Indian Mountain Corp. v. Indian Mountain Metropolitan District , 412 P.3d 881 ( 2016 )

COLORADO COURT OF APPEALS 2016COA118
Court of Appeals No. 15CA1055
Park County District Court No. 14CV30056
Honorable Stephen A. Groome, Judge
Indian Mountain Corporation,
Plaintiff-Appellant,
v.
Indian Mountain Metropolitan District,
Defendant-Appellee.
JUDGMENT AFFIRMED IN PART AND REVERSED IN PART
AND CASE REMANDED WITH DIRECTIONS
Division I
Opinion by JUDGE FREYRE
Taubman and Dailey, JJ., concur
Announced August 11, 2016
Adam Davenport, Golden, Colorado, for Plaintiff-Appellant
Hill & Robbins, P.C., Peter J. Ampe, Matthew A. Montgomery, Denver,
Colorado, for Defendant-Appellee
¶1 Plaintiff, Indian Mountain Corporation (IMC) appeals the trial
court’s judgment imposing a constructive trust on its water rights
and augmentation Plan for the benefit of defendant, Indian
Mountain Metropolitan District (IMMD), based on a theory of unjust
enrichment. IMC also appeals the court’s finding that IMMD is
compliant with its service Plan.
¶2 This case presents the unusual circumstance of a private
company (successor of the original developer) holding legal title to
the water rights and augmentation Plan for the benefit of a
subdivision rather than a mandatory homeowners association, as is
the customary practice, and its desire to be compensated for
providing water services to the subdivision. It also presents a
unique situation in which a special district asserts unjust
enrichment on behalf of some of the constituents it was created to
serve. Because we conclude that IMC is the legal title holder to the
water rights and augmentation Plan and that the elements of unjust
enrichment have not been proved, we reverse that part of the
court’s judgment imposing a constructive trust. We affirm the
court’s finding that IMMD is in compliance with its service Plan.
1
I. Background
¶3 This case arose out of a dispute concerning the ownership of
water rights and a corresponding water augmentation Plan in Park
County. In 1970, Park Development Company (later Meridian
Property and hereafter developer) purchased 10,000 acres of
property, including water rights, with the vision of creating an
upscale residential subdivision situated within a community of
outdoor amenities, including an executive golf course, a ski resort,
equestrian trails, and hiking trails. The water rights encompassed
the Slater Ditch and two reservoirs (Tarryall Ranch Reservoirs 1
and 2).
¶4 The Indian Mountain Subdivision (subdivision) currently
comprises approximately 2,450 lots zoned for residential use. Each
lot is served by a residential well. The groundwater pumped by the
wells reduces the stream flow in Tarryall Creek, which flows into
the South Platte River. The South Platte River is over-apportioned,
meaning that the demand for water exceeds the available supply.
¶5 In 1972, after residential construction had begun, the
Colorado General Assembly enacted new legislation (Senate Bill 35)
in response to the recognition that land development was outpacing
2
available water supplies. As relevant here, this new legislation
required that water depleted by subdivision lots of less than
thirty-five acres be replenished or augmented by a
water-court-approved augmentation Plan. This new legal
requirement caused the sale of subdivision lots to cease until the
developer could secure a court-approved augmentation Plan.
¶6 In January 1974, Water Court Division 1 approved the Indian
Mountain Augmentation Plan (the Plan). The Plan required that
portions of developer’s water rights be used solely for the benefit of
the subdivision, and it guaranteed a household well permit to each
lot owner upon the payment of a $5 application fee. Importantly,
the PLAN did not address the remaining water rights in the Slater
Ditch or the reservoirs and did not require the transfer of the Plan
Decree to a mandatory homeowners association1 or to a
metropolitan district.
¶7 Thereafter, development of the subdivision resumed.
Crucially, the plat filings for the subdivision and the lot deeds
1The subdivision currently has a voluntary homeowners
association that requires 75% approval of its members to implement
changes.
3
addressed water services and informed prospective buyers that “[a]ll
utilities (Elec., Water, Sewer, Gas and Telephone) shall be provided
at the individual lot owner’s expense.”
¶8 The costs associated with obtaining the Plan left the developer
with too much debt to continue the development project. Thus, in
1976, the developer sold its interest (including debts) in the platted
and unplatted lands, the water rights, and the Plan to IMC and its
principal owner, James Campbell. IMC sold the remaining lots
(totaling 2,450) in the subdivision to pay off the debts it had
assumed.
¶9 IMC’s lot purchase agreements included a “Developer’s
Property Report,” which informed buyers that water would be
supplied by individual wells, that the state engineer would issue a
well permit upon payment of an application fee,2 and that water use
was governed by the covenants. It further stated that there was “no
assurance that wells [could] be drilled and operated successfully in
the subdivision,” and provided that in the event no well could be
drilled or operated successfully “no refund of the purchase price of
2 IMC’s subdivision fact sheet also guaranteed a well permit.
4
[the] lot [would] be made.” Finally, it did not guarantee the purity of
the water and contained a warning stating as follows: “THERE IS
NO ASSURANCE OF A SUFFICIENT SUPPLY OF WATER FOR THE
ANTICIPATED POPULATION OF THE SUBDIVISION.”
¶ 10 Attached to the purchase agreement was the “Developer’s
Statement,” which set forth specific items a purchaser
acknowledged by his or her signature. As relevant here, item three
stated
I/we hereby understand that a well and septic
tank are not included in the price of the site and
when and if these facilities are installed, that
the cost shall be born[e] by the purchaser(s).
¶ 11 Although the deeds and developer’s materials stated that the
cost of water was a lot owner’s expense, IMC did not separately
advise prospective buyers that they would be charged for operation
of the Plan. Indeed, from 1974 to 2013, both the developer and IMC
maintained and operated the Plan for the subdivision at their own
expense. This entailed cleaning out and repairing the water
diversion ditches leading into the reservoirs and releasing water
downstream when requested by the district water engineer. No one
5
disputes that the lot owners have always received uninterrupted
water services under the Plan.
¶ 12 In 1972, the developer spearheaded the creation of the Indian
Mountain Park and Recreation District (IMPRD)3 to assume
maintenance of and to eventually purchase the common areas
through a tax assessment. Importantly, because the IMPRD did not
have the legal authority to acquire water rights or to provide water
services, its service plan did not include water services. Campbell
eventually deeded the common areas to the IMPRD for $17,000.
¶ 13 Through the years, Campbell encouraged the subdivision lot
owners to explore ways for the homeowners to assume
responsibility for the Plan. Homeowners association minutes and
newsletters reflect the subdivision’s recognition that it faced being
assessed a charge for the Plan and that several options were
available for management of the Plan, including sale of the water
rights and Plan to a third party, sale to a water district, or sale to
an entity within the Indian Mountain community.
3 See infra Part IV discussing special districts, including parks and
recreation districts.
6
¶ 14 In 2012, members of the IMPRD suggested converting to a
metropolitan district that could legally purchase and provide water
services.4 The Park County Board of County Commissioners
approved the conversion and the amended service plan in January
2013. Then, the district court entered an order approving the
board’s actions and converting the district’s name to the Indian
Mountain Metropolitan District.
¶ 15 Negotiations for IMMD’s acquisition of the Plan from Campbell
began, but no agreement could be reached. Campbell believed the
water rights possessed monetary value and wished to be
compensated accordingly. IMMD, on the other hand, believed that
Campbell’s involvement in amending the service plan and IMC’s
operation of the Plan for forty years at no expense to the lot owners
obligated him to convey the water rights and Plan to the district for
the benefit of the lot owners at no cost.5
4 See infra Part IV defining the responsibilities of a metropolitan
district.
5 E-mail exchanges between Campbell and IMMD during this time
reflected IMMD’s position that it was willing to continue receiving
the benefit of Campbell’s free water services if the parties could not
reach an agreement.
7
¶ 16 In August 2013, the owners of Bar Star Land, Jim Ingalls and
Mark Goosman, approached Campbell about his willingness to sell
the reservoir6 because they had purchased 142 acres abutting the
reservoir for their cattle ranch operations. Campbell informed
Ingalls of his failed negotiations with IMMD, and both parties
believed a new face would improve relations. Campbell sold all of
IMC’s assets, including the remaining property, the mineral rights,
the water rights, and the Plan to Bar Star for $290,000.
¶ 17 Following the sale, Ingalls entered into negotiations with IMMD
to either lease or sell the water rights and Plan in accordance with
the amended service Plan. He complied with the Plan by cleaning
out the diversion ditches and releasing water at the water engineer’s
request. At IMMD’s insistence that there be clear title to the water
rights, Ingalls also incurred legal fees for the execution of a
quitclaim deed (recorded in April 2014) confirming the previous
conveyance of the developer’s interest in the water rights to IMC.
¶ 18 Unlike Campbell, who was willing to absorb the expenses of
managing the Plan with the hope of future reimbursement, Ingalls
6 The original two reservoirs had been consolidated into a single
reservoir by the time this case began.
8
expected reimbursement. Ingalls valued his water rights at $1.6
million based upon his research of comparable water rights located
in South Park and conversations with representatives from the
Head Waters Authority of the South Platte (HASP) and Still Water
Resources. He presented IMMD with two purchase options and
three lease options.7
¶ 19 When Ingalls and IMMD could not reach an agreement on the
proposed options, Ingalls submitted two invoices to IMMD (one for
2012 and one for 2013) each in the amount of $143,0008 for the
operation of the Plan on behalf of the subdivision. This charge
reflected an annual per well cost of $178.75 (based on 800 existing
7 Option 1 involved sale of the water rights for $550,000 and
operation of the Plan for $19.95 per well per year. Option 2
involved sale of the water rights for $390,000 in exchange for
conveyance of the community center and golf course back to IMC
and operation of the Plan for $19.95 per well per year. Option 3
involved a 1-year lease for $30 per well per month, a 3-year lease
for $20 per well per month or a 10-year lease for $10 per well per
month.
8 This amount included expenses plus a 10% return on investment.
9
wells) or per lot cost of $58.37 (2,450 lots). IMMD refused to pay
the invoices.9
¶ 20 IMC filed this action in district court seeking a declaratory
judgment that as between IMC and IMMD, IMC is the legal owner of
the water rights and Plan and that IMMD have no right, title, or
interest in them. IMC also alleged that IMMD had been unjustly
enriched by not paying IMC for water services in 2012 and 2013
that IMMD had been specifically created to provide. Thereafter,
IMMD filed an answer and a counterclaim seeking a declaratory
judgment that the Indian Mountain lot owners, not IMMD or IMC,
own the Plan and associated water rights as beneficiaries of a
constructive trust.
¶ 21 As relevant here, the district court issued an order in favor of
IMMD, finding that IMC held the water rights and the Plan in a
constructive trust for the benefit of the lot owners, that costs
related to the Plan were part of the lot sales price, and that IMC
would be unjustly enriched if it was permitted to charge lot owners
9 Thereafter, IMC sent invoices to the lot owners seeking
reimbursement for operating the Plan, and numerous lot owners
paid those invoices at a cost of $25 per well per month.
10
for operating the Plan. It also concluded that IMMD was in
compliance with the amended service plan. IMC filed a
post-judgment motion requesting a hearing on the amount of
reasonable fees it could charge IMMD for ongoing operation of the
Plan which the court denied.
II. Procedural Posture
¶ 22 Initially, we note that this case comes before us in an unusual
procedural posture. Both parties sought competing declaratory
judgments under C.R.C.P. 57(a). IMC sought declaratory relief as to
ownership of the water rights and Plan. IMMD sought declaratory
relief in its counterclaim under the theory that IMC held the water
rights in a constructive trust for the benefit of the lot owners and
would be unjustly enriched by continuing to hold, control, and
charge for operation of the Plan. While a declaratory judgment is
the proper vehicle to determine the relative rights between the
parties, it is usually based on the interpretation of a written
instrument or statute. Am. Family Mut. Ins. Co. v. Bowser, 779 P.2d
1376, 1379 (Colo. App. 1989); see also C.R.C.P. 57(b).
¶ 23 Here, rather than basing its theory of ownership on a written
instrument, IMMD pleaded a theory of ownership based on
11
“constructive trust.” However, such trusts are remedial in nature
and are not appropriately pleaded as a separate cause of
action. See Bryant v. Cmty. Choice Credit Union, 160 P.3d 266, 276
(Colo. App. 2007). Nonetheless, a district court may impose a
constructive trust as a remedy for unjust enrichment, and the
district court did so here, construing IMMD’s claim as one alleging
that IMC had been unjustly enriched. Accordingly, we review the
court’s order under the law of unjust enrichment — “an equitable
remedy [that] does not depend on any contract, oral or written”—
not as a declaratory judgment based on a written instrument or
statute. Lewis v. Lewis, 189 P.3d 1134, 1141 (Colo. 2008).
¶ 24 Further, we note that the lot owners, who received and
continue to receive the benefit of the Plan, are not parties to this
action. The lot owners were not joined in the district court, and a
joinder issue was not preserved for appeal. Accordingly, our review
is limited to the relative rights of IMC and IMMD.
III. Unjust Enrichment
¶ 25 IMC contends the district court erred in finding that it held the
water rights and Plan in a constructive trust and that it would be
12
unjustly enriched by seeking reimbursement for the costs of
maintaining and operating the Plan. We agree.
A. Standard of Review and Law
¶ 26 A district court must engage in fact-based inquiries and make
“extensive factual findings” when determining an unjust enrichment
claim. Id. at 1140-41; Martinez v. Colo. Dep’t of Human Servs., 97
P.3d 152, 159 (Colo. App. 2003). Because the power to devise
remedies lies within a district court’s discretion, we review a district
court’s findings of fact and its determination that a party was
unjustly enriched for an abuse of discretion. Lewis, 189 P.3d at
1140-41. Nonetheless, the district court’s discretion in equity
determinations is not unlimited. Id. at 1141. The court must apply
the appropriate legal test in order to find unjust enrichment. Redd
Iron, Inc. v. Int’l Sales & Servs. Corp., 200 P.3d 1133, 1136 (Colo.
App. 2008). Thus, we review de novo whether the district court
applied the proper legal test for determining the existence of unjust
enrichment. Id.; see also Harris Grp., Inc. v. Robinson, 209 P.3d
1188, 1205 (Colo. App. 2009).
¶ 27 Unjust enrichment is a judicially created remedy designed “to
avoid benefit to one to the unfair detriment of another.” Lawry v.
13
Palm, 192 P.3d 550, 564 (Colo. 2008). A person is unjustly
enriched when he or she benefits as a result of an unfair detriment
to another. Salzman v. Bachrach, 996 P.2d 1263, 1265 (Colo.
2000). The proper remedy when unjust enrichment occurs is to
restore the harmed party “to the position he [or she] formerly
occupied either by the return of something which he [or she]
formerly had or by the receipt of its equivalent in money.”
Restatement (First) of Restitution § 1 cmt. a (Am. Law Inst. 1937);
see also Redd Iron, 200 P.3d at 1136 (“[T]he party who has received
the benefit is ordinarily required to make restitution in the amount
of the enrichment received.”).
¶ 28 To succeed on a claim of unjust enrichment, the moving party
must establish that (1) the nonmoving party received a benefit (2) at
the moving party’s expense (3) under circumstances that would
make it unjust for the nonmoving party to retain the benefit without
commensurate compensation to the moving party. Lewis, 189 P.3d
at 1141.
¶ 29 The district court issued an order concluding that
14
 Ingalls, by purchasing IMC, stepped into Campbell’s
shoes and was bound by the significant history of the
subdivision’s development;
 none of the developer’s promotional materials or the
Housing and Urban Development (HUD) disclosure
documents mentioned an ongoing fee for operation of the
Plan, and IMC was “estopped from asserting such a right
forty (40) years later”;
 IMC received its return on investment (profit) and its
reimbursement of expenses for operating the Plan from
the lot sales, and permitting IMC to charge ongoing fees
for water use would constitute “double-dipping,” would
be unconscionable, and would unjustly enrich IMC;
 the Plan was established for the benefit of the lot owners
so that they could drill wells for potable water and
although lot owners could purchase water from another
source at considerable expense, this was not what they
bargained for when purchasing their property;
15
 while IMC was the legal owner of the water rights and
Plan, it held these rights in a constructive trust for the
benefit of the lot owners;
 as long as IMC elected to retain ownership, it was entitled
to be reimbursed for its actual and reasonable expenses
for maintenance, repair, and operation of the Plan,
although IMC could delegate this task or “turn over
ownership” to IMMD; and
 IMMD’s service plan permitted but did not require that it
take over management of the Plan; therefore, its
provision of other water services outside of the Plan
complied with its service plan and the statute.
B. Receipt of a Benefit
¶ 30 A benefit may be the performance of services beneficial to or at
the request of another, or it may be anything that adds to another’s
security or advantage. Cablevision of Breckenridge, Inc. v.
Tannhauser Condo. Ass’n, 649 P.2d 1093, 1097 (Colo. 1982); see
also Restatement (Third) of Restitution and Unjust Enrichment § 1
cmt. d (Am. Law Inst. 2011) (“Restitution is concerned with the
16
receipt of benefits that yield a measurable increase in the recipient’s
wealth.”). Thus, the word benefit denotes any form of advantage.
Cablevision of Breckenridge, Inc. v, 649 P.2d at 1097.
¶ 31 Usually, decisions of a district court regarding factual disputes
are accorded great deference. Quintana v. City of Westminster, 56
P.3d 1193, 1196 (Colo. App. 2002). However, this court may
determine that a finding of fact is clearly erroneous if there is (1) no
support for it in the record, see Cont’l W. Ins. Co. v. Jim’s Hardwood
Floor Co., Inc., 12 P.3d 824, 828 (Colo. App. 2000); or (2) evidence to
support it, but we are nonetheless left, after a review of the entire
evidence, with the firm and definite conviction that a mistake has
been made, In re Estate of Schlagel, 89 P.3d 419, 422 (Colo. App.
2003); Quintana, 56 P.3d at 1196.
¶ 32 The parties do not dispute that IMC stepped into the shoes of
Campbell and the developer or that the Plan was created for the
benefit of the subdivision. Therefore, we conclude the court
correctly determined that when Ingalls purchased the assets of
IMC, he also assumed the legal rights and obligations associated
with the Plan decree.
17
¶ 33 We note that the district court did not articulate the factual
basis for its finding that the lot prices included the Plan as is
required in an unjust enrichment analysis. See Lewis, 189 P.3d at
1140-41. At oral argument, IMMD’s counsel suggested that basis
was Copeland’s testimony; however, our review of the record shows
that Haas and Mattson offered relevant testimony as well. And,
although they all opined that the lot prices included the costs of
operating the Plan, each did so under a slightly different theory that
is directly refuted by documentary evidence in the record.
Therefore, we are left, after reviewing the entire record, with a firm
and definite conviction that a mistake has been made and that the
evidence does not support the court’s finding of unjust enrichment.
See Mendiola v. United States, 994 F.2d 409, 410 (7th Cir. 1993)
(“Findings are clearly erroneous if the district court’s interpretation
of the facts is . . . contradicted by documentary or other extrinsic
evidence.”).
1. Mattson’s Testimony
¶ 34 Mattson opined that because the legal descriptions of the
subdivision (which included the water rights) contained in the Plan
and in the 1975 order creating the IMPRD were identical, the order
18
creating the IMPRD transferred both the facilities and the water
rights to it. To the extent the district court reached the same
conclusion after conducting its own review of the documents, we
note that we are not bound by a district court’s (or a witness’)
construction of a document and are in the same position as a
district court to interpret it. See Darnall v. City of Englewood, 740
P.2d 536, 537 (Colo. App. 1987) (“Appellate courts are not bound by
a trial court’s construction of charters and ordinances.”). Upon our
review of the Plan and the 1975 order, we conclude that the legal
descriptions served other purposes and did not evidence the intent
to transfer water rights to the district.
¶ 35 As discussed in Part IV, a parks and recreation district does
not have the statutory authority to acquire or manage water rights.
However, it has the authority to tax residents in its service area and
a duty to provide the services set forth in its service plan to those
residents. Thus, we conclude that the legal description in the 1975
order defined the boundaries of the district’s taxing authority and
its service area, but did not evidence an intent to convey the water
rights or the Plan to the district.
19
¶ 36 Similarly, the legal description in the Plan decree describes its
property boundaries and, as noted above, contains no conveyance
language or any conveyance requirement. We cannot read
conveyance language that does not exist into the 1975 order or the
PLAN. See USI Props. E., Inc. v. Simpson, 938 P.2d 168, 173 (Colo.
1997) (it is axiomatic that when construing an unambiguous
document courts should not rewrite its provisions); cf. Dubois v.
Abrahamson, 214 P.3d 586, 588 (Colo. App. 2009) (“[W]e may not
read additional terms into, or modify, the plain language of a
statute.”). Accordingly, to the extent the district court relied on
Mattson’s opinion to find the lot prices included the cost of the
Plan, we conclude that the court clearly erred.
2. Haas’ Testimony
¶ 37 Haas advanced three theories under which he believed the lot
prices included the Plan: (1) the community amenities added
market appeal which increased IMC’s lot sales and profits; (2) the
well permit and Plan were a “package,” and the developer’s
guarantee of a well permit necessarily included the Plan as part of
the lot price; and (3) the 1975 parks and recreation district order
evidenced conveyance of the water rights to the district. For the
20
reasons stated above, we reject the third theory and address the
alternative theories below.
¶ 38 While no one disputes that IMC sold lots and received a
monetary benefit from the sales, we conclude the record shows that
the wells and any associated water services (Plan) were intended to
be a separate expense from the lots themselves and were not part of
a “package.” Indeed, the post-Plan lot purchase agreements
referenced the property report which promised a well permit and
provided cost estimates for drilling. It did not, however, guarantee
the existence of water or that a well could be successfully drilled.
Moreover, it stated that the failure to successfully drill a well would
not be a basis for a refund of the lot purchase price. Nowhere did the
purchase agreement suggest that the price of the lot included water
rights or water services.
¶ 39 Additionally, the recorded land plats and deeds specifically
informed lot owners that they would be responsible for the costs of
utilities including water, and showed that water and water services
were contemplated as a separate expense from the cost of the lots
themselves. This is further corroborated by the developer’s
statement in which buyers acknowledged their understanding that
21
the cost of the well and septic tank were not included in the price of
the site and that they would be separately responsible for those
costs.
¶ 40 While we agree with the court’s finding that the HUD
disclosure document did not inform prospective buyers that they
would be responsible for the costs of operating the Plan, it also did
not say that water services would be provided at no expense.
Moreover, it contained other language informing prospective buyers
that future changes to the water plan, including the creation of a
municipality or a metropolitan district, could involve additional,
undeterminable expenses to the lot owners. This language is
consistent with the language of the deeds, the property report, the
developer’s statement, and the covenants,10 and demonstrates that
water services were intended to be a separate expense from the lot.
Because we conclude the documentary evidence shows that the lot
prices did not include the cost of the Plan, the increased number of
lots sold due to the amenities (theory one) is irrelevant to the unjust
enrichment analysis.
10The covenants do not separately address the PLAN or its
operating costs.
22
¶ 41 Accordingly, after reviewing the entire record, we are left with
the firm and definite conviction that to the extent the district court
relied on Haas’ opinion to find the lot sales included the costs of the
Plan, it clearly erred because the documentary evidence contradicts
this conclusion. See Mendiola, 994 F.2d at 410.
3. Copeland’s Testimony
¶ 42 Copeland opined that the ability to drill a well increased the
value of a lot and that IMC was able to charge more for a lot (profit)
because it guaranteed a well permit. Similar to Haas, he tied the
value of the lots to the guaranteed well permit, which he opined
included the Plan as a package. For the reasons stated above, we
reject that opinion.
¶ 43 Finally, substantial evidence showed that other Park County
residential well owners had always paid for water augmentation
either through mandatory homeowners association fees or through
contracts with water service providers. In contrast, the undisputed
evidence showed that the developer incurred substantial debt in
obtaining the Plan for the subdivision and that IMC assumed those
debts and absorbed the Plan’s operating expenses for forty years
without reimbursement. Therefore, on this record, we conclude
23
that IMMD failed to prove the first element of unjust enrichment
and that the district court clearly erred in finding that the lot prices
included the costs of the Plan.
C. At the Moving Party’s Expense
¶ 44 Satisfaction of the second element of unjust enrichment
requires that the nonmoving party’s receipt of a benefit be at the
expense of the moving party or “as a result of an unfair detriment to
another.” Lewis, 189 P.3d at 1141.
¶ 45 The district court’s order did not address how IMC benefited at
IMMD’s expense. Indeed, the order stated the contrary: “IMMD has
not paid any money to IMC.” Critically, no evidence shows that
IMMD stood in the shoes of the lot owners (the contracting parties).
IMMD never pleaded or presented evidence that it stood in “privity”
with the subdivision lot owners or that its interests in carrying out
its service plan substantially aligned with the lot owners’ interests.
See Mitchell v. Tex. Gulf Sulphur Co., 446 F.2d 90, 105 (10th Cir.
1971) (privity or direct personal dealings required for recovery of
restitution in unjust enrichment); see also Pub. Serv. Co. of Colo. v.
Osmose Wood Preserving, Inc., 813 P.2d 785, 788 (Colo. 1991)
24
(finding indemnity agreement does not always create privity); see
also Landstrom v. Shaver, 561 N.W.2d 1, 13 (S.D. 1997) (holding
that a minority shareholder in a close corporation may have
different interests than a majority shareholder).
¶ 46 At oral argument, IMMD argued that privity existed based on
its taxing authority over the lot owners. However, this argument
was not made in the district court or raised in the briefs, and we
may not consider arguments raised for the first time at oral
argument. See Bumbal v. Smith, 165 P.3d 844, 847-48 (Colo. App.
2007). Because IMMD stipulated that it had never paid IMC for
water services and the court found likewise, we conclude no record
evidence shows that IMC benefited at IMMD’s expense and thus the
second element of unjust enrichment is not satisfied.
D. Circumstances Making IMC’s Retention of
Water Rights Unjust
¶ 47 The third element of the unjust enrichment analysis, whether
it would be unjust for IMC to retain the water rights and Plan,
“creates difficult questions for trial courts.” Redd Iron, 200 P.3d at
1136 (quoting Lewis, 189 P.3d at 1142). That is because “[t]he
notion of what is or is not ‘unjust’ is an inherently malleable and
25
unpredictable standard.” DCB Constr. Co., Inc. v. Cent. City Dev.
Co., 965 P.2d 115, 120 (Colo. 1998).
¶ 48 We agree with the district court’s conclusion that IMC holds
legal title to the Plan; however, for the reasons stated in Part III.B,
we disagree that there was sufficient evidence to establish that IMC
benefited from the sale of the lots or would be unjustly enriched by
charging ongoing fees to operate the Plan. No one disputes that
whoever holds title to the Plan is obligated to operate it for the
benefit of the subdivision. The record shows that the lot owners
have always received uninterrupted augmentation water services
since the water court issued the Plan decree.
¶ 49 Additionally, the record demonstrates that the Division of
Water Resources and the water commissioner would hold IMC
accountable for any failure to comply with the Plan. Further, the
water court may impose remedial sanctions for any failure to
comply with its augmentation decree. See C.R.C.P. 107(a)(5)
(stating that a court may impose sanctions to force compliance with
a lawful order). Thus, contrary to the district court’s finding, we
conclude that the lot owners are not “over a barrel” and may enforce
their rights under the Plan. And, as the district court found and as
26
the record shows, the lot owners are not required to obtain water
under the Plan, but may purchase water from another water service
provider if they so choose. Accordingly, we conclude that the
elements of IMC’s unjust enrichment were not proved and that the
district court erred in concluding otherwise.
¶ 50 Having concluded that IMC was not unjustly enriched at
IMMD’s expense, we also conclude that no basis exists to impose
the equitable remedy of a constructive trust. See Lawry, 192 P.3d
at 562 (constructive trust is an equitable remedy that can be
imposed as a form of restitution to remedy unjust enrichment).
Therefore, we reverse the court’s judgment imposing a constructive
trust on IMC’s water rights, including the Plan. We conclude that
IMC holds legal title to the water rights and Plan and that it is
entitled to assess charges for operating the Plan from 2012
onward.11
¶ 51 Finally, while both parties raise arguments concerning the
appropriate amount IMC can charge lot owners for operating the
11Both in the trial court and at oral argument IMC agreed that,
absent a constructive trust, it had no basis to charge lot owners for
previous Plan services.
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Plan, we decline to address this issue because the lot owners were
not joined as parties. We note, however, that absent regulations
governing water fees, IMC, as a private entity, may charge whatever
price for its services the market will bear, particularly given lot
owners’ ability to purchase water from several different sources.
IV. Service Plan Compliance
¶ 52 IMC contends that the district court erred in denying its
request to enjoin IMMD from operating as a metropolitan district
due to IMMD’s noncompliance with its service plan. IMC argues
that the service plan required IMMD to provide two services, that
the service plan was created to allow IMMD to purchase or operate
the Plan, and that IMMD’s failure to acquire or operate the Plan is a
material modification to its service plan and is contrary to statute.
We disagree and affirm the court’s order.
A. Relevant Facts
¶ 53 As set forth above, the IMPRD was converted to a metropolitan
district so that the district could legally acquire and maintain water
rights. The rationale IMPRD presented to the county
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commissioners for modifying the service plan included four reasons
relevant to this appeal:
(1) The 1972 service plan did not include the
management of 450 acres of parklands, forests, open
space, waterways, ponds, and wetlands.
(2) The 1972 service plan did not adequately reflect
water storage and transfer assets associated with the
district or show that the district managed two ponds,
two dams, wetlands, and a section of Tarryall Creek.
(3) The 1972 service plan did not include management of
the Plan, and IMMD was exploring ways it could own or
manage the Plan and thereby ensure that lot owners
would always have augmentation services.
(4) The most significant concern of the homeowners
association’s approximately 700 members was control of
the Plan and its associated resources. Because the
association could not purchase or manage the Plan, it
supported changing the service plan to enable IMMD to
do so.
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¶ 54 The language of the amended service plan required IMMD to
provide two services — parks and recreation services and water
services. Parks and recreation services included maintenance of
the wetlands, ponds, waterways, and IMMD’s facilities. Those
facilities included a comfort station, restrooms, potable water, a
small overnight cabin, a community center, and a library.
¶ 55 Water services included the maintenance of two earthen dams,
wetland corridors, a section along the Tarryall Creek, and the
seasonal ponds. The water services provision also gave IMMD the
authority to acquire ownership of, finance, and maintain the PLAN,
including the water rights, storage reservoirs, and all other
appurtenant facilities.
¶ 56 Additionally, the service plan stated that IMMD “shall have the
power and authority to contract with other private and
governmental entities to provide any or all of the services associated
with” the Plan.
¶ 57 The undisputed evidence showed that IMMD provided all
services stated in the amended service plan except for acquisition or
operation of the Plan. Because IMC does not dispute that IMMD
properly provided parks and recreation services and water services
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related to the wetlands, dams, ponds, and a section of Tarryall
Creek, we do not address that part of the amended service plan.
The district court found that while the primary purpose for
amending the service plan was to allow IMMD to take over the Plan,
the language of the service plan was permissive and did not require
IMMD to manage the Plan. We agree.
B. Discussion
¶ 58 We review a district court’s interpretation of a service plan de
novo. Plains Metro. Dist. v. Ken-Caryl Ranch Metro. Dist., 250 P.3d
697, 699 (Colo. App. 2010).
¶ 59 The General Assembly enacted the Special District Act with
the intent that special districts “promote the health, safety,
prosperity, security, and general welfare” of their inhabitants and of
the State of Colorado. § 32-1-102(1), C.R.S. 2015; see also Todd
Creek Vill. Metro. Dist. v. Valley Bank & Trust Co., 2013 COA 154,
¶ 37. Special districts are political subdivisions of the state that
possess proprietary powers. Todd Creek, ¶ 38. But, they possess
only those powers expressly conferred on them. SDI, Inc. v. Pivotal
Parker Commercial, LLC, 2012 COA 168, ¶ 16, rev’d on other
grounds, 2014 CO 80.
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¶ 60 Persons intending to form a special district must submit a
service plan to the board of county commissioners. See § 32-1-202,
C.R.S. 2015. When the special district is a metropolitan district,
the service plan must state a minimum of two services it intends to
provide. § 32-1-1004(2), C.R.S. 2015. A list of the services a plan
shall include is set forth in section 32-1-1004(2) and, as relevant
here, includes “parks or recreational facilities or programs as
specified in section 32-1-103(14),” § 32-1-1004(2)(c), and “water as
specified in section 32-1-103(25),” § 32-1-1004(2)(j).
¶ 61 Once established, a special district must conform to its
service plan “so far as practicable.” § 32-1-207(1), C.R.S. 2015.
Further, any material modifications to the service plan must be
approved by the board of county commissioners. § 32-1-207(2)(a).
The Special District Act defines “material modifications” as
changes of a basic or essential nature,
including but not limited to the following: Any
addition to the types of services provided by
the special district; a decrease in the level of
services; a decrease in the financial ability of
the district to discharge the existing or
proposed indebtedness; or a decrease in the
existing or projected need for organized service
in the area.
Id.
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¶ 62 The determination of whether IMMD’s failure to operate the
Plan constitutes a “material modification” involves a question of law
that we review de novo. We look to the language of the service plan
and give effect to its plain and ordinary meaning. People in Interest
of J.G., 2016 CO 39, ¶ 13.
¶ 63 The service plan language at issue here is “shall have the
power and authority to finance, design, construct, acquire, install,
maintain and provide services associated with the ownership and
administration of the Indian Mountain water augmentation Plan.”
The term “shall” in a service Plan is construed to impose an
obligation. Plains Metro. Dist., 250 P.3d at 700. In contrast, the
use of the term “may” is “indicative of a grant of discretion.” Id.¶ 64 We conclude that the word “shall” is part of the phrase “shall
have the power and authority” and cannot be construed to relate to
the infinitive verb forms of finance, design, construct, acquire,
install, maintain, and provide. Thus, “shall” does not obligate
IMMD to acquire or operate the Plan, but, instead, grants
unconditional authority to IMMD to do so. IMMD’s failure to
acquire or operate the Plan does not constitute a material
modification of its service plan because it does not decrease or
33
otherwise alter the services it provides. Accordingly, we conclude
that the service plan did not require IMMD to acquire or operate the
Plan, and that IMMD properly provided two services in compliance
with its service plan. We affirm the court’s order finding for IMMD
on this issue.
V. IMC’s Remaining Contentions
¶ 65 Having reversed the district court’s findings of unjust
enrichment and constructive trust, we need not reach IMC’s
remaining contentions. Therefore, we do not address whether the
district court erred in admitting witness testimony absent personal
knowledge or whether it erred in its findings under the Interstate
Land Sales Act.
VI. Conclusion
¶ 66 We affirm the district court’s judgment declaring that IMC
holds legal title to the water rights and Plan and finding IMMD in
compliance with its service plan. We reverse that part of the court’s
judgment finding that IMC was unjustly enriched and imposing a
constructive trust, and we instruct the district court to enter a
judgment in favor of IMC consistent with this opinion.
JUDGE TAUBMAN and JUDGE DAILEY concur.
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