Chapter 6 - § 6.11 • LITIGATION AND STANDING

• Jurisdiction: Colorado

§ 6.11 • LITIGATION AND STANDING

§ 6.11.1—Litigation Generally

The CCIOA establishes many rights and obligations. The operative association documents can establish a duty giving rise to tort or contract obligations.²⁹⁹ Those rights and obligations affect declarants, associations, unit owners, professional managers, and others. The Act provides that any right or obligation it declares is enforceable by judicial proceeding.³⁰⁰ It explicitly accords a common interest community association the right to institute, defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on "matters affecting" the community.³⁰¹ The Act also states that the remedies it provides are to be liberally administered so that an aggrieved party is put in as good a position as if the other party had fully performed; however, consequential, special, or punitive damages may not be awarded except as specifically provided in the CCIOA or by other rule of law.³⁰² On the other hand, in any civil action to enforce or defend CCIOA provisions or those of the declaration, bylaws, articles, or association rules and regulations, a court must award reasonable attorney fees, costs, and collection costs to the prevailing party.³⁰³

Under a provision of the Nonprofit Corporation Act, notwithstanding any other provision of law to the contrary, any civil action permitted under the law of Colorado may be brought against any nonprofit corporation, and the assets of the corporation that would, but for the provisions of the Nonprofit Corporation Act, be immune from levy and execution on any judgment will still be subject to levy and execution to the extent that the corporation would be reimbursed by proceeds of liability insurance policies carried by it were judgment levied and executed against its assets.³⁰⁴

§ 6.11.2—Construction Defect Actions

Lawsuits by associations over construction defects are quite common, and there has been a CCIOA statute addressing those claims since 2001. The 2017 General Assembly made substantial amendments to the CCIOA construction defect statute.³⁰⁵ It added a definition of "construction defect action." The term means a civil action or arbitration proceeding for damages, indemnity, subrogation, or contribution brought against a "construction professional" to assert a claim, counterclaim, cross-claim, or third-party claim for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in design or construction of an improvement to real property, regardless of the theory of liability and includes any related, ancillary, or derivative claim, and any claim for breach of fiduciary duty or act or omission of a member of a governing board that arises from an alleged construction defect or that seeks the same or similar damages.³⁰⁶ "Construction professional" is defined broadly to mean architects, contractors, subcontractors, developers, builders, builder-vendors, engineers, and inspectors who perform or furnish design, supervision, inspection, construction, or observation of the construction of any improvement to real property.³⁰⁷

Under the CCIOA construction defect statute, before the governing board of a common interest community association institutes a construction defect action, it must first comply with the requirements of the statute.³⁰⁸ Those requirements concern notice to the members of the association of the proposed action and an opportunity for them to vote on whether the action should go forward.

The governing board has to mail or deliver written notice of the anticipated commencement of the construction defect action to each owner at his or her last-known address described in the records of the association and to the last-known address of each construction professional against whom the action is proposed.³⁰⁹ At least five business days before mailing the notice, the association is required to notify each construction professional against whom a construction defect action is proposed by mail, at its last-known address, of the date and time of the meeting called to consider the action.³¹⁰

The notice has to call a meeting of the members — which has to be held no fewer than 10 days and no more than 15 days after the mailing date of the notice — to consider whether to bring the action.³¹¹ The notice has to state that:

• The conclusion of the meeting begins the voting period, during which the association will accept votes for and against proceeding with the action and that the disclosure and voting period will end 90 days after the mailing date of the meeting notice or when the association determines that the action is either approved or disapproved, whichever occurs first.
• The construction professional against whom the action is proposed will be invited to attend the meeting and will have an opportunity to address the association members about the alleged construction defect.
• The presentation by the construction professional or representative may, but is not required to, include an offer to remedy any defect.³¹²

The notice also has to include a description of the nature of the action, identifying alleged defects with reasonable specificity, the relief sought, a good-faith estimate of the benefits and risks involved, and any other pertinent information.³¹³ Additionally, it has to contain 10 prescribed disclosures:

1) The alleged construction defects could result in increased costs to the association in maintenance or repair or cause an increase in assessments or special assessments to cover the cost of repairs.
2) If the association does not file a claim before the applicable legal deadlines, the claim will expire.
3) Until the alleged defects are repaired, sellers of units within the common interest community might owe unit buyers a duty to disclose known defects.
4) The governing board intends to enter or has entered into a fee arrangement with attorneys representing the association.³¹⁴
5) The association may incur, in addition to attorney fees, up to a stated amount for legal costs, including expert witnesses, depositions, and filing fees, that the stated amount will not be exceeded without the further written authority of the governing board, and that if the association does not prevail on its claim, it may be responsible for paying these legal expenses.
6) If the association does not prevail on its claim, the association may be responsible for paying its attorney fees.
7) If the association does not prevail on its claim, a court or arbitrator may awards costs and attorney fees to the opposing party and should that happen, the association may be responsible for paying the opposing party's costs and fees.
8) There is no guarantee that the association will recover enough funds to repair the claimed defects and if the claimed defects are not repaired, additional damage to property and a reduction in the useful life of the common elements might occur.
9) Until the claimed construction defects are repaired, or the claim is concluded, the market value of the units in the association might be adversely affected.
10) Until the claimed defects are repaired, or until the claim is concluded, owners might have difficulty refinancing and prospective buyers might have difficulty obtaining financing and that certain federal underwriting standards or regulations prevent refinancing or obtaining a new loan in projects where a construction defect is claimed, and certain lenders as a matter of policy will not refinance or provide a new loan in projects where a construction defect is claimed.³¹⁵

A quorum is not required at the meeting. Failure to hold the meeting within the required time period voids the subsequent vote. The time period for providing the required notice, the holding of the meeting, and voting may not exceed 90 days.³¹⁶

The association is required to maintain a verified owner mailing list that identifies the owners to whom the association mailed the notice and that list has to include, for each owner, the address, if any, to which the association mailed the notice.³¹⁷ The association has to provide a copy of the list to each construction professional who is sent a notice. If the association begins a construction defect action against any construction professional, it has to file the list together with records of votes received from owners during the voting period with the appropriate forum under seal.

The substance of a proposed construction defect action may be amended or supplemented after the meeting, but an amended or supplemented claim does not extend the voting period and the governing board is required to give notice to owners of any amended or supplemented claim and has to maintain records of its communications with unit owners.³¹⁸ Owner approval is not required for amendments or supplements to an action made after the notice is sent.

Notwithstanding any provision of law or any requirement in the governing documents, the governing board may initiate the construction defect action only if authorized within the voting period by owners of units to which a majority of votes in the association are allocated.³¹⁹ The approval is not required, however, for an association to proceed with an action if the alleged construction defect pertains to a facility that is intended and used for nonresidential purposes and the cost to repair the alleged defect does not exceed $50,000 or when the association is the contracting party for the performance of labor or purchase of services or materials. Notwithstanding any other provision of law, an owner's vote may be submitted only once and may be obtained in any written format confirming the owner's vote to approve or reject the proposed action, and the association is required to maintain a record of all votes until the conclusion of the action, including all appeals, if any.³²⁰

For purposes of calculating the required majority vote, the following votes are excluded:

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