Million v. Grasse.
2024 COA 22. No. 22CA1154. Limited Liability Companies—Piercing Doctrine—Alter Ego—Breach of Contract—Civil Theft.
February 29, 2024
Million and Grasse were long-time friends who engaged in a business relationship from the early 2000s until their relationship deteriorated in 2018. Million located properties to purchase, and Grasse financed the purchases, which included the Sixth Street Property, the Dakota Property, and the Highland Property. In 2014, Million formed Chesed as a Colorado limited liability company (LLC), and he was Chesed’s sole member. Chesed then purchased the Sixth Street Property. Also in 2014, Million needed money to pay his attorney fees in a criminal case, so Million’s lawyer formed LLC Nugae, which Grasse wholly owned. In 2015, Nugae made $85,000 in loans to Million and Chesed, and the money came from Grasse. Million executed promissory notes for these loans to Nugae, and the loans were secured by deeds of trust on the Sixth Street Property. Grasse was also the sole member of Rose Valley LLC. In 2015, Rose Valley made two loans to Million and Chesed of $25,000 and $125,000, for which Grasse provided the money, and the loans were secured by deeds of trust in favor of Rose Valley on the Sixth Street Property. Later in 2015, Million transferred his Chesed membership to Grasse, making her the sole owner of Chesed. Rose Valley subsequently paid a $425,000 promissory note relating to Chesed’s purchase of the Sixth Street Property. By August 2015, Nugae and Rose Valley held five deeds of trust on the Sixth Street Property, securing five loans for Million’s benefit, totaling approximately $660,000.
In 2018, Million sued Grasse over a dispute concerning the Highland Property. The parties signed a settlement agreement under which Grasse agreed to reconvey title to the Highland Property to Million and to sell the Sixth Street Property and the Dakota Property and divide the sale proceeds with Million. The settlement agreement also required Grasse’s attorney to establish a trust account for distribution of the monies and further required Grasse or her attorney to confer with Million’s counsel before making distributions from the trust account. In July 2020, Grasse closed on the sale of the Sixth Street Property, and in February 2021 she closed on the sale of the Dakota Property. Grasse claimed that the liens held by Nugae and Rose Valley were third-party liens because neither Nugae nor Rose Valley was a named party to the settlement agreement, so she deducted the amount of those liens from the settlement proceeds, distributing nothing to Million. Apparently, Grasse’s attorney never established the trust account required by the settlement agreement. Million sued Grasse again, asserting a variety of claims, including breach of contract and civil theft. After a bench trial, the trial court determined that Nugae and Rose Valley were alter egos of Grasse and that she therefore improperly deducted those liens from the sales proceeds. The court determined that Grasse owed Million $634,553.75 in damages, plus interest, attorney fees, and costs. The court dismissed Million’s civil theft claim on Grasse’s motion for partial summary judgment.
On appeal, Million contended that the trial court erred by granting the motion for partial summary judgment on the civil theft claim because (1) there were disputed issues of material fact for trial regarding his claim for civil theft, and (2) the court incorrectly applied the law when it ruled that his civil theft claim was a breach of contract claim that does not fall under the Colorado civil theft statute. To state and prevail on a claim for civil theft that is based on the theft of money, in addition to the other statutory requirements, the claimant must allege and prove that there are specifically identifiable funds, or funds from a specifically identifiable account, that belong to the plaintiff and were stolen. Here, due to imprecisions in the settlement agreement, at the time Grasse distributed the funds it was not possible to determine what amount was owed to Million. Because the net proceeds were not either specifically identifiable funds or funds from a specifically identifiable account, Million did not have a sufficient proprietary interest in the money, precluding a civil theft claim. Therefore, the trial court correctly dismissed the civil theft claim.
On cross-appeal, Grasse argued that the trial court erred by piercing the limited liability veil between her and the LLCs that she owned and thus concluding that the liens in question were not third-party liens. This is a breach of contract case, and an unambiguous contract must be enforced in accordance with its plain terms. The limited purposes of the piercing doctrine do not support its use to construe contractual terms, and Million cited no authority to support the use of the piercing doctrine to construe a disputed contract term. Accordingly, the trial court erred by applying the piercing doctrine. Further, the court of appeals declined to affirm on the trial court’s alternative basis for its judgment, that the settlement agreement resolved all claims between named and potential parties, for lack of findings with record support.
Grasse also requested attorney fees and costs under the settlement agreement’s prevailing party provision. The court declined the request because the parties’ dispute is not finally resolved.
The money judgment in favor of Million was reversed. The partial summary judgment order dismissing the civil theft claim was affirmed. The case was remanded for the trial court (1) to redecide the case without reliance on the piercing doctrine and to enter an appropriate judgment, and (2) to enter an appropriate award of trial and appellate attorney fees and costs to the prevailing party.