Rome v. Reyes

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Prior Opinion Announced May 11, 2017, WITHDRAWN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

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 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

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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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