July 28, 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: Seller in Installment Land Contract Not Landowner Under Premises Liability Act

The Colorado Court of Appeals issued its opinion in Lucero v. Ulvestad on Thursday, July 16, 2015.

Installment Land Contract—Landowner—Colorado Premises Liability Act—Trespasser—Injuries—Negligence.

This case arose from 15-year-old Lucero’s unsupervised use of a steam room in a home purchased by Landers from Ulvestad. The installment land contract provided Landers immediate possession of the property, but record title would remain in Ulvestad’s name until Landers paid the entire purchase price. With permission from Landers, Lucero entered the steam room and suffered a seizure rendering her unconscious. Before she was found, Lucero suffered severe burns to her face, head, and arm. Lucero brought this lawsuit against both Landers and Ulvestad. The trial court found that Ulvestad owed Lucero no common law duty of care and dismissed her negligence claim. The jury returned a verdict in favor of Ulvestad on Lucero’s claim under the Colorado Premises Liability Act (Act).

Lucero appealed the trial court’s determination that she was a trespasser on the property at the time she was injured. Based on the plain language of the installment land contract, Ulvestad, on the date possession of the property was transferred to Landers, was no longer a person “in possession of real property” or “legally responsible for the condition of real property.” Therefore, because Ulvestad was not a landowner under the Act, the trial court should have granted Ulvestad’s motion for a directed verdict. Therefore, Lucero was not harmed by the trespasser determination, and the judgment against Lucero was affirmed.

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

Colorado Court of Appeals: Secured Creditor With Disallowed Claim Against Estate Can Enforce Underlying Security

The Colorado Court of Appeals issued its opinion in Oldham v. Pedrie on Thursday, July 16, 2015.

Real Property—Promissory Note—Deed of Trust—Probate—Notice of Claim—Disallowance—Foreclosure—Novation.

This appeal involves a parcel of land in Teller County first purchased by Lorna Oldham in 1976 from Donald Pedrie in exchange for a promissory note. In 2005, Lorna Oldham signed a second promissory note to replace the first promissory note. In 2007, she died, and Pedrie filed a notice of claim against the Estate of Lorna Oldham for the amount owing on the promissory note. The personal representative disallowed a portion of Pedrie’s claim, Pedrie threatened foreclosure of the property, and the trial court allowed him to proceed with his foreclosure proceedings.

On appeal, the Oldhams and the Estate contended that the 1976 Deed of Trust was extinguished when Pedrie declined to contest the disallowance in the Michigan court. Under the Colorado and Michigan probate codes, the requirement to file a notice of claim in an estate proceeding does not affect or prevent the right of a secured creditor to enforce a mortgage or other liens on estate property. Further, a secured creditor is not required to pursue an unconditional claim that is disallowed. Therefore, a secured creditor’s lien on real property is not extinguished when the creditor presents an unconditional claim against a decedent’s estate but does not pursue a disallowed claim within sixty-three days. The secured creditor may still pursue a foreclosure action to enforce the lien. Therefore, the district court did not err when it found that Pedrie held a valid deed of trust on the Teller County property.

The Oldhams also contended that Pedrie’s 1976 lien on the Teller County property was extinguished under CRS § 38-39-207, either because Pedrie accepted a new promissory note in 2005 that was not secured by a deed of trust or because there was a novation. The record contains unrebutted testimony that the principal plus interest due on the first note was greater than the amount due on the 2005 promissory note. Under these circumstances, the 2005 promissory note did not constitute a novation and did not extinguish the 1976 Deed of Trust.

Finally, the Oldhams contended that the district court erred by not making a finding on the total amount owed on the debt secured by the deed of trust. Pursuant to CRCP 120, the district court was not required to determine the amount remaining on secured debt. The Trial Management Order (TMO), however, required the court to determine the payoff amount. Therefore, the district court erred in not complying with the TMO in this regard. The judgment was affirmed in part and reversed in part, and the case was remanded to the district court to determine the amount owed by the Oldhams on the 1976 Deed of Trust.

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

Colorado Court of Appeals: Special District May Regulate Use of Property It Owns

The Colorado Court of Appeals issued its opinion in Aspen Springs Metropolitan District v. Keno on Thursday, July 16, 2015.

Metropolitan District—Real Property—Trespass—Willful—Fence Law—Contempt—Remedial Sanctions—Purge Clause.

Keno maintained a flock of sheep and grazed it on a parcel of land known as the “Greenbelt.” The Greenbelt was owned by Aspen Springs Metropolitan District (Aspen Springs). In 2011, the Aspen Springs Board passed a resolution prohibiting the grazing or tethering of livestock on the Greenbelt without the Board’s prior written permission. Keno continued to graze his sheep on the Greenbelt, and Aspen Springs sought an injunction preventing the grazing. Keno nonetheless continued to pasture his sheep on the Greenbelt and had twice been found in contempt by the time the court issued its final judgment permanently enjoining Keno from allowing his animals to graze on the Greenbelt.

On appeal, Keno contended that, as a special district and creature of statute, Aspen Springs lacks authority to regulate the use of property it owns. Among the express powers granted to special districts are the powers “[t]o acquire, dispose of, and encumber real and personal property including, without limitation, rights and interests in property, leases, and easements necessary to the functions or the operation of the special district.” The right to own property is necessary to these express powers. Property ownership generally includes the power to exclude others. Therefore, a special or metropolitan district may regulate the use of and access to property it owns. Accordingly, the district court did not err in holding that Aspen Springs has the power to prohibit and limit grazing activities on the Greenbelt.

Keno also contended that the district court erred in concluding that the Fence Law protects Aspen Springs from a willful trespass onto the Greenbelt, despite the fact the Greenbelt is unenclosed by a lawful fence. The Fence Law does not protect livestock owners who deliberately pasture their livestock on unenclosed lands of another, particularly when done against the owner’s will. Accordingly, the district court did not err in concluding that the Fence Law protects Aspen Springs from willful trespass onto its property.

Keno further asserted that the court erred in awarding attorney fees and costs as a remedial sanction after finding him in contempt a second time for violating the preliminary injunction. A remedial sanction must include a purge clause. Because the sheep grazing activities that resulted in Keno’s contempt citation were not ongoing at the time of the contempt hearing, Keno could not purge his contempt because he could not undo what he had done. Therefore, remedial sanctions, such as the assessment of costs and attorney fees, could not be imposed against Keno under these circumstances, and the trial court erred in awarding them. Instead, the court could impose only punitive sanctions. The judgment was affirmed in part and the order was vacated in part.

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

Colorado Court of Appeals: Common Open Space Part of Subdivision’s Community Property

The Colorado Court of Appeals issued its opinion in Hauer v. McMullin on Thursday, July 2, 2015.

Real Property—Common Open Space—Unincorporated Homeowners Association—Colorado Common Interest Ownership Act—Attorney Fees.

The McMullins owned Two Rivers Estates, which included seven lots and seventeen acres of Common Open Space (COS). The McMullins sold the seven lots to three owners: the Hauers bought lots one and three; the Conrados bought lot two; and Lincoln Trust FBO John Hauer (Lincoln Trust) bought lots four through seven. Thereafter, the Hauers and Lincoln Trust filed a complaint individually and on behalf of the unincorporated Two Rivers Homeowners Association (HOA) to quiet title to their respective lots. They also sought to quiet title to the COS in the HOA. The McMullins counterclaimed, asserting that they hold title to the COS because a common interest community was never formally created and because they never conveyed the COS property. The trial court found in favor of the Hauers and Lincoln Trust.

On appeal, the McMullins contended that the trial court erred when it quieted title to the COS in the unincorporated HOA. The Evergreen Highlands’s declarations expressly established the HOA, conveyed to it the development’s common property, charged it with maintaining the common property, and granted it authority to determine annual membership or use fees. The final recorded plat, the recorded subdivision agreement, the recorded deeds, and the land sale contract with Lincoln Trust constituted declarations necessary to form a common interest community under the Colorado Common Interest Ownership Act. Therefore, the COS was part of the subdivision’s common property and was appurtenant to each lot, and with each conveyance of a lot, an appurtenant one-seventh common interest in the COS was conveyed, as well. The trial court’s findings and order were affirmed.

The McMullins and their attorney contended that the trial court abused its discretion when it awarded the Hauers their attorney fees incurred as a result of the McMullins’ failure to disclose information relevant to the subdivision development, without making a finding of prejudice. The trial court did not abuse its discretion in awarding attorney fees as sanctions under CRCP 37, because this rule and the assessment of attorney fees do not require a finding of prejudice.

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

Colorado Court of Appeals: CORA Exception for Prosecuting Attorney Does Not Apply to Land Use Violation

The Colorado Court of Appeals issued its opinion in Shook v. Pitkin County Board of County Commissioners on Thursday, June 18, 2015.

Colorado Open Records Act—Investigatory Records Exception.

In August 2012, the Pitkin County Attorney’s Office received a citizen complaint regarding a potential code violation of plaintiff Shook’s property. The complaint was investigated and a violation notice for failure to obtain a necessary construction permit was issued. Shook cured the violation by obtaining a permit.

Several months later, Shook submitted a Colorado Open Records Act (CORA) request to the county attorney (custodian), seeking access to records related to the violation. The custodian provided certain documents but denied access to the original citizen complaint and the investigating officer’s handwritten notes.

Shook then filed this action, seeking a declaratory judgment that the custodian violated CORA by withholding the records, an order directing the custodian to disclose the records, and attorney fees and costs. The district court held that the custodian properly denied access to the records under CORA’s investigatory records exception, CRS § 24-72-204(2)(a)(I).

The investigatory records exception allows a custodian to withhold records if (1) the records relate to investigations conducted by a sheriff, prosecuting attorney, or police department, or are contained in investigatory files compiled for criminal law enforcement purposes; and (2) disclosure would be contrary to the public interest. Here, the record did not support the finding that the records related to an investigation by a prosecuting attorney. Such an attorney refers to one prosecuting a criminal matter, and this was not a criminal prosecution. The order was reversed for failure to meet the first prong.

CRS § 24-72-204(5) requires the court to award costs and reasonable attorney fees to any person who applies for and receives an order requiring a custodian to permit inspection of public records. The case was remanded with directions to order the custodian to allow Shook to inspect the records and, upon Shook’s application, assess and award reasonable court costs and attorney fees in her favor.

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

Colorado Court of Appeals: Use of Stock Certificate as Exhibit Does Not Qualify as a Filing or Recording

The Colorado Court of Appeals issued its opinion in Battle North, LLC v. Sensible Housing Co. on Thursday, June 18, 2015.

Spurious Documents—CRS §§ 38-35-201(3) and -204.

This case involves a dispute over ownership of real property in Eagle County (Pine Martin parcel). In 1998, Mortgage Investment Corporation (MIC) filed for judicial foreclosure on a deed of trust encumbering the Pine Martin parcel and the Piney Lumber parcel. Defendants included Pine Martin Mining Company (PMMC) and Piney Lumber Company (PLC). PMMC claimed ownership of the Pine Martin parcel and PLC claimed ownership of the Piney Lumber parcel. This essentially converted the foreclosure case to a quiet title action.

In 2000, PMMC and PLC moved for partial summary judgment and MIC filed a cross-motion for partial summary judgment. In 2004, the motions still pending, MIC assigned its interest in the matter to Ginn Battle Lender, LLC (Ginn). PMMC and PLC purported to transfer their interests in the parcels to respondent Sensible Housing Company (Sensible) by quitclaim deeds that Sensible recorded in the Eagle County Clerk and Recorder’s Office. Two of the deeds, one recorded in 2006 and one in 2008, were from PMMC to Sensible and concerned the Pine Martin parcel. These deeds are at issue in this case.

Pursuant to an approved stipulation for how to proceed to resolve the quiet title case, Sensible filed as an exhibit a purported 1915 Stock Certificate certifying that 1,251,000 shares of the capital stock of PMMC had been issued to Bouvier. Sensible’s principal, Tucker, claimed he had obtained those shares from Bouvier’s heir in 1996. On that authority, Tucker created and recorded the 2006 and 2008 quitclaim deeds.

In 2009, the district court granted Ginn’s cross-motion for summary judgment and denied Sensible’s motion. It found the 1915 Stock Certificate and related documents were incredible as a matter of law and therefore Sensible had no interest in either parcel. Sensible appealed, and a division of the Court affirmed summary judgment as to the Piney Lumber parcel but reversed as to the Pine Martin parcel, finding the 1915 Stock Certificate not “so incredible that no reasonable jury could believe it.”

In April 2012, Battle North, LLC (Battle North) filed a petition for an order to show cause pursuant to CRS § 38-35-204 and CRCP 105.1, alleging the 1915 Stock Certificate was a spurious document and requesting an order directing Sensible to show cause why it should not be declared invalid. Battle North amended the petition to request that the two quitclaim deeds also be declared invalid as spurious documents. Following a hearing, the district court made extensive findings, including that the 1915 Stock Certificate was created by Tucker and was a sham, and that both it and the two quitclaim deeds were spurious documents; the court therefore “released” the three documents. The court also awarded Battle Mountain attorney fees and costs pursuant to CRS § 38-35-204(2).

On appeal, Sensible argued that the priority rule required the district court to stay this case pending resolution of the quiet title action. The Court disagreed, holding that CRCP 105.1 allowed Battle North to bring this petition in a separate action and that staying the case would not further the policies behind the priority rule.

Sensible then argued that allowing Battle North to litigate this action contravened the mandate of the Court in an earlier appeal of the quiet title action where it remanded for further proceedings as to the Pine Martin parcel. The Court found nothing in that order precluding Battle North form proceeding as permitted by CRS § 38-35-204 and CRCP 105.1.

Sensible contended that its use of the 1915 Stock Certificate as an exhibit in the quiet title action did not entitle Battle North to relief under CRS § 38-35-204; filing a document as an exhibit in a civil case does not qualify as recording or filing a document within the meaning of the statute. The Court agreed. It held that “recorded or filed” as used in CRS § 38-35-204(1) is limited by its having to affect a person’s real or personal property. The filing of an exhibit in a civil case does not affect a person’s real property. Moreover, there would be no way to “release” such a document (the remedy in the statute). Thus, although the Court did not disturb the finding that the 1915 Stock Certificate was a sham, it was error to rule it was a spurious document under the statute, and that part of the order was reversed.

Sensible argued that the quitclaim deeds were not spurious because a quitclaim deed can convey only the title or interest that the grantor had, and the district court determined that the newly created PMMC had no title or interest to convey. Therefore, Battle North’s property could not have been affected by the recording of the quitclaim deeds. The Court found this argument to be without merit. Sensible argued that unless a document was a valid lien or encumbrance against real property, it cannot be a spurious document, because it cannot affect real property. However, in that case, the document would not be spurious.

Sensible argued that Battle North is not a “person whose real . . . property is affected by” the 1915 Stock Certificate and quitclaim deeds because it does not own the Pine Martin parcel. This argument was based on deficiencies in the treasurer’s deeds by which Battle North claimed title. The Court rejected those arguments on multiple grounds.

The Court also awarded Battle Mountain reasonable appellate attorney fees for defending the judgment as to the quitclaim deeds. The case was remanded to the district court for a determination of that amount.

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

Tenth Circuit: Fish & Wildlife Service Appropriately Evaluated Environmental Impact of Rocky Flats Transportation Improvement

The Tenth Circuit Court of Appeals issued its opinion in WildEarth Guardians v. United States Fish & Wildlife Service on Friday, April 17, 2015.

WildEarth Guardians, Rocky Mountain Wild, and the Town of Superior (Appellants) challenged the authority of the U.S. Fish & Wildlife Service (FWS) to construct a parkway through the former Rocky Flats nuclear facility. Rocky Flats was formerly used to manufacture nuclear weapons, and since 1989 the Department of Energy (DOE) has been tasked with a cleanup effort to remediate the land. Under the Rocky Flats Act, Congress designated authority to the DOE to manage the central area of the Flats, which was contaminated by plutonium and other hazardous materials, and transferred the remainder of the land to the FWS to become a National Wildlife Refuge. The Rocky Flats Act further provided the DOE would transfer the remainder of the land to the FWS as soon as the cleanup was complete, and set aside a large parcel of land at the Flats’ border to be used for transportation improvements (specifically, the parkway).

The DOE transferred the remaining land to the FWS in 2007, and the FWS began considering applications for the transportation project jointly with the DOE. Prior to final approval of the land exchange and construction project, the FWS issued two opinions regarding the potential consequences to the Preble’s Meadow Jumping Mouse, a threatened species with a critical habitat in the corridor. The FWS also issued an environmental assessment pursuant to its duties under the National Environmental Policy Act (NEPA). Appellants sued in district court, arguing the FWS violated the Rocky Flats Act, the NEPA, and the Endangered Species Act. The district court rejected all three claims, and Appellants timely appealed.

The Tenth Circuit considered the appeal under the Administrative Procedures Act, evaluating only whether the FWS’s actions were arbitrary and capricious. The Tenth Circuit first addressed Appellants’ argument that the FWS lacked authority to convey the land under the Rocky Flats Act. Applying the Chevron test, the Tenth Circuit found that Congress did not directly discuss whether the FWS could convey the corridor, but by effectuating the intent of Congress and taking the statutory language in context, the Tenth Circuit determined that it was reasonable to assume Congress intended the FWS to convey the corridor for transportation purposes if it had not already been conveyed by DOE. The FWS further asserted it had authority to convey the land under the Refuge Act and Fish and Wildlife Act, and the Tenth Circuit agreed. The Tenth Circuit rejected Appellants’ argument that a catch-all clause in the Rocky Flats Act was meant only to refer to the transportation conveyance, finding that the conveyance was discussed in detail in other parts of the Act, and “Congress knew how to write ‘transportation improvements'” but did not do so in the catch-all clause.

The Tenth Circuit turned next to Appellants’ arguments that the FWS violated NEPA, specifically with respect to contaminated soils, air pollution, and the protected mouse. Appellants argued the FWS erred by issuing an environmental assessment and finding of no significant impact instead of the more formal and detailed Environmental Impact Statement (EIS). Addressing the soil contaminants, particularly plutonium, the FWS relied on a 2006 EPA certification that the soil conditions were acceptable for unlimited use and unlimited exposure. Although Appellants argued the construction workers would be at greater risk for plutonium exposure, the FWS asserted that a 2011 letter from the EPA sufficiently addressed the risk faced by construction workers. The Tenth Circuit found no impropriety in the FWS’s reliance on the certification and letter and found no NEPA violation regarding the contaminated soils. The Tenth Circuit similarly dismissed Appellants’ contention of a NEPA violation regarding air pollution. Appellants argued the FWS failed to consider 2008 air quality standards when contemplating the transportation improvement. However, the FWS’s action occurred in 2006, and the Tenth Circuit found it unreasonable to expect the FWS to comply with an act that was not yet in existence. Finally, as to the protected mouse, the Tenth Circuit found support for the FWS action because the FWS considered the mouse habitat and found it would not be significantly affected by the transportation improvement. The Tenth Circuit noted the FWS appropriately issued an incidental take statement regarding the mouse.

The Tenth Circuit affirmed the district court’s rejection of Appellants’ claims. Appellants had requested leave to file a supplemental appendix, which the Tenth Circuit denied, and it also denied the FWS’s request to file supplemental rebuttal appendix documents as moot.

Tenth Circuit: Bare Legal Title Is Not An Interest that Can Be Avoided in Bankruptcy

The Tenth Circuit Court of Appeals issued its opinion in In re Nguyen: Davis v. Pham on Monday, April 13, 2015.

In September 2007, Hoa Thi Pham purchased property in joint tenancy with her now common law husband, Noel Esplund, so that Pham had a two-thirds interest in the property and Esplund had a one-third interest. Pham then conveyed her interest to the couple’s children, Tung Nguyen and Lisa Dang (now Lisa Stirrat), as joint tenants with rights of survivorship. In May 2008, Nguyen transferred his interest to Esplund and Dang via quit claim deed for no compensation. In May 2009, Nguyen and his wife filed for Chapter 7 bankruptcy protection. The bankruptcy trustee, Carl Davis, filed a complaint in Bankruptcy Court, seeking to avoid the transfer from Nguyen under 11 U.S.C. § 548(a)(1)(B), alleging that Nguyen transferred his interest in the property less than two years before filing from bankruptcy, was insolvent at the time of the transfer, and received inadequate consideration for the transfer.

The Bankruptcy Court concluded Nguyen possessed only bare legal title to the property and his mother possessed equitable ownership of his one-third share, finding the transfer created a resulting trust under a Kansas statute that allows a trust to form when a payor provides consideration for a piece of property and then enters into an agreement with another “without fraudulent intent” to hold the property in trust. The Bankruptcy Court based its decision on the circumstances of the agreement, to which Pham and Nguyen testified at the evidentiary hearing, and concluded that bare legal title, when transferred for no consideration, is not an “interest in property” that may be avoided. The trustee appealed to the BAP, which affirmed the Bankruptcy Court’s decision.

The Tenth Circuit first noted that the parties do not dispute the correctness of the Bankruptcy Court’s determination that if Nguyen possessed solely “bare legal title” to the property, § 548(a)(1)(B) could not be used to avoid the transfer. The Tenth Circuit further found no dispute as to the Bankruptcy Court’s factual finding regarding the intent of the parties in the transfer. Therefore, the issue on appeal was whether such transfers are contrary to Kansas law.

Davis argued that a resulting trust is incompatible with a joint tenancy under Kansas law and Tenth Circuit precedent. The Tenth Circuit first found that the precedent on which Davis relied had been impliedly overruled by the Kansas Supreme Court. Analysis of the Kansas case law revealed that Kansas law does allow resulting trusts in joint tenancy situations. Because Davis did not challenge the Bankruptcy Court’s factual finding that Pham and Nguyen intended to create a resulting trust, or its conclusion that bare legal title is not an interest that can be avoided under § 548(a)(1)(B), the Tenth Circuit affirmed the findings of the Bankruptcy Court.

Colorado Court of Appeals: Retroactive Tax Assessment Based on Underreporting of Value Affirmed

The Colorado Court of Appeals issued its opinion in Kinder Morgan CO2 Company, L.P. v. Montezuma County Board of Commissioners on Thursday, June 4, 2015.

Property Tax Assessment—Oil and Gas—Retroactive Application—Transportation Deduction.

In April 2008, Kinder Morgan CO2 Company submitted six operator statements, one for each tax district, detailing its production in Montezuma County for 2007. The operator statements for 2007 showed a decrease in valuation of carbon dioxide from the previous tax year. A Montezuma County assessor audited the statements and determined that Kinder Morgan had underreported the selling price of oil and gas produced, because it had applied the incorrect method of calculating the transportation deduction. The audit resulted in an increased assessment. Kinder Morgan thereafter appealed the order issued by the Board of Assessment Appeals (BAA) upholding the Montezuma County assessor’s collection of additional oil and gas leasehold taxes for the 2007 tax year.

On appeal, Kinder Morgan contended that the BAA erred in concluding that the Assessor’s retroactive increase in value was authorized under the property tax code. HB 90-1018 amended CRS § 39-10-107(1) to permit retroactive assessment of property taxes on the value of oil and gas leaseholds omitted due to underreporting of the selling price of oil and gas or the quantity sold therefrom. Therefore, the BAA’s ruling was affirmed as to the retroactive assessment.

Kinder Morgan also contended that the BAA erred in determining that Kinder Morgan and the Cortez Pipeline Company were related parties for purposes of calculating the transportation deduction. There was sufficient evidence in the record that Kinder Morgan and Cortez Pipeline were partners and a majority of Cortez Pipeline’s income was earned from the owners of the Cortez Pipeline, one of which was Kinder Morgan. Accordingly, the BAA’s ruling regarding the transportation deduction was affirmed.

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.

Colorado Court of Appeals: Property Owner Can Incorporate HOA Without Consent of Other Owners

The Colorado Court of Appeals issued its opinion in DeJean v. Grosz on Thursday, June 4, 2015.

Condominium—Declaration—Homeowners’ Association—Preliminary Injunction.

The DeJeans and Grosz each owned one unit in a two-unit condominium in Aspen. Before either the DeJeans or Grosz had purchased their units, Schiff, the original owner, had filed and recorded a declaration (Declaration) stating that the covenant runs with the land and that the condominium project called for the existence of a unit owners’ association (Association) to manage the common areas. In March 2013, Grosz incorporated the Association. When the DeJeans learned that the Association had been incorporated, they demanded that Grosz terminate it. The DeJeans thereafter brought this lawsuit. In issuing a preliminary injunction against Grosz, the trial court found that because no Association existed when the DeJeans purchased their unit, the DeJeans have a reasonable probability of success in contesting how the Association was created.

On appeal, Grosz argued that the trial court erred in granting the preliminary injunction because the DeJeans failed to demonstrate that they had a reasonable probability of success on the merits. Where the condominium declaration contemplates a homeowners’ association, and especially where the covenant runs with the land, a property owner can incorporate a homeowners’ association without further consent from the other unit owners. Therefore, the DeJeans had notice of the Association and consented to membership in it when they purchased their unit, regardless of when the Association was incorporated. Accordingly, the DeJeans did not have a reasonable probability of success on the merits of their claims, and the preliminary injunction was vacated.

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