Rome v. Reyes
2017 COA 84
| Colo. Ct. App. | 2017Background
- Commissioner sued defendants (Antonio Reyes, Craig Kahler, and Betty Schnorenberg) arising from a Colorado-based Ponzi scheme that defrauded ≥255 investors of ~$15.25 million; scheme was run by Kelly Schnorenberg and Colorado entities (KJS, WSA, etc.).
- Reyes (California) and Kahler (Wyoming) solicited out-of-state investors on behalf of the Colorado companies, directed investors to complete transactions in Colorado, and received transaction-based commissions from Colorado accounts; Reyes also served as an officer of a Colorado-affiliated company (WSA).
- Betty Schnorenberg (Wyoming) received large transfers from her son’s Colorado accounts and allegedly used/held funds traceable to the scheme; she was named as a relief defendant (seeking equitable relief only).
- Defendants moved to dismiss for lack of personal jurisdiction (C.R.C.P. 12(b)(2)); Reyes and Kahler also moved to dismiss the securities-fraud claim under C.R.C.P. 9(b) for lack of particularity.
- The district court granted dismissals without an evidentiary hearing, finding no personal jurisdiction over the nonresidents and that the fraud allegations failed Rule 9(b); Colorado Court of Appeals reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over Reyes and Kahler (specific jurisdiction) | Their repeated solicitations for Colorado issuer, directing investors to Colorado, and receiving commissions from Colorado accounts establish minimum contacts and CSA-based long-arm reach | They denied soliciting Colorado residents; argued mere payments from Colorado and a contractual relationship with a Colorado company are insufficient for jurisdiction | Reversed: prima facie showing of specific jurisdiction — aggregate contacts (solicitations, directing investors to Colorado, commissions, Reyes’s officer role, e-mail to a CO investor) suffice and exercise is reasonable |
| Personal jurisdiction over Betty Schnorenberg (relief defendant) | Large transfers from Colorado accounts and knowing/should-have-known receipt of investor funds create purposeful availment and important consequences in Colorado | She is a Wyoming resident with limited contacts; relief defendant only holds assets and hasn’t committed substantive violations | Reversed: courts may exercise jurisdiction — her financial dealings with Colorado son and receipt/use of transferred funds suffice under the three-part test and are reasonable given Colorado’s interest |
| Applicability of Colorado Securities Act / long-arm statute | CSA treats any violation as transaction of business in Colorado; offers originating in Colorado bring nonresidents within CSA scope, supporting long-arm jurisdiction | Defendants argued contacts were insufficient and due process limits jurisdiction despite CSA language | Court assumed CSA allegations sufficient to bring conduct within long-arm, but conducted due-process analysis and found minimum contacts and reasonableness satisfied |
| Rule 9(b) pleading particularity for securities-fraud claim against Reyes and Kahler | Complaint identified specific misrepresentations/omissions, named individual solicited investors, and alleged each defendant made those statements in individual solicitations | Claims are impermissibly group-pleaded and do not tie specific misrepresentations to individual defendants | Reversed: complaint gave adequate particulars (statements, omissions, identified victims and typical solicitations) to put defendants on notice and survive Rule 9(b) dismissal |
Key Cases Cited
- Archangel Diamond Corp. v. Lukoil, 123 P.3d 1187 (Colo. 2005) (prima facie standard and procedure for Rule 12(b)(2) motions decided on documentary evidence)
- Int’l Shoe Co. v. Washington, 326 U.S. 310 (U.S. 1945) (minimum contacts/due process standard for personal jurisdiction)
- Found. for Knowledge in Dev. v. Interactive Design Consultants, LLC, 234 P.3d 673 (Colo. 2010) (assessing sufficiency of contacts and that the prima facie showing is a light burden)
- Burger King Corp. v. Rudzewicz, 471 U.S. 462 (U.S. 1985) (limits of contractual relationships alone to establish jurisdiction)
- Calder v. Jones, 465 U.S. 783 (U.S. 1984) (consideration of contacts in their totality and purposeful direction toward the forum)
- Keefe v. Kirschenbaum & Kirschenbaum, P.C., 40 P.3d 1267 (Colo. 2002) (discussion of reasonableness factors and burden when defendant challenges jurisdiction)