{"id":886313,"date":"2016-01-06T11:42:35","date_gmt":"2016-01-06T18:42:35","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=886313"},"modified":"2016-01-06T11:42:35","modified_gmt":"2016-01-06T18:42:35","slug":"9-vallagio-v-metropolitan-homes-the-colorado-court-of-appeals-decision-protecting-a-declarants-right-to-arbitration-in-construction-defect-cases","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/9-vallagio-v-metropolitan-homes-the-colorado-court-of-appeals-decision-protecting-a-declarants-right-to-arbitration-in-construction-defect-cases\/","title":{"rendered":"#9 &#8211; Vallagio v. Metropolitan Homes: The Colorado Court of Appeals&#8217; Decision Protecting a Declarant\u2019s Right to Arbitration in Construction Defect Cases"},"content":{"rendered":"<p>David M. McLain | Higgins, Hopkins, McLain &amp; Roswell, LLC | May 13, 2015<\/p>\n<p>On May 7<sup>th<\/sup>, the Colorado Court of Appeals issued its much anticipated ruling in <u>Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., <em>et al.<\/em><\/u>, 2015COA65 (Colo. App. May 7, 2015).\u00a0 By way of background, the Vallagio at Inverness Residential Condominiums were developed by Metro Inverness, LLC, which also served as the declarant for its homeowners association. Metropolitan Homes was Metro Inverness\u2019 manager and the general contractor on the project. Greg Krause and Peter Kudla served as declarant-appointed members of the Association\u2019s board during the period of declarant control.<\/p>\n<p>When it set up the Association, Metro Inverness included within the Association\u2019s declaration a mandatory <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/arbitration-a-comparison-of-the-pros-and-cons\/\" target=\"_blank\">arbitration<\/a> provision specifically for construction defect claims. This provision stated that it \u201cshall not ever be amended without the written consent of Declarant and without regard to whether Declarant owns any portion of the Real Estate at the time of the amendment.\u201d<\/p>\n<p>In 2010, Metro Inverness turned control of the Association\u2019s board of directors over to the project\u2019s unit owners and it sold the last unit to a non-declarant owner in 2012. The next year, the project\u2019s unit owners voted to amend the declaration to remove, among other provisions, the mandatory binding <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/arbitration-clauses-under-attack-do-they-harm-consumers\/\" target=\"_blank\">arbitration<\/a> provision for construction defect claims. In doing so, the unit owners did not obtain Metro Inverness\u2019 consent to amend that section. Soon after the unit owners amended the declaration, the Association filed a construction defect lawsuit in district court, naming as defendants, Metro Inverness, Metropolitan Homes, Greg Krause, and Peter Kudla.<\/p>\n<p>The defendants moved to compel <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/owners-claim-for-defective-work-not-barred-by-prior-arbitration\/\" target=\"_blank\">arbitration<\/a>, relying on the arbitration provision for construction defect claims and arguing that the purported amendment to remove it was invalid because the unit owners did not obtain Metro Inverness\u2019 consent for the amendment. The Association, in response, argued that the unit owners validly amended the declaration to remove the arbitration provision and that the declarant consent requirement violated the Colorado Common Interest Act (\u201cCCIOA\u201d).<\/p>\n<p>The district court denied the defendants\u2019 motion to compel arbitration, concluding that Metro Inverness\u2019 consent was not required to remove the arbitration provision because,<em>inter alia<\/em>, the declarant consent requirement violated CCIOA and was, therefore, void and unenforceable. Specifically, the district court held that the declarant consent provision violated C.R.S. \u00a7 38-33.3-302(2), which provides: \u201cThe declaration may not impose limitations on the power of the association to deal with the declarant that are more restrictive than the limitations imposed on the power of the association to deal with other persons.\u201d The court also found that the declarant consent provision violated C.R.S. \u00a7 38-33.3-217(1)(a)(I), which states:<\/p>\n<p>[T]he declaration . . . may be amended only by affirmative vote or agreement of unit owners to which more than fifty percent of the votes in the association are allocated or any larger percentage, not to exceed sixty-seven percent, that the declaration specifies. Any provision in the declaration that purports to specify a percentage larger than sixty-seven percent is hereby declared void as contrary to public policy, and until amended, such provision shall be deemed to specify a percentage of sixty-seven percent.<\/p>\n<p>The defendants then filed the interlocutory appeal of the district court\u2019s order, which resulted in this decision.\u00a0 In finding that the district court erred in this analysis, the Colorado Court of Appeals concluded that the provision requiring the declarant\u2019s consent to amend the <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/colorado-court-rules-developers-in-common-interest-communities-can-require-arbitration-of-defect-claims-even-after-they-sell-last-interest\/\" target=\"_blank\">arbitration<\/a> provision for construction defect claims did not violate CCIOA and was, therefore, enforceable.<\/p>\n<p>With respect to C.R.S. \u00a7 38-33.3-302(2), the Court of Appeals held that the declarant consent provision does not violate that section because the Association has no power to amend the declaration itself. Under the terms of the declaration, the power to amend the declaration resides with the unit owners, not the Association, and, therefore, the declarant consent requirement does not impose any limitation on \u201cthe power of the association\u201d under section 38-33.3-302(2).<\/p>\n<p>With respect to C.R.S. \u00a7 38-33.3-217, the Court of Appeals held that the statute does not prohibit a declaration from requiring declarant consent for an amendment. In so holding, the Court of Appeals pointed out that CCIOA does not explicitly preclude a declaration from imposing additional requirements for amendments and that, to the contrary, other provisions of section 217 contemplate requirements of consent or approval by parties other than unit owners. <em>See<\/em> C.R.S. \u00a7 38-33.3-217(1)(b)(I) (setting forth notification procedures applicable \u201c[i]f the declaration requires first mortgagees to approve or consent to amendments\u201d). On this topic, the Court concluded \u201cthat section 38-33.3-217(1)(a)(I) merely governs requirements for unit owners\u2019 voting percentages and does not prohibit a declaration from imposing an additional requirement of declarant consent for amendments.\u201d<\/p>\n<p>Dispensing with the argument that the declarant consent requirement contravenes CCIOA\u2019s purpose, the Court of Appeals pointed out that:<\/p>\n<p>CCIOA endorses the use of alternative dispute resolution and specifically allows declarations to mandate binding <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/5-reasons-why-you-need-arbitration-for-a-construction-dispute\/\" target=\"_blank\">arbitration<\/a>. See \u00a7 38-33.3-124(3), C.R.S. 2014 (\u201cThe declaration . . . may specify situations in which disputes shall be resolved by binding arbitration.\u201d); \u00a7 38-33.3-124(1)(a)(II) (\u201cThe 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.\u201d). Given this statutory language and the public policy in Colorado favoring arbitration, see City &amp; Cnty. of Denver, 939 P.2d at 1353, 1362, we cannot say that the declarant consent requirement in this case \u201cevade[s] the limitations or prohibitions\u201d of CCIOA, \u00a7 38-33.3-104.<\/p>\n<p>For these reasons and others, the Court of Appeals concluded that&#8230;<\/p>\n<p><a href=\"http:\/\/www.coloradoconstructionlitigation.com\/2015\/05\/vallagio-v-metropolitan-homes-colorado.html\" target=\"_blank\">To finish reading this article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>David M. McLain | Higgins, Hopkins, McLain &amp; Roswell, LLC | May 13, 2015 On May 7th, the Colorado Court of Appeals issued its much anticipated ruling in Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al., 2015COA65 (Colo. App. May 7, 2015).\u00a0 By way of background, the Vallagio at Inverness&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/9-vallagio-v-metropolitan-homes-the-colorado-court-of-appeals-decision-protecting-a-declarants-right-to-arbitration-in-construction-defect-cases\/\">Continue reading <span class=\"screen-reader-text\">#9 &#8211; Vallagio v. Metropolitan Homes: The Colorado Court of Appeals&#8217; Decision Protecting a Declarant\u2019s Right to Arbitration in Construction Defect Cases<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[41,4],"tags":[42,19],"class_list":["post-886313","post","type-post","status-publish","format-standard","hentry","category-arbitration","category-construction-defects","tag-arbitration-2","tag-construction-defects-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>#9 - Vallagio v. 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