Paratransit Risk Retention Ins. v. Kamins

• Decision Date: 22 February 2007
• Docket Number: No. 04CA0905.,04CA0905.
• Citation: 160 P.3d 307
• Parties: PARATRANSIT RISK RETENTION GROUP INSURANCE COMPANY, f/k/a Paratransit Risk Retention Group of Maryland, Inc., a Tennessee corporation registered to do business in the State of Colorado, Plaintiff-Appellee and Cross-Appellant, v. Duane H. KAMINS, Defendant-Appellant and Cross-Appellee.
• Court: Colorado Court of Appeals

160 P.3d 307

PARATRANSIT RISK RETENTION GROUP INSURANCE COMPANY, f/k/a Paratransit Risk Retention Group of Maryland, Inc., a Tennessee corporation registered to do business in the State of Colorado, Plaintiff-Appellee and Cross-Appellant, v. Duane H. KAMINS, Defendant-Appellant and Cross-Appellee.

No. 04CA0905.

Colorado Court of Appeals, Div. IV.

February 22, 2007.

Lapin & Viorst, P.C., Anthony Viorst, Denver, Colorado, for Plaintiff-Appellee and Cross-Appellant.

Mulliken Weiner Karsh Berg & Jolivet, P.C., Murray I. Weiner, Colorado Springs, Colorado, for Defendant-Appellant and Cross-Appellee.

Opinion by Judge FURMAN.

This case concerns a creditor's claims as to distributions made to the sole shareholder of an allegedly insolvent corporation. Defendant, Duane H. Kamins, appeals the judgment finding him liable to plaintiff, Paratransit Risk Retention Group Insurance Company, for the distributions he received. Paratransit cross-appeals the denial of its motion for costs and fees. We reverse the judgment and remand for further proceedings.

I. Background

Paratransit is a member-owned risk retention group that provides automobile liability insurance to public transportation companies. In February 2000, it filed this action against its insured, Colorado Transportation Services, Inc. (CTS), and Kamins, the sole shareholder and director of CTS. Paratransit alleged that distributions Kamins made to himself rendered CTS insolvent and unable to satisfy its obligations for premiums owed to Paratransit and for unpaid claims for accidents caused by CTS's taxicab drivers.

CTS owned the majority interest in two taxicab companies, American Cab Company of Denver, LLC, and American Cab Company of Colorado Springs, LLC. From October 1995, when those two taxicab companies began operations, and continuing through May 28, 1998, when they were sold, CTS had an insurance contract with Paratransit. The policy provided that CTS would have a self-insured retention (SIR) of $25,000 per accident, and that Paratransit would provide excess liability coverage of up to $475,000 for each claim. The policy stated that the SIR would be CTS's responsibility as the insured, although Paratransit agreed to pay claims for CTS if CTS failed to meet its SIR. In exchange for this agreement, CTS was to pay premiums and provide Paratransit with a $40,000 letter of credit. CTS obtained the letter of credit in September 1997.

Effective May 28, 1998, CTS sold its assets to Coach USA, Inc., ceased operations, and canceled its policy with Paratransit. The $2.4 million proceeds of the sale were deposited into a bank account jointly owned by CTS and Coach (AmCab-Coach account). A portion of the proceeds was used to pay CTS's noncontingent liabilities and its attorney fees, and $100,000 was deposited into an escrow account to pay CTS's creditors.

On June 1, 1998, Kamins transferred $861,563 from the AmCab-Coach account to CTS's Denver operating account.

On June 3, 1998, Kamins transferred $525,000 from CTS to himself, leaving approximately $240,000 in the CTS accounts. On November 30, 1998, Kamins transferred $57,141 from the escrow account to himself, leaving approximately $95,000 in the CTS accounts.

At the time of these transfers, CTS faced unsettled claims for four motor vehicle accidents involving its taxicab drivers. These claims were the primary focus of the litigation in this case, and were referred to at trial as the Naranjo, Ohmes, Sandoval, and Pershing claims.

Before CTS sold the assets of the two cab companies in May 1998, the status of these four claims, as found by the court at the bench trial, was as follows:

1. [Mr.] Naranjo suffered property damage and injuries on 4/29/97, when a CTS taxicab collided with his car. It was undisputed that the CTS driver was at fault. On May 21, 1997, an attorney for Mr. Naranjo contacted Fred Hair, CTS' claims manager, regarding this claim. A quarterly report of American Cab Co., issued on September 11, 1997, shows that Mr. Naranjo had incurred $1,745 in medical expenses as of that date, and that the claim was still open. On March 31, 1998, Dan Thompson [Paratransit's claims manager] sent a letter to Mr. Hair expressing his opinion that the Naranjo claim "may exceed your SIR." On April 3, 1998, Mr. Hair sent a letter to Mr. Thompson acknowledging Mr. Thompson's concern.

2. On February 2, 1998, [Mr.] Ohmes suffered serious injuries when his stationary car was rear-ended by a CTS taxi being driven at a high rate of speed. On March 13, 1998, Fred Hair wrote a letter to Dan Thompson acknowledging that "it is reasonable to expect that the cost of resolving Ohmes' anticipated bodily injury claim will exceed American Cab's self-insured retention." At trial, both Mr. Hair and Kamins acknowledged that, as of February 2, 1998 . . . they knew that this claim would exceed CTS' SIR of $25,000.

3. On March 1, 1998, a CTS taxi traveling northbound on an I-25 on-ramp rear-ended a car, being driven by [Mr.] Sandoval, that was merging into traffic at the top of the ramp. Mr. Sandoval also had a passenger in the car. On March 24, 1998, an attorney representing Mr. Sandoval contacted Fred Hair. On April 2, 1998, Fred Hair sent a letter to Dan Thompson regarding the Sandoval claim, in which he stated that "[d]ue to attorney involvement and the fact that there may be two claimants, settlement of this claim may exceed American Cab's self-insured retention." A handwritten record authored by Mr. Hair on May 21, 1998, reflects that as of that date, Mr. Sandoval had incurred $1,423.73 in medical bills, his passenger had incurred $988.34 in medical bills, and that both potential claimants were still undergoing physical therapy.

4. [Ms.] Pershing was a passenger in a CTS taxicab that was involved in a motor vehicle accident on January 30, 1998. There was no dispute that CTS was responsible for paying any causally-related medical expenses under its $25,000 SIR, and CTS did pay some of Ms. Pershing's medical expenses. However, Duane Kamins did not believe that Ms. Pershing's medical expenses were causally-related to the accident, and made the decision that CTS would stop paying those expenses.

In addition to those claims, in January 2000, Paratransit made a payment for the benefit of Ms. Pearson, who was a passenger in a CTS taxi that was also involved in a motor vehicle accident. The trial court found that CTS never reimbursed Paratransit for this sum.

At trial, Kamins introduced evidence that in late May 1998, he met with his claims manager, Fred Hair, to review CTS's open accident claims files. Hair had evaluated the total claims as greater than $25,000, but less than the $40,000 letter of credit issued for the protection of Paratransit. There was also evidence that prior to 1999, no claim against CTS had exceeded its $25,000 SIR and therefore no payments had been made by Paratransit on behalf of CTS.

The trial court found that, as of May 28, 1998, CTS had contingent liabilities to Paratransit in the amount of $150,500, and that it was "both inaccurate and unreasonable" for Kamins to expect the $40,000 letter of credit would be sufficient to cover the claims. The court also found that Kamins had made additional capital contributions to CTS's accounts after he received the previously noted distributions. Based on those and additional findings, the trial court entered judgment in favor of Paratransit, concluding Kamins was liable in two respects: (1) because the payments he made to himself rendered CTS unable to pay its debts as they became due in the usual course of business, he thereby violated § 7-106-401(3)(a), C.R.S.2006; and (2) because he had a fiduciary duty to pay debts owed to all other creditors, he breached that duty by paying himself first.

The trial court awarded Paratransit $102,617 as follows:

                Claim Dollars Owed
                       Naranjo                      8,500
                       Ohmes                     9,044.50
                       Sandoval                    25,000
                                             (settlement)
                                                   25,000
                                         (legal expenses)
                       Pershing                 17,846.88
                       Pearson                     519.82
                       Premium                  16,706.25
                                               __________
                       Total                   102,617.45
                

At the conclusion of the trial, the court directed each party to submit proposed findings of fact and conclusions of law. The court later adopted, without amendment, the findings of fact, conclusions of law, and order of judgment submitted by Paratransit.

II. Amendment of the Complaint

Kamins contends the trial court abused its discretion on the first day of trial by reversing its prior rulings and allowing Paratransit to amend its complaint for a fourth time. We disagree.

Paratransit filed its original complaint against CTS and Kamins in 2000, asserting that CTS breached its contractual obligation to pay for settlements of the Naranjo and Ohmes claims. Shortly thereafter, Paratransit filed an amended complaint and, seven months later, a second amended complaint adding a breach of contract claim arising from the Sandoval matter. The trial was originally set for April 2001, but was continued several times.

In October 2000, the trial court ordered that motions to amend pleadings were to be filed within ninety days; however, in October 2001, the court permitted Paratransit to file a third amended complaint, alleging that Kamins was personally liable for violations of statutory and fiduciary duties.

In April 2002, Paratransit filed a separate action related to the Pershing claim that was assigned to a different division of the court under a separate case number. However, a month later, the new case was transferred to the original division for a determination of whether "the filing of [the second] complaint [was] proper in light of [the original court's] rulings regarding amendments."

In November 2002, Paratransit requested leave to file...