The Telluride Mountain Village Homeowners Association (TMVOA), Telski and TMVOA’s Telski board representatives — Chad Horning, Jeff Proteau and Tom Richards — are facing a lawsuit after the group Friends of TMVOA filed one in San Miguel County District Court June 28. Horning is the co-owner of Telski, while Richards is the company’s CFO. Proteau oversees special projects since stepping down from his longtime position as the resort’s vice president of planning and operations. Horning is also chairman of the TMVOA board of directors. Proteau is the vice chairman.
The lawsuit alleges TMVOA isn’t in compliance with the Colorado Common Interest Ownership Act (CCIOA), particularly when it comes to how voting rights are allocated and how it defines “member,” “unit” and “site.” It also cites how Telski, which is referred to as TSG in the lawsuit, also effectively controls the six-person board with its three members as a result of the non-compliance.
“Additionally, TSG is granted additional votes for a density bank which is a concept that is not recognized in CCIOA. The allocation of votes under the current methodology, gives TSG effective control of the Association and threatens the Association’s 501c4 tax exemption which could trigger millions in tax liabilities,” according to the lawsuit.
In a letter to Mountain Village residents, Friends of TMVOA explained the decision to file the lawsuit, which was a last resort.
“It is unfortunate that we have come to this point, however we felt that we had little option,” the message read.
The lawsuit seeks to “declare that the governing documents of TMVOA are not in compliance with Colorado law, find that TSG representatives breached their fiduciary responsibilities to TMVOA, find that TSG conspired with the TSG representatives on the Board of TMVOA to breach their fiduciary responsibilities, and request that the court vest control of the Board of TMVOA from TSG and in accordance with Colorado law,” according to the Friends of TMVOA message.
Peter Duprey, one of the people involved with the Mountain Village group, explained TMVOA has approximately $47.5 million in cash and marketable investments, and residential homeowners contributed nearly 90 percent of that through assessments and real estate transfer fees. He added the lawsuit is “basically to keep the tax-exempt status as a non-taxable entity.”
“The IRS could come in and say you are no longer a tax-exempt entity. Or they could say, we’ll allow you to continue as a tax-exempt entity, but we’re going to fine you 10 percent or 25 percent excise tax on your excess profits over the last seven years. So that would be in the millions of dollars. And none of the residents here want that. We’d rather have that go into Mountain Village than go to the IRS,” Duprey said. “ … We have a gondola that is going to need funding, and we have a bunch of projects in our 30-year comprehensive plan where monies are earmarked. And, you know, we think some of that money should go to some of those projects to make Mountain Village a more livable and beautiful place to live.”
Neither Telski nor TMVOA provided a comment before press time Friday afternoon.
The issues outlined in the lawsuit can be traced back to 1995, when the IRS initially reviewed TMVOA’s tax-exempt application and has some questions about the board’s makeup.
“In ’95, the IRS reviewed it. And they had a bunch of questions. And there had to be, ultimately, three submittals. And what the IRS was concerned about was TSG having majority control of the board. And they denied their application two times. And then, finally, the third time, they got the IRS comfortable that they didn’t have majority control. But with the passage of time, they’ve now gotten back to where they do control the board, and therefore, they’re potentially jeopardizing the loss of that tax exemption,” Duprey said.
The TMVOA governance committee made a recommendation to the TMVOA board to bring the organization into compliance with the CCIOA and 1995 IRS Determination letter after a year-plus of work, but the proposal was defeated in a 3-3 tie, with all the Telski board members voting against it, according to the Friends of TMVOA. The governance committee also proposed the creation of an audit and compliance committee composed of Mountain Village residents who are considered “financial experts” to oversee the audit, review tax compliance, financial disclosures and evaluate any related party transactions, but the Telski members rejected that proposal as well. Duprey is a member of the committee in his capacity of a Mountain Village Council member. Proteau is one of three TMVOA directors on the committee.
“I think it’s a shame that we’re in this position where we’re suing them, you know, the largest employer and the owner of the resort, but I think we felt there was no choice,” Duprey said. “This governance committee over a year has found things that they’re not in compliance Colorado law. We think there’s a lot of issues around the fiduciary responsibility. It’s not a hypothesis, it’s a fact. … The question is, how long are you going to continue to break the law? We didn’t want to file a lawsuit, but we felt we had no other alternative. If we have to let the courts decide this, that’s fine, and it’ll be probably 18 months.”
He added that the group is open to talking to the parties involved and coming to a settlement before it reaches the courts.
“I think it’s always advantageous to settle. Because if it goes go to the court, everybody’s going to be spending a lot of money and the only ones who win are the lawyers,” he said.
The full lawsuit, as well as a petition seeking to change TMVOA’s governance structure, can be viewed on the Friends of TMVOA website at friendsoftmvoa.org.