Colorado lawyers can now ethically advise clients concerning marijuana use and business issues – update on December blog post

Last December, my blog discussed two Colorado formal ethics opinions concerning marijuana-related issues for lawyers.  One opinion reached the conclusion that lawyers could personally use marijuana without violating ethics rules (Ethics Op. 124), and the other, in seeming contradiction, concluded that lawyers could not ethically counsel clients on many of the business aspects of marijuana including its possession, cultivation and sale.  (Ethics Op. 125).  

Ethics opinion 125 highlighted the fact that Colorado Rule of Professional Conduct 1.2 created a catch 22 for lawyers.  The rule prohibits lawyers from counseling or assisting a client to engage in conduct that the lawyer knows to be criminal.  This prohibition would include marijuana related advice, because federal law criminalizes its cultivation, sale, distribution and use.  However, Colorado law legalizes these activities within certain parameters, so lawyers should be ethically permitted to provide legal advice in these areas.   

On March 24, 2014, the Colorado Supreme Court addressed the dilemma by adopting a new comment to Colorado Rule of Professional Conduct 1.2.  The comment clarifies that lawyers are allowed to advise and assist clients in conduct permitted by Colorado law concerning marijuana use, possession, cultivation and sales, stating:

A lawyer may counsel a client regarding the validity, scope, and meaning of Colorado Constitution article XVIII, secs. 14 & 16, and may assist a client in conduct that the lawyer reasonably believes is permitted by these constitutional provisions and the statutes, regulations, orders, and other state or local provisions implementing them. In these circumstances, the lawyer shall also advise the client regarding related federal law and policy.

Colorado Rule of Professional Conduct, Comment 14.  The Colorado constitution sections referenced in the new comment refer to Colorado’s legalization of medical marijuana (section 14) and recreational marijuana (section 16).   Although it does not resolve many of the questions which arise from the conflict between state and federal law in this area, the new comment at least gives Colorado lawyers comfort that they will not run afoul of the Colorado ethics rules in providing legal advice to clients on marijuana related issues.  

My earlier post describing the Colorado formal ethics opinions can be found here: http://leekatherinegoldstein.blogspot.com/2013/12/colorado-lawyers-can-ethically-smoke.html

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC. 

Colorado Court of Appeals holds that ski area operators are not responsible for injuries caused by avalanches – an avalanche is an inherent danger or risk of skiing

According to the Colorado Avalanche Information Center (CAIC), since the 1950s avalanches have killed more people in Colorado than any other natural hazard, and in the United States, Colorado accounts for one-third of all avalanche deaths.¹   Given the well known risk of these localized natural disasters, it should come as no surprise that Colorado’s Court of Appeals has ruled that ski area operators are not responsible for injuries or deaths caused by an avalanche, and are not responsible to warn skiers of the risk that an avalanche may occur on the area’s ski runs.  Fleury v. IntraWest Winter Park Operations Corp., 2014 COA 13 (February 13, 2014).²

In Fleury, the Court was faced with the issue of who is responsible when a skier is injured or killed by an avalanche occurring within the boundaries of a ski area.  Ms. Fleury brought a wrongful death suit against the operator of Winter Park Resort after her husband was killed by an avalanche while skiing inbounds on one of the resort’s ski runs.  Ms. Fleury asserted that the ski area operator was liable for failing to warn that an avalanche was likely to occur on that run, and for failing to close the ski run on which the avalanche occurred.  The trial court granted judgment as a matter of law in favor of the ski area operator finding that the avalanche was an inherent risk of skiing, and that the ski area operator was therefore immune from liability under the Ski Safety Act.

The Colorado Legislature enacted the Ski Safety Act, Colorado Revised Statutes §33-44-101, et seq., in 1979.  In adopting the Act, the Legislature recognized that there are dangers inherent the sport of skiing, regardless of the safety measures that may be employed by ski area operators.  C.R.S. §33-44-102.  The Act was a legislative attempt to define the legal responsibilities of ski area operators, and of skiers using such ski areas; and to define the rights and liabilities existing between the skier and the ski area operator and between skiers.  C.R.S. §33-44-102.  In 1990, the Legislature amended the Ski Safety Act to grant immunity to ski area operators for injuries resulting from any of the inherent dangers and risks of skiing, and broadened the definition of inherent dangers and risks in 2004.  C.R.S. §33-44-112.  The Act currently defines inherent dangers and risks of skiing as:

[T]hose dangers or conditions that are part of the sport of skiing, including changing weather conditions; snow conditions as they exist or may change, such as ice, hard pack, powder, packed powder, wind pack, corn, crust, slush, cut-up snow, and machine-made snow; surface or subsurface conditions such as bare spots, forest growth, rocks, stumps, streambeds, cliffs, extreme terrain, and trees, or other natural objects, and collisions with such natural objects; impact with lift towers, signs, posts, fences or enclosures, hydrants, water pipes, or other man-made structures and their components; variations in steepness or terrain, whether natural or as a result of slope design, snowmaking or grooming operations, including but not limited to roads, freestyle terrain, jumps, and catwalks or other terrain modifications; collisions with other skiers; and the failure of skiers to ski within their own abilities.

C.R.S. §33-44-103(3.5).  Ms. Fleury asserted that an avalanche was not an inherent danger or risk of skiing under the Act since it was not specifically listed as such in the statute. The Court of Appeals rejected this assertion, concluding that an avalanche fits within the definition of inherent dangers and risks of skiing, because the statutory definition is illustrative rather than exclusive, and includes dangers resulting from certain conditions of snow, variations in steepness or terrain and changing weather conditions.  Avalanches, the Court noted, result from the effects of changing weather conditions on snow conditions in steep terrain, and are commonly understood as a danger.  Accordingly, they fall within the definition of inherent dangers and risks of skiing.  The Court further noted that defining an avalanche as an inherent danger is fully consistent with the legislative recognition that skiing is fraught with dangers, regardless of all safety measures that may be employed by a ski area. ¶16.  

The Court also rejected the claim that ski area operators should be held liable for failing to post a sign warning of avalanche danger. The Court noted that the Ski Safety Act only requires ski area operators to post signs relating to man-made obstacles, ski area boundaries, and the steepness of the terrain. ¶21-24.  The Act specifically does not require ski area operators to post a sign notifying skiers of "danger areas."  ¶22. 

The bottom line: Skiers are responsible for their own safety whether in the back country or at a ski resort.  Always know the snow conditions before heading out to the slopes.  You can check local conditions on the CAIC website: avalanche.state.co.us/

¹ Colorado Avalanche Information Center – avalanche.state.co.us/about-us/

² Opinion by Judge Fox; Navarro, J., concurs; J. Jones, J., dissents.

You can read the Court’s opinion here: http://www.courts.state.co.us/Courts/Court_of_Appeals/Opinion/2014/13CA0517-PD.pdf

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC. 

Colorado lawyers can ethically smoke pot but advising clients on it gets hazy.

Colorado lawyers can ethically smoke marijuana, but must think twice before giving legal advice to others relating to marijuana cultivation, possession, sales, etc.  These are the conclusions set out by the Colorado Bar Association Ethics Committee in Formal Ethics Opinions 124 and 125.

After legalizing the use of medical marijuana in 2000, Colorado passed Amendment 64 in 2012 becoming one of the first states to allow its residents to possess and smoke recreational marijuana.  Other states are following in Colorado’s footsteps, but the federal government has declined to join the trend.  The conflict between the state and federal laws creates a quagmire for Colorado attorneys in complying with the state’s ethics rules. 

The Ethics Committee of the Colorado Bar Association has confronted marijuana-related issues in two different contexts, resulting in the issuance of two formal ethics opinions: (1) Formal Opinion 124, “A Lawyer’s Medical Use of Marijuana” (2012); and (2) Formal Ethics Opinion 125 “The Extent to which Lawyers may Represent Clients regarding Marijuana-Related Activities.” 

Opinion 124 concerns the possession and use of medical marijuana by attorneys.  The committee opined that a lawyer’s medical use of marijuana in compliance with Colorado law does not, in and of itself, violate the ethics rules.  To be a violation, there must be additional evidence that the lawyer’s conduct adversely implicates the lawyer’s honesty, trustworthiness or fitness as a lawyer.  However, the committee cautioned that marijuana use that impairs an attorneys’ ability to provide competent legal representation implicates additional rules such as the rule which prohibits a lawyer from representing a client when the lawyer’s physical or mental condition materially impairs the lawyer’s ability to represent the client.  In those cases, the use may give rise to a violation of the ethics rules.  The committee also noted that it cannot speak to how the Colorado Supreme Court or Office of Attorney regulation or other authorities may regard the lawful use of marijuana.

The second opinion, Opinion 125, tackled the issue of whether lawyers can ethically advise clients about the many issues which arise with respect to the use of and commerce in recreational marijuana, including its possession, cultivation and sale.  This issue was far more complicated and the ethics committee was unable to derive a hard and fast rule to guide lawyers. Instead, it described a “spectrum of conduct” ranging from conduct clearly permitted to conduct clearly prohibited.  The complexity derives from Colorado Rule of Professional Conduct 1.2(d), which prohibits a lawyer from counseling or assisting a client to engage in conduct that the lawyer knows to be criminal.  As the committee noted, although Colorado has decriminalized marijuana possession and use for medical and recreational purposes, federal law criminalizes the cultivation, sale, distribution and use of marijuana for virtually any purpose.  Thus, advising a client on the prospective cultivation, sale, distribution and use of marijuana would be tantamount to advising the client to engage in conduct that the lawyer knows to be criminal – at least under federal law.  If the conduct is illegal, the comments to Rule 1.2 advise the lawyer not to undertake the representation, or to limit the lawyer’s advice to an honest opinion about the actual consequences that appear likely to result from a client’s conduct.

The committee provided several examples along the outer edges of the spectrum of marijuana related representation, illustrating representation which is permissible and that which is prohibited. 

Permissible:

● Lawyers may represent clients regarding the consequences of past conduct.  This applies to all areas of the law – including family, employment, workers compensation, and criminal.

● Government lawyers may counsel their clients regarding the creation and application of zoning and other ordinances and legislation relating to marijuana.

● Government lawyers may counsel their clients regarding enforcement, interpretation or application of marijuana laws.

● Lawyers may advocate for changes in the law and assist clients in advocating for change.

● Lawyers may advise family law clients about the consequences of using marijuana before, during or after exercising parenting rights or parting time (because doing so is giving an honest opinion about the actual consequences that appear likely to result from a client’s conduct).

Prohibited:

● Lawyers may not assist clients in structuring or implementing transactions which by themselves violate federal law (e.g., drafting or negotiating a contract to facilitate the purchase and sale of marijuana).

● Lawyers may not represent the lessor, lessee, purchaser or supplier in a transaction for a property or supplies that clients intend to use to cultivate, manufacture, distribute or sell marijuana.

Lawyers will need to use their analytical skills to navigate the grey areas in between.  Although the two ethics opinions appear to conflict by allowing an attorney to engage in personal conduct relating to marijuana, but forbidding the attorney from counseling others regarding marijuana-related conduct, the conflict results from the ethics rules themselves and particularly Rule 1.2.  Unless or until there is a change in the federal law, or the state’s ethics rules, Coloradans will be left without legal guidance when it comes to the prospective possession, use, cultivation and sale of marijuana.

You can read the ethics opinions here:

Link to Opinion 124: http://www.cobar.org/tcl/tcl_articles.cfm?articleid=7626

Link to Opinion 125: http://www.cobar.org/tcl/tcl_articles.cfm?articleid=8370

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC. 

Execution of an electronic waiver and release of liability can be proven without a printout of the electronically signed agreement

Is a printout of an electronically signed document necessary to prove its execution?  Not according to the majority’s ruling in Berenson v. USA Hockey, Inc., et al., 2013CA138 (Opinion by Judge Furman; Booras, J., concurs; Dailey, J., dissenting).

In Berenson, the plaintiff sued the amateur hockey league after she was injured during a game.  The league moved for summary judgment based upon its assertion that the plaintiff had agreed to the terms of a liability waiver and release when she had registered on the USA Hockey website. The plaintiff did not dispute that she had completed the online registration process for the year she was injured, but could not remember if she had agreed to the terms of a release.  The league did not produce a copy of the electronically executed agreement, but instead relied upon the affidavit of an employee which stated that the plaintiff could not have completed the online registration process without executing the page with the waiver and release, and that the plaintiff had completed the registration process the year she was injured.

The trial court granted summary judgment and the plaintiff appealed.  The Colorado Court of Appeals held that Colorado’s evidence rules did not require a printout of the agreement in this circumstance.  Instead, the release could be proved by other evidence such as the affidavit.

The Court of Appeals analyzed the issue under Colorado’s “best evidence” rule, C.R.E. 1002.  The best evidence rule is a rule of evidence which requires a person seeking to prove the contents of a writing, recording or photograph to submit the “original” writing, recording or photograph into evidence in the court proceeding.  With respect to data saved on a computer, “original” means a printout or other output readable by sight, shown to reflect the data accurately.  C.R.E. 1001(3). 

The Court reasoned that the best evidence rule did not require submission of the printed agreement because the contents of the agreement were not at issue, and the best evidence rule only applies when a party seeks to prove the contents of the writing. The mere fact that a written record has been made does not prevent a witness with personal knowledge from testifying as to facts which have been memorialized in a written record.  Thus, the employee’s affidavit containing the fact that the plaintiff could not register through the website without agreeing to the waiver and release was sufficient to show that the claims had been released. 

The dissent argues that the contents of the writing were at issue in the case because it mattered where the plaintiff initialed the document and thus the initials were part of the document’s contents.  The dissent noted that the distinction between attempting to prove the contents of a writing and attempting to prove a fact about a writing is often difficult to draw.

The opinion does not reference if or how the actual terms of the release were proven. 

You can read the Court’s opinion here: 

http://www.courts.state.co.us/Courts/Court_of_Appeals/Opinion/2013/12CA1013-PD.pdf

Although not discussed in the opinion, Colorado’s electronic signature laws are governed in part by the Uniform Electronic Transactions Act (UETA), C.R.S. §24-71.3-101, et seq. enacted in Colorado in 2002.  The UETA defines and electronic signature as: “an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”  C.R.S. §24-71.3-118(8).  In this case, the affidavit may have served as proof of the “process.”

A best practices guideline for electronic signatures, issued by the Governor’s Office of Information and Technology in 2007, can be found here: http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheadername1=Content-Disposition&blobheadername2=Content-Type&blobheadervalue1=inline%3B+filename%3D%22Colorado+Electronic+Signature+Guidelines+%28published+2007%29.pdf%22&blobheadervalue2=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251656636739&ssbinary=true

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC. 

Sellers beware! – Sellers of residential properties are responsible for disclosing latent defects

If you are selling a home in Colorado and you know that the home or property has a latent defect (i.e., a defect which is unlikely to be discovered in an inspection), you must affirmatively disclose it to the buyer.  In Gattis v. McNutt, 2013COA 145 (November 7, 2013), the Colorado Court of Appeals ruled that sellers have an independent duty to disclose latent defects to buyers, and that the failure to disclose may give rise to a tort claim.

In Gattis, the Seller knew from an engineering report that the residence had structural problems resulting from expansive soils.  An entity controlled by the Seller oversaw repair work to remedy the structural problems.  Once the repairs were complete, Seller purchased the residence, then entered into a contract to sell the residence to Buyer.  The contract was a standard form real estate contract, approved by the Colorado Real Estate Commission, to which no changes were made.  Although Seller disclosed the structural repairs on a disclosure form which accompanied the contract, it did not disclose the underlying soil problems or that Seller controlled the company which performed the repairs. 

Years after purchasing the property, Buyer sued Seller asserting tort claims for economic losses caused by the negligent non-disclosure of the expansive soil problem.  The trial court denied Seller’s motion for summary judgment based on the “economic loss rule,”¹ and ruled in favor of Buyer on the nondisclosure claim. 

On appeal, the Colorado Court of Appeals held that the economic loss rule did not bar the nondisclosure claim because Seller had a duty to disclose the defects which was independent of the contract.  The Court reviewed other Colorado cases which have held that builders of residential construction have an independent duty to disclose latent defects to buyers and the policy reasons cited therein.  The Court concluded that these same policy reasons apply to home sellers and buyers as well, as follows:

Home sellers have a long recognized common law duty to disclose known but latent defects in the property.

A seller who has actual knowledge of a latent defect is in a superior position than a buyer, and has a duty to disclose facts that in equity and good conscience should be disclosed. 

Buyers have difficulty in learning of a latent defect.

A purchaser of a home (the biggest and most important investment in many people’s lives), can ill afford to suddenly find a latent defect that completely destroys the family’s budget, and have no remedy for recourse.

It is foreseeable that a latent defect will cause harm to the home and homeowner.

Enforcing a duty of disclosure avoids preventable harm to innocent parties and discourages misconduct.

The burden of disclosure is minor because it only applies to defects which are material (i.e. ones which may affect the buyer’s decision to buy).

Gattis, ¶16.  The Court did not rule out the potential for a home sale contract to bar tort recovery.  The Court noted that there are transaction-specific negotiated contracts which address common law duties and completely subsume them.  Gattis, ¶¶18-20.  For example, a contract may state that the buyer is relying solely upon its own investigation and not in any way upon any representations made by the seller, in which case, a nondisclosure claim would likely be barred.  Gattis, ¶21. 

You can read the Court’s opinion here: http://www.courts.state.co.us/Courts/Court_of_Appeals/Opinion/2013/12CA1269-PD.pdf

Fn.1 The economic loss rule is a judicial doctrine intended to maintain the boundary between contract law and tort law by preventing a party from recovering in tort when losses are caused by the negligent breach of a contractual duty.  The economic loss rule helps ensure that contracting parties can allocate their risks and costs by restricting the parties to the remedies they bargained for in their contract rather than allowing use of the more expansive remedies available under tort law.  For a discussion of the origins of the doctrine and its adoption and application in Colorado, see the Colorado Supreme Court’s decision in Town of Alma v. AZCO Construction, Inc., 10 P.3d 1256, 1259-1266 (Colo. 2000).  Broadly speaking, under Colorado law, the economic loss rule bars recovery under tort law unless the party is acting under a duty which is independent of the duties imposed by the parties’ contract.  Gattis, ¶13. 

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC. 

Colorado Court of Appeals limits an employer’s duty to indemnify employees

Is an employer required to indemnify an employee who knowingly engages in wrongdoing in performing his or her job?  The Colorado Court of Appeals says no. 

In Premier Members Federal Credit Union v. Henry Block and South Broadway Automotive Group, Case No. 12CCA0906 (announced August 29, 2013), the Court of Appeals decided that an employee who knowingly engages in wrongdoing is not entitled to be indemnified by his or her employer under common law principles.  The case involved “power booking” a practice of inflating the value of a car so as to make the car loan more attractive to a lender.  When the lender sued the dealership and its employee claiming fraud, the employee cross-claimed against the employer for indemnity.  The trial court found that the employee knowingly engaged in the practice of power booking on behalf of its car dealership employer and dismissed the cross claim against the employer.  The employee appealed. 

Prior Colorado cases on indemnification did not address an employee’s knowing or willful wrongdoing

The Colorado Supreme Court previously held that joint tortfeasors (two or more persons who are both responsible for causing an accident or other event which injures a third person) are not entitled to indemnification from each other, abolishing the common law doctrine of indemnity as between joint tortfeasors.  Brochner v. Western Ins. Co., 724 P.2d 1293, 1299 (Colo. 1986). 

 Later, the Colorado Court of Appeals held that an employee could seek indemnification from her employer where the employer was not jointly liable, but rather was only vicariously liable for the employee’s tortious actions.¹  Serna v. Kinston Enterprises, 72 P.3d 376, 380 (Colo.App. 2002).

These opinions did not directly address the question of what happens when the employee knows that his or her actions are wrongful.  Although the employer will be liable under the doctrine of respondeat superior to third-parties who are injured by the conduct, does the employer also have to indemnify the employee (that is, pay the employee for any losses he or she incurs)?

The Colorado Court of Appeals turned to the Restatement of Agency for guidance

To answer this question, the Court turned to the Restatement (Second) of Agency, noting that Colorado courts have relied on the restatement in addressing the duty of indemnification in the past.   The Court zeroed in on a comment from the Restatement which states: “[a]n agent knowingly committing an illegal act ordinarily has no right to indemnity from the principal, although the principal has directed him to commit it. . . . “ to support its conclusion that an employee’s knowledge of the illegality of the act prevents him or her from compelling indemnity from the employer.   Restatement (Second) of Agency § 439, cmt. g. 

The Court of Appeals concluded that under Colorado law: “an employee-tortfeasor is barred from seeking indemnification from his vicariously liable employer when, as here, that employee knew he was engaging in wrongful conduct.”  Opinion, ¶30.  The Court described this limitation as being consistent with Colorado public policy which prohibits indemnifying a party for damages resulting from intentional or willful conduct. 

Fn. 1 - Colorado has adopted the doctrine of respondeat superior which makes an employer vicariously liable for torts committed by an employee who is acting in the course and scope of his or her employment.  Raleigh v. Performance Plumbing and Heating, 130 P.3d 1011, 1019 (Colo. 2006).  Under this doctrine, the employer itself need not have committed any wrongful act. 

You can read the Court’s opinion here: http://www.courts.state.co.us/Courts/Court_of_Appeals/Opinion/2013/12CA0906-PD.pdf

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC. 

Colorado Supreme Court sets the standard for establishing a professional negligence claim against a transactional real estate broker

Can a transactional broker be held liable to a seller when the seller sells the property for less than he or she otherwise would have because of the broker’s alleged negligence?  The Colorado Supreme Court answered the question of what proof is needed to establish such a claim in Gibbons v. Ludlow, Case No. 2013 CO 49, July 1, 2013. 

In Gibbons, the plaintiffs/sellers sued their transactional real estate broker¹ for alleged negligence in failing to tell them that a counteroffer included a credit to the buyer worth approximately $1.6 million.  The counteroffer was accepted, and the property was sold pursuant to the contract.  The Sellers later sued the attorney and the real estate broker for allegedly failing to tell them about the credit provisions in the contracts.

The Court held that a plaintiff suing a transactional broker for professional negligence must show that but for the alleged negligent acts of the broker, the plaintiff either: (1) would have been able to obtain a better deal in the underlying transaction (the “better deal” scenario), or (2) would have been better off by walking away from the underlying transaction (the “no deal” scenario).   In doing so, the Court used the same framework commonly used in professional negligence claims against lawyers which requires the plaintiff to prove a “case within a case” (i.e., that the plaintiff would have prevailed in the underlying case but for the attorney’s negligence).

The Court further held that the Sellers did not meet their burden in this case under either of the two potential scenarios.  First, the Sellers were unable to show that they would have gotten a “better deal” because the buyer testified that he would not have purchased the property for a higher amount.  Second, the Sellers were unable to show that they would have been better off with “no deal” because they were unable to show that they would have been able to sell to another buyer for a higher price beyond mere possibility or speculation. 

 

The Court offered potential ways of proving the “no deal” scenario: i.e., by expert testimony regarding the market conditions in the area at the time of the sale, and by evidence of comparable sales.  However, just showing that the property had appraised for the higher value or that others were interested in purchasing the property, without showing the price they were willing to pay, was insufficient. 

You can read the Court’s opinion here: http://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Opinions/2011/11SC899.pdf

Lee Katherine Goldstein is an appellate lawyer with the Denver law firm of Fairfield and Woods, PC.

¹  Colorado law defines a transactional broker as a broker who assists one or more parties throughout a contemplated real estate transaction with communication, interposition, advisement, negotiation, contract terms and the closing of such real estate transaction without being an agent or advocate for the interests of any party to such transaction.  C.R.S. §12-61-802(6).  A professional negligence claim against a transactional broker arises where the plaintiff alleges a breach of a duty of care in handling the various pieces of an underlying real estate business transaction. Opinion, ¶15.