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Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc.

Court of Appeals of Colorado, Division A

May 7, 2015

Vallagio at Inverness Residential Condominium Association, Inc., a Colorado non-profit corporation, Plaintiff-Appellee,
Metropolitan Homes, Inc., a Colorado corporation; Metro Inverness, LLC, a Colorado limited liability company; Greg Krause, individually; Peter Kudla, individually, Defendants-Appellants.

Arapahoe County District Court No. 13CV32022 Honorable Elizabeth B. Volz, Judge

Burg Simpson Eldredge Hersh & Jardine, P.C., Ronald M. Sandgrund, Mari K. Perczak, Leslie A. Tuft, Englewood, Colorado, for Plaintiff-Appellee.

Palumbo Bergstrom, LLP, Marisa C. Ala, Mary Ritchie, Lone Tree, Colorado, for Defendants-Appellants.

Polsinelli, P.C., Amy K. Hansen, Richard M. Murray, Ryan E. Warren, Denver, Colorado, for Amici Curiae 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, Colorado Contractors Association.

Benson, Kerrane, Storz & Nelson, P.C., Jeffrey P. Kerrane, Golden, Colorado for Amicus Curiae The Community Association Institute.



¶ 1 Defendants, Metropolitan Homes, Inc., Metro Inverness, LLC, Greg Krause, and Peter Kudla, appeal the district court's order denying their motion to compel arbitration in this construction defect action filed by plaintiff, Vallagio at Inverness Residential Condominium Association, Inc. We affirm in part, reverse in part, and remand with directions.

I. Background

¶ 2 Vallagio at Inverness Residential Condominium Association, Inc. (Association) brought this action against defendants, alleging construction defects in the Vallagio at Inverness residential development project (Project). The Project was organized as a common interest community under the Colorado Common Interest Ownership Act (CCIOA). Metro Inverness was the Project's developer and declarant. According to the complaint, Metropolitan Homes was Metro Inverness' manager and the Project's general contractor. Krause and Kudla were declarant-appointed members of the Association's board before control of the Association was transferred to unit owners who bought homes in the Project.

¶ 3 Metro Inverness drafted and recorded the Project's original declaration in 2007. The declaration contained a general provision governing amendments. That provision, section 13.1, allowed the unit owners to amend the declaration by a 67% vote and also required a consenting vote of the declarant. In that regard, the provision gave the declarant, Metro Inverness, the right to consent (or withhold consent) to amendments, but stated that the right of consent would expire after the last unit was sold to an owner other than the declarant.

¶ 4 Section 16.6 of the declaration included a mandatory arbitration provision specifically for construction defect claims. That section stated that its provisions "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 the amendment."

¶ 5 Metro Inverness turned control of the Association's board of directors over to the Project's unit owners in 2010. It sold the last unit to a non-declarant owner in 2012.

¶ 6 In September 2013, at least 67% of the Project's unit owners voted to amend the declaration to remove section 16.6 in its entirety, including the arbitration provision. The unit owners did not obtain Metro Inverness' consent to amend that section.

¶ 7 Soon after the declaration was amended, the Association filed this action against defendants in district court. The Association asserted a number of claims related to alleged construction defects, including negligence, negligence per se, negligent repair, breach of implied warranty, misrepresentation/non-disclosure, violations of the Colorado Consumer Protection Act (CCPA), and breach of fiduciary duty. The Association asserted these claims on its own behalf, seeking damages based on its responsibility to maintain and repair common areas of the Project. It did not bring any claims on behalf of individual unit owners, nor did any such owners join as plaintiffs in this action.

¶ 8 Defendants moved to compel arbitration, relying on the arbitration provision in section 16.6 of the original declaration. Defendants argued that the amendment purporting to remove that provision was invalid because Metro Inverness did not consent to it. Defendants also argued that the arbitration provisions in the individual unit owners' purchase agreements required arbitration of the Association's claims.

¶ 9 In its response, the Association argued that (1) the declaration was validly amended to remove the arbitration provision; (2) the declarant consent requirement in section 16.6 violated CCIOA; (3) Metropolitan Homes, Krause, and Kudla lacked standing to enforce the declaration's arbitration provision; (4) the Association was not bound by individual unit owners' purchase agreements; and (5) the CCPA claims were non-arbitrable.

¶ 10 The district court denied defendants' motion to compel arbitration in a written order. The court concluded that Metro Inverness' consent was not required to remove the arbitration provision for two reasons. First, the court determined that section 13.1 and section 16.6 contained conflicting requirements for amending the declaration, creating an ambiguity that must be construed against the drafter, Metro Inverness. Second, the court ruled that the declarant consent requirement in section 16.6 violated CCIOA and was, therefore, void and unenforceable. Based on these conclusions, the court ruled that the declaration was effectively amended to remove the arbitration provision. The court also ruled that the Association could not be bound by unit owners' purchase agreements because it was not a party to those agreements and because it asserted claims only on its own behalf, not on behalf of individual owners. Because it denied the motion to compel on those grounds, the court did not address the Association's arguments about defendants' standing or the arbitrability of the CCPA claims.

¶ 11 Defendants filed this interlocutory appeal of the district court's order pursuant to section 13-22-228(1)(a), C.R.S. 2014.

II. Discussion

¶ 12 Defendants contend that the district court erred in denying their motion to compel arbitration. We agree in part. For the reasons set forth below, we conclude that the declaration requires arbitration of the claims against Metro Inverness. We remand to the district court for further proceedings to determine whether Metropolitan Homes, Krause, and Kudla have standing to compel arbitration under the declaration. We reject defendants' alternative argument they may compel arbitration of the Association's claims under the purchase agreements. We further reject the Association's contention that its CCPA claims are not arbitrable.

¶ 13 Arbitration is favored in Colorado as a convenient and efficient alternative to resolving disputes by litigation. City & Cnty. of Denver v. Dist. Court, 939 P.2d 1353, 1357, 1362 (Colo. 1997). A valid and enforceable arbitration provision divests the court of jurisdiction over all arbitrable issues. Eychner v. Van Vleet, 870 P.2d 486, 489 (Colo.App. 1993).

¶ 14 In considering a motion to compel arbitration, the district court must determine whether a valid agreement to arbitrate exists between the parties to the action and whether the issues being disputed are within the scope of the arbitration agreement. Id. The court may refuse to compel arbitration "only upon a showing that there is no agreement to arbitrate or if the issue sought to be arbitrated is clearly beyond the scope of the arbitration provision." Id. (internal quotation marks omitted).

¶ 15 The arbitrability of a claim or issue is a question of law that we review de novo. Eagle Ridge Condo. Ass'n v. Metro. Builders, Inc., 98 P.3d 915, 918 (Colo.App. 2004), abrogated on other grounds by Ingold v. AIMCO/Bluffs, L.L.C. Apartments, 159 P.3d 116 (Colo. 2007).

¶ 16 Here, the parties do not dispute on appeal that the original declaration contained a valid arbitration agreement or that the types of claims asserted in this case were construction defect claims covered by the arbitration agreement. Rather, the parties dispute whether the arbitration provision was validly removed by the unit owners' amendment of the declaration. Thus, to determine whether the declaration's arbitration agreement remains in force, we examine the validity of the amendment.

¶ 17 Defendants contend that the unit owners' purported amendment was ineffective because they failed to obtain Metro Inverness' consent. Defendants argue that, contrary to the district court's ruling, the declarant's consent was required to amend the arbitration provision under the terms of the original declaration, and the consent requirement was not void under CCIOA. For the reasons set forth below, we agree.

A. Interpretation of The Original Declaration's Amendment Provisions

¶ 18 Defendants first contend that the district court erred in concluding that the declaration's provisions governing amendments were ambiguous and in construing that ambiguity against Metro Inverness. We agree. Based on the declaration's plain language, we conclude that amendments to the declaration's arbitration agreement required Metro Inverness' consent.

¶ 19 We apply ordinary principles of contract interpretation to determine whether a valid and binding agreement to arbitrate exists. City & Cnty. of Denver, 939 P.2d at 1363; Eagle Ridge, 98 P.3d at 917. Contracts must be construed as a whole and effect must be given to every provision, if possible. Holland v. Bd. of Cnty. Comm'rs, 883 P.2d 500, 505 (Colo.App. 1994). It is a basic principle of contract law that specific clauses of a contract control the effect of general clauses. Id.; see also E-470 Pub. Highway Auth. v. Jagow, 30 P.3d 798, 801 (Colo.App. 2001), aff'd on other grounds, 49 P.3d 1151 (Colo. 2002).

¶ 20 We will enforce the agreement as written unless there is an ambiguity in the language. Allen v. Pacheco, 71 P.3d 375, 378 (Colo. 2003). A document is ambiguous if it is reasonably susceptible of more than one meaning. Cheyenne Mountain Sch. Dist. No. 12 v. Thompson, 861 P.2d 711, 715 (Colo. 1993).

¶ 21 The declaration contains two provisions that bear on whether declarant's consent was required to amend the arbitration provision. Article XIII is titled "Amendment of Declaration" and sets forth a number of amendment provisions. Section 13.1, titled "General Procedure, " states:

[T]he provisions of this Declaration and/or Condominium Map may be amended, in whole or in part, at any time and from time to time, by vote or agreement of Owners of Units holding at least 67% of the votes in the Association, and Declarant, provided that Declarant's right to consent under this Section 13.1 shall expire on the first to occur of the conveyance by a Declarant of all Units to Owners (other than a Declarant) or seven ...

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