November 23, 2014

Colorado Court of Appeals: Court Erred in Finding that Mechanic’s Lien Had Priority Senior to Lien Claimants

The Colorado Court of Appeals issued its opinion in Ferguson Enterprises, Inc. v. Keybuild Solutions, Inc. on December 22, 2011.

Mechanics Lien—Foreclosure—Priority—Deed of Trust—Construction.

In this mechanics’ lien foreclosure action involving the priority of liens relative to a deed of trust, defendant Colorado Community Bank (CCB) appealed the summary judgment in favor of the following lien claimants: plaintiff Ferguson Enterprises, Inc. and defendants Keybuild Solutions, Inc., Carpenters Service Inc., Autumn Landscaping, Inc., Premier Glass Solutions, Inc., SC Design, Inc., Systems Plumbing, LLC, and Colorado Counter-Tops, Inc. (collectively, lien claimants). The judgment was reversed and the case was remanded.

Zion Development, LLC (Zion) borrowed money from FlatIron Bank (FlatIron) to become the owner of the real property involved in this action. Zion hired architects to prepare a master plan, and later defaulted on the FlatIron loan and lost the property through a foreclosure action. Thereafter, FlatIron conveyed the property to Water Tower Builders, LLC (Water Tower), which financed the purchase of the property and construction activities through two loans obtained from CCB. Water Tower hired subcontractors to perform work on the property and later defaulted on the loan to CCB and lost the property to a foreclosure sale. The court granted the lien claimants’ motion, which claimed that its mechanics’ lien had priority over CCB’s deed of trust because it was entitled to relate its lien back to the date when work performed by the architects for Zion was filed as a master plan.

CCB contended that the trial court erred in determining that the mechanics’ liens involved here had a priority senior to its deed of trust. Mechanics’ liens are not entitled to priority under CRS § 38-22-103(2) over a pre-existing deed of trust expressly intended to secure a loan for construction if (1) the deed is recorded before attachment of the mechanics’ liens; and (2) the loan proceeds are used for construction purposes. Here, CCB’s recorded deed of trust was expressly intended to secure a loan for construction, and the lien claimants had notice of such deed of trust. Further, CCB presented evidence that it disbursed loan proceeds of $1.6 million for construction purposes. Thus, CCB’s pre-existing deed of trust was entitled to priority over that of the lien claimants.

Lien claimants contended that their liens “attached” as of October 23, 2007, because their work relates back to work performed by the architects for Zion. If the architects did not actually file a lien or if any architects’ lien were junior to FlatIron’s lien on any structure or improvements, the foreclosure would have extinguished it, and the lien claimants could not relate their work back to the master plan filing. Because the record does not provide the facts necessary to determine this issue for summary judgment purposes, the case was remanded to determine whether the relation-back doctrine applies in this case.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on December 22, 2011, can be found here.

Tenth Circuit: Absent Evidence that Petitioner’s Employer Knew or Inferred that Facsimile Involved Debt, it Is Not Improper Communication to Third-Parties under FDCPA

The Tenth Circuit Court of Appeals issued its opinion in Marx v. General Revenue Corp. on Wednesday, December 21, 2011.

The Tenth Circuit affirmed the district court’s decision. Petitioner defaulted on her student loan. Her guarantor hired Respondent to collect on the account. Petitioner sued Respondent, alleging abusive and threatening phone calls in violation of the FDCPA. Respondent then made an offer of judgment, which Petitioner did not accept. She then amended her complaint to add a claim that Respondent violated the FDCPA by sending a facsimile to her workplace that requested information about her employment status. The district court found that the challenged collection practices were not abusive and threatening given its view of what actually occurred. On appeal, Petitioner argues that Respondent violated the FDCPA by sending the facsimile and claims that the district court erred in finding that a facsimile sent by Respondent did not constitute a “communication” [to third-parties] under the FDCPA.

The facsimile was sent to Petitioner’s employer as part of Respondent’s inquiry into her eligibility for wage garnishment. When Respondent called her employer to verify her employment status, the agent was told to make the request in writing. Respondent then sent its standard employment verification form. This form displays Respondent’s name, logo, address, and phone number, and bears an “ID” number representing Respondent’s internal account number for Petitioner. “The form indicates that its purpose is to ‘verify [e]mployment’ and to ‘[request] employment information'; blanks are left for the employer to fill in the individual’s employment status, date of hire, corporate payroll address, and position, and to note whether the individual works full- or part-time.”

The Court concluded that absent any evidentiary showing that Petitioner’s employer either knew or inferred that the facsimile involved a debt, the facsimile does not satisfy the statutory definition of a “communication.”

Colorado Court of Appeals: Second Deed of Trust Did Not Waive or Nullify Application of Right to Take Property Free of Homestead Rights

The Colorado Court of Appeals issued its opinion in Janicek v. Obsideo, LLC on December 8, 2011.

Foreclosure—Redemption—Homestead Rights—Waiver—Deed of Trust—Junior Lienholder—Mootness—Standing—Equitable Estoppel—Unclean Hands—Judicial Estoppel.

In this action seeking payment of excess proceeds tendered at a public trustee foreclosure sale, plaintiffs Anthony and Pamela Janicek (collectively, homeowners) appealed the trial court’s orders in favor of defendants Obsideo LLC and 1502 Forrestal, LLC (collectively, Obsideo) and Snavely Development Company (Snavely). Snavely cross-appealed the trial court’s denial of its request for attorney fees. The orders were affirmed.

Obsideo argued that homeowners’ appeal is moot. Here, the public trustee disbursed the excess proceeds to Obsideo. Because homeowners could obtain a judgment against Obsideo for the amount of the proceeds in the event they prevailed, their claim was not moot.

Homeowners contended that the second deed of trust contractually placed their homestead rights in a superior position to the lien secured by that instrument. Homeowners argued that they were entitled to the excess proceeds because, in the second deed of trust, Obsideo waived its right under CRS § 38-41-212(1) to take the property free of their homestead rights. A contractual waiver of homestead rights in a deed of trust constitutes a waiver as to all junior lienholders, and any junior lienholder redeeming the property takes it free and clear of any homestead rights. Therefore, Obsideo, as a junior lienholder, was entitled to take the property free of any homestead rights because it redeemed pursuant to foreclosure of the first deed of trust, and the second deed of trust did not waive or nullify the application of CRS § 38-41-212(1).

Homeowners also contended that Obsideo failed to comply with the redemption procedures set out in the statute and, accordingly, that the certificate of redemption must be struck and the excess proceeds distributed to them. The winning bidder, however, accepted the late redemption payment, and homeowners can claim no homestead rights pursuant to foreclosure of the first deed of trust because they waived their homestead rights in that instrument. Accordingly, they have no claim to the excess proceeds and can assert no injury. Therefore, the trial court did not err in holding that homeowners lacked standing to challenge Obsideo’s redemption.

Homeowners asserted that the equitable doctrines of (1) equitable estoppel, (2) unclean hands, and (3) judicial estoppels bar Obsideo from receiving the excess proceeds. However, equitable estoppel and unclean hands are equitable defenses and not offensive theories of recovery, and judicial estoppel does not apply because homeowners did not contend that Obsideo took inconsistent positions in related court proceedings. Accordingly, none of the three doctrines affords homeowners a theory of recovery against Obsideo.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on December 8, 2011, can be found here.

Colorado Bankruptcy Court Launches New Online Creditor Entry System

The United States Bankruptcy Court for the District of Colorado has launched a new Online Creditor Entry page, which allows persons filing cases in the District to create and submit their creditor matrix online using any computer or web enabled device.

The interface enables users to create their creditor matrix in the online system, allowing the information to be quickly and easily accessed by the court when the case is filed, eliminating the need for floppy disks, CDs, DVDs, etc.

The creditor entry system will also format the creditors automatically to ensure compliance with Local Bankruptcy Rule 1007-2APP (Local Bankruptcy Rule 1007-2APP).

Click here for more information and click here to access the new system.

Colorado Court of Appeals: Appellate Courts Would Most Likely Adopt Partial Subordination Approach; Request for Declaratory Relief Dismissed

The Colorado Court of Appeals issued its opinion in Tomar Development, Inc. v. Bent Tree, LLC on October 27, 2011.

Interlocutory Review Under C.A.R. 4.2.

Plaintiffs filed a petition for interlocutory review of several district court orders. The petition was denied and the case was dismissed.

This case involved a complex series of loans, deeds of trust, and subordination agreements. As relevant to the appeal, plaintiffs sought a declaratory judgment of their lien priority based on their view of applicable subordination principles and on equitable principles. Defendants moved to dismiss, arguing that the “partial subordination approach” should apply here. Under that approach, a subordinating creditor is viewed as having effectively assigned its higher priority to the holder of a junior lien. Plaintiffs argued that the “complete subordination approach” should apply.

The district court dismissed plaintiffs’ request for declaratory relief, concluding that the Colorado appellate courts would most likely adopt the partial subordination approach. The court also denied the motion to dismiss on equitable principles, stating that it could not conclude at the pleading stage that a set of facts could not be proven that would lead to the requested judgment.

The parties filed, and the district court granted, a stipulated motion for interlocutory appeal pursuant to C.A.R. 4.2. Under the Rule, the Court may grant an interlocutory appeal in its discretion when (1) immediate review may promote a more orderly disposition or establish a final disposition of the litigation; (2) the order from which an appeal is sought involves a controlling question of law; and (3) the order from which an appeal is sought involves an unresolved question of law.

The Court of Appeals found that the question of whether Colorado follows the complete or partial subordination approach appeared to be an issue of first impression. However, on the record presented, the Court could not conclude either (1) that immediate review may promote a more orderly disposition or establish a final disposition of the litigation; or (2) that the question presented was controlling. Because of other pending claims, the Court could not find that accepting the appeal would promote a more orderly or final disposition of the litigation or how the question was controlling. Accordingly, the petition was denied and the appeal was dismissed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on October 27, 2011, can be found here.

Colorado Court of Appeals: Property Encumbered By a Valid Lien Not Asset under Colorado Uniform Fraudulent Transfer Act

The Colorado Court of Appeals issued its opinion in Board of County Commissions of the County of Park v. Park County Sportsmen’s Ranch, LLP on October 27, 2011.

Colorado Uniform Fraudulent Transfer Act—Jury Verdict—Evidence—Asset—Lien—Successor Liability—Foreclosure—Notice—Accommodation Party.

Defendants appealed the jury verdicts and trial court judgments in favor of plaintiffs on their claims of fraudulent conveyance, civil conspiracy, successor liability, and quiet title. The judgment was affirmed in part and reversed in part, and the case was remanded for further findings.

Defendants contended that the jury’s verdict under the Colorado Uniform Fraudulent Transfer Act (CUFTA) was not supported by sufficient evidence. A fraudulent transfer under CUFTA includes the transfer of an asset; however, an asset does not include “property to the extent it is encumbered by a valid lien.” Here, because defendant Park County Sportsmen’s Ranch, LLP (PCSR)was encumbered by valid liens that exceeded its value at the time of foreclosure, it was not an asset under CUFTA. Further, defendants signed the 2002 note as accommodation to the parties under CRS § 4-3-419, because they did not receive any direct benefit from the loan. Therefore, the verdict was not supported by the evidence, and the judgment was reversed. Additionally, the jury’s verdict on civil conspiracy was reversed because it was based on the alleged fraudulent transfer.

Defendants contended that the jury’s verdict on successor liability must be reversed. Generally, a corporation that acquires the assets of another corporation does not become liable for its debts. Here, however, the indirect transfer of assets through a foreclosure sale supports successor liability despite the fact that the property lacked any equity. Additionally, the evidence supports the jury’s verdict that defendant JJWM, LLP was liable as a successor corporation, because (1) the original four partners of PCSR, the previous corporation, also were the only four partners of JJWM; (2) both partnerships had the same purpose; (3) JJWM acquired the sole asset of PCSR; and (4) PCSR also was JJWM’s sole asset. This evidence was sufficient to support the jury’s verdict on successor liability under the mere continuation exception.

Defendants argued that the trial court erred by reattaching plaintiffs’ original judgment liens to the ranch owned by JJWM. Because the individual defendants were accommodation parties, the foreclosure sale was valid and, except for Thornton’s lien due to defective notice, the foreclosure extinguished the other plaintiffs’ judgment liens. Based on this conclusion, the trial court’s order attaching plaintiffs’ original judgment liens to the ranch was reversed, except as to Thornton.

Defendant City of Aurora contended that the trial court erred by (1) finding lack of notice to Thornton of the foreclosure; and (2) voiding Aurora’s quitclaim deed from JJWM for a portion of the ranch. Because the record shows that the notice to Thornton was defective, the foreclosure did not extinguish its judgment lien. Because no fraudulent transfer occurred under CUFTA, the court’s order voiding the quitclaim deed was reversed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on October 27, 2011, can be found here.

Colorado Court of Appeals: Person Entitled to Enforce Promissory Note Need Not Be the Holder; Law of Agency Supplements the UCC

The Colorado Court of Appeals issued its opinion in Citywide Banks. v. Armijo on October 13, 2011.

Uniform Commercial Code—Foreclosure—Agency

Plaintiff Citywide Banks (Bank) appealed the order denying its motion for sale of the property owned by defendant. The order was affirmed.

In 2003, Dakota Lending, LLC (Dakota) executed a promissory note to Bank in exchange for a revolving line of credit that allowed Dakota to borrow up to $4 million. Dakota used this line of credit to finance its business of buying, selling, and holding real estate mortgages. As security, Bank took assignments of the promissory notes and deeds of trust that Dakota financed or acquired in its course of business.

In 2007, Kimberly Poladsky and RE Services, LLC (collectively, RE Services) executed a promissory note (Note) payable to Jaguar Mortgage Company. The Note was secured by a deed of trust that encumbered the property at issue. After a series of transfers, Dakota acquired the Note. Dakota then assigned all of its rights and interest in the Note and deed of trust to Bank. While Bank held the Note, it allowed Dakota to service the loan and retain for itself periodic payments made on the Note.

In 2008, RE Services sold the property to defendant. Title insurance was purchased from Stewart Title, which conducted the closing. At closing, defendant tendered the purchase price and Stewart Title accepted those funds as closing agent. Stewart Title did not demand production of the Note at closing and did not attempt to determine the identity of the Note holder. Bank alleged that Stewart Title also failed to obtain a release of the deed of trust at closing. Stewart Title issued a check payable to Dakota for the amount listed on the payoff statement, but Dakota never tendered the funds to Bank. Dakota is now defunct and its managers are under criminal indictment. Bank, which still holds the Note, has declared it in default.

Bank brought this action to foreclose its lien on the property based on the unpaid Note balance. The trial court determined that Dakota was Bank’s agent and had authority to receive the payoff of the Note and, therefore, Bank was not entitled to foreclose on the property.

On appeal, Bank argued that Colorado’s Uniform Commercial Code (UCC) establishes that Bank’s lien remains enforceable against the property because any payoff made to Dakota was ineffective. The Court of Appeals disagreed. Bank argued that UCC § 4-3-301 required payment to be made to the Note holder. The Court found that the section does not contain an explicit requirement that a “person entitled to enforce” an instrument must be the holder. UCC § 4-1-103 provides that the common law, including the law of agency, supplements the statutory provisions of the UCC. Under Colorado’s common law, payment to a holder’s authorized agent is equivalent to payment to the holder. The Court held that payment to a holder’s agent is equivalent to payment to the holder.

Bank also argued that it was error to find that Dakota was its agent. The Court disagreed, holding that the trial court’s finding was amply supported by the record.

Bank further contended that it was error to find that Dakota was authorized to accept payoff of the Note. The trial court found that Dakota had apparent authority to accept payoff of the Note. The Court upheld the ruling, but found that the facts established Dakota’s implied authority to accept a payoff.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on October 13, 2011, can be found here.

Colorado Court of Appeals: Garnishment of Unearned Law Firm Retainer Allowed Because Unearned Portion Belongs to the Client, Not the Lawyer

The Colorado Court of Appeals issued its opinion in In re the Marriage of Rubio, and Concerning The Marrison Law Firm on August 18, 2011.

Retainer—Trust Account—Writ of Garnishment—Subject Matter Jurisdiction—Standing—Disqualification.

The Marrison Law Firm appealed an order issued in a post-dissolution of marriage case. The order was affirmed in part and reversed in part.

Louise Rubio (wife) gave a retainer to The Marrison Law Firm to secure its services in a case against Frank Rubio (husband). A few weeks later, husband served a writ of garnishment on the firm, seeking the unearned portion of the retainer to satisfy a judgment that he had obtained against wife. As part of its final order, the district court released the retainer to husband and disqualified the firm.

Husband first asserted that the Court of Appeals lacked subject matter jurisdiction over this appeal. Here, a timely petition for review was filed and decided. Therefore, the Court had subject matter jurisdiction to decide this appeal.

Husband also argued that the firm lacked standing to appeal either the garnishment or the disqualification. The firm was aggrieved by the order permitting garnishment of wife’s retainer, the order directly imposed an obligation on the firm, and this obligation was contrary to the firm’s interests both as a business entity and as a fiduciary for its client. Therefore, the firm had standing to appeal the order.

The firm contended that the court erred in allowing husband to garnish the unearned portion of wife’s retainer. A judgment creditor is not prevented by statute or rule from garnishing funds held in a lawyer’s trust account. Because unearned retainers belong to the client, not the lawyer, they fall within the broad category of property that is subject to garnishment. Therefore, the court did not err in allowing the garnishment.

The firm also argued that it was erroneously required to withdraw from the case. The firm and wife were aligned in resisting husband’s attempt to garnish the unearned retainer. Therefore, because there was no actual conflict and wife waived any potential conflict, the firm’s disqualification was reversed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on August 18, 2011, can be found here.

Timothy Gordon: Including Accrued Interest in Lien Statement Does Not Render it Void as Excessive

Editor’s Note: The Colorado Court of Appeals’ opinion in Honnen Equipment Co. v. Never Summer Backhoe Service, Inc. can be read here.

In Honnen Equipment Company, Inc. v. Never Summer Backhoe Service, Inc. (Colo. App. July 7, 2011), a division of the Colorado Court of Appeals held that the inclusion of interest in a lien statement does not render the lien void as an excessive lien.  In doing so, the Court had to distinguish prior Supreme Court precedent holding that a mechanics’ lien may not include late charges.

Generally, the Colorado mechanics’ lien statute provides that a lien claimant is entitled to a lien in the amount of the value of the services rendered or labor performed and materials furnished for the improvement of real property.  C.R.S. § 38-22-101(1).  When recording a mechanics’ lien, one must be careful not to overstate the amount.  The reason is that anyone who knowingly records an overstated lien not only forfeits their lien rights but also can be liable to the owner for costs and fees.  C.R.S. § 38-22-128.

In Honnen Equipment Co., the lien claimant included accrued interest in its mechanics’ lien.  The owner argued that interest may not be included in a lien because interest does not represent the value of the work performed to benefit the property.  Therefore, according to the owner, the inclusion of accrued interest in a lien statement renders it excessive and therefore invalid pursuant to C.R.S. § 38-22-128.

The Court of Appeals disagreed.  In its holding, the Court of Appeals distinguished the Colorado Supreme Court’s holding in Independent Trust Corp. v. Stan Miller, Inc., 796 P.2d 483 (Colo. 1990).  In Independent Trust Corp., the Supreme Court held that late charges recoverable by contract were not lienable.  While the Court of Appeals acknowledge that interest, like late charges, does not represent the value of the work performed, the Court of Appeals held that interest is lienable because it is specifically mentioned in the mechanics’ lien statute as being recoverable.  See C.R.S. § 38-22-101(5).  According to the Court, “[t]he intent of section 38-22-128 is to punish and deter those who abuse the mechanic’s lien statute by knowingly and intentionally claiming excess amounts that are totally unrelated to the construction project.”

Timothy Gordon is a partner at Holland & Hart who focuses his practice on the construction and commercial real estate industries. He is the author of the firm’s Construction Law in Colorado blog, where this post originally appeared on August 9, 2011.He is also one of the managing editors for CBA-CLE’s Practitioner’s Guide to Colorado Construction Law.

Click here for more Construction Law Updates.

Aaron Solomon: Deficiency Notices and Due Process

Editor’s Note: The Tenth Circuit Court of Appeals issued its opinion in Pater v. City of Casper on Monday, July 25, 2011.

In Pater v. City of Casper (No. 09-8084), the Tenth Circuit held that property owners may be able to state a due process claim when a deficiency notice is recorded against their property by a municipality.

In this case the City of Casper claimed that the plaintiffs were contractually obligated to reimburse the City for certain street improvements. Based on the Tenth Circuit’s description of the facts the City had some holes in its argument. A few weeks after making its demand for payment, without further communication and before received any response, the City recorded a “Notice of Apportionment and Assessment” against the plaintiffs’ property. This may have been an attempt to compel a settlement by clouding the plaintiffs’ title. If so, it failed. The plaintiffs sued, alleging, inter alia, a due process violation.

The District Court dismissed the due process claim and remanded various state claims. On appeal, the Tenth Circuit first held that the notices, while not judgment liens, nevertheless sufficiently encumbered the property to constitute a deprivation of a protected property interest. In reaching this conclusion the court relied in part on the City’s view that the notices were intended to “run with the land” and bind future purchasers. The plaintiffs were also apparently prepared to offer an expert to testify that a purchaser could not obtain tile insurance until the Notices were satisfied. The Tenth Circuit noted that the existence of a common law action for slander of title strongly suggested that the notices had the potential to cause a legal injury. Finally, the Tenth Circuit identified and resolved a circuit split. The Second Circuit has indicated a lis pendens trigger Due Process protection. The Second Circuit has held that it does not.

The court then considered whether the plaintiffs had been provided sufficient process to satisfy the fourteenth amendment. Because the District Court did not reach this issue, the Tenth Circuit remanded for it to address this issue in the first instance. However I think it is pretty clear from the facts that there was no process at all, at least pre-deprivation.

Aaron Solomon is an associate at Hale Westfall who focuses his practice on on both commercial litigation and public policy/appellate law. He contributes to the firm’s Rocky Mountain Appellate Blog, where this post originally appeared on July 25, 2011.

Douglas Griess: New Legislation Passed into Law Regarding Mechanic’s Liens

In Weize Co., LLC v. Colorado Regional Construction, Inc., No. 09CA1369, the Colorado Court of Appeals held that a plumber’s claim to foreclose on a mechanic’s lien had to be dismissed because of the plumber’s failure to file a lis pendens or notice of commencement of action on the title of the property.  The defendant did provide a lien release bond, and the liens were released.  However, while the supplier to the vendor was apparently successful in establishing violation of the Trust Fund Statute, C.R.S. 38-22-127, it appears that the dismissal of the foreclosure action prevented the plaintiffs from being successful in their claims for damages against the bond because of the lack of filing a lis pendens.

In the 2011 session of the Colorado Legislature, SB 11-264 was introduced to clarify the requirement of a lis pendens.  Specifically, the bill modified the statutes to clarify that when a release bond is approved by the court, the lis pendens is to be released along with the mechanic’s lien, and a claim on the bond is to be substituted for the foreclosure action.

The bill was passed by the Legislature in June of 2011.  Accordingly, going forward, if a release bond is approved by the court, its effect is that no lis pendens is required, and if already recorded, must be released, along with the mechanic’s lien on the property.

Douglas Griess opened The Griess Law Firm, LLC in 2010.  He represents various individuals and businesses in business matters, non-profit matters, transactions, civil and commercial disputes, lease negotiations, contracts, and intellectual property issues. He blogs on his law firm’s site, where this post originally appeared on July 13, 2011.

Jefferson County Combined Court in First Judicial District to Offer Free Collection Clinics

The Jefferson County Combined Court will begin offering free Collection Clinics on the first Tuesday of the month, starting on August 2, 2011.

The clinics will run from 5:30 to 7:00 pm in Courtroom 1A.

An attorney will be teaching attendees about the following areas of interest regarding the collection of judgments:

  • Use of interrogatories to find assets
  • Transcripts of Judgment
  • Garnishments – preparation, serving, answers, default, and traverse
  • Exemptions – what they are and how to claim an exemption

Click here for more information from the First Judicial District.