DA Mountain Rentals, LLC v. Lodge at Lionshead Phase III Condo. Ass'n Inc.

409 P.3d 564

DA MOUNTAIN RENTALS, LLC, a Nebraska limited liability company, Plaintiff-Appellant and Cross-Appellee,

v.THE LODGE AT LIONSHEAD PHASE III CONDOMINIUM ASSOCIATION INC., a Colorado not-for-profit corporation, a/k/a the Lodge at Lionshead III Condominium Association, a Colorado not-for-profit corporation, Defendant-Appellee and Cross-Appellant.

Court of Appeals Nos. 14CA2195 & 15CA0203

Colorado Court of Appeals, Div. I.

Announced October 6, 2016

Boyle/Apelman PC, Terence P. Boyle, Mark Apelman, Denver, Colorado, for Plaintiff-Appellant and Cross-Appellee

Nemirow Perez P.C., Miles L. Buckingham, Ronald Nemirow, Lakewood, Colorado, for Defendant-Appellee and Cross-Appellant

Opinion by JUDGE MILLER

¶ 1 Plaintiff-appellant and cross-appellee, DA Mountain Rentals, LLC (DA), appeals the district court's summary judgment in favor of defendant-appellee and cross-appellant, The Lodge at Lionshead Phase III Condominium Association Inc., a/k/a the Lodge at Lionshead III Condominium Association (Association), and the court's order denying DA's C.R.C.P. 37 motion for attorney fees. The Association cross-appeals the district court's entry of three discovery orders.

¶ 2 This case concerns amendments (2012 Amendments) to the Condominium Declaration for the Lodge at Lionshead III (Declaration) establishing a condominium community (Community) in Vail. The Declaration was recorded many years before the enactment of the Colorado Common Interest Ownership Act (CCIOA), sections 38-33.3-101 through 38-33.3-402, C.R.S. 2016. A supermajority of the members of the Association voted to adopt the 2012 Amendments. The Association claims that CCIOA authorizes their adoption. DA, however, contends that the 2012 Amendments conflict with the express terms of a proviso in the provision of the Declaration governing the procedure for adopting amendments. That proviso specifies that certain rights created by the Declaration—including the allocated ownership interest of each unit—are permanent in nature and may not be altered without the unanimous consent of the owners of units and their first mortgagee lenders (Lenders).

¶ 3 We conclude that (1) CCIOA does not authorize the amendment that would delete that proviso and allow the alteration of such rights without the requisite unanimous consent of members and Lenders; (2) the 2012 Amendments are therefore invalid to the extent they conflict with the proviso; and (3) the 2012 Amendments regarding obsolescence and the creation of a mandatory buyout provision are valid.

¶ 4 In its cross-appeal, the Association challenges the district court's order of the disclosure and production of documents from the file of the attorney who assisted the Association's board of directors in developing and drafting the 2012 Amendments and the court's denial of a related motion for protective order. The Association contends that the documents in the file were both privileged and irrelevant. We conclude that the court did not abuse its discretion by entering these orders.

¶ 5 We accordingly affirm in part, reverse in part, and remand to the district court for further proceedings.

I. Background

A. Adoption of the 2012 Amendments

¶ 6 The Community consists of twelve units. The Community is governed and operated by the Association in accordance with its governing documents, including, as relevant here, the Declaration. The owners of the units are members of the Association. Each member also owns a percentage of undivided interest in the general common elements (GCE) of the Community, which are defined in the Declaration as "the real property hereby submitted to condominium ownership ... EXCEPT the Units." The definition provides examples of the GCE, including the foundations, main walls, roofs, halls, lobbies, stairs, yards, gardens, parking areas, and installations of central services such as power, lights, gas, and water. The Declaration assigns each unit owner a percentage ownership in the GCE. The members cast votes on Association matters and share expenses in accordance with their respective ownership percentages. DA owns one of the condominium units and is thereby a member of the Association.

¶ 7 The Declaration was recorded in 1978, and paragraph 18 provides that the "Declaration may be amended by Owners representing sixty percent (60%), or more, of the [GCE] consenting and agreeing to such amendment by written instruments duly recorded." This language is followed by an important proviso:

provided, however, that the undivided interests in and to the [GCE] appurtenant to each Unit and the provisions of this Declaration governing the sharing of common expenses shall have a permanent character and shall not be altered without the consent of all of the Unit Owners and their first mortgagees of record[.]

Thus, while this paragraph generally authorizes amendments to the Declaration by a sixty percent vote of member interests, the proviso expressly prohibits any alteration of the undivided interests in the GCE or the sharing of common expenses without the unanimous consent of the members and of their Lenders. In addition, other provisions of the Declaration require the unanimous approval of the Lenders for renovation or redevelopment and the agreement of unit owners representing eighty percent of the GCE interests for renovation and eighty-five percent for sale of the complex.

¶ 8 In 2012, the members voted on the 2012 Amendments, which had been proposed by the Board of Directors (Board) after years of study. Section 13.1 of the 2012 Amendments would revise the procedure for amending the Declaration, stating in its entirety: "This declaration may be amended by the affirmative vote of the Unit Owners holding at least 67% of the total Association vote." The unanimous member and lender consent requirements of the paragraph 18 proviso would therefore be eliminated. Other parts of the 2012 Amendments would eliminate lender consent requirements regarding obsolescence (sections 10.1(a)–(b)) and institute a "mandatory buyout" provision (section 10.1(c)) requiring the Association to purchase the units of owners who are not eligible to vote, who do not vote, or who vote against any proposal determining the obsolescence of the condominium complex.

¶ 9 Members constituting approximately seventy-four percent of the GCE interests voted in favor of the 2012 Amendments, thus exceeding the sixty percent requirement of paragraph 18 of the Declaration. Before the Association recorded the 2012 Amendments with the county, however, DA sought a declaratory judgment in district court that the 2012 Amendments were invalid because they violated the terms of the Declaration. Because of the lawsuit, the Association has not recorded the 2012 Amendments, and they consequently are not yet effective. See § 38-33.3-217(3), C.R.S. 2016.

B. Disclosures and Discovery

¶ 10 The parties made C.R.C.P. 26(a)(1) disclosures in the district court, but the Association did not disclose documents that it claimed were privileged. DA filed a motion to compel the Association to produce a privilege log of the Association's attorneys' documents, which the court granted in December 2012. The Association complied with the order and produced the log, and DA requested disclosure of communications between the Association's lawyers and the Board and Board committees. The Association asserted that the documents were privileged and not relevant. DA then filed a motion to compel production of all the logged documents, and the Association filed a motion for a protective order. The district court granted DA's motion and denied the Association's motion. Finally, DA filed a motion pursuant to C.R.C.P. 37, requesting costs and attorney fees related to its two motions to compel and the Association's motion for a protective order. The district court denied this motion.

C. C.R.C.P. 56 Motions

¶ 11 Shortly after the court granted DA's second motion to compel and denied the Association's motion for a protective order, the Association filed a motion for determination of law pursuant to C.R.C.P. 56(h) to determine the validity of the 2012 Amendments. The court granted the Association's motion and determined that (1) the 2012 Amendments had been validly adopted and (2) the sixty-seven percent voting requirement they imposed did not violate the terms of the Declaration or CCIOA. The Association next filed a motion for summary judgment under C.R.C.P. 56(b) to resolve the remaining legal issues surrounding the provisions of the 2012 Amendments eliminating the lender approval requirements and providing for mandatory buyouts. The court granted this motion as well.

D. The Appeals

¶ 12 DA filed two appeals. In the first, 14CA2195, DA argues that the district court erred by granting the Association's Rule 56 motions. The second appeal, 15CA0203, challenged two post-judgment district court orders relating to attorney fee and cost awards. The Association moved to dismiss the second appeal because the determination of the attorney fee issue was not completed by the district court and was not a final judgment appropriate for our review. Another division of this court partially granted the motion and (1) dismissed the portion of the appeal that sought review of the district court's order granting the Association's attorney fees as the prevailing party and setting it for a hearing after mandate and (2) denied the motion as to DA's argument that the district court improperly denied its motion for attorney fees as a sanction for alleged discovery violations under Rule 37(a)(4). The division also consolidated the two cases.

¶ 13 On cross-appeal, the Association argues that the court erred by granting DA's motions to compel and denying its motion for a protective order.

¶ 14 We turn first to the question of the validity of the 2012 Amendments.

II. Validity of the 2012 Amendments

¶ 15 DA argues that the district court erred when it granted the Association's two Rule 56 motions because (1) the court incorrectly held that ...