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Wilner v. Behringer Harvard Cordillera, LLC

United States District Court, D. Colorado

March 2, 2017

JANE WILNER, TRUDO LETSCHERT, ROBERT RUDNICK, and RUSSELL SCHMEISER, individually and on behalf of all others similarly situated, Plaintiffs,
v.
BEHRINGER HARVARD CORDILLERA, LLC, BEHRINGER HARVARD HOLDINGS, LLC, ROBERT M. BEHRINGER, and MICHAEL D. COHEN, Defendants. CSMN INVESTMENTS, LLC and CCG MANAGEMENT, LLC, Intervenors.

          FINDINGS AND CONCLUSIONS RE DENIAL OF PRELIMINARY INJUNCTION

          R. Brooke Jackson, United States District Judge

         Plaintiff's motion for a preliminary injunction was heard on February 16, 2017. At the conclusion of the hearing the Court denied the motion and advised the parties that written findings and conclusions would follow. See Fed. R. Civ. P. 52(a)(2).

         BACKGROUND

         Cordillera is a resort residential community in Eagle County, Colorado. Plaintiffs are four of the homeowners at Cordillera and are members of the Cordillera Property Owners Association (“CPOA”). Residents such as the plaintiffs have historically had access to a variety of amenities including golf courses, tennis courts, restaurants, and a 56-room Lodge and Spa (“the Lodge”).

         Plaintiffs describe the Lodge as a “central amenity to home ownership in Cordillera.” Second Amended Complaint, ECF No. 37, at 2. However, the Declaration of Protective Covenants, Conditions, and Restrictions for Cordillera provides that no persons, including members of the CPOA, have a “right” to use the Lodge; that access to it may be restricted or terminated by its owner; and, indeed, that the Lodge may be sold or closed. See ECF No 48-1 at ¶¶1.3, 1.23, 1.25, 2.3. These covenants, referred to by the parties as the Cordillera Declaration, were recorded in the Eagle County records in or about 1993, before plaintiffs purchased their lots.

         In 2007 defendant Behringer Harvard Cordillera, LLC (“BHC”) purchased the Lodge for approximately $36.5 million. Affidavit of Lisa Ross, ECF No. 48-3, at ¶5. However, from the outset of BHC's ownership the Lodge was not profitable. In 2008, for example, the Lodge had a net operating loss of approximately $2.8 million on total income of approximately $5.9 million. The Lodge & Spa at Cordillera Total Income/Net Operating Income/(Loss), Ex. L.

         In 2009 BHC formulated a plan that it hoped would turn things around. As a part of the plan BHC proposed an amendment to the Planned Unit Development (“PUD”) that governed the uses permitted on the property on which the Lodge sits (“the Lodge Parcel”) as well as the uses permitted on an adjacent parcel referred to as “the Village Parcel.” The amendment would bring the two parcels together into one unit which would then permit all the uses authorized for the Village Parcel to apply equally to the Lodge Parcel and vice-versa. See Letter from Amanda Smith, Otten Johsnon, to Bob Narracci, Planning Manager, Eagle County (Nov. 11, 2009), Ex. D (transmitting application to modify the PUD); Cordillera Subdivision Eleventh Amended and Restated Planned Unit Development Control Document (Nov. 2009), Ex. E (redlined PUD).

         Because this was considered to be a major change in the way the two parcels could potentially be used, approval was required both from the County and the CPOA. Those approvals were obtained, and the new uses were authorized by what has been referred to as the Eleventh Amendment to the PUD. The effect of the amendment was that authorized uses of the Lodge Parcel now included, in addition to its historic use as a lodge and spa, some 33 other possible uses. One of the newly authorized uses was for “Medical Offices/Facilities, limited to clinic and outpatient facilities for non-critical care, including, without limitation, for outpatient plastic surgery and other cosmetic procedures.” Ex. E. at 13.

         Nevertheless, BHC continued to use the Lodge Parcel for the Lodge and Spa as originally designed and historically used. Ms. Ross, who is the Senior Vice President and Chief Financial Officer of an affiliated Behringer Harvard company, informed the Court that “[s]ince the 2009 modification of the PUD . . . BHC has put millions of dollars into the Lodge hoping to make it profitable.” ECF No. 48-3 at ¶5. But occupancy rates did not recover, and memberships in the Lodge steadily declined.[1] The Lodge has generated net operating losses each year through the present time. Ex. L. According to Ms. Ross, the occupancy rates, memberships and ultimately revenues were too low to operate the Lodge profitably. Id. at ¶6.

         Therefore, BHC put the Lodge up for sale in November 2013. During the next 30 months it received only one offer from a qualified buyer. That was an offer by intervenors CCG Management, LLC and CSMN Investments, LLC (collectively “CCG”) to buy the Lodge for $10 million. CCG plans to convert the Lodge into a “residential non-critical care clinic and rehabilitation center for persons recovering from alcoholism, eating disorders, drug addiction, and similar conditions.” Affidavit of Noah Nordheimer, President and Manager of the two CCG intervenors, ECF No. 48-4, at ¶4. Mr. Nordheimer describes the project as an “$85 million redevelopment.” Id. The Lodge will no longer function as a lodge or spa as such. It will be accessible only to persons who are admitted to the facility for treatment and who can pay between $40, 000 and $65, 000 per 28 days (a short-term, less expensive alternative will apparently also be available). Plaintiffs and other members of the public will not have access to the facility, unless of course they are admitted as paying clients.

         Eagle County's Community Development Director confirmed on July 11, 2016 that CCG's intended development and use of the Lodge Parcel was permitted by the Eleventh Amendment to the PUD. The Cordillera Metropolitan District and the CPOA appealed the Director's interpretation to the Eagle County Board of County Commissioners. On October 11, 2016 the Board passed Resolution No. 2016-079, affirming the Director's interpretation with certain modifications. ECF No. 48-5 (also hearing Ex. I). The Resolution is apparently the subject of two pending legal challenges in state court under Rule 106 of the Colorado Rules of Civil Procedure. ECF No. 48-4 at ¶11.

         In her affidavit Ms. Ross states that she expects the Lodge to be completely or substantially closed on February 28, 2017. ECF No. 48-3 at ¶7. Thereafter it will no longer be open to the public or to Cordillera residents. Id. During the preliminary injunction hearing BHC indicated that the Lodge would be closed on that date regardless of the outcome of the hearing.

         Plaintiffs filed this lawsuit on December 7, 2016. They assert claims sounding in fraud, promissory estoppel, and breach of an implied covenant that the Lodge would remain as a lodge, accessible to plaintiffs and other Cordillera property owners. ECF No. 37. On behalf of themselves and a purported class, they seek judicial declarations (1) that there is an implied and enforceable restrictive covenant that requires that the Lodge continue to exist as a Lodge, accessible to plaintiffs and those similarly situated upon their compliance with the terms and conditions for use set of the Lodge's owner; (2) that the Eleventh Amendment to the PUD is null and void to the extent of the modifications that allowed the Lodge to be eliminated and to be replaced by any of the 33 proposed new uses for the Lodge Parcel; and (3) that henceforth any modification that would allow the Lodge to be eliminated and replaced by any of the 33 other uses must first be presented to and approved by the members of the CPOA. Plaintiffs also seek corresponding injunctive relief and an award of compensatory damages exceeding $100 million. ECF No. 37 at 29-30.

         The problem that precipitated the motion for a preliminary injunction was the imminent closing of the purchase contract between BHC and CCG. Plaintiffs asserted that BHC would not reveal when the contract would close other than to agree that it would not happen before February 17, 2017, the day after the scheduled preliminary injunction hearing. ECF No. 34 at 3. Fearing that they would be unable to prevent the closure of the Lodge and its conversion into a treatment facility if the purchase agreement closed, plaintiffs asked the Court to enjoin the closing pending a final determination on the merits or at least for 60 days so that they could obtain discovery and attempt to establish their entitlement to summary judgment. Id.

         Near the beginning of the hearing, before receiving any evidence or argument, I asked the defendants whether they might be willing to agree to plaintiff's request for a 60-day postponement of the closing. They declined, as was their right, and the hearing proceeded.

         JURISDICTION

         One of the named plaintiffs (Schmeiser) represents that he is a citizen of Colorado residing at his home in Cordillera. The other three named plaintiffs, although also owners of homes in Cordillera and members of the CPOA, represent that they are citizens of Florida (Wilner and Letschert) and the District of Columbia (Rudnick). Plaintiffs allege that the individual defendants associated with BHC (Behringer and Cohen) are citizens of Texas, and that BHC and Behringer Harvard Holdings, LLC are incorporated in Delaware and have their principal places of business in Texas. ECF No. 37 at 5-6. Although not entirely clear, it appears that the CCG intervenors are probably citizens of Maryland. See ECF No. 1 at 6, ¶9.

         This Court has jurisdiction pursuant to the Class Action Fairness Act of 2005, specifically 28 U.S.C. § 1332(d)(2). This is a purported class action in which the matter in controversy exceeds the sum or value of $5, 000, 000 and in which at least one member ...


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