Thanks to a contractual provision meant to ensure compliance with the Taxpayer Bill of Rights, or TABOR, a Kit Carson County special district does not have to pay roughly $8 million to a healthcare provider after terminating their multiyear agreement, Colorado’s second-highest court ruled last week.

However, a three-judge panel for the Court of Appeals partially reinstated the Center for Wound Healing & Hyperbaric Medicine’s claim against Kit Carson County Health Service District, determining it was unclear whether the district’s cancelation six months into 2021 entitled the center to money owed during the rest of the year.

Enacted as an amendment to the Colorado Constitution in 1992, TABOR places restrictions on government spending and taxation, notably requiring voter approval for new taxes and refunds of “excess” revenue to taxpayers. However, TABOR also mandates that government entities, when entering into a multiyear financial obligation, either obtain voter approval or set aside enough money to cover costs.

In response to that constraint, the seven-year contract between the Center for Wound Healing & Hyperbaric Medicine and the Kit Carson health district included a provision putting the parties on notice that any money paid to the center would be subject to annual appropriations.

After a trial judge dismissed the center’s breach of contract claims against the Kit Carson health district, the center cried foul. It alleged the TABOR provision of the agreement should not shield the district from paying damages because voters approved TABOR as a tax-and-spend measure — not as an immunity tool for governments that breach their contracts.

But Judge Matthew D. Grove, writing for the appellate panel, believed it unnecessary to analyze the center’s theory about the purpose TABOR did or did not serve. Instead, by enshrining TABOR’s restrictions in the contract, the parties agreed the district’s payments clearly depended on annual appropriations.

As a result, “the District will be largely insulated from the consequences of a material breach,” Grove acknowledged in the Feb. 29 opinion. Because the center did not insist upon a vote or a set-aside of money for the entirety of the contract, “there was ‘a distinct possibility’ that the District might choose not to continue making appropriations for its entire anticipated term.”

The Center for Wound Healing & Hyperbaric Medicine and the health services district entered into an agreement in 2018, whereby the district would pay for hyperbaric and wound care treatment provided at the center’s facility in Burlington. The contract specified that district payments were “contingent upon future appropriations” unless the TABOR requirements were satisfied.

In late 2020, the district learned of alleged billing irregularities and compliance issues by the center. The concerns grew to the point that in June 2021, the district terminated the agreement. The center, in turn, sued for breach of contract.

In February 2023, District Court Judge Robert C. James dismissed the center’s claims. He reasoned the TABOR-inspired provision of the contract meant the center could not seek damages for future years because the district never guaranteed it would make those appropriations in the first place.

“The District is not immune from contract claims. But the District cannot enter into unconstitutional contracts,” James wrote. “And, in this case, one of the provisions of the agreement itself is the very source of the immunity.”

During oral arguments to the appellate panel, the center insisted James’ order created a “new form of immunity” that TABOR did not contemplate — shielding government entities from paying damages after breaching a contract.

“If your client is trying to recover funds that it would have earned in fiscal year 2022, 2023, etc., those funds were never appropriated. How is that consistent with TABOR?” asked Judge Lino S. Lipinsky de Orlov.

While the panel was sympathetic to the idea that the Kit Carson health district could not be held liable for payments in future fiscal years, it was more concerned about money the center may be owed for the remainder of the 2021 fiscal year, when the contract terminated abruptly.

“Your argument is, ‘We can’t be required to pay any money for years in which we have not made appropriations,’ right?” Grove asked the district’s lawyer. “And it seems to me that there’s a factual dispute about whether your client made appropriations for 2021.”

“That’s fair,” conceded attorney Melvin B. Sabey.

The panel ultimately concluded that while the health services district was off the hook for any payments owed in 2022 and beyond, it was fair for the center to seek the balance of what was appropriated in 2021.

The case is Center for Wound Healing & Hyperbaric Medicine, LLC of Burlington Colorado v. Kit Carson County Health Service District.