Ryan Ranch Cmty. Ass'n, Inc. v. Kelley

• Decision Date: 26 September 2016
• Docket Number: Supreme Court Case No. 14SC431
• Citation: 2016 CO 65,380 P.3d 137
• Parties: RYAN RANCH COMMUNITY ASSOCIATION, INC., Petitioner, v. John E. KELLEY, Kelly D. Kelley, Rick Zimmerman, and Lora Zimmerman, Respondents.
• Court: Colorado Supreme Court

380 P.3d 137

2016 CO 65

RYAN RANCH COMMUNITY ASSOCIATION, INC., Petitioner,

v.John E. KELLEY, Kelly D. Kelley, Rick Zimmerman, and Lora Zimmerman, Respondents.

Supreme Court Case No. 14SC431

Supreme Court of Colorado.

September 26, 2016

Attorneys for Petitioner: The Witt Law Firm, Jesse Howard Witt, Boulder, Colorado,

Austin, Peirce & Smith, P.C., Daniel J. Sullivan, Aspen, Colorado

Attorneys for Respondents John E. Kelley and Kelly D. Kelley: Gordon & Rees LLP, John R. Mann, Denver, Colorado, James G. Gaspich P.L.L.C., James G. Gaspich, Englewood, Colorado

Attorneys for Respondents Rick Zimmerman and Lora Zimmerman: Frie, Arndt & Danborn P.C., Paul R. Danborn, Arvada, Colorado

Attorneys for Amicus Curiae The Community Associations Institute: Orten Cavanagh & Holmes, LLC, Aaron Goodlock, Denver, Colorado

En banc

JUSTICE HOOD delivered the Opinion of the Court.

¶1 In this case, we must decide whether a developer inadvertently, but inescapably, annexed several individual lots into a statutory common interest community, such that the owners of those lots must pay assessments levied by the community's homeowners association. Ultimately, the answer to this question depends on how the Colorado Common Interest Ownership Act (“CCIOA” or “the Act”), §§ 38–33.3–101 to –402, C.R.S. (2016), applies to the real estate development practice of annexation.

¶2 Ryan Ranch is a residential common interest community located in Jefferson County, Colorado. In 2011, the homeowners association for Ryan Ranch filed a complaint against the owners of several lots abutting Ryan Ranch, seeking more than $75,000 in past-due assessments, penalties, and fees for maintenance services provided by the association. The owners are liable if their lots were validly annexed to Ryan Ranch under CCIOA and the community's governing instruments.

¶3 In a split decision, the court of appeals determined that the lots were not validly annexed because the purported annexation failed to comply with CCIOA. We agree and therefore affirm the judgment of the court of appeals.

I. Facts and Procedural History

¶4 Before 2000, the land that now constitutes Ryan Ranch was owned by the Estate of Robert L. Ryan (“the Estate”) and John Kelley. In 2001, plans to develop the land commenced, and an Official Development Plan (“ODP”) was recorded with the Jefferson County Clerk and Recorder. The ODP listed Kelley and the Estate as owners and Ryan Ranch, LLC—an entity owned by Charles Ochsner¹ —as the developer. The ODP was signed by Ochsner and Kelley and contemplated that a homeowners association would be formed to maintain the development's common areas and facilities. Ochsner later purchased from Kelley and the Estate all of the land that would become Ryan Ranch.

¶5 In early 2003, Ochsner verbally agreed to sell John and Kelly Kelley (“the Kelleys”)² nine lots out of the Ryan Ranch land at a later date, after the development was platted. Seven of these lots (“the Kelley Lots”) are the subject of this case. In the summer of 2003, the Kelleys learned that Ochsner planned to sell most of the Ryan Ranch land to The Ryland Group, Inc. (“Ryland”). Ochsner and Ryland assured the Kelleys that the Kelley Lots would be excluded from the land sold to Ryland and from the homeowners association Ryland intended to form.

¶6 In September 2003, Ochsner and Ryland signed a contract providing for the sale of the Ryan Ranch land to occur in two phases. This agreement specifically excluded the Kelley Lots. The land to be conveyed in each of the two phases would later be platted as Ryan Ranch Filing 1 (“the Filing 1 Plat”) and Ryan Ranch Filing 2 (“the Filing 2 Plat”), respectively.

¶7 In October 2003, Ochsner and the Kelleys again agreed, this time in a signed writing, that the Kelleys would buy the Kelley Lots from Ochsner. Still, the lots would not be conveyed until the Filing 2 Plat was recorded. The sale was scheduled to close on October 15, 2004, which also was the closing deadline for phase two of the Ochsner–Ryland sale, a condition precedent of which was Ochsner's recording of the Filing 2 Plat. In mid-October 2003, the Kelleys and Ryland signed their own agreement providing that the Kelley Lots would not be subject to the maintenance duties of the Association and obligating Ryland to record exclusionary covenants to that effect. However, Ryland never recorded any such covenants.

¶8 Phase one of the Ochsner–Ryland sale culminated on October 29, 2003, when the deed conveying the property in the Filing 1 Plat—fifty-four platted lots and associated common areas—was recorded. The Filing 1 Plat was recorded on November 13, 2003.

¶9 But phase two of the sale faltered when Ochsner failed to obtain approval of the Filing 2 Plat by the October 15, 2004, closing deadline. As a result, the Ochsner–Kelleys sale did not close either. The closing dates for both of these transactions were then extended to June 2005.

¶10 Meanwhile, also in October 2004, Ryland incorporated Ryan Ranch Community Association, Inc. (“the Association”) as the homeowners association for Ryan Ranch. In March 2005, Ryland recorded the Declaration of Covenants, Conditions and Restrictions of Ryan Ranch Community Association (“CCR”). Ryland is the “Declarant” of the CCR. The CCR encumbered “the real property described on the attached Exhibit A” with various “covenants, conditions, restrictions, [and] obligations,” including a duty to pay assessments levied by the Association. The CCR defined the “Community” as “real property described in Exhibit A ... or which becomes subject to this [CCR].” Exhibit A listed the land included in the community as Tracts A, B, C, E, F, and G of the Filing 1 Plat—none of which contained the Kelley Lots—and stated that additional property would be annexed into the community pursuant to article XII, section 5 of the CCR.

¶11 Article XII, section 5 detailed the process by which property described in Exhibit D of the CCR could be annexed into Ryan Ranch.³ Specifically, Ryland had to (1) record a plat or map of the property to be annexed, unless one had been recorded already, and (2) record either a deed conveying that property to a third party or an “Annexation of Additional Land” form. Among the annexable property listed on Exhibit D was a metes and bounds description of a further subdivision of Tract H of the Filing 1 Plat, which would be divided into lots by, and become the land in, the Filing 2 Plat. The Kelley Lots were included in this description.

¶12 As June 2005 approached, Ochsner still had not recorded the Filing 2 Plat. The Kelleys agreed to postpone their June 10 closing date. On June 15, 2005, Ryland agreed to waive its right to condition closing phase two of the Ochsner–Ryland sale on final approval of the Filing 2 Plat and recorded a written instrument stating its intent to purchase all of the land to be included in the Filing 2 Plat except for the Kelley Lots. However, Ochsner and Ryland then changed their agreement such that Ryland would purchase the Kelley Lots as well. The plan was for Ryland to record the Filing 2 Plat and then reconvey the Kelley Lots back to Ochsner, who would sell them to the Kelleys as arranged initially. The Kelleys were not told of this change of plans.

¶13 On June 16, 2005, Ochsner recorded a deed conveying the remaining Ryan Ranch land, including the Kelley Lots, to Ryland (“the phase-two Ochsner–Ryland deed”), thus completing phase two of the Ochsner–Ryland sale. That same day, Ryland signed a deed reconveying the Kelley Lots to Ochsner (“the Ryland–Ochsner deed”) but did not record it. About one week later, Ochsner signed a deed conveying the Kelley Lots to the Kelleys but did not record it.

¶14 On November 17, 2005, Ryland recorded the Filing 2 Plat, which included the Kelley Lots as Lots 1 through 7, Block 13. On December 20, 2005, pursuant to their plan, Ryland recorded the Ryland–Ochsner deed, and Ochsner recorded the deed conveying the Kelley Lots to the Kelleys.

¶15 In June 2006, the Kelleys sold one of the Kelley Lots to a builder who constructed a home on the lot and then sold the lot to Rick and Lora Zimmerman (“the Zimmermans”).

¶16 In September 2010, the Association asserted for the first time that the Kelley Lots had been automatically annexed to Ryan Ranch in December 2005, when Ryland recorded the Ryland–Ochsner deed. The Association demanded that the Kelleys and the Zimmermans (collectively, “Respondents”) pay more than $75,000 in past-due assessments, penalties, and fees for certain maintenance services provided by the Association since December 2005. When Respondents refused to pay, the Association sued them.

¶17 The Association pleaded claims for unpaid assessments, breach of contract, unjust enrichment, and foreclosure of liens it had recorded on the Kelley Lots. Respondents counterclaimed for a declaratory judgment that the Kelley Lots were never annexed to Ryan Ranch. They asserted three reasons for why this was so: (1) Ryland failed to annex the Kelley Lots in compliance with CCIOA, (2) Ryland failed to annex the Kelley Lots in compliance with the CCR, and (3) principles of equitable conversion precluded the transfer of the Kelley Lots in phase two of the Ochsner–Ryland sale, rendering any subsequent annexation invalid.

¶18 After discovery, both sides moved for summary judgment, disputing whether, as a matter of law, the Kelley Lots were annexed to Ryan Ranch. If they were annexed, then they were subject to the CCR and the attendant obligation to pay assessments to the Association; if they were not annexed, Respondents owed the Association nothing. The trial court ruled in the Association's favor, finding that the Kelley Lots were properly annexed and rejecting each of Respondents' three arguments to the contrary. Respondents appealed.

¶19 A division of the court of appeals reversed, with a majority of the judges embracing Respondents' argument that the Kelley Lots were not annexed in compliance with CCIOA. Ryan Ranch Cmty. Ass'n v. Kelley, 2014 COA 37M, ...