August 22, 2019

Colorado Court of Appeals: Contractual Covenants in Deed of Trust Not Extinguished in Foreclosure

The Colorado Court of Appeals issued its opinion in Top Rail Ranch Estates, LLC v. Walker and Walker Development Co. v. Top Rail Ranch Estates, LLC on Thursday, January 30, 2014.

Issue of First Impression—Motions for Directed Verdict—Doctrine of Claim Preclusion—Pursuit of Same Claim in Two Actions—Fraud—Economic Loss Rule—CRCP 59(a)(4)—Attorney Fees.

Top Rail Real Estates, LLC (Top Rail) entered into a contract with Walker Development Company to purchase a subdivision of platted residential lots. Top Rail paid $200,000 of the purchase price in cash, and executed a promissory note payable for the balance of $1 million. After Walker Development’s failed attempt to change the zoning to sell a portion of the property to a mining company, Top Rail was unable to sell lots in the subdivision, and it halted construction activities. Top Rail stopped making payments on its loan from the bank, and the bank foreclosed on its deed of trust. The parties sued each other in separate actions, and this appeal followed.

Walker Development argued in the first action that the court erred in granting the motion for directed verdict and dismissing its counterclaim. Regardless of whether the lien imposed by the deed of trust was extinguished by foreclosure of the bank’s senior lien, the contractual covenants in the deed of trust were not extinguished by the foreclosure. Therefore, the trial court erred in directing a verdict against Walker Development on its counterclaim.

Ronald Walker and Walker Development also argued that the trial court erred in denying their motion for directed verdict on the fraud claims asserted by Top Rail and Christopher Jenkins. The economic loss rule applied to bar the fraud claims asserted by Top Rail and Jenkins because the relief sought was the same as that sought for breach of contract and breach of the covenant of good faith and fair dealing.

The Court of Appeals agreed that the trial court erred in its calculation of prejudgment interest. The award should have been based on the $500,000 damages award in the final judgment entered by the trial court, and not on the $567,000 damages awarded by the jury.

Walker Development also contended that the trial court improperly granted summary judgment for Top Rail and Jenkins in the second action, based on its ruling that claim preclusion barred Walker Development’s claims. The doctrine of claim preclusion does not bar claims that were permissive counterclaims in a prior action, where the adjudication of those claims would not result in inconsistent judgments or a deprivation of rights established by the first judgment. Here, allowing Walker Development’s claims to be adjudicated in the second action did not nullify the judgment in the first action or impair any rights established by it, nor did inconsistent judgments result. Accordingly, the trial court erred in granting summary judgment against Walker Development based on claim preclusion.

On cross-appeal from the second action, Top Rail and Jenkins argued that the trial court erred in denying their CRCP 59(a)(4) motion for cancellation of the promissory notes, release of the deed of trust, and release of the notice of lis pendens. The Court disagreed. The trial court did not abuse its discretion in determining that it would be inequitable to require Walker Development to file an additional bond on top of the $1.3 million bond that it had already posted in the first action. The judgment was affirmed in part and reversed in part, and the case was remanded with directions.

Summary and full case available here.

Colorado Court of Appeals: Despite Man-Made Diversion, Hazard of Creek Flood is Inherently Natural and Therefore Mitigation by Developers Necessary

The Colorado Court of Appeals issued its opinion in Alpenhof, LLC v. City of Ouray on Thursday, January 17, 2013.

Flooding Risk as Part of Zoning Code.

Plaintiff Alpenhof, LLC raised an unresolved question in Colorado: whether flooding risk from a diverted natural waterway channel involves either a “geologic condition” or a “natural hazard” within the meaning of a zoning code. The Court of Appeals concluded that it does and affirmed the trial court’s order.

Skyrocket Creek basin “is characterized by steep slopes averaging approximately 80% [in grade],” descending from an elevation of 10,400 feet to the City of Ouray (City) approximately 2,800 feet below. In 1929, to protect against historically severe flooding from cloudbursts and spring runoff, the City diverted the creek. It had previously drained south of what is now Alpenhof’s property. Since the diversion, it has flowed north of Alpenhof’s property.

In 1997, the city approved subdivision of most of the property as the Ouray Vista Subdivision. It is located in the alluvial fan of the creek. Parcel C, adjacent to the north diversionary channel, was not subdivided, but was marked on the plat for future possible development.

In January 2011, Alpenhof submitted the preliminary plat application to subdivide Parcel C. The Ouray Planning Commission conditionally approved it, provided that Alpenhof would mitigate potential damage from future floodwater and debris. Alpenhof requested approval by the City Council without the mitigation requirements. The City Council determined that mitigation could be required under § 7-7-D-10 of the Ouray City Code, titled “Natural Hazard Mitigation,” and the “broad discretion” granted by the note on the plat stating the parcel “may not be developed in any fashion until further approval” by the City. The application was denied for insufficient mitigation.

Alpenhof petitioned the district court for relief under CRCP 106(a)(4). The district court denied the claim and certified its order under CRCP 54(b).

Section 7-7-D-10 requires developers to mitigate hazards when “geologic conditions and/or natural hazards are indentified in the Engineering Geology Report that could adversely affect the development.” Alpenhof argued that because the City’s diversion channel altered the flow of the creek, the current erosion and flood risk to Parcel C cannot be considered “natural” under the section. The Court found that the hazard to Parcel C is necessarily intertwined with the natural features and geologic conditions of the area, particularly the steep descent from its headwaters.

In addition, Alpenhof’s contention runs afoul of the “broad authority [granted] to local governments to plan for and regulate the use of land within their respective jurisdictions.” The City Council made specific findings about the public safety risks associated with Parcel C and rightly concluded that the section allowed subdivision approval to be conditioned on mitigation of these risks. The Court found ample record support for the City Council’s decision and the order was affirmed.

Summary and full case available here.

Colorado Court of Appeals: Land Planning Is Not a Profession that Is Held to an Independent Duty or Standard of Care

The Colorado Court of Appeals issued its opinion in Stan Clauson Associates, Inc. v. Coleman Brothers Construction, LLC on Thursday, January 17, 2013.

Summary Judgment—Negligence—Economic Loss Rule—Professional Standard of Care.

Defendants Coleman Brothers Construction, LLC and Coleman Ranch, LLC (collectively, Coleman) appealed the entry of summary judgment in favor of plaintiff Stan Clausen Associates Inc. (SCA) on their negligence counterclaims. The appeal was dismissed in part and the judgment was affirmed.

In a letter agreement dated August 21, 2006, SCA agreed to provide land planning and development services to Coleman regarding the Crown Mountain property. In early 2007, Coleman and SCA orally agreed that SCA would provide a development analysis for another property on Emma Road in Basalt. The district court concluded that the oral agreement contained the same terms as the 2006 letter agreement. This conclusion was not appealed.

In 2009, SCA sued Coleman for breach of the agreement regarding the Emma Road property. Coleman counterclaimed, alleging that SCA had negligently provided inaccurate advice about whether the Emma Road property could be subdivided and developed. The trial court granted SCA’s motion for summary judgment, concluding that the economic loss rule barred Coleman’s negligence counterclaims. The parties settled SCA’s claims against Coleman but stipulated that Coleman retained its negligence claims and could appeal the court’s dismissal.

Under the economic loss rule, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such breach absent an independent duty of care under tort law.” [Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000).]Professionals are held to duties and standards of care independent of those established by contracts for their services. If a contract for professional services does not explicitly adopt the professional standard of care, fulfillment of that standard of care is a duty that is independent of the services agreement, and the economic loss rule will not bar a claim for breach of the professional duty. Coleman did not identify, and the Court could not find, a Colorado case holding a land planner to a professional standard of care.

Coleman argued that the agreement with SCA focused primarily on the financial relationship, billings, and payments, and not on SCA’s professional duty to Coleman. Therefore, Coleman contended that SCA had an independent duty to act without negligence in providing professional services. The trial court found no recognized common law duty of care owed by a land planner to anyone and found that SCA performed its tasks in good faith and to the best of its abilities.

The Court of Appeals concluded that SCA did not owe Coleman a duty independent of the agreement because land planning is not a profession that is held to an independent duty and standard of care under any Colorado statute or common law. The Court also found that the allegedly negligent actions of SCA provided a basis for a breach of contract claim and, therefore, there was no error in the trial court’s applying the economic loss rule to bar Coleman’s negligence counterclaims. The judgment was affirmed.

Summary and full case available here.