August 16, 2018

Colorado Court of Appeals: Including Landowners in Special District Violated Owners’ Rights to Due Process

The Colorado Court of Appeals issued its opinion in Landmark Towers Association, Inc. v. UMB Bank, N.A. on Thursday, May 31, 2018.

Special District—Taxation—Taxpayer’s Bill of Rights—Due Process—Injunction—Uniform Tax Clause of the Colorado Constitution—Mill Levy—Misappropriation of Bond Sales.

A developer created the Marin Metropolitan District, a special district, to comprise two separate projects, the Landmark Project and the European Village Project. The developer created the District as a means to use owners of condominiums in the Landmark Project to pay for improvements in the European Village Project. As part of his application to Greenwood Village for approval of the District, the developer submitted a Service Plan. Using dubious means and without notice to the Landmark Project buyers, the developer and his associates then voted in an election to organize the District and approve bonds and “taxes” to pay for the bonds. The District sold bonds to Colorado Bondshares. UMB Bank, N.A. held the bond sales proceeds in trust. Among other things, the Service Plan capped the debt service levy for the bonds at 49.5 mills, but the District imposed a levy of 59.5 mills. The developer drew on the funds, but the European Village Project infrastructure was never built.

Landmark Towers Association, Inc., a homeowners association, sued UMB, Bondshares, and the District (collectively, defendants), challenging the creation of the District. Landmark asserted that the special district can’t levy Landmark owners’ properties to pay for bonds issued by the special district, which funded improvements on other property, because the election organizing the special district, approving the bonds, and approving the levies paying for the bonds violated the Taxpayer’s Bill of Rights (TABOR) and the Landmark owners’ rights to due process. The district court ruled that the election was illegal; Landmark is entitled to injunctive relief preventing the District’s levy; the District’s mill levy rate exceeds the legal limit; Landmark owners are entitled to a refund of excessive assessments; and Landmark owners are entitled to a “refund” of misappropriated bond sale proceeds. It enjoined the District from trying to collect levies from the Landmark owners and ordered that the owners may recover bond proceeds misappropriated by the District’s creator under TABOR.

On appeal, defendants asserted that the district court erred in finding that including the Landmark Project in the District violated the Landmark owners’ rights to due process. Specifically, defendants argued that the levy was a tax, and property subject to a tax does not need to receive any benefit in return for the tax payments. Colorado law is clear that imposing a special assessment on property that doesn’t specially benefit from the funded improvements violates the due process rights of those property owners. Here, the Landmark project was included in the District only to use it as a payment source for improvements to other property, and Landmark receives no benefit from those improvements. Further, the “tax” is in substance a special assessment because it doesn’t defray the general expenses of government but funds a private venture’s infrastructure. Because the Landmark owners derive no benefit from the improvements, the special assessments violated the owners’ rights to due process.

Defendants also argued that the district court erred in weighing the equities in imposing the injunction. The district didn’t abuse its discretion in balancing the equities.

Defendants further contended that the injunction violated the Uniform Tax Clause of the Colorado Constitution because it means that only some of the property in the district can be taxed. First, it is undisputed that defendants raised this issue for the first time in their motion for reconsideration, which was too late. Second, the Uniform Tax Clause applies only to taxes, not special assessments. Third, the injunction doesn’t obligate the District to do anything with respect to other persons or property outside the Landmark Project. Fourth, the violation of the Landmark owners’ rights to due process under both the U.S. and Colorado Constitutions entitles them to the injunctive relief they request, as a matter of law. Therefore, the district court correctly ruled on this issue.

Defendants also contended that the district court erred in ruling that the District may not levy property taxes in excess of 50 mills. The mill levy rate imposed by the District exceeds that allowed by the statutorily required service plan approved by the City of Greenwood Village. Furthermore, it did not comply with the District’s Service Plan or the financing plan. Therefore, the 59.5-mill-rate levy was illegal.

Finally, defendants contended that the district court erred in ruling that the misappropriation of bond sale proceeds violated TABOR and in ordering a refund of those proceeds because the bond proceeds aren’t “revenue.” The bond proceeds at issue are borrowed funds, not “revenue” within the meaning of the relevant TABOR provision. Further, they aren’t subject to refund because they were lent to the District by a private, outside entity and not collected from property owners. Therefore, the owners may not recover bond proceeds misappropriated by the District’s creator under TABOR. Nor may the owners recover those misappropriated funds under other provisions of the Colorado Constitution because the District is not subject to those provisions. Therefore, the district court erred in ordering refunds of the misappropriated money.

The portion of the judgment ordering TABOR refunds was reversed. The remainder of the judgment was affirmed and the case was remanded.

Summary provided courtesy of Colorado Lawyer.

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