July 18, 2019

Archives for February 8, 2012

Colorado Court of Appeals: Petition for Interlocutory Review Allowable Under C.A.R. 4.2; Merits Will Be Decided Later

The Colorado Court of Appeals issued its opinion in Kowalchik v. Brohl on February 2, 2012.

Taxation—Conservation Easement Tax Credits—Interlocutory Review

In this taxation dispute involving conservation easement tax credits, defendant Barbara Brohl, the Executive Director of the Colorado Department of Revenue (DOR), petitioned for interlocutory review of the trial court’s finding that certain individuals do not fall within the statutory definition of “taxpayer.” The petition was granted.

In Colorado, a state income tax credit is allowed for a qualifying conservation easement created on real property that a taxpayer owns and donates to a governmental entity or charitable organization. Generally, a donor taxpayer may assign to transferees all or any portion of the tax credit generated by any donation. The donor taxpayer may generate only one such tax credit per year. A transferee taxpayer may purchase credits from an unlimited number of donors and claim an unlimited number of credits against a tax liability.

Plaintiffs are numerous conservation easement donors. In tax years 2005 and 2006, plaintiffs donated fourteen conservation easements purportedly generating several million dollars worth of state tax credits. Plaintiffs then transferred credits to fifteen transferees who claimed the credits on their respective state income tax returns or retained them for use against future tax liability.

If the DOR disallows some or all of a conservation easement tax credit, a notice of disallowance, deficiency, or rejection of refund is sent to the donor of the easement who generated the credit (“tax matters representative” or TMR) and to any transferee who has used any portion of the tax credit. DOR disallowed the credits at issue in this case, sent plaintiffs notices disallowing the credits, and provided a notice informing them of the procedures created by CRS § 39-22-522.5 for resolution of tax credit disputes. Transferees are bound by the final resolution of disputes between DOR and the TMR.

Pursuant to CRS § 39-22-522.5(2), plaintiffs filed an amended complaint in the district court appealing DOR’s disallowance of the tax credits. Plaintiffs did not join the transferees. DOR moved to dismiss pursuant to C.R.C.P. 12(b)(6) or alternatively to compel plaintiffs to join the transferees pursuant to C.R.C.P. 19(a).

The trial court denied DOR’s motion. DOR moved the court to certify its order and several additional legal matters for interlocutory appeal under C.A.R. 4.2. The trial court granted the certification order with four questions for interlocutory appeal, and DOR sought interlocutory review under CRS § 13-4-102.1 and C.A.R. 4.2.

The Court or Appeals has discretion to grant an interlocutory appeal when (1) immediate review may promote a more orderly disposition or establish a final disposition of the litigation; (2) the order from which an appeal is sought involves a controlling question of law; and (3) that question of law is unresolved. The Court found these factors present in this case and granted DOR’s petition for interlocutory review, stating that a later opinion will address the merits.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on January 19, 2012, can be found here.

Colorado Court of Appeals: Interlocutory Appeal — Claims Barred by Statute of Repose; Dispute Regarding “Substantial Completion” to Be Resolved as Question of Law

The Colorado Court of Appeals issued its opinion in Shaw Construction, LLC v. United Builder Services, Inc. on February 2, 2012.

Interlocutory Appeal—Construction Defect Action Reform Act—Tolling—Substantial Completion—Summary Judgment—Statute of Repose

In this interlocutory appeal, the Court of Appeals affirmed the trial court’s summary judgments for third-party defendants United Builder Services, Inc. and MB Roofing, Inc. (collectively, subcontractors), and against third-party plaintiff Shaw Construction, LLC (Shaw). The Court held that Shaw’s claims were barred by the statute of repose.

Plaintiff Roslyn Court at Stapleton Homeowners Association (HOA), not a party to this appeal, alleged construction defects in the Roslyn Court condominium complex, for which Shaw had been the general contractor. The project was built in three phases and included eighty residential units in thirty-three buildings, fifteen garage structures, and additional elements such as sidewalks, alleys, benches, courtyards, and landscaping.

Shaw hired subcontractors to hang drywall and install roofs, gutters, and downspouts. The City and County of Denver issued certificates of occupancy (COs) for each residential building (between September 24, 2003 and October 28, 2003 for Phase I; October 31, 2003 and January 29, 2004 for Phase II; and January 22, 2004 and March 10, 2004 for Phase III). The project’s architect did not certify completion of all known architectural items until June 8, 2004.

On May 15, 2007, Shaw received a notice of claim letter from the HOA under the Construction Defect Action Reform Act (CDARA). On January 21, 2009, the HOA filed this action against the developers of the property but did not add Shaw as a defendant until January 28, 2010. On March 29, 2010, Shaw filed its answer and third-party complaint, naming subcontractors, among others, as third-party defendants. Shaw sent its only notice of claim to subcontractors the following day.

Subcontractors moved for summary judgment on the basis that the six-year statute of repose had run. They argued that substantial completion had occurred not later than the date the final CO was issued, March 10, 2004. Shaw argued that substantial completion was June 8, 2004, when the architect certified completion. Shaw did not include any evidence that subcontractors’ work continued after the date of the CO on the last building. Alternatively, Shaw argued that under § 805, the HOA’s notice of claim had tolled all claims associated with the project, including those against subcontractors, even though they had not received actual notice of the claim.

The trial court granted subcontractors’ motions, finding that the last CO indicated substantial completion. The trial court also held that the plain language of the statute required actual notice to a party to toll a claim as to that party. The Court accepted an interlocutory appeal due to the unresolved questions regarding tolling and substantial completion under Colorado law.

The Court first addressed whether the determination of when substantial completion under CDARA occurs is a question of fact or a question of law. The Court agreed with the trial court that it is a question of law. CDARA does not contain a definition of “substantial completion.” The interpretation of when a claim accrues under a statute of limitations is an issue of law.

The Court then considered and rejected Shaw’s contention that its claims against subcontractors were tolled by the HOA’s notice of claim to Shaw under § 805. The statute does not say whether claims against participants in a project without notice of a claim are tolled, so the Court looked to the legislative intent behind CDARA and concluded that such an interpretation would not further that intent.

The Court also rejected Shaw’s argument that its claims were timely, because substantial completion did not occur until the architect’s certificate was issued. Shaw argued, without authority, that in a multi-stage project, improvement means the entire project. Subcontractors responded that the statute of repose is triggered “when the subcontractor completed its own work and not when the entire project was completed.” The Court concluded that an improvement may be a discrete component of an entire project, such as the last of multiple residential buildings. Accordingly, the summary judgments were affirmed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

Colorado Court of Appeals: Religious Organization’s Function Not Primarily Religious and Therefore Unemployment Compensation Wrongfully Denied

The Colorado Court of Appeals issued its opinion in Harbert v. Industrial Claim Appeals Office on February 2, 2012.

Unemployment Compensation—Exemption Under CRS § 8-70-140(1)(a)

Claimant sought review of a final order of the Industrial Claim Appeals Office (Panel) affirming the hearing officer’s decision that she was not entitled to unemployment compensation benefits because she was not engaged in covered employment when she was terminated. The Panel’s order was set aside and the case was remanded.

From March 2007 until October 2010, claimant worked in a resale store operated by Evergreen Christian Outreach (EChO). According to its mission statement, EChO was founded by a group of churches in Evergreen “to provide assistance to residents of the Evergreen mountain communities who are unemployed, under-employed, dealing with a long-term illness, or experiencing other forms of personal crisis.” The resale store where claimant worked provides a major source of funding for EChO’s outreach programs. EChO’s facilities are located on the grounds of an Episcopal church, but the resale store is located in a private commercial space.

Claimant separated from her employment and applied for unemployment benefits. A deputy denied her claim, concluding that EChO is a religious organization. The hearing officer also denied her claim because her work was performed for an organization operated primarily for religious purposes and is operated, supervised, controlled, or principally supported by an association of churches. The Panel affirmed and claimant appealed.

The Court of Appeals examined the stipulation under CRS § 8-70-140(1)(a) that exempts an organization if it “is operated primarily for religious purposes and . . . is operated, supervised controlled, or principally supported by a church or convention or association of churches.” Claimant argued that EChO is a nonprofit organization whose primary function is to operate a community food bank and provide limited or temporary assistance for those in need in the Evergreen community. She claimed the work was primarily secular in nature and that EChO is not operated primarily for religious purposes.

The Court looked to the test set forth in Samaritan Institute v. Prince Walker, 883 P.2d 3 (Colo. 1994), in which the controlling factor is “the type of activity actually engaged in, rather than the motivation and impetus for the activity.” In reviewing the hearing officer’s analysis, the Court noted that EChO’s activities were not sufficiently evaluated. The officer observed that EChO’s primary function, the provision of services such as food and clothing, is “not religious per se.” In addition, EChO was a separate legal entity from the churches that founded it. The primary purpose and activity carried out by EChO was the provision of assistance services to those in need, regardless of their religious affiliation or beliefs. Although its motivation was religious, it was operated primarily to perform charitable work for disadvantaged individuals in Evergreen. The Court concluded that the Panel misapplied the law and held that EChO was not exempt under the statute.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

Colorado Court of Appeals: Claim Preclusion Does Not Bar Later Action on Claims that Arise After Filing of Action but Before Judgment

The Colorado Court of Appeals issued its opinion in Loveland Essential Group, LLC v. Grommon Farms, Inc. on February 2, 2012.

Summary Judgment—Claim Preclusion

This appeal concerns the second lawsuit between plaintiff Loveland Essential Group, LLC (Buyer) and defendants Grommon Farms, Inc., Gary Grommon, and Connie Grommon (collectively, Seller) arising from Buyer’s purchase of commercial real property and assets from Seller. The district court granted summary judgment in Seller’s favor, and the Court of Appeals reversed.

Buyer entered into a real estate purchase agreement (RPA) and an asset purchase agreement (APA) with Seller to purchase certain commercial real property and business assets. The RPA required there not be any encumbrances on the real property other than those identified therein and the APA had a similar requirement regarding the assets.

At the closing, Buyer conveyed by Warranty Deed free and clear of all encumbrances except those identified therein. After closing, Buyer filed a complaint in a different case that alleged that Seller had breached the RPA, APA, and Warranty Deed by conveying the real property and assets subject to a lease on part of the real property.

On August 8, 2008, about a year and a half after the original filing and three months before trial, Buyer learned that an Adjacent Property Reimbursement Agreement between the City of Loveland (City) and the developer of the area in which the real property is located had been filed with the Larimer County Clerk and Recorder on August 1, 2008. The Reimbursement Agreement purported to obligate parties subject thereto to pay a portion of city street improvement and construction costs when applying for a permit to develop property within the covered area. The City sought reimbursement of $794,871.69 from Buyer under this Reimbursement Agreement.

Buyer moved to vacate the trial (which was six weeks away) and to conduct additional discovery to determine whether it was necessary to amend the complaint to add a claim concerning the Reimbursement Agreement. The court granted the motion and reset the trial for approximately two and a half months later.

Buyer conducted additional discovery but did not move to amend its complaint. Instead, a week before trial, Buyer filed its complaint in this case, alleging Seller had breached the RPA and the Warranty Deed by conveying the property subject to the Reimbursement Agreement.

After a bench trial in the first case, the district court concluded that Seller had breached the RPA, APA, and Warranty Deed by conveying the property subject to the lease. On appeal, a division of the Court affirmed in part, reversed in part, and remanded for further proceedings regarding Buyer’s damages. While the appeal was pending, Seller moved for summary judgment on Buyer’s claims in this case, arguing they were barred by claim preclusion because they were not litigated in the original case. The district court agreed that the claims would be barred once the judgment in the first case became final, and granted summary judgment when that occurred.

Buyer made five arguments on appeal. The Court agreed with one of them and did not address the others.

Claim preclusion bars “relitigation of matters that have already been decided [in a prior proceeding] as well as matters that could have been raised in a prior proceeding but were not.” One requirement is identity of claims for relief. The focus of this inquiry is “the injury for which relief is demanded, . . . not . . . the legal theory on which the person asserting the claim relies.” Generally, claims for different breaches of a contract must be brought in the same action. The claim is precluded only if it could have been raised and decided in the earlier proceeding. In this case, the claim allegedly arose after the original complaint was filed but before the court rendered judgment thereon.

After extensive analysis, the Court concluded that claim preclusion does not bar a later action on claims that arise after the initial action is filed but before the judgment in the original action. Here, the Court determined that Buyer’s claims based on the Reimbursement Agreement could be after-arising claims. Seller conceded that “there is, at a minimum, a dispute of fact whether Buyer was aware of the reimbursement agreement or its possibility prior to closing.” Consequently, the Court held there was a genuine issue of material fact as to whether Buyer knew or should have known about the Reimbursement Agreement-based breaches before it filed its complaint on the lease-based breaches. Accordingly, the judgment was reversed and the case was remanded for further proceedings.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

Colorado Court of Appeals: Piercing the Corporate Veil of Single-Member LLC; Three-Prong Test

The Colorado Court of Appeals issued its opinion in Martin v. Freeman on February 2, 2012.

Limited Liability Company—Veil Piercing

In this limited liability company (LLC) veil-piercing case, defendants Dean C.B. Freeman and Tradewinds Group, LLC appealed the trial court’s judgment in favor of plaintiff Robert C. Martin. The judgment was affirmed.

Freeman managed Tradewinds Group, LLC as a single-member LLC. Tradewinds contracted to have Martin construct an airplane hangar. In 2006, Tradewinds sued Martin for breaching the construction agreement. In 2007, while the litigation was pending, Tradewinds sold its only meaningful asset, an airplane, for $300,000 and the proceeds were diverted to Freeman, who paid Tradewinds’ litigation expenses. In 2008, a judgment was entered in favor of Tradewinds. Martin appealed. Another division of the Court of Appeals found that Tradewinds’ damages were speculative, and remanded the case with directions to enter judgment in Martin’s favor. On remand, Martin was awarded $36,645.60 in costs. The LLC had no assets and Martin instituted this action to pierce the LLC veil. Following a bench trial in 2010, the court pierced the veil and found Freeman personally liable for the cost award against Tradewinds. Tradewinds appealed, arguing it was error to pierce the LLC veil. The Court of Appeals disagreed and affirmed the judgment.

To pierce the LLC veil, the court must conclude (1) the corporate entity is an alter ego or mere instrumentality; (2) the corporate form was used to perpetrate a fraud or defeat a rightful claim; and (3) an equitable result would be achieved by disregarding the corporate form. Tradewinds challenged whether the first and second prongs were met.

As to the alter ego prong, the trial court found that: assets were commingled; negligible corporate records were kept; the records concerning substantive transactions were inadequate; there was a single-member/manager-facilitated misuse; the entity was thinly capitalized; undocumented infusions of cash were required to pay all operating expenses; Tradewinds was never operated as an active business; corporate formalities were disregarded; Freeman paid its debts without characterizing the transactions; assets were used for non-entity purposes; and Tradewinds was operated as a mere assetless shell. The Court held that these findings fully supported a conclusion that Tradewinds was Freeman’s alter ego.

Tradewinds argued that the second prong was not met because the trial court did not find wrongful intent or bad faith. The Court found no case, and defendant cited none, requiring a showing of wrongful intent. Therefore, it concluded that a showing that the corporate form was used to defeat a creditor’s rightful claim is sufficient. Here, Tradewinds sold its only asset and diverted the proceeds to Martin during the litigation. Transferring all of the assets to defeat a rightful creditor’s potential claim is sufficient to support piercing the corporate veil.

Tradewinds also argued that Martin waived the ability to collect litigation costs by not contesting the amount of the cost bond filed. The Court disagreed, concluding that Martin’s failure to contest the cost bond did not constitute an unequivocal act manifesting intent to relinquish the right to collect costs. The judgment was affirmed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

Colorado Court of Appeals: Use in Violation of Zoning Ordinance Could Not Be Grandfathered Under New Zoning

The Colorado Court of Appeals issued its opinion in Walter G. Burkey Trust v. City and County of Denver on February 2, 2012.

Zoning Ordinance—Parking in Vacant Lot

Plaintiff Walter G. Burkey Trust (Trust) appealed a district court judgment affirming the decision of the Denver Board of Adjustment for Zoning Appeals (Board) upholding the citation issued to the Trust by the City and County of Denver (City) for violation of a zoning ordinance regarding a vacant lot used for parking. The judgment was affirmed.

The Trust owns a vacant lot at 1476 King Street in Denver (lot). The lot was located in a district zoned R-2 before being rezoned to MS-2 in 2007. In the mid-1980s, the Trust used the lot for surface parking for the adjacent businesses the Trust owned. Surface parking was not a legal use in the R-2 zoned district. The lot was never legally authorized for parking before the 2007 amendment.

In 1987, the City issued the Trust two citations for using the lot in violation of the zoning ordinance. On November 18, 2008, the City issued an Order to Cease and Desist (Order) parking use of the lot. The basis for the Order was that under the new MS-2 zoning, surface parking lots were not permitted unless they were existing legal uses.

The Trust appealed the Order to the Board, which found in favor of the City. The Trust sought judicial review in district court under C.R.C.P. 106(a)(4), and the court upheld the Board. The Trust appealed.

Review is for exceeding jurisdiction or abuse of discretion. The Trust argued that, pursuant to the amended zoning ordinance, its lot use was converted to a legal nonconforming use because the lot and its use had existed before the 2007 amendment. The Court of Appeals disagreed. The Court found that both the City’s and the Trust’s arguments were reasonable because the language of the ordinance was ambiguous. When this is the case, the Court must defer to the Board’s interpretation, as long as there is a reasonable basis for it.

Here, the record demonstrated that the lot never was used legally as a parking lot before the 2007 amendment. The Board’s interpretation that the 2007 ordinance grandfathered prior legal uses, but not existing illegal uses, has a reasonable basis. Accordingly, the judgment was affirmed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

Colorado Court of Appeals: Error to Award Attorney Fees for Post-Filing Attorney Conduct

The Colorado Court of Appeals issued its opinion in SRS, Inc. v. Southward on February 2, 2012.

Attorney Fees—C.R.C.P. 11—Applies Only to Pre-Filing Conduct

Steven G. Francis, an attorney, appealed the district court’s order awarding attorney fees to Stanton B. Southward. The order was vacated.

Francis was the attorney for SRS, Inc., which operated an automotive service business. Southward was a co-owner and employee of SRS. On SRS’s behalf, Francis filed a complaint in August 2008 alleging that Southward had converted to his own use a number of company vehicles and violated his employment contract.

By May 7, 2010, Southward had disclosed two documents that proved that one of the vehicles, a van, had not been converted but had been sold to a customer. The trial court first ruled that the disclosure was too close to trial and therefore inadmissible. The trial was continued and Southward filed a motion for reconsideration of the motion, which was granted, rendering the documents admissible.

On August 22, 2010, three days before trial, SRS withdrew its conversion claim concerning the van. At trial, Southward argued that SRS’s witnesses should not be believed with respect to the remaining claims because of the delay in the withdrawal of the claim concerning the van. In rebuttal, Francis argued that the blame for failure to withdraw the claim lay with him, not the witnesses. The jury awarded damages to SRS on its conversion claim and returned a verdict for SRS on the breach of contract claim, but awarded no damages.

After trial, Southward moved for sanctions against Francis, alleging that the failure to promptly withdraw the claim was a violation of C.R.C.P. 11, entitling Southward to an award of fees and costs incurred from May 2010 through August 22, 2010. The court entered judgment in favor of Southward and against Francis for $2,858.65.

On appeal, Francis argued it was error to award Southward attorney fees under C.R.C.P. 11. The Court of Appeals agreed. The Court held that Colorado’s Rule 11 is not as broad as its federal counterpart and only focuses on pre-filing and pre-pleading behavior of the attorney; it does not reach post-filing attorney conduct. Because the sanction was imposed based on post-filing conduct, the court’s award of fees and costs was vacated.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 2, 2012, can be found here.

Tenth Circuit: District Court Misapplied Sentencing Guidelines; Temporal Restraint Should Be Given Regarding Imposition of Earlier Sentence

The Tenth Circuit Court of Appeals published its opinion in United States v. Rosales-Garcia on Tuesday, February 7, 2012.

The Tenth Circuit remanded to the district court for resentencing. Petitioner was convicted of a state drug trafficking felony in 2008 and sentenced to ninety days’ state imprisonment and three years of probation. Petitioner was deported, then illegally reentered the country, and was arrested shortly after. His probation for the earlier state drug offense was revoked and he was sentenced in state court to a term of imprisonment of 1 to 15 years on his prior state drug felony. After serving his state drug sentence, Petitioner was released into federal custody and prosecuted in federal court for his illegal reentry. Petitioner “agreed to plead guilty to the federal charge as part of the District of Utah’s fast-track program.”  The Presentence Report recommended that Petitioner’s base offense level be enhanced by 16 levels, which Petitioner objected to. The government alleged that his “sentence upon revocation of his state probation constituted a prior drug trafficking felony for which the sentence imposed exceeded 13 months. [Petitioner] contended that application of the 16-level enhancement did not comport with the Sentencing Guidelines for the sole reason that the ‘sentence imposed’ did not exceed 13 months at the time he committed the base offense of illegal reentry.” Petitioner appeals the sentence.

The Court determined that because “it is undisputed that the defendant’s prior conviction must have occurred before deportation, . . . the most logical reading of § 2L1.2 [of the Sentencing Guidelines] is to refer to the date of deportation in evaluating whether the ‘sentence imposed’ for the prior felony exceeded 13 months. . . . In other words, [the Court concluded] that the temporal requirement contained in the text of § 2L1.2 with regard to the defendant’s conviction also applies to the imposition of his sentence for that conviction.” Additionally, Petitioner’s “act of illegally reentering the country reveals nothing about the seriousness of his drug trafficking conviction at the time he violated 8 U.S.C. § 1326. It would be inconsistent with the purpose of § 2L1.2 — whose text draws a distinction between pre- and post-illegal reentry actions — to consider revocation of his probation resulting from the base offense of illegal reentry in measuring the seriousness of his earlier drug trafficking felony.” As such, the Court concluded that “the best understanding of § 2L1.2 incorporates a temporal restraint with regard to the imposition of the defendant’s earlier sentence,” and therefore the district court misapplied the Sentencing Guidelines. Because Petitioner has conceded that he is subject to the 12-level enhancement in § 2L1.2(b)(1)(B), the district court should recalculate Petitioner’s guidelines range with the smaller 12-level enhancement from § 2L1.2(b)(1)(B), replacing the 16-level enhancement from § 2L1.2(b)(1)(A).

Tenth Circuit: Unpublished Opinions, 2/7/12

On Tuesday, February 7, 2012, the Tenth Circuit Court of Appeals issued one published opinion and eleven unpublished opinions.


United States v. Thody

Trujillo v. Ploughe

United States v. Hoodenpyle

BC Technical, Inc. v. Ensil Int’l Corp.

Williams v. Metropolitan Life Ins. Co.

United States v. Hill

United States v. Walny

Clementson v. Countrywide Financial Corp.

United States v. Vargas-Medina

Valenzuela v. Medina

Mayberry v. Astrue

No case summaries are available for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.