Source: https://cbaclelegalconnection.com/2012/03/20/
Timestamp: 2019-04-18 15:12:11+00:00

Document:
The Colorado Court of Appeals issued its opinion in Young v. Bush on March 15, 2012.
Derivative Action—Dismissal—Independent—Inquiry—Direct Claim—Breach of Settlement.
Plaintiff Daniel E. Young, as an individual and on behalf of Cutthroat Ranch LLC, Quebec Plaza LLC, University Park Place, LLC, and Leetsdale Self Storage, LLC (the LLCs), appealed the trial court’s summary judgment dismissing his claims against defendants Eric Bush, Bush Development, Inc., and the LLCs. The judgment was affirmed in part and reversed in part, and the case was remanded for further proceedings.
Eric Bush is the founder and president of Bush Development. Bush also was the founder and sole manager of the LLCs, which were formed to acquire and develop real estate. The LLCs had between four and seven members each, including plaintiff. In 2008, plaintiff began questioning Bush’s management of the LLCs and subsequently filed an action against Bush, Bush Development, and the LLCs on behalf of himself and the other LLC members. The trial court entered summary judgment for defendants, dismissing the derivative action.
Plaintiff contended that the trial court erred in dismissing his derivative claims. CRS § 7-80-716 requires a court to dismiss a derivative action against an LLC if any of the individuals or entities described in subsection (2) has determined “in good faith, after conducting an inquiry upon which the determination is based,” that maintenance of the derivative action is not in the best interests of the LLC. The best interests determination must be made by independent members and based on an adequate inquiry producing facts sufficient to enable LLC members to make an informed and good-faith decision on whether maintenance of the derivative action is in the LLC’s best interests. The facts set forth in plaintiff’s affidavit showed business and family relationships sufficient to create a material question of fact as to the independence of the LLC members who made the best interests determination. The record did not indicate whether their inquiry was adequate. Because there was insufficient evidence in the record, the case was returned to the trial court to allow plaintiff to conduct discovery on the issues of independence and adequate inquiry, and to allow the court to assess whether the derivative claims should be dismissed under CRS § 7-80-716.
Plaintiff also contended that his third claim for relief (for breach of his settlement agreement with Eric Bush), twelfth claim (for access to records of Quebec Plaza LLC), and thirteenth claim (for an accounting with respect to Quebec Plaza) were direct claims, not derivative claims. He argued that he should have been allowed to pursue them notwithstanding the trial court’s dismissal of the derivative claims on defendants’ motion. Only plaintiff’s breach of settlement claim is a direct claim, because it alleged an injury separate and distinct from any injury suffered by the LLCs or the other LLC members and any relief would go to him personally rather than to the LLCs. Plaintiff did not allege that he was asserting claims twelve and thirteen solely in his individual capacity, nor did he provide further factual allegations suggesting that that was his intent. Therefore, the court did not err in dismissing those claims as direct claims.
The Colorado Court of Appeals issued its opinion in Kowalchik v. Brohl, Executive Director, Colorado Department of Revenue on March 15, 2012.
Conservative Easement—Tax Credits—Transferees—Taxpayer—Tax Liability—Tax Matters Representative—Joinder of Parties—Due Process.
In this dispute involving conservation easement (CE) tax credits, defendant Barbara Brohl, Executive Director of the Colorado Department of Revenue (Department), petitioned for interlocutory review of the trial court’s orders in favor of plaintiffs. The orders were affirmed in part and reversed in part, and the case was remanded.
Plaintiffs donated CEs purportedly generating several million dollars of CE tax credits. They sold these credits to transferees, who claimed the credits on their state income tax returns or retained them for use against future tax liability. The Department disallowed all of the claimed tax credits. The trial court held that people who purchased CE tax credits from plaintiffs (1) are not within the statutory definition of “taxpayer” under CRS § 39-22-522(1); (2) have no tax liability for deficiencies, interest, and penalties for the improper claim of a tax credit; (3) need not be joined as necessary parties to this action under C.R.C.P. 19(a); and (4) may be given notice of this proceeding by mail rather than being personally served under C.R.C.P. 4.
The Department argued that the General Assembly intended to require transferees to be parties. The General Assembly added CRS § 39-22-522.5, which provided detailed court procedures as an alternative to administrative review, but did not require participation by transferees. Instead, the new section provided transferees with an absolute right to intervene. By acquiring a CE credit and claiming it as a deduction, a transferee agrees to be represented by its “tax matters representatives” (TMRs) under CRS § 39-22-522(7)(i). The sale of CE tax credits creates a sufficient alignment of interests between transferees and TMRs, who understand that they are acting in a representative capacity. Therefore, due process does not require joinder of transferees under C.R.C.P. 19(a) in litigation where the transferee is represented by its TMR. Further, mailing notice of this proceeding to all transferees and allowing this action to proceed without service of a summons and complaint on each transferee who chooses not to intervene satisfies due process. Finally, the court’s holding that a transferee is not a “taxpayer,” subject to deficiencies, interest, and penalties, was reversed.
The Colorado Court of Appeals issued its opinion in Estate of Guido v. Exempla, Inc. on March 15, 2012.
Arbitration Award—Confirmation Proceedings—Statute of Limitations.
Plaintiff, the Estate of Salvadore Guido (estate), appealed the district court’s order denying its motion to confirm an arbitration award as time-barred. The order was reversed and the case was remanded.
Salvadore Guido brought a medical malpractice action against Lutheran Medical Center, which was a predecessor entity to defendant Exempla, Inc. (Exempla). The parties agreed to submit the claims to arbitration and, in June 1998, the arbitrator awarded Guido $20,000, plus interest and costs. Guido died in September 2009. In December 2010, the estate filed a motion to confirm the arbitrator’s award, alleging that the amounts awarded to Guido in the arbitration were never paid or satisfied.
The estate contended that the district court erred in denying its confirmation motion as time-barred under the six-year statute of limitations applicable to actions to recover a liquidated debt set forth in CRS § 13-80-103.5(1)(a). An application for confirmation is not a complaint that initiates a civil action in the district court. There is a clear statutory framework for the confirmation process under the Colorado Uniform Arbitration Act of 1975, which does not impose a deadline to file an application to confirm the award. Therefore, the district court mischaracterized the confirmation proceeding as an action to recover a liquidated debt pursuant to CRS § 13-80-103.5(1)(a). Accordingly, the order was reversed and the case was remanded to the district court with directions to reconsider the estate’s motion to confirm the arbitration award.
The Colorado Court of Appeals issued its opinion in National Farmers Union Property and Casualty Company v. Garfinkel on March 15, 2012.
Insurance—Property Damage—Injuries—Business Pursuits Exclusion—Owned Premises Exclusion.
Plaintiff National Farmers Union Property and Casualty Company (NFU) appealed the trial court’s summary judgment in favor of defendants Larry Garfinkel; Kane Real Estate & Development, LLLP; Daniel B. Willie; Dessa S. Willie; Moore P. Huffman, Jr.; General Property Mortgage, Inc.; Great Northern Insurance Company; and Ranch at Roaring Fork Homeowners Association, Inc. The judgment was affirmed in part and reversed in part, and the case was remanded for further proceedings.
In 2008, a wildfire in Garfield County injured Garfinkel and damaged the property of the other defendants. In two lawsuits (underlying lawsuits), defendants sued Larry Gerbaz and 100 Road Cattle Company LLC (the LLC), alleging that (1) Gerbaz was acting individually and as an agent of the LLC when he burned slash piles on the LLC’s property (farm property); (2) he was negligent in leaving the fires unattended; and (3) his negligence caused their losses. At the time of the fire, NFU had in effect a farm liability insurance policy covering the farm property where the slash-burning took place. The LLC was the named insured. NFU also had in effect a homeowners insurance policy insuring the residence of Gerbaz, which was adjacent to the farm property. Gerbaz was the named insured, and Molly Gerbaz, his wife, also qualified as an insured under the policy.
NFU contended that, because the farm property was being leased to third parties for haying and pasturing at the time of the April 2008 wildfire, coverage for defendants’ losses specifically was excluded by the business pursuits exclusion in the homeowners policy, and the trial court erred in ruling to the contrary. When an activity evinces “continuity” and “profit motive,” it is a business pursuit within the meaning of the business pursuits exclusion. Because issues of material fact remained as to whether the continuity and profit motive elements of the business pursuits test were present here, the case was remanded for these issues to be decided by the finder of fact.
NFU also contended that the trial court erred in finding that the owned premises exclusion does not preclude coverage in this case. This exclusion applies only where the insured is the title owner of the property. It does not apply to a situation where title to the property is held by an entity in which an insured has an interest, even a controlling interest. Here, it is undisputed that the LLC held title to the farm property where the slash burning occurred. Although Molly Gerbaz was an owner of the LLC, the LLC remained a separate legal entity. Therefore, the NFU policy exclusion barring coverage for injuries and damage arising out of uninsured premises owned by an insured does not apply.
The Colorado Court of Appeals issued its opinion in People v. Welliver on March 15, 2012.
Restitution—Unemployment—Penalty—Colorado Employment Security Act—Colorado Department of Labor and Employment—Due Process.
Defendant appealed the order for restitution, including a penalty imposed by the Colorado Employment Security Act (CESA). The order was affirmed in part and reversed in part, and the case was remanded with directions.
Defendant provided false information to the Colorado Department of Labor and Employment (CDLE) when he represented that he was unemployed and earned no income. Based on this conduct, defendant was charged with one count of felony theft, one count of computer crime, and one count of forgery. He was not criminally charged under the provisions of the CESA. Defendant entered into a plea agreement, and the trial court sentenced him to seven years’ probation and ordered him to pay $11,905 in restitution, including the CESA penalty.
Defendant contended that the restitution order violated his right to due process because the prosecution did not prove the amount of the alleged victim’s actual pecuniary loss by a preponderance of the evidence. Other than an objection to the penalty, defendant did not object to the amount of the CDLE’s pecuniary loss as documented in the attachments to the presentence report, which included the overpayments that were paid by the CDLE to defendant in the total amount of $7,830 and a 50% percent statutory penalty of $3,915. Accordingly, the court was justified in relying on the report to determine the amount of restitution.
Defendant also contended that the trial court erred when it included a 50% statutory penalty as restitution. The penalty authorized in CRS § 8-81-101(4)(a)(II) is to be paid into the unemployment revenue fund, which is a general fund used for such enforcement purposes, and the amount cannot be specifically attributed to defendant’s conduct. Thus, there is no evidence in the record that the amount of the penalty ($3,915) correlates in any way to the cost that the CDLE incurred to investigate and enforce the provisions of the CESA against defendant. Without such a correlation, there is no loss suffered by the CDLE that can be “reasonably calculated” under the restitution act. Accordingly, the 50% penalty was not properly included as restitution because it is not a “pecuniary loss that was suffered by” the CDLE as a “natural and probable sequence produced” by defendant’s conduct. Therefore, the trial court abused its discretion when it included the penalty as restitution.
The Colorado Court of Appeals issued its opinion in Crow, MD v. Penrose St. Francis Healthcare System on March 15, 2012.
Private Hospital Peer Review Process—Subpoena to Obtain Records—State Administrative Procedure Act—Colorado Professional Review Act—Exhaustion of Remedies—Burden of Proof.
Jimmie R. Crow, MD appealed the judgment of the district court affirming the decision of Penrose-St. Francis Healthcare System (Penrose) to terminate Crow’s hospital staff privileges and denying his request to subpoena records of the peer review committee. The judgment was affirmed in part and reversed in part, and the case was remanded for further proceedings.
In October 2004, Crow performed surgery on J.C., who died later that month. Penrose began a peer review process to address whether Crow failed to treat the patient properly and in a timely manner. The district court quashed Crow’s subpoena to obtain the peer review records, granted Penrose’s motion to dismiss several of the amended complaint claims, and affirmed Penrose’s decision to terminate Crow’s hospital staff privileges.
Crow contended that private hospital peer review is state administrative action subject to judicial review under the state Administrative Procedure Act (APA). Because Penrose’s peer review process to determine whether the private hospital will continue to extend hospital staff privileges to a physician is not state agency action, the APA does not govern Crow’s claims. Instead, judicial review of administrative actions by private hospitals must be conducted pursuant to C.R.C.P. 106(a)(4).
Crow also contended that the Colorado Professional Review Act (CPRA) authorized his subpoena of the records of Penrose’s peer review committee and board and granted him the right to those records. CRS § 12-36.5-104(10)(b) plainly provides that the records “shall be subject to subpoena and available for use in any appeal or de novo proceeding brought pursuant to this part 1” and “by a physician seeking judicial review.” Accordingly, the records Crow requested were subject to subpoena before the administrative review panel, and he is entitled to a new hearing before that body after the records are provided. Further, implicit in this language is the authority of the appellate review panel to issue the subpoenas.
Crow also claimed that he exhausted his administrative remedies regarding summary suspension because no summary suspension hearing right exists. Because Crow failed to avail himself of the proper administrative remedy, the district court did not have jurisdiction to review the summary suspension.
Crow further argued that the hearing panel applied the incorrect burden of proof. Even if the incorrect standard of proof was applied, the alternative finding makes it clear that the outcome would have been the same under either standard.
On Monday, March 19, 2012, the Tenth Circuit Court of Appeals issued no opinions.

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