February 19, 2018

Interview with Eric Nesbitt: Real Estate Attorney, CBA-CLE Board Member, Basketball Afficionado

Editor’s Note: In honor of Black History Month, we will be interviewing faculty and authors throughout February. Stay tuned each Wednesday for a new faculty/author profile.

By Mary Dilworth

Colorado Bar Association CLE (CBA-CLE) is providing an interview series with several of our African-American faculty and authors. Our hope is that this series is able to inspire others by sharing the journey and achievements of these successful attorneys.

Our first interview is with Eric Nesbitt, an active member of the Colorado Bar Association, a CBA-CLE board member and a talented member of the CBA-CLE faculty, who has spoken at several CLE conferences including the annual Real Estate Symposium and Business Law Institute.

Eric is the sole shareholder of the Law Offices of Eric L. Nesbitt, P.C., which focuses on real estate law matters. He is also the owner of The Nesbitt Commercial Group, a commercial real estate brokerage firm affiliated with Keller Williams DTC. Originally from Chicago, Eric moved to Colorado in 1996 to become the General Counsel and Director of Business Affairs for USA Basketball, the governing body for the sport of basketball in the United States. In that position, he was the attorney for the 1996 and 2000 Men’s Olympic Basketball “Dream Teams.” He loved Colorado so much, he decided to make it his home.

What inspired you to become an attorney? I visited Los Angeles and Beverly Hills as a kid and was in awe of all of the big houses and abundance of wealth. I asked my parents what job could I get as an adult to get a big house, and they told me to consider becoming a doctor or a lawyer. I thought being a doctor would be too gory, so I set my aspirations to be a lawyer. In addition, as a kid I always saw lawyers on the CBS show “60 Minutes,” and it seemed like a cool profession.

What do you enjoy about the practice of law? I really like helping people. I receive genuine satisfaction when I meet with clients and I can solve their problems or address their legal needs. It’s a very uplifting feeling. I also appreciate how legal training has provided me with the flexibility to pursue other business interests, such as commercial real estate brokerage and athlete representation. Being a lawyer prepares you to do practically anything!

What black historical figure do you admire? Thurgood Marshall and Martin Luther King, Jr. are probably the black historical figures I admire the most.

What about someone from today who inspires you? Oprah Winfrey and President Obama are people who inspire me today.

Favorite Book? Why Should White Guys Have All the Fun, by Reginald Lewis.

Favorite Movie? The Godfather.

What do you do in your spare time for fun? What spare time? I like hanging out with my family, wining and dining my wife, and traveling when I can get away. I also try to fit in a round of golf in when I can.

What advice would you give to new attorneys? Work hard, develop relationships, and have fun when you can.

Colorado Court of Appeals: Online Travel Companies Not Required to Remit Accommodation Tax to Town of Breckenridge

The Colorado Court of Appeals issued its opinion in Town of Breckenridge v. Egencia, LLC on Thursday, January 25, 2018.

Taxation—Municipalities—Accommodation Tax—Lessors—Renters—Online Travel Companies—Jurisdiction—Exhaustion of Administrative Remedies—Class Certification.

The Town of Breckenridge sought to collect accommodation and sales taxes from 16 online travel companies (OTCs). The OTCs maintain websites through which travelers can book hotel accommodations and travel-related services. As relevant here, under the “merchant model” the OTCs contract with a hotel to allow customers logging into the OTC’s website to book reservations for the hotel. These contracts offer rooms to OTCs at a discounted rate. OTCs coordinate information between travelers and hotels; OTCs neither purchase nor reserve rooms in advance.

Breckenridge brought this action to recover unpaid accommodation and sales taxes from the OTCs, asserting five causes of action. The district court partially granted the OTCs’ motion to dismiss but refused to dismiss the accommodation tax claim. Breckenridge then unsuccessfully sought class certification for 55 home rule cities that also levy a lodger’s or accommodation tax. The parties filed cross-motions for summary judgment, which were resolved in favor of the OTCs.

On appeal, Breckenridge contended that the district court erred in concluding that OTCs are neither “lessors” nor “renters” of hotel rooms because they sell the legal right to use hotel rooms in exchange for consideration. Breckenridge asserted that the OTCs are capable of leasing or renting even without physical possession of hotel rooms. Because the hotels maintain possession of the rooms and are the sole grantors of the right of occupancy, hotels are lessors or renters and OTCs are essentially brokers. The accommodation tax statute indicates that the accommodation tax applies only to those who have a possessory interest in the accommodation being taxed. The OTCs had no possessory interest and were not engaged in the business of owning, operating, or leasing, and could not independently grant customers access to rooms, so they are not subject to Breckenridge’s accommodation tax.

Breckenridge also contended that the court erred in granting summary judgment because issues of fact exist. Breckenridge failed to meet its burden of producing sufficient evidence to establish that a genuine issue of fact exists as to whether OTCs acquire inventory, whether the OTCs provide customer service, and the extent of the hotels’ involvement in merchant model transactions. The court properly granted the OTCs’ summary judgment motion.

Breckenridge also contended that the district court erred in concluding that it lacked subject matter jurisdiction over its sales tax claim because Breckenridge failed to exhaust administrative remedies. Breckenridge argued that it was not required to exhaust its own administrative remedies because doing so would be futile and whether OTCs are subject to sales tax was a question of law not subject to exhaustion requirements. It is evident from the Breckenridge Town Code that a party’s first step in seeking relief for unpaid sales taxes is to petition for administrative review from the finance director. Breckenridge failed to take this step. Therefore, the district court lacked subject matter jurisdiction to address Breckenridge’s unpaid sales tax claim.

Finally, Breckenridge contended that the district court abused its discretion by denying Breckenridge’s request for class certification. Breckenridge was not entitled to class certification under C.R.C.P. 23(b)(2) because Breckenridge was seeking primarily monetary damages, and it failed to meet the C.R.C.P. 23(b)(3) requirements because there was no predominance of common questions nor was class action the superior remedy.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Defendant Sentenced to Significant Jail Time After Evasion of Personal Taxes

Tenth Circuit Court of Appeals issued its decision in United States v. Stegman on Friday, October 20, 2017.

Defendant Stegman owned and operated Midwest Medical Aesthetics Center (Midwest), which provided a wide range of medical aesthetic services. Clients were permitted to pay with a credit card, cash, or check made out to Stegman personally, who encouraged cash or checks. Stegman would personally collect the cash and checks at the end of each business day.

Stegman then established several limited liability companies (LLCs), which were effectively used to launder Midwest client payments. Stegman would use the LLCs to purchase money orders that she then used to purchase items for personal use. Stegman reported zero cash income on her federal income tax returns in 2007, 2008, and 2009.

Stegman employed two separate tax preparers for her corporate and personal tax returns. Stegman provided Jones, the corporate tax preparer, with Midwest bank account information, but did not provide Jones with bank records for the other accounts into which she deposited Midwest income. Similarly, Stegman did not provide Lake, the personal tax preparer, with accurate records of the Midwest client payments that she used to purchase personal property.

When Stegman was audited for the 2007 and 2008 tax returns, Stegman said Midwest never accepted cash payments, stated that the source of her money came from relatives or savings, and gave conflicting information for the purpose of one of her LLCs. The case was then referred to the IRS’s criminal investigation division. The investigation that followed revealed that Stegman used her LLCs to create false business expenses, that Stegman altered Midwest’s ledgers and directed other employees to destroy business records, and that Stegman encouraged a former Midwest client, Clark, to tell the IRS that she, Clark, didn’t remember anything about her dealings with Midwest. Stegman raises five issues on appeal.

1. The Amendment of the Indictment During Trial

Stegman argued that the district court erred by granting the government’s motion to amend the indictment during trial. The indictment in this case alleged that Stegman was the owner and operator of “Midwest Medical Aesthetics Center” and not “Midwest Medical Aesthetics Center, Inc.” The Tenth Circuit distinguished between a district court’s amending an indictment as to form, which is permissible, and as to substance, which is impermissible. An amendment as to form is a change that does not mislead the defendant in any sense, does not subject the defendant to any added burdens, and does not otherwise prejudice the defendant.

Stegman argued that the amendment, which substituted the name of one business entity for another, was substantive. The Tenth Circuit disagreed. Contrary to Stegman’s assertion, and consistent with what the district court concluded, the amendment was merely a matter of form, and dropping the “Inc.” accurately reflected the change that Stegman made to the structure of her business. Because the amendment was one of form only, the district court did not err in granting the government’s motion to amend the indictment.

Stegman further argued that the jury was never told there was an amendment or that she was entitled to rely on the indictment and, as a result, the jury may have been left with the impression that she misled them. The Tenth Circuit disagreed for several reasons. First, Stegman’s counsel conceded that Stegman never asked for such an instruction. Second, she failed to properly alert the district court to her constitutional challenge. Third, the argument lacked merit given the conclusion that the amendment was one of form only. Finally, the evidence of Stegman’s guilt was overwhelming and thus the district court’s decision did not deprive her of the right to a fair trial.

2. The Purported Braswell Violation

Stegman next contended that the government violated the Supreme Court’s decision in Braswell v. United States, 487 U.S. 99 (1988), by using corporate records against her as an individual. The company ledgers were obtained by compulsory summons issued to her. The Court in Braswell noted that it had long recognized that, for purposes of the Fifth Amendment, corporations and other collective entities are treated differently from individuals.

Prior to trial, Stegman moved to exclude from evidence handwritten ledgers of Midwest that were produced to the IRS pursuant to a Corporate Summons. Stegman argued, in pertinent part, that under Braswell, the Government could not introduce into evidence the fact that Stegman produced the documents in response to a subpoena, and thus could not attribute the documents to Stegman as an individual. Contrary to Stegman’s assertions, however, the Tenth Circuit found no violation of Braswell.

3. The Alleged Destruction of Exculpatory Evidence

Stegman also argued that the district court erred in denying her motion to dismiss the indictment due to destruction of exculpatory evidence.

After Stegman’s audit was referred to the IRS’s criminal investigation division in 2009, the IRS’s civil division forwarded to the criminal division a referral package of documents that included the file from an earlier audit that the IRS had conducted for the 2000 and 2001 tax season. The file was ultimately destroyed at the National Archives and Record Administration facility without the IRS’s knowledge.

Stegman moved to dismiss the indictment due to destruction of exculpatory evidence, namely the old civil audit file relating to her tax returns for 2000 and 2001. Stegman argued that these returns contained positions that were similar, if not identical, to the positions the government claimed were criminal in this case, and that the IRS found the 2000 and 2001 tax returns were accurate and did not assess any additional tax.

Where, as here, a defendant made the necessary request, but the evidence was no longer available at that time, the failure to preserve the evidence violates due process if the evidence was exculpatory and its exculpatory value was apparent before its loss. If, however, the evidence was not apparently exculpatory but merely potentially useful, the failure to preserve the evidence does not violate due process unless the criminal defendant can show bad faith on the part of the police.

The Tenth Circuit concluded that the district court did not clearly err in finding that the exculpatory value of the civil audit file was not apparent, as Stegman failed to challenge the district court’s finding that many of the documents could be obtained from other sources. Further, Stegman failed to establish that she relied in good faith on the IRS’s determination that her tax positions in 2000 and 2001 were valid. Lastly, Stegman failed to produce any evidence that the IRS itself played a role in the file’s destruction or any authority supporting a per se bad faith rule.

4. The Admission of Testimonial Statements from Don Lake

In her fourth issue on appeal, Stegman argued that the district court erred by allowing the government to introduce testimonial statements from her now-deceased personal tax preparer, Don Lake, in violation of the Confrontation Clause.

In her appeal, Stegman focused on the district court’s admission of Exhibit 85, a fax cover sheet and faxed records that Lake sent to an IRS Revenue Agent during the course of the IRS’s investigation. Mrs. Lake identified Don Lake’s handwriting on the fax cover sheet and on some of the accompanying records. Stegman objected to Exhibit 85, arguing that the language on the fax cover sheet violated her confrontation rights.

The Tenth Circuit remarked that Stegman made no attempt to challenge the district court’s finding that the papers contained in Exhibit 85 were actually her own financial documents rather than Lake’s work papers. She also failed to make a showing that the documents were testimonial in nature, which is a requirement for a challenge under the Confrontation Clause. As for the fax cover sheet that contained Lake’s handwriting, the Tenth Circuit agreed with the district court that it was also not testimonial in nature.

5. Stegman’s Advisory Sentencing Range

Finally, Stegman argued that the district court erred by miscalculating her advisory sentencing range under the Sentencing Guidelines. More specifically, Stegman asserted that the district court improperly calculated the intended tax loss and improperly applied the sophisticated means and obstruction of justice enhancements in calculating her advisory Guidelines sentencing range.

The Sentencing Guidelines apply to tax-related crimes, such as those of which Stegman was convicted. It directs a district court to apply a base offense level from the Tax Table corresponding to the tax loss. If the offense involved both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses added together. The district court in this case found that the corporate tax loss and the individual tax loss were inextricably intertwined, and Tenth Circuit agreed.

One section of the Sentencing Guidelines states that if a tax-related offense involved sophisticated means, the base offense increases. “Sophisticated means” includes especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense, and includes conduct such as hiding assets or transactions through the use of fictitious entities, corporate shells, or offshore financial accounts. The district court in this case concluded that the “sophisticated means” enhancement applied to Stegman, and the Tenth Circuit found no error.

The Sentencing Guidelines further direct a district court to increase a defendant’s offense level if the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice with respect to the investigation, prosecution, or sentencing of the instant offense of conviction and the obstructive conduct related to (A) the defendant’s offense of conviction and any relevant conduct, or (B) a closely related offense. The district court in this case found that Stegman obstructed the IRS’s investigation in three ways: directing employees to shred receipts that documented cash that she received from her business, altering Midwest ledger entries to change the characterization of the way certain expenses were entered so that they appeared to be legitimate business expenses, and directing a witness, Clark, to testify that she did not remember her business relationship with Midwest.

Stegman argued that any attempt she made to tamper with Clark’s testimony was unsuccessful because Clark told investigators that she couldn’t recall what happened when she was a client of Midwest. Notably, the district court found that even if Stegman’s attempt to influence Clark’s testimony was unsuccessful, it nevertheless was an attempt to obstruct justice. The Tenth Circuit, therefore, concluded that the district court did not err in applying the obstruction of justice enhancement.

The Tenth Circuit Court of Appeals AFFIRMED the judgment of the district court.

Colorado Supreme Court: Corporate Veil Properly Pierced to Impose Attorney Fees on LLC Manager

The Colorado Supreme Court issued its opinion in Stockdale v. Ellsworth on Monday, December 18, 2017.

Corporations—Piercing the Corporate Veil—Attorney Fees—Joinder.

The Colorado Supreme Court reversed the Colorado Court of Appeals’ opinion vacating the trial court’s judgment awarding attorney fees. The court held that the trial court properly pierced the corporate veil to impose joint and several liability on a limited liability company’s managing member for attorney fees. The court also held that the managing member was properly joined as a party to the litigation, and that imposing such liability did not violate the managing member’s due process rights under the circumstances of this case.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Election Challenge Time-Barred When Filed and Equitable Tolling Did Not Apply

The Colorado Supreme Court issued its opinion in UMB Bank, N.A. v. Landmark Towers Association, Inc. on Monday, December 11, 2017.

Taxpayer Bill of Rights—Election Challenges—C.R.S. § 1-11-213(4)—Non-claim Statutes.

This case principally required the supreme court to determine whether the 10-day time limitation set forth in C.R.S. § 1-11-213(4) barred respondent homeowners association’s challenge to an election authorizing the issuance of bonds and the collection of debt pursuant to the Taxpayer Bill of Rights. Respondent contended that the election was invalid because its members were eligible electors, and these electors did not receive notice of the election and were not given an opportunity to vote in it. It is undisputed that respondent did not file its election challenge until more than three years after the statutory deadline. The question thus was whether respondent’s challenge could proceed, based on the equitable tolling doctrine or the exception for certain types of claims articulated in Cacioppo v. Eagle County School District Re-50J, 92 P.3d 453 (Colo. 2004). With regard to equitable tolling, the court concluded that C.R.S. § 1-11-213(4) is a non-claim statute. Accordingly, the doctrine of equitable tolling does not apply. As to Cacioppo, the court concluded that respondent’s claim is not a challenge to the substance of the ballot issue but rather is a challenge to the means by which the election results were obtained. The court thus concluded that respondent’s claim is subject to C.R.S. § 1-11-213(4)’s 10-day time limit and that its challenge to the bond and tax election at issue was time barred. Accordingly, the court reversed the judgment of the court of appeals and remanded the case for further proceedings.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Roaring Fork Transportation Authority Possessed Eminent Domain Power by Statute

The Colorado Court of Appeals issued its opinion in Sos v. Roaring Fork Transportation Authority on Thursday, November 16, 2017.

Eminent Domain—Inverse Condemnation Claim—Compensable Damages—Restoration Damages—Diminution in Value.

Sos owns property on which he owns and operates a tire business. The Roaring Fork Transportation Authority (RFTA) built a bus station on the property north of and adjacent to his property. Before RFTA began construction, an earthen embankment rested on the property line between Sos’s and RFTA’s properties. Sos regularly sold tires and other items on the embankment and, with the previous owner’s permission, on the northern property. As part of its construction, RFTA removed the embankment and built a wall on its property, and then restored the embankment, which the wall relies on for lateral support. Sos then wanted to remove the embankment to facilitate his business. He brought an inverse condemnation claim against RFTA because the bus station wall relies on his property for lateral support. RFTA moved for summary judgment and Sos moved for partial summary judgment, regarding whether a compensable taking or damages had occurred. The district court denied RFTA’s motion and granted Sos’s motion, determining that the force the bus station wall permanently imposed on the embankment constituted compensable damage under article II, section 15 of the Colorado Constitution, and that the proper measure of damages was restoration damages rather than diminution in value.

On appeal, RFTA argued that the district court erred in determining that RFTA possessed the power of eminent domain because the General Assembly had not granted RFTA this power expressly or by clear implication, and because it does not possess the power of eminent domain, Sos cannot establish an inverse condemnation claim. Pursuant to the plain language of C.R.S. § 43-4-604, RFTA has the power of eminent domain by clear implication.

RFTA next asserted that the district court erred in concluding that RFTA’s bus station wall caused compensable damage because the wall’s construction did not substantially diminish the value of Sos’s property or substantially change Sos’s use of his property. The district court found, with record support, that RFTA authorized the building of the bus station wall and that RFTA incorporated the embankment’s support into the bus station wall’s design and construction. The court, therefore, properly determined that the imposition of force on Sos’s embankment was the natural consequence of RFTA’s intentional construction of the bus station wall. Further, the record, including RFTA’s own expert opinions, supported the district court’s finding that the bus station wall imposed a new force on Sos’s embankment to such a degree that an engineered remedy was now required before the embankment could be excavated. The district court properly determined that RFTA damaged Sos’s property.

RFTA next contended that the district court erred in ruling that restoration costs rather than diminution of value was the proper measure of damages. The record shows that the diminution in value of Sos’s property after RFTA built the bus station was de minimis. But RFTA’s construction substantially limited Sos’s use and enjoyment of the embankment area. Therefore, the district court properly determined Sos’s damages under the measure of restoration costs.

RFTA further argued that the district court erred in allowing evidence of Sos’s business and personal uses for his property because such interests are non-compensable in condemnation cases. RFTA contended that Sos presented no admissible evidence regarding restoration costs or supporting the damages award. The Court of Appeals concluded that the district court’s damages award is supported by competent record evidence.

RFTA also argued that the district court erred in rejecting its proposed instructions regarding diminution of value being the proper measure of damages. The district court’s decision was supported by competent evidence and did not cause the commissioners to be inaccurately instructed on the law.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Colorado RTD Manager Found Guilty of Bribery

Tenth Circuit Court of Appeals issued its opinion in United States v. Hardin on Wednesday, October 25, 2017.

Defendant Hardin was the senior manager for the Regional Transportation District (RTD) in Colorado. Part of Hardin’s job responsibilities included setting goals on projects for small business participation and ensuring compliance of small business participation on various projects. Ward was the owner of a busing company as well as a manufacturing representative for Build Your Dream, a manufacturer of automobiles and rechargeable batteries. Ward represents Build Your Dream to sell their merchandise in Denver.

Ward’s busing company contracted with RTD as a service provider for Access-a-Ride, a program that provides local bus transportation in Denver for people with disabilities. From that point on, Ward paid Defendant monthly bribes in exchange for Defendant’s help to secure a contract with RTD, as RTD was preparing to solicit bids for the purchase of shuttle buses. Ward would meet with Defendant every month and pay Defendant to help Ward win the contract. Further, Defendant gave Ward information on potential competitors to allow Ward to tailor his proposal to RTD.

Unbeknownst to Defendant, Ward had previously pleaded guilty to tax evasion and, to receive a reduced sentence, relayed Defendant’s original bribe request to the Federal Bureau of Investigation. Ward then became the FBI’s confidential informant to investigate Defendant for bribery. The meetings and conversations between Ward and Defendant were all recorded.

Defendant was charged with four counts of committing bribery involving a program that receives federal funds. The jury found Defendant guilty of three counts relating to the proposed shuttle bus contract. Defendant appealed, arguing that, by dismissing one count, it could not be shown that he had solicited the requisite $5,000 threshold that is set by the federal-program bribery statute. The Tenth Circuit found that the $5,000 pertains to the subject matter of the bribe and Ward paid for Defendant’s help with respect to the lucrative shuttle bus purchase contract. The Tenth Circuit was persuaded that the statute was sufficiently definite to give Defendant fair notice of the criminality of his conduct.

The Tenth Circuit Court of Appeals AFFIRMED Defendant’s conviction and sentence.

Tenth Circuit: Chicken Farmer Prejudiced by District Court’s Judgment on Basis Not Raised by Either Party

The Tenth Circuit Court of Appeals issued its opinion in Oldham v. O.K. Farms, Inc. on Monday, September 25, 2017.

Plaintiff, Earl Oldham, had entered into a contract with O.K. Farms (O.K.), which contract is at issue in this case. Under the contract, O.K. would provide Oldham with chickens to raise, the chickens would remain O.K.’s property, and Oldham would be paid for providing their care. Although the contract had a three-year duration, O.K. retained the right to terminate the contract for certain specified reasons, including breach of any term or condition of the contract, abandonment or neglect of a flock, and failure to care for or causing damage to O.K.’s equipment or property.

Early one morning, Oldham discovered one of his three chicken houses had flooded and contacted O.K. requesting help. Oldham then briefly left the farm to open his tire shop, and when he returned, he was informed by an O.K. field technician that it was his problem, not O.K.’s, and Oldham would have to deal with it. Oldham began complaining at the lack of help provided by O.K. and requested they come and get all of the chickens.

An O.K. crew arrived at Oldham’s farm, removed the live chickens, and brought them to a nearby farm to be raised by a different farmer. Oldham was paid for the work he had done raising the chickens to that point, reduced by the cost of catching and moving the chickens. O.K. subsequently sent Oldham a letter, providing him with a ninety-day notice of contract termination. O.K. provided its reasoning behind termination of the contract: (1) Oldham breached the terms and conditions of the contract by failing to adequately provide for the animal welfare of the chickens in his care; (2) Oldham abandoned and neglected the flock to open his tire shop when the chickens were encountering a threat to their welfare; and (3) the flooding in the henhouse damaged O.K.’s property, the chickens.

In response to these allegations, Oldham contended the flooding was the result of an act of God, not neglect. As for the abandonment argument, Oldham argued that he did not abandon the chickens by leaving for fifteen to twenty minutes while an O.K. field technician was at the scene telephoning his supervisor to determine what they should do about the situation.

This appeal follows the district court’s granting of summary judgment in favor of O.K. on the premise that Oldham abandoned the flock when he requested O.K. come pick up all of the chickens, not just the ones in the flooded henhouse.

After carefully reviewing the summary judgment record and the parties’ arguments, the court determined that the district court granted judgment on a basis that was not raised by O.K. or briefed by either party. The only argument regarding abandonment that O.K. raised in its brief was the argument that Oldham abandoned the flock by leaving to open his tire shop. O.K. never raised any argument that Oldham abandoned his flock by telling O.K. to come get all of the birds.

The rules of civil procedure permit a district court to grant summary judgment on grounds not raised by a party, but only after giving notice and a reasonable time to respond. The district court gave no notice that it intended to grant summary judgment on a basis that was not raised by O.K., nor did the district court give Oldham any time to respond to this decision, much less reasonable time to consider the new theory and develop the arguments to dispute it. The court found that Oldham was prejudiced by this lack of notice and opportunity to respond.

In order to establish the requisite prejudice, the losing party must identify what additional arguments he could have made or evidence he could have produced or relied on to undermine the district court’s ruling. In this case, Oldham evidenced that he was motivated by concern for all of the other chickens’ welfare in telling O.K. to pick up all of the chickens, as there was more rain forecasted and he did not want another henhouse to be flooded. This concern for the chicken’s welfare might have been relevant to the district court’s holding that Oldham legally abandoned the chickens. The court found that this information was enough to show prejudice.

The Tenth Circuit Court of Appeals REVERSED and REMANDED for further proceedings.

Colorado Court of Appeals: Corporation with No Property or Payroll of Its Own Need Not Be Included on Tax Return

The Colorado Court of Appeals issued its opinion in Agilent Technologies, Inc. v. Colorado Department of Revenue on Thursday, November 2, 2017.

Holding CompanyPropertyCorporate Income Tax ReturnsCombined Returns.

Agilent Technologies, Inc. (Agilent) is incorporated in Delaware, but during the years at issue (tax years 2000 to 2007), it maintained research and development and manufacturing sites in Colorado. Agilent timely filed corporate income tax returns for these years. Agilent Technologies World Trade, Inc. (WT) is a subsidiary of Agilent and is incorporated in Delaware. It was formed as a holding company to own foreign entities operating solely outside the United States. As a holding company, WT does not own or rent property, has no payroll, and does not advertise or sell products or services of its own.

For federal tax purposes, WT and the foreign entities elected to be taxed as a single corporation. Agilent did not include WT in its corporate tax returns for the years at issue. The Department of Revenue (Department) issued notices of corporate income tax deficiency requiring that Agilent include WT in its Colorado combined returns for the years at issue and assessed tax, interest, and penalties. Agilent contested the Department’s adjustments, and the director upheld the notices. Agilent sought review in the district court. The district court concluded that the Department was prohibited from requiring Agilent to include WT in its Colorado combined corporate income tax returns and entered summary judgment for Agilent.

On appeal, the Department contended that the district court erred when it held that WT was not an includible C corporation under C.R.S. § 39-22- 303(12)(c). Conversely, Agilent argued that C.R.S. § 39-22-303(8) required exclusion of WT from its combined return. C.R.S. § 39-22-303(12)(c) requires inclusion of a corporation in a combined report if “more than twenty percent of the C corporation’s property and payroll” is assigned to locations inside the United States. Because WT had no property factors, although it wasn’t prohibited from including WT, Agilent was not required to include WT in its Colorado combined tax return.

The Department also contended that the district court erred when it ruled that, as a matter of law, C.R.S. § 39-22-303(6) could not be applied as an alternative basis for including WT in Agilent’s tax return. It also contended that the economic substance doctrine should be applied to permit taxation of WT even in the absence of specific statutory authorization. C.R.S. § 39-22-303(6) authorizes the Department to allocate income and deductions among corporations that are owned or controlled by the same interests on a fair and impartial basis to clearly reflect income and avoid abuse. However, C.R.S. § 39-22-303(6) cannot be applied to allocate income among affiliated corporations that were not otherwise includible under C.R.S. § 39-22-303(8) to (12). Accordingly, the district court did not err in concluding that C.R.S. § 39-22-303(6) did not provide a basis for including WT in Agilent’s tax return. Further, it was not alleged that WT lacks a business purpose apart from reducing tax liability. Therefore, the economic substance doctrine does not provide an independent basis in this case for including WT in Agilent’s combined return.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Complaint Not Moot when Injury Can Be Redressed By Favorable Judicial Decision

The Tenth Circuit Court of Appeals issued its opinion in EEOC v. CollegeAmerica Denver, Inc. on Tuesday, September 5, 2017.

This case arises out of a dispute between CollegeAmerica Denver., Inc. (Company) and a former employee, Ms. Potts. The Company and Potts resolved a dispute by entering into a settlement agreement, but the Company came to believe that Potts breached the settlement agreement, leading the Company to sue Potts in state court. The suit sparked the interest of the Equal Employment Opportunity Commission (EEOC), which believed that the Company’s interpretation and enforcement of the settlement agreement was unlawful and interfered with the statutory rights of Potts. Based on this belief, the EEOC sued the Company in federal court.

The district court dismissed the EEOC’s unlawful-interference claim as moot, however, the EEOC is appealing the dismissal in light of the Company’s new theory against Potts: that she breached the settlement agreement by reporting adverse information to the EEOC without notifying the Company. The EEOC believes that by presenting this new theory, the Company was continuing to interfere with Potts’s and the EEOC’s statutory rights. The Tenth Circuit Court of Appeals reviewed this appeal and holds that the claim is not moot.

In deciding if a case is moot, the Tenth Circuit assesses whether a favorable judicial decision would have some effect in the real world. In other words, if a plaintiff no longer suffers an actual injury that can be redressed by a favorable judicial decision, the claim is moot.

A special rule applies when the defendant voluntarily stops the challenged conduct. When the conduct stops, the claim will be deemed moot only if two conditions exist: (1) it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur; and (2) interim relief or events have completely and irrevocably eradicated the effects of the alleged violation. The court held that the first condition was not met, as the Company continued to stand by its new theory of how Potts had breached the settlement agreement. Therefore, mootness due to voluntary cessation is not applicable here.

The Tenth Circuit further disagreed with the Company’s argument that the case was moot because the outcome would not affect anything in the real world. The court found that if the EEOC prevailed on the merits and obtained an injunction, the Company could not present its new theory in the state-court suit against Potts. The inability to present this theory would constitute an effect in the real world, preventing dismissal based on mootness.

The Tenth Circuit further rejected the Company’s newly raised argument that the EEOC sought overly-broad, unauthorized injunctive and declaratory relief, finding that a federal court should not dismiss a meritorious constitutional claim because the complaint seeks one remedy rather than another plainly appropriate one.

The Tenth Circuit Court of Appeals REVERSED and REMANDED for further proceedings.

Colorado Supreme Court: Hospital Has No Private Right of Action Against Police Department for Cost of Treatment

The Colorado Supreme Court issued its opinion in City of Arvada ex rel. Arvada Police Department v. Denver Health & Hospital Authority on Monday, October 9, 2017.

Prisons—Costs of Incarceration.

Arvada police arrested a severely injured man and sent him to Denver Health Medical Center. Denver Health and Hospital Authority (Denver Health) sued Arvada for the cost of care, claiming that C.R.S. § 16-3-401, which says that persons in custody “shall be . . . provided . . . medical treatment,” required Arvada to pay the hospital for the detainee’s care. Here, the Colorado Supreme Court clarified that (1) whether a statute provides a private right of action is a question of standing, and (2) the same test for a private right of action under Allstate Insurance Co. v. Parfrey, 830 P.2d 905 (Colo. 1992), applies for claims against both governmental and non-governmental defendants. Applying Parfrey to Denver Health’s statutory claim, the court held that C.R.S. § 16-3-401 does not provide hospitals a private right of action to sue police departments for the cost of providing healthcare to persons in custody. Accordingly, it concluded that the trial court erred by granting summary judgment to Denver Health on the statutory claim. The court remanded the case for consideration of Denver Health’s unjust enrichment claim based on Arvada’s statutory duty to provide care for persons in custody.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Claim Arose Prior to Filing Bankruptcy Petition and Therefore was Dischargeable

The Colorado Supreme Court issued its opinion in Hardegger v. Clark on Monday, October 2, 2017.

Contribution—Bankruptcy Discharge—Tax Withholding Liability—26 U.S.C. § 6672(d).

This case required the supreme court to determine when the right of contribution provided in 26 U.S.C. § 6672(d) (2012) gives rise to a “claim” under the U.S. Bankruptcy Code. Applying the “conduct test,” under which a claim arises for bankruptcy purposes at the time the debtor committed the conduct on which the claim is based, the court concluded that petitioner’s claim for contribution arose when the parties’ jointly owned company incurred federal tax withholding liability, rendering the parties potentially responsible for that debt. Because this conduct occurred before respondents filed their bankruptcy petition, the court concluded that petitioner’s claim constituted a pre-petition debt that was subject to discharge. Accordingly, the court affirmed the judgment of the court of appeals.

Summary provided courtesy of Colorado Lawyer.