May 21, 2019

Colorado Court of Appeals: Homeowners’ Association Must Follow Nonprofit Corporation Rules When Amending Declaration Without a Meeting

The Colorado Court of Appeals issued its opinion in Triple Crown at Observatory Village Association, Inc. v. Village Homes of Colorado, Inc. on Thursday, November 7, 2013.

Construction Defect—Interlocutory Review—Revised Nonprofit Corporation Act Relation to Colorado Common Interest Ownership Act—Consumer Protection Act.

Triple Crown at Observatory Village (Triple Crown) is a common interest community organized under the Colorado Common Interest Ownership Act (CCIOA). The developer of Triple Crown, Village Homes of Colorado, Inc. (Village Homes), was Triple Crown’s declarant under CCIOA § 38-33.3-103(12). Village Homes drafted and recorded Triple Crown’s Declaration of Covenants, Conditions, and Restrictions (Declaration). The Declaration created the Triple Crown at Observatory Village Association, Inc. (Association). It was organized as a nonprofit corporation under the Colorado Revised Nonprofit Corporation Act (CRNCA).

Article 14 of the Declaration established a dispute resolution procedure for claims arising from the design or construction of Triple Crown. It required arbitration of claims under American Arbitration Association rules if good faith negotiation and mediation efforts were unsuccessful.

On January 14, 2012, the Association began collecting votes from its members to revoke Article 14. After sixty days, 48% of the members had cast votes in favor of revocation. After another sixty days, the Association had obtained the required 67% of votes to revoke Article 14. The Association recorded the amendment revoking Article 14. The Association then brought this action against Village Homes and several of its principals and employees (collectively, respondents), alleging negligent construction, Colorado Consumer Protection Act (CCPA) violations, and breach of fiduciary duties.

Respondents moved to dismiss for lack of jurisdiction, citing the mandatory arbitration provision in Article 14. They argued that because the Association had not amended Article 14 within the time limits in the CRNCA, they were still bound by the Article 14 dispute resolution procedures. The trial court granted the motion, dismissed the case, and ordered the parties to follow Article 14.

The trial court ruled that when an association amends its declaration without a meeting under CCIOA, the association must comply with the sixty-day time limit provided in CRNCA § 7-127-107. The Court of Appeals agreed. Because the Association did not comply, the amendment was ineffective.

The Court also agreed that CCIOA established the power of unit owners’ associations to “[i]nstitute, defend, or intervene in litigation or administrative proceedings . . . on the matters affecting the common interest community” and that “litigation” includes both judicial proceedings and arbitrations. Therefore, the mandatory arbitration provision did not infringe on the Association’s statutory power to institute litigation.

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

The trial court rejected the Association’s argument that its CCPA claims were not subject to mandatory arbitration, because CCPA provisions “shall be available in a civil action. The Court agreed that such a right can be waived, and Article 14 was such a waiver. The trial court’s order was affirmed and the case was remanded.

Summary and full case available here.

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