May 24, 2019

Colorado Court of Appeals: Reserve Asset Not Unreasonable at Time of Transfer to Warrant Broker’s Garnishment

The Colorado Court of Appeals issued its opinion in CB Richard Ellis, Inc. v. CLGP, LLC on July 22, 2010.

Garnishment—Distribution—Constructively Fraudulent Transfer.

In this garnishment action, judgment creditor and garnishor, CB Richard Ellis, Inc., a real estate brokerage company (broker), appealed the trial court’s order denying its traverse of answers to garnishment filed by the garnishees, who are the only owners of the judgment debtor, CLGP, LLC (LLC). The order was affirmed.

The LLC is a limited liability company that was formed in Colorado for the sole purpose of purchasing and selling land in Douglas County (property). The LLC has two members: (1) Gesco Corporation, which is owned by Gerald Student, a real estate manager; and (2) Richard Hatch, a real estate attorney who specializes in real estate lending. The LLC bought the property in 2004 for approximately $1 million. The LLC entered into a listing agreement with the broker to sell the property. Before the time period for the listing agreement expired, Student told the broker that he was taking over responsibility for negotiations with Grand Peaks, a potential buyer. Grand Peaks subsequently purchased the property, and the broker did not receive any commission from the purchase. The garnishees set aside a $200,000 reserve asset to insure the disputed broker fee before distributing the remaining net proceeds to the garnishees. The parties later submitted their dispute to arbitration concerning the broker’s commission. The LLC hired outside counsel to litigate the arbitration and paid counsel’s fees out of the $200,000 reserve asset. The arbitrator awarded the broker $395,000. The LLC paid broker the remaining $44,500 from the reserve asset, and the broker proceeded to garnish the garnishees. However, the trial court ruled that the distribution from the LLC to the garnishees was not a constructively fraudulent transfer.

As a threshold matter, the LLC claimed that the broker failed to preserve its claim under CRS § 38-8-106(1). Because the parties tried this issue by consent, the broker’s claim was preserved.

The broker argued that the trial court erred when it concluded that the distribution from the LLC to the garnishees was not a constructively fraudulent transfer. However, the $200,000 reserve asset was not unreasonable at the time of the transfer, especially in light of the fact that the maximum commission owed to the broker, which was a contingent liability, was $177,000. The trial court applied the proper legal standard when considering this form of constructive fraud, and its finding supported its ruling that the broker did not show that the garnishees should have reasonably foreseen that the distribution would create an unreasonable risk of insolvency. Accordingly, the trial court did not err in denying the broker’s garnishment of the garnishees.

This summary is published here courtesy of The Colorado Lawyer. Other summaries by the Colorado Court of Appeals on July 22, 2010, can be found here.

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