George F. Landegger, & Whittemore Collection, Ltd. v. Howard S. Cohen, & Dennis Young Aspen Pac. Capital, Inc.

Decision Date07 November 2013
Docket NumberCivil Action No. 11–cv–01760–WJM–CBS
PartiesGeorge F. Landegger, and Whittemore Collection, Ltd., Plaintiffs, v. Howard S. Cohen, and Dennis Young Aspen Pacific Capital, Inc., and Aspen Pacific Group, Inc., Defendants.
CourtU.S. District Court — District of Colorado


Frank Brittin Clayton, III, Richard Carl Kaufman, Sarah K. Pallotti, Ryley Carlock & Applewhite, P.A., Denver, CO, for Plaintiffs.

Howard S. Cohen, Las Vegas, NV, pro se.

Dennis Young, Aspen, CO, pro se.

Tami L. Sapp, Jeffrey H. McClelland, Kenneth Ronald Bennington, Bennington, Johnson, Biermann & Craigmile, LLC, Denver, CO, for Defendants.


William J. Martínez, United States District Judge

This matter is before the Court on Defendants Howard Cohen, Dennis Young, Aspen Pacific Capital, Inc., and Aspen Pacific Group, Inc.'s (Defendants) Motion for Summary Judgment (“Motion”). (ECF No. 115.) Plaintiffs George Landegger and the Whittemore Collection, Ltd. have filed a Response (ECF No. 116); and Defendants a Reply.1 (ECF No. 117.)

For the reasons set forth below, the Court denies Defendants' Motion with respect to Plaintiff's claim brought pursuant to Securities Exchange Act of 1934 (the Exchange Act) 15 U.S.C. §§ 78 et seq.


Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see alsoAnderson v. Liberty Lobby, Inc., 477 U.S. 242, 248–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is “material” if under the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir.2001). An issue is “genuine” if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir.1997).

In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal–Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998) ( citingMatsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). A court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. Houston v. Nat'l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir.1987).

Although a court must construe the facts in the light most favorable to the plaintiff as the nonmoving party, “a plaintiff's version of the facts must find support in the record.” Thomson v. Salt Lake Cnty., 584 F.3d 1304, 1312 (10th Cir.2009).

A. Nature of the Action

The contracts involved in this securities case are complex; the law equally so. The schematic appended to this Order is illustrative. (“Exhibit A”). The core of the dispute centers on Plaintiff's purchase of securities in a transaction that was brokered by Defendants Cohen and Young. Plaintiff purchased the securities in a second round of capital raising for a company called KSpace, LLC, a California limited liability company (“KSpace”).

Plaintiff's Amended Complaint alleges that—contrary to federal law and Nevada law—Defendants were not registered and violated the relevant statutes by entering into securities transactions with Plaintiff. ( See generally, ECF No. 47 at 1–2.) Plaintiff contends that, under Nevada and federal statutes, he is entitled to the “consideration paid” for the securities to Defendants Cohen and Young. ( Id. at 10.)

Additionally, because Defendant Cohen conducted his brokering activities through Defendants Aspen Pacific Capital, Inc (AP Capital) and/or Aspen Pacific Group, Inc (AP Group), Plaintiff alleges that he is entitled to recovery from these entities as well. (ECF No. 47 at 2.)

The Court notes that it has previously denied summary judgment with respect to the Nevada law claim (also known as the State Claim). (ECF No. 121.) The instant Order solely deals with the claim brought under the Exchange Act (the “Federal Claim”) and the issues relevant to same.

B. Background Facts

For purposes of Defendants' Motion, the following facts are viewed in the light most favorable to the nonmoving party:

KSpace was formed by two California doctors, Robert Heller and Adam Bazih. The doctors had invented a medical device which they patented and sought to bring to market through capital funding. (ECF No. 98–1 at 10–11.) In February, 2010, KSpace engaged Defendant AP Capital to raise capital and to provide other services to KSpace. ( Id.)

At all relevant times, Defendant Cohen was the President and 100% shareholder of AP Capital, and Defendant Young was a Managing Director of Technology of AP Capital. (ECF No. 97 at 7, 8, 13, 14; ECF No. 99–10.) In effectuating the sales of the membership interests involved in this case, Cohen and Young were both acting as authorized representatives of AP Capital. ( Id. at 7.)

To raise capital for KSpace, the Defendants utilized a structure involving a newly formed single-purpose entity referred to as an “investment vehicle.” (Id. 12–13.) New investors would purchase membership interests in the “investment vehicle”, which in turn would purchase membership interests in KSpace. (ECF No. 100–35.) The first investment vehicle formed was Aspen KSpace, LLC, a Nevada limited liability company (“AKS–I”). AKS–I was managed by Aspen Pacific Asset Management, LLC (APAM), through its Manager, Defendant AP Group, and Defendant Cohen was President of same. (ECF No. 98–9.)

On February 9, 2010, AKS–I purchased approximately 37% of the membership interests in KSpace for $1,590,000. ( Id. at 10.) AKS–I also agreed to lend KSpace an additional $410,000, for a total of $2 million in new capital for KSpace. (ECF No. 98–10; ECF No. 98–11.) As a part of the AKS–I transaction, Defendant AP Group received a 20% interest in AKS–I, forming part of the consideration for raising capital for the company, KSpace. (ECF No. 98–3 at 30,33–34.) Between February and June, 2010, Cohen and Young raised $2 million for KSpace from 15 separate investors in AKS–I, excluding Cohen's and Young's investments through their investment entities H & L Cohen, LLC and Young Investments, LLC. (ECF No. 98–12.)

The $2 million that Cohen and Young raised through the first investment vehicle (AKS–I) turned out to be insufficient to finish development of KSpace's product. (ECF No. 98–4 at 168.) In September, 2010, KSpace authorized Cohen and Young to raise an additional $1 million, which later occurred through Plaintiff's investments. ( Id.)

For purposes of Plaintiff's investments, Defendant Cohen formed a second “investment vehicle”, Aspen KSpace II, LLC (“AKS–II”). (ECF No. 98–13.) Similar to AKS–I, this second investment vehicle was run through its manager, Defendant AP Group, which in turn was managed by Defendant Cohen. (ECF No. 115–1 at 8.)

On November 22, 2010, the closing of the AKS–II financing transaction occurred, involving 21 separate instruments executed variously by Plaintiffs, KSpace and its members, AKS–I and its members, AKS–II and its members, AP Capital, and AP Group. (ECF No. 98–14.)

The AKS–II closing documents included the following:

(a) Subscription Agreements between Plaintiffs and AKS–II, under which Plaintiffs Landegger and Whittemore jointly paid $1 million for 80% of the membership interests in AKS–II (ECF No. 115–1; ECF No. 115–2.);

(b) Operating Agreement of AKS–II between and among Plaintiffs and AP Group, in which AP Group acquired the remaining 20% interest in AKS–II (ECF No. 98–15);

(c) Preferred Membership Interest Purchase Agreement between KSpace and AKS–II, under which AKS–II agreed to purchase an 18.7% membership interest in KSpace for $795,000 (ECF No. 98–16);

(d) Amended and Restated Secured Note made by KSpace in favor of AKS–I and AKS–II in the amount of $615,000, in consideration of $205,000 newly loaned to KSpace by AKS–II and $410,000 previously loaned by AKS–I (ECF No. 98–17);

(e) Amended and Restated Security Agreement between and among Kspace, AKS–I, and AKS–II, in which KSpace pledged its assets to secure the Note (ECF No. 98–18);

(f) Participation Agreement and Assignment of Participation Interest between ASK–I and AKS–II, defining their relationship as co-lenders to KSpace (ECF No. 98–19);

(g) Action by Written Consent of the Manager of AKS–II (APAM, through its Manager, AP Group) and Members of AKS–II (Plaintiffs and AP Group), consenting to the financing transaction documents (ECF No. 98–21);

(h) Second Amended and Restated Operating Agreement of KSpace, signed by the members of KSpace to accommodate the new issue of KSpace membership interest to AKS–II (ECF No. 98–22);

(i) Action by Written Consent of the Management Committee and Members of KSpace, signed by KSpace and its members to consent to the AKS–II financing transaction documents (ECF No. 98–23); and

(j) Amended and Restated Consulting Agreement between KSpace and AP Capital, providing for increased fees to be paid by KSpace to AP Capital. (ECF No. 98–24).

According to Dr. Bazih, founder of KSpace, the Amended and Restated Consulting Agreement between KSpace and AP Capital was “believed” to have been executed as an integral part of the November 22, 2010, AKS–II transaction. (ECF No. 98–1 at 83.) Moreover, the appended schematic illustrates key aspects of the KSpace transactions, including the contracts between the investment vehicles, KSpace, some Defendant entities and Plaintiffs Landegger and the Whittemore Collection Ltd. ( See Exhibit A.)

The Court has relied upon this schematic as a reference point in the disposition of Defendant's Motion. It is hardly, though, a model of clarity. To this point, the Court notes that supplemental briefing was recently sought in this case to update the case law that may have evolved...

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