Board of County Commissions of the County of Park; Upper South Platte Water Conservancy District; Center of Colorado Water Conservancy District; Centennial Water & Sanitation District; and City of Thornton, v. Park County Sportsmen's Ranch, LLP, a Colorado limited liability partnership; JJWM, LLP, a Colorado limited liability partnership; WIN Company, a partnership; Maude Company, a partnership; James E. Medema; Melvin W. Medema; James L. Jehn; Audley Schaap; and City of Aurora
COLORADO COURT OF APPEALS
Court of Appeals No. 10CA0514
Park County District Court No. 07CV321
Honorable Charles M. Barton, Judge
Board of County Commissions of the County of Park; Upper South Platte Water
Conservancy District; Center of Colorado Water Conservancy District;
Centennial Water & Sanitation District; and City of Thornton,
Park County Sportsmen’s Ranch, LLP, a Colorado limited liability partnership;
JJWM, LLP, a Colorado limited liability partnership; WIN Company, a
partnership; Maude Company, a partnership; James E. Medema; Melvin W.
Medema; James L. Jehn; Audley Schaap; and City of Aurora,
JUDGMENT AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Opinion by JUDGE WEBB
Roy and Fox, JJ., concur
Announced October 27, 2011
Wood, Ris & Hames, P.C., William A. Rogers, III, Rachel A. Morris, Brendan L.
Loy, Denver, Colorado, for Plaintiffs-Appellees Board of County Commissions of
the County of Park, Upper South Platte Water Conservancy District, and
Center of Colorado Water Conservancy District
Gilbert Y. Marchand, Jr., P.C., Gilbert Y. Marchand, Jr., Boulder, Colorado;
Hahn, Smith, Walsh & Mancuso, P.C., John W. Smith, III, Denver, Colorado,
for Plaintiff-Appellee Centennial Water & Sanitation District
Margaret Emerich, City Attorney, Joanne Herlihy, Assistant City Attorney,
Thornton, Colorado, for Plaintiff-Appellee City of Thornton
Gary L. Crandell, P.C., Gary L. Crandell, Denver, Colorado, for DefendantsAppellants Park County Sportsmen’s Ranch, LLP, and JJWM, LLP
Benjamin, Bain & Howard, LLC, James W. Bain, Greenwood Village, Colorado,
for Defendants-Appellants WIN Company, Maude Company, James E. Medema,
Melvin W. Medema, James L. Jehn, and Audley Schaap
Carpenter & Klatskin, P.C., Willis Carpenter, Robert R. Marshall, Jr., Judith C.
McNerny, Denver, Colorado, for Defendant-Appellant City of Aurora
Defendants, Park County Sportsmen’s Ranch, LLP (PCSR),
JJWM, LLP, WIN Company, Maude Company, James E. Medema,
Melvin W. Medema, James L. Jehn, Audley Schaap, and the City of
Aurora, appeal the jury verdicts and trial court judgments in favor
of plaintiffs, the Board of County Commissioners of the County of
Park, Upper South Platte Water Conservancy District, Center of
Colorado Water Conservancy District, Centennial Water &
Sanitation District, and the City of Thornton, on their claims of
fraudulent conveyance, civil conspiracy, successor liability, and
quiet title. We affirm in part and reverse in part.
The Medemas, Jehn, and Schaap (individual defendants)
formed Trident, a general partnership, which purchased a ranch in
Park County with the goal of obtaining and selling water rights. In
1996, Trident entered into an agreement with Aurora (Trident
Agreement), whereby Aurora would assist financially and
technically with applying for water rights, and if successful,
purchase those rights from Trident. The Trident Agreement also
provided that if Trident did not obtain water rights, “Aurora shall
receive title to those portions of the fee lands . . . which lie below
9,360 feet in elevation” (approximately one-half of the ranch),
without encumbrances. Later in 1996, the Trident Agreement was
amended to reflect that Trident had become PCSR. Aurora recorded
the amended agreement.
In 1998, Guaranty Bank (Guaranty) loaned PCSR $2.6 million
for legal and engineering expenses in the water case. The
promissory note matured in 2002, after the water court had denied
the application and plaintiffs had moved for costs. To renew the
note, Guaranty required individual defendants to co-sign a deed of
trust on the ranch and a principal reduction. After individual
defendants made capital contributions to PCSR, it reduced the
outstanding principal balance and executed a new $1.6 million
balloon note, secured by a deed of trust on the ranch. Individual
defendants also signed the note. Aurora and Guaranty agreed to
subordinate the deed of trust to Aurora’s right to receive one-half of
the ranch under the Trident Agreement.
In 2003, the water court entered a judgment against PCSR for
costs of over $1.1 million. Plaintiffs recorded transcripts of the
judgment against the ranch. In 2005, the supreme court affirmed
the denial of PCSR’s application for water rights and the costs
Shortly thereafter, PCSR’s four remaining partners -- James
Medema, James Jehn, WIN Company (owned by Melvin Medema),
and Maude Company (owned by Audley Schaap) -- formed JJWM.2
JJWM and the four partners took out an uncollateralized loan from
Guaranty for the outstanding balance on the 2002 note, which
JJWM then purchased from Guaranty using the loan proceeds, and
was assigned the deed of trust. Thereafter, PCSR made no
payments on the note.
By 2006, the note was in default and JJWM instituted
foreclosure proceedings against PCSR on the deed of trust. At the
foreclosure sale, JJWM successfully bid the amount due on the
note. No junior lienholder redeemed and a public trustee’s deed to
JJWM was recorded. Later, JJWM quitclaimed a portion of the
ranch to Aurora in settlement of all obligations under the Trident
City of Aurora ex rel. Utility Enterprise v. Colorado State Engineer,
105 P.3d 595 (Colo. 2005).
Kenneth J. Burke, one of the original partners in PCSR, ceased to
be a partner in 2003.
Plaintiffs’ claims against defendants (except Aurora) alleged
that (1) under the Colorado Uniform Fraudulent Transfer Act
(CUFTA), §§ 38-8-101 to -112, C.R.S. 2011, foreclosure of the deed
of trust securing the 2002 note constituted a fraudulent transfer;
(2) defendants conspired to commit such fraud; and (3) JJWM is
liable for PCSR’s debts as a successor entity. In addition, Thornton
sought a quiet title decree that because it had not received notice of
the foreclosure, its judgment lien survived and was superior to
Aurora’s quitclaim deed.
The jury found in favor of plaintiffs on all claims. On the civil
conspiracy claim, it awarded damages in the amount of the
judgment liens. On a special verdict form, the jury found that
individual defendants did not sign the 2002 note as accommodation
parties, which was essential to the fraudulent conveyance claim.
Based on the jury’s verdicts on the fraudulent conveyance and
successor liability claims, the court ordered that plaintiffs’ original
judgment liens reattach to the ranch (now owned by JJWM). The
court also found in favor of Thornton on its quiet title claim and
voided the quitclaim deed from JJWM to Aurora.
We reverse the judgment on the fraudulent conveyance and
civil conspiracy claims for lack of evidence supporting the special
verdict that individual defendants were not accommodation parties.
We affirm the judgment in part on the successor liability claim, but
except for Thornton, reverse it as to reestablishing plaintiffs’ liens.
On the quiet title claim, we reverse the judgment voiding Aurora’s
quitclaim deed. We remand for further findings on the priority
between the deed and Thornton’s lien, which we conclude was not
extinguished by the foreclosure.
III. Evidence of Fraudulent Transfer
Defendants first contend the jury’s verdict under CUFTA is not
supported by sufficient evidence. We agree and conclude that the
verdict must be set aside.
We examine whether the evidence, considered in the light most
favorable to the prevailing party, is sufficient to support the jury’s
verdict. Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159,
1172 (Colo. App. 2010). The jury weighs the evidence, determines
the credibility of witnesses, and draws all justifiable inferences of
fact from the evidence. Id.
Under section 38-8-105(1)(a), C.R.S. 2011, a debtor’s transfer
of property is fraudulent if made “[w]ith actual intent to hinder,
delay, or defraud any creditor of the debtor.” A “transfer” under
CUFTA includes “every mode, direct or indirect, absolute or
conditional, voluntary or involuntary, of disposing of or parting with
an asset . . . .” § 38-8-102(13), C.R.S. 2011 (emphasis added).
However, an “asset” does not include “[p]roperty to the extent it is
encumbered by a valid lien.” § 38-8-102(2)(a), C.R.S. 2011.
Here, individual defendants argue that the evidence is
insufficient to show the ranch constituted an “asset” under CUFTA,
because when JJWM foreclosed, it was subject to Aurora’s recorded
right to one-half of the acreage under the Trident Agreement, and
the balance on the 2002 note secured by the 2002 deed of trust
exceeded the value of the remainder. Plaintiffs dispute that the
ranch was encumbered by the 2002 deed of trust, which they assert
had been extinguished when individual defendants, who were
primarily liable on the 2002 note, “purchased” the note from
Guaranty in 2005. See, e.g., Liddle v. Lechman, 114 Colo. 189, 204,
163 P.2d 802, 809 (1945).
Individual defendants respond that they were not primarily
liable on the note, but rather signed as accommodation parties. In
that capacity, after having purchased the note, they were entitled to
reimbursement from PCSR and to enforce the note and the deed of
trust against PCSR under section 4-3-419(e), C.R.S. 2011. Thus,
whether the ranch was an “asset” under CUFTA depends on
whether individual defendants signed the 2002 note as
accommodation parties under section 4-3-419. We agree that
defendants were accommodation parties.
A. Accommodation Party
In 1994, the General Assembly adopted Uniform Commercial
Code (UCC) section 3-419 in section 4-3-419, C.R.S. 2011, which
provides in relevant part:
(a) If an instrument is issued for value given for the
benefit of a party to the instrument (“accommodated
party”) and another party to the instrument
(“accommodation party”) signs the instrument for the
purpose of incurring liability on the instrument without
being a direct beneficiary of the value given for the
instrument, the instrument is signed by the
accommodation party “for accommodation.”
(b) An accommodation party may sign the instrument as
maker, drawer, acceptor, or indorser . . . .
(c) A person signing an instrument is presumed to be an
accommodation party and there is notice that the
instrument is signed for accommodation if the signature
is an anomalous indorsement or is accompanied by words
indicating that the signer is acting as surety or guarantor
with respect to the obligation of another party to the
instrument . . . .
(e) An accommodation party who pays the instrument is
entitled to reimbursement from the accommodated party
and is entitled to enforce the instrument against the
Whether a signer is an accommodation party presents a
question of fact, see § 4-3-419 cmt. 3, and “must be determined
based upon the facts and circumstances in existence at the time the
note is signed.” Lasky v. Berger, 536 P.2d 1157, 1160 (Colo. App.
1975) (not published pursuant to C.A.R. 35(f)). The party claiming
accommodation party status bears the burden of proof. Cranfill v.
Union Planters Bank, 158 S.W.3d 703, 712 (Ark. Ct. App. 2004).
No Colorado case has addressed accommodation party status
under section 4-3-419. Because this section parallels the UCC, we
look to other jurisdictions that have interpreted their UCC
counterparts for guidance. See § 4-1-103(a)(3), C.R.S. 2011
(purpose of UCC is “[t]o make uniform the law among the various
jurisdictions”); Georg v. Metro Fixtures Contractors, Inc., 178 P.3d
1209, 1214 (Colo. 2008) (examining other states’ UCC decisions).
1. Plain Language of the Note
Individual defendants signed the 2002 note under the term
“BORROWER,” both as “PARTNER” and “INDIVIDUALLY.” Nothing
in the note indicated that individual defendants were
accommodation parties. According to plaintiffs, this fact suffices to
support the jury’s verdict under Rink-A-Dinks v. TNT Motorcycles,
Inc., 655 P.2d 431, 432 (Colo. App. 1982) (applying the prior
accommodation party statute, former section 4-3-415). There, the
division rejected accommodation party status, explaining: “Where
parties sign a note as individuals . . . without any qualifying
designations, they are individually liable as makers.” Id. at 432-33.
Under section 4-3-419(c), the use of certain qualifiers after a
signature, such as “guarantor,” creates a presumption that the
signer is an accommodation party. As explained in Comment 3 to
[I]t is almost always the case that a co-maker who signs
with words of guaranty after the signature is an
accommodation party. The same is true of an anomalous
indorser. . . . [Therefore,] signing with words of guaranty
or as an anomalous indorser . . . creates a presumption
that the signer is an accommodation party.
A party challenging accommodation party status can rebut this
presumption “by producing evidence that the signer was in fact a
direct beneficiary of the value given for the instrument.” Id.
Contrary to Rink-A-Dinks, however, section 4-3-319 does not
create the opposite presumption if such qualifiers are absent.
Rather, as explained in 6B Lary Lawrence, Anderson on the Uniform
Commercial Code 649 (3d ed. 2003)3, without such qualifiers:
[A]n examination of the instrument will not, in itself,
disclose the existence of an accommodation relationship.
This is the case when there are co-parties, such as comakers, and nothing is added to the instrument to show
that one of them is signing for accommodation.
Because former section 4-3-415 did not include any language
similar to section 4-3-419(c), nor did it specify that an
accommodation party could sign as a “maker,” we decline to follow
Rink-A-Dinks. See City of Steamboat Springs v. Johnson, 252 P.3d
1142, 1147 (Colo. App. 2010) (a division of the court of appeals is
not bound to follow another division’s ruling).
See Cugnini v. Reynolds Cattle Co., 687 P.2d 962, 966 n.8 (Colo.
1984) (quoting Anderson on the Uniform Commercial Code with
Rather, we conclude that under section 4-3-419(c), the lack of
qualifiers cannot alone defeat accommodation party status.
Therefore, because here no such qualifiers are present, we look for
evidence showing that individual defendants received a direct
benefit from the value given for the note, and find none.
2. Direct Benefit
An accommodation party “signs the instrument for the
purpose of incurring liability . . . without being a direct beneficiary
of the value given for the instrument . . . .” § 4-3-419(a). Thus,
unlike former section 4-3-415 -- which described an
accommodation party merely as “one who signs the instrument in
any capacity for the purpose of lending his name to another party to
it” -- section 4-3-419 focuses on the benefit received by the signer.
Further, it “distinguishes between direct and indirect benefit.” § 43-419 cmt. 1.
No Colorado case has addressed what constitutes a direct
benefit under section 4-3-419. Plaintiffs rely on Lasky, 536 P.2d at
1160, to argue that because the renewal note furthered individual
defendants’ business interests in PCSR, they received a “direct
benefit.” Lasky rejected accommodation party status where the
plaintiff had negotiated a loan to a franchisee of his corporation and
signed the loan as an individual, which the franchisee used to pay a
debt to the corporation. The division explained that the plaintiff
“would qualify as an accommodation party only if his purpose in
signing the note was to lend his name as a surety to [the president
of the franchise].” 536 P.2d at 1159. It concluded that the plaintiff
was not an accommodation party because his “primary purpose in
signing the note was to benefit his business interests . . . .” Id.
Lasky is inapposite for two reasons. First, it was decided
under former section 4-3-415, which focused on whether the party
signed “for the purpose of lending his name to another party,”
rather than on any direct benefit received. Second, to the extent
Lasky addressed a benefit to the signer, it did not distinguish
between direct and indirect benefits, nor did it identify any direct
benefit that the signer received.
Cases under former section 4-3-415 that fail to distinguish
between direct and indirect benefit -- such as the “business
interests” in Lasky -- are unpersuasive under section 4-3-419. See
generally Neil B. Cohen, Suretyship Principles in the New Article 3:
Clarifications and Substantive Changes, 42 Ala. L. Rev. 595, 600
(1991) (“The drafters improved the definition of ‘accommodation
party’ by discarding the perhaps chivalrous concept of lending one’s
name to another party and by adopting instead the economic
concept of incurring liability without being a direct beneficiary of
the value given for the benefit of another party.”). Although “[i]t is
hard to say just what constitutes a direct benefit,” James J. White
& Robert S. Summers, Uniform Commercial Code Practitioner
Treatise Series § 16-11(a) (5th ed. 2008), we look to other
jurisdictions that have addressed “direct benefits” under UCC
In Citibank v. Van Velzer, 982 P.2d 833 (Ariz. Ct. App. 1998),
the court concluded that a partner who signed a loan to a
partnership as a “principal” was nevertheless an accommodation
party because the partner “received no direct benefit from [the
bank] [and] his limited partnership interest was only an indirect
benefit of the value given.” Id. at 836. The court explained that the
partner’s “credit was necessary for [the bank] to fund the loan”
because the partnership was not credit-worthy and “had no
substantial assets other than the real property . . . .” Id. at 835.
In Commercial Mortg. and Finance Co. v. American Nat’l Bank &
Trust Co., 624 N.E.2d 933, 938 (Ill. App. Ct. 1993), the court
reversed a trial court judgment, following a bench trial, that a
shareholder was not an accommodation party. It concluded that
the “trial court's findings were against the manifest weight of the
evidence” where “[t]he loan was made to the corporation” and the
evidence did not show that the shareholder “received any of the
$200,000 loan proceeds, but, rather, she testified that the money
was deposited in [the corporation’s] account and it was used to
improve the real estate.” Id. at 937-38.
In Plein v. Lackey, 67 P.3d 1061, 1065 (Wash. 2003), the court
concluded that a corporate officer was an accommodation party
where “[t]he direct beneficiary of the loan was the corporation” and
“[a]s a stockholder . . . any benefit obtained by [the officer] was
derivative and indirect.” Id. at 1064-65. As in Citibank, the court
explained that “[i]n addition to the direct/indirect benefit inquiry,
another factor that serves to establish accommodation party status
is that the lender would not have made the loan in the absence of
the party's signature on the note . . . .” Id. at 1065.
We consider these cases well reasoned because they are
supported by comment 1 to section 4-3-419, which provides the
following example to distinguish direct from indirect benefit:
[I]f X cosigns a note of Corporation that is given for a loan
to Corporation, X is an accommodation party if no part of
the loan was paid to X or for X’s direct benefit. This is
true even though X may receive indirect benefit from the
loan because X is employed by Corporation or is a
stockholder of Corporation, or even if X is the sole
stockholder so long as Corporation and X are recognized
as separate entities.
See Thompson v. United States, 408 F.2d 1075, 1084 n.15 (8th Cir.
1969) (“Official Comments to the Uniform Commercial Code are not
binding upon the courts but they are persuasive in matters of
interpretation . . . .”); cf. In re Estate of Royal, 826 P.2d 1236, 1238
(Colo. 1992) (looking to comments to the Uniform Probate Code).
Here, uncontroverted documentary evidence showed that
Guaranty required individual defendants to sign the 2002 note
because PCSR’s water court application had failed. But since the
2002 note was a renewal, defendants’ evidence focused on the
proceeds from the original 1998 loan. That evidence showed the
original loan was used solely to finance legal and engineering fees
associated with the water case. Nothing in the record indicates that
individual defendants either received any loan proceeds or
otherwise directly benefited from them. Rather, financing the water
court case and the subsequent appeal directly benefited PCSR.
Plaintiffs presented no contrary evidence
However, receipt of loan proceeds is not the only way to
establish a direct benefit. Because the 2002 note was a renewal
rather than an advance of additional funds, a broader inquiry is
In Cranfill, 158 S.W.3d at 710, the court provided the following
examples of a direct benefit to the co-signer of a business loan who
did not receive any loan proceeds: disbursement of the proceeds
releases the signer from a personal obligation; disbursement settles
a legitimate legal controversy adverse to the co-signer; or the cosigner has the expectation of employment or ownership interests.4
But here, plaintiffs had no personal obligations that were released
or employment prospects with PCSR, nor was any legal claim
To the extent Cranfill cites Nelson v. Cotham, 268 Ark. 622, 595
S.W.2d 693 (Ark. Ct. App. 1980), as illustrating a fourth example,
we decline to follow it because, like Lasky, it was decided under
former section 3-415 and did not address direct benefits.
Nevertheless, plaintiffs assert that individual defendants
received a direct benefit because PCSR was a “single-purpose,
single-asset entity,” with the sole objective of profiting individual
defendants, and when the 2002 note was signed, PCSR’s
application for water rights had failed and individual defendants
“were aware plaintiffs were seeking a large costs judgment.” These
assertions do not show any direct benefit.
PCSR’s sole purpose to acquire water rights is immaterial to
whether individual defendants received a direct benefit from the
loan. Comment 1 to section 4-3-419 makes clear that a benefit is
indirect even if the signer is the sole stockholder in a corporation
that directly benefits from the loan. We perceive no basis on which
to apply a different analysis to partners in a limited partnership
that has a single purpose, nor do plaintiffs suggest one.
Because individual defendants were not parties to the water
court case and plaintiffs did not seek costs against them, a
potential cost judgment could have been awarded only against
PCSR. As limited partners, they had no personal liability for a
judgment against PCSR. See § 7-80-705, C.R.S. 2011. Nor do
plaintiffs assert that PCSR can be disregarded as a separate entity.
Accordingly, because the evidence does not show that
individual defendants received a direct benefit from the 2002 note -or, for that matter, the initial loan -- we must overturn the jury’s
finding that they did not sign as accommodation parties.
B. The Ranch Did Not Constitute an Asset
As accommodation parties, individual defendants were entitled
to enforce the note against PCSR, and their acquisition of the note
did not extinguish the deed of trust. See generally Murray v. Payne,
437 So. 2d 47, 52 (Miss. 1983) (“Upon payment, the
[accommodation party] is said to ‘stand in the shoes’ of the
creditor.”); In re TML, Inc., 291 B.R. 400, 429 n.64 (Bankr. W.D.
Mich. 2003) (“when one is secondarily liable, e.g., an
accommodation party under the UCC, the fact that the debt was
paid by that party, whether or not the debt was secured by a
mortgage, will not extinguish the underlying debt, nor will it
discharge the liability of the party primarily liable”). Plaintiffs do
not argue otherwise.
Here, plaintiffs’ expert testified that the ranch was worth $920
per acre or approximately $2.2 million in total. He did not
distinguish the acreage subject to Aurora’s claim under the Trident
Agreement, and no other evidence was presented as to the value of
this portion of the ranch. Therefore, on this limited record, we
must conclude that the remaining one-half of the ranch,
approximately 1,200 acres, would have been worth about $1.1
million. But the entire ranch was encumbered by the deed of trust
securing the 2002 note with a balance of approximately $1.6
Therefore, because the ranch was encumbered by valid liens
that exceeded its value, we conclude that it was not an “asset”
under CUFTA. See, e.g., In re Valente, 360 F.3d 256, 260 (1st Cir.
2004) (under Rhode Island’s version of the Uniform Fraudulent
Transfer Act (UFTA), property worth $150,000 but encumbered by a
$168,000 first mortgage “did not qualify as an ‘asset’ . . . at the time
of the transfer”); Epperson v. Entertainment Express, Inc., 338 F.
Supp. 2d 328, 343 (D. Conn. 2004) (property and note encumbered
by security interests that exceeded their value were not assets
under Connecticut’s Uniform Fraudulent Transfer Act), aff’d, 159
Fed. App’x 249 (2d Cir. 2005); Farstveet v. Rudolph ex rel. Eileen
Rudolph Estate, 630 N.W.2d 24, 34 (N.D. 2001) (“Property which is
encumbered by valid liens exceeding the value of the property is not
an asset . . . and is not subject to a fraudulent transfer.”); Barkley
Clark & Barbara Clark, The Law of Secured Transactions Under the
Uniform Commercial Code § 4.15: “Sham Foreclosure Sales and
Successor Liability” (2010) (“This result makes policy sense,
because the purpose behind fraudulent conveyance law is to allow
creditors to recover what they would have recovered had the
transfer not taken place.”).
Alternatively, plaintiffs argue that “any interest Aurora had in
the Ranch Property . . . was terminated, with Aurora’s agreement,
on January 7, 2008.” However, whether the ranch constituted an
asset is determined at the time of the alleged fraudulent transfer,
which plaintiffs alleged occurred in 2006 when JJWM foreclosed on
the deed of trust and obtained a public trustee’s deed to the ranch.
See § 38-8-109(3), C.R.S. 2011. At that time, the supreme court
had affirmed the water court case, and Aurora’s right to one-half of
the ranch was no longer contingent.
Accordingly, we further conclude that because the ranch did
not constitute an asset under CUFTA, the jury’s verdict on that
claim must be reversed.
Defendants next contend that if the CUFTA claim fails, the
jury’s verdict on civil conspiracy must be reversed because it was
based on the alleged fraudulent transfer, which plaintiffs do not
dispute. We agree.
Civil conspiracy is a derivative cause of action that is not
independently actionable. Double Oak Constr., L.L.C. v. Cornerstone
Development Int’l, L.L.C., 97 P.3d 140, 146 (Colo. App. 2003). “[T]he
essence of a civil conspiracy claim is not the conspiracy itself, but
the actual damages resulting from the acts done in furtherance of
the conspiracy.” Id. (quoting Resolution Trust Corp. v. Heiserman,
898 P.2d 1049, 1055 (Colo. 1995)). Thus, if the acts alleged to
constitute the underlying wrong provide no cause of action, then no
cause of action arises for the conspiracy alone. Id.
Here, plaintiffs’ conspiracy claim was based on the underlying
wrong of the alleged fraudulent transfer. Thus, because we have
concluded that the evidence did not support that claim, we must
also set aside the jury’s verdict of liability for civil conspiracy and
the damages awarded.5
V. Successor Liability
Defendants next contend the jury’s verdict on successor
liability must be reversed. We decline to do so.
Generally, a corporation that acquires the assets of another
corporation does not become liable for its debts. However,
successor corporations are liable if one of the following exceptions
applies: (1) the successor expressly or impliedly assumes liability;
(2) the transaction results in a merger or consolidation of the two
corporations; (3) the successor is a mere continuation of the seller;
or (4) the transfer is for the fraudulent purpose of escaping liability.
CMCB Enters., Inc. v. Ferguson, 114 P.3d 90, 93 (Colo. App. 2005).
A. Transfer of an Asset
Defendants argue that the jury’s verdict must be reversed
because, as a matter of law, an “essential prerequisite” of successor
liability is a transfer of assets from seller to buyer, which did not
occur here because (1) PCSR did not directly transfer the ranch to
Based on this conclusion, the jury’s award of money damages for
civil conspiracy is set aside. Therefore, we need not address
defendants’ arguments related to prejudgment interest.
JJWM, but rather JJWM acquired it through foreclosure, and (2)
the ranch was not an “asset” because it lacked equity. Both
In CMCB Enterprises, Inc., 114 P.3d at 93, the division noted
that “a prerequisite for the imposition of liability against a
corporation as a mere continuation of a predecessor is a sale or
transfer of . . . the assets of the latter to the former.”6 However, no
Colorado case has addressed whether the indirect transfer of assets
through a foreclosure sale supports successor liability. The
majority of courts to do so have concluded that it does. Fletcher
Cyclopedia of Corporations § 7122, at 220 (2008) (“Successor
liability may be imposed even where the business assets were
purchased pursuant to a foreclosure sale.”).7
We leave for another day whether such a sale or transfer must
involve “all the assets.”
See Ed Peters Jewelry Co. v. C & J Jewelry Co., 124 F.3d 252, 267
(1st Cir. 1997) (“[E]xisting case law overwhelmingly confirms that
an intervening foreclosure sale affords an acquiring corporation no
automatic exemption from successor liability.”); Glentel, Inc. v.
Wireless Ventures, LLC, 362 F. Supp. 2d 992, 1000 (N.D. Ind. 2005)
(“Defendants have failed to provide, and the Court has not
discovered, authority that supports the preclusion of a claim of
successor liability against a purchaser of assets at a [foreclosure
sale] . . . .”); Glynwed, Inc. v. Plastimatic, Inc., 869 F. Supp. 265,
For example, in Stoumbos v. Kilimnik, 988 F.2d 949, 962 (9th
Cir. 1993), the court held that “[t]he mere fact that the transfer of
assets involved foreclosure on a security interest will not insulate a
successor corporation from liability where other facts point to
continuation.” Otherwise, it explained, “unscrupulous
businesspersons would be able to avoid successor liability and
cheat creditors merely by changing the form of the transfer.” Id. at
Similarly, in Continental Ins. Co. v. Schneider, Inc., 873 A.2d
1286, 1294 (Pa. 2005), the court held that a successor liability
claim could proceed against an entity that had purchased the
debtor’s assets in a foreclosure sale: “if the unsecured creditor can
establish that one of the exceptions to the general rule against
successor liability applies, it may collect the predecessor's debt from
the successor.” We consider the reasoning in these cases
persuasive and follow them here.
273-74 (D.N.J. 1994) (“Despite [defendant's] predictions of the
gloom and doom that will descend upon the area of commercial law
if the Court permits [plaintiff] to proceed on its theory, nothing in
the UCC supports [defendant’s] argument that the 9-504 sale
provides a safe harbor against successor liability claims .”).
Defendants’ argument that the ranch did not constitute an
“asset” for successor liability purposes also fails, although we have
concluded that it lacked equity.8
In Ed Peters Jewelry Co., 124 F.3d at 262, the owners of a
debtor corporation and a bank holding a first lien on the
corporation’s assets agreed to conduct a private foreclosure sale
where a new corporation, comprised of the same owners, would
acquire the assets. The court held that such a transfer was not
fraudulent as to a junior lienholder because, as here, more senior
liens exceeded the value of the assets foreclosed on.
Nevertheless, the court concluded that the new corporation
could be liable under the doctrine of successor liability. It
explained that the lack of equity in the asset did not preclude
Whereas liens relate to assets (viz., collateral), the
indebtedness underlying the lien appertains to a person
or legal entity (viz., the debtor). Thus, although
foreclosure by a senior lienor often wipes out junior-lien
interests in the same collateral, it does not discharge the
debtor’s underlying obligation to junior lien creditors . . .
We reject plaintiffs’ argument that this issue was not preserved
because in opposing instruction 32, defendants argued that
successor liability must be based on “the value of the asset at the
time of transfer.”
. [T]he successor liability doctrine focuses exclusively on
debt extinguishment, be the debt secured or unsecured.
Id. at 267 (citations omitted). Further, the court explained that the
debtor corporation “unquestionably remained legally obligated” to
the creditor despite the foreclosure and extinguishment of the
creditor’s lien. Id.; see also Continental Ins. Co., 873 A.2d at 1292
(“[T]here is a distinction between permitting an unsecured creditor
to assert a lien against assets that have been sold pursuant to a . . .
foreclosure sale and permitting an unsecured creditor to assert a
claim of successor liability against the purchaser of that
Similarly, here, although the foreclosure sale extinguished
plaintiffs’ judgment liens (except that of Thornton) on the ranch,
PCSR remained legally obligated to pay those judgments. Hence,
lack of equity in the ranch is immaterial to JJWM’s liability for the
debts of PCSR. Therefore, lack of equity in an asset does not alone
preclude successor liability.
B. Sufficient Evidence
We next conclude that the evidence supports the jury’s verdict
that JJWM was liable as a successor corporation on at least one
The “mere continuation” exception for successor liability
applies to a continuation of directors, management, and
shareholders. CMCB Enters., Inc., 114 P.3d at 93. Thus, a court
must assess “whether the purchasing corporation is, in effect, a
continuation of the selling corporation, and not whether there is a
continuation of the seller’s business operation.” Id.
Here, the evidence, taken in the light most favorable to the
• PCSR’s four remaining partners are the same four partners
Although the jury was instructed on three of the four exceptions to
successor liability, we need only determine that the evidence is
sufficient to support one of those theories. Cf. People v. Dunaway,
88 P.3d 619, 631 (Colo. 2004) (where the evidence presented at trial
is otherwise sufficient to support the determination of guilt on one
theory, providing the jury with an instruction containing a factually
insufficient theory of liability for the same offense does not violate
• Both partnerships had the purpose of overseeing the
obligations under the Trident Agreement.
• JJWM acquired the sole asset of PCSR.
• The ranch was also JJWM’s sole asset.
This evidence is sufficient to support the jury’s verdict on successor
liability under the mere continuation exception. See CMCB Enters.,
Inc., 114 P.3d at 94 (finding successor liability based on mere
continuation where “inadequate assets . . . left in the old
corporation . . . prevent[ed] it from being able to pay its debts”).
C. Equitable Remedy
Defendants next argue that the trial court erred by reattaching
plaintiffs’ original judgment liens to the ranch owned by JJWM. We
agree in part.
Initially, we reject defendants’ arguments that because the
ranch lacked equity, the trial court erred by instructing the jury to
award the amount of plaintiffs’ judgment liens on their successor
liability claim, and even if this instruction was proper, the jury’s
verdict in favor of plaintiffs on successor liability must be set aside
because it was inconsistent with the jury’s award of zero damages
on this claim.10
Any error in the damages instruction was harmless for two
reasons. First, the jury did not award damages for successor
liability. Second, once the jury determined JJWM to be the
successor of PCSR, awarding money damages was unnecessary
because JJWM became liable for all debt of PCSR. See Ed Peters
Jewelry Co. v. C & J Jewelry Co., 215 F.3d 182, 186 (1st Cir. 2000)
(explaining that plaintiff’s successor liability claim does not “involve
the computation of damages” but rather “is an action to recover on
debts, the amounts of which have been reduced to judgments”).
Therefore, any inconsistency between the verdict and the damages
instruction was also harmless.
However, we must still consider defendants’ assertion that
“[t]he court reinstated Creditors’ liens without addressing how
reinstatement could occur without voiding the foreclosure sale or
Although successor liability is an equitable doctrine, here the
parties agreed to a jury trial on this issue. See Ed Peters Jewelry
Co., 124 F.3d at 267 (“successor liability is an equitable doctrine,
both in origin and nature”); Rego v. ARC Water Treatment Co., 181
F.3d 396, 401 (3d Cir. 1999) (observing that successor liability “is
derived from equitable principles”).
the Ranch’s transfer to JJWM.” Beyond reiterating their position
that the deed of trust ceased to exist because the individual
defendants were not accommodation parties, plaintiffs do not
explain how their judgment liens could survive a valid foreclosure.11
Given the jury’s “no” answer to the special interrogatory on
accommodation party status and plaintiffs’ failure to request that
the foreclosure sale be voided, the trial court had no reason to
explain the consequences of the foreclosure on plaintiffs’ liens
beyond its order that they reattach.
A trial court “possesses broad discretion in fashioning an
equitable remedy . . . .” See Schreck v. T & C Sanderson Farms, Inc.,
37 P.3d 510, 515 (Colo. App. 2001). We will not disturb such a
ruling absent an abuse of discretion -- action that is manifestly
arbitrary, unreasonable, or unfair. La Plata Med. Ctr. Assocs., Ltd.
v. United Bank, 857 P.2d 410, 420 (Colo. 1993).
Here, the trial court concluded:
In light of the jury’s verdict in this case in favor of
plaintiffs . . . for fraudulent conveyance and successor
liability, the court finds that the plaintiffs’ original
To the extent that plaintiffs argued before the trial court that they
lacked notice of the foreclosure, only Thornton made this argument
judgment liens from 2003 and 2005 should and will
attach to the [ranch] now owned by JJWM with the date
of priority back to their original filing by the plaintiffs.
However, because we have held that individual defendants were
accommodation parties, we must conclude that the foreclosure sale
was valid. The successor liability verdict does not require a
contrary conclusion. See Continental Ins. Co., 873 A.2d at 1293
(explaining that succeeding on a successor liability claim “will only
permit [plaintiff] to proceed against [defendant] as [a] successor”:
“Accordingly, there is simply no merit to the . . . assertion that a
successful successor liability claim will ‘undo’ an otherwise valid
[foreclosure] sale.”). Hence, for the following reasons, we further
conclude that, except for Thornton’s lien, the foreclosure
extinguished the other plaintiffs’ judgment liens.
Under the version of section 38-38-501 in effect at the time of
the foreclosure, see Ch. 275, sec. 2, § 38-38-501, 1990 Colo. Sess.
Laws 1669, after the period of redemption, title to the foreclosure
property “shall be free and clear of all liens and encumbrances
junior to the lien foreclosed.” The record is undisputed that, except
as discussed below regarding defective notice to Thornton, the
foreclosure was proper. Therefore, we conclude that title vested in
JJWM, as grantee of the public trustee’s deed, free and clear of the
other plaintiffs’ judgment liens.12
Based on this conclusion, the trial court’s order attaching
plaintiffs’ original judgment liens to the ranch must be reversed,
except as to Thornton.
VI. Quiet Title Claim
Aurora contends the trial court erred by (1) finding lack of
notice to Thornton of the foreclosure; and (2) voiding Aurora’s
quitclaim deed from JJWM for a portion of the ranch.
In reviewing a trial court’s decision, we must view the evidence
in its totality and in a light most favorable to the court. Coors v.
Security Life of Denver Ins. Co., 112 P.3d 59, 67 (Colo. 2005).
We conclude that because the record shows the notice to
Thornton was defective, the foreclosure did not extinguish its
judgment lien. However, based on our conclusion that no
fraudulent transfer occurred under CUFTA, we reverse the court’s
order voiding the quitclaim deed. Further, we remand for factual
This conclusion does not preclude these plaintiffs from refiling
their liens or otherwise enforcing their cost judgments against
JJWM, as successor to PCSR.
findings to determine the priority between Thornton’s judgment lien
and Aurora’s deed.
In 2008, JJWM and Aurora agreed to settle PCSR’s obligations
under the Trident Agreement. Under the settlement agreement,
JJWM quitclaimed to Aurora a portion of the ranch somewhat
different than what had been described in the Trident Agreement,
although all land conveyed to Aurora was within the legal
description of the ranch contained in the Trident Agreement.
Aurora presented evidence that the original allocation, which was
based on elevation, was not followed because it “adversely affect[ed]
. . . the value of and access to the Property.” Aurora recorded the
Thornton sought a quiet title decree that “its interest in the
[ranch] was not extinguished by the foreclosure by JJWM . . . and
that its lien against the [ranch] currently exists as first lien on the
property.” According to Thornton, its notice of JJWM’s foreclosure
was mailed to an incorrect address, its judgment lien was recorded
in 2005, and it recorded a lis pendens of the pending litigation
before the settlement agreement and recording of the quitclaim
A. Notice to Thornton
Aurora first argues that Thornton’s judgment lien was
extinguished by the foreclosure because Thornton failed to
overcome the presumption that notice mailed to it was received. We
Under the foreclosure statutes then in effect, Thornton was
“the holder of an interest junior to the lien being foreclosed” and
had a right to cure or redeem from the foreclosure. See Ch. 275,
sec. 2, §§ 38-38-104(1), 38-38-303, 1990 Colo. Sess. Laws 1657,
1666. Former section 38-38-103(2) provided in pertinent part:
The combined notice required by subsection (1) of this
section shall be mailed to those persons who have a right
to cure or redeem pursuant to an instrument evidencing
such right which was recorded . . . . Such combined
notice shall be mailed to such persons at their respective
addresses shown in the recorded instruments through
which their rights to cure or redeem are derived.
Ch. 275, sec. 2, § 38-38-103(2), 1990 Colo. Sess. Laws 1656
(emphasis added); see also Ch. 275, sec. 2, § 38-38-101(7)(a), 1990
Colo. Sess. Laws 1654.
Properly addressed foreclosure notices are presumed to reach
the addressee. See Stark Lumber Co. v. Keystone Inv. Co., 92 Colo.
259, 262, 20 P.2d 306, 307 (1933). But here, the record shows,
and the parties do not dispute, that Thornton’s notice was
addressed incorrectly. Thus, the record supports the trial court’s
finding that “JJWM failed to properly notify Thornton of the
foreclosure proceeding by mailing it to the wrong address.”
Further, even assuming that such a presumption arose,
Thornton submitted sufficient evidence to overcome it, viewed in the
light most favorable to the court’s decision. Thornton presented
affidavits of five city employees attesting that they did not recall
having received the foreclosure notice. During trial, the city
attorney who prepared the affidavits testified about the chain of
custody for mail at the Thornton offices and why these five
employees would have received the notice if it had been delivered.
Because Thornton did not receive notice of the foreclosure, it
was an “omitted party” under former section 38-38-506(1):
“[O]mitted party” means any person who:
(a) Subsequent to the recording of a mortgage, deed of
trust, or other lien instrument, has . . . acquired a record
interest in the property subject to sale . . . and
(b) . . . is not notified of his right to cure and redeem . . . .
Ch. 275, sec. 2, § 38-38-506(1), 1990 Colo. Sess. Laws 1672-73.
Aurora argues that as an omitted party, Thornton’s only
remedy under former section 38-38-506 would be to redeem the
ranch for an amount in excess of the bid. It relies on former section
38-38-506(2)(a), which provided:
The interest of an omitted party in the property . . . may
be terminated if such omitted party, in a civil action
commenced by any interested person, is afforded rights of
cure and redemption upon such terms as the court may
deem just under the circumstances, which terms shall
not, however, be more favorable that such person’s
Ch. 275, sec. 2, § 38-38-506(2)(a), 1990 Colo. Sess. Laws 1673
(emphasis added). We are not persuaded.
Former section 38-38-506(2)(a) establishes a process through
which an interested party can terminate an omitted party’s interest.
This process is necessary because under former section 38-38506(2)(b), “the lien which is the subject of the sale shall not be
extinguished by merger with the title to the property . . . until the
interest of any omitted party has been . . . terminated . . . .” Ch.
275, sec. 2, § 38-38-506(2)(b), 1990 Colo. Sess. Laws 1673; see
Robert A. Holmes, Public Trustee Foreclosure in Colorado 3-15 n.42
(3d ed. 2011) (“section 38-38-506(2)(b) keeps the lien foreclosed
alive until the appropriate steps are taken either to affirm or to
terminate the interest”). But here, no such proceeding has been
Rather, we conclude that because Thornton did not receive
notice of the foreclosure, JJWM took title to the ranch subject to
Thornton’s judgment lien. This conclusion is supported by former
section 38-38-501, which provides:
Upon the expiration of the period of redemption . . . title
to the property sold shall vest in the holder of the
certificate of purchase . . . . Subject to the provisions of
section 38-38-506 . . . such title shall be free and clear of
all liens and encumbrances junior to the lien foreclosed.
Ch. 275, sec. 2, § 38-38-501, 1990 Colo. Sess. Laws 1669
B. Voiding the Quitclaim Deed
Aurora next argues that even if Thornton’s judgment lien
survived the foreclosure, the trial court erred by voiding its
quitclaim deed. We agree.
Following trial, the court entered judgment in favor of
Thornton and voided the quitclaim deed. In doing so, it found that
Aurora “actively participated in the scheme of the partnerships and
the partners to avoid the judgment” and “chose to endorse and seek
the benefits of the sham conversion of the partnership by
acceptance of the conveyance of different property than that to
which it was entitled.” The court also found that while Aurora “had
a priority lien to the [ranch] under the original Trident agreement . .
. that priority was forfeited or voided when it negotiated with JJWM
. . . .” It voided Aurora’s quitclaim deed because “the partnerships,
PCSR and JJWM, and the partners of each attempted to commit,
and did commit, fraud by the transfer of the property to the new
But we have concluded that no fraudulent transfer occurred
because the ranch was not an asset under CUFTA. Hence, the
partners did not commit fraud. And while the record supports the
trial court’s finding that the partners intended to extinguish
plaintiffs’ judgment liens by purchasing the 2002 note, not funding
PCSR so it could make payments on it, and then foreclosing
through JJWM, their intent is immaterial because no fraudulent
transfer occurred. See Megabank Financial Corp. v. Alpha Gamma
Rho Fraternity, 841 P.2d 318, 320 (Colo. App. 1992) (“So long as the
transfer does not diminish the estate, the motives of debtor and
grantee are immaterial.”).
Accordingly, the judgment voiding Aurora’s quitclaim deed on
this basis must be reversed.13
C. Lien Priority
Our conclusion that Thornton’s judgment lien was not
extinguished by foreclosure requires resolution of Aurora’s
argument that its interest in the ranch is senior to Thornton’s
judgment lien because the quitclaim deed relates back to the
Trident Agreement. Thornton responds that because the 2008
agreement terminated any interest Aurora had under the Trident
Agreement, Aurora’s quitclaim deed is junior to the judgment lien.
Although the trial court noted that “Aurora had a priority lien”
under the Trident Agreement, it did not address priority relative to
the 2008 agreement, apparently because it had voided the quitclaim
deed. We conclude that further findings are required.
Initially, Thornton argues that because Aurora’s interest in the
ranch was conditional on the outcome of the water case and had
not been conveyed before the foreclosure, its lien had priority.
However, assuming this argument was preserved, Thornton cites no
Based on this conclusion, we decline to address Aurora’s
additional argument that Thornton did not request the court to void
authority, we have not found any in Colorado, and Province v.
Johnson, 894 P.2d 66, 68 (Colo. App. 1995) (“a person exercising an
option to purchase real property has priority over the person who,
after the granting of the option and before its exercise, purchased
the property with notice thereof”), is to the contrary.
However, because the trial court voided the quitclaim deed, it
made no findings whether Aurora was exercising its option under
the Trident Agreement through the 2008 agreement, or whether its
interests under the Trident Agreement had terminated. Nor did the
court address Thornton’s assertions that Aurora did not exercise its
rights under the Trident Agreement because the quitclaim deed
involved different property, which could have a different value, and
because Aurora negotiated the 2008 agreement with JJWM rather
than PCSR. We conclude that such factual issues are inappropriate
for resolution on appeal and must be addressed by the trial court
on remand.14 Hence, the court shall make specific findings on
priority, but shall not take additional evidence.
Thornton acknowledges that this issue is moot if it obtains
payment of its judgment lien from the cash supersedeas bond
posted by defendants. We express no opinion whether the bond
covers Thornton’s lien.
Accordingly, we affirm the trial court’s order as to Thornton’s
lack of notice, reverse its order voiding the quitclaim deed, and
remand for further findings on whether Aurora’s quitclaim deed is
superior to Thornton’s judgment lien.
The judgment is affirmed in part, reversed in part, and the
case is remanded for further findings.
JUDGE ROY and JUDGE FOX concur.