November 27, 2014

Frederick Skillern: Real Estate Case Law — Brokers

Editor’s note: This is the first in a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners. These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick Skillern

CapitalValue Advisors, LLC v. K2D, Inc.
Colorado Court of Appeals, August 15, 2013
2013 COA 125

K2D was a business that required new capital, and it contracted with CapitalValue Advisors for a number of different tasks. CapitalValue entered into an engagement agreement whereby it agreed to either help sell K2D (either a majority or minority interest) or to assist K2D in obtaining debt financing. The rub is that CapitalValue does not have a real estate broker license or a securities license. That is required in order to market the sale of K2D as an entity, as one asset of the company was a leasehold interest in property, or to market its stock under state and federal securities laws.

During the course of its engagement, K2D terminated Capital Value and engaged another company for help. That company obtained a bank loan for K2D — an action which, of itself, does not require a specific license. Since the loan was obtained during the carryover period under the CapitalValue engagement agreement, CapitalValue sued for a 4.5% commission under the terms of its agreement.

The engagement agreement provided:

In executing this Agreement, [CapitalValue] is committing its resources to provide you the best possible representation in the sale of your business, and in turn, you are granting [CapitalValue] the sole, exclusive, and irrevocable right to procure parties (“Buyer(s)”) to purchase, exchange, lease, invest in, loan to, contract for the services of, or otherwise obtain an interest in the Client’s business, its corporate stock, business assets, right and properties or any portion thereof of Client or Client’s affiliates.

(Emphasis added.)

In addition, the Agreement set forth that CapitalValue would earn 4.5% of the total amount secured for “debt financing.”

The district court dismissed all claims on summary judgment, holding that the entire engagement agreement was an illegal contract. CapitalValue does not contest that it lacked either license, and does not appeal the trial court’s finding that two parts of the contract are void under these theories. However, it argues that other contractual obligations in the agreement are lawful, and that those provisions are severable from the “void” agreements, even in the absence of an express contract provision allowing the obligations to be severed. The district court dismissed the complaint on summary judgment, finding that the agreement had no severability clause, so the entire contract was unenforceable.

The court of appeals reverses the summary judgment order, finding that the lack of a severability clause is not determinative as to whether portions of the contract can be enforced.

Where a contract contains multiple provisions, some of which cannot be legally performed, the remaining provisions are not necessarily unenforceable. Rather, “[w]here an agreement founded on a legal consideration contains several promises, or a promise to do several things, and a part only of the things to be done are illegal, the promises which can be separated, or the promise, so far as it can be separated, from the illegality, may be valid.” Reilly v. Korholz, 320 P.2d 756, 760 (Colo. 1958).

The court distinguishes Broughall v. Black Forest Development Co., 196 Colo. 503, 593 P.2d 314 (1978), the leading case on the requirement for a real estate license to sell a business owning real property. That case involved a single agreement — to find a buyer to purchase a business, including its real estate interest. The broker there argued that, although he was not a licensed real estate broker, his commission could be “based on that part of the sale price which did not involve real estate.” The court there ruled that “severing” the contract by simply discounting Broughall’s fee “would allow finders and business brokers to disregard completely the licensing requirement to the detriment of the public whom the statute is designed to protect.”

In contrast, the court here finds that the CapitalValue agreement contains multiple agreements, each of which could be a separate contract. The Agreement provides that CapitalValue would earn (1) 4.5% for a sale of less than a majority interest in K2D, Inc.; (2) 4.0% for a sale of more than a majority interest in K2D, Inc.; or (3) 4.5% for helping K2D obtain debt financing. CapitalValue does not appeal the district court’s rulings that the first and second provisions violate federal and state securities licensing requirements. However, because the Agreement also contains a third provision for payment for securing debt financing that the parties do not contend violates either set of licensing laws, the district court erred in concluding as a matter of law that the Agreement could not be severed. The case is remanded for further proceedings to determine an issue of fact — whether the parties intended the provisions of the contract to be severable.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Colorado Court of Appeals: Adverse Possession Requires Good Faith Belief of Ownership of Property for 18 Years or More

The Colorado Court of Appeals issued its opinion in People v. Gutierrez-Vite on Thursday, November 20, 2014.

Adverse Possession—Defense—Theft—Offering a False Instrument for Recording—Jury Instructions—Testimony.

This case stems from defendant’s alleged attempt to adversely possess a home in Fraser, Colorado. At all relevant times, the home was privately owned by another party, but was unoccupied and in foreclosure. Defendant filed an Affidavit of Adverse Possession with the Grand County Clerk and Recorder’s Office even though she did not own or have permission to be in the home. A jury found defendant guilty of attempted theft and two counts of offering a false instrument for recording.

On appeal, defendant contended that the trial court erred because it denied her request to present a defense based on the adverse possession statute and an affirmative defense of mistake of law based on the adverse possession statute. Under the adverse possession statute, in actions filed on or after July 1, 2008, the party claiming the title must prove, by clear and convincing evidence, that his or her possession was actual, adverse, hostile, under a claim of right, exclusive, and uninterrupted for at least eighteen years. The statute also requires that an adverse claimant establish a good-faith belief that he or she was the property’s actual owner.

Because defendant admitted that she knew the property was owned by someone else and she only possessed the property for five months, she did not meet the requirements to claim adverse possession. Because her adverse possession claim to the property fails, the adverse possession statute could not relieve her of criminal liability. Further, defendant’s mistaken belief regarding adverse possession law does not relieve her of criminal liability. Therefore, the trial court did not err in denying her request to present a defense based on adverse possession and excluding this defense from the jury instructions.

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

Colorado Court of Appeals: Adverse Possession Not Affirmative Defense for Theft and Trespass

The Colorado Court of Appeals issued its opinion in People v. Bruno on Thursday, November 20, 2014.

Adverse Possession—Defense—Theft—Trespassing—Offering a False Instrument for Recording—Jury Instructions—Testimony.

This case stems from Bruno’s alleged attempt to adversely possess a home in Fraser, Colorado. At all relevant times, the home was privately owned by another party, but was unoccupied and in foreclosure. Bruno filed an Affidavit of Adverse Possession with the Grand County Clerk and Recorder’s Office, even though he did not own or have permission to be in the home. A jury found Bruno guilty of theft, trespassing, and two counts of offering a false instrument for recording.

On appeal, Bruno contended that the district court erred in preventing him from raising the defense of adverse possession to the counts of theft and offering a false instrument. Bruno admitted that he knew the property belonged to someone else and he was attempting to begin a claim of adverse possession. Because the General Assembly did not provide and did not intend to create an adverse possession defense in the circumstances presented here, there is no defense of adverse possession to the crimes charged. Further, Bruno’s mistaken belief regarding adverse possession law does not relieve him of criminal liability. The judgment was affirmed.

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

Various JDF Forms Amended in October and November

The Colorado State Judicial Branch continued amending JDF forms in October and November 2014, with updated forms released in the criminal, domestic relations, FED, probate, and miscellaneous categories. Forms are available for download here in PDF format, and are available in Word or PDF from the State Judicial forms page.

CRIMINAL

  • JDF 219 – “Juvenile Delinquency – Application for a Public Defender” (issued 11/14)

DOMESTIC RELATIONS

  • JDF 211 – “Request to Reduce Payment for ODR Services and Supporting Affidavit” (revised 10/14)

FORCIBLE ENTRY & DETAINER (FED)

  • JDF 100 – “Instructions for Forcible Entry and Detainer (FED)/Eviction” (revised 11/14)
  • JDF 140 – “Instructions for Forcible Entry and Detainer (FED)/Eviction for Owner Occupied Mobile Home” (revised 11/14)

MISCELLANEOUS

  • JDF 450 - “Order re: Appointment of Counsel at State Expense Other Than the Public Defender in a Criminal or Juvenile Delinquency Proceeding” (revised 11/14)

PROBATE

  • JDF 906 – “Instructions for Probate With a Will” (revised 10/14)
  • JDF 907 – “Instructions for Probate Without a Will” (revised 10/14)

For all of State Judicial’s JDF forms, click here.

Tenth Circuit: When Both Parties to Contract Agree to Its Terms, Third Party Has No Standing to Object

The Tenth Circuit Court of Appeals issued its opinion in Security Service Federal Credit Union v. First American Mortgage Funding, LLC on Tuesday, November 4, 2014.

Security Service Federal Credit Union’s predecessor in interest, New Horizons Community Credit Union, entered into a funding service agreement with First American Mortgage Funding, LLC (FAM) and First American Mortgage, Inc. (together, FAM defendants), under which FAM originated 26 mortgage loans to individual borrowers for the purchase and construction of residential properties in Colorado and California. The closing agents performed closing procedures. Security Service (SSFCU) contended that the FAM defendants and closing agents wrongfully induced New Horizons to fund the loans to straw borrowers, and that the loan transactions were a vehicle to misappropriate $14 million in funds. SSFCU brought claims in district court, but FAM objected, contending that SSFCU was not a proper party in interest to pursue the claims. The district court found for FAM and dismissed SSFCU’s claims with prejudice.

The Tenth Circuit found this case easy to resolve, following 6th Circuit precedent in JP Morgan Chase Bank, N.A. v. First Am. Title Ins. Co., 750 F.3d 573 (6th Cir. 2014). When both parties to a contract agree to its terms, a third party cannot object. Here, both New Horizons and SSFCU entered into a Purchase and Assumption Agreement, where SSFCU had all rights to pursue claims on behalf of New Horizons. FAM, as a third party, had no right to object to SSFCU’s standing. The district court’s dismissal was reversed.

Colorado Court of Appeals: Failure to Exhaust Administrative Remedies Deprived Trial Court of Jurisdiction

The Colorado Court of Appeals issued its opinion in Liberty Bankers Life Insurance Co. v. First Citizens Bank & Trust Co. on Thursday, November 6, 2014.

Subject Matter Jurisdiction—Financial Institutions Reform, Recovery and Enforcement Act—Receiver—Proof of Claim—Doctrine of Administrative Exhaustion—Attorney Fees.

The underlying claims in this case relate to appellant’s (Liberty) participation in two loans with Colorado Capital Bank (CCB) for the purpose of funding the development of a townhome project. CCB was closed by the Colorado Division of Banking on July 8, 2011, and the Federal Deposit Insurance Corporation (FDIC) was named its receiver (FDIC-R). On the same day, First Citizens Bank & Trust Co. (FCBT) purchased the assets and assumed the liabilities of CCB in a purchase and assumption agreement. The FDIC later denied Liberty’s proof of claim, and Liberty thereafter filed suit against FCBT and the FDIC-R in federal court. In the state court proceedings, Liberty filed twelve counterclaims against FCBT, which were dismissed by the court.

On appeal, Liberty argued that the district court incorrectly dismissed its counts 1 through 3 for lack of subject matter jurisdiction. However, Liberty did not properly plead the claims found in its counterclaims in its original proof of claim. Therefore, the district court correctly dismissed those claims for lack of subject matter jurisdiction.

Liberty further argued that the doctrine of administrative exhaustion did not apply in this case. Liberty’s futility argument was based on (1) the transfer of assets and liabilities to FCBT and (2) the FDIC-R’s motion to dismiss in the federal litigation. The jurisdictional bar extends to successors in interest of the failed bank. Further, by failing to properly plead its claims in the proof of claim, Liberty had already failed to exhaust the process provided to it. FDIC-R’s actions in filing a motion to dismiss, therefore, had no bearing on futility. Accordingly, Liberty’s pursuit of relief is not futile “beyond a reasonable doubt,” and does not excuse its failure to exhaust its claims. The district court correctly dismissed those claims for lack of subject matter jurisdiction.

FCBT claimed that it was entitled to reasonable attorney fees incurred on appeal under CRS § 13-17-201. Although Liberty’s counterclaims facially alleged a tort claim of gross negligence and willful misconduct, the overall action was more accurately characterized as a contract action, because all of the counterclaims were based on acts or omissions relating to the alleged breach of the two participation agreements. The essence of Liberty’s action did not sound in tort, so FCBT was not entitled to attorney fees incurred on appeal under CRS § 13-17-201.

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

Tenth Circuit: The Government Has the Right to Regulate Its Own Property

The Tenth Circuit Court of Appeals issued its opinion in United States v. Jones on Friday, October 3, 2014.

Stanley Jones is a cattle rancher in Wyoming. His brother owns base properties close to two BLM public lands — the Sandstone and Cannady allotments. Mr. Jones frequently allows his cattle to graze on the BLM lands, despite lacking a permit to do so lawfully. After numerous administrative trespass notices and fines, the BLM brought criminal charges against Jones through the U.S. Attorney’s Office in Wyoming for one count of unlawful use of public lands and two counts of allowing his livestock to graze on public lands without authorization. Mr. Jones pled not guilty to all charges and requested a jury trial. At trial, Mr. Jones was convicted on all counts and sentenced to two years probation on each count, to be served concurrently, a $3,000 fine, a $75 special assessment fee, all contingent on his compliance with certain terms and conditions. Pro se, Mr. Jones appealed his convictions.

Mr. Jones implored the Tenth Circuit to consider the true and honest facts, which the Tenth Circuit considered a sufficiency of the evidence challenge. The Tenth Circuit considered the evidence against Mr. Jones, including that he has never been a permittee for grazing on public lands, he was told numerous times that he was not allowed to graze his cattle on the lands, he was told to remove his property from public lands, and he was fined for failure to remove his property and cattle from the public lands. The Tenth Circuit found overwhelming evidence to support Mr. Jones’ convictions.

The Tenth Circuit next addressed Mr. Jones’ contention that the trial court should have allowed his proposed testimony that the government should comply with Wyoming’s fence-out laws. However, this testimony was not related to the issues at hand, and it would have confused the jury. The government has the right to regulate its own property. The trial court’s exclusion of the fence-out evidence was proper.

The Tenth Circuit affirmed Mr. Jones’ convictions.

 

Colorado Court of Appeals: Department of Revenue’s Challenge to Conservation Easement Tax Credits Barred by Statute of Limitations

The Colorado Court of Appeals issued its opinion in Markus v. Brohl, Exec. Dir. of Colorado Department of Revenue on Thursday, October 23, 2014.

Conservation Easement Tax Credits—Review Period by Department of Revenue—Summary Judgment.

In 2004, three pairs of landowners created conservation easements (CEs) on their lands, had them appraised, and sold them to the Otero County Land Trust for a portion of their appraised value. They applied part of the CE tax credits to their 2004 income tax liability. The landowners (CE donors) carried forward the remainder of the CE credits, some for personal use and some for the use of third parties.

On September 28, 2009, the Colorado Department of Revenue (Department) disallowed the entire CE tax credit of one pair of landowners because of a purported deficiency in the appraisal. For the same reason, in April 2010, the Department disallowed the claims of CE tax credits of the each of the second pair of landowners. The disallowances, under a four-year limitations period, affected only the donors’ use of claimed CE credits in the 2005–08 tax years.

On cross-motions for summary judgment, the CE donors argued that the four-year limitations period had expired before the Department acted to disallow their tax credits. The Department argued that the limitations period commenced each time a CE donor or transferee applied a CE tax credit to his or her tax liability and that it could evaluate the original claims for purposes of disallowing the use of credits for the 2005–08 tax years. The district court entered summary judgment in favor of the CE donors.

On appeal, the Department argued that the district court erred in its limitations determination, and that there was a genuine issue of material fact precluding summary judgment as to whether the CE donors had filed false or fraudulent tax returns. The Court of Appeals found that the applicable general statute of limitations was four years, and the time period commenced at the filing of a tax return. Under this system, the Court was inclined to side with the Department.

However, CRS § 39-22-522 specifically addresses the tax consequences of a CE. Under that statute, claimed CE tax credits may be transferred to third parties, who are then bound by “the same statute of limitations” as the CE donor. The Court supported an interpretation where a purchaser–transferee would have a low risk of disallowance of the CE credits by the Department. Here, because the Department did not challenge the validity and value of the CE tax credits prior to April 15, 2009, it was barred from disallowing them.

The Department also argued that there was a genuine issue of material fact as to whether the CE donors filed false or fraudulent tax returns that precluded summary judgment. After reviewing the record, the Court found no genuine dispute of any material fact. The judgment was affirmed.

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

Colorado Court of Appeals: Statutory Employer Has Standing to Contest Lapse in Insurance Coverage

The Colorado Court of Appeals issued its opinion in Hoff v. Industrial Claim Appeals Office on Thursday, October 9, 2014.

Workers’ Compensation—Standing—Notice of Cancellation Provision—Estoppel.

Hoff owns a house that she uses as a rental property. After the house sustained hail damage to the roof, Hoff and her husband engaged Alliance Construction (Alliance) to negotiate with their insurance company to resolve their damage claim. A successful resolution was reached, and Hoff contracted with Alliance to repair the roof. Without Hoff’s knowledge, Alliance verbally subcontracted the roofing job to MDR Roofing, Inc. (MDR). Claimant was employed by MDR as a roofer.

While working on the roof in March 2011, claimant fell twenty-five feet to the ground and sustained serious injuries. Claimant sought medical and temporary total disability (TTD) benefits for his work-related injuries. Pinnacol, MDR’s insurer, denied the claim because MDR’s policy had lapsed for failure to pay premiums. Neither Alliance nor Hoff carried workers’ compensation insurance.

In October 2010, before starting the roofing job, Alliance obtained a certificate of insurance (certificate) from Pinnacol’s agent, Bradley Insurance Agency (Bradley), that verified that MDR had workers’ compensation insurance through Pinnacol.

On February 10, 2011, Pinnacol sent a certified letter to MDR advising the policy would be cancelled if payment of a past due premium was not received. The policy was canceled effective March 3, 2011 and letters to that effect were sent to MDR and Bradley.

Claimant was injured on March 10, 2011. On March 11, MDR’s owner went to Bradley’s office seeking to reinstate the policy. He was informed it could be reinstated if he paid the past due premium, paid a reinstatement fee, and signed a no-loss letter. The owner knew claimant had been injured, but he submitted the no-loss letter and did not inform Bradley of the accident.

Pinnacol reinstated the policy on March 11. MDR’s owner returned to Bradley’s office to report claimant’s injuries. Pinnacol contested the claim and cancelled the policy.

The administrative law judge (ALJ) determined that the owner’s failure to disclose claimant’s injuries when he signed the no-loss letter was a material misrepresentation, thus voiding the policy. The ALJ held MDR, Alliance, and Hoff jointly liable for claimant’s medical and TTD benefits. The Industrial Claim Appeals Office (Panel) agreed and affirmed.

Hoff appealed, arguing that Pinnacol was stopped from denying benefits to claimant. Pinnacol argued Hoff had no standing to challenge the cancellation of MDR’s policy.

The Court of Appeals held that Hoff had standing and agreed in part with her argument. Standing is established by Hoff demonstrating (1) she has sustained an injury in fact, and (2) the injury is to a legally protected interest. The first prong was clearly met. The liability imposed on Hoff by the ALJ and the Panel exceeded $300,000. The second prong was met because Hoff argued she was a beneficiary of specific promises that there was a workers’ compensation policy issued to MDR that was in force on the dates stated in the certificate. Her claim is independent of the Pinnacol policy and the Workers’ Compensation Act; it is one for promissory estoppel.

The Court found there were factual findings that need to be addressed by the ALJ regarding the estoppel argument. The case was remanded for a hearing, specifically to determine whether (1) Alliance or Hoff relied on the promises contained in the certificate, and (2) whether circumstances exist such that injustice can be avoided only by enforcement of the promises contained in the certificate.

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

Colorado Court of Appeals: Although Unusual, Forced Sale Appropriate Remedy to Continuing Trespass

The Colorado Court of Appeals issued its opinion in Graham v. Jules Investment, Inc. on Thursday, October 9, 2014.

Forced Sale in Encroachment Case.

Serenity Springs Wildlife Center is a ten-acre wildlife refuge in El Paso County that houses approximately 140 tigers, lions, and other exotic, threatened, or endangered animals. The refuge was once part of a 320-acre parcel of land. In 1997, a perimeter fence was erected enclosing the refuge and a deed was recorded severing it from the original parcel. In 1998, another deed severed a 36.5-acre parcel directly south from the refuge. A home was built on the severed parcel approximately 1,000 feet from the refuge.

Beginning in 2000, the property went through cycles of foreclosure and reacquisition. It was eventually sold to plaintiffs in 2010. In 2012, plaintiffs hired a surveyor, who told them that 1.7 acres (surrounded by a fence) was on plaintiffs’ parcel. The fence enclosed pens and lion and tiger dens. The footings were 16″-wide concrete slabs buried 2′ to 4′ in the ground and about nineteen lions and tigers lived on the 1.7 acres.

Plaintiffs sued defendants for trespass. The trial court held that the structures alone were not a trespass, but that the use and presence of the structures “deprive[d] . . . plaintiffs of the use of” 1.7 acres of their 36.5-acre parcel and “facilitated a regular, if not continuing trespass” of the refuge’s staff. The court held a hearing on the appropriate remedy. Defendants asked the court to allow them to purchase the 1.7 acres from plaintiffs, because removing the structures and rebuilding them would create a severe hardship. Plaintiffs asked for everything to be removed and the property restored to its “natural state.” The trial court held that under the “unique and unusual facts” of this case, it would order a forced sale of the 1.7 acres to defendants. It ordered conveyance in exchange for $5,870, which was the value of the 1.7 acres according to plaintiffs. The court also ordered payment of $1,737, which was the amount of the application fee for obtaining a waiver from the 35-acre requirement from El Paso County.

On appeal, plaintiffs argued it was error not to find that the structures themselves were a trespass and encroachment. The Court of Appeals did not decide this issue because the trial court had already determined there had been a trespass and had crafted a remedy. Regarding the remedy, the Court found that, though extraordinary, it is not unheard of to order a forced sale when the hardships weigh heavily on the defendant’s side. Therefore, it was not an abuse of discretion to order a sale under these unique circumstances. The judgment was affirmed.

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

Colorado Court of Appeals: Treasurer Did Not Undertake Diligent Inquiry as to Actual Residence for Notice

The Colorado Court of Appeals issued its opinion in Cordell v. Klingsheim on Thursday, October 9, 2014.

Tax Lien—Deed—Treasurer—Diligent Inquiry—Notice—Jurisdictional.

Plaintiffs Carl and Wanda Cordell were record owners of a tract of land in La Plata County (Tract 1). Carl Cordell was also the record owner of an adjoining tract (Tract 2). The Cordells failed to pay the taxes owed on the properties, and Brenda Heller purchased the tax liens on the properties. Heller assigned the tax liens to Klingsheim, who later requested and received deeds from the La Plata County Treasurer to the two properties after the Treasurer sent notice to the Cordells. Upon learning of the Treasurer’s deeds, the Cordells filed the present action seeking, as relevant here, a declaratory judgment that the Treasurer’s deeds are void, which the trial court granted.

On appeal, Klingsheim contended that the trial court erred in concluding that the Treasurer had failed to undertake diligent inquiry in attempting to determine Carl’s and Wanda’s residences. The Treasurer sent the notices, by certified mail, to 705 N. Vine, Farmington, New Mexico, which was the address listed for them in the county tax rolls. The return receipts from the mailings, however, indicated that the notices were not delivered to plaintiffs, nor were they delivered to 705 N. Vine. Rather, the receipts indicated that the notices were delivered to Cleo Cordell at 703 N. Vine, and the box for “agent” on the return receipts had not been checked. Despite this discrepancy, the Treasurer conducted no further inquiry to determine whether 705 N. Vine was indeed plaintiffs’ residence.

Such inaction after learning that the notices were not delivered either to plaintiffs or to a person claiming to be their agent does not constitute “diligent inquiry” in attempting to determine their residences. Because a treasurer’s “full compliance” with the requirements of CRS §39-11-128 is jurisdictional, the trial court properly set aside the deeds as void.

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

Colorado Court of Appeals: Dismissal Prior to Completion of Bankruptcy Case Re-Vests Claims in Debtors

The Colorado Court of Appeals issued its opinion in Mackall v. JPMorgan Chase Bank, N.A. on Thursday, September 11, 2014.

Bankruptcy—Dismissal—Standing—Issue Preclusion—Failure to State a Claim.

Plaintiffs purchased a home and subsequently refinanced it. After the court issued a written order authorizing JPMorgan Chase Bank (Chase), the assigned lender, to sell the house, plaintiffs filed a Chapter 13 petition for bankruptcy. The bankruptcy court dismissed the bankruptcy proceeding before confirmation of a plan or discharge. Plaintiffs thereafter filed a civil complaint against Chase, alleging that Chase’s note was fraudulent and that Chase was not the proper party to enforce it. The district court granted Chase’s motion to dismiss some of plaintiffs’ claims.

On appeal, Chase contended that plaintiffs lacked standing to assert any claims against it because (1) all of the claims were actionable when plaintiffs filed for bankruptcy, and (2) plaintiffs failed to disclose the claims to the bankruptcy court. When a bankruptcy case is dismissed, the debtor is granted standing to assert any claim that it possessed before it filed for bankruptcy, regardless of whether it disclosed the claim to the bankruptcy court during the bankruptcy proceedings. Here, the dismissal of the bankruptcy petition re-vested the claims in plaintiffs, and they had standing to bring those claims against Chase after the dismissal.

Plaintiffs argued that the district court erred in dismissing some of their claims based on issue preclusion. The district court held that both the CRCP 120 order authorizing sale and the bankruptcy court order allowing Chase’s proof of claim precluded some of plaintiffs’ claims. Because the bankruptcy court ruling had preclusive effect on these issues, plaintiffs were barred from re-litigating the issues that were dismissed based on issue preclusion.

Plaintiffs also argued that the district court erred by dismissing several of their claims for failure to state a claim. Because the complaint failed to allege that Chase filed the CRCP 120 actions for any purpose other than to obtain an order authorizing sale, the district court properly dismissed plaintiffs’ abuse of process claim. Plaintiffs’ complaint failed to allege that their property was on the market for sale and, therefore, the district court properly dismissed plaintiffs’ slander of title claim. Additionally, plaintiffs claims for breach of contract, implied covenant of good faith and fair dealing, and promissory estoppel were properly dismissed because the statute of frauds barred any unwritten modification of the loan agreement. Finally, because Chase had the right to seek enforcement of the promissory note against plaintiffs, plaintiffs’ claim for intentional infliction of emotional distress failed. The judgment was affirmed.

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