Colorado Business Litigation Lawyer Blog

Yet another digression from my assigned duty of composing a Colorado Business blog dedicated to legal analysis.

A group of friends in New Mexico, Colorado’s good neighbor to the south, decided they would spice up an otherwise mundane drinking contest. They agreed --no doubt drunkenly-- that the person who drank the least would be set on fire.

The unfortunate loser drank only six beers, after which the non-losers (for obvious reasons, I hesitate to call them winners) promptly set the loser’s prosthetic leg on fire. Quite predictably, the fire soon spread to the man’s body. The winners, in a semi-lucid interval, decided to take the still burning man to the hospital. Instead, they left him at the side of the highway.

Dona Ana County deputy sheriffs found the man, naked and still burning. He told deputies that he removed his clothes because of the pain. The man was taken to a burn center for treatment. His condition is unknown.

The thing about wagers like this is that nobody thinks they will lose. And yet, a loser there surely will be.

Moral: if you’re drunk and with friends who are also drunk, don’t make wagers that will result in the contestants only getting drunker, especially if you are drunk enough to allow yourself to be set on fire. And to the person who drove the man to the location where he was found, DON’T DRINK AND DRIVE, even with a burning man in your car. The non-losers will no doubt face serious criminal charges.

A December study by the legal consultancy firm of Altman Weil showed that the recession notwithstanding, some large law firms are raising their fees to corporations by an average of four per cent in 2010. It is unknown whether or not Colorado law firms were included in the study.

The hourly rate charged by senior partners in these large firms has gone as high as $700-$900 per hour. A local survey by Boston-based BTI Consulting in October disclosed that 15% of Boston’s law firms are raising their rates for 2010, while the remainder is keeping their fees the same as last year.

As I have written before, a corporation that is cost- conscious and result- oriented should look at the advantages of hiring a plaintiff’s firm that charges on a contingent fee basis, whereby legal fees are based upon a percentage of the amount recovered in a lawsuit. If the lawsuit is lost, the lawyer receives no fee. Of course, this type of fee arrangement is normally confined to instances where the corporation is suing another person or legal entity for monetary damages. If the corporation is the defendant in the case (the one being sued), contingent fees are usually not appropriate, although some plaintiff’s firms will fashion a fee agreement whereby the lawyer is paid based upon results in the case.

A corporation or other entity that is considering filing a suit for money damages should feel free to contact this firm for additional information on the various types of legal fee agreements available.

Related postings:

Why You Need a Contingent Fee Lawyer for Your Colorado Business Litigation

Why You Need a Contingent Fee Lawyer for your Colorado Business Litigation, Part II

Denver station KUSA-TV reported January 11, 2010 that Krahl Construction has
halted work on a $1.5 million project at the main branch of the Denver Public Library as
the apparent result of a January 5 FBI search of Krahl's Chicago headquarters. Krahl also
has an office in Centennial, Colorado.

Krahl notified employees on January 8 that the company would be shutting down
the project. Neither the FBI nor Krahl disclosed why the raid took place, but an FBI
official said the search was part of an ongoing investigation and that the FBI was
"looking for evidence of a crime." No arrests were reported.

Krahl has been paid $430,000 for work already completed, but has been paid
nothing for unfinished work. New bids can be solicited after 10 days according to city
rules.

The company has an "A+" rating from the Chicago Better Business Bureau, and
reportedly does around $100 million a year in commercial construction work. It was
recently working as general contractor on an $81 million project at Riverside Medical
Center in Kankakee, IL, but hospital officials immediately hired another company to
finish the project.

Irrespective of your opinion about whether we should be at war in two countries or whether these wars are just, the brave men and women who have voluntarily put themselves in harm’s way nevertheless deserve our heartfelt thanks for their sacrifices and bravery.

These men and women unselfishly uprooted themselves from their homes, families and friends to volunteer in the military, not knowing whether they would be sent to Iraq or Afghanistan as front-line troops. And we should not forget those who serve as support personnel-- who ensure that those in the battle zones are properly supplied with intelligence information, weapons, food, clothing, medical care and treatment and other vital support.

This resilient country of ours has survived major world wars and many other military actions that became known as “conflicts” or “police actions” or similar euphemisms. Those who died or were wounded and possibly disfigured, who lost their eyesight or hearing, or who returned home with severe mental trauma from the horrors of battle, were no less brave simply because they were not involved in what we call “war.”

During this holiday season, therefore, let us all take time to remember these courageous troops and the sacrifices they and their families have made and are making. For as the author José Narosky said, “In war, there are no unwounded soldiers.”

At this time of year, we are all deluged with mail and telephone solicitations from all types of charities. We receive dozens of calendars, note pads, greeting cards, address stickers and other various and sundry “free gifts,” with the expectation that we will not accept the “free gift” without feeling in our hearts that we are at least morally bound to donate something to cover the cost of the gift and a little extra. The problem is that by receiving so many solicitations we may tend to become desensitized to the plight of those individuals and families who are so desperately in need of assistance, not just during the holidays, but 365 days a year.

Before I make a contribution to any charity, I first check the IRS website to determine whether or not the charitable organization is approved by the I.R.S. as a tax-exempt charity. After all, especially in this economy, tax deductibility may be one of the motivating factors for making a contribution. I also want to know what percentage of my donation goes to the paid fundraiser and what remaining percentage goes to charitable purpose. . The website www.charitynavigator.org will give you this information for a number of states, including Colorado. In addition, the American Institute of Philanthropy has a grading system of top-rated charities that spend 75% or more of their budgets on programs and $25 or less to raise $100 in public support. The organization has certain other relevant and important guidelines. This information is available at www.charitywatch.org.

The principals of some businesses, including ours, regularly make charitable contributions to the charity of choice of each of the other principals, in lieu of exchanging gifts at Christmas. In addition, each principal makes contributions to his or her own charity of choice. This tradition seems to work well and helps our firm fulfill what we consider as our civic and social obligation to give where it helps the most.

The Department of Homeland Security (DHS) and the Social Security Administration (SSA) have established an electronic system called E-Verify (formerly the Basic Pilot/Employment Eligibility Verification Program) to assist employers further in verifying the employment eligibility of all newly-hired employees. As most businesses with federal contracts know, effective September 8, 2009, compliance with the E-Verify system became mandatory. Executive Order 12989 mandates the electronic verification of all employees working on any federal contract. The amended Executive Order reinforces the policy that the federal government supports a legal workforce. In short, E-verify is mandatory if the prime contract for services or construction is more than $100,000 with a period of performance longer than 120 days. For subcontractors, the value of services or construction must exceed $3,000.

The E-verify system requires that employers run new hires, and existing employees hired after November 6, 1986, through the E-Verify system to determine the person’s eligibility to work in the U.S. E-Verify compares the information on the employees name, Social Security Number, date of birth, citizenship status, and any other non-citizen information provided.

As of October 12, 2009 there has already been close to 400,000 quires run through the system. E-Verify is an essential tool for employers committed to maintaining a legal workforce, and the number of registered employers is growing by over 1,200 per week.

One of the advantages of operating a business as a corporation in Denver is that, with some exceptions, shareholders (owners), officers and directors normally do not have personal liability for corporate debts. Under certain circumstances, however, there may be personal liability, such as for certain unpaid taxes and when equitable principles cause the court to “pierce the corporate veil,” where the court looks behind a corporate entity and takes action as though no entity separate from the members itself existed.

In the recent (October 29, 2009) Colorado Court of Appeals opinion in McCallum Family L.L.C. v. Winger, the court succinctly sets out the requirements for piercing the corporate veil. These requirements are:

1. The corporation is the “alter ego” of the person or entity in issue. Factors determining status as an alter ego may include whether:
a. The corporation is operated as a distinct business entity;
b. funds and assets are commingled;
c. adequate corporate records are maintained;
d. the nature and form of the entity’s ownership and control facilitate
misuse by an insider;
e. the business is thinly capitalized;
f. the corporation is used as a "mere shell";
g. legal formalities are disregarded; and
h. corporate funds or assets are used for noncorporate purposes.

Not all of the requirements need be present in every case. Each case must be decided on its unique factors.

2. The court must determine whether justice requires recognizing the substance of the relationship between the person or entity sought to be held liable and the corporation over the form because the corporate fiction was "used to perpetrate a fraud or defeat a rightful claim."

3. The court must consider whether an equitable result will be achieved by disregarding the corporate form and holding a shareholder or other insider personally liable for the acts of the business entity.

A major lesson to be learned from the foregoing principles is that a corporation must be operated in all respects as a business entity separate and apart from its shareholders, officers, directors and insiders. The requirements of paragraph No. 1 should be strictly observed; otherwise the benefits of immunizing individuals from corporate debt may be placed in jeopardy.

In an opinion dated October 29, 2009, the Colorado Court of Appeals affirmed the principle that a creditor of a corporation can “pierce the corporate veil” (ask the court to look behind a corporate entity and take action as though no entity separate from the members itself existed). A unique part of the decision holds that it is not just a shareholder, officer or director against whom the corporate veil can be pierced, but also a corporate insider (such as a manager) who can personally be held liable for a corporate obligation.

Marc Winger managed a Wyoming corporation authorized to do business in Colorado, named Manitoba Investment Advisors, Inc. (Manitoba). His wife was a director and 50% shareholder and president, while his mother was a director, 50% shareholder, vice-president and secretary. Marc Winger routinely used corporate funds to pay his personal expenses, including $95,400 to the State of California in connection with a felony conviction there for failure to pay state taxes.

Manitoba leased property from McCallum Family L.L.C. in Grand Junction for business use. Manitoba failed to pay county taxes for over three years and vacated the property seven months before the expiration of the lease, defaulting on the remaining rent. McCallum obtained judgment against Manitoba for $76,224. Manitoba was administratively dissolved on May 31, 2006.

After first holding that the burden of proof of one seeking to pierce the corporate veil is proof by a “preponderance of the evidence” (a lesser burden) and not proof by “clear and convincing” evidence (a greater burden), the court went on to discuss under what circumstances the corporate veil may be pierced (a subject I will discuss in a later blog).

The court examined the issue of piercing the corporate veil as against one who manages the corporation, but who is not a shareholder, officer or director. The court holds that where the person sought to be held liable for corporate debts exercises sufficient “dominion and control” over the corporation and its assets, that person may be deemed an “equitable owner” and thus an “alter ego” of the corporation. Marc Winger admitted that his wife was a shareholder and director in name only. Neither shareholder exercised any supervisory power over Marc Winger, who “managed the whole affair.” Marc Winger’s activities were directed at defeating McCallum’s claim.

The court then remanded the case to the trial court to determine whether or not equity required piercing of the corporate veil and holding Marc Winger liable for McCallum’s claim.

As a follow-up to my article “United Airlines Ramp Supervisor Awarded $3M Damages for Airline’s Retaliation to Her Discrimination Complaint,” I see that an interesting alleged discrimination case has arisen in the Puerto Rico office of the U.S. Attorney.

Juan E. Milanes, a male Assistant U.S. Attorney, claims that the office of Rosa Emilia Rodriguez-Velez, Acting U.S. Attorney for the District of Puerto Rico, was a “girl’s club” where male attorneys were discriminated against and were faced with a hostile work environment.

In his complaint for damages and other relief, now filed in the U.S. District Court in Puerto Rico, Milanes claims that when he was in the narcotics unit, supervised by a female Assistant U.S. Attorney, he was subjected to numerous acts of discrimination, and that his superior created a hostile work environment. Milanes further claims, among other things, that when he complained to the Acting U.S. Attorney, she retaliated against him by denying certain benefits to Milanes’ children, when the same benefits were given to her friends in the “girl’s club.” Milanes also claimed that his superior assigned him the oldest and weakest narcotics cases, threatened him with disciplinary action, and attempted to sabotage his trial work. He says his attempt to transfer to Kosovo was blocked by Ms. Rodriguez-Velez by the filing of a written reprimand on the day he was to leave.

Milanes was placed on administrative leave and forced to resign, an action he says constituted a constructive discharge. It should be noted that only the allegations of Milanes’ complaint are outlined here. Ms. Rodriguez-Velez’s version of the events has not yet been reported.

What is the moral here? Doesn’t the highest government attorney in a U.S. possession have to follow federal law when it comes to her employees? Is it not only businesses who sometimes fail to observe the law? Stay tuned. I will be following this case with interest.

Kudos to Michael Doyle at Suits and Sentences.

Jennifer McInerney, a former United Air Lines ramp supervisor, was awarded $3 million by a federal court jury in Colorado after finding that McInerney was retaliated against by United for making a discrimination complaint.

McInerney became pregnant in 2005. Anticipating that her pregnancy may have complications, she requested assignment to alternate positions, which requests were denied. Her son was born 11 weeks premature in November and she took all available family and medical leave, vacation leave and sick time. When her time off expired in March 2006, United refused to give her additional unpaid leave, although McInerney claimed that male ramp attendants were given unpaid time off. United ordered her to return to work in March 2006. When she didn’t return, United terminated her, claiming there was a shortage of ramp supervisors, and that when McInerney requested unpaid leave, the company couldn’t hold her job open any longer.

The jury found that although United did not discriminate against McInerney
because she was a woman when it refused her request for additional unpaid leave, but it did find that she was retaliated against for having made the discrimination complaint to the company in the first place.

Senior Federal District Judge Richard P. Matsch denied United’s post-trial motions, including a motion for reduction in the $3 million judgment amount. As to the latter motion, the judge said, “The defendant consistently refers to this case as a “garden-variety” emotional distress damages case. That characterization is a reflection of the same callous indifference to Ms. McInerney's plight as was shown by Kevin Mortimer in refusing to consider the plaintiff's repeated requests for accommodation.”

Colorado and other employers should look very carefully at their personnel decisions following an employee’s request for accommodation and discrimination complaints. Employer rules should prohibit any retaliatory action against the employee. Training of supervisors and making employees aware of recognizing possible retaliatory actions is a good starting place for preventing lawsuits similar to the McInerney case.

When a business based in Colorado enters into a contract with a business based in another state, it is common for the contract to include a “venue provision,” stating in which state’s courts any controversy arising out of the contract will be tried. In general, the venue provision will be enforced by Colorado courts in the following three circumstances:

(1)Where the provision is not contrary to an established public policy of Colorado, whether the policy arises by statute or judicial decision, such as, for example, where a Colorado statute upon which the claim is at least partially based specifically mandates where venue must lie.

(2) Where the forum selection clause is not unfair or unreasonable or the result of overreaching by one party. The clause may be deemed unreasonable where, for example, the party seeking to escape the provision can show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court. Mere inconvenience or additional expense is not the test of unreasonableness.

(3) Where the venue clause can contain “boilerplate” or standard language used in similar contracts, where the venue clause is in standard size font in an easily readable contract of, for example, only a couple of pages.

The fact that the contract is the result of an arm’s length transaction between parties having business experience tends to negate any claim of overreaching by the party seeking to enforce the venue provision.

The bottom line is that the inclusion of a venue provision can be construed by the courts as a reasonable effort by the parties to bring certainty to the transaction in advance.

This article is for general informational purpose only. Nothing in this article should be considered as legal advice to any reader or other person, nor shall it be deemed to establish an attorney-client relationship with any person or legal entity.

[Source: Adams Reload, Inc. v. International Profit Associates, Inc., 143 P.3d 1056, (Colo.Ct.App. 2005), cert. denied, 2006 WL 2796636 (Colo. 2006)]

I recently wrote of the S.E.C.’s abysmal failures in not detecting Bernard L. Madoff’s billion dollar Ponzi scheme. (See “Bernard Madoff: An Epilogue, Parts I and II”). H. David Kotz, the S.E.C.’s inspector general has now issued two reports in which he recommends dozens of changes in the way the agency evaluates tips, trains investigators and documents examinations of securities firms.

The first report, pertaining to the S.E.C’s inspections and examinations office, recommends 37 improvements that would effectively overhaul nearly every aspect of the division’s operations. The recommendations include the manner in which investigators follow up on tips and the creation of step-by-step procedures in identifying potential securities laws violations.

The inspector general also issued 21 recommendations to the S.E.C.’s division of enforcement, including a formal process for handling complaints and improving the working relationships within the division. One recommendation would mandate that tips and complaints be reviewed by at least two persons with experience in the subject area before taking further action.

The S.E.C. has been directed to establish formal procedures regarding the scope and planning of examinations and the selection of staff members for specific investigations. Mr. Kotz ordered the two S.E.C. divisions to submit a written plan within 45 days detailing how they would apply the recommendations.

A re-reading of my previous blogs on this subject is recommended in order to give context to the ills addressed by the inspector general.