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Lewis v. Taylor

Court of Appeals of Colorado, Fourth Division

February 9, 2017

C. Randel Lewis, solely in his capacity as Receiver, Plaintiff-Appellee and Cross-Appellant,
v.
Steve Taylor, Defendant-Appellant and Cross-Appellee.

         City and County of Denver District Court No. 12CV1699 Honorable Edward D. Bronfin, Judge

         JUDGMENT REVERSED, ORDER VACATED, AND CASE REMANDED WITH DIRECTIONS.

          Lindquist & Vennum PLLP, Michael T. Gilbert, John C. Smiley, Theodore J. Hartl, Denver, Colorado, for Plaintiff-Appellee and Cross-Appellant.

          Podoll & Podoll, P.C., Richard B. Podoll, Robert A. Kitsmiller, Dustin J. Priebe, Greenwood Village, Colorado, for Defendant-Appellant and Cross-Appellee.

          OPINION

          ASHBY JUDGE.

         ¶ 1 Following remand instructions from the supreme court, we are again presented with an issue of first impression in Colorado. We must now decide whether the Colorado Uniform Fraudulent Transfer Act (CUFTA) requires an innocent investor who profited from his investment in a Ponzi scheme to return all funds in excess of his principal investment. We conclude that such an innocent investor may be entitled to keep some of the funds exceeding the amount of his principal.

         I. Background

         ¶ 2 In 2006, defendant, Steve Taylor, invested three million dollars in a hedge fund run by Sean Mueller, a licensed securities broker. During the period of his investment, Taylor received a series of payments from the fund. Taylor withdrew all of his money in 2007, about one year after investing, and made a profit of over $487, 000.

         ¶ 3 In 2010, the Colorado Securities Commissioner discovered that the hedge fund was a Ponzi scheme and Mueller was convicted of various criminal offenses. The district court appointed plaintiff, C. Randel Lewis, as receiver to collect and distribute Mueller's assets to the creditors and investors he defrauded through the Ponzi scheme.[1] Lewis filed a claim under CUFTA seeking to void the transfer of the over $487, 000 in net profits that Taylor received from Mueller's fund.

         ¶ 4 Both Lewis and Taylor moved the district court for summary judgment. Taylor argued that (1) the CUFTA claim was filed outside the statutory time period and (2) even if the claim was timely, his net profits were not recoverable under CUFTA because he was an innocent investor. Lewis argued that the claim was timely filed and that CUFTA required Taylor to return his net profits. The district court agreed with Lewis on both issues and granted him summary judgment.

         ¶ 5 Taylor appealed. A division of this court held that the district court erred by ruling that the claim was timely and reversed the district court's grant of summary judgment on that ground. Lewis v. Taylor, 2014 COA 27M, ¶ 8. Based on this conclusion, the division did not address whether CUFTA required Taylor to return his net profits.

         ¶ 6 Lewis appealed the division's decision to our supreme court. The supreme court reversed the division's opinion, reinstated the district court's ruling that the CUFTA claim was timely, and remanded the case to this court to "consider the alternate argument on which [Taylor] appealed the trial court's order." Lewis v. Taylor, 2016 CO 48, ¶ 39. We therefore now address whether CUFTA requires Taylor to relinquish any amount of money exceeding his principal investment in the Ponzi scheme.

         II. CUFTA and Ponzi Schemes

         ¶ 7 Taylor argues that the district court erred by ruling that even though he was an innocent investor in Mueller's fund, CUFTA nevertheless required him to return all of the payments from the fund in excess of his principal investment. We review an order granting summary judgment de novo, applying the same legal principles as the district court. See Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 290 (Colo.App. 2009).

         ¶ 8 Granting summary judgment is proper "when the pleadings and supporting documentation demonstrate that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law." Credit Serv. Co., Inc. v. Dauwe, 134 P.3d 444, 445 (Colo.App. 2005). We, like the district court, give the nonmoving party the benefit of all favorable inferences from the undisputed facts. Id.

         ¶ 9 The CUFTA provision under which Lewis brought his claim, section 38-8-105(1)(a), C.R.S. 2016, provides that "[a] transfer made . . . by a debtor is fraudulent as to a creditor . . . if the debtor made the transfer . . . . [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor." The parties do not dispute that (1) Mueller's fund was Taylor's debtor based on Taylor's three million dollar ...


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