Court Opinions: Colorado Court of Appeals Opinions for March 16

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

People v. Cross

Jerald Cross was charged with first-degree murder after being accused of killing his long-term romantic partner. A jury convicted him of second-degree murder with a crime of violence sentence enhancer. Cross was sentenced to 40 years in the custody of the Department of Corrections.

Cross presented multiple arguments on appeal including arguing the trial court abused its discretion by denying the defense counsel’s request to continue a sentencing hearing, even though the probation department didn’t give the defense counsel a presentence report by the deadline under Colorado Revised Statute 16-11-102(1)(a)(IV).

According to the Colorado Court of Appeals, that statute specified after a felony conviction, a probation department needs to provide a presentence report, including any recommendations for probation, to the prosecution and defense no less than 72 hours prior to the sentencing hearing. 

The lower court in this case proceeded with the sentencing hearing of Cross, even though the probation department failed to give the defense the presentence report on time. At that hearing, the defense counsel told the court he wasn’t aware of the contents of the presentence report until he got a copy of it after the statutory deadline. The defense asked for a continuance, which the court denied. 

The appeals court found the lower court reversibly erred by going forward with the sentencing under the circumstances. The appeals court, however, rejected Cross’ arguments for reversal of his conviction.

The judgment was affirmed concerning Cross’ challenge to his conviction. It was reversed, however, for Cross’ sentencing, and the case was remanded with directions to conduct further sentencing proceedings.

Mid-Century Insurance Company v. HIVE Construction, Inc.

The Colorado Court of Appeals unanimously reversed a judgment and remanded a case connected to the economic loss rule.

According to the court of appeals, generally, the economic loss rule provides that a party suffering only economic loss from a breach of an express or implied contractual duty cannot assert a tort claim for such a breach, absent an independent duty of care under tort law. The rule works to keep a distinction between contract law, where obligations arise from promises between parties, and tort law, where obligations come from duties imposed by law without regard to an agreement or contract.

In 2015 Masterpiece Kitchen Lowry, LLC entered into contracts with HIVE Construction, Inc. and LIV Studio to build out a restaurant in Denver. HIVE worked as the general contractor while LIV was the architect.

LIV’s design for the project included a wall that would separate the kitchen from the dining room. Architectural drawings and specifications called for the installation of two layers of drywall on the kitchen side of the wall, a layer of plywood that would be covered with decorative wood on the dining room side, with metal studs and fiberglass insulation in between.

The appeals court said, during construction HIVE instructed its drywall subcontractor to substitute a layer of fire-resistant, but combustible plywood, for one of the layers of drywall on the kitchen side of the wall. The parties disputed whether Masterpiece Kitchen was aware HIVE substituted plywood for the drywall specified in the design.

A broiler chosen for the kitchen required a clearance of eight inches from combustible materials like wood but didn’t require any clearance from non-combustible materials. Masterpiece installed the broiler less than an inch from the wall. 

Despite the substitution of material and the proximity of the broiler to the wall, the kitchen passed inspections. In April 2017, a fire broke out in the wall next to the broiler. Mid-Century Insurance Company’s, a subrogee of Masterpiece Kitchen, fire expert believed the fire was caused by the ignition of the substituted plywood due to the heat radiating and conducted through the wall from the broiler.

Masterpiece Kitchen made a claim on a commercial property insurance policy it had through Mid-Century and the insurance company paid the businesses more than $480,000 for fire-related damage. Mid-Century also filed a complaint wanting to recover economic damages from HIVE and LIV (Mid-Century and LIV reached a settlement). 

Mid-Century asserted a single negligence claim against HIVE, alleging that business breached a duty to perform its work in a safe and competent manner by installing “combustible plywood” in the wall of the kitchen. Mid-Century also alleged HIVE’s installation of combustible plywood in the kitchen’s cookline wall, which was adjacent to appliances that were heat-producing, showed a careless and reckless disregard for safety and constituted willful and wanton conduct. 

HIVE denied it was negligent or engaged in willful and wanton conduct. HIVE also argued the economic loss rule barred Mid-Century’s claim. 

Later HIVE moved for a directed verdict contending Mid-Century’s negligence claim was barred by the economic loss rule. The district court denied the motion relying on the 2021 Colorado Court of Appeals decision in McWhinney Centerra Lifestyle Center LLC v. Poag & McEwen Lifestyle Centers-Centerra LLC, concluding the economic loss rule doesn’t apply to an allegation of willful and wanton conduct.

A jury returned a verdict in favor of Mid-Century finding HIVE engaged in willful and wanton conduct and LIV, as a designated nonparty at fault, was negligent. The jury determined Mid-Century’s damages were more than $480,000, allocating 85% of the fault to HIVE, 15% to LIV and 0% fault to Mid-Century, as Masterpiece Kitchen’s subrogee.

HIVE appealed the district court’s denial of its motion for a directed verdict on the single negligence claim Mid-Century asserted against it, arguing the economic loss rule barred the claim. 

The appeals court concluded neither McWhinney nor the 2019 Colorado Supreme Court case it relied on, Bermel v. BlueRadios, Inc., precluded the application of the economic loss rule to bar common law negligence claims involving willful and wanton conduct. 

The appeals court contended the economic loss rule can still apply to those claims and because Mid-Century’s negligence claim was based solely on the breach of contractual duty resulting in a purely economic loss, it was barred by the economic loss rule. The appeals court reversed the judgment entered against HIVE and remanded the case to the district court with instructions to direct a verdict in favor of HIVE. 

Carter Holdings Inc. v. Carter

Carter Holdings Inc. is a corporation in Colorado, which specializes in residential property development. Corey Carter, the ex-husband of Danene Carter, is CHI’s sole shareholder. Under CHI’s business model, it would buy a vacant lot, build and sell a residence on it, pay off the debt from the build and pocket the profit.

Danene Carter wasn’t a shareholder of CHI, she was involved in its operation. For example, she co-signed on many loans for the company that were used for building costs; put up her personal residences as security for home equity loans that benefited CHI; invested $70,000 of personal inheritance to fund the company’s operations; and worked for the company in different capacities.

Danene Carter co-signed two loans with Corey Carter for CHI in 2018. She cosigned a loan for $286,000 with Home Loan State Bank, with CHI used to complete the construction of the “St. Peppin” home, which is one of CHI’s properties. She also cosigned a loan for $319,000 with the same bank. Those proceeds were used to complete the construction of the “Kiva Drive” home, which was another CHI property. Both of the loans provided to the Carters were jointly and severally liable, which meant either could be held liable for the full unpaid amounts of the loans. 

In August 2018, Corey Carter filed for a dissolution of marriage. Danene Carter later testified Corey Carter exhibited self-destructive and erratic behavior. In September 2018, Danene Carter recorded a formal notice of pending legal action on the St. Peppin and Kiva Drive properties. Based on Danene Carter’s testimony, the trial court later determined she recorded them to protect her claimed interest in the properties. The court further concluded her motivation came from a fear Corey Carter would abscond with the sale proceeds, which would leave her solely responsible to repay the loans. 

In October 2018, CHI demanded the notices be removed, arguing they were holding up the sales of the properties and deprived CHI of operations funding. The following day, Danene Carter’s divorce attorney released the notice on the St. Peppin property on the condition sale proceeds would be held by Corey Carter’s attorney’s Colorado Lawyer Trust Account Foundation account. After being sold, the proceeds from the St. Peppin property went into the COLTAF account.

Later in October, CHI moved to intervene in the divorce action arguing the two notices were spurious under Colorado Revised Statute 38-35-201. In November 2018, Danene Carter’s attorney released the notice on the Kiva Drive property under the same condition. That property sold and the funds were put into the same COLTAF account. A few months later, the parties stipulated the release of the sale proceeds to CHI. 

In February 2020, as the divorce proceedings continued, CHI sued Danene Carter claiming she had no reasonable factual basis for recording the notices and that her recording of them was an abuse of process and tortious interference with prospective business relations. A trial court consolidated CHI’s motion to intervene in the dissolution case, which alleged the notices were spurious, with its tort lawsuit.

After a bench trial, the court found the notices weren’t spurious documents under 38-35-201, further finding CHI’s abuse of process and tortious interference claims failed.

CHI appealed, arguing the trial court erred in concluding the notices weren’t spurious documents. The Colorado Court of Appeals affirmed the order.

The appeals court contended they weren’t spurious because Danene Carter claimed an interest in the properties as marital assets in the dissolution of marriage proceedings. The appeals court reiterated in deciding whether a notice is spurious, it focuses on the relief the recording party claimed in the underlying action and a notice could be appropriate in the dissolution of marriage context.

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