July 17, 2019

Archives for December 15, 2014

Frederick Skillern: Real Estate Case Law — Contracts, Purchase and Sale, Transactions (1)

Editor’s note: This is Part 4 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick Skillern

Gattis v. McNutt (In re Estate of Gattis)
Colorado Court of Appeals, November 7, 2013
2013 COA 145
Residential sales contract; nondisclosure; economic loss rule
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This case presents another test of the outer limits of the economic loss rule. The buyer of a house, Carol Gattis, sues for fraudulent concealment and recovers a judgment against McNutt. McNutt’s company acquired the property to “fix and flip,” and obtained detailed soils reports outlining damage that was caused by shifting soils. On the disclosures form included in the standard form residential purchase and sale contract, McNutt disclaimed any “personal” knowledge of defects, and identified only the name of a company which had performed structural repairs — without describing the nature of the repair. McNutt appeals on the basis that the fraud claim is barred by the economic loss rule. He argues that the contract calls for specific disclosures, which were given, and that tort actions are precluded by the economic loss rule, as the requirement for disclosures “subsumes” the common-law duty to disclose material information.

The appeals court disagrees and affirms the judgment. Under the economic loss rule, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.” The court rejects the economic loss rule defense for two reasons. First, home sellers owe consumers an independent duty to disclose latent defects of which they are aware. Second, the court reasons that the disclosure provisions in the commission-approved form do not subsume the independent duty so as to trigger the economic loss rule. Although sellers were not required by the disclosure form to disclose their involvement with the entity that had performed repairs, the trial court found that this fact was material and should have been disclosed. Gattis could have prevailed on this nondisclosure claim without relying on the form disclosure. In short — the seller was perhaps “too cute by half.”

The court distinguishes two recent decisions in which a real estate seller has successfully invoked the economic loss rule to avoid a fraud claim. In those cases — Former TCHR, LLC v. First Hand Mgmt. LLC, 2012 COA 129 (Colo. App. 2012), and Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282 (Colo. App. 2009) — the parties negotiated “transaction-specific” contracts. Here, the parties used standard real estate commission forms. The court holds that neither the Seller’s Property Disclosure nor any other term in the form contract limits or subsumes the home sellers’ common-law duty to disclose latent defects of which they are aware.

 

Planning Partners International, LLC v. QED, Inc.
Colorado Court of Appeals, July 1, 2013.
2013 CO 43
Contracts; attorney fee shifting provision; discretion to reduce fee claim to account for successful claim for offsets; no mandatory rule.

Our supreme court accepts this case to decide a recurring issue in attorney fee hearings pursuant to contractual fee shifting provisions. The court of appeals held that the trial court erred in failing to apportion a fee award to account for an offset caused by judgment or a counterclaim. The Supreme Court rejects a per se rule of mandatory apportionment in this circumstance. Requiring proportional diminishment in all cases where the judgment based on a note or contract had been reduced by a counterclaim arising out of the transaction would undermine the trial court’s ability to determine a reasonable fee under the specific facts of the cases before them. The widely divergent circumstances under which attorney fee issues are litigated militate in favor of flexibility and discretion on the part of the trial court, rather than a rule of mandatory apportionment. In the current case, the trial judge proceeded methodically through the planning company’s accounting, discounting the fees incurred in a claim he found to be unsupported by the evidence and reducing the entire amount of requested fees by 20%. He further determined that the attorney’s fee issues were sufficiently intertwined and inter-related that apportionment was not appropriate.

The court notes that a trial court’s discretion may be circumscribed by the statute or contract giving rise to fees. It points out that the note provision here did not require or preclude apportionment, which is a factor that a drafter of such a note or contract might consider. As a result, a trial court may determine that some apportionment is necessary for a fee to be reasonable, or it may not. The court here holds only that the widely divergent circumstances under which attorney fee issues are litigated militate in favor of flexibility and discretion on the part of the trial court, rather than a rule of mandatory apportionment.

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Tenth Circuit: Unpublished Opinions, 12/15/2014

On Monday, December 15, 2014, the Tenth Circuit Court of Appeals issued no published opinion and six unpublished opinions.

Montez v. Lampert

United States v. Cooper

United States v. Pinson

Hughes v. Oliver

Avalon Care Center-Federal Way, LLC v. Brighton Rehabilitation, LLC

Brown v. Colvin

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Tenth Circuit: Unpublished Opinions, 12/12/2014

On Friday, December 12, 2014, the Tenth Circuit Court of Appeals issued no published opinion and six unpublished opinions.

United States v. Foster

Sanders v. Dowling

Green v. Patton

Bruton v. United States

Jackson v. McCollum

Krumm v. Holder

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

Law Week: New Federal Ethics Rule Precludes Colorado Attorneys Practicing in U.S. District Court from Assisting Clients in Complying with State Marijuana Laws

Editor’s note: This article originally appeared in Law Week Colorado on November 24, 2014. Reprinted with permission.

LipinskySmithBy Lino S. Lipinsky de Orlov and Mason J. Smith

On November 17, the U.S. District Court for the District of Colorado announced an amendment to its Local Rules that arguably will preclude members of the U.S. District Court bar from representing marijuana-related businesses. The U.S. District Court has opted out of comment 14 to Rule 1.2( d) of the Colorado Rules of Professional Conduct, which allows Colorado attorneys to assist clients with conduct-permitted under the Colorado marijuana laws, but not under federal law.

Under the new amendment to Local Rule D.C.COLO.L.Atty.R. 2(b)(2), which takes effect on December 1, practitioners in the U.S. District Court will be permitted to advise clients regarding the “validity, scope, and meaning” of Colorado’s marijuana laws, but may not “assist a client in conduct that the lawyer reasonably believes is permitted by” such laws. The U.S. District Court’s distinction between advice concerning the interpretation of Colorado’s marijuana laws and assistance with “conduct” creates a significant split in the ethical rules applicable to state and federal practitioners in Colorado.

Rule 1.2(d) of Colorado’s Rules of Professional Conduct prohibits attorneys from “counsel[ing]clients to engage, or assist[ing] a client, in conduct that the lawyer knows is criminal. . . .” Colo. RPC 1.2( d). Because the sale, use, and possession of marijuana remain illegal under the federal Controlled Substances Act, Rule 1.2(d) on its face prohibits Colorado attorneys from counseling or assisting clients who seek to comply with the state’s laws on medical and recreational marijuana. On March 24, 2014, the Colorado Supreme Court adopted comment 14 by a 5-2 vote in an attempt to resolve this issue. Comment 14 expressly allows lawyers to “assist a client in conduct that the lawyer reasonably believes is permitted by [Colorado’s marijuana-related] constitutional provisions” and their implementing statutes and regulations. (Emphasis added.) The lawyer, however, must also “advise the client regarding related federal law and policy.”

As we wrote in our article that appeared in the October 20, 2014 issue of Law Week Colorado, the U.S. District Court typically adopts Colorado’s Rules of Professional Conduct. In some instances, however, the Court opts out of particular sections of rules or comments based upon its own views on attorney ethics. On November 17, 2014, the Court made good on its October 10, 2014 proposal to opt out of comment 14. This comes as no surprise. The federal bench is no doubt uneasy about permitting attorneys to facilitate conduct that, while legal under state law, conflicts with federal law.

The Court’s language taking exception to comment 14 states that the Court will not adopt the comment, “except that a lawyer may advise a client regarding the validity, scope, and meaning of [the medical and recreational marijuana provisions of the Colorado Constitution] and the statutes, regulations, orders, and other state or local provisions implementing them. . . .” (Emphasis added). The exception also mirrors the state requirement that practitioners “also advise the client regarding related federal law and policy.”

The U.S. District Court has therefore drawn a fine line between generally “advising” a client and “assisting a client in conduct.” Presumably, the federal court’s version of Rule 1.2 permits an attorney to explain Colorado’s marijuana laws, but requires the attorney to stop short of facilitating compliance with such laws because—under these circumstances—compliance with state law would, in many cases, result in commission of a federal crime.

The other comments to Rule 1.2 provide limited guidance: “There is a critical distinction between presenting an analysis of legal aspects of questionable conduct and recommending the means by which a crime or fraud might be committed with impunity,” and “the fact that a client uses advice in a course of action that is criminal or fraudulent” is not enough by itself to make a lawyer a party to an illegal course of action. RPC 1.2 cmt. 9 (emphasis added). But this critical barrier between appropriate and sanctionable counseling remains unclear. Another comment to Rule 1.2 states, for example, that “a lawyer must not participate in a transaction to effectuate criminal or fraudulent avoidance of tax liability.” RPC 1.2, cmt. 10 (emphasis added). It seems that, by analogy, an attorney’s participation in lease negotiations regarding a property that will house a marijuana grow operation would be prohibited under the U.S. District Court’s rules, as would an attorney’s review and recommendations regarding a license for marijuana retail sale. Such legal work could, at least in theory, result in disciplinary action against federal litigators.

The U.S. District Court’s decision to opt out of comment 14 gives rise to two major issues. First, it creates a rift between attorneys admitted to practice only before the Colorado state courts and those attorneys admitted to practice in the U.S. District Court. Second, it leaves those attorneys subject to the federal rules guessing about the critical point at which legal advice becomes the facilitation of conduct. In any event, members of both bars should be cognizant of these inconsistent ethical standards as attorneys encounter more and more clients interested in diving into Colorado’s growing marijuana industry.

Until this issue is resolved, federal practitioners should be conservative in rendering any legal advice in connection with marijuana. All attorneys practicing in Colorado should at least advise all clients as to the illegality of marijuana under federal law. Those admitted to the federal bar should also, at the very least, avoid (1) participating directly in conduct that could technically constitute a federal crime or (2) affirmatively advising or encouraging clients to take specific courses of action regarding the growth, use, possession, or sale of marijuana.

Lino Lipinsky de Orlov is a litigation partner in the Denver office of McKenna Long & Aldridge, LLP.  He represents clients in all aspects of commercial litigation, mediation, arbitration, and appeals.  He has developed particular experience in complex business cases, particularly those involving creditor’s rights, real estate, trade secrets, and employment disputes.  Mr. Lipinsky also frequently speaks and writes on legal issues relating to technology, employment law, and ethics.   He is a member of the Colorado Bar Association’s Board of Governors and serves on the Board of the Colorado Judicial Institute.  He is Immediate Past President of the Faculty of Federal Advocates.  Among his honors, Chambers USA has recognized Mr. Lipinsky as one of Colorado’s leading general commercial litigators, and he has been included in The Best Lawyers in America.  He received his A.B. degree, magna cum laude, from Brown University and his J.D. degree from New York University School of Law, where he was a member of the New York University Law Review.

Mason Smith is an in-house attorney at Amazon.  He previously worked as an associate at the Denver office of McKenna Long & Aldridge, LLP and as an extern for the Hon. Judge Christine M. Arguello of the U.S. District Court, District of Colorado.  Mr. Smith is a graduate of The George Washington University Law School, where he was a member of The George Washington University Law Review.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.