Skyland Metro. v. Mountain West Enterprise

• Decision Date: 14 June 2007
• Docket Number: No. 04CA2605.,04CA2605.
• Citation: 184 P.3d 106
• Parties: SKYLAND METROPOLITAN DISTRICT, a Colorado special district; and East River Regional Sanitation District, a Colorado special district, Plaintiffs-Appellees and Cross-Appellants, v. MOUNTAIN WEST ENTERPRISE, LLC, a Colorado limited liability company; and Daniel Gallagher, Defendants-Appellants and Cross-Appellees.
• Court: Colorado Court of Appeals

184 P.3d 106

SKYLAND METROPOLITAN DISTRICT, a Colorado special district; and East River Regional Sanitation District, a Colorado special district, Plaintiffs-Appellees and Cross-Appellants, v. MOUNTAIN WEST ENTERPRISE, LLC, a Colorado limited liability company; and Daniel Gallagher, Defendants-Appellants and Cross-Appellees.

No. 04CA2605.

Colorado Court of Appeals, Div. II.

June 14, 2007.

Bailey & Peterson, P.C., James S. Bailey, Jr., Randall M. Livingston, Denver, Colorado, for Plaintiffs-Appellees and Cross-Appellants.

Holland & Hart, LLP, Elizabeth A. Phelan, Boulder, Colorado, Meghan N. Winokur, Denver, Colorado, for Defendants-Appellants and Cross-Appellees.

Opinion by Judge LOEB.

Defendants, Mountain West Enterprise, LLC (Mountain West), and Daniel Gallagher (Gallagher) (collectively, the developers), appeal from the judgment enforcing statutory liens against their property in favor of plaintiffs, Skyland Metropolitan District (Skyland) and East River Regional Sanitation District (East River) (collectively, the districts). The developers also appeal those aspects of the judgment dismissing their counterclaims and awarding attorney fees against them. The districts cross-appeal various aspects of the judgment as well as the trial court's order approving the developers' supersedeas bond. We affirm in part, reverse in part, and remand with directions.

I. Facts and Procedural History

Skyland and East River are special districts, created pursuant and subject to the provisions of § 32-1-101 et seq., C.R.S.2006, the Special District Act (the Act). Skyland and East River are water and sanitation districts located in Gunnison County, and assess user fees and availability of service or facilities fees (ASF) for water and sewer services under article 4 of the Act. Districts may assess ASF on undeveloped property where water or sewer lines are installed and ready for connection to within 100 feet of the property line of the assessed property. User fees are assessed on developed property. When a builder taps in and connects to a district's water system, the district's charges change from ASF to user fees.

User fees are based on the number of Equivalent Residential Units (EQR), defined as a single family house with one kitchen and three bathrooms. ASF are also based on the number of the developable EQR, but statutorily cannot be more than 50% of a district's user fees. See § 32-1-1006(1)(h)(I)(E), C.R.S.2006.

In 1989, both Skyland and East River issued general obligation bonds. In 1993, neither district could pay its bond debt. The districts restructured their debts through limited tax, general obligation bonds. Subsequently, Skyland paid down its bonds considerably, and East River paid off its bonds in 2001.

After paying off its bonds, East River entered into a Lease Purchase Agreement in 2001, to finance acquisition of an office building and construction of other improvements. East River was to repay the lessor with interest over a three-year period, but its yearly obligation to pay was expressly subject to the discretion of East River's board to make annual appropriations to cover the interest payments.

Multifamily Tract Four, the subject of this action, is a tract of land within the boundaries of Skyland and East River. It was originally platted for 65 units, of which 28 were developed by Blanton, a previous owner of the property. In 1996, Blanton obtained approval from the county to reduce the density of the remaining units from 37 to 31 units.

In May 2000, Gallagher purchased the undeveloped portion of Tract Four from Colorado Mortgage Company, which had acquired the property from Blanton in March 2000, following a foreclosure. The ASF fees were paid up when Gallagher acquired title.

Gallagher first received bills for ASF from the districts in June 2000, in the form of a postcard stating the amount due. The bills were significantly higher than Gallagher expected, and he called the districts' manager to discuss them. Discussions between the developers and the districts about whether the ASF bills were correct continued over several months. The districts' financial records reflect that the total number of units in Tract Four was calculated at 37 until August 2001.

In November 2000, Gallagher conveyed two parcels within Tract Four to Mountain West, a Colorado limited liability company, of which he and another developer were the members. Mountain West began construction of a triplex on that land (the three units), leaving one unit on the land undeveloped. In order to obtain a tap into the districts' services, the developers paid tap fees and all outstanding ASF in October 2000 and February 2001. After this, the developers paid no more ASF on any land in Tract Four.

In April 2001, construction on the three units was completed, the districts began charging user fees on that developed property, and the units previously subject to ASF were reduced by three.

In May 2001, the developers notified the county that they intended to develop only 25 units rather than 31. In August 2001, the county acknowledged the reduction to 25 units.

In September 2001, the districts wrote letters to Gallagher demanding payment of unpaid ASF and user fees and stating the districts' lien rights to enforce collection. During the last quarter of 2001, the districts adjusted the number of units subject to ASF fees to 22 units, taking into account that the three units had been developed. However, the districts and the developers continued to disagree over whether the districts' bills were accurate.

In January 2002, Mountain West sold Unit No. 1 of the three units to Gallagher to use for a model home. When the developers received a statement of ASF and user fees at closing, they believed the charges were excessive, and they placed $8,012 in escrow with the title company, with instructions to disburse the funds when the districts sent a corrected bill.

In July 2002, the title company offered to disburse funds to the districts, based on their bills, but the districts requested them not to do so, because the developers and the districts were still in discussions over the correct amount of the bills.

In August 2002, the districts recorded a notice and statement of lien on the developers' real property in Tract Four in the real property records of the county. On September 10, 2002, the districts filed a complaint in district court seeking a decree that their liens were valid, that the liens be foreclosed, and that the property be sold at public sale to satisfy the liens.

On October 17, 2002, the developers filed an answer and counterclaims. In the counterclaims, the developers asked for an accounting, asserting, inter alia, that the districts had charged developers for more units than were approved by the county, had charged ASF fees in excess of statutory limits, and had charged attorney fees and costs that were not reasonable or necessary. The developers requested a declaratory judgment and injunction relating to the amount of ASF and late fees the districts could charge. The developers also claimed damages for unjust enrichment by the districts as a result of overpayments made both by them and by the previous owners. Finally, the developers asserted a claim for damages, alleging that the districts had filed a spurious lien against their property.

The case was tried to the court in August 2003. In December 2003, the trial court issued its Findings of Fact, Conclusions of Law, and Judgment. As pertinent here, the trial court found and concluded that the districts had improperly calculated their ASF; the districts were required to use amended budgets to calculate ASF; the Lease Purchase Agreement was indebtedness for which ASF could be assessed; property covered by the three units was subject to a lien for costs and attorney fees to collect user fees that had been paid in full by the time of trial; the voluntary payment rule barred the developers' counterclaims for credit or refund of excessive ASF; the statute of limitations barred the developers' counterclaim for credit or refund of excessive ASF; the Colorado Governmental Immunity Act barred the developers' spurious lien counterclaim; and the districts had substantially prevailed in the action and were entitled to an award of costs and attorney fees.

In so ruling, the trial court calculated Skyland's assessed ASF for 2001, and also found that Skyland could not assess ASF for 2002 or 2003. The trial court found that East River could not assess ASF for 2001, and calculated East River's ASF for 2002 and 2003. The trial court ordered the districts to file an accounting, specifying the amount of unpaid ASF for which they sought foreclosure, as well as an itemized statement of costs and attorney fees, allocated separately between their claims for ASF and user fees.

Immediately after the trial court entered its judgment, both districts prepared an amended budget for 2003, in which they adopted a resolution that specifically allocated their taxes for 2003 to pay for operations and maintenance expenses, contrary to their original 2003 budgets, which had allocated taxes to pay debt service.

In December 2003, the districts filed a motion to alter or amend the judgment, pursuant to C.R.C.P. 59, and tendered their amended budgets to the trial court as exhibits. In the motion, the districts asked the trial court to recognize that the districts had allocated their tax revenues through their budgets primarily to pay for operations and maintenance, and asked the court to change its ASF calculation and not require allocation of attorney fees. Also, because the trial court had directed that ASF be calculated based on an amended budget, the districts asked the trial court to use their 2003 amended budgets to calculate ASF for that year. The developers responded, challenging the districts' method of calculating ASF and their belated attempt to use the 2003 amended budgets.

In February 2004...