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Arrabelle At Vail Square Residential Condominium Association Inc. v. Arrabelle At Vail Square LLC

Court of Appeals of Colorado, Third Division

August 25, 2016

Arrabelle at Vail Square Residential Condominium Association, Inc., Plaintiff-Appellee and Cross-Appellant,
Arrabelle at Vail Square LLC, Defendant-Appellant and Cross-Appellee.

         Eagle County District Court No. 09CV320 Honorable Frederick W. Gannett, Judge

          Lewis Roca Rothgerber Christie LLP, Scott M. Browning, Alex C. Myers, Denver, Colorado; Zonies Law LLC, Sean Connelly, Denver, Colorado, for Plaintiff-Appellee and Cross-Appellant

          Gibson, Dunn & Crutcher LLP, Gregory J. Kerwin, Robert C. Blume, M. Scott Campbell, Denver, Colorado, for Defendant-Appellant and Cross-Appellee


          GRAHAM JUDGE.

         ¶ 1 In this case interpreting provisions of the Colorado Common Interest Ownership Act (CCIOA), sections 38-33.3-101 to -402, C.R.S. 2015, we are asked to determine, among other related issues, whether a mixed-use community consisting of a hotel, retail shops, restaurants, and sixty-six condominiums is a "small planned community" under section 38-33.3-116, C.R.S. 2015, of CCIOA. We conclude it is not and, therefore, affirm the judgment of the trial court.

         I. Background

         ¶ 2 The Arrabelle at Vail Square is a luxury development at the base of Vail Mountain in Vail, Colorado. Built and managed by Vail Resorts Development Company and Arrabelle at Vail Square LLC (Vail Resorts), the development (Arrabelle) includes multi-million dollar residential condominiums, a boutique hotel, restaurants, retail shops, an ice-skating rink, a spa, parking, and other amenities.

         ¶ 3 At the time of development, Vail Resorts recorded a plat establishing seven separate real estate parcels collectively titled "Lot 1" and "Airspace Lots A-F" at the Arrabelle. Vail Resorts then entered into a Reciprocal Easements and Covenants Agreement (RECA) governing those parcels and creating two lots - the Airspace Lot (which would be developed into condominiums) and the Project Lot (the remainder of the property). The RECA establishes benefits, burdens, and allocation of costs between both lots, and it regulates the use and enjoyment of both lots.

         ¶ 4 In pertinent part, the RECA originally contained the following two provisions:

18. SMALL PLANNED COMMUNITY EXCEPTION. The Parties hereby acknowledge and agree that this Agreement constitutes a "declaration" and creates a "common interest community" under CCIOA. Specifically, this Agreement creates a "planned community" under CCIOA, and not a "condominium, " as those terms are defined by CCIOA. The planned community created by this Agreement contains only two lots, the Project Lot and the Airspace Lot, and is therefor exempt from CCIOA's provisions pursuant to the exemption contained in Section 38-33.3-116(2) of CCIOA for planned communities containing no more than 20 lots. The Parties acknowledge and agree that the Project Lot and the Airspace Lot will not be bound by or subject to the provisions of CCIOA, except as expressly required under CCIOA, as in effect at the date of this Agreement. In addition, the Parties acknowledge and agree that neither the Project Owner nor the Airspace Lot Owner shall be deemed a "master association" within the meaning of Section 38-33.3-220 of CCIOA. Without limitation on the generality of the foregoing, the Parties acknowledge and agree that the Airspace Lot constitutes an estate above the surface within the meaning of Section 38-32-101, et. seq., C.R.S., and not a condominium within the meaning of CCIOA; the Airspace Lot Owner Easements constitute the sole property interest in the Project Improvements[1] that is held by the Airspace Lot Owner as appurtenances to the Airspace Lot; and there are not any "common elements" or other portions of the Project Improvements in which the Airspace Lot Owner holds any undivided or other ownership interest.
19. CONDOMINIUMIZATION OF AIRSPACE LOT. Notwithstanding but without limiting the provisions of Section 18 above, the Parties acknowledge and agree that the Airspace Lot Owner may, at its election, subject the Airspace Lot to a condominium regime under CCIOA. Regardless of any such condominiumization, the Airspace Lot will continue to be a single lot for all purposes under this Agreement. Any owners' association formed pursuant to CCIOA (the "Association") will be deemed the "Airspace Lot Owner, " all owners of such condominium units will act and be treated collectively through the Association under this Agreement and each owner of a condominium unit, by taking title to a condominium unit, irrevocably and unconditionally appoints the Association as its duly authorized representative and attorney-in-fact for all purposes of this Agreement. Notwithstanding that the Association shall be deemed the "Airspace Lot Owner, " the Airspace Lot Owner Easements will be deemed granted to the Association for the benefit of its members and the use restrictions on the Airspace Lot will apply to and may be enforced against all or any portions of the Airspace Lot and the owners thereof, as the Project Owner may elect from time to time. In any event, each owner of a portion of the Airspace Lot, whether condominiumized or not, is subject to all provisions of this Agreement.

         ¶ 5 The RECA established that the Airspace Lot Owner would be responsible for a flat amenity access fee set by the Project Owner and 59.7% of the operating and capital improvement costs of the Arrabelle. As the owner of both the Airspace Lot and the Project Lot, Vail Resorts signed the RECA on behalf of both owners.

         ¶ 6 Immediately after recording the RECA, Vail Resorts recorded a condominium plat creating sixty-six condominiums in the Airspace Lot and a condominium declaration creating the Arrabelle at Vail Square Residential Condominium Association, Inc. (Association). The condominiums ultimately sold with base prices ranging from $1, 195, 000 to $6, 695, 000.

         ¶ 7 Problems arose between Vail Resorts and the Association within the first year of operation. While the RECA required the Association to pay a $1, 975, 853 expense payment in 2008, the Association objected. And because the 2008 Arrabelle operations ran substantially over budget, the Association was facing yet a larger expense payment in 2009. On February 17, 2009, the Association notified Vail Resorts it was terminating the RECA.

         ¶ 8 On June 1, 2009, the Association filed this action seeking a declaratory judgment allowing it to terminate the RECA or alternatively ruling that the RECA was in violation of CCIOA, requiring reformation. The Association made additional claims for statutory breach of good faith, breach of fiduciary duties, and breach of the common law duty of good faith and fair dealing. Vail Resorts counterclaimed for breach of contract and unjust enrichment.

         ¶ 9 The case proceeded in three phases. First, the trial court granted the Association's motion for partial summary judgment, ruling that the Arrabelle is not a CCIOA small planned community under section 38-33.3-116(2) because it was subject to development rights. See § 38-33.3-116(2) ("If a . . . planned community created in this state on or after July 1, 1998, contains . . . no more than twenty units and is not subject to any development rights, it is subject only to sections 38-33.3-105 to 38-33.3-107[, C.R.S. 2015, ] . . . .").

         ¶ 10 Second, the court conducted a trial addressing the method of reforming the RECA to comply with CCIOA (Phase I Trial). Under sections 38-33.3-112 and -203, C.R.S. 2015, the court struck the amenity access fee from the RECA and reformed the agreement to include, among other things, mandatory alternative dispute resolution. See § 38-33.3-124, C.R.S. 2015 (dispute resolution under CCIOA). The court also concluded that the RECA included an incorrect cost allocation ratio (allocating 59.7% to the residences in the Airspace Lot and 40.3% to the Project Lot) and readjusted the burden to 49.1% to the Airspace Lot residences.

         ¶ 11 The court also ordered the parties to draft and ratify a master association declaration. § 38-33.3-220. Because the parties were unable to agree on a declaration after approximately one year, the court referred the matter to a special master who drafted a third amendment to the RECA incorporating the court's changes along with articles of incorporation and bylaws for a new master association. The court adopted the special master's recommended instruments in July 2014.

         ¶ 12 Third, the trial court held a trial on the remaining claims of breach of good faith, breach of contract, and unjust enrichment (Phase II Trial). Ultimately, the court denied all outstanding claims and awarded the Association, as the prevailing party, $2, 500, 000 in stipulated attorney fees.[2]

         ¶ 13 Vail Resorts appeals the following trial court rulings: (1) the conclusion that the Arrabelle is not a "small planned community" under CCIOA section 38-33.3-116(2) because Vail Resorts reserved development rights under the RECA; (2) the reformed cost allocation based on the court's conclusion that the RECA violated CCIOA section 38-33.3-207(2), C.R.S. 2015, because the original allocation discriminated "in favor of units owned by the declarant"; and (3) the adopted reformed RECA and master association documents because those documents contain terms not required by CCIOA. The Association conditionally cross-appeals the court's conclusion that the Association did not validly terminate the RECA by e-mailing notice of termination to Vail Resorts under CCIOA section 38-33.3-305, C.R.S. 2015.

         II. Standard of Review

         ¶ 14 Statutory interpretation is a question of law that we review de novo. Triple Crown at Observatory Vill. Ass'n v. Vill. Homes of Colo., Inc., 2013 COA 150M, ¶ 10. Because a court's primary duty is to give full effect to the General Assembly's intent, interpretation begins by examining the statute's plain language within the context of the statute as a whole. Id. "Words and phrases should be given effect according to their plain and ordinary meaning . . . ." Farmers Grp., Inc. v. Williams, 805 P.2d 419, 422 (Colo. 1991). The court "must not strain to give language other than its plain meaning, unless the result is absurd." Colo. Dep't of Soc. Servs. v. Bd. of Cty. Comm'rs, 697 P.2d 1, 18 (Colo. 1985), superseded by statute on other grounds, Ch. 58, 1985 Colo. Sess. Laws 289-90.

         ¶ 15 CCIOA is patterned after the Uniform Common Interest Ownership Act (UCIOA), and "we accept the intent of the drafters of a uniform act as the General Assembly's intent when it adopts a uniform act." Yacht Club II Homeowners Ass'n v. A.C. Excavating, 94 P.3d 1177, 1180 (Colo.App. 2003), aff'd, 114 P.3d 862 (Colo. 2005).

         III. CCIOA's Small Planned Community Exception

         ¶ 16 CCIOA provides in pertinent part that "[i]f a . . . planned community created in this state on or after July 1, 1998, contains . . . no more than twenty units and is not subject to any development rights, it is subject only to sections 38-33.3-105 to 38-33.3-107 . . . ." § 38-33.3-116(2).

"Development rights" means any right or combination of rights reserved by a declarant in the declaration to:
(a) Add real estate to a common interest community;
(b) Create units, common elements, or limited common elements within a common interest community;
(c) Subdivide units or convert units into common elements; or
(d) Withdraw real estate from a common interest community.

§ 38-33.3-103(14), C.R.S. 2015. "'Common interest community' means real estate described in a declaration with respect to which a person, by virtue of such person's ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration." § 38-33.3-103(8). A "'[d]eclarant' means any person or group of persons acting in concert who: . . . [r]eserves or succeeds to any special declarant right." § 38-33.3-103(12)(b); see § 38-33.3-103(21) ("'Person' means . . . a corporation . . . ."). And "'[s]pecial declarant rights' means rights reserved for the benefit of a declarant to . . . exercise any development right." § 38-33.3-103(29).

         ¶ 17 The provisions of CCIOA "may not be varied by agreement, and rights conferred by this article may not be waived. A declarant may not act under a power of attorney or use any other device to evade the limitations or prohibitions of this article or the declaration." § 38-33.3-104, C.R.S. 2015.

         A. Development Rights

         ¶ 18 In granting the Association's motion for partial summary judgment, the trial court concluded that section 19 of the RECA reserved the right to condominiumize the Airspace Lot and, therefore, reserved a development right in Vail Resorts as defined by section 38-33.3-103(14). By using plain language indicating the existence of a future right - "the Airspace Lot Owner may, at its election, subject the Airspace Lot to a condominium regime" - Vail Resorts reserved the right to create within the Airspace Lot a common interest community in which physical portions thereof would be designated for separate ownership. § 38-33.3-103(8) (defining common interest community); § 38-33.3-103(9) (defining condominium). These separately owned physical portions of the Airspace Lot would be units. § 38-33.3-103(30) ("'Unit' means a physical portion of the common interest community which is designed for separate ownership . . . ."). Therefore, the plain language of the RECA allowed Vail Resort to "[c]reate units . . . within a common interest community." § 38-33.3-103(14). Consequently, the court concluded the RECA subjected the Airspace Lot to "development rights" precluding the Arrabelle from becoming a small planned community.

         ¶ 19 Vail Resorts argues that the Arrabelle is a small planned community because (1) UCIOA section 4-103(b) (Unif. Law Comm'n 1982) establishes that CCIOA does not consider the ability to create nested common interest communities as development rights; (2) the UCIOA requires that a development right alter the legal structure of an existing common interest community and the condominiumization of the Airspace Lot did not alter the Arrabelle's legal structure; and (3) the RECA did not reserve any development rights in the "declarant" but rather in the "Airspace Lot Owner, " who coincidentally happened to be the declarant in these circumstances.

         ¶ 20 Vail Resorts relies upon UCIOA section 4-103(b) (a section that was not adopted in CCIOA) to support an argument that although a declarant may reserve a power to place one common interest community inside ...

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