Thompson v. People

471 P.3d 1045

Steven Curtis THOMPSON, Petitioner,

v.The PEOPLE of the State of Colorado, Respondent.

Supreme Court Case No. 18SC543

Supreme Court of Colorado.

September 14, 2020

Attorneys for Petitioner: Megan A. Ring, Colorado State Public Defender, Sean J. Lacefield, Deputy State Public Defender, Denver, Colorado

Attorneys for Respondent: Philip J. Weiser, Attorney General, Brittany L. Limes, Assistant Attorney General, Denver, Colorado

Attorneys for Amicus Curiae, David S. Cheval, Acting Securities Commissioner for the State of Colorado: Philip J. Weiser, Attorney General, Robert W. Finke, Assistant Attorney General, Janna K. Fischer, Assistant Attorney General, Abby L. Chestnut, Assistant Attorney General, Denver, Colorado

En Banc

JUSTICE GABRIEL delivered the Opinion of the Court.

¶1 This case requires us to decide if this court should adopt the family resemblance test from Reves v. Ernst & Young , 494 U.S. 56, 64–67, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990), as the test for determining whether a note is a security for purposes of the Colorado Securities Act, §§ 11-51-101 to - 1008, C.R.S. (2019) ("CSA"). If so, we must then decide whether the division below erred in concluding that (1) the promissory note at issue was a security under the family resemblance test; (2) any error in the jury instruction defining "security" was not plain; and (3) consecutive sentences were permissible because different evidence supported defendant Steven Thompson's securities fraud and theft convictions.¹

¶2 We now adopt the family resemblance test for determining whether a note is a security for purposes of the CSA. Applying that test to the facts before us, we conclude further that (1) the promissory note at issue was a security for purposes of the CSA; (2) any instructional error regarding the element of a "security" was not plain because any error was not substantial; and (3) the convictions for securities fraud and theft at issue were not based on identical evidence and therefore consecutive sentences were permissible.

¶3 Accordingly, we affirm the judgment of the division below.

I. Facts and Procedural History

¶4 Thompson worked as a real estate developer and was the sole member and manager of SGD Timber Canyon, LLC ("Timber Canyon"), a real estate company that, at the times pertinent here, held an interest in a number of undeveloped lots in the Timber Ridge development in Castle Rock, Colorado. To buy those properties, Timber Canyon had initially obtained an approximately $11.9 million loan from Flagstar Bank. The properties struggled financially, however, and went into foreclosure in October 2009. Thereafter, in February 2010, Timber Canyon filed a bankruptcy petition, and Flagstar Bank sought relief from the automatic stay to allow it to proceed with the foreclosure. The parties, however, entered into a stipulation under which the bank agreed to forbear from exercising its remedies against the properties, pending, among other things, Timber Canyon's making a $6.75 million payment by October 15, 2010.

¶5 Meanwhile, in the spring of 2010, Thompson met John Witt ("John"), a man who had worked in the construction industry in Denver and who wanted to become a real estate developer.² John eventually began working with Thompson and signed a letter of intent indicating that John would eventually obtain an ownership interest in Thompson's company.

¶6 Shortly thereafter, and without disclosing the fact that the Timber Ridge properties were in foreclosure and subject to a forbearance agreement, Thompson solicited a $400,000 "investment" from John's parents, Thomas and Debra Witt ("the Witts"), whom he had met when they came to tour the properties. Thompson told the Witts that he would use the loan to purchase one of the lots in Timber Ridge, construct a house on that lot, and then resell it to a buyer who had been prequalified to purchase it. He told the Witts that because he had a prequalified buyer lined up to purchase the house, they would get all of their money back very quickly and that this would be a "very low risk investment." Thomas Witt thought the offer "didn't sound too bad because there was a qualified buyer for a huge profit in it." The Witts therefore agreed to make the investment, signed a document that Thompson had drawn up entitled "Timber Ridge Lot Purchase Agreement," and wired $400,000 in two equal wire transfers to Thompson.

¶7 A short time later, Thompson approached the Witts, through their son, about converting their $400,000 investment into a "bridge loan," which Thompson claimed would be used for the continued development of Timber Ridge. In an email to John, Thompson emphasized that the proposed "bridge loan" was a "no brainer," given that the loan was "very short term with lots of collateral" (namely, the land), and he stated that he "would not even consider it if [he] thought there were any risk to it." Thompson further said that the Witts would "have no risk as there is a guarantee takeout on the bridge loan" and that they "will make half of what we save or $1 million for doing the loan with no risk."

¶8 Ultimately, the Witts agreed to increase their initial $400,000 investment to $2.4 million, and they wired Thompson the additional $2 million. The Witts agreed to do so because (1) it was "a no risk—very low, low risk investment"; (2) they would make a profit on the deal, as the properties were allegedly appraised at $31 million; (3) Thompson had represented that the loan was "very short-term"; and (4) it would help their son as he was beginning his career as a developer.

¶9 In exchange for the Witts' investment, Thompson delivered a promissory note in the amount of $2.4 million and a guaranty agreement, listing a Mary Littman, who was purported to be the owner of Thompson's primary residence, as guarantor. The note and guaranty agreement identified Thompson's primary residence (owned by Littman) and his second residence (owned by an LLC that Thompson controlled) as collateral, although the address stated for the second residence turned out to be incorrect. In addition, in the note, Thompson promised to repay the Witts their $2.4 million loan in full, as well as a "profit" of $240,000 and 8% annual interest, by January 12, 2011. At no point did Thompson disclose to the Witts that (1) his two alleged residences were already highly leveraged; (2) Timber Canyon had declared bankruptcy; (3) the Timber Ridge properties had been in foreclosure and were subject to a forbearance agreement; or (4) Flagstar Bank had valued the Timber Ridge properties at only $6.75 million (i.e., significantly less than the $31 million value that Thompson had represented to the Witts during their negotiations). Thomas Witt would later say that had he known these facts at the time he was dealing with Thompson, he "wouldn't have given [Thompson] a dime."

¶10 At about the same time during which Thompson was negotiating the increased investment from the Witts, Timber Canyon failed to pay Flagstar Bank the $6.75 million required to keep the properties out of foreclosure. Thompson, however, continued to keep the Witts in the dark regarding Timber Ridge's financial problems. Thereafter, in December 2010, the entire development sold at a public trustee sale for only $6.75 million. Thompson did not tell the Witts of the foreclosure sale and continued to maintain that he was "moving forward" with the Timber Ridge development project. In reality, though, throughout the fall of 2010 and winter of 2011, Thompson used the Witts' money for items not related to Timber Ridge, including for the payment of his own attorney fees, checks made out to himself or to "cash," paying off the note on one of his two residences, and making improvements to that residence.

¶11 When the Witts' note ultimately came due in the winter of 2011, Thompson defaulted. He tried to renegotiate the note, offering different collateral, but the Witts refused.

¶12 After Thompson paid the Witts only $70,000 of the amount that he owed them, the Witts filed a civil lawsuit against him and also contacted law enforcement. Thereafter, the People charged Thompson with two counts of securities fraud under subsections 11-51-501(1)(b) and (1)(c), C.R.S. (2019), and one count of theft under section 18-4-401(1)(b), C.R.S. (2019). Thompson pleaded not guilty, and the case proceeded to trial.

¶13 At trial, the court instructed the jury, consistent with section 11-51-201(17), C.R.S. (2019), that a security is defined to include, among other things, "any note." Thompson did not object to this instruction, nor did he argue during the trial that the note that he gave the Witts was not a security. The jury ultimately convicted Thompson on all counts, and the court sentenced him to the Department of Corrections for twelve years on each of the securities fraud counts, to be served concurrently, and eighteen years on the theft count, to be served consecutively to the securities fraud counts.

¶14 Thompson appealed, and, in a unanimous, published opinion, a division of the court of appeals affirmed his convictions. People v. Thompson , 2018 COA 83, ––– P.3d ––––. As pertinent here, Thompson argued that (1) because the note at issue was not a security, insufficient evidence supported his securities fraud convictions; (2) the trial court erred by tendering an incorrect jury instruction regarding the meaning of "security"; and (3) his theft conviction had to run concurrently with his securities fraud convictions. Id. at ¶ 12. The division rejected each of these arguments in turn.

¶15 First, the division rejected Thompson's contention that because the note was not a "security" within the meaning of the CSA, insufficient evidence supported his securities fraud convictions. Id. at ¶¶ 13–32. Following the so-called "family resemblance test" developed by the United States Supreme Court in Reves and adopted by a prior division in People v. Mendenhall , 2015 COA 107M, ¶¶ 32–37, 363 P.3d 758, 767–68, which test we discuss...