Colorado Division of Insurance v. Statewide Bonding, Inc. ( 2022 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
June 23, 2022
2022COA67
No. 21CA0466, Colo. Div. of Ins. v. Statewide Bonding —
Insurance — Colorado Division of Insurance — Immigration
Delivery Bonds; Constitutional Law — Sixth Amendment —
Federal Supremacy — Preemption
As a matter of first impression, a division of the court of
appeals concludes that the Colorado Division of Insurance’s
jurisdiction to investigate and regulate Colorado-licensed insurance
producers that provide immigration bonds is not preempted by
federal law.
COLORADO COURT OF APPEALS 2022COA67
Court of Appeals No. 21CA0466
State of Colorado Division of Insurance
Case No. IN-2019-E-001
Colorado Division of Insurance,
Petitioner-Appellee,
v.
Statewide Bonding, Inc., Non-resident Insurance Producer No. 476070 and
Brian Jerome Cole,
Respondents-Appellants.
ORDER AFFIRMED IN PART AND REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Division III
Opinion by JUDGE SCHUTZ
Welling and Taubman*, JJ., concur
Announced June 23, 2022
Philip J. Weiser, Attorney General, Heather Flannery, Senior Assistant Attorney
General, Christopher J.L. Diedrich, Senior Assistant Attorney General, Kyle
McDaniel, Assistant Attorney General, Denver, Colorado, for Petitioner-Appellee
Sheila H. Meer P.C., Sheila H. Meer, Diana R. M. Schanz, Denver, Colorado, for
Respondents-Appellants
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2021.
¶1 In this case involving immigration delivery bonds,
respondents, Statewide Bonding, Inc. (Statewide) and Brian Jerome
Cole (collectively, Respondents), appeal the final agency order
issued by the Commissioner of Insurance (Commissioner).1 The
Commissioner upheld the decision of an administrative law judge
(ALJ) finding that Respondents violated Colorado’s insurance
statutes and regulations and assessing civil penalties against them.
As a matter of first impression, we conclude that the
Commissioner’s jurisdiction, as delegated to the employees at the
Colorado Division of Insurance (Division), to investigate and
regulate Colorado-licensed insurance producers that provide
immigration bonds is not preempted by federal law.
¶2 Respondents also appeal that portion of the Commissioner’s
order reversing the ALJ’s award of attorney fees in favor of
Respondents and against the Division. We affirm in part and
reverse in part.
1 The Commissioner is the head of the Colorado Division of
Insurance. § 10-1-104(1), C.R.S. 2021. The Division of Insurance
is housed within the Department of Regulatory Agencies and is
charged with the execution of the laws relating to insurance and
has a supervising authority over the business of insurance in this
state. § 10-1-103(1), C.R.S. 2021.
1
I. Immigration Bonds
¶3 To better understand the issues presented on appeal, it is
useful to briefly summarize the purpose and operation of
immigration delivery bonds. When an undocumented immigrant
has been civilly detained by Immigration and Customs Enforcement
(ICE), an immigration judge has the authority to release the
immigrant from custody pending the completion of the deportation
proceedings. An immigration delivery bond, much like a traditional
criminal bail bond, is the mechanism used to help ensure the
immigrant appears at any subsequent hearings.
¶4 There are two ways an eligible immigrant can post the bond
and be released until a hearing. See Off. of Enf’t & Removal
Operations, U.S. Dep’t of Homeland Sec., ERO 11301.1, Bond
Management Handbook 5-6 (Aug. 19, 2014). First, an immigrant
bond sponsor — usually a United States citizen closely related to
the immigrant — can pay the full price of the bond, in cash, directly
to ICE. Alternatively, a sponsor can purchase a surety bond
through an agent,2 acting on behalf of an insurance company, and
2In Colorado, the agent is referred to as an “insurance producer.”
See § 10-2-103(6), C.R.S. 2021.
2
become a co-obligor on the bond. In these circumstances, the
sponsor pays a premium — generally, a percentage of the total bond
amount — to an agent. In turn, the agent becomes obligated to
ensure the immigrant is present at the hearing, and if the
immigrant fails to appear, the insurance company3 is obligated to
pay the total amount of the bond to ICE.
¶5 Typically, whoever pays the bond premium for the immigrant
is also required to pledge collateral to the insurance company to
protect the insurance company against loss in the event the
immigrant fails to appear. The collateral, which can be real or
personal property, is provided to the agent posting the bond and
can be executed upon by the insurance company if the immigrant
does not appear.
¶6 With this general understanding of immigration bonds, we
turn to the facts that gave rise to this dispute.
II. Background
¶7 In December 2017, the Division received a complaint from a
Colorado state probation officer expressing concern that an
3In Colorado, the insurance company is also sometimes referred to
as the “surety” or “insurer.” See § 10-2-103(6.5), C.R.S. 2021.
3
undocumented immigrant under the officer’s supervision was
possibly being “extorted” by Libre by Nexus, Inc. (Libre), a company
involved in posting the immigrant’s bond. Upon receipt of the
complaint, the Division began investigating the subject transaction.
A. The Investigation
¶8 A senior investigator (Investigator) with the Division accessed
publicly available online information about Libre and searched the
National Association of Insurance Commissioners website for
insurance license records. The Investigator’s online search revealed
news articles critical of Libre for allegedly taking advantage of
undocumented immigrants in ICE custody. The National
Association of Insurance Commissioners website contained no
information that Libre was licensed or had a certificate of authority
to transact insurance business in any state.
¶9 The Investigator also had a copy of the immigration bond,
which had been attached to the complaint. The Investigator saw
that the bond had been digitally signed and posted by Cole as the
obligor and agent. Statewide, the company for which Cole served as
president, was listed as the “Agent-Bonding Company.” At the time
4
of posting the bond, Respondents were both licensed by the Division
as nonresident insurance producers.
¶ 10 Yet unlike typical immigration bond arrangements, this bond
identified an insurance company, Financial Casualty & Surety, Inc.
(FCS), as the obligor. FCS was not licensed or authorized to
conduct the business of insurance in Colorado. Moreover, in a
separate immigration bond securitization and indemnity agreement,
Libre was identified as an indemnitor on the bond. In this
agreement, Libre agreed to pay the premium and provide collateral
for the bond to Statewide. But instead of Libre posting collateral or
paying the premium to Statewide, the undocumented immigrant
contractually agreed to lease an ankle monitor from Libre. Under
this contract, the immigrant agreed to pay various fees including a
GPS activation fee of $460, $420 per month to lease the ankle
monitor, and a daily insurance rate.
B. The Inquiry Letters and Responses
¶ 11 Upon learning this information, the Investigator sent an
inquiry letter requesting Respondents to provide information related
to the undocumented immigrant’s bond, information regarding their
relationship with FCS and Libre, and a list identifying all
5
immigration bonds they had posted that were indemnified by FCS.
Respondents answered most of the questions but objected to the
requests for information related to immigration bonds it posted that
FCS had agreed to indemnify, alleging that the inquiry was
overbroad and unduly burdensome.
¶ 12 After receiving their responses, the Investigator sent a second
inquiry letter to Respondents, focusing on their transactions in
Colorado in connection with FCS and Libre. The second inquiry
requested more information related to the lack of collateral, how
Cole would obtain the funds to pay the bond to ICE if payment
became necessary, and who would instruct the immigrant about
where to appear in court. The inquiry letter also requested
documentation related to all immigration bonds for which Cole
acted as agent for FCS, all correspondence between Cole and FCS
for such bonds, all contracts or correspondence between Libre or its
principal and Cole, the identity of all states in which Cole was
licensed and where Libre or its principal served as indemnitor for
bonds posted by Cole, and details of every immigration bond with a
Colorado connection posted by Cole and indemnified by Libre or its
principal.
6
¶ 13 Respondents objected to most of the requests on the grounds
that the Division had exceeded its authority because its
investigation was preempted by federal immigration law. The
Division disagreed with the objection but granted Respondents an
additional opportunity to provide complete responses.
¶ 14 Instead of providing the requested information or asking for a
modified inquiry, Statewide surrendered its Colorado license to act
as a non-resident insurance producer on July 30, 2018. Cole
subsequently surrendered his Colorado license to act as a non-
resident insurance producer on August 10, 2018.
¶ 15 The Division then advised Respondents that the surrender of
their licenses did not deprive the Division of its authority to enforce
the state’s insurance licensing laws, which included investigating
allegations of wrongdoing and imposing penalties for violation of
those laws. Again, the Division requested complete responses to its
second inquiry letter. Respondents again rejected the Division’s
request, stating that because the inquiries appeared to be targeted
at Libre, not Respondents, Colorado’s producer licensing laws did
not apply.
7
¶ 16 The Division then sent Respondents a formal notice that they
had violated Colorado law by not providing complete responses to
the Division’s written inquiries and provided another opportunity
for them to respond. Respondents declined to do so.
C. The Administrative Proceedings
¶ 17 On December 4, 2018, the Division filed a formal notice of
charges with the Office of Administrative Courts (OAC), alleging that
Respondents had failed to provide a complete and accurate
response to the Division’s second written inquiry. The Division
sought to impose a civil penalty against each respondent plus a
fifteen percent surcharge.
¶ 18 Respondents moved for summary judgment, arguing that
federal immigration law preempted the Division’s authority to
further investigate the complaint. The ALJ denied the motion,
stating that Respondents’ preemption argument “miss[ed] the
point,” because the real issue was whether Respondents, as
Colorado licensees, were obligated to respond to the Division’s
inquiries about their business practices, not whether the Division
had authority to regulate Respondents’ issuance of federal
immigration bonds. The ALJ concluded the Division had not
8
exceeded the scope of its regulatory authority when issuing its
second inquiry letter.
D. The Division’s Unasserted Claim of Privilege
¶ 19 With summary judgment denied, Respondents served the
Division with requests for it to produce its entire investigative file in
preparation for the hearing. The Division responded by stating that
it was “producing documents relevant to the case . . . up to the
issuance of the second inquiry letter.” That same day, the Division
filed a motion for a protective order to shield from discovery any
portion of its file created after the issuance of the second inquiry
letter. Respondents then filed a motion to compel disclosure of the
entire file because portions had been redacted and not listed on the
Division’s privilege log. The ALJ granted the Division’s motion, yet
in its notice of compliance, the Division moved for a second
protective order, revealing for the first time that it had “redacted,
withheld, or excluded from production” certain portions of the file
that had been created before the issuance of the second inquiry
letter. More specifically, the Division had retained documents
related to the reporting of the suspicious immigration bond but had
9
not listed the withheld documents on its privilege log or otherwise
disclosed their existence.
¶ 20 The ALJ ordered the fifteen pages of newly disclosed
documents to be produced for an in camera review. After
completing their review, the ALJ granted the Division’s second
motion for a protective order.
E. The Administrative Hearing
¶ 21 A two-day administrative hearing was held before the ALJ.
Following the hearing, the ALJ issued the initial decision, finding
that the second inquiry letter, although extensive in its requests,
was a valid exercise of the Division’s “legitimate regulatory
authority.” The ALJ concluded that the letter was not “arbitrary,
capricious, unduly burdensome, or otherwise an abuse of
discretion” because (1) the Division’s investigation was not
preempted by federal law; (2) public sources of information raised
the possibility that Libre and its principal were financially exploiting
vulnerable undocumented immigrants; and (3) there were
continuing questions about the propriety of Respondents’
involvement with FCS and Libre. Because Respondents had not
provided a complete and accurate response to the Division’s second
10
inquiry letter, the ALJ imposed a civil penalty of $500 against each
respondent plus the statutory surcharge.
¶ 22 The ALJ also ordered the Division to pay Respondents’
attorney fees of $1,567.50 as a sanction for its misrepresentation
that it had produced its entire file up to the date the second inquiry
letter was issued when, in fact, fifteen pages of documents had been
withheld and not disclosed on its privilege log or otherwise.
F. The Commissioner’s Final Agency Order
¶ 23 Respondents and the Division then filed exceptions to the
ALJ’s initial decision. After a review, the Commissioner issued a
final agency order upholding the monetary sanctions against
Respondents and reversing the ALJ’s attorney fee award against the
Division. The Commissioner concluded that the ALJ did not abuse
their discretion by concluding that the Division’s authority to
conduct the investigation was not preempted by federal law and the
inquiry letters were a reasonable exercise of its regulatory authority.
Thus, because Respondents’ failure to respond to the inquiry letters
was not disputed, the Commissioner upheld the fine and surcharge
imposed on them.
11
¶ 24 The Commissioner rejected, however, the ALJ’s findings and
conclusions regarding the misrepresentations made by the Division
concerning the undisclosed initial complaint documents, and the
ALJ’s corresponding imposition of sanctions upon the Division. The
Commissioner set aside the sanctions, concluding that because
“[R]espondents were not legally entitled to the disputed information
and the Division had a basis to withhold it,” coupled with the
context of the misrepresentations, no sanction was warranted
under C.R.C.P. 11 or 37. Respondents now appeal these portions of
the final agency order.
III. Is the Division’s Jurisdiction to Investigate This Complaint
Preempted by Federal Law?
¶ 25 Respondents assert that the Division’s jurisdiction was
preempted because Congress intended to exclusively occupy the
field of immigration bonding when enacting 8 U.S.C. § 1103(a)(3)4
4 8 U.S.C. § 1103(a) describes the general powers of the Secretary
of Homeland Security. Subsection (1) grants the Secretary the
authority to administer and enforce laws relating to the immigration
and naturalization of aliens, and subsection (3) grants the Secretary
the authority to “establish such regulations; prescribe such forms of
bond, reports, entries, and other papers; issue such instructions;
and perform such other acts as he deems necessary for carrying out
his authority under the provisions of this chapter.”
12
and because the state statutes at issue conflict with federal law.
They contend that 31 U.S.C. §§ 9304-9305 and related regulations
vest the Secretary of the Treasury with federal surety bonding
authority, including the right to discipline and revoke surety
certificates.
A. Standard of Review
¶ 26 A reviewing court may reverse an administrative agency’s
determination if the court finds that the agency exceeded its
constitutional or statutory authority. § 24-4-106(7), C.R.S. 2021;
Ohlson v. Weil, 953 P.2d 939, 941 (Colo. App. 1997). Because
Respondents pose a jurisdictional question, we review the
Commissioner’s conclusion of law de novo. Colo. Dep’t of Lab. &
Emp. v. Esser, 30 P.3d 189, 193-94 (Colo. 2001).
B. Analysis
¶ 27 As a predicate matter, there is no doubt that absent
preemption by the federal government, the Division had subject
matter jurisdiction to investigate the complaint. Title 10 of the
Colorado Revised Statutes sets forth a comprehensive regulatory
scheme by which the Division, through its Commissioner, is
charged with supervising the business of insurance in Colorado.
13
§§ 10-1-103 to -104, C.R.S. 2021. The Commissioner’s key duties
include generally supervising the business of insurance in the state
to ensure that it is conducted in accordance with state law and in a
manner that protects the public. § 10-1-108(7)(a), C.R.S. 2021.
This involves investigating and examining reliable information that
pertains to possible violations of insurance laws, including those
committed by state-licensed insurance producers. See § 10-1-
108(5).
¶ 28 As defined in title 10, an insurance producer is “[a] person [or
business entity] who solicits, negotiates, effects, procures, delivers,
renews, continues, or binds . . . [p]olicies of insurance for risks
residing, located, or to be performed in [Colorado].” § 10-2-
103(6)(a)(I), C.R.S. 2021. Insurance producers must be licensed in
Colorado to conduct business in the state. See § 10-2-401(1),
C.R.S. 2021.
¶ 29 The Commissioner’s authority to investigate and discipline
licensed insurance producers’ conduct can be delegated to the
Division and exercised by its employees under section 10-1-104(2),
C.R.S. 2021. This investigative and disciplinary authority extends
to licensee conduct that suggests
14
(1) a lack of continued fitness for licensure, § 10-2-801(1)(m),
C.R.S. 2021; see § 10-2-404(1)(h), C.R.S. 2021 (initially
issuing a license requires verification that an applicant is
“competent, trustworthy, and of good moral character and
good business reputation”);
(2) the “[c]ommission of any unfair trade practice or fraud,” § 10-
2-801(1)(h); and
(3) “[t]he use of fraudulent, coercive, or dishonest practices or
demonstrating incompetence, untrustworthiness, or financial
irresponsibility in this state or elsewhere,” § 10-2-801(1)(i).
¶ 30 Here, because both Cole and Statewide were Colorado-licensed
non-resident insurance producers when the investigation was
conducted, the plain language of these statutes unambiguously
permitted the Division to investigate Respondents’ conduct and
relationship to activities potentially violative of Colorado insurance
laws, subject to any valid claim of preemption. See Bd. of
Accountancy v. Arthur Andersen, LLP, 116 P.3d 1245, 1247-48
(Colo. App. 2005) (a regulatory entity that authorizes investigations
of “persons” rather than just “licensees” means that agency has
authority to investigate whether a person violated the laws, even if
15
the license has lapsed or expired). The relationship between Cole,
Statewide, FCS, and Libre created concern and called into question
Respondents’ fitness to be licensed as insurance producers in
Colorado, thus precipitating the next steps of the investigation.
Thus, under Colorado law, the Division was acting within its
subject matter jurisdiction in conducting this investigation. But
Respondents argue that these state laws are preempted by federal
law addressing the issuance and regulation of immigration bonds.
¶ 31 The Supremacy Clause of the United States Constitution
provides that federal law is the “supreme Law of the Land.” U.S.
Const. art. VI, cl. 2. Thus, Congress has the authority to preempt
state law. Arizona v. United States, 567 U.S. 387, 399 (2012).
When assessing any preemption question, we adhere to two
fundamental principles. First, Congress’s purpose in enacting the
federal legislation is controlling. Fuentes-Espinoza v. People, 2017
CO 98, ¶ 22. Second, we must presume that Congress did not
intend to preempt the historic police powers of the state unless that
was the clear and manifest purpose of the federal legislation. Id.¶ 32 In addition to these general guiding preemption principles, in
the context of insurance-related legislation, federal law provides
16
another central principle. Under the McCarran-Ferguson Act,
Congress has expressly provided that
[t]he business of insurance, and every person
engaged therein, shall be subject to [state
laws] which relate to the regulation . . . of such
business. . . . No Act of Congress shall be
construed to invalidate, impair, or supersede
any law enacted by any State for the purpose
of regulating the business of insurance . . .
unless such Act specifically relates to the
business of insurance . . . .
15 U.S.C. § 1012(a)-(b). The Supreme Court has interpreted this
statute to mean that a state’s authority to regulate insurance will
not be deemed preempted unless Congress has expressly stated
such intent or a federal law directly conflicts with continued
regulation by the state. See generally Humana Inc. v. Forsyth, 525
U.S. 299 (1999). This concept is known as reverse preemption.
See, e.g., Allen v. Pacheco, 71 P.3d 375, 381-84 (Colo. 2003)
(defining reverse preemption in the context of whether an
arbitration provision of the Colorado Health Care Availability Act
was preempted by the Federal Arbitration Act).
¶ 33 There are three types of federal preemption: express, field, and
conflict. Fuentes-Espinoza, ¶ 23 (citing Arizona, 567 U.S. at 399).
As its name implies, express preemption occurs when Congress
17
enacts legislation that, on its face, expressly preempts state law. Id.Respondents concede there is no express preemption in this case.
¶ 34 Instead, Respondents argue that the concepts of field
preemption and conflict preemption preclude the Division’s exercise
of jurisdiction. Field preemption occurs when Congress enacts
legislation that is so pervasive that it leaves no room for state action
or is so dominant that it precludes the enforcement of state laws on
the same subject. Id. There are two types of conflict preemption:
when simultaneous compliance with both state and federal law is
impossible, and “where the challenged state law ‘stands as an
obstacle to the accomplishment and execution of the full purposes
and objectives of Congress.’” Id. (quoting Arizona, 567 U.S. at 399).
¶ 35 With these concepts in mind, we turn to the federal legislation
related to immigration bonds that Respondents cite in support of
their preemption argument. As a starting point, there is no dispute
that federal law controls the requirements for the posting and
enforcement of federal immigration bonds. 8 U.S.C. § 1103(a)(3); 31
U.S.C. §§ 9304-9308. But it is equally clear that the Division was
not seeking to investigate or regulate these topics. Rather, the
Division was exercising its authority to investigate and regulate
18
those persons or companies that choose to provide insurance in the
State of Colorado.
¶ 36 In its effort to suggest that these activities are preempted,
Respondents rely on 31 U.S.C. §§ 9304-9308. But none of these
statutory provisions reflect a congressional desire to occupy the
field of regulating insurance companies, and none of these
provisions conflict with the enforcement of Colorado statutes and
regulations that prohibit Colorado-licensed insurance producers
from engaging in fraudulent, dishonest, coercive, or illegal business
practices.
¶ 37 For instance, 31 U.S.C. § 9304, on which Respondents rely,
specifies that,
(a) [w]hen a law of the United States
Government requires or permits a person to
give a surety bond through a surety, the
person satisfies the law if the surety bond is
provided for the person by a corporation --
(1) incorporated under the laws of--
....
(B) a State . . . ;
(2) that may under those laws guarantee--
(A) the fidelity of persons holding positions of
trust; and
19
(B) bonds and undertakings in judicial
proceedings . . . .
Nothing in this statute precludes the Division from investigating
licensed insurance producers in Colorado. Indeed, the statute
contemplates that surety bonds will continue to be regulated by
state law.
¶ 38 Similarly unavailing is Respondents’ reliance on
(1) 31 U.S.C. § 9305, which sets solvency requirements for
sureties posting federal bonds and authorizes the Secretary
of the Treasury to revoke a surety’s authority to do business
if it falls below a particular solvency standard;
(2) 31 U.S.C. § 9306, which addresses when a surety may
issue sureties outside the state in which it is incorporated
or has its principal office; and
(3) 31 U.S.C. § 9308, which authorizes the federal government
to impose sanctions against those who violate the
previously discussed statutes.
¶ 39 Nor is preemption warranted by 8 C.F.R. 103.6(a), (b) (2021),
which describe the types of sureties that may be used in posting
20
immigration bonds and ICE’s authority to decline bonds from
sureties if certain conditions exist.
¶ 40 Similarly misplaced is Respondents’ reliance on 31 C.F.R.
§ 223.5(b) (2021), which provides,
[n]o bond is acceptable if it has been executed
. . . by a company or its agent in a State where
it has not obtained that State’s license to do
surety business. Although a company must be
licensed in the State or other area in which it
executes a bond, it need not be licensed in the
State or other area in which the principal
resides or where the contract is to be
performed.
Nothing about this regulation, or any of the other cited statutes or
regulations, suggests that the federal government intended to usurp
the states’ traditional authority to regulate insurance producers and
insurers that are licensed to conduct business in their states.
Indeed, the regulations clearly reflect that the federal government
contemplates that states will continue to license insurance them.
Such licensure would be meaningless if the issuing state did not
also retain the authority to investigate and regulate insurance
producers that engage in fraudulent or otherwise improper conduct.
See, e.g., Alvarez v. Ins. Co. of N. Am., 667 F. Supp. 689, 695 (N.D.
Cal. 1987) (In interpreting 31 C.F.R. 223.5 (1987) and related
21
regulations, the court concluded that they “do not demonstrate an
intention to occupy the field completely. There is no stated
intention to preempt state regulation of sureties. The regulations
themselves incorporate state law.”).
¶ 41 Although not cited in their opening brief, at oral argument
Respondents argued that the Colorado Supreme Court’s decision in
Fuentes-Espinoza, 2017 CO 98, supports their assertion of field and
conflict preemption in this case. We are not persuaded.
¶ 42 In Fuentes-Espinoza, the defendant argued that the state
statute under which he was convicted, which made it a crime to
provide transportation to an undocumented immigrant who was
travelling in Colorado or elsewhere in the United States, conflicted
with federal immigration laws. Id. at ¶ 10. The supreme court
noted that the Immigration and Nationality Act (INA) established a
comprehensive federal framework for penalizing the transportation
and concealment of undocumented immigrants. Id. at ¶¶ 45-49.
The court noted the extensive statutory scheme evidenced
“Congress’s intent to maintain a uniform, federally regulated
framework for criminalizing and regulating the transportation,
concealment, and inducement of unlawfully present [undocumented
22
immigrants], and this framework is so pervasive that it has left no
room for the states to supplement it,” thereby creating field
preemption. Id. at ¶¶ 50-51. In addition, the supreme court
concluded that the Colorado statute criminalized a different range
of conduct and provided for different levels of punishments than
those specified in the INA. Id. at ¶¶ 54-59. Because of the
comprehensive nature of the INA, and the inherent conflicts
between it and the Colorado criminal statute at issue, the supreme
court concluded the Colorado statute was also preempted under the
doctrine of conflict preemption. Id. at ¶ 60.
¶ 43 In contrast to the situation in Fuentes-Espinoza, the
authorities cited by Respondents do not suggest that Congress
intended to occupy the field of regulating sureties to the exclusion
of the states. To the contrary, many of the very authorities cited by
Respondents expressly contemplate that the states will continue to
regulate and license companies that provide surety bonds.
Similarly, Respondents have failed to demonstrate the continued
regulation of insurance companies by the states that license them
will frustrate Congress’s purposes in regulating the manner in
which immigration bonds are posted. For these reasons, we
23
conclude that neither field nor conflict preemption precludes the
Division’s enforcement action and corresponding investigation in
this case.
¶ 44 In sum, Congress has not manifested its intention to displace
Colorado’s continued regulation of its licensed insurance producers
and insurers, irrespective of whether those insurance providers
participate in the issuance of immigration bonds. Because there is
no federal preemption, and because Colorado law unambiguously
permits the Division to investigate state-licensed insurance
producers for potential violations of state insurance law, the
Commissioner correctly concluded that the Division had jurisdiction
to investigate Respondents and their relationship to FCS and Libre.
IV. The Division Reasonably Exercised its Statutory Authority
¶ 45 Respondents next contend that the Commissioner committed
reversible error by affirming the ALJ’s conclusion that the Division’s
second inquiry letter was a reasonable exercise of regulatory
authority under Colorado law. We disagree.
A. Standard of Review
¶ 46 In the context of reviewing a final agency action, we are
mindful that a final agency order typically arises, as it did in this
24
case, out of the agency’s review of an ALJ’s decision. When
reviewing an ALJ’s decision, the Commissioner may not set aside
the ALJ’s findings regarding evidentiary facts unless those facts are
contrary to the weight of the evidence, and the Commissioner must
defer to the ALJ’s assessment of the credibility of the testimony and
the weight to be given to the evidence. § 24-4-105(15)(b), C.R.S.
2021; Koinis v. Colo. Dep’t of Pub. Safety, 97 P.3d 193, 195 (Colo.
App. 2003). However, the Commissioner may substitute their
judgment for the ALJ’s decision with respect to an ultimate
conclusion of fact as long as the decision has a reasonable basis in
law. Koinis, 97 P.3d at 195.
¶ 47 Appellate review of the Commissioner’s decision is governed by
section 24-4-106(7). That statute permits a court to reverse an
administrative agency order only “if it finds that the agency acted
arbitrarily or capriciously, made a decision that is unsupported by
the record, erroneously interpreted the law, or exceeded its
authority.” Koinis, 97 P.3d at 195. Where, as here, a party
challenges the Commissioner’s ultimate conclusion of fact, a
reviewing court must determine whether substantial evidence in the
record as a whole supports that conclusion. Id.25
B. Analysis
¶ 48 Colorado Division of Insurance Regulation 1-1-8(5), 3 Code
Colo. Regs. 702-1, requires that “every person shall provide a
complete and accurate response to any inquiry from the Division
within twenty (20) calendar days from the date of the inquiry.” The
regulation defines “complete and accurate” as “a written response
that includes all of the information, documents and explanation
requested in the Division’s inquiry. If the requested information is
not available, the response shall include a detailed explanation of
why it cannot be provided.” Id. at Reg. 1-1-8(4)(A).
¶ 49 In Charnes v. DiGiacomo, the court held that an administrative
subpoena for records is enforceable if three criteria are met: “(1) the
investigation is for a lawfully authorized purpose; (2) the
information sought is relevant to the inquiry; and (3) the subpoena
is sufficiently specific to obtain documents which are adequate but
not excessive for the inquiry.” 200 Colo. 94, 101, 612 P.2d 1117,
1122 (1980) (citing Okla. Press Publ’g Co. v. Walling, 327 U.S. 186(1946)). Respondents contend that the “compulsory nature” of the
Division’s second inquiry letter practically served as a documentary
subpoena, and therefore the requests should have been reviewed
26
under the Charnes standard instead of under an administrative
investigative inquiry standard. The Division contends that
Respondents failed to adequately preserve this issue for appeal.
While the Division’s lack of preservation assertion has arguable
merit, we view the Charnes analytic framework to be useful in
evaluating the propriety of an agency inquiry letter that contains a
sanction for noncompliance.
¶ 50 Respondents argue that the Division’s second inquiry letter
fails all three prongs of Charnes because (1) the Division’s authority
to issue inquiry letters is authorized through a regulation
promulgated by the Division itself and not by statute; (2) the
requested information was irrelevant to its inquiry because the
questions made it “evident to Respondents that the Division was not
investigating Respondents’ ‘fitness for licensure,’ but was
investigating their participation in the Federal Immigration Bond
Program”; and (3) the requested information was an “enormous
fishing expedition” that was overly broad and unduly burdensome.
¶ 51 In Charnes, the court held that the Department of Revenue did
not exceed the scope of its authority when issuing a subpoena for a
27
taxpayer’s bank records because the statute granted the director
the authority
to enforce the state tax laws[;] [the] subpoena
seeking information to enforce the tax laws
[was] a ‘lawfully authorized purpose[;]’
[i]nformation relating to the correctness of the
taxpayer’s return or the amount of the
taxpayer’s income [was] ‘relevant’ to [the]
enforcement of the tax laws . . . [;] and the
[agency] limited the scope of the [subpoenaed]
records by subject[,] date, [and] the documents
sought.
612 P.2d at 1123.
¶ 52 Although the Commissioner’s analysis did not cite Charnes,
we conclude the decision supports the Commissioner’s conclusion
that the Division did not exceed its authority when issuing its
second inquiry letter. First, based on the previously cited statutes,
the Division has the authority to investigate possible violations of
Colorado insurance law and the power to promulgate rules to do so.
Moreover, the Division’s inquiry letter had a lawfully authorized
purpose because it was issued within the scope of the agency’s
statutory duty to investigate complaints related to the conduct of a
licensee. Colo. Med. Bd. v. McLaughlin, 2019 CO 93, ¶ 38. Second,
the Commissioner found a reasonable basis for each item in the
28
second inquiry letter based upon the scope of the legitimate
investigation. Third, the Commissioner found record support for
the ALJ’s findings and conclusions of law that Respondents failed to
establish that the second inquiry letter was unduly burdensome,
oppressive, or an abuse of the Division’s discretion.
¶ 53 The Division contends we should analyze the second letter as
an investigative inquiry letter, the enforceability of which is
assessed under a more relaxed standard than a subpoena. To
determine whether an investigative inquiry is within an agency’s
authority, the demand must not be too indefinite, and the
information sought must be relevant. See Eddie’s Leaf Spring Shop
& Towing LLC v. Colo. Pub. Util. Comm’n, 218 P.3d 326, 335 (Colo.
2009). Considering the more rigorous analysis we have already
conducted under a subpoena theory, we necessarily conclude the
demand was not too indefinite, and the information sought was
relevant to determining Respondents’ potentially violative conduct
and their relationship with third parties that may have been
engaged in improper conduct.
¶ 54 Therefore, we affirm the Commissioner’s conclusion that the
second inquiry letter was a reasonable exercise of the Division’s
29
investigative authority because it is based in the law and is
supported by substantial evidence in the record.
V. Commissioner’s Reversal of ALJ’s Rule 11 Sanctions
¶ 55 Respondents next assert that the Commissioner’s reversal of
the ALJ’s order imposing sanctions against the Division was an
abuse of discretion. We agree.
A. Standard of Review
¶ 56 Recall that the Commissioner may not set aside the ALJ’s
findings regarding evidentiary facts unless those facts are contrary
to the weight of the evidence, and the Commissioner must defer to
the ALJ’s assessment of the credibility of the testimony and the
weight to be given to the evidence. Koinis, 97 P.3d at 195.
However, the Commissioner may substitute their own judgment for
the ALJ’s decision with respect to an ultimate conclusion of fact as
long as the decision has a reasonable basis in law. Id.B. Analysis
¶ 57 The ALJ concluded that the Division violated C.R.C.P. 11 when
it falsely represented that it had produced the entire investigative
file up to the issuance of the second inquiry letter. Despite making
this representation, the Division had not, in fact, disclosed the
30
existence of fifteen pages of its file related to the initial reporting of
the Respondents’ allegedly fraudulent activity. Moreover, the
Division did not reference the withheld fifteen pages on a privilege
log.
¶ 58 As an initial matter, we point out that the Colorado Rules of
Civil Procedure apply to the “extent practicable in administrative
hearings.” M.G. v. Colo. Dep’t of Hum. Servs., 12 P.3d 815, 818
(Colo. App. 2000); Dep’t of Pers. & Admin. Cts. Rule 15, 1 Code
Colo. Regs. 104-1. Neither party argued that Rules 11 and 26 did
not apply to this administrative hearing. Therefore, we proceed in
our review of this issue through the lens of C.R.C.P. 11 and
C.R.C.P. 26(b)(5)(A).
¶ 59 C.R.C.P. 26(b)(5)(A) requires that “[w]hen a party withholds
information required to be disclosed or provided in discovery by
claiming that it is privileged . . . , the party shall make the claim
expressly and shall describe the nature of the documents . . . .”
(Emphasis added.) Thereafter, if an opposing party contests the
claim of privilege, the party claiming privilege is required to present
the information to the court for inspection. Id.31
¶ 60 This rule is designed to allow for the protection of privileged
information, while at the same time ensuring that the litigants and
the court know what, if any, documents have been withheld and the
legal and factual basis for withholding them. Id. (The withholding
party “shall describe the nature of the documents, communications,
or things not produced or disclosed in a manner that, without
revealing information itself privileged or protected, will enable other
parties to assess the applicability of the privilege or protection.”);
see also Smithkline Beecham Corp. v. Apotex Corp., 193 F.R.D. 530,
534 (N.D. Ill. 2000) (“[T]he description of each document and its
contents [submitted pursuant to Fed. R. Civ. P. 26(b)(5)] must be
sufficiently detailed to allow the court to determine whether the
elements of [the privilege] have been established. Failing this, the
documents must be produced.”); Kelso v. Rickenbaugh Cadillac Co.,
262 P.3d 1001, 1003 (Colo. App. 2011) (stating that when state civil
procedure rules are “substantially similar” to federal rules of civil
procedure, the case law interpreting the federal rule is persuasive in
a court’s analysis of the state rule). Moreover, the “failure to
produce a privilege log can result in a waiver of any protection
32
afforded to [the subject] documents.” Emp.’s Reinsurance Corp. v.
Clarendon Nat’l Ins. Co., 213 F.R.D. 422, 428 (D. Kan. 2003).
¶ 61 Candor from the litigants and their counsel is essential to this
process. If one party unilaterally withholds a document from
disclosure but fails to reveal the existence of the document on a
privilege log, the opposing party has no way to know the withheld
document exists, much less the ability to assess and contest any
claim of privilege that has been asserted.
¶ 62 Rule 11 provides as follows:
The signature of an attorney constitutes a
certificate by him that he has read the
pleading; that to the best of his knowledge,
information, and belief formed after reasonable
inquiry, it is well grounded in fact and is
warranted by existing law or a good faith
argument for the extension, modification, or
reversal of existing law, and that it is not
interposed for any improper purpose, such as
to harass or to cause unnecessary delay or
needless increase in the cost of litigation. . . .
If a pleading is signed in violation of this Rule,
the court, upon motion or upon its own
initiative, shall impose upon the person who
signed it, a represented party, or both, an
appropriate sanction, which may include an
order to pay to the other party or parties the
amount of the reasonable expenses incurred
because of the filing of the pleading, including
a reasonable attorney’s fee . . . .
33
C.R.C.P. 11(a).
¶ 63 At the administrative hearing, the Division argued that it was
justified in withholding the documents, and that it was appropriate
not to identify them on the privilege log because to do so would
have jeopardized the effectiveness of its investigations and the
integrity of the privilege.
¶ 64 The ALJ rejected these arguments on multiple grounds. The
ALJ correctly concluded that the clear purpose of section 10-4-
1003(8)(a), C.R.S. 2021, which is the statutory foundation of the
privilege claimed by the Division, is to protect the anonymity of
those who report fraudulent insurance practices. And the ALJ also
correctly concluded that the general document description
mandated by Rule 26(b)(5)(A) would not compromise that central
purpose. Thus, the ALJ found the Division’s proffered justification
for not listing the withheld documents on a privilege log unavailing.
These legal conclusions and factual findings are amply supported
by the record and the applicable law.
¶ 65 The ALJ also reasoned that although the Division’s second
motion for a protective order was ultimately granted, that did not
vitiate the Division’s misrepresentation in its earlier motion for a
34
protective order that it had produced its entire file up until the date
of the second inquiry letter. Based upon this affirmative
misrepresentation, the ALJ concluded the Division had violated
Rule 11 and ordered it to pay $1,567.50 to Respondents as
compensation for their attorney fees expended because of the
violation.
¶ 66 The Commissioner rejected and set aside the ALJ’s findings
and conclusions of law, reasoning that “the conduct at issue here is
not legally sufficient to satisfy the standard for imposing sanctions
under C.R.C.P. 11.” Rather than focusing on Rule 11, the
Commissioner stated that the “core dispute — regarding disclosure
of the Division’s file and whether portions of the Division’s file were
the proper subject of a protective order — was properly and fully
resolved by the ALJ under the discovery rules.” Citing no authority,
the Commissioner stated, “in seeking the protective order, the
Division’s motion was not required to address privilege issues
related to portions of the investigative file that were subject to
discovery.”
¶ 67 Because the ALJ ultimately determined that the fifteen pages
could be withheld, the Commissioner concluded no sanctions were
35
warranted under C.R.C.P. 37. And because the Division’s original
disclosures included generalized assertions of privilege, and the
misrepresentation was made in the context of a motion for a
protective order, the Commissioner concluded the Division’s
misrepresentation should not be governed by Rule 11 and to the
extent Rule 11 applied, the misrepresentation was not so egregious
as to warrant sanctions.
¶ 68 We conclude the Commissioner’s decision on this issue does
not give appropriate deference to the evidentiary factual findings
made by the ALJ, and it disregards the ALJ’s ultimate conclusion of
fact without a reasonable basis in law.
¶ 69 Irrespective of whether the motion for a protective order, which
contained the misrepresentations, is characterized through the lens
of a discovery dispute or general motion practice, the mandates of
Rule 11 apply to all representations made by counsel in their filings
with the ALJ. See Jensen v. Matthews-Price, 845 P.2d 542, 544
(Colo. App. 1992) (“[A]n attorney or litigant who signs a motion or
other paper has the same obligation as the signer of a pleading to
ensure that the document is factually and legally justified.”). The
ALJ, with record support, found the statement in the Division’s
36
motion that it had produced the entirety of its file up until the
issuance of the second letter was false. The Commissioner pointed
to no reason why the ALJ’s factual conclusion was not supported by
the record. Moreover, the representation was certainly material
and, for the reasons previously described, critical to the discovery
process. A party cannot be excused from such an affirmative
misrepresentation simply because it ultimately prevails on the
dispute that gave rise to the filing of the motion in which the
misrepresentation was made. See In re Trupp, 92 P.3d 923, 930
(Colo. 2004). Thus, the imposition of sanctions against the Division
was well within the ALJ’s discretionary authority. The
Commissioner’s contrary conclusion is not grounded in a
reasonable basis in law.
¶ 70 For all of these reasons, we reverse the Commissioner’s
decision to set aside the ALJ’s Rule 11 sanctions.
VI. Non-Party Findings of Fact
¶ 71 Finally, Respondents contend that the Commissioner erred
when affirming the ALJ’s findings and conclusions relating to FCS,
Libre, and Libre’s principal. They argue that these non-parties were
entitled to “due notice” before the ALJ issued the initial decision,
37
and that because Respondents are collaterally prejudiced by these
findings and conclusions, they have standing to assert this issue on
appeal.
¶ 72 We reject this contention on multiple grounds. First, FCS,
Libre, and Libre’s principal are not parties to this appeal. Nor were
they parties to the underlying administrative action. § 24-4-106(4)
(“[I]f such agency action occurs in relation to any hearing pursuant
to section 24-4-105, then the person [seeking judicial review] must
also have been a party to such agency hearing.”).
¶ 73 Second, Respondents failed to preserve this issue for appeal.
Arguments never presented to, considered by, or ruled upon by a
trial court may not be raised for the first time on appeal. Est. of
Stevenson v. Hollywood Bar & Cafe, Inc., 832 P.2d 718, 721 n.5
(Colo. 1992). Moreover, a reviewing court is not required to address
specific arguments not made to the Commissioner on appeal from
an ALJ. See City & Cnty. of Denver v. Indus. Claim Appeals Off., 58
P.3d 1162, 1165 (Colo. App. 2002).
¶ 74 Therefore, we decline to address this issue.
38
VII. Conclusion
¶ 75 Pursuant to section 24-4-106(7)(b), we reverse that portion of
the Commissioner’s order setting aside the ALJ’s award of attorney
fees and remand with instructions to reinstate the ALJ’s ruling.
The order is otherwise affirmed.
JUDGE WELLING and JUDGE TAUBMAN concur.
39