2020 COA 69
Colo. Ct. App.2020Background
- In 2000 Ernest Dill sold trade schools to Rembrandt Group, Inc. (RGI); financing included a senior RMMF note (assignable) and Dill’s subordinated notes governed by an Intercreditor and Subordination Agreement (IC Agreement) that allowed the senior lender to block payments to Dill and to assign the senior note without Dill’s consent.
- Five individuals who collectively own 81.25% of RGI formed Intellitec (2011), which formed single‑member LLC Pikes Peak Acquisitions, LLC (PPA) (2012); PPA purchased the RMMF note from RMMF for a discounted price and received assignment of RMMF’s rights under the IC Agreement.
- RGI continued making payments to Dill after the assignment; PPA issued a payment‑blockage notice in October 2015 under the IC Agreement, then forbearance followed; Dill sued RGI in December 2015 claiming the assignment was ineffective because RGI and PPA were alter egos.
- At trial the court found RGI and PPA were alter egos (horizontal veil piercing), concluded the senior indebtedness was extinguished, and entered judgment for Dill; RGI and PPA appealed.
- The Colorado Court of Appeals reversed: it held Colorado permits horizontal veil piercing only if each entity’s veil to the common owner/parent is first pierced, found the record lacked required alter‑ego findings for RGI, Intellitec, or PPA, and found no evidence the assignment was used to defeat Dill’s rightful claim; it remanded with directions and awarded appellate fees to RGI/PPA under the IC Agreement.
Issues
| Issue | Plaintiff's Argument (Dill) | Defendant's Argument (RGI/PPA) | Held |
|---|---|---|---|
| Whether Colorado allows horizontal veil piercing between sister entities that share indirect common ownership | Sister entities can be treated as alter egos because the same individuals effectively control both via Intellitec | Horizontal piercing is not permitted where entities lack parent‑subsidiary relationship; if allowed, veils to the common owner must be pierced first | Colorado permits horizontal piercing in principle, but only if the veil separating each entity from the common owner/parent in the ownership chain is first pierced |
| Whether RGI and PPA are alter egos (unity of interest/control) | Common ownership, single‑purpose PPA, and overlapping actors show unity of interest and control | RGI and PPA operated as separate entities, observed formalities, had no commingling or domination evidence | Not alter egos; record lacks evidence that RGI is alter ego of the five owners, Intellitec is alter ego of those owners, or Intellitec and PPA are alter egos |
| Whether PPA’s purchase/assignment defeated a rightful claim or constituted fraud (second veil‑piercing element) | The assignment effectively let RGI (through related owners) acquire its own senior debt to defeat Dill’s subordinated claim | The assignment was valid under the IC Agreement, Dill had no right to notice, and no evidence shows harm or an intent to defeat Dill; PPA even allowed payments to Dill for years | Trial court’s finding unsupported; record does not show the purchase/assignment was used to defeat Dill’s rightful claim |
| Entitlement to appellate attorney fees under the IC Agreement | N/A (Dill opposed fees) | IC Agreement provides prevailing party fees; RGI/PPA are prevailing parties on appeal | RGI and PPA are prevailing parties; case remanded for determination and award of reasonable appellate fees and costs |
Key Cases Cited
- In re Phillips, 139 P.3d 639 (Colo. 2006) (reverse piercing recognized; same three‑factor veil‑piercing test applies)
- McCallum Family L.L.C. v. Winger, 221 P.3d 69 (Colo. App. 2009) (articulates Colorado three‑part veil‑piercing test and relevant factors)
- Krystkowiak v. W.O. Brisben Co., 90 P.3d 859 (Colo. 2004) (discusses unity of interest and when corporate personality may be disregarded)
- Leonard v. McMorris, 63 P.3d 323 (Colo. 2003) (lists factors for alter‑ego analysis)
- Great Neck Plaza, L.P. v. Le Peep Rests., LLC, 37 P.3d 485 (Colo. App. 2001) (court need not find every factor to pierce veil)