September 25, 2018

Herrick K. Lidstone, Jr., Esq. Receives Cathy Stricklin Krendl Business Lawyer Lifetime Achievement Award

Cathy Stricklin Krendl and Todd Olinger present Herrick Lidstone with “The Cathy Stricklin Krendl Business Lawyer Lifetime Achievement Award.”

The Business Law Section of the Colorado Bar Association recognizes that many of its members and other lawyers actively participate in the process of improving the business laws of the State of Colorado by working together to draft business legislation, help other lawyers understand and practice business law, and promote high standards of professionalism for and mutual respect among Colorado lawyers who practice business law. The Section recognizes that these lawyers have devoted many uncompensated hours and much thought participating in this process and believes that this participation, which has consistently been without regard to personal or client interests, has resulted in the improvement of Colorado business law and its practice by Colorado business lawyers.

The Section believes that it is appropriate to recognize some of the many Colorado lawyers who have participated in this process and has created an award known as “The Cathy Stricklin Krendl Business Lawyer Lifetime Achievement Award.” This award is given from time to time to persons selected by the Executive Council of the Section.

The Executive Council considers, among such other attributes as it may determine, the recipient’s intellectual and professional excellence in the practice of or scholarship on Colorado business law; the recipient’s generosity of spirit as reflected in the recipient’s participation in and contribution to the advancement of Colorado business law; the recipient’s efforts to enhance the general quality of business law practice by Colorado lawyers; and the recipient’s devotion to the principles of legal professionalism, all manifested consistently over years of endeavor.

On June 20, 2018, the Executive Council of the CBA Business Law Section considered several excellent nominations for the award and voted to recognize Herrick K. Lidstone, Jr. for his many years of furthering the development of practical, comprehensive and well-drafted business related legislation, for writing about and teaching Colorado business law and for his devotion to enduring principles of professionalism in his legal career.

Herrick K. Lidstone, Jr. was presented with the award at the 2018 Business Law Institute on September 12, 2018 in Denver.

Colorado Supreme Court: Innocent Investor to Ponzi Scheme Lacks Any Right to Return on Investment

The Colorado Supreme Court issued its opinion in Lewis v. Taylor on Monday, September 17, 2018.

Uniform Fraudulent Transfer Act—Ponzi Schemes—Reasonably Equivalent Value.

The supreme court held that under the Colorado Uniform Fraudulent Transfer Act (CUFTA), an innocent investor who profits from his investment in an equity-type Ponzi scheme, lacking any right to a return on investment, does not provide reasonably equivalent value based simply on the time value of his investment. Here, an investor unwittingly invested in a Ponzi scheme. Before the scheme’s collapse, he withdrew his entire investment, plus a profit. A court-appointed receiver sued to claw back the investor’s profits under CUFTA, C.R.S. § 38-8-105(1)(a), which provides that a “transfer made . . . by a debtor is fraudulent as to a creditor . . . if the debtor made the transfer . . . [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” The investor raised an affirmative defense, C.R.S. § 38-8-109(1), contending that he could keep his profit because he “took in good faith and for a reasonably equivalent value.” Because the time value of money is not a source of “value” under CUFTA and equity investors have no guarantee of any return on their investments, the court concluded that the investor did not provide “reasonably equivalent value” in exchange for his profit. Accordingly, the court reversed the court of appeals’ judgment.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Social Host Must Have Actual Knowledge that Specific Guest Underage to be Held Liable for Injuries

The Colorado Supreme Court issued its opinion in Przekurat v. Torres on Monday, September 10, 2018.

Statutory Construction—Colorado Dram Shop Act.

The supreme court affirmed the judgment of the court of appeals. The court held that, under the plain language of C.R.S. § 12-47-801(4)(a), a social host who provides a place to drink alcohol must have actual knowledge that a specific guest is underage to be held liable for any damage or injury caused by that underage guest.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Hospital Lien Statute Only Applies to Lien Violations Existing at the Time a Complaint is Filed

The Colorado Court of Appeals issued its opinion in Marchant v. Boulder Community Health, Inc. on Thursday, August 23, 2018.

Hospital Lien Statute—Statutory Penalties—Summary Judgment.

Marchant’s daughter was struck by an automobile and received medical treatment from Boulder Community Health, Inc. (BCH) for which she was billed $27,681.10. Cardon Outreach, LLC (Cardon), as agent for BCH, filed a statutory lien in that amount “upon the net amount payable . . . as damages on account of such injuries,” without first billing the daughter’s insurance company. BCH subsequently made an insurance adjustment to reduce the bill and billed the insurer, which paid $6,999.36, leaving a balance of $777.74. Cardon amended the lien to that amount. Marchant paid the balance, and the lien was released. Later, Marchant, as guardian of her daughter, filed an amended complaint alleging violation of the hospital lien statute, C.R.S. § 38-27-101, regarding her right to seek damages of twice the amount of the hospital lien filed.

The parties filed cross-motions for determination of a question of law, and the trial court ruled that C.R.S. § 38-27-101(7) only provides standing for a lawsuit if the plaintiff is subject to an improper lien at the time the legal action is filed. The trial court granted defendants’ motion for summary judgment.

On appeal, plaintiff contended that the trial court misinterpreted the hospital lien statute. The parties agreed that when the lien was filed it violated the hospital lien statute. However, the lien did not violate the statute at the time the lawsuit was commenced. The statute clearly applies only to liens that violate the statute at the time a complaint is filed. Thus, the statute does not allow plaintiff to seek damages.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: District Court May Not Consider Documents Outside Bare Allegations of Complaint when Ruling on C.R.C.P. 12(b)(5) Motion

The Colorado Court of Appeals issued its opinion in Prospect Development Co., Inc. v. Holland & Knight, LLP on Thursday, July 26, 2018.

C.R.C.P. 12(b)(5)—Matters Outside the Bare Allegations of the Complaint—C.R.C.P. 12(b)(5)—Statute of Limitations—Affirmative Defense.

Prospect Development Company, Inc. (Prospect) owned and sold undeveloped lots near Crested Butte. It relied on Holland & Knight, LLP (H&K) to prepare federally mandated property reports for prospective buyers. These reports stated that Prospect was responsible for the costs of constructing roads, sewage systems, and other infrastructure. They also stated that individual lot purchasers would not be responsible for these costs. The reports neglected to disclose that the special district in which the lots were located would purchase the infrastructure from Prospect using property tax revenue from the lots, effectively passing the cost of the infrastructure on to the lot owners.

In 2010, several lot owners complained they were not notified before they purchased that they would ultimately pay for the cost of infrastructure through property taxes. H&K assured Prospect that the reports complied with applicable law. Nevertheless, Prospect entered into a tolling agreement with the lot owners in 2010, agreeing to stay the running of any limitations period applicable to claims the lots owners might have against Prospect. In 2011, H&K withdrew from representing Prospect. In 2013, the lot owners sued Prospect based on its failure to make the required disclosures, and Prospect settled with them in 2015. Also in 2015, Prospect entered into a tolling agreement with H&K to toll claims that Prospect might have against H&K. Prospect sued H&K in 2016, alleging professional negligence. H&K did not answer the complaint but moved to dismiss under C.R.C.P. 12(b)(5), arguing that the statute of limitations barred the claims. H&K attached several exhibits from the underlying litigation between the lot owners and Prospect to support its assertion that the claims had accrued in 2011. Prospect opposed the motion and argued the trial court should disregard the exhibits, or, alternatively, if it did consider the exhibits, it should convert the motion to one for summary judgment and allow Prospect to present its own evidence. The district court granted the motion to dismiss, ruling the claims were time barred.

On appeal, Prospect argued that the district court erred by considering matters outside of the complaint in granting the C.R.C.P. 12(b)(5) motion. A defense based on a statute of limitations is an affirmative defense. H&K’s motion was based on a statutes of limitations defense. Thus, in ruling on H&K’s motion, the district court was not allowed to consider matters outside the bare allegations of the complaint. Here, the district court erred in considering two documents from the underlying litigation that were not part of the bare allegations of the complaint. If the district court wished to consider these documents, it was required to convert H&K’s motion to one for summary judgment. This error was not harmless because when viewed in the light most favorable to Prospect, the complaint’s allegations, and those in two documents that the complaint referred to, established that Prospect’s claims were timely.

The order was reversed and the case was remanded.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Excess Insurer Should Have Provided Coverage for Claims Against Insured’s Own Work Product

The Tenth Circuit Court of Appeals issued its opinion in Black & Veatch Corp. v. Aspen Insurance (UK) LTD; Lloyd’s Syndicate 2003 on February 13, 2018.

This case is an insurance coverage dispute between Black & Veatch Corporation (B&V) and Aspen Insurance (UK) Ltd. and Lloyd’s Syndicate 2003 (collectively, Aspen). The issue is whether Aspen must reimburse B&V for the costs B&V incurred due to damaged equipment that its subcontractor constructed at power plants in Ohio and Indiana. The district court held that Aspen need not pay B&V’s claim under its commercial general liability insurance policy because B&V’s expenses arose from property damages that were not covered “occurrences” under the Policy. Because the only damages involved were to B&V’s own work product arising from its subcontractor’s faulty workmanship, the court concluded that the Policy did not provide coverage and granted Aspen’s motion for partial summary judgment.

B&V appealed. Because the Tenth Circuit predicted that the New York Court of Appeals would decide that the damages here constitute an “occurrence” under the Policy, it vacated the district court’s summary judgment decision and remanded for further consideration in light of this opinion.

B&V is a global engineering, consulting, and construction company. A portion of its work involves engineering, procurement, and construction contracts (EPC contracts). In 2005, B&V entered into an EPC contracts with American Electric Power Service Corporation to engineer, procure, and construct several jet bubbling reactors (JBRs), which eliminate contaminates from the exhaust emitted by coal-fired power plants. For at least seven of these JBRs, B&V subcontracted the engineering and construction of the internal components to Midwest Towers, Inc. (MTI). Deficiencies in the components procured by MTI and constructed by MTI’s subcontractors caused internal components of the JBRs to deform, crack, and sometimes collapse. After work on three of the JBRs was completed, and while construction of four others was ongoing, AEP alerted B&V to the property damage arising from MTI’s negligent construction. AEP and B&V entered into settlement agreements resolving their disputes relating to the JBRs at issue here. Under the agreements, B&V was obligated to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven JBRs.

B&V had obtained several insurance policies to cover its work on these JBRs. Zurich American Insurance Company provided the primary layer of coverage for up to $4 million for damage to completed work. Under the CGL policy at issue here, Aspen provided the first layer of coverage for claims exceeding the Zurich policy’s limits. The policy limits coverage to up to $25 million per occurrence and $25 million aggregate. Following the basic insuring agreement, the Policy then scales back coverage through several exclusions, two of which are relevant here. The first, known as the “Your Work” exclusion, or “Exclusion F,” excludes coverage for property damage to B&V’s own completed work. The “Your Work” exclusion is subject to an exception that restores some coverage. The second exclusion, known as “Endorsement 4,” excludes coverage for property damage to the “particular part of real property” that B&V or its subcontractors were working on when the damage occurred. This exclusion pertains only to ongoing, rather than completed, work. In other words, the policy does not cover property damage to B&V’s own completed work unless the damage arises from faulty construction performed by a subcontractor. The court of appeals referred to this as the “subcontractor exception.”

B&V submitted claims to its liability insurers for a portion of the $225 million it cost to repair and replace the defective components. After B&V recovered $3.5 million from Zurich, its primary insurer, it sought excess recovery from Aspen. Aspen denied coverage. B&V sued Aspen in federal district court for breach of contract and declaratory judgment as to B&V’s rights under the policy. B&V sought coverage for approximately $72 million, a portion of the total loss. On cross-motions for partial summary judgment on the coverage issue, the court sided with Aspen, holding that damage arising from construction defects was not an “occurrence” under the policy unless the damage occurred to something other than B&V’s own work product.

The threshold question was whether the New York Court of Appeals would hold that the policy’s basic insuring agreement covered the property damage to the JBRs as an “occurrence.” The Tenth Circuit concluded that the damages constituted an “occurrence” under the policy because they were accidental and harmed a third party’s property.

The Tenth Circuit Court of Appeals began by addressing whether, under New York contract law, B&V sought payment from Aspen for a covered “occurrence” — the first step necessary for obtaining coverage under a CGL insurance policy. An occurrence triggers coverage. The damages at issue here satisfy the Policy’s accidental requirement.

The Policy covers costs arising from property damage. When AEP claimed damages against B&V, the separation of insureds clause rendered AEP a third party with respect to its claims for property damage against B&V. The principle risk B&V faced as an EPC contractor, and thus a main reason for obtaining CGL insurance, was the potential for claims alleging damages made by the property owner, AEP. Thus, the property damage to the JBRs constituted an “occurrence” under the policy. Furthermore, concluding otherwise would violate the New York Court of Appeal’s rule against surplusage. In other words, Aspen’s interpretation of “occurrence” as excluding the damages at issue here would render several Policy provisions meaningless in violation of New York contract interpretation rules.

Under the Policy, the damages at issue here were caused by a coverage-triggering “occurrence.” First, the damages were accidental and resulted in harm to a third-party’s property, thus meeting the policy’s definition of an “occurrence.” Second, the district court’s interpretation would violate New York’s rule against surplusage by rendering the “subcontractor exception” meaningless. Third, the changes ISO has made to standard-form CGL policies demonstrate that the policies can cover the damages at issue here. Fourth, the overwhelming trend among state supreme courts has been to recognize such damages as “occurrences.” Fifth, New York intermediate appellate decisions are distinguishable, outdated, or otherwise inapplicable. For the foregoing reasons, the Tenth Circuit vacated the district court’s summary judgment decision and remanded for reconsideration in light of this opinion.

Colorado Court of Appeals: Contract Between Private Cable Provider and Government Void Because It Does Not Provide for Annual Appropriations

The Colorado Court of Appeals issued its opinion in Falcon Broadband, Inc. v. Banning Lewis Ranch Metropolitan District No. 1 on Thursday, June 28, 2018.

Contract—Colorado Governmental Immunity Act—Tort—Civil Conspiracy—Unjust Enrichment—Promissory Estoppel—Annual Appropriation—Attorney Fees.

Falcon Broadband, Inc. (Falcon) signed a contract, the “Bulk Services Agreement” (BSA), with Banning Lewis Ranch Metropolitan District No. 1 (the District) to provide Internet and cable services to Banning Lewis Ranch area residents. Under the BSA, the District granted Falcon the exclusive right to provide Internet and cable services to residents for a monthly per-resident fee. The BSA states that it remains in effect until 2,700 homes in the development are occupied, which hasn’t yet occurred. The District later disavowed the BSA, stopped paying Falcon, and stopped collecting fees from residents. Falcon sued the District, its directors, and Oakwood Homes, LLC (the developer) and related Oakwood entities (collectively, Oakwood).  The district court dismissed Falcon’s complaint in part as barred by the Colorado Governmental Immunity Act (CGIA) and granted summary judgment in defendants’ favor on the remaining claims not subject to dismissal under the CGIA.

On appeal, Falcon contended that the district court erred in its application of the CGIA and in granting summary judgment. It is undisputed that the District is a public entity within the meaning and protection of the CGIA. Thus, the district court properly dismissed the civil conspiracy claim against the District because that claim is undeniably a tort claim. However, the court improperly dismissed the unjust enrichment and promissory estoppel claims as sounding in tort because they were grounded in contracts; the district court should have granted summary judgment to the District on these claims. The district court properly granted the District summary judgment on the breach of contract, breach of implied covenant of good faith and fair dealing, and declaratory judgment claims. The District directors are also protected by the CGIA, and the district court should have dismissed the claims against them. All of the Oakwood entities are private associations; thus, the district court erred in dismissing some claims against Oakwood under the CGIA.

Falcon also contended that the district court erred by determining that the BSA is void and by entering summary judgment on its tortious interference and civil conspiracy claims regardless of the BSA’s validity. The BSA is void under C.R.S. § 29-1-110 because it is a multi-year contract that does not provide that the obligation to pay is subject to annual appropriations. Because all of Falcon’s claims are premised on the BSA’s validity, only its unjust enrichment claim against Oakwood survives.

The District and the directors cross-appealed, arguing that the court erred by failing to award them attorney fees under C.R.S. § 13-17-201. Because the gist of Falcon’s action against the District was the District’s failure to perform the BSA, not its commission of any tort, and those claims were dismissed on summary judgment, the District is not entitled to fees. On the other hand, the only claims Falcon brought against the directors were tort claims. Because Falcon’s entire action against the directors should have been dismissed under C.R.C.P. 12(b)(1) as tort claims barred by the CGIA, the directors are entitled to an award of their reasonable attorney fees under C.R.S. § 13-17-201. The directors are also entitled to an award of their reasonable attorney fees incurred in their successful appeal under C.R.S. § 13-17-201.

The judgment was affirmed on all claims except Falcon’s unjust enrichment claim against Oakwood, which was reversed. The district court’s denial of the District’s request for attorney fees was affirmed. The district court’s denial of the directors’ request for attorney fees was reversed and the case was remanded to determine those fees.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Child Care Center Not Eligible for Property Tax Exemptions

The Colorado Court of Appeals issued its opinion in Children’s Hospital Colorado v. Property Tax Administrator on Thursday, June 28, 2018.

Child Care Center—Property Tax—Exemption—Sliding Scale—Charitable Purpose.

Children’s Hospital Colorado (the Hospital) owns and operates a child care facility (the Center) on the University of Colorado Anschutz Medical School (CU Anschutz) campus. The Center provides child care to constituents of the Hospital and CU Anschutz as an employee benefit. The Center has a written tuition assistance policy that gives all families with an income below 150% of the federal poverty level a flat 10% discount. It also provides a flat 5% discount for siblings of enrolled children, regardless of the family’s income. The Hospital filed an application for exemption from property tax for the Center, which the Division of Property Tax considered under the charitable purposes exemption, C.R.S. § 39-3-108(1)(a), and an exemption for qualified child care centers, C.R.S. § 39-3-110. The Property Tax Administrator denied the application, and the Board of Assessment Appeals (BAA) upheld the order.

On appeal, the Hospital argued that the BAA exceeded its authority in interpreting C.R.S. § 39-3-110(1)(e) to conclude that the Center’s tuition discount policy did not qualify the Center for an exemption under that section. It argued that the BAA misinterpreted the rule regarding the definition of “charges on the basis of ability to pay.” C.R.S. § 39-3-110(1)(e) requires that the Center charge for its services based on the recipient’s ability to pay. Here, the family tuition reduction policy was based solely on whether a family’s income falls above or below the federal poverty line; it was not a scale that provides a range of tuition options, and it did not account for more than one factor in determining a family’s ability to pay. Similarly, the sibling discount is provided regardless of income or another factor indicating ability to pay. The BAA properly interpreted C.R.S. § 39-3-110(1)(e) to conclude that the Center’s tuition discount policy did not qualify as offering services “on the basis of ability to pay.”

The Hospital also contended that the BAA erred by finding that the Center is not operated for strictly charitable purposes. Here, the Center was operating for a business purpose—providing an employee benefit and recruitment tool—and not for a charitable purpose. Additionally, the Center did not benefit an indefinite number of persons and did not lessen the burdens of government. Therefore, it was not operated strictly for charitable purposes, as required by C.R.S. § 39-3-108(1).

The order was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Promissory Note is a Security, Therefore Conviction for Securities Fraud Appropriate

The Colorado Court of Appeals issued its opinion in People v. Thompson on Thursday, June 14, 2018.

Securities Fraud—Jury Instruction—Double Jeopardy—Propensity Evidence—Theft—Sentencing.

Defendant was the sole member of SGD Timber Canyon LLC (SGD), which held an interest in 63 undeveloped lots in the Timber Ridge subdivision. The lots went into foreclosure, and in February 2010 SGD filed for bankruptcy. Defendant did not disclose these facts to the Witts, who later loaned defendant $200,000 to acquire a lot in Timber Ridge and another $200,000 for construction of a home on the lot, with the understanding that the loans would be repaid with a profit share of as much as $400,000 when the home was sold to a prequalified buyer. Later, at defendant’s urging, the Witts increased the loan to $2.4 million and converted their investment into a “bridge loan” to defendant, who represented that the proceeds would be used for continued development of Timber Ridge. The parties executed a promissory note and guarantee agreement. The promissory note was secured by defendant’s primary and secondary residences with collateral to convert the 24 lots in Timer Ridge upon closing and final purchase of Timber Ridge.

Defendant used the money on items not related to Timber Ridge and never developed the property there. Defendant defaulted on the note. He eventually repaid the Witts $70,000. Ultimately, the Witts sued defendant but did not recover any further monies from him. A jury found defendant guilty of two counts of securities fraud and one count of theft, and he was sentenced to 12 years in the custody of the Department of Corrections for each of the securities counts, to be served concurrently, and 18 years for the theft conviction, to be served consecutively to the other sentences.

On appeal, defendant claimed that the evidence was insufficient to support his securities fraud convictions because the promissory note and guarantee he provided to the Witts did not constitute a security. The “family resemblance test” applies to determine when a note is a security under the Colorado Securities Act (CSA). Under the family resemblance test, a note is presumed to be a security, but that presumption may be rebutted by a showing that the note strongly resembles other financial instruments. Here, the Witts’ investment, memorialized by the promissory note, was a transaction protected by the CSA and did not strongly resemble the family of transactions that are not securities. The evidence was sufficient to support the securities fraud convictions.

Defendant also argued that the trial court erred by tendering an inaccurate jury instruction regarding the definition of a security. Defendant did not object to the definition of security that was given to the jury, nor did he tender an alternative instruction. The law regarding the definition of a security was not well settled at the time of defendant’s trial, and thus any error in the jury instruction would not have been obvious or plain.

Defendant also claimed that his convictions and sentences for securities fraud violated double jeopardy because they are alternative ways of committing the same offense, and therefore the two counts should be merged. Defendant failed to raise this issue before the trial court. Here, defendant was charged with and convicted of multiplicitous counts of securities fraud because the evidence showed a sale of one security to one investor based on one set of false or misleading statements. But the law was not well-settled concerning the proper unit of prosecution, so there was no plain error.

Defendant further contended that there was insufficient evidence to support his theft conviction. Although the funds were supposed to be used to develop Timber Ridge, defendant used the funds to pay his own attorney fees, to improve the house that his wife continued to occupy at the time of trial, and for other personal expenses. Therefore, there was sufficient evidence to support the conclusion that defendant knowingly obtained the Witts’ money by deception and intended to permanently deprive them of it.

Defendant also argued that the court erred by admitting propensity evidence that defendant had previously attempted to sell a lot in Timber Ridge that he did not own. However, the evidence was logically relevant to prove identity, motive, knowledge, and lack of mistake, and the probative value was not substantially outweighed by the danger of unfair prejudice.

Lastly, defendant argued that his sentence for theft must run concurrently with the concurrent sentences for securities fraud because the crimes are based on identical evidence. Here, different evidence supported each offense, so there was no sentencing error.

The judgment and sentence were affirmed.

Summary provided courtesy of Colorado Lawyer.

Lieutenant Governor Lynne Signs Final Bills of 2018 Legislative Session

On Wednesday, June 6, 2018, Lieutenant Governor Donna Lynne signed the final bills of the 2018 legislative session into law in Governor Hickenlooper’s absence. Lt. Gov. Lynne signed 35 bills into law. During the 2018 legislative session, 421 bills were signed into law, 9 were vetoed, and 2 were sent to the Secretary of State without a signature. The bills signed Wednesday are summarized here.

  • SB 18-015 – “Concerning the ‘Protecting Homeowners and Deployed Military Personnel Act,'” by Sens. Bob Gardner & Owen Hill and Reps. Dave Williams & Larry Liston. The bill directs a peace officer to remove a person from a residential premises and to order the person to remain off the premises if the owner or owner’s authorized agent (declarant) swears to a declaration making specified statements concerning ownership of the premises and the lack of authority for the person or persons who are on the premises to be there.
  • SB 18-038 – “Concerning the Allowable Uses of Reclaimed Domestic Wastewater, and, in Connection Therewith, Allowing Reclaimed Domestic Wastewater to be Used for Industrial Hemp Cultivation and Making an Appropriation,” by Sens. Kerry Donovan & Don Coram and Reps. Daneya Esgar & Yeulin Willett. The bill codifies rules promulgated by the water quality control commission of the Colorado department of public health and environment concerning allowable uses of reclaimed domestic wastewater, which is wastewater that has been treated for subsequent reuses other than drinking water.
  • SB 18-068 – “Concerning Criminalizing False Reports,” by Sens. John Cooke & Kevin Van Winkle and Rep. Jeff Bridges. Under current law, there is a crime of false reporting to authorities. The bill creates a crime of false reporting of an emergency by criminalizing an act of false reporting to authorities that includes a false report of an imminent threat to the safety of a person or persons by use of a deadly weapon.
  • SB 18-225 – “Concerning the Definition of an Early College for Purposes of the ‘Concurrent Enrollment Programs Act,'” by Sen. Kent Lambert and Rep. Millie Hamner. Under the existing statute, an early college is not subject to the requirements of the ‘Concurrent Enrollment Programs Act’. The bill amends the definition of ‘early college’ to specify that an early college must provide only a curriculum that is designed to be completed within 4 years and includes concurrent enrollment in high school and postsecondary courses such that, when a student completes the curriculum, the student has attained a high school diploma and a postsecondary credential or at least 60 credit hours toward completion of a postsecondary credential.
  • SB 18-245 – “Concerning the Disposal of Naturally Occurring Radioactive Materials,” by Sen. John Cooke and Rep. Jeni James Arndt. Current law allows the state board of health to adopt rules concerning the disposal of naturally occurring radioactive materials (NORM) only after the federal environmental protection agency has adopted rules concerning the disposal of NORM. The EPA has not adopted the rules. The bill repeals this prohibition and requires the state board to adopt rules, which must also regulate technologically enhanced NORM (TENORM), by December 31, 2020.
  • SB 18-250 – “Concerning the Provision of Jail-based Behavioral Health Services, and, in Connection Therewith, Making an Appropriation,” by Sens. Bob Gardner & Kent Lambert and Reps. Pete Lee & Dave Young. The bill continues to allow the correctional treatment cash fund to be used to provide treatment for persons with mental and behavioral health disorders who are being served through the jail-based behavioral health services program.
  • SB 18-251 – “Concerning Establishing a Statewide Behavioral Health Court Liaison Program, and, in Connection Therewith, Making an Appropriation,” by Sens. Bob Gardner & Kent Lambert and Reps. Dave Young & Pete Lee. The bill establishes in the office of the state court administrator a statewide behavioral health court liaison program. The purpose of the program is to identify and dedicate local behavioral health professionals as court liaisons in each state judicial district to facilitate communication and collaboration among judicial, health care, and behavioral health systems.
  • SB 18-255 – “Concerning the Use of Electronic Formats in the Issuance of Certificates of Title for Vehicles,” by Sen. Jack Tate and Reps. Jeni James Arndt & Edie Hooten. Current law provides that a record may not be denied effect merely because it is electronic. The bill clarifies that this applies to documents needed to obtain a certificate of title and electronic signatures.
  • SB 18-259 – “Concerning the Taxation of Retail Marijuana by Local Governments, and, in Connection Therewith, Making an Appropriation,” by Sen. Jim Smallwood and Rep. Dan Pabon. The bill imposes general taxation requirements on local government.
  • SB 18-267 – “Concerning the Creation of the Justice Center Maintenance Fund,” by Sens. John Kefalas & Randy Baumgardner and Reps. Jon Becker & Chris Hansen. The bill creates the justice center maintenance fund that consists of money appropriated by the general assembly to the maintenance fund from the justice center cash fund to be used for controlled maintenance needs of the Ralph L. Carr Colorado judicial center.
  • SB 18-269 – “Concerning Providing Funding for Local Education Providers to Implement School Security Improvements to Prevent Incidences of School Violence, and, in Connection Therewith, Creating the School Security Disbursement Program,” by Sens. Tim Neville & Dominick Moreno and Reps. Patrick Neville & Jeff Bridges. The bill creates the school security disbursement program in the department of public safety. A school district, charter school, institute charter school, or board of cooperative services may apply for a disbursement by submitting an application to the department. A disbursement recipient may use the money for one or more of the purposes specified in the bill, which include building improvements to enhance security and training for school personnel.
  • SB 18-280 – “Concerning a Transfer from the General Fund to the Tobacco Litigation Settlement Cash Fund to be Allocated to the Programs, Services, and Funds that Currently Receive Tobacco Litigation Settlement Money,” by Sen. Kent Lambert and Rep. Millie Hamner. The bill requires the state treasurer to transfer $19,965,068 from the general fund to the tobacco litigation settlement cash fund on July 1, 2018. This money is allocated for the 2018-19 fiscal year to the programs, services, and funds that receive tobacco litigation settlement money to supplement the allocation of settlement money that those programs, services, and funds will otherwise receive.
  • HB 18-1042 – “Concerning the Creation of a Program to Authorize Private Providers to Register Commercial Vehicles as Class A Personal Property, and, in Connection Therewith, Making and Reducing an Appropriation,” by Reps. Jon Becker & Joann Ginal and Sens. Ray Scott & Rachel Zenzinger. The bill creates the expedited registration program. The program authorizes the department of revenue to promulgate rules authorizing private providers to register interstate commercial vehicles. The provider may collect and retain a convenience fee.
  • HB 18-1077 – “Concerning the Penalty for a Person who Commits Burglary to Acquire Firearms, and, in Connection Therewith, Making an Appropriation,” by Reps. Larry Liston & Donald Valdez and Sens. Leroy Garcia & Ray Scott. In current law, second degree burglary is a class 4 felony, but it is a class 3 felony under 2 specified circumstances. The bill designates a third type of second degree burglary as a class 3 felony: that is, a burglary, the objective of which is the theft of one or more firearms or ammunition.
  • HB 18-1146 – “Concerning the Continuation Under the Sunset Law of the Measurement Standards Law,” by Rep. Jovan Melton and Sen. Don Coram. The bill implements the recommendations of the department of regulatory agencies in its sunset review and report on the measurement standards law by extending the law for 15 years.
  • HB 18-1156 – “Concerning Limitations on Penalties for Truancy,” by Rep. Pete Lee and Sen. Chris Holbert. The bill clarifies in the Colorado Children’s Code and in the ‘School Attendance Law of 1963’ that a ‘delinquent act’ does not include truancy or habitual truancy. A child who is habitually truant and who refuses to follow a plan to rehabilitate his or her truancy may be subject to various sanctions by the court in a truancy proceeding.
  • HB 18-1200 – “Concerning Cybercrime, and, in Connection Therewith, Criminalizing Using a Computer to Engage in Prostitution of a Minor, Criminalizing Skimming Payment Cards, Making Changes to the Penalty Structure for Cybercrime, and Making an Appropriation,” by Reps. Paul Lundeen & Alec Garnett and Sens. Rhonda Fields & Don Coram. The bill changes the name of the crime computer crime to cybercrime. The bill makes soliciting, arranging, or offering to arrange a situation in which a minor may engage in prostitution, by means of using a computer, computer network, computer system, or any part thereof, a cybercrime.
  • HB 18-1218 – “Concerning the Definition of a Charitable Organization for Purposes of State Sales and Use Tax, and, in Connection Therewith, Removing the Limitation that a Veterans’ Organization Only Gets the Charitable Organization Exemption for Purposes of Sponsoring a Special Event, Meeting, or Other Function in the State, So Long as Such Event, Meeting, or Function is Not Part of the Organization’s Regular Activities in the State,” by Reps. Terri Carver & Jovan Melton and Sens. Nancy Todd & Larry Crowder. The bill makes state law consistent with federal law and will treat veterans’ organizations registered under section 501 (c)(19) of the federal internal revenue code the same way as veterans’ organizations registered under section 501 (c)(3) of the federal internal revenue code.
  • HB 18-1234 – “Concerning Clarification of the Laws Governing Simulated Gambling Activity,” by Reps. KC Becker & Paul Lundeen and Sen. Kent Lambert. The bill amends the definitions of key terms such as ‘gambling’, ‘prize’, and ‘simulated gambling device’ as used in the criminal statutes governing simulated gambling devices and specifies that unlawful offering of a simulated gambling device occurs if a person receives payment indirectly or in a nonmonetary form for use of a simulated gambling device.
  • HB 18-1302 – “Concerning the Allowance of the Department of Public Health and Environment to Waive Certification Requirements for Toxicology Laboratories that have been Accredited by an Entity Using Recognized Forensic Standards,” by Reps. Joann Ginal & Lois Landgraf and Sen. Vicki Marble. Current law allows the department of public health and environment to waive certain certification requirements for toxicology laboratories that are accredited by the American board of forensic toxicology or the international standards organization. The bill changes the waiver requirement to allow the department to waive certification requirements if the laboratory is accredited by an entity using nationally or internationally recognized forensic standards.
  • HB 18-1303 – “Concerning Exemption of Nonprofit Youth Sports Organization Coaches from the ‘Colorado Employment Security Act,'” by Reps. Cole Wist & Alec Garnett and Sen. Jack Tate. The bill exempts from the definition of ’employment’ under the ‘Colorado Employment Security Act’ nonprofit youth sports organization coaches if there is a written agreement between the coach and the organization that meets certain requirements, including a statement that the coach is an independent contractor.
  • HB 18-1313 – “Concerning the Allowance of a Pharmacist to Serve as a Practitioner under Certain Circumstances,” by Reps. Joann Ginal & Jon Becker and Sens. Irene Aguilar & Kevin Priola. The bill clarifies that a licensed and qualified pharmacist may serve as a practitioner and prescribe over-the-counter medication under the ‘Colorado Medical Assistance Act’ and a statewide drug therapy protocol pursuant to a collaborative pharmacy practice agreement.
  • HB 18-1314 – “Concerning Prohibiting the Use of Unmanned Aircraft Systems to Obstruct Public Safety Operations,” by Reps. Joann Ginal & Polly Lawrence and Sen. John Cooke. The bill states that, as used in the existing criminal offense of obstructing a peace officer, firefighter, emergency medical service provider, rescue specialist, or volunteer, the term ‘obstacle’ includes an unmanned aircraft system.
  • HB 18-1335 – “Concerning the Colorado Child Care Assistance Program, and, in Connection Therewith, Establishing Eligibility Requirements for All Counties and Creating a New Formula to Determine the Amount of Block Grants to Counties,” by Rep. Dave Young and Sen. Kevin Lundberg. For providers under the Colorado child care assistance program, the bill requires the state department of human services, in consultation with the counties, annually to contract for a market rate study of provider rates for each county.
  • HB 18-1342 – “Concerning a Requirement that a Common Interest Community Created in Colorado Before July 1, 1992, Comply with a Provision of the ‘Colorado Common Interest Ownership Act’ that Allows a Majority of the Unit Owners in a Common Interest Community to Veto a Budget Proposed by the Executive Board of the Common Interest Community,” by Rep. Jovan Melton and Sen. Nancy Todd. The bill requires a common interest community that predates the Act to allow its unit owners to veto, by majority vote, a budget proposed by the common interest community’s executive board; except that the bill does not apply to a common interest community that predates the Act if the common interest community’s declaration sets a maximum assessment amount or provides a limit on the amount that the common interest community’s annual budget may be increased.
  • HB 18-1350 – “Concerning the Sales and Use Tax Treatment of Equipment Used to Manufacture New Metal Stock from Scrap or End-of-Life-Cycle Metals, and, in Connection Therewith, Making an Appropriation,” by Rep. Tracy Kraft-Tharp and Sen. Kevin Priola. Purchases of machinery or machine tools to be used in Colorado directly and predominantly in manufacturing tangible personal property are currently exempt from state sales and use tax. Manufacturing is currently defined to include the processing of recovered materials. The bill expands the definition of recovered materials to include materials that have been derived from scrap metal or end-of-life-cycle metals for remanufacturing, reuse, or recycling into new metal stock that meets applicable standards for metal commodities sales.
  • HB 18-1363 – “Concerning Legislative Recommendations of the Child Support Commission, and, in Connection Therewith, Making an Appropriation,” by Reps. Jonathan Singer & Lois Landgraf and Sen. Larry Crowder. The bill implements several recommendations from the child support commission.
  • HB 18-1373 – “Concerning the Use of the State Telecommunications Network by Private Entities Through Public-Private Partnerships, and, in Connection Therewith, Relocating Laws Related to the State Telecommunications Network from the Department of Public Safety’s Statutes to the Statutes Regarding Telecommunications Coordination within State Government,” by Reps. Jon Becker & Chris Hansen and Sens. Randy Baumgardner & John Kefalas. The bill authorizes private entities to use the state telecommunications network through public-private partnerships considered, evaluated, and accepted by the chief information officer and relocates laws related to the state telecommunications network from the department of public safety’s statutes to the statutes regarding telecommunications coordination within state government.
  • HB 18-1402 – “Concerning Authorization for the State Treasurer to Invest State Money in Investment Grade Securities Issued by Sovereign, National, and Supranational Entities,” by Reps. Polly Lawrence & Dave Young and Sens. Bob Gardner & Angela Williams. The bill authorizes the state treasurer to invest state money in securities issued by a sovereign, national, or supranational entity that are rated at least investment grade by a nationally recognized rating organization.
  • HB 18-1405 – “Concerning an Exception from the Mandatory Reporting Requirements for Persons Providing Legal Assistance to Area Agencies on Aging,” by Rep. Pete Lee and Sen. Bob Gardner. Under current law, staff, and staff of contracted providers, of area agencies on aging are mandatory reporters of the mistreatment of an at-risk elder or an at-risk adult with an intellectual and developmental disability. The bill creates a mandatory reporter exception for attorneys at law providing legal assistance to individuals pursuant to a contract with an area agency on aging, the staff of such attorneys at law.
  • HB 18-1410 – “Concerning Measures to Address Prison Population Increases,” by Reps. Pete Lee & Leslie Herod and Sens. Kevin Lundberg & Daniel Kagan. The bill requires the department of corrections to track the prison bed vacancy rate in both correctional facilities and state-funded private contract prison beds on a monthly basis. If the vacancy rate falls below 2% for 30 consecutive days, the department shall notify the governor, the joint budget committee, the parole board, each elected district attorney, the chief judge of each judicial district, the state public defender, and the office of community corrections in the department of public safety.
  • HB 18-1421 – “Concerning the Procurement Process for Major Information Technology Projects Undertaken by State Agencies, and, in Connection Therewith, Making an Appropriation,” by Rep. Bob Rankin and Sens. Kent Lambert & Jack Tate. The bill requires internal process changes in connection with the procurement process for major information technology (IT) projects as specified.
  • HB 18-1422 – “Concerning Requirements for Marijuana Testing Facilities,” by Rep. Matt Gray and Sen. Cheri Jahn. The bill requires medical and retail marijuana testing facilities to be accredited pursuant to the International Organization for Standardization/International Electrotechnical Commission 17025:2005 standard by a body that is itself recognized by the International Laboratory Accreditation Cooperation by January 1, 2019.
  • HB 18-1429 – “Concerning the Exemption of the Workers’ Compensation Cash Fund from the Maximum Reserve,” by Rep. Millie Hamner and Sen. Kent Lambert. Prior to July 1, 2017, the workers’ compensation cash fund was exempt from the maximum reserve for a cash fund, which limits the year-end uncommitted reserves in a cash fund to 16.5% of the amount expended from the cash fund during the fiscal year. The bill once again exempts the workers’ compensation cash fund from the maximum reserve.
  • HB 18-1437 – “Concerning Eliminating the Requirement that a Person who Participates in College-level Academic Programs through the Correctional Education Program in the Department of Corrections must Bear Entirely the Costs Associated with such Programs,” by Rep. Leslie Herod and Sen. Tim Neville. Under current law, the correctional education program in the department of corrections is required to provide every person in a correctional facility who demonstrates college-level aptitudes with the opportunity to participate in college-level academic programs that may be offered within the correctional facility. The bill removes this stipulation concerning costs and states instead that such costs may be borne through private, local, or federally funded gifts, grants, donations, or scholarships, or by such persons themselves, or through any combination of such funding.

For a list of the governor’s 2018 legislative decisions, click here.

Colorado Supreme Court: No Fraud Where Assignment Clause Made Clear that Buyers Could Assign Interests

The Colorado Supreme Court issued its opinion in Rocky Mountain Exploration, Inc. v. Davis, Graham & Stubbs, LLP on Monday, June 11, 2018.

Undisclosed Principals—Fraud—Breach of Fiduciary Duty—Restatement (Third) of Agency.

This case arose out of a sale of oil and gas assets by petitioners to a buyer who was acting as an agent for a third company. The third company was represented by respondents, but due to a prior, contentious business relationship between petitioners and the third company, neither the buyer, the third company, nor respondents disclosed to petitioners that the buyer was acting on behalf of the third company in the sale.

After the sale was complete, petitioners learned of the third company’s involvement and sued respondents, among others, for breach of fiduciary duty, fraud, and civil conspiracy. The district court ultimately granted summary judgment for respondents, and a division of the court of appeals affirmed.

The supreme court here decided whether (1) petitioners could avoid their sale agreement for fraud when the buyer and respondents purportedly created the false impression that the buyer was not acting on behalf of the third company; (2) an assignment clause in the transaction documents sufficiently notified petitioners that the buyer was acting on behalf of others, such that the third company would not be considered an undisclosed principal under the Restatement provision on which petitioners’ contract avoidance argument is exclusively premised; (3) petitioners stated a viable claim for fraud against respondents; and (4) prior agreements between petitioners and the third company negated any joint venture relationship or fiduciary obligations between them.

The court first concluded that the assignment clause in the pertinent transaction documents made clear that the buyer had partners in the transaction to whom it could assign a portion of its interests. As a result, the third company was not an undisclosed principal under the Restatement provision on which petitioners’ rely, and petitioners’ contract avoidance argument and the civil conspiracy claim that flows from it fail as a matter of law. The court further concluded that, even if the Restatement provision did apply, the record did not support a finding that either the buyer or respondents created a false impression that the buyer was not acting on behalf of an undisclosed principal. For this reason as well, petitioners’ civil conspiracy claim failed as a matter of law.

The court next concluded that, as a matter of law, petitioners did not demonstrate the requisite false representation or reasonable reliance to support a viable claim for fraud against respondents.

Finally, the court concluded that the controlling agreements between petitioners and the third company expressly disavowed any pre-existing joint ventures and fiduciary obligations between the parties, and therefore the district court properly granted summary judgment for respondents on petitioners’ claim for aiding and abetting a breach of fiduciary duty.

Accordingly, the court affirmed the court of appeals division’s judgment.

Summary provided courtesy of Colorado Lawyer.

Governor Vetoes MMJ for Autism Bill, Investment in Marijuana Businesses Bill, and More

On Tuesday, June 5, 2018, Governor Hickenlooper signed three bills into law and vetoed four bills. To date, he has signed 370 bills, sent two bills to the Secretary of State without a signature, and vetoed nine bills. The bills signed and vetoed Tuesday are summarized here.

Signed

  • HB 18-1136 – “Concerning Treatment for Individuals with Substance Use Disorders, and, in Connection Therewith, Adding Residential and Inpatient Treatment to the Colorado Medical Assistance Program and Making an Appropriation,” by Rep. Brittany Pettersen and Sens. Kevin Priola and Cheri Jahn. The bill adds residential and inpatient substance use disorder services and medical detoxification services to the Colorado medical assistance program. The benefit is limited to persons who meet nationally recognized, evidence-based level of care criteria for residential and inpatient substance use disorder treatment.
  • HB 18-1266 – “Concerning Expanding the Career Development Success Pilot Program,” by Reps. Daneya Esgar & James Wilson and Sens. Owen Hill & Nancy Todd. The bill amends the existing career development success pilot program, which provides a distribution of up to $1,000 to school districts and charter schools for each high school student who successfully completes an identified industry-certificate, internship, or pre-apprenticeship program or computer science advanced placement course. The bill limits the distribution for industry certificates for a single school district or charter school to 10% of the total number of completed industry certificates reported.
  • SB 18-206 – “Concerning Ensuring Affordability at Public Research Universities in Colorado, and, in Connection Therewith, Making an Appropriation,” by Sens. Kevin Priola & Andy Kerr and Reps. Jeni James Arndt & Cole Wist. Under current law, the number of in-state students enrolled at public institutions of higher education is governed by various percentage limits and requirements. The bill standardizes the calculation for public research institutions in several ways.

Vetoed

  • HB 18-1011 – “Concerning Measures to Allow Greater Investment Flexibility in Marijuana Businesses, and, in Connection Therewith, Making an Appropriation,” by Reps. Dan Pabon & Kevin Van Winkle and Sens. Tim Neville & Cheri Jahn. The bill would have repealed certain requirements for marijuana business owners, and would have created and defined two new ownership licenses, controlling beneficial owners and passive beneficial owners, and a new investment type, indirect financial interest holder. The bill also would have given the state licensing authority rulemaking authority related to the parameters of, qualifications of, disclosure of, requirements for, and suitability for the new license types and investment type. “The marijuana industry is organically expanding. While we wish to encourage business opportunity, we must approach capital expansion in the market in a way that is consistent with our federal oversight, and not degrade the robust regulatory system that Colorado worked so hard to establish,” said Governor Hickenlooper in the veto letter.
  • HB 18-1083 – “Concerning a Sales and Use Tax Exemption for Aircraft to be Used by On-Demand Air Carriers,” by Reps. Tracy Kraft-Tharp & Lang Sias and Sens. Jack Tate & Angela Williams. The bill would have created a sales and use tax exemption for aircraft used or purchased for use in interstate or intrastate commerce by an on-demand air carrier. “The bill’s proponents contend that exempting privately purchased aircrafts from sales and use taxes will create jobs in Colorado and prevent certain private aircraft owners from purchasing and storing planes in other states,” said Governor Hickenlooper in the veto letter.  “We are unpersuaded by that argument as stronger data was not presented demonstrating this bill will lead to greater aircraft purchases – specifically, purchases that would not have otherwise occurred in the absence of this bill – and private aircrafts stored in Colorado. We believe that a more comprehensive analysis of tax policy around aircrafts is warranted.”
  • HB 18-1263 – “Concerning Adding Certain Conditions to the List of Disabling Medical Conditions for Medical Marijuana Use, and, in Connection Therewith, Adding Autism Spectrum Disorders,” by Reps. Edie Hooten & Jovan Melton and Sens. Don Coram & Stephen Fenberg. The bill would have added autism spectrum disorders to the list of disabling medical conditions that authorize a person to use medical marijuana for his or her condition. “While we are very sympathetic with families advocating medical marijuana (MMJ) as a safer and more effective treatment for their children, we cannot ignore such overwhelming concerns from the medical community,” said Governor Hickenlooper in the veto letter. He went on to say, “In vetoing this bill, we do so on sole concern that medical efficacy on MMJ to treat ASD has yet to be fully studied by medical professionals and scientific experts entrusted to this role at the Colorado Department of Public Health and Environment (CDPHE).”
  • SB 18-156 – “Concerning the Publication of Fiscal Information by a County,” by Sen. John Cooke and Rep. Chris Kennedy. Current law requires each county to publish a report about its expenses and contracts, the salaries of public employees and officials in the county, and the financial statements for each fund kept by the county treasurer. The expense report is published monthly and the salary report is published twice per year. The bill would have changed the salary report to an annual report. Commencing January 1, 2020, the bill would have allowed a county to publish the expense report, the salary report, and the financial statement on a county website with a link to the report published in at least one legal newspaper. “The underlying law was enacted in a time when newspapers were the dominant, if not sole, form of public information in all communities. For some communities, this is still the norm,” said Governor Hickenlooper in the veto letter. “We are persuaded that the sponsors’ concept is sound and the bill’s time is near. But that time must closely align with full broadband availability throughout the State. To that end, we encourage the sponsors to bring this bill next year with trigger language taking effect not at a date certain, but rather once full broadband buildout is achieved.”

For a complete list of Governor Hickenlooper’s 2018 legislative actions, click here.