May 25, 2015

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

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

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

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

Frederick Skillern: Real Estate Case Law — Zoning and Land Use Control (3)

Editor’s note: This is Part 22 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

Board of County Commissioners of Teller County v. City of Woodland Park
Colorado Supreme Court, May 20, 2014
2014 CO 35

Municipal Annexation Act of 1965; timely motion for reconsideration with the municipality as condition to judicial review; C.R.S. § 31-12-116.

The Supreme Court, in a direct appeal by Woodland Park under C.A.R. 21, holds that the district court lacked jurisdiction to review Teller County’s petition for judicial review of an annexation by the City of Woodland Park under C.R.S. § 31-12-116. Subsection (2)(a)(II) of the statue requires a party (such as a county in which the property is located) to file a motion for reconsideration with the governing body of the annexing municipality within ten days of the effective date of an annexation ordinance as a precondition for obtaining judicial review of a municipal annexation. The effective date of the ordinance can, and is here, different than the effective date of the annexation. The petition for reconsideration with the City should have been filed by September 16, 2013, but was not filed until September 20, 2013.

 

Town of Dillon v. Yacht Club Condominiums Home Owners Association
Colorado Supreme Court, May 27, 2014
2014 CO 37

Homeowners association; town parking ordinance; “tandem” parking in town right-of-way; police power; due process.

This is a declaratory judgment action brought by a condominium association near the Dillon Marina in Summit County. The small complex was built in the 1960’s, not long after the creation of the Dillon reservoir, and occupies the corner of an intersection of two residential streets (Tenderfoot and Gold). The reservoir lies to the rear. The condominium buildings consist of approximately 64 “available units,” but only 44 parking spaces. The discrepancy is apparently due to the creation of additional “lockoff” units through subdivision of original units over the years. Over the decades, parking became a problem, for neighbors, bicyclists, and the town. The project provides parking for its owners in paved spaces in front of the building, which is parallel to the adjacent streets. In recent years the occupants have adopted the practice of parking “two cars deep,” front to rear, at right angles to the building along both city streets. This created some stress, as cars parked in front of the building might be forced to back out through a “tunnel” of two cars on each side. Moreover, the second row of cars frequently (neighbors might say substantially) encroached on the town “right-of-way,” which is Town property.

The Town sought by ordinance to prohibit the stacked parking procedure, citing the danger and inconvenience to town residents and interference with the town’s new recreational path — a popular bicycle path connecting Dillon with Frisco and Keystone.

Noting that “only one” accident had been reported in the past 40 years, the district court ruled that the parking ordinance was unreasonable, and a violation of procedural due process. Along with this came an award for attorney fees against the Town under 42 U.S.C. § 1985. The court of appeals affirmed, in an unpublished decision, reasoning that the ordinances were not reasonably related to a legitimate governmental interest because they caused the condo owners significant economic harm and there were alternatives available which would have furthered the Town’s interests. The supreme court accepted the case for review, which is interesting for an unpublished, 3-0 decision. The court reverses the lower courts.

The Supreme Court, in a 7-0 decision by Justice Marquez, holds that the Town did not abuse its police power in enacting the two parking ordinances at issue here.

Can a municipality constitutionally exercise its police power to undertake a road improvement project that eliminates parking on the municipality’s street near a condominium? An ordinance comports with due process where it bears a reasonable relationship to a legitimate government interest. The two ordinances here were within the Town’s police power to regulate matters of public health, safety, and welfare, and were a reasonable exercise of that power because the measures are reasonably related to the Town’s objectives of improving traffic safety, improving water drainage, and remedying a missing portion of a recreational bike path.

Importantly, the Court holds that the inquiry turns on the reasonableness of the relationship between the ordinance and the government objectives to be achieved, and not on the burden on the complaining party or the availability of less burdensome alternatives. Accordingly, the Court reversed the court of appeals’ judgment, and remands the case to the court of appeals for further proceedings – the lower court had affirmed the district court’s ruling solely on the police power issue, without considering the district court’s alternative findings that the ordinances were unconstitutionally retrospective.

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.

Several Bills Signed Last Week by Governor Hickenlooper

On Monday through Thursday last week, Governor Hickenlooper signed several bills into law. To date, the governor has signed 219 bills into law. The bills signed last week are summarized here.

Monday, May 11, 2015

  • HB 15-1198 – Concerning Enactment of the 2008 Amendments to the “Uniform Interstate Family Support Act”, by Rep. Mike Foote and Sen. Pat Steadman. The bill updates the Uniform Interstate Family Support Act to comply with mandates of the Hague Convention.
  • HB 15-1212 – Concerning Making Permanent the State Board of Land Commissioners’ Authority to Sell State Trust Land to Local Governments, by Rep. KC Becker and Sens. Andy Kerr & Michael Merrifield. The bill makes permanent the State Land Board’s authority to convey land to a local government twice in a year.
  • HB 15-1214 – Concerning Opioid Analgesics with Abuse-Deterrent Properties, by Rep. Jonathan Singer and Sen. John Cooke. The bill requires the governor to direct the Colorado Consortium for Prescription Drug Abuse Prevention to study the use of abuse-deterrent opioid analgesic drugs.
  • HB 15-1280 – Concerning the Creation of a Capital Reserve in Certain Cash Funds, by Rep. Dave Young and Sen. Kevin Grantham. The bill requires state agencies to identify capital reserves to pay costs associated with capital assets.
  • HB 15-1308 – Concerning Certain Responsibilities of the Legislative Branch with Respect to the “State Measurement for Accountable, Responsive, and Transparent (SMART) Government Act”, by Reps. Dominick Moreno & Polly Lawrence and Sens. Kevin Lundberg & Rollie Heath. The bill amends provisions of the SMART Act concerning meetings between members of the General Assembly and executive directors of state agencies.
  • SB 15-100 – Concerning Implementation of Recommendations of the Committee on Legal Services in Connection with Legislative Review of Rules and Regulations of State Agencies, by Sen. Pat Steadman and Reps. Mike Foote & Beth McCann. The bill continues some agency rules and regulations and allows others to expire based on recommendations of the Committee on Legal Services.
  • SB 15-104 – Concerning the Continuation of the Colorado Division of Securities, and, in Connection Therewith, Implementing the Recommendations of the 2014 Sunset Report by the Department of Regulatory Agencies, by Sen. Chris Holbert and Rep. Pete Lee. The bill continues the Division of Securities and implements the recommendations of the sunset review.
  • SB 15-110 – Concerning the Continuation of the Regulation by the Director of the Division of Professions and Occupations of Funeral Establishments, and, in Connection Therewith, Implementing the Recommendations of the Department of Regulatory Agencies as Contained in the 2014 Sunset Report and Making an Appropriation, by Sen. Randy Baumgardner and Rep. Joann Ginal. The bill continues the registration of funeral homes and crematories and implements suggestions of the sunset review.
  • SB 15-211 – Concerning an Automatic Funding Mechanism for Payment of Future Costs Attributable to Certain of the State’s Capital Assets, by Sen. Kent Lambert and Rep. Bob Rankin. The bill creates a process to automatically set aside capital to finance depreciation of assets.
  • SB 15-250 – Concerning Capital-Related Transfers of Moneys, by Sen. Kent Lambert and Rep. Millie Hamner. The bill changes the source of some capital construction fund moneys and makes three transfers to the CCF.

Tuesday, May 12, 2015

  • SB 15-022 – Concerning the Wildfire Risk Reduction Grant Fund, by Sen. Ellen Roberts and Rep. J. Paul Brown. The bill transfers funds into the Wildfire Risk Reduction Grant Fund and changes terminology.
  • SB 15-205 – Concerning the Utilization of Veterans’ Fire Corps Programs by the Division of Fire Prevention and Control in the Department of Public Safety, by Sens. Ellen Roberts & Leroy Garcia and Reps. Jon Keyser & Millie Hamner. The bill recognizes the existence of veterans’ fire corps programs and authorizes the Department of Public Safety to use the Wildfire Preparedness Fund to train, equip, and supervise a veterans’ fire corps crew.
  • HB 15-1006 – Concerning the Establishment of a Grant Program for the Management of Invasive Phreatophytes, and, in Connection Therewith, Making an Appropriation, by Reps. Don Coram & Ed Vigil and Sen. Jerry Sonnenberg. The bill creates a two-year grant program for the management of invasive phreatophyte plants in riparian zones of the state.

Wednesday, May 13, 2015

  • HB 15-1173 – Concerning a Requirement that Motor Vehicles Have Certain Traction Equipment when Driving on the Interstate 70 Mountain Corridor, by Reps. Diane Mitsch Bush & Bob Rankin and Sen. Nancy Todd. The bill requires all drivers using I-70 between Morrison and Dotsero between November 1 and May 15 to use mountain snow tires or chains or have a four-wheel drive/all-wheel drive vehicle and imposes penalty for drivers who do not comply with this regulation.
  • HB 15-1225 – Concerning the Provision of State Assistance to Local Governments for the Purpose of Improved Coordination in Federal Land Management Decision-Making, and, in Connection Therewith, Making an Appropriation, by Reps. Bob Rankin & KC Becker and Sens. Ellen Roberts & Kerry Donovan. The bill requires certain executive branch officers and directors to provide support to local governments affected by federal land management.
  • HB 15-1271 – Concerning the Funding of Mobile Learning Labs Through the Colorado Existing Industry Training Program, by Reps. Susan Lontine & Millie Hamner and Sens. Vicki Marble & Kerry Donovan. The bill authorizes the Colorado Existing Industry Training Program to fund mobile learning labs, or stand-alone vehicles equipped with program-specific hands-on learning modules.
  • SB 15-138 – Concerning Funding for the Accelerating Students Through Concurrent Enrollment Program, by Sen. Kerry Donovan and Rep. Jim Wilson. The bill clarifies distribution of funding for ASCENT students.
  • SB 15-282 – Concerning the Establishment of a Rural Jump-Start Program in Highly Distressed Counties of the State for New Businesses that Bring New Jobs to the State, and, in Connection Therewith, Making an Appropriation, by Sens. Ray Scott & Michael Johnston and Reps. Crisanta Duran & Yeulin Willett. The bill provides tax benefits to new businesses that locate in a rural jump-start zone.

Thursday, May 14, 2015

  • HB 15-1217 – Concerning the Ability of a Local Licensing Authority to Provide Input to the State Licensing Authority on Applications for Approval to Operate a Sales Room Submitted by Certain Persons Licensed Under the “Colorado Liquor Code”, and, in Connection Therewith, Making an Appropriation, by Rep. Jonathan Singer and Sen. Chris Holbert. The bill allows local governments to provide input on sales room license requests.
  • HB 15-1232 – Concerning the Emergency Use of Epinephrine Auto-Injectors by Authorized Entities, and, in Connection Therewith, Making an Appropriation, by Reps. Joann Ginal & Lois Landgraf and Sens. Nancy Todd & Beth Martinez Humenik. The bill authorizes various facilities such as daycare centers, amusement parks, restaurants, and other locations where anaphylaxis could occur, to stock a supply of epinephrine auto-injectors via a valid prescription.
  • HB 15-1358 – Concerning Creating a Permanent Differential Response Program for Child Abuse or Neglect Cases of Low or Moderate Risk, by Rep.  Jonathan Singer and Sens. Kevin Lundberg & John Kefalas. The bill continues the Differential Response Pilot Program to divert low- and moderate-risk cases of abuse or neglect to voluntary services rather than adversarial court intervention.
  • SB 15-253 – Concerning the Funding of Colorado Water Conservation Board Projects, and, in Connection Therewith, Making an Appropriation, by Sen. Jerry Sonnenberg and Rep. Ed Vigil. The bill appropriates money from the CWCB Construction Fund for specific projects in FY 2015-16 and authorizes additional transfers.

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

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

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

Motion to Compel Arbitration—Construction Defect Action.

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

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

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

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

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

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

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

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

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

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

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

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

Frederick Skillern: Real Estate Case Law — Zoning and Land Use Control (2)

Editor’s note: This is Part 23 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

Marin Metropolitan District v. Landmark Towers Assn., Inc.
Colorado Court of Appeals, March 27, 2014
2014 COA 40

Special Metropolitan District—CRS § 32-1-305(7).

In 2007, a developer and five affiliated individuals (organizers) commenced proceedings under C.R.S. §§ 32-1-101, et seq., to form a special metropolitan district within the boundaries of Greenwood Village. The organizers filed a service plan with the municipality, and the city council approved it.

On September 5, 2007, a petition for organization was filed with the Arapahoe County District Court pursuant to C.R.S. § 32-1-301, and a hearing was set for October 4, 2007. Notice was published in the local newspaper and the clerk of the court issued a notice of the hearing. At the hearing, the district court entered an order directing an organizational election be held on November 6, 2007. The election was held, and on December 6, 2007, the district court entered findings and an order and decree creating the special district. The order included within the special district the Landmark Towers condominiums, which were under construction. Approximately 130 people were under contract to purchase, but no sales had been completed.

The Landmark homeowners association alleged it was not until several years after the Marin Metropolitan District (District) was formed that the owners discovered facts indicating that the District had been organized through alleged misrepresentations and a “fraud on the court.” In 2012, Landmark intervened in the annexation case and moved pursuant to C.R.C.P. 60(b)(2), (3), and (5) to set aside the December 2007 order for alleged fraud on the court, a lack of subject matter jurisdiction to approve the special district, and invalidity of the order due to lack of due process. The court held a three-day evidentiary hearing and issued an order on December 17, 2012, dismissing Landmark’s motion pursuant to C.R.S. § a32-1-305(7).

The court of appeals reviews the pertinent provisions of the statutory scheme for creating a special district. Landmark argues that regardless of subsection (7), a court has inherent power to vacate a void judgment, notwithstanding a statutory time bar; has jurisdiction to set aside a previously entered order based on fraud on the court; and has a duty to provide constitutional due process, providing jurisdiction to set aside an order that is void for lack of notice and an opportunity to be heard. The Court disagrees.

C.R.S. § 32-1-305(7) states that once an order establishing a special district is entered, it “shall be deemed final, and no appeal or other remedy shall lie therefrom.” There is only one exception, which allows for an action in the nature of quo warranto commenced by the attorney general within thirty days after entry of the organizational order. Finally, the subsection mandates that the organization of the district “shall not be directly or collaterally questioned in any suit, action, or proceeding except as expressly authorized in this subsection (7).” The jurisdictional issue is dispositive. The order is affirmed.

 

Board of County Commissioners of Summit County v. Hazel

Petition for Writ of Certiorari GRANTED, January 27, 2014.

Summary of the Issue:

  • Whether the court of appeals erred by holding that under C.R.C.P. 50, a trial court cannot direct a verdict as to some but not all issues within a single claim against a single defendant.
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: Developer Not Liable for Disclosure Failures Under Interstate Land Sales Full Disclosure Act

The Tenth Circuit Court of Appeals issued its opinion in Dalzell v. RP Steamboat Springs LLC on Tuesday, March 24, 2015.

RP Steamboat Springs, LLC, was formed in 2005 to develop a mixed-housing master-planned subdivision in Steamboat Springs called Wildhorse Meadows. RP entered into an agreement with Steamboat to develop Wildhorse Meadows in eight parcels, each originally owned by RP, one of which was Trailhead Lodge. RP entered into a marketing agreement with S&P Destination Properties, and marketed the subdivision as a whole and Trailhead specifically.

A group of investors formed Trailhead Lodge at Wildhorse Meadows, LLC, for the purpose of developing Trailhead Lodge condominiums. RP transferred title to Trailhead LLC in 2007 by special warranty deed. Two days before the deed transfer, a group of buyers entered into substantially similar preconstruction purchase and sale agreements with Trailhead LLC. At the time Trailhead LLC entered into the contracts with Buyers, no one had filed a statement of record with the Department of Housing and Urban Development and Buyers were not provided a property report, both of which were required under the Interstate Land Sales Full Disclosure Act. Buyers had the right to rescind the contracts within two years of signing as a result of these failures, which they did. Trailhead LLC, now insolvent, has not returned the Buyers’ deposits.

Buyers filed an action in the U.S. District Court for the District of Colorado against Trailhead LLC, RP, and S&P, alleging all three qualified as developers under the Land Sales Act and they violated the Act by failing to file a statement of record and failing to provide a property report when Buyers purchased the condominium units. The district court granted summary judgment to Buyers against Trailhead LLC, including a specific award of damages to each Buyer and an order rescinding the contracts, and Buyers settled with S&P. The only claims remaining were Buyers’ Land Sales Act claims against RP, which did not include any allegations of fraud. The district court ultimately concluded RP was not liable under the Land Sales Act because although it qualified as a developer, it did not exercise enough control over the sales to qualify as a direct or indirect seller. Buyers appealed.

The Tenth Circuit analyzed the applicable provisions of the Land Sales Act. Buyers argued RP’s status as a developer made it liable under the disclosure provisions, and even if developer status was not enough to establish liability, RP was liable as an indirect seller. The Tenth Circuit disagreed, finding the use of the term “to sell or lease” in some provisions but not others meant that Congress intended to limit liability of developers in some provisions of the Act. Although RP probably would have been liable under the fraud provisions of the Act as a developer, it was not liable under the disclosure provisions because these were limited to sellers. The issue had not been decided by the Tenth Circuit before, but it found a similar case from the Fourth Circuit instructive.

The Tenth Circuit similarly rejected Buyers’ argument that RP was an indirect seller under the Act, agreeing with the district court that RP did not exercise sufficient control over the sales to qualify as an indirect seller under the definition. The Tenth Circuit found RP was not involved in efforts to sell the Trailhead Lodge condominium units, despite its marketing targeting the Trailhead Lodge subdivision. The Tenth Circuit also found there was not a significant ownership relationship between RP and Trailhead, LLC.

The Tenth Circuit affirmed the district court’s finding that RP was not liable under the Land Sales Act. Judge Lucero dissented.

Frederick Skillern: Real Estate Case Law — Zoning and Land Use Control (1)

Editor’s note: This is Part 21 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

Mountain-Plains Investment Corp. v. Parker Jordan Metropolitan District
Colorado Court of Appeals, August 15, 2013
2013 COA 123

Special districts; Colorado Open Records Act; fee; deposit; attorney-client privilege log.

Mountain-Plains Investment Corporation and others appeal a summary judgment entered in favor of defendant Parker Jordan Metropolitan District (District) in a dispute over an open records act claim. The court holds:

  • The special district did not have to reveal a consultant’s emails (that it no longer retained) to Mountain-Plains’ shareholders, under C.R.S. § 24-72-202(7), because the District did not make or keep the emails and the consultant did not keep them for it.
  • Charging a retrieval fee without having in place a records retention policy, and requiring a deposit to cover the retrieval fee, did not violate the Colorado Open Records Act, C.R.S. §§ 24-72-201, et seq. No policy was required at the time the records were sought, and C.R.S. § 24-72-203 allows a fee.
  • A fee can be charged to segregate privileged material because C.R.S. § 24-72-204(3)(a)(IV) bars inspection of privileged matter.
  • A fee for a privilege log was proper because C.R.S. § 24-72-205(3) allows a fee for creating a record, and the fee did not exceed the log’s cost.

 

Friends of Denver Parks, Inc. v. City and County of Denver
Colorado Court of Appeals, December 26, 2013
2013 COA 177

City park; conveyance of park land; Denver Charter § 2.4.5.

Defendant, the City and County of Denver (City), agreed to transfer a parcel of land (southern parcel) to a school district so that the district could build a school on it. Plaintiffs, an organization called Friends of Denver Parks, Inc. and several other interested parties, tried to file a referendum petition to repeal the ordinance transferring the southern parcel; however, the City’s Clerk and Recorder refused to accept the petition. Plaintiffs then filed a motion for a preliminary injunction to enjoin the City’s transfer of the southern parcel to the school district. The court denied both requests.

On appeal, plaintiffs argued that the trial court erred in denying their requested relief because (1) the City’s conduct over the years had dedicated the southern parcel as a park under the common law; and (2) the City’s charter requires that voters approve the transfer of a “park belonging to the city as of December 31, 1955.” The Court of Appeals disagreed on both counts.

Denver Charter § 2.4.5 sets forth the sole mechanism as of December 31, 1955 for creating parks and transferring parks. The City did not pass an ordinance dedicating the southern parcel as a park pursuant to § 2.4.5 after December 31, 1955. Additionally, the record did not clearly establish that the City, through its unambiguous actions, had demonstrated an unequivocal intent to dedicate the southern parcel as a park on or before December 31, 1955. Therefore, Denver Charter § 3.2.6 authorized the City to sell or transfer it without following the requirements of § 2.4.5, and the trial court did not abuse its discretion when it determined that plaintiffs did not establish a reasonable likelihood of success on the merits of this issue. The order was 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.

Bills Regarding Oversight of CFIs, Electronic Benefits Card Transfer, and Promoting Water Conservation in Land Planning Signed

legislationOn Friday, May 1, 2015, Governor Hickenlooper signed 30 bills into law. To date, the governor has signed 176 bills into law. The bills signed on May 1 are summarized here.

  • HB 15-1153 – Concerning Oversight of Child and Family Investigators, and, in Connection Therewith, Making and Reducing Appropriations, by Rep. Dave Young and Sen. Pat Steadman. The bill consolidates the oversight of all CFIs into the Office of the State Court Administrator.
  • HB 15-1255 – Concerning the Enforcement of the Prohibited Use of Electronic Benefits Transfer Cards at Certain Locations, by Reps. Timothy Dore & Dan Pabon and Sens. Kevin Grantham & Cheri Jahn. The bill requires periodic reporting of the use of electronic benefits cards at prohibited locations and adds marijuana retailers to the list of prohibited locations.
  • HB 15-1294 – Concerning Alignment of State Law Regarding In-State Tuition Classification with the Federal “Veterans Access, Choice, and Accountability Act of 2014″, by Reps. Pete Lee & Jon Keyser and Sens. Nancy Todd & Owen Hill. The bill requires qualified Colorado institutes of higher education to classify eligible veterans as in-state for tuition purposes.
  • SB 15-008 – Concerning the Promotion of Water Conservation in the Land Use Planning Process, and, in Connection Therewith, Making an Appropriation, by Sen. Ellen Roberts and Rep. Ed Vigil. The bill requires the Colorado Water Conservation Board to develop conservation programs for local government land use planners.
  • SB 15-046 – Concerning Reducing the Cost of Attainment of Renewable Energy Standards by Electric Utilities that are not Investor-Owned, and, in Connection Therewith, Allowing Purchases of Electricity from Community Solar Gardens by Cooperative Electric Associations to Qualify as Retail Distributed Generation, by Sen. Kevin Grantham and Rep. Dominick Moreno. The bill reduces the retail distributed generation requirement for cooperative electric associations.
  • SB 15-060 – Concerning the Prevention of Multiple Voter Registrations by the Same Elector, by Sen. Chris Holbert and Rep. Justin Everett. The bill allows the Secretary of State to forward any information from the DMV to the appropriate county clerk for the purpose of updating voter registration information.
  • SB 15-065 – Concerning a Prohibition on the Use of Public Electronic Benefits Transfer Services at Certain Establishments, by Sen. Vicki Marble and Rep. Dan Nordberg. The bill prohibits recipients of electronic benefits transfer cards from using them at adult entertainment facilities or marijuana establishments.
  • SB 15-085 – Concerning the Expansion of the “Colorado Cottage Foods Act,” and, in Connection Therewith, Increasing the Net Revenue a Producer Can Earn Under the Act, by Sen. Beth Martinez Humenik and Reps. Faith Winter & Perry Buck. The bill allows “cottage food” producers to expand their allowable net revenues.
  • SB 15-106 – Concerning the Continuation of the Regulatory Authority Granted Under the “Barber and Cosmetologist Act,” and, in Connection Therewith, Continuing the Cosmetology Advisory Committee and Implementing the Other Recommendations of the Department of Regulatory Agencies as Contained in the 2014 Sunset Report and Making an Appropriation, by Sen. Laura Woods and Rep. Jeni James Arndt. The bill continues the “Barber and Cosmetologist Act” and enacts recommendations from the sunset review committee.
  • SB 15-122 – Concerning the Continuation of the Regulation of Massage Parlors, and, in Connection Therewith, Repealing the Regulation of Massage Parlors, by Sen. Linda Newell and Rep. Dominick Moreno. The bill limits the ability of local governments to regulate massage parlors.
  • SB 15-178 – Concerning the Continuation of the Colorado Commission for the Deaf and Hard of Hearing, and, in Connection Therewith, Implementing the Recommendations of the 2014 Sunset Report by the Department of Regulatory Agencies, by Sen. Linda Newell and Rep. Jessie Danielson. The bill continues the Colorado Commission for the Deaf and Hard of Hearing and implements recommendations of the sunset review committee.
  • SB 15-182 – Concerning Allowing the Department of Corrections to Transfer Certain Offenders to the Youthful Offender System to Participate in Age-Appropriate Programs, by Sens. Leroy Garcia & Larry Crowder and Reps. Clarice Navarro & Daneya Esgar. The bill allows the Department of Corrections to transfer offenders aged 24 or younger into or out of the Youthful Offender System.
  • SB 15-193 – Concerning the Consolidation of Two Reports that the Statewide Internet Portal Authority is Required to Submit to the Members of the General Assembly, by Sens. Patrick Neville & Tim Neville and Reps. Jack Tate & Max Tyler. The bill combines the reporting requirements of the Statewide Internet Portal Authority into one written report submitted to various legislative committees.
  • SB 15-194 – Concerning the Board of Directors of the Statewide Internet Portal Authority, by Sens. Patrick Neville & Tim Neville and Reps. Jack Tate & Max Tyler. The bill allows executive directors of executive branch agencies to select a designee to serve on the board in their stead, but designees may not serve as the board chair.
  • SB 15-198 – Concerning Modifications to the Colorado Water Conservation Board’s Fallowing Pilot Program, and, in Connection Therewith, Expanding the Program to Allow an Agricultural Water Right Owner to Lease an Agricultural Water Right for Temporary Agricultural, Environmental, Industrial, or Recreational Use, by Sen. Larry Crowder and Rep. Ed Vigil. The bill allows an agricultural water right owner to lease its right for temporary agricultural, environmental, industrial, or recreational use while the agricultural land goes fallow.
  • SB 15-235 – Concerning Increasing the Amount that the General Assembly may Appropriate for the Child Nutrition School Lunch Protection Program, and, in Connection Therewith, Making an Appropriation, by Sen. Pat Steadman and Rep. Millie Hamner. The bill increases the appropriation for the state school lunch program.
  • SB 15-236 – Concerning the Reorganization of Funds Expended by the State Historical Society, Sen. Kevin Grantham and Rep. Bob Rankin. The bill creates two separate subaccounts in the State Historical Fund.
  • SB 15-237 – Concerning Calculations Relating to Appropriations to Institutions of Higher Education, and, in Connection Therewith, Clarifying Calculations Required Pursuant to Sections 23-18-304 and 23-18-305, Colorado Revised Statutes, and Delaying Performance Funding Calculations Pursuant to Section 23-1-108, Colorado Revised Statutes, by Sen. Kent Lambert and Rep. Millie Hamner. The bill makes technical clarifications to definitions used in higher education funding formulas.
  • SB 15-238 – Concerning Allowable Uses of Moneys in the General Fund Exempt Account that are Designated to Benefit Students Attending Institutions of Higher Education, by Sen. Pat Steadman & Rep. Millie Hamner. The bill adds specific uses to the list of qualified higher education appropriations.
  • SB 15-240 – Concerning a Funding Formula for Independent Living Centers, and, in Connection Therewith, Making an Appropriation, by Sen. Pat Steadman and Rep. Dave Young. The bill requires DHS to promulgate a rule regarding funding for independent living centers and requires base funding of $600,000 to each center.
  • SB 15-241 – Concerning Collaborative Management of Multi-Agency Services Provided to Children and Families, and, in Connection Therewith, Making an Appropriation, by Sen. Pat Steadman and Rep. Dave Young. The bill allows moneys from the general fund to be allocated to the Collaborative Management Fund in the DHS and makes changes to the program for collaborative management.
  • SB 15-242 – Concerning an Allocation in Addition to the Child Welfare Block Grant to Counties for the Purpose of Hiring New Child Welfare Staff, and, in Connection Therewith, Making an Appropriation, by Sen. Kevin Grantham and Rep. Dave Young. The bill creates a new allocation for distributing funds to counties to hire additional child welfare staff.
  • SB 15-243 – Concerning a Prohibition on the Transfer of State-Operated Beds Under the Waiver for Home- and Community-Based Services for Individuals with Intellectual and Developmental Disabilities, by Sen. Kent Lambert and Rep. Dave Young. The bill prohibits DHS from selling or closing state-operated centers with beds for individuals with disabilities.
  • SB 15-244 – Concerning the Transfer of Moneys to Offset the Federal Government’s Recoupment of Mineral Lease Payments to the State, by Sen. Kevin Grantham and Rep. Bob Rankin. The bill transfers moneys from the General Fund for three fiscal years to offset recoupment of federal mineral lease moneys.
  • SB 15-245 – Concerning the Provision of State Funding for Natural Hazard Mapping, by Sen. Kevin Grantham and Rep. Dave Young. The bill creates a three-year program for state mapping of natural hazards.
  • SB 15-246 – Concerning Modifications to Accommodate Certain Statewide Financial Information Technology Systems in the Department of Personnel, by Sen. Kent Lambert and Rep. Bob Rankin. The bill requires the Department of Personnel and Administration to develop a method to bill users of its financial IT systems for the full cost of usage.
  • SB 15-248Concerning the Repeal of the State Facility Security Fund, by Sen. Kent Lambert and Rep. Millie Hamner. The bill repeals the state facility security fund, because there have been no grants made or deposits to the fund since its inception.
  • SB 15-249 – Concerning a Transfer from the Marijuana Tax Cash Fund to the General Fund, by Sen. Kent Lambert and Rep. Millie Hamner. The bill increases the transfer of moneys from the marijuana tax cash fund to the General Fund.
  • SB 15-251 – Concerning the Exclusion of Appropriations for Real Property Lease-Purchase Payments from the Basis for the Calculation of the General Fund Reserve, by Sen. Kent Lambert and Rep. Millie Hamner. The bill exempts payments for certificates of participation in lease-purchase agreements from the General Fund for purposes of calculating reserves.
  • SB 15-255 – Concerning the Deposit of Twenty Million Dollars of State Severance Tax Revenues in the General Fund, by Sen. Kent Lambert and Rep. Millie Hamner. The bill diverts money from the state severance tax fund to the General Fund.

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

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (5)

Editor’s note: This is Part 20 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

US Bank, N.A. v. Stewart Title Guaranty Company
Civil Action No. 13-cv-00117-PAB-KLM
United States District Court For the District Of Colorado
2014 U.S. Dist. LEXIS 36876 (March 20, 2014)

Because Colorado’s appellate courts tend to not “select for publication” any number of interesting cases involving title insurance, I make a note here of a summary judgment order of Judge Brimmer in the federal district court in Denver. There is an allegation in a case brought by homeowner X that a deed of trust recorded by Wells Fargo securing a loan to Y was not a valid lien, as a recorded quit claim deed from X to Y was forged. X first sues Wells Fargo – by this time the loan has been assigned to U.S, Bank. The court discusses whether there is a duty to defend U.S. Bank’s insured title in a lawsuit before U.S. Bank is added to the litigation – the original title claim was made by Wells Fargo. The court reasons “no,” based on a thorough review of the policy language. Paragraph 4(a) of the Conditions and Stipulations states that Stewart Title’s obligation extends only to “the defense of an insured.”

It also reviews a claim that the insurer had a duty to initiate action to clear title to U.S. Bank’s lien prior to the date that U.S. Bank was served in the underlying litigation. The court surveys the cases on whether the insurer “may” or “must” take an affirmative action when it is notified that an insured may have a title issue. The court agrees that under these facts, no such duty was triggered until U.S. Bank – the real party in interest – was named in the suit. Although a title insurer may take action to clear an insured’s title, any duty is subject to the Conditions and Stipulations in the policy. “These policy provisions do not support U.S. Bank’s assertion that the policy creates a duty to defend the title independent of the insurer’s duty to defend the insured. If anything, these provisions reinforce the interpretation of the policy that Stewart Title’s duties are defined in relationship to the insured. The policy’s stated purpose is “a contract of indemnity against actual monetary loss or damage sustained or incurred by the insured” and Paragraph 7(c) states that Stewart Title will only pay “those costs, attorneys’ fees and expenses incurred in accordance with Section 4 of these Conditions and Stipulations.” (Emphasis added).

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: Exculpatory Clause Applicable Even Though Only Owners’ Association Named

The Colorado Court of Appeals issued its opinion in McShane v. Stirling Ranch Property Owners Association, Inc. on Thursday, April 27, 2015.

Real Property—Declaration of Covenants—Property Owners Association—Exculpatory Clause—Breach of Fiduciary Duty.

Plaintiffs purchased a lot in Stirling Ranch on which to construct a residential home. The lot was subject to the Second Amended and Restated Declaration of Covenants, Conditions, Restrictions and Easements for Stirling Ranch, P.U.D. (Declaration). Under the Declaration, each lot owner in the Stirling Ranch community is a member of the Stirling Ranch Property Owners Association, Inc. (POA). The POA is governed by an Executive Board, and the Board appoints and removes members of the POA’s Design Review Board (DRB). Although the DRB approved plaintiffs’ initial designs, it did so mistakenly based on representations by plaintiffs’ architect. After plaintiffs began construction on the initial designs, they were ordered to stop work and submit redesigned plans to conform to the Design Guidelines. Plaintiff later filed this action against the POA, claiming damages for the redesign of their home. The trial court found in favor of the POA.

On appeal, plaintiffs asserted that the court erred in concluding that the exculpatory clauses barred their claims against the POA for declaratory judgment/equitable estoppel and negligence. The Court of Appeals disagreed. The Declaration and the Design Guidelines include provisions limiting the DRB’s liability, one of which states that the DRB and the Board are components of the POA and have no separate identity. Therefore, the exculpatory clauses are applicable even though plaintiffs only named the POA as a defendant. Additionally, the exculpatory clauses are valid because they do not implicate a public duty, do not involve an essential service, were fairly entered into, and plainly express the intent to release the DRB from liability.

The Court also rejected plaintiffs’ argument that the trial court erred in concluding that the POA did not breach its fiduciary duty. The record contains sufficient evidence as to why the POA and the DRB rejected plaintiffs’ redesign plans. The record also supports the court’s conclusion that these reasons for rejecting the redesign plans were consistent with the Design Guidelines’ goals. The judgment was affirmed.

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

Small Common Interest Community Exemption and Electronic Public Trustee Foreclosure Bills Signed

On Tuesday, April 21, 2015, Governor Hickenlooper signed two bills into law. He has signed 138 bills to date this legislative session. The two bills signed Tuesday are:

  • HB 15-1095 – Concerning the Extension of an Exemption Under the “Colorado Common Interest Ownership Act” for Certain Small Common-Interest Communities to Include Communities Created Before July 1, 1992, Whose Declarations Limit Their Annual Common Expense Liability to No More than Three Hundred Dollars, by Rep. Terri Carver and Sen. Kevin Lundberg. The bill provides an exemption from certain provisions of the CCIOA for HOAs whose annual expenditures are less than $300 as established by bylaws or declarations.
  • HB 15-1142 – Concerning the Conduct of Foreclosure Sales by a Public Trustee, and, in Connection Therewith, Authorizing the Conduct of Foreclosure Sales Through the Internet and Other Electronic Media and Authorizing the Collection of Fees Through Electronic Transfer, by Rep. Beth McCann and Sen. Lucia Guzman. The bill allows public trustees or sheriffs to conduct foreclosure sales electronically and establishes procedures for electronic sales.

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

Frederick Skillern: Real Estate Case Law — Titles and Title Insurance (4)

Editor’s note: This is Part 19 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

Whiting v. Atlantic Richfield
Colorado Supreme Court, March 3, 2014
2014 CO 16

Rule against perpetuities; options; reformation of option agreement under the USRAP, C.R.S. 15-11-106; common law rule does not void commercial option contract.

This is an important case that addresses much of the change in the law of the rule against perpetuities over the last 25 years. As the case came to Colorado Supreme Court the issue was twofold. First, the court accepted certiorari to examine whether the statutory right to reform a commercial contract under the Colorado version of the statutory rule against perpetuities is unconstitutional because it requires a court to reform a vested contract – in this case the right to declare one’s contract void under the common law rule against perpetuities. Second, the court sought to address as a matter of statutory interpretation whether the right of reformation only applied to what the statute refers to as “donative” transfers of property, as opposed to a commercial contract such as an option to purchase mineral rights.

The supreme court changed to focus of the case and addresses in its decision a different question, thereby avoiding the questions upon which certiorari was granted. It holds instead that the interest in question – a twenty-five year option to purchase mineral rights – does not violate the common law rule against perpetuities. As such, there is no need to resort to the reformation procedure provided in the statute.

ARCO entered into a deal in 1968 with a small oil company (Equity, now owned by Whiting) to explore Colorado shale oil development in Garfield County. It gave development money to Equity, and received a partial ownership interest in the mineral rights. Equity was given an option to repurchase ARCO’s interest within the 25-year term of the deal. In 1983, the agreement (including the option) was extended for another 25 years. The terms are summarized succinctly by the court:

Pursuant to the 1983 amendment, Equity’s right to exercise the option would not expire until 11:59 p.m. on February 1, 2008. Importantly, the parties agreed that “ARCO shall retain the sole and exclusive right to cancel this Option at any time during its term,” with the exception that Equity was granted a right of first refusal if ARCO received an offer from another party to buy its interest in the Boies Block.

Equity exercised the option shortly before the deadline. ARCO claimed that the option was void under the common law rule against perpetuities. The trial court, in a decision affirmed by the court of appeals, agreed but applied the reformation provision in CRS § 15-11-1106(2) to add a “savings clause” in the manner outlined in the statute.

The result here is to put off for another day the constitutional validity of the reformation provision of the USRAP. The court instead finds that the common law has changed sufficiently to determine, consistent with past cases of the Colorado Supreme Court, that the purpose of the common law rule is not served by applying the “21 years after the death of lives in being test” to an arms-length transaction between sophisticated oil companies. More particularly, the court holds, in a well developed decision that explores the recent development of case law in considerable depth, the fact that the option right was revocable at will by ARCO demonstrates that the option was not preventing development of the land. For that reason, the underlying the policy of the common law rule would not be served by voiding the option simply because its term extended longer than 21 years.

The Real Estate Section of the CBA submitted an amicus brief in support of the lower court’s ruling and in support of the right to reform real estate contracts found to violate the rule. This is motivated in part by the obvious liability risks confronting lawyers who may unwittingly accompany their clients into the “RAP trap.” The risk areas center around long term options, rights of first refusal, and other rights or interests contained in deeds or leases that may “walk or talk” like an executory interest or a right of reversion. As a practice point, it is important in dealing with such interests to keep the USRAP in mind, as it treats “donative transactions” differently than commercial transactions.

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.