Sedgwick Properties Development Corporation, as Garnishee of 1950 Logan, LLC, Appellant,
Christopher Hinds, Appellee.
and County of Denver District Court No. 13CV33659 Honorable
Ross B. Buchanan, Judge
Estill, E. Job Seese, Denver, Colorado, for Appellant
Salazar Law, LLC, Joseph A. Salazar, Thornton, Colorado, for
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
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 building's 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
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
Logan's 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 Sedgwick's Due
9 We begin by addressing Sedgwick's 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 Sedgwick's assets. Sedgwick
argues that, as a result, it did not have an adequate
opportunity to respond to the factual allegations of the
complaint. Sedgwick's 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 Sedgwick's 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 Sedgwick's 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 Sedgwick's substantive
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 Colorado's 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
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
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, 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 evidence."
20 A year after announcing Griffith, however, the
supreme court decided Stockdale v. Ellsworth, 2017
CO 109, 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 Griffith's ruling that the burden
of proof is by a preponderance of the evidence, as required
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." See id. (citation
omitted). Third, the court must consider whether an equitable
result will be achieved by disregarding the corporate form
and holding a shareholder or other insider personally liable
for the acts of the business entity. Id.
22 We review de novo a trial court's legal conclusions in
finding alter ego status and examine its related findings of
fact for clear error. Colo. Coffee Bean, LLC v. Peaberry
Coffee Inc., 251 P.3d 9, 29 (Colo.App. 2010).
Logan's Ownership Structure
23 The ownership information that was presented to the trial
court consists primarily of a signature page for the 1950
Logan condominium declarations and Sedgwick's answers to
24 The condominium declarations signature page shows that
1950 Logan had the following structure: "1950 Logan,
LLC, a Colorado limited liability company[, ] By: 1950 Logan
II, LLC, a Colorado limited liability company, its Manager[,
] By: 1950 Logan Management, LLC, a Colorado limited
liability company, its Manager[, ] By [signature] Name: F.
Martin Paris, Jr.[, ] Title: Manager." 1950 Logan's
interrogatory response says, "[t]he name of each owner,
general or limited partner, or member owning 5% or more of
[1950 Logan] is 1950 Logan II, LLC . . . ."
25 There are other references in the record to 1950 Logan
III, LLC, of which Sedgwick's principal, Paris, was a
member, as well as references to 1950 North Logan
III, LLC, of which Paris was also a member, and both of these
entities appear to have had an ownership interest in 1950
Logan II, LLC. (As discussed ...