Court Opinion

ID: 4318397
Source: CourtListenerOpinion
Date Created: 2018-10-04 22:08:37.429176+00
Date Added: 2024-06-11T14:45:26.655435
License: Public Domain

The summaries of the Colorado Court of Appeals published opinions
  constitute no part of the opinion of the division but have been prepared by
  the division for the convenience of the reader. The summaries may not be
    cited or relied upon as they are not the official language of the division.
  Any discrepancy between the language in the summary and in the opinion
           should be resolved in favor of the language in the opinion.

                                                                   SUMMARY
                                                              October 4, 2018

                               2018COA148

No. 17CA1663 Town of Monument v. State of Colorado — Real
Property — Restrictive Covenants; Eminent Domain

     A division of the court of appeals holds that, under the

Colorado Supreme Court’s decision in Smith v. Clifton Sanitation

District, 134 Colo. 116, 300 P.2d 548 (1956), a restrictive covenant

banning certain uses of property is not a compensable property

interest in the context of an eminent domain case. Smith is not

limited to its facts, but instead announces a broad rule. In so

holding, the division rejects dictum to the contrary in City of

Steamboat Springs v. Johnson, 252 P.3d 1142 (Colo. App. 2010).
COLORADO COURT OF APPEALS                                       2018COA148

Court of Appeals No. 17CA1663
El Paso County District Court No. 17CV30105
Honorable Eric Bentley, Judge

Town of Monument, a statutory municipality of the State of Colorado,

Plaintiff-Appellant,

v.

State of Colorado, by and through the State Board of Land Commissioners;
Forest View Company; and Raymond Decker,

Intervenors-Appellees.

                       JUDGMENT REVERSED AND CASE
                        REMANDED WITH DIRECTIONS

                                 Division VII
                         Opinion by JUDGE J. JONES
                         Ashby and Harris, JJ., concur

                         Announced October 4, 2018

Murray Dahl Kuechenmeister & Renaud LLP, Malcolm Murray, Joseph Rivera,
Lakewood, Colorado, for Plaintiff-Appellant

Cynthia H. Coffman, Attorney General, Ed Hamrick, Senior Assistant Attorney
General, Eva La, Assistant Attorney General, Denver, Colorado, for Intervenor-
Appellee State of Colorado

Hanes & Bartels LLC, Richard W. Hanes, Brenda L. Bartels, Colorado Springs,
Colorado, for Intervenors-Appellees Forest View Company and Richard Decker
¶1    The Town of Monument (the Town) bought a parcel of real

 property in a residential subdivision, intending to construct a

 municipal water storage tank on the lot. There was only one

 problem: a restrictive covenant prohibiting such structures applies

 to all lots in the subdivision. So the Town filed this case, seeking to

 use its power of eminent domain to have the court declare its

 property free of the restrictive covenant. Not so fast, said some of

 the other owners of lots in the subdivision, who had intervened in

 the case.1 They said because the restrictive covenant benefits all

 property in the subdivision, the Town can’t eliminate the restrictive

 covenant on its lot without paying every property owner in the

 subdivision an amount compensating each of them for the loss in

 value to their respective properties. The State Board of Land

 Commissioners (Land Board), which owns several lots in the

 subdivision, presented an even greater obstacle to the Town’s goal.

 It asserted that because the restrictive covenant is a compensable

 interest in the property, and the power of eminent domain can’t be

 used against the State, the Town can’t eliminate the restrictive

 1 The Town originally named only itself (as the owner of the parcel
 in question) and the county treasurer as defendants.

                                    1
 covenant on its lot. The Town fought back, claiming that the

 restrictive covenant isn’t a compensable interest in property in the

 context of an eminent domain case.

¶2    Everyone recognized that the case came down to deciding

 whether the Colorado Supreme Court’s decision in Smith v. Clifton

 Sanitation District, 134 Colo. 116, 300 P.2d 548 (1956), or the

 Colorado Court of Appeals’ decision in City of Steamboat Springs v.

 Johnson, 252 P.3d 1142 (Colo. App. 2010), controls. In the former,

 an eminent domain case, the court held that a restrictive covenant

 wasn’t a compensable property interest. Smith, 134 Colo. at 119-

 21, 300 P.2d at 549-50. In the latter, also an eminent domain case,

 the division said that a restrictive covenant was a compensable

 property interest. Johnson, 252 P.3d at 1146.

¶3    The district court agreed with the intervening landowners. It

 reasoned that Smith, which involved property owners who agreed to

 a restrictive covenant for the clear purpose of preventing a

 condemnation, must be limited to its particular facts; this case

 doesn’t involve comparable facts; and Johnson sets forth the better

 rule. This ruling rendered the Town’s condemnation action

 untenable for several practical reasons, but also because the power

                                   2
 of eminent domain can’t be exercised against the State. As a result,

 the parties stipulated to a dismissal of the case with prejudice. The

 court granted the stipulation. The Town timely appealed from the

 dismissal, raising only the issue whether Smith controls.

¶4    We hold that the holding and underlying reasoning of Smith

 aren’t limited to that case’s particular facts. That is, the court

 announced a rule of law — that a restrictive covenant isn’t a

 compensable property interest in an eminent domain case — and

 the rule isn’t limited to situations where the affected property

 owners agree to the restrictive covenant in a clear attempt to thwart

 acquisition of property by a public entity for public use. We

 therefore reverse and remand the case for further proceedings.

                       I.   We Have Jurisdiction

¶5    Though the Land Board stipulated to the dismissal with

 prejudice so that the Town could appeal the issue presented, it now

 argues that because of that dismissal we lack jurisdiction over the

 appeal.2 The Land Board says the order ruling on the Smith issue

 isn’t appealable because it didn’t resolve the case on the merits and,

 2Forest View Company and Raymond Decker, the other appellees,
 haven’t made any similar argument.

                                    3
 relying primarily on Foothills Meadow v. Myers, 832 P.2d 1097

 (Colo. App. 1992), the stipulation for dismissal with prejudice

 means no court has jurisdiction over the case. Both arguments fail.

¶6    The order disposing of the Smith issue may or may not have

 been a final judgment. But regardless, the dismissal with prejudice

 clearly constituted a final, appealable judgment. Id. at 1098; Dailey

 v. Montview Acceptance Co., 514 P.2d 76, 78 (Colo. App. 1973) (not

 published pursuant to C.A.R. 35(f)). And once the court entered it,

 the legal ruling on which the dismissal was premised became

 appealable. See BCW Enters., Ltd. v. Indus. Claim Appeals Office,

 964 P.2d 533, 537 (Colo. App. 1997) (“[A]n interlocutory order

 becomes reviewable when appealed incident to or in conjunction

 with an otherwise final order.”); see also McBride v. CITGO

 Petroleum Co., 281 F.3d 1099, 1104 (10th Cir. 2002) (notice of

 appeal designating the final judgment is sufficient to support review

 of all earlier orders that merge into the final judgment).3

 3Of course, not all interlocutory rulings are appealable after the
 court enters a final judgment. See, e.g., Feiger, Collison & Killmer v.
 Jones, 926 P.2d 1244, 1250 (Colo. 1996) (“[T]he propriety of a
 summary judgment denial is not appealable after a trial on the
 merits.”).

                                    4
¶7    Further, the court’s order determining that the restrictive

 covenant is a compensable property interest, in effect, completely

 resolved the parties’ rights. See Brody v. Brock, 897 P.2d 769, 777

 (Colo. 1995) (an order on a question of law was a final, appealable

 order, notwithstanding that the court purported to dismiss the

 plaintiff’s claim without prejudice, because it completely determined

 the parties’ rights with respect to that claim); In re Custody of

 Nugent, 955 P.2d 584, 587 (Colo. App. 1997) (orders entered before

 court’s order of dismissal completely resolved the parties’ rights as

 to the issue raised on appeal). That’s because the Town can’t

 acquire property owned by the State via eminent domain, Town of

 Parker v. Colo. Div. of Parks & Outdoor Recreation, 860 P.2d 584,

 586-89 (Colo. App. 1993), and the Land Board owns several lots

 benefitted by the restrictive covenant. So there’s no way for the

 Town to eliminate the restrictive covenant on its lot in this

 proceeding, at least if the district court’s ruling stands.4

¶8    But what about Foothills Meadow, on which the Land Board so

 heavily relies? The short answer is that the Land Board misreads

 4The Land Board recognized this in urging the district court to
 dismiss the case.

                                     5
  the case. It doesn’t hold that once a district court dismisses a case

  with prejudice pursuant to the parties’ stipulation the case is over

  for all purposes, and the dismissal, or the underlying ruling

  prompting it, can’t be appealed. Rather, it holds, as does the case it

  cites, Columbia Sav. & Loan Ass’n v. Dist. Court, 186 Colo. 212,

  217, 526 P.2d 661, 664 (1974), that once a district court dismisses

  a case with prejudice, that court loses jurisdiction over the case,

  Foothills Meadow, 832 P.2d at 1097-98 (after the district court

  dismissed case with prejudice, a party to that case couldn’t later

  seek a declaratory judgment in that case against a new party

  because “neither the action nor the parties remain[ed] within the

  jurisdiction of the court”).5 So Foothills Meadow doesn’t apply to

  the Town’s appeal.

¶9     In sum, we conclude that we have jurisdiction over the Town’s

  appeal.

              II.   The Rule Announced in Smith Controls

¶ 10   The facts in Smith are, as appellees point out, somewhat

  unusual, in at least one sense. A sanitation district sought to

  5There are some exceptions to this rule. For example, the court
  would have jurisdiction to rule on a timely C.R.C.P. 60(b) motion.

                                     6
  obtain property on which it would build a “sanitary disposal

  system.” 134 Colo. at 118, 300 P.2d at 548. That, of course, wasn’t

  unusual. What was unusual was that after negotiations to buy the

  property broke down, the owner of the property and owners of many

  surrounding properties entered into a restrictive covenant barring

  the use of their properties for certain purposes, including as

  sanitary disposal systems. Their obvious goal was to try to prevent

  the sanitation district from obtaining the property for its desired

  purpose through eminent domain. Id. at 117-18, 300 P.2d at 548-

  49.

¶ 11    Undeterred, the sanitation district filed a condemnation

  petition anyway, naming only the owner of the subject property as a

  party. The district court refused to allow the other property owners

  to intervene, and they appealed. The supreme court phrased the

  question before it as follows:

             We are called upon to determine whether the
             intervenors by the execution and recording of
             these restrictive covenants should be made
             parties respondent in the condemnation case
             and permitted to recover damages because of
             the taking of the [subject property] for the uses
             of the District.

  Id. at 119, 300 P.2d at 549.

                                     7
¶ 12   In holding that the restrictive covenant couldn’t be enforced

  against the district, the court announced the following rule:

             We think it is fundamental that where a
             company, corporation or agency of the state is
             vested with the right of eminent domain and
             has acquired property thr[ough] eminent
             domain proceedings and is using the property
             for public purposes, no claim for damages
             arises by virtue of such a covenant as in the
             instant case, in favor of the owners of other
             property on account of such use by the
             condemner. . . . Parties may not by contract
             between themselves restrict the exercise of the
             power of eminent domain.

  Id. at 120-21, 300 P.2d at 550.

¶ 13   Taken at face value, this rule would seem to control this case

  — meaning the restrictive covenant doesn’t give the other lot owners

  a compensable property interest in this eminent domain proceeding.

  But the district court concluded otherwise, saying that the rule

  announced in Smith is “dicta” that applies “only in the unusual

  factual context of that case.” In so concluding, the court gave

  several reasons, some of which appellees adopt on appeal. Those

  reasons are: (1) the holding in Smith is limited to situations in

  which owners “scheme” in an “invalid” manner “contrary to sound

  public policy” to prevent condemnation; (2) the restrictive covenant

                                     8
  in this case doesn’t actually “restrict” the Town’s exercise of its

  power of eminent domain, the danger against which the Smith case

  warned; (3) Smith rested its broadly stated rule, at least partially, on

  property law concepts that are no longer valid; (4) Smith’s rationale

  appears to conflict with United States Supreme Court decisions

  holding that contracts are property within the meaning of the Fifth

  Amendment’s Takings Clause; (5) applying Smith as broadly as the

  Town urges would place Colorado in the minority of jurisdictions on

  this issue; and (6) because of factual differences between this case

  and Smith, Smith doesn’t control “even if one were to read [it] more

  broadly than” the district court did. To these reasons the Land

  Board adds that the Town agreed to the restrictive covenant when it

  bought its lot.

¶ 14   In the end, almost all these arguments are subsumed by the

  question whether Smith’s pronouncements of the law are confined

  to situations where the landowners agreed to the restrictive

  covenant for the purpose of thwarting a possible eminent domain

  action. We aren’t persuaded that they are. Indeed, we’re persuaded

  that Smith’s holding broadly applies to any situation in which a

  restrictive covenant such as the one at issue is interposed as an

                                     9
  obstacle to a condemning authority’s attempt to obtain property for

  public use through eminent domain. In our view, Smith holds, in

  short, that a restrictive covenant of this type isn’t a compensable

  property interest for eminent domain purposes.

¶ 15   We begin by acknowledging that the Smith court discussed,

  and was apparently troubled by, the way the restrictive covenant in

  that case came about. It did refer to a “scheme” by the property

  owners; one “contrary to sound public policy and invalid as against

  the constitutional and statutory rights of the condemner.” Id. at

  119, 300 P.2d at 549. But the “scheme” — or, put another way, the

  property owners’ intent — wasn’t the fulcrum of the court’s

  decision. Had it been so, the court wouldn’t have needed to

  articulate the rule set forth above. It could’ve just said that

  regardless whether such restrictive covenants are compensable

  property interests in this context, they aren’t when agreed to as part

  of a scheme to muck up a condemning authority’s plans to acquire

  property through eminent domain. But the court didn’t say

  anything like that. Instead, it articulated a rule in broad terms,

  without caveat. And it justified the rule with broadly applicable

  policy reasons; specifically, (1) the difficulty a condemning authority

                                    10
  would confront if it “had to respond in damages for each interest in

  a large subdivision or area subject to deed restrictions or restrictive

  covenants,” id. at 120, 300 P.2d at 550; (2) the inconsistency of the

  notion that property owners can, in effect, impose burdens on the

  public’s right of eminent domain with the notion, which the court

  approved of, that “[e]ach landowner holds his estate subject to the

  public necessity for the exercise of the right of eminent domain for

  public purposes,” id. at 121, 300 P.2d at 550 (quoting United States

  v. Certain Lands in Town of Jamestown, R.I., 112 F. 622, 629

  (C.C.D.R.I. 1899)); and (3) the concern that to hold otherwise would

  “subject the public agency . . . to the payment of speculative and

  unwarranted damages,” id. These policy reasons are implicated

  whenever a restrictive covenant of the type at issue in this case is in

  play, regardless of the property owners’ intent.

¶ 16   To all this, we add the observation that, in announcing the

  rule, the Smith court cited several cases from other jurisdictions as

  support. Id. None of those cases involved a scheme to thwart a

  public entity’s exercise of its eminent domain power; all announced

  a broad rule. See 2 Julias L. Sackman et al., Nichols on Eminent

  Domain § 5.07[4][b] (3d ed. 2015) (citing all of those cases, and

                                    11
  Smith, as taking the minority view that a restrictive covenant isn’t a

  compensable property interest). And other courts have cited Smith

  itself as adopting a broad, non-fact-specific rule. E.g., Direct Mail

  Servs., Inc v. Best, 729 F.2d 672, 676 n.2 (10th Cir. 1984); Leigh v.

  Village of Las Lunas, 108 P.3d 525, 530 (N.M. Ct. App. 2004); Sch.

  Dist. No. 3 v. Country Club of Charleston, 127 S.E.2d 625, 626 (S.C.

  1962).

¶ 17   The district court and appellees assert that the division said

  otherwise in Johnson. True. But it did so in dictum: the parties in

  that case had stipulated that the restrictive covenant was a

  compensable property interest, 252 P.3d at 1144, 1146, and so the

  division’s discussion of Smith wasn’t necessary to its holdings

  (which concerned the nature and valuation of the interest). See

  Hardesty v. Pino, 222 P.3d 336, 340 (Colo. App. 2009) (a holding

  and its necessary rationale aren’t dicta); Coon v. Berger, 41 Colo.

  App. 358, 360, 588 P.2d 386, 387 (1978) (“[A]ny expression of

  opinion on a question not necessary for the decision is merely obiter

  dictum.” (citing Young v. People, 54 Colo. 293, 307, 130 P. 1011,

  1016 (1913))), aff’d, 199 Colo. 133, 606 P.2d 68 (1980); Black’s Law

  Dictionary 1240 (10th ed. 2014) (defining “obiter dictum” as “[a]

                                    12
  judicial comment made while delivering a judicial opinion, but one

  that is unnecessary to the decision in the case and therefore not

  precedential”). And, the division’s analysis of Smith was quite brief;

  the division based its conclusions solely on the way the restrictive

  covenant in Smith had been created. As discussed above, we don’t

  agree that the Smith court’s pronouncements and underlying

  rationale reflect any essential dependence on those circumstances.

  See Johnson, 252 P.3d at 1147 (one division of the court of appeals

  isn’t bound by another division’s prior ruling). As we read Smith,

  the court was concerned with the negative practical effect restrictive

  covenants of the type at issue have on public entities’ efforts to

  exercise their constitutional and statutory rights of eminent

  domain.

¶ 18   Given our conclusion that Smith holds that a restrictive

  covenant of the type at issue isn’t a compensable property interest

  in an eminent domain case, the remainder of our course is clear.

  We must reverse the district court’s judgment and order. See In re

  Estate of Ramstetter, 2016 COA 81, ¶ 40 (Colorado Court of Appeals

  must follow Colorado Supreme Court precedent). Whether Smith’s

  holding is based on sound policy, consistent with more modern

                                    13
  property law concepts, or reflective of a minority view simply doesn’t

  matter. See People v. Novotny, 2014 CO 18, ¶ 26 (only the Colorado

  Supreme Court can overrule its own precedents on matters of state

  law).

¶ 19      But to put the matter completely at rest, we briefly address the

  other rationales proffered by the district court and appellees.

               Contrary to the district court’s assertion, the restrictive

                covenant at issue directly implicates the dangers with

                which the Smith court was concerned. The court wasn’t

                concerned merely with the authority’s ability to exercise

                the power of eminent domain; it was mainly concerned

                with the practical difficulties created by the need to

                award damages — largely “speculative” damages — “for

                each interest in a large subdivision.” Smith, 134 Colo.

                at 120-21, 300 P.2d at 550. The subdivision in this

                case has dozens of lot owners, all of whom can claim

                the benefit of the restrictive covenant. (And, in any

                event, as discussed, because the Land Board is a

                property owner benefitting from the restrictive covenant,

                the Town’s ability to condemn the restrictive covenant

                                       14
  would be foreclosed if the restrictive covenant were a

  compensable property interest.)

 We don’t perceive any direct conflict between Smith and

  the United States Supreme Court cases recognizing that

  a contract may give rise to a compensable interest. The

  two cases which the district court cited were decided

  well before Smith. Lynch v. United States, 292 U.S. 571

  (1934); Long Island Water-Supply Co. v. City of Brooklyn,

  166 U.S. 685 (1897). Neither addressed the issue

  addressed in Smith, and to our knowledge the Supreme

  Court hasn’t addressed that issue in the interim.

 Assuming the Town was aware of the restrictive

  covenant when it bought the lot, we don’t perceive its

  buying the lot as an agreement to be bound by the

  covenant. The Land Board cites no authority for the

  proposition that a buyer of real property is, merely by

  virtue of buying the property, forever barred from

  challenging a restriction on that property’s use.

                       15
                            III.   Conclusion

¶ 20   Perhaps the supreme court will one day revisit its holding in

  Smith. But until it does so, and changes its mind, all lower courts

  are bound to follow that decision. We therefore reverse the

  judgment and remand the case for additional proceedings

  consistent with this opinion.

       JUDGE ASHBY and JUDGE HARRIS concur.

                                    16