     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
                                                            Date July 3, 2019

                               2019COA102

No. 17CA2102, Sedgwick Props. Dev. Corp. v. Hinds — Business
Organizations — Limited Liability Companies — Piercing the
Corporate Veil

     A division of the court of appeals concludes that the district

court erred in finding that a developer services corporation that

contracted with a single-member, single-purpose limited liability

company (LLC) to manage the LLC was the alter ego of the LLC for

purposes of piercing the corporate veil.

     The division determines that the veil-piercing analysis

applicable to corporations must be harmonized with statutes

governing LLCs, and that certain aspects of traditional veil-piercing

analysis are not applicable to a single-member, single-purpose LLC

that is managed by another entity under a contract to provide

management services to the LLC. A court undertaking a
veil-piercing analysis as to such an LLC must take into account the

inherent characteristics of such an entity. The district court did not

do so in this case, instead relying on factors that are inapplicable in

the context of such an entity.

     Because the evidence presented was insufficient to establish

alter ego status, the division reverses the judgment piercing the

corporate veil to hold Sedgwick Properties Development Corporation

liable for a judgment entered against 1950 Logan, LLC, and

remands the case for entry of judgment in Sedgwick’s favor.
COLORADO COURT OF APPEALS                                       2019COA102


Court of Appeals No. 17CA2102
City and County of Denver District Court No. 13CV33659
Honorable Ross B. Buchanan, Judge


Sedgwick Properties Development Corporation, as Garnishee of 1950 Logan,
LLC,

Appellant,

v.

Christopher Hinds,

Appellee.


                      JUDGMENT REVERSED AND CASE
                       REMANDED WITH DIRECTIONS

                                   Division V
                           Opinion by JUDGE TERRY
                               Grove, J. concurs
                         J. Jones, J., specially concurs

                            Announced July 3, 2019


Hall Estill, E. Job Seese, Denver, Colorado, for Appellant

Salazar Law, LLC, Joseph A. Salazar, Thornton, Colorado, for Appellee
¶1    This appeal by Sedgwick Properties Development Corporation

 (Sedgwick) requires us to harmonize statutory law permitting the

 creation of a single-member limited liability company (LLC) with the

 judicially created doctrine of piercing the corporate veil.

¶2    In 2013, the Colorado Civil Rights Commission (Commission)

 sued 1950 Logan, LLC (1950 Logan), a single-member,

 single-purpose LLC, and obtained a default judgment against that

 entity. 1950 Logan had been created for the sole purpose of

 building the Tower on the Park condominium building and selling

 the units in that building.

¶3    The Commission claimed that 1950 Logan had violated the

 civil rights of appellee, intervenor Christopher Hinds — a disabled

 person who uses a wheelchair and owns a unit in the building — by

 selling the building’s handicapped parking spaces to

 non-handicapped buyers, years before Hinds bought his condo

 unit. Hinds intervened in the suit and got a default judgment

 against 1950 Logan. (The Commission does not appear on appeal.)

¶4    By the time Hinds sought to collect on the judgment, the

 condo development had long since been completed, management of

 the property had been turned over to a homeowners’ association


                                    1
 (HOA), and 1950 Logan — its single purpose accomplished — had

 wound down operations and no longer had any assets.

¶5    Hinds filed a garnishment proceeding seeking to pierce the

 corporate veil of 1950 Logan to recover the judgment from

 Sedgwick, which Hinds alleged was the alter ego of 1950 Logan

 (even though Sedgwick had no ownership interest in 1950 Logan).

 Sedgwick is a developer services company that was hired under a

 contract to manage 1950 Logan and to oversee the development and

 marketing of the condo project.

¶6    After Sedgwick filed a traverse to the garnishment, the district

 court held an evidentiary hearing and pierced the corporate veil to

 hold Sedgwick liable to pay Hinds for the judgment against 1950

 Logan. Sedgwick appeals the judgment piercing the corporate veil

 to reach its assets.

¶7    Because we conclude that Hinds did not present sufficient

 evidence to support a finding that Sedgwick was 1950 Logan’s alter

 ego, we reverse without addressing the other elements required for

 piercing the corporate veil.

¶8    As part of our analysis, we discuss certain factors of the alter

 ego rubric on which the district court relied, but which carry little


                                    2
  weight in the context of a single-member, single-purpose LLC such

  as 1950 Logan that hired a management company to manage its

  affairs.

  I.    The Traverse Hearing Was Sufficient to Protect Sedgwick’s Due
                              Process Rights

¶9      We begin by addressing Sedgwick’s contention that its

  procedural due process rights were violated because it did not

  receive adequate notice of the attempt by Hinds to pierce the

  corporate veil to reach Sedgwick’s assets. Sedgwick argues that, as

  a result, it did not have an adequate opportunity to respond to the

  factual allegations of the complaint. Sedgwick’s argument boils

  down to this: if an entity might later be garnished in the event of a

  judgment against a defendant that has some relation to the entity,

  the entity must be served with notice and given an opportunity to

  defend the underlying suit. We reject this notion.

¶ 10    Nothing in Colorado law prohibits a judgment creditor from

  asserting a claim to pierce the corporate veil in a garnishment

  proceeding to collect on the judgment. And we see no due process

  violation that would arise from such a procedure. This is so




                                    3
  because a garnishment proceeding adequately allows the garnishee

  to contest the garnishment.

¶ 11   In its answer under C.R.C.P. 103, section 4, to the writ of

  garnishment, Sedgwick asserted that it did not possess or control

  any payments, obligations, or assets of 1950 Logan. This assertion

  prompted Hinds to file a traverse under C.R.C.P. 103, section 8,

  seeking to hold Sedgwick liable by piercing the corporate veil to

  reach assets that he contended belonged to 1950 Logan. The

  district court held a hearing on the traverse under C.R.C.P. 103,

  section 8(b)(2).

¶ 12   These proceedings adequately protected Sedgwick’s due

  process rights. See Maddalone v. C.D.C., Inc., 765 P.2d 1047, 1049

  (Colo. App. 1988). Maddalone recognized that garnishment

  procedures under C.R.C.P. 103 accord with due process and fully

  protect a garnishee who denies liability for a debt. Id. The

  garnishee is treated no differently than if it had been sued directly

  on the debt, and has the right to deny the debt, engage in discovery,

  and have an adversary hearing in which the judgment creditor must

  prove the allegations against the garnishee by a preponderance of

  the evidence. Id.


                                     4
¶ 13         In the traverse hearing, the district court allowed garnishee

  Sedgwick to (1) cross-examine the witness called by garnishor

  Hinds; (2) challenge the evidence Hinds presented; and (3) present

  Sedgwick’s own witness testimony and evidence. These procedures

  are consistent with the due process rights of a garnishee. See Gen.

  Accident Fire & Assurance Corp. v. Mitchell, 120 Colo. 531, 539, 211

  P.2d 551, 555 (1949) (burden of proof is on the garnishor to

  establish by a preponderance of the evidence all the facts on which

  it relies to charge the garnishee); Anderson Boneless Beef, Inc. v.

  Sunshine Health Care Ctr., 852 P.2d 1340, 1343 (Colo. App. 1993)

  (same); see also Struble v. Am. Family Ins. Co., 172 P.3d 950, 955

  (Colo. App. 2007) (reviewing the record before the district court and

  concluding there were no issues of material fact as to issuance of

  an insurance policy by the garnishee to the judgment debtor).

¶ 14         We now move to the merits of Sedgwick’s substantive

  contentions.

       II.    Corporate Veil-Piercing of a Single-Member, Single-Purpose
                                           LLC

¶ 15         A duly formed corporation is treated as a separate legal entity,

  unique from its officers, directors, and shareholders. In re Phillips,



                                          5
  139 P.3d 639, 643 (Colo. 2006). The fiction of the corporate veil

  isolates “the actions, profits, and debts of the corporation from the

  individuals who invest in and run the entity.” Id. Only

  extraordinary circumstances justify disregarding the corporate

  entity to impose personal liability. Id. at 644.

¶ 16   Colorado’s appellate courts have not previously addressed

  corporate veil-piercing in the context we encounter today: a

  single-member, single-purpose LLC that is managed under a

  contract by another company (in this case, 1950 Logan, which was

  managed by Sedgwick). Cf. Highlands Ranch Univ. Park, LLC v. Uno

  of Highlands Ranch, Inc., 129 P.3d 1020, 1022 (Colo. App. 2005)

  (noting that an LLC party in that case was “a single-purpose entity

  created for the sole purpose of entering into the lease at issue”).

¶ 17   Single-member LLCs are permitted by statute, § 7-80-

  204(1)(g), C.R.S. 2018, and may be formed for any lawful business

  purpose, § 7-80-103, C.R.S. 2018.

  A. Burden of Proof for Veil-Piercing: Preponderance of Evidence

¶ 18   The burden of proof for establishing a claim to pierce the

  corporate veil has been the subject of inconsistent judicial

  precedent.


                                     6
¶ 19   In In re Phillips, 139 P.3d at 644, the supreme court said that

  the burden of proof is by “clear and convincing” evidence. But the

  same court in Griffith v. SSC Pueblo Belmont Operating Co. LLC,

  2016 CO 60M, ¶ 12, concluded that this language from Phillips was

  mere dictum. The court instead applied section 13-25-127(1),

  C.R.S. 2018, which mandates that “[a]ny provision of the law to the

  contrary notwithstanding and except as provided in subsection (2)

  of this section, the burden of proof in any civil action shall be by a

  preponderance of the evidence.”

¶ 20   A year after announcing Griffith, however, the supreme court

  decided Stockdale v. Ellsworth, 2017 CO 109, and once again said

  that the burden of proof for piercing the corporate veil is “clear and

  convincing” evidence. Id. at ¶ 23. But the supreme court was not

  called on in Stockdale to decide the burden of proof issue. And it

  provided no reasoning as to why a burden of proof contrary to the

  one set out in section 13-25-127(1) and endorsed in Griffith should

  apply to veil-piercing cases. We therefore conclude that this

  language from Stockdale was dictum, and we instead apply Griffith’s

  ruling that the burden of proof is by a preponderance of the

  evidence, as required by statute.


                                      7
                       B. Elements of Veil-Piercing

¶ 21   To determine whether it is appropriate to pierce the corporate

  veil, a court must conduct a three-part inquiry. First, the court

  must determine whether the corporate entity is the alter ego of the

  person or entity in issue. Phillips, 139 P.3d at 644. Second, it must

  determine whether justice requires recognizing the substance of the

  relationship between the person or entity sought to be held liable

  and the corporation over the form, because the corporate fiction

  was “used to perpetrate a fraud or defeat a rightful claim.” See id.

  (citation omitted). Third, the court must consider whether an

  equitable result will be achieved by disregarding the corporate form

  and holding a shareholder or other insider personally liable for the

  acts of the business entity. Id.

¶ 22   We review de novo a trial court’s legal conclusions in finding

  alter ego status and examine its related findings of fact for clear

  error. Colo. Coffee Bean, LLC v. Peaberry Coffee Inc., 251 P.3d 9, 29

  (Colo. App. 2010).

                  C. 1950 Logan’s Ownership Structure

¶ 23   The ownership information that was presented to the trial

  court consists primarily of a signature page for the 1950 Logan


                                     8
  condominium declarations and Sedgwick’s answers to

  interrogatories.

¶ 24       The condominium declarations signature page shows that

  1950 Logan had the following structure: “1950 Logan, LLC, a

  Colorado limited liability company[,] By: 1950 Logan II, LLC, a

  Colorado limited liability company, its Manager[,] By: 1950 Logan

  Management, LLC, a Colorado limited liability company, its

  Manager[,] By [signature] Name: F. Martin Paris, Jr.[,] Title:

  Manager.” 1950 Logan’s interrogatory response says, “[t]he name of

  each owner, general or limited partner, or member owning 5% or

  more of [1950 Logan] is 1950 Logan II, LLC . . . .”

¶ 25       There are other references in the record to 1950 Logan III,

  LLC, of which Sedgwick’s principal, Paris, was a member, as well as

  references to 1950 North Logan III, LLC, of which Paris was also a

  member, and both of these entities appear to have had an

  ownership interest in 1950 Logan II, LLC. (As discussed below, the

  district court referred to these entities as “Roman II and Roman

  III.”)

¶ 26       The response to an interrogatory states that, until August

  2003, Sedgwick served as the initial corporate manager for 1950


                                       9
  Logan, as well as for 1950 Logan II, LLC. And Sedgwick was “paid a

  fee in exchange for development services, which include marketing,

  general coordination of the construction of the development of 1950

  Logan, and lender management.”

¶ 27   Paris testified that the multi-tiered ownership structure of

  1950 Logan was adopted to fulfill a requirement of Lehman Bros.,

  one of the lenders on the condo development project.

¶ 28   In sum, the uncontradicted evidence before the district court

  was that 1950 Logan is a single-member LLC whose sole member is

  1950 Logan II, LLC.

                   D. Lack of Ownership by Sedgwick

¶ 29   No evidence was presented that Sedgwick owned 1950 Logan.

  Instead, the district court found that Sedgwick managed 1950

  Logan. See § 7-80-102(8) & (9), C.R.S. 2018 (distinguishing

  members — who have ownership interest in an LLC — from

  managers — who do not have ownership interest unless they are

  also members); cf. § 7-80-107(1), C.R.S. 2018 (providing that

  members of LLCs can be held liable based on piercing the corporate

  veil jurisprudence, but not addressing managers); § 7-80-705,

  C.R.S. 2018 (members and managers of LLCs are not liable for


                                   10
  judgments, debts, or liabilities of those companies); Weinstein v.

  Colborne Foodbotics, LLC, 2013 CO 33, ¶ 23 (overruling Sheffield

  Services Co. v. Trowbridge, 211 P.3d 714 (Colo. App. 2009), and

  holding that the manager of an insolvent LLC does not owe the

  LLC’s creditors the same fiduciary duties that an insolvent

  corporation’s directors owe to the corporation’s creditors).

¶ 30   One might question whether a court can pierce the corporate

  veil to hold liable a non-owner company that merely provided

  management services to an LLC. But because no party raised this

  issue, we do not decide it.

¶ 31   Instead, we follow the “cardinal principle of judicial restraint

  — if it is not necessary to decide more, it is necessary not to decide

  more.” Mulberger v. People, 2016 CO 10, ¶ 23 (Gabriel, J.,

  concurring in the judgment) (quoting PDK Labs. Inc. v. United States

  Drug Enf’t Admin., 362 F.3d 786, 799 (D.C. Cir. 2004) (Roberts, J.,

  concurring in part and concurring in the judgment)). Accordingly,

  we proceed to address the issues raised by the parties and

  considered by the district court in its analysis of the alter ego issue.




                                     11
               E. Legal Underpinnings of Alter Ego Analysis

¶ 32    In determining whether a corporate entity is the alter ego of

  the person or entity in issue, courts consider a variety of factors,

  including whether (1) the corporation is operated as a distinct

  business entity; (2) funds and assets are commingled; (3) adequate

  corporate records are maintained; (4) the nature and form of the

  entity’s ownership and control facilitate misuse by an insider; (5)

  the business is thinly capitalized; (6) the corporation is used as a

  “mere shell”; (7) legal formalities are disregarded; and (8) corporate

  funds or assets are used for noncorporate purposes. Phillips, 139

  P.3d at 644; Leonard v. McMorris, 63 P.3d 323, 330 (Colo. 2003).

  This inquiry looks to the specific facts of each case, and not all of

  the listed factors need to be shown in order to establish alter ego

  status. Great Neck Plaza, L.P. v. Le Peep Rests., LLC, 37 P.3d 485,

  490 (Colo. App. 2001).

       F. Statutory Basis for Different Treatment of Limited Liability
                   Companies in the Veil-Piercing Context

¶ 33    The district court addressed the various factors generally

  pertinent to piercing the corporate veil. Its analysis foundered,

  however, on the assumption that a single-member, single-purpose



                                     12
  LLC is subject to the same veil-piercing analysis generally applied to

  corporations, without taking into account the characteristics of

  such LLCs. We acknowledge the difficulty faced by the district

  court, given the dearth of precedent addressing those

  characteristics.

¶ 34   As relevant here, the Colorado Limited Liability Company Act

  provides:

              (1) In any case in which a party seeks to hold
                  the members of a limited liability company
                  personally responsible for the alleged
                  improper actions of the limited liability
                  company, the court shall apply the case law
                  which interprets the conditions and
                  circumstances under which the corporate
                  veil of a corporation may be pierced under
                  Colorado law.

              (2) For purposes of this section, the failure of a
                  limited liability company to observe the
                  formalities or requirements relating to the
                  management of its business and affairs is
                  not in itself a ground for imposing personal
                  liability on the members for liabilities of the
                  limited liability company.

  § 7-80-107(1)-(2) (emphasis added).

¶ 35   Given these statutory provisions, a court determining whether

  to pierce the corporate veil of an LLC must tread carefully and must

  consider whether traditionally applied veil-piercing factors are


                                       13
  applicable in the context of such a company. See 2 Larry E.

  Ribstein & Robert R. Keatinge, Ribstein and Keatinge on Limited

  Liability Companies § 15:3, Westlaw (database updated June 2019)

  (collecting cases discussing application of traditional veil-piercing

  factors to LLCs).

¶ 36   The court should tread even more carefully where the

  company in question is a single-member LLC. For example, a

  traditional veil-piercing analysis focuses, in part, on whether a

  corporation observes corporate formalities, such as holding board of

  directors meetings and keeping minutes of such meetings. See

  Phillips, 139 P.3d at 646. But, as we discuss below, some of those

  factors simply do not apply in the context of single-member LLCs.

¶ 37   And where, as here, management of the LLC is provided under

  contract by a management company, traditional veil-piercing

  factors may be even harder to apply.

   G. Alter Ego Findings Relied on by the District Court to Pierce the
                                   Veil

¶ 38   We conclude that the record, considered as a whole, does not

  support an alter ego finding that would permit piercing 1950

  Logan’s corporate veil.



                                    14
¶ 39   As discussed above, it is uncontested that 1950 Logan was a

  single-member LLC, whose sole member was 1950 Logan II, LLC,

  and that Sedgwick merely managed 1950 Logan’s affairs under a

  management contract. Sedgwick’s principal, Paris, testified that

  there were numerous real estate projects for which Sedgwick has

  provided the same types of development services it provided under

  its contract with 1950 Logan.

¶ 40   Though the district court framed the first issue before it as

  “whether . . . the LLC is the alter ego of its manager” (emphasis

  added) — apparently referencing Sedgwick — it is unclear whether

  the court recognized that Sedgwick was the manager under a

  management contract and was not an owner-manager of the entity.

¶ 41   In any event, several of the district court’s findings of fact

  relating to the alter ego determination do not necessarily show a

  disregard of the corporate form. Though the court found them

  indicative of alter ego status, they are also consistent with 1950

  Logan’s operation as a single-member LLC, as well as with

  Sedgwick’s role as manager of the entity through a contract to

  provide such services. See § 7-80-102(8) (defining “manager” of

  limited liability company); § 7-80-402, C.R.S. 2018 (addressing


                                     15
  designation of manager of limited liability company); § 7-80-404,

  C.R.S. 2018 (specifying duties of managers). We next address the

  veil-piercing factors that the district court deemed pertinent here.

                1. Ownership, Control, and Unity of Interest

¶ 42     As to the ownership element, the court noted Paris’s testimony

  that “Sedgwick actually had no interest in 1950 Logan.”

  Nevertheless, the court found that Sedgwick controlled the entity,

  finding specifically that

       • Sedgwick completely dominated 1950 Logan;

       • Sedgwick made all decisions for 1950 Logan;

       • Sedgwick wrote all of the checks on 1950 Logan’s bank

         account;

       • 1950 Logan had no employees;

       • 1950 Logan had no board of directors or other LLC members;

       • Sedgwick was “entirely in charge of whatever movement there

         was” of assets; and

       • Sedgwick was the one that made applications for 1950 Logan

         to be paid by the title company for items related to

         development of the condo building.




                                     16
¶ 43   The court made further findings relating to Paris. As noted

  above, he was the principal of Sedgwick, which was hired under a

  contract to provide management services to 1950 Logan, as

  permitted by section 7-80-402.

¶ 44   Although the court found that Paris was the only class A

  shareholder of 1950 Logan, the record does not support that

  finding. Instead, the record shows that he was a class A

  shareholder of 1950 Logan III, LLC — a separate entity from 1950

  Logan. (Other evidence showed that Paris was a shareholder of

  1950 North Logan III, LLC.)

¶ 45   Be that as it may, it is unclear how this finding about Paris

  could support the conclusion that Sedgwick was the alter ego of

  1950 Logan. The court did not find that Sedgwick and Paris were

  the alter egos of each other, and it seems to have conflated the two

  in concluding that Sedgwick’s assets are available to satisfy the

  judgment against 1950 Logan — even though it found that

  Sedgwick had no interest in 1950 Logan.

¶ 46   The same conflation seems to affect the following findings that

  the district court made about Paris:




                                   17
       • “1950 Logan had no other class A shareholders to restrict

         Paris (president of Sedgwick and manager of 1950 Logan) in

         his decision-making”;

       • Paris, on behalf of 1950 Logan, signed a 2009 settlement

         agreement, settling a construction defect lawsuit brought by

         the HOA against 1950 Logan; and

       • 1950 Logan was “dominated in a very dramatic sense by

         Sedgwick and Marty Paris, its [principal].”

¶ 47     To the extent these findings are supported by the record, they

  do not tend to show ownership of 1950 Logan by Sedgwick or unity

  of interest between those entities. And, as noted above, Sedgwick

  was hired under a contract to manage 1950 Logan, which itself had

  no employees. The court’s findings do not show control by

  Sedgwick beyond what would be expected under the contractual

  role of manager of the LLC.

¶ 48     The court’s ruling appears to ignore — without explaining why

  — other evidence that would tend to show that Sedgwick did not

  exercise control over 1950 Logan beyond what would be expected

  under its contractual management agreement:




                                     18
• Paris testified that Sedgwick had no ownership interest in, and

  never made a profit from, the Tower on the Park project.

• When asked whether Sedgwick ever had possession or control

  of any assets of any of the 1950 Logan, LLC, entities, Paris

  responded, “No, just a contractual relationship to manage

  them.” He explained that “[p]art of the services agreement that

  Sedgwick signed for 1950 Logan, LLC, was to manage the

  business affairs of the LLC.”

• About $30 million was borrowed from institutional investors to

  build the building. The funds went into a construction escrow

  account and were never deposited in Sedgwick’s own account.

  Sedgwick would forward requests to pay subcontractors and

  vendors to the lending bank and title company for

  disbursements. The fees that Sedgwick earned for its own

  work in managing the project were paid through the

  construction escrow to Sedgwick’s account.

• Paris testified that Sedgwick provided the following

  management services to the project: “Sedgwick’s knowledge

  and expertise is in the process of managing the real estate

  development. So they manage the capital sources, the equity,

                              19
  the debt, insurance, the general contractor, the permitting

  process, the architect, the buyer selection process, the

  wholesales and marketing process. [There are] probably 30

  items in our services agreement that Sedgwick is responsible

  [for] managing as part of their contractual relationship with

  the single purpose [limited liability company, referencing 1950

  Logan].” He said that Sedgwick was a “cradle to grave service

  provider for the ownership entity.” According to Paris,

  Sedgwick has provided the same services with respect to other

  real estate development projects and is “fully indemnified by

  the [project’s] ownership for [those] services.”

• Sedgwick’s attorney testified that Sedgwick has its own assets

  and bank accounts and does not commingle them with those

  of the entities it manages. Paris testified, “Sedgwick’s money

  was Sedgwick’s money and . . . 1950 Logan’s money was 1950

  Logan’s money. They are separate businesses, separate

  business structures, only connected by a service agreement [—

  a] contract for services.”




                               20
       • Sedgwick’s attorney testified that, on the date of the

         garnishment, Sedgwick did not have possession or control of

         assets of 1950 Logan.

¶ 49     The record simply does not support the court’s finding that

  Sedgwick had the type of ownership and control over 1950 Logan

  necessary to establish alter ego status.

                 2. Failure to Observe Corporate Formalities

¶ 50     The district court also based its alter ego finding on what it

  saw as Sedgwick’s failure to observe the usual corporate formalities.

  The court found the following:

       • “[T]here was no board of directors, . . . no one for Mr. Paris to

         answer to directly,” and, relatedly, that “there was no evidence

         that there was any board of director approval of anything or

         any activity or steps that Mr. Paris took[.]”

       • “[T]here were no . . . minutes of meetings of any board of

         directors in . . . 1950 Logan.”

¶ 51     But in the context of a single-member LLC — and particularly

  one that is run under contract with a management company — we

  conclude that these factors do not weigh in favor of finding alter ego

  status. See § 7-80-107(2).

                                      21
¶ 52    “LLCs are often operated with less formality [than traditional

  corporations] and may not have regular meetings of members or

  managers, or observe other procedures that are required for

  corporations.” 1 Stephen A. Hess, Colorado Practice Series: Methods

  of Practice § 5:9, Westlaw (8th ed. database updated May 2019).

  “As an example, the Colorado Business Corporation Act requires

  corporations to hold annual meetings of shareholders under section

  7-107-101[, C.R.S. 2018]. There is no similar requirement for

  annual meetings of the members of an LLC under the LLC Act.” Id.

  at n.10; cf. id. at § 5:9 (“The provision in the LLC Act that the failure

  to observe formalities is not itself a ground to impose liability . . .

  may actually remove a procedural protection for LLCs otherwise

  available to Colorado corporations. However, to avoid that result,

  one might argue that, although the failure to follow corporate

  formalities may not alone cause the LLC ‘veil’ to be pierced, the fact

  that the LLC has followed formalities can still be a positive factor to

  maintain the LLC ‘veil.’”).

       3. Whether the Entity’s Form Facilitates Misuse by an Insider

¶ 53    The district court found that 1950 Logan and what it referred

  to as “Roman II and Roman III” were “all rolled into one for


                                      22
  purposes of operations and for purposes of [filing] their single tax

  return.” Cf. § 7-80-107(3) (“A limited liability company’s status for

  federal tax purposes does not affect its status as a distinct entity

  organized and existing under this article.”).

¶ 54   Assuming, without deciding, that the record supports that

  finding, those circumstances do nothing to establish Sedgwick as

  an alter ego of 1950 Logan, even given the court’s finding that “Mr.

  Paris managed that whole structure.” Thus, the court’s finding that

  “the nature and form of ownership and control does facilitate

  misuse by an insider” cannot support piercing the veil to get to

  Sedgwick’s assets.

                              4. Mere Shell

¶ 55   As the district court found, 1950 Logan did not constitute a

  “mere shell.” See Phillips, 139 P.3d at 644 (listing whether

  corporation is operated as a “mere shell” as one factor in

  determining alter ego status).

                             5. Capitalization

¶ 56   Undercapitalization of the subject entity is one indicator that

  may support piercing of the corporate veil, see, e.g., McCallum

  Family, L.L.C. v. Winger, 221 P.3d 69, 76 (Colo. App. 2009), and the


                                    23
  court relied heavily on this factor in deciding to pierce the veil to

  reach Sedgwick’s assets. After reviewing the uncontroverted

  evidence, however, we cannot agree with the district court that

  1950 Logan was thinly capitalized.

¶ 57   The court recognized that 1950 Logan owned the land on

  which the condo development was built, but found that “the land

  itself only acquired value as the project proceeded and approached

  completion.”

¶ 58   It is very apparent from the record that the land had intrinsic

  value for its development potential. Based in no small part on its

  ownership of that land, 1950 Logan raised more than $1 million

  from “friends and family” types of investors, was able to obtain

  funding from major institutional lenders to build the building, sold

  all the units in the building, and paid off more than $30 million in

  loans. These facts necessarily show that the entity was not “thinly

  capitalized.” Cf. McCormick v. City of Dillingham, 16 P.3d 735, 744

  (Alaska 2001) (undercapitalization proved where corporate entity

  could not procure a loan); 66, Inc. v. Crestwood Commons

  Redevelopment Corp., 998 S.W.2d 32, 40 (Mo. 1999) (finding

  undercapitalization when corporate entity “never had any assets,


                                     24
  net worth, [or] bank accounts”); S. Lumber & Coal Co. v. M.P. Olson

  Real Estate & Constr. Co., 426 N.W.2d 504, 509 (Neb. 1988) (citing

  Brown v. Alron, Inc., 388 N.W.2d 67, 71-72 (Neb. 1986), and noting

  that corporation in that case was undercapitalized with “a mere

  $100”); Baatz v. Arrow Bar, 452 N.W.2d 138, 142 (S.D. 1990)

  (refusing to find inadequate capitalization where corporation was

  started with only $5000, but the plaintiff had not carried burden to

  show why $5000 was inadequate); Agway, Inc. v. Brooks, 790 A.2d

  438, 441 (Vt. 2001) (finding undercapitalization where corporate

  entity had “nothing of value”); 1 Fletcher Cyclopedia of the Law of

  Corporations § 41.33, Westlaw (database updated Sept. 2018) (a

  finding of inadequate capitalization is appropriate where the capital

  is “illusory or trifling” compared with the business to be done and

  the risks of loss).

¶ 59   In the context of undercapitalization, it is anomalous that the

  district court would have relied in part on the multi-tiered

  ownership structure of 1950 Logan in deciding to pierce the

  corporate veil. As noted above, one of 1950 Logan’s major

  institutional lenders insisted on this ownership structure.

  Certainly the lender would not have done so if it believed that the


                                    25
  structure would result in undercapitalization and the inability of

  1950 Logan to pay creditors — including that lender — during the

  useful life of the LLC. And there was no evidence that 1950 Logan

  failed to pay its known creditors before winding down its operations.

¶ 60   In its findings, the district court also referred to the lack of

  funds available for 1950 Logan to pay the judgment entered for

  Hinds. But the record shows that by the time that judgment had

  been entered, 1950 Logan had long before (indeed, years before)

  satisfied its single purpose — to develop the property and sell the

  units in the building — and had long since wound down operations.

  Undercapitalization is not determined by whether a single-purpose

  LLC might be able to pay liabilities that are incurred only after the

  LLC has reached the end of its useful life and has ceased operating.

       6. Commingling of Assets, and Use of Corporate Funds for
                         Noncorporate Purposes

¶ 61   The district court found that there was commingling of assets

  between Sedgwick and 1950 Logan and that corporate funds were

  used for noncorporate purposes. The only evidence the court relied

  on for this finding was the settlement of the HOA’s construction

  defect lawsuit. The settlement was entered into jointly by Sedgwick,



                                     26
  1950 Logan, what the court called “Roman II and Roman III,” and

  1950 Logan Development. Though the court recognized that the

  joint settlement was, “to a certain extent[,] a drafting convenience,”

  it said that the “funds actually came out of the only bank account

  which was in the name of 1950 Logan, LLC. And so at least some of

  those funds were paid to extinguish the liability, if any, of Sedgwick,

  among the other defendants.” The court concluded, “1950

  Logan’s . . . funds [were] available to [Sedgwick] to settle its liability,

  if any,” in the suit.

¶ 62   To the extent the court relied on this joint settlement, we have

  found no legal authority that would support a conclusion that such

  a joint settlement of potential liabilities is an indicator of alter ego

  status, and the parties have cited none. On the contrary, it is

  common knowledge among lawyers and judges that joint

  settlements that benefit unrelated parties often take place,

  especially where cross-claims among the settling entities may be

  anticipated.

¶ 63   The record does not support piercing 1950 Logan’s corporate

  veil based on commingling of assets or the use of corporate funds

  for noncorporate purposes.


                                      27
  H. The Undisputed Evidence Fails to Establish Alter Ego Status and
      Therefore Precludes Veil-Piercing to Reach Assets of Sedgwick

¶ 64   We conclude that the evidence presented to the district court

  is insufficient to establish, even by a preponderance of the evidence,

  that 1950 Logan is the alter ego of Sedgwick. Therefore, the

  elements necessary for piercing the corporate veil cannot be met.

                             III.   Conclusion

¶ 65   The district court’s judgment against Sedgwick is reversed.

  We remand the case to the district court for entry of judgment for

  Sedgwick.

       JUDGE GROVE concurs.

       JUDGE J. JONES specially concurs.




                                    28
       J. JONES, J., specially concurring.

¶ 66   I agree with the majority’s analysis of the alter ego question,

  and its result. But I write separately because I believe the district

  court’s findings should lead to the conclusion that Mr. Hinds also

  failed to prove the second requirement for piercing the corporate veil

  — that the corporate form was “used to perpetrate a fraud or defeat

  a rightful claim.” In re Phillips, 139 P.3d 639, 644 (Colo. 2006)

  (quoting Contractors Heating & Supply Co. v. Scherb, 163 Colo. 584,

  588, 432 P.2d 237, 239 (1967)).

¶ 67   In Martin v. Freeman, 2012 COA 21, ¶ 21, a majority of a

  division of this court held that this requirement can be shown even

  if there was no wrongful conduct in the use of the corporate form. I

  dissented from that holding, and I continue to believe that the

  majority’s holding is contrary to Colorado Supreme Court

  precedent. In my view, that precedent requires a showing that the

  corporate form was used “in a manner that, if not criminal, was at

  least unlawful or intended to defeat a claim.” Id. at ¶ 33 (J. Jones,

  J., dissenting).

¶ 68   In this case, the district court found that “there was no

  evidence of fraud” and there was “no specific evidence of a wrongful


                                    29
motive or intent.” Absent any such evidence, there is no basis to

conclude that 1950 Logan’s corporate form was used to perpetrate a

fraud or defeat a rightful claim. See In re Phillips, 139 P.3d at 644

(“Only when the corporate form was used to shield a dominant

shareholder’s improprieties may the veil be pierced.”). So on this

basis as well, the district court’s judgment cannot stand.1




1Obviously, I do not fault the district court for relying on the
majority’s decision in Martin.

                                  30
