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L.P. v. Flamingo West, Ltd.

United States District Court, D. Colorado

June 17, 2016

BOXER F2, L.P., a Texas limited partnership, Plaintiff
v.
FLAMINGO WEST, LTD., d/b/a Legalwiz Publications, BRONCHICK & ASSOCIATES, WILLIAM BRONCHICK, and BRONCHICK & ASSOCIATES, P.C., Defendants.

          ORDER

          PHILIP A. BRIMMER United States District Judge

The Court presided over a 3-day bench trial in this case, involving the alleged breach of a lease agreement between Boxer F2, L.P. (“Boxer”), the owner of commercial space, and Flamingo West, Ltd. (“Flamingo West”), a business owned by William Bronchick (“Mr. Bronchick”). This Court has subject-matter jurisdiction based on 28 U.S.C. § 1332(a).

         Plaintiff brings four claims against defendants. Plaintiff’s first claim, against Flamingo West, Bronchick & Associates, and Mr. Bronchick, is for breach of the lease agreement. Docket No. 65 at 10. Plaintiff’s second claim for relief, also for breach of the lease agreement, is against Bronchick & Associates, P.C. (“Bronchick PC”) as the alleged successor entity of Bronchick & Associates. Id. at 13. Plaintiff’s third claim is against Bronchick PC for quantum meruit based on Bronchick PC’s occupation of a portion of the leased premises. Id. at 14. Plaintiff’s fourth claim is against Flamingo West and Mr. Bronchick for fraudulent transfers pursuant to the Colorado Uniform Fraudulent Transfer Act ("CUFTA"), Colo. Rev. Stat. § 38-8-101, etseq. Id. at 15. Defendants Flamingo West and Bronchick PC assert the affirmative defenses of constructive eviction and failure to mitigate damages. See Docket No. 66 at 11-12, ¶¶ 88-89, 92; Docket No. 148 at 4-5.

         On October 23, 2015, the Court g ranted summary judgment in the amount of $2, 428, 625.03 to plaintiff on its breach of lease claim against Flamingo West. Docket No. 191. Flamingo West, by not responding to plaintiff's summary judgment motion, did not contest any of the facts the plaintiff used to support its motion and to calculate damages. The damages figure in plaintiff's summary judgment motion was supported by the calculations, charts, and discussion provided in a March 20, 2015 report by Mr. Robert Aucone, an accountant certified in forensic accounting. Exhibit 137, pp. 4-16.[1]

         Plaintiff called three witnesses at the trial: Mr. Bronchick, Mr. Aucone, and Mr. Zachary Segal, an asset manager for Boxer Property Management Corporation, which was retained by Boxer as the leasing agent and property manager for the Pavilion Towers - the property in which the premises leased by Flamingo West was located. Defendant called one witness: Mr. Bronchick.

         I. FINDINGS OF FACT

         There are three sources of facts from which the Court determines whether plaintiff sustained its burden of proof on its claims: facts to which the parties have stipulated, facts established as a result of a sanctions order, and facts found at trial.

         A. Stipulated Facts

         The parties stipulated to the following facts:

1. Plaintiff Boxer is a Texas limited partnership. Flamingo West is a Colorado corporation. Bronchick PC is a Colorado corporation.[2] Docket No. 192 at 1, ¶¶ 1-3.
2. On or about April 14, 2003, Flamingo West, dba Legalwiz Publications and Bronchick & Associates, executed a lease for premises located in the Pavilion Tower Building at 2821 South Parker Road, Suite 405, Aurora, Colorado 80014 (the “Initial Premises”). The landlord in the 2003 Lease was RMC/Pavilion Towers, LLC. Docket No. 192 at 1-2, ¶¶ 4-7.
3. On or about December 5, 2006, the First Amendment to the 2003 Lease was signed by RMC/Pavilion Towers, LLC and “Flamingo West dba Legalwiz Publications and Bronchick & Associates.” Id. at 2, ¶ 8.
4. On or about March 7, 2010, the same parties executed the Second Amendment to the 2003 Lease. Id., ¶ 9.
5. On or about March 29, 2011, the same parties executed the Third Amendment to the 2003 Lease. Flamingo West signed as “Flamingo West Limited Corp.” Pursuant to the Third Amendment, the premises leased was Suite 505 (the “Leased Premises”) instead of the Initial Premises. Id., ¶ 10-11.
6. On or about June 2, 2011, Boxer acquired the Pavilion Tower Building. Id., ¶ 12.
7. On or about August 1, 2011, Boxer and Flamingo West entered into and executed the Fourth Amendment to the 2003 Lease. Flamingo West signed as “Flamingo West Limited Corp.” Pursuant to the Fourth Amendment, Boxer became Flamingo West’s landlord. The term of the lease agreement under the Fourth Amendment expired on October 1, 2016. The Fourth Amendment specifies that from October 1, 2011 through September 30, 2016 the monthly rent due under the Lease Agreement is $10, 546.00. Id. at 2-3, ¶¶ 13-17.
8. Bronchick PC occupied a portion of the Leased Premises from June 2003 through November 1, 2012. Id. at 3, ¶ 18.
9. Flamingo West made late and partial monthly rent payments from April 2012 through August 2012. Id., ¶ 19.
10. The last payment that Flamingo West or any other occupant of the Leased Premises made to plaintiff was a payment of $11, 546.00 on August 30, 2012. Id., ¶ 20.
11. On or shortly before November 2, 2012, Flamingo West and the other occupants of the Leased Premises vacated the Leased Premises without plaintiff’s consent. Id., ¶¶ 22-23.
12. Flamingo West breached the Lease Agreement by failing to make required monthly rent payments under the Lease Agreement and by abandoning the Leased Premises. Id. at 4, ¶ 24.
13. “Bronchick & Associates” was never registered with the Colorado Secretary of State as a d/b/a or trade name of Flamingo West. Id., ¶ 26.
14. Section 11.1 of the Lease Agreement provides, in pertinent part, that:

         The following shall be deemed to be events of default by Tenant under this Lease: (1) Tenant shall fail to pay when due any installment of Rent or any other payment required pursuant to this Lease; (2) Tenant shall abandon any substantial portion of the Leased Premises . . .

Id., ¶ 27.

15. Under Section 2.5 of the Lease Agreement:
if any regular monthly installment of Rent is not received by Landlord on or before the fifth (5th) day of the month for which such Rent is due, a late payment charge of ten percent (10%) of such past-due amount shall become due and payable in addition to any other amounts due and payable.

Id., ¶ 28.

16. Pursuant to Section 2.5 of the Lease Agreement, past-due rent and other past-due amounts owed under the Lease Agreement bear an interest rate of 18% per annum. Id. at 5, ¶ 30.
17. Under Section 11.2 of the Lease Agreement, if the tenant is in default under the Lease Agreement, the landlord is entitled to recover damages from the tenant, which include, without limitation, the following: 1) the costs of repairs and alterations made to the Leased Premises in connection with re-leasing the premises; 2) an amount equal to the rent and any associated late fees owed by the tenant for the remainder of the term of the Lease Agreement less any rent payments received by the landlord from any new tenant occupying the Leased Premises; and 3) all reasonable attorneys’ fees and costs incurred by landlord in connection with the tenant’s breach of the lease agreement. Id. at 4-5, ¶ 29.

         B. May 4, 2015 Sanctions Order

         18. After a protracted discovery dispute, the assigned magistrate judge, in a February 2015 order, concluded that “Defendants - all Defendants - have conducted themselves in bad faith and have intentionally failed to honor their discovery obligations under the Federal Rules of Civil Procedure.” Docket No. 86 at 11. He also found that defendants acted in “flagrant disregard” of the magistrate judge’s order compelling discovery and “offer[ed] only frivolous arguments in defense of their failure to provide discovery.” Id. at 12. The magistrate judge rejected plaintiff’s proposed sanction - striking defendants’ answer to the amended complaint - as excessive. Id. Applying the factors established in Ehrenhaus v. Reynolds, 965 F.2d 916, 920-22 (10th Cir. 1992), the magistrate judge concluded that the appropriate sanction was for the Court to draw adverse inferences, taken as established facts under Fed.R.Civ.P. 37(b)(2)(A)(i). Id. at 12-13. However, the magistrate judge gave defendants a last chance to comply with their discovery obligations before the sanction was imposed. Id. at 13-14.

         19. On March 2, 2015, plaintiff filed a renewed motion for sanctions. Docket No. 89. On April 29, 2015, the magistrate judge held a hearing on plaintiff’s renewed motion. See Docket No. 123. On May 4, 2015, the magistrate judge granted plaintiff’s renewed motion for sanctions and, as a sanction for defendants’ discovery violations, ordered that certain paragraphs of plaintiff’s second amended complaint be established as facts for purposes of trial. Docket No. 130 at 9. On October 16, 2015, the Court overruled defendants’ objections to the May 4, 2015 sanctions order. Docket No. 185 at 15. Thus, pursuant to the magistrate judge’s sanctions order, the following facts are established:

a. Mr. Bronchick is the sole owner, operator, officer, and shareholder of Flamingo West. Mr. Bronchick is the only person who operates the business of Flamingo West, and he has sole decision-making authority for Flamingo West. See Docket No. 65 at 11, ¶ 55a-c.
b. Mr. Bronchick did not maintain enough money in Flamingo West’s bank account(s) to cover the costs of Flamingo West’s financial obligations under the Lease Agreement. See id., ¶ 55d.
c. Mr. Bronchick received “distributions” or payments from Flamingo West even when Flamingo West was unable to meet its outstanding financial obligations. See id., ¶ 55e.
d. Adequate corporate records for Flamingo West were not maintained. See id. at 12, ¶ 55f.
e. Flamingo West is not operated as a separate and distinct business entity. At one time, Flamingo West operated under the name “Bronchick & Associates.” See id., ¶ 55g.
f. Flamingo West used the marks “Legalwiz” and “Legalwiz Publications” in connection with its business. “Legalwiz” and “Legalwiz Publications” are also used in connection with another business owned by Mr. Bronchick: Bronchick Consulting Group, LLC. See id., ¶ 55g.
g. In or about April 2012, Flamingo West became insolvent or otherwise unable to pay liabilities as they came due. See id. at 15, ¶ 74.
h. Flamingo West’s intent to hinder, delay, or defraud creditors is evidenced by, inter alia, the following: 1) transfers of Flamingo West’s assets were made to Mr. Bronchick, a shareholder of Flamingo West; 2) Mr. Bronchick retained possession or control of the assets transferred; and 3) Flamingo West owes a substantial debt to Boxer. See id. at 16, ¶ 83.
i. Flamingo West made fraudulent transfers to at least Mr. Bronchick. Flamingo West made said transfers with actual intent to hinder, delay, or defraud its creditors, including Boxer. See id., ¶¶ 79-80.
j. Flamingo West did not receive a reasonably equivalent value in exchange for the transfers it made. The assets of Flamingo West that remained after the transfers were made were and are insufficient for Flamingo West to pay its outstanding liabilities. See id., ¶ 81-82.
k. Bronchick & Associates was operating as a sole proprietorship or unincorporated partnership on April 14, 2003, the date the Lease Ag reement was executed. Bronchick PC was formed as a Colorado professional corporation on or about June 10, 2003. At some time after the formation of Bronchick PC, Bronchick PC acquired the assets of Bronchick & Associates and, expressly or impliedly, assumed the liabilities of Bronchick & Associates. See id. at 13, ¶ 62a-c.
l. Bronchick PC’s acquisition of the assets and liabilities of Bronchick & Associates resulted in a merger or consolidation of the two entities, and Bronchick PC is a mere continuation of Bronchick & Associates. See id. at 14, ¶ 62d-e.
m. The address of the registered agent for Bronchick PC is the address of the Initial Premises. See id., ¶ 62g.
n. In November 2011, Bronchick PC filed a Statement of Change with the Colorado Secretary of State, changing its registered agent address to the address of the Leased Premises. See id., ¶ 62h.
o. Bronchick PC openly operated out of the Leased Premises. See id., ¶ 62f.

         C. Findings of Fact from Trial Evidence

          Pursuant to Federal Rule of Civil Procedure 52(a)(1), the Court makes the following findings of fact:

         1. The Lease Agreement

         20. Mr. Bronchick was present when the original 2003 Lease Agreement was signed. Mr. Bronchick testified that he signed the lease agreement as president of Flamingo West and that there was only one tenant, Flamingo West. Mr. Bronchick said that neither Bronchick & Associates nor Legalwiz was ever a party to the lease agreement, and that he did not personally guarantee the lease. The Court finds Mr. Bronchick credible as to this testimony. Mr. Segal admitted that he does not recall asking Mr. Bronchick to sign a personal guarantee.

         21. There are two “Base Rent” provisions in the 2003 lease:

         a. The first Base Rent provision, Section 1.7, states in relevant part:

Tenant shall pay, in accordance with the terms and provisions of Section 2.2 of this Lease, Base Rent for the lease and use of the Leased Premises at the annual rental rate per rentable square foot of space in the Leased Premises for the specific time periods set forth below. . . .

         Exhibit 1, p. 2. The lease then provides the applicable monthly rent, the rental rate per square foot, and the applicable time period of each rate.

         b. The second Base Rent provision, Section 2.2, states in relevant part:

Tenant agrees to pay monthly the Base Rent set forth in Section 1.7 of this Lease. . . . One (1) monthly installment of Base Rent shall be due and payable on the date of execution of this Lease by Tenant for the first (1st) month’s Base Rent and a like monthly installment shall be due and payable on or before the first (1st) day of each calendar month . . . and all succeeding installments of Base Rent shall be payable on or before the first (1st) day of each succeeding calendar month during the Lease Term.

Id. at 3.

         22. The 2003 Lease’s Additional Rent provision, Section 2.4, states:

Tenant agrees to pay all rent and other sums of money (whether specified in this Article 2, pursuant to indemnity or reimbursement obligations or otherwise) as shall become due from and payable by Tenant to Landlord under this Lease (collectively, the “Rent”) at the times and in the manner provided in this Lease, without abatement, notice, demand, offset, reduction or counterclaim (except as otherwise provided in this Lease). All Rent in addition to Base Rent shall constitute additional rental under this Lease ...

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