December 10, 2018

Colorado Court of Appeals: District Court Did Not Completely Discharge Mandate in Taylor Ranch Case Because Identification Process Was Not Comprehensive

The Colorado Court of Appeals issued its opinion in Cielo Vista Ranch I, LLC v. Alire on Thursday, November 15, 2018.

Real Property—Public Lands.

Fifteen years ago, the Colorado Supreme Court remanded this case to the district court with instructions to “identify all landowners who have access rights to the Taylor Ranch.” In 2004, the district court began identifying and decreeing access rights for landowners in the San Luis Valley whose land was settled by 1869. From 2004 until 2010, the district court relied on the best available evidence to decree access rights for individual landowners without requiring any landowner to come forward to assert a claim (the opt-out process). After 2010, the district court decreed access rights for only those landowners who came forward to assert claims (the opt-in process). In October 2016, the trial court issued a final order that certified all prior orders, adjudicating 26 access rights for landowners as final and appealable pursuant to C.R.C.P. 54(b). Remaining landowner claimants were not foreclosed from coming forward in the future.

Appellants in this case are CVR Properties, Ltd., Jaroso Creek Ranch, LLC, and Western Properties Investors LLC, the owners of Cielo Vista Ranch and other properties that were once known as the Taylor Ranch (the Ranch) (collectively, Ranch Owner). Appellees are landowners in Costilla County whose rights to access the Ranch to graze livestock and gather firewood and timber were decreed through the remand proceedings.

On appeal, Ranch Owner challenged the trial court’s implementation of the supreme court’s mandate on remand. The opt-out proceedings on remand from 2004 through 2010 were largely consistent with the mandate. But as to the opt-in process from 2010 through 2016, the district court did not completely discharge the mandate because that portion of the identification process could have been, but was not, comprehensive. The trial court mistakenly concluded that it was bound by the law of the case doctrine to implement an opt-in process during the last phase on remand.

The October 2016 order was reversed to the extent it requires any remaining landowners entitled to access to the Ranch to come forward. The case was remanded for the trial court to identify all remaining owners of benefited lands and adjudicate their rights. In all other respects the order was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Restrictive Covenant Is Not Compensable Property Interest in Eminent Domain Case

The Colorado Court of Appeals issued its opinion in Town of Monument v. State of Colorado on Thursday, October 4, 2018.

Real Property—Eminent Domain—Restrictive Covenant—Compensable Property Interest.

The Town of Monument (the Town) bought a parcel of real property in a residential subdivision. The Town intended to construct a municipal water storage tank on the lot, but a restrictive covenant prohibiting such structures applied to all lots in the subdivision. The Town filed this case, seeking to use its power of eminent domain to have the court declare its property free of the restrictive covenant. Some lot owners in the subdivision intervened in the case and argued that because the restrictive covenant benefits all property in the subdivision, the Town cannot eliminate the restrictive covenant on its lot without paying every property owner in the subdivision an amount compensating each of them for the loss in value to their respective properties. The district court agreed with the landowners, and the parties stipulated to a dismissal of the case with prejudice.

On appeal, the Town argued that the district court erred in finding that the restrictive covenant was a compensable property interest to the surrounding landowners. The court of appeals determined that under Smith v. Clifton Sanitation District, 300 P.2d 548 (Colo. 1956), a restrictive covenant banning certain uses of property is not a compensable property interest in an eminent domain case.

The judgment was reversed and the case was remanded.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Strict Privity Rule Bars Claims Against Attorneys by Non-Clients

The Colorado Supreme Court issued its opinion in Bewley v. Semler on Monday, September 24, 2018.

Strict Privity—Standing—Pleading.

In this case, the supreme court considered whether the strict privity rule bars claims against attorneys by non-clients absent a showing of fraud, malicious conduct, or negligent misrepresentation. The court held that, absent any wrongdoing, the strict privity rule does bar claims against attorneys by non-clients because holding otherwise may force attorneys to place non-clients’ interests ahead of clients’ interests. Here, because Semler did not allege any fraud, malicious conduct, or negligent misrepresentation, he lacked standing to assert a breach-of-contract claim.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: CCIOA Requires Execution and Recording of Amending Documents to Subdivide Parking Garage

The Colorado Supreme Court issued its opinion in Perfect Place, LLC v. Semler on Monday, September 17, 2018.

Common Interest Communities—Quieting Title—Deeds.

In this quiet title action, the supreme court reviewed whether the owner of a garage condominium unit validly subdivided the unit under C.R.S. § 38-33.3-213 of the Colorado Common Interest Ownership Act by merely painting or marking lines on the garage wall, and thereafter separately conveying the spaces thus marked as individual condominium parking units. Because C.R.S. § 38-33.3-213(3) provides that “no subdivision of units shall be effected” without executing and recording the necessary amendments to the condominium declaration, and because no documents were recorded in connection with his purported subdivision, the court held that the owner did not accomplish a valid subdivision of the garage unit in this case. The court further held that a quitclaim deed obtained from the owner was not void for fraud in the factum. Although evidence in the record suggests the owner may have been deceived as to the purpose of the deed, fraud in the factum requires proof that the grantor was ignorant as to the nature of the instrument itself. Here, the owner understood that he was signing a quitclaim deed, even if he failed to appreciate the ramifications of his act. Accordingly, the court reversed the court of appeals’ judgment and remanded the case for further proceedings to determine the resulting chain of title for the disputed parking units.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Marijuana Business Cannot Cultivate Marijuana as Accessory Use When Zoning Code Precludes Cultivation for Primary Use

The Colorado Court of Appeals issued its opinion in Colorado Health Consultants v. City & County of Denver on Thursday, September 6, 2018.

Retail MarijuanaCultivation as an Accessory UseVested InterestEquitable EstoppelTaking.

Colorado Health Consultants, d/b/a Starbuds (Starbuds), is a retail marijuana business located in an I-MX-3 zone, which is a special context zone for industrial mixed use. In 2013, the zoning authority issued Starbuds a zoning permit for retail sales. Starbuds separately applied with the Department of Excise and Licenses (Department) for a retail marijuana cultivation (RMC) license, which was issued in 2014. The following year, Starbuds sought renewal of the RMC license and, following an uncontested hearing required by the Denver Revised Municipal Code (DRMC), the license was renewed.

Starbuds again sought renewal in 2016. The DRMC had been revised and a hearing was no longer required, so the Department immediately renewed the RMC license. Several days later the Department discovered that an interested party had requested a hearing on the renewal application. A hearing was held at which Starbuds argued that under DRMC § 6-214(a)(1), the Department was not authorized to conduct a hearing. In a detailed written recommendation the hearing officer recommended the Department deny the renewal request. She found that plant husbandry was not a permitted use in the I-MX-3 zone and the original license had been issued in error. She also rejected Starbuds’ argument that plant husbandry was a permitted “accessory use.” The Department adopted the findings and denied the renewal.

Starbuds filed a C.R.C.P. 106(a)(4) complaint arguing that the Department did not have the authority to hold a public hearing on the renewal application because plant husbandry was a permitted accessory use. It also alleged that the Department was equitably estopped from denying its renewal application and the denial was an unconstitutional taking. The district court affirmed the Department’s order.

On appeal, Starbuds first contended that the Department abused its discretion and legally erred in concluding that plant husbandry is not a permitted accessory use in an I-MX-3 zone and that its zoning permit did not authorize plant husbandry. An RMC license requires that the retail marijuana establishment be located in a zone “where, at the time of application for the license, plant husbandry is authorized as a permitted use under the zoning code,” with a few exceptions. The parties agreed that plant husbandry is not permitted in the I-MX-3 zone. Starbuds argued, however, that marijuana cultivation is a permitted, unlisted accessory use based on the zoning administrator’s issuance of its retail sales permit. The Department rejected this argument because “retail sales” was the only use permitted by the permit. The court of appeals held that because plant husbandry is prohibited as a primary use, it cannot be an accessory use, so the RMC license renewal application was properly denied.

Starbuds then challenged the Department’s subject matter jurisdiction to conduct a hearing under DRMC § 6-214(a)(2) and (3), given that the Department could only have issued the RMC license under § 6-214(a)(1), which contains no hearing provision. The Department separately possessed the discretionary authority to conduct a hearing under DRMC § 32-30. Further, plant husbandry is not a permitted primary or accessory use in an I-MX-3 zone, and therefore Starbuds was never eligible to receive an RMC license in the first instance.

Starbuds further argued that the district court erred in finding that equitable estoppel did not apply to provide it relief, contending that the Department’s decision to hold a hearing caused an injury. First, it was unlikely that Starbuds detrimentally changed its position in reliance on the approval in the nine days between the application approval and its revocation. The record supports the trial court’s finding that the Department mistakenly issued the RMC license in the first place, and Starbuds presented no evidence that its reliance on an unlawfully issued license was reasonable. Moreover, Starbuds was not ignorant of the provision that plant husbandry was not permitted in its zone.

Starbuds last contended that the denial of its RMC license was an unconstitutional taking because it had a reasonable expectation of continued licensure and did not receive due process. There is no vested right in the renewal of a license, and nothing precludes Starbuds’ continued operation as a retail establishment, which was the primary use for which it was zoned. And Starbuds was afforded due process through the renewal hearing. The Department’s denial of Starbuds’ RMC license renewal application did not constitute an unconstitutional taking.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Special District Act Does Not Require Consent of Mineral Estate Owners to Expand Boundaries of District

The Colorado Court of Appeals issued its opinion in Bill Barrett Corp. v. Lembke on Thursday, September 6, 2018.

Preliminary InjunctionSpecial DistrictMineral EstatesPower to TaxSummary Judgment.

In 2009, the Sand Hills Metropolitan District (Sand Hills) included the 70 Ranch within its boundaries and began assessing ad valorem taxes on the oil and gas extracted from the mineral estate. Plaintiffs Bill Barrett Corporation and Bonanza Creek Energy, Inc., and intervenor Noble Energy, Inc. (lessees), challenged these taxes and obtained summary judgment in Weld County District Court. Both sides appealed. In that appeal, the division agreed with the district court that when Sand Hills included the 70 Ranch it was a material departure from its 2004 service plan, which required approval from the Weld County Board of County Commissioners. Because that approval had not been obtained, the division held that Sand Hills lacked taxing authority after 2009.

Following entry of the summary judgment and before the Sand Hills appeal was filed, Lembke and 70 Ranch, LLC (the LLC) (collectively, defendants) petitioned South Beebe Draw Metropolitan District (South Beebe) to include the 70 Ranch. Defendants owned the surface estate where all of lessees’ well heads are located. Lessees were not notified of this action. South Beebe resolved to include the 70 Ranch, and the Adams County District Court approved the inclusion. Lessees filed a motion for a preliminary injunction to prevent South Beebe from taxing oil and gas that lessees produce from the mineral estate underlying the 70 Ranch. The trial court denied the motion and entered summary judgment that under C.R.S. § 32-1-401, the severed mineral estate underlying the 70 Ranch could not be included within South Beebe because all the owners and lessees of that estate did not petition for and consent to inclusion. Lessees obtained a temporary restraining order in the Weld County District Court that prohibited the Weld County Treasurer, who had collected the disputed taxes, from disbursing the monies to South Beebe. Venue was transferred to Adams County and, following an evidentiary hearing on lessees’ motion for a preliminary injunction, the court found lessees had not shown a reasonable probability of success on the merits and denied the motion. Later, the court entered a final judgment against lessees on their C.R.S. § 32-1-401 claim. Lessees appealed and asked that the status quo be preserved by enjoining the treasurer from disbursing taxes collected to South Beebe. A motions division granted the request.

On appeal, lessees argued that without their consent and that of the other mineral estate owners, the 70 Ranch, or at least the underlying mineral estate, could not have been included within South Beebe. South Beebe responded that because the mineral and surface estates were severed, only the surface owners needed to petition for and consent to inclusion, and all of them did. The court of appeals first held that mineral estate owners are “fee owners,” but lessees are not. Next, because the parties agreed and the record supports that not all of the mineral estate owners consented to the 70 Ranch’s inclusion, the court considered whether South Beebe’s services can benefit the mineral estate. Because lessees did not argue that the mineral estate owners would benefit from the inclusion, the court concluded that lack of consent by all mineral estate owners did not preclude South Beebe from taxing lessees. Consequently, the court affirmed the trial court’s entry of summary judgment as to lessee’s C.R.S. § 32-1-401(1)(a) claim.

Lessees also challenged the trial court’s ruling that lessees had not shown a reasonable probability of successfully establishing that South Beebe had violated C.R.S. § 32-1-207(2)(a) by failing to obtain Board of County Commissioners (BOCC) approval for a material change in its service plan, because it had obtained approval from the planning commission. However, the court found that the actions of the planning commission and other officials did not satisfy the requirement that South Beebe had to obtain BOCC approval for a material modification of its service plan. Therefore, lessees have a reasonable probability of success in establishing that South Beebe did not obtain the requisite BOCC approval. Further, the trial court dissolved the temporary restraining order and denied a preliminary injunction on this ground alone, without considering the other factors set forth in Rathke v. MacFarlane, 648 P.2d 648, 651 (Colo. 1982).

Lessees also argued that it was error to conclude that South Beebe’s inclusion of the 70 Ranch was not a material modification. Boundary changes alone are presumptively not material modifications, and the court found that inclusion of the 70 Ranch was just a boundary change. Thus, the trial court acted within its discretion in ruling that lessees had not shown a reasonable probability of success in challenging inclusion of the 70 Ranch as an unapproved material modification.

Finally, lessees argued that under C.R.S. § 32-1-107(2), South Beebe could not levy and collect taxes to support services if those services are already being provided by another special district (in this case, Sand Hills). The court agreed with the trial court that the statute prohibits overlapping services, not merely overlapping territory. Here, no party asked the court to resolve the factual question of overlapping services, thus the question of whether the services were overlapping was not properly before the court.

The summary judgment on lessees’ C.R.S. § 32-1-401(1)(a) claim was affirmed. The order denying lessees’ motion for a preliminary injunction was vacated. The case was remanded for the trial court to make findings on the remaining Rathke factors and reconsider whether to enter a preliminary injunction. The temporary injunction will remain in effect until the trial court enters its renewed ruling on the motion for preliminary injunction.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Assessor Authorized to Reevaluate Property in Non-Tax Year if Original Assessment Incorrect when Originally Done

The Colorado Court of Appeals issued its opinion in Thibodeau v. Denver County Board of Commissioners on Thursday, August 23, 2018.

Revaluation of Taxes—Incorrect Original Valuation—Equal Protection—Colorado Constitution’s Uniformity Clause.

Thibodeau purchased a residence in 2013. Earlier that year, the property was valued at $803,800 for ad valorem tax purposes. In 2014, it was revalued at $1,169,700. Thibodeau unsuccessfully protested the increase with the City and County of Denver Assessor’s Office before petitioning for abatement from the Denver County Board of Commissioners, sitting as the Denver County Board of Equalization (BOE). He argued that it was error to reassess the property in an intervening year because no unusual condition existed. The BOE rejected his claim and upheld the reassessment.

Thibodeau appealed to the Board of Assessment Appeals (BAA), which concluded that the mischaracterization of the property’s condition as average, rather than good, had led to an incorrect 2013 assessment, and therefore the assessor was permitted to correct the assessment in the intervening year.

On appeal, Thibodeau argued that the BAA erred in upholding the reassessment because C.R.S. § 39-1-104(11)(b)(1) only allows redeterminations in intervening years when unusual conditions exist, and no unusual conditions existed. C.R.S. § 39-1-104(11)(b)(1) authorizes assessors to correct incorrect property assessments in intervening years to set the value at what it would have been set in the assessment year had the mistake not occurred. Further adjustments cannot be made absent proof of an unusual condition. Here, the assessor’s records indicated that the property had not been remodeled since its construction in 1938. But after the assessment was completed in 2013, the property was listed for sale with pictures and a description showing renovations and remodeling. Thibodeau did not present evidence that the BOE’s corrected value was incorrect. Conversely, there was competent evidence that the original assessment was incorrect due to a misidentification of the condition of the property. Accordingly, the assessor was permitted and required to correct the assessment in 2014.

Thibodeau also argued that the BOE’s off-cycle reassessment violated the Equal Protection Clause of the U.S. Constitution. Here, no fundamental right or suspect class was implicated. The assessment was based on discovery of an incorrect determination of the property’s condition, not because of the property’s sale, and similarly situated properties also undergo the sales verification process. The court of appeals found no equal protection concerns.

Thibodeau further argued that the revaluation violated the Colorado Constitution’s Uniformity Clause. The protections of this clause are coextensive with the federal Equal Protection Clause, and because there was no equal protection violation, this argument failed as well.

The order was affirmed.

Summary provided courtesy of Colorado Lawyer.

Public Trustees Appointed in Boulder and Jefferson Counties

On Wednesday, August 16, 2018, the governor appointed public trustees in Boulder County and Jefferson County. The public trustees facilitate foreclosures and public transactions on real property, and oversee the administration of deeds of trust.

The appointments of the new public trustees were occasioned by the resignation of Jim Martin of Boulder. The new public trustee for Boulder County is Sheryl Anne Del Rosario of Erie, and the new public trustee for Jefferson County is Catherine A. Bortles of Golden.

For more information about the appointments, click here.

Colorado Court of Appeals: Board Correctly Ruled that Contiguous Vacant Parcel Not “Used As a Unit” Within Residential Parcel

The Colorado Court of Appeals issued its opinion in Twilight Ridge, LLC v. Board of County Commissioners on Thursday, July 27, 2018.

Property Tax—C.R.S. § 39-1-102(14.4)(a)Used as a UnitVacant Land.

The Robinsons are the sole members of Twilight Ridge, LLC (Twilight), a Colorado limited liability company. In 2013 Twilight purchased two contiguous platted parcels of land in La Plata County. The first parcel has a home on it (the Residential Parcel). The second parcel is a 0.763 acre buildable but undeveloped lot (the Subject Parcel).

The La Plata County Assessor classified the Subject Parcel as vacant land. Twilight appealed the decision for the 2014 to 2015 tax years to the Board of County Commissioners of La Plata County and it appealed the decision for the 2016 tax year to the Board of Equalization for La Plata County, arguing to both bodies (collectively, the County) that the Subject Parcel should be reclassified as residential land. The County upheld the County Assessor’s classification.

Twilight appealed to the Board of Assessment Appeals (BAA). At a consolidated hearing, Mr. Robinson testified that he and his wife bought the two parcels together so that the Subject Parcel would give them privacy, serve as a buffer to prevent any potential house built on the subject property from impeding their views, and provide a place for their grandchildren to play when they visited. Further, although he was currently offering only the Residential Parcel for sale, Robinson intended to sell both parcels together.

Twilight also offered testimony by the Colorado Division of Property Taxation’s deputy director, who was designated by the Property Tax Administrator (PTA) to testify regarding the Division’s policies as embodied in the PTA’s Assessors’ Reference Library (ARL). The County provided the testimony of its appraisers, who had visited the parcels and seen no activity or evidence of use on the Subject Parcel when she visited. The La Plata County Assessor also testified that using the Subject Parcel as a place for children to play and protect a view were “incidental” uses and not the “integral” use of the Subject Parcel in conjunction with the residential improvements that would warrant classifying it as residential. The BAA upheld the County’s classification.

On appeal, Twilight argued that the BAA misconstrued the “used as a unit” element of C.R.S. § 39-1-102(14.4)(a) and made clearly erroneous findings of fact. The BAA’s conclusion that Twilight did not satisfy its burden of proving that the Subject Parcel was used as a unit with the residential parcel is consistent with the ARL and the testimony at the hearing that “used as a unit” contemplates integral, not merely incidental, use.

The orders were affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Defendant’s Refusal to Leave Ex-Girlfriend’s Residence Could Leave him Subject to Prosecution for Trespass and Burglary

The Colorado Court of Appeals issued its opinion in People v. Murray on Thursday, July 27, 2018.

Criminal Law—Trespass—Burglary—Assault—Landlord–Tenant Agreement—Evidence—Doctrine of Completeness—Credibility.

Defendant’s ex-girlfriend (the victim) asked him to come to her house to help with an errand. The couple had dated “on and off” for about two years, and defendant had stayed frequently at the house, but the two had broken up about two-and-a-half weeks earlier. Defendant entered the victim’s house, and the two got into an argument. The victim told defendant to leave. Defendant threatened the victim, ripped off her clothes, and tried to sexually assault her. At that moment, a friend of the victim showed up. Defendant chased him into the street. The victim locked the door behind defendant and called 911. Defendant yelled at the victim to let him back in the house, but she refused. He then broke a window on the front door trying to get back inside. Defendant was found guilty of first degree burglary, trespass, third degree assault, false imprisonment, attempted sexual assault, attempted second degree burglary, and criminal mischief.

On appeal, defendant contended that the court provided an inaccurate jury instruction defining “enters unlawfully” and “remains unlawfully,” and that it abused its discretion by refusing his tendered instruction explaining those concepts. The basis for defense counsel’s objection to the prosecutor’s added instruction and for his requested instruction was his argument that defendant wasn’t on the premises unlawfully because he lived there. However, defendant failed to present any evidence of a landlord–tenant agreement between him and the victim, and he didn’t pay rent. Therefore, defendant was not a tenant and didn’t have a possessory interest in the premises other than that the victim allowed. The district court did not need to provide the type of instruction that defense counsel tendered.

Defendant further contended that the district court erred by denying his motions for a judgment of acquittal based on insufficiency of the evidence. The record contains sufficient evidence to support the jury’s finding that defendant knowingly entered or remained in the victim’s house unlawfully with the intent to assault and sexually assault the victim, and that he attempted to sexually assault the victim.

Defendant also contended that the district court erred by ruling that if he introduced certain of his recorded statements pursuant to the doctrine of completeness, his credibility would be implicated, and the prosecution could use his Montana deferred judgment to impeach his credibility. He argued that as a result of these rulings, the district court infringed on his right to a fair trial and to confront witnesses, because he was dissuaded from introducing his statements and cross-examining the prosecution’s investigator. Defendant’s statements were self-serving and were inadmissible under the doctrine of completeness. Further, defendant waived his contention that his testimony couldn’t be impeached by the Montana judgment. Alternatively, had defendant not waived this issue, the Montana judgment constituted an admissible felony conviction, and any error wasn’t plain.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Attorneys Who Withheld Information About Appraiser Properly Sanctioned

The Tenth Circuit Court of Appeals issued its opinions in Auto-Owners Ins. Co. v. Summit Park Townhome Association on March 30, 2018. The Tenth Circuit Court of Appeals VACATED its original opinions and issued the following revised opinions: Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 16-1638, and Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 16-1352.

Two attorneys, Mr. William Harris and Mr. David Pettinato, represented Summit Park Townhome Association against its insurer. The two attorneys were sanctioned for failing to disclose information to the district court. The attorneys appealed the sanction on these five arguments:

  1. The district court lacked authority to require the disclosure requirements.
  2. The attorneys did not violate the court’s disclosure requirements.
  3. The district court awarded attorneys’ fees beyond the scope of an earlier sanctions order.
  4. The district court’s award of attorneys’ fees resulted in a deprivation of due process.
  5. The amount of attorneys’ fees awarded was unreasonable.

The Tenth Circuit Court of Appeals AFFIRMED the district court’s actions in issuing sanctions, determining the scope of the sanctions, and calculating the amount of the sanctions.

The initial lawsuit was related to an insurance dispute following a claim filed by Summit Park with Auto-Owners Insurance for hail damage. The parties disagreed on the dollar amount of the damages, and Auto-Owners sued for a declaratory judgement to decide the value.

Summit Park attorneys Harris and Pettinato moved to compel an appraisal following the insurance policy requirements. Auto-Owners asked the district court to resolve the dispute over the dollar amount by ordering an “appraisal agreement.” The district court ordered the appraisal agreement and warned both parties that if the parties and/or counsel did not comply, the court would impose sanctions.

George Keys was the appraiser for Summit Park, and Auto-Owners questioned his impartiality. Mr. Keys and the court-appointed umpire both agreed on an appraisal award of over $10 million. Auto-Owners then objected to Mr. Keys based on impartiality and that Summit Park had failed to disclose evidence bearing on his impartiality. The court disqualified Mr. Keys and vacated the appraisal award. Auto-Owners then moved for sanctions against Mr. Harris and Mr. Pettinato, including attorney fees and expenses. The district court assessed sanctions against the two attorneys for $354,350.65 in fees and expenses.

Attorneys Harris and Pettinato questioned the district court’s authority to enter the disclosure order, and they refused to comply with the order. They could have sought reconsideration or a writ, but they could not violate the order. See Maness v. Meyers, 419 U.S. 449, 458 (1975) (“If a person to whom a court directs an order believes that order is incorrect the remedy is to appeal, but, absent a stay, he must comply promptly with the order pending appeal.”). Orders issued by a court must be obeyed by the parties until “reversed by orderly and proper proceedings.” United States v. United Mine Workers, 330 U.S. 258, 293 (1947); See United States v. Beery, 678 F.2d 856, 866 (10th Cir. 1982); and see also GTE Sylvania, Inc. v. Consumers Union of U.S., Inc, 445 U.S. 375, 386 (1980). Failure to comply with the court order could trigger sanctions. See United Mine Workers, 330 U.S. at 294 (quoting Howat v. Kansas, 258 U.S. 181, 190 (1922)), so Mr. Harris and Mr. Pettinato were obligated to comply in the absence of an appellate challenge, and could be sanctioned for noncompliance.

Attorneys Harris and Pettinato challenged the district court’s conclusion that they had violated the disclosure order by arguing that the district court misinterpreted the term “impartial” and that Harris and Pettinato disclosed sufficient information about Mr. Keys.

Because Mr. Harris and Mr. Pettinato urged a legal error consisting of misinterpretation of the term “impartial,” the Tenth Circuit Court of Appeals engaged in de novo review. Hamilton v. Boise Cascade Express, 519 F.3d 1197, 1202 (10th Cir. 2008), and it otherwise confined the review sanctions under the abuse-of-discretion standard. Russell v. Weicker Moving & Storage Co., 746 F.2d 1419, 1420 (10th Cir. 1984) (per curiam).

The district court requested disclosure of (1) the appraiser’s “financial or personal interest in the outcome of the appraisal,” (2) any “current or previous relationship” between the appraiser and Summit Park’s counsel, and (3) any other facts subsequently learned that “a reasonable person would consider likely to affect” the appraiser’s impartiality.

Harris and Pettinato made two disclosures:

  1. “Mr. Keys does not have any significant prior business relationship with [Merlin], Summit Park, or C3 Group. Mr. Keys has acted as a public adjuster and/or appraiser on behalf of policyholders that [Merlin] has represented in the past, however, this obviously does not affect his ability to act [as] an appraiser in the matter.” Appellant’s App’x, vol. 2 at 292.
  2. “Mr. Keys has acted as a public adjuster and/or appraiser on behalf of policyholders that [Merlin] has represented in the past. Mr. Keys has no financial interest in the claim, and has no previous relationship with the policyholder in this matter.” Id. at 298.

Mr. Keys made the following disclosure: “I do not have a material interest in the outcome of the Award and have never acted either for or against Summit Park Townhome Association. My fee agreement is based upon hourly rates plus expenses. . . . I do not have any substantial business relationship or financial interest in [Merlin]. There have been cases where both [Merlin] and Keys Claims Consultants acted for the same insured but under separate contracts.” Id. at 307-08.

Regardless of the district court’s definition of “impartial,” attorneys Harris and Pettinato failed to disclose that (1) other attorneys in their firm (Merlin Law Group) had worked with Mr. Keys on appraisals for at least 33 clients, (2) Merlin attorneys had represented Mr. Keys on various matters for over a decade, (3) Merlin’s founder and Mr. Keys had co-founded a Florida lobbying operation, and (4) Merlin attorneys had served as the incorporator and registered agent for one of Mr. Key’s companies.

Attorneys Harris and Pettinato claim they disclosed sufficient information about Mr. Keys’ impartiality and that they lacked personal knowledge about the undisclosed facts. Both of these arguments failed. The district court could reasonably find that the undisclosed information was meaningful, and Harris and Pettinato knew about some of Mr. Keys and Merlins contacts, and they had an obligation to inquire about contacts with other Merlin attorneys. Therefore, the district court acted within its discretion on Mr. Harris’ and Mr. Pettinato’s failure to disclose information.

As far as Mr. Harris’ and Mr. Pettinato’s argument over the district court’s definition of “impartial,” the disclosure order issued by the district court defined “impartial” by stating: “An individual who has a known, direct, and material interest in the outcome of the appraisal proceeding or a known, existing, and substantial relationship with a party may not serve as an appraiser.” Id. at 245.

Using the definition of “impartial” provided in the district court’s order, the district court required disclosure of any facts that a reasonable person would view as likely to affect the appraiser’s impartiality. Mr. Harris and Mr. Pettinato argued that evidence of an appraiser’s advocacy was unlikely to affect the appraiser’s impartiality. See Owners Ins. Co. v. Dakota Station II Condominium Ass’n, 2017 WL 3184568, at *4 (Colo. App. July 27, 2017), cert. granted, 2018 WL 948601 (Colo. Feb. 20, 2018). Even if Mr. Harris and Mr. Pettinato were correct, the district court could have reasonably viewed Mr. Keys’ undisclosed prior statements as likely to affect his impartiality based on a known, direct, and material interest in the outcome. Additionally, in an advertisement on Mr. Keys’ website, Mr. Pettinato endorsed Mr. Keys, saying: “Both Mr. Keys and his staff have assisted me as well as my firm in resolving an untold number of large multi-million dollar losses to an amicable resolution and settlement to the policyholders’ benefit and satisfaction.” Id. at 704. And a profile on Merlin’s website reported that Mr. Keys “ha[d] dedicated his professional life to being a voice for policyholders in property insurance claims.” Id. at 723. In this profile, Mr. Keys stated: “I was taught to always handle a claim as if my momma was the insured.” Id.

Therefore, the district court did not abuse its discretion by finding that Mr. Harris and Mr. Pettinato had violated the disclosure order.

Mr. Harris and Mr. Pettinato argued that Auto-Owners waived the right to object by failing to object despite their knowledge of past relationships between Merlin and Mr. Keys. The Tenth Circuit disagreed, because without the undisclosed information, Auto-Owners would not have had full knowledge of the relationship.

For the sanction against the two attorneys, the district court invoked 28 U.S.C. § 1927. Under § 1927, an attorney “who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” 28 U.S.C. § 1927. The two attorneys argued that these three items fell outside of the initial sanctions order: (1) Auto-Owners’ preparation of the motion for sanctions ($51,309.50), (2) Auto-Owners’ preparation of the application for attorneys’ fees and expenses ($16,960.50), and (3) Auto-Owners’ other related work ($61,662.50).

The Tenth Circuit disagreed with those arguments, because the district court explained the attorney fees in the sanctions order. Therefore, the Tenth Circuit deferred to the district court’s interpretation of its own order. See, e.g., Chi., Rock Island & Pac. R.R. v. Diamond Shamrock Ref. & Mktg. Co., 865 F.2d 807, 811 (7th Cir. 1988) (“We shall not reverse a district court’s interpretation of its own order ‘unless the record clearly shows an abuse of discretion.’” (quoting Arenson v. Chicago Mercantile Exch., 520 F.2d 722, 725 (7th Cir. 1975))). The Tenth Circuit found it reasonable for the district court to consider these litigation expenses.

The fifth area that Mr. Harris and Mr. Pettinato questioned was a deprivation of due process based on an inability to respond to the district court’s inclusion of litigation activities outside of the initial sanctions order. The Tenth Circuit disagreed because they could have objected to any of the attorney fees included on the Auto-Owners application that was filed. This opportunity supplied due process. See Resolution Tr. Corp. v. Dabney, 73 F.3d 262, 268 (10th Cir. 1995); see also Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, No. 16-1352, slip op. at 17-19 (10th Cir. Mar. 30, 2018) (to be published) (discussing a similar argument made by Summit Park Townhome Association).

The last argument was that the court awarded an unreasonable about of attorney fees. The Tenth Circuit reviewed a determination of attorney fees for an abuse of discretion. See AeroTech, Inc. v. Estes, 110 F.3d 1523, 1528 (10th Cir. 1997). In applying the abuse-of-discretion standard, the Circuit considered whether the district court’s determination appeared reasonable in light of the complexity of the case, the number of strategies pursued, and the responses necessitated by the other party’s maneuvering. See Robinson v. City of Edmond, 160 F.3d 1275, 1281 (10th Cir. 1998). The district court was not required to identify and justify every hour allowed or disallowed. See Malloy v. Monahan, 73 F.3d 1012, 1018 (10th Cir. 1996).

Based on the Tenth Circuit’s review, the district court considered three areas when determining reasonableness of fees. First, the district court concluded that it was reasonable for Auto-Owners’ counsel to spend long hours because “Auto-Owners had over $30 million at stake” and the issues were complex. Appellants’ App’x, vol. 3 at 673-74. Second, the court considered the local market, the qualifications of the attorneys, and the contentiousness of the litigation. These considerations led the district court to find that the billing rates had been reasonable. Third, the court considered the use of billing judgment by Auto-Owners’ counsel through concessions such as staffing with lower-billing attorneys, declining to charge for all hours worked, and discounting hours worked by paralegals and secretaries. The district court acted reasonably in considering these concessions. The Tenth Circuit concluded that the district court did not abuse its discretion in calculating the amount of the sanction ($354,350.65).

The Tenth Circuit Court of Appeals concluded that the district court did not err in sanctioning Mr. Harris and Mr. Pettinato, that Mr. Harris and Mr. Pettinato violated the district courts order by failing disclose information bearing on Mr. Key’s impartiality, and that the amount set by the district court was reasonable.

Colorado Court of Appeals: Child Care Center Not Eligible for Property Tax Exemptions

The Colorado Court of Appeals issued its opinion in Children’s Hospital Colorado v. Property Tax Administrator on Thursday, June 28, 2018.

Child Care Center—Property Tax—Exemption—Sliding Scale—Charitable Purpose.

Children’s Hospital Colorado (the Hospital) owns and operates a child care facility (the Center) on the University of Colorado Anschutz Medical School (CU Anschutz) campus. The Center provides child care to constituents of the Hospital and CU Anschutz as an employee benefit. The Center has a written tuition assistance policy that gives all families with an income below 150% of the federal poverty level a flat 10% discount. It also provides a flat 5% discount for siblings of enrolled children, regardless of the family’s income. The Hospital filed an application for exemption from property tax for the Center, which the Division of Property Tax considered under the charitable purposes exemption, C.R.S. § 39-3-108(1)(a), and an exemption for qualified child care centers, C.R.S. § 39-3-110. The Property Tax Administrator denied the application, and the Board of Assessment Appeals (BAA) upheld the order.

On appeal, the Hospital argued that the BAA exceeded its authority in interpreting C.R.S. § 39-3-110(1)(e) to conclude that the Center’s tuition discount policy did not qualify the Center for an exemption under that section. It argued that the BAA misinterpreted the rule regarding the definition of “charges on the basis of ability to pay.” C.R.S. § 39-3-110(1)(e) requires that the Center charge for its services based on the recipient’s ability to pay. Here, the family tuition reduction policy was based solely on whether a family’s income falls above or below the federal poverty line; it was not a scale that provides a range of tuition options, and it did not account for more than one factor in determining a family’s ability to pay. Similarly, the sibling discount is provided regardless of income or another factor indicating ability to pay. The BAA properly interpreted C.R.S. § 39-3-110(1)(e) to conclude that the Center’s tuition discount policy did not qualify as offering services “on the basis of ability to pay.”

The Hospital also contended that the BAA erred by finding that the Center is not operated for strictly charitable purposes. Here, the Center was operating for a business purpose—providing an employee benefit and recruitment tool—and not for a charitable purpose. Additionally, the Center did not benefit an indefinite number of persons and did not lessen the burdens of government. Therefore, it was not operated strictly for charitable purposes, as required by C.R.S. § 39-3-108(1).

The order was affirmed.

Summary provided courtesy of Colorado Lawyer.