In May, the Colorado Court of Appeals upheld the City of Thornton’s approval of a specific use permit for a self-storage facility against a challenge brought by a competitor self-storage facility. While the court’s decision in Stor-N-Lock Partners #15, L.L.C. v. City of Thornton was a victory for the defendants, including the city and the developer, the court ruled that defendants in Rule 106(a)(4) actions may not recover delay-induced damages through the imposition of a bond. Otten Johnson attorneys Brian Connolly and Bill Kyriagis represented the defendant landowner and developer, CenturyLink and Resolute Investments, Inc., respectively, throughout the proceedings.

In the case, Resolute obtained the city’s approval of a specific use permit for its project. A neighboring self-storage facility challenged the approval under Colorado Rules of Civil Procedure Rule 106(a)(4), which allows for judicial review of quasi-judicial decisions by local government bodies. The plaintiff alleged that the approval of the specific use permit did not improve the welfare of its property, which was one of the Thornton code’s criteria for the issuance of a specific use permit. The district court affirmed the city’s decision but denied the defendant’s motion to require the plaintiff to post security in an amount that would cover the defendant’s losses incurred as a result of litigation-related delays.

In a published decision, the appeals court affirmed the district court’s decision. A three-judge panel of the Court of Appeals found that the city’s decision to approve the specific use permit was supported by competent evidence in the record, and further held that Colorado law prevented the city from rejecting the proposal purely to control business competition. While the plaintiff tried to argue that the City Council misinterpreted the approval criteria, the court rejected that argument, affirming that courts in Rule 106(a)(4) actions must defer to reasonable interpretations by the governing body.

Unfortunately for defendants facing Rule 106(a)(4) actions, however, the court determined that absent a request for a stay by the plaintiff, a defendant cannot require the plaintiff to post a bond to cover delay-related damages. While it is rare for a Rule 106(a)(4) plaintiff to prevail, it is well-known that the initiation alone of Rule 106(a)(4) litigation can impair construction of a new project, as developers and their financial partners are often reluctant to proceed with constructing a project for which approvals might be reversed. Neighborhood opponents of development projects frequently use Rule 106(a)(4) in an tactical, some might say abusive, manner to delay projects that they oppose, in hopes that that delay may prevent the projects all together.

CenturyLink and Resolute sought the imposition of a bond against the plaintiff, who had clearly challenged the project to avoid business competition. While the Court of Appeals acknowledged the fact that Rule 106(a)(4) challenges impose significant delay-related costs on development projects, it found that it could not, within the confines of the rule’s language, impose a bond requirement where a plaintiff has not requested a stay.

In acknowledging the predicament of a developer-defendant whose project is subject to a Rule 106(a)(4) challenge, the Court of Appeals may be inviting action by the Colorado legislature or the Supreme Court to remedy the problems associated with Rule 106(a)(4). But until then, defendants in Rule 106(a)(4) actions must simply “wait out” the challenge or take the risk of building projects in reliance on challenged approvals.