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Prospect Development Co. Inc. v. Holland & Knight, LLP

Court of Appeals of Colorado, Sixth Division

July 26, 2018

Prospect Development Company, Inc., Plaintiff-Appellant,
v.
Holland & Knight, LLP, Defendant-Appellee.

          Gunnison County District Court No. 16CV30071 Honorable James S. Patrick, Judge

          Diamond McCarthy LLP, Stephen T. Loden, Denver, Colorado, J. Gregory Taylor, Rebecca A. Muff, Houston, Texas, for Plaintiff-Appellant.

          McConnell Fleischner Houghtaling, LLC, Michael T. McConnell, Cecelia A. Fleischner, Denver, Colorado, for Defendant-Appellee.

          OPINION

          ASHBY JUDGE.

         ¶ 1 Plaintiff, Prospect Development Company, Inc. (Prospect), appeals the district court's dismissal of its claims against its former counsel, defendant, Holland & Knight, LLP (H&K), under C.R.C.P. 12(b)(5). We reverse and remand.

         I. Background

         ¶ 2 Prospect owned and sold undeveloped lots near Crested Butte, Colorado. It relied on H&K, its counsel, to prepare federally mandated property reports for prospective buyers of the lots. These property reports stated that Prospect was responsible for the costs of constructing roads, sewage systems, and other infrastructure for the lots. They also stated that individual lot purchasers would not be responsible for these costs. The property reports neglected to disclose that the special district in which the lots were located would purchase the infrastructure from Prospect using property tax revenue collected from the lots, effectively passing the cost of the infrastructure on to the lot owners.

         ¶ 3 In 2010, several lot owners who had purchased lots from Prospect complained that they were not notified before they purchased their lots that they would ultimately pay for the cost of the infrastructure through property taxes. According to Prospect, when it told H&K about the lot owners' complaints, H&K assured Prospect that the property reports complied with the applicable law. Nevertheless, Prospect entered into a tolling agreement with the lot owners in 2010, agreeing to stay the running of any limitations period applicable to any claims that the lot owners might have against Prospect.

         ¶ 4 In 2011, H&K withdrew from representing Prospect. In 2013, the lot owners filed suit against Prospect based on its failure to disclose that the cost of the infrastructure would eventually be borne by the lot owners through property taxes. Prospect settled with the lot owners in 2015.

         ¶ 5 Also in 2015, Prospect entered into a tolling agreement with H&K agreeing to toll any claims that Prospect might have against H&K. Prospect sued H&K in October 2016, alleging that H&K was professionally negligent and breached its fiduciary duty by (1) failing to disclose in the property reports that the cost of the infrastructure would be passed on to the lot owners; (2) incorrectly advising Prospect that the property reports were legally sufficient; and (3) failing to correct this erroneous advice before withdrawing from representing Prospect.

         ¶ 6 H&K did not answer the complaint. Instead, H&K moved to dismiss the complaint under C.R.C.P. 12(b)(5), arguing that Prospect's claims were barred by the statutes of limitations applicable to each claim. H&K argued that Prospect's claims accrued in 2011 at the latest, and therefore the two-year statute of limitations for negligence and three-year statute of limitations for breach of fiduciary duty expired before the tolling agreement took effect in 2015. H&K also attached to its motion several exhibits from the underlying litigation between the lot owners and Prospect to support its assertion that Prospect's claims accrued in 2011. Prospect opposed H&K's motion to dismiss and argued in its response that the trial court should disregard the exhibits attached to H&K's motion. Alternatively, Prospect argued that if the court considered the exhibits, it should convert H&K's motion to one for summary judgment and allow Prospect to present its own evidence.

         ¶ 7 The district court granted the motion to dismiss, ruling that Prospect's claims were time barred. In doing so, the court denied Prospect's request to convert H&K's motion into one for summary judgment and also considered two of the exhibits attached to H&K's motion.

         ¶ 8 Prospect appeals.

         II. Dismissal was Error

         ¶ 9 Prospect argues that the district court erred by considering matters outside the complaint in granting H&K's C.R.C.P. 12(b)(5) motion to dismiss. H&K responds that any matters outside the complaint that the district court considered were properly the subject of judicial notice, and were therefore appropriate to consider. We agree with Prospect that the district court erred.

         ¶ 10 We review a district court's ruling on a motion to dismiss under C.R.C.P. 12(b)(5) de novo. See Walker v. Van Laningham, 148 P.3d 391, 394 (Colo.App. 2006). We apply the same standards as the district court, accepting all of the factual allegations in the complaint as true ...


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