June 25, 2019

Colorado Court of Appeals: Reversal Based on Firm and Definite Conviction that Mistake Had Been Made

The Colorado Court of Appeals issued its opinion in Indian Mountain Corp. v. Indian Mountain Metropolitan District on Thursday, August 11, 2016.

In 1970, Indian Mountain Corporation’s (IMC’s) predecessor in interest purchased land and water rights in Park County with the intent of creating an upscale subdivision within a community of amenities. After residential construction had begun in the Indian Mountain subdivision, SB 72-35 passed, requiring the subdivision to obtain a water-court-approved augmentation plan. The plan required homeowners to drill a well at their own expense, but for many years, IMC maintained and operated the plan at its own expense.

In 1972, the developer spearheaded the creation of the Indian Mountain Parks & Recreation District, which was converted into the Indian Mountain Metropolitan District (IMMD) in 2012 in order to be able to legally purchase and provide water services. IMMD negotiated to purchase the plan from IMC, but was not successful. In 2013, owners of a neighboring ranch approached IMC’s director about purchasing the reservoir, and eventually purchased all of the assets of IMC, including the water plan. IMC’s new owner charged IMMD for its water usage, but IMMD did not pay the invoices.

IMC filed an action in district court, seeking a declaratory injunction that it is the legal owner of the water rights and the plan and IMMD has no right, title, or interest in them. IMMD filed an answer and counterclaim, seeking a declaratory injunction that the Indian Mountain lot owners owned the plan and water rights as beneficiaries of a constructive trust. The district court issued an order in favor of IMMD. IMC filed a post-judgment motion requesting a hearing on the amount of reasonable fees it could charge IMMD for ongoing operation of the plan, which the district court denied.

On appeal, the court of appeals ruled the district court erred in finding that the water rights and augmentation plan were held in a constructive trust. The court based its reversal on a “firm and definite conviction that a mistake ha[d] been made.” Because three experts testified that the lot prices included the cost of the plan, but all advanced different theories that were directly refuted by the documentary evidence in the record, the court found reversal necessary. The court of appeals found that the district court clearly erred in finding that the lot prices included the cost of the plan, and the unjust enrichment analysis failed at the first prong.

The judgment of the district court was reversed.

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