Peo v. Smith

Opinion

22CA2274 Peo v Smith 08-01-2024

COLORADO COURT OF APPEALS

Court of Appeals No. 22CA2274

Larimer County District Court No. 18CR1921

Honorable Juan G. Villaseñor, Judge

The People of the State of Colorado,

Plaintiff-Appellee,

v.

Kirk Adam Smith,

Defendant-Appellant.

ORDER REVERSED AND CASE

REMANDED WITH DIRECTIONS

Division IV

Opinion by JUDGE PAWAR

Navarro and Johnson, JJ., concur

NOT PUBLISHED PURSUANT TO C.A.R. 35(e)

Announced August 1, 2024

Philip J. Weiser, Attorney General, Brittany Limes Zehner, Assistant Solicitor

General, Denver, Colorado, for Plaintiff-Appellee

Fischer Law Group, P.C., Erik G. Fischer, Ashleigh Bravo, Fort Collins,

Colorado, for Defendant-Appellant

22CA2273 Peo v Davenport 08-01-2024

COLORADO COURT OF APPEALS

Court of Appeals No. 22CA2273

Larimer County District Court No. 18CR1915

Honorable Juan G. Villaseñor, Judge

The People of the State of Colorado,

Plaintiff-Appellee,

v.

Benjamin Eugene Davenport,

Defendant-Appellant.

ORDER REVERSED AND CASE

REMANDED WITH DIRECTIONS

Division IV

Opinion by JUDGE PAWAR

Navarro and Johnson, JJ., concur

NOT PUBLISHED PURSUANT TO C.A.R. 35(e)

Announced August 1, 2024

Philip J. Weiser, Attorney General, Brittany Limes Zehner, Assistant Solicitor

General, Denver, Colorado, for Plaintiff-Appellee

Fischer Law Group, P.C., Erik G. Fischer, Ashleigh Bravo, Fort Collins,

Colorado, for Defendant-Appellant

1

¶ 1 Defendants, Benjamin Eugene Davenport and Kirk Adam

Smith, were indicted by a grand jury on over thirty counts each,

including counts of theft, forgery, money laundering, conspiracy to

commit theft, tax evasion, and violating the Colorado Organized

Crime Control Act (COCCA). All of those claims were dismissed. In

exchange for that dismissal, defendants agreed to plead guilty to a

single count each of making a misleading filing with the Colorado

Securities Commissioner. The plea agreement also provided that

defendants “agree to holding a restitution hearing” as to some of the

dismissed counts.

¶ 2 The district court held a restitution hearing and ordered

defendants to pay over $740,000 in restitution, jointly and

severally, to the victim, Blue Ocean Enterprises, Inc. Defendants

appeal that order. We conclude that the evidence was insufficient

to support that amount of restitution. We therefore reverse the

order and remand the case to the district court with directions.

I. Background

¶ 3 The following facts are either findings made by the district

court or uncontroverted evidence from the record.

2

¶ 4 Blue Ocean is a “family office,” meaning it services the various

businesses owned by a single family, in this case, the family of Curt

Richardson. Blue Ocean also invests in smaller businesses. One of

the businesses Blue Ocean invested in was Blue Point Pellets, LLC

(BPP). Defendant Davenport was the president of BPP, and

defendant Smith was the chief financial officer. The managers of

BPP were Davenport, Smith, Curt Richardson, and another Blue

Ocean employee, Kurt Hoeven.

¶ 5 In 2012, BPP owned a wood pellet factory in Denmark. At that

time, Blue Ocean owned 51% of BPP and defendants owned 49%.

Over the next several years, Blue Ocean invested more and more

money in BPP. This investment diluted defendants’ ownership. By

2014, defendants’ interest in BPP had been diluted to less than a

thousandth of a percent.

¶ 6 Also in 2014, wood pellets had become unprofitable to

manufacture and sell. Defendants proposed a pivot for BPP:

equipping the Danish factory to manufacture plastic pellets instead

of wood. But they couldn’t execute that pivot by themselves.

Because Blue Ocean financed all of BPP’s activities and two Blue

Ocean people were BPP managers (Richardson and Hoeven),

3

defendants needed Blue Ocean on board. So they pitched the pivot

to Blue Ocean. The pitch included a path for defendants to regain

lost equity in BPP and a share of any intellectual property that

might be created in developing the plastic pellet manufacturing

process. Put simply, defendants sought to be rewarded if their new

idea was successful.

¶ 7 Blue Ocean authorized BPP to explore pivoting to plastic

pellets. And defendants were told they would receive written

agreements codifying their path back to more equity in BPP and a

share of any intellectual property should the pivot prove successful.

But Blue Ocean never created the agreements. Indeed, Brent Keele,

a Blue Ocean lawyer who eventually became Blue Ocean’s

president, testified that he delayed drafting those agreements

because he and Blue Ocean never intended to offer them.

¶ 8 Meanwhile, defendants were moving ahead with the pivot to

plastic pellets. Equipping the Danish wood pellet factory to produce

plastic pellets would require different equipment. To meet this

need, defendants bought a separate company that would develop

the equipment and sell it to BPP. That company was called

Elemental Technologies, LLC, and defendants were its sole

4

members. Defendants did not disclose their ownership of

Elemental to Richardson, Hoeven, or anyone at Blue Ocean.

Consequently, BPP, with Blue Ocean’s consent and financing,

worked towards purchasing two friction blenders and a block press

from Elemental. Blue Ocean and BPP’s Blue Ocean members were

unaware that defendants were on both sides of those purchases.

¶ 9 Before the two friction blenders were delivered, and before the

block press had been fully fabricated, Keele, Blue Ocean’s attorney

and future president, discovered that defendants owned Elemental.

Defendants were quickly fired from their positions at BPP. But that

did not stop BPP (backed and actively run by Blue Ocean) from

making subsequent payments for the friction blenders, accepting

delivery of them, and using one of them in the Danish factory.

1

¶ 10 As for the block press, even after defendants’ firing, BPP made

an additional payment for the development of that machine. Only

seven months after defendants’ firing did BPP cancel its order with

Elemental for the block press.

1

The record indicates that BPP has never used the second friction

blender, but there is also no indication that it is not functional.

5

¶ 11 After using one of the friction blenders for several years in the

Danish factory, BPP planned to sell both blenders to Otterbox,

another company owned by Richardson and affiliated with Blue

Ocean. Blue Ocean and Otterbox planned to make recycled plastic

products with them. At the time of the restitution hearing, BPP had

not sold the friction blenders.

¶ 12 After receiving the two functional friction blenders from

Elemental, BPP and Blue Ocean contacted law enforcement and

urged them to investigate defendants for what they had done. The

prosecution convened a grand jury, which returned indictments on

over thirty counts each for defendants. For their nondisclosure of

their interest in Elemental, the counts included theft, forgery,

money laundering, and violations of COCCA.

¶ 13 Ultimately, the parties reached the plea agreement described

above: all grand jury counts were dismissed, defendants pleaded

guilty to a single added count, and defendants agreed “to holding a

restitution hearing as to [the counts involving Elemental].” The

district court held a restitution hearing and awarded two separate

categories of restitution. First, it awarded the amount that BPP

paid Elemental for the friction blenders and block press before BPP

6

discovered that defendants owned Elemental (with several smaller

deductions we will address later). This amount came to

$529,525.49. The second category was $214,098.54 for

investigative costs that BPP and Blue Ocean incurred to purportedly

discover the extent of the losses. Notably, the court did not address

any value Blue Ocean/BPP received in the transaction from its

receipt, use, and potential sale of the friction blenders.

¶ 14 Defendants challenge the restitution award on various

grounds, including that the court lacked authority to impose any

restitution award and that Blue Ocean/BPP suffered no actual loss.

¶ 15 We conclude that the court had authority to impose

restitution. But we conclude that the evidence was insufficient to

support the amount of restitution awarded — specifically the

$529,525.49 the district court found that Blue Ocean lost in the

transaction with Elemental.

II. Defendants Agreed to the Imposition of Restitution

¶ 16 After the plea agreement and guilty pleas but before the

restitution hearing, our supreme court announced People v. Roddy,

2021 CO 74. In that opinion, the court confirmed that a defendant

cannot be ordered to pay restitution for a loss caused by conduct

7

that formed the basis of only a dismissed count or uncharged

crime. Id. at ¶¶ 28-29. But the court identified an exception. A

defendant may agree in the plea agreement to extend the scope of

restitution to include conduct underlying dismissed counts. Id.

Accordingly, a court may order restitution for conduct underlying a

dismissed count if the defendant agrees, “at the time the plea

agreement is entered on the record, to pay restitution for pecuniary

loss beyond that proximately caused by the conduct essential to the

charges to which he pleads guilty.” Id. at ¶ 32.

¶ 17 Defendants argue that any restitution for their Elemental-

related conduct was improper because that conduct was the basis

of dismissed counts, and they did not agree to expand the scope of

restitution. We review the district court’s authority to impose

restitution de novo. Id. at ¶ 23. When interpreting the parties’

obligations under a plea agreement, we attempt to discern “the

meaning a reasonable person would have attached to the agreement

at the time the agreement was entered into.” People v. Antonio-

Antimo, 29 P.3d 298, 303 (Colo. 2000). To do so, we look to the

plain language of the agreement, resolving any ambiguity in the

defendant’s favor. Roddy, ¶ 24.

8

¶ 18 Defendants are correct that the written plea agreement does

not explicitly say that they agree to pay restitution for the

Elemental-related conduct. Instead, it says “the People and the

defendant[s] agree to holding a restitution hearing as to Counts

[related to Elemental]. The People agree to not seek restitution for

Counts 1-11.”

¶ 19 Based on this language, the only thing defendants explicitly

agreed to was a restitution hearing. And this explicit agreement did

not preclude them from arguing, as they did at the hearing, that the

court lacked authority to impose restitution because they did not

agree to it. That said, a reasonable person would have understood

from the plea agreement that defendants agreed that the court had

authority to impose restitution for their Elemental-related conduct

(provided the prosecution could prove that conduct proximately

caused a loss). Indeed, at the sentencing hearing when the district

court accepted the plea agreement, defense counsel characterized

defendants as having “agreed to a sentencing concession for the

repayment of potential restitution.” See Roddy, ¶ 32 (An “oral

representation on the record during a dispositional hearing plainly

9

supplementing the written plea agreement” may indicate an

agreement to restitution on dismissed counts.).

¶ 20 Based on this record, we conclude that a reasonable person

would have unambiguously understood that defendants agreed to

pay any restitution the prosecution could prove based on their

Elemental-related conduct.

2

The district court therefore had

authority to impose restitution based on that conduct. So we

proceed to address defendants’ challenges to the restitution

amount.

III. The Restitution Award

¶ 21 Restitution is any pecuniary loss suffered by the victim that is

“proximately caused by an offender’s conduct and that can be

reasonably calculated and recompensed in money.” § 18-1.3-

2

We are confused by the district court’s seemingly contradictory

statements about this issue in its order. The court clearly exercised

its authority to impose restitution. But, as pointed out by

defendants, the court wrote the following: “Defendants note, and

the Court agrees, that they didn’t agree (as part of their plea

agreements) to pay restitution for any counts related to Elemental.

And while, generally, ‘a court may not order restitution for injury or

losses proximately caused by conduct that forms the basis of only

the dismissed charge[s],’ [People v.] Roddy, [2021 CO 74, ¶ 28],

defendants’ plea agreements allow the Court to impose restitution

based on multiple dismissed counts.” (Emphasis in original).

10

602(3)(a), C.R.S. 2023. It is limited to the victim’s actual economic

loss and therefore does not include things like loss of future

earnings or punitive damages. Id. Restitution seeks only to return

the victim to the same financial position they were in before the

events at issue, not put the victim in a better financial position.

People v. Perez, 2017 COA 52M, ¶ 19. Accordingly, the restitution

scheme seeks to avoid double recovery. People v. Gregory, 2019

COA 184, ¶ 24.

¶ 22 It is the prosecution’s burden to prove by a preponderance of

the evidence both the amount of the loss and that the loss was

proximately caused by a defendant’s conduct. People v. Babcock,

2023 COA 49, ¶ 19 (cert. granted Apr. 8, 2024). On the other hand,

it is a defendant’s burden to prove any setoffs that might apply,

such as a civil settlement for the same damages covered by the

restitution. See Gregory, ¶ 25; People v. Lassek, 122 P.3d 1029,

1035 (Colo. App. 2005), overruled on other grounds by Sullivan v.

People, 2020 CO 58, ¶ 18.

¶ 23 Defendants challenge the restitution award in three ways.

First, they argue that the prosecution failed to prove at the

restitution hearing that defendants’ conduct was criminal. Second,

11

they argue that Blue Ocean suffered no loss in the transaction with

Elemental, let alone a $529,525.49 loss. And third, they argue that

the prosecution failed to prove that all the $214,098.54 for

investigatory costs was incurred to investigate defendants’

Elemental-related conduct. We address each argument in turn.

A. The Prosecution Did Not Have to Prove Criminal Conduct

¶ 24 We are somewhat perplexed by defendants’ argument that the

prosecution failed to prove that their conduct was criminal at the

restitution hearing. As explained above, defendants agreed to pay

restitution for Elemental-related conduct if the prosecution could

prove that the conduct proximately caused a loss. It therefore

seems beside the point whether defendants’ Elemental-related

conduct was criminal — criminal or not, defendants agreed to pay

any restitution based on that conduct that the prosecution could

prove caused a loss.

¶ 25 In our view, the prosecution had to prove only a loss that was

proximately caused by defendants’ conduct underlying the

dismissed counts for which defendants agreed to pay restitution.

12

We next address defendants’ arguments about how the prosecution

failed to prove the elements of restitution.

3

B. Evidence was Insufficient to Support Restitution for All Money

BPP Paid Elemental Before Discovering Defendants Owned It

¶ 26 Defendants’ argument that Blue Ocean suffered no loss in the

transaction with Elemental, let alone a $529,525.49 loss, is a

challenge to the sufficiency of the evidence. We therefore review the

district court’s assessment of Blue Ocean’s loss de novo. See People

v. Barbre, 2018 COA 123, ¶ 25. Our task is to determine whether

the evidence, viewed as a whole and in the light most favorable to

the prosecution, establishes by a preponderance of the evidence

that Blue Ocean suffered that amount of loss. See id. We conclude

it does not.

¶ 27 The $529,525.49 loss the district court calculated from the

Elemental transaction itself (i.e., excluding loss from investigative

costs) was the total amount BPP paid Elemental for the equipment

3

We note that defendants’ arguments do not include a challenge to

the finding that their conduct proximately caused Blue Ocean’s loss

in the transaction with Elemental.

13

before Blue Ocean knew that defendants were owners of Elemental.

4

But problematically, the prosecution failed to establish that Blue

Ocean received nothing of value in exchange for its money. And

because Blue Ocean received some value in the transaction, it was

not entitled to all its pre-discovery money back.

¶ 28 The uncontroverted evidence showed that BPP received two

friction blenders from Elemental, one of which it used to produce

plastic pellets for some period of time. Although BPP never used

the second, the record indicates that at one time BPP intended to

sell both machines to Otterbox to make recycled plastic products.

There was also uncontroverted evidence that a friction blender with

one-fifth the capacity of Elemental’s was priced at $125,000, and a

friction blender with a similar capacity to Elemental’s was priced at

almost $700,000. The only conclusion to draw from this evidence is

that the friction blenders had at least some pecuniary value.

4

This amount is also the product of three categories of deductions

based on how Elemental disbursed money from its accounts. We

fail to see how Elemental’s disbursements could have affected the

amount of Blue Ocean’s loss, but this issue is not before us and

therefore we say no more about it.

14

¶ 29 We recognize, as stated above, that a defendant bears the

burden to prove a setoff to reduce a restitution award. A setoff is

generally compensation a victim receives for its loss through means

extrinsic to the criminal transaction. See Gregory, ¶ 16 (addressing

a settlement agreement as a setoff to restitution); People v. Madison,

2018 COA 62, ¶ 24 n.2 (where the defendant stole many bottles of

expensive wine, if law enforcement sold the recovered wine and

distributed proceeds to the victims, defendant was entitled to a

setoff against restitution for those distributed proceeds), overruled

on other grounds by People v. Weeks, 2021 CO 75; People v.

Hoisington, 902 P.2d 887, 888-89 (Colo. App. 1995) (accepting

defendant-employee’s unpaid wages as a setoff against restitution

for victim-employer).

5

But the value that Blue Ocean received in

exchange for the money it paid Elemental is not a setoff — it was

part of the transaction that constituted the alleged crimes and is

5

Indeed, there was evidence of potential setoffs in this case. A civil

case between Blue Ocean and defendants settled during this

appeal. See § 18-1.3-603(3)(b)(II), C.R.S. 2023 (Restitution award

may be decreased if “the defendant has otherwise compensated the

victim or victims for the pecuniary losses suffered.”). And Blue

Ocean’s former attorney and president testified that Blue Ocean

took a twenty-eight- or thirty-million-dollar theft loss on its tax

returns.

15

therefore part of the loss calculation in the first instance.

Consequently, to justify restitution for all the money Blue Ocean

paid Elemental before it knew about defendants’ ownership, the

prosecution had to prove by a preponderance of the evidence that

Blue Ocean received nothing of value from Elemental in return for

the money it paid. And based on the uncontroverted evidence

described above, we conclude that the prosecution failed to carry

this burden. We therefore agree with defendants that there was

insufficient evidence to support the district court’s determination

that Blue Ocean’s loss in the transaction was $529,525.49 (the total

amount it paid Elemental before it knew about defendants’

ownership).

¶ 30 This holding is consistent with the restitution scheme’s goal of

returning the victim to their pre-crime financial position, not

putting them in a better one. See Perez, ¶ 19. Giving Blue Ocean

its money back in addition to the equipment it used that money to

buy would leave Blue Ocean better off, not merely return it to its

original position.

16

C. Investigative Costs

¶ 31 Finally, defendants argue that the prosecution failed to prove

that Blue Ocean’s investigative costs of $214,098.54 were all related

to investigating the Elemental-related conduct that was within the

scope of restitution. This argument does not challenge the

quantum of evidence supporting the investigative costs Blue Ocean

incurred. Instead, it challenges the district court’s (unexplained)

conclusion that all these investigative costs were proximately

caused by defendants’ Elemental-related conduct. See Martinez v.

People, 2024 CO 6M, ¶ 20 (characterizing a challenge to a

restitution award based on its substance, not its form).

¶ 32 In the restitution context, we review a proximate cause

determination for clear error. Id. at ¶ 32. This means we must

affirm the district court’s proximate cause finding unless it is

without record support. Id. at ¶ 34.

¶ 33 Proximate cause is a cause that in natural and probable

sequence produces the claimed loss. Id. at ¶ 13.

¶ 34 The record includes invoices from two forensic accounting

firms hired by Blue Ocean to audit BPP and uncover any fraud.

The invoices include dates and payment amounts but do not

17

identify investigation subjects or investigative activities associated

with any of the payment amounts. However, Brent Keele testified

that Blue Ocean initiated the forensic accounting investigation in

the wake of discovering defendants’ nondisclosure to answer

“questions about how [BPP] was run, about how [BPP] had been

operated, about where cash was and where equipment was . . . just

to see if there was anything that stuck out as fraudulent.” He then

explained that “[a]s we got further in the process, then we wanted to

understand about the Elemental Technologies transaction.”

¶ 35 The implication of Keele’s testimony is that defendants’

nondisclosure triggered the forensic accounting investigation and

eventually became its focus. This is not strong evidence that every

dollar Blue Ocean spent on the investigation was the natural and

probable outcome of defendants’ nondisclosure, but it is at least

some. And because we will not reverse a proximate cause

determination unless it is entirely unsupported by the record, we

must affirm the proximate cause determination here. We therefore

reject defendants’ challenge to the proximate cause finding

supporting the restitution award for investigative costs.

18

IV. Disposition

¶ 36 The restitution award is reversed, and the case is remanded to

the district court with directions to reconsider restitution in a

manner consistent with this opinion.

JUDGE NAVARRO and JUDGE JOHNSON concur.