and 15CA0203. DA Mountain Rentals, LLC v. The Lodge at Lionshead Phase III Condominium Association, Inc ( 2016 )

COLORADO COURT OF APPEALS 2016COA141
Court of Appeals Nos. 14CA2195 & 15CA0203
Eagle County District Court No. 12CV409
Honorable Frederick W. Gannett, Judge
DA Mountain Rentals, LLC, a Nebraska limited liability company,
Plaintiff-Appellant and Cross-Appellee,
v.
The Lodge at Lionshead Phase III Condominium Association Inc., a Colorado
not-for-profit corporation, a/k/a the Lodge at Lionshead III Condominium
Association, a Colorado not-for-profit corporation,
Defendant-Appellee and Cross-Appellant.
JUDGMENT AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Division I
Opinion by JUDGE MILLER
Taubman and Fox, JJ., concur
Announced October 6, 2016
Boyle/Apelman PC, Terence P. Boyle, Mark Apelman, Denver, Colorado, for
Plaintiff-Appellant and Cross-Appellee
Nemirow Perez P.C., Miles L. Buckingham, Ronald Nemirow, Lakewood,
Colorado, for Defendant-Appellee and Cross-Appellant
¶1 Plaintiff-appellant and cross-appellee, DA Mountain Rentals,
LLC (DA), appeals the district court’s summary judgment in favor of
defendant-appellee and cross-appellant, The Lodge at Lionshead
Phase III Condominium Association Inc., a/k/a the Lodge at
Lionshead III Condominium Association (Association), and the
court’s order denying DA’s C.R.C.P. 37 motion for attorney fees.
The Association cross-appeals the district court’s entry of three
discovery orders.
¶2 This case concerns amendments (2012 Amendments) to the
Condominium Declaration for the Lodge at Lionshead III
(Declaration) establishing a condominium community (Community)
in Vail. The Declaration was recorded many years before the
enactment of the Colorado Common Interest Ownership Act
(CCIOA), sections 38-33.3-101 through 38-33.3-402, C.R.S. 2016.
A supermajority of the members of the Association voted to adopt
the 2012 Amendments. The Association claims that CCIOA
authorizes their adoption. DA, however, contends that the 2012
Amendments conflict with the express terms of a proviso in the
provision of the Declaration governing the procedure for adopting
amendments. That proviso specifies that certain rights created by
1
the Declaration — including the allocated ownership interest of
each unit — are permanent in nature and may not be altered
without the unanimous consent of the owners of units and their
first mortgagee lenders (Lenders).
¶3 We conclude that (1) CCIOA does not authorize the
amendment that would delete that proviso and allow the alteration
of such rights without the requisite unanimous consent of members
and Lenders; (2) the 2012 Amendments are therefore invalid to the
extent they conflict with the proviso; and (3) the 2012 Amendments
regarding obsolescence and the creation of a mandatory buyout
provision are valid.
¶4 In its cross-appeal, the Association challenges the district
court’s order of the disclosure and production of documents from
the file of the attorney who assisted the Association’s board of
directors in developing and drafting the 2012 Amendments and the
court’s denial of a related motion for protective order. The
Association contends that the documents in the file were both
privileged and irrelevant. We conclude that the court did not abuse
its discretion by entering these orders.
2
¶5 We accordingly affirm in part, reverse in part, and remand to
the district court for further proceedings.
I. Background
A. Adoption of the 2012 Amendments
¶6 The Community consists of twelve units. The Community is
governed and operated by the Association in accordance with its
governing documents, including, as relevant here, the Declaration.
The owners of the units are members of the Association. Each
member also owns a percentage of undivided interest in the general
common elements (GCE) of the Community, which are defined in
the Declaration as “the real property hereby submitted to
condominium ownership . . . EXCEPT the Units.” The definition
provides examples of the GCE, including the foundations, main
walls, roofs, halls, lobbies, stairs, yards, gardens, parking areas,
and installations of central services such as power, lights, gas, and
water. The Declaration assigns each unit owner a percentage
ownership in the GCE. The members cast votes on Association
matters and share expenses in accordance with their respective
ownership percentages. DA owns one of the condominium units
and is thereby a member of the Association.
3
¶7 The Declaration was recorded in 1978, and paragraph 18
provides that the “Declaration may be amended by Owners
representing sixty percent (60%), or more, of the [GCE] consenting
and agreeing to such amendment by written instruments duly
recorded.” This language is followed by an important proviso:
provided, however, that the undivided interests
in and to the [GCE] appurtenant to each Unit
and the provisions of this Declaration
governing the sharing of common expenses
shall have a permanent character and shall
not be altered without the consent of all of the
Unit Owners and their first mortgagees of
record[.]
Thus, while this paragraph generally authorizes amendments to the
Declaration by a sixty percent vote of member interests, the proviso
expressly prohibits any alteration of the undivided interests in the
GCE or the sharing of common expenses without the unanimous
consent of the members and of their Lenders. In addition, other
provisions of the Declaration require the unanimous approval of the
Lenders for renovation or redevelopment and the agreement of unit
owners representing eighty percent of the GCE interests for
renovation and eighty-five percent for sale of the complex.
4
¶8 In 2012, the members voted on the 2012 Amendments, which
had been proposed by the Board of Directors (Board) after years of
study. Section 13.1 of the 2012 Amendments would revise the
procedure for amending the Declaration, stating in its entirety:
“This declaration may be amended by the affirmative vote of the
Unit Owners holding at least 67% of the total Association vote.”
The unanimous member and lender consent requirements of the
paragraph 18 proviso would therefore be eliminated. Other parts of
the 2012 Amendments would eliminate lender consent
requirements regarding obsolescence (sections 10.1(a) – (b)) and
institute a “mandatory buyout” provision (section 10.1(c)) requiring
the Association to purchase the units of owners who are not eligible
to vote, who do not vote, or who vote against any proposal
determining the obsolescence of the condominium complex.
¶9 Members constituting approximately seventy-four percent of
the GCE interests voted in favor of the 2012 Amendments, thus
exceeding the sixty percent requirement of paragraph 18 of the
Declaration. Before the Association recorded the 2012
Amendments with the county, however, DA sought a declaratory
judgment in district court that the 2012 Amendments were invalid
5
because they violated the terms of the Declaration. Because of the
lawsuit, the Association has not recorded the 2012 Amendments,
and they consequently are not yet effective. See § 38-33.3-217(3),
C.R.S. 2016.
B. Disclosures and Discovery
¶ 10 The parties made C.R.C.P. 26(a)(1) disclosures in the district
court, but the Association did not disclose documents that it
claimed were privileged. DA filed a motion to compel the
Association to produce a privilege log of the Association’s attorneys’
documents, which the court granted in December 2012. The
Association complied with the order and produced the log, and DA
requested disclosure of communications between the Association’s
lawyers and the Board and Board committees. The Association
asserted that the documents were privileged and not relevant. DA
then filed a motion to compel production of all the logged
documents, and the Association filed a motion for a protective
order. The district court granted DA’s motion and denied the
Association’s motion. Finally, DA filed a motion pursuant to
C.R.C.P. 37, requesting costs and attorney fees related to its two
6
motions to compel and the Association’s motion for a protective
order. The district court denied this motion.
C. C.R.C.P. 56 Motions
¶ 11 Shortly after the court granted DA’s second motion to compel
and denied the Association’s motion for a protective order, the
Association filed a motion for determination of law pursuant to
C.R.C.P. 56(h) to determine the validity of the 2012 Amendments.
The court granted the Association’s motion and determined that (1)
the 2012 Amendments had been validly adopted and (2) the sixty-
seven percent voting requirement they imposed did not violate the
terms of the Declaration or CCIOA. The Association next filed a
motion for summary judgment under C.R.C.P. 56(b) to resolve the
remaining legal issues surrounding the provisions of the 2012
Amendments eliminating the lender approval requirements and
providing for mandatory buyouts. The court granted this motion as
well.
D. The Appeals
¶ 12 DA filed two appeals. In the first, 14CA2195, DA argues that
the district court erred by granting the Association’s Rule 56
motions. The second appeal, 15CA0203, challenged two post-
7
judgment district court orders relating to attorney fee and cost
awards. The Association moved to dismiss the second appeal
because the determination of the attorney fee issue was not
completed by the district court and was not a final judgment
appropriate for our review. Another division of this court partially
granted the motion and (1) dismissed the portion of the appeal that
sought review of the district court’s order granting the Association’s
attorney fees as the prevailing party and setting it for a hearing
after mandate and (2) denied the motion as to DA’s argument that
the district court improperly denied its motion for attorney fees as a
sanction for alleged discovery violations under Rule 37(a)(4). The
division also consolidated the two cases.
¶ 13 On cross-appeal, the Association argues that the court erred
by granting DA’s motions to compel and denying its motion for a
protective order.
¶ 14 We turn first to the question of the validity of the 2012
Amendments.
II. Validity of the 2012 Amendments
¶ 15 DA argues that the district court erred when it granted the
Association’s two Rule 56 motions because (1) the court incorrectly
8
held that section 38-33.3-217(1)(a)(I) controls over section 38-33.3-
120(1)(a), C.R.S. 2016, and imposes a sixty-seven percent cap on
amendment requirements; (2) the 2012 Amendments requiring only
sixty-seven percent of member votes for amending the Declaration,
as construed by the district court, are unconstitutional under the
Contract Clauses of the United States and Colorado Constitutions,
U.S. Const. art. I, § 10, cl. 1; Colo. Const. art. II, § 11; (3) the
amendment eliminating lender approval is invalid as a matter of
law; and (4) the mandatory buyout provision is invalid as a matter
of law.
A. Standard of Review
¶ 16 We review de novo legal questions decided under Rule 56(b)
and (h). Goodman Assocs., LLC v. Winter Quarters, LLC, 2012 COA
96, ¶ 20 (C.R.C.P. 56(h)); McIntire v. Trammell Crow, Inc., 172 P.3d
977, 979 (Colo. App. 2007) (summary judgment). Under Rule 56(h),
a district court may enter an order deciding a legal question “[i]f
there is no genuine issue of any material fact necessary for the
determination of the question of law.” Similarly, summary
judgment under Rule 56(b) is appropriate where the trial court
determines that there is no genuine dispute as to any material fact
9
and that the moving party is entitled to judgment as a matter of
law. Larrieu v. Best Buy Stores, L.P., 2013 CO 38, ¶ 6. Where, as
here, we must interpret a contract and a statute, we do so de novo.
Oster v. Baack, 2015 COA 39, ¶ 35 (contract); McLaughlin v. Oxley,
2012 COA 114, ¶ 9 (statute). We also review the constitutionality of
a statute de novo. Justus v. State, 2014 CO 75, ¶ 17.
B. Validity of the 2012 Amendments Under the Declaration
¶ 17 This dispute concerns the question of the validity, under the
terms of the Declaration and CCIOA, of the 2012 Amendments that
would eliminate (1) the unanimous member and lender consent
requirements for amendments that alter the GCE or the provisions
of the Declaration governing the sharing of common expenses and
(2) the unanimous lender approval requirements for determining
obsolescence.
¶ 18 Before we reach the issue of how CCIOA interacts with the
2012 Amendments, we first examine the terms of the Declaration
itself to determine whether they permit the 2012 Amendments.
¶ 19 When interpreting a declaration, we follow the “dictates of
plain English” and construe the document as a whole. Vista Ridge
Master Homeowners Ass’n v. Arcadia Holdings at Vista Ridge, LLC,
10
2013 COA 26, ¶ 18 (quoting Buick v. Highland Meadow Estates at
Castle Peak Ranch, Inc., 21 P.3d 860, 862 (Colo. 2001)). “If a
declaration is clear on its face, we will enforce it as written.” Id.
¶ 20 As we stated, paragraph 18 of the Declaration permits
amendment by agreement of unit owners representing sixty percent
or more of the GCE,
provided, however, that the undivided interests
in and to the [GCE] appurtenant to each Unit
and the provisions of this Declaration
governing the sharing of common expenses
shall have a permanent character and shall not
be altered without the consent of all of the Unit
Owners and their first mortgagees of record[.]
(Emphasis added.) Under its plain meaning, this provision makes
permanent the undivided interests in and to the GCE and the
provisions governing the sharing of common expenses, requiring the
unanimous consent of members and Lenders to change them.
¶ 21 Under the Declaration, common expenses include “all sums
lawfully assessed” against the GCE by the Board and expenditures
“for the operation and maintenance of the GCE.” And paragraph 19
of the Declaration provides that the members share common
expenses in proportion to their respective ownership shares of the
GCE as set forth in Exhibit B to the Declaration. The same
11
percentages are used to determine their voting interests. Thus, by
eliminating the unanimity requirement for members and Lenders,
the 2012 Amendments would permit alteration of the undivided
interests in the GCE and the sharing of common expenses without
one hundred percent member and lender approval. This could
occur if, for example, two-thirds of the members voted to amend
Exhibit B and reallocate the percentage ownership interests of some
or all of the owners. Therefore, by the Declaration’s own terms, the
2012 Amendments are invalid to the extent that they eliminate the
permanent unanimity requirement for member and lender approval
mandated by paragraph 18.
¶ 22 The Association stresses that the 2012 Amendments would
not on their face affect the GCE. That is technically true. But if the
2012 Amendments were allowed to go into effect, two-thirds of the
members of the Association would be free to adopt a second set of
amendments that could reallocate the GCE percentage interests by
simply amending the percentages on Exhibit B to the Declaration or
authorizing a redevelopment adding or subtracting the number of
units and modifying the GCE percentage interests accordingly.
Such a two-step process would obviously conflict with the clearly
12
expressed intent of the proviso to paragraph 18 that the undivided
interests in GCE “have a permanent character” and “shall not be
altered without the consent of all of the Unit Owners and their first
mortgagees.”
¶ 23 Accordingly, the express terms of the Declaration bar any
amendments that would authorize alteration of GCE interests or the
provisions of the Declaration governing the sharing of common
expenses without unanimous consent of all members and Lenders.
¶ 24 We reach a different conclusion with regard to the other 2012
Amendments at issue. The provisions of the Declaration concerning
the requirements for the declaration of obsolescence (paragraphs
25(e) and (f)) do not contain similar permanency safeguards. Most
notably, unlike paragraph 18, paragraph 25 does not stipulate that
the unanimous lender requirements and the eighty and eighty-five
percent member approval requirements are “permanent” and
immune from alteration. Paragraph 18 carves out only two
exceptions to its sixty percent member interest requirement for
amending the Declaration, and neither applies to votes for
obsolescence (assuming that no related change in the undivided
13
interests in GCE or in the provisions of the Declaration governing
common expenses is made).
¶ 25 Thus, the drafter of the Declaration knew how to immunize a
provision from future amendment and did so in the proviso to
paragraph 18. Because the drafter did not include similar language
in paragraphs 25(e) and 25(f), those provisions were left subject to
the sixty percent amendment process. See Hutchinson v. Mullins,
491 P.2d 71, 74 (Colo. App. 1971) (not published pursuant to
C.A.R. 35(f)) (applying the rule of expressio unius exclusio alterius,
which is routinely applied in the context of statutory interpretation,
to contractual interpretation); cf. Hiner v. Johnson, 2012 COA 164,
¶ 19. For this reason, under the plain terms of the Declaration, the
obsolescence provisions are subject to the rule requiring only sixty
percent member approval to amend. This requirement was met,
and we therefore conclude that the 2012 Amendments eliminating
lender approval to declare obsolescence were valid under the
original Declaration.
C. Validity of the 2012 Amendments under CCIOA
¶ 26 Next, we address the interaction between CCIOA and the
unanimous member and lender consent requirements for
14
amendments that alter the GCE.1 We conclude that the foregoing
construction of the Declaration does not conflict with CCIOA.
¶ 27 Under the basic principles of statutory interpretation, we look
first to the plain language of the statute and give words and phrases
their ordinary meaning. Fischbach v. Holzberlein, 215 P.3d 407,
409 (Colo. App. 2009); Stevinson Imps., Inc. v. City & Cty. of Denver,
143 P.3d 1099, 1103 (Colo. App. 2006). “The plainness or
ambiguity of statutory language is determined by reference to the
language itself, the specific context in which that language is used,
and the broader context of the statute as a whole.” Holzberlein, 215
P.3d at 409 (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341
(1997)). We do not, however, adopt any interpretation that leads to
an absurd conclusion or is at odds with the legislative scheme. In
re J.N.H., 209 P.3d 1221, 1223 (Colo. App. 2009); Bryant v. Cmty.
Choice Credit Union, 160 P.3d 266, 274 (Colo. App. 2007).
¶ 28 As a general matter, CCIOA does not apply to common interest
communities created in Colorado before July 1, 1992. § 38-33.3-
117(3), C.R.S. 2016. There are two important exceptions. First,
1DA has not challenged any of the remaining 2012 Amendments
under CCIOA other than the mandatory buyout provision, which we
address in Part II.E.
15
such a pre-existing common interest community may elect to be
governed by CCIOA. § 38-33.3-118, C.R.S. 2016. The Association
has not made this election for the Community. Second, section 38-
33.3-117 contains a list of CCIOA provisions, substantially
lengthened over the years, which apply to pre-existing common
interest communities. As relevant here, these provisions include
section 38-33.3-120 and section 38-33.3-217(1). § 38-33.3-
117(1)(f), (1.5)(d).
¶ 29 In support of its argument that, under CCIOA, the 2012
Amendments affecting GCE required unanimous approval of the
members and Lenders, DA argues that the matter is controlled by
section 38-33.3-120(1)(a), which provides, in pertinent part:
In the case of amendments to the declaration
. . . of any common interest community
created within this state before July 1, 1992
. . . [i]f the substantive result accomplished by
the amendment was permitted by law in effect
prior to July 1, 1992,2 the amendment may be
made either in accordance with that law, in
which case that law applies to that
amendment, or it may be made under this
article[.]
2 Neither party has argued that the substantive result accomplished
by the relevant 2012 Amendments was not permitted by law in
effect prior to July 1, 1992 (the effective date of CCIOA), apart from
the terms of the Declaration itself.
16
Section 38-33.3-120(1) was made retroactive by section 38-33.3-
117(1)(f), which provides that section 38-33.3-120(1)(a) applies to all
common interest communities created within the state before July
1, 1992, with respect to events and circumstances occurring on or
after that date. On its face, then, section 38-33.3-120(1)(a) applies
to the Community and the 2012 Amendments.
¶ 30 The Association counters that this issue is controlled by
section 38-33.3-217(1)(a)(I), which provides:
[T]he declaration . . . may be amended only by
the affirmative vote or agreement of unit
owners of units 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.
(Emphasis added.) This provision was made retroactive by section
38-33.3-117(1.5)(d), to apply to common interest communities
created within the state before July 1, 1992, with respect to events
and circumstances occurring on or after January 1, 2006. Again,
17
on its face, this provision applies to the Community and the 2012
Amendments.
¶ 31 The parties thus agree that the statutes conflict because
section 38-33.3-217(1)(a)(I) apparently forbids what section 38-
33.3-120(1)(a) and the Declaration permit: a unanimous member
and lender consent requirement to alter the GCE. As the
Association correctly points out, in the event of a conflict between
CCIOA and the terms of a declaration, CCIOA generally controls.
See § 38-33.3-104, C.R.S. 2016 (“Except as expressly provided in
[CCIOA], provisions of [CCIOA] may not be varied by agreement, and
rights conferred by [CCIOA] may not be waived.”); see also Ryan
Ranch Cmty. Ass’n v. Kelley, 2014 COA 37M, ¶ 31.
¶ 32 However, we conclude that a closer look at section 38-33.3-
217(1)(a)(I) reveals that CCIOA expressly permits the unanimity
requirement in paragraph 18, thus eliminating any conflict.
¶ 33 Section 38-33.3-217(1)(a)(I) begins by spelling out the
exceptions to its application: “[e]xcept as otherwise provided in
subparagraphs (II) and (III) of this paragraph (a)[.]” Relevant here is
subparagraph (III)(A), which provides that “[t]his paragraph (a) shall
not apply . . . [t]o the extent that its application is limited by
18
subsection (4) of this section.” Subsection (4)(a) carves out an
exception to the sixty-seven percent cap for amendments changing
the allocated interests of a unit, based on the language in a
declaration:
Except to the extent expressly permitted or
required by other provisions of this article, no
amendment may create or increase special
declarant rights, increase the number of units,
or change the boundaries of any unit or the
allocated interests of a unit in the absence of a
vote or agreement of unit owners of units to
which at least sixty-seven percent of the votes
in the association, including sixty-seven
percent of the votes allocated to units not
owned by a declarant, are allocated or any
larger percentage the declaration specifies.
(Emphasis added.) Subsection (4)(a) thus expressly recognizes that
a declaration may require a vote by unit owners in excess of sixty-
seven percent to change the allocated interest of a unit. Although
section 38-33.3-217(1)(a)(I) establishes a general sixty-seven
percent voting maximum for amending a declaration, it does not
apply to changes in the allocated interests of the unit — or, as
expressed in paragraph 18, “the undivided interests in and to the
[GCE] appurtenant to each unit.” More specifically, subsection
(4)(a) expressly permits a requirement that an amendment that
19
alters the GCE must pass with a percentage higher than sixty-seven
percent, when specified by the declaration. Thus, CCIOA permits
the unanimous member consent requirement for amendments that
change the GCE or govern the sharing of common expenses.
¶ 34 Turning to the unanimous lender requirement to these types
of amendments, nothing in CCIOA precludes lender approval
requirements in this context. To the contrary, section 38-33.3-
217(1)(b) provides a notice procedure associations may follow when
a declaration requires first mortgagee consent to amendments to
declarations. Cf. Vallagio at Inverness Residential Condo. Ass’n v.
Metro. Homes, Inc., 2015 COA 65, ¶ 37 (upholding a declarant
approval requirement) (cert. granted June 20, 2016).
¶ 35 Thus, we determine that (1) section 13.1 of the 2012
Amendments eliminating unanimous member and lender approval
for amendments that change the GCE or govern the sharing of
common expenses is invalid under the terms of the Declaration and
(2) the Declaration’s unanimity requirement is valid under CCIOA.
We now address the 2012 Amendments’ elimination of the lender
approval requirements for declarations of obsolescence prior to
renovation or sale.
20
D. Lender Approval
¶ 36 DA contends that the 2012 Amendments violate the Contract
Clauses of the United States and Colorado Constitutions. Because
of our rulings in Parts II.B and II.C above, we need only address the
elimination of lender approval for declaring obsolescence.
¶ 37 However, DA has not pointed out where this issue was
preserved in the district court. Similarly, it has not identified, and
we are not aware of, any location in the record where it asserted in
the district court that the 2012 Amendments’ effect on lender
approval was unconstitutional. See C.A.R. 28(a)(7)(A). Thus, the
issue is not preserved. See Hassler v. Account Brokers of Larimer
Cty., Inc., 2012 CO 24, ¶ 35.
¶ 38 Moreover, the discussion of this issue in DA’s opening brief
addresses primarily the reduction of the one hundred percent
owner voting requirements to sixty-seven percent. DA makes a
single reference to the elimination of the lender approval
requirement, but without explanation. Thus, we need not consider
it. See Barnett v. Elite Props. of Am., Inc., 252 P.3d 14, 19 (Colo.
App. 2010) (appellate court will not consider a proposition
21
presented without argument or development; an appellant must
make specific assertions of error, supported by facts and authority).
¶ 39 DA also argues that elimination of lender approval would place
it in default on its deed of trust on its condominium unit. The only
factual support for this allegation is an unverified pleading on
behalf of DA’s apparent Lender. However, we cannot accept
unsworn contentions made by a party’s lawyer where there is no
evidence in the record to support them. See Mining Equip. Inc. v.
Leadville Corp., 856 P.2d 81, 86 (Colo. App. 1993) (rejecting a
party’s contention because the party cited no supporting evidence
in the record); Westrac, Inc. v. Walker Field, 812 P.2d 714, 718
(Colo. App. 1991) (bare statements in briefs cannot supply that
which must appear from a certified record). DA asserts that
elimination of the lender approval requirements would violate
section 38-33.3-217. As previously discussed, however, section 38-
33.3-217 does not address amendments to lender approval
requirements in declarations, other than to provide a notification
procedure.
¶ 40 Accordingly, we reject DA’s challenge based on the alleged
effect of the 2012 Amendments on the lender approval requirements
22
in the Declaration, except as they relate to GCE and the sharing of
common expenses.
E. Mandatory Buyout Provision
¶ 41 Finally, DA argues that the mandatory buyout provision in
section 10.1(c) of the 2012 Amendments is invalid as a matter of
law because it would violate (1) the Board’s fiduciary duties to deal
impartially with the Association’s members; (2) the Board’s fiduciary
duty of loyalty to the members;3 and (3) the implied covenant of
good faith and fair dealing. We disagree.
¶ 42 At the outset, we note that DA has cited no authority that
mandatory buyouts are invalid as a matter of law. To the contrary,
Colorado has provided for forced buyouts by statute in certain
circumstances. See, e.g., § 7-64-701, C.R.S. 2016 (forced buyout
under Colorado Uniform Partnership Act). One division of this
court has suggested that a forced buyout in a closely held
corporation could be a preferable remedy to dissolution. Polk v.
Hergert Land & Cattle Co., 5 P.3d 402, 406 (Colo. App. 2000). And
3 The parties do not raise the issue whether the Association owes
these fiduciary duties to its members. We therefore do not address
that issue. We assume, without deciding, that DA may assert its
breach of fiduciary responsibility claims against the Board, even
though it has not named any Board members in its complaint.
23
the Declaration that DA is defending and relying on includes a
forced buyout clause.
¶ 43 A fiduciary has a duty to deal with utmost good faith and
solely for the benefit of the beneficiary; the fiduciary owes to its
beneficiaries, among other duties, the duties of loyalty and to deal
with them impartially. Woodmoor Imp. Ass’n v. Brenner, 919 P.2d
928, 933 (Colo. App. 1996). DA has not demonstrated that the
mandatory buyout provision in this case violates the duties of
impartiality or loyalty as a matter of law. The provision applies to
all members and does not favor certain members at the expense of
any others. It does not permit the Association to compete with the
members or otherwise advance its own interests over those of the
members. See Restatement (Third) of Agency § 8.04 (2006) (duty of
loyalty means an agent may not compete with the principal
concerning the subject matter of the agency); see also Smith v.
Mehaffy, 30 P.3d 727, 733 (Colo. App. 2000) (“A breach of the duty
of undivided loyalty occurs when [the agent] obtains a personal
advantage in dealing with a [beneficiary] or . . . creates
circumstances that adversely affect the [beneficiary’s] interests.”).
24
¶ 44 The implied duty of good faith and fair dealing “may be relied
upon ‘when the manner of performance under a specific contract
term allows for discretion on the part of either party.’” New Design
Constr. Co. v. Hamon Contractors, Inc., 215 P.3d 1172, 1181 (Colo.
App. 2008) (quoting City of Golden v. Parker, 138 P.3d 285, 292
(Colo. 2006)). “Discretion in performance occurs ‘when the parties,
at formation, defer a decision regarding performance terms of the
contract’ leaving one party with the power to set or control the
terms of performance after formation.” Id. (quoting Parker, 138
P.3d at 292). “Whether a party acted in good faith is a question of
fact which must be determined on a case by case basis.” Amoco Oil
Co. v. Ervin, 908 P.2d 493, 499 (Colo. 1995).
¶ 45 We conclude for two reasons that DA has not demonstrated a
breach of the implied covenant of good faith and fair dealing. First,
there is no discretionary term to which it would apply; the
mandatory buyout provision requires the Association to purchase a
dissenting or abstaining voter’s unit at the fair market value of the
unit, as determined by an appraisal. The mandatory buyout
provision does not give the Association any discretion to determine
the terms or conditions of the buyout. Second, because, under the
25
facts of this case, the Association has not acted on this provision by
initiating a mandatory buyout, we cannot speculate whether, in a
hypothetical future buyout, the Board might then fail to act in good
faith.
¶ 46 Accordingly, DA has not established the invalidity of the
mandatory buyout provision.
F. Summary
¶ 47 In summary, we conclude that section 13.1 of the 2012
Amendments, which provides that the Declaration may be amended
by affirmative vote of the owners holding at least sixty-seven
percent of the total Association vote, is invalid to the extent it
conflicts with the prohibition in paragraph 18 of the Declaration on
any alteration in the undivided interests in the GCE appurtenant to
each unit and the provisions of the Declaration governing the
sharing of common expenses. Those provisions may not be
amended without the consent of all the owners and their Lenders in
the manner prescribed by paragraph 18.4 In all other respects, the
4Because we make these determinations as a matter of law and DA
prevails on this issue, we need not address DA’s argument that a
genuine issue of material fact exists as to whether the 2012
Amendments alter the GCE.
26
2012 Amendments challenged by DA are valid. On remand, the
district court should issue a decree so stating.
III. DA’s Request for Attorney Fees and Costs
¶ 48 DA contends that the district court erred by denying its
request for fees and costs incurred in connection with its efforts to
obtain disclosure and discovery of documents the Association
claimed are privileged.
¶ 49 We review for an abuse of discretion a district court’s decision
to grant or deny sanctions, including an award of fees and costs,
under C.R.C.P. 37 based on disclosure and discovery deficiencies.
Winkler v. Shaffer, 2015 COA 63, ¶ 7. Courts are given wide
flexibility in determining whether to impose sanctions. Kallas v.
Spinozzi, 2014 COA 164, ¶ 19. A court abuses its discretion if its
decision is manifestly arbitrary, unreasonable, or unfair or based on
an erroneous application of the law. Vanderpool v. Loftness, 2012
COA 115, ¶ 19.
¶ 50 C.R.C.P. 37(a)(4)(A) provides that when a motion to compel
disclosure or discovery is granted,
the court may, after reasonable notice and an
opportunity to be heard, if requested, require
the party or deponent whose conduct
27
necessitated the motion or the party or
attorney advising such conduct or both of
them to pay to the moving party the
reasonable expenses incurred in making the
motion, including attorney fees, unless the
court finds that the motion was filed without
the movant’s first making a good faith effort to
obtain the disclosure or discovery without
court action, or that the opposing party’s
nondisclosure, response, or objection was
substantially justified or that other
circumstances make an award of expenses
manifestly unjust.
(Emphasis added.) As is apparent from the plain language of Rule
37, awarding fees and costs is not mandatory. See Kallas, ¶ 20; 4
Sheila K. Hyatt & Stephen A. Hess, Colorado Practice Series, Civil
Rules Annotated § 37 authors’ cmt. 37.3 (4th ed. 2005) (“Rule
37(a)(4) provides for an order requiring payment of expenses of the
motion to compel after the court determines whether the discovery
is improperly sought or withheld. This award is discretionary, and
the court has the flexibility to fashion such orders as are just.”).
¶ 51 DA argues that the district court erred because (1) it denied
DA’s motion for attorney fees in a single-sentence order that is
devoid of any findings and (2) the Association’s failure to produce
was not substantially justified. We are not persuaded.
28
¶ 52 Notwithstanding DA’s statement that “[t]here is no way to
know the trial court’s reasoning or analysis,” the district court
adopted the Association’s arguments in its response to DA’s
C.R.C.P. 37 motion as its reasoning for denying DA’s motion for
sanctions. The Association’s response sets forth multiple reasons
supporting a denial of attorney fees, including that the Association
was justified in asserting a privilege on the attorney files that DA
sought that were not relevant to the case.
¶ 53 We conclude that the record supports the determination that
the Association was substantially justified in objecting to logging
and producing the attorney files requested by DA for several
reasons:
• The Association argued that the documents sought
exceeded the scope of permissible discovery. The district
court recognized the legitimacy of this concern when it
granted the motion to compel production of a privilege log:
“Whether the Complaint is sufficiently particular to require
a disclosure pursuant to C.R.C.P. 26 is a close question.”
• None of the orders by the district court and special master
granting the motions to compel suggested that the
29
Association’s objections to the motions to compel were filed
in other than good faith or otherwise not substantially
justified.
• In its order denying the C.R.C.P. 37(a)(4) motion, the court
adopted the reasons set forth in the Association’s response
to the motion. The response provided the bases for the
positions it took in opposing the motions to compel. We
conclude that the district court did not abuse its discretion
in finding that those reasons provided substantial
justification for the Association’s objections.
• DA argues that the filing of a motion for a protective order
was unnecessary and “arguably unauthorized.” The
Association responds that it filed the protective order to
preserve it objections, citing Scott v. Matlack, Inc., 39 P.3d
1160, 1173 (Colo. 2002) (“Once sanctions are sought, the
party that failed to file for a protective order has waived its
objection to the admissibility of evidence it failed to produce
through discovery.”). We conclude that the district court
did not abuse its discretion in denying attorney fees with
respect to the motion on this basis.
30
¶ 54 Accordingly, the district court did not abuse its discretion by
denying DA’s C.R.C.P. 37(a)(4) motion for fees and costs.
IV. The Association’s Cross-Appeal
¶ 55 On cross-appeal, the Association challenges the district court’s
rulings requiring the Association to produce privilege logs of certain
documents, denying its motion for a protective order for those
materials, and granting DA’s motions to compel their production.
As part of the relief sought by the Association on the cross-appeal,
it requests the return of its documents claimed to be privileged. We
review the discovery rulings for an abuse of discretion. Cardenas v.
Jerath, 180 P.3d 415, 421 (Colo. 2008) (privilege log); Stone v. State
Farm Mut. Auto. Ins. Co., 185 P.3d 150, 155 (Colo. 2008) (motion to
compel); Liscio v. Pinson, 83 P.3d 1149, 1156 (Colo. App. 2003)
(protective order).
A. The Privilege Log
¶ 56 We first address the court’s December 2012 order requiring
the Association to provide a privilege log. After the parties made
their initial disclosures, DA filed a motion to compel the Association
to turn over the files of the attorney who advised it on matters
related to the drafting of the 2012 Amendments. The court ordered
31
the Association to disclose documents in the attorney’s file that are
not privileged and to create a privilege log for those withheld. The
Association did so and now argues that the court abused its
discretion in so ordering because the attorney files were not
relevant to DA’s claims.
¶ 57 The Colorado Rules of Civil Procedure govern the scope of
discovery in civil cases. The test for determining whether
information is discoverable is found in C.R.C.P. 26(b)(1). The
version of the rule in effect at all relevant times provided, in
pertinent part:
parties may obtain discovery regarding any
matter, not privileged, that is relevant to the
claim or defense of any party. . . . Relevant
information need not be admissible at the trial
if the discovery appears reasonably calculated
to lead to the discovery of admissible evidence.
C.R.C.P. 26(b)(1) (2013).5 Relevance for purposes of discovery is
different from relevance for admissibility of evidence at trial. Parties
may obtain discovery that relates to a claim or defense of any party
and is “reasonably calculated to lead to the discovery of admissible
5C.R.C.P. 26(b)(1) was amended in July 2015, effective on July 1,
2015, for cases filed on or after that date, to narrow the scope of
discovery and to import the principle of proportionality from former
C.R.C.P. 26(b)(2)(F)(iii).
32
evidence,” even if not admissible itself. Silva v. Basin W., Inc., 47
P.3d 1184, 1188 (Colo. 2002) (citation omitted); see also C.R.C.P.
26(b)(1).
¶ 58 Under the former version of C.R.C.P. 26(b)(5) (now C.R.C.P.
(26)(b)(5)(A)), when a party believes that information subject to
disclosure or sought in discovery is privileged, the party may
withhold the information, but must “make the claim [of privilege]
expressly and shall describe the nature of the documents,
communications, or things not produced or disclosed in a manner
that, without revealing information itself privileged or protected, will
enable other parties to assess the applicability of the privilege or
protection.” See Alcon v. Spicer, 113 P.3d 735, 742 (Colo. 2005)
(“[W]hen a party wishes to assert privilege in response to a discovery
request he or she must notify the party seeking disclosure by
providing a privilege log identifying the documents withheld and
explaining the privilege claim.”).
¶ 59 The Association argues that the district court applied the
wrong legal standard to DA’s request for the attorney’s file and the
contents of the file were not relevant because “[t]he key question in
this case — whether § [38-33.3-]217(1) automatically reduces the
33
various supermajority requirements in the 1977 Declarations — is
strictly a question of statutory interpretation.”
1. Proportionality
¶ 60 We first address the Association’s argument on the proper
legal standard. It argues that the court did not make a finding on
proportionality required by DCP Midstream, LP v. Anadarko
Petroleum Corp., 2013 CO 36. DA counters that the court was not
required to do so because it ruled on the scope of discovery before
Anadarko was decided and the rule in effect at the time did not
require a proportionality analysis.
¶ 61 A brief timeline of the pertinent motions and rulings here is
helpful in assessing this argument. The district court ruled on DA’s
motion for disclosure and a privilege log in December 2012, and it
appointed the special master to resolve discovery issues in early
2013. As relevant here, the court ordered the Association to
produce the attorney’s files and make a privilege log for withheld
privileged documents because the attorney was an “integral part” of
the facts giving rise to the litigation and the court would be faced
with similar motions later if it did not address the request.
Anadarko was decided in June 2013, and the Association filed a
34
supplemental brief the following month arguing that the court
should apply Anadarko to the discovery motions before it, thus
preserving the argument for appeal. The special master issued an
order thereafter in September 2013 finding that the documents
were not protected by the attorney-client privilege and compelling
production of all the documents listed in the privilege log. The
district court adopted the special master’s order in October 2013.
See C.R.C.P. 53(e)(2). Thus, Anadarko was decided and brought to
the attention of the special master and the court before the orders
compelling production of the documents listed in the privilege log
were issued.
¶ 62 In Anadarko, ¶ 8, the supreme court determined that C.R.C.P.
26(b) “requires trial courts to take an active role managing discovery
when a scope objection is raised.” When a party raises an objection
to the scope of requested information, such as one that the
documents requested are not relevant, “the trial court must
determine the appropriate scope of discovery in light of the
reasonable needs of the case and tailor discovery to those needs.”
Id.
35
¶ 63 The Association argues that Anadarko requires the court to
make an express finding on proportionality when determining the
proper scope of discovery. The Anadarko court determined that the
cost-benefit and proportionality factors in C.R.C.P. 26(b)(2)(F) are
“helpful” in determining the scope of discovery and district courts
should consider them. Id. But the court went on to explain that
“[w]hen tailoring discovery, the factors relevant to a trial court’s
decision will vary depending on the circumstances of the case, and
trial courts always possess discretion to consider any or all of the
factors listed — or any other pertinent factors — as the needs of the
case require.” Id. at ¶ 9 (emphasis added). The purpose of C.R.C.P.
26(b), the court said, is to require active judicial management of
discovery requests when a scope objection is made in order to
control excessive requests. Id. at ¶¶ 8, 28.
¶ 64 Cost-benefit and proportionality were factors that courts
overseeing discovery considered before the Anadarko decision. See
Averyt v. Wal-Mart Stores, Inc., 265 P.3d 456, 461 (Colo. 2011)
(explaining that discovery and disclosure are not required for public
documents because “[t]he burden imposed upon the parties by such
continuing disclosure outweighs any benefit of expediency gained
36
by automatically sharing the information where, as here, the public
information is readily available and equally accessible to both
parties”); In re Attorney D., 57 P.3d 395, 399 (Colo. 2002) (“Even
though [the Colorado Rules of Civil Procedure] permit broad
discovery, it is not unlimited. The discovery process can be abused
by disproportionate and inappropriate requests that increase the
cost of litigation, harass an opponent, or tend to delay a fair and
just determination of the legal issues.”) (citation omitted); Silva, 47
P.3d at 1188 (same). The Anadarko decision does not, then, reflect
a significant departure from the previous method of determining the
scope of discovery, but rather, highlights cost-benefit and
proportionality as important factors that a court should consider
when taking an active role to manage discovery and to avoid
excessive requests.
¶ 65 The district court here took an active managerial role when the
Association objected to the scope of DA’s disclosure and discovery
requests. When the dispute over the attorney’s file developed, the
court addressed the issue and the arguments that the Association
raised — that the complaint was not sufficiently particular to
require disclosure of the file (which is essentially an argument on
37
relevance), that the Association should not have had to produce a
privilege log because DA did not have to produce one, and that the
documents were privileged and therefore not relevant — and the
court concluded that the files were directly relevant to the case. It
narrowly defined the scope of relevant documents as those in the
files kept by the attorney and his colleagues pertaining to the single
topic of amending the Declaration. Other than stating that the
production of a privilege log would require significant time and
expense that was disproportionate “when compared to the
nonexistent value to the Plaintiff or the case,” the Association did
not argue with specificity that producing the documents would be
unduly burdensome. And the court addressed the aspect of
proportionality when it determined that the files were “integral” to
the case — thus determining their value was not “nonexistent” to
DA.
¶ 66 Further, there is no evidence in the record that the request
was disproportionate. DA requested documents in a file on a single
topic which were in existence at the time the request was made and
which could be identified and reproduced without undue burden.
The Association has not provided specifics on either the volume of
38
production or the costs of gathering, logging, and producing the
documents. To the extent that the Association incurred extensive
fees and costs in litigating over the privilege issue, such expenses
were voluntarily incurred.
2. Relevance
¶ 67 Contrary to the Association’s second argument about why the
court should not have required it to produce a privilege log, the
record supports the court’s determination that the files were
relevant. As discussed above, the applicable test is whether the
materials are relevant to the parties’ claims and defenses. In its
amended complaint, DA made the following allegations, among
others:
 “For a number of years now, certain Members of the
Association have wanted to redevelop [the community].
Numerous proposals have been discussed and circulated.
These proposals . . . all would significantly increase the
ownership density of [the community], significantly
diminish or eliminate the green space surrounding [the
community], and fundamentally alter its character.”
39
 A recent development project proposes to demolish the
community and rebuild a thirty or forty unit development
with no green space.
 This and other proposals did not garner the requisite
eighty-five percent member approval to declare
obsolescence, so “the Association, under the guise of
‘document modernization,’ hired lawyers to re-write the
Declaration.”
 “The Amendments are an integral and essential part of
the over-arching scheme to redevelop [the Community]
without following the requirements of the Declaration.”
 “Another improper aspect of the [2012 Amendments] is
. . . [the] mandatory buyout provision which is essentially
a poison pill penalty directed at the Owners who object to
redevelopment. . . . This coercive provision goes against
the original intent of the Declaration, takes away existing
rights and expectations, and is another way of indirectly
changing the ownership of GCE without following the
Declaration’s requirement” of unanimous member and
lender approval.
40
Because of DA’s allegations, the records of the attorneys who
drafted the contested 2012 Amendments could reasonably have
contained information helpful in answering questions about how
the 2012 Amendments would affect existing provisions of the
Declaration and the Association’s governance of the Community.
The drafter’s intent might have been particularly probative of DA’s
arguments related to the Association’s fiduciary duties.
¶ 68 Thus, the documents were relevant to the claims and defenses
of the parties and could reasonably have led to the discovery of
other evidence. The district court, therefore, did not abuse its
discretion in determining that the requested documents were
relevant and requiring the Association to create a privilege log of the
documents it argued were protected by attorney-client privilege.
B. Production of the Attorney’s File
¶ 69 The Association next argues that (1) because the documents at
issue were subject to the attorney-client privilege, the court abused
its discretion in compelling their production in the first instance;
and (2) we should reverse the court’s order adopting the special
master’s order denying a protective order and require DA to return
the documents.
41
¶ 70 The attorney-client privilege is codified by statute and operates
to protect communications regarding legal advice between attorney
and client. Anadarko, ¶ 40; see also Oldham v. Pedrie, 2015 COA
95, ¶ 46. Colorado has codified the attorney-client privilege as
follows: “[a]n attorney shall not be examined without the consent of
his client as to any communication made by the client to him or his
advice given thereon in the course of professional employment[.]”
§ 13-90-107(1)(b), C.R.S. 2016. However, “[n]o blanket privilege for
all attorney-client communications exists.” Wesp v. Everson, 33
P.3d 191, 197 (Colo. 2001). This privilege applies only to
“confidential matters communicated by or to the client in the course
of obtaining counsel, advice, or direction with respect to the client’s
rights or obligations.” People v. Madera, 112 P.3d 688, 690 (Colo.
2005) (citation omitted).
¶ 71 The special master found that the attorney-client privilege did
not apply to DA’s request for the attorney’s file for a number of
reasons, including that “the privilege does not apply under Garner
and Neusteter because Plaintiff DA alleges that the Association is
acting inimically to the interests of its own members.” Because we
determine that this conclusion is correct, we need not address the
42
special master’s remaining conclusions. See Rush Creek Sols., Inc.
v. Ute Mountain Ute Tribe, 107 P.3d 402, 406 (Colo. App. 2004) (we
may affirm a district court’s ruling based on any grounds that are
supported by the record). The application of the attorney-client
privilege is a question of law we review de novo. See People v.
Trammell, 2014 COA 34, ¶ 9.
¶ 72 The Garner and Neusteter cases to which the special master
referred are Garner v. Wolfinbarger, 430 F.2d 1093, 1104 (5th Cir.
1970), and Neusteter v. District Court, 675 P.2d 1, 3-4 (Colo. 1984),
which address the applicability of privileges to discovery requests in
actions brought by shareholders against their corporations. To
determine the applicability of these cases to the present case, we
first examine their predecessor, Pattie Lea, Inc. v. District Court, 161
Colo. 493, 423 P.2d 27 (1967).
¶ 73 In Pattie Lea, when a minority shareholder brought an action
against the corporation and sought to depose the corporation’s
accountant, the corporation asserted the accountant-client
privilege. Id. at 495, 423 P.2d at 28. The supreme court held that
the accountant-client privilege “does not protect a corporation from
being required to disclose to its own stockholders in a derivative
43
suit brought in good faith against the corporation, communications
made by the corporation to its certified public accountant.” Id. at
498, 423 P.2d at 30. The court explained that a certified public
accountant is hired for the benefit of all of the stockholders and the
stockholders are therefore entitled to the information the
accountant gives the corporation. Id.
¶ 74 After this decision in Pattie Lea, the Fifth Circuit Court of
Appeals addressed nearly the same question about the rights of
plaintiff stockholders to discovery in an action alleging the
corporation acted against the stockholder’s interests. Garner, 430
F.2d at 1095-96. But there, the documents the shareholders
sought were in possession of the corporation’s attorney, and the
corporation argued that the documents were protected by the
attorney-client privilege. Id. at 1096. The Fifth Circuit determined
that “where the corporation is in suit against its stockholders on
charges of acting inimically to stockholder interests, protection of
those interests as well as those of the corporation and of the public
require that the availability of the privilege be subject to the right of
the stockholders to show cause why it should not be invoked in the
particular instance.” Id. at 1103-04 (emphasis added). In making
44
this determination, the court acknowledged the Colorado Supreme
Court’s “strikingly similar” decision in Pattie Lea. Id. at 1103. And
it set forth factors that could establish good cause for setting aside
the privilege in favor of the stockholders, such as:
the number of shareholders and the
percentage of stock they represent; the bona
fides of the shareholders; the nature of the
shareholders’ claim and whether it is obviously
colorable; the apparent necessity or
desirability of the shareholders having the
information and the availability of it from other
sources; whether, if the shareholders’ claim is
of wrongful action by the corporation, it is of
action criminal, or illegal but not criminal, or
of doubtful legality; whether the
communication related to past or to
prospective actions; whether the
communication is of advice concerning the
litigation itself; the extent to which the
communication is identified versus the extent
to which the shareholders are blindly fishing;
the risk of revelation of trade secrets or other
information in whose confidentiality the
corporation has an interest for independent
reasons.
Id. at 1104. This has come to be referred to as the “good cause”
test.
¶ 75 Fourteen years later, the Colorado Supreme Court in Neusteter
returned to the question whether a privilege applied against
shareholders suing the corporation. 675 P.2d at 4. There, the
45
corporation asserted the accountant-client privilege when the
shareholders sought information provided to the corporation by its
accountant. Id. The supreme court applied its precedent in Pattie
Lea and adopted the “good cause” test from Garner, deeming the
test “an appropriate elaboration and development” of the holding in
Pattie Lea. Id. at 6. On the fact that Garner concerned the
attorney-client privilege, the court said that this privilege is
analogous to the accountant-client privilege. Id. at 5. The court
then concluded that when the question “whether the corporation
was governed properly or inimically to shareholder interests is a
central issue of the case, shareholders must be permitted to show
that there is good cause not to permit disclosure to be thwarted by
invocation of the [accountant-client] privilege.” Id. at 6. It also
adopted verbatim the good cause factors set forth in Garner. Id. at
6 n.6.
¶ 76 Neusteter is similar to the present case in all relevant ways
except that it involved the accountant-client privilege rather than
the attorney-client privilege. However, Neusteter adopted the
Garner rule that applied to the attorney-client privilege and, in
applying it to claims of accountant-client privilege, made clear that,
46
at least for the purpose of disclosing information to shareholders in
a derivative suit against the corporation, the two privileges are
analogous. Id. at 5. Thus, the Garner good cause test applies here,
and when shareholders allege that the corporation acted inimically
to their interests and seek information from the corporation’s
attorney, the shareholders may show good cause as to why the
attorney-client privilege does not apply. Such a showing of good
cause overcomes the privilege.
¶ 77 We note that the United States District Court for the District of
Colorado has twice concluded that the supreme court would apply
the Garner good cause test to determine if shareholders in a suit
against the corporation could overcome the attorney-client privilege.
See Galena St. Fund, L.P. v. Wells Fargo Bank, N.A., No. 12-cv-
00587-BNB-KMT, 2014 WL 943115, at *2 (D. Colo. Mar. 10, 2014)
(unpublished opinion); Ryskamp ex rel. Boulder Growth & Income
Fund v. Looney, No. 10-cv-00842-WJM-KLM, 2011 WL 3861437, at
*10 (D. Colo. Sept. 1, 2011) (unpublished opinion).
¶ 78 In the present case, the special master found, and the court
adopted his findings and conclusions, that the factors from Garner
weighed in favor of DA because: (1) it was a longstanding member of
47
the Association; (2) the communications related to past
communications and not trial matters; (3) the communications
sought were not advice concerning the litigation itself; (4) there was
no risk of revealing trade secrets or confidential information; (5)
although DA’s percentage of the GCE was 7.78 percent, members
representing 25.61 percent of the GCE voted against the 2012
Amendments; (6) DA’s claims were colorable because they survived
a motion to dismiss and alleged the improper elimination of secured
lenders; (7) the information sought was necessary and not available
from other sources; (8) the full and fair litigation of the issues
required the production of the documents; and (9) the information
sought was identified and did not require a fishing expedition.
¶ 79 We conclude that the record supports the special master’s and
court’s findings of good cause to waive the privilege and grant DA
access to the attorney’s file. Although DA’s percentage of GCE is
relatively small and it is not joined in the lawsuit by any other
members, DA’s lawsuit aligns with the interests of the members
representing 25.6 percent of the ownership of the GCE who voted
against the 2012 Amendments. In addition, as our discussion in
Part II illustrates, DA’s claims were colorable and not frivolous.
48
Further, the requested files were, as the district court found,
directly relevant as communications of advice concerning the
amendments at issue but did not constitute advice about the
litigation itself. As we stated, the communications were specifically
identified and could be readily located and produced. Finally, the
Association has not identified any information in the attorney file
that is confidential for independent reasons. Thus, on balance, the
record supports the special master’s findings and conclusions,
adopted by the court, that DA was entitled to disclosure of the
attorney’s file.
¶ 80 Accordingly, the district court did not abuse its discretion in
ordering the disclosure and production of the documents or denying
the request for a protective order.
V. Attorney Fees and Costs under CCIOA
¶ 81 Both parties seek appellate attorney fees and costs pursuant
to section 38-33.3-123, C.R.S. 2016, which governs awards of
attorney fees under CCIOA. The statute permits an award of
attorney fees and costs to the prevailing party. See § 38-33.3-
123(1)(c).
49
¶ 82 The Association moved for its attorney fees and costs in the
district court as the prevailing party, pursuant to section 38-33.3-
123(1)(c). The district court issued an order finding the Association
to be the prevailing party. It concluded, however, that it would be
cost effective to defer the hearing on the amount of an award until
after this court ruled on the merits of the appeal. The Association
appealed that order in case 15CA0203, and another division of this
court dismissed the appeal of that issue as premature. We
therefore do not address the district court’s award of fees other than
to note that we are reversing the judgment in part.
¶ 83 Both parties seek their fees incurred on appeal under section
38-33.3-123(1)(c). Because that issue is intertwined with the award
of fees incurred in the district court under the same section, we
exercise our discretion under C.A.R. 39.1 and remand to the district
court to determine the entitlement to and the amount of any
attorney fees incurred on appeal.
VI. Conclusion
¶ 84 The judgment is affirmed in part and reversed in part and
remanded to the district court with directions for proceedings
50
consistent with the conclusions set forth in Parts II and V of this
opinion.
JUDGE TAUBMAN and JUDGE FOX concur.
51