Todd Creek Vill. Metro. Dist. v. Valley Bank & Trust Co.

• Decision Date: 21 November 2013
• Docket Number: Court of Appeals No. 12CA1302
• Citation: 2013 COA 154
• Parties: Todd Creek Village Metropolitan District, Plaintiff-Appellee, v. Valley Bank & Trust Company, Defendant-Appellant.
• Court: Colorado Court of Appeals

2013 COA 154

Todd Creek Village Metropolitan District, Plaintiff-Appellee,

v.Valley Bank & Trust Company, Defendant-Appellant.

Court of Appeals No. 12CA1302

COLORADO COURT OF APPEALS

Announced November 21, 2013

Adams County District Court No. 11CV1227

Honorable Robert W. Kiesnowski, Judge

JUDGMENT REVERSED AND CASE

REMANDED WITH DIRECTIONS

Division VI

Opinion by JUDGE ROTHENBERG*

Dailey and Gabriel, JJ., concur

Carver Schwarz McNab Kamper & Forbes, LLC, Peter C. Forbes, Denver, Colorado, for Plaintiff-Appellee

Snell & Wilmer L.L.P, Michael E. Lindsay, Jessica E. Yates, Denver, Colorado, for Defendant-Appellant

Hogan Lovells US LLP, Craig A. Umbaugh, David A. DeMarco, Denver, Colorado, for Amicus Curiae Colorado Bankers Association

Heizer Paul LLP, Dean C. Heizer, Denver, Colorado, for Amicus Curiae Colorado Municipal Bond Dealers Association

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art. VI, § 5(3), and § 24-51-1105, C.R.S. 2013.

¶1 At issue in this appeal is whether the plaintiff, Todd Creek Village Metropolitan District (the special district), had the constitutional and statutory authority to enter into loans and security agreements with the defendant, Valley Bank & Trust Company (the bank), and to pledge the district’s assets as collateral. Because we conclude the special district had such authority, we reverse the judgment invalidating the loan and security agreement executed by the special district.

I. Background

¶2 The parties stipulated to the salient facts. The special district is located near Brighton in Adams County and was formed in 1996. As required by the Special District Act, sections 32-1-101 to -1807, C.R.S. 2013, the special district submitted a service plan to the Adams County Board of Commissioners. This service plan generally outlined the special district’s financial plan and its proposed methods of raising revenue.

¶3 The special district also submitted fifteen ballot questions to its eligible electors, all of which were approved. One of the ballot questions proposed that the special district raise $5 million in “general obligation debt or other obligations.”

¶4 In 2000, the special district modified its service plan and submitted additional ballot questions to its voters which provided for additional financing primarily through the use of revenue bonds.

¶5 In 2003, the bank and the special district entered into a loan agreement for $600,000. The loan proceeds were used primarily to fund the costs of constructing a reverse osmosis water treatment facility and lift station, to construct a non-potable water distribution line, and make other improvements to the Smith Reservoir.

¶6 In 2004, the special district executed and delivered to the bank a $1.4 million line-of-credit promissory note with a one-year maturity date (the loan). The loan was secured by a deed of trust that encumbered real property owned by the special district, including two reservoirs, one well site, and four easements. Immediately after executing the 2004 loan, the bank advanced on its line-of–credit to pay off the 2003 promissory note. Thus, the 2004 loan was basically a refinancing of the transaction that had used the bank’s funds to purchase the reverse osmosis water treatment facility and lift station, and to defray certain of the special district’s operating costs.

¶7 During the next seven years, the loan was extended and modified, and at various times, the parties agreed to substitutions of the collateral that secured the loan.

¶8 By December 1, 2011, the amount owed to the bank was slightly less than $1 million with interest accruing at approximately $200 per day. However, in late 2011, the parties were unable to agree to the terms of an extension. The special district filed this action seeking a declaratory judgment that the loans were invalid and did not need to be repaid because they violated the special district’s service plan and the requirements of Colo. Const. art. XI, section 6. The district court agreed and granted the special district’s request for declaratory judgment.

II. Issues Presented

¶9 Three issues are raised in this appeal: (1) whether Article XI, section 6(1) of the Colorado Constitution requires that a municipal district seeking voter approval of a general obligation debt must identify the specific collateral that will be pledged to secure the debt; (2) the extent to which a special district’s financing arrangements must be provided for in the special district’s service plan; and (3) the nature of equitable relief that may be awarded to a lender where the loans incurred by a special district amounted to constitutionally impermissible general obligation debt, in contravention of Article XI, section 6(1) of the Colorado Constitution.

III. Standard of Review

¶10 All of the relevant determinations made by the district court involved questions of law, and therefore our review is de novo. Danielson v. Dennis, 139 P.3d 688, 691 (Colo. 2006) (applying de novo review to question of constitutional interpretation); Plains Metro. Dist. v. Ken-Caryl Ranch Metro. Dist., 250 P.3d 697, 699 (Colo. App. 2010) (“The trial court’s ruling . . . rested on an interpretation of both this specific service plan and the law governing special districts. Our review of both points is de novo.”). Hence, we apply time-honored principles of statutory interpretation.

¶11 We first determine whether the statute or constitutional provision has a plain and unambiguous meaning. Bruce v. City of Colorado Springs, 129 P.3d 988, 992 (Colo. 2006). We read the statutory scheme as a whole to give “consistent, harmonious[,] and sensible effect to all of its parts.” Colo. Water Conservation Bd. v. Upper Gunnison River Conservancy Dist., 109 P.3d 585, 593 (Colo. 2005) (internal quotation marks omitted); see also Havens v. Bd. of Cnty. Comm’rs, 924 P.2d 517, 523 (Colo. 1996). We also “consider the purposes which the law was designed to accomplish and the consequences that would flow from alternate constructions, and then adopt the construction that results in harmony rather than inconsistency.” Id. (citing Colorado-Ute Elec. Ass’n, Inc. v. Pub. Utils. Comm’n of Colo., 760 P.2d 627, 635 (Colo. 1998)).

IV. Requirement of Colorado Constitution

¶12 The bank first contends the district court erred in concluding the loans made to the special district and the security agreements that it signed are invalid because they were not submitted to the voters in accordance with the Colorado Constitution. We agree.

¶13 Colo. Const. art. XI, section 6(1) requires that local government authorities receive voter approval before they may issue general obligation debt and provides:

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. . . . [N]o such debt shall be created unless the question of incurring the same shall be submitted to and approved by a majority of the qualified taxpaying electors voting thereon, as the term “qualified taxpaying elector” shall be defined by statute.

¶14 Here, it is undisputed that (1) the board of the special district adopted a measure approving the debt; (2) the ballot issue specified the purposes of the debt; and (3) the voters approved the ballot issue. Nevertheless, the special district maintains that the ballot approval was insufficient. According to the special district, section 6 requires the district to identify the particular assets it intended to pledge to secure the loan along with the general obligation debt, and therefore, the pledges made by the special district of public assets to collateralize the loan were invalid. We are not persuaded.

¶15 We are unaware of any published opinion in Colorado that has addressed this issue. Thus, we begin by examining the plain language of the constitutional provision at issue.

¶16 Section 6(1) requires that voters be informed that a tax levy will be imposed to fund the debt assumed by the special district, but it does not expressly require that the ballot initiative identify the “revenue, assets, or funds as may be pledged.” It states that the collateral, together with the tax levy that is provided for in the ballot initiative, shall be sufficient to pay the interest and principal of the debt.

¶17 The 1996 ballot informed the special district’s electors that, if approved by them, the special district’s debt would

be increased up to $5,000,000 with a maximum repayment cost of up to $23,000,000 . . . and [the district’s] taxes [would] be increased $5,900,000 annually, or by such lesser amount as may be necessary to provide for the payment of such debt; such debt to be evidenced by general obligation bonds or other obligations . . . such bonds or other obligations being payable from ad valorem property taxes levied against all taxable property within the district by a mill levy imposed without limitation of rate and in amount sufficient, together with other legally available revenues of the district, to pay the principal and interest on the bonds or other obligations in every year. . . .

(Emphasis added.)

¶18 Relying on Gude v. City of Lakewood, 636 P.2d 691, 697 (Colo. 1981), and McNichols v. City & Cnty. of Denver, 123 Colo. 132, 13940, 230 P.2d 591, 594-95 (1950) (McNichols II), the special district argues that the security agreements created a debt for the purposes of section 6, and that this debt was not authorized by the ballot question. We are not persuaded.

¶19 Gude and McNichols II stand for two general principles. First, voter approval is not required for “revenue bonds” which are unlike general...