Rome v. Reyes , 401 P.3d 75 ( 2017 )

COLORADO COURT OF APPEALS 2017COA84
Court of Appeals No. 16CA0126
City and County of Denver District Court No. 15CV32760
Honorable Karen L. Brody, Judge
Gerald Rome, Securities Commissioner for the State of Colorado,
Plaintiff-Appellant,
v.
Antonio Reyes, Craig Kahler, and Betty Schnorenberg,
Defendants-Appellees.
JUDGMENT REVERSED AND CASE
REMANDED WITH DIRECTIONS
Division I
Opinion by JUDGE NAVARRO
Taubman and Graham, JJ., concur
Prior Opinion Announced May 11, 2017, WITHDRAWN
OPINION PREVIOUSLY ANNOUNCED AS “NOT PUBLISHED PURSUANT TO
C.A.R. 35(E)” ON May 11, 2017, IS NOW DESIGNATED FOR PUBLICATION
Announced June 15, 2017
Cynthia H. Coffman, Attorney General, Sueanna P. Johnson, Assistant
Attorney General, Charles J. Kooyman, Assistant Attorney General, Denver,
Colorado, for Plaintiff-Appellant
Foster Graham Milstein & Calisher, LLP, Chip G. Schoneberger, Denver,
Colorado, for Defendants-Appellees
¶1 In this civil enforcement action, plaintiff, Gerald Rome,
Securities Commissioner for the State of Colorado (the
Commissioner), appeals the district court’s judgment dismissing the
claims against defendants Antonio Reyes, Craig Kahler, and Betty
Schnorenberg. We reverse and remand with directions.
I. Factual and Procedural History
¶2 Because the court granted defendants’ motions to dismiss, we
accept as true the following facts alleged in the Commissioner’s
complaint. This case arises out of a Ponzi scheme that defrauded at
least 255 investors out of $15.25 million dollars. To implement the
scheme, defendant Kelly Schnorenberg formed defendant KJS
Marketing, Inc., in Colorado to obtain funds for investment in
insurance and financial-products sales companies. (Neither Kelly
Schnorenberg nor KJS is a party to this appeal.) Kelly
Schnorenberg hired Reyes, a California resident, and Kahler, a
Wyoming resident, to solicit investor funds on behalf of KJS and its
successor company, James Marketing.
¶3 Reyes and Kahler represented to potential investors that KJS
would direct investment funds to particular companies for the
purpose of recruiting and training agents to sell insurance and
1
financial products, and that the investors would receive ten to
twelve percent returns from the ensuing commissions. Reyes and
Kahler further represented that the investments were risk free and
that prominent individuals in the insurance industry were involved.
Reyes and Kahler directed out-of-state investors to Kelly
Schnorenberg or KJS in Colorado to complete the transactions. The
investors, in exchange for their investments, received promissory
notes executed by Kelly Schnorenberg and/or KJS in Colorado and
governed by Colorado law.
¶4 The investment scheme was a fraud, according to the
Commissioner. Instead of directing most funds to the insurance
and financial-products sales companies as promised, Kelly
Schnorenberg allegedly converted the investments to personal use,
or otherwise distributed the funds to his mother, his girlfriend, or
prior investors in the attempt to mollify them while bringing in new
investors to continue the scheme.1 Meanwhile, Reyes and Kahler
1 The Commissioner explains the scheme as follows:
Within approximately one year of starting
investments of each of the insurance
companies, [Kelly] Schnorenberg, Kahler
and/or Reyes would tell investors that the
2
received transaction-based commissions (from Kelly Schnorenberg,
KJS, or other Colorado entities) on the sale of the investments.
¶5 Seeking to enjoin the scheme, the Commissioner brought
claims against Kelly Schnorenberg, Reyes, and Kahler for securities
fraud, offer and sale of unregistered securities, and unlicensed sales
representative activity. The Commissioner also sought a
constructive trust or equitable lien against three “relief defendants”
who allegedly received some of the improperly obtained investment
funds. Betty Schnorenberg, Kelly’s mother, is one such relief
defendant. She resides in Wyoming.
¶6 Reyes, Kahler, and Betty Schnorenberg moved to dismiss all
claims against them under C.R.C.P. 12(b)(2) for lack of personal
jurisdiction. Reyes and Kahler also sought dismissal of the
company had failed. Schnorenberg, Kahler
and/or Reyes would then tell investors about
the opportunity to invest in a new insurance
sales company, using the same or similar
business models. Investors who had invested
in the prior insurance sales company and who
had not been paid were encouraged to roll
their investments into the new company on the
same terms. Other investors were rolled into
the new insurance sales companies without
their knowledge or consent.
3
securities fraud claim on the ground that it failed to meet the
particularity requirements of C.R.C.P. 9(b).2 The district court
granted all of these motions without conducting an evidentiary
hearing. In written orders, the court concluded that it lacked
personal jurisdiction over each of the nonresident defendants, and
that the Commissioner’s securities fraud claim failed to “link any
particular factual allegations to actual false representations” made
by Reyes or Kahler. The court certified these rulings as final under
C.R.C.P. 54(b).
II. Personal Jurisdiction
¶7 The Commissioner contends that the district court erred in
dismissing the claims against Reyes, Kahler, and Betty
Schnorenberg for lack of personal jurisdiction. We agree.
A. Rule 12(b)(2) Procedure
¶8 In its discretion, a district court may address a Rule 12(b)(2)
motion before trial based solely on the documentary evidence or by
holding an evidentiary hearing. Archangel Diamond Corp. v. Lukoil,
2Additionally, Reyes and Kahler sought dismissal under C.R.C.P.
12(b)(5) for failure to state a claim on which relief could be granted.
The district court declined to address these requests given its
disposition of the other motions.
4
123 P.3d 1187, 1192 (Colo. 2005). Where, as here, the court
decides the motion on the documentary evidence alone, the plaintiff
need only demonstrate a prima facie showing of personal
jurisdiction to defeat the motion. Id.
¶9 Documentary evidence consists of the complaint’s allegations
as well as affidavits and any other written material submitted by
the parties. Id. The court must accept the complaint’s allegations
as true to the extent they are not contradicted by the defendant’s
competent evidence. If the parties’ competent evidence presents
conflicting facts, the court must resolve such discrepancies in the
plaintiff’s favor. Id.
¶ 10 A prima facie showing exists when the plaintiff raises a
reasonable inference that the court has jurisdiction over the
defendant. Id.; see also Keefe v. Kirschenbaum & Kirschenbaum,
P.C., 40 P.3d 1267, 1272 (Colo. 2002). “This is a light burden
intended only to ‘screen out “cases in which personal jurisdiction is
obviously lacking, and those in which the jurisdictional challenge is
patently bogus.”’” Found. for Knowledge in Dev. v. Interactive Design
Consultants, LLC, 234 P.3d 673, 677 (Colo. 2010) (citations
omitted).
5
¶ 11 We review de novo whether the plaintiff established a prima
facie case of personal jurisdiction. Id.
B. Legal Standard
¶ 12 To exercise jurisdiction over a nonresident defendant, a
Colorado court must comply with Colorado’s long-arm statute and
constitutional due process. § 13-1-124, C.R.S. 2016; Magill v. Ford
Motor Co., 2016 CO 57, ¶ 14. Because the long-arm statute extends
jurisdiction to the maximum extent allowed by the Due Process
Clause, the due process inquiry is controlling. New Frontier Media,
Inc. v. Freeman, 85 P.3d 611, 613 (Colo. App. 2003).
¶ 13 To permit jurisdiction over a nonresident defendant, due
process requires that the defendant have certain minimum contacts
with the forum. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945). The quantity and nature of the minimum contacts required
depends on whether the plaintiff alleges specific or general
jurisdiction. Archangel, 123 P.3d at 1194. Here, the Commissioner
relies on specific jurisdiction.
¶ 14 Specific jurisdiction is properly exercised over a defendant
where the injuries triggering litigation arise out of and are related to
significant activities directed by the defendant toward the forum
6
state. Id.; see Day v. Snowmass Stables, Inc., 810 F. Supp. 289,
292 (D. Colo. 1993). “As such, the minimum contacts inquiry in
regard to specific jurisdiction is essentially a two[-]part test
assessing, (1) whether the defendant purposefully availed himself of
the privilege of conducting business in the forum state, and
(2), whether the litigation ‘arises out of’ the defendant’s forum-
related contacts.” Archangel, 123 P.3d at 1194. The contacts must
be established by the defendant himself. Day, 810 F. Supp. at 292.
“The unilateral activity of those who claim some relationship with a
nonresident defendant cannot satisfy the requirement of contact
with the forum state.” Id. (quoting Hanson v. Denckla, 357 U.S.
235, 253 (1958)).
¶ 15 Once it is established that a defendant has the requisite
minimum contacts, those contacts must be considered in light of
other factors to determine whether the assertion of personal
jurisdiction would comport with notions of fair play and substantial
justice (i.e., whether jurisdiction over the defendant would be
reasonable). Youngquist Bros. Oil & Gas, Inc. v. Miner, 2017 CO 11,
¶ 13. These factors may include the burden on the defendant, the
forum state’s interest in resolving the controversy, and the
7
plaintiff’s interest in attaining effective and convenient relief.
Archangel, 123 P.3d at 1195. “[A]n especially strong showing of
reasonableness may serve to fortify a borderline showing of
minimum contacts.” Id. (citations omitted); see Keefe, 40 P.3d at
1271-72. Conversely, when a defendant who purposefully directed
his activities at a forum seeks to defeat jurisdiction, he must
present a compelling case that the presence of some other
considerations would render jurisdiction unreasonable. Keefe, 40
P.3d at 1272.
C. Reyes and Kahler
1. The Affidavits
¶ 16 The Commissioner alleged in his complaint that Reyes and
Kahler directly solicited investors in Colorado, among other states.
Reyes and Kahler submitted affidavits in support of their motions to
dismiss in which they denied soliciting investors in Colorado.3
Though the Commissioner submitted affidavits from his investigator
in response, we will accept as true Reyes’s and Kahler’s assertions
on this point. See Archangel, 123 P.3d at 1192 (“[T]he allegations in
3As we will discuss, however, Kahler admitted that he had
contacted one Colorado investor via e-mail. Kahler asserted that he
made this contact at Kelly Schnorenberg’s request.
8
the complaint must be accepted as true to the extent they are not
contradicted by the defendant’s competent evidence[.]”).4
¶ 17 For its part, the district court seemed to disregard entirely the
investigator’s affidavits addressing Reyes and Kahler. The court
found that the investigator’s statements were not based on personal
knowledge of the facts alleged and, therefore, they did not qualify as
“competent evidence.” The Commissioner contends that the court
erred in that ruling. We need not resolve this dispute, however,
because the Commissioner made a prima facie showing of personal
jurisdiction over Reyes and Kahler even without considering the
investigator’s affidavits concerning them. We now turn to that
jurisdictional analysis.
2. Jurisdiction Under A Statute
¶ 18 The Commissioner first argues that the Colorado Securities
Act (CSA), §§ 11-51-101 to -908, C.R.S. 2016, contemplates
personal jurisdiction over Reyes and Kahler. To the extent the
4We also accept as true the other specific facts asserted in the
affidavits of Reyes and Kahler. We do not accept at face value any
party’s conclusory allegation that defendants did or did not conduct
business in Colorado. See Gognat v. Ellsworth, 224 P.3d 1039,
1052 (Colo. App. 2009), aff’d, 259 P.3d 497 (Colo. 2011); see also
Warne v. Hall, 2016 CO 50, ¶¶ 9, 27 (recognizing that a court need
not accept as true legal conclusions or conclusory allegations).
9
Commissioner contends that, if he sufficiently alleged that Reyes
and Kahler violated the CSA, his allegations against them also
satisfied Colorado’s long-arm statute, we agree.
¶ 19 According to the long-arm statute, the transaction of business
within the state may submit a person to the jurisdiction of the
courts of this state. § 13-1-124(1)(a). According to the CSA, “[a]ny
violation of this article shall be deemed to constitute the transaction
of business within this state for the purpose of section 13-1-124,
C.R.S.” § 11-51-706(4), C.R.S. 2016.
¶ 20 The Commissioner alleged that Reyes and Kahler violated the
CSA, whether or not they were physically present in Colorado,
because the transactions at issue pertained to securities that
originated in Colorado. § 11-51-102(1), C.R.S. 2016 (providing that
the relevant CSA provisions “apply to persons who sell or offer to
sell when an offer to sell is made in this state or when an offer to
purchase is made and accepted in this state”); § 11-51-102(3)
(confirming that “an offer to sell or to purchase is made in this
state, whether or not either party is then present in this state, when
the offer originates from this state”). In support, the Commissioner
asserted that the securities at issue — the promissory notes — were
10
executed in Colorado by a Colorado issuer (Kelly Schnorenberg
and/or KJS) for whom Reyes and Kahler were acting as agents.
¶ 21 We assume without deciding that the above allegations create
a reasonable inference that Reyes and Kahler violated the CSA. Cf.
In re Trade Partners, Inc., 627 F. Supp. 2d 772 (W.D. Mich. 2008)
(stating that allegations that issuer was from Michigan and out-of-
state defendants acted as its agents satisfied “originating in”
requirement of Michigan Securities Act); Rosenthal v. Dean Witter
Reynolds, Inc., 908 P.2d 1095, 1105 (Colo. 1995) (applying an
earlier, though substantially similar, version of the CSA to a suit
brought by a Pennsylvania resident against an out-of-state broker
because the issuer was in Colorado and the offer originated here).
Even so, we must still consider whether exercising jurisdiction over
Reyes and Kahler satisfies due process.
¶ 22 “The Fourteenth Amendment’s due process clause governs the
outer boundaries of a state’s authority to proceed against
nonresident defendants.” Magill, ¶ 15. In fact, “the personal
jurisdiction inquiry under Colorado law collapses into the
traditional due process inquiry.” Grynberg Petroleum Co. v.
Evergreen Energy Partners, LLC, 485 F. Supp. 2d 1217, 1222-23 (D.
11
Colo. 2007). So, the question remains: Did the Commissioner make
a prima facie showing of the nonresident defendants’ minimum
contacts with Colorado such that exercising jurisdiction over them
comports with due process?
3. Minimum Contacts with Colorado
¶ 23 The documentary evidence shows the following facts
pertaining to both Reyes and Kahler:
 They solicited investments on behalf of KJS, a Colorado
company. That is, Reyes and Kahler repeatedly
encouraged investors to send money to Colorado in
furtherance of the alleged Ponzi scheme.
 They directed investors to contact Kelly Schnorenberg or
KJS in Colorado, where the transactions were finalized.
 They received transaction-based commissions from
Colorado accounts pertaining to the investments.
¶ 24 In addition, with respect to Reyes and Kahler individually, the
documentary evidence shows:
 Reyes serves as Executive Field Chairman for
WealthSmart America (WSA), a Colorado-based company
affiliated with the alleged Ponzi scheme. In 2014, he
12
attended a presentation in Colorado directing investors
towards the company.
 Reyes is licensed to sell insurance in Colorado.
 Kahler e-mailed a Colorado-based investor at Kelly
Schnorenberg’s behest. The purpose of the e-mail (which
included an exchange note and financial information on
one of the scheme’s underlying companies) was to enable
the investor to roll over his investment from one failed
company into another — in this case, WSA.
¶ 25 Considered in isolation, these contacts with Colorado might
not be sufficient to establish specific jurisdiction. For instance, a
person is not necessarily subject to Colorado’s jurisdiction simply
because he entered into a solicitation agreement with a Colorado
company. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478
(1985); Gognat v. Ellsworth, 224 P.3d 1039, 1052 (Colo. App. 2009),
aff’d, 259 P.3d 497. Nor is jurisdiction sufficiently established by a
defendant’s simply receiving payment from the forum for work
conducted outside of the forum. Touchtone Grp., LLC v. Rink, 913
F. Supp. 2d 1063, 1075 (D. Colo. 2012). Similarly, Reyes’s serving
as an officer for a Colorado company, or Kahler’s sending a single e-
13
mail into Colorado, might not be sufficient to satisfy the minimum
contacts inquiry if considered alone. See In re Terrorist Attacks on
Sept. 11, 2001, 740 F. Supp. 2d 494, 506 (S.D.N.Y. 2010) (officer),
aff’d, 714 F.3d 118 (2d Cir. 2013); Keefe, 40 P.3d at 1271 (single
contact).
¶ 26 But we cannot divide and conquer. We cannot isolate each
individual contact when assessing whether the Commissioner has
raised a reasonable inference of jurisdiction over these defendants.
Instead, we consider the contacts in their totality. See Calder v.
Jones, 465 U.S. 783, 789 (1984).
¶ 27 For example, in Foundation for Knowledge, our supreme court
acknowledged that the nonresident defendant’s contractual
relationship with a Colorado company, standing alone, was
insufficient to establish personal jurisdiction. 234 P.3d at 680.
Still, the court decided that the defendant’s additional contacts with
Colorado established jurisdiction, including the facts that the
agreement required others (not the defendant) to perform significant
work in Colorado, the defendant extensively communicated with the
Colorado company’s representatives while they were in Colorado,
and the defendant was required to send parts of the project to
14
Colorado for approval. See id. Rejecting “the notion that an
absence of physical contacts can defeat personal jurisdiction,” the
supreme court concluded that the nonresident defendant’s contacts
with Colorado were not “‘random, fortuitous, or attenuated’ in
nature” but instead sufficiently established that he purposely
availed himself of the privilege of conducting business in Colorado.
Id. at 680-81 (citations omitted).
¶ 28 Likewise, in Greenway Nutrients, Inc. v. Blackburn, 33 F. Supp.
3d 1224, 1238 (D. Colo. 2014), the court found personal
jurisdiction over a foreign defendant where an agreement created a
relationship between the defendant and the Colorado plaintiff, and
the defendant purchased “product” outside of Colorado for the
plaintiff in furtherance of their relationship. The court explained
that the defendant’s purchase of product for the plaintiff’s benefit
was “an activity directed at a resident of Colorado.” Id.
¶ 29 Likewise, the documentary evidence here shows that Reyes
and Kahler each entered into an ongoing relationship with a
Colorado-based company on whose behalf they solicited out-of-state
investors through alleged misrepresentations. Reyes and Kahler
each furthered the relationship by actively directing the unwitting
15
investors to Colorado, whereupon Reyes and Kahler received
commissions from Colorado accounts based on the ensuing
transactions. Furthermore, Reyes acted as an officer for a Colorado
company associated with the scheme (WSA), and Kahler admitted
contacting at least one Colorado investor with information to
further the alleged scheme.
¶ 30 The above contacts were among those that triggered the
Commissioner’s litigation under the CSA; the contacts supported
the alleged Ponzi scheme that purportedly harmed the Colorado
securities market. Thus, when viewing defendants’ contacts as a
whole, we discern a prima facie showing that Reyes and Kahler
purposefully availed themselves of the privilege of conducting
business in Colorado with Colorado residents (Kelly Schnorenberg
and the Colorado companies associated with the alleged scheme).
See Found. for Knowledge, 234 P.3d at 680-81.
¶ 31 Indeed, the prima facie showing is particularly strong with
respect to Reyes, given his involvement with WSA, a Colorado
16
company.5 To reiterate, the scheme at issue rested on the
acquisition of investors’ funds solicited through misrepresentations.
The thrust of the misrepresentations was that the investments
would be directed to particular companies to generate profit,
including WSA. These companies, however, never received
sufficient funds to generate the promised return. Hence, Reyes
allegedly solicited investments for the scheme while acting as an
officer for one of the Colorado companies involved in the scheme.
¶ 32 These allegations against Reyes raise a reasonable inference
that he may have been a primary participant in the scheme
involving WSA. “[W]here individual officers and directors are
primary participants in the wrongdoing giving rise to the court’s
jurisdiction over the corporation, they are subject to jurisdiction in
the forum state.” Scott v. Gurusamy, No. 16-CV-02961-RM-MEH,
2017 WL 590291, at *4 (D. Colo. Feb. 14, 2017); see also
Application to Enforce Admin. Subpoenas Duces Tecum of Sec. Exch.
Comm’n v. Knowles, 87 F.3d 413, 418 (10th Cir. 1996)
(“[E]mployees of a corporation that is subject to the personal
5The Commissioner alleged that Reyes acted as an officer for
several of the companies involved in the scheme. In his affidavit,
Reyes concedes that he is an officer of WSA.
17
jurisdiction of the courts of the forum may themselves be subject to
jurisdiction if those employees were primary participants in the
activities forming the basis of jurisdiction over the corporation.”).
¶ 33 In sum, taking the allegations together, the activities of both
Reyes and Kahler rendered it reasonably foreseeable that they could
be haled into a Colorado court to answer the allegations of fraud,
sale of unregistered securities, and unlicensed sales representative
activity affecting the Colorado investment market. After all, the
Commissioner’s burden to show a prima facie case of jurisdiction is
“light” because the prima facie showing is merely intended to screen
out cases in which personal jurisdiction is obviously lacking.
Found. for Knowledge, 234 P.3d at 677. And, even if the showing of
minimum contacts here were considered “borderline,” the strong
showing of reasonableness discussed below “serve[s] to fortify” the
contacts. Archangel, 123 P.3d at 1195 (citation omitted).
4. Reasonableness
¶ 34 Colorado’s exercise of personal jurisdiction over Reyes and
Kahler comports with notions of fair play and substantial justice.
“This determination is essentially one of reasonableness.” Found.
for Knowledge, 234 P.3d at 682.
18
¶ 35 First, Colorado has a compelling interest in resolving the
harms caused by the alleged Colorado-based Ponzi scheme,
including those caused by Reyes’s and Kahler’s solicitations of
investments to further the scheme. See § 11-51-101(2) (“The
purposes of [the CSA] are to protect investors and maintain public
confidence in securities markets[.]”). Second, the Commissioner
can file suit only in Denver District Court. § 11-51-602, C.R.S.
2016. Therefore, jurisdiction over Reyes and Kahler in Colorado is
necessary if the Commissioner is to address and to obtain a remedy
for the harms that Reyes and Kahler allegedly caused Colorado
markets through their active and repeated participation in the
scheme. Third, defendants do not argue that exercising jurisdiction
over them in Colorado would create an unreasonable burden, and
we discern no basis for such a conclusion.
¶ 36 As a result, the exercise of jurisdiction over Reyes and Kahler
in Colorado does not offend due process principles.6
6 Of course, a finding that a plaintiff has made a prima facie
showing of personal jurisdiction does not preclude the district court
from subsequently requiring the plaintiff to establish personal
jurisdiction by a preponderance of the evidence, either at an
evidentiary hearing before trial or by the close of trial. Archangel
Diamond Corp. v. Lukoil, 123 P.3d 1187, 1192 n.3 (Colo. 2005).
19
D. Betty Schnorenberg
1. Minimum Contacts with Colorado
¶ 37 According to the complaint, Betty Schnorenberg is a resident
of Wyoming; she received funds from her son (Kelly), transferred
from Colorado accounts; and she knew or should have known that
the money came from investors in her son’s “Colorado-based
investment scheme.” As a “relief defendant,” she is not accused of
violating any substantive law but is part of this case only as an
alleged holder of assets that must be recovered in order to afford
complete relief. See Fed. Trade Comm’n v. Johnson, No. 2:10-cv-
02203-MMD-GWF, 2013 WL 2460359, at *6 (D. Nev. June 6, 2013)
(citing Commodity Futures Trading Comm’n v. Kimberlynn Creek
Ranch, Inc., 276 F.3d 187, 192 (4th Cir. 2002)).
¶ 38 Betty Schnorenberg, in her affidavit, admitted receiving
$604,924.21 from her son. She claimed that she had used this
money to pay down $634,077.86 in credit-card debt incurred by her
son on her cards from January 2014 through May 2015. She
asserted that she had allowed him to use her credit cards to incur
charges for what she understood to be “his business activities.” The
affidavit of the Commissioner’s investigator identified an additional
20
$578,006 that Betty Schnorenberg had allegedly received from her
son between January 2009 and December 2013. The investigator
asserted that this money came from accounts controlled by her son
“that were funded 99.99% by investors” in the underlying scheme.
¶ 39 Betty Schnorenberg’s contacts with Colorado were arguably
fewer than those of Reyes and Kahler. However, “[i]n some
circumstances, even a single act may subject a defendant to
jurisdiction, where that act creates a substantial connection
between the defendant and the forum state.” In re Marriage of
Malwitz, 99 P.3d 56, 61 (Colo. 2004).
¶ 40 Where a defendant’s contacts are few, a three-part test
applies. First, the defendant must purposefully avail herself of the
privilege of acting in the forum state or of causing important
consequences in that state. Id. Second, the cause of action must
arise from the consequences in the forum state of the defendant’s
activities. Id. Finally, the defendant’s activities or the
consequences of those activities must have a substantial enough
connection with the forum state to make the exercise of jurisdiction
over the defendant reasonable. Id.
21
¶ 41 For instance, our supreme court held that a defendant had
established minimum contacts with Colorado because his abuse
and harassment had caused his wife to move here, where she and
her daughter received public assistance from the state (an
“important consequence”). Id. at 62-64. Because the defendant
should have expected his wife to flee to Colorado to join her family
and he caused important consequences here, he created a
substantial connection between himself and Colorado. Id. at 63-64.
¶ 42 Also illustrative is First Horizon Merchant Services, Inc. v.
Wellspring Capital Management, LLC, 166 P.3d 166 (Colo. App.
2007). There, a division of this court considered a defendant who
had participated in three or four phone calls with people in
Colorado, including a conference call where he apparently said
nothing significant. Id. at 176. The plaintiff asserted that the
defendant had engaged in fraudulent concealment because he had
a duty to speak up during the conference call to correct another
person’s material omissions. Id. The division concluded that the
defendant’s activity, “although limited, was sufficient to create a
reasonable inference that he purposefully availed himself of the
22
privilege of acting in Colorado or of causing important consequences
in Colorado.” Id. (emphasis added).
¶ 43 Here, Betty Schnorenberg allegedly engaged in multiple
financial transactions with her Colorado son that were substantial
in amount and that extended over a relatively significant period.
According to the documentary evidence, she may have provided
considerable money to finance — and she may have received
considerable money from — the Colorado-based Ponzi scheme at
issue. See § 13-1-124(1)(a) (transacting business in Colorado may
submit a person to Colorado’s jurisdiction). The complaint alleges
that this scheme, including Betty Schnorenberg’s taking money
from it, caused important consequences in Colorado (e.g., the
victims’ losses). Cf. Malwitz, 99 P.3d at 63; First Horizon Merchant
Servs., 166 P.3d at 176.7
¶ 44 Therefore, the Commissioner’s action against Betty
Schnorenberg arises from her activities’ consequences in Colorado.
See Malwitz, 99 P.3d at 62. Finally, as with Reyes and Kahler, the
strong showing that Colorado’s exercise of jurisdiction over Betty
7At this point in the proceedings, we must accept as true the
Commissioner’s allegation that she might still possess some of the
allegedly ill-gotten funds.
23
Schnorenberg would be reasonable (discussed below) fortifies her
fairly limited contacts with Colorado. See Archangel, 123 P.3d at
1195.
2. Reasonableness
¶ 45 As discussed, Colorado has a compelling interest in resolving
the harms caused by the alleged Ponzi scheme, including those
caused by Betty Schnorenberg’s possible financing of and receipt of
proceeds from the scheme. Because the Commissioner can file suit
only in Denver District Court, Colorado’s jurisdiction over her is
necessary if the Commissioner is to address and to obtain a full
remedy for the Ponzi scheme’s harms.
¶ 46 Furthermore, Betty Schnorenberg does not contend that
exercising jurisdiction over her in Colorado would unreasonably
burden her. And we do not perceive such a burden. The
Commissioner does not assert a cause of action against her that
she would have to defend on the merits. See Kimberlynn Creek
Ranch, 276 F.3d at 192. Instead, the equitable relief sought against
her depends entirely on the Commissioner’s first proving his claims
against the merits defendants. See id. (recognizing that a relief, or
24
nominal, defendant is joined purely as a means to facilitate
collection).
¶ 47 The above considerations, “taken together, amply demonstrate
the reasonableness of exercising jurisdiction over [Betty
Schnorenberg], despite the somewhat limited nature of [her] direct
contacts with Colorado.” Malwitz, 99 P.3d at 63. We therefore
reverse the dismissal of Betty Schnorenberg from this case.
III. Heightened Pleading under Rule 9(b)
¶ 48 The district court dismissed the claims against Reyes and
Kahler “under section 501 of the Colorado Securities Act” on the
ground that the Commissioner had “not met [his] pleading burden
under Rule 9(b).” The Commissioner says this ruling was
erroneous, and we agree.
A. Standard of Review and Relevant Law
¶ 49 The parties agree that Rule 9(b)’s heightened pleading
standard applies to the Commissioner’s claim for securities fraud
asserted under section 11-51-501(1)(a)-(c), C.R.S. 2016. We review
de novo the dismissal of a fraud action for failing to satisfy this
standard. Scott Sys., Inc. v. Scott, 996 P.2d 775, 780 (Colo. App.
2000); see also Grossman v. Novell, Inc., 120 F.3d 1112, 1118 n.5
25
(10th Cir. 1997); State Farm Mut. Auto. Ins. Co. v. Parrish, 899 P.2d
285, 288 (Colo. App. 1994) (case law interpreting an analogous
federal rule may be persuasive in analyzing the Colorado rule).
¶ 50 Rule 9(b) requires that, in all averments of fraud, the
circumstances constituting fraud shall be stated with particularity.
While a plaintiff need not plead all of the
evidence that may be presented to prove the
claim of fraud, the complaint must at least
state the main facts or incidents which
constitute the fraud so that the defendant is
provided with sufficient information to frame a
responsive pleading and defend against the
claim.
Parrish, 899 P.2d at 289 (citation omitted).
B. Application
¶ 51 In support of the claim for securities fraud, the Commissioner
alleged that Reyes and Kahler — along with Kelly Schnorenberg —
solicited investors on behalf of KJS to invest between $10,000 and
$50,000 each for investments in a series of companies: Salus
Marketing Enterprises, LLC; Premier Advantage Insurance Agency,
LLC; Hegemon Holdings, LLC; Quantum Success Strategies, LLC;
and WSA. During their respective solicitations, all of these
defendants represented that
26
 the investment funds would be used exclusively to invest
in insurance sales companies;
 returns of ten to twelve percent would be paid to
investors from commissions on the sales of insurance
and financial products;
 investors would be provided with quarterly and annual
financial statements of KJS; and
 the investments were risk free.
According to the Commissioner, however, the majority of the
investment funds were instead converted to Kelly Schnorenberg’s
personal use or directed to his family and friends, leaving investors
with no principal, much less profit.
¶ 52 The Commissioner further alleged that all of the defendants
failed to disclose certain risks associated with the investments. For
instance,
 Kelly Schnorenberg was subject to two prior permanent
injunctions under the CSA relevant to the investment
scheme;
 new investment money was being used to make interest
payments to existing investors;
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 prior insurance companies involved in the scheme had
failed without paying any returns to investors; and
 Kelly Schnorenberg and KJS owed prior investors
millions of dollars relating to investments in similar
insurance sales companies.
¶ 53 Reyes and Kahler argue that these allegations fail to meet the
pleading standards under Rule 9(b) because they are broadly
directed at “the Defendants” and do not allege specific conduct by
each individual. On the contrary, the alleged misrepresentations
and omissions are not based merely on collective action committed
by an undifferentiated group. Rather, we construe the
Commissioner’s complaint as alleging that each merits defendant
(including Reyes and Kahler) made the aforementioned
misstatements or omissions while soliciting his potential investors
under the scheme. Bolstering this reading of the complaint is the
Commissioner’s identification of a particular solicitation that each
defendant made individually, which was “typical of the conduct
engaged in by the Defendants with other investors.”
¶ 54 For example, Reyes recruited A.T., a California resident, in
2012 and directed him to Kelly Schnorenberg. As for Kahler, he
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approached M.S., an Illinois resident, and told him that the
insurance company was going to be a “big hit” and “claimed that
investment was growing quickly.” Kahler did not, however, provide
M.S. with relevant written materials, disclose the risks, or disclose
the other material information about regulatory and legal actions
involving Kelly Schnorenberg.
¶ 55 Because the allegations are directed toward each individual
defendant (rather than only toward defendants as a group), the
cases cited by defendants and the district court are not particularly
useful, in our view.8 More on point is State ex rel. Suthers v.
Mandatory Poster Agency, Inc., 260 P.3d 9 (Colo. App. 2009).
8 Koch v. Koch Indus., Inc., 203 F.3d 1202 (10th Cir. 2000) (finding a
claim insufficient because the complaint failed to identify any
specific defendant who made the fraudulent misrepresentations or
omissions where a number of individual defendants were involved);
Zerman v. Ball, 735 F.2d 15 (2d Cir. 1984) (dismissing the claims as
to individual defendants where the complaint did not assert that
either made any statement to the plaintiff or had contact with her);
Amerson v. Chase Home Fin. LLC, No. 11-CV-01041-WJM-MEH,
2012 WL 1686168 (D. Colo. May 7, 2012) (dismissing claim where
plaintiff failed to identify who mailed the fraudulent letter at issue);
Fisher v. APP Pharm., LLC, 783 F. Supp. 2d 424 (S.D.N.Y. 2011)
(plaintiff failed to differentiate among the named defendants in each
allegation and thus failed to inform each defendant of the
circumstances surrounding the fraudulent contact with which he
individually stood charged).
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¶ 56 In that case, the State asserted a Colorado Consumer
Protection Act (CCPA) claim for deceptive trade practices against
multiple defendants. The complaint identified each defendant
individually and then alleged that the “defendants” violated the
CCPA because the defendants’ solicitations deceived “consumers” in
particular ways regarding the geographic origin of the defendants’
goods. See id. at 13. In other words, the complaint did not
separately allege that each defendant had committed a particular
deceptive act or had deceived a particular consumer. Yet, a division
of this court held that the allegations were sufficiently particular to
satisfy Rule 9(b). Id. Mandatory Poster Agency is particularly
relevant because, like the Commissioner’s claims here, it addressed
the State’s law enforcement action against multiple defendants
involving multiple victims — unlike the cases cited by defendants
and the district court involving disputes between private parties.
¶ 57 Reyes and Kahler also claim that the Commissioner’s
allegations failed to identify any specific, fraudulent behavior they
committed against any investor individually. Again, we disagree.
The Commissioner set forth specific statements made to investors,
as well as failures to disclose, that are relevant to a claim for relief
30
under section 11-51-501 of the CSA. According to the complaint,
the statements were unlawful because they reflected a device,
scheme, or artifice to defraud, while the alleged omissions
constituted material facts necessary to make the statements not
misleading. As noted, the Commissioner identified particular
investors solicited by Reyes and by Kahler personally. And, as
Mandatory Poster Agency illustrates, the complaint need not
identify every victim of a defendant’s fraudulent activities in order to
survive a motion to dismiss for failure to comply with Rule 9(b). See
also Parrish, 899 P.2d at 289 (“[A] plaintiff need not plead all of the
evidence that may be presented to prove the claim of fraud[.]”).9
¶ 58 Consequently, the Commissioner’s complaint provides
sufficient particularity to afford Reyes and Kahler fair notice of the
claim for securities fraud and the main facts or incidents upon
which it is based. We reverse the dismissal of the fraud claim
against Reyes and Kahler.
9A motion to dismiss for failure to comply with C.R.C.P. 9(b) is
generally treated as a motion to dismiss for failure to state a claim
on which relief can be granted. Cf. Seattle-First Nat’l Bank v.
Carlstedt, 800 F.2d 1008, 1011 (10th Cir. 1986).
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IV. Conclusion
¶ 59 The judgment is reversed. The matter is remanded to the
district court for further proceedings consistent with this opinion.
JUDGE TAUBMAN and JUDGE GRAHAM concur.
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