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Landmark Towers Association, Inc. v. UMB Bank, N.A.

Court of Appeals of Colorado, Third Division

May 31, 2018

Landmark Towers Association, Inc., a Colorado nonprofit corporation, by EWG-GV, LLC, as receiver for 7677 East Berry Avenue Associates, LP, its declarant, Plaintiff-Appellee and Cross-Appellant,
UMB Bank, N.A.; Colorado Bondshares, a tax exempt fund; and Marin Metropolitan District, a Colorado special district, Defendants-Appellants and Cross-Appellees.

          Arapahoe County District Court No. 11CV1076 Honorable Donald W. Marshall, Judge

          Burg Simpson Eldredge Hersh & Jardine, P.C., Brian K. Matise, Nelson P. Boyle, Englewood, Colorado, for Plaintiff-Appellee and Cross-Appellant

          Kutak Rock LLP, Neil L. Arney, Mia K. Della Cava, Denver, Colorado; McNamara Law Firm, P.C., John N. McNamara, Denver, Colorado, for Defendants-Appellants and Cross-Appellees

          JUDGE J.

          ¶ 1 A homeowners association, Landmark Towers Association, Inc. (Landmark), filed suit challenging the creation of a special district that includes condominiums owned by Landmark members. In a nutshell, Landmark asserts that the special district can't levy Landmark owners' properties to pay for bonds issued by the special district, which funded improvements on other property, because the election organizing the special district, approving the bonds, and approving the levies paying for the bonds violated article X, section 20 of the Colorado Constitution (otherwise known as the Taxpayer's Bill of Rights (TABOR)), and the Landmark owners' rights to due process. Though the district court found against Landmark on the TABOR election claim, it found for Landmark on its due process claim, as well as on other claims, enjoined the special district from trying to collect levies from the Landmark owners, and ordered refunds. On appeal, we ruled, as now relevant, that Landmark should prevail on its TABOR election claim, but didn't address other contentions. Landmark Towers Ass'n v. UMB Bank, N.A., 2016 COA 61 (Landmark I).

         ¶ 2 The Colorado Supreme Court remanded the case to us after reversing our conclusion that the election giving rise to the parties' dispute violated TABOR. UMB Bank, N.A. v. Landmark Towers Ass'n, 2017 CO 107 (Landmark II). Though the supreme court had granted certiorari review on a number of issues, it ultimately resolved only one - whether the time bar of section 1-11-213(4), C.R.S. 2017, precludes Landmark's TABOR challenge to the election.

         ¶ 3 We asked the parties to submit supplemental briefs identifying the issues that remain for us to decide and explaining how, if at all, the supreme court's decision impacts those issues. Having considered those supplemental briefs and the parties' briefs previously filed, we essentially affirm the district court on all remaining issues save one. The net result is that we uphold the district court's rulings that the election was illegal, Landmark is entitled to injunctive relief barring the special district from levying against the Landmark owners' properties, the mill levy rate of the district's levy exceeds that allowed by law, and the Landmark owners are entitled to a refund of excessive assessments; but we reverse the district court's ruling that the Landmark owners are entitled to a "refund" of misappropriated bond sale proceeds.

          I. Background

         ¶ 4 We recited the relevant facts of the case at some length in Landmark I, but given the nature of the issues now before us, we do so again, adding facts particularly relevant to our analysis of those issues. We glean these facts from the district court's extensive findings following a trial to the court and the exhibits submitted by the parties.

         ¶ 5 Beginning in 2005, Zachary Davidson developed two high-rise condominium towers (the Landmark Project) via an entity he controlled named 7677 East Barry Avenue Associates, L.P. Davidson built the public infrastructure for the 3.5-acre Landmark Project pursuant to a "Developer Improvement Agreement" with Greenwood Village.

         ¶ 6 Before the Landmark Project was complete, Davidson also decided to develop a separate residential community (the European Village Project) on 11.4 acres of nearby land owned by Everest Marin, L.L.P. (Everest), another entity that he controlled. But he discovered that the revenue base for the European Village Project wouldn't be sufficient to pay the general obligation bonds he intended to issue to fund construction of its necessary infrastructure - streets, sidewalks, curbs and gutters, water lines, sanitation lines, and landscaping. So he embarked on a scheme to use owners of condominiums in the Landmark Project to pay for those improvements, even though none of the improvements would be on Landmark Project property and the Landmark Project's own infrastructure was being built pursuant to a separate financing arrangement. To do this, he created a special district comprising both projects, known as the Marin Metropolitan District (District).

         ¶ 7 As required by statute, Davidson applied with Greenwood Village for approval of the District. He submitted a "Service Plan" describing the District and explaining how the proposed improvements would be paid for, among other things. See § 32-1-202, C.R.S. 2017. But neither he nor anyone else told those who had entered into Landmark Project purchase agreements about the application or about the Landmark Project's inclusion in the District.[1]

         ¶ 8 The Service Plan doesn't show any area of the Landmark Project that would benefit from the proposed improvements: to the contrary, the maps included in the Service Plan show that all improvements are separated from the Landmark Project by existing streets. And more, the infrastructure is internal to the European Village Project: it provides no benefit, such as improved or alternative traffic routes, to the surrounding community.

         ¶ 9 Not surprisingly, Greenwood Village's planning staff criticized the Service Plan for including the Landmark Project. At a city council meeting in August 2007, Davidson, one of his associates, and his attorney responded to that criticism by telling the city council that the Landmark Project would benefit from the new infrastructure, the Landmark Project buyers had been told of the proposed District and the associated high tax burdens, and those buyers favored the proposal. All of those statements were false. Apparently based at least in part on those false assurances, the city council approved the Service Plan.

         ¶ 10 Davidson's next step was to hold an election to organize the District, approve the bonds, and approve the "taxes" paying the bonds. After obtaining court approval to hold the election, see § 32-1-301, C.R.S. 2017, in November 2007, Davidson and five of his associates (and only those six individuals) voted in the election to organize the District, approve the bonds, and approve the levies. This "election" was planned and conducted using what could be charitably described as dubious means. See Landmark I, ¶¶ 10, 54-55, 57, 63. The six voters purported to become electors by entering into what we previously concluded were sham purchase contracts with Everest. Id. at ¶¶ 61-64. And the organizers didn't give the Landmark Project buyers any notice of the election, so none of them voted.

         ¶ 11 The District later sold $30, 485, 000 in "Limited Tax General Obligation Bonds" to Colorado Bondshares (Bondshares) in June 2008. The bonds call for payment of interest at an annual rate of 7.75%, and have a twenty-year maturity date (rather than the thirty-year maturity date called for by the Service Plan). At maturity, the bonds require a balloon payment of over $23 million. And, as discussed below, although the Service Plan capped the debt service levy for the bonds at 49.5 mills (absent prior approval by the city), the District imposed a levy of 59.5 mills.[2]

          ¶ 12 UMB Bank, N.A. (UMB) held the bond sale proceeds in trust. Davidson, purporting to act on behalf of the District, drew on those funds, but allegedly misappropriated millions of dollars for his personal use. See Landmark II, ¶ 15; Landmark I, ¶ 12.[3] In the end, Everest didn't build any of the promised European Village Project infrastructure.

         ¶ 13 The Landmark owners learned of the District's creation, and of their properties' inclusion in the District, when they began receiving tax bills. Their investigation disclosed that the District had been formed and approved by means of fraud perpetrated on the city, Landmark Project buyers, the court, and perhaps others. Landmark then sued UMB, Bondshares, and the District (collectively, defendants).

         ¶ 14 As now relevant, the district court ultimately ruled in Landmark's favor on a variety of claims. These claims included that the election and resulting levying of Landmark owners' properties violated the owners' constitutional rights to due process; the District improperly disbursed bond sale proceeds for Davidson's personal benefit; and the District's mill levy on the Landmark owners' properties was higher than that allowed by statute or by the Service Plan. But the court rejected Landmark's claim that because ineligible voters (Davidson and his five associates) had voted in the organization, bond, and tax election, while eligible voters (the Landmark Project buyers) hadn't been given notice of the election, the election violated TABOR. See Landmark I, ¶¶ 15-16. The court ordered the District to refund the misused bond funds, ordered the District to refund the sums collected from Landmark owners in excess of the Service Plan's mill levy limit, and enjoined the District from levying on the Landmark owners' properties.

         ¶ 15 Both sides appealed. We reversed the district court's ruling that the election hadn't violated TABOR, without addressing defendants' challenges to the district court's judgment. Id. at ¶¶ 59-70. The supreme court granted certiorari review on several issues, but, as noted above, ultimately resolved only one: the court held that Landmark's TABOR challenge to the election was time barred by section 1-11-213(4). So the court reversed our previous decision and remanded the case to us to resolve outstanding issues.

          ¶ 16 Having considered the parties' supplemental briefs as well as the briefs originally filed in this court, we conclude that we need to address the following contentions, all of which are asserted by defendants, and none of which are impacted by the supreme court's decision:

1. The district court erred in finding that including the Landmark Project in the District violated the Landmark owners' rights to due process.
2. The district court erred in weighing the equities in imposing the injunction.
3. The injunction violates the Uniform Tax Clause of the Colorado Constitution.
4. The district court erred in ruling that the District may not levy property taxes in excess of fifty mills.
5. The district court erred in ruling that the misappropriation of bond sale proceeds violated TABOR and in ordering a refund of those proceeds.

         ¶ 17 Addressing these contentions in this order, we reject the first four, but agree with the fifth.

          II. Discussion A. Due Process Violation

         ¶ 18 The district court gave two reasons for concluding that the Landmark owners' rights to due process were violated by the manner in which the District was created and the associated levies were approved: (1) the inclusion of the Landmark Project in the District solely to provide a sufficient revenue base to fund European Village Project improvements was a taking of property without due process; and (2) the levy is in substance a special assessment, not a tax, that doesn't provide any special benefit to the Landmark Project.

         ¶ 19 Defendants argue first that the due process claim is barred by a thirty-day statute of limitations, section 11-57-212, C.R.S. 2017. They argue second that there was no due process violation because the levy was a tax, and property subject to a tax needn't receive any benefit in return for the tax payments. Both arguments fail. 1. Statute of Limitations

         ¶ 20 Section 11-57-212 provides as follows:

No legal or equitable action brought with respect to any legislative acts or proceedings in connection with the authorization or issuance of securities by a public entity shall be commenced more than thirty days after the authorization of such securities.

         ¶ 21 In Landmark I, we held, as now relevant, that defendants waived the affirmative defense provided by the statute by failing to raise it at trial, and that the statute was equitably tolled by virtue of the District organizers' successful, intentional efforts to keep the Landmark Project buyers in the dark about the creation of the District and the election. Landmark I, ¶¶ 21-25, 51-55 & n.4. We see no reason to retreat from those holdings.

         ¶ 22 In any event, the argument fails on the merits. The statute applies, by its terms, to "the authorization or issuance of securities." § 11-57-212. Landmark, however, challenges, on constitutional grounds, the creation of the District to include the Landmark Project and the associated levies. We won't expand the reach of the statute beyond the plain meaning of its language. See Denver Post Corp. v. Ritter, 255 P.3d 1083, 1089 (Colo. 2011) (if statutory language is clear, we apply the statute as written); Spahmer v. Gullette, 113 ...

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