August 25, 2019

Colorado Court of Appeals: Compensation of Fact Witness Does Not Per Se Require Exclusion of Witness’s Testimony; Rather, Trial Court Should Determine if Witness Should Be Excluded as Sanction

The Colorado Court of Appeals issued its opinion in Just in Case Business Lighthouse LLC v. Murray on Thursday, July 18, 2013.

Fraudulent Misrepresentation—Business Sale—Nonparty at Fault—CRE 1006—Summary Witness—Economic Loss Rule.

This case involved alleged fraud in the negotiated termination of agreements concerning a commission payable for facilitating the sale of a business. Defendant Patrick Murray appealed the judgment entered on a jury verdict against him on the fraudulent misrepresentation and concealment claim of plaintiff, Just In Case Business Lighthouse, LLC, which is solely owned and operated by Joseph Mahoney. The judgment was vacated and the case was remanded.

On appeal, defendant argued that the trial court erred in allowing Preston Sumner, whom plaintiff hired and agreed to compensate on a contingent basis, to testify as a fact witness. Plaintiff hired Sumner, a longtime acquaintance of Mahoney, as an advisor to develop its case. Over the course of four years, Sumner spent between 500 and 1,000 hours examining business records and preparing summaries. Sumner’s agreement with plaintiff provided that he would receive 10% of any judgment or settlement obtained herein. Contingent compensation of a fact witness requires the trial court to determine whether the witness should be stricken as a sanction. Here, because the trial court misstated the law on contingent compensation of witnesses and did not rule on the propriety of a sanction, the case was remanded to address this issue.

Defendant also argued that the trial court erred in allowing Sumner to testify as a summary witness because he had no personal knowledge of the facts. However, Sumner only testified as to evidence that had already been admitted by the court, and his testimony assisted the jury in understanding the facts. Therefore, the court’s ruling to allow such testimony was not manifestly arbitrary, unreasonable, or unfair.

Defendant argued that the trial court erred in admitting exhibits prepared by Sumner, contending they were inadmissible under CRE 1006 because they were based on evidence already admitted during the trial and were unduly prejudicial. CRE 1006 allows for the admission of such summaries when the documents underlying the summary are voluminous. Here, more than 200 exhibits were admitted during the eight-day trial. Moreover, the underlying documents were admitted as evidenceand CRE 1006 does

not “require the fact finder to accept the information present on the summary charts as true.”Accordingly, the trial court did not abuse its discretion in admitting Sumner’s summary exhibits.

Defendant further contended that the trial court erred when it denied its motion for directed verdict because the evidence was insufficient to establish fraud. A letter of intent for the sale of a business was signed before defendant had a conversation with plaintiff about buying him out of the deal, and defendant failed to disclose this fact to plaintiff. Thus, the jury could have concluded that defendant fraudulently concealed facts material to the sale.

Defendant also contended that a directed verdict should have been entered because the economic loss rule bars plaintiff’s fraud claim. Defendant raised the economic loss rule in his motion for summary judgment, which was denied. Because defendant did not raise it when moving for a directed verdict, at any other time during the trial, or in a post-trial motion, he did not preserve this issue and the trial court did not err in denying the directed verdict motion.

Defendant contended that the trial court erred in declining to instruct the jury that Pearl Development Companywas a nonparty at fault. A defendant is not entitled to a nonparty-at-fault designation where the party’s fault is only vicarious. Accordingly, the trial court properly declined to instruct the jury on Pearl as a nonparty at fault.

Summary and full case available here.