Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.
The Colorado Court of Appeals dealt with a case regarding the admissibility of testimony in a securities fraud case.
Kelly Schnorenberg appealed his judgment of conviction for 28 counts of securities fraud.
In 2008, Schnorenberg formed KJS Marketing Inc. with the stated purpose of securing funding and recruiting insurance agents for a related insurance marketing company. Over the next seven years, he established a succession of business entities to operate the insurance marketing business. To finance these enterprises, he solicited investments, securing over $15 million from more than 200 investors. These investments were governed by letters of agreement between Schnorenberg and each investor and, later, promissory notes. Pursuant to these agreements and promissory notes, investors generally provided Schnorenberg funding with the understanding the investors would receive 12% interest to be paid annually.
According to the opinion, in soliciting these investments, Schnorenberg didn’t disclose certain information to investors. He didn’t tell them the Colorado Division of Securities had sued him and he had been permanently enjoined from selling securities in Colorado. Nor did he tell investors that he had obtained a discharge from bankruptcy in 2003.
Schnorenberg also withheld information from the investors who entered into agreements after he failed to pay the initial investors the interest they were owed under their respective agreements. He didn’t disclose to the later investors he had failed to pay the initial investors; his companies had carried large debt loads; civil judgments had been entered against him for unpaid debts and he had not satisfied such judgments; some of his companies had failed; and he had failed to provide his prior investors with financial statements for his companies.
Based on this conduct, Schnorenberg was charged, as relevant here, with 27 counts of securities fraud premised on material misstatements or omissions, and one count of securities fraud premised on a fraudulent course of business.
He pursued two theories of defense at trial. First, he claimed the agreements governing the investments were not securities under the Colorado Securities Act, Colorado Revised Statute 11-51-101 to -803. Second, he argued that, because he acted in good faith and in reliance on the advice of his securities lawyer, he lacked the requisite mens rea to be convicted of securities fraud. The jury convicted Schnorenberg of all 28 counts.
On appeal, Schnorenberg argued the trial court erred in six ways. The court of appeals agreed with the following three contentions of error: the trial court erred by preventing Schnorenberg from testifying about the advice he received from his lawyer regarding what disclosures he needed to make to prospective investors; the trial court further erred by declining to instruct the jury that good faith reliance on his lawyer’s advice was relevant to show that he lacked the requisite intent to commit the charged offenses; and his convictions for seven material misstatement or omission counts were brought outside the statute of limitations and, as a result, must be vacated.
The Colorado Court of Appeals unanimously vacated seven of Schnorenberg’s convictions, reversed the judgment as to the remaining convictions and remanded the case for further proceedings.
The Colorado Court of Appeals unanimously affirmed an order in a vehicular homicide case.
In 2019 Kari Kennedy pleaded guilty to vehicular homicide under CRS 18-3-106(1)(b)(I) and vehicular assault under CRS 18-3-205(1)(b).
According to the opinion, in 2018 22-year-old B.S. drove with his mother and sister from Denver to Estes Park for a day trip. B.S. offered to drive the car back to Denver that evening. The family was traveling safely on Highway 36 toward Lyons when the car in front of them suddenly veered off the road to avoid a car barreling down the wrong lane. B.S.’s car and the incoming car smashed into one another at a high rate of speed.
B.S. died at the scene. His mother, who had been sitting behind him, sustained severe injuries that left her partially paralyzed. B.S.’s sister was also injured. Kennedy, the other driver, was unharmed. Bystanders noticed she was visibly intoxicated. Several vodka shooters were in her car, some open and empty, some closed. Kennedy was arrested, and approximately two hours after the crash, her blood alcohol content registered as 0.282g/100ml — three and a half times the legal limit.
This was not Kennedy’s first experience drinking and driving. Kennedy had three prior drinking and driving offenses. She had struggled with alcoholism and addiction for years, the opinion noted.
Kennedy pleaded guilty to vehicular homicide and to vehicular assault. Although the standard sentencing ranges for these crimes are four to 12 years and two to six years, respectively, Kennedy pleaded guilty to an aggravated sentencing range. This ratcheted the respective maximum sentences to 24 years and 12 years. The aggravating factors were Kennedy’s extensive history of drinking and driving and her degree of intoxication at the time of the accident.
At the sentencing hearing’s conclusion, the court imposed a 24-year sentence for the vehicular homicide conviction. In so doing, it relied on Kennedy’s three prior drinking and driving offenses and her failure to complete probationary sentences for those crimes. It also looked to the fact that, while released on bond for these charges, Kennedy repeatedly violated her bond conditions by drinking and abusing medication, which led the court to revoke it, the opinion noted.
Finally, the court imposed a five-year sentence for vehicular assault to be served consecutively — thus bringing Kennedy’s total sentence to 29 years.
Kennedy petitioned for review of her sentence under Crim. P. 35(c)(2)(I), which the district court denied in a written order. She then appealed the district court’s denial of her Crim. P. 35(c)(2)(I) motion on the grounds the 29-year sentence is grossly disproportionate and violates the Eighth Amendment.
The Colorado Court of Appeals concluded her sentence doesn’t give rise to an inference of gross disproportionality. Accordingly, the appeals court affirmed.
Tolle et al. v. Steeland, LLC et al.
The Colorado Court of Appeals unanimously affirmed an order in a case involving a fire.
According to a court document, a fatal apartment fire occurred in a four-unit building in Clifton, Colorado in August 2020. Resident Debra Wood died of smoke inhalation before the fire department was able to put out the fire. The ensuing investigation found the fire was unintentional and started in a window air-conditioning unit in Wood’s apartment that was in “poor condition.”
The building had no smoke alarms and no sprinkler system, and each apartment had only one exit, the complaint alleges.
Steeland, LLC owned the building, and Jaida McKeever was the sole member and the manager of Steeland.
Wood’s daughters, Faith Tolle and Grace Aragon, sued Steeland and McKeever for the wrongful death of their mother.
The defendants said Wood’s lease contained an arbitration clause requiring the parties to arbitrate “all disputes arising in connection with this lease.”
The Colorado Court of Appeals concluded the daughters’ wrongful death claims are governed by Colorado’s Premises Liability Act and they don’t “aris[e] in connection with th[e] lease.”
The appeals court affirmed the district court’s order denying the defendants’ motion to compel arbitration.
South Conejos School District RE-10 v. Wold Architects Incorporated
The Colorado Court of Appeals unanimously affirmed an order and remanded a case involving a school district.
This case arose from the construction of a kindergarten to twelfth grade school in Antonito, Colorado, and a subsequent flood at the school. The post-flood damage led the Colorado School District Self Insurance Pool and the South Conejos School District RE-10 to believe various elements of the construction were defective. So they sued their contractor, their architects and various others involved in the school project.
They initially sued G.E. Johnson Construction Co., Inc. in January 2021, and they added Wold Architects Incorporated, along with other involved parties, almost a year later. The district and the self insurance pool settled with most defendants. Only the district’s claims against Wold, which was hired to design the school and provide construction administration and observation services, remained.
Wold filed a motion for summary judgment on most of the claims asserted against it, arguing the claims are time barred. According to Wold, the accrual of the district’s claims should be governed by section 13-80-104 of the Construction Defect Action Reform Act, not the more generous claim accrual provision in the parties’ contract. The contract defines the time of accrual as when the injured party “discovered,” by way of “detection or knowledge,” a defect “of a substantial or significant nature.” By contrast, the statute defines the point of accrual as when the injured party discovered, or through reasonable diligence should have discovered, the physical manifestations of the defect.
The district court granted Wold’s summary judgment motion in part and denied it in part. The court found that, as to any “alleged defects concerning water resources,” the district had “knowledge of the substantial nature of the defects related to water resources sometime in 2017, making the deadline for bringing an action related to said defects sometime in 2019.” But the court found that, as to all other alleged defects, “genuine disputes of material fact” existed in terms of when the district “discovered” those defects.
Dissatisfied with the district court’s ruling, Wold moved to certify for interlocutory review the summary judgment order as to the accrual issue. The district opposed certification and argued that, even if section 13-80-104 applied, “there are questions of fact as to when the District discovered manifestations of defects that would trigger the statute” and “questions of fact to resolve as to when manifestation of damages occurred.”
Wold agreed questions of fact remain and granting interlocutory review will not end the litigation, but it explained an interlocutory appeal would result in a more orderly disposition of the case because “the evidence at trial will vary depending on which accrual standard applies.”
Agreeing with Wold, the district court certified its order for interlocutory review.
This C.A.R. 4.2 interlocutory appeal asks the Colorado Court of Appeals to decide whether, under Colorado law, a contract provision extending the time for accrual of construction defect claims beyond that identified in section 13-80-104(1)(b) is void and unenforceable.
The appeals court concluded the sophisticated contracting parties may agree to extend the accrual period without violating public policy. Because the extended contractual accrual provision at issue here is valid and enforceable, the appeals court affirmed the district court’s order and remanded for further proceedings.