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Colorado Court of Appeals Opinions
November 7, 2013

The Court of Appeals summaries are written for the Colorado Bar Association by licensed attorneys Teresa Wilkins (Denver) and Paul Sachs (Steamboat Springs). Please note that the summaries of Opinions of the Colorado Court of Appeals are provided as a service by the Colorado Bar Association and are not the official language of the Court. The Colorado Bar Association cannot guarantee the accuracy or completeness of the summaries.

2013 COA 145. Nos. 12CA1269 & 13CA0116. In re the Estate of Gattis: Gattis v. McNutt.
Residential Sales Contract—Nondisclosure—Economic Loss Rule.

Defendants (collectively, sellers) appealed the judgment entered following a bench trial in favor of Carol S. Gattis on her nondisclosure claim. The Court of Appeals affirmed the judgment.

An entity controlled by sellers purchased the residence for purposes of repair and resale. Before the purchase, the entity obtained engineering reports that included extensive discussion of structural problems resulting from expansive soils and ways to remedy those problems. Advance Structural Repair, another entity that sellers controlled, oversaw the repair work. When the repairs were completed, sellers obtained title to the residence and sold it to Gattis using a standard-form real estate contract to which they made no changes (contract). The contract included a “Seller’s Property Disclosure” (SPD) wherein sellers denied any knowledge of structural problems or issues with expansive soils.

Sellers argued that the trial court erred when it denied their defense based on the economic loss rule. Specifically, sellers argued that the economic loss rule bars a nondisclosure tort claim against the seller of a home built on expansive soils that caused damage to the home after the sale. 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 a breach absent an independent duty of care under tort law.”

The Court declined to apply the economic loss rule in this case for two reasons. First, apart from any contractual obligation, home sellers owe home buyers an independent duty to disclose latent defects of which they are aware. Second, disclosure provisions in the Form Contract at issue do not subsume the independent duty so as to trigger the economic loss rule. Although sellers were not required by the SPD to disclose their involvement with the entity that had performed repairs, they do not dispute, as the trial court found, that this fact was material and should have been disclosed. Gattis could have prevailed on this nondisclosure without relying on the SPD.

2013 COA 146. No. 12CA1713. Colorado Community Bank v. Hoffman.
Judicial Dissolution—CRCP 54(b)—Final Judgment—Receiver—Abuse of Process—Civil Conspiracy.

< This action arose from the judicial dissolution of certain companies in the course of a receivership proceeding. Defendants appealed from orders certified as final under CRCP 54(b) and from orders granting summary judgment to intervenors Victor Harshberger, Kenneth Adelberg, and Robert Williams on defendants’ counterclaims for abuse of process and civil conspiracy. The appeal was dismissed in part and affirmed in part.

Walter E. Hoffman was the president and chief executive officer of Oxford Resource & Management (Oxford). Oxford, Adelberg, and Williams owned equity membership interests in KDGC Holdings, LLC (Holdings). Holdings was the parent of three operating subsidiaries, which served as the ownership structure for three golf courses. Hoffman served as general manager of all of the entities owned by Holdings. Plaintiff Colorado Community Bank (Bank) made several loans to finance Holdings’ acquisitions of two of the golf courses. Bank initiated this action after Hoffman and the subsidiary defaulted on this loan, and intervenors joined to appoint a receiver to remove Hoffman from control.

After the assets of Holdings and the subsidiaries were sold, the intervenors moved to certify the sale orders as final under CRCP 54(b). Over Hoffman’s objection, the district court granted the intervenors’ motion. Defendants contended that the district court erred in numerous ways when it issued the sale orders. The sale orders disposed of an “entire claim for relief” for purposes of CRCP 54(b) certification. Because defendants did not appeal this order within forty-five days of the certification, the Court of Appeals lacked jurisdiction over this issue and that portion of the appeal was dismissed.

Defendants also contended that the district court erred in granting summary judgment to the intervenors on defendants’ counterclaims for abuse of process and civil conspiracy. Although the evidence might have proved that the intervenors had an ulterior motive in bringing the receivership action, it did not establish the requisite improper use of process element. Therefore, defendant’s abuse of process claim failed. Because defendants’ conspiracy claims were based on the alleged underlying wrong of abuse of process, these claims also failed.

2013 COA 147. No. 12CA1897. BP America Production Co. v. Colorado Dep’t of Revenue.
Return on Investment—Severance Tax—Deductible Cost.

The Colorado Department of Revenue (Department) appealed the judgment entered in favor of BP America Production Company (BP) on BP’s motion for summary judgment. The Court of Appeals reversed the judgment and remanded the case for entry of judgment in the Department’s favor.

The trial court found that return on investment (ROI) is a deductible cost for severance tax purposes under CRS § 39-29-102(3)(a), and allowed BP to deduct such expenses from its tax returns. BP’s ROIs were associated with facilities used for transporting, manufacturing, and processing natural gas.

The Department contended that the trial court erred in holding that ROI is a deductible transportation or processing cost under CRS § 39-29-102(3)(a). CRS § 39-29-105(1)(a) imposes a tax on “the gross income of crude oil, natural gas, carbon dioxide, and oil and gas severed from the earth” in Colorado. A taxpayer’s gross income is “the net amount realized by the taxpayer for sale of the oil or gas.” The net amount is calculated based on “the gross lease revenues, less deductions for any transportation, manufacturing, and processing costs borne by the taxpayer.” ROI is not a cost that has already been expended to transport or process oil or gas from its point of extraction at the wellhead. Because only costs incurred directly for the transportation or processing of oil or gas are allowable deductions under the statute, ROI is not a deductible cost. Therefore, the trial court erred when it allowed ROI as a deductible transportation or processing cost under CRS § 39-29-102(3)(a).

2013 COA 148. No. 12CA2313. Anderson v. Suthers, Colorado Attorney General.
Standing—General Public—Charitable Trust.

Plaintiffs, who are former directors or volunteers of the Colorado Health Foundation (seller), appealed the trial court’s judgment dismissing the action as moot. The Court of Appeals affirmed, but on different grounds than those relied on by the trial court.

Plaintiffs challenged the Office of the Colorado Attorney General’s (AG) approval of a transaction between the seller and HealthONE of Denver, Inc. (purchaser), by which the seller sold to the purchaser its interest in HealthONE Health Care System. Plaintiffs claimed they had standing to represent the public as beneficiary of the seller because of their “close and lengthy association with the [seller].” They also claimed they had a “direct interest in the activities of the hospitals and a special interest in the proper administration of the hospitals in accordance with [the seller’s] charitable purposes.” These relationships, however, do not endow the plaintiffs with standing to sue the seller or the OAG over the transaction. Because plaintiffs do not have a special interest in the seller distinct from that of the general public and have not alleged an injury to their legally protected interests, they do not have standing.

2013 COA 149. No. 13CA0492. People v. Stell.
Power of Attorney—Fiduciary Duty—Without Authorization—Theft by Deception.

The People appealed the dismissal of counts one, two, and four, as well as part of count three, of the indictment against defendant Geoffrey Hunt Stell. The Court of Appeals reversed the order and remanded the case with directions.

The victim executed a power of attorney (POA) naming Stell, who is the victim’s son, as his agent. The POA gave Stell broad general powers over the victim’s property. According to the indictment, Stell had liquidated all of the victim’s property for his own personal use. Stell filed a motion to dismiss counts one through four of the indictment, asserting that he had the legal authority to spend, transfer, and liquidate the assets in question pursuant to the POA. The trial court granted the motion.

On appeal, the People contended that the district court erred in concluding, as a matter of law, that the POA authorized Stell to liquidate all of the victim’s assets and to use them for his own benefit. Although the POA provided broad general powers, several provisions of the POA suggest the victim’s intent that Stell would act on the victim’s behalf, as opposed to in his own interest. Therefore, proof of the “without authorization” element of the theft charges at issue should have been given to the jury to decide.

The People further contended that regardless of whether Stell acted without authorization, the district court erred in dismissing count four of the indictment because that count separately alleged theft by deception, and the evidence supports such a charge. Even if Stell was authorized to transfer the victim’s assets to a trust, he still could have committed theft by deception if he fraudulently induced the victim to sign the trust agreement that allowed Stell to facilitate a theft. Therefore, the evidence could potentially have supported such a charge, regardless of any authorization under the POA. Accordingly, the district court erred in dismissing count four.

2013 COA 150. No. 13CA1390. Triple Crown at Observatory Village Ass’n, Inc. v. Village Homes of Colorado, Inc.
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.

Colorado Court of Appeals Opinions

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