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Colorado Court of Appeals Opinions
February 2, 2012

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.

2012 COA 12. No. 08CA0675. People v. Wartena.
Burglary—Second-Degree Murder—Evidence—Intent—Due Process—Non-Included Offenses—Theory of the Case—Lesser-Included Offenses.

Defendant appealed the judgment of conviction entered on jury verdicts finding him guilty of second-degree burglary and attempted second-degree murder, among other offenses. The judgment was affirmed.

Defendant asserted that the trial court erroneously denied his motion for judgment of acquittal on the second-degree burglary charge because there was insufficient evidence that he intended to commit theft when he entered the barn. Colorado law permits the intent element of second-degree burglary to be formed while remaining unlawfully inside a building, even if that intent was not present at entry. Therefore, because defendant stole boots from the barn before leaving, there was sufficient evidence that he formed the requisite intent at some point before leaving the barn with the boots.

Defendant asserted that the trial court violated his right to due process of law by refusing to instruct the jury at his second trial on the lesser non-included offenses of reckless endangerment, felony menacing, illegal discharge of a firearm, and prohibited use of a weapon. A trial court need not instruct the jury on all possible non-included offenses as long as its instructions adequately convey the defendant’s theory of the case. Because the trial court’s instructions on the lesser-included offenses of attempted first-degree assault, second-degree assault, and third-degree assault provided the jury with several options less severe than conviction for attempted second-degree murder, which were supported by the evidence and consistent with defendant’s theory of the case, the court’s instructions provided defendant with adequate due process.

2012 COA 13. No. 09CA0544. People v. Herrera.
Sexual Assault on a Child—In Camera Review—Social Services Records—Rape Shield Statute—Evidence—Photographs—Victims—Consecutive Sentences.

Defendant Theodore Ramone appealed the trial court’s judgment of conviction entered on jury verdicts finding him guilty of two counts of sexual assault on a child and two counts of sexual assault (pattern of abuse). He also appealed the sentences imposed on his convictions. The case was remanded for further proceedings. 

In 2007, Herrera was accused of sexually abusing his male cousin, D.R., on several occasions when D.R. was about 12 years old, as well as his younger female cousin, V.R., on five occasions when she was between the ages of 8 and 14. Herrera contended that the trial court abused its discretion in denying the requests made by him and by the People to conduct an in camera review of V.R.’s social services records to determine whether they contained information material to his case that should have been disclosed before trial.

Before Herrera’s trial, he filed a motion under the rape shield statute, CRS § 18-3-407, requesting leave to admit evidence of V.R.’s prior allegations of sexual assault and a motion for discovery of any such evidence. After a pretrial hearing on the matter, the trial court ordered the People to disclose any information regarding known, false allegations of or investigations concerning sexual assault of V.R. After learning from V.R.’s mother that V.R. had made prior allegations of sexual assault that likely were reported in her social services records, the prosecutor retrieved V.R.’s records from three social services agencies and tendered them to the trial court with a request to conduct an in camera review. Herrera joined in the request for an in camera review, which the trial court denied.

Where a prosecutor has requested the court’s in camera review of confidential social services records based on a reasonable belief that they contain exculpatory, impeaching, or inculpatory information that would materially assist in preparing the defense, the defendant’s burden to request disclosure has been satisfied. Therefore, because the People made a requisite threshold showing that in camera review of the records was necessary and Herrera had joined in this request, the trial court abused its discretion in declining to conduct an in camera review. Accordingly, the case was remanded with directions for the trial court to conduct an in camera review of the records.

Herrera also contended that the trial court abused its discretion in admitting into evidence photographs of V.R. and D.R. that were taken at an event in March 2001, because they were irrelevant and highly prejudicial. The appearance of a sexual assault victim when the alleged sexual abuse began is relevant to illustrate the child’s age at that time, to show a material element of the crime of sexual assault of a child, and to show the jury more clearly how the child victim appeared at the time of the alleged sexual assaults. Therefore, the photographs were relevant and admissible.

Herrera further contended that the trial court abused its discretion in sentencing him to two consecutive terms of twelve years to life in prison rather than concurrent terms. The trial court did not abuse its discretion in imposing consecutive sentences based on two separate child victims and aggravated circumstances

2012 COA 14. No. 09CA2413. People v. Davis.
Crim.P. 35(c)—Parole Revocation—Public Defender.

Defendant Gene V. Davis appealed the district court’s order denying his Crim.P. 35(c) motion for post-conviction relief. The order was reversed and the case was remanded for further proceedings.

In 2000, Davis pleaded guilty to first-degree aggravated motor vehicle theft and was sentenced to six years in prison, followed by five years of mandatory parole. On October 23, 2004, Davis was released from prison and placed on parole. On August 12, 2008, a parole complaint was filed with the Parole Revocation Board alleging that Davis violated three conditions of his parole. After Davis’s parole was revoked, he challenged his parole revocation by filing a pro se Crim.P. 35(c) motion in the district court, alleging numerous procedural and substantive defects, and requesting the appointment of post-conviction counsel. The district court ordered the Attorney General’s Office to file a response to Davis’s motion on behalf of the parole board, but did not serve a copy of Davis’s motion on the public defender. Thereafter, the district court denied Davis’s motion without permitting a response by the public defender.

Davis contended that the district court erred by referring his motion to the prosecution without also sending a copy to the public defender, in accordance with the procedures outlined in Crim.P. 35(c)(3)(IV) and (V). Having relied on matters outside the initial motion, files, and record to summarily deny the motion, the court was obligated to send a copy of Davis’s motion to the public defender for review. Accordingly, because Davis may have been prejudiced by the court’s procedural noncompliance, the order was reversed and the case was remanded with directions for the court to send a copy of Davis’s motion to the public defender with instructions for the public defender to file a timely response pursuant to Crim. P. 35(c)(3)(V).

2012 COA 15. No. 10CA0579. People v. Watkins.
Probation—Medical Marijuana—Federal Law—Offense.

The People appealed the trial court’s order denying a motion for reconsideration of a previous order approving the use of marijuana for medical purposes by defendant, who is a probationer. The order was vacated and the case was remanded with directions.

The written conditions of defendant’s probation, to which he expressly agreed, include provisions that (1) he will not violate any laws; (2) he will not use or possess any narcotic, dangerous, or abusable substances without a prescription; (3) drug and alcohol evaluation and treatment would be left to the discretion of the probation department; and (4) he will not purchase, possess, or use any mind-altering or consciousness-altering substances without a written lawful prescription. The prosecution argued that the trial court erred in allowing defendant to use marijuana for medical purposes because it is prohibited by federal criminal statutes.

An “offense” under CRS § 18-1.3-204(1) includes any violation of a statute or ordinance for which confinement is authorized as a penalty. Federal law makes it unlawful for any person to knowingly or intentionally possess marijuana. Any person who violates prohibition may be sentenced to prison for not more than one year. Therefore, defendant’s federally prohibited use of medical marijuana would constitute an “offense” within the meaning of CRS § 18-1.3-104(1) and violate the terms of his probation. Furthermore, Colorado’s Medical Use of Marijuana Amendment only allows a physician to provide “written documentation” stating that the patient has a debilitating medical condition and might benefit from the medical use of marijuana. Therefore, defendant’s physician’s certification does not constitute a “written lawful prescription” as required by the terms of his probation.

Therefore, defendant’s alleged constitutional right to use medical marijuana may be curtailed during the term of his probationary sentence. The trial court’s order approving defendant’s use of marijuana for medical purposes while on probation was vacated and the case was remanded for further proceedings consistent with this opinion.

2012 COA 16. No. 10CA1240. People v. Chirico.
Assault—Jury Instructions—Self-Defense—Citizen’s Arrest.

Defendant Austin Chirico appealed from the judgment entered on a jury verdict finding him guilty of third-degree assault. The judgment was reversed and the case was remanded for a new trial.

The victim, with about thirty others, had been socializing and drinking alcohol one night at a friend’s home near the University of Colorado–Boulder campus. The victim confronted defendant, whom he believed had broken a fence at the home. When defendant attempted to walk away, the victim grabbed defendant and shoved him. The two traded punches and wrestled on the ground until defendant captured the victim in a headlock. The victim sustained one or more blows to his face, which fractured his cheekbone, and defendant was charged with second-degree assault.

Defendant contended that it was reversible error for the trial court to instruct the jury that because every person is presumed to know the law, it was presumed that defendant knew someone could employ lawful force against him if he committed a crime in that person’s presence (the presumption instruction). It is undisputed that the trial court’s basic instructions regarding defendant’s right to self-defense and the law of citizen’s arrest were correct. In evaluating the reasonableness of a defendant’s belief in the need to take defensive action, however, a jury must consider the totality of the circumstances, including the perceptions of the defendant. Thus, although the presumption instruction, in general, did not misstate the law, it was error to give it to the jury in this case because it restricted the jury’s consideration of the totality of the circumstances, which was an issue to be decided by the jury in this matter.

2012 COA 17. No. 10CA1847. Swinerton Builders v. Nassi.
Attorney Fees—Breach of Contract—Pierce Corporate Veil.

Plaintiff Swinerton Builders (Swinerton) appealed the district court’s order denying its motion to recover the attorney fees and costs that it incurred in successfully piercing Beauvallon Corporation’s (Beauvallon) corporate veil. The order was reversed and the case was remanded.

Swinerton entered into a construction contract with Beauvallon in 2001 that contained an arbitration clause and fee-shifting provision. After the construction project was completed, Swinerton filed a demand for arbitration, asserting breach of contract claims against Beauvallon and its president, defendant Craig Nassi, and an unjust enrichment claim against Beauvallon. Ultimately, the arbitrators ordered Beauvallon to pay Swinerton more than $1 million in damages, interest, attorney fees, and costs, and the district court confirmed this award. Thereafter, the district court ruled in favor of Swinerton, concluding that Swinerton could pierce Beauvallon’s corporate veil and hold Nassi personally liable for the arbitration award against Beauvallon.

Swinerton contended that the district court erred in refusing to award it the attorney fees and costs it incurred in its successful veil-piercing action. A party who prevails in an action to pierce the corporate veil of a corporation may recover the attorney fees and costs incurred in that action if (1) the action was brought to enforce a breach of contract judgment against the corporation; and (2) the contract underlying the judgment authorized an award of fees and costs for enforcing the judgment against the corporation.

Here, Swinerton’s action to pierce the corporate veil was not a separate and independent claim. Rather, it was a procedural mechanism to enforce the arbitration award against Beauvallon in the underlying breach of contract action. Thus, the veil-piercing lawsuit was, in effect, an enforcement action against Beauvallon. When the district court determined that Swinerton could pierce Beauvallon’s corporate veil, Nassi became liable for, among other things, Beauvallon’s contractual obligations under the fee-shifting provision. Accordingly, Swinerton was entitled to recover the reasonable attorney fees and costs incurred in the veil-piercing action. The case was remanded to the district court for a determination and award of the appropriate amount of such fees.

2012 COA 18. No. 10CA2571. Colorado Special Districts Property and Liability Pool v. Lyons III v. County Technical Services, Inc.
Bad-Faith Breach of Insurance Contract—Public Entity—Colorado Governmental Immunity Act—Tort—Discovery—Attorney Fees.

Defendants William S. Lyons, Jr. and William S. Lyons III (collectively, Lyonses) appealed the district court’s order, pursuant to C.R.C.P. 12(b)(1), dismissing their claim for bad-faith breach of insurance contract against plaintiff Colorado Special Districts Property and Liability Pool (Pool) and third-party defendant County Technical Services, Inc. (CTSI), on the ground that the Pool and CTSI are immune from liability under the Colorado Governmental Immunity Act (CGIA). The order was affirmed and the case was remanded with directions.

In early 2006, several banks purchased bonds issued by Lincoln Creek Metropolitan District (District), a quasi-municipal corporation in Douglas County. The District issued the bonds to finance construction of a proposed master-planned residential community called Lincoln Creek Village. The Lyonses were members of the District’s board of directors and LCV, LLC, the developer’s board of directors. The banks brought an action (the underlying lawsuit) against LCV and the Lyonses, alleging claims for damages arising from the offering and sale of the bonds issued by the District. The Pool claimed it had no duty to defend or indemnify the Lyonses in the underlying lawsuit because the Lyonses were not covered under the insurance policy and the banks in the underlying lawsuit did not name the District as a defendant or sue the Lyonses in their capacity as members of the District’s board of directors. The trial court found that the Pool and CTSI were both “public entities” and, therefore, immune under the CGIA. It dismissed the Lyonses’ bad-faith claim against these entities.

The Lyonses contended that the district court erred in dismissing their claim for bad-faith breach of insurance contract under the CGIA. The CGIA provides a public entity the defense of sovereign immunity against actions for tort injuries and does not apply to actions grounded in contract. Here, the Lyonses’ bad faith breach of contract claim against the Pool and CTSI was a tort claim that existed independently of the Lyonses’ underlying contract claim against the Pool. Accordingly, the district court did not err in concluding that the CGIA applied to that claim.

The Lyonses next contended that the district court erred in determining that CTSI was a “public entity” within the meaning of the CGIA and, therefore, not immune under the CGIA. The definition of “public entity” includes any “separate entity created by intergovernmental contract or cooperation” composed only of entities that are themselves public entities under the statutory definition. Here, the Pool is a “separate entity created by intergovernmental contract or cooperation” among special districts. Because CTSI is a public corporation, is governmental in nature, and serves as an intermediary to the Pool, CTSI is an “instrumentality” of the Pool and, thus, a “public entity” under the CGIA. CTSI also is a public entity under CRS § 24-10-103(5) because, like the Pool, it is a separate entity created by intergovernmental cooperation between or among other public entities.

The Lyonses next contended that the district court abused its discretion by implicitly rejecting their request to conduct discovery on whether the Pool and CTSI waived their immunity. However, by their own admission, the Lyonses chose not to conduct discovery on the immunity issue because of a perceived need to maintain consistency between their positions in this case and the underlying lawsuit.

Finally, the Pool and CTSI requested an award of attorney fees for defending against the Lyonses’ bad faith claim on appeal. CTSI was entitled to its attorney fees on appeal because the only claim asserted against it was dismissed before trial under C.R.C.P. 12(b)(1). The Pool, however, was not entitled to attorney fees on appeal because the Lyonses’ breach of contract claim was stayed in the district court and had not been dismissed.

2012 COA 19. No. 10CA2620. SRS, Inc. v. Southward, and Concerning Francis.
Attorney Fees—C.R.C.P. 11—Applies Only to Pre-Filing Conduct.

Steven G. Francis, an attorney, appealed the district court’s order awarding attorney fees to Stanton B. Southward. The order was vacated.

Francis was the attorney for SRS, Inc., which operated an automotive service business. Southward was a co-owner and employee of SRS. On SRS’s behalf, Francis filed a complaint in August 2008 alleging that Southward had converted to his own use a number of company vehicles and violated his employment contract.

By May 7, 2010, Southward had disclosed two documents that proved that one of the vehicles, a van, had not been converted but had been sold to a customer. The trial court first ruled that the disclosure was too close to trial and therefore inadmissible. The trial was continued and Southward filed a motion for reconsideration of the motion, which was granted, rendering the documents admissible.

On August 22, 2010, three days before trial, SRS withdrew its conversion claim concerning the van. At trial, Southward argued that SRS’s witnesses should not be believed with respect to the remaining claims because of the delay in the withdrawal of the claim concerning the van. In rebuttal, Francis argued that the blame for failure to withdraw the claim lay with him, not the witnesses. The jury awarded damages to SRS on its conversion claim and returned a verdict for SRS on the breach of contract claim, but awarded no damages.

After trial, Southward moved for sanctions against Francis, alleging that the failure to promptly withdraw the claim was a violation of C.R.C.P. 11, entitling Southward to an award of fees and costs incurred from May 2010 through August 22, 2010. The court entered judgment in favor of Southward and against Francis for $2,858.65.

On appeal, Francis argued it was error to award Southward attorney fees under C.R.C.P. 11. The Court of Appeals agreed. The Court held that Colorado’s Rule 11 is not as broad as its federal counterpart and only focuses on pre-filing and pre-pleading behavior of the attorney; it does not reach post-filing attorney conduct. Because the sanction was imposed based on post-filing conduct, the court’s award of fees and costs was vacated. 

2012 COA 20. No. 11CA0095. Walter G. Burkey Trust v. City and County of Denver.
Zoning Ordinance—Parking in Vacant Lot.

Plaintiff Walter G. Burkey Trust (Trust) appealed a district court judgment affirming the decision of the Denver Board of Adjustment for Zoning Appeals (Board) upholding the citation issued to the Trust by the City and County of Denver (City) for violation of a zoning ordinance regarding a vacant lot used for parking. The judgment was affirmed.

The Trust owns a vacant lot at 1476 King Street in Denver (lot). The lot was located in a district zoned R-2 before being rezoned to MS-2 in 2007. In the mid-1980s, the Trust used the lot for surface parking for the adjacent businesses the Trust owned. Surface parking was not a legal use in the R-2 zoned district. The lot was never legally authorized for parking before the 2007 amendment.

In 1987, the City issued the Trust two citations for using the lot in violation of the zoning ordinance. On November 18, 2008, the City issued an Order to Cease and Desist (Order) parking use of the lot. The basis for the Order was that under the new MS-2 zoning, surface parking lots were not permitted unless they were existing legal uses.

The Trust appealed the Order to the Board, which found in favor of the City. The Trust sought judicial review in district court under C.R.C.P. 106(a)(4), and the court upheld the Board. The Trust appealed.

Review is for exceeding jurisdiction or abuse of discretion. The Trust argued that, pursuant to the amended zoning ordinance, its lot use was converted to a legal nonconforming use because the lot and its use had existed before the 2007 amendment. The Court of Appeals disagreed. The Court found that both the City’s and the Trust’s arguments were reasonable because the language of the ordinance was ambiguous. When this is the case, the Court must defer to the Board’s interpretation, as long as there is a reasonable basis for it.

Here, the record demonstrated that the lot never was used legally as a parking lot before the 2007 amendment. The Board’s interpretation that the 2007 ordinance grandfathered prior legal uses, but not existing illegal uses, has a reasonable basis. Accordingly, the judgment was affirmed.

2012 COA 21. No. 11CA0145. Martin v. Freeman.
Limited Liability Company—Veil Piercing.

In this limited liability company (LLC) veil-piercing case, defendants Dean C.B. Freeman and Tradewinds Group, LLC appealed the trial court’s judgment in favor of plaintiff Robert C. Martin. The judgment was affirmed.

Freeman managed Tradewinds Group, LLC as a single-member LLC. Tradewinds contracted to have Martin construct an airplane hangar. In 2006, Tradewinds sued Martin for breaching the construction agreement. In 2007, while the litigation was pending, Tradewinds sold its only meaningful asset, an airplane, for $300,000 and the proceeds were diverted to Freeman, who paid Tradewinds’ litigation expenses. In 2008, a judgment was entered in favor of Tradewinds. Martin appealed. Another division of the Court of Appeals found that Tradewinds’ damages were speculative, and remanded the case with directions to enter judgment in Martin’s favor. On remand, Martin was awarded $36,645.60 in costs. The LLC had no assets and Martin instituted this action to pierce the LLC veil. Following a bench trial in 2010, the court pierced the veil and found Freeman personally liable for the cost award against Tradewinds. Tradewinds appealed, arguing it was error to pierce the LLC veil. The Court of Appeals disagreed and affirmed the judgment.

To pierce the LLC veil, the court must conclude (1) the corporate entity is an alter ego or mere instrumentality; (2) the corporate form was used to perpetrate a fraud or defeat a rightful claim; and (3) an equitable result would be achieved by disregarding the corporate form. Tradewinds challenged whether the first and second prongs were met.

As to the alter ego prong, the trial court found that assets were commingled; negligible corporate records were kept; the records concerning substantive transactions were inadequate; there was a single-member/manager-facilitated misuse; the entity was thinly capitalized; undocumented infusions of cash were required to pay all operating expenses; Tradewinds was never operated as an active business; corporate formalities were disregarded; Freeman paid its debts without characterizing the transactions; assets were used for non-entity purposes; and Tradewinds was operated as a mere assetless shell. The Court held that these findings fully supported a conclusion that Tradewinds was Freeman’s alter ego.

Tradewinds argued that the second prong was not met because the trial court did not find wrongful intent or bad faith. The Court found no case, and defendant cited none, requiring a showing of wrongful intent. Therefore, it concluded that a showing that the corporate form was used to defeat a creditor’s rightful claim is sufficient. Here, Tradewinds sold its only asset and diverted the proceeds to Martin during the litigation. Transferring all of the assets to defeat a rightful creditor’s potential claim is sufficient to support piercing the corporate veil.

Tradewinds also argued that Martin waived the ability to collect litigation costs by not contesting the amount of the cost bond filed. The Court disagreed, concluding that Martin’s failure to contest the cost bond did not constitute an unequivocal act manifesting intent to relinquish the right to collect costs. The judgment was affirmed.

2012 COA 22. No. 11CA0722. Loveland Essential Group, LLC v. Grommon Farms, Inc.
Summary Judgment—Claim Preclusion.

This appeal concerns the second lawsuit between plaintiff Loveland Essential Group, LLC (Buyer) and defendants Grommon Farms, Inc., Gary Grommon, and Connie Grommon (collectively, Seller) arising from Buyer’s purchase of commercial real property and assets from Seller. The district court granted summary judgment in Seller’s favor, and the Court of Appeals reversed.

Buyer entered into a real estate purchase agreement (RPA) and an asset purchase agreement (APA) with Seller to purchase certain commercial real property and business assets. The RPA required there not be any encumbrances on the real property other than those identified therein and the APA had a similar requirement regarding the assets.

At the closing, Buyer conveyed by Warranty Deed free and clear of all encumbrances except those identified therein. After closing, Buyer filed a complaint in a different case that alleged that Seller had breached the RPA, APA, and Warranty Deed by conveying the real property and assets subject to a lease on part of the real property.

On August 8, 2008, about a year and a half after the original filing and three months before trial, Buyer learned that an Adjacent Property Reimbursement Agreement between the City of Loveland (City) and the developer of the area in which the real property is located had been filed with the Larimer County Clerk and Recorder on August 1, 2008. The Reimbursement Agreement purported to obligate parties subject thereto to pay a portion of city street improvement and construction costs when applying for a permit to develop property within the covered area. The City sought reimbursement of $794,871.69 from Buyer under this Reimbursement Agreement.

Buyer moved to vacate the trial (which was six weeks away) and to conduct additional discovery to determine whether it was necessary to amend the complaint to add a claim concerning the Reimbursement Agreement. The court granted the motion and reset the trial for approximately two and a half months later.

Buyer conducted additional discovery but did not move to amend its complaint. Instead, a week before trial, Buyer filed its complaint in this case, alleging Seller had breached the RPA and the Warranty Deed by conveying the property subject to the Reimbursement Agreement.

After a bench trial in the first case, the district court concluded that Seller had breached the RPA, APA, and Warranty Deed by conveying the property subject to the lease. On appeal, a division of the Court affirmed in part, reversed in part, and remanded for further proceedings regarding Buyer’s damages. While the appeal was pending, Seller moved for summary judgment on Buyer’s claims in this case, arguing they were barred by claim preclusion because they were not litigated in the original case. The district court agreed that the claims would be barred once the judgment in the first case became final, and granted summary judgment when that occurred.

Buyer made five arguments on appeal. The Court agreed with one of them and did not address the others.

Claim preclusion bars “relitigation of matters that have already been decided [in a prior proceeding] as well as matters that could have been raised in a prior proceeding but were not.” One requirement is identity of claims for relief. The focus of this inquiry is “the injury for which relief is demanded, . . . not . . . the legal theory on which the person asserting the claim relies.” Generally, claims for different breaches of a contract must be brought in the same action. The claim is precluded only if it could have been raised and decided in the earlier proceeding. In this case, the claim allegedly arose after the original complaint was filed but before the court rendered judgment thereon.

After extensive analysis, the Court concluded that claim preclusion does not bar a later action on claims that arise after the initial action is filed but before the judgment in the original action. Here, the Court determined that Buyer’s claims based on the Reimbursement Agreement could be after-arising claims. Seller conceded that “there is, at a minimum, a dispute of fact whether Buyer was aware of the reimbursement agreement or its possibility prior to closing.” Consequently, the Court held there was a genuine issue of material fact as to whether Buyer knew or should have known about the Reimbursement Agreement-based breaches before it filed its complaint on the lease-based breaches. Accordingly, the judgment was reversed and the case was remanded for further proceedings.

2012 COA 23. No. 11CA0835. Harbert v. Industrial Claim Appeals Office.
Unemployment Compensation—Exemption Under CRS § 8-70-140(1)(a).

Claimant sought review of a final order of the Industrial Claim Appeals Office (Panel) affirming the hearing officer’s decision that she was not entitled to unemployment compensation benefits because she was not engaged in covered employment when she was terminated. The Panel’s order was set aside and the case was remanded.

From March 2007 until October 2010, claimant worked in a resale store operated by Evergreen Christian Outreach (EChO). According to its mission statement, EChO was founded by a group of churches in Evergreen “to provide assistance to residents of the Evergreen mountain communities who are unemployed, under-employed, dealing with a long-term illness, or experiencing other forms of personal crisis.” The resale store where claimant worked provides a major source of funding for EChO’s outreach programs. EChO’s facilities are located on the grounds of an Episcopal church, but the resale store is located in a private commercial space.

Claimant separated from her employment and applied for unemployment benefits. A deputy denied her claim, concluding that EChO is a religious organization. The hearing officer also denied her claim because her work was performed for an organization operated primarily for religious purposes and is operated, supervised, controlled, or principally supported by an association of churches. The Panel affirmed and claimant appealed.

The Court of Appeals examined the stipulation under CRS § 8-70-140(1)(a) that exempts an organization if it “is operated primarily for religious purposes and . . . is operated, supervised controlled, or principally supported by a church or convention or association of churches.” Claimant argued that EChO is a nonprofit organization whose primary function is to operate a community food bank and provide limited or temporary assistance for those in need in the Evergreen community. She claimed the work was primarily secular in nature and that EChO is not operated primarily for religious purposes.

The Court looked to the test set forth in Samaritan Institute v. Prince Walker, 883 P.2d 3 (Colo. 1994), in which the controlling factor is “the type of activity actually engaged in, rather than the motivation and impetus for the activity.” In reviewing the hearing officer’s analysis, the Court noted that EChO’s activities were not sufficiently evaluated. The officer observed that EChO’s primary function, the provision of services such as food and clothing, is “not religious per se.” In addition, EChO was a separate legal entity from the churches that founded it. The primary purpose and activity carried out by EChO was the provision of assistance services to those in need, regardless of their religious affiliation or beliefs. Although its motivation was religious, it was operated primarily to perform charitable work for disadvantaged individuals in Evergreen. The Court concluded that the Panel misapplied the law and held that EChO was not exempt under the statute.

2012 COA 24. No. 11CA2351. Shaw Construction, LLC v. United Builder Services, Inc.
Interlocutory Appeal—Construction Defect Action Reform Act—Tolling—Substantial Completion—Summary Judgment—Statute of Repose.

In this interlocutory appeal, the Court of Appeals affirmed the trial court’s summary judgments for third-party defendants United Builder Services, Inc. and MB Roofing, Inc. (collectively, subcontractors), and against third-party plaintiff Shaw Construction, LLC (Shaw). The Court held that Shaw’s claims were barred by the statute of repose.

Plaintiff Roslyn Court at Stapleton Homeowners Association (HOA), not a party to this appeal, alleged construction defects in the Roslyn Court condominium complex, for which Shaw had been the general contractor. The project was built in three phases and included eighty residential units in thirty-three buildings, fifteen garage structures, and additional elements such as sidewalks, alleys, benches, courtyards, and landscaping.

Shaw hired subcontractors to hang drywall and install roofs, gutters, and downspouts. The City and County of Denver issued certificates of occupancy (COs) for each residential building (between September 24, 2003 and October 28, 2003 for Phase I; October 31, 2003 and January 29, 2004 for Phase II; and January 22, 2004 and March 10, 2004 for Phase III). The project’s architect did not certify completion of all known architectural items until June 8, 2004.

On May 15, 2007, Shaw received a notice of claim letter from the HOA under the Construction Defect Action Reform Act (CDARA). On January 21, 2009, the HOA filed this action against the developers of the property but did not add Shaw as a defendant until January 28, 2010. On March 29, 2010, Shaw filed its answer and third-party complaint, naming subcontractors, among others, as third-party defendants. Shaw sent its only notice of claim to subcontractors the following day.

Subcontractors moved for summary judgment on the basis that the six-year statute of repose had run. They argued that substantial completion had occurred not later than the date the final CO was issued, March 10, 2004. Shaw argued that substantial completion was June 8, 2004, when the architect certified completion. Shaw did not include any evidence that subcontractors’ work continued after the date of the CO on the last building. Alternatively, Shaw argued that under § 805, the HOA’s notice of claim had tolled all claims associated with the project, including those against subcontractors, even though they had not received actual notice of the claim.

The trial court granted subcontractors’ motions, finding that the last CO indicated substantial completion. The trial court also held that the plain language of the statute required actual notice to a party to toll a claim as to that party. The Court accepted an interlocutory appeal due to the unresolved questions regarding tolling and substantial completion under Colorado law.

The Court first addressed whether the determination of when substantial completion under CDARA occurs is a question of fact or a question of law. The Court agreed with the trial court that it is a question of law. CDARA does not contain a definition of “substantial completion.” The interpretation of when a claim accrues under a statute of limitations is an issue of law.

The Court then considered and rejected Shaw’s contention that its claims against subcontractors were tolled by the HOA’s notice of claim to Shaw under § 805. The statute does not say whether claims against participants in a project without notice of a claim are tolled, so the Court looked to the legislative intent behind CDARA and concluded that such an interpretation would not further that intent.

The Court also rejected Shaw’s argument that its claims were timely, because substantial completion did not occur until the architect’s certificate was issued. Shaw argued, without authority, that in a multi-stage project, improvement means the entire project. Subcontractors responded that the statute of repose is triggered “when the subcontractor completed its own work and not when the entire project was completed.” The Court concluded that an improvement may be a discrete component of an entire project, such as the last of multiple residential buildings. Accordingly, the summary judgments were affirmed.

2012 COA 25. No. 11CA2634. Kowalchik v. Brohl, Exec. Dir., Colorado Dep’t of Revenue.
Taxation—Conservation Easement Tax Credits—Interlocutory Review.

In this taxation dispute involving conservation easement tax credits, defendant Barbara Brohl, the Executive Director of the Colorado Department of Revenue (DOR), petitioned for interlocutory review of the trial court’s finding that certain individuals do not fall within the statutory definition of “taxpayer.” The petition was granted.

In Colorado, a state income tax credit is allowed for a qualifying conservation easement created on real property that a taxpayer owns and donates to a governmental entity or charitable organization. Generally, a donor taxpayer may assign to transferees all or any portion of the tax credit generated by any donation. The donor taxpayer may generate only one such tax credit per year. A transferee taxpayer may purchase credits from an unlimited number of donors and claim an unlimited number of credits against a tax liability.

Plaintiffs are numerous conservation easement donors. In tax years 2005 and 2006, plaintiffs donated fourteen conservation easements purportedly generating several million dollars worth of state tax credits. Plaintiffs then transferred credits to fifteen transferees who claimed the credits on their respective state income tax returns or retained them for use against future tax liability.

If the DOR disallows some or all of a conservation easement tax credit, a notice of disallowance, deficiency, or rejection of refund is sent to the donor of the easement who generated the credit (“tax matters representative” or TMR) and to any transferee who has used any portion of the tax credit. DOR disallowed the credits at issue in this case, sent plaintiffs notices disallowing the credits, and provided a notice informing them of the procedures created by CRS § 39-22-522.5 for resolution of tax credit disputes. Transferees are bound by the final resolution of disputes between DOR and the TMR.

Pursuant to CRS § 39-22-522.5(2), plaintiffs filed an amended complaint in the district court appealing DOR’s disallowance of the tax credits. Plaintiffs did not join the transferees. DOR moved to dismiss pursuant to C.R.C.P. 12(b)(6) or alternatively to compel plaintiffs to join the transferees pursuant to C.R.C.P. 19(a).

The trial court denied DOR’s motion. DOR moved the court to certify its order and several additional legal matters for interlocutory appeal under C.A.R. 4.2. The trial court granted the certification order with four questions for interlocutory appeal, and DOR sought interlocutory review under CRS § 13-4-102.1 and C.A.R. 4.2.

The Court or Appeals has discretion to grant an interlocutory appeal when (1) immediate review may promote a more orderly disposition or establish a final disposition of the litigation; (2) the order from which an appeal is sought involves a controlling question of law; and (3) that question of law is unresolved. The Court found these factors present in this case and granted DOR’s petition for interlocutory review, stating that a later opinion will address the merits.

Colorado Court of Appeals Opinions

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