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Humphrey v. Escalera Resources Co.

United States District Court, D. Colorado

May 31, 2018

ALAN EUGENE HUMPHREY, an individual, and WYOMING GTL, LLC, a Wyoming LLC, Plaintiffs,
v.
ESCALERA RESOURCES CO., a Maryland Corp., Defendant.

          ORDER

          RAYMOND P. MOORE UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Defendant's Renewed Motion for Judgment as a Matter of Law on Colorado Securities Fraud Cause of Action (the “Renewed Motion”) (ECF No. 137) seeking relief under Fed.R.Civ.P. 50(b) after a jury verdict was reached in favor of Plaintiff Alan Eugene Humphrey (“Mr. Humphrey) on his claim under § 11-51-604(3), Colo. Rev. Stat., of the Colorado Securities Act. Upon consideration of the Renewed Motion, Mr. Humphrey's Response, Defendant Escalera Resources Co.'s Reply, the court record, and the applicable statutes, rules, and case law, and being otherwise fully advised, the Renewed Motion is DENIED.

         I. BACKGROUND

         This action arises from a failed gas-to-liquid (“GTL”) plant project which involved, among other things, Mr. Humphrey's April 2014, $500, 000 stock purchase in Escalera and the parties' May 30, 2014, “Letter Agreement.” The Letter Agreement contemplated the parties would “commence negotiating a definitive written agreement” which would govern the parties' relationship concerning the GTL plant. (Trial Exhibit 6.) No. definitive agreement was ever reached and disputes arose between the parties, resulting in this lawsuit.

         Plaintiffs' complaint alleged six causes of action: (1) fraud in the inducement; (2) fraud; (3) securities fraud - under the federal and Colorado securities act; (4) declaratory relief; (5) breach of contract; and (6) breach of the implied covenant of good faith and fair dealing. Escalera filed one counterclaim for breach of contract. Escalera also filed a Motion for Summary Judgment which the Court granted in part and denied in part by Order dated February 16, 2017 (the “Order”). While Escalera's Motion for Summary Judgment addressed the securities fraud claim under the federal securities act, it failed to address such claim under the Colorado Securities Act. Therefore, the Court did not address the merits of, much less grant summary judgment on, this claim.

         The Court held a trial preparation conference where the parties agreed they would present all their evidence at trial, even as to the declaratory judgment claim to be decided by the Court after trial. Trial to a jury was held from August 7-11, 2017. During the first day of the trial, before jury selection, the Court reminded the parties that the summary judgment motion did not address the Colorado Securities Act in any way (including remedies) and asked the parties to brief what subsections of Colo. Rev. Stat. § 11-51-604 were at issue as well as the remedies, stating that rescission may still be in play as to the Colorado Securities Act claim.

         In Mr. Humphrey's brief, filed the morning of August 8, 2017, he identified Colo. Rev. Stat. §§ 11-51-501(1) and 11-51-604(3) as the subsections on which his Colorado Securities Act claim was based, and that rescission was a remedy available under § 11-51-604(3). That section provides, in relevant part:

Any person who recklessly, knowingly, or with an intent to defraud sells or buys a security in violation of section 11-51-501(1)…is liable to the person buying or selling such security…for such legal or equitable relief that the court deems appropriate, including rescission, actual damages, interest at the statutory rate, costs, and reasonable attorney fees.

(Emphasis added.) Escalera's response brief, filed August 9, 2017, argued that the Court's Order concluded Mr. Humphrey waived any right to rescission. Escalera further argued that even if the Order did not apply to the Colorado Securities Act claim, “it is undisputed that it applied to his various proposed remedies, ” including rescission. (ECF No. 115, page 2, emphasis added.) In other words, Escalera contended that the Order finding Mr. Humphrey waived his right to rescission applied to all claims, even the Colorado Securities Act claim which was not mentioned at all in the papers on the Motion for Summary Judgment. Of course, the briefs - along with what the Court had advised the parties on the morning of the first day of trial - showed to the contrary. Meanwhile, Mr. Humphrey testified during August 7-8, with both sides inquiring about his $500, 000 stock purchase, and the fact that he still owned the stock (which he testified was “worthless”) as of the time of trial.

         On day three of trial, after Plaintiffs rested, as relevant here, Escalera moved for judgment as a matter of law under Fed.R.Civ.P. 50(a) on the Colorado Securities Act claim based on the argument that no allowable damages existed. (ECF No. 156, page 420, ll. 16-21.) Escalera argued (1) the Court had found Mr. Humphrey waived his right to rescission in its Order, and (2) if that remedy was not already determined waived as to the Colorado Securities Act claim, the evidence at trial plus the evidence submitted in support of the Motion for Summary Judgment (which evidence Escalera failed to elicit at trial) supported waiver of rescission. (ECF No. 156, page 425, ll. 1-20.) The Court, however, had reminded Escalera that the Court did not address the Colorado Securities Act claim and its ruling did not speak to a statute that it had not even looked at in reviewing the Motion for Summary Judgment. (ECF No. 156, page 424, ll. 14-22.) In addition, the Court found the evidence at trial was such that the issue of waiver should be submitted to the jury. Accordingly, the Court allowed the Colorado Securities Act claim to go forward, to be decided by the jury, with rescission as the remedy.[1]The jury returned a verdict in favor of Mr. Humphrey on this claim. Escalera's Renewed Motion pursuant to Rule 50(b) followed and is now before the Court.

         II. LEGAL STANDARD

         “Under Rule 50(b), the district court may allow judgment on the jury's verdict, order a new trial, or enter judgment as a matter of law for the moving party.” In re: Cox Enterprises, Inc., 871 F.3d 1093, 1096 (10th Cir. 2017). The court “may grant judgment as a matter of law only when ‘a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.'” Id. (quoting Rule 50(a)(1)). Thus, such judgment “is appropriate only if the evidence points but one way and is susceptible to no reasonable inferences which may support the nonmoving party's position.” Id. (quotation marks and citation omitted). The court's “task is to determine whether a jury could render a verdict in favor of the non-movant.” Perez v. El Tequila, LLC, 847 F.3d 1247, 1255 (10th Cir. 2017). The court “must construe evidence and inferences in favor of the nonmoving party, and avoid substituting [its] judgment for that of the jury.” Id. (quotation marks, citation, and brackets omitted).

         III. ANALYSIS

         A. Escalera's Arguments

         Escalera raises three arguments as to why the issue of rescission should not have gone to the jury and judgment should be entered in its favor as a matter of law. First, Escalera contends the Court already found, via Escalera's Motion for Summary Judgment, that Plaintiffs could not recover rescission on any of their claims, including Mr. Humphrey's Colorado Securities Act claim. Next, Escalera contends the Court determines Mr. Humphrey's remedy under Colo. Rev. Stat. § 11-51-604(3) and Mr. Humphrey has presented insufficient evidence to allow the Court to award rescission. Finally, Escalera contends that by his arguments in response to Escalera's Rule 50(a) motion at trial, Mr. Humphrey elected to affirm rather rescind his stock purchase. The Court addresses each argument in turn.

         B. Escalera's Motion for Summary Judgment and this Court's Order

         Escalera argues (and has argued) the Court ordered that the remedy of rescission may not be had under all of Plaintiffs' claim - including the Colorado Securities Act claim to which Escalera's Motion for Summary Judgment failed to address. Escalera apparently contends the Court did so because, as Escalera claims in its Renewed Motion, it sought summary judgment on: (1) “certain” of Plaintiffs' causes of action - meaning all but the Colorado Securities Act claim; (2) its counterclaim; and (3) Plaintiffs' remedies as to “all of Plaintiffs' causes of action.” (ECF No. 137, page 2.) Thus, Escalera asserts, in addressing Escalera's arguments regarding rescission as a remedy, the Court addressed such remedy as to all claims, even that which Escalera failed to address in its motion.[2] Mr. Humphrey argues to the contrary, asserting that because Escalera did not address the Colorado Securities Act claim, the Court did not (and could not have) concluded the rescission remedy was inappropriate for such claim. The Court agrees, as shown by the record.

         Here, the record shows the Court did not rule, and could not have ruled, on what remedy was or was not feasible under the Colorado Securities Act claim.

• Section 11-51-604 of the Colorado Securities Act contains many subsections;
• As the movant, it was Escalera's burden to identify that for which it sought summary judgment. Escalera failed to identify much less address the Colorado Securities Act in any respect, whether it be the bases ...

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