Kniffin v. Colorado Western Development Co., 79CA0200

• Decision Date: 28 August 1980
• Docket Number: No. 79CA0200,79CA0200
• Parties: W. V. KNIFFIN and Evelyn Kniffin, Plaintiffs-Appellees, and Perry Park Metropolitan District, Martin H. Platt and Alice Platt, Plaintiffs, v. COLORADO WESTERN DEVELOPMENT COMPANY, a Colorado Corporation, and Lee E. Stubblefield, Defendants-Appellants. . II
• Court: Colorado Court of Appeals

Page 586

622 P.2d 586

W. V. KNIFFIN and Evelyn Kniffin, Plaintiffs-Appellees and Perry Park Metropolitan District, Martin H. Platt and Alice Platt, Plaintiffs, v. COLORADO WESTERN DEVELOPMENT COMPANY, a Colorado Corporation, and Lee E. Stubblefield, Defendants-Appellants.

No. 79CA0200.

Colorado Court of Appeals, Div. II.

Aug. 28, 1980.

Rehearings Denied Sept. 18, 1980.

Certiorari Denied Jan. 5, 1981.

Robert J. Dyer III, Denver, for plaintiffs-appellees.

Clark, Martin & Pringle, Bruce D. Pringle, Eric J. Pringle, Denver, for defendants-appellants.

KIRSHBAUM, Judge.

Defendants, Colorado Western Development Company (Colorado Western) and Lee E. Stubblefield, appeal a trial court judgment awarding damages of $1,355,209 to plaintiffs, W. V. Kniffin and Evelyn Kniffin, on claims of breach of contract and preferential transfer. Defendants also appeal the trial court's certification of those two claims as class action claims. We affirm in part and reverse in part.

The following facts are disclosed by the record. Colorado Western began to develop the Perry Park Residential Community near Colorado Springs in 1967. Stubblefield was its president and principal shareholder at all relevant times. Perry Park consists of Filings 1-7, 9 and 11. Filings 1, 2 and 3 were recorded prior to March of 1969. Filing 7 was recorded in December 1970 and Filing 11 was recorded on August 3, 1971.

In 1969 a property report describing the project was prepared pursuant to the Federal Interstate Land Sales Full Disclosure Act, 15 U.S.C.A. § 1701 et seq. Colorado Western prepared and distributed numerous sales brochures defining the Perry Park "way of life" and describing a select residential community of persons sharing interests in outdoor recreational activities.

In 1970, the Kniffins, then residents of New York, learned of the Perry Park project. They visited the site and received a copy of the property report and several promotional brochures. Mr. Kniffin was interested especially in proposed facilities for boating, fishing, and water skiing. The sales literature emphasized the proposed construction of a 120-acre lake to be located near the entrance to the project. The Kniffins were impressed with the vivid descriptions of the Perry Park way of life.

In early August of 1970 the Kniffins purchased a lot in Filing 7 of the project. On August 14, 1970, Mrs. Kniffin purchased an adjacent lot. When they realized that much more development would be necessary to give access to their Filing 7 lots, the Kniffins purchased a third lot located in Filing 11 in May of 1971. They constructed a residence on their Filing 11 lot and in 1973 they moved to Perry Park.

The 1969 property report furnished to the Kniffins contained the following pertinent provisions:

"9. (a) The following recreational facilities are currently available in Perry Park:

3. Fishing in three stocked lakes.

4. Sailing, boating and water skiing.

(b) The following facilities are proposed or partially completed: ...

The subdivider has posted bonds with the County of Douglas the bonds made payable to the County of Douglas, which guarantee completion of the roads to County standards. The access road which is essentially completed is subject to a bond with the County of Douglas in the amount of $20,000. The roads in Perry Park East Filing No. 1 are covered by a road completion bond in the amount of $35,000. The roads in Perry Park East Filing No. 2 are subject to a bond in the amount of $23,000. The subdivider has posted a cash bond for the benefit of the County Commissioners, County of Douglas, State of Colorado, guaranteeing completion of the roads and water systems in Perry Park Filings No. 2 and No. 3 in the amount of $60,000. These funds are on deposit in the Douglas County Bank, Castle Rock, Colorado.

10. The following services are now available in the subdivision:

2. The streets in the subdivision are graveled streets; the main arterial roads will be blacktopped by October 1970 ..."

The purchase contracts executed by the Kniffins and Colorado Western contain standard clauses providing that any representations, inducements, promises, or agreements, oral or otherwise, made by either party but not contained in the written agreement are of no force or effect. The contracts also contain the following provision:

"The Buyer ... acknowledges ... that he has been provided with a copy of the property report and read and understood it ..."

The trial court concluded that the provisions of the property report were incorporated into the three real estate purchase contracts, but that all oral representations of Colorado Western salespersons and all statements contained in Colorado Western's sales brochures were excluded from the contracts.

In November 1971 Colorado Western received a report analyzing requirements to construct a dam and create a large reservoir at the entrance to Perry Park for recreational and water supply purposes. In 1972 it received a supplemental analysis of specific problems related to such a project. Colorado Western did not construct that proposed dam and reservoir and did not build any other recreational lake.

In 1973, Colorado Western ceased developing Perry Park. At that time, substantially all the platted roads in Filings 1, 2, and 3 had been constructed to county standards and had been accepted by the county for maintenance. In addition, Colorado Western had constructed other platted roads in Filings 2, 3, 4, 5, and 7 to county standards which had not been accepted for maintenance by the county; Colorado Western maintained those roads until 1977, when it ceased doing so. They subsequently deteriorated, and were in need of substantial repair by 1979. A paved road maintained by the county extends from Perry Park's entrance to within 200 yards of the Kniffins' home in Filing 11; a gravel access road extends over the remaining distance. Access roads are available to most of the lots in Filings 1, 2, and 11, although many of them were completed by the Perry Park Metropolitan District and not by Colorado Western. Most of the roads platted in filings other than 1, 2, and 11 have never been cut through.

Perry Park has never contained three lakes. A 25-acre lake, Lake Wauconda, was in existence in 1969; Colorado Western stocked that lake for fishing once, but did not stock it again. At one time limited sailing facilities were available on Lake Wauconda, and canoeing is possible. Water skiing facilities have never been available at Perry Park.

On July 27, 1977, Colorado Western was insolvent. Stubblefield was then board chairman and owned 71% of Colorado Western's stock. At that time Colorado Western was in debt to Stubblefield for advances he had made to operating capital. The debt was unsecured. In August of 1977, Colorado Western transferred substantially all its assets to Stubblefield for the stated sum of $2.8 million. In return, Stubblefield cancelled the unsecured debt, assumed encumbrances on the corporate assets for which he was personal guarantor, and agreed to pay current corporate liabilities.

In January of 1979, Stubblefield sold almost all the assets he had received from Colorado Western. The buyer assumed corporate liabilities and encumbrances on corporate assets and issued promissory notes to Stubblefield in the amount of $2,550,000. Stubblefield subsequently assigned the notes to Colorado Western.

The original complaint was filed October 18, 1977, by the Kniffins, Martin H. Platt, Alice Platt, and the Perry Park Metropolitan District. It contained seven claims and requested relief in the nature of a declaratory judgment, specific performance and a mandatory injunction. On April 11, 1978, the plaintiffs filed a motion for class action certification pursuant to C.R.C.P. 23(b)(2) or, alternatively, C.R.C.P. 23(b)(3), and a motion to amend the complaint to add an eighth and a ninth claim, one of which alleged a preferential transfer of assets to Stubblefield. On May 12, 1978, after a hearing, the trial court denied the motion for class certification and granted the motion to amend the complaint.

On December 8, 1978, a hearing was held respecting a motion filed by defendants requesting dismissal of plaintiff Perry Park Metropolitan District for lack of standing. The trial court concluded at that time that the District must be deemed to have standing as a third-party beneficiary. The court emphasized, however, that its ruling merely denied defendants' motion and that the question of the District's third-party beneficiary standing remained an issue in the case. The Kniffins did not request reconsideration of the class certification issue subsequent to that date.

The trial commenced on January 9, 1979, and on January 29, 1979, the trial court entered judgment for the Kniffins upon their claims of breach of contract and preferential transfer and against the Kniffins on their other claims. The final judgment also dismissed all claims of the Platts and of Perry Park Metropolitan District; those plaintiffs do not appeal the judgments of dismissal.

The trial court concluded that Colorado Western agreed to develop and complete a road system in Perry Park, to provide recreational facilities, and specifically promised to provide three lakes stocked for fishing and capable of supporting sailing and water skiing activities for the Kniffins' use. It further found that Colorado Western agreed to perform these promises within a reasonable time, and that it had breached its contracts with the Kniffins by its failure to fulfill these promises. Concluding that the 1977 transfer of assets to Stubblefield constituted a preferential transfer, thus rendering Stubblefield and Colorado Western jointly and severally liable to the Kniffins, the trial court assessed as damages the cost to complete the roads in the project and the cost to build a recreational water system. The trial court ordered the Kniffins to deliver all damages received by them to the Board...