Ponzi Scheme—Colorado Uniform Fraudulent Transfer Act—Principal—Net Profits—Innocent Investor—Reasonably Equivalent Value.

Taylor invested $3 million in a hedge fund run by Mueller, a licensed securities broker. During the period of his investment, Taylor received a series of payments from the fund. Taylor withdrew all of his money about one year after investing and made a profit of over $487,000. Later, the Colorado securities commissioner discovered that the hedge fund was a Ponzi scheme and Mueller was convicted of various criminal offenses. Lewis was appointed receiver to collect and distribute Mueller’s assets to the creditors and investors he defrauded through the Ponzi scheme. Lewis filed a claim under the Colorado Uniform Fraudulent Transfer Act (CUFTA) seeking to void the transfer of net profits that Taylor received. The district court granted Lewis summary judgment.

The Court of Appeals considered this case on remand to “address whether CUFTA requires Taylor to relinquish any amount of money exceeding his principal investment in the Ponzi scheme.” The parties agreed that Taylor was an innocent investor; he withdrew his principal and profits in good faith; and he gave reasonably equivalent value for the return of his principal. The parties disagreed whether Taylor gave reasonably equivalent value in exchange for his receipt of the net profits.

Taylor argued that the district court erred by ruling that he did not give reasonably equivalent value for transfers he received that exceeded his principal investment. The Court reasoned that a Ponzi scheme receives benefit for using an innocent investor’s money for a period of time, regardless of whether the money is used for proper or fraudulent purposes, and the use of the money for a period of time has value. An innocent investor in a Ponzi scheme may be entitled to keep some of the funds exceeding the principal amount if such funds constituted a reasonably equivalent value on the principal investment. Therefore, the district court erred by not accounting for the time value of Taylor’s principal investment when determining whether he gave reasonably equivalent value under CRS § 38-8-109(1) for transfers he received from Mueller’s fund.

The summary judgment was reversed and the case was remanded for the district court to make additional findings about the individual transfers Taylor received from Mueller’s fund and to consider whether Taylor received the transfers for reasonably equivalent value.

Temporary Restraining Order—Preliminary Injunction—Motion for Directed Verdict—Abuse of Process.

Plaintiffs (collectively, ART) provided training, seminars, and business support software for healthcare professionals specializing in “active release techniques.” ART’s owner hired Xtomic, LLC to manage ART’s information technology (IT) services and provide IT support. Years later, a co-owner of Xtomic and a former employee of ART, among others, formed Select Seminar Services, LLC to market seminar training for a different soft tissue technique than that offered by ART, using software programs that Xtomic had developed, including a program that ART also used.

 

ART petitioned for a temporary restraining order and preliminary injunction and asserted several claims. Xtomic asserted counterclaims, including, as relevant here, a claim for abuse of process. Xtomic argued that ART had an ulterior motive to use the lawsuit as a means to harass Xtomic and run it out of business. ART moved for a directed verdict, which the court denied, relying primarily on (1) ART’s settlement with the former employee; (2) ART’s reputation for filing lawsuits to control the behavior of former associates and business partners; and (3) letters that ART sent to numerous individuals who were not directly involved in the litigation to preserve various documents. A jury found in favor of Xtomic.

On appeal, ART contended that the trial court erred by denying its motion for a directed verdict on Xtomic’s abuse of process counterclaim. The abuse of process tort was developed as a remedy for the filing of what could be a meritorious action that is manipulated to obtain an improper advantage unrelated to the substance of the action. Abuse of process focuses not on the alleged wrongdoer’s motivations or intentions, but on whether the legal system was used for its intended purpose. Here, ART’s settlement with the former employee was not evidence of abuse of process because the settlement was used as intended, to resolve a conflict without a trial. Second, ART’s reputation for filing or its abuse of process in other lawsuits has no bearing on the allegations here. Third, the letters ART sent were not a legal proceeding or a court process. Accordingly, the trial court should have granted ART’s motion for a directed verdict on the abuse of process counterclaim as a matter of law.

The jury’s verdict in favor of Xtomic on the abuse of process claim and the damages award predicated on that verdict were vacated, and the case was remanded to amend the damages award accordingly.

Insurance Policy—Coverage—Surface Water—Exclusions.

Martinez filed a claim with his insurer, American Family Mutual Insurance Co. (American Family), for water damage to his home caused by hail and rain that collected at the bottom of the home’s below-ground window wells. American Family denied the claim because “flooding” and “surface water” were excluded from coverage under the policy. Martinez filed suit for declaratory judgment on the coverage issue, among other claims. The trial court granted American Family’s motion for summary judgment on the coverage issue.

On appeal, Martinez argued that his policy did not bar coverage as a matter of law and, accordingly, the district court erred in granting American Family’s motion for summary judgment. The Court of Appeals interpreted the meaning of the insurance agreement and applied the Colorado Supreme Court’s definition of surface water and the plain-language definitions of “the earth’s surface” and the precipitation at issue in this case. The Court concluded that the precipitation that fell on Martinez’s home and then flowed into the window wells was all surface water, which the insurance policy unambiguously barred from coverage as a matter of law.

The summary judgment was affirmed.

Property Tax Valuation—Standing—Fee Owner.

Traer Creek-EXWMT LLC (Traer) is a lessee of a commercial building on Tract B. Under a “Declaration of Easements,” Traer is contractually obligated to pay the property taxes “directly to the appropriate taxing authorities.” But since Traer assumed the lease, the owner has made those payments and Traer has reimbursed the owner. Traer (but not the owner) initiated the statutory protest and adjustment process to challenge the 2015 valuation of Tract B, and the assessor declined to adjust the valuation. Traer appealed the notice of determination to the Eagle County Board of Equalization (Board), which upheld the valuation. Traer then appealed the Board’s decision to the district court, which dismissed the case based on lack of standing.

On appeal, Traer contended that the district court erred in ruling that it did not have statutory or common law standing to object to and protest a valuation. The fee owner is the only party given statutory standing to object to and protest the assessor’s valuation of real property in fee. Traer’s contention that he has common law standing fails because when a statute limits standing, a court cannot disregard that limitation by employing notions of common law standing.

Traer also argued that the court improperly adopted the Board’s factual assertions concerning the amount of Traer’s leased space and his tax liability to the owner. The Court determined that these assertions are irrelevant to the standing issue, so any error as to those facts is harmless.

The judgment was affirmed.