Series of lawsuits may change how metro districts operate

Editor’s note: This report first appeared at BusinessDen, a BizWest news partner.

With two pending cases and a potential appeal in a third, 2023 is shaping up to be an essential year for the movement to reform metropolitan districts through Colorado’s court system.

The cases pose a direct challenge to the financing mechanism of metro districts, in which developers build neighborhoods and the public infrastructure in them and then get repaid in the years or decades that follow by taxing residents through the issuance of bonds.

“Litigation is never something you look forward to, but in this context it was just inevitable and a healthy sign that these issues are finally going to be brought to the fore and resolved, I anticipate, in a favorable way,” said John Henderson, an attorney and critic of metro districts who chairs the advocacy group Coloradans for Metro District Reform.

The agreements that ensure developers get repaid are often signed soon after a metro district is formed when developers control the district’s board. But reformers like Henderson advise resident-run boards to ignore those agreements, which they consider unenforceable. That is leading developers to sue the boards, which Henderson welcomes.

“The bad actors out there threaten to sue and then sue,” he said of some developers. “From our standpoint, as unpleasant as it is, it’s a good thing. Because, one, it weeds out the bad actors and, two, it generates legal decisions that will help secure the reforms.”

In the latest case, two resident-controlled boards at the Reunion Metro District in Commerce City were sued by developer Shea Homes on Dec. 8. The boards are accused of refusing to pay the developer tens of millions of dollars after residents took over in November.

The developer is asking Adams County District Court Judge Kyle Seedorf to determine that an agreement signed before residents took over the boards is still binding. An attorney and accountant for the Reunion boards declined to comment on the litigation.

That case is similar to one filed two days earlier in Jefferson County District Court.

The developer of a Lakewood community called Solterra is suing three Fossil Ridge Metro District boards. Since residents gained control of the boards through elections in 2017, they’ve declined to issue bonds and pay Brookfield the $31.9 million it says it is owed. Through their attorney, the boards have denied doing anything wrong.

Zach Bishop, chair of the Metro District Education Coalition, an advocacy group with a more positive view of developers and metro districts than Henderson, said Solterra and Reunion are outliers, and resident control of boards — a common development — rarely results in conflict. That’s because developers are usually paid in full before residents gain control.

“That’s the typical course of business. Residents taking over boards and not fulfilling obligations that were undertaken between the city and the developer is a problem,” he said.

“There are hundreds and hundreds of metro districts that are taken over by residents and are functioning just as they were intended with no conflict at all,” Bishop added.

Meanwhile, a resident-controlled board outside Vail is trying to decide whether to appeal a surprising loss it was dealt last month in Eagle County District Court.

On Dec. 14, Judge Sean Finn determined he had no authority to nullify an agreement requiring a resident-controlled board in Red Sky Ranch in Wolcott to pay Vail Resorts, the community’s developer. The board says it is mulling its options for an appeal.

Henderson, who is not involved in any of the cases, says he’s eager for the Reunion and Solterra cases to meet a judge and jury.

“I am completely confident that once those so-called agreements reach a courtroom, judges are going to do what I did: scratch their head and say, ‘What? Are you kidding me?’ and either grant motions to dismiss or motions for summary judgment,” he predicted.

“Or, if these go to trial, I would love to have a trial in front of a jury of citizens deciding any factual issues,” Henderson added. “Because they will get it.”

Source: BizWest

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