Colorado Supreme Court Decisions 2018: Business & Contract Law Jan 04, 2019
As we begin a new year, we look back at some of the Colorado Supreme Court decisions related to business and contract matters from 2018. Some highlights are below with the summaries published by Justia. Follow the links to see the full decisions.
Thompson v. Catlin
The issue this case presented for the Colorado Supreme Court’s review were the insurance proceeds owed to petitioners Rosalin Rogers and Mark Thompson because of a failed property investment orchestrated by their broker-dealer, United Securities Alliance. Ten years into litigation, the issue of the amount of debt at issue has remained at issue, and unresolvable by the courts. United’s insurer, Catlin Insurance, was ordered to pay petitioners under a professional liability policy; an appellate court upheld a district court’s determination of attorney fees and costs that Catlin could deduct from the liability limit under the policy. The Supreme Court first addressed whether the “Thompson IV” division erred when it upheld the district court’s decision to consider new evidence on remand from Thompson v. United Securities Alliance, Inc. (Thompson III), No. 13CA2037, (Colo. App. Oct. 16, 2014). And Secondly, the Supreme Court addressed whether the Thompson IV division erred when it held that there was no legal basis for awarding prejudgment interest in a garnishment proceeding. As to the first issue, the Supreme Court affirmed the court of appeals; as to the second, it reversed and remanded for further proceedings.
Schultz v. GEICO Casualty Company
Plaintiff-petitioner Charissa Schultz was injured in a 2015 car accident in which the other driver failed to stop at a stop sign. The other driver’s insurance company settled for its $25,000 policy limit, and Schultz made a demand on her own uninsured/underinsured motorist benefits under her GEICO policy, which also had a $25,000 limit. In April 2017, after months of correspondence and apparent review of an MRI performed on Schultz in April 2015, GEICO offered Schultz its full policy limit, and it did so without requesting that she undergo an independent medical examination (“IME”). Indeed, GEICO’s claim logs reveal that at the time GEICO decided to offer Schultz its policy limits, it “concede[d] peer review wouldn’t be necessary,” indicating an affirmative decision not to request an IME. A few months later, Schultz filed the present lawsuit asserting claims for bad faith breach of an insurance contract and unreasonable delay in the payment of covered benefits. GEICO denied liability, disputing the extent and cause of Schultz’s claimed injuries and asserting that causation surrounding the knee replacement surgeries was “fairly debatable” because Schultz had preexisting arthritis, which GEICO claimed may independently have necessitated her surgeries. To establish its defense, GEICO ordered the IME and the district court granted that request. The Colorado Supreme Court concluded GEICO’s conduct had to be evaluated based on the evidence before it when it made its coverage decision and that, therefore, GEICO was not entitled to create new evidence in order to try to support its earlier coverage decision. The Court also concluded the district court abused its discretion when it ordered Schultz to undergo an IME over three years after the original accident that precipitated this case and a year and a half after GEICO had made the coverage decision at issue.
Lewis v. Taylor
Steve Taylor unwittingly invested millions of dollars in what proved to be a massive Ponzi scheme. Before the scheme’s collapse, Taylor fortuitously withdrew his entire investment, plus nearly half a million dollars in profit. After the Ponzi scheme’s collapse, a court-appointed receiver brought what is commonly referred to as an “actual fraud” claim under the Colorado Uniform Fraudulent Transfer Act (“CUFTA”) section 38-8-105(1)(a), C.R.S. (2018), to claw back Taylor’s profits. As an innocent investor, Taylor argued he should be allowed to keep the money, contending (in the words of a statutory affirmative defense) that he provided “reasonably equivalent value” in exchange for his profits. A division of the court of appeals concluded that Taylor was not precluded as a matter of law from keeping some of the profit, because he may have provided reasonably equivalent value in the form of the time value of his investment. The receiver appealed. The Colorado Supreme Court determined Taylor could not keep the profit exceeding his initial investment based on the time value of money: under CUFTA, an innocent investor who profited from his investment in an equity-type Ponzi scheme, lacking any right to a return on investment, does not provide reasonably equivalent value based simply on the time value of his investment.
Munoz v. Am. Fam. Ins. Co.
At issue before the Colorado Supreme Court in this matter was the issue of whether an insured was entitled to collect prejudgment interest when he settles an uninsured motorist claim (“UM claim”) with his insurer in lieu of filing a lawsuit and proceeding to judgment. The Court held that under the plain language of the prejudgment interest statute, 13-21-101, C.R.S (2017), an insured is entitled to prejudgment interest only after: (1) an action is brought; (2) the plaintiff claims damages and interest in the complaint; (3) there is a finding of damages by a jury or court; and (4) judgment is entered. Because the plaintiff in this case did not meet all of these conditions, he was not entitled to prejudgment interest.
Colorow Health Care, LLC v. Fischer
When Charlotte Fischer moved into a nursing home, she received an admissions packet full of forms. Among them was an agreement that compelled arbitration of certain legal disputes. The Health Care Availability Act (“HCAA” or “Act”) required such agreements contain a four-paragraph notice in a certain font size and in bold-faced type. Charlotte’s agreement included the required language in a statutorily permissible font size, but it was not printed in bold. Charlotte’s daughter signed the agreement on Charlotte’s behalf. After Charlotte died, her family initiated a wrongful death action against the health care facility in court. Citing the agreement, the health care facility moved to compel arbitration out of court. The trial court denied the motion, and the court of appeals affirmed, determining the arbitration agreement was void because it did not strictly comply with the HCAA. At issue was whether the Act required strict or substantial compliance. The Colorado Supreme Court held “substantial:” the agreement at issue her substantially complied with the formatting requirements of the law, notwithstanding the lack of bold type.
U.S. Welding, Inc. v. Advanced Circuits, Inc.
U.S. 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. 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 prior to expiration of the contract term, Welding failed to mitigate. Because an aggrieved party is not obligated to mitigate damages from a breach by giving up its rights under the contract, and because 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, would amount to nothing less than forcing Welding to relinquish its rights under the contract, the Colorado Supreme Court concluded the district court erred. The court of appeals’ judgment concerning failure to mitigate was therefore reversed, and the case was remanded for further proceedings.
Rocky Mountain Exploration, Inc. and RMEI Bakken Joint Venture
This case arose from a series of transactions in which petitioners Rocky Mountain Exploration, Inc. and RMEI Bakken Joint Venture Group (collectively, “RMEI”) sold oil and gas assets to Lario Oil and Gas Company (“Lario”). In the transaction, Lario was acting as an agent for Tracker Resource Exploration ND, LLC and its affiliated entities (collectively, “Tracker”), which were represented by respondents Davis Graham & Stubbs LLP and Gregory Danielson (collectively, “DG&S”). Prior to RMEI’s sale to Lario, RMEI and Tracker had a business relationship related to the oil and gas assets that were ultimately the subject of the RMEI-Lario transaction. The RMEI-Tracker relationship ultimately soured; Tracker and Lario reached an understanding by which Lario would seek to purchase RMEI’s interests and then assign a majority of those interests to Tracker. Recognizing the history between Tracker and RMEI, however, Tracker and Lario agreed not to disclose Tracker’s involvement in the deal. DG&S represented Tracker throughout RMEI’s sale to Lario. In that capacity, DG&S drafted the final agreement between RMEI and Lario, worked with the escrow agent, and hosted the closing at its offices. No party disclosed to RMEI, however, that DG&S was representing Tracker, not Lario. After the sale from RMEI to Lario was finalized, Lario assigned a portion of the assets acquired to Tracker, and Tracker subsequently re-sold its purchased interests for a substantial profit. RMEI then learned of Tracker’s involvement in its sale to Lario and sued Tracker, Lario, and DG&S for breach of fiduciary duty, fraud, and civil conspiracy, among other claims. As pertinent here, the fiduciary breach claims were based on RMEI’s prior relationship with Tracker. The remaining claims were based on allegations that Tracker, Lario, and DG&S misrepresented Tracker’s involvement in the Lario deal, knowing that RMEI would not have dealt with Tracker because of the parties’ strained relationship. Based on these claims, RMEI sought to avoid its contract with Lario. Lario and Tracker eventually settled their claims with RMEI, and DG&S moved for summary judgment as to all of RMEI’s claims against it. The district court granted DG&S’s motion. The Colorado Supreme Court granted certiorari to consider whether: (1) Lario and DG&S created the false impression that Lario was not acting for an undisclosed principal (i.e., Tracker) with whom Lario and DG&S knew RMEI would not deal; (2) an assignment clause in the RMEI-Lario transaction agreements sufficiently notified RMEI that Lario acted on behalf of an undisclosed principal; (3) prior agreements between RMEI and Tracker negated all previous joint ventures and any fiduciary obligations between them; (4) RMEI stated a viable claim against DG&S for fraud; and (5) RMEI could avoid the Lario sale based on statements allegedly made after RMEI and Lario signed the sales agreement but prior to closing. The Supreme Court found no reversible error and affirmed.
Mason v. Farm Credit S. Colo., ACA
In this case, at issue was whether the petitioner was entitled to a jury trial under Rule 38 of the Colorado Rules of Civil Procedure. Between 2008 and 2011, Zachary Mason (“Zach”) farmed several properties in Otero County, Colorado. During this time, Zach executed several loan agreements with Farm Credit of Southern Colorado, ACA, and Farm Credit of Southern Colorado, FLCA (collectively, “Farm Credit”). As part of the loan agreements, Farm Credit owned a perfected security interest in some of Zach’s crops, farm equipment, and other items of personal property. In May 2012, Zach defaulted on his loans. As a result, Farm Credit sued Zach for judgment on his notes, foreclosure of real property collateral, replevin of personal property collateral, conversion of insurance proceeds, civil theft, breach of contract, and fraud. The court of appeals held that the petitioner was not entitled to a jury trial because the claims in the respondents’ original complaint were primarily equitable. In reaching this conclusion, the court of appeals ignored the claims in the respondents’ amended complaint. The Colorado Supreme Court found that was in error: when a plaintiff amends its complaint and a party properly requests a jury trial, the trial court should determine whether the case may be tried to a jury based on the claims in the amended complaint, not the original complaint. If the claims against a particular defendant in a plaintiff’s amended complaint entitle that defendant to a jury trial, then “all issues of fact shall be tried by a jury,” upon a proper jury demand and payment of the requisite fee. Here, the claims against the petitioner in the respondents’ amended complaint were primarily legal, as opposed to equitable, meaning the petitioner was entitled to a jury trial under Rule 38.
Hernandez v. Ray Domenico Farms, Inc.
The United States District Court for the District of Colorado certified a question of Colorado law to the Colorado Supreme Court. Defendant Ray Domenico Farms, Inc. grew organic vegetables. Plaintiffs were three year-round and four seasonal migrant workers who had been previously employed by Domenico Farms from as far back as 1992. All Plaintiffs were paid by the hour, and alleged they never received overtime pay during their employment with Domenico Farms. While agricultural workers were generally exempt from the Fair Labor Standards Act’s (“FLSA”) overtime requirements, Plaintiffs alleged they performed nonagricultural tasks in weeks in which they worked more than forty hours, thus entitling them to overtime wages under FLSA for those weeks. The certified question from the federal court pertained to how far back in time a terminated employee’s unpaid wage claims could reach under the Colorado Wage Claim Act, sections 8-4-101 to -123, C.R.S. (2017). Specifically, the certified question asked whether the statute permitted a terminated employee to sue for wages or compensation that went unpaid at any time during the employee’s employment, even when the statute of limitations had run on the cause of action the employee could have brought for those unpaid wages under Colo. Rev. Stat. § 8-4-103(1)(a). The Supreme Court held that under the plain language of section 109, an employee could seek any wages or compensation that were unpaid at the time of termination; however, the right to seek such wages or compensation was subject to the statute of limitations. That statute of limitations begins to run when the wages or compensation first become due and payable and thus limits a terminated employee to claims for the two (or three) years immediately preceding termination. Thus, the Court answered the certified question in the negative.
Mallon Lonnquist Morris & Watrous, LLC is a strategic business law firm located in Denver, Colorado, with practice focused in all major aspects of business, real estate, financial transactions, estate planning, tax, and related litigation. We can be reached directly at (303) 777-1411. www.mlmw-law.com