2016 COA 118
Colo. Ct. App.2016Background
- In 1974 a water-court-approved augmentation plan (the Plan) was established to allow drilling of household wells in the Indian Mountain subdivision; the Plan did not require transfer of the decree to a homeowners association or special district.
- Developer (later Meridian / Campbell) obtained the Plan and related water rights (Slater Ditch and reservoirs); purchasers were told utilities (including water) were at the lot owner’s expense and that well drilling/adequacy was not guaranteed.
- Campbell sold the subdivision assets (including the Plan and water rights) to Indian Mountain Corporation (IMC), which operated and maintained the Plan at its own expense from 1974–2013 while selling lots.
- The parks-and-recreation district (IMPRD) was later converted to Indian Mountain Metropolitan District (IMMD) with an amended service plan that authorized (but did not expressly require) IMMD to acquire or operate the Plan.
- IMC sold the remaining assets in 2013 to Bar Star, which then sought compensation from IMMD for operating the Plan; IMC sued for declaratory relief on ownership and sought charges for Plan operation; IMMD counterclaimed, seeking a constructive trust/unjust enrichment remedy to transfer beneficial ownership to lot owners and bar IMC from charging.
- The trial court imposed a constructive trust, finding unjust enrichment and concluding IMC held the Plan in trust for lot owners; it also found IMMD in compliance with its service plan. On appeal the court affirmed service-plan compliance but reversed the constructive-trust/unjust-enrichment ruling.
Issues
| Issue | Plaintiff's Argument (IMC) | Defendant's Argument (IMMD) | Held |
|---|---|---|---|
| Whether IMC was unjustly enriched and whether a constructive trust should be imposed over the water rights and Plan | IMC argued it holds legal title and is entitled to charge for operating the Plan; no unjust enrichment because lot prices did not cover Plan costs | IMMD argued IMC (and successor) provided free augmentation for decades, lot sales implicitly included Plan costs, so equitable relief (constructive trust) is appropriate to benefit lot owners | Reversed: trial court erred — unjust enrichment not proved; no basis for constructive trust; IMC holds legal title and may charge going forward |
| Whether lot sale proceeds included the cost of the Plan (element of unjust enrichment) | IMC: sales documents, plats, deeds and disclosures show utilities/wells were separate lot-owner expenses, not included in lot price | IMMD: testimony claimed the Plan and well permits were part of the lot value/price and IMC recouped costs via higher lot prices | Held for IMC: documentary evidence contradicted testimony; lot prices did not include Plan operation costs |
| Whether IMC’s receipt of benefit was "at IMMD’s expense" (privity/second element) | IMC: IMMD never paid IMC; IMMD has no privity with lot owners and did not suffer detriment | IMMD: relied on district’s taxing authority and long benefit receipt by homeowners as grounds for restitution | Held for IMC: no evidence IMC benefited at IMMD’s expense; privity lacking; second element fails |
| Whether IMMD’s amended service plan required it to acquire or operate the Plan (service-plan compliance) | IMC: amended plan was designed to allow IMMD to take over Plan and thus failing to do so materially modified services | IMMD: amended plan granted authority to acquire/operate Plan but did not mandate acquisition or operation; IMMD provided the services required by plan | Held for IMMD: “shall have the power and authority to …” grants authority not an obligation to acquire/operate; IMMD complied with its service plan |
Key Cases Cited
- Lewis v. Lewis, 189 P.3d 1134 (Colo. 2008) (standards and elements for unjust enrichment and review of equitable remedies)
- Lawry v. Palm, 192 P.3d 550 (Colo. 2008) (constructive trust and unjust enrichment principles)
- Redd Iron, Inc. v. Int’l Sales & Servs. Corp., 200 P.3d 1133 (Colo. App. 2008) (legal test for unjust enrichment and restitution)
- Salzman v. Bachrach, 996 P.2d 1263 (Colo. 2000) (defining unjust enrichment as benefit to one causing unfair detriment to another)
- Cablevision of Breckenridge, Inc. v. Tannhauser Condo. Ass’n, 649 P.2d 1093 (Colo. 1982) (what constitutes a benefit for restitution purposes)
- USI Props. E., Inc. v. Simpson, 938 P.2d 168 (Colo. 1997) (courts should not rewrite or add terms to unambiguous documents)
- Plains Metro. Dist. v. Ken-Caryl Ranch Metro. Dist., 250 P.3d 697 (Colo. App. 2011) (construction of service-plan language; effect of "shall" vs. "may")