COLORADO SELECT CASE LAW UPDATE

Colorado Court of Appeals

Turoff v. Itachi Capital—Court finds no jurisdiction to review district court order re: arbitration—2022COA147 (12/29/23). An arbitrator entered an award in Itachi’s favor and later awarded Itachi its attorney fees and costs. Appellant Turoff then filed a motion to vacate the arbitration award, arguing that the refusal to postpone the hearing and permit discovery was fundamentally unfair and substantially prejudiced her rights. The district court vacated the award and ordered the parties “to resubmit their dispute to JAG for a new hearing.” Itachi brought an interlocutory appeal, contending that the district court erred by vacating the arbitration award and ordering a new hearing. A division of the court of appeals concluded that an order vacating an arbitration award and directing a rehearing under section 13-22-228(1)(e) of the Colorado Revised Uniform Arbitration Act is not appealable as an ‘implicit order’ denying confirmation of the arbitration award under section 13-22-228(1)(c) of the Act.

Tenth Circuit Court of Appeals

Johnson v. Heath, et al.—Tenth Circuit holds sales scam does not constitute RICO violation—Docket: 20-4095 (10^th Cir. 12/28/22). Defendants Michael and Dawn Heath sold Plaintiff Harry Johnson a gasoline and automobile-service station in Wells, Nevada. Soon after the sale, Plaintiff allegedly discovered that the property had material, undisclosed defects and that Defendants had artificially inflated the business’s profits by scamming customers over the years. In suing them, Plaintiff asserted many state-law claims against both Defendants and a claim against Defendant Michael Heath under the federal RICO. The district court dismissed Plaintiff’s RICO claim for failure to state a claim upon which relief could be granted and declined to exercise supplemental jurisdiction over the remaining state claims. The issue Plaintiff’s appeal raised for the Tenth Circuit’s review centered on whether Defendants’ actions as alleged plausibly violated the federal RICO statute. Because the Court concluded they did not, it affirmed the district court’s judgment.

Evanston Insurance Company v. Desert State Life Management, et al.—Mixed holding in NM rescission/coverage case—Docket: 21-2145 (10^th Cir. 12/30/22). Evanston Insurance Company appealed the judgment following a bench trial on an insurance-coverage dispute. After determining that Evanston failed to timely rescind the policy and that a policy exclusion did not apply, the district court required Evanston to continue defending Desert State Life Management against a class action arising from its former CEO’s embezzlement scheme. Though the Tenth Circuit agreed with the district court that rescission was untimely, it disagreed about the likely application of New Mexico law on applying policy exclusions. Judgment was thus affirmed in part and reversed in part.

Sagome v. Cincinnati Insurance Company—Tenth Circuit rejects coverage argument of COVID losses—Docket: 21-1359 (10^th Cir. 01/03/23). Sagome, Inc.’s restaurant, L’Hostaria, suffered significant financial losses from reduced customer traffic and government lockdowns and restrictions relating to the COVID-19 pandemic. It sought to recover under its comprehensive general insurance policy. Like many insurers, Cincinnati denied coverage because the virus did not impose physical loss or damage as required by the policy. Sagome sued, but the district court concluded its financial losses were not covered. Addressing Sagome’s coverage under Colorado law, the Tenth Circuit agreed and affirmed: COVID-19 did not cause Sagome to suffer a qualifying loss because there was never any direct physical loss or damage to L’Hostaria.

United States Supreme Court

Bartenwerfer v. Buckley—Docket: 21-908 (Barrett 02/22/23). Kate and David Bartenwerfer remodeled the house they jointly owned. David oversaw the project. Kate remained largely uninvolved. They sold the house to Buckley, attesting that they had disclosed all material facts. Buckley discovered undisclosed defects and won a California state court judgment, leaving the Bartenwerfers jointly responsible for more than $200,000. The Bartenwerfers filed for Chapter 7 bankruptcy. Buckley filed an adversary complaint, alleging that the state-court judgment debt was non-dischargeable as “any debt … for money … to the extent obtained by … false pretenses, a false representation, or actual fraud,” 11 U.S.C. 523(a)(2)(A). The Bankruptcy Court imputed David’s fraudulent intent to Kate, citing their legal partnership to renovate and sell the property. The Bankruptcy Appellate Panel held that section 523(a)(2)(A) barred Kate from discharging the debt only if she knew or had reason to know of David’s fraud. The Ninth Circuit reversed. The Supreme Court affirmed the Ninth Circuit. Section 523(a)(2)(A) precludes Kate from discharging a debt obtained by fraud, regardless of her own culpability. The passive voice in section 523(a)(2)(A) removes the actor; fraud liability is not limited to the wrongdoer. The fraud of one partner should be imputed to other partners, who “received and appropriated the fruits of the fraudulent conduct.”