In the August 24, 2023 decision issued by the Colorado Court of Appeals, Division Two (“the Court”), in the matter of Bertoia v. Denver Gateway LLC, 2023 LEXIS 1285 (2023 COA), the Court decided a matter of first impression regarding the propriety of conditioning the continuation of a notice of lis pendens pending appeal on the posting of a supersedeas bond.

Background

Plaintiff Wanda Bertoia (“Plaintiff”) was the sole owner of WPB Hospitality (“WPB”), an entity that, in 2015, obtained financing from American Lending Center (“ALC”) to construct a hotel on a four-acre parcel of land in the Gateway Park business district near the Denver International Airport (“the Property”).  After obtaining financing WPB commenced construction of the hotel, placing mechanics’ liens on the Property as part of the construction process.  In late 2018, WPB filed for bankruptcy without having completed construction, during bankruptcy proceedings contracting with Frisco Acquisition (“Frisco”) for Frisco’s purchase of WPB and assumption of all liabilities it owed to ALC and any other creditors.

During WPB’s bankruptcy proceedings, the Property was sold at a foreclosure sale with ALC submitting the winning bid.  Frisco subsequently filed a notice of intent to redeem the Property based on the mechanics’ liens it had acquired from WPB, with ALC ultimately agreeing to convey to Frisco the Property via a Purchase and Sale Agreement (“PSA”).  Frisco then assigned the PSA to Defendant Denver Gateway (“Denver”), an assetless company owned by the wife of Frisco’s sole owner, receiving nothing in exchange for the assignment.  Post-assignment, Frisco filed for a “no-asset” bankruptcy.

At a creditors’ meeting held during Frisco’s bankruptcy proceedings, Plaintiff learned about the PSA and assignment to Denver for the first time, leading her to file suit under the Colorado Uniform Fraudulent Transfers Act (“CUFTA”) seeking to void the assignment.  Simultaneous with Plaintiff’s filing of her Complaint she also recorded a notice of lis pendens on the Property.  Denver later moved before the trial court to expunge the lis pendens on the basis that Plaintiff’s CUFTA claim could not impact title to the Property, with the trial court agreeing with this reasoning and expunging the filing as requested.

In response, Plaintiff initiated an appeal before the Court, contesting the order expunging her lis pendens.  Despite the controlling Colorado statute providing that an expunged lis pendens is to remain in effect for the duration of an appeal, the trial court, upon being notified of Plaintiff’s challenge, entered an order requiring Plaintiff to post a $25 million dollar bond within ten days.  If Plaintiff failed to comply with this requirement, the order held that her lis pendens would be expunged regardless of her pending appellate action.  Plaintiff thereafter failed to post the bond and the lis pendens was expunged as threatened, with Plaintiff subsequently adding a challenge to this bond requirement to her appellate action.

The Appeal

In addressing Plaintiff’s appeal, the Court began by observing the basic principles of Colorado’s lis pendens statute, which provides that wherever a suit is initiated requesting relief that would potentially affect title to real property, any party to the action is entitled to record a notice of lis pendens against the involved property.  Recording a lis pendens in this manner serves the dual purposes of providing notice of the litigation and rendering title to the property unmarketable until the lawsuit is resolved or the notice is expunged.  If a notice is believed to be false or premised on invalid reasoning, any party can move for expungement of that notice.  However, even where expungement is warranted, if a timely appeal is filed challenging the expungement, the expunged notice will nevertheless remain in effect for the duration of the appeal.

The Court then addressed Plaintiff’s contention that the trial court lacked authority to condition the continuation of her lis pendens pending appeal on the posting of a bond – a Colorado issue of first impression.  The Court held that the trial court had acted appropriately and within the scope of its powers, reasoning that because the controlling Colorado statute empowers courts with the ability to “enter an order determining that [a] notice of lis pendens is no longer in effect,” a court can thus “surely [] stop short of doing so by conditioning its decision not to enter such an order on the posting” of a bond.

The Court then turned to Denver’s opposition to Plaintiff’s appeal, which contended that because Plaintiff had failed to post the bond as required, such non-compliance should render the subject appeal moot.  The Court disagreed, holding that while the posting of a bond was required to stay the lower court’s release of the lis pendens, the bond was “not a prerequisite for filing and pursuing an appeal of the underlying order striking the notice.”

As Plaintiff’s appeal was therefore valid, the Court then addressed the merits of her challenge to the basis for expunging the lis pendens, which was the trial court’s determination that her CUFTA claims could not have impacted title to the Property.  The Court ultimately ruled in Plaintiff’s favor, holding that Frisco’s transfer of the Property to Denver fell within the purview of the controlling statute which applied to any transfer involving “the interest of a seller or purchaser under a contract [of] sale,” with the Court concluding “that the assignment of the PSA was an indirect transfer of title in real property.”  The Court further explained that as the execution of a PSA serves to vest equitable title in a prospective purchaser, in the instant matter, upon entering into the PSA, Frisco held title which it then transferred to Denver.  Accordingly, if the trial court had ruled favorably on Plaintiff’s claim, it could have “return[ed] title to Frisco,” and thus Plaintiff’s CUFTA claim had indeed been capable of “affecting the title to real property” contrary to the trial court’s conclusions.

Based on the above, the Court therefore reversed the trial court, holding that Plaintiff’s notice of lis pendens was valid and properly recorded.

Takeaways

This matter demonstrates that where the expungement of a lis pendens is contested on appeal, the lower court being challenged is justified in requiring that the appealing party post a bond of seemingly uncapped value, as no clear parameters have yet been set delineating whether a bonding requirement can be deemed excessive.  The case also illustrates the important distinction that where a bond is required, said bond will have no bearing on a party’s right or ability to seek an appeal, but will relate only to the continuation of the lis pendens itself.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, James Mazewski at jmazewski@riker.com, Kevin Hakansson at khakansson@riker.com, or Kori Pruett at kpruett@riker.com.