August 1, 2015

Business Use of Unmanned Aircraft Systems (Drones) Expanding Exponentially

DroneDrones, also known as Unmanned Aircraft Systems (UAS) or Unmanned Aircraft Vehicles (UAV), are not just for hobbyists anymore. Drones are devices that are used for flight in the air without an onboard pilot. Drones can be small and simple, such as remote-controlled aircraft popularized by hobbyists, or large and complex, like the surveillance aircraft used by the military in hostile areas. The military has been using drones for many years to conduct surveillance and deliver weapons in dangerous war zones. However, in the last several years, civilian and business use of drones has increased dramatically.

Non-military drone use is categorized into public aircraft operations and civil operations. Public aircraft operations are uses by public agencies or organizations of a particular aircraft for a particular purpose in a particular area. Public operation uses can include law enforcement, firefighting, border patrol, disaster relief, search and rescue, and military training. Civil operations are any operations that do not meet the statutory criteria for public aircraft operations, including business uses such as for agricultural purposes, construction, security, TV and movie industry uses, environmental monitoring, insurance, aerial photography, news media, and much more.

Because they utilize airspace for their operations, drones are regulated by the FAA. In 2013, the FAA issued a comprehensive plan for the safe integration of civil unmanned aircraft systems into the country’s airspace. In early 2015, the FAA issued a Notice of Proposed Rulemaking for small UAS. The goal of the proposed rules is to provide a framework of regulations to allow routine use of certain small UAS while maintaining flexibility to accommodate future changes in technology. The public comment period for the proposed rules ended April 24, 2015.

Businesses wishing to utilize drones must obtain a Section 333 Exemption from the FAA. Petitions for Section 333 Exemption must be filed with and approved by the FAA before the drone may be used for business purposes. The FAA can also grant businesses the right to use airspace via Special Airworthiness Certificates. Special Airworthiness Certificates are available for research and development or experimental aircraft.

Attorney Thomas Dougherty, II, head of Lewis Roca Rothgerber’s Unmanned Aircraft Systems Industry Team, will discuss drone law at CLE on July 28, 2015. Topics to be explored include potential drone uses, FAA regulations covering drones, required information for petitions for Section 333 Exemption, Certificates of Waiver or Authorization, the FAA’s enforcement authority, and legal issues arising out of state and local laws for the use of drones. Register now by clicking the links below or calling (303) 860-0608.

CLE Program: Drones for Lawyers: The Do’s and Don’ts for Clients

This CLE presentation will take place Tuesday, July 28, 2015 at the CLE offices. Click here to register for the live program or click here to register for the webcast.

Can’t make the live program? Order the homestudy here – Video OnDemand – MP3

 

Colorado Court of Appeals: Proof of “Case Within a Case” Not Required in All Legal Malpractice Actions

The Colorado Court of Appeals issued its opinion in Boulders at Escalante LLC v. Otten Johnson Robinson Neff & Ragonetti PC on Thursday, June 18, 2015.

Legal Malpractice—Negligence—Statute of Limitations —Legal or Proximate Causation—Case Within a Case.

Plaintiff is a real estate development company formed to develop townhomes in a subdivision in Durango. Defendant is a law firm that was hired to represent plaintiff in a lawsuit against it by its general contractor to foreclose the contractor’s mechanic’s lien. Defendant filed several compulsory counterclaims on behalf of plaintiff for breach of contract and negligence. Plaintiff was concerned the contractor would not be able to pay a judgment if plaintiff succeeded on the counterclaims and asked defendant to review the insurance policies it had obtained for the project to determine whether the policies would pay a judgment against the contractor.

In 2006, defendant told plaintiff there was $2 to $4 million of coverage to pay a judgment against the contractor. In 2009, after plaintiff had obtained new representation, plaintiff learned that the policies contained an exclusion precluding payment to plaintiff if it succeeded on its claims against the contractor. Plaintiff and the contractor eventually settled, dismissing the claims against each other with prejudice. No payments were made by either party.

In 2011, plaintiff filed this action, asserting defendant was negligent in incorrectly advising regarding the insurance coverage, leading to extensive losses, including legal fees and expenses in continuing the litigation. The jury found defendant was negligent and its negligence caused 82.5% of the damages suffered by plaintiff. Judgment entered for approximately $2.7 million, plus pre- and post-judgment interest.

On appeal, defendant argued the claim was barred by the two-year statute of limitations set forth in CRS § 13-80-102. Defendant argued that plaintiff’s claim accrued no later than February 2009, when plaintiff learned defendant’s advice regarding insurance coverage might be wrong, and the action wasn’t filed until April 1, 2011. The Court of Appeals disagreed. A cause of action for negligence accrues on the date both the injury and its cause are known or should have been known to the plaintiff by the exercise of reasonable diligence. Under the circumstances here, the question of when plaintiff knew or should have known that the advice was incorrect and that it was injured by that advice was properly a question resolved by the jury.

Defendant argued that in a legal malpractice action based on negligence, the plaintiff must prove a case within a case; namely, that the claim underlying the malpractice action would have been successful but for the attorney’s negligence. The Court disagreed. Here, the claimed injury does not relate to the outcome of the underlying matter, and therefore plaintiff did not need to prove a case within a case.

Defendant challenged whether its negligence caused plaintiff’s damages. The Court determined that the evidence was sufficient to establish that plaintiff proved its malpractice claim for damages based on the legal expenses it incurred because of defendant’s incorrect advice. But for this advice, plaintiff would not have continued incurring legal expenses in an attempt to prove its counterclaims. However, plaintiff should not have recovered damages based on the business losses it sustained. As a matter of law, defendant’s advice regarding the insurance coverage was not the legal, or proximate, cause of plaintiff’s claimed business losses. Although defendant could have reasonably foreseen that plaintiff would make business decisions based on defendant’s advice, the actual harm plaintiff suffered because of those business decisions was not within the scope of the risk created by defendant’s negligence. The case was remanded for a new trial, limited to determining the amount of damages plaintiff incurred in continuing to pursue its counterclaims against the contractor after receiving incorrect advice from plaintiff.

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

Colorado Court of Appeals: Partial Subordination Approach to Lien Priority Best Reflects Colorado Law

The Colorado Court of Appeals issued its opinion in Tomar Development, Inc. v. Friend on Thursday, June 4, 2015.

Lien—Subordination Agreement—Partial Subordination Approach.

The Friend family sold its ranch to Friend Ranch Investors Group (FRIG) to develop it into a resort-style golf course community. In 2010, FRIG conveyed the property to Mulligan, LLC, and at that time, the relevant order of priority was (1) Colorado Capital Bank’s (CCB) senior lien; (2) Tomar Development (Tomar); (3) the Damyanoviches; (4) the Friends; and (5) CCB’s junior lien. Bent Tree, Mulligan, and CCB then entered into a subordination agreement whereby CCB’s senior lien became subordinate to CCB’s junior lien. Neither Tomar, the Damyanoviches, nor the Friends was involved in or an intended beneficiary of the subordination agreement. CCB’s senior lien was never released. Bent Tree then foreclosed on CCB’s senior lien and, in November 2010, Bent Tree bought the property at a public trustee’s foreclosure sale for approximately $11,800. Tomar, the Friends, and the Damyanoviches filed claims, each of which sought declaratory judgments as to the priority of their interests, which were dismissed by the trial court under CRCP 12(b)(5).

On appeal, Tomar, the Friends, and the Damyanoviches argued that the trial court erred in applying the partial subordination approach to the subordination of liens. The partial subordination approach applies when the most senior lienholder (A) agrees to subordinate his interest to the most junior lienholder (C) without consulting the intermediary lienholders (B). Under this approach, when A subordinates to C, C becomes the most senior lienholder, but only to the extent of A’s original lien. Under this partial subordination approach, B is not affected by the agreement between A and C, to which it was not privy. Colorado adopts the partial subordination approach, and it was properly applied in this case. Accordingly, the trial court did not err in dismissing Tomar’s, the Damyanoviches’, and the Friends’ claims seeking a declaratory judgment that each of their interests was senior to all other interests.

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

Bills Regarding Community Association Manager Licensure, Peace Officer Transparency, and More Signed

On Wednesday, May 20, 2015, Governor Hickenlooper signed 14 bills into law. To date, he has signed 241 bills into law this legislative session. The bills signed Wednesday are summarized here.

  • HB 15-1323 – Concerning Assessments in Public Schools, and, in Connection Therewith, Codifying the Consensus Recommendations of the Standards and Assessments Task Force Created in House Bill 14-1202, and Reducing an Appropriation, by Reps. John Buckner & Jim Wilson and Sens. Chris Holbert & Andy Kerr. The bill modifies the system of statewide assessments in English language arts.
  • SB 15-056 – Concerning Reducing the Frequency of Administering the Statewide Assessment in Social Studies and, in Connection Therewith, Making an Appropriation, by Sen. Andy Kerr and Rep. Tracy Kraft-Tharp. The bill eliminates the requirement that each public school administer an assessment in social studies and instead allows school districts to administer the test in a representative sampling of schools.
  • HB 15-1317 – Concerning Pay for Success Contracts, by Reps. Alec Garnett & Bob Rankin and Sens. Michael Johnston & Beth Martinez Humenik. The bill creates “pay for success” contracts, into which the Office of State Planning and Budgeting can enter to increase economic opportunity and improve living conditions.
  • HB 15-1129 – Concerning Disaster Prediction and Decision Support Systems by the Department of Public Safety, and, in Connection Therewith, Making an Appropriation, by Rep. Tracy Kraft-Tharp and Sen. Ellen Roberts. The bill requires the Division of Fire Prevention and Control to develop systems to predict disasters, specifically wildfires.
  • HB 15-1344 – Concerning the Financing of State Capital Construction Projects that are Included in the National Western Center or Capitol Complex Master Plans, and, in Connection Therewith, Authorizing the State to Enter Into Lease-Purchase Agreements to Finance Facilities for Colorado State University that are Included in the National Western Master Plan, Creating the National Western Center Trust Fund, and Creating a Capitol Complex Master Plan Implementation Fund as a Funding Source for Projects that are Included in the Capitol Complex Master Plan, by Reps. Crisanta Duran & Jon Becker and Sens. Jerry Sonnenberg & Pat Steadman. The bill authorizes the state treasurer to enter into lease-purchase agreements with CSU to construct facilities at the National Western Complex and CSU’s main campus.
  • HB 15-1285 – Concerning Use of Body-Worn Cameras by Law Enforcement Officers and, in Connection Therewith, Establishing a Grant Program and a Study Group to Recommend Policies on the Use of Body-Worn Cameras and Making an Appropriation, by Reps. Daniel Kagan & Angela Williams and Sens. John Cooke & Jessie Ulibarri. The bill creates the body-worn camera fund to purchase body-worn cameras and train officers in their use, as well as study best practices.
  • HB 15-1287 – Concerning Measures to Improve Peace Officer Training, by Rep. Angela Williams and Sen. John Cooke. The bill expands the scope of the Peace Officers Standards and Training Board in the Department of Law.
  • HB 15-1290 – Concerning Prohibiting a Peace Officer from Interfering with a Person Lawfully Recording a Peace Officer-Involved Incident, by Reps. Joseph Salazar & Daneya Esgar and Sens. Lucia Guzman & David Balmer. The bill specifies that people have the lawful right to record officer-involved incidents.
  • HB 15-1303 – Concerning Eliminating the Application of Certain Sentencing Provisions to Certain Persons who are Convicted of Assault in the Second Degree, by Rep. Jovan Melton and Sen. Kevin Lundberg. The bill removes mandatory crime of violence sentencing for assault against first responders.
  • SB 15-217 – Concerning Data Collection Related to Peace Officer-Involved Shootings of a Person, and, in Connection Therewith, Making an Appropriation, by Sens. Ellen Roberts & John Cooke and Rep. Angela Williams. The bill creates a process for public reporting of specified data concerning officer-involved shootings.
  • SB 15-218 – Concerning Requiring a Law Enforcement Agency to Disclose Whether a Peace Officer has Made a Knowing Misrepresentation in Certain Settings, by Sens. Ellen Roberts & John Cooke and Rep. Angela Williams. The bill requires a law enforcement agency to report any knowing instance of misrepresentation by a peace officer to the district attorney.
  • SB 15-219 – Concerning Measures to Provide Additional Transparency to Peace Officer-Involved Shootings, by Sens. John Cooke & Ellen Roberts and Rep. Joseph Salazar. The bill requires local law enforcement agencies to make public its protocols regarding contacting other agencies following officer-involved shootings.
  • HB 15-1262 – Concerning Separate Legal Entities Established by a Contract Between Two or More Political Subdivisions of the State, and, in Connection Therewith, Clarifying the Legal Status and Scope of Powers of Such an Entity, by Rep. Paul Rosenthal and Sen. David Balmer. The bill specifies the legal status and powers of an entity formed by two or more governments to provide public improvements.
  • HB 15-1343 – Concerning a Streamlined Process to Simplify the Licensure of Persons who Manage the Affairs of Common Interest Communities Under the “Colorado Common Interest Ownership Act”, and, in Connection Therewith, Making an Appropriation, by Reps. Angela Williams & Dan Thurlow and Sens. Nancy Todd & David Balmer. The bill makes several changes to the community association manager licensure program.

For a complete list of Governor Hickenlooper’s 2015 legislative decisions, click here.

Colorado Court of Appeals: Homeowners’ Association’s Removal of Arbitration Provision Invalid Against Builders

The Colorado Court of Appeals issued its opinion in Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc. on Thursday, May 7, 2015.

Motion to Compel Arbitration—Construction Defect Action.

Plaintiff association (Vallagio) brought this action against defendants, alleging construction defects in the Vallagio residential development project (Project). The Project was organized as a common interest community under the Colorado Common Interest Ownership Act (CCIOA). Defendant Metro Inverness, LLC (Metro) was the Project’s developer and declarant. Defendant Metropolitan Homes, Inc. was Metro’s manager and the Project’s general contractor. Defendants Krause and Kudla were declarant-appointed members of Vallagio’s board before control of the Vallagio was transferred to unit owners.

The declaration contained a general provision allowing unit owners to amend the declaration by a 67% vote and a consenting vote of the declarant. The right of declarant consent expired after the last unit was sold to an owner other than declarant. There was a mandatory arbitration provision specifically for construction defect claims, which provided that it could never be amended without the written consent of declarant, without regard to whether declarant owned any portion of the Project at the time of the amendment.

In September 2013, after the declarant had turned over control of Vallagio and no longer owned any units, at least 67% of the unit owners voted to amend the declaration to remove the arbitration provision in its entirety. Metro’s consent was not obtained.

Vallagio then filed suit against defendants. Defendants moved to compel arbitration, relying on the original declaration provision, arguing that the amendment removing it was invalid because declarant had not consented. The district court denied the motion to compel arbitration, finding that the declaration had been effectively amended to remove the arbitration provision. This interlocutory appeal followed.

Defendants first argued that it was error to conclude that the declaration’s amendment provisions were ambiguous and to construe that ambiguity against declarant. The Court of Appeals agreed. Based on the plain language of the declaration, the Court held that amendments to the arbitration provision required Metro’s consent. Because that consent was not obtained, the motion to compel arbitration as to Metro should have been granted. The Court also agreed that it was error to conclude that the declarant consent requirement for amendments of the arbitration agreement violated CCIOA and was void and unenforceable.

The district court had found that CCIOA § 38-33.3-302(2) prohibited the consent requirement. This section prohibits restrictions on an association’s power that are “unique to the declarant.” Under this declaration, the unit owners have the power to amend the declaration, and under this section of CCIOA the declarant consent requirement does not impose any limitation on the “power of the association.”

The district court had also found that the declarant consent requirement violated CCIOA § 38-33.3-217 because it effectively required more than a 67% vote of unit owners to amend the declaration. The Court disagreed, finding nothing in that statutory provision prohibiting declarant consent for an amendment, but merely requirements for unit owners’ voting percentages. The Court also found that the consent requirement did not allow control of unit owners’ votes, because 67% of the unit owners had to vote favorably to amend the declaration and that requirement was not altered by the declarant consent provision. The Court also rejected Vallagio’s argument that the consent requirement violated CCIOA § 38-33.3-303(5) by allowing Metro Inverness to control Vallagio after the declarant control period expired. CCIOA provisions regarding declarant consent to an association’s actions were not relevant to the issue here presented.

Vallagio argued that even if Metro could enforce the arbitration provision, the other defendants lacked standing to do so because they were not parties to the declaration. The district court did not address this argument, so the Court remanded for resolution of these issues, in particular, whether the other defendants were third-party beneficiaries to the declaration’s arbitration provision.

Defendants argued that they could rely on the arbitration provisions in individual unit owners’ purchase agreements. Because this issue might arise on remand if the district court finds that the other defendants lack standing to enforce the declaration’s arbitration provision, the Court addressed it. The Court agreed with the ruling that Vallagio was not bound by those individual purchase agreements.

The Court rejected Vallagio’s claims that its Colorado Consumer Protection Act (CCPA) claims are non-arbitrable. The right to a civil action under CCPA § 6-1-113 was not made non-waivable under the statute.

The order was reversed in part and affirmed in part. The case was remanded for an order compelling arbitration of Vallagio’s claims against Metro, and for further proceedings to determine whether the claims against the other defendants must be arbitrated.

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

Crowdfunding, Medical Testing of Assault Victims, and PERA Supplemental Needs Trust Bills Signed

As the 2015 legislative session continues, Governor Hickenlooper continues to sign legislation that crosses his desk. To date, the governor has signed 136 bills this legislative session. The bills signed in the past week are summarized here.

April 10, 2015

  • HB 15-1008 – Concerning the Classification of Agricultural Land When the Land is Destroyed by a Natural Cause, by Rep. Millie Hamner and Sen. Ellen Roberts. The bill allows agricultural land destroyed by natural causes to retain its agricultural classification for the year of destruction and four more property tax years.
  • HB 15-1256 – Concerning the Reclassification of Routt County to a Category II County for the Purpose of Establishing the Salaries of County Officers, by Rep. Diane Mitsch Bush and Sen. Randy Baumgardner. The bill recategorizes Routt County as a category II county for the purpose of setting salaries for county officers.
  • HB 15-1073 – Concerning Allowing a Driver to Challenge the Validity of a Law Enforcement Officer’s Initial Contact With the Driver, by Rep. Joseph Salazar and Sen. Jessie Ulibarri. The bill allows drivers who successfully challenge an officer’s initial stop in an administrative hearing to avoid revocation.
  • HB 15-1197 – Concerning Limitations on Indemnity Obligations in Public Construction Contracts, by Rep. Jack Tate and Sen. Cheri Jahn. The bill clarifies the manner in which indemnification clauses may be used in public construction contracts.
  • HB 15-1224 – Concerning Accounting for State Moneys Received by Public Postsecondary Institutions That Do Not Participate in the College Opportunity Fund Program, by Rep. Diane Mitsch Bush and Sens. Owen Hill & Nancy Todd. The bill separates the appropriation allocation for the two local district junior colleges affected.
  • HB 15-1183 – Concerning the Admission of a Child’s Statements Describing Attempted Acts of an Unlawful Sexual Offense, by Rep. Rhonda Fields and Sen. Lucia Guzman. The bill allows admission of a child’s statements regarding attempted sexual offenses.
  • HB 15-1191 – Concerning the Addition of Dentists to the “Physician Designation Disclosure Act,” by Rep. Brittany Pettersen and Sen. Kevin Grantham. The bill specifies that the standards and requirements for health care entities that assign designations to physicians based on performance assessments also apply to dentists.

Monday, April 13, 2015

  • HB 15-1245 – Concerning the Authority of the State Board of Land Commissioners to Use a Specified Portion of the Investment and Development Fund Moneys for Asset Maintenance, by Rep. Edward Vigil and Sen. Jerry Sonnenberg. The bill allows the State Board of Land Commissioners to spend up to $1 million from the Investment and Development Fund for certain maintenance projects.
  • HB 15-1246 – Concerning the Authorization of Crowdfunding of Intrastate Securities, by Reps. Pete Lee & Dan Pabon and Sens. Mark Scheffel & Owen Hill. The bill creates the Colorado Crowdfunding Act, which allows online investments in Colorado companies through a simple regulatory regime.

Thursday, April 16, 2015

  • SB 15-005 – Concerning Medical Testing for Certain First Degree Assault Cases, by Sen. John Cooke and Rep. Mike Foote. The bill requires a defendant in a first degree assault to submit to blood testing for communicable diseases if his or her bodily fluids contact another person.
  • SB 15-015 – Concerning a Clarification of Benefits for Autism Spectrum Disorders in Health Benefit Plans Issued in this State, by Sen. John Kefalas and Rep. Dianne Primavera. The bill allows mental health benefits under health benefit plans for autism spectrum disorders, and removes caps on the number of visits.
  • SB 15-030 – Concerning Removing Culpability for Prostitution for a Victim of Human Trafficking, by Sen. Morgan Carroll and Rep. Mike Foote. The bill creates an affirmative defense of human trafficking for those charged with prostitution and establishes a procedure to petition courts to seal records.
  • SB 15-058 – Concerning Statewide Policies and Procedures for Law Enforcement Agencies that Conduct Eyewitness Identifications, by Sen. Lucia Guzman and Rep. Elena Kagan. The bill requires law enforcement agencies to develop policies and procedures regarding eyewitness identifications.
  • SB 15-097 – Concerning the Eligibility of a Supplemental Needs Trust to Receive Certain Public Employees’ Retirement Association Benefits, by Sen. Irene Aguilar and Rep. Lois Landgraf. The bill allows a PERA member to designate a supplemental needs trust as a co-beneficiary.
  • SB 15-099 – Concerning Eliminating Certain Duties for Probation Officers, by Sen. John Cooke  and Rep. Polly Lawrence. The bill eliminates  certain duties of probation officers to conform to actual practice.
  • SB 15-105 – Concerning the Continuation of the Regulation of Respiratory Therapists by the Director of the Division of Professions and Occupations in the Department of Regulatory Agencies, and, in Connection Therewith, Implementing the Recommendations of the Department in its Sunset Review of and Report on the Profession, by Sen. Beth Martinez Humenik and Rep. Diane Primavera. The bill makes changes to licensing of respiratory therapists as recommended by the sunset review committee.
  • SB 15-126 – Concerning Medical Tests for Victims of Crimes of Assault, by Sens. John Cooke & Michael Johnston and Rep. Mike Foote. The bill requires defendants in second or third degree assault cases to undergo medical testing for communicable diseases if their bodily fluids came in contact with another person.
  • SB 15-171 – Concerning the Continuation of the “Private Occupational Education Act of 1981″, and, in Connection Therewith, Implementing the Recommendations of the 2014 Sunset Review by the Department of Regulatory Agencies, by Sen. Owen Hill and Rep. Dominick Moreno. The bill extends the Private Occupational School Board and the Division of Private Occupational Schools.
  • SB 15-186 – Concerning the Exemption of Yoga Teacher Training from Regulation Under Statutes Governing Private Occupational Education and, in Connection Therewith, Reducing an Appropriation, by Sen. Laura Woods and Reps. Timothy Dore & Alec Garnett. The bill exempts yoga teacher training from the Private Occupational Education Act.
  • SB 15-187 – Concerning Authorization for the High-Performance Transportation Enterprise to Deposit Money Received as a Loan from the State Highway Fund to a Separate Account Within the Statewide Transportation Enterprise Special Revenue Fund, by Sen. Kevin Grantham and Rep. Dave Young. The bill allows money loaned from the State Highway Fund to the High Performance Transportation Enterprise to be deposited into the Statewide Transportation Enterprise Operating Fund.
  • SB 15-188 – Concerning the Use of the First Tier of Statutorily Allocated Tobacco Litigation Settlement Money, and in Connection Therewith, Making an Annual Statutory Allocation of Such Money to the Tobacco Settlement Defense Account of the Tobacco Litigation Settlement Cash Fund and Making an Offsetting Reduction in the Annual Statutory Allocation of Such Money to the Children’s Basic Health Plan Trust, Authorizing the Department of Revenue to Use Money in the Tobacco Settlement Defense Account for Settlement Enforcement Related Activities, and Making an Appropriation, by Sen. Pat Steadman and Rep. Bob Rankin. The bill allocates tobacco settlement funds from the Children’s Basic Health Plan Trust to the defense fund for tobacco litigation.
  • SB 15-189 – Concerning the Repeal of Consolidated Tobacco Settlement Program Monitoring and Reporting Requirements and, in Connection Therewith, Reducing an Appropriation, by Sen. Pat Steadman and Rep. Bob Rankin. The bill repeals the current requirement that the State Board of Health monitor programs receiving funding from the state’s tobacco settlement fund.
  • SB 15-190 – Concerning the Repeal of the Requirement that the Executive Director of the Department of Personnel Promulgate Rules to Establish State Archives’ Fees, by Sen. Kevin Grantham and Rep. Millie Hamner. The bill eliminates a statutory requirement that fees for the State Archives must be established through a formal rulemaking process.

For a complete list of Governor Hickenlooper’s 2015 legislative decisions, click here.

Colorado Court of Appeals: State Court Retains Jurisdiction Where Removal Attempt Without Slightest Color of Merit

The Colorado Court of Appeals issued its opinion in McDonald v. Zions First National Bank, N.A. on Thursday, March 12, 2015.

Construction Loan Agreement Dispute—Partial Summary Judgment—Jurisdiction—Motion for New Trial.

In 2007, plaintiff purchased a parcel of land to construct a building on it. He entered into a loan transaction with defendant Zions First National Bank and signed a construction loan agreement (Agreement).

Plaintiff submitted applications for disbursement of loan funds, some of which defendant paid and some which it rejected. Plaintiff alleged defendant’s refusal to disburse all the loan funds required him to pay certain vendors out of his own pocket. Eventually, plaintiff defaulted on the loan and defendant foreclosed on the property.

Plaintiff sued in 2009, alleging defendant breached the Agreement and an implied covenant of good faith and fair dealing. After discovery, defendant moved for summary judgment. Plaintiff filed an unverified response. The trial court partially granted defendant’s motion, dismissing plaintiff’s two substantive claims, but did not issue judgment on defendant’s counterclaims due to genuine issues of material fact. Defendant filed a motion to dismiss its counterclaims without prejudice. The court granted the motions and vacated the trial date. The court also granted defendant’s request for attorney fees pursuant to the Agreement and entered judgment in favor of defendant in the amount of $102,267.75.

Defendant tried to collect from plaintiff for almost three years, during which time defendant filed a notice of removal of the action in the U.S. District Court for the District of Colorado. There had not been an acceptance of that action or a remand from the federal court. On December 23, 2013, defendant requested the trial court certify its order granting partial summary judgment as final.

The Court of Appeals first analyzed whether the trial court had jurisdiction to certify its order as final under CRCP 54(b) and, if so, whether the Court had jurisdiction to review it. Following analysis of the attempt at removal to the federal court, the Court held in a matter of first impression that where a party’s notice of removal indicates, on its face and as a matter of law, that the attempt to remove the case is without the slightest color of right or merit, jurisdiction in the Colorado courts is not divested. Plaintiff had no ability to remove this case to federal court; therefore, jurisdiction was not divested by the filing of the notice of removal. The Court concluded that because only the grant of partial summary judgment was certified as a final order, only challenges to the propriety of that order were properly before it. This disposed of many of plaintiff’s challenges.

The Court then turned to the breach of contract claim and found that there was no genuine issue of material fact because defendant had submitted evidence showing it did not breach its contractual duties and plaintiff had failed to refute this evidence. Plaintiff’s second claim alleged breach of an implied covenant of good faith and fair dealing. Again, there was no genuine issue of material fact because plaintiff submitted no evidence showing such a breach and defendant’s evidence showed no such breach.

Plaintiff also filed three motions under CRCP 59, one of which was accompanied by an affidavit from his real estate agent. The affidavit was not timely filed. The motion did not attempt to demonstrate any evidence that was newly discovered or could not have previously been discovered by the exercise of reasonable diligence. The Court found no abuse of discretion in denying the motions. The summary judgment and order denying motions for a new trial were affirmed.

Colorado Court of Appeals: Claims Against Developers Could Lie in Tort; CGIA May Apply

The Colorado Court of Appeals issued its opinion in First National Bank of Durango v. Lyons on Thursday, February 26, 2015.

Securities Fraud—Subject Matter Jurisdiction—Colorado Securities Act Claims Lie in Tort—Scope of “Public Employment.”

Defendants William S. Lyons, Jr., William S. Lyons III, and others comprised the Board of Directors of Lincoln Creek Metropolitan District (District). The District is a special district formed to provide public facilities to Lincoln Creek Village. Defendants’ company, LCV, LLC, owned almost all of the property in the District and was the developer of Lincoln Creek Village.

In March 2006, plaintiffs (collectively, Banks) purchased $4.13 million of General Obligation Tax Bonds issued by the District to partially fund construction of Lincoln Creek Village. In July 2008, the bank that held the deed of trust securing the development loan foreclosed on the encumbered Lincoln Creek Village property. The Banks then filed this action against defendants, LCV, and the bond underwriter.

The Banks alleged that defendants misrepresented and omitted material facts in connection with the offer and sale of the bonds, in violation of CRS § 11-51-501(1) of the Colorado Securities Act (CSA). Defendants asserted the defense of governmental immunity and filed a CRCP 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, arguing that the Banks had failed to provide notice of the claims to the District, a jurisdictional prerequisite under the Colorado Governmental Immunity Act (CGIA). The district court denied the motion to dismiss, concluding that the CSA claims do not sound in tort and therefore the CGIA is inapplicable.

On interlocutory appeal, defendants argued that the Banks’ CSA claims lie in tort or could lie in tort. The Court of Appeals noted that defendants are public employees for purposes of the CGIA and that the CGIA requires that written notice of claims against a public employee must first be provided within the statutory period to the public entity where the employee is employed. Failure to comply with the notice requirement forever bars the action against the employee. It was undisputed that the Banks did not provide notice to the District of their claims against defendants. The question then became whether the claims against defendants lie in tort or could lie in tort.

The Court found that the complaint demonstrated that the injury underlying the Banks’ CSA claims was tortious in nature. Essentially, the Banks alleged that they relied on a misrepresentation of material fact by defendants. This is injury arising out of tortious conduct.

The Banks also argued that the misrepresentations were made by defendants in their capacity as private developers and not within the scope of any “public employment” with the District; therefore, the CGIA notice requirement does not apply. Defendants countered that this issue was not decided by the district court. The Court agreed with defendants and remanded the case to the district court to decide whether the claims against them are based on acts or omissions that occurred within the scope of their public employment. If it finds the misrepresentations alleged were made by defendants within the scope of their employment with the District, then it must dismiss the Banks’ claims. However, if the claims were premised on misrepresentations made by defendants as private developers and outside the scope of their employment with the District, the CGIA does not apply and statutory notice was not required.

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

Colorado Supreme Court: Entity that was Non-Existent when Contractual Duty Created Still May Be Subject to Interrelated Contracts Doctrine

The Colorado Supreme Court issued its opinion in S K Peightal Engineers, Ltd. v. Mid Valley Real Estate Solutions V, LLC on Monday, February 9, 2015.

Economic Loss Rule—Interrelated Contracts Doctrine.

In this civil case, the Supreme Court considered: (1) whether entities that did not exist at the time the relevant contracts were completed can still be subject to the economic loss rule through the interrelated contracts doctrine; and (2) whether commercial entities situated similarly to respondent, which was a third-party beneficiary to a contract that interrelated to the contract by which the home at issue was built, are among the class of plaintiffs entitled to the protections of the independent tort duty to act without negligence owed by construction professionals to subsequent homeowners when constructing residential homes. The Court held that (1) the fact that an entity was nonexistent at the time the relevant contracts were completed does not alter the analysis under the interrelated contracts doctrine; and (2) the independent duty at issue does not apply here because, as a third-party beneficiary of a commercially negotiated contract that interrelates to the contract under which the home was built, respondent cannot properly be considered a subsequent homeowner. The judgment was reversed and the case was remanded to the court of appeals to return to the trial court for further proceedings consistent with this opinion.

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

Frederick Skillern: Real Estate Case Law — Construction Defects

Editor’s note: This is Part 9 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Mid Valley Real Estate Solutions V, LLC v. Hepworth-Pawlak Geotechnical, Inc.
Colorado Court of Appeals, August 1, 2013.
2013 COA 119

Construction defects; economic loss rule; duties of builder-vendor run to commercial entity that purchases house built for residential purpose.

Alpine Bank was lender on a construction project. The builder-developer defaulted. The bank threatened foreclosure, and ultimately took a deed in lieu of foreclosure. Consistent with its usual practice, the property was conveyed to the bank’s REO subsidiary, which then sued for construction defects on the property.

The soils and structural engineers appeal an order denying their motion for summary judgment on the plaintiff’s negligence claim. Does a commercial entity — a wholly owned subsidiary of a construction lender — have the rights of a residential consumer to sue design professionals for negligence, under the claims set out in Cosmopolitan Homes v. Weller, or are such claims barred by the economic loss rule? The court of appeals affirms the district court’s ruling that the “independent duties” outlined in Cosmopolitan Homes and its progeny inure to the benefit of a commercial entity that buys a residential property, so that the claim is not barred by the economic loss rule.

The court reviews the economic loss rule and holds that there is an independent duty of care on the part of a builder in residential construction that renders the economic loss rule inapplicable in that context. Of course, the independent duty, which arises from the holding of our supreme court in Cosmopolitan Homes, would not apply to the typical commercial construction project.

The court then looks to whether Mid Valley — whose sole function is to hold foreclosure property for resale by the bank — falls within the class of plaintiffs who may enforce this independent duty of care. It concludes that the duty arises from the residential nature of a project, not from the characteristics of the owner of that property. While Mid Valley is not a traditional homeowner, the court reasons that allowing defendants to avoid liability for this reason would afford them a “windfall” resulting from the fortuity that the latent defect caused damage before Mid Valley sold the house. Accordingly, the denial of summary judgment was affirmed and the case was remanded for further proceedings. The Supreme Court has accepted the case for review:

Petition for Writ of Certiorari GRANTED, March 3, 2014, S K Peightal Engineers v. Mid Valley Real Estate Solutions V, LLC

Summary of the Issues:

  • Whether the economic loss rule bars a homeowner’s negligence claim against a construction professional when the owner is a commercial entity rather than a natural homebuyer.
  • Whether the interrelated contract doctrine as defined in BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004), can apply to a wholly-owned subsidiary that did not exist when the initial contracts were drafted but instead was created after work on the relevant contracts had been completed.

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

Frederick Skillern: Real Estate Case Law — Contracts, Purchase and Sale, Transactions (4)

Editor’s note: This is Part 7 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Taylor Morrison of Colorado, Inc. v. Bemas Construction
Colorado Court Appeals, January 30, 2013
2014 COA 10

Construction defects statute; willful and wanton breach of contract required to overcome liability limitation provisions in contract.

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

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’ favor on all of Taylor’s claims. Taylor appeals.

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 panel affirms the trial court’s judgment, but for different reasons. The court holds that regardless of whether the HPA applies to commercial entities, retroactive application of the HPA to these facts would be unconstitutionally retrospective. The Court concludes, however, that further proceedings are 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.

The judgment is affirmed and the case is 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.

 

Jehly v. Brown
Colorado Court of Appeals, March 27, 2014
2014 COA 39

Fraudulent Concealment; Imputed Knowledge.

“Actual knowledge,” in the context of a fraudulent concealment claim, cannot be imputed to a principal through knowledge of its agent. Defendant Brown owned real property in Teller County 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. Brown was not told of this fact.

Plaintiffs David and Peggy Jehly entered into a contact to purchase the house from Brown. Brown 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, the Jehlys 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. The Jehlys sued Brown, 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 as a matter of fact that he had no knowledge, and found in favor of defendant.

On appeal, plaintiffs asserts that it was error not to impute the general contractor’s knowledge that part of the property was in a floodplain to Brown. The court of appeals disagrees, and affirms. 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, and knowledge of his agent cannot be imputed for the purpose of this particular tort claim. 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 did not apply the wrong legal standard, because defendant did not have the requisite actual knowledge of the information allegedly concealed.

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

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.