August 17, 2017

Tenth Circuit: Default Judgment Non-Dischargeable in Bankruptcy Under 11 U.S.C. § 523(a)(19)

The Tenth Circuit Court of Appeals issued its opinion in Tripodi v. Welch on Wednesday, January 13, 2016.

Nathan Welch was a real estate developer, and beginning in 2006, he worked to procure funding for the Talisman project. Robert Tripodi invested in the Talisman project, ultimately putting $1 million into the development, secured by promissory notes from Welch. When Talisman failed, Welch defaulted on the notes, and Tripodi filed a complaint against Welch in federal district court in 2009, alleging violations of federal and state securities laws. Welch answered the complaint, but a few months later his counsel moved to withdraw. The district court granted counsel’s motion and gave Welch 20 days to find new counsel or appear pro se. Several months later, Tripodi moved for default judgment, and, because Welch did not respond to the motion, the district court entered default judgment against him in April 2010. For the next year, Tripodi presented proof of damages, costs, and attorney fees, and the district court found Tripodi was owed $729,161.65 plus post-judgment interest.

Welch filed a voluntary petition for Chapter 7 bankruptcy in August 2011. Nearly two years later, Tripodi filed a motion for relief from the automatic stay. The district court granted Tripodi’s motion and directed its clerk to enter final monetary judgment. The clerk entered judgment in his favor for $729,161.65 plus post-judgment interest accruing since May 2011. Welch opposed a determination of damages and filed a cross-motion to set aside entry of default. The district court denied his motion as untimely. Each party then filed post-judgment motions. Tripodi moved for an order determining that the default judgment against Welch was non-dischargeable under 11 U.S.C. § 523(a)(19), while Welch moved for the court to reconsider its order refusing to set aside the default, to set aside the default, and to enter a judgment on the pleadings in his favor. The district court granted Tripodi’s motion and denied Welch’s.

Welch appealed, arguing the district court erred in denying his motion for judgment on the pleadings and granting Tripodi’s motion that default is non-dischargeable under § 523(a)(19). The Tenth Circuit disagreed. The Tenth Circuit characterized Welch’s appeal as a roundabout way to challenge the entry of default against him by challenging the sufficiency of the pleadings. The Tenth Circuit addressed the district court’s grant of default judgment. The Tenth Circuit found that the pleadings were legally sufficient, as they showed (1) Tripodi invested in Talisman because he thought it would be a high-yeilding investment opportunity, (2) the investment was structured for broad distribution to unsophisticated investors such as himself, (3) the investing public would consider the notes to be securities, and (4) the collateral provided little security for investors. These four factors led the Tenth Circuit to conclude that the district court correctly ruled the notes were securities and Welch violated securities laws. The Tenth Circuit found no abuse of discretion.

Welch next contended that the district court erred in finding that the debt was non-dischargeable in bankruptcy under § 523(a)(19). The Tenth Circuit again disagreed. The Tenth Circuit noted that § 523(a)(19) renders debts non-dischargeable when they arise in connection with a violation of state or federal securities laws. Two factors prevent the debt from being discharged: (1) the debt must stem from a violation of federal or state securities law, and (2) the debt must be memorialized in a judicial order or settlement agreement. The Tenth Circuit found that Welch’s debt to Tripodi satisfied both factors.

The judgment of the district court was affirmed.

Colorado Court of Appeals: Landowner Cannot Be Held Vicariously Liable Under PLA and Common Law

The Colorado Court of Appeals issued its opinion in Reid v. Berkowitz on Thursday, February 25, 2016.

Default Judgment—Premises Liability Act—Negligence—Exclusivity of Remedies.

Reid sustained injuries after falling through an unsecured guardrail at a construction site where Berkowitz was the general contractor. There were also subcontractors at the site. Reid sued Berkowitz, a landowner as defined by the Colorado Premises Liability Act (PLA). Berkowitz answered, made a jury demand, and designated the subcontractors as nonparties at fault. Reid amended his complaint to add claims of negligence against the subcontractors and named them as defendants.

The district court entered defaults against the subcontractors after they failed to answer and, after a damages hearing, the court entered judgments against them. The court made no findings on whether Berkowitz was vicariously liable for the judgments against the subcontractors.

The PLA claim against Berkowitz proceeded under a different judge to a jury trial at which the default judgments were not mentioned to the jurors. The jury awarded Reid damages, but despite Berkowitz’s request, was not instructed to apportion fault to the subcontractors nor to evaluate Reid’s comparative negligence.

On a prior appeal of the jury verdict, the Court of Appeals agreed that refusing the apportionment instruction was error but concluded the error was harmless because the subcontractors fault was imputable to Berkowitz, who had a nondelegable duty of care to Reid. The Court ordered a retrial solely on the issue of Reid’s comparative negligence, and a second jury allocated the fault 90% to Berkowitz and 10% to Reid. Berkowitz paid the amount awarded.

Reid then moved for declaratory relief, requesting that the district court find Berkowitz liable for 90% of the default judgments entered against the subcontractors, plus simple interest. After a hearing, the court held Berkowitz liable for the entirety of the default judgments with compound interest.

On appeal, Berkowitz argued multiple theories in support of his assertion that the court erred in finding him liable for the amount of the default judgments entered against the subcontractors. The sole argument the Court addressed was whether Berkowitz could be simultaneously liable for damages as a landowner under the PLA and vicariously liable for a default judgment under negligence theories against his subcontractors. Based on the unambiguous language of the statute, the Court held that the PLA is an exclusive remedy against a landowner for injuries that occur as a result of conditions, activities, or circumstances on his property.

The judgment and orders were reversed and the case was remanded to vacate the judgments against Berkowitz.

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

Colorado Court of Appeals: No Requirement that Complaint be “Well Pleaded” Before Entry of Default

The Colorado Court of Appeals issued its consolidated opinion in Dickinson v. G4S Secure Solutions (USA) Inc. and Dickinson v. Lincoln Building Corporation on Thursday, November 19, 2015.

Premises Liability—Entry of Default—Comparative Negligence and Pro Rata Liability.

This is a consolidated appeal in a premises liability case brought by Charlene Dickinson against Lincoln Building Corporation (LBC); Wells Fargo Bank National Association (Wells Fargo); and G4S Secure Solutions (USA), Inc. (G4S). Dickinson sought damages for shoulder injuries sustained when she attempted to open a door leading to her workplace that allegedly was locked or malfunctioning.

LBC and Wells Fargo admitted they were served but failed to enter an appearance or file an answer. The district court entered default against them, and they filed a joint motion to set it aside, which the court denied. On appeal, LBC and Wells Fargo argued the default should have been set aside because it was entered in violation of their right to due process of the law and it was not well pleaded. The Court of Appeals disagreed. LBC and Wells Fargo were properly served with the complaint and summons, and they failed to enter an appearance or file an answer until almost a year later, well after the court had entered default. As to the argument that the trial court had to first find that the complaint was “well-pleaded,” the Court could find absolutely no support for any such requirement.

LBC and Wells Fargo also argued that they should have been permitted to present evidence of Dickenson’s comparative negligence and G4S’s pro rata liability at the damages hearing after entry of default. The Court disagreed, finding that the default constituted an admission of liability that precluded them from thereafter presenting evidence of others’ comparative fault. The damages hearing was only to determine the amount of damages owed and any discussion of liability underlying that award is prohibited.

Dickenson argued that the trial court erred in rejecting a tendered negligence per se instruction as to G4S. The Court affirmed, finding that the tendered instruction did not apply to G4S, a security company, but to the manufacturer of the door’s locking mechanism. Moreover, even if it did apply, no evidence was presented that the code section regarding the door’s locking mechanism was intended to protect against injuries stemming from attempting to open a locked exit door. The judgments and orders were affirmed.

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

Tenth Circuit: Use of False Identity Immaterial to Wire and Mail Fraud and Cannot Form Basis for Convictions

The Tenth Circuit Court of Appeals issued its opinion in United States v. Camick on Friday, July 31, 2015.

Leslie Lyle Camick was a Canadian citizen who entered the United States in 2000 using the identity of his brother, Wayne Bradly Camick, who had died in infancy. Camick assumed his brother’s identity in order to avoid outstanding child support obligations and back taxes and to evade permanent driver’s license revocation due to numerous intoxicated driving offenses. Camick used his brother’s identity throughout his time in the United States.

In 2004, Camick began a professional and romantic relationship with Lyn Wattley. The couple eventually moved to Kansas and bought a home together under Camick’s assumed identity. In 2010, Camick and Wattley, together with machinist Mark Nelson, began developing an idea for a new way to cover manholes. In 2011, Camick’s and Wattley’s relationship deteriorated, and unbeknownst to Wattley, Camick filed a provisional patent application for the locking manhole cover. In the summer of 2011, Camick drove a 2006 GMC truck that he had paid for but that was titled in Wattley’s name to Arizona. Wattley became concerned about Camick driving since he had had prior intoxicated driving incidents, so she reported the vehicle stolen. Camick was arrested in New Mexico for theft of the truck but Wattley requested that the New Mexico charges be dropped. The Kansas warrant for the stolen vehicle remained outstanding.

In late 2011, Camick was arrested in New Jersey, where he was interviewed by U.S. Immigration Officer Jackey He to determine his immigration status. Eventually, Camick admitted his real name to Officer He and signed an affidavit that he had used his brother’s identity to enter and reside in the United States. Camick was placed under arrest and Officer He initiated removal proceedings against him. As a result of the arrest, Wattley discovered Camick’s true identity and initiated quiet title proceedings to remove the name Wayne Camick from their Kansas residence. She served Camick in the New Jersey detention center, but he failed to respond within the 30-day period and the Kansas court quieted title against him. More than a month after the Kansas court entered judgment, Camick submitted a response to the quiet title action, claiming he was the purchaser and owner of the subject property and that he had been unable to respond due to his immigration detention. The Kansas court responded by issuing a letter that Camick’s response did not comply with Kansas law and was untimely. Two months later, Camick sent another letter to the Kansas court claiming he had been “wrongfully detained” by ICE as a result of Wattley’s “falsified Police report.”

In March 2013, Camick was indicted on charges of mail fraud, wire fraud, material false statement to the U.S. Patent Office, and three counts of aggravated identity theft relating to the fraud and false statement charges. In July 2013, Camick filed a 42 U.S.C. § 1983 lawsuit against Wattley and others, alleging constitutional and tort violations arising from the 2011 stolen vehicle report. This lawsuit became the source of Camick’s obstruction of justice charge as contained in the government’s second superseding indictment. After a three-day trial, Camick was convicted of all seven charges and was sentenced to 48 months’ imprisonment followed by one year of supervised release. Camick was also ordered to pay $15,186 in restitution to Wattley. He timely appealed.

The Tenth Circuit analyzed the mail fraud charge, which was premised on the letter Camick mailed to the Kansas court regarding his failure to respond to the quiet title action. Camick argued the evidence was insufficient to show he made materially false statements with the intent to defraud. The Tenth Circuit agreed. The Kansas court and Wattley were aware of Camick’s true identity at the time he sent the letter, and he had been known as Wayne throughout his time in the United States. The Tenth Circuit held that Camick’s identity could have had no bearing on the Kansas court’s decision to uphold its default judgment. Camick’s statement that he had been “wrongfully detained” was likewise immaterial since it was incapable of influencing the Kansas court’s decision. The Tenth Circuit reversed Camick’s conviction for mail fraud and the related aggravated identity theft charge.

The Tenth Circuit next evaluated Camick’s challenges to the wire fraud and material false statement convictions, both of which pertained to the provisional patent application. Camick argued that because he was the actual inventor of the locking manhole cover and everyone knew him as Wayne Camick, his use of that name on the provisional patent application was insufficient to show a false statement with intent to defraud. The Tenth Circuit again agreed, holding that the false statements were immaterial to the provisional patent application. Because the provisional patent application did not require an oath or declaration by the applicant, the Tenth Circuit found Camick’s fraud in using his brother’s name immaterial to the provisional patent application. The Tenth Circuit reversed the convictions for wire fraud and material false statement. The Tenth Circuit also reversed the accompanying aggravated identity theft charges.

Camick challenged his obstruction of justice charge, arguing the evidence was insufficient to show that he filed the civil rights suit against Wattley with retaliatory intent. The Tenth Circuit, drawing inferences of retaliation from the timing of his filing, disagreed. The Tenth Circuit upheld this conviction. Judge Kelly dissented from this part of the opinion; he would have reversed the obstruction of justice conviction as well.

Finally, Camick argued that the restitution award improperly failed to tie Camick’s harms of conduct to the restitution requested by Wattley. The Tenth Circuit evaluated the restitution award and reversed the parts of the award requested for Wattley’s quiet title action and review of the provisional patent application. The Tenth Circuit also reversed the award of costs incurred in a separate civil lawsuit.

Camick’s convictions for mail fraud, wire fraud, material false statement, and aggravated identity theft were reversed. Camick’s conviction for obstruction of justice was affirmed. The case was remanded for a hearing on the remaining restitution award.

Colorado Court of Appeals: Foreign-Country Judgment Improperly Served so No Recognition Required

The Colorado Court of Appeals issued its opinion in Ledroit Law v. Kim on Thursday, August 13, 2015.

Ontario Judgment Enforceability—Uniform Enforcement of Foreign Judgments Act—Uniform Foreign-Country Money Judgments Recognition Act.

Ledroit Law, a Canadian law firm, filed this action seeking recognition of an Ontario court’s assessment of legal fees against Snell & Wilmer, L.L.P., an Arizona law firm with offices in Colorado, and Eugene Kim, a former associate at Snell & Wilmer. In 2011 and 2012, Snell & Wilmer represented two related Ontario entities in a civil suit they filed against an American corporation in federal court in Colorado. Kim was a first-year associate who worked on the case. Ledroit represented at least one of the Ontario entities in related proceedings in Canada.

Defendants stated that the principals of the Ontario entities instructed Snell & Wilmer to have Ledroit serve subpoenas duces tecumin Ontario related to the federal suit in Colorado. Kim communicated with Ledroit by telephone and e-mail to coordinate service. In March 2012, Ledroit sent Snell & Wilmer a bill for legal services of over $15,000 Canadian for their attempts to serve the subpoenas. There was no retainer agreement, and Snell & Wilmer stated that the Ontario entities were responsible for the bill.

In September 2012, Ledroit filed an action in the Ontario Superior Court of Justice to recover the legal fees. A “Notice of Appointment for Assessment of Costs” was sent by regular mail to Kim’s office in Colorado. The Ontario court issued an assessment in the amount of $15,829.99 Canadian against Kim and Snell & Wilmer following their non-appearance.

Ledroit filed this action in district court seeking enforcement of the assessment in Colorado under the Uniform Enforcement of Foreign Judgments Act (Enforcement Act). The district court entered an order domesticating the assessment under the Enforcement Act.

Defendants moved to vacate the order on the basis that the Enforcement Act only applies to judgments entered by sister states within the United States and that the Uniform Foreign-Country Money Judgments Recognition Act (Recognition Act) governs the recognition of foreign-country money judgments. The district court vacated its order and ultimately recognized the Ontario assessment under both the Recognition Act and common law principles of comity.

On appeal, defendants argued it was error to recognize the Ontario judgment under the Recognition Act because the Ontario court lacked personal jurisdiction over them. The Court of Appeals agreed. Under the Recognition Act, CRS § 13-62-104(2)(b), a Colorado court “may not recognize a foreign-country judgment if . . . [t]he foreign court did not have personal jurisdiction over the defendant.”

The Court found that defendants were not validly served with process by the attempt at service by regular mail. Service under Ontario law requires either service through the central authority in the contracting state or “in a manner that is permitted by the [Hague] Convention and that would be permitted by these rules if the document were being served in Ontario.” Because service by mail was not proper under the Ontario rules, the Ontario court lacked personal jurisdiction over defendants when it issued the assessment.

The Court also agreed with defendants’ contention that the district court erred in relying on principles of comity. The Recognition Act requires a Colorado court to deny recognition if the foreign court lacked personal jurisdiction. Here, where the Recognition Act applied, the Colorado court was required to deny recognition of the assessment. The order was reversed.

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

Tenth Circuit: Insurer Who Failed to Reserve Rights Responsible for Default Judgment

The Tenth Circuit Court of Appeals issued its opinion in Cornhusker Casualty Co. v. Skaj on Monday, May 18, 2015.

Vincent Rosty, an employee of R&R Roofing, Inc., drove a company dump truck to the home of Shari Skaj, his ex, to drop off roofing supplies and see if his kids were there. At some point after Vincent stopped in an alley behind the Skaj residence, the truck was accidentally knocked into second gear and rolled forward, pinning Ms. Skaj against a parked motor home and causing serious injuries. A lab test performed later in the day confirmed the presence of marijuana and methamphetamine in Vincent’s bloodstream.

Cornhusker Casualty provided commercial liability insurance to R&R at the time of the accident, and R&R and Randy Rosty (0wner of R&R, along with Steven Rosty) were the named insureds. Within days of the accident, Cornhusker hired AmeriClaim adjuster Charles Brando to investigate the incident. Brando’s report noted that Vincent had driven off-route on personal business despite an unwritten company policy prohibiting personal use of company vehicles.

After receiving notice of Ms. Skaj’s forthcoming claim, Cornhusker wrote to R&R, Steven Rosty, and Vincent to notify them of potential excess liability exposure and to inform them of the right to retain independent counsel. Cornhusker specifically stated it would continue to defend the claim. The Skajs filed suit in Wyoming county court, asserting several claims based on negligence and requesting punitive damages since Vincent was intoxicated at the time of the accident. Cornhusker’s counsel filed an answer to the complaint as to Steven and R&R only, asserting she did not represent Vincent. Cornhusker determined Vincent was not entitled to a defense. However, Cornhusker did not attempt to inform Vincent it was no longer defending him. Default issued against Vincent, the non-defaulting defendants were dismissed, and eventually the Wyoming trial court set a default judgment hearing. Cornhusker hired separate representation for Vincent for that hearing, who opposed the default judgment, and after the hearing default entered against Vincent for $897,344.24.

One week after the default judgment hearing, Cornhusker sent Vincent a letter purporting to deny coverage for the first time. In support of its coverage denial, Cornhusker stated Vincent was not a permissive user of the truck, was not acting within the course and scope of his employment with R&R, was intoxicated, and had misappropriated roofing materials from R&R, also stating he had not cooperated with Cornhusker during the Skajs’ lawsuit. Shortly after, Cornhusker sent another letter to Vincent, characterizing its representation of him at the default judgment hearing as “pursuant to a reservation of rights” and for the limited purpose of having the default set aside. Meanwhile, Vincent’s counsel appealed the default, and eventually the Wyoming Supreme Court affirmed the judgment except insofar as it awarded punitive damages. Cornhusker refused to pay, maintaining Vincent was not covered by the policy.

Cornhusker filed suit in the U.S. District Court for the District of Wyoming, seeking a declaration that the policy did not provide coverage for Vincent because he was not an insured and had not cooperated in the investigation. Vincent counterclaimed against Cornhusker, asserting theories of negligence, intentional infliction of emotional distress, promissory estoppel, and breach of contract. The Skajs also counterclaimed, seeking a declaration that Cornhusker was required to pay the judgment in the underlying action and seeking attorney fees based on Cornhusker’s refusal to pay. Vincent and the Skajs jointly counterclaimed that Cornhusker should be estopped from asserting the defense of noncoverage because of its unconditional defense of Vincent in the underlying action. All parties filed motions for summary judgment. After a hearing, the district court declared Cornhusker was estopped from denying coverage to Vincent because it represented it would provide a defense, never reserved its rights, and did not advise Vincent of its decision to deny coverage until more than 16 months after entry of default. The court granted summary judgment to Cornhusker on Vincent’s various claims and denied the Skajs’ motion for attorney fees. The district court ordered Cornhusker to pay the full amount of the default judgment. Cornhusker appealed the district court’s finding of estoppel. The Skajs cross-appealed the court’s denial of their attorney fees. Vincent also appealed, seeking reversal on his bad faith and punitive damages claims.

After quickly dismissing Cornhusker’s standing argument, the Tenth Circuit evaluated the estoppel claim. Prior circuit precedent established estoppel where an insurer defended a claim without reserving its rights. Although the question had not been reached in Wyoming, the Tenth Circuit construed Wyoming law and determined the insurer must accept the consequences of its decision to assume full control of the litigation without a reservation of rights, because the insured was induced to relinquish control of the defense. In this case, Cornhusker never explicitly reserved its rights as to Vincent. Even Vincent’s counsel “found it odd” that Cornhusker would take the approach of providing a full defense to Vincent without a reservation of rights, but the Tenth Circuit found that since that was the path Cornhusker chose, it should face the consequences of its action and pay the judgment. The Tenth Circuit found no error in the district court’s order for Cornhusker to pay the default judgment.

Next, the Tenth Circuit considered Vincent’s bad faith and punitive damages claims. Vincent characterized the bad faith as Cornhusker’s retention of counsel who refused to defend him and allowed entry of default against him. However, the Tenth Circuit found neither substantive nor procedural bad faith in Cornhusker’s conduct. Because Cornhusker had a reasonable basis for its denial, there was no substantive bad faith. And, because Cornhusker did not fail to investigate the claim, there was no procedural bad faith, and certainly not enough to satisfy Wyoming’s “high bar” for conduct constituting procedural bad faith. The Tenth Circuit similarly disposed of the punitive damages claim since it was based on the same conduct as the bad faith claim. Finding that punitive damages are only to be awarded for conduct so egregious it is nearly criminal, the Tenth Circuit could discern no such conduct here.

The Tenth Circuit then turned to the Skajs’ counterclaim for attorney fees. The district court had determined that Wyoming’s “unreasonable or without cause” standard for refusal to pay losses covered by insurance was so similar to the standard for bad faith that the same analysis applied. The Tenth Circuit found no error in the district court’s finding and affirmed its denial of attorney fees. Although the Skajs sought to introduce supplemental material to the Tenth Circuit to bolster their attorney fee claim, the Tenth Circuit denied the motion, finding the Skajs could have introduced the evidence in district court but failed to do so. Likewise, Cornhusker’s motion to seal the Skajs’ supplemental index was denied as moot.

The Tenth Circuit affirmed the decision of the district court in full, denied the Skajs’ motion to file a supplemental index, and denied as moot Cornhusker’s motion to seal the supplemental index.

Colorado Court of Appeals: Default Judgment Improper Sanction for Nonappearance at Trial Where Attorney Present

The Colorado Court of Appeals issued its opinion in People in Interest of K.J.B. on Thursday, December 4, 2014.

Dependency and Neglect—Right to a Jury Trial—Appearance by Counsel but not Defendant.

The Park County Department of Human Services (department) took the subject child into protective custody, placed the child with her father, and filed a petition in dependency and neglect. Mother denied the allegations in the petition and requested a trial to the court. Shortly thereafter, mother filed two written demands for a jury trial. The court denied mother’s requests.

Until that point in the proceedings, mother had participated by telephone; however, she was ordered to personally appear for the adjudicatory trial. She failed to appear, but her counsel appeared on her behalf. The department requested that a default judgment be entered against mother for failing to personally appear. Without hearing evidence, the court sustained the department’s allegations under multiple provisions of CRS §19-3-102(1) and adjudicated the child dependent and neglected by default judgment. It also adopted a treatment plan for mother. Mother appealed the adjudicatory order.

Nonappearance at trial does not constitute a failure “to plead or otherwise defend,” and is not a reason on which entry of a default can be predicated. The court could have received evidence in mother’s absence and then rendered judgment. Because the trial court did not state the legal authority it relied on to enter default judgment against mother for failing to appear, the Court of Appeals inferred that the judgment was entered as a sanction against mother. Although the court has contempt powers under CRCP 107, the rule does not authorize default judgment as a sanction for contempt. The Court therefore held that the trial court exceeded its authority in entering the default judgment. The order was reversed and the case was remanded for a trial.

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

Tenth Circuit: Damages Award on Default Judgment Upheld in Complex Litigation

The Tenth Circuit Court of Appeals issued its opinion in Niemi v. Lasshofer on Tuesday, November 4, 2014.

John Niemi, along with co-plaintiffs Robert Naegele, III, and Jesper Parnevik, was working on a large-scale development project in Breckenridge, Colorado, known as the Fairmont Breckenridge. Azco, LLC and Azco II, LLC, as well as Mesatex, LLC – companies run by Niemi, collectively known as the Azco entities – were the purchasers of the properties for the Fairmont. Based on the success of Phase I of the project, Niemi and the co-investors sought $200-$220 million in financing for Phase II. Defendants Lasshofer and Michael Burgess represented that they could provide financing for Phase II, but required the investors to agree to stop looking for other financing and to provide a $180,000 loan commitment fee. The investors agreed and wired the money. Following an extensive due diligence process, plaintiffs provided an additional $2 million “upfront collateral deposit” to Lasshofer and Burgess. The loan proceeds never materialized, despite repeated assurances from Burgess and Lasshofer that the funds were coming, and eventually Burgess was indicted on criminal fraud charges and sentenced to 180 months’ imprisonment. As part of his plea bargain, Burgess indicated that the funds from the investors were deposited in an account belonging to Innovatis Asset Management, SA (IAM), a company associated with Lasshofer. Burgess implicated Lasshofer as his co-defendant and stated that IAM was continuing to defraud investors. Even after Burgess’s arrest, Lasshofer continued to assure the investors that their funds were coming, but no money ever materialized.

The three investors met to discuss how they would recover from the fraud, and during the conversation Niemi, acting on behalf of the Azco entities, expressly assigned all causes of action and claims to Parnevik, Naegle, and himself. The three filed a Verified Complaint in April 2012, initiating the lawsuit and identifying the various parties and their relationships. The amended complaint filed in July 2012 alleged 17 claims for relief, including a claim under the Colorado Organized Crime Control Act (COCCA) against the Lasshofer defendants and a common law fraud claim against all defendants. In March 2012, the district court issued a TRO to guard against dissipation of the Lasshofer defendants’ assets, and in June 2012 the court issued a preliminary injunction, effectively freezing the worldwide assets of the Lasshofer defendants. After a hearing in March 2013, the court found the Lasshofer defendants to be in contempt of its June 2012 preliminary injunction. In a joint filing between the investors and the Lasshofer defendants, the Lasshofer defendants declared they would no longer devote resources to the case at the district court level, would not participate in discovery, and would not answer Plaintiffs’ amended complaint. The district court eventually entered default judgment against the Lasshofer defendants and awarded over $61 million to the plaintiffs, trebled to $185 million. Lasshofer appealed.

Prior to reaching the merits, the Tenth Circuit had to resolve issues related to its authority to decide the appeal. Plaintiffs had requested the Tenth Circuit to employ the “fugitive disentitlement doctrine” to dismiss the Lasshofer defendants’ appeal. The Tenth Circuit could find no circumstances that would warrant application of the doctrine. Plaintiffs also contend that the Lasshofer defendants must post a bond on the default judgment before appealing, but the Tenth Circuit disagreed, finding that would be sharply at odds with the rules of procedure. Since all issues were ripe due to the district court’s dismissal of claims with prejudice, the Tenth Circuit evaluated the merits of the appeal.

First, the Lasshofer defendants raised several issues related to the district court’s authority to hear the case. They contended (1) Plaintiffs lacked standing to bring their claims, and the district court thus lacked subject matter jurisdiction, (2) the court lacked personal jurisdiction over the Lasshofer defendants, and (3) venue was not proper in the District of Colorado. The Tenth Circuit first addressed the standing claim. Defendants argued that the plaintiffs were not proper parties, because the loan agreement listed Azco as the borrower. However, after reviewing the record, the Tenth Circuit was satisfied that plaintiffs possessed proper standing to bring their claims. The defendants argued that the Loan Agreement barred transfer of the right to sue, but the district court held, and the Tenth Circuit agreed, that the Loan Agreement was a tool of defendants’ broader fraudulent enterprise, and therefore its terms were void and unenforceable.

The Tenth Circuit likewise disposed of defendants’ arguments that the court lacked personal jurisdiction over them. Plaintiffs had many connections to Colorado, and although the Loan Agreement specified jurisdiction was proper in the District of New York, the defendants contended they would have disputed New York jurisdiction also. Therefore, the U.S. District Court for the District of Colorado was the proper venue for the claims. The court also concluded that sufficient minimum contacts existed to confer personal jurisdiction over Lasshofer.

Finally, defendants argued several errors in the determination of damages. The Tenth Circuit reviewed the record and found no error in the court’s calculation. After entry of default judgment, the court requested that plaintiffs present evidence regarding their damages. Plaintiffs presented two different damages calculations, based on two different methods of arriving at the damages amount, that were nearly identical in the total amount. The district court chose the actual damages and trebled it. There was no error in its decision.

The Tenth Circuit denied plaintiffs’ motion to dismiss based on the fugitive entitlement doctrine, denied defendants’ motion to file a surreply based on that motion, denied plaintiffs’ motion to require defendants to post a bond, and denied the requests to award fees and costs. The district court’s award of damages was affirmed, except to the extent it applied to one defendant that did not exist at the time of the controversy. The Tenth Circuit ordered the district court to vacate its order of contempt. The case was remanded for further proceedings.

Colorado Court of Appeals: Homestead Exemption Protects Farmland from Levy and May Also Protect Any Water Rights Appurtenant to the Land

The Colorado Court of Appeals issued its opinion in Shigo, LLC v. Hocker on Thursday, February 27, 2014.

Homestead Exemption Statute—Proper Interpretation—Writ of Execution—Exemption of Water Rights—Levying Shares to Satisfy Judgment.

Plaintiffs claimed that Hocker had operated a Ponzi scheme that defrauded them of more than $6 million. Hocker failed to defend the action, and the district court entered a default judgment against her. The parties then stipulated that Hocker would pay plaintiffs damages amounting to $4.4 million, plus interest. Plaintiffs were unable to collect from Hocker.

In an attempt to reach some of Hocker’s assets, they served Hocker with a writ of execution, seeking to levy Hocker’s shares in the Highland Ditch Company (Highland). Hocker owns an undivided 50% interest in two and three-quarter shares of Highland stock. The Highland shares represent Hocker’s right to use water that runs through a mutually owned ditch, a branch of which leads to a pond on the thirty-five-acre farm that Hocker owns with her husband.Hocker protested, and filed a claim under the homestead exemption, asserting that the shares could not be levied.The court denied Hocker’s claim of exemption, and Hocker brought this appeal.

Hocker argued that the district court erred in concluding that the homestead exemption “does not apply to water stock certificates,” and “does not preclude the seizure and levy of the Stock Certificates” at issue in this case. The homestead exemption for a “farm” includes not just the farm’s soil, but also the water rights appurtenant to the land. Shares of stock in a mutual ditch company represent water rights. However, because the record is not clear as to whether the water rights represented by the Highland shares are necessary to the use and enjoyment of the land in question as a farm, the case was remanded to the trial court for further findings on that matter.

Summary and full case available here.