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Recent Decisions Construing State Law

Courts presume that the General Assembly is aware of court decisions that construe state statutes or the constitution. The OLLS will update this web page quarterly to notify the General Assembly of such court decisions. Cases that may be of particular interest because they meet certain criteria have been summarized and are listed below in chronological order. All other cases have been annotated and are assigned by CRS title and subject matter to the committees of reference listed below. Opinions older than a year are available in an archive.

Opinions from the Independent Ethics Commission are available here.

CASE ANNOTATIONS

CASES OF NOTE

Farmer v. Colo. Parks & Wildlife Comm'n, Colorado Court of Appeals No. 14CA2199 (August 25, 2016)

Holding: The parks and wildlife commission's discretion is unfettered when neither the statutes nor the rules provide it with any guidance regarding the appropriate period for which wildlife license privileges should be suspended for the unregistered provision of outfitting services, so the commission's suspension of the privileges for twenty years is vacated as being arbitrary and capricious.

Case Summary: A hunting outfitter allowed his Colorado outfitter registration to lapse but continued to be qualified as an outfitter in Utah. While providing outfitter services in Utah, he and his client followed a mountain lion into Colorado, where the client shot and killed the lion.

Providing unregistered outfitting services is deemed to be the illegal sale of wildlife, a class 5 felony. The outfitter pleaded guilty; the deferred judgment prohibited him from engaging in any hunting activities for two years. The conviction triggered a hearing before the parks and wildlife commission. The statute specifies that the administrative penalty for the illegal sale of wildlife is the suspension of any or all wildlife license privileges for a period of between one year and lifetime. Neither the statutes nor the commission's rules set any standards to guide the commission's determination of an appropriate suspension period.

A hearing officer suspended the outfitter's wildlife license privileges for 20 years, and the commission affirmed the suspension. The outfitter appealed the commission's order to the district court, which affirmed the commission's action.

The court of appeals reversed and vacated the commission's suspension of the outfitter's wildlife license privileges. Because the commission's discretion is unfettered when neither the statutes nor the rules provide it with any guidance regarding the appropriate period for which wildlife license privileges should be suspended, the commission's action was arbitrary and capricious. The court did not express an opinion regarding whether the commission could, after adopting appropriate rules to guide the hearing officer's discretion, institute new suspension proceedings against the outfitter. (For more information, contact Thomas Morris.)

TABOR Found. v. Reg'l Transp. Dist., Colorado Court of Appeals No. 15CA0582 (June 30, 2016)

Holding: HB13-1272, which eliminated special districts' sales tax exemptions without prior voter approval, is constitutional because it neither imposes a "new tax" nor constitutes a "tax policy change" within the meaning of TABOR.

Case Summary: The Regional Transportation District ("RTD") and the Scientific and Cultural Facilities District ("SCFD") have general authority under their enabling statutes to levy sales taxes on any transactions upon which the state levies sales tax. On several occasions following the enactment of the RTD and SCFD enabling statutes, the General Assembly enacted legislation that created new state sales tax exemptions or subjected previously exempt transactions to the state sales tax but did not similarly modify the RTD and SCFD sales tax bases. In 2013, the General Assembly enacted House Bill 13-1272, (HB 13-1272) which eliminated some of the districts' exemptions and created other new exemptions for them in order to again make the districts' and the state's sales tax bases identical.

The TABOR Foundation filed a lawsuit in Denver District Court against RTD, SCFD and others alleging that HB 13-1272 created new RTD and SCFD taxes on the items that were previously exempted and that the new taxes are unconstitutional because the districts did not receive prior voter approval for them as required by the Taxpayers' Bill of Rights (TABOR). The district court granted summary judgment in favor of the defendants, concluding that taxation of the items previously exempted did not create new taxes because the initial grant to the districts of taxing authority coterminous of that of the state was not expanded even though the state modified it over time. The district court also held that taxation of the previously exempted items is an administrative simplification and not a "tax policy change" requiring prior voter approval under TABOR.

The TABOR Foundation appealed the district court's grant of summary judgment to defendants, and the Colorado Court of Appeals affirmed. Before addressing the merits of the case, the court noted that the "beyond a reasonable doubt" standard of unconstitutionality applies to TABOR-based challenges to a statute and that under Colorado Supreme Court precedent a court must not strike down a statute "unless a 'clear and unmistakable' conflict exists between the statute and a provision of the Colorado Constitution." The court of appeals then clarified that "to hold a statute unconstitutional beyond a reasonable doubt, the constitutional flaw must be so clear that the court can act without reservation." Although the court of appeals determined that the district court had misapplied the "beyond a reasonable doubt" standard by requiring "evidence that 'the legislature drafted a law using language designed to circumvent the requirements of TABOR, i.e., a tax policy change disguised as administrative simplification," after conducting its own de novo review it agreed with the district court that HB 13-1272 is not unconstitutional beyond a reasonable doubt.

First, the court of appeals held that HB 13-1272 did not violate TABOR's voter approval requirement because it does not impose a new tax, noting that the primary purpose of the bill was not to raise revenue and that requiring an election to remove exemptions under TABOR would hamper the General Assembly's ability to administer taxation efficiently. Recognizing that the new tax question "is close", the court of appeals alternatively held that even if HB 13-1272 did impose a new tax, the voters approval of past sales tax ballot questions—in 1973 for RTD and in 1994 for SCFD—authorized the districts to collect taxes on the items for which HB 13-1272 removed exemptions.

The court of appeals found the second TABOR challenge—whether prior voter approval was required by TABOR because eliminating sales tax exemptions is a "tax policy change directly causing a net tax revenue gain" to the districts—to not be a close question. The court focused on the plain meaning of the word "policy" in this TABOR phrase and defined it as a "high level overall plan". It then concluded that with respect to the sales tax, the districts' high level overall plans are to tax a broad range of tangible items, and that eliminating exemptions did not change the high level overall plans. Accordingly, the court held that the removal of exemptions by HB 13-1272 did not constitute a tax policy change. (For more information, contact Ed DeCecco.)

Warne v. Hall, Colorado Supreme Court No. 14SC176 (June 27, 2016)

Holding: When considering a motion to dismiss a civil complaint for failure to state a claim upon which relief can be granted under Colorado Rule of Civil Procedure 12 (b) (5), a court must determine, in accordance with the United States Supreme Court's decisions in Bell Atlantic Corp. v. Twombley, 550 U.S, 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), whether the complaint contains sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. The "plausible on its face" standard supersedes the longstanding state standard for dismissal, based on the United States Supreme Court's decision in Conley v. Gibson, 355 U.S. 41 (1957), that allowed a court to dismiss a complaint only if it appeared beyond doubt that the plaintiff could prove no set of facts that would establish his or her claim for relief. It is necessary to use the "plausible on its face" standard instead of the "no set of facts" standard to ensure procedural uniformity between state and federal courts in deciding motions to dismiss under CRCP 12 (b) (5) and the nearly identical Federal Rule of Civil Procedure 12 (b) (6) and to increase the effectiveness of state courts in weeding out groundless complaints at the pleading stage.

Case Summary: Plaintiff Bill Hall (Hall) had a purchase agreement to sell land in the town of Gilcrest (Gilcrest) to Ensign United States Drilling, Inc., (Ensign), which intended to build its headquarters on the property. But Ensign terminated the purchase agreement when it could not obtain Gilcrest's approval for its proposed site development plan. Hall sued both Gilcrest and its mayor, Menda Warne (Warne), in state district court under several state and federal law theories, including intentional interference with contractual obligations,

Hall's complaint alleged that Warne caused Ensign to terminate its purchase agreement with Hall by imposing unauthorized and unreasonable conditions on Ensign's proposed site development plan by mayoral order after the Gilcrest town board had conditionally approved the plan at a public hearing. Warne filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted under Colorado Rule of Civil Procedure (CRCP) 12 (b) (5) (motion to dismiss). The district court found that Hall's complaint did not sufficiently allege that Warne had caused the conditions to be imposed on Ensign's proposed development plan and granted the motion to dismiss but also granted Hall leave to file an amended complaint.  Hall amended his complaint with additional allegations, and Warne renewed her motion to dismiss. The district court granted the renewed motion and awarded attorney fees to Warne, concluding that the amended complaint lacked necessary allegations that specific conduct by Warne  caused Ensign's breach of its purchase agreement with Hall.

Hall appealed and the Colorado Court of Appeals reversed, declaring itself bound by Colorado Supreme Court precedent to apply the "no set of facts" standard established by the United States Supreme Court in Conley v. Gibson, 355 U.S. 41 (1957), for consideration of a motion to dismiss under CRCP 12 (b) (5), which allows a court to grant a motion to dismiss only if it appears beyond doubt that the plaintiff can prove no set of facts that would establish his or her claim for relief. The court of appeals rejected Warne's proposal to instead apply the newer "plausible on its face standard" established by the United States Supreme Court in Bell Atlantic Corp. v. Twombley, 550 U.S, 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), which requires a court to grant a motion to dismiss unless the complaint contains sufficient factual matter to state a claim for relief that is plausible on its face. The court of appeals concluded that Hall's allegations concerning Warne's actions were sufficiently plead to state a claim for relief under the "no set of facts" standard.

Hall appealed, and the Colorado Supreme Court reversed. The Supreme Court explained that its main reason for applying the "no set of facts" standard for the last fifty years had been to ensure that state courts decided CRCP 12 (b) (5) motions to dismiss consistently with how the federal courts decided motions to dismiss under the similar Federal Rule of Civil Procedure 12 (b) (6). Accordingly, since the United States Supreme Court had abandoned the Conley "no set of facts" standard in favor of the Twombley/Iqbal "plausible on its face" standard, the Supreme Court chose to continue favoring procedural uniformity between state and federal courts by adopting the "plausible on its face" standard and requiring state courts to apply that standard when considering motions to dismiss. The Supreme Court further noted that application of the "plausible on its face" standard might increase the effectiveness of state courts in weeding out groundless complaints at the pleading stage.

Applying the newly adopted "plausible on its face" standard to Hall's complaint, the Supreme Court found that the complaint failed to sufficiently allege that Warne acted improperly in inducing Ensign's breach of its purchase agreement with Hall. The Court dismissed the complaint but remanded the case with instructions to allow Hall to file another amended complaint because he had not previously had notice that he was required to state his claims in a manner sufficient to meet the "plausible on its face" standard.

Justice Gabriel, joined by two other justices, filed a dissenting opinion stating that he could not subscribe to the "plausible on its face" standard because it "will deny access to justice for innumerable plaintiffs with legitimate complaints." He noted that  the "no set of facts" standard had recognized "the practical limitations on how much a plaintiff can reasonably be required to plead, particularly given that the plaintiff often lacks information that is in the defendant's exclusive possession and has no means of obtaining that information absent discovery." He also argued that the "plausible on its face" standard is inconsistent with and contrary to the purposes of several state rules of civil procedure that "require only fair notice of a claim" and "will likely result in the disproportionate dismissal of meritorious claims, thereby closing the courthouse doors to many deserving claimants when the pleading rules were, in fact, designed to open the doors for them." (For more information, contact Jason Gelender.)

Fort Collins v. Colo. Oil & Gas Ass’n, Colorado Supreme Court No. 15SC668 (May 2, 2016)

Holding: A municipal 5-year moratorium on fracking within city limits is preempted by state law (Oil & Gas Conservation Act).

Case Summary: In November of 2013, the citizens of Fort Collins, a home-rule city, voted in favor of a citizen-initiated ordinance placing a moratorium on hydraulic fracturing ("fracking") and the storage of any associated waste products within the City or on lands under its jurisdiction for a period of 5 years (that is, until 2018) in order to fully study the impacts of fracking on property values and human health. After voters approved the moratorium, the City amended its municipal code accordingly. 

Thereafter, the Colorado Oil and Gas Association (COGA) sued the City and requested: (1) a declaratory judgment declaring that the Oil and Gas Conservation Act, 34-60-101 to -130, C.R.S., and the rules promulgated pursuant thereto preempt the fracking moratorium; and (2) a permanent injunction enjoining the enforcement of the moratorium. COGA and the City filed cross-motions for summary judgment on the declaratory judgment claim, and the district court ruled that the moratorium was preempted by state law. On appeal by the City, the Court of Appeals requested transfer of the case to the Colorado Supreme Court under C.A.R. 50. 

The Colorado Supreme Court determined that fracking is a matter of mixed state and local concern, and therefore applied a preemption analysis. Finding neither express nor implied preemption under the oil and gas statute, the Court examined the requirements of the state and municipal legislation, respectively, and found that the City's 5-year moratorium on fracking and the storage of fracking waste operationally conflicts with the effectuation of state law. Accordingly, the moratorium was declared preempted by state law, therefore invalid and unenforceable. (For more information, contact Duane Gall.)

City of Longmont v. Colo. Oil & Gas Ass’n, Colorado Supreme Court No. 15SC667 (May 2, 2016)

Holding: The Colorado Supreme Court affirmed the district court's order enjoining the City of Longmont from enforcing its ban on fracking because the ban is preempted by state law and, therefore, is invalid.

Case Summary: In 2012, the residents of Longmont voted to ban hydraulic fracturing, commonly known as fracking, and the storage and disposal of fracking waste within their city limits. The Colorado Oil and Gas Association (Association) sued Longmont, seeking a declaratory judgment to invalidate, and a permanent injunction to enjoin, the fracking ban. Granting the Association's motion for summary judgment, the district court ruled that the Oil and Gas Conservation Act (Act) preempted the fracking ban and issued an order enjoining Longmont from enforcing the ban. The district court stayed its order, pending appeal. Longmont appealed the district court's order to the Colorado Court of Appeals, which requested a transfer of the case to the Colorado Supreme Court. The Colorado Supreme Court accepted the transfer and affirmed the district court's permanent injunction order.

The Colorado Supreme Court first determined that Longmont's status as a home-rule municipality would not insulate its fracking ban from preemption if the ban conflicts with state law because fracking is a matter of mixed state and local concern and a home-rule municipality's ordinance supersedes a conflicting state law only with respect to a matter that is strictly of local concern. The court then determined that the fracking ban materially impedes the effectuation of the state's interest in the efficient and responsible development of oil and gas, an interest that the state has furthered by promulgating numerous rules regulating various aspects of fracking, from the chemicals used in the process to the location of disposal sites. A local ordinance that materially impedes the state's interest regarding a matter of mixed state and local concern operationally conflicts with state law and, therefore, is preempted by state law. Accordingly, the court concluded that state law preempts Longmont's fracking ban because the ban conflicts with the Act and rules promulgated under the Act.

The Colorado Supreme Court also rejected an argument, asserted by several environmental groups who had been added to the case as citizen intervenor plainitffs, that preemption of the fracking ban would violate article II, section 3 of the Colorado Constitution, which declares certain rights of individuals to be "natural, essential, and inalienable," because the fracking ban protects those rights. In doing so, the court noted both that no existing legal authority supported application of article II, section 3 to its preemption analysis and that acceptance of the citizen intervenor plaintiffs' reasoning would always preclude preemption of any "local regulation alleged to concern life, liberty, property, safety,  or happiness" and would arguably render the municipal home rule provision of the Colorado Constitution unnecessary in violation of the principle that courts avoid interpretations that "render a constitutional provision superfluous or a nullity." (For more information, contact Jennifer Berman.)

BP Am. v. Colo. Dep’t of Revenue, Colorado Supreme Court No. 13SC996 (April 25, 2016)

Holding: The plain language of section 39-29-102 (3) (a), C.R.S., authorizes a severance tax deduction for any transportation, manufacturing, and processing costs, and the cost of capital is a deductible cost that resulted from the investment in transportation and processing facilities.

Case Summary: Colorado levies a tax on the gross income generated from oil and gas severed from the earth in the state, section 39-29-105, C.R.S. The tax is levied at the point at which oil and gas emerges from the earth's surface, but the oil and gas is usually not sold at this point. Accordingly, section 39-29-102 (3) (a), C.R.S., allows a taxpayer to deduct from revenue "any transportation, manufacturing, and processing costs borne by the taxpayer," which effectively subtracts any post-extraction value added by the taxpayer.

In the 1980s, BP's predecessor in interest constructed facilities to process and transport natural gas that it extracted from coal seams in southwest Colorado. In 2005, BP filed amended severance tax returns for tax years 2003 and 2004, seeking to deduct the cost of capital related to these facilities from the revenue generated by natural gas sales. Cost of capital is the amount of money that BP's predecessor could have earned if it had invested in other ventures rather than in building the facilities.

The Department of Revenue denied the deduction, and BP contested the determination in district court, which ruled in BP's favor. The department appealed and the Colorado Court of Appeals reversed the trial court's decision and held that the cost of capital was not a deductible transportation and processing cost. BP appealed this decision, and the Colorado Supreme Court reversed the lower court's decision.

In doing so, the court concluded that the phrase "any transportation, manufacturing, and processing costs" was unambiguous. "Costs" means the "price or expenditure" and by using the phrase "any . . . costs" the legislature did not distinguish between different types of costs. Therefore, all transportation, manufacturing, and processing costs are deductible. This conclusion was bolstered by a comparison with a similar property tax statute in which the General Assembly omitted the term "any" and instead conferred discretion to the property tax administrator to determine the scope of allowable deductions.

Having determined the scope of allowable deductions, the court then rejected the department's argument that the cost of capital is only a benefit foregone to pursue a different opportunity and not an actual cost. Rather, the court determined that it is a cost that is equal to the difference between the amount of cost recovery that the predecessors actually received from constructing the facilities and the amount of recovery or deductions that the predecessors could have received if they had invested in other ventures. Accordingly, BP was entitled to recover the stipulated refunds plus interest.

After this decision the department advised the General Assembly that other taxpayers were owed refunds for amended severance returns that included cost of capital deductions. In addition, the department anticipated that it would have to refund additional amounts based on the court's interpretation of the phrase "any transportation, manufacturing, and processing costs." In order to ensure that there was sufficient revenue available for all of the potential refunds and to allow continuity of programs that are funded from severance taxes, the General Assembly enacted Senate Bill 16-218, which temporarily made income tax revenue available for severance tax refunds. (For more information, contact Ed DeCecco.)

Amerigas Propane and Indem. Ins. Co. of N. Am. v. Indus. Claim Appeals Office, Colorado Court of Appeals No. 15CA1210 (April 21, 2016)

Holding: Allowing a workers' compensation claimant to waive benefits for all consequences of an injury, whether known or unknown, as part of a settlement agreement is not contrary to public policy.

Case Summary: Claimant was a truck driver who slipped and fell on ice while making a delivery.  His shoulder was seriously injured and eventually required replacement with an artificial joint.  The claimant settled with his employer before reaching maximum medical improvement.  At the time of the settlement, unbeknownst to the claimant, his attorney, the employer, or anyone else, the claimant had sustained a bone fracture during the surgery to correct the initial injury.  The settlement agreement provided that all claims for injuries, including unknown injuries, would be "FOREVER closed" and "FOREVER settled."  (Emphasis in original.)  After discovering the latent bone fracture, the claimant moved to reopen the settlement under 8-43-204, C.R.S., which allows reopening only on grounds of fraud or "mutual mistake of material fact."

The Court of Appeals held that, under these circumstances, the general waiver of benefits for injuries both known and unknown at the time of the settlement precluded reopening of the settlement on the basis of mutual mistake.  The court distinguished a prior opinion of the Colorado Supreme Court allowing reopening under similar circumstances because here, unlike in the prior case, the fracture was not part of the "basic character of the primary injury" but occurred later, during treatment of the primary injury.  Therefore the claimant "was fully aware 'of the basic character of the primary injury for which the release was sought and executed.'"

The Court of Appeals also opined that neither case law nor prior amendments to the statute had specified "whether the parties to an agreement could limit what factors would qualify as a mutual mistake of material fact," and that the "strong legislative policy" allowing reopening in cases of mutual mistake did not overcome the parties' expressed intent to foreclose all future claims in this case.

This outcome raises the question of whether the language of 8-43-204 (1), C.R.S., allowing reopening of a settlement in a workers' compensation case on the basis of mutual mistake, requires clarification.  (For more information, contact Duane Gall.)

Rocky Mtn. Gun Owners v. Hickenlooper, Colorado Court of Appeals No. 14CA2178 (March 24, 2016)

Holding: Trial court erred in dismissing plaintiff's claims relating to the constitutionality of a 2013 law concerning ammunition magazines. The case is remanded to allow this claim to proceed.

Case Summary: In 2013, the Colorado General Assembly enacted several bills addressing the possession and transfer of firearms. Shortly after the bills were signed into law, plaintiffs filed a complaint in Denver district court challenging the constitutionality of two of the bills. Specifically, plaintiffs alleged that (1) HB13-1224 and HB13-1229 unconstitutionally restrict the right to bear arms, (2) HB13-1229 is an unconstitutional delegation of legislative and executive authority, and (3) HB13-1229 violates the due process and equal protection provisions of the state constitution. The district court concluded that the plaintiffs failed to state a claim for which relief could be granted. It dismissed the plaintiffs' claims, and the plaintiffs brought this appeal.

The court of appeals affirmed those portions of the district court's decision dismissing the claims relating to HB13-1229. However, the court of appeals found that the district court erred in dismissing the plaintiffs' claims with regard to the constitutionality of HB13-1224. The district court had relied in part on the facts and reasonsing set forth in Colo. Outfitters Ass'n v. Hickenlooper, 24 F. Supp. 3d 1050 (D. Colo. 2014), to dismiss these claims. However, as the court of appeals stated, the allegations in the plaintiffs' complaint "deserve testing through the crucible of factfinding," and plaintiffs are entitled to present evidence at trial of the basis for their claim. The case was remanded to the district court with instructions to allow the claim to proceed. (For more information, contact Richard Sweetman.)

Direct Mktg. Ass'n v. Brohl, U.S. Court of Appeals for the Tenth Circuit No. 12-1175 (February 22, 2016)

Holding: The notice and reporting obligations that Colorado imposes on retailers that do not collect Colorado sales tax are neither facially discriminatory nor discriminatory in their effects and do not burden interstate commerce. Thus, the notice and reporting obligations do not violate the dormant commerce clause of the United States Constitution.

Case Summary: Colorado has imposed a sales tax since 1935 and a use tax since 1937. The taxes are complementary. The sales tax is paid at the point of sale and the use tax is due from the purchaser when property is stored, used, or consumed in Colorado and when sales tax was not paid to a retailer. Retailers with physical presence in the state are required to collect sales tax. Because of the dormant commerce clause of the United States Constitution, Colorado cannot compel retailers that sell products to customers in the state but the do not have physical presence in the state to collect Colorado sales tax. As noted by the 10th Circuit Court of Appeals, "compliance with the sales tax is extremely high, and compliance with the use tax is extremely low."

To assist the state in collecting use tax from in-state purchasers, the Colorado legislature passed a law in 2010 (2010 law) that requires any retailer that does not collect Colorado sales tax: (1) To send a "transactional notice" to purchasers informing them that they may be subject to the state's use tax; (2) To send Colorado purchasers who buy goods from the retailers totaling more than $500 an "annual purchase summary" with the dates, categories, and amounts of purchases, reminding them of their obligation to pay use taxes on those purchases, and (3) To send the Department of Revenue (Department) an annual "customer information report" listing their customers' names, addresses, and total amounts spent.

The Direct Marketing Association (DMA), a group of businesses and organizations that market products via catalogs, advertisements, broadcast media, and the internet, challenged the 2010 law in the United States District Court for the District of Colorado (district court), alleging that it violates the dormant commerce clause of the United States Constitution by discriminating against and unduly burdening interstate commerce.

The district court granted summary judgment to DMA on both grounds, permanently enjoining the Department from enforcing the 2010 law. On appeal, the 10th Circuit Court of Appeals declined to address the merits of DMA's claims and instead held that the district court lacked jurisdiction to hear DMA's challenge under the Tax Injunction Act. DMA then sued the Department in state court. At the same time, DMA also petitioned for certiorari to the United States Supreme Court, seeking review of the dismissal under the Tax Injunction Act. The United States Supreme Court granted DMA's petition for certiorari, and the state court stayed its proceedings. The United States Supreme Court held that the Tax Injunction Act did not strip the federal courts of jurisdiction, reversing the 10th Circuit Court of Appeals, and remanded the case back to the 10th Circuit Court of Appeals for a determination on the merits as to the DMA's claims that the 2010 law discriminates against and unduly burdens interstate commerce in violation of the dormant commerce clause in the United States Constitution.

Article I, Section 8, Clause 3 of the United States Constitution specifies that "Congress shall have [the] power . . . [t]o regulate commerce . . . among the several States." This is known as the commerce clause. The United States Supreme Court has interpreted the commerce clause to limit state regulation of interstate commerce by reading the clause as both an express grant of power to Congress and an implicit limit on the power of state and local governments. This implicit limit is called the dormant commerce clause. State laws that discriminate either do so on their face or in their effects. A state law that discriminates against interstate commerce will survive constitutional challenge only if the state shows that "it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." Even if the law regulates even-handedly, the law may also be invalidated if the burden imposed on interstate commerce is excessive in relation to the benefits.

The outcome of the case turns largely on the interpretation of the scope of a United States Supreme Court case, Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which established that a state may not require an out-of-state retailer without a physical presence in the state to collect sales tax. The 10th Circuit Court of Appeals held that Quill applied only to sales and use tax collection and not to the imposition of notice and reporting obligations. This decision means that Quill does not establish that an out-of-state retailer is free from all regulatory requirements.

The 10th Circuit Court of Appeals held that the 2010 law does not discriminate, either on its face or in its practical effects, against interstate commerce. First, the court held that on its face the 2010 law does not distinguish between out-of-state retailers and in-state retailers, and instead makes a distinction based on whether a retailer collects sales tax or not. The court noted that "some out-of-state retailers are collecting retailers, some are not" and explained that because there is no language in the 2010 law explicitly identifying geographical distinctions, there is no facial discrimination.

The 10th Circuit Court of Appeals held that the 2010 law does not discriminate in its practical effects for 3 reasons: (1) While there is differential treatment, here the 2010 law does not negatively affect out-of-state interests and the 2010 law does not give in-state retailers a competitive advantage; (2) The differential treatment does not amount to discrimination because the in-state retailers and out-of-state non-collecting retailers are not similarly situated; and (3) When looking at the entire regulatory scheme, the 2010 law is designed to increase compliance with preexisting tax obligations and applies only to retailers that are not otherwise required to comply "with the greater burden of tax collection and reporting."

Finally, the 10th Circuit Court of Appeals held that the 2010 law does not unduly burden interstate commerce. DMA relied solely on Quill for its undue burden claim and the district court limited its undue burden analysis to Quill. Because the court held that Quill applies only to sales and use tax collection and not to the imposition of notice and reporting requirements, Quill does not control the undue burden analysis and cannot be extended to the 2010 law, which, therefore, does not impose an undue burden on interstate commerce.

The 10th Circuit Court of Appeals reversed the district court's order granting summary judgment to DMA and remanded the case to the district court for further proceedings consistent with its opinion. (For more information, contact Esther van Mourik.)

Dwyer v. State, Colorado Supreme Court No. 12SA22 (September 21, 2015)

Holding: The "negative factor" used to reduce a school district's total program funding does not violate article IX, section 17(1) of the Colorado constitution (Amendment 23) because the negative factor does not reduce the statewide base per pupil funding below the minimum funding required by the constitution. The plaintiffs have failed to state a claim for relief. The case is remanded to the trial court to dismiss the complaint.

Case Summary: The Colorado Supreme Court remanded the case to the trial court for an order granting the State's motion to dismiss the complaint. The plaintiff, Dwyer, argued that the "negative factor" applied to a school district's total program funding pursuant to section 22-54-104, C.R.S., is unconstitutional because it violates Amendment 23, which requires annual increases to "statewide base per pupil funding."

Colorado apportions education funding to individual school districts pursuant to the Public School Finance Act of 1994 (the Act) set forth in sections 22-54-101 to 22-54-137, C.R.S. Pursuant to the Act, a school district's "per pupil funding" is comprised of two main components; "statewide base per pupil funding" and "factor" funding.  The statewide base per pupil funding is the same for all school districts.  The amount of a school district's factor funding varies based upon the characteristics of the school district.  Once a school district's per pupil funding is determined, that amount is multiplied by the school district's pupil count, with additional funding added for certain pupils, resulting in the school district's "total program funding."

The voters of Colorado passed Amendment 23 in 2000 through the initiative process.  The relevant portion of  Amendment 23 requires the general assembly to annually increase statewide base per pupil funding by at least the rate of inflation. In 2010, to stabilize the state budget, the general assembly established the "negative factor" to implement a uniform percentage reduction to each school district's total program funding as calculated under the Act. Each year, the general assembly increases the "statewide base per pupil funding" by inflation as required by Amendment 23, and then reduces each school district's total program funding by the percentage reduction amount for that budget year, which is calculated to meet the statutory cap established for education funding.  But a school district's total program funding cannot fall below the required statewide base per pupil funding amount, as adjusted by Amendment 23.  

Dwyer argued that, because factor funding is based on the statewide base per pupil funding amount, the intent of Amendment 23 was actually to increase total per pupil funding through the application of the funding formula. Although the general assembly may have annually increased the statewide base per pupil funding amount, when it applied the negative factor, the general assembly reduced total program funding, thereby reducing the anticipated effect of the increase to the base and violating Amendment 23.

The Supreme Court held that the plain language of Amendment 23 requires annual increases to statewide base per pupil funding and not to total program funding. Because the language is clear and unambiguous, the Court does not need to look beyond the language of the amendment to ascertain the voters' intent. Because the application of the negative factor has not reduced statewide base per pupil funding below the constitutional minimum, it does not violate Amendment 23. Therefore, the plaintiffs failed to state a claim for relief and the complaint should be dismissed. (For more information, contact Brita Darling.)

McKinley v. City of Glenwood Springs, Colorado Court of Appeals No. 14CA1039 (September 10, 2015)

Holding: The court of appeals affirmed the district court's ruling and rejected the City's request for attorney fees under C.R.C.P. 12(b). The court of appeals stated that, "although section 24-10-106(1)(d)(I), C.R.S., is not ambiguous as to whether it waives immunity for parking areas of a street within the limits of a municipality, it is a poorly written statute…[w]hile it is possible to diagram the grammatical composition of this section to demonstrate the lack of ambiguity, the complexity of such a diagram reinforces our hope that the legislature will rewrite it."

Case Summary: The plaintiffs, Linda and William McKinley, filed a claim against the defendant, the City of Glenwood Springs (City), seeking to hold the City liable for Linda McKinley's injuries and William McKinley's loss of consortium after Linda McKinley pulled her car into a parking spot on a municipal street in Glenwood Springs, stepped out of her car, and tripped in a four- to five-inch deep depression in the pavement of the parking lot. The City moved to dismiss the McKinley's complaint, claiming that it was immune from suit under section 24-10-106 (1), C.R.S., of the Colorado Immunity Act (CGIA), which protects public entities from suits for tort-based injuries unless the section explicitly waives immunity. In response to the City's motion, the district court conducted an evidentiary hearing and found that section 24-10-106 (1) (d) (I), C.R.S., waives immunity for injuries occurring in parking areas in municipalities. They also found that the depression was dangerous and interfered with traffic. The City appealed the district court's denial of its motion to the Colorado court of appeals.

On appeal, the City argued that the grammatical structure of the statute "separates the types of government roads by disjunctive." The City further argued that such separation makes the final phrase "on that portion of such highway, road, street, or sidewalk which was designed and intended for…parking thereon" only applicable to "highways" that are part of the "state highway system." The court of appeals disagreed, and held that the "parking thereon" phrase applies to each division of thoroughfare: highway, road, street, or sidewalk. As a result, the "parking thereon" phrase must apply to municipal highways, roads, streets, or sidewalks.

The City also argued that it was immune from suit under the CGIA because neither Linda McKinley's fall nor the depression "physically interfere[d] with the movement of traffic." However, the evidence established that the depression was a dangerous condition that physically interfered with traffic because cars pull into the City's parking spaces from the City's street, the depression was four- to five-inches deep, and the surface of the City's parking spaces are normally smooth. Therefore, the court of appeals disagreed with the City's argument.

The court of appeals affirmed the district court's ruling and rejected the City's request for attorney fees under C.R.C.P. 12(b). The court of appeals further stated that, "although section 24-10-106(1)(d)(I), C.R.S., is not ambiguous as to whether it waives immunity for parking areas of a street within the limits of a municipality, it is a poorly written statute…[w]hile it is possible to diagram the grammatical composition of this section to demonstrate the lack of ambiguity, the complexity of such a diagram reinforces our hope that the legislature will rewrite it." (For more information, contact Vanessa Cleaver.)

Craig v. Masterpiece Cakeshop, Inc., Colorado Court of Appeals No. 14CA1351 (August 13, 2015)

Holding: The act of same-sex marriage is closely correlated to petitioners' sexual orientation and thus the respondents' refusal to create a wedding cake for their same-sex wedding because of respondent's religious beliefs violated the Colorado Anti-Discrimination Act (CADA). The act of designing and selling a wedding cake to all customers free of discrimination does not force respondent to engage in compelled expressive conduct in violation of the freedom of speech protections of the First Amendment to the United States constitution (First Amendment) or the Colorado constitution. CADA is a neutral law of general applicability and does not violate the free exercise of religion guaranteed by the first amendment to the United States constitution and article II, section 4 of the Colorado constitution.

Case Summary: Charlie Craig and David Mullins (petitioners), requested that Masterpiece Cakeshop, Inc., and its owner Jack Phillips (respondents), design and create a cake for their same-sex wedding. Phillips declined, telling petitioners that he does not create wedding cakes for same-sex weddings because of his religious beliefs. Petitioners filed charges of discrimination with the Colorado Civil Rights Division (Division), alleging discrimination based on sexual orientation in violation of CADA. The Division investigated and found probable cause to credit the allegations of discrimination. Petitioners then filed a formal complaint with the Office of Administrative Courts. The administrative law judge (ALJ) filed a lengthy written order finding in favor of petitioners and against respondents on cross-motions for summary judgment. The order was affirmed by the Colorado Civil Rights Commission (Commission). The Commission's final cease and desist order required respondents to: (1) take remedial measures, including staff training and an alteration to the company's policies to ensure compliance with CADA; and (2) file quarterly compliance reports for two years with the Division that describe the remedial measures taken to comply with CADA and document all patrons who were denied service and the reason for the denial.

Respondents appealed the Commission's order to the Colorado Court of Appeals, alleging, in addition to several procedural motions, that: (1) the ALJ erred in concluding that respondents' refusal to create a wedding cake for petitioners was "because of" their sexual orientation; (2) the Commission's order compels speech in violation of the First Amendment and article II, section 10 of the Colorado constitution; and (3) the Commission's order unconstitutionally infringes on the respondents' free exercise of religion rights, protected by the First Amendment and article II, section 4 of the Colorado constitution. The Court of Appeals affirmed the Commission's decision.

To prevail on a discrimination claim under CADA, petitioners must prove that, "but for" their membership in a protected class, here sexual orientation, they would not have been denied the full privileges of a place of business engaged in sales to and offering services to the public. Respondents argued that the decision to not create a wedding cake for petitioners was solely because of petitioners' intended conduct, same-sex marriage, and the celebratory message about same-sex marriage that the baking of the cake would convey, not "because of" the petitioners' sexual orientation. The Court of Appeals concluded that the act of same-sex marriage is closely correlated with sexual orientation and that, "[b]ut for their sexual orientation, [petitioners] would not have sought to enter into a same-sex marriage, and but for their intent to do so, [respondents] would not have denied them [their] services." The Court of Appeals held that the ALJ did not err by concluding that respondents refused to create a wedding cake for petitioners "because of" their sexual orientation, in violation of CADA.

Respondents argued that the Commission's order compels speech in violation of the First Amendment and article II, section 10 of the Colorado constitution by requiring respondents to create wedding cakes for same-sex weddings. Respondents argued that wedding cakes inherently convey a celebratory message about marriage and, therefore, the Commission's order unconstitutionally compelled the respondents to convey a celebratory message about same-sex marriage that is in conflict with respondents' beliefs. The Court of Appeals stated, "the act of designing and selling a wedding cake to all customers free of discrimination does not convey a celebratory message about same-sex weddings likely to be understood by those who view it, . . . that message is more likely to be attributed to the customer than to [respondents]." Furthermore, the Court of Appeals found that "CADA does not prevent [respondents] from posting a disclaimer in the store or on the Internet indicating that the provision of its services does not constitute an endorsement or approval of conduct protected by CADA." Deciding not to distinguish between the First Amendment and article II, section 10 of the Colorado constitution as applied to respondents' freedom of speech claim, the Court of Appeals held that even if the speech is compelled by the government, it is not sufficiently expressive to warrant First Amendment protection. Because the Court of Appeals held that the compelled conduct was not sufficiently expressive, the Commission did not need to show that it has an important interest in enforcing CADA.

Respondents also argued that the Commission's order unconstitutionally infringed on its right to the free exercise of religion guaranteed by the First Amendment and article II, section 4 of the Colorado constitution. Because the law is unclear as to whether a corporation enjoys free exercise of religion rights under both the United States constitution and the Colorado constitution, the Court of Appeals assumed, without deciding, that Masterpiece has free exercise rights under both the First Amendment and the Colorado constitution. If a law is either not neutral or not generally applicable it must be justified by a compelling governmental interest and must be narrowly tailored to advance that interest. The threshold question thus was whether the Court of Appeals found CADA to be a neutral law of general applicability. Respondents argued that CADA is not generally applicable because the law includes exemptions for places principally used for religious purposes such as churches, synagogues, and mosques. The Court of Appeals stated that a law need not apply to every individual and entity to be generally applicable, noting that the exemptions reflect an attempt by the General Assembly to reduce legal burdens on religious organizations and comport with the free exercise doctrine. The Court of Appeals stated that "CADA does not compel [respondents] to support or endorse any particular religious views. The law merely prohibits [respondents] from discriminating against potential customers on account of their sexual orientation. . . . [Respondents remain] free to continue espousing [their] religious beliefs, including [their] opposition to same-sex marriage. However, if [respondents wish] to operate as a public accommodation and conduct business within the State of Colorado, CADA prohibits [them] from picking and choosing customers based on their sexual orientation." Thus, the Court of Appeals held that CADA is a neutral law of general applicability. The Court of Appeals held "we easily conclude that [CADA] is rationally related to Colorado's interest in eliminating discrimination in places of public accommodation. . . . Therefore, CADA's proscription of sexual orientation discrimination by places of public accommodation is a reasonable regulation that does not offend the free exercise clauses of the First Amendment and article II, section 4."

Respondents further argued that although neutral laws of general applicability do not violate the First Amendment, the free exercise clause of the Colorado constitution required that the Court of Appeals review CADA under heightened strict scrutiny. The Court of Appeals held that because the Colorado Supreme Court has recognized that article II, section 4 of the Colorado constitution embodies "the same values of free exercise and governmental non-involvement secured by the religious clauses of the First Amendment," and because Colorado appellate courts have regularly relied on federal precedent in interpreting article II, section 4, there is no support for the argument that the Colorado constitution requires the application of a heightened scrutiny test. (For more information, contact Esther van Mourik.)


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