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TCL > May 2014 Issue > Summaries of Selected Opinions

May 2014       Vol. 43, No. 5       Page  133
From the Courts
U.S. Court of Appeals for the Tenth Circuit

Summaries of Selected Opinions

Summaries of selected Tenth Circuit Court of Appeals Opinions appear on a space-available basis. The summaries are prepared for the Colorado Bar Association (CBA) by Katherine Campbell and Frank Gibbard, licensed Colorado attorneys. They are provided as a service by the CBA and are not the official language of this Court. The CBA cannot guarantee the accuracy or completeness of the summaries. Full copies of the Tenth Circuit decisions are accessible from the CBA website: (click on "Opinions/Rules/Statutes").

Nos. 12-1140 & 12-1143. Gordon v. Bank of America, N.A. (In re Gordon). 02/20/2014. D.Colo. Judge Ebel. Bankruptcy—Colorado Model Chapter 13 Plan—Modification—Mootness—Jurisdiction.

In these consolidated appeals from Chapter 13 bankruptcy proceedings, the debtors (Stephen Pahs and Edward and Doris Gordon) challenged the district court’s orders reversing confirmation of their respective reorganization plans and remanding to the Bankruptcy Court for the District of Colorado. The Colorado bankruptcy court rules require Chapter 13 debtors to use the court’s model Chapter 13 plan. The debtors used the model plan, but modified it. The bankruptcy court confirmed the debtors’ plans, but the district court held that the debtors could not modify the model plan.

The Tenth Circuit first held that Pahs’s appeal was moot because he failed to make the stipulated payments to his creditors while this appeal was pending. Due to the failure, one of his creditors moved to dismiss his bankruptcy case, which the bankruptcy court granted. Therefore, the Circuit could no longer grant Pahs any relief and his appeal was moot.

The Gordons’ bankruptcy case remained pending, so their appeal was not moot; however, the Tenth Circuit held that it had no jurisdiction over the appeal because it was not taken from a final, appealable decision. Although the bankruptcy court’s order confirming the Gordons’ reorganization plan was a final, appealable order, the district court’s order was not. That order reversed the reorganization confirmation and remanded the case to the bankruptcy court for further proceedings. Generally, a remand order for significant further proceedings in the bankruptcy court is not final and appealable. On the other hand, a remand for a purely ministerial function does not render the order non-final. Here, the remand order directed the Gordons to propose a new reorganization plan using the model Chapter 13 plan without modification, which would entail notice to creditors, time for objections, and another confirmation hearing. These are significant further proceedings. Pahs’s appeal was dismissed as moot; the Gordons’ appeal was dismissed for lack of jurisdiction.

No. 12-1438. Securities and Exchange Commission v. Shields. 02/24/2014. D.Colo. Judge Seymour. Securities Fraud—Joint Venture Agreements—General Partnerships—Reasonable Expectation of Profits to be Derived From the Entrepreneurial or Managerial Efforts of Others—Rebuttable Presumption.

The Securities and Exchange Commission (SEC) sued defendant Jeffory Shields and his company GeoDynamics, Inc., alleging securities fraud in violation of several civil enforcement provisions of the Securities Acts. According to the SEC, to fund GeoDynamics, Shields obtained money by offering and selling more than $5 million worth of interests in four purported oil and gas exploration and drilling joint ventures. Shields marketed these oil and gas ventures by making nationwide cold calls to the general public and promising annual returns between 256% and 548%. Shields emphasized GeoDynamics’ qualifications and experience as an oil and gas driller and operator.

The proffered joint venture agreements stated that they were general partnerships whereby the investors delegated management operations to GeoDynamics as managing venturer. Of the $5 million raised, Shields used $2 million on extravagant personal expenses and an additional $2 million on general business expenses that vastly exceeded the amount the managing venturer was allowed to receive. Only $613,494 went to oil and gas development. GeoDynamics never finished the promised drilling work and produced no oil or gas, and no payments were made to investors. The district court held that the SEC’s allegations did not state a plausible claim that the joint venture interests were securities. The SEC appealed.

The Tenth Circuit stated the issue as whether the investments were "investment contracts" and thus "securities." The parties did not dispute that two of the three relevant elements were satisfied: (1) investors gave money directly to Shields and GeoDynamics (2) as part of a common investment scheme. The parties disputed the third element: whether the investment was premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. The agreements were denominated general partnerships, which raised a rebuttable presumption that they were not securities because the partners ordinarily have significant control over the enterprise. The SEC rebutted the presumption by showing that the investors lacked meaningful control over their interests. The district court’s dismissal was reversed and the case was remanded.

No. 12-5173. United States v. Leslie Harrison. 02/25/2014. N.D.Okla. Judge Hartz. Presentence Report—Calculation of Drug Quantity.

Defendant was convicted of conspiring to manufacture and distribute 50 grams or more of methamphetamine. On appeal, she challenged her 360-month sentence on several grounds. The Tenth Circuit found one of these grounds dispositive: the district court’s use of the drug quantity calculation in the presentence report (PSR) to set the base offense level for Sentencing Guidelines purposes.

As an initial matter, the Circuit held that defendant’s objection to the drug quantity calculation was preserved for appeal, even though defendant (who was represented by counsel) made only a pro se objection at sentencing. Moreover, even if defendant’s objection was insufficiently specific, the district court’s paraphrase of that objection identified the objection raised on appeal, and was therefore sufficiently specific.

Turning to the merits of defendant’s objection, the Circuit held that the PSR’s calculation of drug quantity was not based on trial testimony. Nothing at trial supported the PSR’s calculation concerning the frequency and amount of methamphetamine the defendant had allegedly manufactured during the time period of the conspiracy. The Circuit rejected the government’s argument that there was other evidence at trial that could justify the quantity found by the district court. The district court did not rely on this evidence. Moreover, the error was not harmless because the Circuit was not sufficiently confident, based on the evidence at trial and particularly given questions about witness credibility, that the district court would have found the applicable quantity of methamphetamine had it actually considered the matter using the evidence presented at trial. The Circuit therefore vacated defendant’s sentence and remanded the case for resentencing.

No. 13-1022. United States v. Evans. 03/11/2014. D.Colo. Judge Kelly. Mail and Wire Fraud—Loss Calculation—Foreseeability of Loss.

Defendant pleaded guilty to conspiracy to commit mail and wire fraud. He solicited investors for limited partnerships that would acquire, renovate, operate, and sell low-income apartment complexes. The offering statements advised investors that there was no guarantee of a return on their investment and no guarantee that they would receive interest or principal payments. After defendant experienced cash flow problems, he contributed his own money to keep the investments solvent and began comingling funds of the ventures, using funds from some offerings to pay the operational expenses of others. He also produced false financial statements that were provided to investors, lending institutions, and others. A receiver eventually took over the properties, after which defendant invested more of his money to keep them solvent. Ultimately, after the nationwide financial crisis, the remaining properties held by the partnerships fell into foreclosure. At sentencing, over defendant’s objection, the district court calculated the amount of loss by subtracting the return to investors from the amount of their initial investment, finding this amount of loss was foreseeable to defendant.

On appeal, the Tenth Circuit determined that the district court erred in calculating the amount of loss attributable to defendant. First, there was no fraud in the inducement; thus, any loss before defendant began comingling funds and producing false financial statements did not constitute a loss that could be attributed to defendant. Second, losses due to the housing crisis could not be counted against defendant, because the real estate projects were underlying assets of the limited partnerships, interests in the nature of equity whose value was tied to factors such as the health of the economy, which carried no guaranteed return. Thus, on remand, the district court would be charged with determining the extent to which defendant’s fraud actually contributed to the investors’ loss, based on foreseeability of loss. Defendant should not be credited for money he invested in the partnerships, which was not actually returned to the investors.

Finally, the government’s decision to reverse its stated intent to request an acceptance of responsibility reduction was not rationally related to any legitimate government end. Defendant therefore was entitled to the reduction. The Circuit remanded the case with instructions to vacate the sentence and to resentence defendant.

No. 13-4005. United States v. Wyss. 03/12/2014. D.Utah. Judge Baldock. Mandatory Victim Restitution Act—Authority to Modify Restitution Order.

Defendant pleaded guilty to one count of making false statements to the federal Transportation Security Administration (TSA). He concealed from TSA that he was working full-time for the Utah Department of Public Safety (DPS) while also employed full-time by TSA. In fact, he was working for DPS only 55% of the time that he said he was working. He therefore stipulated to restitution in favor of DPS of an amount representing 45% of the salary he had earned from DPS. An order of restitution was entered in that amount.

Then, more than forty months after his sentencing hearing, defendant asked the district court to credit against his restitution obligation the alleged value of annual, sick, and holiday leave he had earned while at DPS. Notwithstanding the government’s argument that the district court lacked authority to modify the order of restitution, the district court reduced defendant’s restitution by the amount of credits he requested, citing the interests of justice. The government appealed.

The Tenth Circuit held that the district court lacked authority to reduce defendant’s restitution obligation. Under the Mandatory Victim Restitution Act, the district court may correct, modify, or adjust an order of restitution only under certain enumerated circumstances. None of these exceptions authorized the district court to reduce defendant’s restitution more than three years after his sentencing. The closest fit was a provision permitting revision under F.R.Crim.P. 35, which permits correction of a sentence based on arithmetical or technical errors; however, under that rule, the correction must be made within fourteen days after sentencing. Accordingly, the Circuit reversed the district court’s order and remanded for reinstatement of the original order of restitution.

No. 13-4085. Hornady Manufacturing Company, Inc. v. DoubleTap, Inc. 03/19/2014. D.Utah. Judge Kelly. Trademark Infringement—Ammunition—Likelihood of Confusion—Other Factors.

Plaintiff sued defendant for trademark infringement. Plaintiff manufactures and sells firearm ammunition under the name "TAP." It holds a trademark registration for the word mark "TAP," and for TAP sub-brands. Defendant is a "niche" ammunition manufacturer specializing in hand-loaded rounds that sells its products under the name "DoubleTap." The district court granted summary judgment to defendant, and plaintiff appealed.

The Tenth Circuit noted that the central inquiry is whether the junior user’s mark is likely to be confused with the senior user’s mark. The Circuit applied six non-exhaustive factors. Under the first factor, the Circuit considered the similarity of the marks, noting that the focus may not be solely on name similarity. The court also must consider the effect of marketplace presentation, including lettering styles, logos, and coloring, as they are encountered by consumers. Comparing the sight, sound, and meaning of TAP and DoubleTap, the Circuit noted that the only similarity was the word "tap." The placement and use of the word differed between the marks, and the packaging also differed greatly in color scheme and layout. Thus, the Circuit concluded that there were more than enough differences to weigh the first factor in defendant’s favor.

Also weighing in defendant’s favor were the following factors: (1) there was no evidence that DoubleTap intended to copy the TAP mark; (2) there was insufficient evidence of customer confusion of the two marks; and (3) consumers were likely to exercise a high degree of care in purchasing the product. Weighing in plaintiff’s favor were the factors of similarity of the products and marketing, and the strength of the TAP mark. However, the numerical score was not dispositive. After reviewing the record de novo, the Circuit held that the factors, particularly whether the marks were similar, weighed in defendant’s favor. Plaintiff failed to raise a genuine factual issue regarding the likelihood of confusion, so the grant of summary judgment to defendant was affirmed.

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