The Colorado Court of Appeals issued its opinion in McGillis Investment Company, LLP v. First Interstate Financial Utah, LLC on Thursday, August 13, 2015.
Fifth Amendment Privilege Invoked in Front of Jury by Nonparty—Adverse Inference Instruction.
This appeal, as stated by the Court, “follows a long and complicated history, ncluding prior litigation in Utah, an earlier appeal to this court, an eight-day trial, and a series of motions brought before, during, and after the trial and verdict. A voluminous record, spanning thousands of pages, contains an exhaustive rendition of the facts.”
McGillis Investment Company, LLP’s (MIC) principal, McGillis, and First Interstate Financial Utah, LLC’s and First Interstate Financial LLP’s (FIF) principal, Thurston, worked to finance a multitude of commercial real estate loans between 1995 and 2009. This dispute concerns a 2003 loan made by MIC and FIF to Kersey Commercial Park, LLC (Kersey Commercial) for $1.85 million (Kersey Loan) to purchase sixty-three acres of property to develop an industrial park (Kersey Property). When Thurston recommended that MIC finance the Kersey Loan, MIC did not know that the purchasers were involved in a series of transactions of questionable legitimacy surrounding the Kersey Property.
Kersey Commercial never made a payment on the Kersey Loan and was in default by May 2004. Thurston, on behalf of MIC and FIF, executed a Dry-Up Agreement on July 29, 2004, which sold certain Water Rights of the Kersey Property to Lower Latham Reservoir Company in return for a payment of $785,000 to one of the developers. In October 2004, MIC and FIF commenced foreclosure proceedings and on May 12, 2005 purchased the Kersey Property at foreclosure for $1.6 million. On June 6, 2006, FIF sued the appraisers. On November 8, 2006, Thurston had MIC execute an assignment of the Property (Assignment) from McGillis Investments to FIF (though the purpose of the Assignment is disputed). In 2012, FIF settled the appraiser litigation for $438,500 and remitted the proceeds to MIC.
In February 2009, FIF sued Sytech Development (one of the developers) over the Kersey Loan. After McGillis’s son took over MIC in 2008, he concluded that FIF had breached its fiduciary duty to MIC in a variety of transactions, and in April 2009, MIC filed suit in Utah against FIF. In October 2012, the jury returned a verdict in MIC’s favor for $1.25 million. Three days after the Utah verdict, FIF recorded the Assignment with the Weld County Clerk and Recorder. FIF settled the Sytech litigation on November 17, 2012 for $20,000.
On June 1, 2011, MIC filed this lawsuit against FIF, seeking to quiet title to the Kersey Property and damages for breach of fiduciary duty for FIF’s recording the Assignment and settling the Sytech litigation. On cross-motions for summary judgment, the trial court granted partial summary judgment based on claim preclusion in favor of FIF as concerned the validity of the Assignment and quieted title to the Kersey Property in FIF. MIC appealed, and a division of the Court of Appeals affirmed in part and reversed in part, vacating the decree quieting title and reversing the summary judgment on claim preclusion. Following trial on remand, the jury returned a verdict for MIC for $1,300,625 and found that MIC owned the Kersey Property.
In this appeal, FIF argued that the trial court did not follow the Court’s mandate on remand by failing to determine whether MIC knew or should have known of the Assignment’s validity when it filed the Utah action and that it was error to allow the Sysum brothers to invoke their Fifth Amendment privilege against self-incrimination in front of the jury and in giving an adverse inference instruction. In civil cases, an adverse inference may be drawn against a party who invokes the Fifth Amendment privilege against self-incrimination. The Court found no Colorado case addressing whether a nonparty witness’s invocation of the Fifth Amendment privilege constitutes admissible evidence. It adopted the analysis set forth in LiButti v. United States, 107 F.3d 110, 123 (2d Cir. 1997): the admissibility of a nonparty’s invocation of the Fifth Amendment privilege and concomitant drawing of adverse inferences should be considered on a case-by-case basis to ensure any inference is reliable, relevant, and fairly advanced. The overarching concern is whether the adverse inference is trustworthy and will advance the search for the truth.
Based on the record before it, the Court found no error in the trial court’s having decided that one of the brothers could answer a generic question, to which he invoked his Fifth Amendment right, and that there was enough evidence presented to give the adverse inference instruction as to him. The Court found it was error to allow the other brother to invoke his Fifth Amendment privilege because there wasn’t enough evidence to involve him in the alleged fraud. However, the trial court remedied this error when it did not give the adverse inference instruction as to this brother but told the jury to disregard his invocation of the privilege.
FIF also argued that it was error for the trial court not to have determined whether MIC knew or should have known there was a dispute concerning the Assignment’s validity when it filed the Utah action. The jury did consider this issue, but FIF argued it should have been the trial court that made the determination. The Court disagreed. The law of the case established in MIC I was to determine what MIC knew or should have known and there was an interrogatory to the jury that covered this issue. The jury’s answering of the interrogatory resolved the factual dispute dispositive of claim preclusion against FIF and that satisfied the law of the case.
The Court also rejected FIF’s arguments that MIC could not re-litigate anything concerning the Kersey Loan transaction other than the issue concerning the validity of the Assignment and the settlement of the Sytech litigation. The Court determined that this argument was based on a fundamental misunderstanding of the prior ruling in MIC I on the part of FIF. The judgment was affirmed.