January 31, 2015

SB 15-049: Vesting Title to Real Estate in An Entity Upon Formation

On January 8, 2015, Sen. Beth Martinez-Humenik and Rep. Jon Keyser introduced SB 15-049 — Concerning the Vesting of Title to Real Estate in a Grantee that is an Entity that has not yet Been Formed Once the Entity has Been Formed. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Current law specifies that when a grantee of a deed is a corporation whose incorporation papers have not yet been filed, title to the real estate vests in the corporation once the papers are filed. The bill expands this law to apply to all entities, specifying that title vests once the entity is formed.

The bill was assigned to the Senate Business, Labor, & Technology Committee.

SB 15-069: Repealing “Job Protection and Civil Rights Enforcement Act of 2013″

On January 14, 2015, Sen. Laura Woods and Rep. Libby Szabo introduced SB 15-069 — Concerning the Repeal of the “Job Protection and Civil Rights Enforcement Act Of 2013.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

In 2013, the general assembly enacted HB13-1136, the “Job Protection and Civil Rights Enforcement Act of 2013″ (act), which established compensatory and punitive damage remedies, as well as front pay, for a person who proves that an employer engaged in a discriminatory or unfair employment practice under state law. These remedies were created in addition to equitable relief, such as back pay, reinstatement, or hiring, that was already available to employment discrimination victims. Additionally, the act: ! Expanded age discrimination claims under state law to persons 70 years of age or older; Authorized the use of moneys in the risk management fund to pay claims for compensatory damages against the state or its officials or employees; and Required the state civil rights commission to create a volunteer working group to assist in education and outreach efforts and provide the commission with information to post on its web site regarding educational resources available to employers to help them understand and comply with antidiscrimination laws. With the exception of the expansion of age-based discrimination claims to individuals who are 70 years of age or older, the bill repeals all components of the act and restores the equitable relief remedies that were available to employment discrimination victims making claims under state law prior to the passage of the act.

The bill was assigned to the Senate Business, Labor, & Technology Committee.

HB 15-1071: Attorney-Client Privilege Vests in Surviving Entity Post-Merger

On January 9, 2015, Rep. Jon Keyser and Sen. Owen Hill introduced HB 15-1071 — Concerning Clarification That, Following a Merger of Entities, the Surviving Entity is Entitled to Control the Premerger Attorney-Client Privileges of a Constituent Entity. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Existing law specifies that when entities merge, all of the privileges of each of the merging entities vest as a matter of law in the surviving entity. The bill clarifies that the attorney-client privilege is among the privileges that vest in the surviving entity.

The bill was assigned to the House Business Affairs and Labor Committee. It passed committee reading unamended and was referred to the House Committee of the Whole, where it also passed Second and Third Reading unamended.

Colorado Supreme Court: Profit from Contingency Fee Case Pending During Law Firm’s Dissolution Must Be Shared

The Colorado Supreme Court issued its opinion in LaFond v. Sweeney on Tuesday, January 20, 2015.

Colorado’s Limited Liability Company Act—CRS § 7-8-404(a)(1)—Contingent Fee—Unfinished Business Rule—No-Compensation Rule.

The Supreme Court held that under the plain language of Colorado’s Limited Liability Company Act (LLC Act), CRS §§ 7-80-101 to -1101, any profit derived from a contingency fee case that is pending upon dissolution of the LLC belongs to the LLC and must be divided between members and managers according to their profit sharing agreement. Members and managers are not entitled to additional compensation for their post-dissolution work winding up the LLC business. This holding derives from (1) the principle that law firms do not end upon dissolution, but extend through the winding-up period; (2) the fiduciary duties of members and managers of an LLC; and (3) the absence of language in the LLC Act granting members and managers the right to additional compensation for their post-dissolution services. Accordingly, the Court affirmed the judgment of the court of appeals.

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

Colorado Court of Appeals: Assets in Revocable Trust are Assets of Settlor and Can Be Sold to Satisfy Creditor Claims

The Colorado Court of Appeals issued its opinion in Independent Bank v. Pandy on Thursday, January 15, 2015.

Foreign Judgment—Domesticated Judgment—Lien—Statute of Limitations—Interlocutory Appeal—Quiet Title.

In August 2010, Independent Bank (Bank) obtained two judgments against Joseph Pandy in a Michigan state court. In April 2012, the Bank domesticated the Michigan judgment in the district court in Grand County, Colorado. It then filed transcripts of the domesticated judgments with the Grand County Clerk and Recorder in January 2013 to obtain a judgment lien against Joseph Pandy’s real property in the county, including the C Lazy U Homesteads. At that time, the Joseph Pandy, Jr. and Elizabeth Pandy Living Trust (Trust) held title to the C Lazy U Homesteads. In March 2014, the Bank filed a “Complaint for Quiet Title and Decree of Foreclosure” against the Pandys in Colorado. The complaint sought a decree that the judgment lien against Joseph Pandy individually was valid against his interest in the Trust. After the court denied the Pandys’ motion to dismiss, the Pandys filed a CAR 4.2 petition for interlocutory appeal.

The Pandys contended that their petition for interlocutory appeal satisfies the requirements of CAR 4.2. Here, if the statute of limitations in CRS § 13-80-101(1)(k) bars the Bank’s complaint, the litigation would be resolved without the need for a trial. Because the issue presented is both case dispositive and presents an unresolved question of law, the Pandys’ petition for interlocutory appeal satisfies the requirements of CAR 4.2.

The Pandys also contended that the three-year statute of limitations in CRS § 13-80-101(1)(k) bars the Bank’s complaint. The three-year statute of limitations is inapplicable to the Bank’s complaint because the Bank was not seeking a judgment. The applicable statute here is CRS § 13-52-102(1), which gives the Bank six years from the date of the Michigan judgment to foreclose on the judgment lien. Because the Bank brought its quiet title and foreclosure action within six years of the Michigan judgment, the action is not precluded by the statute of limitations. Accordingly, the three-year statute of limitations in CRS § 13-80-101(1)(k) does not bar the Bank’s complaint for quiet title on and foreclosure of the Trust’s property. The order was affirmed and the case was remanded for further proceedings.

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

Tenth Circuit: Texas’s “Fair Notice Rule” Required Indemnity Provision to be Express and Conspicuous

The Tenth Circuit Court of Appeals issued its opinion in Martin K. Eby Construction Co., Inc. v. Onebeacon Insurance Co. on Tuesday, December 9, 2014.

Martin K. Eby Construction Company’s predecessor in interest contracted to build a water pipeline, engaging the predecessor of Kellogg Brown & Root, LLC and promising to indemnify it for claims resulting from Eby’s work. During the construction of the pipeline, Eby accidentally hit a methanol pipeline and caused a leak. At the time, no one knew about the leak. It was discovered over two decades later, and the methanol pipeline owner had to pay for cleanup. It sued Kellogg and Eby, seeking to recover its expenses, but Kellogg and Eby prevailed. Kellogg incurred over $2 million in attorney fees and costs, and it sought to recover those from Eby and its insurer, Travelers Indemnity Co., pursuant to the indemnity provision. The district court granted summary judgment to Eby and Travelers, and Kellogg appealed.

Eby acknowledged that the indemnity provision covered the claims asserted against Kellogg, but argued the coverage was unenforceable because the clause was inconspicuous and not expressly stated. The Tenth Circuit agreed. Under Texas law, indemnity clauses are restricted by the “fair notice rule.” The Tenth Circuit analyzed Texas’s fair notice rule and found it covered the conduct at issue. The fair notice rule required indemnity provisions to be conspicuous and expressly stated. The provision in this case was on page 86 of a 197-page contract, with no identifying heading, in the same typeface and without bolding or other changes to set off the indemnity clause. Because of this, Eby did not have fair notice of the provision, and the coverage was unenforceable.

Turning to Kellogg’s claims against Travelers, the Tenth Circuit found that because it denied the claims as to Eby, there was no claim as to Travelers. The district court’s grant of summary judgment was affirmed.

Tenth Circuit: Company Entitled to Sell Trademark Rights Post-Termination Continued to Own Rights Until Completion of Sale

The Tenth Circuit Court of Appeals issued its opinion in Derma Pen LLC v. 4EverYoung Limited on Tuesday, December 9, 2014.

Derma Pen, LLC and 4EverYoung Ltd. entered into a sales distribution agreement for a micro-needling device: Derma Pen would sell the device in the United States and 4EverYoung would sell it in the rest of the world. Their contract provided that upon termination, Derma Pen would offer to sell its rights to 4EverYoung. Derma Pen eventually terminated the agreement and 4EverYoung attempted to purchase Derma Pen’s trademark rights, but the parties reached an impasse and no sale occurred. Despite its lack of trademark rights, 4EverYoung started using Derma Pen’s trademark to sell the device in the United States. Derma Pen sued 4EverYoung and associated entities on over 15 claims, including trademark infringement and unfair competition under the Lanham Act. Derma Pen also moved for a preliminary injunction to prevent 4EverYoung from using the trademark in the United States. The district court denied the motion, finding that Derma Pen was unlikely to succeed on the merits, and Derma Pen appealed.

The Tenth Circuit reversed. Upon review of the existing record, the Tenth Circuit found that Derma Pen likely still owned the U.S. trademark rights until they were sold, and no sale had taken place. 4EverYoung argued that the agreement’s termination dissolved Derma Pen’s ownership rights, but the Tenth Circuit disagreed. Because the contract contemplated Derma Pen’s ability to sell its ownership rights post-termination, the Tenth Circuit found that Derma Pen likely still owned the trademark rights, and would be likely to succeed on the merits on this issue.

The district court’s denial of Derma Pen’s injunction was reversed, and the case was remanded for further proceedings.

Colorado Supreme Court: C.R.C.P. 45 Inapplicable to Administrative Subpoena Enforcement Proceedings Under UCCC

The Colorado Supreme Court issued its opinion in Tulips Investments, LLC. v. State of Colorado ex rel. Suthers on Monday, January 12, 2015.

Uniform Consumer Credit Code—Subject Matter Jurisdiction—Authority to Issue and Enforce Administrative Subpoena—CRS § 5-6-106.

The Supreme Court held that, in enacting the Uniform Consumer Credit Code (UCCC), the General Assembly conferred administrative subpoena issuance authority on the UCCC Administrator and authorized trial courts to enforce such a subpoena against a nonresident who is alleged to have violated the UCCC and has refused to obey a subpoena. In so holding, the Court distinguished its decisions in Solliday v. District Court, 135 Colo. 489, 313 P.2d 1000 (1957), and Colorado Mills, LLC v. SunOpta Grains & Foods Inc., 269 P.3d 731 (Colo. 2012). Those cases addressed a limitation under CRCP 45 restricting service of a subpoena in civil actions to areas located within the state. CRCP 45 is inapplicable to administrative subpoena enforcement proceedings under the UCCC, which applies equally to residents and nonresidents suspected of conduct violating its provisions. Accordingly, the Court affirmed the judgment of the court of appeals.

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

Tenth Circuit: Class Certification Appropriate Where Common Issues Predominate Over Individualized Claims

The Tenth Circuit Court of Appeals issued its opinion in CGC Holding Co. LLC v. Broad & Cassel on Monday, December 8, 2014.

In this RICO class action interlocutory appeal, defendants contest the district court’s class certification. Plaintiff class representatives CGC Holding Co., LLC, Harlem Algonquin, LLC, and James Medick, on behalf of the proposed class, assert that a group of lenders led by Sandy Hutchens conspired to create a scheme to defraud borrowers by requiring up-front fees for loan commitments the lenders never intended to fulfill. Plaintiffs also allege the lenders fraudulently concealed Hutchens’ criminal past through the use of pseudonyms, and had they known about his financial history they would not have taken part in the financial transactions that caused them to lose their up-front fees.

In 2004, Hutchens pleaded guilty in Canada to financial fraud charges similar to those at issue here. Following his conviction, he changed his name and assumed various aliases. Plaintiffs claim Hutchens operated a scheme in which a potential borrower, typically a distressed “do-or-die” borrower, would submit a loan application to one of several issuing entities through a loan broker. The lending entity would issue a loan commitment requiring non-refundable up-front fees, also requiring the borrower to meet certain eligibility requirements. If the borrower failed to meet an eligibility requirement, the lending entity would terminate the loan application. Plaintiffs contend this was a subterfuge intended to scam the borrowers out of the non-refundable up-front fees, without any intention or ability to fund the loan. Hutchens contends the loans were legitimately terminated for failure to meet the eligibility requirements. However, his accountant testified that by the end of 2009 Hutchens and his entities had received over $8 million in up-front fees and had lent less than $500,000.

Plaintiffs also contend that Hutchens and his cohorts concealed Hutchens’ criminal past through the use of aliases and false addresses, and but for these omissions and misrepresentations, no borrower would have participated in the loan scheme. Plaintiffs named several persons and entities as co-conspirators with Hutchens, including his wife and daughter, five issuing entities, Hutchens’ attorney Alvin Meisels, and Broad and Cassel, a Florida law firm that represented several of the defendants during the relevant time period.

Plaintiffs conceded they lacked standing to pursue their claims against Broad and Cassel, and the Tenth Circuit reversed and remanded on this issue. However, the Tenth Circuit affirmed the district court’s grant of F.R.C.P. 23 class certification. Defendants contend the district court erred in finding that common issues predominated over individual ones in the class certification. The Tenth Circuit reviewed for abuse of discretion and found none. The Tenth Circuit found no reasonable dispute that plaintiffs met the threshold requirements of Rule 23(a), and evaluated solely for whether common issues predominated under the class type listed in Rule 23(b)(3).

After evaluating the prerequisites of a civil RICO claim, the Tenth Circuit discussed plaintiffs’ requirement to prove that a link existed between defendants’ actions and the class injury. Plaintiffs must prove a causal connection between defendants’ misrepresentation and and plaintiffs’ reliance on that misrepresentation. In the context of a class action, the plaintiffs must show that the reliance is susceptible to generalized proof. In the instant case, the evidence of class members’ payments for loan commitments is sufficient to show reliance on defendants’ promise to provide loan funds. The fact of payment of the up-front fee is common to the entire class. The Tenth Circuit also found that superiority was proven as to the class action’s preference over individualized actions.

Defendant Meisel also raised the question of whether the district court had subject matter jurisdiction over the Canadian defendant entities. The Tenth Circuit declined to consider the question, finding it exceeded the scope of Rule 23(f) review and instead was a merits issue. The Tenth Circuit similarly declined to consider several other issues raised by defendants, finding their review limited to the scope of Rule 23(f) and disfavoring interlocutory review of other issues.

The district court’s class certification was reversed and remanded as to Broad and Cassel, and was affirmed as to all other defendants.

Tenth Circuit: Liquidated Damages Provisions Allowable in Order to Protect Parties from Uncertainty, Difficulty, and Expense of Litigation

The Tenth Circuit Court of Appeals issued its opinion in Wahlcometroflex, Inc. v. Westar Energy, Inc. on Tuesday, December 2, 2014.

Westar is an electric company that owns several sources of electricity, including the Jeffrey Energy Center (JEC). Westar contracted with Wahlcometroflex (Wahlco) to manufacture and deliver equipment to JEC’s three units for a total purchase price of $6,229,185.50. In the contract, dates for the absolute latest delivery of the equipment were set forth, and a liquidated damages provision was included in the event Wahlco did not timely deliver the equipment assessing damages of 1.5 percent of the total contract price per week the equipment was late, not to exceed 10 percent of the total contract price. Wahlco was late delivering the equipment for all three units – for Unit 1, the equipment was 2 1/2 months late; for Unit 2, the equipment was 2 months late; and for Unit 3, the equipment was over 4 months late. Westar withheld $367,511.28 of the contract price from its payment to Wahlco pursuant to the liquidated damages provision.

Wahlco filed suit in Kansas federal district court to recover the withheld amount. Westar counterclaimed, seeking a declaratory judgment that it was entitled to retain or recover $622,918.55 pursuant to the liquidated damages provision and bringing a breach of contract claim for the same amount. After discovery, the parties filed cross-motions for summary judgment addressing whether Westar was required to prove actual delay in order to recover under the contract’s liquidated damages provision. The district court granted Westar’s motion for partial summary judgment, holding Westar did not need to show actual delay to recover liquidated damages under to the unambiguous language of the contract. The court entered final judgment in favor of Westar, and Wahlco appealed.

Wahlco contended on appeal that its contract with Westar required a showing of actual delay in order to trigger the liquidated damages provision. However, the plain language of the contract referenced only Wahlco’s delay in providing the material, not Westar’s delay in completion of the upgrades to the JEC. The Tenth Circuit noted that, despite Wahlco’s best efforts to create ambiguity in the contract, there was none, and the courts will not rewrite the terms of an unambiguous contract.

Wahlco next argued that, under Kansas law, a plaintiff must establish causation as an element of any breach of contract claim. Wahlco concedes that liquidated damages are allowable under Kansas law regardless of actual damages, but contends there still must be a causal connection between the breach of contract and the anticipated event for which the liquidated damages were intended to compensate. The Tenth Circuit construed Wahlco’s argument as another attempt to rewrite its contract with Westar, and found that the contract language amounted to a concession that Wahlco’s breach would cause damages to Westar in the form of delay to the project. The Tenth Circuit also noted that adopting Wahlco’s position would undermine the effectiveness of liquidated damages provisions, which are designed to allow parties to protect themselves against the difficulty, uncertainty, and expense involved with litigating damages in court.

Finally, Wahlco argued that allowing Westar to collect liquidated damages without proving actual damage would amount to an impermissible penalty. The Tenth Circuit disagreed. Under Kansas law, liquidated damages provisions are acceptable to compensate for actual or anticipated harm. Because the contract’s provisions expressly stated the anticipated harm that would come from Wahlco’s late delivery, and the contract specifically stated the liquidated damages were not a penalty, the Tenth Circuit found Wahlco was bound by the terms of the contract. Wahlco argued that the terms of the contract were unreasonable in light of the actual damages suffered by Westar, but made no showing that the contract’s terms were unreasonable at the time the parties entered into it.

The district court’s summary judgment was affirmed.

Tenth Circuit: Insurance Exclusions for Broadcasting Applied to Dish Network’s Business

The Tenth Circuit Court of Appeals issued its opinion in Dish Network Corp. v. Arrowood Indemnity Co. on Tuesday, November 25, 2014.

Between 2001 and 2004, Dish Network purchased primary and excess commercial general liability insurance policy from five insurers: Arrowood Indemnity Company; Travelers Insurance Company of Illinois; XL Insurance of America, Inc.; National Union Fire Insurance Company of Pittsburgh, PA; and Arch Specialty Insurance Company. In 2007, Dish was a defendant in a patent infringement suit brought by Ronald A. Katz Technology Licensing, L.P. (RAKTL). Dish requested its five insurers to defend it in the patent infringement action, but they declined. Dish brought suit against the insurers, seeking a judgment that they had a duty to defend and also alleging breach of contract and the duty of good faith and fair dealing. The district court granted summary judgment to the insurers, but on appeal, the Tenth Circuit remanded for further determination of the issues (DISH Network Corp. v. Arch Spec. Ins. Co., 659 F.3d 1010 (10th Cir. 2011) (DISH I)). On remand, the insurers again moved for summary judgment but on different grounds. The district court again granted summary judgment, and Dish appealed.

Dish’s first argument on appeal was that the district court violated the law of the case and exceeded the scope of its jurisdiction by allowing the insurers to present new arguments on remand. The Tenth Circuit evaluated the law of the case doctrine and its prior decision, and determined that the district court was not precluded from allowing additional arguments on remand. The district court properly looked to the Tenth Circuit’s mandate for restrictions on appeal, and exercised its discretion accordingly. The Tenth Circuit did not decide that the insurers had a duty to defend Dish in DISH I. Rather, the Tenth Circuit noted that the district court did not decide several issues regarding the duty to defend. It did not preclude the court from resolving additional duty-to-defend issues on remand.

In its second, third, and fourth points on appeal, Dish challenged the district court’s grant of summary judgment to the insurers. The district court concluded that the policies’ business exclusions for “broadcasting” and “telecasting” precluded coverage. Dish argued that its business did not fall under these terms because Dish provides service only to specific subscribers, not the public at large. The Tenth Circuit looked to the plain meaning of “broadcasting” and “telecasting” and found the definitions to encompass Dish’s business activity. Dish’s attempt to draw a distinction between subscription broadcasting and public broadcasting made no sense in the business exclusion sense, and the Tenth Circuit found that the terms in the policy language encompassed Dish’s business activity. The Tenth Circuit found that coverage for Dish’s business activity was unavailable under the policies at issue.

Next, the Tenth Circuit turned its attention to Dish’s umbrella policies provided by National, Arch, and XL. Because the Tenth Circuit had found that coverage was unavailable under the primary policies, the umbrella policies were not implicated and summary judgment to these three insurers was appropriate. Dish conceded that summary judgment in favor of Arch was appropriate, and the district court noted that even if the National and XL policies were available, the coverage would have been excluded because they contained the same language regarding advertising injuries when engaged in the business of broadcasting.

The district court’s grant of summary judgment was affirmed as to all insurers.

Colorado Court of Appeals: Reasonableness Implied Term in All Contracts for Attorney Fees

The Colorado Court of Appeals issued its opinion in Southern Colorado Orthopaedic Clinic Sports Medicine & Arthritis Surgeons, P.C. v. Weinstein, M.D. on Thursday, December 18, 2014.

Attorney Fees—Employment Agreement—Fee-Shifting Provision—Reasonableness.

In this litigation between a professional corporation and Dr. David M. Weinstein, the professional corporation alleged that the doctor had breached his employment agreement with the professional corporation. Dr. Weinstein filed counterclaims.

This appeal involves a fee-shifting provision in an employment agreement. The provision stated that the prevailing party in any action to enforce the agreement “shall be entitled to recover . . . all attorney fees [and] costs.” The trial court held that neither the professional corporation nor the doctor had prevailed at trial; it then declined the professional corporation’s request for attorney fees and costs under the provision. The appellate court reversed, holding that the professional corporation did prevail at trial. The trial court thereafter ordered Dr. Weinstein to pay a portion of the professional corporation’s attorney fees.

On appeal, the professional corporation contended that the trial court erred by not awarding it all of its attorney fees and costs. As a matter of public policy, reasonableness is an implied term in every contract for attorney fees, and trial courts must consider whether the requested attorney fees and costs are reasonable even if the contract does not mention reasonableness. Therefore, the trial court did not err when it determined reasonableness in awarding fees. Further, the trial court did not abuse its discretion when it reduced the award of attorney fees based on all the relevant reasonableness factors set forth in Colo. RPC 1.5(a), including the professional corporation’s success at trial. The case was remanded to the trial court for a determination of attorney fees to award Dr. Weinstein as the prevailing party in this appeal.

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