August 24, 2019

Archives for March 15, 2016

Tenth Circuit: Mens Rea Element Applies to Both Chemical Composition Issue and Substantial Similarity Issue

The Tenth Circuit Court of Appeals issued its opinion in United States v. Makkar on Monday, November 23, 2015.

Iqbal Makkar and Gaurav Sehgal ran a small town convenience store in Oklahoma. Law enforcement authorities questioned Makkar and Sehgal about some of the incense they carried at the store, and the owners offered to allow the officers to test it and stop carrying the incense while it was tested. However, despite their cooperation, federal authorities indicted and convicted Makkar and Sehgal of violation of the Controlled Substances Analogue Enforcement Act. On appeal, Makkar and Sehgal argued that the jury instructions incorrectly stated the elements of the offense and that the district court erred in granting the government’s motion in limine to exclude evidence of their cooperation. The Tenth Circuit agreed with both arguments.

The Tenth Circuit first discussed the Analogue Act and the Supreme Court’s recent ruling in McFadden v. United States, 135 S. Ct. 2298 (2015), in which the Supreme Court accepted the government’s concession that to prove that a drug violates the Analogue Act it must (1) be substantially similar in chemical structure to a schedule I or II controlled substance, and (2) have, or be intended to have, a similar effect on the central nervous system as a schedule I or II controlled substance. The government further acknowledged that the defendant knew the drug he possessed had both features or was controlled by the CSA or Analogue Act. The Tenth Circuit compared the Analogue Act to the residual clause of the Armed Career Criminal Act, noting that it was an open question whether the Analogue Act would survive a constitutional vagueness challenge.

Turning to Makkar and Sehgal, the Tenth Circuit noted that at trial, the government did not introduce evidence that defendants knew the incense was substantially similar in chemical structure to marijuana, only that they knew it had a substantially similar effect to marijuana. The district court allowed the government’s proposed instruction that the mens rea element regarding the chemical structure could be inferred from the effect. This was in error because it relieved the government of its burden of proof and also eliminated one of the elements of the charged offense. The Tenth Circuit rejected the government’s argument that the error was not plain, and also that the DEA effectively rejected the government’s inference instruction by concluding that the drug in the incense does not have a substantially similar chemical structure to marijuana. Finding that the error prejudiced defendants and impaired their right to a fair trial, the Tenth Circuit reversed the convictions.

Next, the Tenth Circuit addressed Sehgal’s argument that the district court erred in granting the government’s motion in limine to exclude evidence of the defendants’ cooperation with law enforcement during the investigation. The Tenth Circuit agreed, finding that the evidence was entirely relevant to determine whether defendants possessed the requisite mens rea to form a violation of the Analogue Act, and the district court erred by effectively bypassing the mens rea element.

The Tenth Circuit reversed Makkar’s and Sehgal’s convictions, expressing doubts as to whether the men could be retried under the Analogue Act.

Tenth Circuit: Unpublished Opinions, 3/15/2016

On Tuesday, March 15, 2016, the Tenth Circuit Court of Appeals issued no published opinion and seven unpublished opinions.

Bradley v. Colvin

Bauer v. City & County of Denver

United States v. Thornbrugh

United States v. Tucker

Garcia v. Lynch

Poll v. Lew

Edwards v. Addison

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Colorado Court of Appeals: Equitable Denial of Apportionment of Estate Taxes Improper

The Colorado Court of Appeals issued its opinion in Estate of Petteys v. Farmers State Bank of Brush on Thursday, March 10, 2016.

Robert Petteys established a trust for his children and surviving descendants. He also executed a will providing that all death taxes shall be apportioned among the recipients of his estate as provided by Colorado law. He died in 2009, leaving a substantial estate. The estate’s personal representative paid the federal estate taxes from the estate’s liquid assets, then filed an action in district court against the trust, seeking reimbursement for the taxes attributable to the value of the property Petteys contributed to the trust that was included in the gross estate.

The parties filed cross motions for summary judgment. The estate argued it was entitled to reimbursement under the terms of Petteys’ will and Colorado’s apportionment statute. The trustee argued that federal estate tax controls and does not allow reimbursement in this case, alternatively urging the court to deny reimbursement on equitable grounds and also arguing the will provision was unenforceable as an invalid revocation of the trust.

The district court agreed with the estate that Colorado law applied, ruling the estate was presumptively entitled to reimbursement under Colorado’s apportionment statute but material issues of fact precluded summary judgment. After a bench trial, the district court denied apportionment on equitable grounds and entered judgment for the trustee. The district court also sua sponte ruled that Colorado’s apportionment statute was unconstitutional as applied to the trust. The estate appealed, and the trustee cross-appealed the district court’s determination that Colorado law governs apportionment of estate taxes.

The Colorado Court of Appeals agreed with the estate that Colorado’s apportionment statute requires apportionment of the estate taxes to the trust and the district court erred in denying apportionment on equitable grounds, as well as finding the apportionment statute would be unconstitutional as applied to the trust. The court of appeals found no exception to Colorado’s apportionment statute that would allow equitable consideration of tax liabilities. The court also held that although the trust beneficiaries had vested rights to receive income from the trust, they did not have a right to receive income free from taxation.

The court of appeals reversed and remanded with instructions to enter judgment in favor of the estate.

Colorado Court of Appeals: Use of Strawman Purchasers Not Fraudulent

The Colorado Court of Appeals issued its opinion in Rocky Mountain Exploration, Inc. v. Davis Graham & Stubbs, LLP on Thursday, March 10, 2016.

Rocky Mountain Exploration (RMEI) owned oil and gas interests in leaseholds in North Dakota. In 2006, it sold 80% of its leasehold interest to Tracker. In 2009, Tracker attempted to purchase RMEI’s remaining 20% interest, but it was unsuccessful and relations between Tracker and RMEI became strained. Tracker then agreed to purchase the interest together with Lario, with Lario acting as Tracker’s agent in the purchase so that RMEI would not refuse to deal with Tracker.

Davis Graham & Stubbs (DGS) represented Tracker in the deal but refused to represent Lario due to a conflict of interest. However, DGS handled the negotiations for Lario and Tracker because of its representation of Tracker. Lario variously referred to DGS as its attorney, and DGS made no attempt to correct Lario’s mistake.

After the sale closed and RMEI discovered Tracker’s interest, RMEI sued Lario and Tracker, their officers individually, and DGS. All parties except DGS settled. RMEI asserted fraud and civil conspiracy claims against DGS based on the use of Lario as a “strawman” purchaser in the transaction. DGS moved for summary judgment, contending that RMEI could not establish a duty owed by DGS to support the fraud claims, and that RMEI had failed to establish that Tracker owed RMEI fiduciary duties. The district court agreed with DGS and granted its motion, also ruling that the use of a strawman purchaser is not fraudulent.

The Colorado Court of Appeals affirmed, noting that agents are frequently used in business transactions and there is nothing fraudulent about using a strawman purchaser. The court of appeals noted that RMEI’s situation did not fit the narrow circumstances allowing a third party to avoid a contract, and that RMEI could have insisted on a contractual prohibition on assignment of interests.

The court of appeals affirmed the district court’s grant of summary judgment to DGS.

Colorado Court of Appeals: District Court Properly Considered Prison Grievance Complaint Under C.R.C.P. 106(a)(4)

The Colorado Court of Appeals issued its opinion in Brooks v. Raemisch on Thursday, March 10, 2016.

State prisoner Keith Brooks filed multiple frivolous prison grievances. In May 2011, he was sanctioned for the frivolous grievances by only being allowed to file one grievance per month for the next 60 days. When the sanction period expired, he filed 14 more frivolous grievances, and was sanctioned a second time with a 6-month filing restriction. Brooks then filed a complaint in district court challenging the DOC’s jurisdiction to impose the restrictions.

Defendants moved to dismiss, arguing the district court lacked subject matter jurisdiction because the decisions to restrict Brooks’ grievance filing were not quasi-judicial and subject to review under C.R.C.P. 106(a)(4). The district court denied the motion, finding jurisdiction under C.R.C.P. 106(a)(4) to address Brooks’ complaints, but the district court upheld both grievance restrictions.

Brooks appealed, and the Colorado Court of Appeals affirmed as to the September 2011 restriction but dismissed the complaint regarding the May 2011 restriction as untimely. The court of appeals held that Rule 106(a)(4) applies to the DOC’s decisions to limit grievance filing, because the decisions are quasi-judicial, but the court also held that at the time of the actions, Rule 106 imposed a 30-day timeline for appealing the quasi-judicial decisions. Brooks’ complaint was timely as to the September 2011 decision but not the May 2011 decision.

The court affirmed the district court as to the September 2011 DOC decision but dismissed the complaint as to the May decision.

Tenth Circuit: Violation of No-Contact Order Creates Grounds for Removal

The Tenth Circuit Court of Appeals issued its opinion in Cespedes v. Lynch on Thursday, November 19, 2015.

Jose Ramon Cespedes, a native and citizen of Venezuela, became a conditional lawful permanent resident of the United States in 2012. He was later charged with domestic violence in Utah state court, and in April 2013, that court issued a protective order against him. In November 2013, Cespedes pleaded guilty to an attempted violation of the protective order under its no-contact provision.

In May 2014, the Department of Homeland Security brought a charge to remove under 8 U.S.C. § 1227(a)(2)(E)(ii) against Cespedes for violation of the protection order. In a hearing before an immigration judge (IJ), Cespedes argued his conduct was not covered by § 1227. The IJ rejected his argument and ordered him removed from the United States. The BIA affirmed, relying on Matter of Strydom, 25 I. & N. Dec. 507, 510 (2011), in which Strydom was ordered removed for violating a no-contact order, and the BIA determined that no-contact orders “provided protection against threats of violence,” which could include contact in violation of a no-contact order.

On appeal to the Tenth Circuit, Cespedes conceded that Strydom would apply to his case but argued it was wrongly decided. The Tenth Circuit held that it was. The Tenth Circuit acknowledged that it owed the BIA deference under Chevron, and found that Cespedes’ contact in violation of the protective order violated § 1227.

Addressing Cespedes’ next argument, the Tenth Circuit found that “as purely a matter of English, the argument makes some sense,” but reading the language in context, the Tenth Circuit found that Congress would not have intended a state court to explain the purpose of each clause of a protective order. The Tenth Circuit recognized that all a state court would need to do is to find a violation of a protective order and the IJ and BIA would do the rest.

The Tenth Circuit affirmed the BIA and IJ.

Tenth Circuit: Excess Insurer’s Duty to Settle Attaches Only After Primary Insurer Exhausts Policy Limits

The Tenth Circuit Court of Appeals issued its opinion in SRM, Inc. v. Great American Insurance Co. on Tuesday, August 25, 2015.

An SRM dump truck crossed railroad tracks in the path of an oncoming Burlington Northern train and was t-boned. The truck driver was killed in the collision, and three railway workers were seriously injured. The collision derailed the train and caused extensive damage to its engine and cars. The three injured workers sued Burlington Northern, SRM, and SRM’s primary insurer, Bituminous. Great American, SRM’s excess insurer, also received notice of the claims and monitored the case for exposure under the excess liability policy. About a year after the accident, SRM’s attorney demanded that both Bituminous and Great American tender their policy limits of $1 million and $5 million, respectively, but Great American rejected that approach in favor of an aggressive defense. When the trial court ruled at a pretrial hearing that federal law precluded the best available defense, SRM’s attorney reiterated that both Bituminous and Great American should tender policy limits because settlement might be impossible at a later date. Great American again declined, suggesting the claims would be resolved in mediation.

Before mediation, both Bituminous and Great American estimated that potential exposure could exceed both policies’ coverage limits, although Great American suggested that a jury award would be within limits. At mediation, the plaintiffs initially requested $20 million, but later in the day offered to settle all claims for $6.5 million. Great American countered with $450,000. Over Great American’s objection, SRM’s attorney disclosed that SRM was willing to contribute $500,000 in addition to the $6 million policy limits to settle the case. A week later, the parties agreed to settle for $6.5 million, with Bituminous contributing $1 million, Great American contributing $5 million, and SRM contributing $500,000.

SRM then sued Great American in state court in a second round of litigation involving multiple parties and claims. The trial court severed SRM’s claims against Great American and Great American removed to federal court. In this suit, SRM alleged that Great American breached its excess liability insurance contract and the implied covenant of good faith and fair dealing by failing to initiate settlement negotiations. Great American moved for summary judgment and the district court granted its motion, concluding that Great American did not owe SRM a duty to investigate or initiate settlement agreements until Bituminous tendered its policy limits at the time of settlement. SRM sought reconsideration, contending that Great American had a common law duty of good faith and fair dealing, which it breached. The district court rejected SRM’s argument and it appealed.

On appeal, SRM blamed Great American for forcing it to pay $500,000 out-of-pocket to settle the plaintiffs’ claims, arguing the case would have settled within limits if Great American had tendered its policy limits sooner, and that Great American’s actions violated its duty of good faith and fair dealing. The Tenth Circuit, applying Oklahoma law, noted that Oklahoma courts have yet to decide whether an excess insurer owes a duty to attempt to settle claims before the primary insurer exhausts its policy limits. The Tenth Circuit evaluated the terms of the insurance policy between SRM and Great American. The Tenth Circuit agreed with the district court that the terms of the excess policy were unambiguous, and that Great American’s contractual duties to negotiate and settle claims did not commence until policy limits were exhausted. SRM argued that the common law duty of good faith and fair dealing is implied, so it applies regardless of the terms of the policy. The Tenth Circuit disagreed, noting the duty attached to an insurer’s contractual obligations. The Tenth Circuit found that Great American was entitled to summary judgment.

The Tenth Circuit affirmed the district court.

Tenth Circuit: Unpublished Opinions, 3/14/2016

On Monday, March 14, 2016, the Tenth Circuit Court of Appeals issued one published opinion and two unpublished opinions.

Bowen v. Carod

United States v. Jastrzembski

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.