July 20, 2019

Colorado Court of Appeals: Participation in Contractual Appraisal Does Not Preclude Insured’s Suit for Breach of Contract and Statutory Bad Faith

The Colorado Court of Appeals issued its opinion in Andres Trucking Co. v. United Fire and Casualty Co. on Thursday, September 20, 2018.

InsuranceBreach of ContractStatutory Bad Faith DelayAppraisal.

Andres Trucking Co. (Andres) operated a dump truck that caught fire while it was insured by United Fire and Casualty Co. (United). The parties agreed that the truck was a total loss but disagreed about its value. Ultimately, Andres filed an amended complaint alleging breach of contract and bad faith denial and delay of an insurance claim under C.R.S. §§ 10-3-1115 and -1116 and challenging the enforceability of the contractual appraisal provision. The district court struck the amended complaint on the ground that the insurance policy required an appraisal. Following an appraisal, United paid Andres the truck’s appraised value and moved for entry of judgment under C.R.C.P. 12(b)(5), contending that as a matter of law the appraisal process had resolved Andres’s claims. While this motion was pending, Andres moved to amend its complaint. The district court again denied the motion, reasoning that the appraisal process concluded the issues before the court, and entered judgment for United.

On appeal, Andres argued that the district court erred in dismissing its complaint because the appraisal process did not resolve whether United had breached the insurance policy or unreasonably denied or delayed payment of benefits. The court concluded that the appraisal process did not determine United’s liability for breach of contract or statutory bad faith delay. The district court erred in determining that the appraisal precluded Andres from pursuing these claims.

Andres also raised various challenges to the appraisal process itself. The court rejected the arguments that (1) the appraisal provisions are unconstitutional; (2) United did not properly invoke the appraisal because it never demanded it; and (3) the appraisal process did not result in a binding loss valuation. The appraisal award is a binding determination of the value of the insured property, and thus Andres may not further litigate that issue. The district court did not err in enforcing the appraisal provision.

The court also determined that the district court did not err in awarding United attorney fees, but it denied United’s request for appellate attorney fees.

The order approving the appraisal value was affirmed but the judgment was reversed and the case was remanded for reinstatement of the complaint. The order awarding United costs as the prevailing party was vacated but the order awarding United attorney fees for its response to Andres’ motion for clerk’s entry of default was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Strict Privity Rule Bars Claims Against Attorneys by Non-Clients

The Colorado Supreme Court issued its opinion in Bewley v. Semler on Monday, September 24, 2018.

Strict Privity—Standing—Pleading.

In this case, the supreme court considered whether the strict privity rule bars claims against attorneys by non-clients absent a showing of fraud, malicious conduct, or negligent misrepresentation. The court held that, absent any wrongdoing, the strict privity rule does bar claims against attorneys by non-clients because holding otherwise may force attorneys to place non-clients’ interests ahead of clients’ interests. Here, because Semler did not allege any fraud, malicious conduct, or negligent misrepresentation, he lacked standing to assert a breach-of-contract claim.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: District Court Erred in Requiring Party to Settle for Anticipated Loss Because That Would Require Giving Up Contractual Rights

The Colorado Supreme Court issued its opinion in United States Welding, Inc. v. Advanced Circuits, Inc. on Monday, June 18, 2018.

Breach of Contract—Mitigation—Settlement Offer—Accord and Satisfaction.

U.S. Welding, Inc. (Welding) sought review of the court of appeals’ judgment affirming the district court’s order awarding it no damages whatsoever for breach of contract with Advanced Circuits, Inc. (Advanced). Notwithstanding its determination following a bench trial that Advanced breached its contract to purchase from Welding all its nitrogen requirements during a one-year term, the district court reasoned that by declining Advanced’s request for an estimate of lost profits expected to result from Advanced’s breach before the contract term expired, Welding failed to mitigate.

The supreme court reversed the court of appeals’ judgment concerning the failure to mitigate and remanded the case for further proceedings. The court held that the district court erred by requiring Welding to settle for a projection of anticipated lost profits, rather than its actual loss, as measured by the amount of nitrogen Advanced actually purchased from another vendor over the contract term, because an aggrieved party is not obligated to mitigate damages from a breach by giving up its rights under the contract.

Summary provided courtesy of Colorado Lawyer.

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: Law Firm Breached Contract Not to Represent One Association Member Against Another

The Colorado Court of Appeals issued its opinion in Semler v. Hellerstein on Thursday, August 25, 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 are both members of the 1940 Blake Street Condominium Association (Association). Defendant Hellerstein owns and controls both Perfect Place and Bruce S. Hellerstein, CPA P.C. 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.

This case 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 building parking spaces C and D. Semler’s first amended complaint alleged claims 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 for the 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 the 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 and awarded attorney fees in favor of defendants.

On appeal, defendants asserted that Semler’s notice of appeal was untimely and, therefore, the Court of Appeals lacked jurisdiction to consider the appeal. The Court determined that Semler timely filed his notice of appeal.

Semler contended that the trial court erred by denying his motion for leave to amend his complaint a second time. The court, however, 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. The Court reviewed the trial court’s dismissal of the action based on Semler’s second amended complaint. Semler’s fraud, concealment, and misrepresentation claims were all premised on conversations and transactions between a third party and defendants in which Semler was not involved. Semler lacked standing to bring these claims. Moreover, 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 because a director cannot conspire with the corporation which he serves, which is the premise of Semler’s argument. Semler’s claim for breach of fiduciary duty against Bewley failed to state a claim upon which relief can be granted. 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 survived 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 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: Foreseeability of Arson Fire During Burglary Relevant to Determination of Damages

The Colorado Court of Appeals issued its opinion in Core-Mark Midcontinent Inc. v. Sonitrol Corp. on Thursday, February 11, 2016.

Core-Mark distributed merchandise to convenience stores, and it hired Sonitrol to install and monitor a security system for its warehouse. In 2002, burglars broke into Core-Mark’s warehouse and looted it for several hours, eventually setting a fire that destroyed the building and its contents. Core-Mark sued Sonitrol, asserting tort and breach of contract claims. The district court dismissed the tort claims and granted summary judgment to Sonitrol on the breach of contract claims based on a limitation of liability. Core-Mark appealed, and the court of appeals affirmed the dismissal of the tort claims but reversed summary judgment on the breach of contract claims.

On remand, a jury found that Sonitrol had breached its contract, and awarded $7,348,732 to Core-Mark and $10,965,777 to its insurers. Sonitrol appealed, and the court of appeals in Sonitrol II affirmed the award as to Sonitrol’s liability but reversed the damages award. The Sonitrol II division held that the district court erred in excluding testimony from Sonitrol’s experts on the foreseeability of the extent of Core-Mark’s losses. The division remanded for a new trial on damages, and the jury in that trial awarded $2,750,000 to Core-Mark.

Core-Mark appealed, arguing (1) the district court erred in allowing Sonitrol to present evidence that the arson was not foreseeable, (2) the district court erred in refusing Core-Mark’s tendered jury instruction on the phrase “natural and probable consequence” as used in the damages instruction, and (3) the district court abused its discretion in excluding evidence of how Sonitrol breached its contract.

Addressing the first claim, the court of appeals found that the district court did not err in allowing Sonitrol to present evidence about the foreseeability of arson. The district court specifically allowed testimony on the rarity of arson in burglary cases, the excessive amount of flammable materials in Core-Mark’s warehouse, and the inadequacy of Core-Mark’s sprinkler system. Core-Mark argued that the testimony exceeded the scope of remand, because the Sonitrol II division had made a statement that it assumed the fire was foreseeable. The district court rejected Core-Mark’s argument that the statement was the law of the case, noting it was not necessary to the holding. The court of appeals affirmed, finding that arson was not a type of damages but rather a cause of damages, and the foreseeability of the loss from the fire was relevant to the general magnitude of damages.

Turning to Core-Mark’s contention regarding the jury instruction, the court of appeals found no error in the district court’s rejection of Core-Mark’s proposed instruction. Core-Mark did not contend that the foreseeability instruction incorrectly stated the law, but rather that it should have been allowed to further define a term in the instruction. The court of appeals found that Core-Mark was incorrect that “probable” does not mean “likely” in the context of the jury instructions, and found no error in the district court’s rejection of Core-Mark’s tendered instruction.

Finally, Core-Mark argued the district court abused its discretion by not allowing evidence of the nature of Sonitrol’s breach of contract as set forth in the first trial. The court of appeals analyzed the proffered evidence and found it was not relevant to the determination of damages. The district court read a statement to the jury about the events leading to the fire, but excluded evidence of the specifics of Sonitrol’s conduct or alarm system. The court of appeals found no abuse of discretion.

The court of appeals affirmed the district court.

Tenth Circuit: Garcetti and Lane Require Showing of Whether Speech Within Employee’s Official Duties

The Tenth Circuit Court of Appeals issued its opinion in Holub v. Gdowski on Thursday, September 24, 2015.

Gina Holub was employed as an internal auditor for the Adams 12 school district beginning in 2007, and she reported to the district’s Chief Financial Officer. In late 2011, the district hired Shelley Becker as the new CFO, who implemented measures to ensure the accuracy of the district’s budget. At Becker’s request, district employee Tracy Cantrell analyzed the district’s salary expenses. Cantrell determined that the budget included $12 million more in salary funding than required to pay all the full-time employees. Cantrell reported her findings to Becker, and when Becker failed to address the issue, she reported them to Holub. Holub agreed with Cantrell that the salary budget was inflated, but found that it included $17 million more than necessary, thereby affecting the budget’s required 10% reserves. Holub conveyed her concerns to district superintendent Chris Gdowski, who advised her to speak to Becker about the concerns. Holub expressed to Gdowski that speaking to Becker would create a conflict of interest, and Gdowski advised her to research to whom she should be reporting. Holub ultimately concluded she was required to share her concerns with senior management, including Becker, and the school board.

District employees held four separate meetings in July and August 2012 to address Holub’s concerns. Becker explained Holub had erred in her analysis by incorrectly assuming the salary budget only included base salaries of full-time employees. Rather, Becker informed Holub that the salary budget also included many other items, including overtime pay and coaching stipends. This information satisfied Gdowski that Holub’s concerns were unfounded. However, Holub was not satisfied, and a few days later she approached the board president, Mark Clark, and shared her concerns with him. Two days later, Gdowski introduced Holub to the board and indicated that, as internal auditor, she could be a resource for the board. Holub requested that Gdowski allow her to present her findings to the board, but Gdowski replied that he believed her concerns were unfounded and would not recommend that the board hear her concerns in a public meeting. Holub prepared and delivered to Gdowski a memorandum citing state law and accounting standards in which she asserted the district had acted illegally and unethically in concealing excess budget reserves. The district hired an independent expert, Vody Herrmann, to review the budget.

Before Herrmann completed her review, Holub again insisted to Gdowski that even if Herrmann disagreed with her, Holub had a responsibility to present her conclusions to the board. The district’s general counsel responded, advising Holub that the board was aware of her concerns, her responsibility was to raise concerns to management, and the board would determine whether further action was necessary after receiving the independent review. About three weeks later, Herrmann presented her findings to Holub, Gdowski, and Becker. Herrmann explicitly concluded Holub’s concerns were unfounded. Holub then met with two board members, Schaefer and Winsley, at Schaefer’s home office. Both board members then met with Gdowski to discuss Holub’s concerns and left the meeting satisfied that they were unfounded.

In early October 2012, Gdowski, Becker, and the district’s Chief Human Resources Officer met to discuss Holub’s unwillingness and apparent inability to move past her budget concerns. They decided to terminate Holub’s employment, and Becker and the CHRO met with Holub on October 19, 2012, to inform her of their decision, telling her that her inability to move past her discredited budget concerns meant she could no longer be an unbiased and productive employee. In February 2013, a local news station aired a story featuring an interview with Holub in which she accused the district of inflating its salary budget. Before the story aired, Gdowski posted a statement on the district’s website in which he informed the district’s staff, parents, and community that Holub’s concerns were unfounded, and also questioning Holub’s credibility.

Holub eventually filed this action against the school district, Gdowski, and Becker, alleging a 42 U.S.C. § 1983 claim against all defendants for terminating her employment in retaliation for protected First Amendment speech, a breach of contract claim against the district, intentional interference with contract claims against Gdowski and Becker, and a defamation claim against Gdowski. The district court granted summary judgment to defendants on all Holub’s claims, and she appealed.

The Tenth Circuit, applying de novo review, first analyzed Holub’s First Amendment claim using the Garcetti/Pickering test. The Tenth Circuit found Holub’s claims failed at the first prong of the test because she spoke pursuant to her official duties. Holub argued that the Supreme Court’s recent opinion in Lane v. Franks, 134 S. Ct. 2369 (2014) changed the Garcetti test, and that the district court should have focused on whether the speech was “ordinary” in the sense that it was customary or regular. The Tenth Circuit corrected Holub that Lane directed it to focus on whether the speech was within the employee’s usual duties, not whether the speech was frequent or customary. Even if it had accepted Holub’s argument, though, the Tenth Circuit found she still failed the first prong of the Garcetti test because she was acting in her official capacity when she spoke to the board members.

Next, the Tenth Circuit evaluated whether the district court correctly granted summary judgment on Holub’s state law breach of contract claims. Holub argued that the district’s stated reason for her termination, that she was unable to perform her official duties because she could not move past her unfounded budget concerns, was a ruse created by Gdowski and Becker to silence her complaints about the budget. Holub first argued the district lacked cause to terminate her contract. The district contended its reasons for terminating Holub were uncontroverted and provided more than sufficient cause for her termination. Holub failed to point to whether the district had cause to terminate her, instead arguing again that her budget calculations were correct. The district court noted that Holub supplied no indication that the district feigned engagement with her budget concerns just to fabricate an excuse to terminate her, and that indeed the district took several measures to address her concerns before considering termination. The Tenth Circuit found Holub failed to show any indicia of her alleged conspiracy theory.

Finally, the Tenth Circuit addressed the district court’s grant of summary judgment to Gdowski and Becker on Holub’s intentional interference with contract and wrongful discharge claims and to Gdowski on Holub’s defamation claim. The district court granted immunity to defendants, basing its decision on its conclusion that there was no evidence either Gdowski or Becker had acted willfully and wantonly in terminating Holub. The Tenth Circuit concluded that, even in the light most favorable to Holub, there was no evidence showing that Gdowski’s or Becker’s actions were unreasonable or reckless.

The Tenth Circuit affirmed the district court’s grant of summary judgment to defendants on all counts.

Colorado Court of Appeals: Copyright Claims Carrying “Extra Element” Beyond Copyright Act Properly Tried in State Court

The Colorado Court of Appeals issued its opinion in Long v. Cordain on Wednesday, December 31, 2014.

Breach of Contract—Copyright Law—Breach of Fiduciary Duty—Civil Theft—Request for Accounting—Federal Law—Subject Matter Jurisdiction.

Cordain was a leading proponent of the Paleo Diet and had already published two books and several articles on the Paleo Diet before he met Long. Long and Cordain thereafter formed a company, Paleo Diet Enterprises, LLC (PDE), to commercially market the Paleo Diet. A few years later, Long and Cordain had a falling out. Cordain dissolved PDE and formed a new company, The Paleo Diet, LLC (TPD), without Long. Cordain filed a motion to dismiss, claiming that the federal courts had jurisdiction to determine the copyright claims. While this matter was pending, Long filed similar actions in federal court.

Long argued that the district court erred in dismissing his claims against Cordain for lack of subject matter jurisdiction. Generally, federal courts have exclusive jurisdiction over any claim for relief arising under any act of Congress relating to copyrights. However, if the state claim requires an “extra element” beyond those required for relief under the Copyright Act, then it is not “equivalent to” a copyright action, and the state court may hear the claim. Here, Long’s complaint advanced four state-law causes of action: breach of contract, breach of fiduciary duties, civil theft, and a request for an accounting. Long’s breach of contract claim, which alleged that Cordain violated the LLC Agreement, required proof of acts different from those required to establish a copyright infringement action. Long’s breach of fiduciary duty claim, in which he would have to prove, among other things, that Cordain breached a fiduciary duty he owed to PDE, also satisfied the extra elements test. Additionally, the civil theft claim as a whole satisfied the extra element test because it required proof of “theft, robbery, or burglary” of tangible and intellectual property. Therefore, these claims contained an extra element that distinguished them from a claim arising under copyright law. Because these claims did not seek a remedy expressly granted by the Copyright Act, and did not require construction of the Act, they did not arise under federal copyright law, and the district court erred by dismissing them. Finally, Long’s request for accounting did not involve federal law at all, and the court erred by dismissing this claim, as well. The orders were vacated in part and dismissed in part, and the case was remanded with directions.

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

Tenth Circuit: Issue of Federal Law Does Not Confer Federal Jurisdiction Over State Law Claims

The Tenth Circuit Court of Appeals issued its opinion in Becker v. Ute Indian Tribe of the Uintah and Ouray Reservation on Tuesday, October 21, 2014.

Plaintiff Lynn Becker contracted to provide services to the Ute Indian Tribe of the Uintah and Ouray Reservation related to its mineral and energy resource development. A dispute arose regarding Becker’s compensation under the contract, and he brought claims for breach of contract, breach of covenant of good faith and fair dealing, and accounting claims against the Tribe in the U.S. District Court for the District of Utah. The Tribe moved to dismiss for lack of subject matter jurisdiction and failure to state a claim. The district court granted the Tribe’s motion to dismiss, because all Becker’s claims were state law claims.

Becker appealed, asserting that although his claims were state law claims, the district court had federal question jurisdiction because the case raised substantial issues of federal law. The Tenth Circuit disagreed, finding instead that the mere question of a federal issue in a state cause of action does not automatically confer federal question jurisdiction. The district court’s dismissal was affirmed.

Tenth Circuit: Prejudgment Interest Only Appropriate Under Nebraska Law if No Dispute as to Amount Due or Right to Recover

The Tenth Circuit Court of Appeals issued its opinion in Digital Ally, Inc. v. Z3 Technology, LLC on Friday, May 16, 2014.

Digital Ally, Inc. contracted with Z3 Technology regarding the manufacture of circuit board modules. Digital and Z3 entered into two contracts, the 2008 contract and the 2009 contract. Both contracts were signed by Robert Haler, then-Executive Vice President of Engineering and Production for Digital, and both provided that they would be governed by Nebraska law. The 2008 contract contained provisions that Z3 would design, manufacture, and deliver to Digital 1,000 modules containing the Texas Instruments DM355 computer chip in exchange for payment of $155,000 from Digital. After receiving the modules, Digital determined that they were defective and paid Z3 only $140,000. Ultimately, a jury concluded that both parties breached the contract – Digital by withholding payment and Z3 by producing defective modules. The jury awarded $15,000 to Z3 for breach of payment obligations and $30,000 to Digital for the defective products.

The 2009 contract was more complex and set forth various payment and production schedules. Both parties began by complying with the terms of the contract, but in April 2009, three months after the contract was signed, Digital sent Z3 a letter purporting to terminate the contract. The termination letter did not comply with contractual termination provisions, but Z3 nonetheless stopped design work. Digital filed a lawsuit in the Kansas district court, seeking a declaration that the contract was void because Executive Vice President Haler did not have authority to sign the contract based on Digital’s internal policy changes in December 2008. Z3 filed a counterclaim, alleging breach of contract by Digital for failing to fulfill its purchase obligations and also alleging breach of the 2008 contract for failure to pay the $15,000. The district court concluded that (1) Haler had at least apparent authority to sign the contract; (2) Z3‘s failure to perform on the contract was excused by Digital’s revocation; and (3) Digital breached the contract by its anticipatory repudiation. The district court concluded as a matter of law that Z3 was entitled to the remaining $175,000 in design fees and $270,000 in royalties. Z3 filed a motion requesting prejudgment interest on the three awards for breach of contract, which the district court denied. Digital appealed the district court’s ruling and Z3 cross-appealed.

Digital argued that (1) the 2009 contract was totally or partially unenforceable based on several unfulfilled conditions precedent; (2) the contract was not binding because Haler lacked authority to sign it; and (3) Z3 failed to substantially perform its own obligations under the contract. The Tenth Circuit evaluated each claim. As to the first claim, the Tenth Circuit noted that the nonoccurrence of any conditions precedent resulted from Digital’s revocation of the contract. As to the second claim, the Tenth Circuit found that Haler had at least apparent authority to complete the contract, and there was nothing to show that Z3 had knowledge of Digital’s internal policy changes, which were contrary to language in Digital’s bylaws allowing any vice president to execute contracts. For the final claim, the Tenth Circuit noted that it was Digital’s revocation that halted Z3‘s performance on the contract, and therefore there was no actionable breach by Z3.

In its cross-appeal, Z3 raised two main issues: (1) the district court erred by reading a contractual provision as an alternative contract in which Digital could either order 36,000 units or pay a royalty, and if the alternative contract theory was upheld, the district court erred by ordering payment of the lesser royalty provision instead of the cost of the units; and (2) the district court erred by denying Z3‘s request for prejudgment interest on the $15,000, $175,000, and $270,000 awards. The Tenth Circuit examined the contract provision in question and determined it was a “take-or-pay” provision, and case law supported awarding the lesser amount. As to Z3‘s second claim, the Tenth Circuit evaluated Nebraska contract law and determined that prejudgment interest is only appropriate where there is no dispute as to the amount due, the plaintiff’s right to recover, or both. Since there were disputes about the amount of payment due regarding the $15,000 and $270,000 awards, prejudgment interest was only appropriate on the $175,000 award.

The judgment of the district court was reversed and remanded for calculation of prejudgment interest on the $175,000 award, and affirmed as to all other disputes.

Tenth Circuit: Insurance Policy’s Restriction on Assignment Did Not Forbid Assignment of Postloss Claim

The Tenth Circuit Court of Appeals published its opinion in City Center West v. American Modern Home Insurance Company on Thursday, February 6, 2014.

City Center West LP (City Center) owned a commercial property in Greeley, Colorado, subject to a mortgage held by Summit Bank & Trust (Summit Bank). When Summit Bank learned that City Center had failed to insure the property, the bank’s parent company, Heartland Financial USA, Inc. (Heartland Financial), obtained coverage for the property through its blanket insurance policy (the Policy) with American Modern Home Insurance Company (American Modern). The Policy identified Heartland Financial and its branches, including Summit Bank, as the “Named Insured Mortgagee.” It provided that losses be paid to the Named Insured Mortgagee to the extent of its interest and that any benefits payable in excess of that interest “shall be paid to the mortgagor” (which was City Center). Liability was limited to the interest in the property of the mortgagee and the mortgagor. The Policy was excess insurance—that is, it paid out only if there was no other insurance policy that would cover the claim. It included a nonassignment provision that stated: “Assignment of this Policy shall not be valid unless we [American Modern] give our written consent.

On September 23, 2011, the property was damaged by vandalism and a burglary. City Center estimated that the cost of repair would exceed $3.5 million. City Center notified American Modern of the loss and four months later it requested payment. American Modern refused to pay the amount requested, but tendered a $321,069 check to Summit Bank. Heartland Financial and Summit Bank assigned to City Center all their rights with respect to the claim. American Modern never consented to the assignment.

City Center filed its complaint against American Modern in the United States District Court for the District of Colorado. It asserted claims for bad-faith breach of insurance contract, breach of contract, and violations of Colorado insurance statutes. American Modern filed a motion to dismiss on the grounds that the assignment to City Center was prohibited by the Policy’s nonassignment provision and City Center was not a third-party beneficiary. The district court granted the motion. City Center appealed.

The issue on appeal was whether the Policy’s restriction on assignment of this Policy forbade the assignment of a postloss claim under the Policy. The weight of authority is that assignment of a postloss claim under an insurance policy is not an assignment of the policy. The majority of courts adhere to the rule that general stipulations in policies prohibiting assignments of the policy, except with the consent of the insurer, apply only to assignments before loss, and do not prevent an assignment after loss. American Modern’s policy could have barred assignment of postloss claims by simply saying that such assignments were barred. It did not.

The Tenth Circuit REVERSED the judgment of the district court and REMANDED for further proceedings consistent with this opinion.

Colorado Court of Appeals: Tort Claims in Breach of Contract Action Barred by Economic Loss Rule

The Colorado Court of Appeals issued its opinion in Van Rees, Sr. v. Unleaded Software, Inc. on Thursday, December 5, 2013.

Negligence—Fraud—Fraudulent Concealment—Constructive Fraud—Negligent Misrepresentation—Colorado Consumer Protection Act—Civil Theft—Contract—Economic Loss Rule—Duty of Care.

Plaintiff John Van Rees, Sr. appealed the trial court’s dismissal of his claims against defendant Unleaded Software, Inc. (Unleaded). The judgment was affirmed.

Van Rees and Unleaded executed three contracts wherein Unleaded agreed to design and build a website, perform “search engine optimization” (SEO) services for the website, and host the website on a dedicated server. Van Rees brought this action due to the lack of work performed. Unleaded moved to dismiss the seven tort claims—all the claims except the three breach-of-contract claims—as barred by the “economic loss rule,” which the court granted.

Van Rees contended that the trial court erred in dismissing his claims without sufficient written analysis. A trial court, however, need not make findings of fact and conclusions of law when it dismisses a complaint for failure to state a claim under CRCP 12(b)(5).

Van Rees argued that the trial court erred in dismissing his claims of fraud, fraudulent concealment, constructive fraud, and negligent misrepresentation because he alleged duties independent of the three contracts. Here, all alleged misrepresentations related directly to contractual duties. Because Van Rees failed to allege any independent duty on which to base his tort claims, the trial court did not err in dismissing those four claims.

Van Rees also contended that the trial court erred when it dismissed his negligence claim. Van Rees, however, failed to allege that Unleaded owed him a duty of care independent of its contractual duties.

Van Rees further argued that the trial court erred in dismissing his claim under the Colorado Consumer Protection Act (CCPA). This dispute pertains to a private contract between two sophisticated business entities, and Van Rees does not allege any harm or potential harm to identifiable segments of the public. Therefore, Van Rees failed to allege sufficient facts to support a CCPA claim.

Finally, Van Rees contended that the trial court erred in dismissing his civil theft claim. Van Rees’s civil theft claim fails, however, because it arises out of the alleged breaches of contract, and nothing in the complaint could be construed to establish an independent legal duty.

Summary and full case available here.