April 19, 2015

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (3)

Editor’s note: This is Part 18 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.

By Frederick B. Skillernfrederick-b-skillern

First Citizens Bank & Trust Co. v. Stewart Title Guaranty Co.
Colorado Court of Appeals, January 2, 2014
2014 COA 1

Title Insurance; Exclusion 3(a) matters “created, suffered, assumed or agreed to by the insured claimant”; closing handled by insured lender; ambiguous; no need to “foreclose first” if deed of trust defective; subrogation to rights of insured lender to sue on note; attorney fees and the American Rule.

Bank commits to make a loan, and gets a commitment for a loan policy of title insurance. The commitment reflects that title is not in borrower, and contains a requirement that a deed be recorded vesting title in borrower before issuance of a new policy. Bank closes the loan in house and does not get a vesting deed. According to the trial court’s findings, the bank assumed the title company issuing the commitment (but not handling the closing) would get and record the deed. The title company assumed the bank would do that. It is not apparent from the decision whether title was searched prior to closing or issuance of a policy.

The borrower defaults on the loan, and files a title claim in the amount of the debt. A separate action is filed by the bank against the borrower, which had not gone to judgment by the time of trial in this action. The trial court enters judgment against the title insurer for the full amount of the balance due on the loan, together with attorney fees incurred by the lender in bringing the action. On appeal, the court affirms the judgment for the full amount of the debt but reverses the award of attorney fees.

The court follows the holding in Sims v. Sperry, 835 P.2d 565 (Colo. App. 1992), that Exclusion 3(a), which excludes coverage for matters “created, suffered, assumed or agreed to” is ambiguous, and that the title insurer must prove that the lender “made a conscious and deliberate act intended to bring about the conflicting claim” in order to successfully resort to this exclusion from coverage. Id. at 570. Like many legal rules stated by courts, this rule itself may overstate the meaning of the court’s ruling in Sims, since if a title company relies on the “agreed to” portion of 3(a), which would seem to mean that the encumbrance, if you will, was “intended.” In any event, the court here held that each party thought the other would satisfy the “requirement,” and the court held that the lender was only negligent in not complying with the requirement. The trial court’s refusal to apply this defense was supported by the record, and the judgment is upheld on liability.

As to damages, the court held that the insurance company could be held liable for the full amount of the indebtedness owed to the insured, as the deed of trust is invalid. The court held that the trial court correctly did not require the lender to attempt foreclosure of the deed of trust under Policy Condition and Limitation 8(b), holding that the limitation does not apply where “it is conceded that the insured’s title is defective. It did not require that this action be stayed pending the outcome of the banks suit on the note – any recovery would reduce the damage claim of the insured lender – because upon payment of judgment in this action, the insurer would be subrogated to the bank’s right to proceed against its borrower.

Perhaps the most significant ruling in this case is the court’s reversal of the insured bank’s claim for its attorney fees incurred in suing the title insurer. It explicitly disapproves of the holding in an earlier case, Hedgecock v. Stewart Title Guaranty Company, 676 P.2d 1208, 1210-11 (Colo. App. 1983), relying to a large extent on the holding of our supreme court in Allstate v. Huizar, 52 P.3d 816, 820-21 (Colo. 2002) (the creation of a new exception to the American Rule is best left to the legislature). In the absence of a contractual or other statutory provision for recovery of attorney fees, no recovery.

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.

Special District Transparency, Home Services Contracts, Recorking Wine, and More Bills Signed

On Wednesday, April 8, 2015, Governor Hickenlooper signed 11 bills into law. To date, he has signed 113 bills this legislative session. The bills signed Wednesday are summarized here.

  • HB 15-1046 – Concerning Authorization for the Executive Director of the Department of Transportation to Waive Department Project Cost Estimate-Based Statutory Contract Amount Limits When Awarding a Highway Project Contract, by Rep. Dominick Moreno and Sen. Ray Scott. The bill allows the executive director of the DOT to contract for highway projects when there are fewer than three bids even if the bids are above the CDOT cost estimate.
  • HB 15-1067 – Concerning the Establishment of a Continuing Professional Development Program for Licensed Psychologists, by Reps. Tracy Kraft-Tharp & Lois Landgraf and Sen. Linda Newell. The bill requires licensed psychologists to complete at least 40 hours of continuing education for each two-year compliance period.
  • HB 15-1074 – Concerning the Liability of an Individual Member of a Board of County Commissioners in a Legal Proceeding in which the Board is Found Liable, by Rep. Ed Vigil and Sen. Larry Crowder. The bill protects board members from having judgments against the board enforced individually.
  • HB 15-1092 – Concerning the Transparency of Title 32, Colorado Revised Statutes, Special Districts, by Rep. Steve Lebsock and Sens. Beth Martinez Humenik & John Kefalas. The bill makes several changes to the law regarding special districts in order to increase transparency.
  • HB 15-1145 – Concerning the Regulation of Radioactive Materials, and, in Connection Therewith, Implementing an Audit Report Issued by the Federal Nuclear Regulatory Commission, by Rep. Bob Rankin and Sen. Mary Hodge. The bill modifies Colorado’s radiation control statutes as required by the federal Nuclear Regulatory Commission.
  • HB 15-1164 – Concerning the Postponement of Jury Service for a Person who is Breast-Feeding a Child, by Rep. Brittany Petterson and Sen. Andy Kerr. The bill allows a person who is breastfeeding a child to postpone jury service for up to two 12-month periods.
  • HB 15-1184 – Concerning the Operation of Charter School Networks, by Rep. Susan Lontine and Sen. Owen Hill. The bill allows charter schools to work with other charters in a charter school network and establishes guidelines for charter school networks.
  • HB 15-1202 – Concerning the Ability of a Licensing Authority to Reissue Expired Alcohol Beverage Licenses, by Rep. Jonathan Singer and Sen. Laura Woods. The bill allows a licensing authority to reissue liquor licenses that have been expired more than 90 days but less than 180 days if the licensee pays extra fines.
  • HB 15-1213 – Concerning Clarifications in Connection with the Responsibilities of the Office of Information Technology, by Reps. Jack Tate & Max Tyler and Sens. Beth Martinez Humenik & Tim Neville. The bill makes changes related to the Office of Information Technology, specifically defining “enterprise agreement” and allowing procurement of enterprise facilities.
  • HB 15-1223 – Concerning the Extension of Current Standards Regarding Home Services Contracts to New Homes, by Rep. Angela Williams and Sens. David Balmer & Cheri Jahn. The bill extends the regulation of home warranty service products for preowned homes to include new homes.
  • HB 15-1244 – Concerning the Ability of Members of a Club Licensed Under the “Colorado Liquor Code” to Remove from the Club a Resealed Container of Partially Consumed Vinous Liquor Purchased at the Club, by Reps. Jonathan Singer & Dan Nordberg and Sens. Cheri Jahn & Kevin Lundberg. The bill adds clubs to the list of liquor licensees who are allowed to recork wine bottles and send them with the customer.

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

Bills Regarding Vesting of Real Estate Title, Audit of Health Exchange, and More Signed

On Friday, April 3, 2015, Governor Hickenlooper signed 13 bills into law. To date, the governor has signed 102 bills this legislative session. The bills signed Friday are summarized here.

  • SB 15-002 – Concerning an Extension of the Date by which the Executive Director of the Department of Public Safety Must Submit to the Joint Budget Committee a Report Regarding Statewide Radio Communications, by Sen. Ellen Roberts and Rep. J. Paul Brown. The bill extends the time in which the Department of Public Safety must report to the Joint Budget Committee regarding statewide radio communications.
  • SB 15-013 – Concerning Extending the Deadline for Peace Officers to Complete Dog Encounter Training to June 30, 2015, by Sen. David Balmer and Reps. Lois Court & Don Coram. The bill postpones the deadline for mandatory peace officer dog training to June 30, 2015.
  • SB 15-019 – Concerning the Authority of the State Auditor to Conduct a Performance Audit of the Colorado Health Benefit Exchange, by Sens. Jerry Sonnenberg & Cheri Jahn and Rep. Dan Nordberg. The bill gives the Office of the State Auditor authority to conduct a full performance evaluation of the Colorado health benefits exchange.
  • SB 15-043 – Concerning Clarifying Changes to the Prosecution Fellowship Program, by Sen. Rollie Heath and Rep. Dan Pabon. The bill clarifies that fellows in the prosecution fellowship program are contract employees.
  • SB 15-047 – Concerning Notification to Legislators About the Adoption of Executive Branch Agency Rules that Implement Newly Enacted Legislation, by Sen. Pat Steadman and Rep. Beth McCann. The bill allows members of the General Assembly to opt out of notifications from the Office of Legislative Legal Services when bills they have sponsored advance.
  • SB 15-049 – Concerning the Vesting of Title to Real Estate in a Grantee that is an Entity that has Not Yet Been Formed Once the Entity Has Been Formed, by Sen. Beth Martinez Humenik and Rep. Jon Keyser. The bill allows title to real estate to vest in an entity once the entity has been formed, prior to incorporation.
  • SB 15-051 – Concerning Legal Recourse for a Student Who is Sanctioned or Found Ineligible to Participate in an Extracurricular Activity, by Sen. Nancy Todd and Rep. Kevin Priola. The bill changes procedures for appeals by students who are sanctioned or found ineligible to participate in extracurricular activities.
  • SB 15-053 – Concerning the Ability to Furnish a Supply of Emergency Drugs for Purposes of Treating Individuals Who May Experience an Opiate-Related Drug Overdose Event, by Sen. Irene Aguilar and Reps. Beth McCann & Susan Lontine. The bill allows licensed opiate prescribers and dispensers to dispense overdose prevention drugs to relatives or others who will in good faith help the opiate addict.
  • SB 15-071 – Concerning the Ability of a Pharmacist to Substitute an Interchangeable Biological Product for a Prescribed Biological Product when Certain Conditions are Satisfied, by Sens. Cheri Jahn & Owen Hill and Reps. Beth McCann & Lois Landgraf. The bill permits pharmacists to substitute similarly equivalent and interchangeable biological products.
  • SB 15-103 – Concerning Continuation of the Compliance Advisory Panel, and, in Connection Therewith, Implementing the Recommendations of the Department of Regulatory Agencies as Contained in the 2014 Sunset Report, by Sen. Kevin Lundberg and Rep. KC Becker. The bill continues the Compliance Advisory Panel until September 1, 2026, and implements the panel’s recommendations.
  • SB 15-111 – Concerning the Continuous Appropriation to the Department of Education of Moneys in the Educator Licensure Cash Fund, by Sen. Kent Lambert and Rep. Millie Hamner. The bill grants the Department of Education continuous appropriation of funds in the Educator Licensure Cash Fund, rather than making the appropriation annually.
  • SB 15-116 – Concerning Needle-Stick Prevention, by Sen. Pat Steadman and Rep. Alec Garnett. The bill creates an exception for arrests for drug possession or drug paraphernalia possession when a person voluntarily relinquishes hypodermic needles with drug residue.
  • SB 15-161 – Concerning a Supplemental Appropriation to the Department of Revenue, by Sen. Kent Lambert and Rep. Millie Hamner. The bill makes a supplemental appropriation to the Department of Revenue.

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

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (2)

Editor’s note: This is Part 17 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

Egelhoff v. Taylor
Colorado Court of Appeals, August 15, 2013
2013 COA 137,
312 P.3d 270

Spurious lien statute; phony lien against judge.

Lest anyone be confused about why the legislature passed the spurious lien statute in 1998, we give you the case of Denver District Judge Egelhoff. In 2008, the judge sentenced Taylor to prison on a felony conviction. After he was sentenced, Taylor began mailing the judge various documents, claiming that Judge Egelhoff was indebted to him. The judge understandably did not respond. Taylor filed suit, claiming that the judge’s failure to respond created liability to Taylor under a terrific doctrine called the “commercial affidavit process.” Robin Hood could not have done better.

Taylor contends that the “commercial affidavit process” permits an individual to send an affidavit to a purported debtor, claiming the recipient owes the sender a debt, and if the recipient does not specifically rebut the alleged debt, he is deemed to have agreed to the debt and its collection by any means. At our social gathering tonight, perhaps someone can advise us from whence this legal doctrine derives. According to Taylor, a recipient’s silence results in a “self-executing contract,” binding the recipient to pay the amount of the alleged debt. Thus, Taylor argues that, because the judge did not respond to his affidavit, his honor “agreed” that the five hundred million dollar debt was valid.

The panel of the court of appeals, seemingly lacking any sense of humor, goes on for several pages as to why this procedure does not form a contract between judge and convict. An opportunity was missed. It is interesting that this case was selected for publication, when many other real estate cases of considerable substance are passed over.

Ute Mesa Lot 1, LLC v. First-Citizens Bank & Trust Co. (In re Ute Mesa Lot 1, LLC)
United States District Court, District of Colorado, November 25, 2013
No. 12-1134

Bankruptcy; lis pendens; preferential transfer.

Ute Mesa Lot 1, LLC (Ute Mesa) borrowed $12 million from United Western Bank to finance the construction of a home in Aspen. The deed of trust incorrectly named the property’s owner, so the deed of trust was ineffective in giving the Bank a lien on the property. Later, the Bank filed suit to reform the deed of trust and give it a first priority lien on the property. The Bank then recorded a notice of lis pendens with the county real property records. Two months later, Ute Mesa filed for bankruptcy and sought to avoid the lis pendens as a preferential transfer. The bankruptcy court and district court dismissed Ute Mesa’s claim. Ute Mesa appealed, arguing that the lis pendens would prevent a bona fide purchaser from acquiring an interest in the property superior to the Bank’s. Therefore, it was a “transfer of an interest in property” and an avoidable preferential transfer.

The Tenth Circuit holds that a lis pendens is merely a notice and does not constitute a lien, despite the fact that under Colorado law, a lis pendens renders title unmarketable. The lis pendens is not a transfer, so it was not subject to the bankruptcy provision allowing a debtor-in-possession to avoid a transfer of an interest in property that occurs within ninety days before the filing of the bankruptcy petition. The judgment is affirmed.

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: Declaratory Judgment Appropriate and Statutory Definition of Firearm Encompasses Bow Hunting

The Colorado Court of Appeals issued its opinion in Moss v. Board of County Commissioners for Boulder County on Thursday, March 26, 2015.

Declaratory Judgment—Firearm—Definition—County Board—Geographic Area.

This case concerns a county resolution that prohibits firearm discharges in a designated area of Sugar Loaf Mountain in unincorporated Boulder County. Moss and Westby live and own property in this area. Colorado Advocates for Public Safety is a nonprofit corporation whose mission is to assist in protecting the public from safety hazards, such as those involving firearms. This dispute between plaintiffs and the Board of County Commissioners for Boulder County (County Board) centers around the definition and scope of this resolution.

On appeal, plaintiffs contended that the district court erred in dismissing their declaratory judgment claim, wherein plaintiffs sought a judicial determination that, as a matter of law, the word “firearm” in CRS §§ 30-15-301 to -302 and Resolution 80-52 includes bows and arrows. Because a declaratory judgment would terminate the controversy or uncertainty regarding the scope of the resolution, plaintiffs’ declaratory judgment claim was properly raised in the district court and the district court erred in declining to address it.

The statute that authorizes counties to prohibit firearm discharges expressly defines “firearm” or “firearms” as “any pistol, revolver, rifle, or other weapon of any description from which any shot, projectile, or bullet may be discharged.” A bow is a weapon and an arrow is a projectile. Therefore, a bow and arrow constitute a “firearm” under this statute, and plaintiffs were entitled to a declaratory judgment in their favor on this issue.

Plaintiffs also requested an expansion of the geographic area covered by the resolution in their claim for injunctive relief. CRS § 30-15-302 does not subject the County Board to any procedural requirements to address plaintiffs’ request, and Colorado’s Administrative Procedure Act does not apply to the County Board. Additionally, plaintiffs concede that they have not asserted and cannot assert a claim under CRCP 106(a)(4) because there has been no final agency action in this case. Finally, plaintiffs have failed to state a constitutional due process claim on which relief can be granted. Therefore, the district court did not err in dismissing plaintiffs’ claim for injunctive relief on this issue.

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

e-Legislative Report: March 24, 2015

legislationCBA Legislative Policy Committee

For readers who are new to CBA legislative activity, the Legislative Policy Committee (LPC) is the CBA’s legislative policy-making arm during the legislative session. The LPC meets weekly during the legislative session to determine CBA positions on requests from the various sections and committees of the Bar Association.

The following bill was discussed as the only action item taken up at the meeting on Friday, March 20. Other bills of interest from that agenda are tracked and updated below.

HB 15-1272—Timely Filed Claims Not Barred By Laches
Sponsors: Rep. Daneya Esgar (D) & Sen. Chris Holbert (R)
The LPC voted to oppose this bill because Laches is an important equitable defense. Colorado has a long history with the Doctrine of Laches and this bill upsets that balance. We understand the specific nature of the concern addressed in the bill, but the approach to a solution was overbroad. Therefore we voted to oppose HB 1272.

SB 15-069—Repeal Job Protection Civil Rights Enforcement Act
Sponsors: Sen. Laura Woods (R) & Rep. Kevin Priola (R)
The Legislative Policy Committee voted to oppose this bill to maintain a consistent position with the CBA’s position on previous legislation (HB13-1136 which the CBA supported). SB 69 would have reversed the effect of that bill.

HB 15-1292—Resentence Juveniles Life Sentence No Parole
Sponsors: Rep. Daniel Kagan (D)
The LPC voted to support the Juvenile Law Section’s recommendation to support this bill. There was a great deal of discussion. The bill allows for Juveniles who were previously convicted to petition for resentencing. The bill takes into consideration many factors for both victims and offenders.

Bills that the LPC is monitoring, watching or working on can be found at this link on Priority Bill Track.

At the Capitol—Week of March 16

This past week was a slower week for Bar priority bills. A number of bills we are watching and working on have not been scheduled for hearings or debate. We are constantly watching to ensure we are represented and up to date on bills the LPC has taken action on, and expect that this section will be more full after the “Long bill” (the state budget) is passed over the next two weeks.

HB 15-1142—Public Trustee Conduct Electronic Foreclosure Sale
We successfully amended this bill per the Real Estate Sections requirements, working in conjunction with the Denver Public Trustee and Representative McCann.

SB 15-077—Parents Bill of Rights
This bill was Postponed Indefinitely by the House Committee on Public Health Care and Human Services.

New Bills of Interest

The pace of new bill introductions is now slowing down, but there are a few new bills introduced still introduced through the remainder of the session. We will highlight some of the bills we have identified for tracking or monitoring here:

SB 15-200—Private Student Loan Disclosure Requirements
Sponsors: Sen. Andrew Kerr (D) & Sen. Nancy Todd (D)

The bill prohibits a private educational lender, as defined in the bill, from offering gifts to a covered educational institution, as defined in the bill, including public and private institutions of higher education, in exchange for any advantage or consideration related to loan activities or from engaging in revenue sharing. Further, the bill prohibits persons employed at covered educational institutions from receiving anything of value from private educational lenders. The bill makes it unlawful for a private educational lender to impose a fee or penalty on a borrower for early repayment or prepayment of a private education loan and requires a lender to disclose any agreements made with a card issuer or creditor for purposes of marketing a credit card. The bill requires private educational lenders to disclose information to a potential borrower or borrower both at the time of application for a private education loan and at the time of consummation of the loan.

The required disclosures are described in the bill and include, among other disclosures, the interest rate for the loan and adjustments to the rate, potential finance charges and penalties, payment options, an estimate of the total amount for repayment at the interest rate, the possibility of qualifying for federal loans, the terms and conditions of the loan, and that the borrower may cancel the loan, without penalty, within three business days after the date on which the loan is consummated.

SB 15-210—Title Insurance Commission
Sponsors: Sen. Laura Woods (R) & Rep. Jennifer Arndt (D)

The bill creates the title insurance commission (commission). The bill establishes the powers, duties, and functions of the commission and provides for the appointment of the members of the commission. With the exception of rate regulation and licensing, which will continue to be done by the insurance commissioner, the commission participates in the regulation of the title insurance business in Colorado by concurring in rules of the insurance commissioner, proposing rules for approval by the insurance commissioner, and reviewing and concurring in disciplinary actions related to the regulation of the title insurance business. The commission is scheduled to sunset Sept. 1, 2025, subject to continuation after a sunset review as provided by law.

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (1)

Editor’s note: This is Part 16 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

Grosboll v. Grosboll (In re Estate of Grossboll)
Colorado Court of Appeals, October 24, 2013
2013 COA 141

Partnership property; statute of frauds.

Jo Ann Grosboll, decedents’ daughter, appeals the district court’s order finding that the sales proceeds of an apartment building are an asset of the parents’ estates rather than an asset of Grosboll Manor, L.L.L.P., a limited partnership formed by Jo Ann and her parents. Jo Ann’s brother, understandably, argues that the apartments are property of the estate. The key issue revolves around the fact that there is no deed of conveyance to the partnership.

As a matter of first impression, the court considers whether real property owned individually by one who enters into a partnership with others may become a partnership asset without a written conveyance sufficient to satisfy the statute of frauds. The court holds that a written conveyance (such as a deed) from a partner to the partnership is not necessarily required.

The court reviews the historical development of the entity theory of partnerships and the Uniform Partnership Act. The current version of the partnership act allows real property titled in an individual partner’s name to be deemed an asset of the partnership. The trust relationship between partners provides adequate protection against fraud in oral agreements making a partner’s real property a partnership asset. As a result, by statute, the intention of the partners determines whether such real property is a partnership asset. The existence of a written conveyance is a factor for a court to consider in evaluating that intent.

Jo Ann contended that, according to the terms of the written partnership agreement and the intention of the partners, Loma Vista was a partnership asset. The partnership agreement provided that (1) title to all assets of the partnership shall be deemed to be owned by the partnership”; (2) record title to any or all assets of the partnership may be held in the name of . . . one or more nominees”; and (3) all assets of the partnership shall be recorded as the property of the partnership in the books and records of the partnership, irrespective of the name in which record title to such assets is held.” Jo Ann testified that when the partnership was established, she and her parents had agreed to make Loma Vista a partnership asset. Additionally, the accountant for the partnership testified that he treated Loma Vista as a partnership asset on the partnership books. Therefore, Jo Ann asserted she was entitled to the sale proceeds because decedents’ wills devised their interests in the partnership to her.

The partnership act provides a rebuttable presumption that a partner’s property is separate if it is not acquired with partnership assets:

Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of partnership assets is presumed to be separate property, even if used for partnership purposes.

C.R.S. § 7-64-204(4).

Because the UPL and UPA specifically contemplate that real property titled in an individual partner’s name may be deemed an asset of the partnership, the appeals court holds here that a written conveyance from a partner who originally brings real estate into the partnership, although a factor to consider, is not required to convert real property into partnership property.

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.

Bills Regarding Trustee Notification, Recorded Documents, and More Signed

On Wednesday, March 18, 2015, Governor Hickenlooper signed nine bills into law. Governor Hickenlooper has now signed 58 bills this legislative session. The bills signed Wednesday are summarized here.

  • HB 15-1010 – Concerning a Presumption that a Trustee has Notified a Beneficiary when the Trustee has Adopted a Beneficiary Notification Procedure, and, in Connection Therewith, Clarifying that a Trustee May Deliver Information to Beneficiaries Electronically, by Reps. Tracy Kraft-Tharp & Dan Nordberg and Sen. Cheri Jahn. The bill creates a presumption that a beneficiary of a trust has received notifications about the status of a trust when the trustee has notification procedures in place, and also allows electronic notifications for beneficiaries who elect electronic notifications.
  • HB 15-1022 – Concerning Juveniles Charged with Certain Minor Offenses, by Rep. Beth McCann and Sens. Pat Steadman & John Cooke. The bill allows police officers to issue petty offense tickets to juveniles if certain conditions are met.
  • HB 15-1028 – Concerning Repeal of the Mercantile Licensing Standards, by Rep. Jon Keyser and Sen. Cheri Jahn. The bill repeals licensing requirements for merchants because the requirements are not enforced.
  • HB 15-1062 – Concerning Increasing the Penalties for Persons who Engage in Animal Fighting, by Reps. Jovan Melton & Steve Lebsock and Sens. David Balmer & Jerry Sonnenberg. The bill requires mandatory fines for convictions for animal fighting.
  • HB 15-1064 – Concerning Access to the Safe Deposit Box of a Decedent, and, in Connection Therewith, Limiting the Obligations of Custodians who Access the Box, by Rep. Dan Nordberg and Sen. Chris Holbert. The bill clarifies who has access to a decedent’s safe deposit box under the Colorado Probate Code and and clarifies that the custodian is not deemed to have knowledge about the contents of the box.
  • HB 15-1069 – Concerning Information Required to be Included in Recorded Written Instruments Filed with the County Clerk and Recorder to Claim a Homestead Exemption, by Rep. Su Ryden and Sen. Chris Holbert. The bill adds a requirement that a property owner’s name be included on a homestead exemption document.
  • HB 15-1071 – Concerning Clarification that, Following a Merger of Entities, the Surviving Entity is Entitled to Control the Premerger Attorney-Client Privileges of a Constituent Entity, by Rep. Jon Keyser and Sen. Owen Hill. The bill specifies that a corporation that merges with another entity inherits the attorney-client privilege from the other entity.
  • SB 15-057 – Concerning the Reporting Requirements of the Colorado Clean Claims Task Force, by Sen. David Balmer and Rep. Angela Williams. The bill changes the reporting requirements for the Colorado Medical Clean Claims Task Force so that the reports will go to the Commissioner of Insurance and the business committee of the General Assembly.
  • SB 15-142 – Concerning a Change in State Law to Make Requirements for Moneys Held in Escrow for the Payment of Ad Valorem Property Taxes the Same as the Requirements of the Federal “Real Estate Settlement Procedures Act of 1974″, by Sen. Ellen Roberts and Rep. Dan Pabon. The bill conforms state law to the requirements of the federal Real Estate Settlement Procedures Act, specifically repealing May 30 date for final settlement and changing the provision to reference RESPA.

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

Colorado Supreme Court: Airport Concessionaires’ Possessory Interests in Concession Spaces Taxable

The Colorado Supreme Court issued its opinion in Cantina Grill, JV v. City & County of Denver County Board of Equalization on Monday, March 16, 2015.

Taxable Possessory Interests—Significant Incidents of Private Ownership—Valuation of Taxable Possessory Interests in Tax-Exempt Properties.

The Supreme Court determined that the possessory interests in concession spaces held by several food and beverage concessionaires at Denver International Airport are taxable under Article X of the Colorado Constitution and Colorado’s property tax statutes because the concessionaires’ interests exhibit significant incidents of private ownership under the three-factor test established in Board of County Commissioners v. Vail Associates, Inc., 19 P.3d 1263 (Colo. 2001). Specifically, the Court held that: (1) the concessionaires’ interests are sufficiently exclusive to qualify as real property interests under the property tax statutes because the concessionaires have the right to exclude others from using their respective concession spaces; and (2) the concessionaires’ revenue-generating capability is sufficiently independent from the city that a tax on their possessory interests would not be effectively a tax on the government. The Court also held that the city’s valuation of the concessionaires’ interests is consistent with the valuation scheme set forth in CRS § 39-1-103(17), and is supported by the record. The judgment was affirmed.

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

Rule of 7, Wind Energy Development, Government Audit, and More Bills Signed by Governor

On Friday, March 13, 2015, Governor Hickenlooper signed 25 bills into law. To date, the governor has signed 49 bills into law during this 2015 legislative session. Some of the bills signed Friday are summarized here.

  • HB 15-1021 – Concerning Statutorily Established Time Periods that are Multiples of Seven Days, by Rep. Yeulin Willett and Sen. Michael Merrifield. The bill continues amending the Colorado Revised Statutes to conform statutorily prescribed time periods to the Rule of 7.
  • HB 15-1023 – Concerning the Age Limitation for Persons Served in a Day Treatment Center, by Rep. Susan Lontine and Sen. Irene Aguilar. The bill changes the age limits for people served by day treatment behavioral health programs to 3 to 21 (previously, the age limits were 5 to 18).
  • HB 15-1039 – Concerning the Donation of Prescription Medications by Licensed Health Care Facilities, by Rep. Max Tyler and Sen. Tim Neville. The bill allows licensed facilities to donate unused medications to other licensed facilities and removes the requirement that the expiration date be more than six months after the donation date.
  • HB 15-1121 – Concerning Agreements Between Landowners and Wind Energy Developers, and, in Connection Therewith, Clarifying the Rights and Duties of Parties to those Agreements and the Effects of Recording an Agreement in County Land Records, by Rep. Jon Becker and Sen. Jerry Sonnenberg. The bill requires wind energy agreements to be recorded in order to be binding on the parties, defines the wind energy developer of record, and imposes time limits for performing wind energy development.
  • SB 15-010 – Concerning Augmentation Requirements for Wells Withdrawing Water from the Dawson Aquifer, by Sen. Mary Hodge and Rep. Diane Mitsch Bush. The bill repeals a requirement that would have been effective July 1, 2015 requiring calculations based on actual depletions and instead continues the current practice of replacing out-of-priority depletions.
  • SB 15-024 – Concerning Updates to the Local Government Audit Law to Maintain Consistency with Audit Standards, by Sens. Jerry Sonnenberg & Cheri Jahn and Rep. Su Ryden. The bill increases the annual fiscal audit exemption amount from $500,000 to $750,000 and updates certain terminology.
  • SB 15-025, -026, -027, and -028 – Establish statutory requirements for statewide Fire and Police Pension Association Plans.
  • SB 15-082 – Concerning the Authority of Counties to Establish a County Workforce Development Program, by Sens. Vicki Marble & Mary Hodge and Reps. Dominick Moreno & Polly Lawrence. The bill allows counties to establish workforce programs to provide grants to high school graduates who pursue higher education.

Several bills were also signed regarding supplemental appropriations and transfers from the General Fund to various programs. For a complete list of legislation signed by Governor Hickenlooper on March 13, 2015, click here. For a list of all of Governor Hickenlooper’s 2015 legislative decisions, click here.

Colorado Court of Appeals: Lessee of Oil and Gas Interest Must Incur Post-Production Costs Where Lease is Silent

The Colorado Court of Appeals issued its opinion in Patterson v. BP America Production Co. on Thursday, March 12, 2015.

Class Action—Moratory Interest Request—CRS § 5-12-102(1)(a) and (b)—Fraudulent Concealment and Equitable Tolling—Jury Instructions.

In the early 1970s, named plaintiffs and approximately 4,000 royalty owners (collectively, Royalty Owners) entered into lease agreements with BP America Production Company (BP) to be paid royalties in exchange for natural gas extracted from their wells. The lease agreements provided that BP would pay Royalty Owners “1/8 of the proceeds of the market value of such gas at the mouth of the well; if said gas is sold by [BP], then as royalty 1/8 of the proceeds of the sale thereof at the mouth of the well.” Post-production costs were not expressly authorized as being deductible from royalty payments.

In the 1980s, BP changed how it calculated royalties and started employing a netback methodology whereby BP deducted a proportionate share of the post-production costs. The royalty statements did not disclose these deductions.

In 2003, Royalty Owners sued BP for breach of contract, alleging underpayment of royalties between January 1, 1986 and December 1, 1997. A jury found that BP breached the lease agreements by underpaying royalties and that BP fraudulently concealed the underpayments, thereby tolling the applicable statute of limitations. The jury awarded Royalty Owners $7,941,809.23 in damages. The district court amended the judgment to add $32,273,817 in statutory prejudgment interest, pursuant to CRS § 5-12-102(1)(b).

Royalty Owners appealed the district court’s pretrial grant of BP’s CRCP 56(h) motion and its denial of moratory interest. CRS § 5-12-102(1)(a) codifies the common law concept of moratory interest. Moratory interest is intended to be compensatory, not punitive. To obtain moratory interest, a plaintiff must demonstrate the defendant’s gain or benefit realized on the withheld money by a preponderance of the evidence. The Court of Appeals found no evidence or discernible means to calculate any such gain or benefit by BP on the underpaid royalty money. Therefore, the district court’s grant of the motion denying moratoryinterest was affirmed.

On cross-appeal, BP contended that the district court erred by denying its motions for a directed verdict and judgment notwithstanding the verdict because (1) Royalty Owners could not prove their fraudulent concealment and equitable tolling claims for all class members; and (2) the evidence demonstrated that Royalty Owners’ gas was undisputedly marketable at the well and thus the post-production deductions from royalties were proper. In reviewing the record and the evidence in the light most favorable to Royalty Owners, the Court concluded the evidence was sufficient to send the issue of fraudulent concealment to the jury and that reasonable jurors could find that Royalty Owners were ignorant of BP’s concealed royalty deductions, relied on the concealment, and were unable, using reasonable diligence, to discover the concealment.

Colorado law provides that where, as here, royalty agreements are silent on the allocation of post-production costs, the “implied covenant to market must be considered in determining the rights and obligations of the parties.” This covenant obligates BP, not Royalty Owners, to make the gas marketable, and BP must incur those costs. If, however, the gas is marketable at the wellhead, and post-production costs merely enhance the value of the gas, those costs may be shared. Marketability at the wellhead is a question of fact. The Court concluded that a reasonable person could determine that the wellhead was not the first market for gas extracted from the wells during the time period at issue.

BP also argued that it was error to decline to instruct the jury that “[i]f a person signs a contract without reading it, that person is barred from claiming he or she is not bound by what it says.” The Court disagreed, holding that this instruction would have only confused jurors, incorrectly informed them on the issues in the case, and improperly directed them as to the proper weight to give the contracts.

BP further argued it was error to deny its request to decertify the class. The Court found that the district court rigorously analyzed the evidence and did not abuse its discretion in concluding that the questions of law or fact common to the members of the class predominated over any questions affecting only individual members. The judgment was affirmed.

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

Frederick Skillern: Real Estate Case Law — Property Taxation and Assessments

Editor’s note: This is Part 15 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

Roaring Fork Club, LLC v. Pitkin County Board of Equalization
Colorado Court of Appeals, December 5, 2013
2013 COA 167

Valuation of a private golf club property.

The Pitkin County assessor determined the value of the Roaring Fork Club property for tax year 2011, and The Pitkin County Board of Equalization and the Board of Assessment Appeals agrees with the valuation. On appeal, the club asserts that the assessor should not have included the value of sold club memberships in the assessment of the club’s property. The Court of Appeals agrees and reverses.

The club’s property is open only to its members. Membership rights are retained for life unless sold or relinquished or revoked by the club. The club uses membership deposits to improve the property and maintain the improvements. The deposits are treated as a liability for accounting purposes because all or a part of them are refunded if members maintain their membership for at least thirty years or if they resign earlier and replacement members fill their spots.

The club’s amenities were completed in 1999 and the club had sold about 82% of the memberships by 2011. The club argues that the value of the sold memberships should not be considered in determining the actual value of the club’s property for property tax purposes because they are not interests in the real property. The BOE contends that the membership deposits are akin to prepaid rent on leasehold interests and they would escape taxation if not included in the property value.

On appeal, the club and the BOE agree that the income approach is the proper method to value the club’s property. However, the county argues that the memberships are an interest in land, like a leasehold, and should be included in the value under the “unit assessment rule.” The club contends that memberships are licenses, and are not an interest in land. The court agrees, and holds: (1) the membership agreement is not a lease; (2) memberships are not life estates; (3) the membership agreement does not give members any other taxable interest in the club’s property; (4) the membership agreement establishes that memberships are revocable licenses; (5) the unit assessment rule does not apply to these memberships; and (6) the sold memberships are not usufructuary interests. Accordingly, the Board’s order is reversed and the case is remanded to hold a hearing to determine the actual value of the club’s property without taking into account the value of the sold memberships.

 

Village at Treehouse, Inc. v. Property Tax Administrator
Colorado Court of Appeals, January 16, 2014
2014 COA 6.

Property tax; unit assessment rule.

Village paid more than $1 million to purchase certain development rights from the Treehouse Condominium Association (HOA). This supposedly gave Village the right to construct up to nineteen condominium units in the complex. The development rights were created by an amendment to the Treehouse declaration in 2006. The rights were assigned to Village in 2008 in a document entitled “Warranty and Assignment of Supplemental Development Rights”. The question is whether this property right is a taxable interest in real property. The Board of Assessment Appeals found that the right to build new condominium units constituted a taxable interest in real property for ad valorem tax purposes.

On appeal, the court of appeals affirms the BAA, and holds that the assignment, in effect, severed the development rights from the common elements owned by the HOA, creating a new taxable property interest. Because the Village acquired an interest in land, taxation of the development rights was required under C.R.S. § 39-1-102(16) and (14)(a).

Because the Assignment evinced the intent to sever title to the development rights from the common elements, taxing the development rights separately from the common elements did not contravene §§39-1-103(10) or 38-33.3-105. This taxation does not violate the unit assessment rule.

The Assignment created separate interests in real estate as between the interests of the individual unit owners in the common elements and those of the developer. The order was affirmed.

 

Premises Liability, Trespass and Nuisance

S.W. v. Towers Boat Club, Inc.
Colorado Supreme Court, December 23, 2013
2013 CO 72

Attractive nuisance; premises liability statute.

The Supreme Court considers whether, in the context of our premises liability statute, the attractive nuisance doctrine applies to both (a) trespassing children and (b) children who are licensees or invitees. The Court held that the doctrine permits all children, regardless of their classification, to bring a claim for attractive nuisance. C.R.S. § 13-21-115. The court therefore reverses the judgment of the court of appeals, which had found that the doctrine only protects trespassing children.

 

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.