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.