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Top Rail Ranch Estates, LLC v. Walker

Court of Appeals of Colorado

January 30, 2014

Top Rail Ranch Estates, LLC, a Colorado limited liability company, Plaintiff-Appellee and Cross-Appellant,
v.
Ronald E. Walker and Walker Development Company, a Colorado corporation, Defendants-Appellants and Cross-Appellees. and Chris Jenkins, Plaintiff-Appellee, And Walker Development Company, a Colorado corporation, Plaintiff-Appellant and Cross-Appellee,
v.
Top Rail Ranch Estates, LLC, a Colorado limited liability company and Christopher B. Jenkins, Defendants-Appellees and Cross-Appellants.

Fremont County District Court No. 10CV179, 11CV128, Honorable Julie G. Marshall, Judge

Alpern Myers Stuart LLC, Gregory M. O'Boyle, Colorado Springs, Colorado; Mulliken Weiner Berg & Jolivet P.C., Steven K. Mulliken, Colorado Springs, Colorado, for Plaintiffs-Appellees and Cross-Appellant

Hall & Evans, L.L.C., Alan Epstein, David E. Leavenworth, Denver, Colorado; Mullans, Piersel & Reed, P.C., Shannon Reed, Pueblo, Colorado, for Defendants-Appellants and Cross-Appellees

OPINION

TERRY, JUDGE

¶ 1 In Top Rail Ranch Estates v. Walker, No. 12CA0227 (the First Action), defendants, Ronald E. Walker and Walker Development Company, appeal the judgment entered for plaintiffs, Top Rail Ranch Estates, LLC (Top Rail), and Christopher B. Jenkins. Walker and Walker Development also appeal numerous orders, as well as the trial court's calculation of prejudgment interest awarded to plaintiffs.

¶ 2 In Walker Development Company v. Top Rail Ranch Estates, LLC, No. 12CA1326 (the Second Action), plaintiff, Walker Development, appeals the trial court's entry of summary judgment for defendants, Top Rail and Jenkins. Top Rail and Jenkins cross-appeal the trial court's order denying their C.R.C.P. 59(a)(4) motion.

¶ 3 As discussed in part III.A, below, we conclude, as an issue of first impression in Colorado, that the doctrine of claim preclusion does not bar claims that were permissive counterclaims in a prior action, where the adjudication of those claims would not result in inconsistent judgments or a deprivation of rights established by the first judgment.

¶ 4 For purposes of judicial economy, we address in one opinion the issues raised in the parties' appeals. We affirm in part, reverse in part, and remand with directions.

I. Background and Procedural History

¶ 5 In this combined opinion, we consider several issues arising from a real estate transaction between Top Rail and Walker Development. In January 2005, Top Rail entered into a contract with Walker Development to purchase a subdivision of platted residential lots. Top Rail paid $200, 000 of the purchase price in cash, and executed a promissory note payable to Walker Development for the balance of $1, 000, 000. As security for the note, the parties executed a deed of trust securing the subdivision lots. Top Rail and Jenkins, personally, later executed two additional promissory notes, both of which were secured by the original deed of trust.

¶ 6 Top Rail later obtained a loan from Cañon National Bank in order to make improvements in the subdivision. Walker Development agreed to subordinate its deed of trust to the bank's lien on all but two lots in the subdivision.

¶ 7 After the sale to Top Rail, Walker and Walker Development retained a substantial parcel of land next to the subdivision. In August 2008, Walker and Walker Development entered into an exploration agreement and option to purchase with a mining company for that adjacent parcel. The sale of the adjacent parcel was conditioned on a zoning change to Agricultural Forestry zoning, which would have allowed the purchaser to conduct mining on the property. Walker applied to the county to change the zoning. He told Jenkins that the zoning change was being sought for the purpose of establishing a conservation easement, and he made similar representations in his application to the county. Neither he nor Walker Development disclosed to Jenkins or the county the pending sale to the mining company. After the county approved the zoning change, the mining company completed the purchase. Several months later, the county learned that the mining company had purchased the property and reversed the zoning change.

¶ 8 After the sale of the adjacent property to the mining company, Top Rail was unable to sell lots in the subdivision, and it halted construction activities. Top Rail stopped making payments on its loan from the bank, and the bank foreclosed on its deed of trust. After the foreclosure sale, Walker Development redeemed the foreclosed property and obtained title to all but two lots in the subdivision.

¶ 9 The foreclosed property was encumbered by a superior lien of the Penrose Water District for unpaid water tap fees. After redeeming the property from foreclosure, Walker Development paid off the district's lien, which amounted to roughly $223, 000.

¶ 10 In the First Action, Top Rail and Jenkins alleged claims of fraudulent concealment, intentional misrepresentation, negligent misrepresentation, breach of contract, and breach of the covenant of good faith and fair dealing. Walker and Walker Development counterclaimed, alleging that Top Rail and Jenkins had breached their deed of trust by encumbering the property with a water tap lien, and sought money damages in the amount that Walker Development had paid to satisfy the lien.

¶ 11 Following a jury trial, the trial court granted the motion of Top Rail and Jenkins for directed verdict on the counterclaim, resulting in the dismissal of the counterclaim, and denied motions of Walker and Walker Development for directed verdict on claims alleged by Top Rail and Jenkins.

¶ 12 The jury returned a verdict in favor of Top Rail on its claims for fraud, breach of contract, and breach of the covenant of good faith and fair dealing. The jury awarded $298, 000 in damages for the fraud claim, $567, 000 for the breach of contract claim, and $500, 000 for the breach of the covenant of good faith and fair dealing claim. The court entered judgment on the verdicts, but reduced the damages award for the contract-based claims to $500, 000, based on its finding that the damages for breach of contract were duplicative of those for the good faith and fair dealing claim.

¶ 13 Before trial in the First Action, Walker Development filed the Second Action against Top Rail, Jenkins, and the Public Trustee of Fremont County, claiming that Top Rail and Jenkins were in default on the three promissory notes and deed of trust they had executed in favor of Walker Development. It sought the remaining balance due on the notes, reimbursement for the amounts that Walker Development had paid to remove the water district lien, and foreclosure on the remaining parcels encumbered by the deed of trust that had not been subject to the bank's earlier foreclosure.

¶ 14 After the trial court entered final judgment in the First Action, the same court entered summary judgment in the Second Action in favor of Top Rail and Jenkins, concluding that Walker Development's claims were barred by the doctrine of claim preclusion.

II. Appeal of the First Action

A. Motions for Directed Verdict

¶ 15 In the First Action, both sides moved for directed verdict. The court granted the motion dismissing Walker Development's counterclaim, and denied all of the motions for directed verdict asserted by Walker and Walker Development.

1. Walker Development's Counterclaim

¶ 16 Walker Development first argues that the court erred in granting the motion for directed verdict and dismissing its counterclaim. We reverse the directed verdict and remand for further proceedings on the counterclaim.

a. Standard of Review

¶ 17 We review de novo rulings on motions for directed verdict. Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159, 1163 (Colo.App. 2010); MDM Grp. Assocs., Inc. v. CX Reinsurance Co., 165 P.3d 882, 885 (Colo.App. 2007). "Where the motion concerns a question of fact, we consider whether the evidence, viewed in the light most favorable to the nonmoving party, compels the conclusion that reasonable jurors could not disagree and that no evidence or inference [therefrom] has been received at trial upon which a verdict against the moving party could be sustained." Reigel v. SavaSeniorCare L.L.C., 292 P.3d 977, 982 (Colo.App. 2011) (internal quotation marks omitted); accord Schuessler v. Wolter, 2012 COA 86, ¶ 33. However, where the issue raised in the motion concerns a question of law, we may make an independent determination of that issue. Health Grades, Inc. v. Boyer, 2012 COA 196M, ¶ 17; Reigel, 292 P.3d at 982.

b. Analysis

¶ 18 In moving for directed verdict, Top Rail and Jenkins argued that after Walker Development redeemed the property from foreclosure, it was not entitled to sue them because Walker Development had no enforceable rights. They maintained that the deed of trust had been extinguished by the foreclosure and redemption process, and that the amount Walker Development had paid to redeem was discounted as a result of the senior water tap lien.

¶ 19 At least some of the argument on the motion for directed verdict took place off the record. The court's reasoning on the record is unclear. The court stated that the bank would not have been able to sue for the unpaid lien, and that Walker Development was therefore also prohibited from recovering the amounts it had paid to release the lien.

¶ 20 A provision of the parties' deed of trust allowed Walker Development to pay off any liens, including water assessments, that encumbered the property. It further provided that if Walker Development elected to pay off such liens or assessments, the amounts paid by Walker Development would become part of Top Rail's debt and Walker Development could sue to collect those amounts.

¶ 21 We first consider and reject the contention of Top Rail and Jenkins that the foreclosure extinguished Walker Development's deed of trust. Regardless of whether the lien imposed by the deed of trust was extinguished by foreclosure of the bank's senior lien, the contractual covenants in the deed of trust were not extinguished by the foreclosure. See Schwab v. Martin, 165 Colo. 547, 552-53, 441 P.2d 17, 19 (1968) (concluding that a provision of a deed of trust remained operative as a contract between the parties, even though the debt was extinguished by the foreclosure sale and the instrument was surrendered to the public trustee); Foot v. Burr, 41 Colo. 192, 197-200, 92 P. 236, 237-38 (1907) (noting that a deed of trust is both a lien and a personal contract); see also Compass Bank v. Kone, 134 P.3d 500, 503 (Colo.App. 2006) (in a case involving secured transactions, holding that "a security interest can be created in an integrated document containing both the security agreement and other contractual terms").

¶ 22 We are not persuaded by Top Rail's further argument that, because the deed of trust stated that the ability of Walker Development to pay off prior liens was to protect its security interest, it was not entitled to enforce that contractual provision once the foreclosure had extinguished Walker Development's security interest. In the deed of trust, Top Rail assigned to Walker Development the right to cure Top Rail's default in payment that resulted in the tap lien, and Top Rail covenanted to pay Walker Development the cost of such cure, with interest. Those contractual rights did not depend on the continued vitality of Walker Development's security interest in the property. See Schwab, 165 Colo. at 552-53, 441 P.2d at 19.

ΒΆ 23 In granting a directed verdict for Top Rail and Jenkins on the counterclaim, the trial court accepted their argument that it is presumed that the senior water tap lien was taken into account in the bank's bid. Though the court's reasoning is unclear, this was essentially a ruling, as a matter of law, that Walker Development had no enforceable right ...


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