Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.
Dean Houser v. CenturyLink, Inc
Dean Houser filed a class action lawsuit against CenturyLink and a number of its officers and directors in June 2018. His claims stemmed from a merger agreement between CenturyLink and telecommunication and internet provider Level 3 Communications, which closed in November 2017. According to Houser, registration paperwork filed by the companies for the merger contained material misstatements and omission of fact. His suit claimed that CenturyLink and its officers were responsible for the misstatements under section 11 and 12(a)(2) of the Securities Act of 1933.
At the time of the lawsuit, a similar securities class action suit in federal court over the merger was pending approval of a proposed settlement. The Colorado court granted a stay in the case that was lifted several months later after the federal court didn’t approve the proposed settlement. The court then heard arguments over CenturyLink’s motion to dismiss over Rule 12(b)(5). At the hearing, Houser moved for leave to file an amended complaint based on facts that came to light in other lawsuits should the court grant the motion to dismiss. The district court granted the motion to dismiss and denied Houser’s motion. Houser appealed both rulings.
Houser asked the Colorado Court of Appeals to reinstate his claim, arguing that the alleged misstatements and omissions he raised on appeal adequately pleaded a claim for relief. He also asked the appeals court to rule that the lower court erroneously denied his motion to leave and file an amended complaint. The Colorado Court of Appeals rejected both arguments.
In the opinion footnotes, the court noted that until the U.S. Supreme Court’s 2018 decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, class action suits over the Securities Act were “almost always filed in federal court because of uncertainty about state court jurisdiction.” After the U.S. Supreme Court ruled those claims could be brought in state and federal court, the opinion explained, “parties are filing such claims in state court with increasing frequency” and the Colorado Court of Appeals used Houser’s appeal to “provide some guidance to the district courts and the bar” over sufficiency of facts in support of these actions.
The Colorado Court of Appeals reviewed whether Houser’s factual allegations were enough to raise a right of relief above a speculative level and if it offered plausible grounds for relief. Noting that Houser’s complaint included assertions of fact drawn from complaints in a different case, the Court of Appeals only reviewed evidence he presented directly. Allowing Houser to rely on allegations from another complaint would’ve been inconsistent with the Colorado Rules of Civil Procedure General Rules of Pleading, the Court of Appeals explained.
Houser argued his complaint plausibly stated claims based on four omissions from the merger documents. He mainly relied on claims that CenturyLink engaged in illegal billing practices known as “cramming,” or tacking on a slew of surprise charges to a bill, which weren’t disclosed during discovery. He also alleged that there were several undisclosed spending and income trends before and after the merger documentation started and that by claiming that its business operations were in line with the law, despite alleged illegal billing practices, CenturyLink engaged in material misstatements.
Houser’s evidence wasn’t sufficient enough to prove that the CenturyLink officers were aware of the illegal business practices he alleged, the Colorado Court of Appeals ruled, and therefore the company wasn’t aware of the potential negative repercussions that would’ve required the disclosure of the billing practices.
Reviewing the lower court’s decision to deny the motion to leave as an abuse of discretion, the Colorado Court of Appeals ruled Houser possibly could’ve stated omission claims with the addition of facts around illegal billing practices that came to light. The Court of Appeals reversed the denial of leave to file an amended complaint around those claims, but found he didn’t set out any argument around the other alleged omissions and misstatements and the lower court correctly denied those motions to leave.
The Court of Appeals affirmed the 12(b)(5) dismissal but reversed the denied order to leave based on the illegal billing theory and remanded the case for further proceedings.
Clarence Herbst v. University of Colorado
The University of Colorado Foundation is a charitable nonprofit corporation that invests and prudently manages donations to the school. Clarence Herbst, a CU grad, donor and trustee emeritus of the foundation, CU graduates Gerald Miller and Jerome Young and a current CU Colorado Springs student, Emmanuel Alfaro, filed a class action suit against the foundation and its board of directors arguing that the board imprudently managed the account resulting in over $1 billion in unrealized revenue that could’ve been put toward improving the university, lowering tuition or increasing faculty salaries.
By using actively managed accounts instead of passive index funds, overpaying its investment advisors who didn’t direct most or all of the investments into passive index funds and by not renegotiating or ending the contracts with investment advisors since 2008 or 2009, the plaintiffs alleged, the foundation violated of the Uniform Prudent Management of Institutional Funds Act, sections 15-1- 1101 to -1110, C.R.S. 2021 and breached fiduciary duty.
A district court dismissed the complaint in a two sentence order. While it didn’t explain the decision, the Colorado Court of Appeals noted that it seemed to accept the defendant’s argument that none of the plaintiffs had standing and didn’t offer a claim on which relief can be granted.
In the opinion footnotes, the Colorado Court of Appeals wrote that “despite plaintiffs’ assertions as to how these unrealized funds could have been used” to benefit the school, their main requested remedy was to divvy the $1 billion to themselves and other class members. It also noted that they didn’t request any relief to direct the foundation to invest funds in any particular way or in the passive index funds “at the heart of their amended complaint.”
The Colorado Court of Appeals ruled that while charitable trusts can be sued for mismanagement of investments under the Uniform Prudent Management of Institutional Funds Act, only an attorney general or someone with a special interest in the trust can do so. The plaintiffs, the court held, do not have special interest to bring such a suit.
While Herbst and the other plaintiffs argued that they have an interest in how the foundation is managed with regards to the investment managers and how funds are invested, the Colorado Court of Appeals disagreed.
As a donor, Herbst argued, he has a special interest since his donations have “created special academic programs” at CU. The Court of Appeals ruled that Herbst’s connection was a “close and lengthy association” that it previously held isn’t standing. The opinion added that his donations would only mean the programs would have benefitted from better investment management, but that also doesn’t give him grounds to sue the foundation. Being a donor to the foundation also wasn’t grounds for standing, the Court of Appeals ruled, since he wasn’t bringing the legal action to enforce a condition of donation or claiming to be misled about the contribution.
The court rejected that the other plaintiffs had standing as “intended beneficiaries” of the foundation or that they had any other kind of special interest.
CU requested an award of attorneys fees created during the appeal process, but finding that the university didn’t explain the legal or factual basis for the award as required by law, the Court of Appeals denied the request.
The Colorado Court of Appeals affirmed the dismissal.
The Colorado Court of Appeals considered if a spouse’s end-of-year bonuses are marital property.
Benjamin Turner and Cassandra Turner separated after 12 years of marriage. Most financial and parenting matters were resolved during dissolution hearings, but the former couple were in conflict over if Cassandra Turner’s potential bonuses after dissolution were marital property that should be divided by the court and factored into child support calculations.
At a permanent order hearing in January 2021, the district court heard testimony over Cassandra Turner’s end-of-year bonus program. Her end-of-year bonuses were awarded and calculated with a series of performance metrics from the previous year. While she was eligible for the bonuses, they weren’t contractually guaranteed, were discretionary and the amount between years varied greatly. At the time of the hearing, Cassandra Turner’s employer hadn’t announced if she would receive a bonus based on the previous year or what it would be. Several weeks after the hearing ended, she was awarded a substantial bonus.
The court found that Cassandra Turner’s 2021 bonus was not marital property and that a five-year average of her bonuses should be used to calculate child support obligations.
Benjamin Turner appealed the ruling, arguing that his ex-wife had earned the bonus the year prior while they were still married and compensation earned by a spouse during the marriage is always marital property.
The Colorado Court of Appeals disagreed. Applying the two-step test set out by the Colorado Supreme Court in its 2014 decision in Marriage of Cardona, the Court of Appeals first asked if the interest counts as property subject to court division and then if the property is marital. To determine the first question, the Colorado Court of Appeals asked if the bonus was an “enforceable right” that counted as property or if it was “speculative” or “mere expectancies.”
While Benjamin Turner argued Cassandra Turner earned the bonus while they were still married, the Colorado Court of Appeals ruled that since her employment contract didn’t guarantee any potential bonuses, it was not an enforceable right. The court wasn’t persuaded by other cases cited by Benjamin Turner to support his argument. The key difference, the Colorado Court of Appeals noted, was that in cases where bonuses were held as marital property, the bonuses were contingent on specific conditions which were met at the time of separation.
The Colorado Court of Appeals affirmed the lower court’s ruling.