Justia Colorado Supreme Court Opinion Summaries

Articles Posted in Corporate Compliance

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In 2009, XTO Energy, Inc., filed an interpleader action, seeking to resolve competing claims to oil and gas proceeds held by XTO. XTO named several potential claimants as defendants in the interpleader action, including Seawatch Royalty Partners, LLC (managed by Chester Ellsworth) and several alleged heirs of the record owner of the relevant oil and gas interests. After a bench trial, the court concluded that a group of individuals (deemed the true heirs of the record owner) were entitled to the proceeds. Of relevance to this appeal, the trial court also ruled that Seawatch’s claims and defenses were frivolous; that Seawatch was an alter ego of Ellsworth; and that Seawatch and Ellsworth were jointly and severally liable for any future award of attorneys’ fees. Ellsworth was subsequently joined as a party under C.R.C.P. 21 and served via substituted service. The post-judgment sanctions proceedings continued for another several years. During that time, Ellsworth contested his individual liability, arguing that the court lacked personal jurisdiction over him; that he had been improperly served; and that Seawatch was not, in fact, his alter ego. The trial court rejected these arguments and entered judgment jointly and severally against Seawatch and Ellsworth for approximately $1 million in attorneys’ fees. Ellsworth appealed pro se. In an unpublished opinion, the court of appeals vacated the judgment against Ellsworth, holding that the district court lacked jurisdiction to hold him jointly and severally liable for the attorneys’ fee award because, as a nonparty, Ellsworth did not have notice and opportunity to contest his individual liability. The Colorado Supreme Court concluded Ellsworth had adequate notice and opportunity to challenge the alter ego findings that established his liability, and reversed the appellate court's judgment. View "Stockdale v. Ellsworth" on Justia Law

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Creditors-plaintiffs sued a Colorado LLC claiming the LLC authorized a distribution to members that bankrupted the company and left it unable to pay them. The defendants moved to dismiss plaintiffs' claims of unlawful distribution and breach of fiduciary duty, arguing that no creditor had a right to sue for the distribution, nor a right to claim breach of fiduciary duty. The trial court granted the defendants' motion; the appellate court reversed. Upon review, the Supreme Court concluded that under Colorado law, LLC members are liable to the LLC, but not the LLC's creditors. Furthermore, the Court concluded that the manager of an insolvent LLC does not owe the creditors the same duty an insolvent corporation's directors owe a corporation's creditors. Accordingly, the Court reversed the appellate court and reinstated the trial court's order. View "Weinstein v. Colborne Foodbotics, LLC" on Justia Law