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
Tuesday, May 17, 2011
INDEMNIFYING YOUR LANDLORD FOR ITS OWN NEGLIGENCE
A recent Colorado Supreme Court case, Constable v. Northglenn, LLC, Case No. 09CS1063 (March 21, 2011), is instructive on why it is important for a tenant to fully understand the indemnification provisions in his or her lease.
In the Constable case, a woman who slipped and fell on ice in a shopping center parking lot sued the owner of the shopping center, Northglenn, LLC, for negligence. Northglenn, LLC in turn filed an indemnity claim against Constable, a tenant in the shopping center, under Constable's lease.
The indemnity provision in Constable's lease required Constable to indemnify Northglenn, LLC for injuries sustained in Constable's space or elsewhere in the shopping center if the person was present in the shopping center for the purpose of visiting Constable's space. The indemnity provision also provided that Constable had no indemnification obligation if the harm resulted from Northglenn, LLC's own gross negligence or intentional torts.
The trial court held that indemnity was unenforceable because it purported to make Constable responsible for the parking lot, which was in the exclusive control of Northglenn, LLC, and that it did not clearly define the injuries that would trigger the indemnification obligations of Constable.
The Court of Appeals reversed, concluding that the indemnity provision made it clear that the parties intended that Constable indemnify Northglenn, LLC for injuries sustained in the parking lot by Constable's customers, whether or not the injuries resulted from Northglenn, LLC's own negligence.
The Supreme Court upheld the Court of Appeals ruling, finding that the indemnity provision was not void as against public policy by requiring Constable to indemnify Northglenn, LLC for its own negligence. The Supreme Court recognized that it is against public policy to enforce an agreement indemnifying an actor for his or her own "intentional or willful wrongful acts," but that an agreement indemnifying a party against liability for his or her own negligence is enforceable if the agreement contains "a clear and unequivocal expression that the parties intended that result."
The indemnity language in Constable did not specifically state that the indemnity applied to claims resulting from Northglenn, LLC's own negligence. The Supreme Court found that the language in the indemnity covering "any and all"claims, and the specific exclusion of gross negligence and intentional torts, was a sufficiently clear expression of the parties' intent that Constable would indemnify Northglenn, LLC for its own negligence.
It is not uncommon for a landlord to require indemnity for claims arising out of the use of the premises, even where the claims arise out of landlord's own negligence. It is less common for the provision to require indemnification for causes of action arising outside of the premises where the plaintiff is not an agent, employee or contractor of the tenant.
From a tenant's perspective, because of the lack of control over customers and over common areas of the shopping center, an indemnity provision like that in the Constable case should be carefully considered and negotiated out of the less if possible.
From a landlord's perspective, if the tenant agrees on a provision like that in the Constable case it would be advisable to specifically state in the indemnity provision that it applies to "any and all" claims, whether or not based on the landlord's negligence.
Posted By: Brent W. Houston, Esq.
In the Constable case, a woman who slipped and fell on ice in a shopping center parking lot sued the owner of the shopping center, Northglenn, LLC, for negligence. Northglenn, LLC in turn filed an indemnity claim against Constable, a tenant in the shopping center, under Constable's lease.
The indemnity provision in Constable's lease required Constable to indemnify Northglenn, LLC for injuries sustained in Constable's space or elsewhere in the shopping center if the person was present in the shopping center for the purpose of visiting Constable's space. The indemnity provision also provided that Constable had no indemnification obligation if the harm resulted from Northglenn, LLC's own gross negligence or intentional torts.
The trial court held that indemnity was unenforceable because it purported to make Constable responsible for the parking lot, which was in the exclusive control of Northglenn, LLC, and that it did not clearly define the injuries that would trigger the indemnification obligations of Constable.
The Court of Appeals reversed, concluding that the indemnity provision made it clear that the parties intended that Constable indemnify Northglenn, LLC for injuries sustained in the parking lot by Constable's customers, whether or not the injuries resulted from Northglenn, LLC's own negligence.
The Supreme Court upheld the Court of Appeals ruling, finding that the indemnity provision was not void as against public policy by requiring Constable to indemnify Northglenn, LLC for its own negligence. The Supreme Court recognized that it is against public policy to enforce an agreement indemnifying an actor for his or her own "intentional or willful wrongful acts," but that an agreement indemnifying a party against liability for his or her own negligence is enforceable if the agreement contains "a clear and unequivocal expression that the parties intended that result."
The indemnity language in Constable did not specifically state that the indemnity applied to claims resulting from Northglenn, LLC's own negligence. The Supreme Court found that the language in the indemnity covering "any and all"claims, and the specific exclusion of gross negligence and intentional torts, was a sufficiently clear expression of the parties' intent that Constable would indemnify Northglenn, LLC for its own negligence.
It is not uncommon for a landlord to require indemnity for claims arising out of the use of the premises, even where the claims arise out of landlord's own negligence. It is less common for the provision to require indemnification for causes of action arising outside of the premises where the plaintiff is not an agent, employee or contractor of the tenant.
From a tenant's perspective, because of the lack of control over customers and over common areas of the shopping center, an indemnity provision like that in the Constable case should be carefully considered and negotiated out of the less if possible.
From a landlord's perspective, if the tenant agrees on a provision like that in the Constable case it would be advisable to specifically state in the indemnity provision that it applies to "any and all" claims, whether or not based on the landlord's negligence.
Posted By: Brent W. Houston, Esq.
Tuesday, November 9, 2010
WHAT TO DO IF YOUR PROPERTY IS LANDLOCKED
A recent Colorado Supreme Court Case, Bly v. Story, 09SC189 (Oct. 18, 2010), is instructive to landowners who find themselves without access to their property. In the Bly case, the plaintiffs, the Storys, owned a 45 acre parcel in Western Jefferson County that was accessed by a road traversing the property of the defendants, the Blys. The Storys discovered that they had no legal right to use the road and commenced a private condemnation action to obtain legal access.
Article II, Section 14 of the Colorado Constitution prohibits the taking of private property for private use "unless by consent of the owner" or "except for private ways of necessity," among other exceptions. The procedure for commencing a private condemnation proceeding is set forth in Section 38-1-102 of the Colorado Revised Statutes.
Unable to reach an agreement with the Blys, the Storys filed a petition in the district court to establish an access easement over the existing road pursuant to the Colorado Constitution and C.R.S. sec. 38-1-102. The district court granted the Storys petition and awarded the Blys $3,300 for the easement and $9,200 for damages to the residue.
On appeal, the Blys asserted that the trial court erred in denying their motion to dismiss because the Storys failed to adequately describe the easement in their petition, and also that the trial court erred in not presenting evidence to the jury regarding the construction cost of the road for purposes of valuing the easement.
The Supreme Court, in upholding the trial court's decision, stated that Colorado law does not require the petitioner to provide a legal description of the property in the petition and that the Storys' general description of the dimension and location of the easement (i.e. 20 foot easement across the existing dirt road) was sufficient. Further, the Court stated that the Storys were not required to specify in detail the intended use of the condemned property and that the Storys' general statement that the easement was sought "to provide access to [their] landlocked property in order to permit the use and enjoyment of [their] property" was sufficient.
As to the issue of presenting the construction cost valuation method to the jury, the Supreme Court held that the trial court did not abuse its discretion in denying that evidence, but such evidence is admissible.
Post By: Brent W. Houston, Esq.
Article II, Section 14 of the Colorado Constitution prohibits the taking of private property for private use "unless by consent of the owner" or "except for private ways of necessity," among other exceptions. The procedure for commencing a private condemnation proceeding is set forth in Section 38-1-102 of the Colorado Revised Statutes.
Unable to reach an agreement with the Blys, the Storys filed a petition in the district court to establish an access easement over the existing road pursuant to the Colorado Constitution and C.R.S. sec. 38-1-102. The district court granted the Storys petition and awarded the Blys $3,300 for the easement and $9,200 for damages to the residue.
On appeal, the Blys asserted that the trial court erred in denying their motion to dismiss because the Storys failed to adequately describe the easement in their petition, and also that the trial court erred in not presenting evidence to the jury regarding the construction cost of the road for purposes of valuing the easement.
The Supreme Court, in upholding the trial court's decision, stated that Colorado law does not require the petitioner to provide a legal description of the property in the petition and that the Storys' general description of the dimension and location of the easement (i.e. 20 foot easement across the existing dirt road) was sufficient. Further, the Court stated that the Storys were not required to specify in detail the intended use of the condemned property and that the Storys' general statement that the easement was sought "to provide access to [their] landlocked property in order to permit the use and enjoyment of [their] property" was sufficient.
As to the issue of presenting the construction cost valuation method to the jury, the Supreme Court held that the trial court did not abuse its discretion in denying that evidence, but such evidence is admissible.
Post By: Brent W. Houston, Esq.
Wednesday, August 25, 2010
CONTRACT ASSUMPTION DEFENSE -- ABSOLUTE BAR TO BANKRUPTCY AVOIDANCE POWERS
After filing for chapter 11 bankruptcy, the debtor in possession has the option of either assuming or terminating "executory contracts," meaning contracts having future performance obligations. To assume an executory contract, the debtor must first cure all outstanding defaults and provide adequate assurance of future performance. 11 U.S.C. sec. 365(b).
The U.S. Bankruptcy Court for the District of Colorado has affirmed that, once an executory contract is assumed, payments made under the contract cannot be avoided as "preferences." In re Centrix Financial, LLC, Bankr. Case No. 06-16403 (June 15, 2010). In general, payments made by the debtor within 90 days before filing a bankruptcy petition (one year if made to an insider) on account of a pre-existing debt and made while the debtor was insolvent can be avoided as "preferences," meaning the debtor in possession or bankrutpcy trustee may assert a claim against the recipient to recover amounts paid by the debtor prior to filing for bankruptcy. 11. U.S.C. sec. 547.
In addition to holding that payments made on an assumed contract cannot be avoided as preferences, the Bankruptcy Court held that all payments made under the assumed contract were unavoidable, even though only part of the services provided for in the contract were to continue post-petition. In other words, the whole integrated contract was assumed, not just the parts the debtor wanted to keep.
In the Centrix case, the debtor entered into one contract with the defendant for postage metering and mailing services and a second contract for professional services. The debtor intended to assume only the second contract, and the liquidating trustee appointed by the court attempted to avoid as preferences the payments made with respect to the postage metering and mailing services contract . The defendant successfully argued that the two contracts were in fact one integrated contract, because in the second contract's integration clause, the first contract was incorporated in and made a part of the second contract. The court held that the entire integrated contract was assumed, not merely the part intended to be assumed by the debtor.
Posted By: Brent W. Houston, Esq.
The U.S. Bankruptcy Court for the District of Colorado has affirmed that, once an executory contract is assumed, payments made under the contract cannot be avoided as "preferences." In re Centrix Financial, LLC, Bankr. Case No. 06-16403 (June 15, 2010). In general, payments made by the debtor within 90 days before filing a bankruptcy petition (one year if made to an insider) on account of a pre-existing debt and made while the debtor was insolvent can be avoided as "preferences," meaning the debtor in possession or bankrutpcy trustee may assert a claim against the recipient to recover amounts paid by the debtor prior to filing for bankruptcy. 11. U.S.C. sec. 547.
In addition to holding that payments made on an assumed contract cannot be avoided as preferences, the Bankruptcy Court held that all payments made under the assumed contract were unavoidable, even though only part of the services provided for in the contract were to continue post-petition. In other words, the whole integrated contract was assumed, not just the parts the debtor wanted to keep.
In the Centrix case, the debtor entered into one contract with the defendant for postage metering and mailing services and a second contract for professional services. The debtor intended to assume only the second contract, and the liquidating trustee appointed by the court attempted to avoid as preferences the payments made with respect to the postage metering and mailing services contract . The defendant successfully argued that the two contracts were in fact one integrated contract, because in the second contract's integration clause, the first contract was incorporated in and made a part of the second contract. The court held that the entire integrated contract was assumed, not merely the part intended to be assumed by the debtor.
Posted By: Brent W. Houston, Esq.
Monday, June 14, 2010
MECHANICS' LIENS: BONDING AROUND LIEN DOES NOT CURE FAILURE TO RECORD LIS PENDENS
Under Colorado law, in order to preserve mechanics' lien rights, a mechanics' lien claimant must commence an action to enforce the mechanics' lien and record a lis pendens within six months after completion of the project. C.R.S. sec. 38-22-110. The general contractor or owner of the property against which a mechanics' lien is recorded may obtain the release of the mechanics' lien by filing with the court a surety bond or other undertaking (e.g., a letter of credit) in the amount of 150% of the lien claim and costs allowed to date. C.R.S. sec. 38-22-131.
The Colorado Court of Appeals recently upheld the dismissal of a mechanics' lien foreclosure action because the plaintiff failed to record a lis pendens within the statutory six-month period, even though trial court ordered the release of the mechanics' lien following submission of a surety bond by the general contractor. Weize Company, LLC v. Colorado Regional Construction, Inc., 09CA1369 (June 10, 2010). The plaintiff acknowledged that it did not record a lis pendens but argued that filing a lis pendens was "superfluous" because proceeding against the bond would not affect title to the property, and therefore not recording a lis pendens did not interfere with the statute's purpose of making titles to real property "more safe, secure and marketable." The Court of Appeals, in rejecting this argument, stated that "the validity of a lien would still be of concern to a person interested in title to the liened property because the surety could become insolvent. In that event, 'any lien claimant shall be entitled to enforce such lien claim in the same manner as if no bond had been filed.'" Id. at 18, quoting, C.R.S. sec. 38-22-129(5). This rationale confuses the type of bond at issue. C.R.S. sec. 38-22-129(5) applies to performance and payment bonds, not lien release bonds. Also, the lien release bond statute plainly states that the lien is released and the property is discharged from the action to foreclose such lien. C.R.S. sec. 38-22-132. No exception like that provided for payment and performance bonds is specified for lien release bonds.
The Court of Appeals concluded that the legislature did not intend to provide any exception to the lis pendens requirement and found no case implying any such exception. This strict construction may cause problems with clearing mechanics' liens via lien release bonds, because the lis pendens makes the property unmarketable. Until the Supreme Court or General Assembly weighs in on this issue, the lien claimant will need to record a lis pendens whether or not a lien release bond was recorded prior to commencement of the foreclosure action. This will cause the general contractor and/or property owner to have to take the additional step of obtaining an order releasing the lis pendens.
Posted By: Brent W. Houston, Esq.
The Colorado Court of Appeals recently upheld the dismissal of a mechanics' lien foreclosure action because the plaintiff failed to record a lis pendens within the statutory six-month period, even though trial court ordered the release of the mechanics' lien following submission of a surety bond by the general contractor. Weize Company, LLC v. Colorado Regional Construction, Inc., 09CA1369 (June 10, 2010). The plaintiff acknowledged that it did not record a lis pendens but argued that filing a lis pendens was "superfluous" because proceeding against the bond would not affect title to the property, and therefore not recording a lis pendens did not interfere with the statute's purpose of making titles to real property "more safe, secure and marketable." The Court of Appeals, in rejecting this argument, stated that "the validity of a lien would still be of concern to a person interested in title to the liened property because the surety could become insolvent. In that event, 'any lien claimant shall be entitled to enforce such lien claim in the same manner as if no bond had been filed.'" Id. at 18, quoting, C.R.S. sec. 38-22-129(5). This rationale confuses the type of bond at issue. C.R.S. sec. 38-22-129(5) applies to performance and payment bonds, not lien release bonds. Also, the lien release bond statute plainly states that the lien is released and the property is discharged from the action to foreclose such lien. C.R.S. sec. 38-22-132. No exception like that provided for payment and performance bonds is specified for lien release bonds.
The Court of Appeals concluded that the legislature did not intend to provide any exception to the lis pendens requirement and found no case implying any such exception. This strict construction may cause problems with clearing mechanics' liens via lien release bonds, because the lis pendens makes the property unmarketable. Until the Supreme Court or General Assembly weighs in on this issue, the lien claimant will need to record a lis pendens whether or not a lien release bond was recorded prior to commencement of the foreclosure action. This will cause the general contractor and/or property owner to have to take the additional step of obtaining an order releasing the lis pendens.
Posted By: Brent W. Houston, Esq.
Monday, May 24, 2010
Colorado's New Commercial Real Estate Brokers Commission Security Act
The newly enacted Commercial Real Estate Brokers Commission Security Act, H.B. 10-1288, creates a statutory lien in favor of Colorado real estate brokers for commissions earned in connection with leasing of commercial real estate. The lien, however, does not attached until the broker procures a tenant for the property or otherwise earns the commission, a notice of intent to record a notice of lien is served upon the owner of the property, the broker makes a good faith attempt to obtain a settlement through mediation, and the broker records a notice of lien between thirty days after the notice of intent was served and ninety days after the tenant takes possession of the leased property or after the compensation is due, whichever is later. C.R.S. sec. 38-22.5-106.
At least thirty days before recording a notice of lien with the clerk and recorder of the county in which the property is located, the commercial real estate broker must serve a notice of intent to record a notice of lien upon the owner of the property by personal service or certified mail, return receipt requested. C.R.S. sec. 38-22.5-104(1). Also, after recording the notice of lien, the broker must provide the owner with a copy of the notice of lien by personal service or certified mail, return receipt requested, otherwise the lien is valid for only ten days after it is recorded. C.R.S. sec. 38-22.5-107(1). An action to foreclose the lien must be commenced within six months after recording of the notice of lien. C.R.S. sec. 38-22.5-107(2).
The Colorado Commercial Real Estate Brokers Commission Security Act takes effect on August 11, 2010, unless a referendum against the act is timely filed.
Post By: Brent W. Houston, Esq.
At least thirty days before recording a notice of lien with the clerk and recorder of the county in which the property is located, the commercial real estate broker must serve a notice of intent to record a notice of lien upon the owner of the property by personal service or certified mail, return receipt requested. C.R.S. sec. 38-22.5-104(1). Also, after recording the notice of lien, the broker must provide the owner with a copy of the notice of lien by personal service or certified mail, return receipt requested, otherwise the lien is valid for only ten days after it is recorded. C.R.S. sec. 38-22.5-107(1). An action to foreclose the lien must be commenced within six months after recording of the notice of lien. C.R.S. sec. 38-22.5-107(2).
The Colorado Commercial Real Estate Brokers Commission Security Act takes effect on August 11, 2010, unless a referendum against the act is timely filed.
Post By: Brent W. Houston, Esq.
Subscribe to:
Posts (Atom)
