May 1, 2016

Colorado Supreme Court: Notice-Prejudice Rule Does Not Apply to No-Voluntary-Payment Provisions

The Colorado Supreme Court issued its opinion in Travelers Property Casualty Co. of America v. Stresscon Corp. on Monday, April 25, 2016.

Insurance—Enforceability of “No Voluntary Payments” Provisions—Scope of the Notice-Prejudice Rule.

Travelers Property Casualty Company of America (Travelers) petitioned for review of the Court of Appeals’ judgment affirming the district court’s denial of its motion for directed verdict in a lawsuit brought by its insured, Stresscon Corporation (Stresscon). The Court of Appeals rejected Travelers’ contention that the “no voluntary payments” clause of their insurance contract relieved it of any obligation to indemnify Stresscon for payments Stresscon had made without its consent. The Court of Appeals found that the Supreme Court’s opinion in Friedland v. Travelers Indemnity Co., 105 P.3d 639 (Colo. 2005), permitting the insured in that case an opportunity to demonstrate a lack of prejudice from its failure to comply with a notice requirement of its insurance contract, had effectively overruled the Court’s prior “no voluntary payments” jurisprudence to the contrary and given Stresscon a similar opportunity.

The Supreme Court reversed the Court of Appeals’ judgment, holding that its adoption of a notice-prejudice rule in Friedland did not overrule any existing “no voluntary payments” jurisprudence in this jurisdiction, and declining to extend its notice-prejudice reasoning in Friedland to Stresscon’s voluntary payments, made in the face of the “no voluntary payments” clause of its insurance contract with Travelers. Because application of the notice-prejudice rule was the sole basis for the district court’s denial of Travelers’ motion for directed verdict, and because it was undisputed that Stresscon voluntarily settled and paid the third-party claim for which it sought reimbursement, the Court remanded the case with directions that the jury verdict be vacated and that a verdict instead be directed in favor of Travelers.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: Sanctions Award Inappropriate When Trigger was Date Expert Report Exchanged

The Tenth Circuit Court of Appeals issued its opinion in Baca v. Berry on Tuesday, December 1, 2015.

Several citizens brought suit in state court against Albuquerque Mayor Richard Berry in January 2013 over the city’s redistricting plan enacted after the 2010 caucus. The citizens alleged that the newly adopted redistricting map denied Latinos opportunities to participate in the political process and elect candidates of their choice. The mayor removed the case to federal court.

In March 2013, a city charter amendment changed the percentage of the vote needed for a candidate to win from 40% to 50%. On June 25, 2013, the mayor produced an expert report that tended to disprove the plaintiffs’ arguments about redistricting. Later, the plaintiffs filed a motion to dismiss without prejudice, which the mayor opposed, requesting dismissal with prejudice instead. The district court decided to wait to rule on the motions until after the November elections.

The court held a phone conference with the parties after the November elections and set a status conference in December 2013. However, the court cancelled the December conference due to scheduling conflicts and did not reschedule. In January 2014, the court dismissed the plaintiffs’ claims with prejudice. The mayor moved for sanctions under 28 U.S.C. § 1927, arguing the plaintiffs vexatiously multiplied the proceedings. The district court granted the mayor’s motion and entered an attorney fee award against plaintiffs beginning on June 25, 2013, the date the mayor’s expert submitted his report. Plaintiffs appealed.

The Tenth Circuit evaluated the district court’s sanction award for abuse of discretion. The voters argued that the court’s order staying the case identified no legal prejudice to the mayor and was based solely on its convenience, which constitutes an abuse of discretion. The Tenth Circuit disagreed. The Tenth Circuit first noted that there is a difference between a court staying proceedings and dismissing a case, and there was no abuse of discretion in the court’s stay order. The voters did not appeal the dismissal. The Tenth Circuit also noted that, contrary to the voters’ assertions, the court did not issue the stay merely out of convenience, but because it found the record incomplete and believed that the upcoming mayoral elections would provide direction whether to dismiss the case with or without prejudice.

The Tenth Circuit similarly rejected the voters’ Voting Rights Act and one-person-one-vote claims. The Tenth Circuit found that the plaintiffs’ expert failed to satisfy the second and third prongs of the Gingles test. Because the mayor’s expert exposed the flaws in plaintiffs’ arguments by showing that the preferred candidates actually won all elections in which the plaintiffs’ were arguing Voting Rights Act violations, the Tenth Circuit found no error in the district court’s decision. The Tenth Circuit also found no one-person-one-vote violation, finding the population variance well within acceptable limits.

The Tenth Circuit next evaluated the sanctions award and determined that although the district court had discretion to issue sanctions under § 1927, it was an abuse of discretion for the court to base the sanction award on the day plaintiffs received the report from the mayor’s expert. The Tenth Circuit found that it would be unreasonable to expect the plaintiffs to withdraw their complaint on the day that the report was exchanged, since they would likely need time to review it and determine whether it had merit. Because of this, the Tenth Circuit reversed the sanction award. The Tenth Circuit noted that, on remand, the district court was free to revisit fees on remand.

The Tenth Circuit reversed the district court. Judge Phillips wrote a thoughtful dissent; he would not have allowed a sanction award at all because of the potentially chilling effect on legitimate voter discrimination claims.

HB 16-1310: Increasing Potential Liability of Oil and Gas Operators Beyond Interference with Surface Use

On March 2, 2016, Rep. Joseph Salazar and Sen. Morgan Carroll introduced HB 16-1310Concerning Liability for the Conduct of Oil and Gas Operations. The bill was introduced in the House Health, Insurance, & Environment Committee, where it was referred, unamended, to the House Committee of the Whole. The bill passed Second Reading with amendments and Third Reading with no amendments. In the Senate, the bill was assigned to the Agriculture, Natural Resources, & Energy Committee.

Under current law governing relations between surface landowners and oil and gas operators, to prevail on a claim a surface owner plaintiff must present evidence that the operator’s use of the surface land materially interfered with the surface owner’s use of the surface of the land. This bill increases the potential liability of operators beyond interference with the owner’s use of the surface by allowing a plaintiff to present evidence that the oil and gas operations caused bodily injury to the surface owner or any person residing on the property of the surface owner, or that the operations damaged the surface owner’s property.

The bill also holds oil and gas operators strictly liable if the operations, including a hydraulic fracturing treatment or reinjection operation, cause an earthquake that damages real or personal property or injuries an individual, wherever the person or property is located. A plaintiff establishes a prima facie case of causation in this context if the plaintiff shows: (1) An earthquake has occurred; (2) the earthquake damaged the plaintiff’s property or injured the plaintiff; and (3) the oil and gas operations occurred within an area that has been determined to have experienced induced seismicity by a study of induced seismicity that was independently peer-reviewed. The strict liability established by this bill is not waivable by contract, and a plaintiff has five years after discovery of the damages or injury to file an action.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

Colorado Court of Appeals: Costs of Defending Lawsuit Not Campaign Expenditures

The Colorado Court of Appeals issued its opinion in Campaign Integrity Watchdog v. Coloradans for a Better Future on Thursday, April 7, 2016.

Reporting Contributions and Spending—Fair Campaign Practices Act.

In 2012, Arnold lost the Republican primary election for University of Colorado Regent to Davidson. During the run-up to the election, Coloradans for a Better Future (CBF) purchased a radio advertisement supporting Davidson and other radio advertisements unfavorable to Arnold. After the election, Arnold, and later Campaign Integrity Watchdog (CIW) with Arnold as its principal officer, filed a series of complaints with the Colorado Secretary of State (Secretary) alleging violations of Colorado’s Fair Campaign Practices Act (FCPA). This is the third such complaint.

Specifically, CIW challenged CBF’s failure to report funds donated to CBF to pay Arnold’s court costs from an earlier case, arguing those funds were a contribution and spending and were incorrectly reported in CBF’s initial January 2014 contributions and expenditures report. The administrative law judge (ALJ) dismissed the complaint. The ALJ found that on January 22, 2014, CBF filed a contribution and expenditures report with the Secretary. Its report wasn’t due until May 5, but it intended to terminate its activities as a political organization and thus filed early. On the same day, CBF’s legal counsel sent an email to the Secretary seeking to amend the report to show that Colorado Justice Alliance (CJA) contributed $200.20 to pay Arnold’s court costs. The Secretary’s electronic reporting system didn’t allow the change to be made by CBF, and the Secretary’s staff couldn’t change the report either. CIW filed its complaint on March 3, 2014 and CBF’s report was publicly amended on March 6, 2014. The ALJ concluded that CBF had already reported the CJA contribution to the Secretary when CIW filed its complaint and that the complaint was premature because the report was not due until May 2014. The ALJ further concluded that the payment of Arnold’s court costs did not meet the FCPA definition of spending and did not have to be reported as such.

On appeal, CIW contended that the $200.20 CJA donated to help CBF satisfy its obligation to pay Arnold’s court costs was a contribution that was incorrectly reported on the initial report. Specifically, CIW argued that the ALJ (1) invented findings of fact, (2) misrepresented facts regarding CBF’s request to amend its report, and (3) erred in concluding the complaint was premature. As to the first argument, CIW failed to cite specific findings or record support; as to the second argument, the allegation concerned a question of law rather than fact; and as to the third argument, the court concluded the report was corrected on January 22, when CBF notified the Secretary of its mistake. CIW also argued that CBF violated the FCPA because it listed the payee of the $200.20 as the Denver District Court rather than Arnold; the court found this too insignificant to amount to a violation of the reporting law. Thus, the Court concluded that the ALJ did not err when he concluded CBF correctly reported the $200.20.

CIW also argued that the $200.20 CBF paid to Arnold constituted spending and should have been reported. The court found the funds were not “expended influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any state or local public office in the state,” and thus concluded they were not reportable spending.

CIW’s request for costs and fees was denied. CBF’s request for attorney fees was denied, but its request for costs was granted.

The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Dog Owner Owes No Duty of Care to Person Injured by Truck Off Property

The Colorado Court of Appeals issued its opinion in Lopez v. Trujillo on Thursday, April 7, 2016.

Dog Owner Liability—Duty of Care—Premises Liability Act Definition of Landowner.

Plaintiffs, N.M. and his parent and legal guardian, Lopez, appealed from an order dismissing their complaint against defendant Trujillo.

Eight-year-old N.M. was walking on a sidewalk with another boy. As he passed defendant’s home, two large, loudly barking pit bulls rushed at the boys, unprovoked. The dogs jumped up and rattled a four-foot high chain-link fence. N.M. was allegedly so frightened that he darted from the sidewalk into the street and was struck by a service van, causing him serious injuries. Plaintiffs sued and settled with the driver and owner of the van.

On appeal, plaintiffs argued the district court erred in concluding as a matter of law that defendant owed no duty to N.M and was not subject to liability as a “landowner” under the Premises Liability Act (PLA).

Deciding an issue of first impression, the court of appeals considered whether a dog owner owes a duty to exercise reasonable care to an injured party when the injured party was not directly injured by the dogs or on the dog owner’s property and the dogs remained confined and never left the landowner’s property. The court held there was no such duty.

The court also agreed with the district court that public sidewalks adjacent to a landowner’s property are not property of the landowner under the PLA.

The judgment was affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Claims in Lawsuit Immunized Under First Amendment from Conspiracy Allegations

The Colorado Court of Appeals issued its opinion in City of Aurora v. 1405 Hotel, LLC on Thursday, April 7, 2016.

Immunity from Suit Under the First Amendment—Denial of Discovery—Private versus Public Dispute—“Sham” Claims—Attorney Fees and Costs.

Eleven hotels (collectively, Hotels) petitioned the Colorado Economic Development Commission (CEDC), requesting that CEDC require the City of Aurora to submit a new application for an $81 million tax subsidy after the initial company that had been awarded the subsidy assigned its interest to RIDA Development Corporation (RIDA). The Attorney General (AG) denied the petition on behalf of the CEDC. The Hotels filed an action in the Denver District Court (Denver lawsuit). The district court and a division of the Colorado Court of Appeals affirmed the AG’s denial of the Hotels’ petition. However, alleging conspiracy to interfere with the financing and development of the project, plaintiffs, Aurora, the Aurora Urban Renewal Authority, and RIDA (collectively, Aurora parties), sued the Hotels. The district court found that the Hotels’ complaint in the Denver lawsuit was immunized under the First Amendment, based on Protect Our Mountain Environment, Inc. v. Dist. Ct., 677 P.2d 1361 (Colo. 1984) (POME), and dismissed the Aurora parties’ complaint. The Aurora parties appealed and the Hotels cross-appealed.

The Aurora parties first argued it was an abuse of discretion not to allow discovery and a hearing before granting the Hotels’ motion to dismiss. The Colorado Court of Appeals agreed with the district court that because the Aurora parties were unable to articulate any need for discovery on the first, objective prong of the POME test—whether the Hotels’ claims had a reasonable basis in law or fact—they were not entitled to discovery before the court ruled on the Hotels’ motion.

The Aurora parties then contended that POME did not apply because this was a purely private dispute. The court disagreed. The Hotels did not sue any private party, and the dispute arose from a petition to a state agency for judicial review of state agency action regarding an award of millions of dollars in taxpayer subsidies to a city to develop a project of “major public importance.”

Finally, the Aurora parties argued that three of the Hotels’ claims in the Denver lawsuit lacked reasonable factual support or a cognizable basis in law and were “sham” claims. The court disagreed. It also agreed with the Hotels that the one claim the district court found to be a “sham” was in fact not a sham because it had reasonable factual support and a cognizable basis in law.

The Hotels contended that the court erred in concluding their third claim was a sham and that the C.R.C.P. 12(b)(5) dismissal of RIDA’s claims should be affirmed. The court concluded their third claim was not a sham, and because the court affirmed the dismissal of the Aurora parties’ complaint, it did not reach the second argument.

The judgment was affirmed, and the court awarded the Hotels attorney fees and costs.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Supreme Court Adopts Changes to Colorado Rules of Professional Conduct, Colorado Appellate Rules

The Colorado Supreme Court adopted Rule Change 2016(04), 2016(05), and 2016(06) last week, approving changes to the Colorado Rules of Professional Conduct and the Colorado Appellate Rules.

Rule Change 2016(04), adopted and effective April 6, 2016, enacts substantial changes to the Colorado Rules of Professional Conduct. Many of the changes were to the Comments to the Rules, and language was added to many comments about lawyers contracting outside their own firms to provide legal assistance to the client. Additionally, a new model pro bono policy was added to the Comment to Rule 6.1. The changes are extensive; a redline and clean version is available here.

Rule Change 2016(05) amended Rules 35, 40, 41, 41.1, and 42 of the Colorado Appellate Rules, adopted and effective April 7, 2016. The changes to the affected rules were extensive, and the Comments to those rules generally explain the changes. Rule 41.1 was deleted and incorporated into Rule 41. A redline and clean version of the rule change is available here.

Rule Change 2016(06), adopted and effective April 7, 2016, amended the Preamble to the Rules Governing the Practice of Law, Chapters 18 to 20 of the Colorado Rules of Civil Procedure. The Preamble addresses the Colorado Supreme Court’s exclusive jurisdiction and its ability to appoint directors of certain legal programs to assist the court. The Preamble also sets forth the court’s objectives in regulating the practice of law. A clean version of the newly adopted Preamble is available here.

For all of the Colorado Supreme Court’s adopted and proposed rule changes, click here.

Comments Solicited for Proposed Increase to Jurisdiction of County Courts

The Colorado Supreme Court is requesting comments regarding a proposed jurisdictional increase for Colorado’s county courts. The proposal to the supreme court, submitted by the Colorado Supreme Court Committee on the Rules of Civil Procedure, requests that the Colorado Supreme Court support legislation to increase the jurisdiction of the county courts from a $15,000 limit to a $35,000 limit. The committee suggests that increasing the jurisdictional limit of the county courts will promote access to justice by taking relatively low dollar value cases out of the district court and relieving the parties of the requirement to engage in the more complex and expensive procedures of the district court. The full proposal is available here.

Comments regarding increasing the county courts’ jurisdictional limits may be submitted to Christopher Ryan, clerk of the Colorado Supreme Court, via email at or mailed to 2 E. 14th Ave., Denver, CO 80203. Comments must be received no later than 5 p.m. on June 10, 2016. Comments will be posted on the State Judicial website after the comment period has ended.

For all of the Colorado Supreme Court’s adopted and proposed rule changes, click here.

New Rule 502 Added to Colorado Rules of Evidence

The Colorado Supreme Court issued Rule Change 2016(03), adopted and effective March 22, 2016, adding a new Rule 502 to the Colorado Rules of Evidence. Rule 502, “Attorney-Client Privilege and Work Product; Limitations on Waiver,” addresses disclosures of communications covered by the attorney-client privilege or work product doctrine. The rule is effective March 22, 2016. The rule is available below or on the State Judicial website.

Rule 502. Attorney-Client Privilege and
Work Product; Limitations on Waiver

The following provisions apply, in the circumstances set out, to disclosure of a communication or information covered by the attorney-client privilege or work-product protection.

(a) Disclosure Made in a Colorado Proceeding or to a Colorado Office or Agency; Scope of a Waiver. When the disclosure is made in a Colorado proceeding or to an office or agency of a Colorado state, county, or local government and waives the attorney-client privilege or work- product protection, the waiver extends to an undisclosed communication or information in a Colorado proceeding only if:
(1) the waiver is intentional;
(2) the disclosed and undisclosed communications or information concern the same subject matter; and
(3) they ought in fairness to be considered together.

(b) Inadvertent Disclosure. When made in a Colorado proceeding or to an office or agency of a Colorado state, county, or local government, the disclosure does not operate as a waiver in a Colorado proceeding if:
(1) the disclosure is inadvertent;
(2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and
(3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following C.R.C.P. 26(b)(5)(B).

(c) Disclosure Made in a Federal or other State Proceeding. When the disclosure is made in a proceeding in federal court or the court of another state and is not the subject of a court order concerning waiver, the disclosure does not operate as a waiver in a Colorado proceeding if the disclosure:
(1) would not be a waiver under this rule if it had been made in a Colorado proceeding; or
(2) is not a waiver under the law governing the state or federal proceeding where the disclosure occurred.

(d) Controlling Effect of a Court Order. A Colorado court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court – in which event the disclosure is also not a waiver in any other proceeding.

(e) Controlling Effect of a Party Agreement. An agreement on the effect of disclosure in a Colorado proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order.

(f) Definitions. In this rule:
(1) “attorney-client privilege” means the protection that applicable law provides for confidential attorney-client communications; and
(2) “work-product protection” means the protection that applicable law provides for tangible material (or its intangible equivalent) prepared in anticipation of litigation or for trial.

For all of the Colorado Supreme Court’s adopted and proposed rule changes, click here.

Colorado Court of Appeals: C.R.C.P. 60(b)(1) Motion Incorrectly Deemed Denied by Operation of C.R.C.P. 59(j)

The Colorado Court of Appeals issued its opinion in Harriman v. Cabela’s Inc. on Thursday, March 24, 2016.

Motion to Dismiss—C.R.C.P. 12(b)(5)—Motion to Set Aside—C.R.C.P. 60(b)(1)—C.R.C.P. 59(j).

Plaintiff sued Cabela’s Inc. after he was injured while testing a hunting bow at an archery range in one of its stores. The trial court granted Cabela’s C.R.C.P. 12(b)(5) motion. Plaintiff filed a C.R.C.P. 60(b)(1) motion asking the trial court to set aside its judgment. The court denied the motion because it concluded that the motion to set aside had been deemed denied by operation of C.R.C.P. 59(j).

On appeal, plaintiff contended the trial court erred in concluding that his C.R.C.P. 60(b)(1) motion to set aside had been deemed denied by operation of C.R.C.P. 59(j). The Court of Appeals agreed. C.R.C.P. 59(j) states that the court must decide a C.R.C.P. 59 motion within 63 days of when it was filed or the motion is deemed denied. The C.R.C.P. 59(j) time limit, however, does not affect motions that are properly filed under C.R.C.P. 60. Plaintiff’s timely filed motion to set aside alleged that the store had agreed to his filing a response to the store’s C.R.C.P. 12(b)(5) motion beyond the regular time limit. The motion added that “due to an oversight” plaintiff had not informed the trial court of this agreement. This allegation generally falls within the scope of C.R.C.P. 60(b)(1) (mistake, inadvertence, surprise, or excusable neglect), and does not generally fall within the scope of C.R.C.P. 59(d) or (e). The trial court’s decision to deny the motion to set aside was based on a misunderstanding of the applicable law.

Cabela’s asserted that this appeal should be dismissed because of the Court of Appeals’ decision to dismiss a prior appeal in this matter. The Court disagreed, determining that the motion to set aside at issue in this appeal did not contravene the mandate issued by the Court in the prior appeal.

The order was reversed and the case was remanded to the trial court to hold an evidentiary hearing to consider plaintiff’s motion to set aside.

Summary and full case available here, courtesy of The Colorado Lawyer.

Two JDF Forms Amended in March

The Colorado State Judicial Branch has amended two JDF forms this month: JDF 604, “Notice and Order to File JDF 601 District Court Case Cover Sheet,” and Form 32, “Writ of Garnishment – Judgment Debtor Other Than Natural Person.” Additionally, one JDF form was amended in February: JDF 100, “Instructions for Forcible Entry and Detainer (FED)/Evictions.” The JDF forms are generally available as PDFs and Word documents on the State Judicial forms page. For all of State Judicial’s JDF forms, click here.

Tenth Circuit: Managers Acted in Bad Faith by Painting Grim Financial Picture to Valuation Firms

The Tenth Circuit Court of Appeals issued its opinion in Leone v. Owsley on Wednesday, November 25, 2015.

Charles Leone was a principal of Madison Street Partners, LLP (MSP). In 2012, he resigned his position, and fellow principals Stephen Owsley and Drew Hayworth (Managers) elected to buy Leone’s interest in MSP. The Operating Agreement required the purchase price to be set at fair market value, and the Managers received two independent valuations from St. Charles Capital, LLC, and INTRINSIC. Although it was not used in calculating the offer to Leone, in 2009 Duff & Phelps had valued MSP at between $50 and 65 million. The Managers reluctantly gave the Duff & Phelps report to St. Charles and INTRINSIC, but urged them to ignore it, arguing it was not relevant. The Managers characterized MSP as having poor performance and did not give the valuation firms MSP’s newsletters or other relevant information.

St. Charles valued MSP with a total 2011 revenue of $5.892 million and total net income of $2.21 million. MSPs internal profit and loss statement listed total 2011 revenue as $7.289 million and net income of $3.398 income. INTRINSIC prepared a less detailed report without an opinion as to MSP’s value. Based on the two reports, the Managers offered Leone a purchase price of $135,850. Leone rejected the offer and retained his own expert to value his interest. Leone’s expert calculated his interest as of August 2012 at $1.5 million. Around the same time, Owsley sent his father an email expressing an interest in buying out Leone, remarking that MSP was stable.

In November 2012, Leone brought suit against the managers in the U.S. District Court for the District of Colorado, alleging that they had breached Article 10, Section 10.2(d) of the Operating Agreement by failing to act in good faith in valuing his interest in MSP. Leone also argued the Managers breached the implied covenant of good faith by unreasonably attempting to force him to sell his interest for a price far below fair market value. Managers claimed Leone’s claims were barred because of their “good faith reliance on the advice of one or more third parties.” They moved for summary judgment, and the district court granted their motion. The district court ruled that the valuation firms were qualified to provide expert reports and there was no evidence Managers relied blindly on the reports. As to Leone’s claim that the Managers improperly influenced the valuation firms in order to receive more favorable numbers, the district court found that he had failed to raise a dispute of material fact about the procedural integrity of the valuation.

On appeal, Leone argued that the district court erred in its interpretation of Delaware law by (1) conflating express and implied contractual obligations of good faith, (2) holding that bad faith requires a tortious state of mind, and (3) refusing to consider the substantive unreasonableness of the offered purchase price. He also argued that the district court erred in granting summary judgment because he raised genuine issues of material fact. The Tenth Circuit first evaluated Leone’s argument that the district court erred in conflating express and implied bad faith. The Tenth Circuit noted that under either standard, a good faith evaluation of the ownership interests would require the Managers to refrain from taking action that would result in a lower valuation.

The Tenth Circuit next addressed Leone’s contention that the district court erred in finding that a tortious state of mind is required for bad faith. Analyzing the district court’s opinion as a whole, the Tenth Circuit found it properly stated the Delaware requirements for bad faith. The Tenth Circuit next addressed Leone’s argument that Delaware’s safe harbor provision does not immunize the Managers because they acted in bad faith by wrongfully influencing the valuation firms and relying on valuation figures that were clearly erroneous. The district court concluded it should refrain from considering the substantive accuracy of the valuation reports absence a finding of wrongdoing, then held that no reasonable juror could find that the Managers did anything that affected the procedural integrity of the valuation. The Tenth Circuit disagreed with the district court’s conclusion, noting that when taken in the light most favorable to Leone, a reasonable jury could conclude that the Managers did not rely in good faith on the valuation firms.

Addressing Leone’s claim that the district court erred in granting summary judgment, the Tenth Circuit agreed. Considering the evidence in the light most favorable to Leone, the Tenth Circuit found the district court erred in rejecting that an inference of bad faith could be drawn by the Managers’ actions. The Tenth Circuit noted that a reasonable jury could find that the Managers engaged in conscious wrongdoing based on inaccurate statements to the valuation firms. The Tenth Circuit noted that a reasonable jury could disagree with the district court’s conclusion that the Managers’ false statements did not materially influence the valuation firms’ reports.

The Tenth Circuit reversed the district court’s grant of summary judgment and remanded for further proceedings.