Colorado Court of Appeals Opinions
June 9, 2011
|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.|
No. 10CA0362. A Good Time Rental, LLC v. First American Title Agency, Inc.
Economic Loss Rule—Contract—Negligent Misrepresentation.
In this action involving a failed commercial real estate transaction, plaintiffs, A Good Time Rental, LLC, Noble Petroleum, LLC, and Arugula Investment, LLC, appealed from the summary judgment in favor of defendant First American Title Agency, Inc., doing business as First American Heritage Title Company, Inc. (American Heritage). The judgment was affirmed.
A Good Time Rental and Noble Petroleum owned a fee simple interest and a leasehold interest, respectively, in adjacent parcels of real estate in Douglas County, Colorado. Restaurant Operating Company, LLC (ROC) proposed to exchange two properties located in California for the two Colorado properties. The deal fell through, and plaintiffs brought negligence and negligent misrepresentation claims against American Heritage, alleging that it had negligently breached the duty to “exercise reasonable care and competence” in conducting the closing or making sure all necessary documents had been received and reviewed. The trial court barred plaintiffs’ claims under the economic loss rule.
On appeal, plaintiffs argued that the trial court erred in granting summary judgment in favor of American Heritage based on the economic loss rule. The Court of Appeals disagreed. American Heritage was obligated to exercise reasonable care, skill, and faithfulness in transferring the property subject to the closing and as instructed. This duty, however, was not independent of the parties’ contract—namely, the closing instructions prepared by plaintiffs. The “foreseeable damages” that American Heritage allegedly failed to avoid through the exercise of reasonable care amounted to plaintiffs’ loss of the benefit they expected under the contract쳌—that is, a promissory note as consideration for their real property. Thus, the tort duty allegedly breached imposed the same duty of care as the parties’ contract, which was to act as necessary to obtain the note from ROC and deliver it to plaintiffs, thus avoiding the very loss about which they complained. This duty, therefore, was implicit in their contract and plaintiffs’ tort claims were properly barred by the economic loss rule. Additionally, even if American Heritage had a fiduciary relationship with plaintiffs, its contractual duty to provide closing and settlement services cannot serve as the basis of any tort claim seeking additional compensation for its alleged failure to perform that same contractual obligation.
No. 10CA0580. People v. Daly.
Restitution—Death of Defendant—Doctrine of Abatement Ab Initio.
Defendant was convicted at trial of a felony and was ordered to pay restitution to the victim; however, he died while his direct appeal was pending. The Court of Appeals raised the issue of whether defendant’s case should be remanded to the trial court to set aside the conviction and dismiss the charges against defendant.
The Attorney General argued that the doctrine of abatement ab initio should be abandoned and not applied to defendant’s conviction because defendant was ordered to pay restitution to the victim of his crime at the sentencing hearing. This presented an issue of first impression in Colorado. The Court concluded that defendant’s criminal conviction should be abated ab initio because he died before his direct appeal was resolved. However, because restitution is designed to survive a defendant’s death, the doctrine of ab initio does not apply to civil judgments created by restitution orders, such as the one here. The motion was granted in part and denied in part, and the appeal was dismissed in part.
No. 10CA0640. K9Shrink, LLC v. Ridgewood Meadows Water and Homeowners Association.
Summary Judgment—Declaratory and Injunctive Relief—Issue Preclusion.
Plaintiffs K9Shrink, LLC and Gail Clark appealed the trial court’s summary judgment in favor of defendant Ridgewood Meadows Water and Homeowners Association (HOA), as well as the court’s order denying declaratory and injunctive relief to plaintiffs and granting an injunction and attorney fees to the HOA. The judgment and order were affirmed.
Clark, a canine behavioral psychologist, operates K9 Shrink on her property. Clients bring their dogs to Clark’s home, where she counsels the owners on communicating with and training their dogs. Clark’s home is subject to the HOA’s Covenants (Covenants).
Clark and K9Shrink filed this action after the HOA required them to cease K9Shrink’s activities after determining they constituted commercial pet-related activity that was prohibited by the Covenants, as amended in 2007 (Amendments). Plaintiffs sought a declaratory judgment that the Amendments were unenforceable and an injunction prohibiting enforcement against them. The HOA counterclaimed for an injunction to prevent plaintiffs from conducting their activities.
The trial court granted partial summary judgment to the HOA with respect to plaintiffs’ claim for declaratory judgment regarding the enforceability of the Covenants. Following trial, the court issued an order on January 11, 2010 (January order) determining that K9Shrink’s activities violated the Covenants and denying relief to plaintiffs. Plaintiffs appealed.
The Amendments became effective in 2007 after the district court entered an order amending the 1973 and 1977 declarations under CRS §38-33.3-217(7). Plaintiffs argued it was error for the trial court to rule that their challenge to the Amendments was barred by issue preclusion.
Issue preclusion bars the re-litigation of an issue when (1) the same issue was litigated in a previous proceeding; (2) the party against whom preclusion is asserted was a party to, or in privity with a party to, the previous proceeding; (3) that proceeding resulted in a final judgment on the merits; and (4) the party against whom preclusion is asserted previously had a full and fair opportunity to litigate the issue. [Lazy Dog Ranch v. Telluray Ranch Corp., 965 P.2d 1229 (Colo. 1998).] Plaintiffs challenged only the trial court’s application of the second and fourth Lazy Dog factors, and only as applied to Clark.
The Court of Appeals found that Clark had notice, standing, and an opportunity to be heard in the 2007 court proceeding and therefore was a party to the proceeding in which the court approved the Amendments. The Court reviewed the factors set forth in Bebo Construction Co. v. Mattox & O’Brien, P.C., 990 P.2d 78 (Colo. 1999), to determine whether Clark was given a full and fair opportunity to litigate. The Court found that, as to her declaratory judgment claim, Clark could have brought the same alleged defects in the Amendments in the 2007 case that she raised in the instant action and therefore was given a full and fair opportunity to litigate.
Plaintiffs then argued that the trial court erred in its interpretation of Part II, paragraph 5(c) of the Covenants. The Court disagreed. The Covenant at issue stated: “Commercial livestock husbandry or animal processing operations are prohibited upon any lot, as are any commercial pet-related activities, such as dog boarding kennels, catteries or commercial breeding operations.” The Court agreed with the trial court that the language prohibits a broad range of commercial pet-related activities, which would include the activities of K9Shrink.
The Court also rejected plaintiffs’ argument that it was error to grant injunctive relief to prevent them from conducting commercial pet-related activities on Clark’s property. The Court found that the trial court addressed each of the necessary findings in a well-reasoned manner. The HOA established that: (1) it has achieved actual success on the merits; (2) irreparable harm will result unless the injunction is issued; (3) the threatened injury outweighs the harm that the injunction may cause the opposing party; and (4) the injunction, if issued, will not adversely affect the public interest. The judgment and order were affirmed.
No. 10CA0955. 17 West Mill Street, LLC v. Smith.
Invalid Release of Deed of Trust—CRS § 38-39-102(8).
Plaintiff 17 West Mill Street, LLC (17 West Mill) appealed from the trial court’s judgment entered after a bench trial, where most of its claims were rejected and only nominal damages were awarded against defendants Floyd Smith, Dennis Shaw, First Horizon Home Loan Corporation (First Horizon), and the Public Trustee of La Plata County (Public Trustee). The judgment was affirmed in part and reversed in part, and the case was remanded with directions.
Jonathan Robbins is the sole member and manager of 17 West Mill, which develops and holds commercial real estate as investment property. In 2004, Robbins began lending money to James Kreutzer, a local real estate developer. Robbins made a series of loans to Kreutzer over several years, some of which were made through 17 West Mill.
In March 2006, 17 West Mill made a loan to one of Kreutzer’s companies, Animas Investments, LLC (Animas), using a $75,000 promissory note secured by a deed of trust on real property described as “Parcel F, Ptarmigan Ridge.” Kreutzer’s attorney (Smith) prepared the note and deed of trust, which was recorded on March 26, 2006.
One month later, Kreutzer asked 17 West Mill to do a “deed swap,” substituting a different deed of trust to real property for the original deed of trust securing the note. Robbins, on behalf of 17 West Mill, authorized the substitution and recording of a new deed of trust on release of the original deed of trust. Smith prepared a pre-printed form requesting release on the March 2006 deed of trust, signed it as “Floyd L. Smith as attorney for 17 West Mill,” and presented it to the Public Trustee. On release of the deed of trust, a deed of trust on “Phase 1C of Lightner Creek Village” was executed and recorded.
At least three more “deed swaps” took place, all similar to the first one. Ultimately, 17 West Mill held a deed of trust on a condominium property identified as “Unit 42 of Lightner Creek Village.”
In January 2007, Kreutzer, individually and on behalf of another of his companies, Wildcat Properties, LLC, signed a $134,000 promissory note to Robbins, doing business as 17 West Mill, that was secured by the deed of trust on Unit 42. Robbins handwrote on the note, “this replaces the $75,000 note for ’06 and the deed of trust still applies.” The $134,000 note was never recorded and the $75,000 note was never marked “paid” or otherwise cancelled.
Todd Demko, another local real estate developer who shared an office with Robbins, also made loans to Kreutzer on similar terms. Smith believed Robbins and Demko were business partners.
In May 2007, Kreutzer contracted to sell some real estate at Lightner Creek, including Unit 42, to Shaw. This was part of a complex refinancing deal worth $14 million and involved several lenders and numerous properties. Robbins was out of the country, so Smith, thinking Demko could authorize the release of the deed of trust on Unit 42 on behalf of Robbins, drafted a letter for Demko to sign as “Johann Robbins by Todd Demko,” which Demko signed. Smith then filed a request for release of the deed of trust signed by him as attorney for lender, and the release was executed by the Public Trustee.
Before its release from the 17 West Mill deed of trust, Unit 42 was encumbered by a previous deed of trust, the face amount of which was greater than the value of Unit 42. At the closing with Shaw, that deed of trust was released for $293,317.42 as part of the refinancing deal. Shaw granted a new deed of trust on Unit 42 to First Horizon.
A year later, Robbins learned of the release of the deed of trust on Unit 42 and that no substitute collateral had been recorded. Smith explained that a deed of trust on substitute collateral had been prepared but that its execution was “overlooked.” A deed of trust was then recorded in favor of 17 West Mill on a condominium property, “Unit 50 of Lightner Creek Village.”
17 West Mill sued Smith for negligence, civil conspiracy, and breach of fiduciary duty, as well as for other claims against Shaw, Kreutzer, the Public Trustee, First Horizon, and Animas. The complaint requested “an equitable lien on Unit 42, a declaratory judgment that the release of the Unit 42 Deed of Trust was void and that the Unit 42 Deed of Trust is in first position and senior to all other liens.” Following a bench trial, the court concluded that the release of the deed of trust had not been obtained fraudulently. The court awarded nominal damages for Smith’s negligence.
The Court of Appeals reviewed the trial court’s finding that the release of the deed of trust was not void as the result of a fraudulent request under CRS § 38-39-102(8), because the elements of actual fraud had not been established. The statute states that “[i]f the written request to release the lien of any deed of trust is a fraudulent request, the release by the public trustee based upon such request shall be void.” The Court held, contrary to the trial court, that “fraudulent” in this context does not require proof of the elements of actual fraud but merely that a material misrepresentation as to the statutory requirements in the request to the public trustee has occurred.
Smith made two material misrepresentations: (1) he signed as “attorney for lender”; and (2) he represented that the purpose of the deed of trust had been satisfied. Therefore, the trial court should have found that the release was void and entered a declaratory judgment restoring the priority of the Unit 42 deed of trust. Accordingly, this portion of the decision was reversed and the case was remanded for further proceedings as to 17 West Mill’s claims for a declaratory judgment, reinstatement of the Unit 42 Deed of Trust, and judicial foreclosure. The remainder of the judgment was affirmed.
No. 10CA1137. Sifton v. Stewart Title Guaranty Company.
Attorney Fees—Spurious Liens and Documents—CRS §§ 38-35-204 and 13-17-102.
The issue in this case was whether a trial court must hold a hearing to resolve a respondent’s liability for attorney fees under CRS §38-35-204 when the respondent has released a contested lien or document before the show cause hearing. Here, the trial court dismissed plaintiff’s action and declined to award attorney fees because respondent Stewart Title Guaranty Company (Stewart) had voluntarily released its contested deeds of trust before the show cause hearing. The Court of Appeals agreed that plaintiff was not entitled to a hearing on attorney fees under the statute. However, the Court remanded for a determination of whether plaintiff was entitled to attorney fees under CRS §13-17-102.
Plaintiff filed this action to have two deeds of trust that encumbered her property, on which she asserted her signature had been forged, declared spurious, and released. The deeds of trust originally were for the benefit of two of Stewart’s insureds and had been assigned to Stewart. The proceedings lasted almost a year. The trial management order stated that the signatures were forged. Shortly before the show cause hearing date, Stewart deposed plaintiff, released both deeds of trust, and moved to vacate the hearing. Plaintiff argued that the court still should determine whether the deeds had been spurious and, if so, award her attorney fees. Plaintiff also argued she was entitled to attorney fees under § 13-17-102 because Stewart had “unnecessarily expanded the proceedings” by not promptly investigating the alleged forgeries. The trial court dismissed the case without addressing plaintiff’s latter argument.
The Court of Appeals affirmed the trial court’s determination that the spurious liens and documents statute does not require a hearing or permit an attorney fees award after the challenged lien or document has been released. Because the trial court did not address attorney fees under CRS §13-17-102, the Court remanded for consideration of this issue.
Colorado Court of Appeals Opinions