May 20, 2013

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Tenth Circuit: Record Failed to Show Trial Counsel Labored Under Conflict of Interest That Deprived Defendant of Effective Assistance of Counsel

May 13, 2013 by Leave a Comment

The Tenth Circuit published its opinion in United States v. Flood on Thursday, May 9, 2013.

In January 2003, the Securities and Exchange Commission (SEC) filed a civil suit against ClearOne Communications (ClearOne), as well as the company’s CEO, Frances Flood, and CFO, Susie Strohm. The SEC alleged that Ms. Flood and her codefendants had employed a scheme to defraud, falsely filed with the SEC, committed securities fraud, kept false records, and aided and abetted false bookkeeping. The law firm of Snow Christensen & Martineau (SCM) was retained to represent Ms. Flood.  The parties were at all times represented by separate counsel. During the SEC proceedings, Ms. Flood, Ms. Strohm, and ClearOne entered into a Joint Defense Privilege and Confidentiality Agreement (Joint Defense Agreement), which enabled them to share documents, litigation strategies, and other information without waiving attorney-client privilege. Ultimately, Ms. Flood settled with the SEC.

Around the same time, Ms. Flood executed an Employment Separation and Indemnification Agreement (Separation Agreement) with ClearOne. Under the Separation Agreement, Ms. Flood agreed to resign as CEO and surrender her stock options in exchange for $350,000 and ClearOne’s promise to indemnify her “for any liability and all reasonable attorneys’ fees and costs incurred by her in connection with the SEC Action or any Related Proceedings.”

Subsequently, the government brought criminal charges against Ms. Flood and Ms. Strohm. SCM continued to represent Ms. Flood, sending invoices for its attorney’s fees to ClearOne. Initially, ClearOne paid SCM’s invoices as they became due. However, in October 2007, ClearOne requested detailed information pertaining to Ms. Flood’s representation. SCM had learned that ClearOne was sharing materials prepared under the Joint Defense Agreement with the government. Accordingly, SCM refused ClearOne’s request, explaining that it would not “disclose work product and attorney-client information.”

In April 2008, ClearOne ceased paying Ms. Flood’s attorney’s fees. Ms. Flood, represented by SCM, brought suit against ClearOne to compel payment. SCM continued to represent Ms. Flood in the criminal proceedings.

In January 2009, the court granted a preliminary injunction against ClearOne, ordering ClearOne to pay Ms. Flood’s attorney’s fees. ClearOne initially complied, but stopped making payments. SCM filed a motion to compel payment. Shortly before the criminal trial concluded, ClearOne made another payment. The jury found Ms. Flood guilty on all counts.

Ms. Flood then filed her § 2255 motion, arguing that she received ineffective assistance of counsel because her attorneys labored under a conflict of interest. The district court denied her motion. Ms. Flood appealed to the Tenth Circuit, arguing that: 1) conflicts of interest adversely affected her trial counsel’s performance; 2) the district court abused its discretion by denying her motions for an evidentiary hearing, discovery, and judicial notice; and 3) she was denied effective assistance of counsel under Strickland.

The Tenth Circuit granted a Certificate of Appealability limited to issues one and two.

The Sixth Amendment guarantees the “right to representation that is free from conflicts of interest.” Wood v. Georgia, 450 U.S. 261, 271 (1981). To prevail on an ineffective assistance claim the defendant must show that her counsel’s performance was deficient and that prejudice resulted. Strickland v. Washington, 466 U.S. 668, 692 (1984). However, “[p]rejudice is presumed only if the defendant demonstrates that counsel ‘actively represented conflicting interests’ and that ‘an actual conflict of interest adversely affected [her] lawyer’s performance.’” Strickland, 466 U.S. at 692.

After a thorough review of the record, the Tenth Circuit found that Ms. Flood offered no evidence that would suggest SCM served ClearOne’s interests instead of hers. The Court simply could not find a conflict of interest based on the facts.

Further, having carefully reviewed the entire record, including the trial transcript, the Tenth Circuit found no abuse of discretion by the district court in denying an evidentiary hearing. Nor did the Court find any abuse of discretion in the district court’s denial of Ms. Flood’s motions for discovery and judicial notice.

AFFIRMED.

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Tenth Circuit: Judgment Against Individual for Participation in Telemarketing Scheme Affirmed

May 9, 2013 by Leave a Comment

The Tenth Circuit published its opinion in Federal Trade Commission v. Chapman on Tuesday, May 7, 2013.

This consumer protection action was brought by the Federal Trade Commission and four states against several individual and corporate defendants who marketed and sold to consumers grant-related goods and services with false representations that the consumers were guaranteed or likely to receive grants. After the claims against the other defendants were settled or adjudicated, the district court held a bench trial on the remaining claim against Meggie Chapman. Following the trial, the court found that Ms. Chapman violated the Telemarketing Sales Rule by providing substantial assistance to the telemarketing defendants while knowing or consciously avoiding knowing of their deceptive telemarketing practices. The court ordered a permanent injunction and $1,682,950 in monetary damages against Ms. Chapman. The court also denied Ms. Chapman’s post-judgment motion to alter or amend the judgment or, alternatively, for remittitur. Ms. Chapman appealed.

It is undisputed the Kansas defendants violated § 310.3(a)(2) by misrepresenting material aspects of the grant-related goods or services they sold. Thus, the only disputed issues are (a) whether Ms. Chapman provided substantial assistance to the Kansas defendants and (b) whether Ms. Chapman knew or consciously avoided knowing of their misrepresentations.

Regardless of the standard of review, the Tenth Circuit concluded Ms. Chapman played an integral part in the Kansas defendants’ telemarketing scheme. The Court found no error in the district court’s determination that Ms. Chapman provided substantial assistance to the Kansas defendants. Additionally, the Tenth Circuit concluded that district court’s finding that Ms. Chapman knew or consciously avoided knowing of the Kansas defendants’ misrepresentations was supported by the record and was not clearly erroneous.

Ms. Chapman argued in the alternative that the district court erred in denying her post-judgment motion to alter or amend the judgment or for remittitur. She argued that if she knew or consciously avoided knowing of the Kansas defendants’ misrepresentations, this did not occur until some time during the course of their business relationship, and thus the damages award should not have included the entire amount she billed to the Kansas defendants from the start of their relationship.

In denying the post-judgment motion, the district court first noted that a motion to alter or amend judgment under Rule 59(e) may only be granted under certain limited circumstances, such as when there is a need to correct clear error or prevent manifest injustice. Similarly, remittitur is only appropriate if the award is so excessive that it shocks the judicial conscience and raises an irresistible inference that passion, prejudice, corruption, or other improper cause invaded the trial. The Tenth Circuit was not persuaded the district court abused its discretion by denying Ms. Chapman’s postjudgment motion to reduce the amount of damages. Accordingly, under this deferential standard of review, the Court AFFIRMED the district court’s denial of post-judgment relief.

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SB 13-205: Making the Colorado Medicaid False Claims Act Compliant with Federal Law

March 27, 2013 by Leave a Comment

On Wednesday, March 13, 2013, Sen. Mary Hodge  introduced SB 13-205 – Concerning Revisions to the Colorado Medicaid False Claims Act to Comply with Federal Law. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

In order for Colorado to retain a greater percentage of monetary recoveries for fraudulent medicaid claims, the “Colorado Medicaid False Claims Act” (act) must be at least as effective as federal law in rewarding and facilitating qui tam actions for false and fraudulent claims. The bill amends the act to bring the act into compliance with federal law as follows:

  • Removes specific dollar amounts relating to the penalty and instead references federal law to determine the amount of the penalty and any adjustments to the penalty;
  • Corrects statutory language as to whom a claim is presented;
  • Clarifies that the act bars persons other than the state from intervening only in actions brought under this act and not in other actions;
  • Clarifies that the court does not have jurisdiction under this act against members of the general assembly, state judiciary, or an elected executive branch official if the claim is based upon information or evidence known to the state at the time the action is brought;
  • Clarifies that a person bringing the action (relator) cannot bring an action based upon allegations or transactions that are the subject of a civil suit or administrative civil money penalty proceeding in which the state is already a party;
  • Requires the court, with certain exceptions, to dismiss an action that is based upon allegations or transactions publicly disclosed in certain ways, unless the relator is the original source of the information;
  • Clarifies who can bring an action under the act for retaliation relating to employment and provides the time frame within which an action for retaliation must be brought; and
  • Amends the definitions of “obligation” and “original source.”

    • On March 20, the Health & Human Services Committee approved the bill and sent it to the full Senate for consideration on 2nd Reading.

    Since this summary, the bill was laid over daily on Second Reading.

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    Tenth Circuit: Securities Fraud Conviction and Sentence Affirmed; Forfeiture Orders Upheld

    March 22, 2013 by Leave a Comment

    The Tenth Circuit published its opinion in United States v. Gordon on Friday, March 15, 2013.

    Defendant-Appellant George David Gordon is a former securities attorney convicted of multiple criminal charges relating to his alleged participation in a “pump-and-dump” scheme where he, along with others, violated the federal securities laws by artificially inflating the value of various stocks, and then turning around and selling them for a substantial profit. He was sentenced to 188 months in prison and was ordered to pay $6,150,136 in restitution. The government also restrained some of his property before the indictment was handed down and ultimately obtained criminal forfeiture of that property.

    Gordon raised numerous arguments on appeal. He argued that the he was deprived of the Sixth Amendment right to counsel because the government placed restraints on various property, including two of his law firm accounts, so he lacked the funds to pay for counsel of his choice. In deciding against Gordon on this issue, the Tenth Circuit refused to consider trial brief arguments he attempted to incorporate into his appellate brief by reference as that is disapproved. After reviewing his appellate arguments, the court agreed with the trial court that Gordon failed to show he was denied access to funds to pay for his defense in any substantial sense. He paid his defense counsel over $900,000 and “counsel remained fully and actively engaged in the case throughout the entire trial court proceedings.”

    Next, Gordon challenged the sufficiency of the evidence. In connection with misleading promotional material sent or paid for by the conspirators, Gordon contended that under Rule 10b-5 he had no liability because he had no duty to disclose. Once a party elects to disclose material facts, however, the party has a duty to speak truthfully and correct misstatements. The Tenth Circuit found “substantial evidence that many aspects of the information disseminated in the promotional campaigns were false and misleading, and that misleading statements went uncorrected by numerous material omissions.” The court also found sufficient evidence that Gordon prepared or endorsed false opinion letters and that he violated 18 U.S.C. § 1512(c)(2) when he had a friend sign backdated documents to present to the government in an attempt to prevent the forfeiture of his home.

    Gordon complained that the district court erred in permitting the government to insinuate guilt by introducing evidence that infringed upon his Fifth Amendment right to remain silent. At trial, the government offered the testimony of Lindberg to establish that he and Gordon had discussed who should be permitted to testify in the proceedings before the SEC. Two additional witnesses testified that Gordon advised them to take the Fifth Amendment. The testimony was offered to corroborate Lindberg’s testimony that he and Gordon had essentially calculated a cover-up strategy. The Tenth Circuit rejected Gordon’s claim that this tactic tainted the invocation of his own Fifth Amendment right not to testify at trial because it did not refer to his right.

    The court rejected Gordon’s argument that the district court erred by excusing a juror without adequate cause. The juror had informed court staff that her continued presence on the jury could affect the outcome of the case. The district court determined the juror had not contaminated the rest of the jury and dismissed her for potential bias. The court did not address whether the trial court abused its discretion because even if it had, the juror’s dismissal did not cause any prejudice to Gordon.

    The court also rejected Gordon’s claim that the trial court violated the Speedy Trial Act. The trial court properly identified the complex nature of the case and the voluminous records that would take additional time for the parties to organize and analyze when it granted an ends-of-justice continuance. Gordon’s interlocutory appeal and pending trial court motions created additional periods of delay that were excludable from the Act.

    Gordon’s challenges to his sentencing also failed. In fraud cases where loss cannot be accurately calculated, a sentence may be based on gain. The court found no error in the trial court’s calculations, but even if it had, the error would be harmless because of the court’s downward variance from the sentencing guidelines. The court also properly included Gordon’s co-conspirators gains in making sentencing calculations.

    Finally, the district court did not err in making its forfeiture orders. The defendant’s conviction and sentence were affirmed.

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    Split Decision in the U.S. Supreme Court

    March 13, 2013 by Leave a Comment

    BNHoffmanBy Brian Neil Hoffman

    The U.S. Supreme Court recently issued two much-anticipated decisions on securities law matters: One on the statute of limitations applicable in SEC enforcement matters in Gabelli et al. v. Securities and Exchange Commission, No. 11-1274 (Feb. 27, 2013) and another on class certification standards in private securities class actions in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (Feb. 27, 2013). The rulings together present a “you win some, you lose some” outcome for securities law litigants.

    In the Gabelli case, the Supreme Court unanimously ruled that the SEC’s five-year time limit to recover civil penalties (contained in 28 U.S.C. § 2462) begins to run when the alleged fraud occurs, not when it is later discovered. The Court rejected the SEC’s attempt to graft a “discovery rule” onto the statutory limitations period. Unlike private plaintiffs, the Court reasoned, part of the SEC’s very mission is to ferret out potential securities law violations. The SEC has a plethora of tools available to aid in the effort — including examination and subpoena powers, the ability to pay whistleblower incentive awards, and cooperation agreements. As such, the Court found that the agency should not benefit from a presumption allowing further delays.

    The ruling is bound to set the SEC scrambling to assess its current case load and prioritizations. Indeed, we may see a push to bring, or close, more dated cases, and a new urgency in cases approaching the five year mark. Importantly, the decision leaves untouched the SEC’s authority to seek a civil injunction, cease-and-desist order, and disgorgement at any point – even more than five years after the misconduct. Yet the staff may be reluctant to seek these remedies unaccompanied by claims for a civil penalty. Moreover, the Court did not address whether the SEC could rely on equitable tolling (that is, when a defendant takes steps – independent from the fraud itself – to conceal his or her actions) to seek penalties after the five year period. Nor did the Court address whether the ruling applies to other punishments that the SEC could seek: officer-and-director or securities industry collateral bars. Despite these uncertainties, registered entities, public companies, auditors, and other market participants can breathe a small, brief sigh of relief that there is now at least some certainty about how long a potential SEC enforcement action may be afoot.

    The Amgen decision, however, is less defendant-friendly. In this 6-3 ruling, the majority held that private securities class action plaintiffs do not need to prove that the alleged misrepresentations or omissions were material at the class certification stage. Class action plaintiffs seeking class certification frequently rely on the “fraud-on-the-market” presumption to overcome a need to prove reliance by each individual class member. The presumption allows a court to presume that the price of a security in an efficient market reflects all publicly-available material information, which a buyer presumptively relied upon when purchasing the security. Although the efficiency of the market for Amgen’s securities was not in question, Amgen challenged the materiality of the challenged misrepresentations or omissions and, thus, the appropriateness of using the fraud-on-the-market presumption to overcome individual reliance issues. The Supreme Court majority rejected this argument. Rather, it held that materiality is evaluated on an objective standard, and thus raised a question common to all class members.

    The Amgen decision is a disappointment to entities and individuals named as defendants in securities class actions. Rulings on class certification are important mileposts in a private securities lawsuit, often significantly affecting damages and sometimes dictating whether a case even proceeds at all. Yet decreasing plaintiffs’ burden at this stage, as the Amgen decision does, only increases the pressure on defendants to try and resolve or narrow claims at other stages of the case. The Amgen case is not a total loss for defendants, though. Justice Alito’s short concurrence noted that “more recent evidence suggests that the [entire fraud-on-the-market] presumption may rest on a faulty economic premise.” Time will tell the uses to which lower courts and the defense bar put this missive.

    For litigants, the effects of the Supreme Court’s decisions in Gabelli and Amgen are both immediate and concrete. Both decisions, albeit in different contexts, ultimately address whether and how a securities case will proceed. And both decisions significantly affect the remedies that may be awarded in those cases. Yet perhaps most importantly, both decisions — whether viewed favorably or unfavorably — provide some degree of certainty in a previously uncertain area.

    Brian Neil Hoffman is Of Counsel in Morrison & Foerster’s Securities Litigation, Enforcement, and White-Collar Defense Group. He recently served as a Senior Attorney in the SEC’s Division of Enforcement. He now represents entities and individuals in government and self-regulatory organization investigations and proceedings; conducts corporate internal investigations; and defends shareholder class action and derivative lawsuits. He can be contacted at bhoffman@mofo.com and (303) 592-2227.

    The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

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    Tenth Circuit: Jury Instructions Proper and Speedy Trial Act Not Violated in Defendant’s Conviction of Bank Fraud

    March 12, 2013 by Leave a Comment

    The Tenth Circuit published its opinion in United States v. Loughrin on Friday, March 8, 2013.

    Kevin Loughrin was convicted of bank fraud and other charges arising from a check and identity theft scheme.

    He appealed his conviction on two grounds: (1) the district court’s jury instructions on the bank fraud  counts, 18 U.S.C. § 1344(2), were erroneous because they did not contain a requirement that Loughrin intended to defraud a bank; and (2) the delay between his indictment and trial violated his rights under the Speedy Trial Act.

    Jury Instructions

    Loughrin first argued that the district court’s jury instructions on the bank fraud counts, 18 U.S.C. § 1344(2), were erroneous because they did not contain a requirement that Loughrin intended to defraud a bank.

    The case law requires the government to prove: “(1) that the defendant knowingly executed or attempted to execute a scheme (i) to defraud [§ 1344(1)] or (ii) to obtain property by means of false or fraudulent pretenses, representations or promises [§ 1344(2)]; (2) that defendant did so with the intent to defraud; and (3) that the financial institution was then insured by the Federal Deposit Insurance Corporation.” United States v. Rackley, 986 F.2d 1357, 1360–61 (10th Cir. 1993).

    There is no requirement in either Rackley or the text of § 1344(2) that the fraud must be intentionally directed at a bank. Unlike clause (1), clause (2) does not explicitly state who must be the object of the scheme. Rackley indicates that only an intent to defraud someone is required. 986 F.2d at 1360–61. Thus, under Tenth Circuit precedent, an individual can violate § 1344(2) by obtaining money from a bank while intending to defraud someone else. The fact that Loughrin fraudulently obtained funds using bank checks, even though the bank was not at risk of loss, was sufficient to support his conviction for bank fraud.

    The Tenth Circuit concluded the district court did not err in applying the requisite elements for bank fraud under § 1344(2) and that the subsection does not require proof that the defendant intended to defraud a bank.

    Speedy Trial Act

    Loughrin next argued that the district court violated his rights under the Speedy Trial Act (STA).

    The Speedy Trial Act requires that a criminal trial begin no more than seventy days after the filing of an indictment or the defendant’s first appearance in court. 18 U.S.C. § 3161(c)(1). But not every day counts towards the seventy-day limit because of a multitude of statutory exclusions, 18 U.S.C. § 3161(g). If a delay does not fit within an explicit exclusion, the court may still exclude days from the seventy-day tally as long as it makes “findings that the ends of justice served by taking such action outweigh the best interest of the public and the defendant in a speedy trial.” Id. § 3161(h)(7)(A).

    Loughrin made his first appearance in federal court on June 8, 2010. After a series of continuances for various reasons, Loughrin went to trial in April 2011.

    However, after reviewing each continuance in turn, the Tenth Circuit agreed with the district court that Loughrin was tried within seventy days as required by the Speedy Trial Act.

    AFFIRMED.

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    Tenth Circuit: Jury Award to Stewart Title on Claims Based on Fraudulent Concealment of Loan Affirmed

    February 28, 2013 by Leave a Comment

    The Tenth Circuit published its opinion in Stewart Title Guaranty Company v. Dude on Tuesday, February 26, 2013.

    In 2003, Harold Dude secured a $1.9 million loan from Washington Mutual on a house he owned in Aspen. Mr. Dude quickly sought to borrow another $500,000 from Wells Fargo. To satisfy Wells Fargo, Mr. Dude had to complete a form for the bank’s title insurance company, Stewart Title. On that form, he was asked to disclose existing liens and loans on the property, at least those that hadn’t already turned up in Stewart Title’s title search. Mr. Dude concealed the existence of the Washington Mutual loan, and Stewart Title and Wells Fargo proceeded with the second loan.

    Three years later Mr. Dude sold the Aspen property. Stewart Title was contacted to provide the title insurance. Once more Stewart Title’s search failed to reveal the Washington Mutual loan (the loan was defectively recorded). Once more Stewart Title presented Mr. Dude with a form asking about loans and liens on the property. He hide the loan’s existence once more. Relying on the 2003 and 2006 forms Mr. Dude completed, Stewart Title distributed nothing to Washington Mutual and sent $1.9 million to Mr. Dude.

    But the scheme began to unravel.  Mr. Dude stopped making payments on the Washington Mutual loan, and threatened the property’s new owner, Rosalina Yue, with foreclosure; in turn, Ms. Yue made a claim on her title insurance with Stewart Title. Honoring what it perceived to be its contractual obligations, Stewart Title paid Washington Mutual’s loan amount in full, some $1.95 million.

    After discovering Mr. Dude’s actions, Stewart Title brought this diversity lawsuit. A jury found Mr. Dude and his company liable for (among other things) fraudulent misrepresentation under Colorado law, awarding punitive as well as actual
    damages. Mr. Dude appealed.

    On appeal, Mr. Dude argued Stewart Title failed to present sufficient evidence of an essential element at trial. In Colorado, to win a claim for fraudulent concealment, the plaintiff must show its reliance on the defendant’s misrepresentation was justifiable. See, e.g., M.D.C./Wood, Inc. v. Mortimer, 866 P.2d 1380, 1382 (Colo. 1994).  But what constitutes justifiable reliance?

    First at issue was whether there was competent evidence in the record that Stewart Title was unaware of the false representations. And plainly there was. Stewart Title offered testimony explaining that the loan was defectively recorded. Accordingly, Mr. Dude’s first argument failed.

    Second, Mr. Dude argued that Stewart Title “constructively” knew of his fraud because the Washington Mutual loan was publicly recorded. All Stewart Title had to do, he says, was visit the county clerk’s office to find it. The company’s failure to do so rendered its reliance on him unjustifiable.  However, the record showed that Stewart Title did look for recorded loans and liens on the property and failed to find the Washington Mutual loan only because the deed was defectively recorded. Defectively recorded because the Washington Mutual documentation contained no legal description of the property and so wasn’t clearly associated with the property in the clerk’s files. And under Colorado law, “a recorded deed of trust that completely omits a legal description is defectively recorded and cannot provide constructive notice to a subsequent purchaser of another party’s security interest in the property.” Sender v. Cygan (In re Rivera), No. 11SA261, 2012 WL 1994873, at *2 (Colo. June 4, 2012). If that is true when it comes to a purchaser’s obligations under property law, the Tenth Circuit was at a loss how more might be required of a plaintiff seeking recovery in fraud. Therefore, Mr. Dude’s second argument also failed.

    AFFIRMED.

     

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    Tenth Circuit: District Court’s Dismissal of Claims Without Prejudice and Restitution Amount After Real Estate Investor’s Conviction of Fraud Affirmed

    January 28, 2013 by Leave a Comment

    The Tenth Circuit published its opinion in United States v. Smith on Thursday, January 24, 2013.

    Defendant Derrick Smith was a real estate investor who conspired to defraud mortgage lenders by setting up sales to straw buyers at inflated prices, with the excess loan proceeds being distributed to Defendant and others. When the buyers defaulted on the loans, the lenders were unable to recoup the full loan amounts at foreclosure.

    Defendant was indicted and eventually convicted by a jury on one count of conspiracy to commit wire fraud in relation to real estate mortgages. The district court declared a mistrial as to four counts on which the jury could not reach a verdict, later dismissing these counts without prejudice. At sentencing, the district court calculated an advisory sentencing range of 37 to 46 months’ imprisonment. The court then sentenced Defendant to 40 months’ imprisonment and ordered restitution in the amount of $369,455.54.

    Defendant raises three issues on appeal. First, he claims the district court abused its discretion by dismissing the mistried counts without prejudice. Second, he contends the court erred in treating the sale of 7300 N.E. 133rd Street as relevant conduct in its sentencing calculation. Third, he argues the court erred in calculating actual loss based on the difference between the outstanding principal balance and the foreclosure sale price.

    The Tenth Circuit first considered the district court’s dismissal of the mistried counts. After considering the following factors, the Tenth Circuit concluded that the district court did not abuse its discretion in dismissing the four mistried counts without prejudice: the seriousness of the offense; the facts and circumstances of the case which led to the dismissal; and the impact of a reprosecution on the administration of this chapter and on the administration of justice.”  18 U.S.C. § 3162(a)(1).

    The Tenth Circuit turned next to Defendant’s challenges to the district court’s sentencing calculation, starting with his argument that the district court erred in determining the sale of 7300 N.E. 133rd Street should be included as relevant conduct for sentencing purposes. The Court held that the district did not err in considering Defendant’s conduct regarding this residece, as it constituted relevant conduct or a common scheme or plan.

    Finally, the Tenth Circuit turned to Defendant’s argument that the district court erred in calculating actual loss, reviewing the court’s loss calculation methodology de novo and its factual findings for clear error. The Court held the district court did not err in applying the general formula and subtracting the foreclosure sales price from the outstanding balance on the loan,  since this actual loss was the reasonably foreseeable pecuniary harm that resulted from the offense.

    AFFIRMED.

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    Colorado Court of Appeals: Corporation Incorporated in Another State May Be Considered “Citizen” of This State for C.R.C.P. 102 Purposes

    August 22, 2012 by Leave a Comment

    The Colorado Court of Appeals issued its decision in Old Republic National Title Insurance Co. v. Kornegay on August 16, 2012.

    Prejudgment Attachment.

    Roger Kornegay appealed three trial court orders sustaining a prejudgment attachment obtained by Old Republic National Title Insurance Company (Old Republic) in connection with its pending civil action against him. The orders were affirmed.

    Old Republic paid its insured $250,000 following the insured’s purchase of property from Kornegay that Kornegay did not own. Old Republic then sued Kornegay, alleging that its losses were the result of a fraud scheme he had perpetrated. Old Republic also filed an ex parte motion for a prejudgment writ of attachment pursuant to CRCP 102.

    Old Republic’s investigator, Pollock, submitted a supporting affidavit and, on that basis, Old Republic alleged there was “a real threat that [Kornegay] or individuals he is close to will further transfer or hide his assets,” thereby rendering execution unavailable in the event of a judgment against him. The trial court granted the motion and issued the writ without requiring Old Republic to post a bond.

    Old Republic served the writ, along with a writ of continuing garnishment in aid of attachment, on four banks, several Colorado county treasurers, and the clerk and recorder of El Paso County, where Kornegay owned real property. Kornegay, who was incarcerated in Nebraska, was served with copies.

    Through counsel, Kornegay moved to dismiss and discharge the attachment and quash the garnishment. He also filed a traverse, a counterclaim for wrongful attachment, and a notice of a claimed homestead exemption. In three orders entered the same day, the trial court denied Kornegay’s motions and dismissed his counterclaim. Kornegay appealed.

    Kornegay did not challenge the sufficiency of the Pollock affidavit to establish the grounds for attachment under CRCP 102. Rather, he argued that the attachment was wrongful because (1) Old Republic is not a Colorado resident and thus cannot avail itself of the remedy of prejudgment attachment; (2) the procedural requirements of CRCP 102 (d), (h), (i), and (n) were not met; (3) the trial court should not have sustained the attachment without addressing his homestead exemption claim; and (4) the trial court erred in dismissing his counterclaim for wrongful attachment. The Court of Appeals found no grounds for reversal.

    Old Republic is registered to conduct business in Colorado and has three offices in the state, but its principal place of business is in Minnesota. Colorado courts have not addressed whether a foreign corporation authorized to conduct business in Colorado and having offices here may be considered a “resident of this state” for purposes of CRCP 102. The Court looked to cases from other jurisdictions for edification.

    A corporation generally is considered to be domiciled in, and a citizen of, its place of incorporation, but it may for some purposes be considered a resident of more than one state. The Court found that Old Republic is a “resident of this state” for purposes of CRCP 102. It has a presence (three offices) and “no present intention of definite and early removal.” It therefore may avail itself of the remedy of prejudgment attachment.

    As to Kornegay’s arguments regarding the other sections of CRCP 102, the Court held that use of a private process server to serve the writ on a defendant incarcerated in another state complied with the rule and that it wasn’t necessary for the sheriff to serve the writ. As to CRCP 102(h), the tax liens were security interests in real property, and serving writs of garnishment in aid of attachment on the treasurers of the counties where the property was located satisfied the requirements of the rule.

    The failure to post a bond was not error because Old Republic offered to post a bond in a nominal amount if required to do so, and the trial court waived bond. Kornegay argued this was not waivable; Old Republic replied that the court effectively set the bond at zero. The Court found this an appropriate exercise of the court’s discretion, given the resources of Old Republic to satisfy any damages or costs Kornegay might incur if the attachment was wrongful.

    Kornegay argued that CRCP 102(n) was not complied with because no hearing was held on his traverse. The Court found that Kornegay did not file an effective traverse, so no hearing was required. The traverse was ineffective because it was not supported by an affidavit.

    The Court also found that Kornegay’s claimed homestead exemption was properly rejected because neither Kornegay nor his wife resided at the subject property. Accordingly, the orders were affirmed.

    Summary and full case available here.

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    Colorado Court of Appeals: Fraudulent Misrepresentation and Concealment Claims Barred by Economic Loss Rule

    August 6, 2012 by Leave a Comment

    The Colorado Court of Appeals issued its opinion in Former TCHR, LLC v. First Hand Mgmt LLC on August 2, 2012.

    Fraudulent Concealment—Misrepresentation—Conversion—Economic Loss Rule—CRCP 41(b)(1).

    Plaintiff Former TCHR, LLC appealed the trial court’s judgment rejecting its fraudulent concealment and misrepresentation claims against defendants Richard Oneslager, Jr. and Daniel P. Genovese, and the court’s midtrial dismissal of Former TCHR’s conversion claim against defendant Balmar Management Group LLC. Former TCHR also appealed the district court’s grant of attorney fees to Oneslager, Genovese, and Balmar. The judgment was affirmed in part and reversed in part, and the appeal was dismissed in part.

    Through a predecessor in interest, Former TCHR, whose sole member was attorney and sophisticated real estate investor Samuel Brown, signed a Real Estate Sale Agreement with Town Center Investors, LLC (TCI) to purchase a shopping center from TCI. TCI was owned by Oneslager, and Genovese was the shopping center’s property manager. Former TCHR alleged that after the Sale Agreement was signed but before closing, Oneslager and Genovese had (1) fraudulently misrepresented the shopping center’s revenues, and (2) fraudulently concealed facts concerning Willary’s financial strength, including its substantial outstanding debt to Balmar. Former TCHR further alleged that Balmar had converted the Willary inventory.

    Former TCHR contended that the trial court erred on numerous grounds in entering judgment for Oneslager and Genovese on the fraudulent misrepresentation and concealment claims. These claims, however, were barred by the economic loss rule, because Former TCHR failed to demonstrate that Oneslager and Genovese had violated any tort duty independent of defendants’ contractual duties. Therefore, Former TCHR’s arguments failed.

    Former TCHR also contended that the trial court erred in dismissing its conversion claim against Balmar, pursuant to CRCP 41(b)(1). A secured party may bring a claim for conversion against a party who wrongfully obtained and sold property in which the secured party has a security interest, if the secured party’s interest has priority over the seller’s interest. Here, Former TCHR produced sufficient evidence to show that it had a valid unperfected security interest in the Willary inventory, that its interest in that inventory had priority over any interest that Balmar might have had, and that Balmar took and then sold the inventory to First Hand with knowledge of Former TCHR’s security interest. Therefore, the trial court erred in dismissing Former TCHR’s claim for conversion pursuant to CRCP 41(b)(1). The dismissal order was reversed and the case was remanded for a new trial on the conversion claim.

    Former TCHR further argued that the trial court erred in awarding attorney fees to Oneslager, Genovese, and Balmar. Because that award had not yet been reduced to a sum certain, the Court of Appeals held it did not have jurisdiction to determine that claim and that portion of the appeal was dismissed without prejudice.

    Summary and full case available here.

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    Colorado Court of Appeals: Marriage Invalid; Wife’s Fraud Precludes Award of Any Property Attributable to Husband’s Contributions or Award of Maintenance

    August 6, 2012 by Leave a Comment

    The Colorado Court of Appeals issued its opinion in In re the Marriage of Joel and Roohi on August 2, 2012.

    Invalidity of Marriage—Fraud—Property—Maintenance.

    Wife appealed the judgment declaring her marriage to husband invalid. She also appealed, and husband cross-appealed, the court’s permanent orders regarding marital property and maintenance. The judgment of invalidity was affirmed and the permanent orders were affirmed in part, reversed in part, and vacated in part.

    Following an invalidity hearing, the court found that the evidence established that wife entered into the marriage to obtain legal residency in the United States and be closer to her sister, and not, as she had claimed, because she loved her husband. The court declared the marriage invalid and entered permanent orders.

    On appeal, wife contended that the district court erred by declaring the marriage invalid. There was sufficient evidence in the record to support the court’s finding that wife’s fraudulent misrepresentations to husband went to the essence of the marriage. Therefore, the court did not abuse its discretion in declaring the marriage invalid.

    Wife also contended that the district court erred when it divided the marital property as of the date of the decree of invalidity and not as of the date of the later permanent orders. In his cross-appeal, husband contended that the court erred by awarding wife part of the increase in the value of his retirement account (to which he was the sole contributor), part of the value of a vehicle (which he claimed to have purchased with his own funds), and maintenance. The relevant provisions of the Uniform Dissolution of Marriage Act (UDMA) dictate that wife’s fraud precludes an award of any property attributable to husband’s contributions or an award of maintenance. The most the court may award to the party who engaged in fraud is the proportion of property or increase in value attributable to the financial contribution of that party. In this case, husband was the sole contributor to his 401(k) account, and any increase in value should be awarded entirely to him. There was conflicting testimony regarding the vehicle purchased by husband, so the order regarding this asset was reversed and the case was remanded for further proceedings as to that asset. Finally, wife is not entitled to an award of maintenance as the perpetrator of a fraud, so that order was reversed.

    Summary and full case available here.

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    Consumer Fraud Alert: Fraudulent Medicare Callers Are Robbing Bank Accounts

    June 15, 2012 by 2 Comments

    According to the Denver DA, there has been a rash of phone calls from solicitors claiming to be from the “Senior Medicare Card Office” who are manipulating Medicare beneficiaries into revealing their bank account numbers. Once they have obtained this information, the solicitor then goes on to steal money from the beneficiary’s bank account.

    The caller initially explains that the beneficiary will be receiving updated Medicare cards within the “next three to five days,” but first, the beneficiary must verify personal information over the phone, such as name, address, and other information. As a lure to get the banking account number, the caller then reads the root number of the person’s bank (the first series of numbers on a check), then asks the beneficiary to complete the sequence by providing the numbers of their actual banking account. The caller’s tone is particularly authoritative, and if the beneficiary does not readily comply, an alleged “supervisor” is put on the line to exert additional pressure.

    Remember that Medicare will never, ever call on the phone or knock at a door. New Medicare cards will only be issued when a beneficiary initiates the request for a lost or stolen card. And, aside from setting up a direct deposit account to receive a Medicare check, Medicare does not need personal bank account numbers. This is only true if the bank account in which the Medicare check is to be deposited has changed, but the change must be initiated by the beneficiary.

     Other tips:

    • Never give out personal or financial information, regardless of who calls.  If in doubt, call the number of a legitimate business using information obtained from a legitimate source – In this case: 1-800-MEDICARE (1-800-633-4223)
    • If you have caller ID, write down the number.
    • Be assertive and hang up the phone! It’s shrewd to be rude.
    • Contact the Senior Medicare Patrol investigators at 1-800-503-5190.  Be sure to document the event.

    Denver DA’s Fraud Line: 720-913-9179

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