Public Entity Securities Purchaser Denied Commission Disgorgement Remedy
In May 2012 the Colorado Supreme Court overturned two lower courts by holding that brokers who sold unrated Collateralized Mortgage Obligations ("CMOs") to a County in violation of a state statute could not be held liable to disgorge their commissions under a common law restitution theory. Capital Securities of America, Inc. v. Griffin, Treasurer of Jefferson County, 278 P. 3d 342, 2012 CO 39 (2012). The Supreme Court noted that the statute in question, C. R. S. § 24-75-601.3, prohibited for the first time public entities from purchasing securities of the type Capital Securities sold to Jefferson County. That is, such purchases and sales were not unlawful at common law, and prior to the statute taking effect Capital Securities had no obligation not to sell unrated CMOs to public entities.
The Court found this fact significant. It held when the General Assembly places statutory duties on governmental entities which were "unknown at common law", the legislature must provide a "clear expression of legislative intent" in order to impose a civil damages remedy. The Court pointed out the General Assembly had considered the availability of damages, equitable remedies and regulatory remedies, yet did not provide a disgorgement remedy under a common law restitution theory in passing § 24-75-601.3. The Court therefore found that the General Assembly intended to exclude restitution as a remedy.
In deciding this holding the Supreme Court distinguished cases applying a statutory construction canon relied upon by the Court of Appeals in the decision below. That canon requires statutes to express a clear intent to negate preexisting common law rights in order for those rights to be negated. The Supreme Court pointed out the canon was inapposite to the case at bar because no common law right of rescission existed for public entities regarding the type of securities purchase at issue prior to enactment of the statute making their purchase illegal.
The Court noted that at the time of the district court judgment Jefferson County could not enforce its statutory right to have the broker repurchase the securities because the County had sold the CMOs at a $2,500,000 profit during the pendency of the action. The Court also noted the district court finding that the sale of the CMOs, though unlawful, was not "reprehensible, dangerous nor particularly blameworthy." Although these salient facts did not determine the outcome or figure directly in the Court's legal analysis, this may be an example of the Court finding a way to do justice by adhering to Colorado's long-standing policy of judicial deference to legislative intent where equities will not be ravaged in the process.
Posted by: Wes Howard
Tuesday, November 20, 2012
Street Address in Recorded Deeds of Trust Not Enough
` Colorado Supreme Court Holds "Legal Descriptions" Necessary in Deeds of Trust to Put Subsequent Purchasers on Notice of Security Interests
In June 2012 the Colorado Supreme Court held that a recorded deed of trust containing a street address but not a legal description does not provide sufficient notice to a subsequent purchaser of another's security interest in the real estate. In re Rivera, 2012 CO 43, 11SA261. The Court observed that the result may appear harsh since in that case the omission was unintentional. However, the Court observed its holding was consistent with Colorado's recording statutes and longstanding practices. The Court found that no other conclusion conferred the necessary respect for Colorado's real property system's need for "certainty and stability."
The Court had agreed to answer the question at bar upon request by the United States Bankruptcy Court for the District of Colorado, pursuant to C. A. R. 21.1. The Court assumed the deed of trust was "properly recorded" only in the sense it was properly indexed in the grantor-grantee index, not that it was "free of all defects that might render it invalidly recorded." The Court concluded the trust deed was defectively recorded and could not provide constructive notice to a subsequent purchaser of the security interest referred to therein.
The Court founded its conclusions on Colorado's race-notice recording state which provides "no ... unrecorded instrument or document" shall be valid against a purchaser without notice who records first. C. R. X. § 38-35-109(1). Although that provision does not specify what information the instrument must contain, the reference to "legal description of the property" in section 38-35-122(1)(a), C. R. S. (2011) convinced the Court there was presumption that a valid deed of trust must necessarily contain a legal description in addition to a street address. The Court noted that actual notice of another's interest in property will defeat a purchaser from obtaining property free and clear of the encumbrance. However, a bankruptcy provision prevented that knowledge from being imputed to the plaintiff bankruptcy trustee in the case at bar.
A dissenting justice pointed out that "legal description" is not specifically defined by any statute. He also observed a street address might be considered one form of "legal description" that would satisfy the requirements for effectively recorded instruments or documents. The dissenter opined that if the legislature had intended "legal description" to adhere to a specific method or formula of description, it would have specified the formula or method. However, the single dissent was greatly outweighed by the unanimous joining by the other justices in the majority opinion.
Posted by: Wes Howard
In June 2012 the Colorado Supreme Court held that a recorded deed of trust containing a street address but not a legal description does not provide sufficient notice to a subsequent purchaser of another's security interest in the real estate. In re Rivera, 2012 CO 43, 11SA261. The Court observed that the result may appear harsh since in that case the omission was unintentional. However, the Court observed its holding was consistent with Colorado's recording statutes and longstanding practices. The Court found that no other conclusion conferred the necessary respect for Colorado's real property system's need for "certainty and stability."
The Court had agreed to answer the question at bar upon request by the United States Bankruptcy Court for the District of Colorado, pursuant to C. A. R. 21.1. The Court assumed the deed of trust was "properly recorded" only in the sense it was properly indexed in the grantor-grantee index, not that it was "free of all defects that might render it invalidly recorded." The Court concluded the trust deed was defectively recorded and could not provide constructive notice to a subsequent purchaser of the security interest referred to therein.
The Court founded its conclusions on Colorado's race-notice recording state which provides "no ... unrecorded instrument or document" shall be valid against a purchaser without notice who records first. C. R. X. § 38-35-109(1). Although that provision does not specify what information the instrument must contain, the reference to "legal description of the property" in section 38-35-122(1)(a), C. R. S. (2011) convinced the Court there was presumption that a valid deed of trust must necessarily contain a legal description in addition to a street address. The Court noted that actual notice of another's interest in property will defeat a purchaser from obtaining property free and clear of the encumbrance. However, a bankruptcy provision prevented that knowledge from being imputed to the plaintiff bankruptcy trustee in the case at bar.
A dissenting justice pointed out that "legal description" is not specifically defined by any statute. He also observed a street address might be considered one form of "legal description" that would satisfy the requirements for effectively recorded instruments or documents. The dissenter opined that if the legislature had intended "legal description" to adhere to a specific method or formula of description, it would have specified the formula or method. However, the single dissent was greatly outweighed by the unanimous joining by the other justices in the majority opinion.
Posted by: Wes Howard
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