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Mares v. Colorado Division of Insurance

United States District Court, D. Colorado

October 21, 2019

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO STEVEN P. MARES, JR., MARES & ARMSTRONG, LLC, and MARES IMMIGRATION BONDS, LLC, Plaintiffs,
v.
COLORADO DIVISION OF INSURANCE, MICHAEL CONWAY, as Commissioner of Insurance, BETH HAM, and VONSHAY D. MCCARTHER, Defendants.

          ORDER OF DISMISSAL

          DANIEL D. DOMENICO UNITED STATES DISTRICT JUDGE.

         Plaintiffs, two bail bond companies and their principle, bring this action against the Colorado Division of Insurance, its Commissioner, and an investigator-who they assert violated the United States Constitution by failing to promptly investigate them or process their application for a license to produce insurance in Colorado. Plaintiffs further assert state law tort claims against an ex-employee-turned competitor who complained of their conduct to the Division. Before the Court are motions to dismiss for lack of subject matter jurisdiction and for failure to state claims upon which relief may be granted. (Docs. 23, 26.[1])

         At this stage, the Court must take all well-pleaded allegations as true and construe them in the light most favorable to the plaintiffs. Doing so here, the Amended Complaint paints a picture of a bureaucratic system that creates burdensome and potentially arbitrary barriers more useful for competitors seeking to disadvantage one another than for the protection of potential consumers. The question now before the Court though is not whether such treatment is appropriate or even whether it violates Plaintiffs' rights. The question is whether Plaintiffs' efforts to vindicate those rights are properly in federal court at this time. For the reasons explained below, the Court concludes they are not, so the motions are GRANTED.

         ALLEGATIONS AND BACKGROUND

         A. Colorado Administrative Procedure Act and Insurance Licensing Regulations

         This case involves several procedural rules and regulations governing licensure to produce insurance in Colorado. The Court begins with a brief overview of the state provisions cited in the pleadings.

         Rulemaking and licensing procedures by Colorado agencies are governed by the Colorado Administrative Procedure Act (“CAPA”). Colo. Rev. Stat. § 24-4-101. Relevant here, every insurance producer in Colorado must be duly licensed. Colo. Rev. Stat. § 10-2-401(1). Applicants for licenses, be they individuals or business entities, must be verified as “competent, trustworthy, and of good moral character and good business reputation.” Colo. Rev. Stat. § 10-2-404(1)(h) and (2)(b). “An application for a license shall be acted upon promptly, ” and “[e]very agency decision respecting . . . denial . . . of a license shall be based solely upon the stated criteria, terms, and purposes of the statute [governing insurance pro- ducers], or regulations promulgated thereunder, and case law interpreting such statutes and regulations.” Colo. Rev. Stat. § 24-4-104(1), (2), and (8).

         The Colorado Insurance Commissioner may refuse to issue or renew a license if he or she finds any violations by a licensee or applicant- including making misrepresentations on an application, engaging in prohibited bail bond transaction activities, misappropriating property, being convicted of a felony, or engaging in other fraudulent, coercive, or dishonest practices. Colo. Rev. Stat. §§ 10-2-801(1), 18-13-130. No. license revocation or denial is lawful unless the agency gives the applicant written notice of objective facts or conduct, established upon a full investigation, that may warrant such action. Colo. Rev. Stat. § 24-4-104(3)(a). If an application for a new license is denied without a hearing, the applicant, within sixty days after the giving of notice of such action, may request a hearing before the agency, and the action of the agency after any hearing is subject to judicial review. Colo. Rev. Stat. § 24-4-104(9); see also Id. §§ 24-4-105, 24-4-106 (outlining hearing and appeal procedures).

         B. Allegations

         The following allegations are taken from the Plaintiffs' Amended Complaint (Doc. 20) and are treated as true for purposes of assessing the motions to dismiss. See Wilson v. Montano, 715 F.3d 847, 850 n.1 (10th Cir. 2013).

         Plaintiff Steven Patrick Mares, Jr. is a resident of Colorado and the owner of Plaintiffs Mares & Armstrong, LLC (“M&A”) and Mares Immigration Bonds, LLC (“MIB”). M&A is one of the largest bail bond companies in Colorado and has been in the industry for more than twenty years. Mr. Mares and M&A are licensed resident insurance producers in Colorado and authorized to write bonds, which are backed by the country's largest bail bonds insurer, Bankers Insurance Company (“Bankers”). M&A's posting agents are employees, rather than independent contractors, and are themselves licensed by the Division to produce insurance.

         For efficiency purposes, M&A obtains its employees' authorization to use their stamped signatures on documents required by the courts after original bonds are posted. These documents, “consents of surety, ” are necessary to continue bonds and are often needed in a time-sensitive manner. M&A handles requests for consents in its central office, and-pursuant to its authorization from the employee who posted the original bond-stamps employees' signatures on them before filing them with the relevant courts. Consumers are thus able to avoid jail if certain posting agents are unavailable or not working that day. Plaintiffs allege that this practice is legal, and that many current and former employees authorized it.

         Defendant Colorado Division of Insurance (“Division”) is a branch of the Department of Regulatory Authorities and is responsible for regulating the insurance industry in the state. Colo. Rev. Stat. § 10-1-103. Defendant Michael Conway, the Insurance Commissioner, is the chief executive of the Division, see Colo. Rev. Stat. § 10-1-104(1), and is sued only in his official capacity. Defendant Beth Ham is a senior investigator with the Division and is sued only in her individual capacity.

         Defendant Vonshay D. McCarther, a former employee of M&A, had also authorized M&A to use his stamped signature on consents. But on January 10, 2018, days before starting a competing bail bond business, he filed a complaint with the Division accusing M&A of using his signature without authorization. He used the complaint to undermine, and interfere with the business of, his former employer (and new competitor).

         Because of Mr. McCarther's accusation, the Division investigated M&A. Ms. Ham, who was responsible for the investigation, sent four inquiries each to Bankers and M&A over the next year.[2] To each request, the companies “responded timely with complete and accurate information.” Despite M&A's responsiveness to these inquiries, Plaintiffs allege that the investigation was “secret, ” they never had the opportunity to “meet with the Division and hear or respond to any concerns, ” and the “Division [ ] refused to provide any complaint to” M&A or Mr. Mares. This investigation lasted approximately fifteen months.

         Meanwhile, on June 20, 2018, Mr. Mares filed an application for a license to produce insurance on behalf of MIB. Ms. Ham responded on October 2 with requests for information about MIB's personnel. She then sent three inquires to Bankers concerning MIB's application, to which Bankers promptly responded. The Division did not request any further information from MIB, Mr. Mares, or Bankers after November 2, 2018. It did not respond to Mr. Mares's multiple subsequent inquiries, except to say on November 21, 2018 and March 28, 2019 that the application was “in process” and under review. The Division did not act on the application for nearly a year.

         On May 22, 2019, Plaintiffs filed this action to recover for the governmental Defendants' alleged “unreasonable and arbitrary delays in [their] investigations of existing licenses and pending applications for new licenses” and Mr. McCarther's alleged attempt to “intentionally harm a competitor in the bail bond business.” On June 14, the Division filed a notice of grounds for denial of MIB's application with the state office of administrative courts.[3] The same document contains a notice of charges against Mr. Mares, M&A, MIB, and another of Mr. Mares's entities. It alleges ninety-five counts of fraud, forgery, dishonest and coercive practices, incompetence, lack of trustworthiness and good moral character. The charges seek to affirm the denial of MIB's application, ...


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