Town of Monument v. State of Colorado , 2018 COA 148 ( 2018 )

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.
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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
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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.
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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.
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¶ 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
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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
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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]
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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.
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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.
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