April 25, 2019

Colorado Court of Appeals: Plaintiffs’ Tort Claims Properly Barred by the Economic Loss Rule

The Colorado Court of Appeals issued its opinion in A Good Time Rental, LLC v. First American Title Agency, Inc. on June 9, 2011.

Economic Loss Rule—Contract—Negligent Misrepresentation.

In this action involving a failed commercial real estate transaction, plaintiffs, A Good Time Rental, LLC, Noble Petroleum, LLC, and Arugula Investment, LLC, appealed from the summary judgment in favor of defendant First American Title Agency, Inc., doing business as First American Heritage Title Company, Inc. (American Heritage). The judgment was affirmed.

A Good Time Rental and Noble Petroleum owned a fee simple interest and a leasehold interest, respectively, in adjacent parcels of real estate in Douglas County, Colorado. Restaurant Operating Company, LLC (ROC) proposed to exchange two properties located in California for the two Colorado properties. The deal fell through, and plaintiffs brought negligence and negligent misrepresentation claims against American Heritage, alleging that it had negligently breached the duty to “exercise reasonable care and competence” in conducting the closing or making sure all necessary documents had been received and reviewed. The trial court barred plaintiffs’ claims under the economic loss rule.

On appeal, plaintiffs argued that the trial court erred in granting summary judgment in favor of American Heritage based on the economic loss rule. The Court of Appeals disagreed. American Heritage was obligated to exercise reasonable care, skill, and faithfulness in transferring the property subject to the closing and as instructed. This duty, however, was not independent of the parties’ contract—namely, the closing instructions prepared by plaintiffs. The “foreseeable damages” that American Heritage allegedly failed to avoid through the exercise of reasonable care amounted to plaintiffs’ loss of the benefit they expected under the contract: a promissory note as consideration for their real property. Thus, the tort duty allegedly breached imposed the same duty of care as the parties’ contract: to act as necessary to obtain the note from ROC and deliver it to plaintiffs, thus avoiding the very loss about which they complain. This duty, therefore, was implicit in their contract and plaintiffs’ tort claims were properly barred by the economic loss rule. Additionally, even if American Heritage had a fiduciary relationship with plaintiffs, its contractual duty to provide closing and settlement services cannot serve as the basis of any tort claim seeking additional compensation for its alleged failure to perform that same contractual obligation.

This summary is published here courtesy of The Colorado Lawyer. Other summaries by the Colorado Court of Appeals on June 9, 2011, can be found here.

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