Dinosaur Park Investments, L.L.C. v. Tello

• Decision Date: 10 July 2008
• Docket Number: No. 07CA0956.,07CA0956.
• Citation: 192 P.3d 513
• Parties: DINOSAUR PARK INVESTMENTS, L.L.C., Plaintiff-Appellant, v. Fernando TELLO, Defendant-Appellee.
• Court: Colorado Court of Appeals

192 P.3d 513

DINOSAUR PARK INVESTMENTS, L.L.C., Plaintiff-Appellant, v. Fernando TELLO, Defendant-Appellee.

No. 07CA0956.

Colorado Court of Appeals, Div. III.

July 10, 2008.

Feldman, Nagel & Associates, LLC, Lynaia M. South Orr, Steamboat Springs, Colorado, for Plaintiff-Appellant.

The Law Office of Cheryl L. Hardy-Moore, P.C., Douglas S. Timmerman, Steamboat Springs, Colorado, for Defendant-Appellee.

Opinion by Judge J. JONES.

Plaintiff, Dinosaur Park Investments, L.L.C., appeals the district court's judgment in favor of defendant, Fernando Tello, on Dinosaur Park's breach of contract claim, and the court's order awarding attorney fees to Tello. We reverse the judgment and order, and remand the case for further proceedings.

I. Background

In 2004, Dinosaur Park and Tello entered into an installment land contract whereby Tello agreed to make monthly installment payments and partial tax and insurance payments to Dinosaur Park for the purchase of an apartment complex. Dinosaur Park agreed to provide $30,000 to Tello (who took immediate possession of the property) for improvements to the property, and Tello agreed to contribute $12,000 toward improvements.

Alleging that Tello failed to make timely monthly installment payments, Dinosaur Park filed an action in district court asserting claims for breach of contract and appointment of a receiver. Tello, acting pro se, filed an answer to the complaint which stated, in its entirety, as follows:

In response to the lawsuit case number 05CV64 the charges against me Fernando Tello are false, payments have been made and they are the ones not compiling [sic] with the contract. They have offered me to stop this lawsuit in exchange of me signing a listing contract to put the property up for sale.

Some time thereafter, the parties agreed that Dinosaur Park could sell the property to a third party, and Dinosaur Park did so. In response to a motion for summary judgment filed by Dinosaur Park, Tello asserted that the agreement to allow Dinosaur Park to sell the property modified the installment land contract.

Less than three weeks before trial, Tello filed a motion for leave to assert a counterclaim for unjust enrichment. The court denied that motion because it was untimely.

The trial was set to begin on Monday, October 2, 2006 (sixteen months after Dinosaur Park filed its complaint). The Friday before the trial was to begin, Tello, through his recently retained attorney, filed a motion (purportedly under C.R.C.P. 11) asserting that the installment land contract was void, and seeking a declaration to that effect and other remedies. Tello's motion was premised on section 38-35-126(3), C.R.S.2007, which provides:

The buyer shall have the option of voiding any contract for deed to real property which fails to designate the public trustee as escrow agent for deposit of property tax moneys or for which no written notice is filed with the county treasurer's office or the county assessor's office. Upon voidance of such contract, the buyer shall be entitled to the return of all payments made on the contract, with statutory interest as defined in section 5-12-102, C.R.S., and reasonable attorney fees and costs. This avoidance right shall expire on the date seven years after the latest execution date on the contract for deed to real property unless exercised prior to such date.

The morning of the first day of trial, the court heard argument on whether Tello should be allowed to raise section 38-35-126 at trial. Dinosaur Park's counsel argued that (1) the statute is in the nature of an affirmative defense or counterclaim; (2) Tello had not timely raised the statute as an affirmative defense or counterclaim, and had therefore waived it; (3) Dinosaur Park would be prejudiced if Tello were permitted to raise the statute at trial because (a) it had not been able to conduct discovery on the issue, (b) it had not been able to prepare for trial on the issue, and (c) it would have additional claims and defenses related to the statute that it was not prepared to try (such as unjust enrichment relating to Tello's retention of rental payments while he was in possession of the property); (4) the statute was inapplicable because the property had been sold, thereby rendering the court unable to rescind the contract and put the parties in their original positions; and (5) Tello had effectively waived his right to void the contract because he had continually treated it as valid.

The court ruled that Tello would not be able to raise section 38-35-126 at trial, essentially agreeing with Dinosaur Park's latter two arguments. The case was tried to the court. After the parties had finished presenting their evidence, the court reiterated that it was not allowing Tello to assert any right under section 38-35-126.

In due course, the court issued its findings of fact, conclusions of law, and judgment. As relevant to this appeal, the court made the following findings of fact:

• Dinosaur Park did not timely provide the $30,000 for improvements.

• Tello's accounting for rents he received was poor, and hence Dinosaur Park could not present evidence of rents Tello retained.

• Tello defaulted on the contract by failing to make timely installment payments.

Notwithstanding these findings and its earlier ruling that Tello would not be permitted to raise section 38-35-126 at trial, the court ruled that Tello was entitled to rescind the contract under that statute. The court stated that it had erred in ruling on the first day of trial that Tello could not raise the statute. In an effort to place the parties in the positions they were in prior to entering into the contract, the court ordered Dinosaur Park to reimburse Tello for certain expenses he incurred in improving the property, totaling $31,000.

The court subsequently ordered Dinosaur Park to pay Tello $10,000 for attorney fees he had incurred in connection with his claim under section 38-35-126. (Subsection 38-35-126(3) provides that a party who opts to void a contract for failure to comply with subsection 38-35-126(1) may recover "reasonable attorney fees and costs.")

Dinosaur Park filed a timely motion under C.R.C.P. 59 to amend the court's findings and judgment, contesting the court's reliance on section 38-35-126 because the court had barred Tello from asserting a claim based on that statute. The court denied the motion.

II. Discussion

A. Affirmative Defense, Compulsory Counterclaim, or Neither?

Because the issue impacts our standard of review as well as the law governing the resolution of Dinosaur Park's primary contention on appeal—that the district court erred in allowing Tello to void the contract pursuant to section 38-35-126—we must determine whether Tello's claim to void the contract was in the nature of an affirmative defense or compulsory counterclaim, as Dinosaur Park contends, or neither, as Tello contends. Tello takes the position that his claim pursuant to the statute cannot be regarded as an affirmative defense or compulsory counterclaim, and hence subject to any bar for failing to timely assert it in this action, because the statute provides a seven-year period of limitations to seek to void a contract. We conclude that Tello's claim pursuant to the statute was an affirmative defense and a compulsory counterclaim, and we reject Tello's argument.

An affirmative defense is "a legal argument that a defendant ... may assert to require the dismissal of a claim or to prevail at trial." State v. Nieto, 993 P.2d 493, 507 (Colo.2000); see Black's Law Dictionary 451 (8th ed.2004) (defining affirmative defense as "[a] defendant's assertion of facts and arguments that, if true, will defeat the plaintiff's ... claim, even if the allegations in the complaint are true").

Clearly, Tello's claim that the contract was void under section 38-35-126 was an attempt to avoid liability on Dinosaur Park's breach of contract claim. It was not a mere denial of an element of Dinosaur Park's claim, but rather a defense to the claim notwithstanding Dinosaur Park's ability to prove the elements of its claim.

Moreover, the primary remedy Tello sought was rescission, which is a defense or claim which must be pleaded in accordance with C.R.C.P. 8. Ice v. Benedict Nuclear Pharmaceuticals, Inc., 797 P.2d 757, 760 (Colo.App.1990). Other jurisdictions have expressly held that rescission is an affirmative defense when raised to avoid liability on a breach of contract claim. See, e.g., Resnik v. Morganstern, 100 Conn. 38, 122 A. 910, 911 (1923); Joseph Bucheck Constr. Corp. v. Music, 420 So.2d 410, 414-15 (Fla.Dist.Ct. App.1982); Great Am. Ins. Co. v. General Builders, Inc., 113 Nev. 346, 934 P.2d 257, 262 (1997); Falcione v. Cornell School Dist., 383 Pa.Super. 623, 557 A.2d 425, 427-28 (1989); 9029 Gateway South Joint Venture v. Eller Media Co., 159 S.W.3d 183, 186 (Tex. App.2004). And, though C.R.C.P. 8(c) does not expressly identify rescission as an affirmative defense, its nonexclusive list of affirmative defenses includes theories that are conceptually and remedially similar to rescission, such as accord and satisfaction, failure of consideration, fraud, illegality, and the statute of frauds.

Under the circumstances here, Tello's claim that the contract was void under section 38-35-126 was also a compulsory counterclaim.

A claim is "the aggregate of operative facts which give rise to a right enforceable in the courts...." Corporon v. Safeway Stores, Inc., 708 P.2d 1385, 1388 (Colo.App.1985); see also Black's Law Dictionary 264 (defining claim as "[t]he assertion of an existing right; any right to payment or to an equitable remedy"). Because Tello sought to assert the statute in opposition to Dinosaur Park's claim, it was in the nature of a counterclaim. Transport Clearings of Colo., Inc. v. Linstedt, 151 Colo. 166, 167, 376 P.2d 518 (1962); see also Black's Law Dictionary 376.

C.R.C.P. 13(a) defines a compulsory counterclaim as:

any claim which at the...