Million v. Grasse

549 P.3d 1043

2024 COA 22

Gilbert MILLION, Plaintiff-Appellant and Cross-Appellee,

v.Carol GRASSE; Chesed, LLC, a Colorado limited liability company; Rose Valley, LLC, a Colorado limited liability company; and Nugae, LLC, a Colorado limited liability company, Defendants-Appellees and Cross-Appellants.

Court of Appeals No. 22CA1154

Colorado Court of Appeals, Div. V.

Announced February 29, 2024

Boulder County District Court No. 21CV30048, Honorable Patrick Butler, Judge

Thomas P. Howard, LLC, Thomas P. Howard, Kammie Cuneo, Louisville, Colorado; Law Office of Kenneth R. Morris, Kenneth R. Morris, Boulder, Colorado, for Plaintiff-Appellant and Cross-Appellee

Huntington C. Brown and Associates LLC, Huntington C. Brown, Yvonne Sell, Denver, Colorado; Spencer Fane LLP, Dean Neuwirth, Denver, Colorado, for Defendants-Appellees and Cross-Appellants

Opinion by JUDGE BERGER^*

¶ 1 Plaintiff, Gilbert Million, appeals the trial court’s partial summary judgment dismissing his civil theft claim against defendants, Carol Grasse and three of her entities — Chesed, LLC, Rose Valley, LLC, and Nugae, LLC. Grasse cross-appeals the trial court’s money judgment in favor of Million. We affirm the partial summary judgment but reverse the trial court’s money judgment in favor of Million and remand with directions.

I. Relevant Facts and Procedural History

A. The Parties’ Relationship

¶ 2 Million and Grasse were friends for over thirty years. The two engaged in a business relationship from the early 2000s until the relationship deteriorated in August 2018. Using his business and construction background, Million located properties to purchase, and Grasse financed the purchases. Those properties included three in Boulder: the Sixth Street Property, the Dakota Property, and the Highland Property. Because of the pair’s long friendship, they often did not reduce the details of their agreements to writing.

B. The Properties and the Loans

¶ 3 In 2014, Million formed Chesed as a Colorado limited liability company (LLC). Million 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. To accomplish that objective, Million’s lawyer (apparently with Grasse’s consent) formed another Colorado LLC: Nugae, which was wholly owned by Grasse.

¶ 4 In February 2015, Nugae made two loans to Million and Chesed of $50,000 and $35,000. The money came from Grasse. Million executed promissory notes for both loans to Nugae, and the loans were secured by deeds of trust on the Sixth Street Property.

¶ 5 Grasse was also the sole member of another Colorado LLC named Rose Valley.

In February 2015, Rose Valley made two loans to Million and Chesed of $25,000 and $125,000. The $25,000 loan was to pay Million’s legal fees, and the $125,000 memorialized an earlier loan between the two. Again, Grasse provided the money and the loans were secured by deeds of trust in favor of Rose Valley on the Sixth Street Property.

¶ 6 In June 2015, Million transferred his Chesed membership to Grasse, and Grasse thereby became the sole owner of Chesed. In August 2015, Rose Valley paid a $425,000 promissory note relating to Chesed’s purchase of the Sixth Street Property. All in all, 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.

C. Prior Suit and Settlement Agreement

¶ 7 In 2018, Million sued Grasse over a dispute concerning the Highland Property. In 2019, the parties successfully mediated the dispute before the Judicial Arbiter Group and signed a "Settlement Agreement."

¶ 8 This appeal arises out of the Settlement Agreement. In it, 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.

¶ 9 Under the Settlement Agreement, Grasse would receive the first $725,000 from the sale of the two properties, "with the remaining net proceeds to be split 50/50 between the parties as they are made available." Net proceeds were defined as "the selling price minus commission costs, costs, fees, third parties liens and obligations." The Settlement Agreement also obligated Grasse’s attorney to establish a "separate trust account for distribution of the monies" and further required Grasse or her attorney to confer with Million’s counsel prior to making distributions from the trust account.

¶ 10 In July 2020, Grasse closed on the sale of the Sixth Street Property for $975,000. Subsequently Grasse closed on the sale of the Dakota Property in February 2021. Grasse consistently 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. Because the liens held by Nugae and Rose Valley were, according to Grasse, "third parties liens" Grasse deducted the amount of those liens from the settlement proceeds, leaving nothing to be distributed to Million. Grasse’s attorney apparently never established the trust account required by the Settlement Agreement.

D. Trial Court Proceedings

¶ 11 Million sued Grasse again, asserting a variety of claims, including breach of contract and civil theft.

¶ 12 Applying the piercing the corporate veil doctrine,¹ Million contended that the liens were not third-party liens, and instead, that Nugae and Rose Valley were alter egos of Grasse. Thus, according to Million, Grasse breached the Settlement Agreement and committed civil theft by treating the liens as third parties’ liens and subtracting their value when calculating the net proceeds.

¶ 13 After a bench trial, the trial court entered written findings of fact and conclusions of law, determining that Nugae and Rose Valley were indeed alter egos of Grasse and that, therefore, Grasse improperly deducted those liens from the proceeds of the sales of the properties. 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.

E. Contentions on Appeal

¶ 14 Million appeals the trial court’s dismissal of his civil theft claim. He contends that the trial court erred by granting the motion for partial summary judgment on this claim because (1) there were genuine factual issues for trial; and (2) the court incorrectly applied the law when it ruled that Million’s civil theft claim was a breach of contract claim that does not fall under the purview of the civil theft statute, section 18-4-405, C.R.S. 2023.

¶ 15 On cross-appeal, Grasse contends that the trial court improperly applied the piercing doctrine.

¶ 16 We conclude that the trial court correctly dismissed the civil theft claim. However, because we conclude that the piercing doctrine has no proper application in this case, we reverse the trial court’s money judgment in favor of Million and remand for further proceedings to redecide the case without regard to the piercing doctrine. Finally, on remand the trial court must also determine who is the prevailing party and then award that party reasonable attorney fees.

II. Cross-Appeal — Money Judgment in Favor of Million

¶ 17 We begin with Grasse’s cross-appeal. Grasse contends that the trial court erred by piercing the limited liability veil between her and the LLCs that she owned and thereby concluding that the liens in question were not "third parties liens." We agree.

A. Additional Facts

¶ 18 At trial, Million argued that Grasse "wholly owned and wholly controlled" Rose Valley, Nugae, and Chesed, making them her alter egos. Therefore, according to him, these LLCs were not third parties to the Settlement Agreement and those liens could not be deducted from the two properties' sales proceeds.

¶ 19 In its written findings and conclusions, the trial court agreed and addressed the three required prerequisites to the application of the piercing doctrine, making the following findings:

• neither Nugae nor Rose Valley had a bank account in its name;

• any money used on behalf of Nugae and Rose Valley came from Grasse, individually;

• neither Nugae nor Rose Valley had any independent capitalization other than money from Grasse or an entity solely owned and controlled by Grasse;

• Nugae’s and Rose Valley’s only business holdings were the promissory notes and deeds related to the Sixth Street Property, which Chesed held;

• neither LLC ever had any income, filed a tax return, had employees, or had an office;

• Grasse used personal funds to pay for the minor operating expenses of both LLCs;

• tenants at the Sixth Street Property made out their rent checks to Grasse personally;

• legal formalities were disregarded and funds and assets were comingled;

• both LLCs were thinly capitalized; and

• the entities and Grasse were so comingled that when Grasse released the deeds of trust in June 2020 prior to the sale of the Sixth Street Property, neither entity received any money to satisfy the loan obligations by Chesed.

¶ 20 Turning to the second and third prongs of the piercing doctrine, the court found that Million proved that justice required recognizing the relationship between Grasse and Nugae and Rose Valley over the LLC form because "persisting in this corporate fiction would defeat his rightful claim." The trial court also determined that holding Grasse liable for the corporate obligation was equitable under all the relevant circumstances.

¶ 21 Grasse argues the court erred in (1) determining Grasse misused the corporate form because it misunderstood the elemental features of LLCs; (2) concluding Grasse misused Nugae and Rose Valley to defeat Millions "rightful claim"; and (3) concluding that veil-piercing was necessary to achieve an equitable result.

B. Standard of Review and the Piercing Doctrine

[1, 2] ¶ 22 " ‘Piercing the corporate veil involves a mixed question of law and...