Free Trial Brief - District Court of Colorado - Colorado

Case 1:03-cv-01973-PSF-MJW

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 03-cv-1973-PSF-MJW (Consolidated with 04-cv-02112-PSF-MJW) THE WALKER GROUP, INC. Plaintiff, v. FIRST LAYER COMMUNICATIONS, INC. and J.E.H. KNUTSON Defendants.

WALKER GROUP'S RESPONSE TO DEFENDANT KNUTSON'S BRIEF REGARDING APPLICATION OF VAUE RECEIVED FROM FIRST LAYER COMMUNICATIONS, INC.

I.

THE CASE CITED BY DEFENDANT KNUTSON IS DISTINGUISHABLE FROM THE FACTS OF THIS CASE AND ACTUALLY SUPPORTS WALKER GROUP'S POSITION. A. The Case Cited by Defendant Knutson Involved Two Separate Debts, Not One, as Does the Case Currently Before the Court.

Lee v. Yano, 997 P.2d 68 (Haw. 2000)1 is inapplicable to the facts of our case because it involves two separate debts, only one of which was secured by a guaranty. Consequently, the

Although Walker Group never understood the dollar amount of the judgment to be entered gains First Layer to be in question, it should be noted that after conferring with Defendant's counsel prior to filing opening briefs, the parties agree that the dollar amount of the Judgment against First Layer should be $840,757.87 (i.e., $1,013,867.70 $173,109.83). No agreement could be reached regarding the dollar amount of the judgment to be entered against

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question for the Hawaiian court was which of the two debts payments equitably should it have been applied against, when the debtor made no indication as to which of the debts was being paid. In contrast, in the matter here before the Court, there is only one First Layer debt that totaled $1,013,867.70. In Lee the first of the two distinct debts was the amount identified and consolidated under a $5,500.00 promissory note (the "Note") for child support arrearages and attorneys fees. Id. at 70. The guaranty at issue secured payment of the debtor's obligation under the Note. The second debt was incurred after the debtor executed the Note and represented debt for additional unpaid child support. Id. at 71. The additional debt was not secured by the guaranty. The question for the court was to identify which of the debts (i.e. the debt under the Note that was secured by the guaranty or the additional debt not secured by the guaranty) that the payments satisfied. The Court ultimately concluded that equity required first crediting the debt secured by the guaranty because the debtor owed a duty to the third party guarantor. Id. at 78.2 In the case currently before the Court, however, First Layer incurred only one debt that totaled $1,013,867.70, all of which is secured by the guaranties of the co-guarantors (jointly and severally for the first $600,000 and on a pro rata basis for the remaining $413,867.70). Because there is only one debt, there is no question about which debt should be reduced by First Layer's credit for the value of the items received by Walker Group. Knutson seeks to graft the

circumstances of this case onto the facts of Lee by suggesting that First Layer's debt is somehow divisible, which it is not. The fact that Mr. Knutson guaranteed $722,629.99 of $1,013,867.70
Defendant Knutson, nor could the parties reach an agreement as to pre and post-judgment interest, attorneys' fees and costs. 2 Nowhere in Lee, however, does the Court indicate that the guaranty itself was to be credit with the payments. Rather, the court only discusses crediting the debt that was secured by the guaranty and in his brief Defendant acknowledges that the credit should be applied to debt, not the guaranty. (Def.'s Br. at 2).

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does not make First Layer's single debt divisible. The one debt, and the guarantees securing the one debt, were all due on October 10, 2002. Without two debts, Mr. Knutson's reliance on Lee is misplaced. B. Even Assuming Arguendo, That Multiple Debts Are at Issue in This Matter, the Case Cited by Defendant Knutson Allows Walker Group to Chose the Debt Against Which to Apply the Credit.

Interestingly, the Hawaii case relied on by Defendant discusses Colorado law and Colorado's preference for allowing the creditor, not the debtor, to determine against which of multiple debts a payment is to be applied. Lee cites with approval the Colorado Supreme Court opinion of Weston Group, Inc. v. A.B. Hirschfeld Press, Inc., 845 P.2d 1162 (Colo. 1993), in which the Colorado Supreme Court stated: [W]e have recognized the general rule to be that in absence of designation by a debtor, the creditor generally may apply the debtor's payments among matured debt in any way the creditor desires. Id. at 77 (quoting Weston Group, 845 P.2d 1162, 1167). Moreover, as interpreted by Lee, the Colorado courts do not require a creditor to manifest to the debtor the creditor's intent in order to make the creditor's application of the debtor's payments effective. Id. In this case, it has been manifest from the outset that Walker Group intended to apply any credit owed to First Layer for assets received to the total amount of its debt. This approach is supported by the fact that First Layer's entire debt was secured by multiple guaranties, each of which was given as security to Walker Group. It would not make sense, and would be contrary to the joint and several nature of the guaranties, to apply the credit to reduce only Defendant Knutson's guaranty. Because this credit can only be taken once, the only way that each of the jointly and severally liable

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guarantors can realize the reduction of the amount they guaranteed is if the value of the assets Walker Group received is applied to the First Layer debt.

CONCLUSION For the reasons discussed above and in Walker Group's opening brief, Walker Group is entitled to the entry of a judgment against First Layer in the amount of $840,757.87 plus prejudgment interest at 8% from October 10, 2002, post-judgment interest, costs and attorneys fees and the entry of a judgment against Mr. Knutson in the amount of $722,628.99 plus prejudgment interest at 8% from July 9, 2003, post-judgment interest, costs and attorneys fees. Respectfully submitted, this the 10th day of November, 2005.

s/ Richard S. Gottlieb Richard S. Gottlieb Laura A. Greer Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 Attorneys for Plaintiff Walker Group, Inc. Joshua Maximon, Esq. The Maximon Law Firm, LLC 12202 Airport Way, Suite 170 Broomfield, Colorado 80021 Telephone: (303) 991-3344
02560-207219 9028334.3

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on November 10, 2005, I electronically filed the foregoing RESPONSE TO DEFENDANT KNUTSON'S BRIEF REGARDING APPLICATION OF VAUE RECEIVED FROM FIRST LAYER COMMUNICATIONS, INC. with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email addresses: [email protected] [email protected], and I hereby certify that I have mailed or served the document or paper to the following non CM/ECF participants by first class mail addressed as follows: none.

s/ Richard S. Gottlieb Richard S. Gottlieb Attorney for Plaintiff Walker Group, Inc. Kilpatrick Stockton LLP 1001 West Fourth Street Winston-Salem, North Carolina 27101-2400 Telephone: (336) 607-7300 [email protected]
02560-207219 9028334.3

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