The Colorado Supreme Court will hold its final oral arguments of 2021 this week. Arguments will be held in a total of five cases on Tuesday and Wednesday. The cases raise questions about securities fraud, property tax assessments and the constitutionality of the state’s harassment statute.
Chan v. HEI Resources
On Tuesday morning, the justices will hear arguments in a securities fraud case with “a lengthy and circuitous history,” as Colorado’s securities commissioner described it in her opening brief. At the heart of the case is an investment scheme in which HEI Resources sold joint venture interests in an oil and gas well operation.
HEI claims the joint venture interests weren’t securities because they were structured as general partnerships. Many of the proceedings in the case so far, which include three trials and two Court of Appeals decisions, have focused on whether the investments were securities. In 2020, a division of the Colorado Court of Appeals applied a “strong presumption” that a general partnership is not a security, disagreeing with a previous division’s finding and reversing a trial court’s 2017 conclusion that the defendants had committed securities fraud. The Colorado Supreme Court will consider whether the 2020 division erred in its “strong” presumption that the investments weren’t securities.
In its 1981 Williamson v. Tucker decision, the 5th Circuit found a general partnership can be a security in certain cases, including when a partner is unable to exercise meaningful partnership powers due to a lack of experience and knowledge or dependence on another party’s managerial or entrepreneurial abilities. The Colorado Supreme Court will consider how to apply the test in Williamson to analyze whether a general partnership is a security.
The state says HEI targeted unsophisticated, often elderly, investors who didn’t know anything about operating oil and gas wells. The state also claims the partnerships required investors to rely on HEI, which made critical decisions about well locations and operations before receiving investor dollars.
Citing Williamson and other cases, HEI maintains that general partnership or joint venture interests are generally not securities. HEI also argues its investors needn’t have specialized oil and gas expertise under the Williamson test — general business experience and savvy should suffice.
Marriage of Mack
The court will also hear arguments about whether members of the state pension plan for public employees may remove a spouse as a beneficiary. The justices will consider whether a trial court erred when it denied Robert Mack, a member of the Public Employees’ Retirement Association, the right to remove his co-beneficiary spouse from his pension plan, thereby denying its reversion to a single life benefit option.
People v. Moreno
On Tuesday afternoon, the high court will hear arguments about whether certain sections of Colorado’s harassment statute are unconstitutional. Under C.R.S. 18-9-111(1)(e), it’s harassment to directly or indirectly initiate communication or direct language toward another person by telephone, data network, text or instant message, computer or other interactive electronic medium “in a manner intended to harass” or threaten bodily injury or property damage.
Alfred Moreno was charged under this subsection of the state’s harassment law for public Facebook posts and emails in which he called his ex-wife names, expressed “rage and hatred” toward her and displeasure about her new boyfriend.
Moreno filed a motion to dismiss, arguing that the law is unconstitutional. The trial court sided with him, finding that the phrase “intended to harass” is unconstitutionally vague and overbroad in violation of freedom of speech protections in the federal and state constitutions.
The state appealed, arguing Moreno failed to prove beyond a reasonable doubt that the statute is vague and overbroad. The state says that “because his actions are precisely the sort of behavior the statute intends to regulate, [Moreno] lacks standing to challenge overbreadth.”
In his brief to the Colorado Supreme Court, Moreno says the prohibition against electronic communications that are “intended to harass” is “alarmingly overbroad.” “As this Court has repeatedly concluded, harassing, haranguing, annoying, and alarming others is a legitimate function of speech,” the brief states, and the provision is unconstitutionally overbroad. He also argues that the statute’s breadth and “circular language” make it hard for ordinary people to know what conduct is prohibited, and the “absence of a cognizable standard would invite arbitrary enforcement.”
Lodge Properties v. Eagle County Board of Equalization
On Wednesday, the court will consider whether rental income a hotel receives for managing privately owned condominiums should count toward the hotel’s actual value for tax purposes. Lodge Properties, a subsidiary of Vail Corporation, owns luxury hotel Lodge at Vail. Another Vail subsidiary, Vail Beaver Creek, manages condominium units that are physically connected to the hotel but owned by third parties.
A division of the Court of Appeals found that the rental fees collected by VBC should count toward LAV’s property valuation under the income approach to valuation, in which an appraiser determines the net income generated by a property and then capitalizes the net income to determine market value.
Lodge Properties argues that its condominium management contracts are intangible personal property exempt from taxation. In its opening brief to the Supreme Court, Lodge Properties says Eagle County’s inclusion of intangible personal property in a real property valuation was “unprecedented.” The Board of Assessment Appeals, which rejected the county’s valuation, also says the net income earned by VBC is intangible personal property and should not be taxed.
Lodge Properties says the Court of Appeals used “novel reasoning” to reverse the Board of Assessment Appeals’ decision, and if this novel reasoning is affirmed, it “would undermine and destabilize Colorado’s real property taxation system, and lead to the routine taxation of intangible personal property, property that the General Assembly has expressly made off-limits to taxing authorities.”
However, the Eagle County Board of Equalization says the “only novel aspects of this case are Petitioners’ attempts to introduce a new legal argument … that was not preserved before the BAA and a request for an unconstitutional tax exemption.”
“Petitioners seek a blanket tax exemption for a reliable income stream that resort hotel properties regularly generate and the market generally recognizes as contributing to actual value simply because the reliable income stream is memorialized in a contract and siphoned through subsidiaries of [Vail Resorts],” the Eagle County Board of Equalization said in its brief. “The Court should see through Vail Resorts’ corporate scheme to avoid taxation.”
In the Interest of Minor Children My. K.M. and Ma. K.M.
The final case the justices will hear this year centers around the state’s obligations under the Indian Child Welfare Act, which was enacted to address concerns about the forced removal of Native American children from their homes and cultures. The Colorado Supreme Court will consider whether the Department of Human Services made proper efforts to provide services and programs to remediate a family’s problems, rehabilitate the parents and prevent the breakup of the family.