49271791.6 COURT OF APPEALS, STATE OF COLORADO 2 East 14 th Avenue Denver, CO 80203 ________________________________________ Interlocutory Appeal from the District Court of Arapahoe County, District Court Case No. 2013CV32022, Honorable Elizabeth Beebe Volz, District Judge ________________________________________ IN RE: Appellants: METROPOLITAN HOMES, INC., a Colorado corporation; METRO INVERNESS, LLC, a Colorado limited liability company; GREG KRAUSE, individually; and PETER KUDLA, individually, v. Appellee: VALLAGIO AT INVERNESS RESIDENTIAL CONDOMINIUM ASSOCIATION, INC., a Colorado nonprofit corporation. ________________________________________ Richard M. Murray, #38940 Ryan E. Warren, #33605 POLSINELLI PC 1515 Wynkoop Street, Suite 600 Denver, Colorado 80202 Telephone: (303) 572-9300 [email protected][email protected]Counsel for Amici Curiae ▲ COURT USE ONLY ▲ ________________________ Case No.: 2014 CA 001154 BRIEF OF AMICI CURIAE IN SUPPORT OF APPELLANTS DATE FILED: December 3, 2014 2:49 PM FILING ID: C94F00ED6F4F6 CASE NUMBER: 2014CA1154
Transcript
49271791.6
COURT OF APPEALS, STATE OF COLORADO 2 East 14th Avenue Denver, CO 80203 ________________________________________ Interlocutory Appeal from the District Court of Arapahoe County, District Court Case No. 2013CV32022, Honorable Elizabeth Beebe Volz, District Judge ________________________________________ IN RE: Appellants: METROPOLITAN HOMES, INC., a Colorado corporation; METRO INVERNESS, LLC, a Colorado limited liability company; GREG KRAUSE, individually; and PETER KUDLA, individually, v. Appellee: VALLAGIO AT INVERNESS RESIDENTIAL CONDOMINIUM ASSOCIATION, INC., a Colorado nonprofit corporation. ________________________________________ Richard M. Murray, #38940 Ryan E. Warren, #33605 POLSINELLI PC 1515 Wynkoop Street, Suite 600 Denver, Colorado 80202 Telephone: (303) 572-9300 [email protected][email protected] Counsel for Amici Curiae
▲ COURT USE ONLY ▲ ________________________ Case No.: 2014 CA 001154
BRIEF OF AMICI CURIAE IN SUPPORT OF APPELLANTS
DATE FILED: December 3, 2014 2:49 PM FILING ID: C94F00ED6F4F6 CASE NUMBER: 2014CA1154
49271791.6
CERTIFICATE OF COMPLIANCE
I certify that this amicus brief complies with all requirements of C.A.R. 28,
29 and 32. It contains 8,099 of the 9,500 words permitted by C.A.R. 28(g).
s/ Richard M. Murray
Richard M. Murray
49271791.6
TABLE OF CONTENTS
I. ISSUES PRESENTED FOR REVIEW ............................................................ 1
II. INTEREST OF AMICI CURIAE .................................................................... 2
III. SUMMARY OF THE ARGUMENT ..............................................................13
IV. ARGUMENT .................................................................................................15
A. Amending the declaration is a power, not a right, of the association and can be restricted by the declaration’s terms. ............................................................15
B. CCIOA expressly permits a third party consent requirement in a declaration without affecting the association’s internal 67% member vote cap to amened the declaration. .......................................................................................................27
C. The declaration is an enforceable covenant in gross and the declarant expressly reserved its right to consent to the amendment/removal of the construction defect arbitration provision. ..........................................................29
D. Section 38-33.3-305(1)(b) does not apply to the declaration because it is not a “contract” between the declarant and the association. ………………………32
E. Contractual interpretation canons support the consent-to-amend requirement……………………………………………………………..………34
V. CONCLUSION ..............................................................................................36
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TABLE OF AUTHORITIES
Page(s) CASES
Ass’n of Apartment Owners of Waikoloa Beach Villas v. Sunstone Waikoloa, LLC, 307 P.3d 132 (Haw. 2013).………………………………......………...25, 26 Brown v. McDavid, 676 P.2d 714 (Colo. App. 1983)…………………………………………...30 Colowyo Coal Co. v. City of Colo. Springs, 879 P.2d 438 (Colo. App. 1994)...………………………………........……34 Eagle Ridge Condo. Ass’n v. Metro. Builders, Inc., 98 P.3d 915 (Colo. App. 2004)...………………………………......21, 22, 23 Grizzly Bar, Inc. v. Hartman, 169 Colo. 178, 454 P.2d 788 (1969)...……………………………………..34 Judd Constr. Co. v. Evans Joint Venture, 642 P.2d 922 (Colo. 1982)...……………………………….....……………18 Lewitz v. Porath Family Trust, 36 P.3d 120 (Colo. App. 2001)...………………………………..........……31 Lion Square Phase II & III Condo. Ass’n v. Hask, 700 P.2d 932 (Colo. App. 1985)...…………………………………………21 Narayan v. Ritz-Carlton Dev. Co., Inc., 2013 WL 4522945 (Haw. App. 2013)...………………………………....…16 Peterman v. State Farm Mut. Auto. Ins. Co., 961 P.2d 487 (Colo. 1998)...……………………………….....……………18 Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC, 282 P.3d 1217, 55 Cal.4th 223 (Cal. 2012)...………………………17, 30, 31
iii 49271791.6
Rossman v. Seasons at Tiara Rado Associates, 943 P.2d 34 (Colo. App. 1996)…………………………….……....………17 The Triple Crown at Observatory Vill. Ass’n, Inc. v. Vill. Homes of Colo., Inc., 328 P.3d 275 (Colo. App. 2013)...…………………………17, 18, 22, 23, 25 STATUTES
Construction, Inc.; Berkeley Homes; Front Range Land and Development Co.;
Colorado Competitive Council; TreeHouse Brokerage and Development, LLC;
Koelbel and Company; Colorado Association of Mechanical & Plumbing
Contractors; Mechanical Service Contractors Association of Colorado; Mechanical
Contractors Association of Colorado; Plumbing-Heating-Cooling Contractors of
Colorado; National Certified Pipe Welding Bureau, Colorado Chapter; Colorado
Concern; National Association of Industrial and Office Parks – Colorado; and
Colorado Contractors Association (collectively, “amici curiae”), through counsel
and pursuant to C.A.R. 29, submit this amicus brief in support of Appellants’
position in this interlocutory appeal.
I. ISSUES PRESENTED FOR REVIEW
1. Whether amending a common-interest community declaration is a
power, not a right, of a community association and can be restricted by the
declaration’s terms.
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2. Whether a consent-to-amend clause in a declaration’s arbitration
provision is outside the scope of the Colorado Common Interest Ownership Act’s
(“CCIOA”) prohibition against limiting an association’s power to deal with the
declarant in a more restrictive manner than its power to deal with other persons.
3. Whether CCIOA permits a consent-to-amend requirement in a
declaration without affecting the association’s internal 67% member vote cap to
amend the declaration.
4. Whether a declaration is an enforceable covenant in gross and a
declarant can reserve its right to consent to the amendment/removal of a
construction defect arbitration provision.
5. Whether the general contract law requirement that consensus of both
parties is required in order to modify or to supplant a valid contract applies to an
express declaration consent-to-amend provision.
II. INTEREST OF AMICI CURIAE Amici curiae comprise a group of Colorado’s largest and most active home
builders, nonprofit trade associations, and professional associations intimately
involved in residential home construction and common interest community
development, and related professional services. The holdings on the issues
presented for review will have a profound effect on these entities’ construction and
3 49271791.6
professional service operations in Colorado. Due to amici curiae’s unique and
prominent roles in the residential home construction market and Colorado’s
economy, they can offer this Court a view of the role that CCIOA has within the
homebuilding industry and the proper interpretation of that statute. None of the
amici curiae is a party to this lawsuit and none has a direct financial interest in its
outcome.
A. Denver Metro Chamber of Commerce For nearly 150 years, the Denver Metro Chamber of Commerce
(“Chamber”) has been a leading voice for Colorado’s business community. With a
membership that spans the seven-county metro region and includes 3,000
businesses and their 300,000 employees, the Chamber is a powerful and effective
advocate for both small and large businesses at the local, state, and federal levels.
The Chamber is an organization that strives to enhance Colorado’s global
competitiveness; ensure the highest standards for an improved quality of life;
collaborate and convene with other community organizations to achieve mutual
goals; and represent its members’ interests in government and legislative issues.
From the late-1800s, the Chamber has played a critical and visible role in the
development and economic success of the metro region and Colorado as a whole.
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B. Metro Denver Economic Development Corporation The Metro Denver Economic Development Corporation, an affiliate of the
Denver Metro Chamber of Commerce, is the nation’s first regional economic
development entity, bringing together nearly 70 cities, counties, and economic
development agencies in the nine-county metro Denver and northern Colorado
area.
C. Associated General Contractors of Colorado The Associated General Contractors of Colorado (“AGC”) is a leading
professional association for the state’s commercial building industry, representing
nearly 400 firms. AGC provides advocacy at a local, state, and national level. The
membership of AGC is comprised of general contractors and subcontractors (both
union and non-union shops, public and privately owned; and, from very large to
very small), suppliers, and professional service providers. Every year, AGC
members complete 70 percent of the commercial building in the state of Colorado.
AGC unites Colorado’s commercial builders as an acknowledged voice of the
construction industry. Many of AGC’s members are involved in one or more
aspects of the residential home market.
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D. Colorado BUILDS Colorado BUILDS is a section 501(c)(6) advocacy group founded in 2014
by housing and building industry leaders who recognized the importance of state-
level policy issues that impact the homebuilding industry. Colorado BUILDS
represents builders and developers of single family, multi-family (including rental),
affordable, and senior housing with respect to state-level policy issues affecting the
industry. Colorado BUILDS’ priority issues include land use and development,
construction defect litigation, multi-family transit-oriented development support,
oil and gas setbacks, water issues, and real estate regulatory issues.
E. Colorado Association of Home Builders The Colorado Association of Home Builders (“CAHB”) is a nonprofit trade
association representing approximately 2,000 builder and associate members from
eleven local associations across Colorado, chartered in 1974 by the National
Association of Home Builders. CAHB is a statewide representative and voice of
the Colorado home building industry, serving its members and affiliated local
associations and striving to meet the housing needs of all Coloradans. CAHB’s
goals are to provide education and other opportunities for members to share ideas
and information, promoting and encouraging professionalism and ethical practices
by its members, and enhancing the public image of the building industry.
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F. Downtown Denver Partnership The Downtown Denver Partnership (“DDP”) focuses on creatively planning,
managing and developing Downtown Denver as the unique, diverse, and
economically healthy urban core of the Rocky Mountain region. DDP also
manages the Downtown Denver Business Improvement District (“BID”) that
provides enhanced services to make Downtown Denver a cleaner, safer, and more
vibrant place.
G. D.R. Horton Founded in 1978, D.R. Horton is the nation’s largest new home builder as
reported by Builders Magazine for the past twelve consecutive years.
H. Housing Colorado
Housing Colorado is a nonprofit organization representing real estate agents,
developers, investors, accountants, property managers, public and nonprofit
housing agencies, finance professionals, construction firms, and human service
agencies. Housing Colorado’s mission is to serve as a unified voice supporting the
preservation and production of quality affordable housing for low- and moderate-
income Coloradoans.
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I. The Ryland Group, Inc.
The Ryland Group, Inc., a Maryland corporation, is the sixth largest new
homebuilder in the United States. Ryland Homes has built over 310,000 homes
across the United States since its inception 45 years ago, focusing primarily on
first-time homebuyers and first- and second-time move-up buyers. Ryland
currently builds in 17 states and the District of Columbia. Ryland is developing
and building in 18 communities in the greater Denver metropolitan area. In
Colorado, including the Denver metro area, Douglas County, Larimer County, and
Weld County, Ryland builds new homes for sale in communities offering
amenities such as golf courses, recreation centers, parks, and walking trails.
J. Hyder Construction, Inc.
Founded in 1946, Hyder Construction is a Denver-based construction
company engaged in the construction areas of resort/hospitality, multi-unit
residential, parking structures, municipal buildings, education buildings, retail and
restaurants, commerical structures, and corporate buildings.
K. Berkeley Homes Berkeley Homes is a mid-sized, privately held Colorado homebuilder.
Berkeley has been building high quality homes in the Denver metro market since
the mid-1980s. Berkeley Homes constructs about 100 homes each year in the
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Denver metro area.
L. Front Range Land and Development Co.
Front Range Land and Development Co. (“FRLD”) is the master developer
of the 55-acre Belleview Station Mixed Use Transit Oriented Development,
located generally at Belleview Avenue and I-25 in Denver, Colorado, and abutting
Greenwood Village and Cherry Hills Village. The Belleview Station master plan
targets, and the infrastructure installed will support, up to 300,000 square feet of
walkable retail, 2,200,000 square feet of offices, 2 hotels and 1,800 residential
units, about half of which are planned as condominium units.
M. Colorado Competitive Council
The Colorado Competitive Council (“C3”) focuses on preserving and
enhancing the competitive business climate in every corner of our state. C3, an
affiliate of the Denver Metro Chamber of Commerce, is a statewide undertaking,
providing direct lobbying and business advocacy at the state legislative level. The
Chamber is the parent organization of C3.
C3 coordinates policy research and development with statewide partners to
focus maximum resources and efforts on direct advocacy of Colorado’s economic
future. C3 investors and steering committee members represent organizations and
business interests from diverse industries and from across Colorado.
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N. TreeHouse Brokerage and Development, LLC
TreeHouse Brokerage and Development, LLC, is a full service real estate
firm specializing in both for-sale and for-rent residential projects in the Denver
urban market.
O. Koelbel and Company
Founded in 1952, Koelbel and Company is considered one of the longest
continually-operating real estate companies in Colorado. The company’s efforts
are focused on diversified development and investment companies in Colorado
with office parks, master-planned residential communities, urban in-fill homes,
low-income tax-credit apartments, and real estate investments. Projects include:
The Preserve at Greenwood Village, the largest master-planned custom-home
community in the metro area; Pinehurst Country Club, the first master-planned
golf-course community within the Denver city limits; The Breakers, at 1523-unit,
one of the largest apartment communities in the Denver metro area; Centennial
Valley Business Park; and Rendezvous, a 1,000-acre mixed-use resort
development in Winter Park. New company platforms include: Koelbel Urban
Homes, niche-oriented in-fill for-sale homebuilding; LIHTC division with low-
income housing tax-credit apartments, currently with three projects in Denver at
Yale & I-25 and University & I-25 and two in Boulder; and new evolution of
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collaborative office space development with Industry, the first project in the
RiverNorth district.
P. Colorado Association of Mechanical and Plumbing Contractors; Mechanical Service Contractors Association of Colorado; Mechanical Contractors Association of Colorado; Plumbing-Heating-Cooling Contractors of Colorado; and National Certified Pipe Welding Bureau, Colorado Chapter
The Colorado Association of Mechanical and Plumbing Contractors
(“CAMPC”) is a management association representing owners and managers of
firms involved in heating, air conditioning, refrigeration, plumbing, piping, and
mechanical services throughout Colorado. CAMPC represents more than 200
member companies. CAMPC is an active participant in helping to grow
Colorado’s economy and the workforce readiness of the construction industry.
CAMPC serves the following associations and service groups: Mechanical
Service Contractors Association of Colorado (“MSCA Colorado”); Mechanical
Contractors Association of Colorado (“MCA Colorado”); Plumbing-Heating-
Cooling Contractors of Colorado (“PHCC Colorado”); and National Certified Pipe
P.2d 922, 924 (Colo. 1982)). CCIOA prescribes that the “declaration . . . may
specify situations in which disputes shall be resolved by binding arbitration . . . .”
C.R.S. § 38-33.3-124(3). Despite the policy favoring arbitration, Appellee
unilaterally deleted the declaration’s requirement to submit construction defect
claims to arbitration; and interestingly, left alone the general arbitration provision
embodied in declaration section 16.5. See R. CF p. 118 (Dec. § 16.5).1
Included within the declaration’s construction defect arbitration provision
was a section on the process required to amend the arbitration requirement. The
amendment provision clearly requires that the association must obtain the consent
of the declarant in order for such an amendment to be valid and effective, stating:
1 Section 16.5 requires mediation and then arbitration of disputes relating to any provision of the “Governing Documents,” including the declaration. Appellee did not amend, remove, or alter this section. Presumably, the current dispute over section 16.6 falls within the scope of section 16.5’s mandatory arbitration for disputes relating to any provision of the declaration.
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No Amendment; Enforcement by Declarant. The terms and provisions of this Section 16.6 inure to the benefit of Declarant, are enforceable by Declarant, and shall not ever be amended without the written consent of Declarant and without regard to whether Declarant owns any portion of the Real Estate at the time of such amendment . . . .2
R. CF p. 122 (Dec. § 16.6(h)). The amendment section included the declarant’s
intent in this requirement—in all capital letters—as follows:
. . . BY TAKING TITLE TO A UNIT, EACH OWNER ACKNOWLEDGES AND AGREES THAT THE TERMS OF THIS SECTION 16.6 ARE A SIGNIFICANT INDUCEMENT TO DECLARANT’S WILLINGNESS TO DEVELOP AND SELL THE UNITS AND THAT IN THE ABSENCE OF THE PROVISIONS CONTAINED IN THIS SECTION 16.6, DECLARANT WOULD HAVE BEEN UNABLE AND UNWILLING TO DEVELOP AND SELL THE UNITS FOR THE PRICES PAID BY THE ORIGINAL PURCHASERS. BY ACCEPTING TITLE TO A UNIT, EACH OWNER ACKNOWLEDGES AND AGREES THAT THE TERMS OF THIS SECTION 16.6 LIMIT HIS OR HER RIGHTS WITH RESPECT TO THE RIGHT AND REMEDIES THAT MAY BE AVAILABLE IN THE EVENT OF A POTENTIAL CONSTRUCTION DEFECT AFFECTING THE CONDOMINIUMS OR ANY PORTION THEREOF, INCLUDING ANY UNIT.
Id. But for section 16.6(h), Appellants would not have developed the project. The
2 While section 16.6(h) states that section 16.6 “shall not ever be amended without the written consent of Declarant,” the effective time period is much narrower. Section 16.6 applies only to construction defect claims. The latest that a construction defect claim involving original construction may be brought under Colorado’s statute of repose is eight years from the substantial completion of the project. See C.R.S. § 13-80-104(2). Thus, section 16.6 in its entirety would become moot upon the expiration of the statute of repose.
20 49271791.6
importance of this express intent cannot be ignored. This provision describes a
fundamental reason why the declarant constructed the project and set the price of
the units where it did. Contrary to the consent requirement, Appellee amended the
declaration to delete section 16.6 in its entirety in an effort to avoid mandatory
arbitration.
Appellee argues that CCIOA, section 38-33.3-104, forbids the “waiver” of
any of the “rights” conferred under the statute. See Answer Br. at 17. However,
an association’s ability to amend the declaration and to engage in litigation are
powers, not rights, and can be restricted by a declaration’s terms. There is a
distinction between a “right” and a “power” within CCIOA. Amending governing
documents is a “power.” See, e.g., C.R.S. § 38-33.3-302(1). Engaging in litigation
is also a “power” under CCIOA. See C.R.S § 38-33.3-302(1)(d). “Rights”
conferred under CCIOA are different and include, for example, specifically
identified “rights” such as “development rights” and “special declarant rights.”
See C.R.S § 38-33.3-103(14) (defining “development rights”); C.R.S § 38-33.3-
103(29) (defining “special declarant rights”); C.R.S § 38-33.3-210 (exercise of
“development rights”). As discussed below, “powers” can be restricted by the
terms of a declaration.
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Amending a declaration is a “power” that can be limited. “Except as
expressly limited by statute or the declaration, the members of a common-interest
community have the power to amend the declaration . . . .” Restatement (Third) of
Property (Servitudes) § 6.10(1). “A condominium association may exercise its
powers only within the constraints of its condominium declaration and bylaws.”
33.3-302, prescribes that an association has the “power,” “subject to the provisions
of the declaration,” to “institute, defend, or intervene in litigation . . . .” C.R.S. §
38-33.3-302(1)(d). The “subject to the provisions of the declaration” “phrase
suggests that a declaration may limit an association’s enumerated powers,” such
as its involvement in litigation/arbitration. Triple Crown, 328 P.3d at 281 (citing
Uniform Act, § 3-102, cmt. 1 (“This section permits the declaration, subject to the
limitations of subsection (b), to include limitations on the exercise of any of the
enumerated powers.”) (emphasis added). If the declaration can limit the
association’s power in relation to litigation/arbitration, then how can it be that the
declaration cannot, as argued by Appellee, place a consent requirement for the
complete extinction of an arbitration provision? If an association could circumvent
a proper restriction on its power to engage in litigation by simply deleting an
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arbitration provision, then a declarant’s inclusion of an arbitration provision in a
declaration would have no effect; hence, the importance for a mutual consent
requirement. In the presence of a consent clause, if the parties desire to not be
bound by an arbitration requirement and engage in the more expensive civil
litigation process, then they can mutually agree on amending the declaration.
If there is no consent clause, then the association would be free to amend the
declaration on its own volition, such as the case with the bylaws in Eagle Ridge.
But those are not the facts in the record on appeal here.
Appellee relies upon the Triple Crown decision in support of the conclusion
that CCIOA prohibits a declaration from imposing “limitations on the power of the
association to deal with the declarant that are more restrictive than the limitations
imposed on the power of the association to deal with other persons.” Answer Br.
at 17-20 (citing C.R.S. § 38-33.3-302(2)). The statutory phrase “to deal with the
declarant” has not been addressed by a Colorado appellate court. As discussed
above, a declarant has the ability to include restrictions, such as mandatory
arbitration, in the declaration on an association’s power to litigate. The issue then
becomes whether a declarant can require the association to obtain its consent
before removing the arbitration provision. The abundance of legislative intent in
support of arbitration in the context of CCIOA and the permissible limiting of
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association powers through the declaration support that the “to deal with the
declarant” clause cannot extend to a consent requirement.
A declarant creates and records the declaration. A declarant controls the
project and an association for a declarant-control period of time. An association
then becomes controlled by the unit owners and can exercise its powers subject to
the limitations of law and a declaration, the constitution of the community. The
only permitted parties to amend a declaration, other than a court, at any point in
time are a declarant and an association, through its members. Section 38-33.3-
302(2)’s proscription against limiting the association’s ability “to deal with the
declarant . . . that are more restrictive than the limitations imposed on the power of
the association to deal with other persons” can only apply to situations where the
association can actually deal with other persons. Amending the declaration is not
one of those situations. A third party, with the exception of a court, has no ability
to amend a common interest community’s declaration. Only the declarant or the
association can ever do so.
The logical interpretation of section 38-33.3-302(2) is to allow fair play
between the association and third parties without undue constraints imposed by the
declarant. For example, the statute would forbid the declarant from including a
declaration provision that the association can only ever contract with it for snow
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removal and that the association must pay an excessive fee for such services. In
practicality, the association would be forced to “deal with the declarant” in a
manner that is more restrictive than if the association procured snow removal
services in the open market, where it could freely “deal with other persons.”
It is important to further note that the construction defect arbitration
provision that was stripped by Appellee was not limited to only arbitration between
the association and the declarant, but extended to parties other than the declarant,
including “any contractor.” See R. CF p. 119 (Dec. at § 16.6(a)). The Triple
Crown decision did not address whether a “consent to amend” provision was
invalid under CCIOA. The court in Triple Crown considered section 38-33.3-
302(2) in the confines of whether a mandatory arbitration provision violated that
statutory provision. The court held that the arbitration requirement was not
invalidated by section 38-33.3-302(2) because it applied to parties other than the
declarant. Triple Crown, 328 P.3d at 282.
Lastly on this issue, both the district court and Appellee rely heavily on the
Hawaii Supreme Court decision in Association of Apartment Owners of Waikoloa
Beach Villas v. Sunstone Waikoloa, LLC, in support of the conclusion that section
16.6(h)’s consent requirement is an improper limitation on the association’s
powers to deal with the declarant. Similar to Triple Crown, the court in Waikoloa
26 49271791.6
did not address an amendment to a declaration or a declarant-consent provision.
The Waikoloa decision was limited to procedural requirements included in the
declaration’s arbitration provision that required the association to meet, including
hiring a Martindale-Hubble “bv” or higher rated attorney (which limited the pool
of available attorneys to the association, but not the declarant); obtaining an
opinion letter that there was a substantial likelihood of success on the merits
(which would be required to be distributed to each owner, including the declarant,
thereby infringing on the attorney-client and work product privileges); and
imposing a “special litigation assessment” to fund arbitration or litigation. Ass’n of
Apartment Owners of Waikoloa Beach Villas v. Sunstone Waikoloa, LLC, 307 P.3d
132, 140-41 (Haw. 2013). The Hawaii Supreme Court described these
requirements as a “disproportionate imposition of burdens” on the association and
held that these provisions “grant the developer an unfair advantage” in arbitration
or litigation. Id.
The Waikoloa holding is obviously distinguishable from the instant case.
This Court is not being presented with a dispute over provisions that were found by
the district court to be a “disproportionate imposition of burdens” in pursuing
arbitration of claims. There is no factual record support that section 16.6(h)’s
declarant-consent provision that applies only to amending/removing the arbitration
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requirement provides the declarant with “an unfair advantage.” It is merely a
procedural provision on how to go about amending section 16.6. There is nothing
before this Court that any other provision of section 16.6 violates CCIOA, similar
to what was considered and decided by the Hawaii Supreme Court. Again,
Appellee and the district court are stretching the holdings of other cases, none of
which addressed a consent-to-amend provision, in order to validate their
conclusions.
B. CCIOA expressly permits a third party consent requirement in a declaration without affecting the association’s internal 67% member vote cap to amend the declaration.
The association’s power to amend the declaration is not unfettered. Section
38-33.3-217(1)(a)(I) prescribes, in part, that a declaration “may be amended only
by the affirmative vote or agreement of unit owners of units to which more than
fifty percent of the votes in the association are allocated, or any larger percentage,
not to exceed sixty-seven percent, that the declaration specifies.” C.R.S. § 38-
33.3-217(1)(a)(I). Appellee relies on this CCIOA provision for the proposition that
declaration amendments must not require approval of more than 67% of the unit
owners, such that a declarant consent requirement would exceed the maximum
percentage threshold. See Answer Br. at 20-21. This interpretation of the statute
ignores that the legislature expressly recognized that third parties, separate and
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apart from the 67% member voting cap, may be required to consent to declaration
amendments.
While section 38-33.3-217(1)(a)(I) specifically constrains the required
percentage of unit owner votes that may be required to amend a declaration, it does
not preclude additional conditions for an amendment. A requirement for a third
party’s consent to a declaration amendment cannot factor into the 67% of unit
owners limitation. Subsection 217(1)(a)(I) is applicable to the internal dealings of
the association and has no bearing on third party consent requirements. The Court
need look no further than a later part of subsection 217 to observe the legislature’s
express intent on this point. Subsection 217(1)(b)(I), for example, provides certain
procedures “[i]f the declaration requires first mortgagees to approve or consent to
amendments . . . .” C.R.S. § 38-33.3-217(1)(b)(I). This begs the question: if
CCIOA truly prohibits third party consents to declaration amendments because all
that can be required is up to a 67% approval of the unit owners, then why did the
general assembly acknowledge that a declaration can require consent of a third
party (a first mortgagee)? The answer is straightforward. The 67% vote provision
only applies to the voting within the association. CCIOA unequivocally permits a
declaration to require a third party’s consent without concern of violating the 67%
provision.
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This clear and plain interpretation of subsection 217 is consistent with the
legislature’s intent found in other provisions addressing the declarant’s ability to
amend the declaration without regard of the association’s internal voting. See, e.g.,
C.R.S. § 38-33.3-205(4) (a declarant may amend the declaration, a plat, or a map
to correct clerical, typographical, or technical error); C.R.S. § 38-33.3-205(5) (a
declarant may amend the declaration to comply with the requirements, standards,
or guidelines of secondary mortgage markets, various federal agencies, and
mortgage associations). Because CCIOA expressly recognizes and contemplates
third party consent requirements without concern of implicating the association’s
67% voting limitation for declaration amendments, Appellee’s and the district
court’s reliance on and citation to section 38-33.3-217(1)(a)(I) is misplaced.
Further, the consent requirement at issue in this case applies only to the
ability to remove the arbitration clause, and not to the association’s ability to
amend the plethora of other provisions in the declaration. The consent provision is
specific and narrow. Section 16.6(h)’s declarant consent requirement does not run
afoul of CCIOA and is not contrary to public policy.
C. The declaration is an enforceable covenant in gross and the declarant expressly reserved its right to consent to the amendment/removal of the construction defect arbitration provision.
In the parties’ briefs, the declaration has been described as a “contract.” A
30 49271791.6
declaration, however, is the foundational document upon which the common
interest community is constructed. It is the “constitution” of the community,
binding the declarant, the association, and all owners, including their successors. It
is contractual in the sense that all purchasers agree to be bound by its restrictions,
covenants, and easements, and have presumptive notice of what is in the recorded
document. The association’s members purchased units with notice that this
provision was in place and they agreed to be bound by it. See, e.g., Brown v.
McDavid, 676 P.2d 714, 718 (Colo. App. 1983) (holding that since developers and
potential purchasers are free to contract for the price, terms, and conditions of any
sale, courts must presume that any covenants were reflected in the consideration
paid). But a declaration is more than just a set of rights, powers, and restrictions on
paper. It is created and recorded by the declarant to establish the community.
Without the declaration, there would be no Vallagio at Inverness and no
association. And, as expressly memorized in section 16.6(h), without the consent-
to-amend clause in the construction defects arbitration provision, the declarant
would not have constructed the community.
“[T]he recording of a declaration with the county records ‘provides
sufficient notice to permit the enforcement’ of the covenants and restrictions
contained therein . . . and condominium purchasers are ‘deemed to agree’ to them.”
31 49271791.6
Pinnacle Museum Tower Ass’n, 282 P.3d at 1226, 55 Cal.4th at 238 (citations
omitted). “[A]n association must exercise its property rights and its right of
management over the affairs of a development in a manner consistent with the
covenants, conditions, and restrictions of the declaration.” Id. at 1227, 55 Cal.4th
at 239. That a declaration operates to bind an association is both logical and
sound, for the success of a development would be gravely undermined if the
association was allowed to disregard the intent, expectations, and wishes of those
involved in the development. See id.
It is not unreasonable for a developer to bind an association to an arbitration
covenant via a recorded declaration. Id. at 1228, 55 Cal.4th at 241. And
“condominium owners should not be permitted to thwart the expectations of a
developer by using an owners association as a shell to avoid an arbitration
covenant in a duly recorded declaration.” Id. (citations omitted).
Section 16.6 of the declaration creates an enforceable covenant in gross. A
covenant in gross “does not belong to any person by virtue of his or her ownership
of an estate in land,” and “it does not run with the land and creates no dominant or
servient estates.” Lewitz v. Porath Family Trust, 36 P.3d 120, 122 (Colo. App.
2001); see also Restatement (Third) of Property (Servitudes) § 8.1. Given the
plain language of section 16.6 of the declaration, the circumstances surrounding its
32 49271791.6
creation (as expressly stated in the provision), and the purpose for which it was
created (again, as expressly stated therein), it is clear that section 16.6 as a whole is
a provision that is a servitude for the benefit of the declarant and any contractor
against whom a construction defect claim may be brought. Therefore, it is a
covenant in gross for their benefit. The declarant appropriately limited the
association’s ability to unilaterally take this covenant in gross away by requiring
mutual consent to any amendment of that specific provision. A declaration stands
above some ordinary contract given its unique nature: it is drafted and recorded by
one party; the association did not exist at the time it was created; it establishes the
entire community; and it serves as a governing document for the community.
D. Section 38-33.3-305(1)(b) does not apply to the declaration because it is not a “contract” between the declarant and the association.
The Colorado Associations Institute (“CAI”), amicus of Appellee, contends
that CCIOA, section 38-33.3-305(1)(b), permits the association to terminate any
“contract or lease between the association and a declarant.” See CAI Br. at 5-6.3
However, the declaration cannot be a contract between the association and the
declarant because the association did not yet exist; rather, the declaration is the
3 Section 38-33.3-305(1) requires that the association, through its executive board, must give at least 90-days’ notice to the other party to a contract. Assuming that this provision could control here, which it does not, there is nothing in the record on appeal to support that Appellee complied with this notice requirement.
33 49271791.6
constitution—the first governing document—that must be recorded pursuant to
CCIOA in order for a common-interest community to be formed. See C.R.S. § 38-
33.3-201(1). Without the declaration, there would be no community or
association. A declaration is a creation of a declarant; not a contract with a yet-to-
be-formed entity conceived by that very document. If the drafters of the Uniform
Act or the Colorado general assembly intended section 38-33.3-305(1)(b) to apply
to “declarations,” they would have used that term, which is a specifically defined
term under the statute. See C.R.S. § 38-33.3-103(13). Further, the statutory
definition of a “declaration” does not refer to it as a “contract.” See id.
The purpose behind section 38-33.3-305, as CAI acknowledges, is to prevent
the temptation of “self-dealing” by a developer/declarant while in control of the
association to enter into, on behalf of the association, long-term contracts and
leases with himself or an affiliated entity. See CAI Br. at 6 (citing Uniform Act, §
3-105, cmt. 1). Again, this is wholly inapplicable to the nature of a declaration.
Going back to the snow removal example previously described, section 38-33.3-
305 allows a common interest community association to terminate the excessive
fee and self-dealing contract that the declarant entered into with itself or an affiliate
on behalf of the association during the time it controlled the association’s board.
This statutory power to thwart self-dealing contracts and to remedy such contracts
34 49271791.6
if they are executed makes sense, but it is inapplicable to the case before this
Court.
The consent-to-amend clause is not illustrative of “self-dealing.” The
declarant included a mandatory arbitration provision in the declaration. Each and
every association member purchased a unit subject to this provision. It is well-
established that arbitration is encouraged and favored under Colorado law as a
more cost effective method of dispute resolution, and that CCIOA permits an
arbitration requirement to be included in a declaration. Section 16.6(h) is a proper
mechanism to prevent the unilateral removal of a provision that is favored under
CCIOA and our case law.
E. Contractual interpretation canons support the consent-to-amend requirement. Even if the Court is inclined to employ the general canons of contractual
interpretation to the declaration, in addition to the arguments presented by
Appellants, including that a specific provision controls over a general provision,
section 16.6(h)’s consent-to-amend provision is still valid and enforceable. “The
consensus of both parties is required in order to modify or to supplant a valid
contract.” Colowyo Coal Co. v. City of Colo. Springs, 879 P.2d 438, 443 (Colo.
App. 1994) (citing Grizzly Bar, Inc. v. Hartman, 169 Colo. 178, 454 P.2d 788
(1969)). Contracts commonly include provisions consistent with this point of law
35 49271791.6
that require the mutual consent of the parties in order for the terms to be modified.
Although the declaration is not a “contract” between the declarant and association,
it embodies the governance of the community, including many covenants,
restrictions, and benefits involving the declarant, association, contractors, and unit
owners. Section 16.6(h) of the declaration does nothing more than reiterate a valid
and common practice for the modification of a “contractual” term—both the
declarant and the association must consent to any variation of the construction
defect arbitration provision.
But it must be reiterated that although contract interpretation canons may
apply to construe the provisions of a declaration, a declaration is not a contract
between a declarant and an association. It is analogous to a recorded plat that
defines properties and property rights for later sale. Contracts for sale of
condominium units are made by reference to the condominium declaration, just as
a contract for the sale of a platted lot is made by reference to the plat. A
declaration is a real estate document that creates and defines a type of real property
interest.
36 49271791.6
V. CONCLUSION
For the foregoing reasons, amici curiae urge the Court to determine that a
consent-to-amend clause in an arbitration provision does not violate CCIOA or
public policy.
Respectfully submitted this 3rd day of December, 2014.
POLSINELLI PC s/ Richard M. Murray Richard M. Murray, #38940 Ryan E. Warren, #33605 1515 Wynkoop Street, Suite 600 Denver, Colorado 80202 Telephone: (303) 572-9300 Counsel for Amici Curiae
OTTEN JOHNSON ROBINSON NEFF + RAGONETTI PC Amy K. Hansen, #32748 950 Seventeenth Street, Suite 1600 Denver, Colorado 80202 Telephone: (303) 575-7563 Counsel for Amici Curiae
37 49271791.6
CERTIFICATE OF SERVICE
I hereby certify that on December 3, 2014, the foregoing amicus brief was served on all parties and amici curiae via ICCES.
Mari Perczak, Esq. Berg Simpson Eldredge Hersh Jardine, P.C. 40 Inverness Drive East Englewood, Colorado 80112 Attorneys for Plaintiff/Appellee Vallagio at Inverness Residential Condominium Association
Daniel M. Fowler, Esq. Brian Widmann, Esq. Fowler, Schimberg & Flanagan, P.C. 1640 Grant Street, Suite 300 Denver, CO 80203 Attorneys for Defendants/ Appellants Metropolitan Homes, Inc., Metro Inverness, LLC, Greg Krause and Peter Kudla
Marisa C. Ala, Esq. Mary Ritchie, Esq. Palumbo Bergstrom LLP 8375 S. Willow Street, Suite 300 Lone Tree, CO 80124 Attorneys for Defendants/Appellants Metropolitan Homes, Inc., Metro Inverness, LLC, Greg Krause and Peter Kudla
Jeffrey P. Kerrane, Esq. Benson, Kerrane, Storz & Nelson, P.C. 110 N. Rubey Drive, Suite 200 Golden, CO 80403 Attorneys for Amicus Curiae The Community Associations Institute
