Board of County Com'Rs v. Kraft Bldg.

• Citation: 122 P.3d 1019
• Decision Date: 07 November 2005
• Docket Number: No. 03CA1795.,03CA1795.
• Parties: BOARD OF COUNTY COMMISSIONERS OF the COUNTY OF BOULDER, Plaintiff-Appellant, v. KRAFT BUILDING CONTRACTORS, Alfred Gontar, and Stephen Shafroth, Defendants-Appellees.
• Court: Supreme Court of Colorado

122 P.3d 1019

BOARD OF COUNTY COMMISSIONERS OF the COUNTY OF BOULDER, Plaintiff-Appellant, v. KRAFT BUILDING CONTRACTORS, Alfred Gontar, and Stephen Shafroth, Defendants-Appellees.

No. 03CA1795.

Colorado Court of Appeals, Division V.

March 10, 2005.

Rehearing Denied May 5, 2005.

Certiorari Denied November 7, 2005.^*

Jean E. Dubofsky, Boulder, Colorado; Paul Snyder, Westcliffe, Colorado, for Plaintiff-Appellant.

The Law Offices of John R. Henderson, P.C., John R. Henderson, Boulder, Colorado, for Defendant-Appellee Kraft Building Contractors.

Thomas J. Finch, Boulder, Colorado, for Defendants-Appellees Alfred Gontar and Stephen Shafroth.

Opinion by: Judge VOGT.

Plaintiff, the Board of County Commissioners of the County of Boulder (the County), appeals the trial court's order awarding defendants, Kraft Building Contractors, Alfred Gontar, and Stephen Shafroth (collectively, landowners), attorney fees in the amount of $325,000. We vacate the order and remand with directions.

In August 1998, the County filed a complaint in state court against landowners and other parties, alleging that the defendants were engaged in illegal grading activity on a road in the county. The County sought a declaration that the defendants were violating its building and land use codes; injunctive relief requiring that the defendants cease grading and reclaim the illegally graded property; and an award of the County's costs in bringing the action.

In October 1998, the case was removed to federal court upon the motion of one defendant, the federal Bureau of Land Management (BLM). Gontar and Shafroth then answered the complaint and filed counterclaims against the County. They asserted that the County's actions amounted to a taking of their property without due compensation and to inverse condemnation, and they sought actual and punitive damages, along with a declaration that they had the right to use and maintain the road without interference from the County. Kraft filed similar counterclaims and also asserted a claim under 42 U.S.C. § 1983 for deprivation of its property without notice. The County moved for dismissal of the counterclaims.

At a June 1999 hearing in federal court, the County's counsel advised the court that (1) it had named landowners and the BLM as defendants only because it believed they were indispensable parties, (2) its investigation had determined that another defendant was responsible for the grading and thus, potentially, for any court-ordered reclamation, and (3) it would voluntarily dismiss its complaint against landowners. The federal court granted the County's oral motion to dismiss, but noted that landowners' counterclaims against the County were not dismissed. It then remanded the remaining state law claims and counterclaims to state court, and it indefinitely stayed proceedings on the remaining federal counterclaims pending resolution of the state court proceeding.

In July 1999, landowners moved the state court for sanctions against the County, seeking attorney fees pursuant to § 13-17-101, et seq., C.R.S.2004, C.R.C.P. 11, and C.R.C.P. 121 § 1-15(7), based on the County's having brought its action against them without substantial justification and having filed a frivolous motion in federal court to dismiss their meritorious counterclaims.

On the day the first sanctions motion was filed, the County moved to dismiss all the defendants' state law counterclaims. Among other things, the County argued that landowners' inverse condemnation and taking claims were not ripe. The trial court agreed and, in December 1999, entered an order dismissing landowners' taking and inverse condemnation counterclaims pursuant to C.R.C.P. 12(b)(1).

In its dismissal order, the court found that, because landowners had not sought grading permits or a limited impact special review with the County, and because the County had dropped its action against them, there had been no final determination as to how they might use the road; thus, the taking and inverse condemnation claims were not ripe. Further, because the claims were not ripe at the time they were filed, they were not compulsory counterclaims, as Gontar and Shafroth had argued.

Although it dismissed the counterclaims, the trial court ruled that it would still consider landowners' motions for sanctions and attorney fees.

Evidentiary hearings on the motions for sanctions were held on seven days between April 2000 and July 2001. In July 2002, the trial court entered a forty-eight-page order finding the County liable for sanctions pursuant to C.R.C.P. 11, C.R.C.P. 121 § 1-15(7), and § 13-17-101, et seq. In a second order entered in August 2003, the court awarded landowners fees and costs totaling $325,000. The August 2003 order stated that the award included fees incurred while the case was pending in federal court, fees related to landowners' federal counterclaims, fees incurred in prosecuting the unsuccessful state law counterclaims, and fees incurred in litigating landowners' motions for sanctions and fees.

On appeal, the County does not challenge the trial court's determination that it was liable for sanctions for filing its complaint against landowners, and it does not challenge the reasonableness of the hourly rates charged by landowners' counsel. Rather, the County contends that the trial court erred in including in its award fees to which landowners were not entitled as a matter of law.

Although we generally review awards of attorney fees for abuse of discretion, we may review de novo the legal analysis relied on by the trial court in reaching its decision. See A. Tenenbaum & Co. v. Colantuno, 3 P.3d 456 (Colo.App.1999), aff'd, 23 P.3d 708 (Colo.2001); Fail v. Community Hospital, 946 P.2d 573 (Colo.App.1997), aff'd, 969 P.2d 667 (Colo.1998).

I.

The County contends that landowners may not recover the fees they incurred in pursuing their motions for sanctions. We agree.

A party is not automatically entitled to recover the expenses incurred in successfully pursuing a motion for sanctions. Instead, attorney fees may be awarded only if the trial court determines that the defense to the motion lacked substantial justification. Parker v. Davis, 888 P.2d 324 (Colo.App. 1994). Absent a finding that the defense to a motion for fees under § 13-17-102, C.R.S.2004, lacks substantial justification, it is error to award fees and costs incurred in challenging that defense. Foxley v. Foxley, 939 P.2d 455 (Colo.App.1996).

Here, neither the written order for sanctions nor the written order for fees includes any finding that the County's defense to the motions for sanctions and fees lacked substantial justification. When asked by counsel at the hearing to make such a finding, the trial court initially declined to do so, stating: "I don't think I need to. I don't think it's going to make any difference." When the issue was raised again, however, the court responded that making such a finding would be "difficult." It later stated that the County was entitled to bring to the court's attention cases supporting its defense to the motion, and added: "I can't make a finding that [the County's] assertion that I don't have jurisdiction [to award certain fees] based on those authorities is frivolous and groundless or . . . lacks substantial justification."

Having expressly declined to find that the County's defense lacked substantial justification, the trial court nevertheless stated in its fee order that the fees incurred by landowners in litigating "the issue of the award of fees relating to their Motion for Sanctions" were recoverable. We agree with the County that this ruling amounted to an error of law.

The record confirms that that County's defense to the motions for sanctions and fees did not lack substantial justification. For example, the County brought to the trial court's attention case law supporting its position that the court did not have jurisdiction to award certain of the fees sought by landowners. It also articulated rational grounds for its initial determination that landowners had to be named as defendants in the lawsuit because they were indispensable parties. See Board of County Commissioners v. Kobobel, 74 P.3d 401 (Colo.App.2002); Aztec Minerals Corp. v. Romer, 940 P.2d 1025 (Colo.App.1996). Although the trial court did not accept the County's indispensable party argument, the argument had a rational basis in fact and law and thus, at a minimum, was not a frivolous or groundless defense to a sanctions motion. See Lobato v. Taylor, 13 P.3d 821 (Colo.App.2000)(fact that court does not accept an argument does not make the argument frivolous), rev'd on other grounds, 70 P.3d 1152 (Colo.2003).

For these reasons, and especially in light of the trial court's express refusal to find that the County's defense to the sanctions motion lacked substantial justification, we conclude the trial court erred in including in its fee award the fees incurred by landowners in pursuing their motions for sanctions and attorney fees. The trial court is accordingly directed on remand to subtract the amount of those fees from the award.

II.

Most of the remaining fees awarded to landowners were incurred by them in pursuing their counterclaims and, particularly, in opposing the County's motions to dismiss the counterclaims. The County asserts that these fees should not have been awarded because: (1) awarding fees relating to counterclaims that were pursued after the complaint was dismissed violates the principle that the victim of a frivolous lawsuit has a duty to mitigate fees and costs incurred in responding to the action; (2) claims dismissed pursuant to C.R.C.P. 12(b) cannot be the basis for an award of attorney fees in favor of the parties whose claims were dismissed; and (3) the state trial court lacked jurisdiction to award fees incurred by landowners while the case was pending in federal court. We agree in part, and we conclude that a remand is required to determine...