June 25, 2019

Tenth Circuit: Default Judgment Non-Dischargeable in Bankruptcy Under 11 U.S.C. § 523(a)(19)

The Tenth Circuit Court of Appeals issued its opinion in Tripodi v. Welch on Wednesday, January 13, 2016.

Nathan Welch was a real estate developer, and beginning in 2006, he worked to procure funding for the Talisman project. Robert Tripodi invested in the Talisman project, ultimately putting $1 million into the development, secured by promissory notes from Welch. When Talisman failed, Welch defaulted on the notes, and Tripodi filed a complaint against Welch in federal district court in 2009, alleging violations of federal and state securities laws. Welch answered the complaint, but a few months later his counsel moved to withdraw. The district court granted counsel’s motion and gave Welch 20 days to find new counsel or appear pro se. Several months later, Tripodi moved for default judgment, and, because Welch did not respond to the motion, the district court entered default judgment against him in April 2010. For the next year, Tripodi presented proof of damages, costs, and attorney fees, and the district court found Tripodi was owed $729,161.65 plus post-judgment interest.

Welch filed a voluntary petition for Chapter 7 bankruptcy in August 2011. Nearly two years later, Tripodi filed a motion for relief from the automatic stay. The district court granted Tripodi’s motion and directed its clerk to enter final monetary judgment. The clerk entered judgment in his favor for $729,161.65 plus post-judgment interest accruing since May 2011. Welch opposed a determination of damages and filed a cross-motion to set aside entry of default. The district court denied his motion as untimely. Each party then filed post-judgment motions. Tripodi moved for an order determining that the default judgment against Welch was non-dischargeable under 11 U.S.C. § 523(a)(19), while Welch moved for the court to reconsider its order refusing to set aside the default, to set aside the default, and to enter a judgment on the pleadings in his favor. The district court granted Tripodi’s motion and denied Welch’s.

Welch appealed, arguing the district court erred in denying his motion for judgment on the pleadings and granting Tripodi’s motion that default is non-dischargeable under § 523(a)(19). The Tenth Circuit disagreed. The Tenth Circuit characterized Welch’s appeal as a roundabout way to challenge the entry of default against him by challenging the sufficiency of the pleadings. The Tenth Circuit addressed the district court’s grant of default judgment. The Tenth Circuit found that the pleadings were legally sufficient, as they showed (1) Tripodi invested in Talisman because he thought it would be a high-yeilding investment opportunity, (2) the investment was structured for broad distribution to unsophisticated investors such as himself, (3) the investing public would consider the notes to be securities, and (4) the collateral provided little security for investors. These four factors led the Tenth Circuit to conclude that the district court correctly ruled the notes were securities and Welch violated securities laws. The Tenth Circuit found no abuse of discretion.

Welch next contended that the district court erred in finding that the debt was non-dischargeable in bankruptcy under § 523(a)(19). The Tenth Circuit again disagreed. The Tenth Circuit noted that § 523(a)(19) renders debts non-dischargeable when they arise in connection with a violation of state or federal securities laws. Two factors prevent the debt from being discharged: (1) the debt must stem from a violation of federal or state securities law, and (2) the debt must be memorialized in a judicial order or settlement agreement. The Tenth Circuit found that Welch’s debt to Tripodi satisfied both factors.

The judgment of the district court was affirmed.

Bills Implementing “SAFE Act,” Allowing Issuance of Summonses in Lieu of Warrants, and More Signed

On Thursday, April 21, and Friday, April 22, 2016, Governor Hickenlooper signed more bills into law. He signed 19 bills on Thursday and five bills on Friday. To date, the governor has signed 141 bills this legislative session. Some of the bills signed Thursday and Friday include a bill to limit the imposition of conditions by federal entities on Colorado water rights, changing the statutory purpose of parole in order to facilitate integration into society for parolees, limiting laws governing security interests in business entities, and more. The bills signed Thursday and Friday are summarized here.

Thursday, April 21, 2016

  • HB 16-1035 – Concerning the Scope of Statutes Making the Issuance of Securities by a Public Utility Conditional on Approval by the Colorado Public Utilities Commission, and, in Connection Therewith, Clarifying that the Approval Requirement Applies Only to Electric and Gas Utilities, by Rep. Timothy Leonard and Sen. Ray Scott. The bill clarifies that only public electric and gas utilities are required to apply to the Public Utilities Commission for approval to issue or assume securities.
  • HB 16-1060 – Concerning Roadside Memorials for Fallen State Patrol Officers, by Rep. Max Tyler and Sen. Randy Baumgardner. The bill requires CDOT to erect and maintain a permanent roadside memorial for every Colorado State Patrol officer who has perished on the highway in the line of duty.
  • HB 16-1093 – Concerning the Use of the National Change of Address Database to Maintain Voter Registration Records, and, in Connection Therewith, Clarifying Terminology and Consolidating Procedures for County Clerks and Recorders to Follow when it Appears that an Elector has Moved Within the State, by Reps. Kim Ransom & Su Ryden and Sen. Jack Tate. The bill changes the process that must be followed by county clerks to confirm a voter address if the monthly search determines that a voter may have moved.
  • HB 16-1104 – Concerning the Issuance of a Summons in Lieu of a Warrant for Certain Non-Violent Offenders, by Rep. Kit Roupe and Sen. John Cooke. The bill allows law enforcement officers to issue a summons in lieu of a warrant if the officer believes there is a reasonable likelihood the defendant will appear, the local district attorney approves and has developed criteria for the procedure, the defendant has had no felony arrests in the past five years, there is no allegation that the defendant used a deadly weapon, and there are no outstanding warrants for the defendant’s arrest.
  • HB 16-1109 – Concerning that the Basic Tenets of Colorado Water Law Place on the Ability of Certain Federal Agencies to Impose Conditions on a Water Right Owner in Exchange for Permission to use Federal Land, by Reps. KC Becker & Jon Becker and Sens. Jerry Sonnenberg & Kerry Donovan. The bill states that Colorado water is a transferable property right and that the federal government must comply with state law, through the water court process, to acquire water rights.
  • HB 16-1141 – Concerning the Protection of Colorado Residents from the Hazards Associated with Naturally Occurring Radioactive Materials in Buildings, and in Connection Therewith, Making an Appropriation, by Reps. KC Becker & Don Coram and Sens. Cheri Jahn & Ellen Roberts. The bill requires the Colorado Department of Public Health and Environment to establish a radon education and awareness program to provide information and education statewide to citizens, businesses, and others in need of information, and requires that, by January 1, 2017, the CDPHE stablish a radon mitigation assistance program to provide financial assistance to low-income individuals for radon mitigation services.
  • HB 16-1153 – Concerning the Annual Date by which the General Assembly Receives a Report Regarding Outcomes of Decisions Made by the State Board of Parole, by Rep. Jovan Melton and Sen. John Cooke. The bill extends the deadline by which reports on parole outcomes made by the State Board of Parole and the Division of Criminal Justice are required from November 1 to March 31.
  • HB 16-1173 – Concerning the Continuation of the Regulation of Vessels by the Department of Natural Resources, by Rep. Diane Mitsch Bush and Sen. Ray Scott. The bill indefinitely removes the sunset of the Vessel Registration Program conducted by the Department of Regulatory Agencies to continue the registration and regulation of vessels program by Colorado Parks and Wildlife in the Department of Natural Resources.
  • HB 16-1198 – Concerning Computer Science Courses Fulfilling Certain Graduation Requirements, by Reps. Dan Pabon & Jim Wilson and Sens. Jack Tate & Andy Kerr. The bill encourages school districts to treat computer science and coding classes as mathematics or science courses and count completion of such computer-related courses toward the fulfillment of any mathematics or science graduation requirements.
  • HB 16-1215 – Concerning Changing the Statutory Purposes of Parole to Successfully Reintegrate Parolees into Society by Providing Enhanced Supportive Services, by Reps. Beth McCann & Daniel Kagan and Sen. Lucia Guzman. The bill redefines the purpose of parole to enhance public safety by reducing recidivism, select and prepare individuals who will be transitioned into the community, set individualized conditions of parole, and achieve a successful discharge from parole.
  • HB 16-1230 – Concerning the Inclusion of a County’s Financial Information in the State’s Financial Information Database, which is known as the Transparency Online Project, by Rep. Timothy Dore and Sen. John Cooke. The bill requires counties to provide the state Chief Information Officer with a copy of the county’s adopted budget no later than 30 days after the fiscal year begins, starting January 1, 2018.
  • HB 16-1255 – Concerning Additional Methods to Manage Forests to Secure Favorable Conditions for Water Supply, by Reps. Don Coram & Ed Vigil and Sen. Randy Baumgardner. The bill directs the Colorado state forest service to conduct demonstration pilot projects to implement forest management treatments that improve forest health and resilience, supply forest products to Colorado businesses, and target a Colorado watershed.
  • HB 16-1258 – Concerning the Posting by Court Clerks of Process When a Respondent is Served by Publication, by Rep. Jovan Melton and Sen. Kevin Lundberg. Current law mandates that clerks of court post the process for notice of a divorce proceeding on a bulletin board in their office when one party cannot be reached. This bill adds the option that clerks can post the process on a bulletin board or the website of the district court in which the case was filed.
  • HB 16-1259 – Concerning Local District Junior Colleges, and, in Connection Therewith, Changing the Term Local District Junior College to Local District College, by Reps. Diane Mitsch Bush & Jim Wilson and Sens. John Cooke & Kerry Donovan. The bill changes all statutory references to “local junior college” or “junior college” to “local district college” and changes requirements regarding number of board members, actions taken without regular meetings, and annexation.
  • HB 16-1270 – Concerning the Limitation of Laws Governing Security Interests to an Owner’s Interest in a Business Entity, by Rep. Pete Lee and Sens. Mark Scheffel & Rollie Heath. The bill allows small businesses to control their ownership under the Colorado Corporation and Associations Act and the Uniform Commercial Code.
  • HB 16-1271 – Concerning the Ability of a Limited Winery that has a Winery Direct Shipper’s Permit to Deliver Vinous Liquors of its Own Manufacture Directly to a Personal Consumer Without the Use of a Common Carrier, by Reps. Jonathan Singer & Dan Nordberg and Sens. Cheri Jahn & Kevin Lundberg. Under current law, a limited winery licensee with a winery direct shipper’s permit may only use a common carrier to deliver the wine it manufactures to personal consumers within Colorado. This bill allows a limited winery licensee to deliver the wine it manufactures directly to personal consumers without the use of a common carrier, as long as the licensee also has a winery direct shipper’s permit and follows the requirements of the permit.
  • HB 16-1306 – Concerning Revision of the State Statutes Governing Mortgage Loan Originators to Conform More Closely to Applicable Federal Law, and, in Connection Therewith, Amending, Relocating, and Repealing Provisions in Accordance with the Federal “Secure and Fair Enforcement for Mortgage Licensing Act Of 2008,” by Rep. Angela Williams and Sen. Chris Holbert. The bill  amends, relocates, and repeals provisions of Colorado’s mortgage loan originator licensing statutes that conflict with or have been rendered unnecessary by recent changes to federal law, or no longer reflect current national industry standards.
  • HB 16-1316 – Concerning Procedures for Changing Venue for Proceedings Relating to a Child Placed in the Legal Custody of a County Department of Social or Human Services, by Rep. Paul Rosenthal and Sen. John Cooke. The bill amends the Colorado Children’s Code to state that a child who is placed in the legal custody of a county department shall be deemed, for the entire period of the placement, to reside in the county in which the child’s legal parent or guardian resides or is located. This applies even if the child physically resides in an out-of-home placement located in another county.
  • HB 16-1327 – Concerning the Colorado Dental Board’s Authority to Promulgate Rules Implementing Financial Responsibility Requirements for Dental Care Providers, by Rep. Joann Ginal and Sen. Kevin Grantham. The bill allows the State Dental Board to establish lesser financial responsibility requirements for professional liability insurance for dental hygienists that meet certain criteria.

Friday, April 22, 2016

  • HB 16-1070 – Concerning a Signature Verification Requirement for Municipal Mail Ballot Elections, and, in Connection Therewith, Making an Appropriation, by Rep. Patrick Neville and Sen. Tim Neville. The bill requires an election judge to compare the signature on each ballot return envelope with the signature of the eligible elector stored in the statewide voter registration system for every municipal mail ballot election.
  • HB 16-1155 – Concerning Authorization for a County to Designate a Four-Lane Controlled-Access Highway that is Located in the County as a Primary Road of the County Highway System, and, in Connection Therewith, Specifying the Jurisdiction, Control, and Duties of the County and of a Municipality Through which the Highway Passes with Respect to Such a Highway, by Reps. Lori Saine & Diane Mitsch Bush and Sen. Jerry Sonnenberg. The bill allows a county with a population of 250,000 or more to designate a four-lane, controlled-access county highway in an unincorporated county area that intersects with an interstate highway or a U.S. numbered highway as a primary road of the county if the construction begins in 2016.
  • HB 16-1323 – Concerning Changing the Name of the Division of Labor to the Division of Labor and Statistics, by Rep. Tracy Kraft-Tharp and Sen. John Cooke. The bill changes the name of the Division of Labor and Employment within the Colorado Department of Labor and Employment (CDLE) to the Division of Labor Standards and Statistics.
  • HB 16-1350 – Concerning the Department of Higher Education’s Authority to Make Transfers Relating to a Governing Board’s Fee-For-Service Contracts for Specialty Education, by Rep. Dave Young and Sen. Kevin Grantham. Under current law, the Department of Higher Education may transfer up to ten percent of the annual total governing board appropriation for an institution of higher education between that governing board’s appropriation for college opportunity fund (COF) stipends, and that governing board’s fee-for-service (FFS) contracts for higher education services and programs. The bill expands the department’s authority to transfer between the COF and FFS appropriations for specialty education programs.
  • HB 16-1352 – Concerning the Appropriation of Moneys from the State Museum Cash Fund for the Benefit of Facilities Owned and Operated by the State Historical Society, and, in Connection Therewith, Making an Appropriation, by Rep. Millie Hamner and Sen. Kevin Grantham. The bill allows moneys in the fund to also be appropriated for exhibit planning, development, and build-out at other State Historical Society facilities, and, for FY 2016-17, appropriates $2 million from the fund for those purposes. The State Historical Society has four years to spend the appropriation.

For a complete list of Governor Hickenlooper’s 2016 legislative decisions, click here.

e-Legislative Report: February 22, 2016

Welcome e-leg report readers to this week’s installment of the world under the Gold Dome. As always, we welcome your feedback, thoughts, comments and questions. This news report is designed to keep you up-to-date on activities at the capitol that are of interest to the bar association and to lawyers across practice areas.

Feel free to drop me a line on how we are doing or raise an issue on a piece of legislation. Contact me at jschupbach@cobar.org.

CBA Legislative Policy Committee

For followers who are new to CBA legislative activity, the Legislative Policy Committee (LPC) is the CBA’s legislative policy making arm during the legislative session. The LPC meets weekly during the legislative session to determine CBA positions from requests from the various sections and committees of the Bar Association. Members are welcome to attend the meetings; please RSVP if you are interested.

LPC Meeting Update

The following bills were discussed by the LPC on 2.19.16. Other bills of interest from that agenda are tracked and updated below.

HB 16-1191 Bill Of Rights For Persons Who Are Homeless
The bill creates the “Colorado Right to Rest Act,” which establishes basic rights for persons experiencing homelessness, including, but not limited to, the right to use and move freely in public spaces without discrimination, to rest in public spaces without discrimination, to eat or accept food in any public space where food is not prohibited, to occupy a legally parked vehicle, and to have a reasonable expectation of privacy of one’s property. The bill does not create an obligation for a provider of services for persons experiencing homelessness to provide shelter or services when none are available.
The LPC considered this bill at the request of the Civil Rights Committee, but took no position on the bill.

HB 16-1110 Parent’s Bill Of Rights
The bill establishes a liberty interest and fundamental right for parents in the care, custody, and control of a parent’s child, restricting governmental entities from infringing on such interests and rights without demonstrating a compelling governmental interest that cannot be accomplished through less restrictive means.
The LPC voted to oppose this bill because it reverses the long-standing policy position of the Colorado Judicial system to act in the best interest of the child.

HB 16-1235 Commissions Evaluating State Judicial Performance
The bill makes revisions to various functions of the state commission on judicial performance (state commission) and the district commissions on judicial performance (district commission), referred to collectively as the “commissions.” The revisions include: changing the makeup of the state commission to include one representative from each judicial district to ensure representation from the entire state; establishing guidelines for when attorneys and nonattorneys are appointed to the state commission by a district commission; not allowing the chief justice to select individuals for the state commission, which reviews the chief justice’s performance; mandating annual public meetings at which the public is invited to attend and confidentially comment on justices and judges; requiring the state commission to obtain and verify required financial disclosures, criminal histories, and driving histories for each justice or judge reviewed by the commissions; requiring judicial evaluations to take place every two years and to be made public at that time; mandating that the commissions make a “do not retain” recommendation when a majority of commissioners determine that it is more probable than not that a justice or judge knowingly committed a dishonest act during the performance of judicial duties, knowingly made inaccurate or insufficient public financial disclosures, or was improperly influenced by a conflict of interest in performing a judicial act; and mandating that the commissions make a “do not retain” recommendation when two-thirds of the attorneys who complete a questionnaire or survey for the commission recommend that the justice or judge not be retained. The bill is funded from any fees and cost recoveries for electronic filings, network access and searches of court databases, electronic searches of court records, and any other information technology services performed pursuant to statute.
The LPC voted to oppose this bill based on the consideration that this is a longstanding and fundamental change that is not in the best interest of the administration of justice in Colorado.

SB 16-085 Uniform Trust Decanting Act
Colorado Commission on Uniform State Laws. “Decanting” is a term used to describe the distribution of assets from one trust into a second trust. The bill enacts the “Colorado Uniform Trust Decanting Act” (Act), which allows a trustee to reform an irrevocable trust document within reasonable limits that ensure the trust will achieve the settlor’s original intent. The Act prevents decanting when it would defeat a charitable or tax-related purpose of the settlor.
The LPC voted to support this Uniform Bill as modified to meet the considerations of Family Law, Trust & Estate and Elder Law sections.

Updates regarding bills the CBA is currently focused on:

SB 16-013 Clean-up Office Of The Child Protection Ombudsman
Senator Newell has pulled the language of concern from the bill.  SB 13 was passed out of committee on Monday.

SB 16-043 Student Loans Consumer Protections
The CBA testified in favor of this bill, at the request of the Colorado Young Lawyers Division. The bill failed to pass out of committee.

SB 16-047 No Detention For Juveniles Who Are Truant
The CBA testified that while detention for truancy is not something the Bar supports as policy, the bill was fundamentally flawed by prohibiting the judicial branch from effecting its own valid orders. Case law from Colorado in the 1990s is directly on point to the Bar’s constitutional concerns.

SB 16-084 Uniform Substitute Health Care Decision-making Documents
The Bar remains neutral on this bill, while the Health Law Section has some concerns and opposition to the language. The bill was heard in committee, but was not voted on. We are waiting for the Senate to take action on the bill.

SB 16-071 Revised Uniform Athlete Agents Act 2015
The CBA has not taken a position on this bill. The Department of Regulatory Affairs has some outstanding concerns that they are addressing with the Uniform Law Commission.

SB 16-088 Revised Uniform Fiduciary Access To Digital Asset
This bill, as amended to accommodate both the Trust & Estate and Business Law Sections, is moving through the legislature as anticipated.

SB 16-115 Electronic Recording Technology Board
The bill, which is supported by the Bar and the Real Estate Section, has passed its first two committee hearings and now heads to Senate Appropriations.

HB 16-1051 Forms To Transfer Vehicle Ownership Upon Death
The CBA is working with the sponsors on some amendments for this bill. The bill is now in its second chamber.

HB 16-1078 Local Government Employee Whistleblower Protection
The CBA is working on this bill, which was amended and is now headed to appropriations in the House.

New Bills of Interest

These are a few new bills recently introduced. They have been sent to CBA sections for review and comment. If you have any questions about these or any other bills, please drop me a line. I’m happy to help you however I can.

HB 16-1270 Security Interest Owner’s Interest In Business Entity
Under current law, the “Uniform Commercial Code” (Code) invalidates contractual limits on the transferability of some assets that can be subject to a security interest. In 2006, the “Colorado Corporations and Associations Act” (Act) was amended to clearly and broadly exempt an owner’s interest in a business entity from these Code provisions to effectuate the “pick your partner” principle that allows small businesses to control their ownership. Section 3 of the bill narrows the exemption in the Act to that necessary for “pick your partner,” and sections 1 and 2 codify this narrowed exemption in the Code.

HB 16-1275 Taxation Of Corporate Income Sheltered In Tax Haven
The bill pertains to an affiliated group of corporations filing a combined report. In a combined report filing, the tax is based on a percentage of the entire taxable income of all of the includable corporations, but the tax is assessed only against the corporation or corporations doing business in Colorado. Including more affiliated corporations in the combined report may result in an increase in income subject to tax. There are jurisdictions located outside of the United States with no tax or very low rates of taxation, strict bank secrecy provisions, a lack of transparency in the operation of their tax system, and a lack of effective exchange of information with other countries. There are several common legal strategies for sheltering corporate income in such jurisdictions, often called “tax havens.” Notwithstanding a current requirement in state law that those corporations with 80% or more of their property and payroll assigned to locations outside of the United States be excluded from a combined report, the bill makes a corporation that is incorporated in a foreign jurisdiction for the purpose of tax avoidance an includable C corporation for purposes of the combined report. The bill defines a corporation incorporated in a foreign jurisdiction for the purpose of tax avoidance to mean any C corporation that is incorporated in a jurisdiction that has no or nominal effective tax on the relevant income and that meets one or more of five factors listed in the bill, unless it is proven to the satisfaction of the executive director of the department of revenue that such corporation is incorporated in that jurisdiction for a legitimate business purpose. The bill requires the state controller to credit a specified amount per fiscal year to the state education fund to be used to help fund public school education. The bill requires the secretary of state to submit a ballot question, to be treated as a proposition, at the statewide election to be held in November 2016 asking the voters to: increase taxes annually by the taxation of a corporation’s state income that is sheltered in a foreign jurisdiction for the purpose of tax avoidance; provide that the resulting tax revenue be used to help fund elementary and secondary public school education; and allow an estimate of the resulting tax revenue to be collected and spent notwithstanding any limitations in section 20 of article X of the state constitution (TABOR).

SB 16-131 Overseeing Fiduciaries’ Management Of Assets
The bill clarifies statutory language concerning the removal of a fiduciary to ensure that a fiduciary’s authority is suspended as soon as a petition to remove the fiduciary is filed. The bill adds a provision to the conservatorship statutes stating that an adult ward or protected person has a right to be represented by a lawyer of their choosing unless the trial court finds that the person lacks sufficient capacity to provide informed consent for representation by a lawyer. The bill states that after a fiduciary receives notice of proceedings for his, her, or its removal, the fiduciary shall not pay compensation or attorney fees and costs from the estate without an order of the court.

SB 16-133 Transfer Of Property Rights At Death
Under current law, a certificate of death, a verification of death document, or a certified copy thereof, of a person who is a joint tenant may be placed of record with the county clerk and recorder of the county in which the real property affected by the joint tenancy is located, together with a supplementary affidavit. The bill removes the requirement that the person who swears to and affirms the supplementary affidavit have no record interest in the real property. The bill includes inherited individual retirement accounts and inherited Roth individual retirement accounts as property exempt from levy and sale under writ of attachment or writ of execution. The bill, which amends provisions concerning determination-of-heirship proceedings, clarifies the definition of “interested person,” so that anyone affected by the ownership of property may commence a proceeding; describes when an unprobated will may be used as part of a proceeding; clarifies notice requirements; and ensures that a judgment and decree will convey legal title as opposed to equitable title. The bill enacts portions of section 5 of the “Uniform Power of Appointment Act,” with amendments.

HB 16-1035: Limiting Public Utility Securities to Electricity or Gas Services

On January 13, 2016, Rep. Jon Keyser introduced HB 16-1035Concerning the Scope of Statutes Making the Issuance of Securities by a Public Utility Conditional on Approval by the Colorado Public Utilities Commission, and, In Connection Therewith, Clarifying That the Approval Requirement Applies Only to Electric and Gas Utilities. The bill was assigned to the House State, Veterans, and Military Affairs Committee.

This bill introduces an amendment to an already existing bill and aims to narrow the statue, requiring advance approval by the public utilities commission for the issuance of securities to fund property acquisitions, facilities, repairs, and other expenditures, to apply only to electric and gas utilities.

The only amendment to C.R.S. § 40-1-104 is the addition of subsection (b) under the rule. Subsection (b) is proposed to read as follows: “The requirements of this section apply only to public utilities providing electricity or gas service.”

Mark Proust is a 2016 J.D. candidate at the University of Denver Sturm College of Law.

Tenth Circuit: Sanctions Against Attorney Affirmed Where He Negligently Disregarded Discovery Obligations

The Tenth Circuit Court of Appeals issued its opinion in Sun River Energy, Inc. v. Nelson on Wednesday, September 2, 2015.

Attorneys James E. Pennington and Stephen E. Csajaghy were sanctioned for their refusal to disclose insurance coverage during securities litigation involving Sun River. Pennington was in-house counsel for Sun River and Csajaghy was retained to represent the company in the underlying litigation. During the underlying litigation, a magistrate judge set a discovery deadline of April 6, 2011, by which time Sun River was obligated to disclose any insurance coverage. However, no disclosure was made until nearly 18 months later, after repeated requests from opposing counsel, and by the time the policy was disclosed the coverage period had expired. Opposing counsel moved for sanctions against Sun River under Rule 37(b)(2)(A), requesting that Sun River’s claims against defendants be dismissed and entering default judgment for defendants on their counterclaims.

The magistrate judge held an evidentiary hearing, and ultimately recommended that default judgment be entered against Sun River but not approving dismissal. The magistrate judge noted that there was not intentional misrepresentation by Sun River’s attorneys, but neither attorney actually looked at the policy to see if it provided coverage, instead relying on their mistaken beliefs that the policy would not be relevant. Sun River objected to the magistrate judge’s recommendations, and a district judge addressed the contentions at a pretrial hearing. By that time, Csajaghy had withdrawn from the representation and Pennington appeared as counsel of record. The district court decided counsel were culpable for the misrepresentation and should be held personally responsible. The district court ultimately imposed the sanction of opposing counsel’s attorney fees against Pennington and Csajaghy in the amount of $20,435.

Pennington and Csajaghy moved for reconsideration, arguing Rule 37(c) does not allow imposition of sanctions on counsel, counsel acted with substantial justification, any sanction should have been imposed on Sun River, and due process precluded imposition of a sanction against Csajaghy, who had withdrawn before the sanctions were imposed. In response, defendants argued the sanction was not only justified under Rule 37 but under Rule 26(g)(3) and the district court’s inherent power as well, also noting that counsel’s deliberate indifference demonstrated a lack of substantial justification, sanctioning counsel was appropriate, and that both attorneys had been afforded substantial due process in the matter. The district court issued a thorough written decision, granting in part and denying in part the motion for reconsideration. The district court noted that Rule 37(b)(2)(C) authorizes a monetary sanction for failure to obey a discovery order and expressly allowed the attorney advising the party to be sanctioned, finding that since Csajaghy was Sun River’s attorney of record at the time of the discovery violation the sanction against him was appropriate. As to Pennington, since he was not the attorney of record at the time of the discovery violation, the district court held he was not subject to Rule 37(b)(2)(C) sanctions, but became responsible for timely updating discovery responses under Rule 26 when he became attorney of record, and therefore the sanction was justified under Rule 37(c)(1)(A). The attorneys appealed.

The Tenth Circuit began its analysis by examining the sanction against attorney Pennington. The Tenth Circuit noted that the only case law on the subject held that the sanctions were enforceable against parties only, not attorneys. The district court rejected the holding as unpersuasive, but the Tenth Circuit disagreed with the district court’s analysis as overbroad. The Tenth Circuit noted that there was no express textual reference extending the sanction against attorneys, and found that consideration of the relevant text cut against the district court’s analysis. Under the circumstances of this case, the Tenth Circuit found the sanctions against Pennington unwarranted by Rule 37. Turning to defendants’ argument that the sanctions were allowed by the district court’s inherent power, the Tenth Circuit again disagreed, finding that although his failure to disclose was not substantially justified, it was not vexatious, wanton, oppressive, or done in bad faith. The Tenth Circuit reversed the sanction against Pennington.

Turning to attorney Csajaghy, the Tenth Circuit found there was no question that the district court had authority to impose a personal sanction. Csajaghy objected to the sanction, arguing the sanction was not warranted on the facts, sanctioning counsel was inconsistent with the decision not to sanction Sun River, and the procedure through which he was sanctioned violated due process. The Tenth Circuit found no merit to any of his arguments. The Tenth Circuit admonished that, as counsel of record in the litigation, it was irresponsible for Csajaghy to assume that the in-house counsel, Pennington, had reviewed the policy. Even if had known Pennington reviewed the policy, Csajaghy should have conducted an independent review to satisfy his professional obligations. The Tenth Circuit further chastised Csajaghy for assuming the policy would not provide coverage in lieu of exercising critical judgment. The Tenth Circuit also approved of the district court’s decision to sanction Csajaghy while not sanctioning Sun River, because the company reasonably relied on its counsel to provide relevant disclosures and counsel failed to do so. Finally, the Tenth Circuit addressed Csajaghy’s due process arguments, and although it agreed with the district court that the initial order imposing the sanction was procedurally defective, any defect was cured by the subsequent proceedings on the motion for reconsideration.

The Tenth Circuit reversed the sanction against attorney Pennington and affirmed the sanction against attorney Csajaghy.

Top Ten Business Law Programs and Homestudies

The days keep marching forward, and the end of the compliance period looms large for many Colorado attorneys. If you still need some last-minute CLE credits, never fear—we are reviewing the Top Ten Programs and Homestudies in several areas of law. In case you missed it, we previously covered ethics, family law, trust & estate law, real estate law, and litigation. Today’s focus is on business law. Whether advising nonprofits, dealing with securities issues, or representing particular types of businesses, we have programs to fit your needs. Read on for the Top Ten Programs and Homestudies.

10. Banking for Marijuana Businesses. This short program discusses banking issues unique to marijuana businesses, including the Justice Department’s efforts to create guidance for banks that work with marijuana businesses. Learn about potential racketeering issues and potential solutions. One general credit; available as MP3 audio download and Video OnDemand.

9. Forming and Funding Early Stage Companies. Created for lawyers working with early stage companies, this program covers entity selection, vesting, key agreements, counseling clients on raising money, common securities law exemptions, and more. Two general credits; available as MP3 audio download and Video OnDemand.

8. Commercial Loan Documents — Important Covenants and Potential Modifications. Loan covenants are an important part of every loan document. This program discusses loan modifications generally sought by lenders and those requested by borrowers. Default is also discussed in this program. One general credit; available as MP3 audio download and Video OnDemand.

7. Boilerplate and Drafting Business Documents — 2014 Business Document Drafting Series. The first in a series of six programs, this program offers practical advice on the perils of using boilerplate in document drafting, including specific examples of drafting issues, the importance of keeping provisions current with the law, the value of silence, and much more. Two general credits; available as CD homestudy, MP3 audio download, and Video OnDemand. NOTE: This program is Part 1 of a six-part series. Click here for Part 2, click here for Part 3, click here for Part 4, click here for Part 5, and click here for Part 6.

6. Limited Liability Companies in Colorado. Because of the combination of limited liability for all owners of the LLC, pass-through tax treatment, and ease and flexibility in customizing the relationships between the owners, the LLC has been a very popular choice of entity for many types of businesses since the IRS adopted the “check the box” regulations in 1996. This program details advantages and disadvantages of LLCs, litigation issues, estate and tax planning, real estate development, and more. Attendees receive a PDF copy of the CLE book, Limited Liability Companies and Partnerships in ColoradoEight general credits, including one ethics credit; available as CD homestudy, MP3 audio download, and Video OnDemand.

5. Buying and Selling a Business. Need to know the ins and outs of buying and selling businesses? This program is for you! It provides practical advice on advising parties in M&A transactions, planning the exit, protecting your client in the sale, professional responsibility and ethics in business transactions, and more. Seven general credits, including one ethics credit; available as CD homestudy, MP3 audio download, and Video OnDemand.

4. Closely Held Businesses: Strategies for Tackling Key Issues. Advising closely held businesses requires attorneys to have a wide range of knowledge. This program addresses some of the issues that may arise in advising the closely held business, including family dynamics, the Affordable Care Act and its impact on small businesses, probate of business interests, charitable planning, small business financials and accounting, and securities issues. Seven general credits, including one ethics credit; available as CD homestudy, MP3 audio download, and Video OnDemand.

3. A Primer on Advising Nonprofit Organizations and 24th Annual Institute on Advising Nonprofit Organizations in Colorado. This annual program provides everything you need to know about advising nonprofits. Topics covered at the primer include formation and governance of nonprofit entities, obtaining and retaining tax-exempt status, operational issues for tax-exempt organizations, and taxation of unrelated business income. The Institute discusses fiduciary duties of for-profit boards, tax-exempt entity types, best practices for employee discipline and termination, volunteers, and more. Primer—four general credits; available as CD homestudy, MP3 audio download, and Video OnDemand. Institute—seven general credits; available as CD homestudy, MP3 audio download, and Video OnDemand. NOTE: These programs are repeated annually. Click here for the 2014 programs (Primer/Institute) and click here for the 2013 programs (Primer/Institute).

2. Annual Rocky Mountain Securities Conference. Co-sponsored by the U.S. Securities and Exchange Commission and the CBA Business Law Section, this program is the Rocky Mountain’s premier securities law update presented by the country’s top practitioners. Topics covered in the 2015 Conference included an enforcement update, a view from the defense, a conversation with the Division of Corporate Finance, ethical considerations with the SEC’s whistleblower program, hot topics regarding regulated entities, and much more. Nine general credits; available as CD homestudy, MP3 audio download, and Video OnDemand. NOTE: This program is repeated annually. Click here for the 2014 program and click here for the 2013 program.

1. Annual Business Law Institute. This two-day Institute provides everything you need to know for your business law practice. Get updates on case law and legislation, social responsibility, real world ethical dilemmas, business lawyers’ worst nightmares, forming and funding early stage companies, employment law update, marijuana investments in commercial banking, commercial insurance, and much more. Twenty-seven general credits, including two ethics credits; available as CD homestudy and MP3 audio download. NOTE: This program is repeated annually. Click here for the 2014 program and click here for the 2013 program.

Tenth Circuit: Dismissal Appropriate Where Plaintiffs Failed to Show Scienter

The Tenth Circuit Court of Appeals issued its opinion in In re ZAGG, Inc. Securities Litigation: Swabb v. ZAGG, Inc. on Tuesday, August 18, 2015.

Robert Pedersen, former CEO and Chair of ZAGG, Inc., pledged nearly half of his shares in ZAGG, Inc., as collateral in a margin account. Pedersen’s pledged shares equaled nearly 9 percent of the company. ZAGG was required by SEC Rule S-K to disclose the amount of shares pledged as security “in a footnote or otherwise” in ZAGG’s Form 10-K, but Pedersen failed to make the required disclosure. In December 2011, ZAGG share prices fell, creating a deficiency in Pedersen’s account, and he was forced to sell 345,200 of his shares to meet the margin call. He mailed a Form 144 to the SEC disclosing the margin call on December 22, 2011, and electronically filed a Form 4 the next day. Pedersen’s account experienced a second margin deficiency in August 2012, and he was forced to sell an additional 515,000 shares. Pedersen filed a Form 4, stating the sale occurred “to meet margin calls.”

On August 17, 2012, ZAGG issued a press release announcing Pedersen was stepping down as Chair and CEO. ZAGG also filed a Form 8-K with the SEC, stating the company had implemented a policy prohibiting officers, directors, and 10 percent shareholders from pledging ZAGG securities on margin. A week later, after Pedersen’s resignation was final, a third margin call resulted in the forced sale of his remaining ZAGG shares. ZAGG held a conference call to reassure investors, and stated that Pedersen’s departure was entirely related to the margin call situation. Pedersen also spoke at the call, telling investors he had taken a step toward building investor confidence by completely deleveraging his ZAGG stock.

Plaintiffs filed a complaint against ZAGG and six individual officers and directors on behalf of a putative class of all people who purchased ZAGG stock during the relevant time period, alleging the company’s filings omitted material information regarding Pedersen’s pledged shares and also that ZAGG failed to disclose a secret succession plan that had been implemented after Pedersen’s first margin call in December 2011. Defendants filed two motions to dismiss, the first by Pedersen and the second by ZAGG and several individual officers and directors. After a hearing on the motions, the court dismissed the complaint with prejudice, finding the § 10(b) and § 14(a) claims failed because they did not allege with particularity facts giving rise to a strong inference Pedersen intended to violate securities laws. Plaintiffs appealed only the dismissal of their §10(b) and Rule 10b-5 claims and only as to Pedersen and ZAGG, and only as to Pedersen’s material omission of his margin account.

The Tenth Circuit agreed with the district court that plaintiffs failed to meet the heightened pleading requirements applicable to the scienter element in § 10(b) claims. The district court held that plaintiffs proved only one element of scienter—that Pedersen knew of the pledged securities in the margin account. The district court held, and the Tenth Circuit agreed, that the complaint failed to allege any facts showing that Pedersen knew failure to reveal the account would likely mislead investors. Plaintiffs listed five facts they claimed proved scienter: (1) Pedersen made inconsistent statements following the first margin call, (2) Pedersen selectively complied with the Item 403(b) disclosure requirement, (3) Pedersen knew that disclosing his margin account would jeopardize his position at ZAGG, (4) Pedersen was forced to resign because of his margin account, and (5) following Pedersen’s resignation, ZAGG adopted a policy prohibiting holding stock in margin accounts. The Tenth Circuit analyzed each claim.

First, the Tenth Circuit evaluated plaintiffs’ claim that Pedersen’s statements on the Forms 144 and 4 in December 2011 were inconsistent. Pedersen stated on the Form 4 that the sale was made “to meet an immediate financial obligation” and on the Form 144 that the sale was made “to meet margin calls.” The Tenth Circuit found no inconsistency in these two statements, as margin calls could certainly be characterized as immediate financial obligations. Plaintiffs also argued that it was deceptive of Pedersen to mail the Form 144 when he e-filed the Form 4, but the Tenth Circuit noted Pedersen was under no obligation to deliver the forms via the same method.

The Tenth Circuit next addressed plaintiffs’ argument that Pedersen’s failure to disclose his margin account amounted to scienter. Defendants argued that the violation of a rule is not enough to show scienter, and the Tenth Circuit agreed. Without some other facts evidencing Pedersen knowingly omitted the disclosure, the violation alone was not enough. Plaintiffs argued Pedersen failed to disclose the account because he knew it would jeopardize his position at ZAGG, but the Tenth Circuit again found that at most Pedersen’s execution of the certifications supported an inference of negligence.

The Tenth Circuit similarly found that neither Pedersen’s forced resignation nor ZAGG’s implementation of a new policy barring investors from pledging ZAGG shares on margin accounts established an intent to defraud. Rather, the Tenth Circuit found that both the resignation and new policy acknowledged that the company had found a better way to run its business moving forward. The district court found, and the Tenth Circuit agreed, that the complaint failed to allege any facts giving rise to an inference of scienter. Plaintiffs argued that even if the knowing element was not met, the facts showed that Pedersen acted with reckless disregard of a substantial likelihood of misleading investors. The Tenth Circuit disagreed, finding that plaintiffs failed to overcome the high standard necessary to show recklessness.

The Tenth Circuit affirmed the district court.

Colorado Court of Appeals: Jury Improperly Instructed that “Any Note” is a Security; Reversal Required

The Colorado Court of Appeals issued its opinion in People v. Mendenhall on Thursday, August 13, 2015.

Promissory Note—Securities Fraud—Colorado Securities Act—Jury Instructions—Testimony—Prosecutorial Misconduct.

Defendant was employed as a salesperson by an insurance company that specializes in low-risk insurance products for retirement-age persons. Defendant also was licensed to sell securities through an affiliated broker–dealer. Defendant obtained loans from clients or customers whom he had met through his employment to fund his personal real estate investments, giving each of them a promissory note. He was convicted by a jury of multiple counts of securities fraud and theft.

On appeal, defendant argued that the trial court erred in instructing the jury that any note is a security. One of the elements of securities fraud under the Colorado Securities Act (CSA) is that the defendant engaged in fraud in connection with a security. If there is no security, there cannot be securities fraud. The CSA defines “security” to include “any note.” Because sometimes notes are not securities, however, the court’s instruction constituted error. Because this instructional error was not harmless beyond a reasonable doubt, defendant’s securities fraud convictions were reversed.

Defendant also argued that the trial court erred in admitting the testimony of the district attorney’s investigator regarding his process for investigating someone suspected of criminal activity; under what circumstances he recommended pursuing criminal charges; and the specific investigation of, and decision to pursue charges against, defendant. Because probable cause to charge defendant was not at issue here, the investigator’s statements regarding how many potential cases he received each year and in how many of those cases charges were brought constituted inadmissible evidence. However, because there was overwhelming evidence that defendant was guilty of theft and the investigator’s comments were minimal, any error was harmless.

Defendant further contended that the prosecutor committed misconduct in closing argument when he likened defendant to Bernie Madoff and referred to the victims as members of the “greatest generation.” The Court concluded that the prosecution’s mention of Madoff was referencing a victim’s testimony, and referring to the victims as the “greatest generation” did not rise to the level of plain error.

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

New Crowdfunding Rules Released by Division of Securities

The Colorado Crowdfunding Act, HB 15-1246, was signed into law by Governor Hickenlooper on April 13, 2015, with an effective date of August 5, 2015. The goal of the Act was to increase equity opportunities for Colorado start-ups by creating a crowdfunding option with limitations to protect investors. The Act required the Securities Commissioner to promulgate rules and regulations in order to protect small businesses and investors.

The Colorado Department of Regulatory Agencies’ Division of Securities released comprehensive new crowdfunding rules on Thursday, July 30, 2015. The regulations are available here. The Division of Securities also issued guidelines about the new rules, noting that before a business can take advantage of the new crowdfunding rules it must file various forms with the Division of Securities; there are limits to how much money can be raised and how much individual investors can contribute; and all aspects of the transaction must take place between Colorado residents. The Division’s guidelines are available here.

Tenth Circuit: Statements as to Reason for Deal Failure Could Have Materially Misled Investors

The Tenth Circuit Court of Appeals issued its opinion in Nakkhumpun v. Taylor on Tuesday, April 7, 2015.

Patipan Nakkhumpun, lead plaintiff in a securities class action against executives of Delta Petroleum Corp., filed suit in district court after a deal between Delta and Opon International, LLC fell through. Plaintiffs alleged the Delta executives violated § 10(b) of the Securities Act and SEC Rule 1ob-5 by misleading investors through statements about the proposed transaction with Opon and about Delta’s financial condition. The district court granted Defendants’ motion to dismiss, holding Plaintiffs failed to allege loss causation regarding the Opon deal and falsity regarding the statements about Delta’s financial condition. Plaintiffs moved for leave to amend, which the district court denied.

Plaintiffs appealed, and the parties dispute whether Plaintiffs adequately pled falsity, scienter, and loss causation as to the Opon transaction and falsity and scienter as to the financial statements. The Tenth Circuit first addressed the Opon transaction.

Delta issued a press release in March 2010 announcing a preliminary agreement with Opon, in which Opon would purchase a 37.5% non-operating interest in Delta’s Vega Area assets for $400 million. Defendants issued more press releases between March and June 2010 indicating that Opon was trying to obtain financing for the transaction, and in a July 2010 press release, Delta board chair Taylor announced termination of the deal, stating that Opon failed to receive financing. However, confidential informants related that the Opon deal fell through because Opon determined the assets were not worth $400 million and refused to pay that price, and further negotiations between Opon and Delta were unsuccessful.

The district court agreed with Plaintiffs that the statements were false or misleading but concluded Plaintiffs failed to show loss causation. On appeal, Plaintiffs argue they alleged all requirements for securities fraud under § 10(b), and the Tenth Circuit agreed. The Tenth Circuit found a reasonable investor would have been lead to believe that the Vega Area assets were worth $400 million, satisfying the falsity prong. The Tenth Circuit also found Plaintiffs established scienter, finding potential for Taylor’s statements to mislead buyers and sellers and noting the danger was so obvious Taylor must have been aware of it. The Tenth Circuit reversed the district court’s dismissal of Plaintiffs’ § 10(b) claim on this issue.

Turning next to the loss causation issue, the Tenth Circuit affirmed the district court’s finding that Plaintiffs’ proposed amended complaint contained adequate allegations of loss causation under a theory of materialization of a concealed risk. Plaintiffs pleaded particular facts tying financial loss to Taylor’s misleading explanation about the reason the Opon deal fell through.

The Tenth Circuit found adequate support for Plaintiff’s § 10(b) arguments as to defendant Taylor, but not regarding the other named defendants. The Tenth Circuit therefore affirmed the dismissal of Plaintiffs’ complaint as to the other named defendants.

Finally, the Tenth Circuit turned to Plaintiffs’ claims that Defendants made false or misleading statements regarding its financial situation. In the district court and on appeal, Defendants challenged these statements as failing to allege scienter or falsity. The district court granted Defendants’ motion to dismiss on the ground that the statements were not false. The Tenth Circuit affirmed the dismissal but on the ground that the statements were missing allegations of either scienter or falsity.

The Tenth Circuit reversed the dismissal of Plaintiffs’ Opon-related claims as to defendant Taylor but affirmed as to all other defendants. On the claims of misleading financial statements, the Tenth Circuit affirmed the district court’s dismissal and denial of leave to amend.

Bills Regarding COLTAF Accounts, Marijuana Concentrate Manufacture, Revision of Statutes, and More Signed

On Friday, May 29, 2015, Governor Hickenlooper signed 29 bills into law. To date, the governor has signed 287 bills into law. The bills signed Friday are summarized here.

  • HB 15-1348 – Concerning Modifications to Statutory Provisions Governing Urban Redevelopment to Promote the Equitable Financial Contribution Among Affected Public Bodies in Connection with Urban Redevelopment Projects Allocating Tax Revenues, by Reps. Dickey Lee Hullinghorst & Polly Lawrence and Sens. Rollie Heath & David Balmer. The bill creates new requirements for urban redevelopment authorities, including changes to governance, procedures to follow, and distribution of excess funds.
  • HB 15-1186 – Concerning Home- and Community-Based Services for Children with Autism, and, in Connection Therewith, Making an Appropriation, by Rep. Dave Young and Sen. Pat Steadman. The bill expands eligibility for the Autism Waiver Program by increasing the age limit from 6 years to 8 years and removing the existing per child spending cap.
  • HB 15-1305 – Concerning a Prohibition on Manufacturing Marijuana Concentrate in an Unregulated Environment Using an Inherently Hazardous Substance, and, in Connection Therewith, Making an Appropriation, by Reps. Mike Foote & Yeulin Willett and Sens. Kevin Grantham & Michael Johnston. The bill makes it a class 2 felony for an unlicensed person to manufacture marijuana concentrate using an “inherently hazardous substance,” which term is also defined.
  • HB 15-1016 – Concerning Incentives for Precipitation Harvesting, and, in Connection Therewith, Making an Appropriation, by Rep. Don Coram and Sen. Jerry Sonnenberg. The bill establishes a 10-year pilot program for collection of rooftop precipitation for non-potable purposes.
  • HB 15-1226 – Concerning Annual License Fees for Retail Food Establishments, by Rep. KC Becker and Sen. Mary Hodge. The bill removes the statutory annual license fees for retail food establishments and orders the State Board of Health to establish the fees in rule.
  • HB 15-1229 – Concerning Retaliation Against a Prosecutor, and, in Connection Therewith, Making an Appropriation, by Rep. Beth McCann and Sen. Beth Martinez Humenik. The bill creates a new class 4 felony for the crime of retaliation against a prosecutor.
  • HB 15-1281 – Concerning Newborn Congenital Heart Defect Screening Through the Use of Pulse Oximetry, and, in Connection Therewith, Making an Appropriation, by Rep. Dianne Primavera and Sen. Mary Hodge. The bill requires that all newborns born in Colorado at a facility below 7000 feet elevation be screened for heart defects using pulse oximetry.
  • SB 15-260 – Concerning Medical Marijuana Product Testing, by Sen. Irene Aguilar and Rep. Joann Ginal. The bill authorizes creation of a medical marijuana testing facility and requires that all medical marijuana be tested once the facility is created.
  • HB 15-1372 – Concerning an Increase in the Cap Placed on the Annual Fee Each Public Utility Pays to Defray the Administrative Expenses of the Agencies Within the Department of Regulatory Agencies that Address Public Utility Matters, and, in Connection Therewith, Making an Appropriation, by Reps. Max Tyler & Jon Becker and Sens. Rollie Heath & David Balmer. The bill raises the statutory limit on fixed utility fund assessments for electric and natural gas utilities in order to cover an anticipated revenue shortfall.
  • SB 15-004 – Concerning Trained Volunteer Court-Appointed Special Advocates for Youth Brought Before a Court in a Truancy Proceeding, by Sen. Cheri Jahn and Rep. Dianne Primavera. The bill allows CASA volunteers to be appointed to help juveniles in truancy proceedings.
  • SB 15-124 – Concerning the Use of Evidence-Based Practices in Response to Technical Violations of Parole, and, in Connection Therewith, Making and Reducing Appropriations, by Sen. Michael Merrifield and Rep. Pete Lee. The bill clarifies and narrows the scope of behavior that warrants arresting a parolee for a technical violation.
  • HB 15-1365 – Concerning Adding two Youth Members to the Tony Grampsas Youth Services Board, by Rep. Beth McCann and Sen. Larry Crowder. The bill allows two youth between the ages of 15 and 25 to be added to the Tony Grampsas Youth Services Board, which administers grants to community-based programs targeting youth and their families.
  • HB 15-1373 – Concerning the Creation of a Provisional Certification to Practice Speech-Language Pathology, by Rep. Jonathan Singer and Sen. Irene Aguilar. The bill allows a speech-language pathologist to obtain a provisional certification prior to completion of a fellowship.
  • HB 15-1013 – Concerning the Implementation of Recommendation Number One Set Forth in the Study of the South Platte River Alluvial Aquifer Prepared by the Colorado Water Institute Pursuant to House Bill 12-1278, by Rep. Don Coram and Sens. Jerry Sonnenberg & Mary Hodge. The bill implements the first recommendation of the Colorado Water Institute’s study of the South Platte River alluvial aquifer – namely, the bill requires the state engineer and CWCB to select two pilot projects for lowering the water table, and it also requires the state engineer to approve or propose changes to the operation of proposed recharge structures for augmentation plans.
  • HB 15-1233 – Concerning the Creation of the Respite Care Task Force, and, in Connection Therewith, Making an Appropriation, by Rep. Lois Landgraf and Sen. Irene Aguilar. The bill creates the Respite Care Task Force to study the supply and demand of respite care services in Colorado.
  • HB 15-1313 – Concerning the Creation of a Rocky Mountain National Park License Plate to Evidence that a Vehicle Has Been Registered, and, in Connection Therewith, Making an Appropriation, by Rep. KC Becker and Sen. Randy Baumgardner. The bill creates the Rocky Mountain National Park license plate, which will be available to any applicant upon payment of the $50 special plate fee and with a donation to Rocky Mountain National Park.
  • HB 15-1350 – Concerning Performance Measures for Accrediting an Alternative Education Campus, by Rep. Brittany Pettersen and Sen. Owen Hill. The bill requires the Colorado Department of Education to convene stakeholder meetings to review statutes and State Board of Education rules relating to alternative education campuses.
  • HB 15-1364 – Concerning a Limitation on the Scope of an Inspection of a Small Hydroelectric Energy Facility Conducted by the State Electrical Board, by Reps. Don Coram & Diane Mitsch Bush and Sens. Jerry Sonnenberg & Kerry Donovan. The bill clarifies when limited inspections apply to small hydroelectric facilities.
  • HB 15-1371 – Concerning an Exemption from the “Unclaimed Property Act” for Funds Held in Certain Lawyer Trust Accounts, by Reps. Dan Pabon & Yeulin Willett and Sen. Michael Johnston. The bill exempts COLTAF funds from the “Unclaimed Property Act.”
  • HB 15-1379 – Concerning Creation of Marijuana Permitted Economic Interest Registrations, and, in Connection Therewith, Making an Appropriation, by Rep. Dan Pabon and Sen. Owen Hill. The bill allows people who are not Colorado residents to apply for authorization to hold a permitted economic interest in a marijuana business.
  • SB 15-102 – Concerning the Continuation of the Securities Board, and, in Connection Therewith, Implementing the Recommendations of the 2014 Sunset Report by the Department of Regulatory Agencies, by Sen. Chris Holbert and Rep. Pete Lee. The bill implements the recommendation of the securities board sunset review by continuing the board until September 1, 2026.
  • SB 15-207 – Concerning the Authority of the State to Enter Into Lease-Purchase Agreements for the Refinancing of the Colorado Bureau of Investigation’s Grand Junction Regional Office and Forensic Laboratory, by Sens. Randy Baumgardner & Ray Scott and Rep. J. Paul Brown. The bill authorizes the state treasurer to enter into lease-purchase agreements to refinance revenue bonds used to construct the CBI Grand Junction office.
  • SB 15-208 – Concerning Capital-Related Expenditures, and, in Connection Therewith, Granting the Controller Authority to Allow Expenditures for Capital Construction Budget Appropriations if Nonmonetary Adjustments are Needed When the Legislature is Not in Session, Adding a Capital Development Committee-Approved Waiver for the Arts in Public Places Requirement, and Clarifying the Types of Capital Construction Projects to which the Arts in Public Places Requirement Applies, by Sen. John Kefalas and Rep. J. Paul Brown. The bill adds to the allowable reasons an emergency supplemental request related to a capital appropriation can be heard and acted upon between legislative sessions.
  • SB 15-212 – Concerning a Determination that Water Detention Facilities Designed to Mitigate the Adverse Effects of Storm Water Runoff Do Not Materially Injure Water Rights, by Sen. Jerry Sonnenberg and Reps. Faith Winter & Terri Carver. The bill specifies that storm water detention, infiltration, and post-wildland fire facilities that detain water do not injure water rights.
  • SB 15-185 – Concerning Provisions to Improve Police Operations, and, in Connection Therewith, Making an Appropriation, by Sen. Michael Johnston and Rep. Rhonda Fields. The bill creates the “Community Law Enforcement Action Reporting (CLEAR) Act,” which requires the Division of Criminal Justice to compile and report certain data to the General Assembly’s judiciary committees and the Colorado Commission on Criminal and Juvenile Justice.
  • SB 15-254 – Concerning an Extension of the Period During Which Certain Incentives are Available for Municipally Owned Utilities to Obtain Additional Renewable Energy Credits Based on the Installation of Solar Electric Generation Technologies, by Sen. Kevin Grantham and Rep. Pete Lee. The bill extends the deadline for municipally owned utilities to begin operating solar electric generation technologies until December 31, 2016.
  • SB 15-264 – Concerning the Nonsubstantive Revision of Statutes in the Colorado Revised Statutes, as Amended, and, in Connection Therewith, Amending or Repealing Obsolete, Imperfect, and Inoperative Law to Preserve the Legislative Intent, Effect, and Meaning of the Law, by Sen. Michael Johnston and Rep. Daniel Kagan. The bill revises the Colorado Revised Statutes to amend or repeal obsolete, unclear, or conflicting laws.
  • SB 15-265 – Concerning Conditions that Must Be Met Before a Hospital Care Lien is Created, by Sen. Bill Cadman and Rep. Dickey Lee Hullinghorst. The bill requires hospitals to submit charges for all care provided to a person injured by a third party to all the injured person’s payors of benefits before a lien can be created.
  • HB 15-1019 – Concerning Prostitution by a Minor, and, in Connection Therewith, Minors who are Victims of Human Trafficking, by Rep. Paul Lundeen and Sen. Laura Woods. The bill establishes areas of study for the Human Trafficking Council and requires the Council to make recommendations to the General Assembly about whether legislation should be enacted regarding child prostitution and human trafficking.

For a complete list of Governor Hickenlooper’s 2015 legislative decisions, click here.

Tenth Circuit: Extender Statute Cannot be Tolled by Agreement of the Parties

The Tenth Circuit Court of Appeals issued its opinion in National Credit Union Administration Board v. Barclays Capital, Inc. on Tuesday, March 3, 2015.

The National Credit Union Administration Board (NCUA), acting in its role as conservator for failing credit unions, investigated the failure of two major credit unions and found they had failed because they had relied upon misrepresentations in offering documents about residential mortgage-backed securities (RMBS) that were essentially junk loans. The NCUA began pursuing remedies against the issuers and underwriters of the RMBS and began settlement negotiations with Barclays and other defendants (collectively, Barclays). During the pendency of the settlement negotiations, the NCUA entered into contracts with Barclays that averred the statute of limitations would be tolled during the settlement negotiations and also that Barclays would not assert untimeliness as a defense in any ensuing litigation.

When the settlement negotiations failed, the NCUA initiated these actions, asserting violations of Sections 11 and 12(a)(2) of the Securities Act, as well as state securities claims under the blue sky laws of Kansas and California. Barclays moved to dismiss for failure to state a claim on several grounds, including untimeliness. Barclays initially honored the tolling agreement but argued the claims were time-barred by the Securities Act’s three-year statute of repose. The NCUA responded that the statute of repose was inapplicable to these cases and instead the Federal Credit Union Act’s “Extender Statute” applied, providing a three-year statute of limitations.

While the actions were pending, the district court issued an opinion in a different case, ruling that contractual tolling was not authorized under the extender statute. Barclays then amended its motion to dismiss based on the different ruling. The district court granted the motion to dismiss, holding the claims were covered by the Extender Statute and not the statute of repose, and that tolling could not be contractually waived. The NCUA appealed.

The Tenth Circuit first determined that the district court correctly applied the Extender Statute and not the statute of repose. The Tenth Circuit recently ruled that the Extender Statute supplants all other time limits. Explaining the difference between statutes of limitations and repose, the Tenth Circuit noted that statutes of repose cannot be equitably tolled and act as an absolute time-bar, whereas statutes of limitations are frequently tolled and are affirmative defenses rather than absolute bars. After analyzing the specific language of the Extender Statute, however, the Tenth Circuit found it explicitly and unambiguously stated it could not be tolled by contract. Nevertheless, the Tenth Circuit reversed the district court’s dismissal, finding that Barclays promised not to assert the affirmative defense of the statute of limitations and it should be held to its promise.

The Tenth Circuit reversed and remanded for further proceedings consistent with its opinion.