April 26, 2017

Colorado Supreme Court: Privity of Contract Must Exist for Breach of Warranty of Suitability Claim

The Colorado Supreme Court issued its opinion in Forest City Stapleton, Inc. v. Rogers on Monday, April 17, 2017.

Implied Warranty of Suitability—Privity of Contract—Implied Warranties.

The Colorado Supreme Court considered whether privity of contract is necessary for a home buyer to assert a claim for breach of the implied warranty of suitability against a developer. The court concluded that because breach of the implied warranty of suitability is a contract claim, privity of contract is required in such a case. Here, the home buyer was not in privity of contract with the developer and thus cannot pursue a claim against the developer for breach of the implied warranty of suitability. Accordingly, the court of appeals’ judgment was reversed and the case was remanded for further proceedings.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Statutory Limitations Period Began when Broker Knew of Contractual Breach

The Colorado Court of Appeals issued its opinion in International Network, LLC v. Woodard on April 6, 2017.

Breach of Contract—Exclusive Right-to-Sell Listing—Statute of Limitations—Jury Instructions.

Woodard (seller) owned a 100-acre ranch. In 2006 he signed an exclusive right-to-sell listing agreement with International Network, Inc. (broker). The agreement was for a six-month listing period and provided for a percentage commission to be paid to broker upon sale. Seller had the absolute right to cancel the agreement at any time upon written notice.

Approximately four months into the listing period, seller began negotiating with an attorney who represented a group of potential buyers. Seller did not disclose his negotiations to broker. About a month after commencing these discussions, seller abruptly cancelled the listing agreement without cause. Broker ceased marketing the property. After the listing period had expired, but within the 90-day holdover period set forth in the agreement, seller and the buyers finalized an agreement resulting in the sale of the property.

Seven years later, broker initiated this action against seller for breach of contract based on seller’s failure to comply with the referral provision, which required seller to conduct all negotiations for the sale of the property through broker and refer to broker all communications received from prospective buyers. Following trial, a jury found in favor of broker and awarded damages in the amount of the commission that would have been owed under the listing agreement.

On appeal, seller argued that the trial court erred in denying his motion for directed verdict and his post-trial motion for judgment notwithstanding the verdict because broker’s breach of contract claim was barred by the statute of limitations. C.R.S. § 13-80-101(1)(a) states that a breach of contract claim must be commenced within three years after accrual of the cause of action, and accrual occurs when the breach is discovered or should have been discovered. It was undisputed that seller breached the referral provision in 2006. Seller argued that under the facts, broker should have realized there might have been a breach of the referral provision and through the exercise of reasonable diligence should have discovered it in 2006. Broker asserted it had no knowledge of seller’s duplicity until broker’s agent heard seller’s testimony in another lawsuit in 2011 in which seller testified he had violated the listing agreement and intentionally concealed his negotiations to avoid paying a commission. Therefore, in commencing this action in 2013 broker was within three years of its discovery of the breach. Based on the record, the Colorado Court of Appeals could not conclude that the evidence, viewed in the light most favorable to broker, compelled a different result.

Seller also argued that it was error to not give a jury instruction on the elements of liability for recovery on a real estate commission claim, contending that the broker was not the procuring cause of the sale. Here, seller breached the referral provision and cannot use his intentional concealment of his negotiations to prevent broker from obtaining damages in the form of a commission. The court did not err in rejecting seller’s procuring cause instruction.

Seller contended the trial court erred by rejecting seller’s proposed jury instruction on the affirmative defense of laches. The trial court ruled, and the Court agreed, that seller’s improper conduct precluded his assertion of a laches defense.

Seller further argued that the court erred in denying him the right to impeach broker’s agent with certain evidence. The court precluded seller’s questioning due to lack of a sufficient foundation and acted within its discretion in limiting seller’s cross-examination.

Broker requested attorney fees and costs in accordance with the agreement, which the court awarded.

The judgment was affirmed and the case was remanded for further proceedings to award broker’s costs and attorney fees incurred on appeal.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Collective Bargaining Agreement Provided for Payment for ELA Classes

The Colorado Court of Appeals issued its opinion in Denver Classroom Teachers Association v. School District No. 1 in the County of Denver and State of Colorado on Thursday, January 12, 2017.

Collective Bargaining Agreements—Damages—Statute of Limitations—Administrative Remedies.

School District No. 1 and the Board of Education of School District No. 1 in the County of Denver and State of Colorado (collectively, the District) and the Denver Classroom Teachers Association (DCTA) entered into several collective bargaining agreements (CBAs) and extensions from 2005 to 2015. From the mid-1990s until the 2006–07 school year, the District compensated teachers for attending English Language Acquisition (ELA) training. ELA is a program to train teachers to work more effectively with students who have limited English language proficiency. A federal consent order requires the District to have teachers who are trained to teach such students. After the 2006–07 school year, the District stopped paying teachers for attending the training. DCTA filed a grievance against the District alleging violations of the 2005–08 CBA. DCTA subsequently filed suit for breach of the 2005–08 and 2008–11 CBAs and the extensions, and a jury returned verdicts in favor of DCTA for breach of contract, but it held the District not liable in special interrogatories regarding breach for teachers in the Professional Compensation (ProComp) system.

On appeal, the District first contended that the CBAs and extensions were unambiguous and that they did not require the district to pay teachers for ELA training. Because the articles provide for payment for work beyond the 40-hour week, and because the ELA training may fall into that category, the contract was fairly susceptible to being interpreted to require payment for such work. Therefore, the CBAs were ambiguous, and the trial court properly let the interpretation go to the jury as a question of fact.

The District next contended that additional evidence showed unambiguously that it was not required to compensate teachers for ELA training beyond that year because (1) ELA training was a special condition of employment and (2) the parties’ bargaining history indicates that any requirement to compensate teachers for ELA training was purposely excluded from the CBAs. First, the CBAs were ambiguous regarding whether ELA training is a “special condition” regarding assignment of the teacher, requiring the teachers, not the District to pay for the training. Second, the District’s past practice of paying teachers for ELA training supported DCTA’s position that the CBAs entitled teachers to receive pay for ELA training.Therefore, the question was properly given to the jury.

The District also asserted that the trial court erred in not precluding recovery of damages that accrued before October 24, 2007, which was six years before the case was filed. The statute of limitations for breaching a CBA is six years. The District stopped paying teachers for ELA training starting with the 2007–08 school year, which began on August 13, 2007. DCTA filed its complaint on October 24, 2013. The trial court did not commit reversible error in deciding to award damages for the complete Fall 2007 semester.

Finally, the District contended that DCTA should have been barred from any relief for the 2008–09 school year and beyond because it failed to exhaust administrative remedies for those years. DCTA filed a grievance only for the 2007–08 school year, which was under the 2005–08 CBA. Further efforts by DCTA to achieve payment for ELA training through administrative remedies would have been futile, and the trial court did not err in this finding.

DCTA, in its cross-appeal, contended that the trial court erred in giving the jury special interrogatories to decide whether teachers under the ProComp system were exempt from receiving extra pay for ELA training. Because competent evidence supported the assertion, the trial court did not abuse its discretion in allowing the jury to determine whether teachers under the ProComp agreement forfeited their entitlement to compensation for ELA training.

The final judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Attorney’s Prelitigation Statements Must Be Made in Good Faith to Qualify as Privileged

The Colorado Court of Appeals issued its opinion in Begley v. Ireson on Thursday, January 12, 2017.

Belinda Begley and Robert Hirsch, and their joint revocable trust (collectively, plaintiffs), purchased a property in Denver with the intent of demolishing the existing house and building a new house. Their architect’s plans were approved by the City & County of Denver, and plaintiffs contracted with a builder to begin demolition in anticipation of construction. The builder demolished the old house and began the shoring work for the new house. The neighbors, Ireson and Hoeckele, along with their attorney, Gibbs (collectively, defendants), made several threatening statements to the builder, which caused him to cease work and breach his contract with plaintiffs.

Plaintiffs filed a complaint against defendants, alleging intentional interference with a contract and intentional interference with prospective contractual relations. Several days later, defendants filed suit against plaintiffs, and moved to dismiss plaintiffs’ complaint under C.R.C.P. 12(b)(5) for failure to state a claim, arguing that their allegedly tortious statements were made in anticipation of litigation and were therefore protected. The district court apparently took judicial notice of defendants’ suit and granted their C.R.C.P. 12(b)(5) motion. Plaintiffs appealed.

The Colorado Court of Appeals first noted that motions to dismiss under C.R.C.P. 12(b)(5) are viewed with disfavor. The district court had ruled that the plaintiffs’ complaint failed to state a claim because there was no allegation that the statements by Hoeckele, Ireson, and Gibbs caused the builder to breach his contract. The court of appeals found this was error. The complaint alleged with specificity several incidents in which Ireson, Hoeckele, and Gibbs interfered with the construction contract, and the court held that nothing more was required to survive the motion to dismiss. The court reversed the district court’s grant of defendants’ motion.

The district court next ruled that because Gibbs’ statements and communications to the builder were made while he was representing Ireson and Hoeckele and were “in anticipation and in furtherance of litigation,” they were absolutely privileged against the torts that plaintiffs alleged. The court of appeals again found that this ruling was in error. The court analyzed several state appellate court decisions, as well as section 586 of the Restatement (Second) of Torts, and determined that prelitigation statements must be made in good faith to be privileged. Because the district court made no finding as to whether Gibbs’ statements were made in good faith, the court of appeals reversed and remanded.

The court of appeals reversed the district court’s rulings and remanded for further proceedings.

Colorado Court of Appeals: Exculpatory Clauses in Fitness Agreement Did Not Bar PLA Claim

The Colorado Court of Appeals issued its opinion in Stone v. Life Time Fitness, Inc. on Thursday, December 30, 2016.

Summary Judgment—Negligence—Premises Liability Act—Liability Release—Assumption of Risk.

Stone was a member of a fitness club owned by defendants (collectively, Life Time). She fell and fractured her ankle in the club’s women’s locker room after a workout. Stone asserted a general negligence claim and a claim under Colorado’s Premises Liability Act (PLA), alleging that Life Time allowed a trip hazard and dangerous condition to exist and thus failed to exercise reasonable care.

Life Time moved for summary judgment, relying on assumption of risk and liability release language contained in the agreement Stone signed when she joined the club. The district court granted the motion, without distinguishing between the negligence and PLA claims, finding that the agreement was valid and enforceable and that Stone had released Life Time from all the claims asserted in the complaint.

On appeal, Stone contended that the district court erred in entering summary judgment and dismissing her action. As to the negligence claim, the Court of Appeals determined that the PLA provides the sole remedy for injuries against landowners on their property and abrogates common law negligence claims against landowners. Thus Stone could not bring a common law negligence claim against Life Time.

Stone also argued that the exculpatory clauses in the agreement, while applying to the workout areas, did not clearly and unambiguously apply to injuries incurred in the women’s locker room. Exculpatory agreements are generally disfavored. A court must consider four factors to determine whether an exculpatory agreement is valid: (1) the existence of a duty to the public; (2) the nature of the service performed; (3) whether the contract was fairly entered into; and (4) whether the intention of the parties was expressed in clear and unambiguous language. As to the first factor, the Colorado Supreme Court has specified that no public duty is implicated if a business provides recreational services. On the second factor, courts have consistently held that recreational services are neither essential nor a matter of practical necessity. With respect to the third factor, recreational service contracts of this type are generally considered to be fairly entered into. These three factors weighed in favor of the enforceability of the agreement. On the fourth prong, however, in waiving future negligence claims, the intention of the parties must be expressed in clear and unambiguous language. After scrutinizing the exculpatory clauses, the court of appeals concluded that the agreement used excessive legal jargon, was unnecessarily complex, and created a likelihood of confusion. Thus, the agreement did not bar Stone’s PLA claim.

The judgment on the negligence claim was affirmed, the judgment on the PLA claim was reversed, and the case was remanded.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Design of Manufacturing Part Was Not a Secret, Therefore No Misappropriation Occurred

The Colorado Court of Appeals issued its opinion in Hawg Tools, LLC v. Newsco International Energy Services, Inc. on Thursday, December 1, 2016.

Design—Trade Secret—Conversion—Defense—Waiver—Standing—Breach of Contract.

Hawg Tools, LLC (Hawg) rents mud motors to oil and gas drilling companies. Newsco International Energy Services, Inc. (Newsco) uses mud motors to provide drilling services. Gallagher owned Hawg. Before he formed this company, he operated a similar business called New Venture. In 2008 Gallagher asked a machinist to manufacture sealed bearing packs for use in New Venture’s mud motors. The machinist arranged for a designer, defendant Ficken, to design the sealed bearing packs for the machinist as a favor. The designer assigned his rights in the design to the machinist, who assigned them to Gallagher for compensation. Gallagher later assigned the rights to Hawg. The designer later designed a sealing bearing pack for Newsco. After determining that the Newsco design was similar to the Hawg design, Gallagher filed this lawsuit alleging (1) misappropriation of a trade secret concerning the design of a sealed bearing pack, (2) conversion of a trade secret, and (3) breach of contract. The trial court entered judgment in favor of plaintiff. The trial court denied defendants motions for directed verdict and judgment notwithstanding the verdict.

On appeal, defendants contended that the trial court erred when it denied their motions for directed verdict and judgment notwithstanding the verdict on Hawg’s claim for misappropriation of a trade secret. C.R.S. § 7-74-102(4) defines a trade secret as “the whole or any portion . . . of any . . . design . . . which is secret and of value.” To determine whether a trade secret exists, the fact finder considers (among other thing) the extent to which the information is known outside the business. Here, Hawg did not establish that its design, in whole or in part, was substantially different from designs that were publicly available at the time of its creation. The court of appeals concluded that (1) the record does not support a conclusion that the Hawg design was secret and (2) the record does not contain sufficient evidence to support the trial court’s decision to deny defendants’ motions for a directed verdict and for judgment notwithstanding the verdict.

Defendants also contended that the trial court erred when it denied their motion for judgment notwithstanding the verdict on Hawg’s conversion claim, asserting that the Uniform Trade Secrets Act preempts claims for conversion of trade secrets. This was a preemption defense based on choice of law, which defendants waived because they raised it for the first time in their motion for judgment notwithstanding the verdict.

Ficken appealed the judgment against him on Hawg’s breach of contract claim, contending that the trial court erred when it rejected his assertion that Hawg lacks standing to bring suit against him for breach of contract based on his violation of a confidentiality agreement. Here, the designer and the machinist entered into an assignment agreement with Gallagher. Later, Gallagher fully assigned his rights under this agreement to Hawg. Therefore, Hawg had standing to bring suit for breach of that agreement.

The judgment on Hawg’s claim for misappropriation of a trade secret was reversed and the case was remanded for the trial court to enter judgment in favor of defendants on that claim and to vacate the award of damages on that claim. The judgment on Hawg’s claims for conversion and breach of contract were affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Insurer Required to Pay Portion of Costs Regardless of Whether Coverage Existed

The Colorado Court of Appeals issued its opinion in Mt. Hawley Insurance Co. v. Casson Duncan Construction, Inc. on Thursday, November 3, 2016.

Insurance—Partial Summary Judgment.

A homeowners association (HOA) sued developer Mountain View Homes III (MVH III) and general contractor Casson Duncan Construction Inc. (Casson Duncan) on defective construction claims. In arbitration, MVH III’s insurer, Mt. Hawley Insurance Co. (Mt. Hawley), defended under a reservation of rights. The arbitration resulted in awards of damages and taxable costs to the HOA. Casson Duncan paid the costs award, for which it and MVH III were jointly liable, and thereafter sought contribution from MVH III and Mt. Hawley.

Mt. Hawley initiated this action against MVH III, the HOA, and Casson Duncan, requesting a declaration that there was no coverage under its commercial general liability policies with MVH III for either the costs or damages awarded in the arbitration. Casson Duncan filed a counterclaim for declaratory and monetary relief against Mt. Hawley for payment of MVH III’s portion of the costs award. The parties filed cross-motions for summary judgment on coverage issues. The district court denied summary judgment on all but one issue: it determined that Mt. Hawley was, as a matter of law, responsible for paying MVH III’s portion of the cost award, regardless of whether it was also responsible for paying its portion of the damages award. This partial summary judgment ruling was certified as “final” for purposes of permitting appellate review.

On appeal, Mt. Hawley argued that the district court erred in granting partial summary judgment because Mt. Hawley’s responsibility for paying costs was inextricably linked to the question of whether the policies provided MVH III with coverage for the HOA’s claims, and because the coverage issues had not been determined, the costs issues could not be determined either. The court of appeals interpreted the policies to decide the issue. The insurance policies had standard “coverages” and “exclusions” sections and provided that the insurance company would pay “[a]ll costs taxed against the insured in the ‘suit,’” where “suit” clearly covered the arbitration proceeding. The obligation to pay costs was not linked to coverage but simply to the defense of the case. Because Mt. Hawley conducted MVH III’s defense in the arbitration proceedings, it was obligated to pay MVH III’s portion of taxable costs.

Mt. Hawley also argued that its reservation of rights letter superseded the policies’ costs provisions. A reservation of rights does not destroy the insured’s rights or create new rights in the insurer. The Colorado case law exception to this principle applies to defense costs, and defense costs are different from costs taxed against an insured.

Lastly, Mt. Hawley asserted that the court’s interpretation of the policies leads to absurd results. Mt. Hawley agreed in its policies to pay all costs taxed against MVH III in suits in which it defended MVH III. If Mt. Hawley wanted to avoid the result here, it could have changed the language in its policy regarding coverage of such costs.

The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Truth-in-Leasing Act Prohibits Trucking Company Charging Independent Truckers for Satellite System

The Tenth Circuit Court of Appeals issued its opinion in Fox v. TransAm Leasing, Inc. on Tuesday, October 18, 2016.

Plaintiffs, three independent truckers representing themselves and a class of similarly situated truck drivers (“truckers”), contend that Defendants TransAm Trucking, Inc. and TransAm Leasing, Inc. (collectively “TransAm”) violated the Department of Transportation’s truth-in-leasing regulations by requiring the truckers, who lease their trucks and driving services to TransAm, to pay TransAm $15 each week to use TransAm’s satellite communications system. This $15 usage fee violates 49 C.F.R. § 376.12(i), which precludes a motor carrier like TransAm from requiring a trucker “to purchase or rent any products, equipment, or services from the authorized carrier as a condition of entering into the lease arrangement.” The Tenth Circuit, therefore, affirmed partial summary judgment for the truckers. That ruling will support the truckers’ requests for injunctive and declaratory relief. But the truckers also asserted a claim for damages, which the district court certified as a class action. Because the truckers failed to present any evidence of their damages resulting from the unlawful usage fee, however, the district court should have entered summary judgment for TransAm on that damages claim. Having jurisdiction under 28 U.S.C. § 1292(b), therefore, The Tenth Circuit AFFIRMED the district court in part and REVERSED in part.

Colorado Court of Appeals: Trial Court Lacked Subject Matter Jurisdiction Over Plaintiff’s Claims

The Colorado Court of Appeals issued its opinion in Golden Run Estates, LLC v. Town of Erie on Thursday, October 6, 2016.

Annexation—Subject Matter Jurisdiction—Contract Claims—Annexation Act.

Defendant Town of Erie entered into a pre-annexation agreement with Harber for his property located in unincorporated Boulder County. Harber intended his company, Golden Run Estates, to develop a mixed-use community over approximately 50 years. An annexation agreement and a detailed development plan were supposed to follow the pre-annexation agreement. Golden Run Estates and Harber sued Erie after an annexation agreement was not reached following annexation of the property. They brought two contract claims, a claim for declaratory relief, and a claim for a judicial disconnection decree. The trial court found it had subject matter jurisdiction over the contract claims and entered a judgment for damages. It also ordered judicial disconnection, but concluded it did not have subject matter jurisdiction over the declaratory relief claim.

The sole issue on appeal was the jury award on the two contract claims. Erie argued that the trial court erred in concluding that it had subject matter jurisdiction over the contract claims and in upholding the breach of contract verdict because plaintiffs did not bring their claims within the 60-day limitation period under C.R.S. § 31-12-116(2)(a)(I). The court of appeals determined that the C.R.S. § 31-12-116(2)(a)(I) limitation period is jurisdictional and its time limits cannot be tolled or waived.

Erie also raised arguments relating to the sufficiency of the evidence concerning lost opportunity costs and the property manager’s testimony. Because the court determined that the trial court did not have subject matter jurisdiction over plaintiffs’ contract claims, it did not address these contentions.

Plaintiffs argued that their contract claims did not challenge the annexation of the property but were to enforce the terms of the pre-annexation agreement, so C.R.S. 31-12-116 was inapplicable. The court found plaintiffs’ claims were actually impermissible collateral attacks on the annexation and there was no separate breach of contract claim that wasn’t an argument regarding the annexation itself. The court held that the trial court did not have subject matter jurisdiction over the contract claims and vacated that part of the judgment and the damages award. The case was remanded with directions to grant Erie’s motion for directed verdict and for a determination of the amount of attorney fees incurred by Erie in the appeal.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Notice of Appeal Timely Filed 49 Days After Denial of Motion for Reconsideration

The Colorado Court of Appeals issued its opinion in Semler v. Hellerstein on Thursday, October 6, 2016.

Notice of Appeal—Timeliness—Amended Complaint—Jurisdiction—Motion to Dismiss—Fraud—Concealment—Misrepresentation—Civil Conspiracy—Breach of Fiduciary Duty—Breach of Contract—Third Party Beneficiary—Attorney Fees.

Plaintiff Semler and defendant Perfect Place, LLC are both members of the 1940 Blake Street Condominium Association (Association). Defendant Hellerstein owns and controls both Perfect Place, LLC and Bruce S. Hellerstein, CPA P.C. (collectively, Perfect Place defendants). Hellerstein also served as treasurer of the Association. Defendant Bewley is an attorney employed by defendant law firm Berenbaum Weinshienk, P.C. At all relevant times, Bewley represented Hellerstein and his two corporate entities.

The current litigation stems from a related quiet title action in which Perfect Place asked the court to determine that it was the rightful owner of parking spaces C, D, and E. The court presiding over the quiet title action determined that Semler owned parking spaces C and D, while Perfect Place owned parking space E. Semler then brought the current suit, claiming that Bewley and Hellerstein devised a scheme to gain title to Semler’s parking spaces C and D. Semler’s first amended complaint alleged claims only for breach of fiduciary duty against Hellerstein, aiding and abetting that breach against Bewley, and civil conspiracy against all defendants. The court granted defendants’ motions to dismiss. Semler then moved to amend his complaint a second time, proposing to add claims for fraud, nondisclosure and concealment, negligent misrepresentation, negligent supervision, vicarious liability, and breach of contract. He also more clearly explained that he was seeking damages for lost income opportunities he suffered as a result of having to defend against the quiet title action. The court denied Semler’s second motion to amend based on lack of standing to pursue alleged fraud or misrepresentation against the prior owner of the parking spaces and awarded attorney fees in favor of defendants.

On appeal, defendants asserted that Semler’s notice of appeal was untimely and, therefore, the Colorado Court of Appeals lacked jurisdiction to consider the appeal. The court determined that Semler timely filed his notice of appeal 49 days after the court denied his C.R.C.P. 59 motion for reconsideration.

Semler contended that the trial court erred by denying his motion for leave to amend his complaint a second time. The court’s dismissal of the action was specifically premised on Semler’s fraud claims, which were new to the second amended complaint. It was therefore apparent to the court that although the trial court denied the motion to amend, it considered the claims in the second amended complaint when ruling on the motion to dismiss.

Semler argued that the trial court erred in granting defendants’ motions to dismiss. Semler’s fraud, concealment, and misrepresentation claims were all premised on conversations and transactions between the prior owner of the parking spaces and defendants in which Semler was not involved. Semler lacked standing to bring those claims. Semler’s claims for lost opportunity damages are too remote and unforeseeable to be recoverable under these claims. Therefore, these claims failed to state a claim upon which relief could be granted and should have been dismissed under C.R.C.P. 12(b)(5).

Semler also contended that defendants conspired with each other to obtain his parking spaces. He is not entitled to relief on a civil conspiracy claim against Bewley because a director cannot conspire with the corporation that he serves, which is the premise of Semler’s argument. Additionally, because Hellerstein was not acting in his role as treasurer when he engaged in the allegedly fraudulent conduct, Semler’s breach of fiduciary duty claim against Hellerstein fails. Because these claims fail, Semler’s aiding and abetting breach of fiduciary duty claim against Bewley and negligent supervision and vicarious liability claims against Bewley’s law firm, Berenbaum Weinshienk, fail as well.

As to his breach of contract claim, although Semler was not a party to the contract between Berenbaum Weinshienk and the Association in which Berenbaum Weinshienk agreed that it would not represent one Association member against another, Semler sufficiently pleaded a third-party beneficiary breach of contract claim pursuant to this agreement. Therefore, the case was remanded to the trial court for further proceedings on this claim.

Semler also contended that if the dismissal order is reversed, the attorney fees award in favor of defendants must also be reversed. Only Semler’s breach of contract claim survives C.R.C.P. 12(b) dismissal. Thus, because that claim was not pleaded against the Perfect Place defendants, the attorney fees award to them remains undisturbed. The order awarding fees award under this statute to Bewley and Berenbaum Weinshienk was reversed.

The orders were affirmed in part and reversed in part, and the case was remanded with directions.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Specific Proviso in Condominium Declaration Precluded Certain Non-unanimous Amendments

The Colorado Court of Appeals issued its opinion in DA Mountain Rentals, LLC v. The Lodge at Lionshead Phase III Condominium Association, Inc. on Thursday, October 6, 2016.

The Lodge at Lionshead Condominium Association established a Condominium Declaration years before the adoption of the Colorado Common Interest Ownership Act, which it attempted to amend in 2012 to establish a condominium community. The Association’s proposed amendment was adopted by a supermajority of owner-members. DA Mountain Rentals, an owner of one of the condominium units, protested that the amendments could only be adopted by unanimous consent of the members pursuant to a specific proviso in the Declaration. DA sought a declaratory injunction in district court prior to the Association’s recording of the amendments, and the amendments have not yet become effective due to the litigation.

After discovery, the Association moved for determination of law pursuant to C.R.C.P. 56(h). The court granted the motion and determined that the 2012 Amendments had been validly adopted and the 67 percent voting requirement they imposed did not violate the terms of the Declaration or CCIOA. The Association next moved for summary judgment, which the court also granted. DA filed two appeals. The first appeal challenged the district court’s grant of the Rule 56 motion and the summary judgment motion. The second appeal challenged post-judgment attorney fee and cost awards. The Association moved to dismiss the second appeal because the attorney fee issue was not ripe. A division of the court of appeals partially granted the Association’s motion to dismiss as to the attorney fee issue and consolidated the remaining issues.

The court of appeals first addressed whether the 2012 amendments were valid under the Declaration and the CCIOA, since they would eliminate unanimous member and lender consent requirements for shared expenses and determining obsolescence. The court first considered whether the amendments were permitted under the Declaration without unanimous consent. Because the 2012 amendments could affect the members’ common expenses, the court found that those provisions affecting the common expenses were not allowable under the Declaration. As to the 2012 amendments concerning obsolescence, those were not subject to the unanimous consent requirement and were allowable.

The court next considered whether the construction of the Declaration conflicted with the CCIOA, and determined that it did not. The court evaluated the unanimity requirement as related to the CCIOA and found that there was no conflict between the Declaration and the CCIOA. The court similarly concluded that the obsolescence amendments did not conflict with the CCIOA. The court next evaluated the mandatory buyout provision in the 2012 amendments and found that it was valid. The court rejected DA’s arguments about attorney fees and costs.

The court then considered the Association’s cross-appeal on whether the district court abused its discretion by ordering the production of documents the Association contended were privileged. The court engaged in a lengthy analysis of the sequence of events in district court, and whether subsequent Colorado Supreme Court precedent required the court to retroactively engage in a proportionality review. The court of appeals found that the district court had actively managed discovery after the Association asserted privilege, and the district court retained discretion to do so as it saw fit. The court found no abuse of discretion by the district court.

The court affirmed in part, reversed in part, and remanded with directions.

Tenth Circuit: Attorney Fee Award Appropriate Where Oil and Gas Well Sustained Physical Damage

The Tenth Circuit Court of Appeals issued its opinion in Sundance Energy Oklahoma, LLC v. Dan D. Drilling Corp. on Friday, September 2, 2016.

Sundance contracted with Dan D. to drill several oil and gas wells, and used a standard International Association of Drilling Contractors (IADC) form for each individual well. Dan D. was unable to drill several of the wells because it could not acquire permits, so Sundance asked Dan D. to drill a different group of wells instead, including the Rother well, under the supervision of Tres Management. Although Dan D. did not have a contract, it began drilling the Rother well in December 2012 under the supervision of a Tres company man. Days later, Dan D.’s drill pipe became stuck in the hole. After several failed attempts to remove the pipe, the company man instructed the Dan D. employees to stop pulling on the pipe. A driller ignored the instructions and continued pulling on the pipe, causing the drilling line to break and throw debris, killing the driller. A medical examiner later determined the driller had substantial amounts of methamphetamine in his blood at the time of his death.

A subsequent OSHA investigation suspended all drilling at the Rother well, concluding that the drilling failure resulted from progressive fatigue on the drill line. OSHA issued a citation to Dan D. for failing to inspect and properly maintain the drill line. After the OSHA investigation concluded, Sundance attempted to fish out the stuck drill pipe, but the wellbore had deteriorated and the well was ultimately plugged and abandoned as a total loss.

Sundance sued Dan D. for damages, asserting that Dan D.’s negligence, gross negligence, and breach of implied contract to drill the well in a workmanlike manner resulted in the loss of the hole. Dan D. filed several motions in limine prior to trial, including objecting to the admission of the OSHA narratives and the medical examiner’s toxicology report. The district court denied the motion to suppress the toxicology report and partially denied the motion to suppress the OSHA reports, allowing only portions of the documents to be used. At trial, Sundance’s expert witness testified that Dan D.’s failure to log and track the ton miles of the drill line was “unheard of” in the industry, and that Dan D. should have slipped and cut the drill line to prevent the accident. Sundance relied on Dan D.’s gross negligence caused the line failure and the ultimate loss of the hole. Dan D. disagreed, arguing the fault should lie with Tres and the company man. Dan D. also argued that the IADC contract’s exculpatory provisions state that Sundance was liable for any loss or damage to the hole. Dan D. also asked the district court to instruct the jury that it should impute negligence to Tres, but the district court declined to do so. The district court instead instructed the jury that if it did not find Dan D. was grossly negligent, it should not consider whether an implied contract between the parties incorporated the IADC contract’s exculpatory provisions.

The jury returned a verdict for Sundance, finding Dan D. was grossly negligent and breached an implied contract to drill the well in a workmanlike manner. The jury attributed 75% of the loss to Dan D.’s negligence and 25% to Tres’ negligence, awarding Sundance $1.2 million in damages. Dan D. moved for a new trial under F.R.C.P. 59(a). The district court denied the motion and Dan D. appealed that order. Sundance then filed a motion for attorney fees, which the district court granted. Dan D. also appealed the attorney fee award. The appeals were consolidated.

Dan D. first argued the district court erred in instructing the jury that it need not consider whether the implied contract included the allocation of risk provisions if it found Dan D. grossly negligent, and refusing to impute Tres’ negligence to Sundance. The Tenth Circuit analyzed Dan D.’s claims for abuse of discretion and found none. The district court based its instruction regarding gross negligence on an Oklahoma Supreme Court case where a federal district court certified a question to the Oklahoma Supreme Court regarding whether an exculpatory provision was valid and enforceable. The Oklahoma Supreme Court ruled it was not enforceable in cases involving, among other things, gross negligence. The Tenth Circuit approved of the district court’s reliance on this case and found no abuse of discretion.

Dan D. also argued the district court should have granted a new trial based on its refusal to give Dan D.’s proposed instructions on whether Sundance owed Dan D. a non-delegable duty. The Tenth Circuit found that even if it agreed with Dan D. that the district court erred by not giving the proposed instruction, the error did not prejudice Dan D. because the jury’s verdict for Sundance on the breach of implied contract claim independently supported the damages award. Accordingly, any imputation of negligence would not have affected the breach of contract award.

The Tenth Circuit also found no error in the district court’s admission of the toxicology report or OSHA narratives. Because Dan D. did not object to the admission of any other evidence, and other evidence showed Dan D.’s failures, Dan D. could not show prejudice by the admission of the toxicology report or OSHA narratives.

Finally, the Tenth Circuit addressed Dan D.’s challenge to the attorney fee award. The Tenth Circuit evaluated Okla. Stat. tit. 12, § 940(A), which provides for attorney fees to the prevailing party in any action related to the negligent or willful injury to property, and found the statute applicable in the instant action. The Tenth Circuit noted the physical deterioration of the Rother well during the 12-day OSHA investigation was precisely the type of injury contemplated under § 940(A). Because Sundance prevailed in the action regarding physical injury to a well, the attorney fee award was appropriate.

The Tenth Circuit affirmed the district court.