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Hinsdale County Board of Equalization and Board of Assessment Appeals v. HDH Partnership

Supreme Court of Colorado, En Banc

April 8, 2019

Hinsdale County Board of Equalization and Board of Assessment Appeals, State of Colorado. Petitioners
v.
HDH Partnership; Lawrence Ausherman; Hondros Family Real Estate, LLC; Mark L. Ish; Herb Marchman; and Teresa M. Mull Revocable Trust. Respondents

          Certiorari to the Colorado Court of Appeals Court of Appeals Case No. 16CA1723

          Attorneys for Petitioner Hinsdale County Board of Equalization: Schumacher & O'Loughlin, LLC Michael P. O'Loughlin Gunnison, Colorado

          Attorneys for Petitioner Board of Assessment Appeals: Philip J. Weiser, Attorney General Krista M. Maher, Assistant Attorney General Grant T. Sullivan, Assistant Solicitor General Denver, Colorado

          Attorneys for Respondents: Hoskin Farina & Kampf Michael J. Russell Andrew H. Teske Karoline M. Henning Grand Junction, Colorado

          OPINION

          MÁRQUEZ, JUSTICE

         ¶1 The Lake Fork Hunting and Fishing Club (the Club) in Hinsdale County, Colorado, consists of 1, 400 acres divided into twenty-nine parcels called "Ranches" that are owned in fee simple. Each owner holding a deed to a Ranch becomes a member of the Club and is subject to a host of restrictive covenants and bylaws through which the Club exercises significant control over the property. The question before us is whether the restrictive covenants and bylaws render the Club the true "owner" of the Ranch parcels and therefore liable for property taxes, even though the Ranch owners hold record title to those parcels. The answer is no.

         ¶2 Respondents are four Ranch owners who, with notice of the Club's restrictive covenants and bylaws, purchased deeds conferring record title to their respective Ranches. In 2015, the Hinsdale County Assessor conducted valuations of the Respondents' Ranches and assessed property taxes to their parcels. Respondents protested these valuations and assessments to the Hinsdale County Board of Equalization (the BOE), which denied their petitions. Respondents then appealed the BOE's determination to the Board of Assessment Appeals (the BAA), arguing that because of the Club's restrictive covenants and bylaws, the Club is the true owner of those parcels and should be held responsible for real property taxes. The BAA denied the Respondents' appeal and affirmed the Assessor's valuation of the Ranch parcels.

         ¶3 The Ranch owners then appealed the BAA's decision to the court of appeals, which reversed the BAA's order. HDH P'ship v. Hinsdale Cty. Bd. of Equalization, 2017 COA 134, ¶¶ 3, 51, ___ P.3d ___. The court of appeals looked beyond the Ranch owners' record title and examined the Club's restrictive covenants and bylaws. Given the extent of the Club's control over the property, the court concluded that the Club is the true owner of the parcels for purposes of property taxation and viewed the Ranch owners' interests as akin to mere licenses to conduct certain activities on the Club's property. Id. at ¶¶ 24-26.

         ¶4 We granted certiorari review, [1] and now reverse the judgment of the court of appeals. Colorado's property tax scheme reflects legislative intent to assess property taxes to the record fee owners of real property. The Respondents in this case hold record title to their Ranch parcels, which they own in fee simple and can freely sell. They purchased their Ranch parcels with notice of, and subject to, the Club's restrictive covenants and bylaws, which they can vote to amend or repeal. Because Respondents voluntarily agreed to the restrictive covenants and bylaws that facilitate the collective use of their property for recreational purposes, we hold that they cannot rely on these same restrictive covenants and bylaws to avoid property tax liability that flows from their record title ownership. Accordingly, the court of appeals erred in relying on the Club's restrictive covenants and bylaws to conclude that the Club is the "owner" of the Ranch parcels and that the Ranch owners hold mere licenses to use Club grounds. The court further erred in holding that the Assessor therefore improperly valued the Respondents' parcels.

         I. Facts and Procedural History

         ¶5 The Lake Fork Hunting and Fishing Club sits on 1, 400 acres in Hinsdale County, Colorado. The Club was established in 1979 when the original developer recorded a "Declaration and Establishment of Covenants, Conditions, Reservations, and Restrictions for Lake Fork Hunting and Fishing Club" and subdivided the land.

         ¶6 The Club property is divided into twenty-nine parcels, or Ranches, that range in size from 35 to 155 acres. The Ranches are owned in fee simple; Ranch owners may freely sell their Ranch parcels and keep the proceeds. Each owner holding a deed to a Ranch becomes a member of the Club. Club membership follows record title to a Ranch and cannot be separately sold, assigned, or transferred, except for one "floating membership"[2] created by the Club's bylaws that is not attached to a Ranch.

         ¶7 Club members in good standing can seek election to a three-member Board of Governors that manages the Club's affairs, including its grounds, cabins, funds, and the election of Club officers.

         ¶8 Through restrictive covenants, bylaws, and rules, the Club exercises significant control over the property. Notably, the Declaration provides that the Club reserves for the enjoyment and benefit of Club members "exclusive hunting and fishing rights and privileges, including all rights of ingress and egress upon and across the entire property, including all Ranches." This reservation allows all Ranch owners to hunt, fish, and camp throughout the entire 1, 400 acres without regard to Ranch property lines. In a similar vein, the Club reserves the exclusive right to construct and maintain utilities, roads, lakes, ditches, bridges, and fences; pasture livestock on the entire property, including individual Ranches; impound, store, and divert waters of the Lake Fork of the Gunnison River across the Ranches for the benefit of Club members; and maintain easements necessary to upkeep the Club's skeet and trap field, golf driving range, and airport runway. The Declaration also imposes several restrictions on the Ranch parcels. For example, Ranches cannot be conveyed in smaller lots or subdivided; no trailers or mobile homes are permitted on the property without written permission of the Board of Governors; and no part of the property can be used for mining or drilling activities.

         ¶9 The Club's bylaws and rules further regulate use of the Club grounds (defined as Club property and all Ranches). Among other things, these bylaws and rules limit the number of guests a member may invite to the Club for hunting and fishing, and the number of days a guest may hunt or fish. Members must register themselves and their guests when using the Club grounds. Only "members in good standing" are entitled to the Club's privileges. And the Board of Governors can suspend the privileges of a member who violates the Club's regulations or "for any conduct which in the opinion of the Board, is improper or prejudicial to the welfare of or reputation of the Club."

         ¶10 Importantly, although the Ranch owners take their parcels subject to the Club's covenants and bylaws, they can vote to amend or repeal those covenants and bylaws, or even terminate the Declaration in its entirety. As an example of the Ranch owners' self-governance, a supermajority of Ranch owners voted in 1999 to amend the Declaration to prohibit the construction of any residences on an individual Ranch.

         ¶11 Respondents HDH Partnership, Lawrence Ausherman, Mark L. Ish, Herb Marchman, Hondros Family Real Estate, LLC, and Teresa M. Mull Revocable Trust (collectively, Respondents) own Ranches in the Club.[3] The Respondents purchased their Ranches via general warranty or quitclaim deeds and hold record title to their Ranches. It is undisputed that Respondents had notice of the restrictive covenants when they purchased their respective parcels.

         ¶12 In 2015, the Hinsdale County Assessor conducted new valuations of the Ranch parcels and assessed property taxes to the Ranch owners. Respondents protested the valuations and assessments to the BOE, which denied Respondents' petitions. Respondents appealed the BOE's decision to the BAA, arguing that although they hold record title to the Ranches, they do not actually enjoy the traditional incidents of ownership, which instead are retained by the Club. Therefore, Respondents contended, the Club should be considered the "owner" of those parcels for purposes of property taxation.

         ¶13 The BAA rejected Respondents' arguments. It observed that Respondents obtained interests in their Ranches through deeds transferring real property, and that as holders of those deeds, Respondents had the unrestricted right to sell their Ranch parcels and keep the proceeds. The BAA also observed that Ranch owners enjoy other quintessential incidents of ownership, such as the right to possess and use the entire 1, 400-acre Club grounds (including to hunt and fish), and the right to exclude non-members from Club grounds. Indeed, it found that the use of the entire Club grounds is a benefit that Respondents purposefully bargained for when purchasing property rights within the Club's grounds. The BAA thus viewed the Club's restrictions as the Ranch owners' exercise of their liberties and self-governance, finding that the restrictions "are entirely self-imposed as they can be amended or terminated at any time by the majority vote of the Ranch owners." Finally, it rejected Respondents' attempt to classify their property rights as mere licenses or timeshares, reasoning that Respondents can sell, transfer, or dispose of their parcels as they see fit, and that their access to Club grounds is not time-limited.

         ¶14 Respondents appealed the BAA's decision to the court of appeals, which reversed the BAA's order. HDH P'ship, ¶¶ 3, 51. The court first concluded that record title is not determinative of property ownership. Id. at ¶¶ 16-17. It reasoned that, although section 39-5-102(1), C.R.S. (2018), directs assessors to ascertain ownership "from the records of the county clerk and recorder," such records are merely "prima facie evidence of all things appearing therein." Id. at ¶ 16 (citing § 39-1-115, C.R.S. (2018)). Because "prima facie" means "[a]t first sight; on first appearance but subject to further evidence or information," see prima facie, Black's Law Dictionary (10th ed. 2014), and because section 39-5-122(2), C.R.S. (2018), allows a person who believes property has been erroneously assessed to him or her to "appear before the assessor and object," the court concluded that record title "merely creates a rebuttable presumption" of ownership. HDH P'ship, ¶¶ 16-17.

         ¶15 The court then decided it was required to look beyond "form," or record title, and examine the "substance" of Respondents' and the Club's rights to determine who should be held responsible for taxes. See id. at ¶¶ 18-27. It concluded that, because the Club has a high degree of control over the grounds, and because Respondents may only use the grounds subject to the Club's control and regulation, the Club is the true owner of the parcels (and therefore liable for property taxes), while Respondents' fee title interests are akin to mere licenses. See id. at ¶¶ 21-27.

         ¶16 The court also summarily rejected the BOE's contention that the Colorado Common Interest Ownership Act (CCIOA) required the Assessor to assess the parcels individually, reasoning that section 38-33.3-105(2), C.R.S. (2018), applies only to common interest communities created after June 30, 1992, unless they have elected CCIOA treatment. Id. at ¶ 39 (citing §§ 38-33.3-115, -117, -118, C.R.S. (2018)). The court noted that the Club was created in 1979 and has not elected CCIOA treatment. Id.

         ¶17 Finally, based on its conclusion that the Club is the true property owner and that Respondents hold only licenses to use Club grounds, the court held that the ...


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