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- May 26, 2015
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Palumbo Lawyers is pleased to report its recent victory in the Colorado Court of Appeals in favor of our client Metropolitan Homes and all builders and developers in the state of Colorado. On May 7, 2015, the Court issued its Opinion in Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al, 2015COA65, reversing, in pertinent part, the Denver District Court’s order denying Metropolitan’s motion to compel arbitration in this construction defect action filed by the Vallagio at Inverness Association.
Over the last several years, builders, developers, legislators and even local municipalities throughout Colorado have been consistently exploring ways to uphold a declarant’s intent to arbitrate construction defect claims in an effort to limit the impact of costly construction defect litigation on the availability of multi-family for-sale housing products in the state. Most recently, only one week before the Court’s decision was issued in Vallagio, Senate Bill 177 – which would have upheld the arbitration provisions intended by the declarant and also required a majority of unit owners in a multi-family development to vote in favor of pursuing litigation (among other important requirements) – failed to pass through the responsible committee of the House of Representatives. As such, the Vallagio ruling is very good news for Colorado because builders and developers now have a clear path to expressly protect their ability to arbitrate construction defect claims.
At issue in Vallagio was enforcement of a mandatory arbitration provision in the project’s original declaration which required arbitration of construction claims against the developer/declarant. The Court agreed with Palumbo Bergstrom’s argument that, contrary to the lower court’s ruling, the declaration unambiguously required declarant’s consent to amend the arbitration provision, which the Association did not obtain. The Court rejected the Association’s argument, and the lower court’s ruling, that the original declaration was properly amended through a 67% unit owner vote to eliminate the mandatory arbitration provision.
The Vallagio Court further held for the first time in a published opinion that such a declarant consent provision was not void under the Colorado Common Interest Ownership Act (“CCIOA”). The Association argued that the declarant consent provision violated four separate provisions of CCIOA. However in each instance, the Court agreed with our arguments that the declarant consent provision was compliant with CCIOA. In particular, the Court of Appeals held:
CCIOA endorses the use of alternative dispute resolution and specifically allows declarations to mandate binding arbitration. See § 38-33.3-124(3), C.R.S. 2014 (“The declaration . . . may specify situations in which disputes shall be resolved by binding arbitration.”); § 38-33.3-124(1)(a)(II) (“The general assembly hereby specifically endorses and encourages associations, unit owners, managers, declarants, and all other parties to disputes arising under this article to agree to make use of all available public or private resources for alternative dispute resolution.”). Given this statutory language and the public policy in Colorado favoring arbitration, see City & Cnty. of Denver, 939 P.2d at 1353, 1362, we cannot say that the declarant consent requirement in this case “evade[s] the limitations or prohibitions” of CCIOA, § 38-33.3-104.
While the Vallagio ruling may still be the subject of a petition for rehearing in the Court of Appeal and/or a Writ of Certiorari to the Colorado Supreme Court, we are optimistic that the Court’s opinion, through its thorough analysis and holdings on the issues subject to appeal, will be upheld.
Special thanks goes out to Metropolitan Homes and its insurers for their commitment to this appeal, to Marisa Ala and Mary Ritchie of Palumbo Lawyers’s Denver office for their hard work on the appellate briefs, and to all of the Colorado builders, developers and organizations that supported the appeal of this very important issue through the Amicus Brief.