Brooktree Vill. Homeowners Ass'n, Inc. v. Brooktree Vill., LLC

• Decision Date: 19 November 2020
• Docket Number: Court of Appeals No. 19CA1635
• Citation: 479 P.3d 86
• Parties: BROOKTREE VILLAGE HOMEOWNERS ASSOCIATION, INC., a Colorado non-profit corporation, Plaintiff-Appellee, v. BROOKTREE VILLAGE, LLC, a Colorado limited liability company, and Rivers Development, Inc., a Colorado corporation, Defendants-Appellants.
• Court: Colorado Court of Appeals

479 P.3d 86

BROOKTREE VILLAGE HOMEOWNERS ASSOCIATION, INC., a Colorado non-profit corporation, Plaintiff-Appellee,

v.BROOKTREE VILLAGE, LLC, a Colorado limited liability company, and Rivers Development, Inc., a Colorado corporation, Defendants-Appellants.

Court of Appeals No. 19CA1635

Colorado Court of Appeals, Division VII.

Announced November 19, 2020

Kerrane Storz, P.C., Heidi E. Storz, Michael J. Lowder, Rebekah B. Watada, Broomfield, Colorado, for Plaintiff-Appellee

Lorber, Greenfield & Polito, LLP, Thomas F. Olsen, Louis W. Horowitz, Denver, Colorado, for Defendants-Appellants

Opinion by JUDGE LIPINSKY

¶1 The Brooktree Village Townhomes (the development) had more than its share of troubles. Its original owner, Combest Construction, sought protection under the Bankruptcy Code after it had completed and sold several townhomes to residential purchasers, but before it could complete construction at the development. After Combest's lender took possession of the development, the lender conveyed the common areas to Brooktree Village Homeowners Association, Inc. (Association), the development's homeowner's association, which Combest had formed.

¶2 A second developer, Brooktree Village, LLC (Developer), later acquired the remaining undeveloped portions of the development, other than the common areas. A construction company affiliated with Developer, Rivers Development, Inc. (Builder), completed construction of the development. Developer sold all the newly constructed townhomes to individual homeowners.

¶3 After discovering construction defects throughout the development, Association sued Developer and Builder, asserting that portions of Builder's construction work were defective. Association sought damages for the cost of repairing the construction defects in the common areas, as well as the cost of repairing the damage in one of the townhomes caused by construction defects in the common areas.

¶4 Association asserted the claims on behalf of itself and its member homeowners, pursuant to section 38-33.3-302(1)(d), C.R.S. 2020, under theories of breach of implied warranty, negligence, and negligence per se.

¶5 At the conclusion of an eight-day trial, a jury found Developer and Builder liable for breach of implied warranty and negligence and awarded Association $1,850,000 in damages. (The trial court combined Association's negligence and negligence per se claims.)

¶6 The jury also found that Association was responsible for ten percent of the damages under a comparative negligence theory. But the jury verdict form did not break down Association's damages between its breach of implied warranty and negligence claims. The trial court awarded the entire $1,850,000 to Association on the breach of implied warranty claim, reasoning that comparative negligence does not apply to breach of implied warranty claims.

¶7 On appeal, Developer and Builder argue that the trial court erred in entering the judgment against them. Among other arguments, Developer and Builder raise an issue of first impression in Colorado — whether Association had the right to assert implied warranty claims against them even though Association had not acquired the common areas from Developer, Developer never owned the common areas, and a majority of Association's members had not purchased their townhomes from Developer.

¶8 We hold that Association had standing to assert the implied warranty claims. Although we also hold that the trial court erred in admitting evidence regarding damage in one of the townhomes, we conclude that the error was harmless. Therefore, we affirm the judgment.

I. Background

¶9 The development is a residential common interest community as that term is defined in the Colorado Common Interest Ownership Act (CCIOA). See § 38-33.3-103(8), C.R.S. 2020. Combest established Association under the CCIOA. The members of Association are the owners of the townhomes at the development. Association owns and manages the common areas of the development for the use and benefit of its members pursuant to the Declaration of Covenants, Conditions, Restrictions, and Easements of Brooktree Village Townhomes (the Declaration).

¶10 According to the Declaration, the development was to consist of fourteen buildings housing fifty-two townhomes. Before going out of business, Combest completed the grading at the development site. Combest, however, only constructed two of the buildings, consisting of seven townhomes, and approximately half of the roadways. Combest sold those seven townhomes to residential purchasers in 2007 and 2008.

¶11 After Combest filed for bankruptcy protection, Combest's lender took possession of the development and conveyed the common areas to Association. The undeveloped areas of the development remained untouched until 2012, when Developer acquired the entirety of the development other than the common areas and the seven townhomes that Combest had built and sold.

¶12 Builder resumed construction at the development, following Combest's original construction plans and the scope of the development described in the Declaration. Builder formed Developer to market and sell the townhomes that Builder built. Developer contracted with Builder to construct the remaining twelve buildings, finish the roadways, and complete the remaining work at the common areas of the development. Those twelve buildings consisted of forty-five townhomes.

¶13 By 2015, Builder completed construction at the development. Developer sold the forty-five townhomes to residential purchasers in 2012 and 2013.

¶14 As early as 2012, owners of the newly constructed townhomes began reporting construction defects to Builder. Within the one-year warranty period specified in their purchase agreements with Developer and Builder, several townhome owners presented Builder with claims for repairs caused by those construction defects.

¶15 Association served Developer and Builder with a notice of claim pursuant to section 13-20-803.5, C.R.S. 2020, on behalf of its members and itself in February 2017. After it was unable to resolve its dispute with Developer and Builder regarding the construction defects described in the notice of claim, Association filed suit "on behalf of itself and on behalf of its members" in May 2017.

¶16 The construction defects described in Association's complaint primarily consisted of improper site grading and drainage across the development, which, according to Association, caused water accumulation and intrusion, concrete flatwork settling and cracking, and heaving and movement of concrete basement slabs, among other problems. Association sought damages in the amount of the cost of repairing the construction defects in the common areas. In addition, Association sought damages to repair the damage to one townhome — that of owner Halley Rumfelt — attributable to construction defects in the common areas.

¶17 As noted above, at the conclusion of trial, the jury awarded $1,850,000 in damages against Developer and Builder on Association's implied warranty and negligence claims.

¶18 On appeal, Developer and Builder allege six errors by the trial court:

¶19 First, allowing Association to pursue claims for breach of implied warranty against Developer and Builder and, relatedly, providing jury instructions and a verdict form that misstated the law of breach of implied warranty and did not allow the jury to determine the threshold question of whether Association could assert implied warranty claims even though not all of its members had implied warranties from Developer and Builder.

¶20 Second, not reducing the jury's damage award by the percentage of Association's comparative negligence.

¶21 Third, declining to instruct the jury on the statute of repose and statute of limitations.

¶22 Fourth, declining to allow evidence or jury instructions on whether Association could assert claims on behalf of individual townhome owners without first obtaining assignments of claims from them.

¶23 Fifth, allowing Association to introduce "salacious" and irrelevant evidence.

¶24 Sixth, allowing testimony referring to nonparties.

II. Analysis

A. Implied Warranty

¶25 Developer and Builder contend that the trial court erred by allowing Association to pursue implied warranty claims against them on behalf of the members of Association. Developer and Builder relatedly contend that the court erred by giving jury instructions and a verdict form that did not correctly state the law of implied warranty. We are not persuaded.

1. Association's Standing to Assert Implied Warranty Claims on Behalf of Its Members

¶26 Developer and Builder assert that the trial court erred by allowing Association to pursue implied warranty claims against them for construction defects in the common areas because (1) Builder did not sell any of the townhomes at the development and (2) neither Developer nor Builder ever owned the common areas and fewer than half of Association's members purchased townhomes from Developer. Developer and Builder further argue that, at most, any damage award to Association must be reduced by multiplying the amount of the award by the percentage of townhome owners in the development who purchased their townhomes directly from Developer (the direct purchasers).

¶27 Whether Association may bring implied warranty claims for defects in the common areas on behalf of its members is a question of law that we review de novo. Klingsheim v. Cordell , 2016 CO 18, ¶ 14, 379 P.3d 270, 272 ; see Forest City Stapleton Inc. v. Rogers , 2017 CO 23, ¶¶ 6, 15-16, 393 P.3d 487, 492.

¶28 Colorado law reads an implied warranty of workmanlike construction and fitness for habitability into "agreements between builder-vendors and purchasers for the sale of newly constructed buildings ...." Carpenter v. Donohoe , 154 Colo. 78, 83-84, 388 P.2d 399, 402 (1964). The implied warranty "arises from the contractual relation" between an entity that constructs and sells a newly constructed building and the purchaser. Cosmopolitan Homes, Inc. v. Weller , ...