The Colorado Supreme Court will hear oral arguments this week in cases that raise questions about securities law, a business’s liability for killing wildlife and whether lifetime sex offender registration for juveniles is cruel and unusual punishment.
SECURITY QUESTIONS
On Tuesday, the court will hear arguments in Shaun David Keller Lawrence v. People of the State of Colorado, a securities fraud case that raises questions about whether an investment in a company is a security if the investor intends to participate in decision making and work for the company.
Deanna Beard invested $9,000 In Lawrence’s private surveillance business and received a 30% equity interest and a promise of 30% of the voting power and profits in return. According to court documents, Lawrence spent all of Beard’s investment on entertainment, cash withdrawals and personal bills within a month of receiving it. Not long after, he emptied his office and stopped communicating with her.
Beard went to law enforcement, and Lawrence was charged with two counts of securities fraud and one count of theft. The prosecution argued Lawrence sold Beard an investment contract, a type of security, while misleading her by failing to inform her he had civil judgments against him and that he would spend the investment on personal expenses.
A jury convicted him of all three counts. Lawrence appealed, and the Court of Appeals affirmed his securities fraud convictions and reversed his theft conviction.
In his appeal before the high court, Lawrence argues Beard’s investment was not an “investment contract,” and therefore not a security. The U.S. Supreme Court defines an investment contract as an investment in an enterprise with an expectation of profits “from the essential managerial efforts from someone else,” Lawrence argues.
But Beard was actively involved with the company, according to Lawrence, as she controlled 30% of the company, made executive-level decisions and had access to its financial information. “Since she was not a remote, uninformed investor and could ‘fend for herself,’ her investment was not a security, and the State failed to prove its case,” states Lawrence’s opening brief to the Supreme Court.
The state argues Beard’s voting power and right to see the company’s financial documents were “illusory because the business ceased to exist in just a few weeks” and she never exercised any of those rights. During the trial, Beard testified she was a casino cashier with no experience or knowledge about how to run a business and she relied on Lawrence to manage the business.
“This evidence was sufficient to support the jury’s conclusion that Beard was led to expect profits derived from Lawrence’s entrepreneurial or managerial efforts,” the state’s answer brief says.
The court will also consider whether the trial court abused its discretion by allowing expert testimony about whether the transaction was a security.
FEEDLOT V. FISH
Oral arguments will be held Wednesday in 5 Star Feedlot v. State of Colorado, a case questioning whether a cattle feedlot is liable for “taking” wildlife after a severe rainstorm caused one of its wastewater ponds to overflow, allegedly killing thousands of fish in a nearby river.
In 2015, an unusually heavy rainstorm hit 5 Star Feedlot in Kit Carson County, causing about 500,000 gallons of wastewater mixed with rainwater to escape a wastewater pond and flow into the South Fork of the Republican River. Days later, state wildlife officials found dead fish in the river and nearby ponds.
Colorado Parks and Wildlife sued 5 Star for unlawful taking of wildlife, alleging the feedlot had violated various wildlife statutes and was strictly liable for and had caused the deaths of 15,000 fish. The district court sided with the state and ordered 5 Star to pay more than $625,000 in damages.
However, a division of the Court of Appeals reversed the decision, concluding the wildlife code requires the state to prove 5 Star acted knowingly or performed “some voluntary act that caused the fish to die” — and the state had failed to do so.
On appeal, the Supreme Court is considering whether proving a violation of the statutes requires both evidence of “knowing conduct” and an illegal voluntary act. The state argues the take statutes don’t require a culpable mental state or illegal voluntary act and that the legislature had intended the laws to cover accidental wounding or killing of wildlife.
5 Star argues that “taking” wildlife requires knowing conduct such as hunting or fishing, and the voluntary conduct required is “acquiring possession of wildlife, not merely operating a business.” Further, taking offenses require a “knowledge element” in order to provide fair notice and avoid unconstitutional vagueness, 5 Star says in its answer brief.
[a paragraph summarizing amicus interest if I can get the briefs– I’m locked out of the efiling system at the moment]
CRUEL AND UNUSUAL?
The Supreme Court will also hear arguments Wednesday in People in the Interest of T.B. The question before the court is whether mandatory lifetime sex offender registration for multiple juvenile offenses constitutes punishment under the Eighth Amendment.
The Colorado Sex Offender Registration Act requires juveniles adjudicated twice for unlawful sexual behavior to register as sex offenders for life. T.B. was adjudicated for unlawful sexual contact as a 12 year old in 2001 and pleaded guilty to another offense, sexual assault, four years later. Following the second adjudication, he completed probation and offense-specific treatment.
T.B. has been petitioning to discontinue sex offender registration since 2010. In his most recent petition, he argued that the lifetime registration requirement under CSORA violates due process and constitutes cruel and unusual punishment. A juvenile court rejected T.B.’s arguments and denied the petition, but a division of the Court of Appeals reversed the decision and remanded the case to the juvenile court.
In deciding whether a law imposes cruel and unusual punishment, courts must first decide whether the sanction imposed is a punishment. In its 2019 opinion, the Court of Appeals noted that while the Colorado Supreme Court had never weighed in on the matter, other divisions of the Court of Appeals had “on multiple occasions, and without exception” concluded that CSORA’s registration requirement is not a punishment but a civil sanction. However, the division in T.B.’s case broke with the court’s precedent and held that the registration requirement is a punishment.
“[W]e do not take the prospect of departing from this court’s uniform precedent lightly,” the intermediate court said in its opinion, but “a confluence of developments in the law” over the past 20 years “persuades us to take a fresh look at the issue.” Those developments include changes in juvenile sentencing practices around the country and “evolving” Eighth Amendment jurisprudence when it comes to juveniles and sex offender registration in particular.
—Jessica Folker