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DA Mountain Rentals, LLC v. Lodge at Lionshead Phase III Condominium Association Inc.

Court of Appeals of Colorado, First Division

October 6, 2016

DA Mountain Rentals, LLC, a Nebraska limited liability company, Plaintiff-Appellant and Cross-Appellee,
v.
The Lodge at Lionshead Phase III Condominium Association Inc., a Colorado not-for-profit corporation, a/k/a the Lodge at Lionshead III Condominium Association, a Colorado not-for-profit corporation, Defendant-Appellee and Cross-Appellant.

         Eagle County District Court No. 12CV409 Honorable Frederick W. Gannett, Judge

          Boyle/Apelman PC, Terence P. Boyle, Mark Apelman, Denver, Colorado, for Plaintiff-Appellant and Cross-Appellee

          Nemirow Perez P.C., Miles L. Buckingham, Ronald Nemirow, Lakewood, Colorado, for Defendant-Appellee and Cross-Appellant

          OPINION

          MILLER JUDGE.

         ¶ 1 Plaintiff-appellant and cross-appellee, DA Mountain Rentals, LLC (DA), appeals the district court's summary judgment in favor of defendant-appellee and cross-appellant, The Lodge at Lionshead Phase III Condominium Association Inc., a/k/a the Lodge at Lionshead III Condominium Association (Association), and the court's order denying DA's C.R.C.P. 37 motion for attorney fees. The Association cross-appeals the district court's entry of three discovery orders.

         ¶ 2 This case concerns amendments (2012 Amendments) to the Condominium Declaration for the Lodge at Lionshead III (Declaration) establishing a condominium community (Community) in Vail. The Declaration was recorded many years before the enactment of the Colorado Common Interest Ownership Act (CCIOA), sections 38-33.3-101 through 38-33.3-402, C.R.S. 2016. A supermajority of the members of the Association voted to adopt the 2012 Amendments. The Association claims that CCIOA authorizes their adoption. DA, however, contends that the 2012 Amendments conflict with the express terms of a proviso in the provision of the Declaration governing the procedure for adopting amendments. That proviso specifies that certain rights created by the Declaration - including the allocated ownership interest of each unit - are permanent in nature and may not be altered without the unanimous consent of the owners of units and their first mortgagee lenders (Lenders).

         ¶ 3 We conclude that (1) CCIOA does not authorize the amendment that would delete that proviso and allow the alteration of such rights without the requisite unanimous consent of members and Lenders; (2) the 2012 Amendments are therefore invalid to the extent they conflict with the proviso; and (3) the 2012 Amendments regarding obsolescence and the creation of a mandatory buyout provision are valid.

         ¶ 4 In its cross-appeal, the Association challenges the district court's order of the disclosure and production of documents from the file of the attorney who assisted the Association's board of directors in developing and drafting the 2012 Amendments and the court's denial of a related motion for protective order. The Association contends that the documents in the file were both privileged and irrelevant. We conclude that the court did not abuse its discretion by entering these orders.

         ¶ 5 We accordingly affirm in part, reverse in part, and remand to the district court for further proceedings.

         I. Background

         A. Adoption of the 2012 Amendments

         ¶ 6 The Community consists of twelve units. The Community is governed and operated by the Association in accordance with its governing documents, including, as relevant here, the Declaration. The owners of the units are members of the Association. Each member also owns a percentage of undivided interest in the general common elements (GCE) of the Community, which are defined in the Declaration as "the real property hereby submitted to condominium ownership . . . EXCEPT the Units." The definition provides examples of the GCE, including the foundations, main walls, roofs, halls, lobbies, stairs, yards, gardens, parking areas, and installations of central services such as power, lights, gas, and water. The Declaration assigns each unit owner a percentage ownership in the GCE. The members cast votes on Association matters and share expenses in accordance with their respective ownership percentages. DA owns one of the condominium units and is thereby a member of the Association.

         ¶ 7 The Declaration was recorded in 1978, and paragraph 18 provides that the "Declaration may be amended by Owners representing sixty percent (60%), or more, of the [GCE] consenting and agreeing to such amendment by written instruments duly recorded." This language is followed by an important proviso:

provided, however, that the undivided interests in and to the [GCE] appurtenant to each Unit and the provisions of this Declaration governing the sharing of common expenses shall have a permanent character and shall not be altered without the consent of all of the Unit Owners and their first mortgagees of record[.]

         Thus, while this paragraph generally authorizes amendments to the Declaration by a sixty percent vote of member interests, the proviso expressly prohibits any alteration of the undivided interests in the GCE or the sharing of common expenses without the unanimous consent of the members and of their Lenders. In addition, other provisions of the Declaration require the unanimous approval of the Lenders for renovation or redevelopment and the agreement of unit owners representing eighty percent of the GCE interests for renovation and eighty-five percent for sale of the complex.

         ¶ 8 In 2012, the members voted on the 2012 Amendments, which had been proposed by the Board of Directors (Board) after years of study. Section 13.1 of the 2012 Amendments would revise the procedure for amending the Declaration, stating in its entirety: "This declaration may be amended by the affirmative vote of the Unit Owners holding at least 67% of the total Association vote." The unanimous member and lender consent requirements of the paragraph 18 proviso would therefore be eliminated. Other parts of the 2012 Amendments would eliminate lender consent requirements regarding obsolescence (sections 10.1(a) - (b)) and institute a "mandatory buyout" provision (section 10.1(c)) requiring the Association to purchase the units of owners who are not eligible to vote, who do not vote, or who vote against any proposal determining the obsolescence of the condominium complex.

         ¶ 9 Members constituting approximately seventy-four percent of the GCE interests voted in favor of the 2012 Amendments, thus exceeding the sixty percent requirement of paragraph 18 of the Declaration. Before the Association recorded the 2012 Amendments with the county, however, DA sought a declaratory judgment in district court that the 2012 Amendments were invalid because they violated the terms of the Declaration. Because of the lawsuit, the Association has not recorded the 2012 Amendments, and they consequently are not yet effective. See § 38-33.3-217(3), C.R.S. 2016.

         B. Disclosures and Discovery

         ¶ 10 The parties made C.R.C.P. 26(a)(1) disclosures in the district court, but the Association did not disclose documents that it claimed were privileged. DA filed a motion to compel the Association to produce a privilege log of the Association's attorneys' documents, which the court granted in December 2012. The Association complied with the order and produced the log, and DA requested disclosure of communications between the Association's lawyers and the Board and Board committees. The Association asserted that the documents were privileged and not relevant. DA then filed a motion to compel production of all the logged documents, and the Association filed a motion for a protective order. The district court granted DA's motion and denied the Association's motion. Finally, DA filed a motion pursuant to C.R.C.P. 37, requesting costs and attorney fees related to its two motions to compel and the Association's motion for a protective order. The district court denied this motion.

         C. C.R.C.P. 56 Motions

         ¶ 11 Shortly after the court granted DA's second motion to compel and denied the Association's motion for a protective order, the Association filed a motion for determination of law pursuant to C.R.C.P. 56(h) to determine the validity of the 2012 Amendments. The court granted the Association's motion and determined that (1) the 2012 Amendments had been validly adopted and (2) the sixty-seven percent voting requirement they imposed did not violate the terms of the Declaration or CCIOA. The Association next filed a motion for summary judgment under C.R.C.P. 56(b) to resolve the remaining legal issues surrounding the provisions of the 2012 Amendments eliminating the lender approval requirements and providing for mandatory buyouts. The court granted this motion as well.

         D. The Appeals

         ¶ 12 DA filed two appeals. In the first, 14CA2195, DA argues that the district court erred by granting the Association's Rule 56 motions. The second appeal, 15CA0203, challenged two post- judgment district court orders relating to attorney fee and cost awards. The Association moved to dismiss the second appeal because the determination of the attorney fee issue was not completed by the district court and was not a final judgment appropriate for our review. Another division of this court partially granted the motion and (1) dismissed the portion of the appeal that sought review of the district court's order granting the Association's attorney fees as the prevailing party and setting it for a hearing after mandate and (2) denied the motion as to DA's argument that the district court improperly denied its motion for attorney fees as a sanction for alleged discovery violations under Rule 37(a)(4). The division also consolidated the two cases.

         ¶ 13 On cross-appeal, the Association argues that the court erred by granting DA's motions to compel and denying its motion for a protective order.

         ¶ 14 We turn first to the question of the validity of the 2012 Amendments.

         II. Validity of the 2012 Amendments

         ¶ 15 DA argues that the district court erred when it granted the Association's two Rule 56 motions because (1) the court incorrectly held that section 38-33.3-217(1)(a)(I) controls over section 38-33.3-120(1)(a), C.R.S. 2016, and imposes a sixty-seven percent cap on amendment requirements; (2) the 2012 Amendments requiring only sixty-seven percent of member votes for amending the Declaration, as construed by the district court, are unconstitutional under the Contract Clauses of the United States and Colorado Constitutions, U.S. Const. art. I, § 10, cl. 1; Colo. Const. art. II, § 11; (3) the amendment eliminating lender approval is invalid as a matter of law; and (4) the mandatory buyout provision is invalid as a matter of law.

         A. Standard of Review

         ¶ 16 We review de novo legal questions decided under Rule 56(b) and (h). Goodman Assocs., LLC v. Winter Quarters, LLC, 2012 COA 96, ¶ 20 (C.R.C.P. 56(h)); McIntire v. Trammell Crow, Inc., 172 P.3d 977, 979 (Colo.App. 2007) (summary judgment). Under Rule 56(h), a district court may enter an order deciding a legal question "[i]f there is no genuine issue of any material fact necessary for the determination of the question of law." Similarly, summary judgment under Rule 56(b) is appropriate where the trial court determines that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Larrieu v. Best Buy Stores, L.P., 2013 CO 38, ¶ 6. Where, as here, we must interpret a contract and a statute, we do so de novo. Oster v. Baack, 2015 COA 39, ¶ 35 (contract); McLaughlin v. Oxley, 2012 COA 114, ¶ 9 (statute). We also review the constitutionality of a statute de novo. Justus v. State, 2014 CO 75, ¶ 17.

         B. Validity of the 2012 Amendments Under the Declaration

         ¶ 17 This dispute concerns the question of the validity, under the terms of the Declaration and CCIOA, of the 2012 Amendments that would eliminate (1) the unanimous member and lender consent requirements for amendments that alter the GCE or the provisions of the Declaration governing the sharing of common expenses and (2) the unanimous lender approval requirements for determining obsolescence.

         ¶ 18 Before we reach the issue of how CCIOA interacts with the 2012 Amendments, we first examine the terms of the Declaration itself to determine whether they permit the 2012 Amendments.

         ¶ 19 When interpreting a declaration, we follow the "dictates of plain English" and construe the document as a whole. Vista Ridge Master Homeowners Ass'n v. Arcadia Holdings at Vista Ridge, LLC, 2013 COA 26, ¶ 18 (quoting Buick v. Highland Meadow Estates at Castle Peak Ranch, Inc., 21 P.3d 860, 862 (Colo. 2001)). "If a declaration is clear on its face, we will enforce it as written." Id.

         ¶ 20 As we stated, paragraph 18 of the Declaration permits amendment by agreement of unit owners representing sixty percent or more of the GCE,

provided, however, that the undivided interests in and to the [GCE] appurtenant to each Unit and the provisions of this Declaration governing the sharing of common expenses shall have a permanent character and shall not be altered without the consent of all of the Unit Owners and their first mortgagees of record[.]

(Emphasis added.) Under its plain meaning, this provision makes permanent the undivided interests in and to the GCE and the provisions governing the sharing of common expenses, requiring the unanimous consent of members and Lenders to change them.

         ¶ 21 Under the Declaration, common expenses include "all sums lawfully assessed" against the GCE by the Board and expenditures "for the operation and maintenance of the GCE." And paragraph 19 of the Declaration provides that the members share common expenses in proportion to their respective ownership shares of the GCE as set forth in Exhibit B to the Declaration. The same percentages are used to determine their voting interests. Thus, by eliminating the unanimity requirement for members and Lenders, the 2012 Amendments would permit alteration of the undivided interests in the GCE and the sharing of common expenses without one hundred percent member and lender approval. This could occur if, for example, two-thirds of the members voted to amend Exhibit B and reallocate the percentage ownership interests of some or all of the owners. Therefore, by the Declaration's own terms, the 2012 Amendments are invalid to the extent that they eliminate the permanent unanimity requirement for member and lender approval mandated by paragraph 18.

         ¶ 22 The Association stresses that the 2012 Amendments would not on their face affect the GCE. That is technically true. But if the 2012 Amendments were allowed to go into effect, two-thirds of the members of the Association would be free to adopt a second set of amendments that could reallocate the GCE percentage interests by simply amending the percentages on Exhibit B to the Declaration or authorizing a redevelopment adding or subtracting the number of units and modifying the GCE percentage interests accordingly. Such a two-step process would obviously conflict with the clearly expressed intent of the proviso to paragraph 18 that the undivided interests in GCE "have a permanent character" and "shall not be altered without the consent of all of the Unit Owners and their first mortgagees."

         ¶ 23 Accordingly, the express terms of the Declaration bar any amendments that would authorize alteration of GCE interests or the provisions of the Declaration governing the sharing of common expenses without unanimous consent of all members and Lenders.

         ¶ 24 We reach a different conclusion with regard to the other 2012 Amendments at issue. The provisions of the Declaration concerning the requirements for the declaration of obsolescence (paragraphs 25(e) and (f)) do not contain similar permanency safeguards. Most notably, unlike paragraph 18, paragraph 25 does not stipulate that the unanimous lender requirements and the eighty and eighty-five percent member approval requirements are "permanent" and immune from alteration. Paragraph 18 carves out only two exceptions to its sixty percent member interest requirement for amending the Declaration, and neither applies to votes for obsolescence (assuming that no related change in the undivided interests in GCE or in the provisions of the Declaration governing common expenses is made).

         ¶ 25 Thus, the drafter of the Declaration knew how to immunize a provision from future amendment and did so in the proviso to paragraph 18. Because the drafter did not include similar language in paragraphs 25(e) and 25(f), those provisions were left subject to the sixty percent amendment process. See Hutchinson v. Mullins, 491 P.2d 71, 74 (Colo.App. 1971) (not published pursuant to C.A.R. 35(f)) (applying the rule of expressio unius exclusio alterius, which is routinely applied in the context of statutory interpretation, to contractual interpretation); cf. Hiner v. Johnson, 2012 COA 164, ¶ 19. For this reason, under the plain terms of the Declaration, the obsolescence provisions are subject to the rule requiring only sixty percent member approval to amend. This requirement was met, and we therefore conclude that the 2012 Amendments eliminating lender approval to declare obsolescence were valid under the original Declaration.

         C. Validity of the 2012 Amendments under CCIOA

         ¶ 26 Next, we address the interaction between CCIOA and the unanimous member and lender consent requirements for amendments that alter the GCE.[1] We conclude that the foregoing ...


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