August 20, 2014

Tenth Circuit: Ambiguities in Arbitration Agreement Must Be Resolved in Favor of Arbitration

The Tenth Circuit Court of Appeals issued its opinion in Sanchez v. Nitro-Lift Technologies, L.L.C. on Friday, August 8, 2014.

Miguel Sanchez, along with co-plaintiffs Shane Schneider and Eddie Howard, worked for Nitro-Lift Technologies in and around Johnston County, Oklahoma, servicing and monitoring oil rigs. At the beginning of their employment, they signed a “Confidentiality/Non-Compete Agreement.” They claim they were not allowed to read the document, ask questions, or have an attorney review it before signing. The agreement, which Nitro-Lift alleges is an employment agreement despite its title, contains a broad arbitration clause requiring arbitration for “any dispute, difference or unresolved question” between Nitro-Lift and the employee.

The employees brought suit against Nitro-Lift in the Eastern District of Oklahoma, alleging violations of the FLSA because they were forced to work more than forty hours nearly every week and did not receive overtime compensation from Nitro-Lift for the hours they worked in excess of forty hours per week. In response, Nitro-Lift filed a motion to dismiss and compel arbitration pursuant to the provision in the purported employment agreement, or, alternatively, a motion to stay pending arbitration. Plaintiffs argued the arbitration agreement was unenforceable as to their FLSA claims for a variety of reasons, their wage disputes did not fall under the scope of the arbitration clause, the arbitration clause’s fee-shifting provisions were impermissible as to their employment dispute, and the forum selection clause and application of commercial arbitration rules make the clause unenforceable because they would force employees to pay substantial costs they cannot afford. The district court denied Nitro-Lift’s motion to compel arbitration, ruling that the contract’s broad arbitration clause did not encompass wage disputes because the contract only applied to confidentiality and non-competition. Nitro-Lift filed an interlocutory appeal, and on the same day filed a new motion to dismiss based on plaintiffs’ amended complaint adding Howard and reasserting the same issues contained in its original motion. The district court denied Nitro-Lift’s second motion as a motion for reconsideration. Nitro-Lift timely appealed and the appeals were consolidated for Tenth Circuit review.

The Tenth Circuit first addressed the dispute regarding the applicability of the arbitration clause. The Tenth Circuit found a strong presumption in favor of arbitration, noting that any ambiguities must be resolved in favor of arbitration. Because the Tenth Circuit found ambiguity regarding whether the arbitration clause applied to the dispute at hand, it ruled that arbitration was required and reversed the district court’s denial of the motion to compel arbitration.

The district court did not address plaintiffs’ FLSA claims, and the Tenth Circuit declined to address them for the first time on review, instead remanding to the district court for determination of plaintiffs’ unresolved issues. The Tenth Circuit also left for the district court determination of whether the fee-shifting provision in the arbitration clause rendered the agreement unenforceable in light of U.S. Supreme Court and Tenth Circuit precedent. The Tenth Circuit also declined to address plaintiffs’ argument that Nitro-Lift’s willingness to waive the fee-shifting provision, the forum selection clause, and the rules governing arbitration constituted an impermissible unilateral contract amendment, instead leaving this issue for the district court’s determination.

The district court’s denial of Nitro-Lift’s motion to compel arbitration was reversed and the case was remanded for further findings consistent with the Tenth Circuit’s opinion.

Tenth Circuit: Total Mix of Disclosures Adequately Advised Investors of Risks

The Tenth Circuit Court of Appeals issued its opinion in United Food & Commercial Workers Union Local 880 Pension Fund v. Chesapeake Energy Corp. on Friday, August 8, 2014.

Chesapeake Energy Corporation was one of the country’s largest producers of natural gas, and in July 2008, it sold 25 million shares of common stock in a public offering. Later in 2008, the financial crisis hit, and Chesapeake suffered badly. A group of investors led by United Food and Commercial Workers Union Local 880 Pension Fund filed suit against Chesapeake in the Southern District of New York, citing violations of §§ 11, 12(a)(2), and 15 of the Securities Act and alleging that the Registration Statement for the offering was materially false and misleading because Chesapeake should have disclosed that it had a risky gas price hedging strategy and that Chesapeake’s CEO, Aubrey McClendon, had pledged substantially all his stock as security for margin loans. On Chesapeake’s motion, the case was transferred to the Western District of Oklahoma. Chesapeake moved for summary judgment, which the district court granted, finding that (1) the Registration Statement disclosed the risks associated with Chesapeake’s hedging strategy; (2) Chesapeake had adequately disclosed that McClendon had pledged most of his shares for collateral; and (3) additional disclosures about McClendon’s financial resources would be unreasonable because they would require speculation. The plaintiffs appealed.

The Tenth Circuit examined Chesapeake’s disclosures prior to the stock offering and found they adequately conveyed that Chesapeake was engaging in risky hedging strategies. The Registration Statement included general information about Chesapeake’s hedging strategy and conveyed Chesapeake’s anticipated future losses due to the strategy. Additionally, SEC filings incorporated in the Registration Statement disclosed information about Chesapeake’s “knockout swaps,” which were their most risky hedge investment. Plaintiffs allege that because Chesapeake disclosed some information about its knockout swaps, it had a duty to update that information, but the Tenth Circuit disagreed. The Tenth Circuit found that the information was provided in several SEC filings, and the total mix of information available to a reasonable investor revealed sufficient information about Chesapeake’s knockout swaps.

Next, the Tenth Circuit looked at Chesapeake’s disclosures regarding McClendon’s pledging of stock for margin loans. Plaintiffs alleged that the Registration Statement did not adequately disclose McClendon’s investments. The Tenth Circuit disagreed, noting that the Registration Statement contained disclosures required by Item 403(b) and further disclosure was not required or reasonable.

The Tenth Circuit affirmed the district court’s grant of summary judgment.

Tenth Circuit: ERISA Preemption Necessitated Removal to Federal Court

The Tenth Circuit Court of Appeals issued its opinion in Salzer v. SSM Health Care of Oklahoma, Inc. on Wednesday, August 6, 2014.

Richard Salzer received medical care at an SSM facility following an accident. At the time, he was covered by a health insurance plan, and he entered into a contract with SSM in which he authorized his health insurance company to pay for his care. SSM had a provider agreement with Salzer’s health insurance company in which it agreed to accept payment from the insurance company at a discounted rate. Although the provider agreement prohibited SSM from seeking payment for covered charges from the insured, SSM billed Salzer for the non-discounted amount.

Salzer filed suit against SSM in Oklahoma state court, alleging breach of contract, violation of the Oklahoma Consumer Protection Act, deceit, and tortious interference with contract. He purported to represent a putative class of Oklahoma residents who received treatment at SSM facilities and were similarly billed in violation of provider agreements with insurance companies. Salzer sought damages and specific performance of the provider agreement. SSM removed the case to federal district court. In its notice of removal, SSM alleged that Salzer was a beneficiary of his wife’s employer-provided health plan operated by Aetna and governed by ERISA. SSM further alleged Salzer’s claims were preempted because they can be characterized as seeking to enforce rights under ERISA. Salzer moved to remove the case back to state court, but the district court denied his motion, ruling that his claims were completely preempted by ERISA.

Salzer then filed an amended complaint that reasserted his original claims and added other state law claims. SSM moved to dismiss for failure to state any ERISA claims. The district court dismissed Salzer’s complaint with prejudice, concluding that Salzer disregarded the court’s prior orders by failing to allege any ERISA claims and by continuing to argue that ERISA did not preempt the lawsuit. Salzer appealed to the Tenth Circuit.

The Tenth Circuit examined first the district court’s denial of Salzer’s motion to remand based on ERISA preemption. The Tenth Circuit looked at each of Salzer’s six claims and decided that the first five claims did not implicate ERISA and could have been remanded to state court. However, the sixth claim was indeed an ERISA claim, and the district court correctly refused to remand to the state court for determination of the ERISA claim. The Tenth Circuit found federal jurisdiction over one claim is sufficient to support removal. Because Salzer did not argue on appeal that the district court incorrectly dismissed his claims with prejudice, the Tenth Circuit affirmed the district court.

Tenth Circuit: Case Involving Interpretation of License Agreement was Contract Dispute, Not Patent Resolution Claim

The Tenth Circuit Court of Appeals issued its opinion in Cellport Systems, Inc. v. Peiker Acoustic GMBH & Co. KG on Tuesday, August 5, 2014.

Cellport, a Colorado corporation, designs technology to allow vehicle owners to connect different cell phone models to a single hands-free system through specialized “pockets.” In August 2001, Cellport entered into an agreement with Peiker, a German corporation, granting Peiker a non-exclusive license to Cellport’s intellectual property. After Cellport filed a lawsuit alleging breach of the 2001 agreement, the parties came to terms on a second license agreement in October 2004. The 2004 agreement provided that Peiker would pay Cellport royalties on products that use Cellport’s intellectual property. In 2009, Cellport filed suit in the district court in Boulder County, alleging breach of the 2004 agreement and seeking royalties for seven Peiker products. Peiker removed the case to federal district court. The district court found that Peiker owed royalties on only two products, interpreting a provision in the license agreement as a “rebuttable presumption,” and awarded Cellport prejudgment interest at the statutory rate rather than the 1.5% monthly interest proscribed in the license agreement. The district court declined to award costs, determining that neither party was a “prevailing party” as defined in the license agreement. Cellport appealed and Peiker cross-appealed.

Peiker first asserted that the Tenth Circuit lacked jurisdiction to hear the appeal, moving instead to transfer the appeal to the United States Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over patent claims. The Tenth Circuit analyzed the exclusive jurisdiction provisions of 28 U.S.C. §§ 1295 and 1338 and found that they did not apply because the claims could be analyzed under contract law, not patent law. The parties’ dispute involved the language of sections 1.17(i) and 3.5 of their license agreement, which the Tenth Circuit interpreted as involving acknowledgments of the parties requiring Peiker to pay royalties on any products included in sections 1.17(i) and 3.5.

Following its analysis that section 1.17(i) requires royalties regardless of whether Cellport’s patents were infringed, the Tenth Circuit reversed the judgment of the district court and determined Peiker owed royalties on two additional products, since Peiker conceded that section 1.17(i) applied to those products. Because the district court did not rule on whether section 1.17(i) applied to the remaining product, the Tenth Circuit remanded for the district court to make further findings concerning the applicability of section 1.17(i) to that product.

Regarding its BT-PSC product, Cellport argued that royalties were due under section 1.17(i) or (iii). The contractual provisions were ambiguous, and the district court resolved the ambiguity by determining no royalties were due. The Tenth Circuit could not find clear error in the district court’s factual findings and affirmed as to the BT-PSC product.

Cellport also argued that it was due royalties for the BT-PSC product due to its ’456 patent. Because the district court only briefly addressed the relationship between the BT-PSC product and the ’456 patent, the Tenth Circuit remanded for further findings on that issue. Turning to Cellport’s contention of entitlement to royalties on the SIAB product, the Tenth Circuit could find no clear error in the district court’s determination that no royalties were owed.

Cellport next argued that it was due interest at the contractual rate rather than the statutory rate. The placement of the interest provision in the contract indicated that the interest rate would apply only to royalties due as a result of audits. The Tenth Circuit found the district court’s application of the statutory interest rate appropriate. As to Cellport’s contention that it was owed costs as the “prevailing party,” the Tenth Circuit noted that on remand the balance would shift and the cost provision should be reassessed.

Turning to Peiker’s cross-appeal, the Tenth Circuit addressed Peiker’s contention that since the ’456 patent had been revoked, it owed no further royalties. Cellport appealed the revocation and that appeal is pending. Cellport argued that Peiker’s cross-appeal is not yet ripe because Cellport’s revocation appeal is still pending. The Tenth Circuit agreed with Cellport that the issue is not ripe and vacated the district court’s judgment on the issue.

The judgment of the district court was affirmed in part, reversed in part, and remanded for further proceedings consistent with the Tenth Circuit’s opinion.

Tenth Circuit: Significant Evidence of Monopolization Precluded Summary Judgment Against Plaintiff

The Tenth Circuit Court of Appeals issued its opinion in Lenox Maclaren Surgical Corp. v. Medtronic, Inc. on Tuesday, August 5, 2014.

Lenox Maclaren Surgical Corp. manufactures bone mills, a type of instrument used in spinal fusion surgery. In 2000, Lenox began to sell bone mills to a Medtronic entity, but that Medtronic entity initiated a recall of Lenox’s products and began selling bone mills produced by a different Medtronic entity. Lenox sued the Medtronic entities for monopolization and attempted monopolization from 2007 through 2010. The district court granted summary judgment to Medtronic, and Lenox appealed on five issues: (1) foreclosure of issues due to res judicata; (2) definition of the product market; (3) Medtronic’s monopoly power; (4) Medtronic’s acquisition of monopoly power through exclusionary practices; and (5) harm to competition from Medtronic’s monopoly powers.

The Tenth Circuit first addressed Medtronic’s claim that Lenox’s suit was barred by the doctrine of res judicata, since Lenox could have raised these issues when the parties engaged in arbitration prior to the district court’s grant of summary judgment. In that binding arbitration, a panel found that Medtronic had insufficient proof to justify its recall of the Lenox bone mills and the company had taken action to clear Lenox from the market. In the action before the district court, Medtronic moved for dismissal based on res judicata, but the district court denied the motion. Medtronic did not raise the res judicata claim in its motion for summary judgment. The Tenth Circuit ruled that Lenox had no need to confront an argument not raised in the motion and declined to address the issue.

Turning to the monopolization issue, the Tenth Circuit disagreed with the district court’s grant of summary judgment, ruling that there were genuine issues of disputed fact which precluded summary judgment. In order to prevail on the monopolization claim, Lenox had to prove (1) monopoly power in the relevant market, (2) willful acquisition of this power through exclusionary conduct, and (3) harm to competition. The district court ruled that Lenox had not created a triable issue of fact on the relevant product market, monopoly power, willful acquisition, or harm, but the Tenth Circuit disagreed.

The Tenth Circuit first identified the relevant product market as the market for other bone mills, despite the fact that hand tools can be used to mill bone, because Lenox presented expert testimony regarding surgeons’ preference for bone mills, a substantial price difference exists between bone mills and hand tools, and Medtronic’s market literature identifies its competition as other bone mills. Because of potential factual disputes on this issue, summary judgment is precluded.

Next, the Tenth Circuit addressed Medtronic’s monopoly power in the bone mill market and determined that Lenox showed sufficient evidence of market share and barriers to entrance to infer that Medtronic had monopoly power in the market. Medtronic’s own literature showed that it had a majority share of the bone mill market during the years in question, with its lowest market share at 65% and its highest at 97-98%. Lenox’s expert testified as to barriers to market entrance. The evidence on market share and barriers created reasonable disputes of material fact and precluded summary judgment.

The Tenth Circuit then turned to the issue of Medtronic’s anticompetitive conduct and found that Lenox presented significant evidence from which a fact-finder could infer anticompetitive conduct. Applying the more stringent 6-factor disparagement test, the Tenth Circuit found that Lenox had alleged facts sufficient to infer anticompetitive conduct, including Medtronic’s reasonless recall of Lenox’s products and Medtronic’s statements to hospitals about the recalls, thus inducing consumers to avoid the Lenox product and causing harm to Lenox.

The Tenth Circuit ruled that Lenox presented significant evidence to support a finding on each element of its claim for actual monopolization, and this evidence precluded summary judgment to Medtronic. The district court’s judgment was reversed and the case was remanded for additional proceedings.

Tenth Circuit: No Speedy Trial Violation for Continuances Requested by Defendants

The Tenth Circuit Court of Appeals issued its opinion in United States v. Banks on Monday, August 4, 2014.

Defendants Banks, Barnes, Harper, Stewart, Walker, and Zirpolo operated or were associated with the entities Leading Team, Inc. (LT) and DKH, Inc. (DKH). In 2003, Defendants stopped operating LT and began operating a third entity, IRP Solutions Corporation (IRP). IRP was formed to develop computer software, and one of its software offerings was purportedly designed for sale to law enforcement to develop a nationwide database for law enforcement.

Beginning in about October 2002, Defendants began contacting various staffing agencies and soliciting payrolling services, in which the staffing agency would hire and pay Defendant’s choice of employee and then Defendant would repay the staffing agencies, plus a small increase for profit for the staffing agency. In order to convince the staffing agencies to agree to the payrolling services, Defendants claimed that their law enforcement database software was on the verge of being sold to the Department of Justice and several law enforcement agencies. Over the course of several years, Defendants received over $5 million in staffing payments from 42 different staffing companies that they did not repay.

Defendants were indicted in June 2009, and in 2011 they were convicted after a jury trial of several counts of wire fraud and mail fraud, and conspiracy to commit wire fraud and mail fraud, and sentenced to various terms of imprisonment ranging from 87 months to 135 months. They appealed, asserting four issues: (1) their speedy trial right was violated when the district court granted four continuances at Defendants’ request; (2) the district court compelled co-defendant Barnes to testify in violation of his Fifth Amendment privilege against self-incrimination; (3) the district court abused its discretion by excluding the testimony of two of Defendants’ potential witnesses; and (4) the cumulative effect of the court’s otherwise harmless errors necessitated reversal.

The Tenth Circuit first examined the speedy trial claim. Four different times, Defendants requested continuances from the district court. Defendants asserted that, due to the prolonged investigation beginning in 2004, discovery in the case was voluminous (totaling over 20,000 pages of documents), and they would not be able to adequately prepare for trial without the continuances. Each time, the district court examined the circumstances and issued findings that the ends of justice served by granting the continuance outweighed the public’s and Defendants’ interest in the speedy trial. Although the total continuance time was quite long, the Tenth Circuit determined no error in the district court’s decisions, finding instead that the unique circumstances of this case, including the high volume of discovery materials and potential witnesses, supported the district court’s decisions to grant continuances. Further, the Tenth Circuit noted that each continuance was requested by Defendants, and they could not assert prejudice from delays they requested.

Next, the Tenth Circuit turned to Defendants’ claim that Barnes was compelled to testify in violation of his Fifth Amendment privilege against self-incrimination and the district court declined to give a curative instruction to satisfy the Sixth Amendment. The Tenth Circuit found that although the district court requested the defense to call a witness, Barnes was not the only witness available to testify at that time, and he testified voluntarily at the behest of his co-defendants. Further, when offered a curative instruction, Barnes declined. The Tenth Circuit found no error in the actions of the district court.

As to the third claim regarding the district court’s denial of testimony by the two defense witnesses, the Tenth Circuit again found no error. The district court denied the testimony because Defendants failed to disclose the witnesses in violation of Federal Rule of Criminal Procedure 16 and Federal Rule of Evidence 702. Although Defendants concede that they violated Rule 16 and FRE 702, they argue that the record reflects their efforts were made in good faith and the court’s chosen remedy of exclusion violated precedent. The Tenth Circuit rejected these claims. The district court had allowed testimony similar to that proffered from the two rejected witnesses, and concluded that the testimony of those two witnesses would be cumulative. The Tenth Circuit found no abuse of discretion in this action.

Finally, the Tenth Circuit addressed Defendants’ argument that the effect of the harmless errors in their case caused cumulative error requiring reversal. The Tenth Circuit rejected this claim, noting that Defendants failed to show any error, much less error requiring reversal.

The district court’s judgment was affirmed.

Tenth Circuit: Opinions Not Enough to Trigger Liability Under Section 11 of the Securities Act

The Tenth Circuit Court of Appeals issued its opinion in MHC Mutual Conversion Fund, L.P. v. Sandler O’Neill & Partners, L.P. on Friday, August 1, 2014.

In 2009, in the immediate aftermath of the financial crisis, Bancorp sought to conduct a secondary stock offering to raise money. In its securities filings, the company informed investors that it had significant assets in mortgage backed securities and those investments had suffered badly, but advisors had predicted that the market would begin to rebound. Those predictions did not, however, pan out, and MHC, one of the investors, suffered losses as a result of Bancorp’s predictions. MHC sued under Section 11 of the Securities Act, but the district court denied its petition with prejudice, ruling that failed market predictions, without more, were not enough to trigger liability. MHC appealed to the Tenth Circuit.

The Tenth Circuit reviewed the district court’s decision for error and found none. Upon detailed review of Section 11 of the Securities Act, the Tenth Circuit determined that mere opinions are not enough to trigger liability. The offerer of the opinion must know it to be false and harm must come to the entity relying on the opinion in order to trigger liability. Because nothing in the record supported an inference that Bancorp did not believe its opinion to be true, this test was not met.

MHC also argued that by offering the erroneous opinion, Bancorp did not fulfill its requirement of due diligence. The Tenth Circuit first expressed dissatisfaction with this argument because securities offerers are not fiduciaries and should not be held to a fiduciary standard. Next, the Tenth Circuit determined that Bancorp made the necessary warnings and disclaimers to its potential investors that if its opinion turned out to be false, the company would face significant additional losses.

Finally, MHC argued that Bancorp’s assertions violated section 10(b) of the Securities Act. To show a violation of section 10(b), though, the plaintiff must prove that defendant made an untrue statement of material fact with intent to defraud or with reckless disregard for the truth. However, plaintiffs did not allege facts sufficient to make a strong showing of scienter in the Bancorp opinion.

The district court’s opinion was affirmed.

Colorado Court of Appeals: Attorney Fee Award Erroneous when Underlying Claim Was to Recover Judgment

The Colorado Court of Appeals issued its opinion in Castro v. Lintz on Thursday, July 17, 2014.

Workers’ Compensation—Tort—Piercing the Corporate Veil—Enforcement of Judgment—Breach of Duty to Creditor—Dismissal—Attorney Fees—CRS § 13-17-201.

In 2010, Castro was employed by Lintz Construction, Inc. He was injured during the course of his employment when he fell from the roof of a building while shoveling snow. Castro filed a workers’ compensation claim against both Lintz Construction and Jonathan Lintz personally. The administrative law judge (ALJ) ordered Lintz Construction to pay Castro benefits in the amount of $4,536.76. The district court later granted Lintz’s motion to dismiss Castro’s claims to enforce the judgment against Lintz on the ground that the claims were barred by the doctrine of claim preclusion, awarding attorney fees to Lintz. The Colorado Court of Appeals reversed the district court’s order.

On appeal, Castro contended that the district court erred as a matter of law in awarding Lintz attorney fees under CRS § 13-17-201. An award of attorney fees under § 13-17-201 is mandatory when a trial court dismisses a tort action under CRCP 12(b). Castro’s claims for disregarding the corporate form (piercing the corporate veil) to recover the money he had already been awarded in the workers’ compensation claim and enforcement of his judgment against Lintz Construction do not sound in tort. Although Castro’s breach of duty to creditor was a tort, the essence of this claim did not sound in tort because Castro sought to recover only the benefits he was awarded. Therefore, the district court erred in awarding Lintz his attorney fees under CRS § 13-17-201.

Summary and full case available here.

Tenth Circuit: Strong Showing of Scienter Required in Securities Class Action Fraud Case

The Tenth Circuit Court of Appeals issued its opinion in Weinstein v. McClendon on Tuesday, July 8, 2014.

Plaintiffs filed a complaint in federal district court on behalf of a class of purchasers of Chesapeake Energy Corporation common stock, alleging that various corporate officers of Chesapeake, including CEO Aubrey McClendon, materially misled the public through false statements and omissions regarding two products, Volumetric Product Payment (VPP) transactions and the Founder Well Participation Program (FWPP). The district court did not decide whether defendants had made false material statements or omissions of fact, holding simply that the allegations in the complaint did not give rise to a strong inference that defendants acted with the intent to defraud as required by the Private Securities Litigation Reform Act. The district court granted defendants’ motion to dismiss.

In its analysis, the Tenth Circuit examined the burden faced by plaintiffs in securities class actions, and determined that there must be a strong showing of scienter on the part of defendants in order for plaintiffs’ claim to proceed. The Tenth Circuit noted that there was no cogent or compelling inference that defendants materially misrepresented or withheld facts for the purpose of misleading investors. The district court’s dismissal was affirmed.

Tenth Circuit: Bankruptcy Reorganization Does Not Create Separate Legal Entity

The Tenth Circuit Court of Appeals issued its opinion in ASARCO LLC v. Union Pacific Railroad Co. on Monday, June 23, 2014.

ASARCO, along with Union Pacific Railroad Corp. and Pepsi Co., operated in a four-square-mile area in Denver known as the Vasquez site, which was found to be environmentally contaminated. The EPA brought a CERCLA action against ASARCO. The CERCLA action was still pending when ASARCO filed for Chapter 11 bankruptcy in the Southern District of Texas. The EPA filed proofs of claim in ASARCO’s bankruptcy case to recover its expenses for cleaning the Vasquez site. ASARCO eventually moved for approval of a settlement agreement, in which it would agree to pay over $1.5 million to resolve its CERCLA claims at the Vasquez site and other sites, and the bankruptcy court approved the settlement on June 5, 2009. The bankruptcy plan was also approved, which reorganized ASARCO as ASARCO LLC and noted that all claims, including any pending environmental claims, would be paid in full on the effective date of December 9, 2009.

ASARCO LLC filed a lawsuit against Union Pacific and Pepsi on December 10, 2012, asserting that it paid more than its fair share for environmental remediation at the Vasquez site. ASARCO LLC brought two claims: a direct contribution claim under CERCLA, and a contribution claim as debtor-ASARCO’s subrogee under CERCLA. The magistrate judge recommended dismissal of both claims – as to the first claim, it found that the claim was untimely, as it was brought more than three years after the date the bankruptcy court approved the settlement. As to the second claim, the magistrate judge rejected ASARCO’s argument that it was a separate legal entity from debtor-ASARCO and it could not be subrogated to itself. The magistrate judge also noted that CERCLA provided the exclusive legal remedy to ASARCO’s claims. The district judge accepted the magistrate judge’s recommendations and dismissed the complaint in its entirety. ASARCO appealed to the Tenth Circuit.

ASARCO first argued that its claim was not barred by the statute of limitations. The Tenth Circuit commented that the plain language of the statute did not support ASARCO’s argument, since the statute refers to the date the judicially approved settlement is entered. The Tenth Circuit also noted that all of the case law cited by ASARCO counseled the same result, that the statute of limitations had expired prior to ASARCO’s filing of the complaint. As to the second argument, the Tenth Circuit denied that ASARCO became a separate legal entity after bankruptcy reorganization, and noted that an entity cannot become subrogated to itself. Because the direct contribution claim was time-barred and because ASARCO is not a subrogee, the Tenth Circuit affirmed the district court’s order.

Colorado Court of Appeals: Online Travel Companies Do Not Actually Furnish Lodging and Therefore Are Not Liable for Lodger’s Tax

The Colorado Court of Appeals issued its opinion in Expedia, Inc. v. City & County of Denver on Thursday, July 3, 2014.

Online Travel Companies’ Collection of Municipal Taxes for Hotel Accommodations.

The City and County of Denver (City) imposes a Lodger’s Tax of 10.75% on the purchase price for lodging. “Lodging” includes overnight accommodations, furnished for consideration, in a hotel or similar establishment. The tax must be collected from travelers and remitted to the City by “vendors.” The City argued that plaintiff online travel companies (OTCs) are vendors that must collect and remit the Lodger’s Tax on the fees they charge their customers, in addition to the tax on the room rate charged by the hotel.

The OTCs facilitate booking reservations on behalf of its customers. The OTC calculates the Lodger’s Tax based solely on the discounted room rate charged by the hotel, excluding the additional fees collected from the traveler and retained by the OTC. The OTC does not disclose to the customer the discounted rate the OTC pays the hotel, the amount representing the OTC’s fees, or the portion of the final price attributable to the Lodger’s Tax.

The hotel invoices the OTC for the contractual room rate and the Lodger’s Tax on that discounted rate. The hotel assumes responsibility for remitting the collected Lodger’s Tax to the City. The Lodger’s Tax remitted is based on the discounted rate charged the OTC, but the City argued it should be based on the full amount paid by the customer to the OTC.

The City began investigating the OTC’s obligations under the Lodger’s Tax in 2003. The City took no action until 2010, when it issued the assessments at issue in this case. The City’s manager of finance issued Lodger’s Tax assessments to the OTCs from 2001 through April 2010 totaling $40 million.

The parties stipulated that if they were liable for the Lodger’s Tax on their fees since 2001, they owed $4,652.522 in back taxes, not including penalties and interest. A hearing officer found that the OTCs were liable for the tax since 2001, and they owed interest and a 15% nonpayment penalty.

The district court affirmed, but found error in the hearing officer not having applied the ordinance’s three-year limitations period relevant to tax assessments. It therefore vacated the assessments to the extent they pertained to taxes payable more than three years before the date of the assessments. The OTCs appealed the portion of the order holding them liable, and the City cross-appealed the application of the statute of limitations.

The Court of Appeals held that the Lodger’s Tax did not apply to the fees charged by the OTCs for two reasons: (1) the OTCs are not vendors within the meaning of the ordinance because they do not furnish lodging, and (2) their fees are not included within the purchase price for lodging under the ordinance because the fees are not directly connected with the furnishing of lodging. The City argued that making sales of lodging is synonymous with selling lodging. The Court agreed that the OTCs are not vendors under the ordinance because they do not actually furnish lodging. It was an abuse of discretion to find otherwise.

The Court found that OTC fees are not directly connected with furnishing lodging because they are compensated only for providing travel-related information and online facilitation services. Therefore, under a provision of the Lodger’s Tax, their fees are excluded. The matter was remanded to vacate all of the tax assessments against the OTCs.

Summary and full case available here.

Colorado Court of Appeals: Prevailing Employee Presumptively Entitled to Attorney Fees Under Colorado Wage Claim Act

The Colorado Court of Appeals issued its opinion in Lester v. The Career Building Academy on Thursday, July 3, 2014.

Attorney Fees Under the Colorado Wage Claim Act.

Lester appealed a jury verdict awarding him $12,307.69 in unpaid compensation based on breach of an implied contract with defendant, The Career Building Academy (TCBA). TCBA is a Colorado nonprofit corporation that provides vocational training, with an emphasis on residential construction, to high school students.

In 2011, Lester orally agreed to work as TCBA’s chief operating officer. Rick Johnson, TCBA’s founder, promised to pay Lester an annual salary of $150,000, of which $75,000 would be paid by TCBA and $75,000 by Johnson Heating and Plumbing (JHP).

During his first six months, Lester was paid twice, totaling $7,884 in gross pay. Lester resigned and sent a wage demand to TCBA. TCBA rejected the demand, contending that Lester agreed to volunteer as chief operating officer. Lester sued TCBA and JHP, seeking unpaid wages and compensation, as well as penalties and attorney fees.

A jury determined Lester had entered into an implied contract with TCBA and returned a verdict in his favor for $12,307.69. The court dismissed Lester’s claim against JHP. Following the verdict, Lester requested that the court award him statutory penalties and attorney fees under the Colorado Wage Claim Act (CWCA). TCBA argued that the CWCA did not apply to an implied contract. After applying factors in Carruthers v. Carrier Access Corp., 251 P.3d 1199 (Colo.App. 2010), used to determine an award of attorney fees to prevailing employers, the trial court denied the request.

On appeal, Lester argued it was error to apply the Carruthers factors to a prevailing employee who is presumptively entitled to an award of attorney fees. The Court of Appeals agreed. CRS §8-4-110(1) allows a court to award costs and attorney fees to the prevailing party on a CWCA claim. Unlike a prevailing employer, a prevailing employee is presumptively entitled to attorney fees under the CWCA. The attorney fee issue was remanded for reconsideration under the correct standard by the trial court.

Lester also argued it was error for the trial court to have, sua sponte, dismissed his claims against JHP as a matter of law. The Court found no reversible error. It also determined that because JHP was neither a member of TCBA nor an individual, the alter ego doctrine could not be applied to it.

The Court held that if the trial court decides that Lester is entitled to attorney fees in the trial court, Lester also should be awarded appellate attorney fees. The denial of attorney fees under the CWCA was reversed and the case was remanded to the trial court to consider Lester’s request for attorney fees, incurred in the trial court and on appeal.

Summary and full case available here.