January 25, 2015

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.

Frederick Skillern: Real Estate Case Law — Contracts, Purchase and Sale, Transactions (3)

Editor’s note: This is Part 6 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-skillern

By Frederick B. Skillern

Top Rail Ranch Estates, LLC v. Walker
Colorado Court of Appeals, January 30, 2014
2014 COA 9

Sale of residential lots; claim preclusion; fraud; economic loss rule.

Top Rail Ranch entered into a contract with Walker Development to purchase a subdivision of platted residential lots for $1 million, with $200,000 down, and a promissory note for the balance, secured by a second lien deed of trust which it agreed to subordinate to bank financing with Canon National Bank for the subdivision development. Walker Development then attempted to rezone adjoining property that it owned to Agricultural Forestry, with plans to sell the adjoining parcel to a mining company. Walker told Top Rail’s owner, Jensen, that the rezoning was to facilitate a conservation easement.

At this point, everything fell apart, and it is not over yet. Walker sold the adjoining land to a mining company after the rezoning was approved. When the sale was announced, Top Rail sales to potential homeowners froze. The County reversed the mining company’s zoning approval. Top Rail defaulted on its loan with Canon National, which foreclosed on the subdivision lots. Top Rail could not cure; Walker Development redeemed from its second lien position, acquiring title to all but two of the subdivision lots. The parties sued each other in separate actions, and this consolidated appeal follows.

In the first case, Top Rail sued Walker for fraud, breach of contract, bad faith breach of contract and other claims. Walker Development counterclaimed for breach of the covenants in its deed of trust, seeking to recover damages for $200,000 that it had paid to cure a lien for nonpayment of a water tap. The trial court granted a directed verdict on the counterclaim, on the basis that the Walker Development deed of trust had merged into the Public Trustee’s deed after the Canon National Bank foreclosure, and the jury found for Top Rail on its tort and contract claims, awarding in excess of $1 million.

In the meantime, Walker Development sued Top Rail and its principals on the promissory note given in purchase of the property, and for foreclosure on the two lots not covered by Canon National Bank’s foreclosure. The district court dismissed Walker Developments on the basis of claim preclusion, based on the judgments entered in the first action.

On appeal, the court holds that the district court improperly dismissed Walker Development’s counterclaims in the first action on a motion for directed verdict. Regardless of whether the lien imposed by the Walker Development deed of trust was extinguished by foreclosure of the bank’s senior lien – Walker Development acquired title through its certificate of redemption – the contractual covenants in the deed of trust were not extinguished by the foreclosure. Schwab v. Martin, 165 Colo. 547, 441 P.2d 17, 19 (1968). Walker had a valid claim for the money spent to remove the water tap lien.

The court then holds that the fraud and bad faith breach of contract claims asserted by Top Rail are barred by the economic loss rule. It affirms the judgment on Top Rail’s breach of contract claim ($500,000) is affirmed. The case is then remanded for trial on Walker Development’s counterclaim on the tap lien.

Addressing the second case, Walker Development argues that its claims are not barred by claim preclusion, as its promissory note claims were not compulsory counterclaims in the first action; the counterclaims were only permissive. The appeals court agrees. Adjudication of the claims on the promissory notes would not result in inconsistent verdicts or a deprivation of rights established in the first litigation.

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.

Tenth Circuit: Express or Implicit Dispute of Title Necessary to Trigger Quiet Title Act’s “Disputed Title” Requirement

The Tenth Circuit Court of Appeals issued its opinion in Kane County, Utah v. United States on Tuesday, December 2, 2014.

In April 2008, Kane County, Utah brought an action under the Quiet Title Act (QTA), 28 U.S.C. § 2409a, to quiet title to five roads in southern Utah. It later amended its complaint to cover 15 roads or road segments. The county asserted the rights-of-way pursuant to R.S. 2477, which reserved a right-of-way for construction of highways over public lands not reserved for public uses. R.S. 2477 was repealed by the Federal Land Policy and Management Act of 1977 (FLPMA)  but existing rights-of-way were preserved. The State of Utah intervened in the county’s action as co-plaintiff. After a 9-day bench trial, the district court issued two orders. In the first order, the district court held that it had subject matter jurisdiction under the QTA as to all 15 roads at issue. The second order made findings of fact and addressed the merits, finding that Kane County and Utah had proven R.S. 2477 rights-of-way on 12 of the 15 roads and setting proper widths for the rights-of-way. Both orders were challenged on appeal.

Kane County and Utah argued that the district court erred by finding that Public Water Reserve (PWR) 107 reserved two parcels of land from the operation of R.S. 2477. They also challenged the district court’s requirement of proof by clear and convincing evidence of the R.S. 2477 rights-of-way. The United States also appealed, claiming that the district court lacked jurisdiction over the county’s claims regarding several roads because of the absence of a disputed title to real property. The United States also contended the district court erred in setting widths for the rights-of-way on three of the roads.

The Tenth Circuit first examined the subject matter jurisdiction claims of the United States and amici. For a court to have jurisdiction over a QTA claim, the plaintiff must show that (1) the United States “claims an interest” in the property at issue, and (2) title to the property is “disputed.” The Tenth Circuit, as a matter of first impression, evaluated what requirements satisfy the QTA’s “disputed title” requirement. The Tenth Circuit rejected the Ninth Circuit’s “cloud on title” standard and instead held that, to satisfy the QTA’s “disputed title” element, the plaintiff must show that the United States has either expressly disputed title or taken action that implicitly disputes it. Actions that produce ambiguity are not enough to satisfy the disputed title element.

Turning its attention to the roads at issue, the Tenth Circuit found that the district court did not have jurisdiction over the Sand Dunes Road and the Hancock Road. These roads were omitted from a BLM map, but later the map was amended to show the roads. The district court ruled this created an ambiguity as to the legal status of the roads, but the Tenth Circuit found the ambiguity was insufficient to satisfy the QTA’s disputed title element and therefore the district court lacked jurisdiction. The Tenth Circuit also found the district court lacked jurisdiction as to the four cave roads. The district court’s treatment of the United States’ denial of allegations as sufficient to establish jurisdiction was in error.

Amici had argued the plaintiffs lacked R.S. 2477 jurisdiction over another road, the North Swag Road, because the QTA’s limitations period had expired. The Tenth Circuit found that the limitations period was not triggered because no adverse action had occurred.

The Tenth Circuit then turned its attention to the district court’s conclusion that PWR 107 had served to “reserve” two parcels of land across which Swallow Park Road runs from operation of R.S. 2477. The Tenth Circuit analyzed PWR 107, finding that it was intended to provide public access to certain water springs, and noted that it would be “nonsensical” to hold that the provision of public access to the springs expressly excluded the construction of roadways under R.S. 2477 on which the public could access the water springs. The Tenth Circuit reversed the district court’s determination that plaintiffs could not establish a right-of-way on the part of Swallow Park Road running through the two reserved parcels of land.

Finally, the United States argued that the district court erred by not designating right-of-way widths on three roadways on the uses established in 1977, and by improperly allowing room for improvements on the roadways. The Tenth Circuit agreed on both points. The district court was required to inquire as to the reasonable and necessary uses of the road, and expansions are only allowable when reasonable and necessary in light of pre-1977 uses of the roadways. Similarly, the district court exceeded its authority by allowing room for improvements. The Tenth Circuit likened this to putting the cart before the horse, finding instead that if the roadways needed improvements the land management agency must be consulted and allowed an opportunity to determine if the improvements are reasonable and necessary.

The judgment of the district court was affirmed in part, reversed in part, and remanded for further proceedings.

Frederick Skillern: Real Estate Case Law — Contracts, Purchase and Sale, Transactions (2)

Editor’s note: This is Part 5 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-skillern

By Frederick Skillern

Van Rees, Sr. v. Unleaded Software, Inc.
Colorado Court of Appeals, December 5, 2013
2013 COA 164

Economic loss rule; contract for design of website; no tort claim because no independent duty.

Although this is not a real estate case, I note it simply as an example of how the economic loss rule is spreading to preclude a wide array of fraud claims arising out of contractual relations. In this case, the court deals with the scope and applicability of Colorado’s economic loss rule in the context of an agreement for the design and maintenance of a website. Under the economic loss rule, no independent duty exists for tort claims of fraud, fraudulent concealment, constructive fraud, or negligent misrepresentation when the alleged misrepresentations and false statements are about the ability to perform contractual duties. The court affirms the trial court’s dismissal of the fraud, negligent misrepresentation, negligence, Colorado Consumer Protection Act, and civil theft claims. The breach of contract claim has it all.

 

Hickerson v. Vessels
Colorado Supreme Court, January 13, 2014
2014 CO 2.

Collections; statute of limitations; C.R.S. § 13-80-103.5 (1) (a) (six-year statute); partial payment doctrine; laches.

This case takes up the collection efforts of the holder of a $386,000 promissory note given in 1989 to the Vessels Oil Company. The note was due in ten years. Shortly after 1999, the maker started making payments on the note, and that continued for a couple of years. After payments stopped, Vessels sued to collect the entire balance. Under existing common law, which the court refers to as the partial payment doctrine, the running of the six-year statute of limitations begins anew whenever payments are made voluntarily, as the debt is recognized and acknowledged. The trial court held that the debtor should be protected under the circumstances of this case by the equitable defense of laches. The court of appeals reversed, but the Supreme Court reinstates the trial court’s ruling.

Four statutes refer to the partial payment scenario. See C.R.S. §§ 13-80-113 to 116. The court refers to these as examples of the common-law rule, and not a replacement of the rule.

In a fairly bold stroke in support of the exercise of equitable powers, the court holds that the separation of powers doctrine does not bar application of the equitable defense of laches to a debt collection action filed within the original or restarted six-year statute of limitations period. Laches does not conflict with the plain meaning of the relevant statute of limitations, nor does it conflict with the partial payment doctrine, which is a creature of Colorado common law. Since early statehood, Colorado case law has recognized the application of equitable remedies to legal claims. Accordingly, the Court reverses the judgment of the court of appeals and remands the case for consideration of issues it did not reach, to wit – does the record support a defense of laches. Maybe not.

“The essential element of laches is unconscionable delay in enforcing a right under the circumstances, usually involving a prejudice to the one against whom the claim is asserted.” The elements of laches are: (1) full knowledge of the facts; (2) unreasonable delay in the assertion of available remedy; and (3) intervening reliance by and prejudice to another. Laches requires “such unreasonable delay in the assertion of and attempted securing of equitable rights as to constitute in equity and good conscience a bar to recovery.”

The court remands the case to the court of appeals for review of whether the elements of laches are satisfied by evidence in the record. And father time marches on.

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: In Prescriptive Easement Case, Mere Silence is Not Proof of Permissive Use

The Colorado Court of Appeals issued its opinion in LR Smith Investments, LLC v. Butler on Thursday, December 18, 2014.

Prescriptive Easement—Quiet Title—Permissive Use.

In this prescriptive easement case, LR Smith Investments, LLC (Smith) claimed prescriptive easements for ingress and egress across two roads owned by Butler. The roads cross a ranch owned by Butler northwest of Craig in Moffat County. The trial court found that Smith and its predecessors continuously, openly, and notoriously used the roads from the mid-1950s until late 2011, when Butler dug ditches preventing access to the roads and thereby precipitated this litigation.

The trial court held that Butler did not meet her burden to overcome the presumption of adversity, and that Smith had satisfied the elements for prescriptive easements to use the roads. The court quieted title to Smith’s nonexclusive right to use the roads for ranching and agricultural purposes, to access the Smith property for hunting and guiding purposes, and for all other similar uses.

On appeal, Butler argued that the court erred in finding that Smith’s use of the road was not permissive, which would defeat Smith’s prescriptive easement claim. The trial court found that Smith’s use of the property was open and notorious for a period in excess of eighteen years. Moreover, the court’s finding that there was no agreement, explicit or implied, between the parties that established that Smith’s use of the roads was permissive was supported by the record. Mere acquiescence or silence is not proof of permissive use. Therefore, Butler did not overcome the presumption of adversity. The judgment was affirmed.

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

JDF Forms Amended in Several Categories in November and December

The Colorado State Judicial Branch revised several forms and instructions in November and December 2014. Many categories were affected, including toll ticket appeals, juvenile delinquency, domestic relations, probate, forcible entry and detainer, and sealing cases. Amended forms are available here in PDF format, and are available for download as Word documents on State Judicial’s forms page.

APPEALS

  • JDF 234 – “Notice of Appeal and Designation of Record – E-470 Case” (revised 11/14)
  • JDF 235 – “Notice of Record Certified to County Court – E-470 Case” (revised 11/14)

CRIMINAL

  • JDF 219 – “Juvenile Delinquency Application for Public Defender” (revised 11/14)

DOMESTIC

  • JDF 1101 – “Petition for: Dissolution of Marriage/Legal Separation” (revised 12/14)
  • JDF 1201 – “Affidavit for Decree Without Appearance of the Parties (Marriage)” (revised 12/14)
  • JDF 1601 – “Petition for Declaration of Invalidity of Marriage” (revised 12/14)

EVICTIONS

  • JDF 100 – “Instructions for Forcible Entry and Detainer (FED)/Eviction” (revised 11/14)
  • JDF 140 – “Instructions for Mobile Home FED” (revised 11/14)

MISCELLANEOUS

  • JDF 450 – “Order re: Appointment of Counsel at State Expense Other Than the Public Defender in a Criminal or Juvenile Delinquency Proceeding” (revised 11/14)

PROBATE

  • JDF 730 – “Decree of Final Discharge” (revised 12/14)
  • JDF 810 – “Court Visitor’s Report” (revised 12/14)
  • JDF 824 – “Petition for Appointment of Guardian for Minor” (revised 12/14)
  • JDF 834 – “Guardian’s Report – Minor” (revised 12/14)
  • JDF 841 – “Petition for Appointment of Guardian for Adult” (revised 12/14)
  • JDF 850 – “Guardian’s Report – Adult” (revised 12/14)
  • JDF 861 – “Petition for Appointment of Conservator for Minor” (revised 12/14)
  • JDF 876 – “Petition for Appointment of Conservator for Adult” (revised 12/14)
  • JDF 878 – “Order Appointing Conservator for Adult” (revised 12/14)
  • JDF 885 – “Conservator’s Report” (revised 12/14)

SEAL MY CASE

  • JDF 301 – “Instructions to File an Expungement Juvenile “JV” Case, Criminal “CR” Case, or Municipal Case” (revised 12/14)

For all of State Judicial’s JDF forms, click here.

Frederick Skillern: Real Estate Case Law — Contracts, Purchase and Sale, Transactions (1)

Editor’s note: This is Part 4 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 Skillern

Gattis v. McNutt (In re Estate of Gattis)
Colorado Court of Appeals, November 7, 2013
2013 COA 145
Residential sales contract; nondisclosure; economic loss rule
.

This case presents another test of the outer limits of the economic loss rule. The buyer of a house, Carol Gattis, sues for fraudulent concealment and recovers a judgment against McNutt. McNutt’s company acquired the property to “fix and flip,” and obtained detailed soils reports outlining damage that was caused by shifting soils. On the disclosures form included in the standard form residential purchase and sale contract, McNutt disclaimed any “personal” knowledge of defects, and identified only the name of a company which had performed structural repairs — without describing the nature of the repair. McNutt appeals on the basis that the fraud claim is barred by the economic loss rule. He argues that the contract calls for specific disclosures, which were given, and that tort actions are precluded by the economic loss rule, as the requirement for disclosures “subsumes” the common-law duty to disclose material information.

The appeals court disagrees and affirms the judgment. 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 a breach absent an independent duty of care under tort law.” The court rejects the economic loss rule defense for two reasons. First, home sellers owe consumers an independent duty to disclose latent defects of which they are aware. Second, the court reasons that the disclosure provisions in the commission-approved form do not subsume the independent duty so as to trigger the economic loss rule. Although sellers were not required by the disclosure form to disclose their involvement with the entity that had performed repairs, the trial court found that this fact was material and should have been disclosed. Gattis could have prevailed on this nondisclosure claim without relying on the form disclosure. In short — the seller was perhaps “too cute by half.”

The court distinguishes two recent decisions in which a real estate seller has successfully invoked the economic loss rule to avoid a fraud claim. In those cases — Former TCHR, LLC v. First Hand Mgmt. LLC, 2012 COA 129 (Colo. App. 2012), and Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282 (Colo. App. 2009) — the parties negotiated “transaction-specific” contracts. Here, the parties used standard real estate commission forms. The court holds that neither the Seller’s Property Disclosure nor any other term in the form contract limits or subsumes the home sellers’ common-law duty to disclose latent defects of which they are aware.

 

Planning Partners International, LLC v. QED, Inc.
Colorado Court of Appeals, July 1, 2013.
2013 CO 43
Contracts; attorney fee shifting provision; discretion to reduce fee claim to account for successful claim for offsets; no mandatory rule.

Our supreme court accepts this case to decide a recurring issue in attorney fee hearings pursuant to contractual fee shifting provisions. The court of appeals held that the trial court erred in failing to apportion a fee award to account for an offset caused by judgment or a counterclaim. The Supreme Court rejects a per se rule of mandatory apportionment in this circumstance. Requiring proportional diminishment in all cases where the judgment based on a note or contract had been reduced by a counterclaim arising out of the transaction would undermine the trial court’s ability to determine a reasonable fee under the specific facts of the cases before them. The widely divergent circumstances under which attorney fee issues are litigated militate in favor of flexibility and discretion on the part of the trial court, rather than a rule of mandatory apportionment. In the current case, the trial judge proceeded methodically through the planning company’s accounting, discounting the fees incurred in a claim he found to be unsupported by the evidence and reducing the entire amount of requested fees by 20%. He further determined that the attorney’s fee issues were sufficiently intertwined and inter-related that apportionment was not appropriate.

The court notes that a trial court’s discretion may be circumscribed by the statute or contract giving rise to fees. It points out that the note provision here did not require or preclude apportionment, which is a factor that a drafter of such a note or contract might consider. As a result, a trial court may determine that some apportionment is necessary for a fee to be reasonable, or it may not. The court here holds only that the widely divergent circumstances under which attorney fee issues are litigated militate in favor of flexibility and discretion on the part of the trial court, rather than a rule of mandatory apportionment.

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: Abuse of Discretion for Trial Court to Deny Correction of Minor Error

The Colorado Court of Appeals issued its opinion in Reisbeck, LLC v. Levis on Thursday, December 4, 2014.

Quiet Title—CRCP 60(a).

Plaintiffs Reisbeck, LLCand Robert Jersin are the record owners of real property in Adams County (property). Reisbeck owns an undivided 85% interest and Jersin owns an undivided 15% interest in the property.

In 1947, defendant Arthur Levis obtained a right-of-way across the property for a “rail spur.” However, no rail spur was ever constructed on the property. To clear the record encumbrance, Reisbeck’s counsel commenced an action under CRCP 105 to quiet title to the property in Reisbeck and Jersin against any claims of Levis and all unknown persons claiming any interest in the property. Jersin was joined as an involuntary party plaintiff.

Defendants were served by publication, and no answers or responsive pleadings were filed. Reisbeck’s counsel moved for entry of default. The judgment form submitted named “Reisbeck, LLC” as plaintiff. However, Reisbeck, LLC does not exist; its proper name is Reisbeck Subdivision, LLC. The district court granted the motion and entered default judgment in plaintiffs’ favor. Following entry of judgment, Reisbeck’s counsel discovered the name error. He filed a motion under CRCP 60(a), seeking relief and asking the court to amend the judgment and correct the name. The court denied the request.

On appeal, plaintiffs argued it was an abuse of discretion to deny the request for relief. The Court of Appeals agreed. CRCP 60(a) is a safety valve allowing the district court to correct, at any time, an honestly mistaken judgment that does not represent the understanding and expectations of the court and the parties. Here, there was nothing in the record indicating that the error by counsel was anything other than an honest mistake. The corrected judgment would represent the parties’ expectation in pursuing the quiet title action and the court’s intention in issuing the judgment. No different or additional liability would be imposed on any existing defendant and no party previously not named would need to be added. The district court’s order was reversed and the case was remanded to amend the judgment.

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

Frederick Skillern: Real Estate Case Law — Condemnation, Eminent Domain

Editor’s note: This is Part 3 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 Skillern

Regional Transportation District v. 750 West 48th Ave, LLC
Colorado Court of Appeals, December 5, 2013
2013 COA 168
Qualification of eminent domain commissioner; partiality.

The only question for a trial to a panel of three commissioners is, in most cases, the value of property taken by the government. Three commissioners were appointed by the court, including a Cassidy Turley broker, Ms. Hook. The commissioners were approved after a 90-minute voir dire hearing in the district court. Six months later, but before trial, RTD challenged the partiality of Ms. Hook, on the basis that two other brokers in her firm had testified on value issues in a separate but similar RTD eminent domain case. The question raised here is whether the standard of review on the disqualification motion is based on the standard applicable to a judge, or a juror. The eminent domain statute, C.R.S. § 38-1-105(1), instructs the trial court to disqualify a proposed commissioner who is “not disinterested and impartial.” Under C.R.C.P. 97 and Colorado Code of Judicial Conduct Rule 1.2, by contrast, judges may be disqualified if they “appear” partial. In the latter case, courts have held that the test for appearance of partiality of a judge is whether a reasonable person, knowing all the relevant facts, would doubt the judge’s impartiality.

Applying the plain language of the eminent domain statute, the court agrees with the trial court and affirms. The applicable standard for disqualifying commissioners is not “an appearance of partiality,” a standard applicable to sitting judges, but whether the commissioner was “in fact interested and partial.” The court holds that Hook’s professional relationship with two fellow employees who had testified against RTD did not make her interested or partial.

The court comments on the special role of a condemnation commissioner: “The court relies on their experience and knowledge of the law of real estate to make the appropriate determination of just compensation. Because commissioners are supposed to bring expertise to valuation proceedings . . . they could not do so if the very knowledge and experience that made their views desirable also disqualified them.”

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 — Common Interest Communities, Covenants, and CCIOA

Editor’s note: This is Part 2 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 Skillern

Triple Crown at Observatory Village Association v. Village Homes of Colorado
Colorado Court of Appeals, November 7, 2013
2013 COA 150
Construction defect claims; interlocutory review; relationship between revised Nonprofit Corporation Act and the Common Interest Ownership Act.

Arising from alleged construction defects in a common interest community, this interlocutory appeal under C.A.R. 4.2 presents four questions of first impression in Colorado, which the court answers as follows:

  1. Where an association is a nonprofit corporation, the Colorado nonprofit act establishes the time limit for amending its declaration based on action taken without a meeting;
  2. The statutory power to engage in “litigation” under C.R.S. § 38-33.3-302(1)(d) includes arbitration;
  3. C.R.S. § 38-33.3-302(2) does not invalidate the mandatory arbitration provision, because the dispute resolution procedures apply to parties other than the declarant; and
  4. Colorado consumer protection act claims may be subject to mandatory arbitration, because the CCPA does not include a nonwaiver provision.

Village Homes, a residential developer, built homes subject to recorded covenants, and thereby created an association, Triple Crown. Triple Crown was set up as a nonprofit corporation under C.R.S. §§ 7-121-101, et seq. In the declaration of covenants, the developer included a dispute resolution procedure for claims arising from the design or construction of homes in the Triple Crown development. The declaration required that construction defect claims be arbitrated under American Arbitration Association rules.

In 2012, residents began a campaign to amend the declaration by repealing the arbitration clause. Unfortunately, it took more than sixty days to gather the votes to amend the covenants. After sixty days, 48% of the members had cast votes in favor of revocation. After another sixty days, the Association had obtained the required 67% of votes to effect the amendment. The Association recorded the amendment, and then brought this action against Village Homes, alleging negligent construction, Colorado Consumer Protection Act (CCPA) violations, and breach of fiduciary duties.

Village Homes moved to dismiss for lack of jurisdiction, based on the arbitration clause in the declaration. It argued that the amendment repealing the arbitration provision was ineffective because the Association failed to amend Article 14 within the time limits in the Nonprofit Corporations Act, specifically C.R.S. § 7-127-107(2), which deals with time limits for actions taken without a meeting. The trial court granted the motion, dismissed the case, and ordered the case to arbitration. This order is affirmed on appeal. The court holds that when an association amends its declaration without a meeting under the CCIOA, the association, if it is a nonprofit corporation, must comply with the 60-day time limit provided in section 7-127-107.

The Court also agreed that the Common Interest Association Act gives power to associations to “institute, defend, or intervene in litigation or administrative proceedings . . . on the matters affecting the common interest community.” However, the court reasons that “litigation” includes both civil actions in court and arbitrations. It holds that the mandatory arbitration clause did not infringe on the association’s statutory power to “institute litigation.”

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

The trial court rejected the association’s argument that its CCPA claims should not be subject to mandatory arbitration, because CCPA provisions by statute “shall be available in a civil action.” The court holds that such a right can be waived, and that Article 14 of the Triple Crown declaration was such a waiver.

 

Ryan Ranch Community Assn., Inc. v. Kelley
Colorado Court of Appeals, March 27, 2014
2014 COA 37M
Liability for homeowner association assessments; annexation; developer side agreement.

This is an interesting situation involving a developer, a side agreement with another landowner to exempt that owner’s land from subdivision covenants, and the annexation provisions of the CCIOA. As a prequel, the following general principles stated in the dissent by Judge Terry set the stage.

  • “Provisions of this article may not be varied by agreement. . . . A declarant may not . . . use any . . . device to evade the limitations or prohibitions of this article or the declaration.” C.R.S. § 38-33.3-104. . . .
  • Members are not “entitled to set up agreements reached with the developer as defenses to the obligation to pay assessments . . . . [T]he developer does not have the power to waive the assessment obligations imposed on property within the common-interest community.” Restatement (Third) of Property: Servitudes, 6.5, cmt. e (2000).

Nice notions, but the developer here found the approval process for a second filing of his development sometimes required some last-minute adjustments. He had a side agreement with Kelley, an owner of a minority of land to be included in a second filing of a large development, to keep the “Kelley Lots” from control of any covenants or new HOAs. At the late stages of approval of the new filing, however, the developer included Kelley’s land in the filing – Kelley signed the plat – and sold the lots in bulk to Ryland.

Ryland, going along with the deal, sold the Kelley lots immediately back to developer, and the developer then deeded the land to Kelley. Kelley sold the lots to another builder, who sold homes to consumers. Several years go by, during which the consumers enjoy neighborhood improvements, and then the HOA takes action to collect assessments – including back fees totaling $70,000. The homeowners had constructive notice of the plat and the declaration from exceptions to their deed warranties. In defense, the homeowners and Kelley argued that their lots had not been appropriately “annexed” into the association. The decision goes through the statutes, and two judges reverse the trial court and hold that the requirements for annexation had not been met.

The reasoning of the majority goes like this. To exercise a development right under CCIOA, a developer must comply with the plat and map requirements of C.R.S. § 38-33.3-209 and the recording requirements of C.R.S. § 38-33.3-217(3). The homeowner defendants argue that to exercise a reserved development right, CCIOA requires the recording of an amendment to the declaration that must contain certain information and be properly indexed. The court agrees that the recording of an Official Development Plan and the declaration was not sufficient to meet these requirements. The original declaration cannot logically be considered an amendment to itself such that it could annex the Kelley Lots. Moreover, nothing was denominated as an amendment, nothing assigned identifying numbers to newly created units, there was no reallocation of interests among all units, and no common elements were described. Nothing on the Filing 2 plat map subjected the described property to the Declaration.

On the other hand, the dissent notes, the Declaration provides that the additional lots will be annexed into the HOA when (1) a plat for additional properties to be annexed is recorded, and (2) either an annexation form is recorded, or a deed for real property within the plat is conveyed from Ryland to a third party other than Ryland. “On November 17, 2005, Ryland recorded the Filing 2 plat, which included the Kelley Lots. On December 20, 2005, Ryland conveyed the Kelley Lots back to the developer by deed. These two actions — filing of the plat and conveyance by deed — fulfilled the requirements of the Declaration to annex real property to the HOA.”

CCIOA fans and developers’ counsel will want to dive into this discussion — and avoid those shortcuts.

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 — Brokers

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

frederick-b-skillernBy Frederick Skillern

CapitalValue Advisors, LLC v. K2D, Inc.
Colorado Court of Appeals, August 15, 2013
2013 COA 125

K2D was a business that required new capital, and it contracted with CapitalValue Advisors for a number of different tasks. CapitalValue entered into an engagement agreement whereby it agreed to either help sell K2D (either a majority or minority interest) or to assist K2D in obtaining debt financing. The rub is that CapitalValue does not have a real estate broker license or a securities license. That is required in order to market the sale of K2D as an entity, as one asset of the company was a leasehold interest in property, or to market its stock under state and federal securities laws.

During the course of its engagement, K2D terminated Capital Value and engaged another company for help. That company obtained a bank loan for K2D — an action which, of itself, does not require a specific license. Since the loan was obtained during the carryover period under the CapitalValue engagement agreement, CapitalValue sued for a 4.5% commission under the terms of its agreement.

The engagement agreement provided:

In executing this Agreement, [CapitalValue] is committing its resources to provide you the best possible representation in the sale of your business, and in turn, you are granting [CapitalValue] the sole, exclusive, and irrevocable right to procure parties (“Buyer(s)”) to purchase, exchange, lease, invest in, loan to, contract for the services of, or otherwise obtain an interest in the Client’s business, its corporate stock, business assets, right and properties or any portion thereof of Client or Client’s affiliates.

(Emphasis added.)

In addition, the Agreement set forth that CapitalValue would earn 4.5% of the total amount secured for “debt financing.”

The district court dismissed all claims on summary judgment, holding that the entire engagement agreement was an illegal contract. CapitalValue does not contest that it lacked either license, and does not appeal the trial court’s finding that two parts of the contract are void under these theories. However, it argues that other contractual obligations in the agreement are lawful, and that those provisions are severable from the “void” agreements, even in the absence of an express contract provision allowing the obligations to be severed. The district court dismissed the complaint on summary judgment, finding that the agreement had no severability clause, so the entire contract was unenforceable.

The court of appeals reverses the summary judgment order, finding that the lack of a severability clause is not determinative as to whether portions of the contract can be enforced.

Where a contract contains multiple provisions, some of which cannot be legally performed, the remaining provisions are not necessarily unenforceable. Rather, “[w]here an agreement founded on a legal consideration contains several promises, or a promise to do several things, and a part only of the things to be done are illegal, the promises which can be separated, or the promise, so far as it can be separated, from the illegality, may be valid.” Reilly v. Korholz, 320 P.2d 756, 760 (Colo. 1958).

The court distinguishes Broughall v. Black Forest Development Co., 196 Colo. 503, 593 P.2d 314 (1978), the leading case on the requirement for a real estate license to sell a business owning real property. That case involved a single agreement — to find a buyer to purchase a business, including its real estate interest. The broker there argued that, although he was not a licensed real estate broker, his commission could be “based on that part of the sale price which did not involve real estate.” The court there ruled that “severing” the contract by simply discounting Broughall’s fee “would allow finders and business brokers to disregard completely the licensing requirement to the detriment of the public whom the statute is designed to protect.”

In contrast, the court here finds that the CapitalValue agreement contains multiple agreements, each of which could be a separate contract. The Agreement provides that CapitalValue would earn (1) 4.5% for a sale of less than a majority interest in K2D, Inc.; (2) 4.0% for a sale of more than a majority interest in K2D, Inc.; or (3) 4.5% for helping K2D obtain debt financing. CapitalValue does not appeal the district court’s rulings that the first and second provisions violate federal and state securities licensing requirements. However, because the Agreement also contains a third provision for payment for securing debt financing that the parties do not contend violates either set of licensing laws, the district court erred in concluding as a matter of law that the Agreement could not be severed. The case is remanded for further proceedings to determine an issue of fact — whether the parties intended the provisions of the contract to be severable.

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: Adverse Possession Requires Good Faith Belief of Ownership of Property for 18 Years or More

The Colorado Court of Appeals issued its opinion in People v. Gutierrez-Vite on Thursday, November 20, 2014.

Adverse Possession—Defense—Theft—Offering a False Instrument for Recording—Jury Instructions—Testimony.

This case stems from defendant’s alleged attempt to adversely possess a home in Fraser, Colorado. At all relevant times, the home was privately owned by another party, but was unoccupied and in foreclosure. Defendant filed an Affidavit of Adverse Possession with the Grand County Clerk and Recorder’s Office even though she did not own or have permission to be in the home. A jury found defendant guilty of attempted theft and two counts of offering a false instrument for recording.

On appeal, defendant contended that the trial court erred because it denied her request to present a defense based on the adverse possession statute and an affirmative defense of mistake of law based on the adverse possession statute. Under the adverse possession statute, in actions filed on or after July 1, 2008, the party claiming the title must prove, by clear and convincing evidence, that his or her possession was actual, adverse, hostile, under a claim of right, exclusive, and uninterrupted for at least eighteen years. The statute also requires that an adverse claimant establish a good-faith belief that he or she was the property’s actual owner.

Because defendant admitted that she knew the property was owned by someone else and she only possessed the property for five months, she did not meet the requirements to claim adverse possession. Because her adverse possession claim to the property fails, the adverse possession statute could not relieve her of criminal liability. Further, defendant’s mistaken belief regarding adverse possession law does not relieve her of criminal liability. Therefore, the trial court did not err in denying her request to present a defense based on adverse possession and excluding this defense from the jury instructions.

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