Gerald Rome, Securities Commissioner for the State of Colorado, Plaintiff-Appellant,
Antonio Reyes, Craig Kahler, and Betty Schnorenberg, Defendants-Appellees.
PREVIOUSLY ANNOUNCED AS "NOT PUBLISHED PURSUANT TO
C.A.R. 35(E)" ON May 11, 2017, IS NOW DESIGNATED FOR
Announced June 15, 2017
and County of Denver District Court No. 15CV32760 Honorable
Karen L. Brody, Judge
Cynthia H. Coffman, Attorney General, Sueanna P. Johnson,
Assistant Attorney General, Charles J. Kooyman, Assistant
Attorney General, Denver, Colorado, for Plaintiff-Appellant
Graham Milstein & Calisher, LLP, Chip G. Schoneberger,
Denver, Colorado, for Defendants-Appellees
1 In this civil enforcement action, plaintiff, Gerald Rome,
Securities Commissioner for the State of Colorado (the
Commissioner), appeals the district court's judgment
dismissing the claims against defendants Antonio Reyes, Craig
Kahler, and Betty Schnorenberg. We reverse and remand with
Factual and Procedural History
2 Because the court granted defendants' motions to
dismiss, we accept as true the following facts alleged in the
Commissioner's complaint. This case arises out of a Ponzi
scheme that defrauded at least 255 investors out of $15.25
million dollars. To implement the scheme, defendant Kelly
Schnorenberg formed defendant KJS Marketing, Inc., in
Colorado to obtain funds for investment in insurance and
financial-products sales companies. (Neither Kelly
Schnorenberg nor KJS is a party to this appeal.) Kelly
Schnorenberg hired Reyes, a California resident, and Kahler,
a Wyoming resident, to solicit investor funds on behalf of
KJS and its successor company, James Marketing.
3 Reyes and Kahler represented to potential investors that
KJS would direct investment funds to particular companies for
the purpose of recruiting and training agents to sell
insurance and financial products, and that the investors
would receive ten to twelve percent returns from the ensuing
commissions. Reyes and Kahler further represented that the
investments were risk free and that prominent individuals in
the insurance industry were involved. Reyes and Kahler
directed out-of-state investors to Kelly Schnorenberg or KJS
in Colorado to complete the transactions. The investors, in
exchange for their investments, received promissory notes
executed by Kelly Schnorenberg and/or KJS in Colorado and
governed by Colorado law.
4 The investment scheme was a fraud, according to the
Commissioner. Instead of directing most funds to the
insurance and financial-products sales companies as promised,
Kelly Schnorenberg allegedly converted the investments to
personal use, or otherwise distributed the funds to his
mother, his girlfriend, or prior investors in the attempt to
mollify them while bringing in new investors to continue the
scheme. Meanwhile, Reyes and Kahler received
transaction-based commissions (from Kelly Schnorenberg, KJS,
or other Colorado entities) on the sale of the investments.
5 Seeking to enjoin the scheme, the Commissioner brought
claims against Kelly Schnorenberg, Reyes, and Kahler for
securities fraud, offer and sale of unregistered securities,
and unlicensed sales representative activity. The
Commissioner also sought a constructive trust or equitable
lien against three "relief defendants" who
allegedly received some of the improperly obtained investment
funds. Betty Schnorenberg, Kelly's mother, is one such
relief defendant. She resides in Wyoming.
6 Reyes, Kahler, and Betty Schnorenberg moved to dismiss all
claims against them under C.R.C.P. 12(b)(2) for lack of
personal jurisdiction. Reyes and Kahler also sought dismissal
of the securities fraud claim on the ground that it failed to
meet the particularity requirements of C.R.C.P.
9(b). The district court granted all of these
motions without conducting an evidentiary hearing. In written
orders, the court concluded that it lacked personal
jurisdiction over each of the nonresident defendants, and
that the Commissioner's securities fraud claim failed to
"link any particular factual allegations to actual false
representations" made by Reyes or Kahler. The court
certified these rulings as final under C.R.C.P. 54(b).
7 The Commissioner contends that the district court erred in
dismissing the claims against Reyes, Kahler, and Betty
Schnorenberg for lack of personal jurisdiction. We agree.
8 In its discretion, a district court may address a Rule
12(b)(2) motion before trial based solely on the documentary
evidence or by holding an evidentiary hearing. Archangel
Diamond Corp. v. Lukoil, 123 P.3d 1187, 1192 (Colo.
2005). Where, as here, the court decides the motion on the
documentary evidence alone, the plaintiff need only
demonstrate a prima facie showing of personal jurisdiction to
defeat the motion. Id.
9 Documentary evidence consists of the complaint's
allegations as well as affidavits and any other written
material submitted by the parties. Id. The court
must accept the complaint's allegations as true to the
extent they are not contradicted by the defendant's
competent evidence. If the parties' competent evidence
presents conflicting facts, the court must resolve such
discrepancies in the plaintiff's favor. Id.
10 A prima facie showing exists when the plaintiff raises a
reasonable inference that the court has jurisdiction over the
defendant. Id.; see also Keefe v. Kirschenbaum
& Kirschenbaum, P.C., 40 P.3d 1267, 1272 (Colo.
2002). "This is a light burden intended only to
'screen out "cases in which personal jurisdiction is
obviously lacking, and those in which the jurisdictional
challenge is patently bogus."'" Found. for
Knowledge in Dev. v. Interactive Design Consultants,
LLC, 234 P.3d 673, 677 (Colo. 2010) (citations omitted).
11 We review de novo whether the plaintiff established a
prima facie case of personal jurisdiction. Id.
12 To exercise jurisdiction over a nonresident defendant, a
Colorado court must comply with Colorado's long-arm
statute and constitutional due process. § 13-1-124,
C.R.S. 2016; Magill v. Ford Motor Co., 2016
CO 57, ¶ 14. Because the long-arm statute extends
jurisdiction to the maximum extent allowed by the Due Process
Clause, the due process inquiry is controlling. New
Frontier Media, Inc. v. Freeman, 85 P.3d 611,
613 (Colo.App. 2003).
13 To permit jurisdiction over a nonresident defendant, due
process requires that the defendant have certain minimum
contacts with the forum. Int'l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945). The quantity and
nature of the minimum contacts required depends on whether
the plaintiff alleges specific or general jurisdiction.
Archangel, 123 P.3d at 1194. Here, the Commissioner
relies on specific jurisdiction.
14 Specific jurisdiction is properly exercised over a
defendant where the injuries triggering litigation arise out
of and are related to significant activities directed by the
defendant toward the forum state. Id.; see Day
v. Snowmass Stables, Inc., 810 F.Supp. 289, 292 (D.
Colo. 1993). "As such, the minimum contacts inquiry in
regard to specific jurisdiction is essentially a two[-]part
test assessing, (1) whether the defendant purposefully
availed himself of the privilege of conducting business in
the forum state, and (2), whether the litigation 'arises
out of' the defendant's forum-related contacts."
Archangel, 123 P.3d at 1194. The contacts must be
established by the defendant himself. Day, 810
F.Supp. at 292. "The unilateral activity of those who
claim some relationship with a nonresident defendant cannot
satisfy the requirement of contact with the forum
state." Id. (quoting Hanson v.
Denckla, 357 U.S. 235, 253 (1958)).
15 Once it is established that a defendant has the requisite
minimum contacts, those contacts must be considered in light
of other factors to determine whether the assertion of
personal jurisdiction would comport with notions of fair play
and substantial justice (i.e., whether jurisdiction over the
defendant would be reasonable). Youngquist Bros. Oil
& Gas, Inc. v. Miner, 2017 CO 11, ¶ 13. These
factors may include the burden on the defendant, the forum
state's interest in resolving the controversy, and the
plaintiff's interest in attaining effective and
convenient relief. Archangel, 123 P.3d at 1195.
"[A]n especially strong showing of reasonableness may
serve to fortify a borderline showing of minimum
contacts." Id. (citations omitted); see
Keefe, 40 P.3d at 1271-72. Conversely, when a defendant
who purposefully directed his activities at a forum seeks to
defeat jurisdiction, he must present a compelling case that
the presence of some other considerations would render
jurisdiction unreasonable. Keefe, 40 P.3d at 1272.
Reyes and Kahler
16 The Commissioner alleged in his complaint that Reyes and
Kahler directly solicited investors in Colorado, among other
states. Reyes and Kahler submitted affidavits in support of
their motions to dismiss in which they denied soliciting
investors in Colorado.Though the Commissioner submitted
affidavits from his investigator in response, we will accept
as true Reyes's and Kahler's assertions on this
point. See Archangel, 123 P.3d at 1192 ("[T]he
allegations in the complaint must be accepted as true to the
extent they are not contradicted by the defendant's
17 For its part, the district court seemed to disregard
entirely the investigator's affidavits addressing Reyes
and Kahler. The court found that the investigator's
statements were not based on personal knowledge of the facts
alleged and, therefore, they did not qualify as
"competent evidence." The Commissioner contends
that the court erred in that ruling. We need not resolve this
dispute, however, because the Commissioner made a prima facie
showing of personal jurisdiction over Reyes and Kahler even
without considering the investigator's affidavits
concerning them. We now turn to that jurisdictional analysis.
Jurisdiction Under A Statute
18 The Commissioner first argues that the Colorado Securities
Act (CSA), §§ 11-51-101 to -908, C.R.S. 2016,
contemplates personal jurisdiction over Reyes and Kahler. To
the extent the Commissioner contends that, if he sufficiently
alleged that Reyes and Kahler violated the CSA, his
allegations against them also satisfied Colorado's
long-arm statute, we agree.
19 According to the long-arm statute, the transaction of
business within the state may submit a person to the
jurisdiction of the courts of this state. §
13-1-124(1)(a). According to the CSA, "[a]ny violation
of this article shall be deemed to constitute the transaction
of business within this state for the purpose of section
13-1-124, C.R.S." § 11-51-706(4), C.R.S. 2016.
20 The Commissioner alleged that Reyes and Kahler violated
the CSA, whether or not they were physically present in
Colorado, because the transactions at issue pertained to
securities that originated in Colorado. § 11-51-102(1),
C.R.S. 2016 (providing that the relevant CSA provisions
"apply to persons who sell or offer to sell when an
offer to sell is made in this state or when an offer to
purchase is made and accepted in this state"); §
11-51-102(3) (confirming that "an offer to sell or to
purchase is made in this state, whether or not either party
is then present in this state, when the offer originates from
this state"). In support, the Commissioner asserted that