Colorado’s second-highest court on Thursday reinstated a lawsuit between two Lakewood-area special districts and a handful of developers, concluding a Jefferson County judge wrongly ended the high-stakes litigation when he found the terms of a wastewater contract were unenforceable.

With over $100 million in damages on the line, a three-judge panel for the Court of Appeals determined a 2018 agreement between Green Mountain Water and Sanitation District and the Big Sky Metropolitan District may not be void after all. The decision is a blow to Green Mountain, which sought to exit the intergovernmental agreement in which it would expand its system to accept Big Sky’s wastewater, only to be hit with a lawsuit.

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Big Sky insisted on appeal that the trial judge was wrong to find the intergovernmental agreement obligated Green Mountain to spend money in violation of state law. It reassured the appellate panel that Big Sky would, in fact, pay for the additions. But Judge W. Eric Kuhn wrote that the panel could not definitively tell from the contract whose interpretation was correct.

“Big Sky — not Green Mountain — will be responsible for Green Mountain’s costs to design and construct the lift stations, flow equalization, and force mains,” Kuhn explained in the March 23 opinion. “But, in the end, this question — how Big Sky is to be ‘responsible’ for Green Mountain’s design and construction costs — cannot be answered from the text of the IGA itself.”

Neither Big Sky nor Green Mountain responded to emails seeking comment about the decision.

Green Mountain’s move to exit the intergovernmental agreement has spawned controversy and repercussions beyond the lawsuit itself — which seeks more than $140 million in damages from the 11,000-customer district.

In May 2018, Green Mountain’s board of directors approved the intergovernmental agreement with Big Sky to convey the latter’s wastewater through its system and onward for treatment. Developers in the Big Sky area intended to place thousands of homes in Rooney Valley, but needed the agreement in place to do so.

The following year, however, Green Mountain’s board reversed itself and terminated the intergovernmental agreement. Big Sky and four developers soon filed suit against the district for breach of contract, injury to their property rights and other claims.

In 2021, District Court Judge Jason D. Carrithers issued a pair of decisions. He examined whether the agreement was actually void under the Local Government Budget Law, which provides that government boards cannot contract to spend money in excess of what they appropriate annually. Carrithers also looked to the Taxpayer Bill of Rights, a constitutional amendment requiring voter approval for multiyear financial obligations that result in debt.

Carrithers found the agreement “unambiguously imposes expenditures on Green Mountain” for building facilities to handle Big Sky’s wastewater.

“Therefore,” he wrote in May 2021, “because there is no dispute of material fact that appropriations were not made for expenditures imposed by the IGA, the IGA between Big Sky and Green Mountain is void as a matter of law.”

Carrithers also concluded the agreement violated TABOR and, consequently, Big Sky would have to bear the losses of entering into an unenforceable contract. In a separate order, he clarified that because the contract was void, the developers had no standing to sue for breach of contract.

Big Sky and two of the developers appealed, arguing it was clear that Big Sky would pay for the costs of the project all along, and those who negotiated its terms had made statements to that effect.

“The trial court’s decision to invalidate an intergovernmental agreement between two local governments pursuant to the LGBL is without precedent in Colorado and incorrect under any legal standard,” wrote attorneys for the developers. “If Green Mountain’s improper repudiation of the IGA is allowed to stand, any government entity will attempt to use the LGBL as a get-out-of-any-contractual-obligation-free card.”

The Court of Appeals panel looked at the terms of the contract. On the one hand, the agreement noted the infrastructure would be “provided by Big Sky,” that Big Sky “intends to design and construct the facilities,” and that construction would be at Big Sky’s “sole expense.” Big Sky would also “finance” the costs Green Mountain incurred.

On the other hand, the contract also obligated Green Mountain to “design and construct, or contract for” the improvements.

Although both special districts contended that they were the ones who would be paying, the Court of Appeals did not see a clear answer in the agreement. It was not explicit when construction would start, what the timeline for payments would be or how Big Sky would compensate Green Mountain for the design and construction. Therefore, it was possible Green Mountain would be spending money in violation of the Local Government Budget Law, but also possible that it might not.

“Rather, we conclude the IGA is ambiguous in this respect,” Kuhn wrote.

The panel reinstated the claims of both Big Sky and the developers, sending the lawsuit back to Carrithers for further consideration of the evidence.

The controversy over the intergovernmental agreement contributed to a recall election of three Green Mountain board members in 2021. The recall was ultimately unsuccessful.

Soon afterward, the district’s former attorney, Mary Joanne “Jo” Deziel Timmins, filed suit against the district over the board’s decision to fire her. The board terminated Timmins in 2021 despite her successful defense against the lawsuits and receiving a favorable decision from Carrithers. Timmins alleged the board members retaliated against her because she publicly blew the whistle on some members’ alleged malfeasance.

A federal judge has dismissed Timmins’ claims against the district and individual board members, but a defamation claim is still proceeding against a local blogger who criticized Timmins’ work on the Big Sky lawsuit.

The case is Big Sky Metropolitan District No. 1 et al. v. Green Mountain Water and Sanitation District.