the § 1983 claim.

Plaintiffs argued it was error to dismiss their first and third claims for relief. The Court of Appeals disagreed. The first claim asserted that County officials discriminated against them by requiring certain actions not required of heterosexual couples before it would issue a certificate of occupancy. This claim seemed to arise under the Colorado Civil Rights Act. Under that Act, any person alleging discrimination must file a complaint with the Colorado Civil Rights Commission (CCRC). Plaintiffs never did so, and therefore it was not error to dismiss this claim for failure to plead exhaustion of administrative remedies.

Plaintiffs’ third claim asserted that the County deprived them of their constitutional rights of due process, equal protection, and freedom of association under the U.S. and Colorado Constitutions. These claims were appropriately dismissed because plaintiffs were not entitled to recover damages through such a direct claim. Section 1983 is the remedy for a person who has been deprived of a constitutional right by state action; under the Colorado Constitution a direct claim for damages will lie only where no other adequate remedy exists.

Plaintiffs then argued it was error to direct a verdict for the County on their inverse condemnation claim and on three of the four actions that formed the basis for the § 1983 claim. The Court affirmed on the inverse condemnation claim but reversed on the § 1983 claim.

Inverse condemnation is a claim for relief against a regulatory taking. The trial court found that the County’s regulations and response regarding the septic issues were reasonably applied to plaintiffs and the County did not deny them an economically viable use of their property. Moreover, the County’s septic regulations were reasonable and contributed to the legitimate public purpose of protecting groundwater and adjoining properties from contamination. The record clearly supported the trial court’s determination that no regulatory or per se taking had occurred.

On the § 1983 claim, plaintiffs alleged the County’s requirements were unreasonable and differed from requirements imposed on similarly situated heterosexual homeowners in four ways. The trial court analyzed each of the alleged discriminatory actions separately and entered a directed verdict in the County’s favor on three of them, allowing only an allegation that it was discriminatory to require plaintiffs to post a bond. It found plaintiffs had not presented sufficient evidence of similar situations, even when taken in the light most favorable to them, that could have established an equal protection claim.

Plaintiffs argued it was error to analyze the County’s conduct as discrete actions, rather than as a pattern of discriminatory conduct. The Court agreed, finding that at the directed verdict stage, the trial court’s role is not to separately weigh individual aspects of the evidence offered to support a single claim; its function is to decide whether the totality of the evidence would permit a reasonable jury to return a verdict against a defendant. The trial court may not “parse evidence presented” and grant a “partial directed verdict” on a claim. The partial directed verdict on the single § 1983 claim was error, and this claim was remanded to be retried.

Summary and full case available here.

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Colorado Court of Appeals: Construction Contract Undeniably for Public Works Project and Bond Required

May 1, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Tarco, Inc. v. Conifer Metropolitan District on Thursday, April 25, 2013.

Breach of Contract—Summary Judgment—CRS § 38-26-106.

In this breach of contract action, plaintiff Tarco, Inc., a construction contractor, appealed the district court’s grant of summary judgment for defendant Conifer Metropolitan District (CMD). The judgment was affirmed in part and reversed in part, and the case was remanded with directions.

In 2005, Tarco and CMD entered into a series of contracts for construction projects related to the development of a shopping center. Tarco alleged that the work on two of the contracts was substantially complete and that CMD wrongfully withheld payment on them.

Tarco sued, based on nonpayment, and CMD counterclaimed, alleging material breach by Tarco. After two years of litigation, CMD moved for partial summary judgment, asserting that Tarco couldn’t recover under the contracts because it did not satisfy CRS § 38-26-106 (the bond statute). The district court granted the motion. Tarco did not dispute that it did not provide a bond, and the district court concluded that the bond statute barred recovery by contractors failing to post bond.

On appeal, Tarco argued that the court erred by granting summary judgment. Tarco contended that there was a genuine disputed issue of material fact as to whether the contracts at issue were for “public works” projects. If they were not, they were not subject to the bond statute. The Court of Appeals found there was no disputed issue that the projects were public works. The bond statute applies to “any building, road, bridge, viaduct, tunnel, excavation, or other public works for any . . . political subdivision of the state.” The Supreme Court has interpreted “public works” extremely broadly. The contracts at issue were for the construction of a highway overpass and infrastructure components around the shopping center, including sewers, fire hydrants, retaining walls, paving, and roadways. The Court found these clearly to be public works subject to the bond statute, noting that there was no disputed issue of material fact in this regard.

CMD asserted that the bond statute is a “nonclaim statute” that creates an absolute bar to recovery or destroys the claim for relief itself, thus precluding Tarco’s equitable claims of waiver and estoppel. The Court disagreed. Nonclaim statutes deprive a court of subject matter jurisdiction. The Colorado Governmental Immunity Act (CGIA) is a nonclaim statute. CRS § 15-12-803 in the Colorado Probate Code is another. They are rare. The bond claim statute merely provides that unless a bond is provided, “no claim in favor of the contractor arising under the contract shall be audited, allowed, or paid.” It is not a nonclaim statute, and therefore Tarco’s noncompliance does not preclude its assertion of equitable defenses.

Tarco claimed there was a genuine and material factual dispute as to whether CMD affirmatively waived the bond requirement. CMD countered that, as a special district, it did not possess the power to waive the requirement. The Court agreed that a special district does not possess the power to waive the requirement of the bond statute. CRS § 32-1-1001 provides the express common powers of special districts, but does not include the power to waive the bond requirement. The Court will not imply such a power. Therefore, there was no genuine issue of material fact as to whether CMD waived its rights under the bond statute, because it could not.

The Court concluded that there was such an issue of material fact as to whether the doctrine of equitable estoppel applied to CMD’s conduct. A party asserting equitable estoppel must establish that the party to be estopped knew the facts and either intended the conduct to be acted on or so acted that the party asserting estoppel must have been ignorant of the true facts, and the party asserting estoppel must have reasonably relied on the other party’s conduct with resulting injury. Based on the evidence presented, the Court concluded that Tarco had demonstrated a genuine issue of material fact as to whether the foregoing facts were established. Therefore, CMD was equitably estopped by its conduct from asserting the bond statute as a defense to Tarco’s contract claims. The judgment was reversed as to the determination that the bond statute is a nonclaim statute and as to the dismissal of Tarco’s equitable estoppel claim, and the case was remanded for further proceedings.

Summary and full case available here.

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HB 13-1292: Making Multiple Changes to Contracting Requirements for State and Local Government Agencies

April 24, 2013 by Leave a Comment

On April 2, 2013, Rep. Pete Lee and Sen. Andy Kerr introduced HB 13-1292 - Concerning Modifications to Procurement Requirements for Government Contracts Related to United States Domestic Employment. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Colorado hiring on public works projects. Current law requires a contractor to use at least 80 percent Colorado labor for any public works contract that is financed in whole or in part by state, county, school district, or municipal moneys (Colorado labor requirement). Any violation of the Colorado labor requirement is currently a misdemeanor punishable by fine, imprisonment in county jail, or both. Current law does not specifically require any state entity to enforce the Colorado labor requirement.

As introduced the bill repeals the existing criminal penalties and directs the department of labor and employment (CDLE) to enforce the Colorado labor requirement. In connection with its enforcement duties, CDLE is required to receive complaints about potential violations of the Colorado labor requirement, investigate such complaints, and impose fines for violations.

If a contractor has violated the Colorado labor requirements multiple times, the executive director of CDLE may, in his or her discretion, initiate proceedings to debar the contractor. The general assembly is required to appropriate any revenue from the fines collected by CDLE to CDLE to be used for its enforcement of the Colorado labor requirements.

The bill specifies that the Colorado labor requirement applies to each construction phase of the public works project separately. The governmental body financing a public works project may waive the Colorado labor requirement for a specific type or class of labor for a construction phase of a public works project if there is reasonable evidence to demonstrate insufficient Colorado labor in a specific type or class of labor to perform the work of that construction phase of the project.

Compliance with the requirements of the Colorado labor requirement will be calculated on the total taxable wages and fringe benefits, minus any per diem payments, paid to workers employed directly on the site of the project and who satisfy the definition of Colorado labor.

Nonresident bidder reciprocity. Colorado is one of many states that requires reciprocal treatment for a non-resident bidder who is from a state that offers a preference for resident bidders of that state (non-resident bidder reciprocity). Current law does not require any state entity to enforce the nonresident bidder reciprocity requirements.

The bill clarifies the current nonresident bidder reciprocity law by specifying that in any bidding process for public works in which a bid is received from a nonresident bidder who is from a state that provides a percentage bidding preference, a comparable percentage disadvantage shall be applied to the bid of that bidder.

The department of personnel (DPA) is required to determine which states provide a bidding preference on public works contracts for their resident bidders and to submit a report to the general assembly that includes the list as well as recommendations for the implementation and enforcement of the nonresident bidder reciprocity law. In addition, the bill requires that any request for proposals issued by a state agency or political subdivision of the state include notice of Colorado’s nonresident bidder reciprocity law.

Competitive sealed best value bidding for construction contracts for public projects. Currently, construction contracts for public projects are awarded through competitive sealed bidding. The bill creates a competitive sealed best value bidding process and authorizes construction contracts to be awarded either through the existing competitive sealed bidding process or the new competitive sealed best value bidding process.

The bill requires a contract under competitive sealed best value bidding to be solicited through an invitation for bids that identifies the evaluation factors upon which the award shall be based. The bill specifies certain evaluation factors to be included in the bids.

A contract shall be awarded to the bidder whose bid is determined in writing to be the most advantageous to the state and that represents the best overall value to the state, taking into consideration the price and other evaluation factors set forth in the invitation for bids.

The bill requires the executive director of a governmental agency or the president of an institution of higher education (institution), as applicable, that enters into a construction contract for a public project to disclose to the public the agency or institution’s rationale for selecting the competitive sealed bidding process, the competitive sealed best value bidding process, or the integrated project delivery process, which also currently exists in law, as applicable. The agency or institution is required to post the disclosure on its web site.

Disclosure of outsourcing contract duties by vendor. Current law requires any prospective vendor for a contract from the state for services to disclose where services will be performed under the contract, including subcontracts, and whether any services under the contract or subcontract are anticipated to be performed outside the state or the U.S. The bill modifies current law by requiring prospective vendors to make this disclosure for subcontracts only.

In addition, the bill requires each contract entered into or renewed by a governmental body to contain a clause that requires the vendor to provide written notice to the governmental body if the vendor decides, after the contract is awarded, to subcontract any part of the contract to a subcontractor that will perform such duties in a location outside the state or the U.S.

The notice must include the specific duties that will be outsourced and the reason for the outsourcing. The governmental body is required to provide the written notice from a vendor to the director of DPA (director), and the director is required to post the notice on the official web site of DPA. If a vendor fails to notify the governmental body that is a party to the contract of outsourcing, the governmental body may, in its discretion, void the contract.

Outsourcing of certain contract duties by governmental body prohibited. The bill prohibits a governmental body from awarding a contract to a vendor outside the U.S. that will perform the direct labor necessitated by the contract outside the U.S. Direct labor includes labor that is required to be performed under a contract when the governmental body has a direct business relationship with the vendor performing the contract. It does not include computer systems, including hardware and software that is not specifically designed pursuant to the terms of the contract.

Each prospective vendor that submits a bid or proposal to a governmental body is required to certify that the direct labor covered by the bid or proposal will be performed in the U.S.

A governmental body may submit to the director written request for a waiver of the direct labor requirements. A governmental body shall include in its written waiver request findings of one or more specified circumstances to justify the need for a waiver.

The director is required to post information regarding any waiver allowed on the official web site of DPA, periodically analyze the direct labor services for which waivers are granted to a governmental body, and work with governmental bodies to facilitate the performance of such outsourced direct labor services within the U.S. for future contracts.

Disclose use of foreign-produced iron, steel, and related manufactured goods. The bill requires the contractor for any public buildings or public works project that is funded in whole or in part by state moneys and that costs more than $500,000 to disclose to DPA the five most costly goods incorporated into the contract.

The bill specifies that, in the case of an iron or steel product, all manufacturing must take place in the U.S., and in the case of a manufactured good, a good will be considered manufactured in the U.S. if all of the manufacturing processes for the final product take place in the U.S. In order for a manufactured good to be considered subject to disclosure, the product must be manufactured predominantly of steel or iron.

DPA is required to develop and maintain a list of the 5 most costly goods that are incorporated into each contract and that are not produced in the U.S., as disclosed to DPA.

Public utilities commission consideration of best value metrics in request for proposal process. Currently, the public utilities commission is required to consider certain best value employment metrics when it evaluates electric resource acquisitions. The bill requires that the public utilities commission also consider the best value employment metrics in connection with requests for a certificate of convenience and necessity for construction or expansion of generating facilities, including pollution control or fuel conservation upgrades and conversion of existing coal-fired plants to natural gas plants.

The bill has been approved by the State, Veterans, & Military Affairs, Finance, and Appropriations Committees; it is scheduled for 2nd Reading on the floor of the House.

Since this summary, the bill passed Second Reading with amendments, passed Third Reading, and was assigned to the Finance Committee in the Senate.

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SB 13-212: Increasing Financing Options Available Through Colorado New Energy Improvement District for New Energy Improvements

March 28, 2013 by Leave a Comment

On Thursday, March 14, 2013, Sen. Matt Jones introduced SB 13-212 – Concerning Increased Options for Financing Available Through the Colorado New Energy Improvement District for the Completion of New Energy Improvements, and, in Connection Therewith, Allowing Commercial Buildings to Access District Financing, Requiring Consent for Subordination of Mortgage Liens, and Facilitating Private Third-Party Financing. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The Colorado new energy improvement district (district) currently allows for financing of the completion of new energy improvements only for residential real estate. The bill allows owners of commercial property to utilize such financing, repeals the maximum 95 percent loan-to-value requirement for qualified applicants, and repeals the percentage-of-value and dollar caps on allowable new energy improvements. The bill also includes fuel cells within the definition of “renewable energy improvement” and includes improvements that increase the overall illumination of a property or bring the property up to building code within the definition of ”energy efficiency improvement.” The bill directs the governor to appoint five members to the district board by Sept. 1, modifies their qualifications, removes the legislative appointees from the board, and reduces the quorum from six to four members.

The bill directs the district to develop:

  • A program for the financing of new energy improvements by private third-party financing in addition to by district bonds; and
  • The parameters for requiring consent in all cases by existing mortgage holders to subordinate the priority of their mortgages to the priority of the district’s lien.

Current law includes increased market value and decreased energy bills attributable to a new energy improvement in the calculation of the amount of the special assessment; the bill repeals these factors from that calculation and also repeals language that allows special assessments to be prepaid.

If district special assessments are attributable to new energy improvements that were financed by a private third party:

  • The bill directs the board to credit the proceeds of the special assessments to the private third party; and
  • The bill specifies that district bonds are not payable from the special assessments.

The bill also prohibits county assessors from taking into account any increase in the market value of the eligible real property resulting from the completion of a new energy improvement when assessing the value of the property. The bill also affirms that the state will not impair the rights or remedies of private third parties that have financed new energy improvements. Current law conditionally repeals the district on Jan. 1, 2016; the bill repeals the repeal date.

On March 21, the Agriculture, Natural Resources, & Energy amended the bill then sent it to the full Senate for consideration on 2nd Reading.

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Colorado Court of Appeals: Mechanics’ Lien Had Priority Over Bank Lien But Lien Cannot Be Filed in Excess of Contract Price

March 21, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Byerly v. Bank of Colorado on Thursday, March 14, 2013.

Excessive Mechanic’s Lien—CRS § 38-22-101(3).

Defendants Bank of Colorado and Delta Properties II, LLC (collectively, Bank) appealed the trial court’s judgment in favor of Daniel Byerly (Contractor). The judgment was reversed and the case was remanded with directions.

In 2006, Widwing Development, LLC (Developer) hired Contractor to help develop a residential subdivision in Timnath. It was a four-phase project with an extensive contract, including a compensation scheme that involved both cash payments and “Lot Compensation.” By late 2009, Developer had sold only half of the thirty-two villa home lots (valued at $110,000 each) and four of the seventy-six single family home lots (valued between $294,500 and $350,000). It had not paid Contractor’s monthly fee for several months. The Bank, which had issued construction loans to Developer, declared a default. Though Developer was in no position to do so, it sent Contractor a letter stating that as of January 5, 2010, Contractor had “earned” Lot Compensation for the first phase. The Bank later foreclosed and acquired the unsold land parcels. Neither Developer nor the Bank ever tendered Lot Compensation to Contractor.

In March 2010, shortly before the Bank’s foreclosure, Contractor recorded a mechanic’s lien on one of the parcels of land for $824,000 (later amended to $641,000) and filed a complaint in foreclosure, naming the Bank as an interested party. The amended lien included $84,000 of unpaid monthly fees and $557,000 in Lot Compensation. At trial, Contractor admitted that the conditions precedent to Developer’s duty to pay the Earned Cash Value portion of the Lot Compensation had not been met. Contractor also asserted a breach of contract claim against Developer and was awarded a default judgment based on eighteen months of unpaid monthly fees ($126,000), plus interest and costs.

Following a bench trial, the trial court made findings regarding the value of Contractor’s lien and concluded that the “full and accurate value” of Contractor’s services totaled $346,000, to which 12% interest was added, for a total of $417,095. The trial court also made findings regarding whether Contractor had knowingly filed an excessive lien under CRS § 38-22-128, and concluded he did not. The court found in favor of Contractor on his mechanic’s lien claim and ruled that Contractor’s lien was prior to the Bank’s lien.

On appeal, the Bank argued that the trial court erred in determining that Contractor’s lien was measured by the “value” of his services, rather than by the contract terms, and that it was unlawful to file a lien that exceeded the contract price. The trial court interpreted CRS § 38-22-101(3) to mean that when a contract is not recorded, a contractor may file a mechanic’s lien for the “value” of his or her services. The Court of Appeals found that interpretation to disregard the plain language of subsection 3 when read in the context of the entire subsection. Subsection 3 applies only to subcontractors and material providers, not to the direct contractor. Subcontractors are the only ones who would have occasion to do work that must be “deemed” to have been done for the owner, given that the direct contractor already has a contract with the owner. Thus, where a direct contractor performs services, the value of which is alleged to have exceeded the contract price, the contract price is the maximum amount for which a lien can be filed. Accordingly, it was error to find that subsection 3 allowed Contractor to file a lien in excess of the contract price.

The Bank also argued that it was error to determine that Contractor did not violate CRS § 38-22-128 by filing an excessive lien. The trial court found that Contractor could have reasonably anticipated receiving Lot Compensation after Developer informed him that he had “earned” it and, from Contractor’s perspective, it was not obvious that the conditions precedent for Lot Compensation could not occur and would never occur. The Court rejected these findings because there was no evidence in the record to support them. The judgment was reversed and the case was remanded for entry of judgment in favor of defendants.

Summary and full case available here.

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HB 13-1090: Setting Payment Requirements for Private and Public Construction Projects

February 27, 2013 by Leave a Comment

On January 17, 2013, Rep. Randy Fischer and Sen. Lois Tochtrop introduced HB 13-1090 - Concerning Payment of Amounts Due Under a Construction Agreement. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill sets the following requirements for both private and public construction contracts:

  • The owner and contractor must make regular progress payments approximately every 30 days to contractors and subcontractors for work actually performed.
  • To receive the progress payments, the contractor and subcontractor must submit a progress payment invoice plus any required documents.
  • A contractor must pass on the progress payment to the subcontractor within five days or by the end of the billing cycle.
  • Interest accrues on unpaid progress payments.
  • A contract may extend a billing cycle to 60 days, but the contract must duly warn of this.
  • An owner or contractor may only retain five percent of each progress payment to ensure work is done properly.
  • If a subcontractor’s work is done before the whole project is done, the subcontractor may apply to be paid the retained five percent. The owner and contractor must pay the retainage if the work is done correctly and the subcontractor gives waivers and the proper documents.
  • A person who retains from a payment must give the contractor or subcontractor a chance to cure the default.
  • The owner and contractor must pay for changes made to the contract. If they cannot agree on the price, the person doing the work may bill monthly at cost plus 15 percent or terminate performance.
  • A contractor or subcontractor is authorized to suspend performance after 15 days notice if the owner or contractor fails to make progress payments.
  • After suspending performance, the contractor or subcontractor is obliged to resume work after being paid for the work and reasonable costs and interest.
  • A contractor or subcontractor may not suspend performance if the failure to make a payment is due to a failure of the contractor or subcontractor or a dispute about the construction.

The bill voids any provision in a construction contract that does not comply with these requirements. The bill is assigned to the Business, Labor, Economic, & Workforce Development Committee.

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SB 13-052: With Respect to Certain Real Property Construction Defect Actions, Creating the “Trans-Oriented Development Claims Act of 2013″

February 13, 2013 by Leave a Comment

On Wednesday, January 16, 2013, Sen. Mark Scheffel introduced SB 13-052 - Concerning Real Property Construction Defect Actions, and, in Connection Therewith, Enacting the “Transit-Oriented Development Claims Act of 2013.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

With respect to construction defect actions involving transit-oriented development, the bill makes the following changes to the law:

  • Creates the “Transit-oriented Development Claims Act of 2013.”
  • Institutes a right to repair for construction professionals that receive a notice of claim with respect to a construction defect in a transit-oriented development.
  • Institutes a binding arbitration requirement for claims against construction professionals with respect to transit-oriented development. This section also makes construction professionals immune to suit for environmental conditions including noise, odors, light, temperatures, humidity, vibrations, and smoke or fumes causally related to transit, commercial, public, or retail use.

With respect to construction defect actions in general, the bill clarifies the statute of repose for the six-year statute of limitations for actions against architects, contractors, builders, builder vendors, engineers, or inspectors involved in improvements to real property. The bill is assigned to the Judiciary Committee.

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Colorado Supreme Court: Funds Disbursed to Limited Liability Company by Member Need Not Be Held in Trust Under Colorado’s Construction Trust Fund Statute

February 5, 2013 by Leave a Comment

The Colorado Supreme Court issued its opinion in Yale v. AC Excavating, Inc. on Monday, February 4, 2013.

Construction—Mechanics’ Liens—Statutory Trusts

The Supreme Court held that an LLC member’s voluntary injection of capital into the company in this case did not constitute “funds disbursed to [a] contractor . . . on [a] construction project” under CRS § 38-22-127(1). Therefore, such money was not required to be held in trust under that provision. The Court further held that the court of appeals erred in remanding the case for further proceedings to determine whether petitioner, a member and manager of the LLC, was civilly liable for theft under CRS §§ 38-22-127(5), 18-4-401, and 18-4-405, for using the funds in a manner inconsistent with the trust obligations of § 38-22-127(1). Accordingly, the judgment of the court of appeals was reversed.

Summary and full case available here.

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Colorado Court of Appeals: Land Planning Is Not a Profession that Is Held to an Independent Duty or Standard of Care

January 22, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Stan Clauson Associates, Inc. v. Coleman Brothers Construction, LLC on Thursday, January 17, 2013.

Summary Judgment—Negligence—Economic Loss Rule—Professional Standard of Care.

Defendants Coleman Brothers Construction, LLC and Coleman Ranch, LLC (collectively, Coleman) appealed the entry of summary judgment in favor of plaintiff Stan Clausen Associates Inc. (SCA) on their negligence counterclaims. The appeal was dismissed in part and the judgment was affirmed.

In a letter agreement dated August 21, 2006, SCA agreed to provide land planning and development services to Coleman regarding the Crown Mountain property. In early 2007, Coleman and SCA orally agreed that SCA would provide a development analysis for another property on Emma Road in Basalt. The district court concluded that the oral agreement contained the same terms as the 2006 letter agreement. This conclusion was not appealed.

In 2009, SCA sued Coleman for breach of the agreement regarding the Emma Road property. Coleman counterclaimed, alleging that SCA had negligently provided inaccurate advice about whether the Emma Road property could be subdivided and developed. The trial court granted SCA’s motion for summary judgment, concluding that the economic loss rule barred Coleman’s negligence counterclaims. The parties settled SCA’s claims against Coleman but stipulated that Coleman retained its negligence claims and could appeal the court’s dismissal.

Under the economic loss rule, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such breach absent an independent duty of care under tort law.” [Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000).]Professionals are held to duties and standards of care independent of those established by contracts for their services. If a contract for professional services does not explicitly adopt the professional standard of care, fulfillment of that standard of care is a duty that is independent of the services agreement, and the economic loss rule will not bar a claim for breach of the professional duty. Coleman did not identify, and the Court could not find, a Colorado case holding a land planner to a professional standard of care.

Coleman argued that the agreement with SCA focused primarily on the financial relationship, billings, and payments, and not on SCA’s professional duty to Coleman. Therefore, Coleman contended that SCA had an independent duty to act without negligence in providing professional services. The trial court found no recognized common law duty of care owed by a land planner to anyone and found that SCA performed its tasks in good faith and to the best of its abilities.

The Court of Appeals concluded that SCA did not owe Coleman a duty independent of the agreement because land planning is not a profession that is held to an independent duty and standard of care under any Colorado statute or common law. The Court also found that the allegedly negligent actions of SCA provided a basis for a breach of contract claim and, therefore, there was no error in the trial court’s applying the economic loss rule to bar Coleman’s negligence counterclaims. The judgment was affirmed.

Summary and full case available here.

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Colorado Court of Appeals: In Breach of Contract Case, Three-Part Test to Determine Equitable Estoppel Was Satisfied

January 8, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Extreme Construction Co. v. RCG Glenwood, LLC  on Thursday, December 27, 2012.

Construction Contract—Equitable Estoppel in a Contract Action.

In this action concerning the interpretation of a payment provision in a construction contract, plaintiff Extreme Construction Co. (Extreme) appealed the amount of the monetary judgment that it obtained against defendant RCG Glenwood, LLC (RCG) and the judgment entered in favor of defendant Mike Spradlin. RCG cross-appealed the trial court’s award of attorney fees, costs, and certain prejudgment interest to Extreme, as well as the court’s denial of RCG’s request for fees and costs. The judgment was affirmed in part and vacated in part, and the case was remanded with directions.

RCG, through Spradlin, its owner, negotiated for Extreme to remodel a portion of a building. Extreme provided a budget that estimated the total price and included amounts for superintendence and labor, which were calculated at $68.50 per hour and $38.50 per hour, respectively. The contract that was entered into did not include these hourly rates. Instead, it was a Guaranteed Maximum Price contract that provided for payment of wages of construction workers employed by Extreme, as well as “Builder’s overhead and construction management fee of 5.5%, and Builder’s profit of 5.5%, for a total of 11%.”

Extreme mailed monthly bills reflecting the hourly wage charges noted above. These invoices were paid without objection, but some of RCG’s checks bounced. Each time Extreme discussed the bounced checks with Spradlin, no issues regarding the hourly rates were raised. Notwithstanding the failure of RCG to pay its bills, Extreme completed the project on time, to Spradlin’s satisfaction, and for about $45,000 less than the Guaranteed Maximum Price.

RCG failed to pay in full, and Spradlin proposed a payment schedule and “a promissory note, personally guaranteed.” Based on his request, Extreme did not file a lien and prepared a promissory note, which was never signed.

Extreme sued, claiming breach of contract against RCG and that Spradlin had breached his personal guarantee. RCG and Spradlin asserted Extreme had overbilled RCG, claiming Extreme was not permitted to bill for superintendence and labor on an hourly basis. Extreme replied that the contract was ambiguous and that extrinsic evidence, including the pre-contractual budget, favored its interpretation. In addition, Extreme claimed RCG was estopped from contesting Extreme’s interpretation of the contract.

The trial court found that the contract was ambiguous but that the extrinsic evidence supported RCG and Spradlin’s argument. It rejected the estoppel argument. The court entered judgment in favor of Extreme and against RCG in the amount of $18,523.65. Because this was significantly less than the amount Extreme had sought at trial, RCG argued it was the prevailing party under a fee-shifting provision in the contract. Also, because the amount of the judgment was less than the offer of settlement made under CRS § 13-17-202, any interest awarded to Extreme had to be abated as of the date of the offer, and RCG was entitled to an award of costs. The trial court rejected all of these arguments. Both parties appealed.

Extreme contended that RCG was equitably estopped from contesting Extreme’s interpretation of the contract, and the Court of Appeals agreed. The Court held, as a matter of first impression, that the equitable estoppel doctrine applies to disputes over contract interpretation, at least in cases involving the construction of an ambiguous contractual provision unrelated to insurance coverage.

The Court also agreed with the trial court that the contractual provision regarding wages was ambiguous. For equitable estoppel to apply, the party asserting the doctrine must establish that (1) the other party had full knowledge of the facts, (2) the other party unreasonably delayed in asserting an available remedy, and (3) the party asserting the doctrine relied on the other party’s delay to its detriment.

The trial court found, and the record supported, that the first element was satisfied. The trial court found the second element was not met because if RCG had sought redress, it would have halted the project. The Court found this was error. It is unreasonable for a contracting party who knows of, but secretly disagrees with, the other side’s contract interpretation to delay challenging the interpretation until the other side has completed its performance. This is even more the case where, as here, RCG’s silence induced Extreme’s continued performance. The trial court also erred in finding the third element wasn’t met, because the facts clearly demonstrated that Extreme relied on RCG’s failure to contest its invoices to its detriment. The award of damages was vacated and the case was remanded to the trial court to recalculate the damages.

Extreme argued it was error for the trial court to determine that Extreme never accepted Spradlin’s offer of a personal guarantee. The Court was not persuaded. It agreed with the trial court that although an offer was made by Spradlin, no action was taken that indicated an acceptance by Extreme.

RCG argued it was error to find that under the fee-shifting provision in the contract, Extreme, and not RCG, was the prevailing party. The Court disagreed. RCG was held liable for breach of the contract; therefore, it was the prevailing party for purposes of awarding attorney fees.

RCG also contended it was error for the trial court to reject its assertion that under CRS § 13-17-202, the interest awarded to Extreme should have abated as of the time of the offer of settlement. The Court disagreed, finding that RCG did not address in its briefs the trial court’s finding that RCG did not make a qualifying offer of settlement.

Summary and full case available here.

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Colorado Court of Appeals: Equitable Relief, Not Legal Damages, Appropriate Where Contract Provided for Equitable Adjustment for Unanticipated Costs

October 31, 2012 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Parker Excavating, Inc. v. City & County of Denver on Thursday, October 25, 2012.

Contract Dispute—Equitable Relief.

In this government contracts case, plaintiff Parker Excavating, Inc. (Parker) appealed the trial court’s judgment awarding it $1.65 million under an equitable adjustment provision of Parker’s contract with the City and County of Denver’s Board of Water Commissioners (Denver Water). The judgment was affirmed.

This case arose out of a contract dispute between Parker and Denver Water over responsibility for increased costs associated with constructing a dam and reservoir at a sand and gravel pit. The trial court found that Parker’s costs increased by $2,373,679, but “as an equitable matter . . . both parties share some responsibility for the unanticipated muck.” The court concluded that Denver Water was more responsible than Parker. It then awarded Parker $1.65 million.

On appeal, Parker argued that the trial court erred in awarding Parker equitable relief rather than legal damages. The contract contained an equitable adjustment provision, entitling either party to seek an equitable adjustment for increased or decreased costs caused by unanticipated site conditions. Further, the contract excluded compensation for excavation costs. Therefore, from the plain language of the contract, the parties would have reasonably expected an equitable adjustment to be a remedy in equity. Further, the trial court did not clearly err in reducing the measure of equitable adjustment to account for Parker’s relative responsibility in not determining the extent of the muck. The trial court’s findings are, therefore, supported by evidence in the record that certain costs were attributable to Parker, and those findings were not disturbed on appeal.

Summary and full case available here.

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Colorado Court of Appeals: Plaintiffs Reasonably Relied on Insurance Adjuster’s Statements that Claims Would Be Fully Covered

October 29, 2012 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Colorado Pool Systems, Inc. v. Scottsdale Insurance Company on Thursday, October 25, 2012.

“Accident”—Defective Work Product—Negligent Misrepresentation.

Plaintiffs Colorado Pool Systems, Inc. (Colorado Pool) and its owner, Patrick Kitowski, appealed from summary judgments in favor of defendants Scottsdale Insurance Company (Scottsdale), GAB Robbins North America, Inc. (GAB), and GAB employee Don Hansen. The judgments were reversed and the case was remanded for further proceedings.

Colorado Pool was hired to install a swimming pool at Founders Village Pool and Community Center. The subcontractors Colorado Pool hired installed a defective concrete shell for the pool. Colorado Pool notified its insurance carrier, Scottsdale. Scottsdale assigned the matter to a claims adjuster, Hansen, who inspected the pool and indicated that Scottsdale would cover losses associated with demolishing and replacing the pool. After the pool’s concrete shell was demolished for the purpose of starting over, Scottsdale denied coverage.

Plaintiffs contended that the court erred in ruling that the alleged damage did not arise from an “accident,” as that term is used in the policy. The Builders Insurance Act does not apply retroactively. However, a builder is covered under a commercial general liability (CGL) policy for damages that arose from the builder’s own improper or faulty workmanship if (1) it is not specifically excluded in the policy; (2) the resulting damage was to non-defective property; and (3) the damage was caused without expectation or foresight. Here, the policy did not define “accident.” Plaintiffs’ policy does not cover damage incurred in demolishing and replacing the pool itself. This damage resulted solely from plaintiffs’ obligation—necessarily expected—to replace defective work product. However, the consequential damage to non-defective third-party work (including damage to a deck, sidewalk, retaining wall, and electrical conduits) is covered because this damage was the result of an “accident.” Accordingly, the trial court’s summary judgment in favor of Scottsdale was reversed, and the case was remanded for further proceedings on plaintiffs’ claims.

Plaintiffs also argued that the trial court erred in granting summary judgment to defendants on plaintiffs’ negligent misrepresentation claim against GAB and Hansen. Plaintiffs relied on Hansen’s statements that Scottsdale would cover losses associated with demolishing and replacing the pool. Although plaintiffs may be charged with full knowledge of the policy’s terms in an effort to defeat their justifiable reliance argument, that knowledge does not mean that plaintiffs were unjustified in relying on Hansen’s alleged misrepresentations where the terms of the policy were ambiguous. Therefore, the trial court erred in granting summary judgment on this issue.

Summary and full case available here.

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