and 15CA0203. DA Mountain Rentals, LLC v. The Lodge at Lionshead Phase III Condominium Association, Inc
2016 COA 141
| Colo. Ct. App. | 2016Background
- The Lodge at Lionshead III is a 12-unit condominium governed by a 1978 Declaration that allocates percentage ownership of general common elements (GCE) and provides amendment procedures.
- Paragraph 18 of the Declaration allows amendment by owners holding ≥60% of GCE but contains a proviso that the undivided GCE interests and provisions governing sharing of common expenses are "permanent" and cannot be altered without unanimous consent of all unit owners and their first mortgagees (Lenders).
- In 2012 the Board proposed Amendments (the 2012 Amendments) including: (a) replacing the Declaration’s amendment threshold with 67% (section 13.1); (b) eliminating lender consent for obsolescence determinations (sections 10.1(a)–(b)); and (c) adding a mandatory buyout for non-voting or dissenting owners (section 10.1(c)). ~74% of GCE voted for adoption, but recording was stayed by litigation.
- DA Mountain Rentals (DA) sued for declaratory relief arguing the 2012 Amendments were invalid because they conflict with the Declaration’s unanimity proviso; the Association defended under CCIOA and the Declaration.
- The district court ruled for the Association on Rule 56 motions, held the 2012 Amendments valid, and denied DA’s Rule 37 fee request; DA appealed and the Association cross-appealed discovery rulings about production of the Association’s attorney files.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §13.1 (reducing unanimity to 67%) valid under Declaration | DA: Paragraph 18’s proviso makes GCE interests and expense-sharing permanent; cannot be altered without unanimous owner and lender consent. | Association: Paragraph 18 generally allows amendment by supermajority; 2012 Amendments comply and do not impermissibly alter GCE on their face. | The court: §13.1 is invalid to the extent it eliminates the Declaration’s unanimity requirement for changes to GCE or expense‑sharing. |
| Whether CCIOA (§217(1)(a)(I) and §120) overrides Declaration’s unanimity requirement | DA: CCIOA caps declaration amendment thresholds and thus requires unanimity be reduced (invokes §120 and other provisions). | Association: §217(1)(a)(I) allows amendment thresholds up to 67%; but CCIOA’s exceptions permit higher thresholds for changes to allocated interests. | The court: CCIOA (via §217(4)(a)) expressly permits a declaration to require a higher (even unanimous) vote to change allocated interests; thus unanimity is valid under CCIOA. |
| Validity of eliminating lender approval for obsolescence determinations | DA: Removing lender consent violates Declaration and may breach contracts/constitutions or cause loan default. | Association: Paragraph 25 (obsolescence) lacks permanence language and thus is amendable by the declared supermajority; CCIOA does not preclude such amendment. | The court: Elimination of lender approval re obsolescence is valid under the Declaration; DA failed to preserve a constitutional Contract Clause challenge and offered insufficient record evidence of lender default. |
| Validity of mandatory buyout provision (forced purchase of dissenting/nonvoting units) | DA: Mandatory buyout violates Board fiduciary duties (impartiality, loyalty) and implied covenant of good faith. | Association: Mandatory buyouts are permissible and not per se a breach; the provision prescribes objective appraisal-based price (no discretionary term). | The court: Mandatory buyout provision is not invalid as a matter of law; DA did not show breach of fiduciary duties or bad faith and no discretionary term exists to trigger good faith claim. |
| Discovery: forced production of Association attorney files and C.R.C.P. 37 fees | DA: Attorney file is relevant to drafting intent and should be produced; fees should be awarded after prevailing on motions to compel. | Association: Files are privileged, not relevant; protective order appropriate; fees unjustified. | The court: Good cause under Garner/Neusteter supports piercing privilege here (communications alleged inimical to member interests), so production and privilege log orders were proper; denial of Rule 37 fees was not an abuse of discretion. |
Key Cases Cited
- Buick v. Highland Meadow Estates at Castle Peak Ranch, Inc., 21 P.3d 860 (Colo. 2001) (interpretation of declarations follows plain English and whole-document construction)
- Pattie Lea, Inc. v. District Court, 423 P.2d 27 (Colo. 1967) (shareholders entitled to certain corporate advisor communications in derivative suits)
- Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970) (articulates "good cause" factors for overcoming attorney-client privilege when corporation acts inimically to shareholders)
- Neusteter v. District Court, 675 P.2d 1 (Colo. 1984) (adopting Garner good-cause test for disclosure of privileged advisor communications to shareholders)
- Silva v. Basin W., Inc., 47 P.3d 1184 (Colo. 2002) (discovery relevance standard: reasonably calculated to lead to admissible evidence)
- Alcon v. Spicer, 113 P.3d 735 (Colo. 2005) (party withholding privileged materials must provide a privilege log)
- Polk v. Hergert Land & Cattle Co., 5 P.3d 402 (Colo. App. 2000) (forced buyout may be an appropriate remedy in closely held entities)
- Woodmoor Imp. Ass’n v. Brenner, 919 P.2d 928 (Colo. App. 1996) (fiduciary duties of association boards)
- Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo. 1995) (question of good faith is factual)