Photo: J. Albert Diaz / ALM

Holland & Knight must continue to face claims of negligent representation after a Colorado appellate court reinstated a lawsuit brought against the firm by a former real estate developer client.

In a July 26 ruling, the Colorado Court of Appeals reversed a lower court decision that dismissed a suit brought in October 2016 by Prospect Development Co. Inc.—a company that has been developing property near the Mt. Crested Butte ski area in Colorado. The suit takes aim at the developer’s former outside counsel at Holland & Knight, accusing the firm of giving Prospect faulty advice that opened the door for a lawsuit from landowners.

Prospect’s lawsuit stems from Holland & Knight’s work on federally mandated property reports that the developer was required to share with prospective buyers of lots within a Mt. Crested Butte subdivision, according to the appeals court’s ruling. The reports at issue stated that Prospect would pay for various infrastructure developments, including road construction and sewage systems, and that the purchasers of lots in the subdivision would not be individually responsible for covering those costs.

The property reports, however, failed to disclose that the subdivision’s infrastructure costs would later be recouped through property taxes—a move that effectively shifted the burden from Prospect to the people who purchased lots from the company, according to the appeals court decision. In 2010, property owners began to complain that Prospect had misled them about the infrastructure costs and the company, in turn, raised those concerns with Holland & Knight.

According to Prospect, Holland & Knight maintained that the property reports followed the applicable laws. The firm withdrew from representing Prospect in 2011. In 2013, the developer was hit with a lawsuit by landowners; that suit accused Prospect of failing to disclose that the infrastructure costs in the subdivision would really be covered through property taxes paid by landowners.

Prospect ultimately settled with the property owners in 2015 and then, in 2016, the company launched its suit against Holland & Knight. The developer made claims of negligent representation and breach of fiduciary duty, accusing Holland & Knight of failing to disclose information about the taxes in the property reports and improperly advising Prospect that the reports were legally sufficient. Prospect also alleged that Holland & Knight was negligent because it didn’t correct its erroneous advice before dropping the developer as a client in 2011.

Holland & Knight did not file an answer to the lawsuit, instead opting to file a motion to dismiss that argued Prospect had brought its claims too late under the relevant statute of limitations. The firm also attached documents to its dismissal motion from the underlying landowner litigation that were meant to support Holland & Knight’s statute of limitations argument.

A lower court agreed with Holland & Knight’s timeliness argument and agreed to dismiss Prospect’s case. However, the Colorado appeals court, in its July 26 decision, held that the lower court considered a more expansive set of materials than it should have when ruling on the motion to dismiss.

The appeals court wrote that the lower court should only have considered the “bare allegations of the complaint” and any documents that Prospect’s complaint, itself, referenced. Doing so in this case, the appeals court determined, would have led the lower court to keep the case alive.

“The allegations in the complaint and the two documents referred to therein … taken as true and viewed in the light most favorable to Prospect, established that Prospect’s claims were not barred by the relevant statutes of limitations,” the appeals court ruled. “Because the district court came to the opposite conclusion by erroneously considering additional documents not referred to in the complaint, that error was not harmless and requires reversal.”

Gregory Taylor of Diamond McCarthy argued the appeal for Prospect Development, while Michael McConnell of McConnell Fleischner Houghtaling argued for Holland & Knight.

Taylor declined to comment beyond saying Prospect is pleased with the appellate ruling and looks forward to continuing the case.

McConnell did not immediately respond on Monday to a request for comment.