Decision Date01 May 2017
Docket NumberSupreme Court Case No. 15SC513
Citation2017 CO 38
PartiesPetitioners: Mac McShane and Cynthia Calvin, v. Respondent: Stirling Ranch Property Owners Association, Inc.
CourtColorado Supreme Court

Opinions of the Colorado Supreme Court are available to the public and can be accessed through the Judicial Branch's homepage at http://www.courts.state.co.us. Opinions are also posted on the Colorado Bar Association's homepage at http://www.cobar.org.


Exemption from LiabilityExculpatory ContractsCorporation as Distinct EntityCorporate Actions through AgentsVicarious Liability.

The supreme court addresses whether a homeowners association may benefit from exculpatory clauses in the community's declaration and bylaws when those clauses do not name the association as a protected party. Because the plain language of the exculpatory clauses at issue in this case does not limit the association's liability, and the association, as an entity distinct from internal boards acting as its agents, cannot benefit from exculpatory clauses protecting those agents, the supreme court concludes the petitioners may bring their claims against the association.

Certiorari to the Colorado Court of Appeals

Court of Appeals Case No. 14CA248

Judgment Reversed

en banc

Attorneys for Petitioners:

Neiley Law Firm, LLC

Richard Y. Neiley, Jr.

Richard Y. Neiley, III

Glenwood Springs, Colorado

Attorneys for Respondent:

Hall & Evans, L.L.C.

Alan Epstein

Lance G. Eberhart

Timothy M. Murphy

Denver, Colorado

JUSTICE HOOD delivered the Opinion of the Court.

JUSTICE EID dissents, and JUSTICE MÁRQUEZ joins in the dissent.

¶1 Petitioners Mac McShane and Cynthia Calvin had once hoped to build a multistory home overlooking the Roaring Fork Valley near Carbondale. After belatedly discovering their design for that home exceeded Garfield County height regulations, however, they ended up with something less: a one-story home and an attached "pod." Making the required changes proved costly.

¶2 Today, we decide whether McShane and Calvin can seek to assign any of those costs to the Stirling Ranch Property Owners Association ("POA"), which they allege improperly approved the faulty architectural plans and then later improperly denied approval of revised plans as well. Because the plain language of the declaration and design guidelines governing Stirling Ranch properties does not limit the POA's liability, and the POA cannot benefit from exculpatory clauses protecting its boards and agents, we conclude McShane and Calvin may bring their claims.

I. Facts and Procedural History

¶3 Mac McShane and his wife Cynthia Calvin (collectively, "the Owners") purchased a lot in Stirling Ranch, a planned unit development in Garfield County, seeking to build a home atop a bluff surveying the Roaring Fork Valley.

¶4 Their conflict with the POA concerns the rules and regulations governing properties in that community, including the Second Amended and Restated Declaration of Covenants, Conditions, Restrictions and Easements for Stirling Ranch, P.U.D. ("Declaration"). The Owners' lot is subject to the Declaration. The Declaration created the POA. Each lot owner within Stirling Ranch is a member of the POA. The POA is inturn governed by the Executive Board, which appoints the Design Review Board ("DRB").

¶5 The DRB promulgated and enforced the Stirling Ranch Design Guidelines ("Design Guidelines") intended to preserve "the Ranch's unique character, . . . natural beauty and . . . the quality of open space." Under those guidelines, all improvements require DRB approval to proceed. And to win DRB approval, the improvements must comply with both the Design Guidelines and Garfield County height restrictions.

¶6 After first submitting plans to the DRB in 2010, the Owners sought approval of them in earnest in 2011. Their architect drafted a cover sheet to accompany those plans, and in it he averred that the house would comply with Garfield County height restrictions. "This," the trial court noted, "later proved to be incorrect."

¶7 Relying in part on the representation in the cover sheet, the DRB granted final design approval for the multistory home, and the Owners began building. Construction proceeded without issue until December 2011, at which point the neighboring lot owners returned from a vacation to find the Owners' partly finished garage spoiling their view. As members of both the Executive Board and the DRB were working to resolve that issue, Garfield County learned the house would exceed its height restrictions and issued a stop-work order. Work stopped.

¶8 In the months that followed, the Owners secured a new architect who revised the design but retained a second story. Garfield County approved those plans, but the DRB and Executive Board did not. After another round of redesigns, in which the multistoryproposal became a single-story design with an attached "pod," the DRB approved the plans, and the Owners built the home as designed.

¶9 Because the Owners blamed the POA for the costs associated with the single-story conversion, they filed suit. The Owners pursued declaratory judgment/equitable estoppel and negligence claims against the POA, alleging more than $260,000 in damages. Pointing to two exculpatory clauses, one in the Declaration and another in the Design Guidelines, the POA argued those claims were barred.

¶10 The clause in the Declaration provided as follows:

The Design Review Board will use reasonable judgment in accepting or disapproving all plans and specifications submitted to it. Neither the Design Review Board nor any individual Design Review Board member will be liable to any person for any official act of the Design Review Board in connection with submitted plans and specifications, except to the extent the Design Review Board or any individual Design Review Board member acted with malice or intentional wrongful acts. Approval by the Design Review Board does not necessarily assure approval by the appropriate governmental body or Garfield County. Notwithstanding that the Design Review Board has approved plans and specifications, neither the Design Review Board nor any of its members will be responsible or liable to any Owner, developer or contractor with respect to any loss, liability, claim or expense which may arise by reason of such approval of the construction of the improvements. Neither the Executive Board, the Design Review Board, nor any agent thereof, nor Declarant, nor any of its partners, employees, agents or consultants will be responsible in any way for any defects in any plans or specifications submitted, revised or approved in accordance with the provisions of the Association Documents, nor for any structural or other defects in any work done according to such plans and specifications. In all events the Design Review Board will be defended and indemnified by the Association in any such suit or proceeding, which may arise by reason of the Design Review Board's decisions.

¶11 Section II.D of the Design Guidelines1 contained the following exculpatory provision:

Neither the DRB nor any member of the DRB will be liable to the POA, any owner or any other person for any damage, loss or prejudice suffered or claimed on account of:
1. Approving or disapproving any plans, specifications and other materials, whether or not defective;
2. Constructing or performing any work, whether or not pursuant to approved plans, specifications and other materials;
3. The development or manner of development of any land within Stirling Ranch;
4. Executing and recording a form of approval or disapproval, whether or not the facts stated therein are correct; and
5. Performing any other function pursuant to the provisions of these Guidelines or the Declaration.

¶12 Reviewing those provisions, both the trial court and the court of appeals concluded the exculpatory clauses, while not specifically naming the POA, barred the Owners' declaratory judgment/equitable estoppel and negligence claims.

¶13 The trial court concluded that the exculpatory clauses were valid and protected the POA. The court first considered the four factors we articulated to analyze an exculpatory agreement's validity in Jones v. Dressel, 623 P.2d 370, 376 (Colo. 1981): (1) the existence of a duty to the public; (2) the nature of the service performed; (3) whether the contract was fairly entered into; and (4) whether the intention of theparties is expressed in clear and unambiguous language. Applying those factors, the trial court concluded the clauses were valid. It then went on to reason that the clauses protected the POA under these circumstances because the Owners based their claims against the POA on the actions of the protected boards.

¶14 The court of appeals adopted a similar position and affirmed the trial court's decision. The division below first concluded that the POA and its boards were a single legal entity and thus appears to have assumed that if the exculpatory clauses were valid as to the boards, they would protect the POA as well. The division then addressed each of the Jones factors, finding that (1) design approval under the Design Guidelines was not a matter of public concern; (2) design approval was not an unavoidable practical necessity; (3) the exculpatory agreements were not unfairly agreed upon; and (4) the clauses' plain language released the boards from liability, so the parties' intent was clear. Thus, the division ultimately concluded that the clauses validly exculpated the boards and therefore exculpated the POA as well.

¶15 We granted the Owners' petition asking us to review the judgment of the court of appeals.2

II. Standard of Review and Rules of Declaration andBylaw Construction

¶16 We review the interpretation of covenants and other recorded instruments de novo, as we would a contract. Pulte Home Corp. v. Countryside Cmty. Ass'n, 2016 CO 64, ¶ 23, 382 P.3d 821, 826. In doing so, we look first to the documents' plain language, giving words and phrases their common meanings. Id. We will...

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