Gude v. City of Lakewood, 80SA81
| Decision Date | 02 November 1981 |
| Docket Number | No. 80SA81,80SA81 |
| Citation | 636 P.2d 691 |
| Parties | Arthur J. GUDE, 3rd, Peter H. Fieber, Lowell J. Jarratt, and Chester I. Thompson, as residents, voters and taxpayers of the City of Lakewood, Colorado, for themselves and also as representatives on behalf of all other residents, voters and taxpayers of said City, Plaintiffs-Appellants, v. The CITY OF LAKEWOOD, Colorado; Charles Whitlock, individually and also as the Mayor of said City; the City Council of said City; Carolyn Bacher, Sharon Carr, James Eitzen, Raymond Fink, Jim Lee, John A. Morgan, Carl Neu, Jr., Gaylor V. Smith, Paul W. Thompson, and Lester Willson, individually and also as members of the City Council of said City; Robert O. Darrow, individually and also as the City Treasurer of said City; Charles S. Anderson, individually and also as the City Administrator of said City; Lakewood Public Building Authority, a Colorado non-profit corporation; and David L. Hoover, Kathleen Kleinkopf, John F. Milan, Franklin J. Parks, Jr., and Linda Shaw, individually and also as the members and officers of said corporation, Defendants-Appellees. |
| Court | Colorado Supreme Court |
Elias J. Candell, Lakewood, for plaintiffs-appellants.
Gorsuch, Kirgis, Campbell, Walker & Grover, John S. Pfeiffer, Robert E. Warren, Jr., Lamm, Edstrom & Stowe, William O. Lamm, Denver, for defendants-appellees.
J. D. MacFarlane, Atty. Gen., Richard F. Hennessey, Deputy Atty. Gen., Mary J. Mullarkey, Sol. Gen., Stephen H. Kaplan, First Asst. Atty. Gen., Denver, amicus curiae.
The plaintiffs, who are residents, voters, and taxpayers of the City of Lakewood (city), brought this suit in Jefferson County District Court 1 challenging the legality of actions by the city, the Lakewood Public Building Authority (building authority) and certain of their officials in structuring plans for the financing and construction of a municipal office building (city hall) and in committing to spend monies in furtherance of that project. The plaintiffs' principal claim is that the city hall financing proposal violates Colo.Const. Art. XI, § 6, which prohibits the city from incurring a general obligation debt unless approved by the voters. The plaintiffs also contest certain city expenditures unrelated to the municipal office building. Finally, they seek restitution and exemplary damages from those individual defendants who participated in the alleged wrongful actions. A trial to the court resulted in a judgment for the defendants on all claims. The plaintiffs appeal, and we affirm.
In 1974, at the request of Lakewood, a statutory city, a citizens committee was formed to provide advice on how best to meet the need for additional municipal office space. After study, the citizens committee recommended the construction of a new city hall. The city then caused a special bond election to be held on February 7, 1978, at which the question of issuing the city's general obligation bonds to finance the proposed construction was submitted to the voters. The proposal was defeated by an 81%-19% margin, and the city sought other ways of financing a new municipal office building.
After further study and consultation with the citizens committee, the city determined that the most economic, efficient and beneficial method of financing and constructing a new municipal office building would be through an agreement with a non-profit public building corporation. At the city's request, certain members of the citizens committee then formed the building authority as a Colorado non-profit corporation for that purpose. The corporate bylaws provide that no member or director of the building authority can be an elected official or employee of the city. The city has no right to control any action of the building authority.
The financing and construction plan can be outlined briefly. The site was to be donated to the city by a third party, subject to a possibility of reverter designed to assure construction of a municipal office building as a condition to continued city ownership. The city would then lease that land to the building authority for a 25-year term for the construction of a city hall to be built in accordance with plans and specifications to be developed and approved by the city and within a city-established budget. The building authority would contract with a builder for construction of the city hall. Upon completion of construction, the building authority would lease the land and building back to the city for a 25-year period through a one-year lease with a series of one-year renewal options. Renewal would occur automatically at the conclusion of each year unless the city elected against it. In the event of nonrenewal, the city would not be obligated for future rentals.
To finance the construction, the building authority would first issue and sell its bond anticipation notes in the total principal amount of $6,100,000. Part of the proceeds would be used to pay preliminary costs of the project, including the architectural fees. Upon completion of the structure, the building authority would issue its 25-year-term revenue bonds in payment of the anticipation notes. The bonds would be redeemed by application of the lease rentals to be received from the city. The bond obligations would be secured by a lien on the city hall and on the 25-year lease from the city to the building authority. Upon full payment of the bonds, the building authority would convey the building to the city.
The city would reimburse the building authority for costs and expenses actually incurred in the event the sale of the anticipation notes or bonds should be substantially delayed or the project abandoned. The city would also indemnify the building authority and its individual members against claims arising from their activities in relation to the municipal office building project. The city would enter into an agreement with the architect initially but would later assign that contract to the building authority.
Before the plan could be fully implemented, and before the anticipation notes were issued, the plaintiffs brought this action, asserting four claims for relief. The first claim seeks a declaratory judgment that all city resolutions and ordinances authorizing the city hall project are void, and an injunction against further action to implement the financing and construction of a new city hall. The plaintiffs assert that if the plan is implemented the city will be obligated to pay the bonds because the building authority is the alter ego of the city, and the city's agreement to pay the costs incurred by the building authority if the project is abandoned makes it an insurer of the bonds. Additionally, the plaintiffs claim the city will be obligated to pay the bonds indirectly through lease rentals, and that the challenged agreements are illegal as contrary to public policy in that they represent an attempt by the city to accomplish indirectly what it is prohibited from accomplishing directly. The gravamen of this last argument is that the city is attempting to take the very action which the voters disapproved in the 1978 special bond election. As no election was held to approve the building authority bond issue, the plaintiffs contend that Colo.Const. Art. XI, § 6 has been violated. 2
Additionally, the plaintiffs challenge a contract between the city and an architect, obligating the city in the amount of $422,000 for architectural services for the city hall. $21,258 of this obligation had been paid by the time of trial. The plaintiffs assert that funds have not been budgeted or appropriated for that purpose and, thus, payment of city monies under the architectural contract violates sections 29-1-102, 111 and 113, C.R.S. 1973 , prohibiting the expenditure of unbudgeted and unappropriated funds. As a further element of the first claim, the plaintiffs allege that the agreements for the services of the financial advisor, the general legal counsel, the bond attorney, the architect and the trustee bank which is to act on behalf of the bondholders were made in violation of section 31-15-712, C.R.S. 1973 (1980 Supp.), which requires competitive bidding for certain city contracts.
The second and third claims for relief are not related to the municipal office building project. The second claim challenges the 1979 authorization for spending $130,000 for a public safety records system and a park patrol as contrary to section 29-1-113, C.R.S. 1973 , prohibiting the city from contracting for the expenditure of unappropriated funds. In the third claim, the plaintiffs contest payments by the city for the distribution to its citizens of various newsletters and reports on the basis that the expenditure of monies for such purposes is not legally authorized.
In the fourth claim for relief, the plaintiffs seek restitution from individual defendants for all of the city expenditures which the plaintiffs challenge as unlawful in their first three claims. The plaintiffs also seek exemplary damages for any illegal action taken in furtherance of the city hall project after service of the summons and complaint.
We first consider whether the city hall financing plan violates Colo.Const. Art. XI, § 6, which provides in pertinent part: 3
Local government debt. (1) No political subdivision of the state shall contract any general obligation debt by loan in any form, ... except by adoption of a legislative measure which shall be irrepealable until the indebtedness therein provided for shall have been fully paid or discharged, specifying the purposes to which the funds to be raised shall be applied and providing for the levy of a tax which together with such other revenue, assets, or funds as may be pledged shall be sufficient to pay the interest and principal of such debt. (With an exception not applicable here) no such debt shall be created unless...
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