Litigation Update - LEASE PURCHASE AGREEMENT

INFORMATION TO GRANBY RANCH PROPERTY OWNERS
AND RESIDENTS REGARDING CURRENT LITIGATION

March 31, 2023

What is the Lawsuit About?

Granby Ranch Metropolitan District (“District”) filed the lawsuit on February 23, 2021 against Headwaters Metropolitan District (“Headwaters”) and GP Granby Holdings, LLC (“GPGH”) in order to enforce a lease purchase agreement and to protect the rights of the public and the Granby Ranch community in the amenities.  As many of you will recall, our community and the former developer (Granby Realty Holdings, or “GRH”) wanted to be sure that the amenities including ski facilities, golf course, and certain other recreational amenities would remain available for the benefit of the Granby Ranch property owners and would not be converted to some other use (such as sold for condominiums or additional lots) in future years.

In 2005, GRH, Headwaters, and GRMD entered into a series of agreements and joint resolutions that were intended to protect these amenities for continued use and enjoyment by our community. These included:

1)      A joint resolution between GRMD and Headwaters that allowed Headwaters to collect a one-time $10,000 per lot amenity fee on the initial purchase of every GRMD lot by an end user (i.e., homeowner) or construction of a home by a builder.

2)      An Amenity Fee Agreement between Headwaters and GRH that provided for the payment of the $10,000 fee on each lot. This fee was mandatory on all lots, and a lien was recorded to insure that these fees would be paid at closing.

3)      A Lease Purchase Agreement (“LPA”) between Headwaters and the resort property owner, GRH. As amended in 2012, the LPA provided that whatever amenity fees were collected each year would be paid as “rent” and applied toward the purchase price of the amenities. So long as the agreement remained in place, the amenities would be transferred to public ownership by Headwaters at the EARLIEST of the following events: a) when all amenity fees that could be collected were paid; b) when the amenity fees paid exceeded a formula price for the amenities based on their value adjusted for improvements and inflation, or c) on December 31, 2062.  This LPA was recorded with the Grand County property records to ensure that it would enforceable against subsequent purchasers.

Besides contributing toward the purchase of the amenities, Granby Ranch owners of the properties subject to the amenity fees were also entitled to preferred or discounted access to the ski facilities and golf course.

In 2020, the lender holding the Deed of Trust on the property foreclosed on GRH. At the end of the foreclosure process in August 2021, GPGH (an entity related to the previous lender) obtained the deed to the GRH property, including the amenities. On September 1, 2020, GPGH sent out a letter advising Headwaters and the community that it contended that the LPA was no longer in place due to the foreclosure, and it now had sole possession of the amenities. GPGH also replaced the operator of the amenities with a company that was an affiliate of GPGH.

GRMD contacted an attorney to investigate the validity of the LPA after the foreclosure, and when the investigation concluded that GRMD had a valid legal claim, the lawsuit was initiated by GRMD.

Did GRMD initially bring a lawsuit against the current Developer GR Terra:

No.  GR Terra purchased the property from GPGH in May 2021, after they completed their due diligence and after the lawsuit was filed in February 2021.  Shortly after GR Terra’s purchase, they requested GRMD’s approval to be added as a defendant in the litigation.  GR Terra introduced themselves to the litigation by acquiring the property and requesting of GRMD to be added as a defendant.

What does GRMD Seek to Obtain in the Lawsuit?

GRMD has asked the Court for a declaration that the LPA remains in effect and was not terminated by the foreclosure. Alternatively or in addition, GRMD seeks a judgment for breach of contract against Headwaters, the current property owner, and GPGH for damages caused by the improper termination of the LPA. These damages would include the amenity fees that were paid for lots in the Granby Ranch community.

How Much in Amenity Fees Have Been Collected?

Over $6.1 million in amenity fees have been collected by Headwaters to date, on more than 610 lots. These fees were to be applied toward the purchase price under the LPA.

If GRMD Succeeds in the Litigation, How Would I Be Affected?

GRMD could succeed in the litigation in two ways. First, if the LPA is reinstated, it would protect the ski facilities and golf course (and other amenities) so that Granby Ranch property owners could continue to rely on those amenities as available to them. GRMD property owners could continue to receive preferred access to the amenities, and eventually the property would become public subject to control by a public entity that would protect the public interest. Second, if GRMD obtains a monetary judgment for breach of contract (such as return of the $6.1 million of amenity fees plus interest), then GRMD would obtain Court approval for an appropriate way of distributing or using those funds for the benefit of District residents. That could include either a refund, or reduction of the District’s debt, or other public purpose.

How Has GRMD Attempted to Protect the Public from Expensive Lawsuits?

The GRMD Board recognizes that litigation can be expensive. Therefore, in the summer of 2022, the District entered into a “hybrid” fee agreement with the Burg Simpson law firm that would cap the District’s out-of-pocket costs and fees each year in exchange for a partial contingent fee if the District prevailed. This agreement shifts some of the risk of the litigation to the law firm in the event that the District does not prevail.  Of course, there can be no guarantee of success, but this agreement does reduce the monthly legal fees on an installment plan.

Has GRMD Attempted to Settle This Litigation?

Yes. Prior to commencing the lawsuit, GRMD representatives met with representatives of both Headwaters and GPGH in January 2021 regarding various matters including the status of the LPA agreement, where GRMD’s requests were ignored.   GRMD also made a compromise offer of settlement in 2022 in an attempt to settle the case, but the settlement offer was declined. More recently, GRMD attended a full day mediation with the Defendants in January 2023 and again presented several compromise offers, all of which were declined. Unfortunately, mediation and offers to settle require both parties to negotiate in good faith and if one party refuses to compromise, a settlement cannot be reached.

What Has the Court Decided So Far in this Matter?

Soon after the case was started, the Defendants moved to dismiss all claims on legal grounds, contending that the District did not have legal standing to bring these claims and that the claims should be dismissed for failing to state a viable legal claim. The Court ruled in GRMD’s favor on the standing issue, finding that GRMD was a third-party beneficiary of the LPA and related agreements and therefore could enforce its rights.

The Court also found that the Complaint stated valid claims that the covenants in the LPA “run with the land” and may survive foreclosure. One way of looking at this is that if property is foreclosed, public rights of way, HOA covenants, and similar “non-monetary” terms continue in effect. The nature of the LPA, amenity fee agreements, and the joint resolution imposing amenity fees appears similar to a dedication of property as intended to eventually be public property, in exchange for the amenity fees.

The Court dismissed a few of the District’s claims, including those against a former lender, Redwood Capital, but allowed the District’s two primary claims (breach of contract and declaratory judgment that the LPA survived the foreclosure) to proceed.

More recently, both GRMD and each of the Defendants filed motions for summary judgment, asking the Court to consider the evidence collected to date and rule in favor of each party based on the evidence. The Court has not yet ruled on these motions but is anticipated that the Court will decide these matters by May 1.  Depending on how the Court rules, either side could prevail or the Court could determine that a trial is necessary to determine factual disputes.

Has a Trial Been Set?

The Court originally set this matter for trial in February 2023. However, that trial was continued to April 24, 2023. It was planned to be a two-week maximum trial in Grand County District Court, Hot Sulphur Springs, CO. On March 26, 2023, the Court vacated the trial because its workload would not allow it to decide all of the motions that had been filed before trial. The Court set May 1, 2023 as a case review date when it anticipates ruling on motions and then deciding whether or not a trial is needed.

If I Have More Questions, Who Should I Contact?

The GRMD Board is your elected local government, and we always welcome public comments at Board meetings or in writing to our manager, Wolfersberger, LLC. While individual directors cannot speak for the entire Board (i.e., the Board acts as a whole) you should feel free to send questions or comments to our manager, any Board member, or attend a Board meeting. Our meetings are public meetings available to all to attend by remote teleconference.

We believe, as a Board, that we needed to take this action to protect your property values as well as the $6.1 million that had been paid to date to acquire the amenities. If the ski facilities and golf course are privatized (such as via a “country club” arrangement for example) so that residents do not have access, or are converted to additional homes or condominiums, it could have a devastating effect on your property values.