September 2, 2014

Civil Access Pilot Project Extended to June 30, 2015

Chief Justice Directive 11-02 was amended in July to extend the period for the Civil Access Pilot Project until June 30, 2015. In June 2013, the project was extended to December 31, 2014. The court extended the pilot project for an additional six months in order to eliminate confusion, give the court time to determine whether the project achieved its stated goals, and consider what changes should be made to the Colorado Rules of Civil Procedure, if any.

The Civil Access Pilot Project was developed in order to streamline the litigation process by identifying and narrowing issues at the earliest stage of litigation, require active ongoing case management by a single judge, and attempt to keep litigation costs proportionate to the issues being litigated. It applies to certain business actions, including claims for breach of contract, business tort actions, actions regarding the application of the Uniform Commercial Code, actions involving commercial real property, private actions for securities fraud, actions involving intellectual property, and more.

For CJD 11-02 regarding the Civil Access Pilot Project, click here. For all the Colorado Supreme Court’s Chief Justice Directives, click here.

Tenth Circuit: Jury Verdict and Attorney Fee Award Upheld in Employee Class Action

The Tenth Circuit Court of Appeals issued its opinion in Garcia v. Tyson Foods, Inc. on Tuesday, August 19, 2014.

Tyson employees were required to don and doff certain protective clothing before and after performing job duties. Tyson originally compensated only certain employees for 4 to 7 minutes of this “K-code” time, eventually changing its policy to compensate all employees for 20 to 22 minutes of K-code time. However, based Tyson’s own study, employees were uncompensated for approximately 29 minutes per shift based on the times they punched in and punched out versus actual compensation.

A group of Tyson employees brought class and collective actions against Tyson, seeking unpaid wages for pre- and post-shift activities. After a jury returned an award for the employees and an attorney fee award, Tyson unsuccessfully moved for judgment as a matter of law. Tyson appealed the district court’s judgment and denial of its motion for judgment as a matter of law. Tyson also argued the attorney fee award was excessive.

The Tenth Circuit addressed Tyson’s first argument – whether the evidence was sufficient to support the verdict – and found it was. The question for the jury was whether the K-code system had resulted in underpayment, and the Tenth Circuit found ample reason in the evidence to support the jury’s decision that it had, including Tyson’s own study. Tyson also challenged the proof of underpayment as to each class member. The Tenth Circuit rejected that challenge, because the proof was unnecessary, the jury could rely on representative evidence, and Tyson’s supporting cases are inapplicable.

The jury awarded less to plaintiffs than they requested. Tyson interpreted this to mean that the jury found some class members were appropriately compensated. The Tenth Circuit disagreed, finding the evidence supported a finding of undercompensation for all class members, and noting that Tyson’s argument was speculative.

Finally, the Tenth Circuit addressed the attorney fee award. The Fair Labor Standards Act provides a right to attorney fees to prevailing plaintiffs. The district court awarded over $3 million in attorney fees, despite the much lower awards to the plaintiffs. Because of ongoing class litigation in another county, the district court adopted a procedure whereby it reviewed the attorneys’ time records in camera, allowed disclosure of the hourly rate and number of hours worked, and allowed each side the chance to depose someone on the other side familiar with the billing process. Tyson objected to this process, instead requesting full discovery of billing records. The Tenth Circuit upheld the process and the award, finding good cause for the district court’s procedure and award.

The judgment was affirmed.

Tenth Circuit: Opinion Reissued Upon Remand from U.S. Supreme Court

The Tenth Circuit Court of Appeals issued its opinion in National Credit Union Administration Board v. Nomura Home Equity Loan, Inc. on Tuesday, August 19, 2014.

The U.S. Supreme Court granted certiorari to review the Tenth Circuit’s August 27, 2013 decision and remanded with instructions to reconsider in light of the Supreme Court’s decision in CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014). The Tenth Circuit, after receiving additional briefs and reviewing CTS Corp., reinstated its original opinion. Click here for the original summary.

Colorado Supreme Court Reverses Years of Precedent in Softrock and Western Logistics

It is advantageous to employers to retain the services of independent contractors when possible. Contractors are not required to be covered by workers’ compensation insurance and employers need not pay unemployment tax out of the contractors’ wages. However, classifying workers as contractors has its risks; after an audit, the employer may be found liable for back taxes on workers who are found to be employees rather than contractors.

That is precisely what happened to Carpet Exchange in 1993, when the Colorado Court of Appeals issued its opinion in Carpet Exchange of Denver v. Industrial Claim Appeals Office, 859 P.2d 278 (Colo. App. 1993). The court of appeals analyzed C.R.S. § 8-70-115(1)(b) and, after applying the factors, decided that the workers in question were employees rather than contractors because they were not “customarily engaged in an independent trade, occupation, profession, or business related to the service performed.” Since then, courts have relied on this one-factor test to determine whether long-term workers are employees or contractors.

Industrial Claim Appeals Office v. Softrock Geological Services, 2014 CO 30 (Colo. May 12, 2014), reversed that precedent. In Softrock, the Colorado Supreme Court rejected the outside employment test as dispositive of whether a worker is an employee or an independent contractor, ruling instead that the totality of the circumstances must be considered and no single factor can be dispositive in deciding whether an individual is customarily engaged in an independent business or trade.

Michael Santo, lead counsel in Softrock, will present a lunchtime program on Friday, August 22, 2014 at the CLE offices to discuss Softrock‘s impact on employment law. Santo will also discuss Western Logistics, Inc. v. Industrial Claim Appeals Office, 2014 CO 31 (Colo. May 12, 2014), a related opinion that the supreme court delivered the same day as Softrock. Employment attorneys, business attorneys, and in-house counsel should attend this informative lunchtime program.

CLE Program: Independent Contractor or Employee? Softrock‘s and Western Logistics‘ Effect

This CLE presentation will take place on August 22, 2014. Click here to register for the live program and click here to register for the webcast. You can also register by phone at (303) 860-0608.

Can’t make the live program? Order the homestudy here — MP3 audio downloadVideo OnDemand

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.