July 5, 2015

Tenth Circuit: Insurer Who Failed to Reserve Rights Responsible for Default Judgment

The Tenth Circuit Court of Appeals issued its opinion in Cornhusker Casualty Co. v. Skaj on Monday, May 18, 2015.

Vincent Rosty, an employee of R&R Roofing, Inc., drove a company dump truck to the home of Shari Skaj, his ex, to drop off roofing supplies and see if his kids were there. At some point after Vincent stopped in an alley behind the Skaj residence, the truck was accidentally knocked into second gear and rolled forward, pinning Ms. Skaj against a parked motor home and causing serious injuries. A lab test performed later in the day confirmed the presence of marijuana and methamphetamine in Vincent’s bloodstream.

Cornhusker Casualty provided commercial liability insurance to R&R at the time of the accident, and R&R and Randy Rosty (0wner of R&R, along with Steven Rosty) were the named insureds. Within days of the accident, Cornhusker hired AmeriClaim adjuster Charles Brando to investigate the incident. Brando’s report noted that Vincent had driven off-route on personal business despite an unwritten company policy prohibiting personal use of company vehicles.

After receiving notice of Ms. Skaj’s forthcoming claim, Cornhusker wrote to R&R, Steven Rosty, and Vincent to notify them of potential excess liability exposure and to inform them of the right to retain independent counsel. Cornhusker specifically stated it would continue to defend the claim. The Skajs filed suit in Wyoming county court, asserting several claims based on negligence and requesting punitive damages since Vincent was intoxicated at the time of the accident. Cornhusker’s counsel filed an answer to the complaint as to Steven and R&R only, asserting she did not represent Vincent. Cornhusker determined Vincent was not entitled to a defense. However, Cornhusker did not attempt to inform Vincent it was no longer defending him. Default issued against Vincent, the non-defaulting defendants were dismissed, and eventually the Wyoming trial court set a default judgment hearing. Cornhusker hired separate representation for Vincent for that hearing, who opposed the default judgment, and after the hearing default entered against Vincent for $897,344.24.

One week after the default judgment hearing, Cornhusker sent Vincent a letter purporting to deny coverage for the first time. In support of its coverage denial, Cornhusker stated Vincent was not a permissive user of the truck, was not acting within the course and scope of his employment with R&R, was intoxicated, and had misappropriated roofing materials from R&R, also stating he had not cooperated with Cornhusker during the Skajs’ lawsuit. Shortly after, Cornhusker sent another letter to Vincent, characterizing its representation of him at the default judgment hearing as “pursuant to a reservation of rights” and for the limited purpose of having the default set aside. Meanwhile, Vincent’s counsel appealed the default, and eventually the Wyoming Supreme Court affirmed the judgment except insofar as it awarded punitive damages. Cornhusker refused to pay, maintaining Vincent was not covered by the policy.

Cornhusker filed suit in the U.S. District Court for the District of Wyoming, seeking a declaration that the policy did not provide coverage for Vincent because he was not an insured and had not cooperated in the investigation. Vincent counterclaimed against Cornhusker, asserting theories of negligence, intentional infliction of emotional distress, promissory estoppel, and breach of contract. The Skajs also counterclaimed, seeking a declaration that Cornhusker was required to pay the judgment in the underlying action and seeking attorney fees based on Cornhusker’s refusal to pay. Vincent and the Skajs jointly counterclaimed that Cornhusker should be estopped from asserting the defense of noncoverage because of its unconditional defense of Vincent in the underlying action. All parties filed motions for summary judgment. After a hearing, the district court declared Cornhusker was estopped from denying coverage to Vincent because it represented it would provide a defense, never reserved its rights, and did not advise Vincent of its decision to deny coverage until more than 16 months after entry of default. The court granted summary judgment to Cornhusker on Vincent’s various claims and denied the Skajs’ motion for attorney fees. The district court ordered Cornhusker to pay the full amount of the default judgment. Cornhusker appealed the district court’s finding of estoppel. The Skajs cross-appealed the court’s denial of their attorney fees. Vincent also appealed, seeking reversal on his bad faith and punitive damages claims.

After quickly dismissing Cornhusker’s standing argument, the Tenth Circuit evaluated the estoppel claim. Prior circuit precedent established estoppel where an insurer defended a claim without reserving its rights. Although the question had not been reached in Wyoming, the Tenth Circuit construed Wyoming law and determined the insurer must accept the consequences of its decision to assume full control of the litigation without a reservation of rights, because the insured was induced to relinquish control of the defense. In this case, Cornhusker never explicitly reserved its rights as to Vincent. Even Vincent’s counsel “found it odd” that Cornhusker would take the approach of providing a full defense to Vincent without a reservation of rights, but the Tenth Circuit found that since that was the path Cornhusker chose, it should face the consequences of its action and pay the judgment. The Tenth Circuit found no error in the district court’s order for Cornhusker to pay the default judgment.

Next, the Tenth Circuit considered Vincent’s bad faith and punitive damages claims. Vincent characterized the bad faith as Cornhusker’s retention of counsel who refused to defend him and allowed entry of default against him. However, the Tenth Circuit found neither substantive nor procedural bad faith in Cornhusker’s conduct. Because Cornhusker had a reasonable basis for its denial, there was no substantive bad faith. And, because Cornhusker did not fail to investigate the claim, there was no procedural bad faith, and certainly not enough to satisfy Wyoming’s “high bar” for conduct constituting procedural bad faith. The Tenth Circuit similarly disposed of the punitive damages claim since it was based on the same conduct as the bad faith claim. Finding that punitive damages are only to be awarded for conduct so egregious it is nearly criminal, the Tenth Circuit could discern no such conduct here.

The Tenth Circuit then turned to the Skajs’ counterclaim for attorney fees. The district court had determined that Wyoming’s “unreasonable or without cause” standard for refusal to pay losses covered by insurance was so similar to the standard for bad faith that the same analysis applied. The Tenth Circuit found no error in the district court’s finding and affirmed its denial of attorney fees. Although the Skajs sought to introduce supplemental material to the Tenth Circuit to bolster their attorney fee claim, the Tenth Circuit denied the motion, finding the Skajs could have introduced the evidence in district court but failed to do so. Likewise, Cornhusker’s motion to seal the Skajs’ supplemental index was denied as moot.

The Tenth Circuit affirmed the decision of the district court in full, denied the Skajs’ motion to file a supplemental index, and denied as moot Cornhusker’s motion to seal the supplemental index.

Colorado’s Lawful Activities Statute Does Not Protect Employees’ Medical Marijuana Use

Lipinsky-PrattBy Lino Lipinsky and Joel Pratt

On June 15, the Colorado Supreme Court ruled in Coats v. Dish Network, LLC, No. 13SC394, 2015 CO 44 (2015), that employers with a drug-free workplace policy have the right to take adverse action against employees who test positive for marijuana, even if the employees fully comply with the state’s medical marijuana laws, do not use marijuana at the workplace, and are not impaired on the job. This landmark decision affirms the right of employers to require that their employees comply with all federal drug laws, regardless of their states’ marijuana laws.

The plaintiff, Brandon Coats, a quadriplegic as a result of an automobile accident, failed a random drug test required by his employer, Dish Network. Mr. Coats argued that his use of medical marijuana was the only means by which he could control his leg spasms. Dish Network did not contest that Mr. Coats had no work-related problems other than the failed drug test. There was no dispute that Mr. Coats used marijuana only at home and had a valid Colorado medical marijuana card.

The court rejected the plaintiff’s argument that the Colorado lawful off-duty activities statute, Colo. Rev. Stat. § 24-34-402.5, protected his use of medical marijuana at home. That statute bars employers from taking adverse employment action against employers for “lawful” activities conducted away from work.

The Colorado Supreme Court narrowly focused on the definition of “lawful” in the statute and declined to reach any other issue. Mr. Coats’s attorney argued that the definition encompasses activities legal under state law, regardless of their status under federal law. Dish Network disagreed, arguing that the word “lawful” referred to activities legal under both state and federal law.

A unanimous court, with Justice Márquez not participating, agreed with Dish Network. The court held that the word “lawful” should be interpreted according to its generally accepted meaning, and that the Colorado legislature included no language indicating that the word should refer to state law alone. Colorado’s lawful activities statute thus only protects employees engaged in activities that are legal under both state and federal law.

Because the federal Controlled Substances Act lists marijuana as a Schedule I controlled substance and prohibits its possession, manufacture, sale, or use, medical marijuana remains illegal under federal law. Accordingly, Colorado’s lawful activities statute does not protect an employee using medical marijuana because such use is prohibited by federal law.

The trial court dismissed Mr. Coats’s claim against Dish Network. A split panel of the Colorado Court of Appeals affirmed the trial court’s decision, holding that Colorado’s lawful activities statute incorporated both state and federal law, and therefore, does not protect activity illegal under federal law. Judge Webb dissented, arguing that the reach of “lawful activities” should be determined exclusively by state law, under which marijuana use is considered lawful. The supreme court affirmed the court of appeals’ ruling.

The Coats decision reaffirms the right of employers to manage and to enforce drug-free workplaces. Employers will not have to make individualized decisions about whether a particular employee’s marijuana use is “lawful” under state law for bona fide medicinal purposes; instead, employers can institute and enforce broad drug-free workplace policies.

Further, the Coats decision avoids potential problems with the conflict between state and federal law. Colorado employers who contract with the federal government generally must comply with the federal Drug-Free Workplaces Act, which requires drug-free workplaces. Similarly, employers engaged in the transportation industry may be required to comply with the Omnibus Transportation Employee Testing Act of 1991, which mandates drug testing of certain transportation workers.

Had the court ruled in favor of Mr. Coats, employers subject to federal drug-free workplace regulations would have faced conflicting obligations. Colorado law would have demanded that employers tolerate certain employee drug use, while federal law would have demanded that employers take action against those same employees. The court avoided that problem by clarifying that Colorado law only protects employees engaged in activities that are lawful under state and federal law.

Employers also need to recognize the limits of this decision. Importantly, the court did not hold that employers have unfettered rights to fire or to discipline employees for the use of marijuana. Employers must still follow the law. Dish Network likely prevailed because it had adopted a clear and broad drug-free workplace policy, engaged in random drug testing, and applied its policies neutrally. An employer that selectively applies a policy could be vulnerable to discrimination claims.

Additionally, the Coats decision does not resolve the preemption issues surrounding Colorado’s medical and recreational marijuana amendments. A number of other pending cases, including Nebraska’s and Oklahoma’s challenge to Colorado’s marijuana laws filed in the U.S. Supreme Court, raise the preemption issue head-

Lino Lipinsky de Orlov is a litigation partner in the Denver office of McKenna Long & Aldridge, LLP.  He represents clients in all aspects of commercial litigation, mediation, arbitration, and appeals.  He has developed particular experience in complex business cases, particularly those involving creditor’s rights, real estate, trade secrets, and employment disputes.  Mr. Lipinsky also frequently speaks and writes on legal issues relating to technology, employment law, and ethics.   He is a member of the Colorado Bar Association’s Board of Governors and serves on the Board of the Colorado Judicial Institute.  He is a former President of the Faculty of Federal Advocates.  Among his honors, Chambers USA has recognized Mr. Lipinsky as one of Colorado’s leading general commercial litigators, and he has been included in The Best Lawyers in America.  He received his A.B. degree, magna cum laude, from Brown University and his J.D. degree from New York University School of Law, where he was a member of the New York University Law Review.

Joel M. Pratt is a member of McKenna Long & Aldridge’s Government Contracts Department in the Denver office. Mr. Pratt graduated, magna cum laude, from the University of Michigan Law School in 2014 where he served on the Michigan Law Review as the Executive Notes Editor and an Associate Editor. While earning his J.D., Mr. Pratt served as a judicial intern for the Honorable Alan M. Loeb, was a student attorney for the Michigan Unemployment Insurance Project and the Child Advocacy Law Clinic, and published several articles in legal academic journals across the country. Prior to joining the firm, Mr. Pratt worked as a law clerk for the Office of the Vice President and General Counsel of the University of Michigan. Mr. Pratt graduated with distinction in 2009 from the University of Colorado with a Bachelor of Arts in English Literature.  Mr. Pratt was also the winner of the University of Colorado Alumni Association Scholarship.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Tenth Circuit: Settlement Fair Because it Incentivized Western Union to Change its Business Practices

The Tenth Circuit Court of Appeals issued its opinion in Tennille v. Western Union Co. on Friday, May 1, 2015.

Western Union was the subject of a class action lawsuit challenging its practice of holding and earning interest on customers’ money after failed wire transfers without notifying customers of the failure. While an interlocutory appeal from Western Union was pending, Western Union and the class representatives reached a settlement, agreeing that Western Union would change its business practices to notify customers when wire transfers failed, would help customers whose unclaimed money had escheated to the state to reclaim their money, and would pay interest for the time Western Union held the funds before the escheat. The settlement will be funded using approximately $135 million in customers’ unclaimed funds still held by Western Union, and the funds will be distributed as follows: (1) a $7,500 incentive award to each of the four named plaintiffs; (2) interest to the customers who have already claimed their money from Western Union for the time period from the transfer’s failure to the customer’s claim, minus Western Union’s administrative fees; (3) the unclaimed money plus interest to the customers whose money Western Union still holds, minus Western Union’s administrative fees; (4) the costs of administering the settlement; and (5) 30 percent of the settlement award to class counsel as attorney fees.

Because the settlement was reached during the pendency of the interlocutory appeal, the Tenth Circuit remanded to the district court to consider whether to certify the class and approve the settlement. The district court preliminarily certified the class and approved the settlement, directing that notice be sent to the approximately 1.3 million putative class members. A dozen class members objected to the settlement, including Sikora Nelson (represented by counsel) and Paul Dorsey (pro se). The district court held a “fairness hearing” and eventually overruled all the objections, entered a final class certification, approved the settlement, and entered judgment. Objectors posted bond after it was reduced by the Tenth Circuit and appealed.

The named plaintiffs argued the objectors lacked standing to pursue the appeal, but the Tenth Circuit disagreed, finding Article III standing as to all class members. Plaintiffs also argued the objectors were raising arguments that were not properly preserved below, but the Tenth Circuit again disagreed, noting it has wide discretion to consider all arguments on appeal and the arguments were raised in some form in the lower court proceedings.

Objectors first contended the district court erred in certifying the class because the named plaintiffs could not fairly and adequately protect the interests of the class as a whole, and the district court should have created subclasses to adequately address the needs of all class members. Objector Nelson first argued that because the named plaintiffs had arbitration clauses in their agreements with Western Union and not all class members had arbitration provisions, including Nelson, the plaintiffs could not adequately protect the other class members’ interests. The Tenth Circuit noted that at the time the class was certified the district court had already ruled the arbitration provisions were unenforceable. Nelson argued she, and other similarly situated class members, could have negotiated a much better settlement than the named plaintiffs, but the Tenth Circuit disagreed, finding Nelson had agreed not to initiate any class actions in her contract.

Next, Nelson argued that because she was a Michigan resident and a Michigan statute allowed treble damages for such failed wire transactions, the named plaintiffs could not adequately represent her interest or the interest of other Michigan residents. However, because the district court had already ruled that Colorado law governed the claims, the Tenth Circuit found this argument unavailing. Nelson also argued that because the plaintiffs had already reclaimed their money from Western Union while she and other class members had not, plaintiffs were not similarly situated. The Tenth Circuit noted that Western Union’s challenged conduct was the same as to all class members, and the difference was not enough to preclude plaintiffs from representing the class.

Nelson also challenged the district court’s approval of the settlement, contending it was unfair because absent class members will finance most of the settlement for the entire class. Although the Tenth Circuit was “not unsympathetic to Nelson’s argument,” it determined them to be ultimately unpersuasive, since Nelson and others who had not already claimed their money would not have known about it absent the settlement agreement, and because the settlement agreement incentivized Western Union to change its business practices. Although there is a possibility that the settlement funds will run out before all class members have received their share, that possibility is unlikely to be realized based on historical data indicating that only 15 percent of Western Union’s customers ever seek a refund of their money.

The Tenth Circuit next addressed Nelson’s procedural challenge to the Rule 23 notice, finding the given notice satisfied due process by identifying several ways they could obtain additional information about the claims they would be releasing if they joined the settlement. Objector Dorsey also challenged how the notice was given to class members, arguing Western Union should have cross-checked all its databases instead of mailing to the last known address of class members. The named plaintiffs assert that Western Union did cross-check its databases, and also the class administrator used the post office’s change of address database to update the addresses. The Tenth Circuit found the mailed notice sufficient. Dorsey also speculated that those plaintiffs whose transactions were “zeroed out” by administrative fees may not have received notice, but the Tenth Circuit found that in fact all class members were notified. The Tenth Circuit similarly found a typo in the notice insignificant, given the corrective measures taken on the class action website. Dorsey finally argued that because he did not receive the email notice, despite having a current email address on file with Western Union, there must have been something wrong with the email notice. The Tenth Circuit disagreed.

Finally, Dorsey and Nelson argued the district court failed to exercise its independent judgment by adopting verbatim the orders drafted by plaintiffs and Western Union in certifying the class and approving the settlement. The Tenth Circuit was satisfied that the court exercised independent judgment. Objectors also claim the district court did not address their objections, but the Tenth Circuit found that it did, albeit briefly.

The Tenth Circuit affirmed the district court’s order certifying the class and approving the settlement.

Tenth Circuit: “Reverse Preemption” Deprived District Court and Tenth Circuit of Subject Matter Jurisdiction

The Tenth Circuit Court of Appeals issued its opinion in Western Insurance Co. v. A & H Insurance Inc. on Friday, April 24, 2015.

Western Insurance is insolvent and being liquidated in Utah state court. The liquidator brought suit against several of Western’s “affiliates” to recover funds Western had transferred to them. The defendants removed the ancillary proceeding to federal court under diversity jurisdiction, and the liquidator sought a remand, which the district court granted. Defendants appealed.

Because insolvent insurers are exempt from federal bankruptcy protection, state law governs insurer insolvency proceedings. After the defendants removed the case to federal court, liquidators argued the McCarran-Ferguson Act barred removal, as it is essentially a “reverse preemption” doctrine. The district court remanded “for the reasons stated on the record.”

The Tenth Circuit first evaluated its jurisdiction and found it could only proceed to entertain the appeal if the remand order was not based on lack of subject matter jurisdiction. In its order, the district court made several contradictory statements regarding its rationale for remand, leaving it unclear whether it relied on the McCarran-Ferguson Act’s “reverse preemption” in its remand order. However, the Tenth Circuit found that the bulk of the district court’s decision focused on the McCarran-Ferguson Act. Because the district court’s remand was based to a fair degree on lack of subject matter jurisdiction, the Tenth Circuit found it lacked jurisdiction to hear the appeal.

The appeal was dismissed.

Colorado Supreme Court: Lawful Off-Duty Activities Not Limited to State Law

The Colorado Supreme Court issued its opinion in Coats v. Dish Network, LLC on Monday, June 15, 2015.

Labor and Employment—Protected Activities.

The Supreme Court held that under the plain language of CRS § 24-34-402.5, Colorado’s lawful activities statute, the term “lawful” refers only to those activities that are lawful under both state and federal law. Therefore, employees who engage in an activity that is permitted by state law but unlawful under federal law, such as use of medical marijuana, are not protected by the statute. The Court therefore affirmed the court of appeals’ opinion.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: FDIC Exclusively Holds Claims Against Failed Bank’s Holding Company

The Tenth Circuit Court of Appeals issued its opinion in Barnes v. Harris on Tuesday, April 21, 2015.

The Barnes Banking Company (“bank”) began engaging in risky lending practices in the 2000s, leading to its ultimate demise in January 2010. The FDIC was appointed as receiver. In January 2012, J. Canute Barnes filed a derivative shareholder complaint in Utah state court against Barnes Bancorporation (“holding company”), parent of the bank, alleging breach of fiduciary duty. Attached to the Utah complaint was a demand letter alleging the bank was the holding company’s sole asset. The initial complaint stated the defendants were sued in their capacity as officers and directors of the holding company and not the bank. The FDIC filed a motion to intervene in state court, arguing it possessed sole statutory authority under FIRREA to assert the derivative claims at issue. The FDIC then removed the case to federal court.

The district court granted a motion to amend the complaint to include two additional shareholders, W. King Barnes and Robert Jones. Plaintiffs filed a motion to remand to state court, arguing the FDIC was not a party to the case because it had not filed a pleading, which motion was denied. Plaintiffs then moved to dismiss the FDIC for failure to state a claim. The FDIC filed its own motion to dismiss, and defendants moved for judgment on the pleadings. The district court denied plaintiffs’ motion to dismiss, granted in part the motions filed by defendants and the FDIC, and dismissed most of plaintiffs’ claims with prejudice while allowing some to be re-pled. Plaintiffs’ second amended complaint attempted to re-describe the bank as the holding company’s “primary asset,” but the focus of the complaint was still the harm suffered by the bank’s failure. The second amended complaint also alleged the bank received a $9 million tax return, which should have been in part distributed to the holding company, and that the holding company misused $265,000 by paying insurance premiums and retaining counsel. Both FDIC and defendants moved to dismiss the second complaint, which the district court granted. Plaintiffs appealed.

The Tenth Circuit first considered the district court’s jurisdiction. Through FIRREA, the FDIC is deemed a party, and the case is deemed to arise under federal law. The district court therefore had jurisdiction to hear the complaints. Plaintiffs argue the FDIC lacked jurisdiction because it never filed a pleading. The Tenth Circuit found the case on which plaintiffs relied inapposite to that assertion. Because FDIC was permitted to intervene in state court, it became a party to the proceeding, and jurisdiction was exclusive in the district court under FIRREA.

The Tenth Circuit proceeded to examine the merits. Once the FDIC is appointed as a receiver, FIRREA grants it all rights, powers, and privileges of the bank with respect to the assets of the bank, including those of the holding company. The question of whether FIRREA applies to cases in which a breach of fiduciary duty suit is brought against a bank holding company’s officers after the bank has gone into receivership was one of first impression in the Tenth Circuit. The Tenth Circuit examined similar cases from other jurisdictions, as well as Utah corporate law, and determined that FIRREA applies. The majority of plaintiffs’ claims were derivative, reaching the holding company only because of the harms of the bank. Those claims belong to the FDIC.

The Tenth Circuit found similarly that the $9 million tax return belonged exclusively to the bank and therefore the FDIC was the only party entitled to the return. The tax refund due from a joint return generally belongs to the company responsible for the losses that formed the basis for the return, and due to the receivership, the entire refund belongs to the FDIC.

Finally, the Tenth Circuit addressed the claims that the holding company misused $265,000 by using the funds to pay insurance premiums and legal fees. The Tenth Circuit, like the district court, found these claims inadequately pleaded. Plaintiffs were in a privileged position and could have examined the holding company’s records to find support for their claims. Plaintiffs further failed to explain how the expenditures constituted an actionable wrong. The Tenth Circuit upheld the district court’s dismissal of this claim.

Expressing sympathy for the plaintiffs’ position, the Tenth Circuit recognized the broad scope of the FDIC’s authority in dealing with the aftermath of a bank failure, and admonished bank holding company shareholders to take action prior to the bank’s collapse to stave off the collapse and protect their assets. The Tenth Circuit affirmed the district court.

Colorado Court of Appeals: Partial Subordination Approach to Lien Priority Best Reflects Colorado Law

The Colorado Court of Appeals issued its opinion in Tomar Development, Inc. v. Friend on Thursday, June 4, 2015.

Lien—Subordination Agreement—Partial Subordination Approach.

The Friend family sold its ranch to Friend Ranch Investors Group (FRIG) to develop it into a resort-style golf course community. In 2010, FRIG conveyed the property to Mulligan, LLC, and at that time, the relevant order of priority was (1) Colorado Capital Bank’s (CCB) senior lien; (2) Tomar Development (Tomar); (3) the Damyanoviches; (4) the Friends; and (5) CCB’s junior lien. Bent Tree, Mulligan, and CCB then entered into a subordination agreement whereby CCB’s senior lien became subordinate to CCB’s junior lien. Neither Tomar, the Damyanoviches, nor the Friends was involved in or an intended beneficiary of the subordination agreement. CCB’s senior lien was never released. Bent Tree then foreclosed on CCB’s senior lien and, in November 2010, Bent Tree bought the property at a public trustee’s foreclosure sale for approximately $11,800. Tomar, the Friends, and the Damyanoviches filed claims, each of which sought declaratory judgments as to the priority of their interests, which were dismissed by the trial court under CRCP 12(b)(5).

On appeal, Tomar, the Friends, and the Damyanoviches argued that the trial court erred in applying the partial subordination approach to the subordination of liens. The partial subordination approach applies when the most senior lienholder (A) agrees to subordinate his interest to the most junior lienholder (C) without consulting the intermediary lienholders (B). Under this approach, when A subordinates to C, C becomes the most senior lienholder, but only to the extent of A’s original lien. Under this partial subordination approach, B is not affected by the agreement between A and C, to which it was not privy. Colorado adopts the partial subordination approach, and it was properly applied in this case. Accordingly, the trial court did not err in dismissing Tomar’s, the Damyanoviches’, and the Friends’ claims seeking a declaratory judgment that each of their interests was senior to all other interests.

Summary and full case available here, courtesy of The Colorado Lawyer.

Final Bills of 2015 Legislative Session Signed; Three Sent to Secretary of State Without Signature

CapitolbuildingOn Friday, June 5, 2015, Governor Hickenlooper signed 60 bills into law and allowed three bills to become law without a signature. To date, Governor Hickenlooper has signed 362 bills into law, vetoed three bills, and allowed three to become law without a signature. The bills signed Friday are summarized here.

  • SB 15-011 – Concerning the Pilot Program for Persons with Spinal Cord Injuries Relating to the Use of Complimentary and Alternative Medicine, and, in Connection Therewith, Making an Appropriation, by Sen. Nancy Todd and Rep. Dianne Primavera. The bill continues the Medicaid Spinal Cord Injury Alternative Medicine Pilot Program and expands the program so it can serve additional clients.
  • SB 15-090Concerning the Adoption of Standards Governing Temporary Permits on Motor Vehicles for Effective Readability, and, in Connection Therewith, Making an Appropriation, by Sen. Nancy Todd and Rep. Max Tyler. The bill requires that temporary motor vehicle plates meet the same requirements regarding readability as permanent plates.
  • HB 15-1310 – Concerning the Authority of the Division of Parks and Wildlife to Acquire Real Property for their Garfield County Administrative Office and Public Service Center, and, in Connection Therewith, Making an Appropriation, by Rep. Bob Rankin and Sen. Randy Baumgardner. The bill allows the Division of Parks and Wildlife to purchase a specific property in Garfield County.
  • HB 15-1318 – Concerning the Requirements for Administering a Single Medicaid Waiver for Home- and Community-Based Services for Adults with Intellectual and Developmental Disabilities, and, in Connection Therewith, Making an Appropriation, by Rep. Dave Young and Sen. Kevin Grantham. The bill requires the Department of Health Care Policy and Financing to consolidate two waiver programs for adults with intellectual and developmental disabilities.
  • HB 15-1252 – Concerning an Extension of the Number of Years the Individual Income Tax Return Includes a Voluntary Contribution Designation for the Colorado Healthy Rivers Fund, by Rep. Diane Mitsch Bush and Sen. Jerry Sonnenberg. The bill extends the voluntary check-box contribution for the Colorado Healthy Rivers Fund until 2020.
  • HB 15-1166 – Concerning the Creation of a Tributary Groundwater Monitoring Network in the South Platte River Alluvial Aquifer, and, in Connection Therewith, Making an Appropriation, by Reps. Lori Saine & Jeni James Arndt and Sen. Vicki Marble. The bill creates a basin-wide tributary groundwater monitoring network in the South Platte River alluvial aquifer based on recommendations from a CWCB report.
  • HB 15-1283 – Concerning Marijuana Testing, and, in Connection Therewith, Creating a Reference Lab by December 31, 2015, that will House a Library of Testing Methodologies and Making an Appropriation, by Rep. Steve Lebsock and Sen. Chris Holbert. The bill requires the Department of Public Health and Environment to develop and maintain a marijuana laboratory testing reference library.
  • HB 15-1368 – Concerning the Creation of a Cross-System Response for Behavioral Health Crises Pilot Program to Serve Individuals with Intellectual or Developmental Disabilities, and, in Connection Therewith, Making an Appropriation, by Rep. Dave Young and Sen. Kevin Grantham. The bill creates a pilot program to support collaborative approaches for individuals with intellectual or developmental disabilities and a mental health or behavioral disorder.
  • HB 15-1247 – Concerning the Implementation of the Legislative Audit Committee’s Recommendations for Review of Dam Safety, by Rep. Lori Saine and Sen. Tim Neville. The bill increases the fees charged by the State Engineer for dam project design review.
  • HB 15-1248 – Concerning Limited Access by Private Child Placement Agencies to Records Relating to Child Abuse or Neglect for Purposes of Ensuring Safe Placements for Foster Children, and, in Connection Therewith, Making an Appropriation, by Rep. Jonathan Singer and Sen. Owen Hill. The bill permits one representative at each child placement agency to review records of potential foster parents for reports of abuse or neglect.
  • HB 15-1355 – Concerning Access to Personal Records Relating to a Person’s Family History, by Reps. Lori Saine & Jonathan Singer and Sens. Vicki Marble & Linda Newell. The bill allows an adult adoptee to access his or her birth certificate and that of his or her adult sibling in Colorado.
  • HB 15-1357 – Concerning the Establishment of the Ratio of Valuation for Assessment of Residential Real Property, by Reps. Lois Court & Brian DelGrosso and Sens. Tim Neville & Michael Johnston. The bill establishes the residential assessment rate for 2015-2016 and does not change it.
  • SB 15-020 – Concerning Education Regarding the Prevention of Child Sexual Abuse and Assault, and, in Connection Therewith, Making an Appropriation, by Sen. Linda Newell and Rep. Beth McCann. The bill expands the duties of the School Safety Resource Center to include providing education and materials regarding awareness and prevention of child sexual assault.
  • SB 15-109 – Concerning the Mandatory Reporting of Mistreatment Against an Adult with a Disability, by Sen. Kevin Grantham and Rep. Dave Young. The bill expands the at-risk adult reporting requirements to include adults with intellectual and developmental disabilities.
  • SB 15-195 – Concerning Appropriating to the Department of Corrections Moneys Generated as Savings from the Awarding of Achievement Earned Time to Inmates, and, in Connection Therewith, Making and Reducing Appropriations, by Sen. Pat Steadman and Rep. Millie Hamner. The bill limits the amount of earned time savings that may be used toward education and parole programs.
  • SB 15-196 – Concerning Measures to Ensure Industrial Hemp Remains Below a Delta-9 Tetrahydrocannabinol Concentration of No More than Three-Tenths of One Percent on a Dry Weight Basis, and, in Connection Therewith, Making an Appropriation, by Sens. Vicki Marble & Pat Steadman and Reps. Steve Lebsock & Lois Saine. The bill expands the industrial hemp committee and imposes new regulations on industrial hemp.
  • SB 15-220 – Concerning Security for the Colorado General Assembly, by Sens. Morgan Carroll & Bill Cadman and Reps. Crisanta Duran & Brian DelGrosso. The bill requires the Colorado State Patrol to provide protection for the members of the General Assembly.
  • SB 15-256 – Concerning the Operation of the Legislative Committee that Oversees the Colorado Health Benefit Exchange, and, in Connection Therewith, Making an Appropriation, by Sen. Ellen Roberts and Rep. Beth McCann. The bill makes several changes to the Colorado health benefit exchange committee’s duties.
  • SB 15-115 – Concerning the Sunset Review of the Medical Marijuana Programs, by Sen. Owen Hill and Rep. Ellen Roberts. The bill continues the Medical Marijuana Code until 2019 and implements some changes to the program.
  • HB 15-1063 – Concerning Prohibited Communication Concerning Patents, and, in Connection Therewith, Making an Appropriation, by Rep. Dan Pabon and Sen. David Balmer. The bill establishes a framework for communications between parties regarding patent rights.
  • HB 15-1178 – Concerning the State Engineer’s Authority to Allow Well Users to Lower the Water Table in an Area that the State Engineer Determines is Experiencing Damaging High Groundwater Levels, and, in Connection Therewith, Establishing an Emergency Dewatering Grant Program for the Purpose of Lowering the Water Table in Areas of Gilcrest, Colorado, and Sterling, Colorado and Making an Appropriation, by Reps. Lori Saine & Stephen Humphrey and Sens. Vicki Marble & Jerry Sonnenberg. The bill establishes the Emergency Dewatering Grant Program for the emergency pumping of wells.
  • HB 15-1102 – Concerning the Expansion of the “Colorado Cottage Foods Act”, and, in Connection Therewith, Increasing the Food Products a Producer Can Sell Under the Act, Requiring an Additional Disclaimer, and Making an Appropriation, by Reps. Millie Hamner & Yeulin Willett and Sens. Kerry Donovan & Kevin Grantham. The bill divides the foods that can be produced under the Cottage Foods Act into two tiers.
  • SB 15-012 – Concerning the Treatment of Child Support for Purposes of the Colorado Works Program, and, in Connection Therewith, Making an Appropriation, by Sen. John Kefalas and Rep. Brittany Pettersen. The bill allows the Department of Human Services to disregard child support income when determining eligibility for the TANF program.
  • HB 15-1219 – Concerning the Enterprise Zone Investment Tax Credit for Renewable Energy Products, and, in Connection Therewith, Making an Appropriation, by Reps. Beth McCann & Jon Becker and Sens. Mary Hodge & Jerry Sonnenberg. The bill allows a taxpayer who places a renewable energy product in an enterprise zone to receive a refund of the tax credit.
  • HB 15-1228 – Concerning the Special Fuel Excise Tax on Liquefied Petroleum Gas, and, in Connection Therewith, Making an Appropriation, by Reps. Diane Mitsch Bush & Jon Becker and Sen. Ray Scott. The bill makes several changes to the administration and collection of the special fuel excise tax program for liquefied petroleum.
  • HB 15-1350 – Concerning Performance Measures for Accrediting an Alternative Education Campus, by Rep. Brittany Pettersen and Sen. Owen Hill. The bill requires the Department of Education to convene stakeholder meetings to review statutes and rules related to performance indicators for the accreditation of alternative education campuses.
  • HB 15-1392 – Concerning Changes to the State’s Payroll System to Allow All State Employees to be Paid Twice a Month, by Reps. Dave Young & Jack Tate and Sens. Linda Newell & Tim Neville. The bill changes the pay schedule for all state employees to twice a month.
  • HB 15-1352 – Concerning Modifications to the Naturopathic Formulary of Medications that a Registered Naturopathic Doctor is Authorized to Use in the Practice of Naturopathic Medicine, by Reps. Joann Ginal & Kathleen Conti and Sens. Larry Crowder & Linda Newell. The bill expands the authority of naturopathic doctors in several ways.
  • HB 15-1353 – Concerning the Continuation of the Regulation of Conveyances, and, in Connection Therewith, Extending the Certification of Conveyances and Conveyance Mechanics, Contractors, and Inspectors of Elevators and Escalators Until July 1, 2022, by Rep. Alec Garnett and Sen. Beth Martinez Humenik. The bill extends the Elevator and Escalator Certification Act to regulate conveyances.
  • HB 15-1360 – Concerning the Use of Injection Therapy by Acupuncturists Licensed Pursuant to Article 29.5 of Title 12, Colorado Revised Statutes, by Rep. Joann Ginal and Sen. Kevin Lundberg. The bill allows licensed acupuncturists to practice injection therapy.
  • HB 15-1083 – Concerning Patient Financial Contributions for Physical Rehabilitation Services, and, in Connection Therewith, Making an Appropriation, by Rep. Dianne Primavera and Sen. Larry Crowder. The bill requires the Colorado Commission on Affordable Health Care to conduct a study of the costs of physical rehabilitation services.
  • HB 15-1261 – Concerning the Maximum Reserve for a Cash Fund with Fee Revenue, by Rep. Dave Young and Sens. Kevin Grantham & Pat Steadman. The bill alters the cash fund reserve requirement.
  • HB 15-1273 – Concerning Additional Comprehensive Reporting Requirements for School Discipline Reports, and, in Connection Therewith, Requiring a Post-Enactment Review of the Implementation of this Act and Making an Appropriation, by Rep. Polly Lawrence and Sen. Linda Newell. The bill adds sexual assaults and marijuana violations to the list of items that must be included in a safe schools report.
  • HB 15-1370 – Concerning Access to Certain Records of a County Department of Human or Social Services Containing Personal Identifying Information by an Auditor Conducting a Financial or Performance Audit of that Department, by Rep. Dianne Primavera and Sens. Lucia Guzman & Tim Neville. The bill permits an auditor access to all files of a county department of human or social services that are needed to conduct the audit.
  • SB 15-029 – Concerning a Study of Volunteer Firefighter Pension Plans in the State, and, in Connection Therewith, Making an Appropriation, by Sen. Jessie Ulibarri and Rep. Jovan Melton. The bill requires the state auditor to conduct a study of firefighter pension plans in Colorado.
  • SB 15-184 – Concerning Enforcement of Compulsory Education Requirements, by Sen. Chris Holbert and Rep. Rhonda Fields. The bill requires the chief judge in each judicial district to convene a meeting of stakeholders to find ways to address truancy other than detention.
  • SB 15-203 – Concerning Continuation of the Regulation of Debt-Management Service Providers by the Attorney General, and, in Connection Therewith, Implementing the Recommendations of the 2014 Sunset Report by the Department of Regulatory Agencies, by Sen. John Cooke and Rep. Dan Pabon. The bill continues the Uniform Debt-Management Services Act.
  • SB 15-228 – Concerning a Process for the Periodic Review of Provider Rates Under the “Colorado Medical Assistance Act”, and, in Connection Therewith, Making an Appropriation, by Sen. Pat Steadman and Rep. Bob Rankin. The bill establishes a process for the Department of Health Care Policy and Financing to review Medicare provider rates.
  • SB 15-261 – Concerning a Modification to the Statute that Specifies the Forms of Public Notice that a Public Utility May Provide Regarding a Change in the Public Utility’s Schedule of Charges to Allow a Request for an Alternative Form of Notice within the Same Formal Application that the Public Utility Files with the Public Utilities Commission When Applying for a Change in the Public Utility’s Schedule of Charges, by Sen. Jerry Sonnenberg and Rep. Dave Young. The bill allows public utilities to request rate changes during existing proceedings.
  • HB 15-1282 – Concerning the Creation of Crimes Involving Deception about Material Information in Connection with Birth Certificates, by Rep. Lois Saine and Sen. Linda Newell. The bill creates a class 2 misdemeanor for anyone who intentionally omits material information in the preparation of a birth certificate.
  • HB 15-1309 – Concerning the Placement of Interim Therapeutic Restorations by Dental Hygienists, and, in Connection Therewith, Ensuring Medicaid and Children’s Basic Health Plan Reimbursement for Services Provided Through the Use of Telehealth Related to Interim Therapeutic Restoration Procedures and Making an Appropriation, by Rep. Joann Ginal and Sen. Larry Crowder. The bill allows dental hygienists to perform therapeutic restorations.
  • HB 15-1333 – Concerning the Creation of a Regional Center Depreciation Account in the Capital Construction Fund for Maintenance of the State’s Regional Centers, and, in Connection Therewith, Making an Appropriation, by Rep. Ed Vigil and Sen. Randy Baumgardner. The bill creates the Regional Center Depreciation Account to hold moneys for depreciation and capital construction.
  • HB 15-1337 – Concerning Placement Stability for Children, by Rep. Angela Williams and Sen. Linda Newell. The bill requires a court to consider all statutory factors when placing a child for foster care.
  • HB 15-1340 – Concerning an Extension of the Period During Which the Voluntary Contribution Designation Benefiting the Colorado Multiple Sclerosis Fund will Appear on the State Individual Income Tax Return Form, by Reps. Faith Winter & Perry Buck and Sens. Beth Martinez Humenik & Linda Newell. The bill extends the Colorado Multiple Sclerosis Fund check-off through 2021.
  • HB 15-1345 – Concerning an Exemption from Certain Traffic Requirements for the Riders of a Three-Wheel Low-Speed Motorcycle, by Rep. Paul Rosenthal and Sen. Tim Neville. The bill exempts motorcyclists who ride low-speed three-wheeled motorcycles from requirements of licensure and eye protection.
  • HB 15-1366 – Concerning the Expansion of the Colorado Job Growth Incentive Tax Credit to Allow Credits for Businesses that Enter Into a Qualified Partnership with a State Institution of Higher Education, and, in Connection Therewith, Making an Appropriation, by Reps. Dan Pabon & Yeulin Willett and Sen. David Balmer. The bill allows the job growth incentive tax credit to be refundable under certain conditions.
  • HB 15-1387 – Concerning the Elimination of the Authorized Transfer of Medical Marijuana to Retail Marijuana at the Time that a Retail Marijuana Establishment License Becomes Effective, by Reps. Dan Pabon & Bob Rankin and Sens. Pat Steadman & Kent Lambert. The bill prohibits a medical marijuana facility with a retail marijuana license from transferring any of its medical marijuana to the retail establishment.
  • SB 15-192 – Concerning the Provision of a Therapeutic Alternative Drug Selection to Patients Residing in Certain Long-Term Care Facilities, by Sen. Irene Aguilar and Rep. Janak Joshi. The bill allows licensed pharmacists to provide therapeutic alternate drug selections to patients in nursing care facilities and long-term acute care hospitals if certain conditions are met.
  • SB 15-209 – Concerning an Amendment to Specified Statutes Governing the Management of the Financial Affairs of a Unit Owners’ Association Under the “Colorado Common Interest Ownership Act” so as to Exempt Communities in Which a Majority of Units Designated for Residential Use are Time Share Units, by Sen. David Balmer and Rep. Angela Williams. The bill exempts certain timeshare communities from the definitions of “common interest community” and “homeowners’ association.”
  • SB 15-210Concerning Creation of the Title Insurance Commission, and, in Connection Therewith, Making an Appropriation, by Sen. Laura Woods and Rep. Jeni James Arndt. The bill creates the Title Insurance Commission to serve as an advisory body to the Commissioner of Insurance.
  • SB 15-229 – Concerning the Creation of an Amyotrophic Lateral Sclerosis License Plate for Motor Vehicles, and, in Connection Therewith, Making an Appropriation, by Sen. Laura Woods and Reps. Janak Joshi & Diane Mitsch Bush. The bill creates an ALS license plate, available when the Rocky Mountain Chapter of the ALS Association receives 3,000 signatures of individuals committed to purchase the plate.
  • SB 15-262 – Concerning Updates to the Statutes Regulating Blanket Sickness and Accident Insurance, by Sen. Tim Neville and Rep. Angela Williams. The bill expands and clarifies the groups that may receive blanket accident and sickness insurance.
  • SB 15-267 – Concerning the Financing of Public Schools, and, in Connection Therewith, Making an Appropriation, by Sen. Owen Hill and Rep. Millie Hamner. The bill increases per-pupil funding for public schools to reflect inflation.
  • SB 15-270 – Concerning the Creation of the Office of the State Architect, and, in Connection Therewith, Adding Statewide Planning Responsibilities and Making and Reducing an Appropriation, by Sen. Kent Lambert and Rep. Bob Rankin. The bill creates the Office of the State Architect in law.
  • SB 15-271 – Concerning the Continuation of the Entities Charged with Representing the Interests of Certain Utility Consumers in Matters Heard by the Public Utilities Commission, by Sen. Jerry Sonnenberg and Rep. Jon Becker. The bill continues the Office of the Consumer Counsel and implements recommendations from the sunset review.
  • SB 15-278 – Concerning an Amendment to the Annual General Appropriation Act for the 2013-2014 Fiscal Year to Allow Unspent Moneys Appropriated for the Colorado State Capitol Dome Restoration Project to be Used for the Next Planned Phase of the Colorado State Capitol Restoration, by Sens. Kent Lambert & Pat Steadman and Rep. Millie Hamner. The bill allows the Department of Personnel and Administration to use moneys from the capitol restoration project on other projects.
  • SB 15-281 – Concerning Parent Engagement in Institute Charter Schools, by Sen. Owen Hill and Rep. Tracy Kraft-Tharp. The bill requires charter schools, rather than the Charter School Institute, to hold meetings regarding school priority implementation.
  • SB 15-283 – Concerning Debt Collection Proceedings, and, in Connection Therewith, Increasing the Scope and Value of Assets that may be Exempted, Clarifying Definitions of “Earnings”, and Specifying the Procedure for Service of Notice of Exemption and Pending Levy in Certain Garnishment Proceedings, by Sen. Laura Woods and Rep. Pete Lee. The bill modifies exemptions and procedures in certain debt collection actions.
  • SB 15-202 – Concerning the Regulation of Water Conditioning Appliances Pursuant to the Plumbing Code, by Sen. David Balmer and Rep. Dan Pabon. The bill creates three new categories of registered water conditioners.
  • HB 15-1301 – Concerning the Creation of a Credit for Tobacco Products that a Distributor Ships or Transports to an Out-of-State Consumer, and, in Connection Therewith, Creating the “Cigar On-Line Sales Equalization Act” and Making an Appropriation, by Rep. Angela Williams and Sens. Kevin Grantham & Owen Hill. The bill creates a credit against tobacco excise tax equal to Colorado excise taxes paid on tobacco products other than cigarettes sold by a distributor to an out-of-state consumer.

In addition to the bills signed Friday, the governor allowed three bills to become law without a signature. These bills are also summarized here.

  • HB 15-1316 – Concerning a Simplification of the Process by which the Public Utilities Commission may Issue a Certificate to Provide Taxicab Service in Certain Metropolitan Counties, by Reps. Steve Lebsock & Dan Thurlow and Sens. Owen Hill & Jessie Ulibarri. The bill changes the prerequisites for an applicant seeking authorization to provide taxicab service within certain counties.
  • SB 15-067 – Concerning an Increase in the Class of Offense for Certain Acts of Assault Against Persons Engaged in Performing their Duties as Emergency Responders, by Sen. John Cooke and Rep. Janak Joshi. The bill raises the classification for assault of a first responder to assault in the second degree.
  • SB 15-290 – Concerning Creation of the Colorado Student Leaders Institute, And, In Connection Therewith, Making an Appropriation, by Sen. Nancy Todd and Rep. Jim Wilson. The bill creates the Colorado Student Leaders Institute, a competitive summer residential education program for high school students.

For a complete list of Governor Hickenlooper’s 2015 legislative decisions, click here.

Tenth Circuit: Statements as to Reason for Deal Failure Could Have Materially Misled Investors

The Tenth Circuit Court of Appeals issued its opinion in Nakkhumpun v. Taylor on Tuesday, April 7, 2015.

Patipan Nakkhumpun, lead plaintiff in a securities class action against executives of Delta Petroleum Corp., filed suit in district court after a deal between Delta and Opon International, LLC fell through. Plaintiffs alleged the Delta executives violated § 10(b) of the Securities Act and SEC Rule 1ob-5 by misleading investors through statements about the proposed transaction with Opon and about Delta’s financial condition. The district court granted Defendants’ motion to dismiss, holding Plaintiffs failed to allege loss causation regarding the Opon deal and falsity regarding the statements about Delta’s financial condition. Plaintiffs moved for leave to amend, which the district court denied.

Plaintiffs appealed, and the parties dispute whether Plaintiffs adequately pled falsity, scienter, and loss causation as to the Opon transaction and falsity and scienter as to the financial statements. The Tenth Circuit first addressed the Opon transaction.

Delta issued a press release in March 2010 announcing a preliminary agreement with Opon, in which Opon would purchase a 37.5% non-operating interest in Delta’s Vega Area assets for $400 million. Defendants issued more press releases between March and June 2010 indicating that Opon was trying to obtain financing for the transaction, and in a July 2010 press release, Delta board chair Taylor announced termination of the deal, stating that Opon failed to receive financing. However, confidential informants related that the Opon deal fell through because Opon determined the assets were not worth $400 million and refused to pay that price, and further negotiations between Opon and Delta were unsuccessful.

The district court agreed with Plaintiffs that the statements were false or misleading but concluded Plaintiffs failed to show loss causation. On appeal, Plaintiffs argue they alleged all requirements for securities fraud under § 10(b), and the Tenth Circuit agreed. The Tenth Circuit found a reasonable investor would have been lead to believe that the Vega Area assets were worth $400 million, satisfying the falsity prong. The Tenth Circuit also found Plaintiffs established scienter, finding potential for Taylor’s statements to mislead buyers and sellers and noting the danger was so obvious Taylor must have been aware of it. The Tenth Circuit reversed the district court’s dismissal of Plaintiffs’ § 10(b) claim on this issue.

Turning next to the loss causation issue, the Tenth Circuit affirmed the district court’s finding that Plaintiffs’ proposed amended complaint contained adequate allegations of loss causation under a theory of materialization of a concealed risk. Plaintiffs pleaded particular facts tying financial loss to Taylor’s misleading explanation about the reason the Opon deal fell through.

The Tenth Circuit found adequate support for Plaintiff’s § 10(b) arguments as to defendant Taylor, but not regarding the other named defendants. The Tenth Circuit therefore affirmed the dismissal of Plaintiffs’ complaint as to the other named defendants.

Finally, the Tenth Circuit turned to Plaintiffs’ claims that Defendants made false or misleading statements regarding its financial situation. In the district court and on appeal, Defendants challenged these statements as failing to allege scienter or falsity. The district court granted Defendants’ motion to dismiss on the ground that the statements were not false. The Tenth Circuit affirmed the dismissal but on the ground that the statements were missing allegations of either scienter or falsity.

The Tenth Circuit reversed the dismissal of Plaintiffs’ Opon-related claims as to defendant Taylor but affirmed as to all other defendants. On the claims of misleading financial statements, the Tenth Circuit affirmed the district court’s dismissal and denial of leave to amend.

Tenth Circuit: Defendant Must Have Direct Stake in Outcome of Litigation to Establish Standing

The Tenth Circuit Court of Appeals issued its opinion in Greenbaum v. Bailey on Tuesday, March 31, 2015.

In 2007, the Albuquerque city charter was amended to prohibit campaign contributions from businesses. On May 6, 2013, plaintiffs Greenbaum and three other individuals filed a civil rights complaint against Bailey in her official capacity as Clerk for the City of Albuquerque and against the City Board of Ethics and Campaign Practices, alleging the amendment prohibiting campaign contributions violated the First and Fourteenth Amendments. Plaintiffs sought declaratory and injunctive relief, nominal damages, fees, and costs. The Committee to Elect Pete Dinelli Mayor (“committee”) was granted leave to file a complaint in intervention seeking declaratory relief that the amendment was constitutional. The committee also filed a brief in support of Bailey’s motion to dismiss, arguing that the plaintiffs (all of whom are individuals) lacked standing to challenge the amendment. Shortly thereafter, Giant Cab Co. moved to intervene as plaintiff and the four original individual plaintiffs were dismissed, leaving Giant Cab as the only plaintiff.

The district court ruled the city charter’s amendment violates the First Amendment and entered judgment in favor of Giant Cab. Bailey and the ethics board declined to appeal, but the committee appealed, alleging the amendment is constitutional because it is closely drawn to further government interests in preventing quid pro quo corruption, the appearance of corruption, and circumvention of individual campaign contribution limits.

In its appellate brief, Giant Cab asserted the committee lacked standing and moved to dismiss the appeal. The Tenth Circuit requested further briefing on the standing issue, and noted that standing can either be piggybacked or individualized, but because Bailey and the board did not appeal, the committee’s standing for the appeal must be evaluated on an individual basis. Following the recent Supreme Court decision in Hollingsworth v. Perry, the Tenth Circuit declined to address the merits of the committee’s appeal, finding instead that the committee had no direct stake in the outcome of the litigation, and found compelling Giant Cab’s assertion that the committee’s standing was no different than that of the general public. The Tenth Circuit found the committee lacked standing to pursue the appeal, and granted Giant Cab’s motion to dismiss.

Colorado Supreme Court: Health Savings Account Not Retirement Account for Garnishment Exemption Purposes

The Colorado Supreme Court issued its opinion in Roup v. Commercial Research, LLC on Monday, June 1, 2015.

Health Savings Account—Statutory Exemptions From Garnishment—CRS § 13-54-102(1)(s).

In this decision, the Supreme Court held that a Health Savings Account (HSA) is not a “retirement plan” within the meaning of Colorado’s exemption statute. An HSA is not intended to replace income lost as a result of retirement; it is intended to cover medical costs incurred at any point during a person’s lifetime. The General Assembly has not chosen to provide an exemption for HSAs in the relevant statutes. Accordingly, the Court affirmed the judgment of the court of appeals.

Summary and full case available here, courtesy of The Colorado Lawyer.

Changes Announced to Colorado Rules of Civil Procedure and Colorado Rules of Criminal Procedure

Colorado Court SealOn Monday, June 1, 2015, the Colorado State Judicial Branch released Rule Change 2015(04) and Rule Change 2015(05). Rule Change 2015(04) amends Rule 32, “Sentence and Judgment,” of the Colorado Rules of Criminal Procedure. The changes are significant and amend many procedural aspects of sentencing. The changes were adopted and effective May 22, 2015.

Rule Change 2015(05) amends the Colorado Rules of Civil Procedure. The changes are extensive and mirror the changes to the Federal Rules of Civil Procedure. According to the new Comment to Rule 1, “The 2015 amendments are the next step in a wave of reform literally sweeping the nation. This reform movement aims to create a significant change in the existing culture of pretrial discovery with the goal of emphasizing and enforcing Rule 1’s mandate that discovery be administered to make litigation just, speedy, and inexpensive. One of the primary movers of this reform effort is a realization that the cost and delays of the existing litigation process is denying meaningful access to the judicial system for many people.” The rule change also added a new form, JDF 622, “Proposed Case Management Order.” The changes were adopted by the Colorado Supreme Court on May 28, 2015, and are effective July 1, 2015, for cases filed on or after July 1, 2015.

On Thursday, June 25, 2015, CLE will host a program to discuss the new rule changes and what they will mean for Colorado attorneys. Richard Holme, Hon. Thomas Kane, and Hon. Michael Berger will discuss the new rules and their significance. Don’t miss this important opportunity to learn about the requirements of the new Rules.

NEW Rules of Civil Procedure in Colorado: Effective July 1, 2015

To register for the live program, click here. To register for the webcast, click here. To register for the video replay on July 17, click here.

Can’t make the live program? Order the homestudy here — CDMP3Video OnDemand