SEDGWICK PROPERTIES DEVELOPMENT CORPORATION, as Garnishee of 1950 Logan, LLC, Appellant,
Christopher HINDS, Appellee.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
of Appeals No. 17CA2102, City and County of Denver District
Court No. 13CV33659, Honorable Ross B. Buchanan, Judge
Estill, E. Job Seese, Denver, Colorado, for Appellant
Law, LLC, Joseph A. Salazar, Thornton, Colorado, for Appellee
1] This appeal by Sedgwick Properties Development
Corporation (Sedgwick) requires us to harmonize statutory law
permitting the creation of a single-member limited liability
company (LLC) with the judicially created doctrine of
piercing the corporate veil.
2] In 2013, the Colorado Civil Rights Commission
(Commission) sued 1950 Logan, LLC (1950 Logan), a
single-member, single-purpose LLC, and obtained a default
judgment against that entity. 1950 Logan had been created for
the sole purpose of building the Tower on the Park
condominium building and selling the units in that building.
3] The Commission claimed that 1950 Logan had
violated the civil rights of appellee, intervenor Christopher
Hinds — a disabled person who uses a wheelchair and
owns a unit in the building — by selling the buildings
handicapped parking spaces to non-handicapped buyers, years
before Hinds bought his condo unit. Hinds intervened in the
suit and got a default judgment against 1950 Logan. (The
Commission does not appear on appeal.)
4] By the time Hinds sought to collect on the
judgment, the condo development had long since been
completed, management of the property had been turned over to
a homeowners association (HOA), and 1950 Logan — its
single purpose accomplished — had wound down operations
and no longer had any assets.
5] Hinds filed a garnishment proceeding seeking to
pierce the corporate veil of 1950 Logan to recover the
judgment from Sedgwick, which Hinds alleged was the alter ego
of 1950 Logan (even though Sedgwick had no ownership interest
in 1950 Logan). Sedgwick is a developer services company that
was hired under a contract to manage 1950 Logan and to
oversee the development and marketing of the condo project.
6] After Sedgwick filed a traverse to the
garnishment, the district court held an evidentiary hearing
and pierced the corporate veil to hold Sedgwick liable to pay
Hinds for the judgment against 1950 Logan. Sedgwick appeals
the judgment piercing the corporate veil to reach its assets.
7] Because we conclude that Hinds did not present
sufficient evidence to support a finding that Sedgwick was
1950 Logans alter ego, we reverse without addressing the
other elements required for piercing the corporate veil.
8] As part of our analysis, we discuss certain
factors of the alter ego rubric on which the district court
relied, but which carry little weight in the context of a
single-member, single-purpose LLC such as 1950 Logan that
hired a management company to manage its affairs.
Traverse Hearing Was Sufficient to Protect Sedgwicks Due
9] We begin by addressing Sedgwicks contention that
its procedural due process rights were violated because it
did not receive adequate notice of the attempt by Hinds to
pierce the corporate veil to reach Sedgwicks assets.
Sedgwick argues that, as a result, it did not have an
adequate opportunity to respond to the factual allegations of
the complaint. Sedgwicks argument boils down to this: if an
entity might later be garnished in the event of a judgment
against a defendant that has some relation to the entity, the
entity must be served with notice and given an opportunity to
defend the underlying suit. We reject this notion.
10] Nothing in Colorado law prohibits a judgment
creditor from asserting a claim to
pierce the corporate veil in a garnishment proceeding to
collect on the judgment. And we see no due process violation
that would arise from such a procedure. This is so because a
garnishment proceeding adequately allows the garnishee to
contest the garnishment.
11] In its answer under C.R.C.P. 103, section 4, to
the writ of garnishment, Sedgwick asserted that it did not
possess or control any payments, obligations, or assets of
1950 Logan. This assertion prompted Hinds to file a traverse
under C.R.C.P. 103, section 8, seeking to hold Sedgwick
liable by piercing the corporate veil to reach assets that he
contended belonged to 1950 Logan. The district court held a
hearing on the traverse under C.R.C.P. 103, section 8(b)(2).
12] These proceedings adequately protected
Sedgwicks due process rights. See Maddalone v.
C.D.C., Inc., 765 P.2d 1047, 1049 (Colo.App. 1988).
Maddalone recognized that garnishment procedures
under C.R.C.P. 103 accord with due process and fully protect
a garnishee who denies liability for a debt. Id. The
garnishee is treated no differently than if it had been sued
directly on the debt, and has the right to deny the debt,
engage in discovery, and have an adversary hearing in which
the judgment creditor must prove the allegations against the
garnishee by a preponderance of the evidence. Id.
13] In the traverse hearing, the district court
allowed garnishee Sedgwick to (1) cross-examine the witness
called by garnishor Hinds; (2) challenge the evidence Hinds
presented; and (3) present Sedgwicks own witness testimony
and evidence. These procedures are consistent with the due
process rights of a garnishee. See Gen. Accident
Fire & Assurance Corp. v. Mitchell, 120 Colo. 531, 539,
211 P.2d 551, 555 (1949) (burden of proof is on the garnishor
to establish by a preponderance of the evidence all the facts
on which it relies to charge the garnishee); Anderson
Boneless Beef, Inc. v. Sunshine Health Care Ctr., 852
P.2d 1340, 1343 (Colo.App. 1993) (same); see also
Struble v. Am. Family Ins. Co., 172 P.3d 950, 955
(Colo.App. 2007) (reviewing the record before the district
court and concluding there were no issues of material fact as
to issuance of an insurance policy by the garnishee to the
14] We now move to the merits of Sedgwicks
Corporate Veil-Piercing of a Single-Member, Single-Purpose
15] A duly formed corporation is treated as a
separate legal entity, unique from its officers, directors,
and shareholders. In re Phillips, 139 P.3d 639, 643
(Colo. 2006). The fiction of the corporate veil isolates
"the actions, profits, and debts of the corporation from
the individuals who invest in and run the entity."
Id. Only extraordinary circumstances justify
disregarding the corporate entity to impose personal
liability. Id. at 644.
16] Colorados appellate courts have not previously
addressed corporate veil-piercing in the context we encounter
today: a single-member, single-purpose LLC that is managed
under a contract by another company (in this case, 1950
Logan, which was managed by Sedgwick). Cf.
Highlands Ranch Univ. Park, LLC v. Uno of Highlands
Ranch, Inc., 129 P.3d 1020, 1022 (Colo.App. 2005)
(noting that an LLC party in that case was "a
single-purpose entity created for the sole purpose of
entering into the lease at issue").
17] Single-member LLCs are permitted by statute, §
7-80-204(1)(g), C.R.S. 2018, and may be formed for any lawful
business purpose, § 7-80-103, C.R.S. 2018.
Burden of Proof for Veil-Piercing: Preponderance of Evidence
18] The burden of proof for establishing a claim to
pierce the corporate veil has been the subject of
inconsistent judicial precedent.
19] In In re Phillips, 139 P.3d at 644, the
supreme court said that the burden of proof is by "clear
and convincing" evidence. But the same court in
Griffith v. SSC Pueblo Belmont Operating Co. LLC,
2016 CO 60M, ¶ 12, 381 P.3d 308, concluded that this language
from Phillips was mere dictum. The court instead
applied section 13-25-127(1), C.R.S. 2018, which mandates
that "[a]ny provision
of the law to the contrary notwithstanding and except as
provided in subsection (2) of this section, the burden of
proof in any civil action shall be by a preponderance of the
20] A year after announcing Griffith,
however, the supreme court decided Stockdale v.
Ellsworth, 2017 CO 109, 407 P.3d 571, and once again
said that the burden of proof for piercing the corporate veil
is "clear and convincing" evidence. Id. at
¶ 23. But the supreme court was not called on in
Stockdale to decide the burden of proof issue. And
it provided no reasoning as to why a burden of proof contrary
to the one set out in section 13-25-127(1) and endorsed in
Griffith should apply to veil-piercing cases. We
therefore conclude that this language from Stockdale
was dictum, and we instead apply Griffiths ruling
that the burden of proof is by a preponderance of the
evidence, as required by statute.
Elements of Veil-Piercing
21] To determine whether it is appropriate to pierce
the corporate veil, a court must conduct a three-part
inquiry. First, the court must determine whether the
corporate entity is the alter ego of the person or entity in
issue. Phillips, 139 P.3d at 644. Second, it must
determine whether justice requires recognizing the substance
of the relationship between the person or entity sought to be
held liable and the corporation over the form, because the
corporate fiction was "used to perpetrate a fraud or
defeat a rightful claim." Seeid.
(citation omitted). Third, the court must consider whether an