HomeMy WebLinkAbout2024-1152 - City v. Open International - 46 - Appellant's Opening Brief
No. 24-1152
In the
UNITED S TATES COURT OF APPEALS
for the
TENTH CIRCUIT
OPEN INTERNATIONAL, LLC AND OPEN INVESTMENTS, LLC,
Defendants-Appellants,
v.
CITY OF FORT COLLINS,
Plaintiff-Appellee.
Appeal from the United States District Court for the Dist. of Colorado
No. 1:21-cv-02063 - District Judge Charlotte N. Sweeney
DEFENDANTS-APPELLANTS’ OPENING BRIEF
ORAL ARGUMENT REQUESTED
Laurie Webb Daniel
Webb Daniel Friedlander LLP
75 14th Street NE
Suite 2450
Atlanta, Georgia 30309
(404) 433-6430
Laurie.daniel@webbdaniel.law
Jeffrey Keith Sandman
Webb Daniel Friedlander LLP
5208 Magazine Street
Suite 364
New Orleans, Louisiana 70115
(978) 886-0639
Jeff.sandman@webbdaniel.law
Attorneys for Defendants-Appellants
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I
CORPORATE DISCLOSURE STATEMENT
Pursuant to 10 Cir. R. 28.2(C)(6), Appellants Open International, LLC and
Open Investments, LLC make the following disclosures.
Open International, LLC is a Florida limited liability company with its
principal place of business in Florida. Its members are Open Investments, LLC
(which owns 80%) and Theia Technologies, LLC (“Theia”) (which owns 20%).
Theia is 100% owned by Hernando Parrott, a Florida resident.
Open Investments, LLC is a Florida limited liability company with its
principal place of business in Florida. Its sole member is the Corredor Security
Trust. The Corredor Security Trust is a registered in Florida and its sole
beneficiary is William Corredor, a Florida resident.
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II
TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT ......................................................... I
TABLE OF AUTHORITIES .................................................................................... V
STATEMENT OF PRIOR OR RELATED APPEALS ........................................ VIII
GLOSSARY ............................................................................................................ IX
JURISDICTIONAL STATEMENT .......................................................................... 1
STATEMENT OF ISSUES PRESENTED FOR REVIEW ...................................... 2
STATEMENT OF THE CASE .................................................................................. 3
NATURE OF THE CASE ............................................................................................... 3
STATEMENT OF FACTS .............................................................................................. 4
COURSE OF PROCEEDINGS AND DISPOSITION BELOW ..............................................13
STANDARDS OF REVIEW ..........................................................................................19
SUMMARY OF ARGUMENT ...............................................................................20
ARGUMENT ...........................................................................................................23
I. The City has no actionable claim for fraudulent inducement. ............23
A. The merger clause/economic loss rule limits the City to a
contractual remedy. .............................................................................23
B. The City affirmed the contract through multiple amendments
after the problems were known, thereby forfeiting its right to
the equitable remedy of rescission. .....................................................31
C. There was no material misrepresentation. ...........................................38
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III
II. Open Investments, cannot be liable for the rescission damages. ........41
A. Open Investments cannot be liable because it made no
misrepresentations. ..............................................................................42
B. Open Investments owes no restitution. ...............................................45
CONCLUSION ........................................................................................................47
STATEMENT CONCERNING ORAL ARGUMENT ...........................................48
CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMIT AND
TYPEFACE AND TYPE-STYLE REQUIREMENTS ...........................................49
CERTIFICATE OF DIGITAL SUBMISSION AND
PRIVACY REDACTIONS ......................................................................................50
CERTIFICATION OF SUBMISSION OF HARD COPIES OF PLEADING .......50
CERTIFICATE OF SERVICE ................................................................................51
ATTACHMENTS
ECF 309: Oral rulings on Defendants’ motion for judgment as a
matter of law under Fed. R. Civ. P. 50(a)…………...………….Att. 1
ECF 328: Order on Defendants’ Motion for Judgment under
Fed. R. Civ. P. 52(c) (3/21/2024)………………………………...Att. 7
ECF 329: Final Judgment (3/26/2024)…………………………………….Att. 30
ECF 332: Amended Final Judgment (3/28/2024)…………………………Att. 32
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IV
ECF 367: Minute Entry for Hearing on Aug. 15, 2024, memorializing
Denial of Defendants’ Rule 50(b) Renewed Motion for
judgment as a matter of law and denying Defendants’
post-trial motions pursuant to Fed. R. Civ. P. 50(b), 52(b),
59(e), and 59(a) (8/15/2024)……………………………………Att. 34
ECF 372: Oral Rulings on Defendants’ Rule 50(b) Renewed Motion for
(to be judgment as a matter of law and denying Defendants’
filed) post-trial motions pursuant to Fed. R. Civ. P. 50(b), 52(b),
59(e), and 59(a) (8/15/2024)……………………………………Att. 36
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V
TABLE OF AUTHORITIES
Page(s)
CASES
Bermel v. Blueradios, Inc.,
2019 CO 31, 440 P.3d 1150 (Colo. 2019) ...........................................................28
BRW, Inc. v. Dufficy & Sons, Inc.,
99 P.3d 66 (Colo. 2004) .......................................................................... 24, 25, 30
Colo. Coffee Bean, LLC v. Peaberry Coffy, Inc.,
251 P.3d 9 (Colo. App. 2010) ..............................................................................23
ConcealFab Corp. v. Sabre Indus., Inc.,
2017 WL 6297672 (D. Colo. Dec. 11, 2017) ......................................................41
Dream Finders Homes LLC v. Weyerhaeuser NR Co.,
2021 COA 143, 506 P.3d 108 (Colo. App. 2021) .................................. 27, 28, 29
Eitel v. Alford,
127 Colo. 341, 257 P.2d 955 (Colo. 1953) ..........................................................35
Elk River Assocs. v. Huskin,
691 P.2d 1148 (Colo. App. 1984) ................................................................. 35, 36
Elm Ridge Expl. Co., LLC v. Engle,
721 F.3d 1199 (10th Cir. 2013) ...........................................................................19
Former TCHR, LLC v. First Hand Mgmt. LLC,
2012 COA 129, 317 P.3d 1226 (Colo. App. 2012) .............................................29
Gerbaz v. Hulsey,
132 Colo. 359, 288 P.2d 357 (Colo. 1955) ..........................................................34
Gladden v. Guyer,
162 Colo. 451, 426 P.2d 953 (Colo. 1967) ....................................... 34, 35, 36, 37
Halm v. Wright,
63 Colo. 419, 168 P. 36 (Colo. 1917) ........................................................... 35, 36
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VI
Hamon Contractors, Inc. v. Carter & Burgess, Inc.,
229 P.3d 282 (Colo. App. 2009) ..........................................................................29
Hayes v. SkyWest Airlines, Inc.,
12 F.4th 1186 (10th Cir. 2021) ............................................................................19
Holscher v. Ferry,
131 Colo. 190, 280 P.2d 655 (Colo. 1955) ..........................................................37
In re Mascio,
454 B.R. 146 (D. Colo. 2011) ....................................................................... 35, 36
LBI Group, LLC v. Scanlan,
No. 23CA1265, 2024 WL 3947026 (Colo. App. July 11, 2024) .........................23
McWhinney Centerra Lifestyle Ctr. LLC v. Poag & McEwen Lifestyle Centers-
Centerra LLC,
2021 COA 2, 486 P.3d 439 (Colo. App. 2021) ...................................................28
Mountain Dudes v. Split Rock Holdings, Inc.,
946 F.3d 1122 (10th Cir. 2019) ...........................................................................19
Myers v. Alliance for Affordable Servs.,
371 Fed. Appx. 950 (10th Cir. 2010) ...................................................................40
Palace Expl. Co. v. Petroleum Dev. Co.,
316 F.3d 1110 (10th Cir. 2003) ...........................................................................45
Perez v. El Tequila, LLC,
847 F.3d 1247 (10th Cir. 2017) ...........................................................................43
RE/MAX, LLC v. Quicken Loans Inc.,
295 F. Supp.3d 1163 (D. Colo. 2018) ..................................................................30
Steak n Shake Enterprises, Inc. v. Globex Co., LLC,
110 F. Supp.3d 1057 (D. Colo. 2015) ........................................................... 23, 41
Stoner v. Marshall,
145 Colo. 352, 358 P.2d 1021 (Colo. 1961) ........................................................36
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VII
Town of Alma v. AZCO Const., Inc.,
10 P.3d 1256 (Colo. 2000) ...................................................................................25
Univ. of Denver v. Doe,
2024 CO 27, 547 P.3d 1129 (Colo. 2024) ...........................................................27
V, LLC,
2015 CO 7, 342 P.3d 868 (Colo. 2015) ...............................................................25
Young v. Leech,
78 Colo. 208, 240 P. 692 (Colo. 1925) ................................................................34
Statutes
28 U.S.C. § 1291 ........................................................................................................ 1
28 U.S.C. § 1332 ........................................................................................................ 1
Rules
10th Cir. R. 28.1(A) ................................................................................................... 1
Fed. R. App. P. 32(a)(5) ...........................................................................................50
Fed. R. App. P. 32(a)(6) ...........................................................................................50
Fed. R. App. P. 32(a)(7)(B) .....................................................................................50
Fed. R. App. P. 32(f) ................................................................................................50
Fed. R. App. P. 32(g) ...............................................................................................50
Fed. R. Civ. P. 50(a).................................................................................................III
Fed. R. Civ. P. 52(c).................................................................................................III
Fed. R. Civ. Proc. 52(a)(5) .......................................................................................47
Rule 46 of the Federal Rules of Civil Procedure .....................................................47
Rule 50(b)................................................................................................................ IV
Other Authorities
Fed. Prac. & Proc. Civ. § 2581 (3d ed.) ...................................................................47
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VIII
STATEMENT OF PRIOR OR RELATED APPEALS
There are no prior or related appeals.
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IX
GLOSSARY
Parties and Other Entities
The City of Fort Collins, Colorado the City
Open International, LLC Open or Open International
Open Investments, LLC Open Investments
The Parties’ Agreements
Master Professional Services Agreement MPSA or Agreement
Other Key Terms
Request for Proposal RFP
Project Change Request PCR
Statement of Work SOW
Open SmartFlex OSF
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1
JURISDICTIONAL STATEMENT
This Court has subject-matter and appellate jurisdiction to decide
Defendants-Appellants’ appeal from the final judgment. The Court has subject -
matter jurisdiction because the case was a proper exercise of the district court’s
diversity jurisdiction, see 28 U.S.C. § 1332, and appellate jurisdiction because the
final judgment resolved all claims by all parties, see 28 U.S.C. § 1291.
The district court entered its Amended Final Judgment in favor of Plaintiff-
Appellee on March 28, 2024. (App. Vol. 17 at 3-4).1 Defendants-Appellants filed a
timely notice of appeal on April 17, 2024, (App. Vol. 17 at 5-6) and, after the
district court disposed of all post-trial motions on August 15, 2024, they filed an
amended notice of appeal on August 21, 2024. (App. Vol. 17 at 156-57).
1 Pursuant to 10th Cir. R. 28.1(A), record citations are to the volume and page
number of the Appellants’ contemporaneously filed appendix.
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2
STATEMENT OF ISSUES PRESENTED FOR REVIEW
This case arises from a contract for a municipal utility billing system entered
into by the City of Fort Collins (“the City”) and its chosen vendor, Open
International, LLC (“Open” or “Open International”), which was guaranteed by
Open’s parent company, Open Investments, LLC (denominated herein as “Open
Investments,” not to be confused with “Open,” which is the appellation used
exclusively for Open International, LLC).
The issues to be decided by this Court are:
(1) Whether the parties’ agreement—which incorporates by reference Open’s
precontractual representations, has a focused merger clause, curbs reliance
on the warranties, and excludes categories of damages—precludes the City’s
fraud-in-the-inducement claim in light of Colorado’s economic loss rule;
(2) Whether the City’s almost $20 million restitution award must be overturned
because the City repeatedly affirmed the contract after learning of the
problems about which it now complains;
(3) Whether the alleged misrepresentations would be actionable regardless of
Colorado’s economic loss rule and waiver jurisprudence;
(4) Whether Open Investments can be held liable for the rescission award when
it was merely a guarantor of Open’s performance under the contract .
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3
STATEMENT OF THE CASE
Nature of the Case
This is a dispute arising out of an agreement for utility billing services, with
the City suing Open for breach of contract and Open counterclaiming based on the
City’s own failure to perform. But, with an alternative claim for fraud-in-the-
inducement, the City sought to avoid the restrictions adopted by the parties in their
contract, which expressly incorporated Open’s precontractual representations,
specifically disclaimed reliance on any others, and —in conspicuous and
unambiguous language—limited the damages that could be awarded to either party
“regardless of the theory of liability.” And, despite Open’s repeated motions fo r
judgment as a matter of law—which pointed to the lack of any actionable
misrepresentation, to the contract’s merger clause and other limiting provisions,
and to the City’s continuation of the relationship notwithstanding its knowledge of
the problems it attributes to Open—the district court allowed the City to abandon
its contract claim in favor of a tort remedy. Then, the court let a jury decide the
liability issue but reserved the remedy determination for itself on the ground that
the City had elected an equitable remedy, rescission and restitution. And, after
cancelling the contract, the court entered a judgment of almost $20 million against
both Open and the contract’s guarantor, Open Investments, even though Open
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4
Investments made none of the alleged misrepresentations. As discussed below, all
this was error.
Statement of Facts
A. The Bid and Contract for a Bundled Utility Billing System
In February 2018, the City published a request for proposal (“RFP”) for a
billing software system to cover a new broadband service the City planned to
launch as well as its traditional municipal utilities (water, wastewater, stormwater,
and electricity). (App. Vol. 7 at 53, 55-56, 58, 61). On March 12, 2018, Open
submitted a proposal for the project based on its forthcoming software —Version 8
of Open SmartFlex (“OSF V.8”). (App. Vol. 11 at 120-21). The City selected Open
to be its vendor and the parties formalized their contract with a Master Professional
Services Agreement (“MPSA”) that incorporates by reference Open’s response to
the RFP, and the first Scope of Work (“SOW”), which set out a detailed
functionality matrix for the services Open was to provide. (App. Vol. 19 at 1-19;
App. Vol. 20 at 1-138).
Without making any contractual representations of its own, Open
Investments guaranteed Open’s performance under the contract:
Open Investments, LLC (“Guarantor”) consents to and agrees to
unconditionally guarantee the performance of Open International LLC
(“Open”) of all obligations set forth in this Master Professional
Services Agreement and the Software License Agreement . . . .
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5
(App. Vol. 19 at 5) (MPSA “Irrevocable Guarantee”) (emphasis added).
Notably, the MPSA contains a number of restrictions. For example, its
introduction incorporates by reference Open’s precontractual “functionality
matrix” and makes clear Open’s grading of its capabilities were good faith
estimates based on criteria that are subject to “interpretation”:
The requirements of Request for Proposal (RFP) 8697 and Open’s
proposal dated March 12th, 2018 are incorporated herein by
reference. In the event of a conflict between the RFP, Open’s
proposal and/or this Agreement, the terms of this Agreement shall
prevail. The Parties acknowledge that the requirements outlined in the
RFP are high level and may be open to interpretation. Open has made
good faith efforts to respond based on the capabilities of the Open
Smartflex solution and the City has proceeded with reasonable
reliance on Open’s representations.
(App. Vol. 19 at 6) (MPSA “Introduction”) (emphasis added).
The MPSA also contains a limited warranty that expressly disclaims reliance
on precontractual representations, thereby making the contract the exclusive source
of duty owed by Open to the City. See (App. Vol. 19 at 7) (MPSA § 2.3) (“NO
ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED
FROM OPEN OR ELSEWHERE WILL CREATE ANY WARRANTY NOT
EXPRESSLY STATED IN THIS AGREEMENT.”).
In particular, the MPSA’s “Limited Warranty” section addressed the SOW
that is an Exhibit expressly incorporated into the contract with the functionality
matrix attached—and spells out the duties owed and the exclusive remedy with
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6
respect to those functionalities. In that regard, Open warranted that its consulting
services “will be provided in accordance with the applicable SOWs,” and that all
the services “will be performed in a competent and professional manner, in
accordance with usual and customary industry standards, using skilled Open
employees, subcontractors or other agents having the appropriate background and
skills.” MPSA, § 2.1. This section of the contract goes on to provide that the City’s
“exclusive remedy, and Open’s entire liability, for breach of the foregoing
warranty, will be for Open to correct or re-perform any nonconforming Services, at
Open’s expense subject to Section 13.2.” Id.
The contract also includes a limitation of liability, applicable to both parties,
that provides a remedy but excludes certain types of damages “regardless of the
theory of liability,” and includes a ceiling on the aggregate amount the City could
recover if Open’s representations proved to be untrue:
NEITHER PARTY SHALL BE LIABLE FOR: (A) ANY PUNITIVE,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING LOSS OF USE, DATA, BUSINESS,
OR PROFITS), REGARDLESS OF THE THEORY OF LIABILITY
OR WHETHER THE LIABLE PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES; OR (B) AGGREGATE
DAMAGES IN EXCESS OF THE FEES PAID OR PAYABLE BY
CUSTOMER UNDER THIS AGREEMENT DURING THE
TWELVE (12) MONTHS PRIOR TO THE EVENT GIVING RISE
TO LIABILITY.
(App. Vol. 19 at 12) (MPSA, § 12.1).
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7
Finally, the parties agreed to a merger clause that specifically covers the
functionality matrix submitted by Open in response to the RFP and which was an
exhibit to the MPSA, indeed an attachment to the Statement of Work (“SOW”) that
was explicitly discussed in the merger clause:
Entire Agreement; Precedence. This Agreement, including all
Exhibits, constitutes the final, complete and exclusive agreement
between the Parties with respect to the subject matter of this
Agreement, and supersedes any prior or contemporaneous agreement,
proposal, warranties and representations. If of any conflict between
the Order Form, these Terms and Conditions, an SOW and Exhibit B,
the following order of precedence shall govern: first this Agreement,
then Software License Agreement, then Exhibit B Software Support
Terms.
(App. Vol. 19 at 19) (MPSA, § 18.15) (emphasis added).
Thus, in both the MPSA’s introduction and its concluding paragraph—as
well as the section disclaiming extracontractual warranties and representations and
the section addressing remedies “regardless of the theory of recovery”—the City
knowingly and intentionally waived any tort claim based on the functionality
matrix in Open’s response to the RFP, which is the sole subject of the City’s fraud -
in-the-inducement claim. See (App. Vol. 19 at 6) (MPSA Introduction); id. at 19
(MPSA § 18.5); (App. Vol. 20 at 1-138) (MPSA Ex. C Atch. 1 – SOW #1); see
also (App. Vol. 7 at 66); (App. Vol. 8 at 15) (City’s witnesses admitting that the
MPSA incorporated the RFP, Open’s Response, and the SOW).
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8
B. The City’s Failure to Devote Necessary Resources
The project was immediately plagued by delays and disputes. But even City
personnel and witnesses acknowledged that the City was to blame for much of this.
(App. Vol. 8 at 29-33). Indeed, Mike Beckstead, one of the City’s executives, said
so in a contemporaneous presentation to the City Council, which was videotaped
and made available for public viewing on the City’s website. (Meeting videotape
available at https://tinyurl.com/4caby22k). Beckstead acknowledged that the City
lacked “leadership, management, accountability, and understanding of detail” with
respect to the project—causing many of the delays and scope adjustments. (App.
Vol. 8 at 66-69).
Colman Keane, the Executive Director of the City’s broadband service,
noted that the City failed to perform adequate system testing and should have hired
an external professional project manager to oversee the project. (App. Vol. 8 at 34-
35, 45-46, 201). When the City finally did hire an external project manager (Dr.
Michelle Frey), she lamented the City’s ongoing failure to provide adequate
resources for a successful implementation. (App. Vol. 10 at 56-57). And when it
hired TMG Consulting in January 2021 to analyze the project and advise whether
the City should proceed, id. at 110-11, TMG’s Executive Vice President
acknowledged that the largest reason for the failed implementation thus far was the
City’s failure to devote the necessary resources to its success. Id. at 150-51.
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C. The City’s Knowledge of the Problems
True, there were multiple delays in the implementation of the project, but the
City accepted responsibility for more than half of the cost with the expressed desire
to continue its contractual relationship with Open —which is the direct opposite of
a party seeking to rescind a contract due to fraud. (App. Vol. 8 at 26-28, 74-75).
Moreover, the City has admitted, repeatedly, that it knew that the project
would use a new version of Open’s software, that it was a beta customer—the first
to use this version and Open’s first customer in North America—and that there was
a risk in doing this. (App. Vol. 8 at 14, 60); (App. Vol. 9 at 10). Lisa Rosintowski,
who worked in the customer service department for City utilities, testified that
Open International had been nothing if not forthright about the new still -in-
development Version 8 of the OSF software that would be implemented for the
City. (App. Vol. 9 at 6-7). And multiple City employees confirmed their
knowledge of this risk. (App. Vol. 8 at 56-58); (App. Vol. 9 at 10). Indeed, the
“road map” in its RFP Response specifically noted that new functionalities would
be added to OSF V.8 over the course of 2018. (App. Vol. 9 at 12-13).
At trial, the City claimed that the one particular functionality issue that it
really cared about was the customer “self-service portal” for the broadband billing
services. (App. Vol. 7 at 15) (City’s Opening Statement). But early in the
implementation, the City knew about—and had every opportunity to learn about—
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10
what it later complained were the critical shortcomings in the self-service portal.
When the broadband billing component of OSF V.8 went live in August 2019, the
lacking functionalities with the customer portal were immediately apparent and
cause for concern for the City. (App. Vol. 7 at 69, 76); (App. Vol. 9 at 28). Travis
Storin, the City’s Chief Financial Officer, testified that right from the start the
customer portal did not meet city’s expectations. (App. Vol. 7 at 69). His
impression was that the portal did not have all the necessary functionalities. Id. at
76. Storin felt that the broadband issues were never fixed. Id. at 72.
Nothing about these deficiencies was hidden from view . Storin admitted that
the City saw the OSF in operation when the broadband went live in 2019, and the
City was able, then and thereafter, to investigate the various functionalities for
itself. (App. Vol. 7 at 113); (App. Vol. 9 at 19). By as early as November 2019,
Rosintowski listed as some of the City’s primary concerns with the product that
“portal testing hours [had been] extensive” and the “presented portal was different
than what got delivered.” (App. Vol. 9 at 26-27). As CFO Storin noted, “[i]t was
pretty unsatisfactory trying to create the Internet utility of the future” without a
functioning online customer-service portal. (App. Vol. 7 at 69). And when a third-
party consultant, TMG, later gave the project a D- grade, Storin was not surprised
because this confirmed his earlier belief. Id. at 83.
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D. The City continued to Affirm the Contract Notwithstanding its
Knowledge of the Problems with the Self-Service Portal and Other
Aspects of the Implementation.
Notwithstanding the City’s early knowledge of the problems, the City
repeatedly affirmed the contractual relationship with Open. And it did so through a
series of contractual amendments and approved project change requests (“PCRs”),
including PCR 19 (addressing e-commerce issues related to the portal), PCR 23
(changing scope, deadlines, and costs), and others. See, e.g., (App. Vol. 8 at 77,
150). In a memorandum dated March 29, 2020, Dr. Frey—who was then serving as
the City’s third-party project consultant—documented her concerns over problems
with the configurability of Open’s product, testing problems, and coding issue that
were not what she had expected. Yet Dr. Frey still wanted the City to continue
working with Open, even with the City absorbing most of the extra project cost.
(App. Vol. 10 at 92). And that was well over a year before the City sued Open,
claiming a right to rescind the contract.
In fact, the City continued with the contractual relationship for the next year
without hinting at a fraud claim—even agreeing to a formal amendment of the
contract in June 2020 that extended certain project milestones into 2021 and
assigned most of the added project costs to the City. (App. Vol. 7 at 115); (App.
Vol. 21 at 1-4). Another formal amendment came six months later in December
2020, with the parties agreeing to extend the project even further. (App. Vol. 7 at
Appellate Case: 24-1152 Document: 46 Date Filed: 11/14/2024 Page: 21
12
116); (App. Vol. 21 at 5-6). It was this second amendment that prompted the City
to hire TMG Consulting to assess the project and advise the City how best to
proceed, and in its April 2021 report, TMG advised the City to continue down the
road with Open, despite the substantial project delays and frustrations. (App. Vol.
7 at 119-20).
E. Notice of Default and MPSA Termination
Even by April 2021, completing the project with Open as the vendor
remained “Plan A” from the City’s perspective. (App. Vol. 7 at 120-21, 155). But
Open could not proceed with its work unless the City cured its deficiencies. So,
just a few weeks after TMG produced its report to the City, Open sent the City a
notice of default that identified areas in which the City’s support remained
insufficient and an obstacle to progress. (App. Vol. 22 at 6-14). According to CFO
Storin, it was the default notice that triggered the City’s claim that Open was guilty
of fraud because the City felt that the default notice was a “breach of trust” on
Open’s part. (App. Vol. 7 at 123). In stark contrast to the City’s prior acceptance of
responsibility for delays and cost overruns, after receiving the default notice from
Open, the City retaliated with a termination letter—which was in itself a breach of
the protocol set forth in the parties’ contract. Id.; (App. Vol. 22 at 1-5); see also
(App. Vol. 19 at 13) (MPSA § 13.2). The City, however, did not promptly try to
rescind the contract. Instead, it continued discussing with Open’s management
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possible options for continuing their contractual relationship. (App. Vol. 7 at 123-
24); (App. Vol. 22 at 28-43).
In fact, the parties continued working together through June 2021—
launching a new release of OSF V.8, and convening to discuss a new proposal
from Open to complete the project. (App. Vol. 7 at 123-24). During this time—as
before—the City never hinted at rescission. So, the City surprised Open on July 2,
2021, when it sued both Open and its guarantor, Open Investments, for breach of
contract, negligent misrepresentation, and fraud -in-the-inducement. (App. Vol. 1 at
49-70).
Course of Proceedings and Disposition Below
A. The Pleadings
In its Complaint and, later, its Amended Complaint, the City based its tort
claims on three types of alleged precontractual misrepresentation: (1) those
concerning the timing for executing the project and the level of support Open would
provide, (App. Vol. 1 at 63) (Compl. ¶ 71); (App. Vol. 3 at 61) (Am. Compl. ¶ 73);
(2) representations that Open’s version 8 was “ready for implementation (with
minimal configuration) to support the City’s . . . utilities,” (App. Vol. 1 at 63)
(Compl. ¶ 70); (App. Vol. 3 at 61) (Am. Compl. ¶ 72); and (3) “representations
about the fitness of the [OSF] product for the City’s needs”—particularly with
regards to the customer portal—which were contained with the functionality matrix
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provided with the RFP Response.” (App. Vol. 1 at 62-63) (Compl. ¶ 69); (App. Vol.
3 at 60-61) (Am. Compl. ¶ 71). The Open entities answered by pleading affirmative
defenses and asserting a counterclaim for breach of contract due to the City’s many
failures to perform critical required actions. (App. Vol. 3 at 70-119). Later, a
pretrial order summed up the defense’s assessment of the critical flaws with the
City’s case, including the City’s failure to comply with its own contractual
obligations, the lack of any actionable misrepresentations on Open’s part, the
applicability of the merger clause and economic loss rule, and the City’s waiver of a
right to recover under a misrepresentation theory . (App. Vol. 3 at 184-224).
B. Pretrial Proceedings
During pretrial proceedings, the parties used a shorthand naming convention
that referred to Open and Open Investments collectively as “Open.” And the Open
defendants moved for summary judgment on the City’s tort claims on several
grounds, including that those claims were barred by the merger clause and
economic loss rule and also failed because the City had waived them by repeatedly
and continuously affirming the contract notwithstanding its knowledge of the
problems that were the subject of the lawsuit. (App. Vol. 3 at 157-183). The
district court, however, denied summary judgment and allowed the City to proceed
with its claims for breach of contract, negligent misrepresentation, and fraud . Id.
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Though both the contract and tort claims were anchored in representations
subsumed within the parties’ contract, the City argued that they carried distinct
remedies that, according to the City, would allow it to elect between affirmation of
the contract and damages or rescission of the contract and restitution. (App. Vol. 3
at 216-17). In response, Open and Open Investments urged the court to require the
City to make a pretrial election of remedies to avoid the prejudice, jury confusion,
and judicial inefficiency that would otherwise follow at trial. Id. at 218-20. But the
district court refused, leaving for another day the question of trial presentation and
when, exactly, the City would have to select its desired remedy. (App. Vol. 4 at 82-
88).
That day came on October 13, 2023, when the court revealed in a telephonic
status conference how it would handle the election of remedies and the submission
of evidence upon which those inconsistent remedies were based. Per the court’s
plan, the City would present its entire case to the jury, and at the close of evidence,
the jury would receive a verdict form and claim-specific jury instructions as to the
City’s tort claims only. (App. Vol. 5 at 58-59). Should the jury return a verdict for
the City on either tort claim, then and only then would the City be required to elect
a remedy. Id. at 59. And if at that point the City should elect to rescind the
agreement, the jury would be dismissed, and the Court would determine the
appropriate restitution as a matter of equity. Id.
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The decision to try the tort and contract claims together ensured that Open
Investments would remain an essential party at trial. By virtue of its guarantee of
Open’s performance under the MPSA, Open Investments would, of course, share
liability with Open International for any potential verdict on the City’s contract
claims. But, for the City to hold Open Investments liable for a tort remedy, it
would have to prove fraudulent or negligent misrepresentations on the part of Open
Investments itself because there was no basis for making Open Investments
responsible for a judgment against Open based on its tort liability. But the City
never alleged that Open Investments had made any misrepresentations, nor that it
had any vicarious liability for the representations its subsidiary had made.
C. The Jury Trial
The trial started on October 23, 2023. At the close of evidence, Open moved
for judgment as a matter of law on the breach of contract claim and the tort claims,
essentially renewing the points it had made in its motion for summary judgment.
(App. Vol. 12 at 142-146). Open again argued that it was the City that breached the
agreement, and that there was no actionable misrepresentation to support its tort
claims, which were both waived and barred by the merger clause and economic
loss rule. Id. Importantly, the City’s trial evidence focused on Open’s
representations in its response to the RFP without ever suggesting that Open
Investments had misrepresented any fact before or after the MPSA was signed—
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that is, except in its opening statement when its counsel informed the jury that
when he mentioned “Open,” he was referring to both defendants collectively.
After multiple questions from the jury and a modified Allen Charge when
the jury appeared deadlocked as to one of the two tort claims, the jury returned
with its verdict—finding that the City had proved fraudulent inducement and
negligent misrepresentation but had waived the negligent misrepresentation claim.
(App. Vol. 15 at 15); (App. Vol. 6 at 4-7). The verdict form shows that the jury
also initially found that the City had waived the fraudulent inducement claim but
then scratched out that finding and entered the alternative, that the City had not
waived the fraud claim. (App. Vol. 6 at 4-7).
During the ensuing recess after the verdict was read, and based on the
finding of liability on the fraudulent inducement claim, the Court finally required
the City to elect its remedy. The City elected to rescind—leaving the matter of
restitution for the Judge to determine on a later date. (App. Vol. 15 at 154). With
that rescission election, Open’s counterclaim for the extensive damages it suffered
from the City’s admitted breach of its own obligations vanished.
D. The Bench Trial on Restitution
The court held its hearing on restitution two weeks after the jury trial, and
the parties briefed the rescission and restitution issues in post-trial motions
practice. Open and Open Investments filed a motion for judgment as a matter of
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law on the rescission remedy under Rule 52(c), arguing, inter alia, (1) that the
City’s evidence was insufficient to support any restitution award against Open
Investments, which ceased to be a contractual guarantor once the City opted to
rescind rather than enforce the MPSA, and (2) that, in any event, the City waived
rescission as a remedy when it accepted the benefits of the MPSA for years,
repeatedly affirming the contract with knowledge of the problems that were the
subject of the lawsuit. (App. Vol. 15 at 160-77).
The Court denied the Rule 52(c) motion, however, and entered judgment
against both Open and Open Investments in an amount just shy of $20 million
($19,891,447), which was comprised of restitution for project costs, third-party
consulting costs, internal labor costs, and both pre- and post-judgment interest—
notwithstanding the City’s agreement to a contract that expressly disclaimed such
an expansive damages award “regardless of the theory of liability .” (App. Vol. 16
at 127-149); (App. Vol. 17 at 1-2); see also (App. Vol. 19 at 12) (MPSA, § 12.1).
Moreover, the Court refused to reduce the award by the benefit the City had
received by using Open’s software for five months following its termination of the
parties’ agreement—even though the City’s own expert conceded the substantial
value the City received from that use. (App. Vol. 16 at 138-41). Thus, not only did
the City fail to promptly seek rescission, but it never tendered back the benefit it
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received from the contract without payment, thereby securing an absolute and
untenable windfall.
After entry of this final judgment, Open and Open Investments again moved
for judgment as a matter of law under Rule 50(b), moved for amendment of the
judgment and/or new trial under Rule 59, and requested findings of fact and
conclusions of law under Rule 52. (App. Vol. 17 at 7-39). But the Court ruled
against those motions at oral argument and simply entered a text order on the
docket reflecting their denial without explanation. (App. Vol. 17 at 154-55, 187-
208). Open and Open Investments, therefore, ask this Court to act on their timely
filed notice and amended notice of appeal to overturn this unjust result. (App. Vol.
17 at 156-57).
Standards of Review
This Court reviews de novo the denial of a motion for judgment as a matter
of law. Elm Ridge Expl. Co., LLC v. Engle, 721 F.3d 1199, 1216 (10th Cir. 2013).
And the denial must be reversed if the evidence “points but one way and is
susceptible to no reasonable inferences which may support the nonmoving party’s
position.” Mountain Dudes v. Split Rock Holdings, Inc., 946 F.3d 1122, 1129 (10th
Cir. 2019). While a district court usually has discretion in choosing an equitable
remedy, its decision will be reviewed de novo for errors of law . Hayes v. SkyWest
Airlines, Inc., 12 F.4th 1186, 1204 (10th Cir. 2021).
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SUMMARY OF ARGUMENT
As the City has no actionable claim for fraudulent inducement against Open,
much less Open Investments, its judgment against them cannot stand. Nor can it
stand as to Open Investments specifically when its only duty in this case arose in
contract, not in tort.
The City’s judgment against both defendants must be reversed for three
independent reasons. First, the economic loss rule and the MPSA’s merger clause
bar torts that are based on, and subsumed within, the Agreement between the
parties. The alleged “misrepresentations” in this case referred only to statements
contained within Open’s RFP Response—a document that all parties acknowledge
was fully incorporated into the MPSA. The fact of this incorporation should have
been the death knell to a fraud claim alleging the breach of tort duties that were no
broader or more protective that those contract duties spelled out in the MPSA
(which, by virtue of the incorporation, governed even pre-formation conduct). But
that conclusion is doubly true because the MPSA also contained an integration
clause making it, along with the RFP Response and other incorporated materials,
“the final, complete and exclusive agreement between the parties.” Over the entire
course of dealing between the parties, there simply were no duties at law alleged to
have been breached that did not become duties under the contract.
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Second, the City was not entitled to its remedy of rescission and restitution
because it had already affirmed the Agreement—multiple times—via contractual
amendments made after learning of the problems with the software functionalities
of which it now complains and the difficulties plaguing the implementation.
Whether cast as a waiver or forfeiture, the City relinquished its right to the
equitable rescission remedy when it did not promptly declare its intent to rescind
and instead proceeded with its contractual relationship with Open. Open spent
hundreds and hundreds of hours performing under the Agreement at the City’s
request after the City learned all the material facts of the so-called “fraud”; the
City cannot be rewarded for failing to act sooner and instead extracting every
minute of free labor and OSF software usage out of its vendor.
Third, the record is devoid of any evidence of an actual and actionable
material misrepresentation from either Open or Open Investments. The City
supported its fraud claim via reference to three categories of falsehoods allegedly
presented in the RFP response: (1) the projected timing for deliverables; (2) a
single errant and plainly wrong notation in the RFP response saying that OSF V.8
had been released in 2017 when the response stated elsewhere—repeatedly—that
Version 8 was still in development; and (3) the assessments in the functionality
matrix that “graded” the OSF software’s functionality more charitably than the
City believed was appropriate. But, as a matter of law, none of these
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representations can support a fraud claim because (1) a representation as to a future
event is not a statement of existing fact; (2) the City has admitted that it knew that
OSF V.8 was not yet released when it signed the MPSA; and (3) the MPSA made
clear in its introduction that RFP grading criteria were “open to interpretation”
such that the grading must be deemed opinion rather than fact . And while the
City’s complaints have focused on the customer portal without identifying any
other software functionality it claims was inferior, the City knew, before signing
the contract, that Open was switching to an outsourced “Milestone” portal for OSF
V.8.
Finally, the judgment against Open Investments cannot stand because the
verdict finding tort liability is not supported by sufficient evidence against the
parent company that served only as a guarantor of the contract. The judge’s ruling
that Open Investments, a mere guarantor of contractual performance, could be
liable for restitution after rescission of the contract has no support in law or fact.
The City just created an illusion of liability, using the “Open” shorthand to refer, at
various times, to Open International alone or the Open and Open Investments
together, thereby suggesting that both companies could be liable in tort. But there
is no evidence that the parent company was the alter ego of the contracting party,
no theory of vicarious liability proven, and absolutely no evidence of fraud
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attributable to Open Investments. At a minimum, the judgment against Open
Investments must be reversed.
ARGUMENT
I. The City has no actionable claim for fraudulent inducement.
A. The merger clause/economic loss rule limits the City to a
contractual remedy.
Colorado law enforces a merger clause that bars reliance on precontractual
representations where, as here, the clause is specific as to the subject matter at
issue. See, e.g., Colo. Coffee Bean, LLC v. Peaberry Coffy, Inc., 251 P.3d 9, 17-23
(Colo. App. 2010); accord LBI Group, LLC v. Scanlan, No. 23CA1265, 2024 WL
3947026 (Colo. App. July 11, 2024) (unpublished) (citing with approval Steak n
Shake Enterprises, Inc. v. Globex Co., LLC, 110 F. Supp.3d 1057, 1082-83 (D.
Colo. 2015) (holding that merger clause barred fraudulent inducement claim)).
The MPSA was quite specific with its integration of Open’s RFP response
into the contract and the parties’ disclaimer of extracontractual representations and
promises. The introduction to the MPSA incorporated by reference Open’s RFP
response, and the contract attached as an exhibit a Statement of Work (“SOW”)
that included the functionality matrix at issue here. Further, the parties agreed to a
merger clause that specifically covers that SOW and attached functionality matrix:
This Agreement, including all Exhibits, constitutes the final, complete
and exclusive agreement between the Parties with respect to the
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subject matter of this Agreement. . . . If of any conflict between the
Order Form, these Terms and Conditions, an SOW and Exhibit B, the
following order of precedence shall govern. . . .
(App. Vol. 19 at 19) (MPSA, § 18.15 (emphasis added).
In addition, the MPSA contains a warranty section that expressly disclaims
reliance on precontractual representations, thereby making the contract the
exclusive source of duty owed by Open to the City. Its “Limited Warranty” section
specifically addresses the SOW that was expressly incorporated into the contract
with the functionality matrix attached. That section spells out the duties owed and
the exclusive remedy with respect to those functionalities. And the contract
includes a limitation of liability, applicable to both parties, that provides a remedy
but excludes certain types of damages “regardless of the theory of liability.”
Colorado law also enforces the integration of precontractual representations
in another way—through its economic loss rule. Where a contract memorializes
precontractual representations, there can be no independent tort claim based on
those representations because the failure to abide by one of those representations
constitutes a breach of contract:
If we conclude that the duty of care owed by [the parties] was
memorialized in the contracts, it follows that the plaintiff has not
shown any duty independent of the interrelated contracts and the
economic loss rule bars the tort claim and holds the parties to the
contracts’ terms. . . . We hold that when parties have contracted to
protect against potential economic liability, as is the case in the
construction industry [and in the analogous software industry],
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contract principles override tort principles . . . and thus, purely
economic damages are not recoverable.
BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74-75 (Colo. 2004).
The Colorado Supreme Court elaborated on this rule again a decade later.
See S K Peightal Engineers, LTD v. Mid Valley Real Est. Sols. V, LLC, 2015 CO 7,
¶ 7, 342 P.3d 868, 872 (Colo. 2015) (“‘A breach of a duty which arises under the
provisions of a contract between the parties must be redressed under contract, and
a tort action will not lie. If, however, the duty breached arises ‘independently of
any contract duties between the parties,’ then a tort action premised on that breach
remains viable.”) (quoting Town of Alma v. AZCO Const., Inc., 10 P.3d 1256, 1262
(Colo. 2000)) (emphasis supplied by SK opinion). The SK opinion further
explained that “any general tort duty is independent of contractual duties if the
contract contains no duties or the allegedly breached tort duty is beyond the scope
of the duties contained within the contract at issue.” Id. at 875. Conversely, if the
tort duty is subsumed within the contractual duties, then the economic loss rule
bars the tort claim. See id.
Here, the comprehensive contract between these sophisticated parties set out
precisely the same duty on which the City’s fraud claim is based. As made clear by
the City’s closing argument (and its pleadings), this case turns entirely on the
grades Open assigned to thousands of software functionalities in its response to the
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City’s RFP, and the City’s claim that some of the delivered functionalities were
inferior to those representations. (App. Vol. 15 at 67-75); see also (App. Vol. 1 at
62-63); (App. Vol. 3 at 60-61). But the parties’ MPSA contract expressly
incorporated by reference Open’s response to the RFP and, in fact, included the
functionality matrix as an attachment to the SOW that is an exhibit to and thus a
part of the contract. The MPSA’s warranty section expressly referred to the SOW.
It also explicitly represented that Open’s software services “will be provided in
accordance with the applicable SOWs,” and that all the services “will be performed
in a competent and professional manner, in accordance with usual and customary
industry standards, using skilled Open employees, subcontractors or other agents
having the appropriate background and skills.” (App. Vol. 19 at 6-7) (MPSA, §
2.1). These are the same tort duties the City says were breached when the
functionalities were allegedly not up to the grade Open had assigned to them.
Moreover, part of the parties’ bargain was that the warranty section of the
contract establishes the City’s “exclusive remedy, and Open’s entire liability” for
any shortcoming in those representations and warranties . The City expressly
agreed in the contract that if functionalities were not as represented, then the
exclusive remedy “will be for Open to correct or re-perform any nonconforming
Services, at Open’s expense subject to Section 13.2.” Id. That was the deal the City
struck and under the economic loss rule, it is stuck with it. Colorado law does not
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allow the City to evade its agreement by claiming fraud-in-the-inducement based
on the very same representations memorialized in the contract.
Indeed, in a recent en banc decision, the Colorado Supreme Court stressed
how important the economic loss rule is to Colorado law.
Like many other jurisdictions, we have deemed it fit to “[l]imit[ ] tort
liability when a contract exists between [the] parties” because any
potential nonperfromance “can be adequately addressed by rational
economic actors bargaining at arms length to shape the terms of the
contract.” “[C]ontract law is intended to enforce the expectancy
interests created by the parties’ promises so that they can allocate
risks and costs during their bargaining.” Precluding tort remedies in
these situations makes sense because it “holds parties to the terms of
their bargain. In this way, the law serves to encourage parties to
confidently allocate risks and costs during their bargaining without
fear that unanticipated liability may arise in the future, effectively
negating the parties’ efforts to build these cost considerations into the
contract.” This is precisely the purpose of the economic loss rule—to
ensure predictability in commercial transactions.
Univ. of Denver v. Doe, 2024 CO 27, ¶ 92, 547 P.3d 1129, 1146 (Colo. 2024)
(internal citations omitted).
Accordingly, cases applying Colorado law routinely reject fraud claims
where the representations and duties underlying the claim are subsumed in the
parties’ contract, as the tort duty is not truly “independent” in such case. For
example, in Dream Finders Homes LLC v. Weyerhaeuser NR Co., 2021 COA 143,
506 P.3d 108 (Colo. App. 2021), cert. denied, 2022 WL 4238209 (2022), the
appellate court held that negligent misrepresentation and fraud claims were barred
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by the economic loss rule because the sophisticated parties struck a deal where
contractual provisions both covered the representations and excluded the categories
of damages recoverable for their breach. Id. at 118; see also id. at 122 (“The
Colorado courts have held that the economic loss rule may preclude claims for
negligence and intentional torts.”); id. at 124 (holding that “tort claims additionally
fail because [plaintiffs] may not recover under a tort theory damages expressly
excluded under the contract”); id. at 125 (“Sophisticated commercial entities [as
we have here] may not circumvent the exclusion of damages in their contracts by
cloaking their claims in tort theories.”).
The Dream Finders opinion presents a solid analysis of Colorado law,
including a discussion of the Bermel and McWhinney decisions, which the district
court found defeated the economic loss defense in this case. Id. at 122, 126
(addressing Bermel v. Blueradios, Inc., 2019 CO 31, 440 P.3d 1150 (Colo. 2019)
and McWhinney Centerra Lifestyle Ctr. LLC v. Poag & McEwen Lifestyle Centers-
Centerra LLC, 2021 COA 2, 486 P.3d 439 (Colo. App. 2021)); (App. Vol. 17 at
164-67, 188); see also (App. Vol. 12 at 142-43, 152 (district court considering and
rejecting economic-loss-rule argument on Rule 50(a) motion). Dream Finders
noted that “dicta” in Bermel and McWhinney suggest that the economic loss rule
has only limited applicability to intentional tort claims. But the court then rejected
that dicta because the holdings of other Colorado cases bar fraud claims based on
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the economic loss rule. Id at 122 (citing Hamon Contractors, Inc. v. Carter &
Burgess, Inc., 229 P.3d 282, 289 (Colo. App. 2009); Former TCHR, LLC v. First
Hand Mgmt. LLC, 2012 COA 129, 317 P.3d 1226, 1231, 1233 (Colo. App. 2012).
Dream Finders also found it significant that Bermel and McWhinney did not
involve “an attempt to avoid the application of unfavorable contractual language.”
Id. at 126.
The fact that neither Bermel nor McWhinney involved unfavorable
contractual provisions is particularly salient here, because that point also
distinguishes Bermel and McWhinney from the present case. Indeed, not only is
there a contractual provision excluding certain damages “regardless of the theory
of recovery” that is comparable to the clause addressed in Dream Finders, but
there are contractual provisions that incorporate Open’s RFP response into the
contract and limit the reach of those representations and warranties through a
specific merger clause and other explicit language. Thus, because the same
representations that the City relies on govern the contractual performance, this case
is not materially distinguishable from those which apply the economic loss rule to
bar fraudulent misrepresentations made during the performance of the contract. In
other words, these same representations are part and parcel of the contract and its
performance obligations.
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This rationale is illustrated by the holding in RE/MAX, LLC v. Quicken
Loans Inc., 295 F. Supp.3d 1163, 1170 (D. Colo. 2018). RE/MAX also involved a
fraud-in-the-inducement claim where a precontractual representation was
incorporated into and thus became part of the contract. And, citing BRW, 99 P.3d
at 72, RE/MAX held that “to the extent that Quicken Loans alleges
misrepresentations by RE/MAX that are memorialized in the Agreement or
Amendment, the parties allocated risk with respect to those obligations by contract,
and tort claims based on those obligations are barred by the economic loss rule.”
Id. at 1170.
In light of this Colorado case law, it must be concluded that, u nlike the cases
cited by the district court, this case matches the scenario where the economic loss
doctrine defeats a fraud-in-the-inducement claim under Colorado law because the
City’s fraud claim is not truly independent of the contract; rather, it is inseparable
from the duties embodied in the MPSA. It must be remembered that this case
involves sophisticated parties who went to great lengths to negotiate the scope and
boundaries of liability with respect to the functionality matrix that eventually
became part of their contract. And the contract explicitly defines both the duties
arising from the functionality of the matrix and the limitations on remedies if those
representations were later shown to be inaccurate. To allow the City to recover
almost $20 million under a fraud theory it repeatedly disclaimed when it signed the
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MPSA would eviscerate the freedom of contract that is a fundamental premise of
Colorado law.
B. The City affirmed the contract through multiple amendments
after the problems were known, thereby forfeiting its right to the
equitable remedy of rescission.
The trial evidence showed without dispute that, by the Spring of 2020, the
City had knowledge of multiple problems with the OSF software and its
implementation. Specifically, the City knew in 2018 that OSF V.8 had not been
installed for any other customer and was untested. (App. Vol. 8 at 14, 60)
(Beckstead agreeing that he knew that OSF V.8 was “untried and unproven,” that
the city was taking a risk, and that the City was going to be the “beta customer for
this version of OSF”); (App. Vol. 9 at 10) (City employee Lisa Rosintoski
testifying that the City realized that using this new version was a risk).
In late 2019, the City complained that the portal it received was not
satisfactory and was not the portal represented during the vendor-selection process
or in Open’s RFP response. (App. Vol. 22 at 24-27, 44-47); (App. Vol. 8 at 138)
(City employee Colman Keane testifying that, in a September 2019 meeting on the
project, the “portal” was unfinished and admitting that a working portal was not
delivered with the broadband launch in August 2019); (App. Vol. 9 at 26-27)
Rosintoski testifying that, by November 2019, one of the City’s concerns was that
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the “presented portal” differed from the portal delivered); (App. Vol. 10 at 40)
(Michelle Frey testifying that the “portal was a problem all along”). By early 2020
(at the latest), the City knew that the total successful delivery of functionalities was
only 58% when OSF was launched for broadband in August 2019 . (App. Vol. 22 at
18-23); (App. Vol. 10 at 39).
By the spring of 2020, City employees admitted that the City was having
“significant” issues with Open’s product, but nevertheless signed the First
Amendment to the Agreement on May 28, 2020, agreeing to be responsible for
55% of the increased costs. (App. Vol. 8 at 231-33); see also (App. Vol. 21 at 1-4)
(First Amendment); (App. Vol. 8 at 90, 97) (Beckstead testifying about an April
2020 email listing “ongoing issues with Open’s product” but still contemplating a
cost-splitting amendment furthering the project). City workers also complained
that the implementation of OSF had become a “development project” rather than
the promised implementation of an out-of-the-box system, and that OSF was not
ready for the North American market. (App. Vol. 9 at 142) (City employee Mona
Walder testifying that she “opened hundreds of issues related to the portal ,”
confirming the feeling that she “was doing software development” and that “Open
should have paid me to create their portal”); (App. Vol. 22 at 18-23, 28-43, 52-54).
As Frey admitted, the “portal was a problem all along,” even though it was
very important to the City. (App. Vol. 10 at 40); (App. Vol. 7 at 69) (Storin
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testifying that when broadband went live in 2019, it did not meet the City’s
expectations, primarily because of issues with the customer portal).
Nonetheless, despite all this complaining about the functionality of the
portal, in the Spring of 2020, in response to concerns with eCommerce related to
the portal, the parties entered into PCR No. 19, which was meant to address these
issues and deliver “[c]omplete eCommerce functionality.” (App. Vol. 21 at 7-9).
Thus, according to City employee Rosintoski, when Dr. Frey was assessing
the project in early 2020, “her eyes were opened on the product and what the
functionality was” and she expressed concern, but the City still went ahead with
amending and continuing their contractual relationship with Open International.
(App. Vol. 8 at 229). In fact, Dr. Frey, one of the City’s project managers, testified
that the City did not have to continue the relationship with Open—that it could, at
any moment, terminate the project with Open and complete it with a different
vendor—yet it knowingly chose to continue the contractual relationship. (App.
Vol. 10 at 46-47, 63).
Even when the City eventually claimed fraud and threatened rescission in its
May 28, 2021 termination letter, the City was equivocal and offered alternatives to
rescission. (App. Vol. 22 at 11-13). Aaron McClune, the final project manager,
testified that work on the project with Open continued until July 2, 2021—more
than a month after the City sent its letter purporting to end the project. (App. Vol.
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11 at 50-51). And the City continued to use Open’s software until the end of 2021.
(App. Vol. 14 at 205); see also (App. Vol. 7 at 112-13) (Travis Storin, the City’s
former CFO, testifying that the City continued using the OSF license operate OSF
for months after the City filed this lawsuit).
In sum, the City affirmed the contract knowing of the problems and used
Open’s broadband billing software services for nearly two years before seeking
rescission. (App. Vol. 22 at 48-51); (App. Vol. 8 at 158-60); (App. Vol. 9 at 20-
21). And, despite continuing to use the OSF product after terminating the contract
and purporting to seek rescission, the City never tendered back the value it had
received for Open International’s post-termination services. Indeed, it opposed a
set-off when seeking recessionary damages from the trial court.
Thus, the City’s own admissions negate its rescission claim. A party waives
the right to rescission as a matter of law if it does not “promptly” and
“unconditionally” rescind the contract after discovering the facts giving rise to the
fraud. Gladden v. Guyer, 162 Colo. 451, 458, 426 P.2d 953, 956 (Colo. 1967); see
also Gerbaz v. Hulsey, 132 Colo. 359, 363–64, 288 P.2d 357, 359 (Colo. 1955) (en
banc) (party seeking to rescind must “give notice of his intention to rescind
promptly upon learning of the alleged fraud or misrepresentation”); Young v.
Leech, 78 Colo. 208, 212, 240 P. 692, 693 (Colo. 1925) (“Where a party desires to
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rescind, he must do so within a reasonable time after he comes aware of facts or
circumstances that entitle him to a rescission.”).
Critically, “[i]t is not requisite that the defrauded party shall be acquainted
with all the evidence constituting the fraud before the duty to act by way of
rescission arises.” Gladden, 426 P.2d at 955. Rather, once a party “has evidence
sufficient to reasonably actuate him to rescind the contract . . . no subsequent
discovery of cumulative evidence can operate to excuse waiver of the fraud if one
has in the meantime occurred, or to revive a once lost right of rescission.” Id.;
Halm v. Wright, 63 Colo. 419, 422, 168 P. 36, 37 (Colo. 1917); see also Eitel v.
Alford, 127 Colo. 341, 354, 257 P.2d 955, 961–62 (Colo. 1953) (en banc) (remedy
of rescission “was lost by reason of unreasonable delay . . . when the facts were
known, or readily ascertainable,” even where the contract was the result of “actual
misrepresentation, fraud or deceit”).
When rejecting the opposition to the rescission claim in this case, t he district
court erred by relying on two inapposite cases holding that ratification or waiver of
the fraud requires “full knowledge” of the fraud: In re Mascio, 454 B.R. 146, 151
(D. Colo. 2011) and Elk River Assocs. v. Huskin, 691 P.2d 1148, 1154 (Colo. App.
1984). (App. Vol. 16 at 133-35). But those cases did not involve the rescission
remedy. In Elk River, the case was submitted to the jury only as a suit for damages
after “affirming the agreement,” and the Court therefore only considered whether
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36
an action for damages had been waived, not whether there was waiver of the
equitable remedy of recession, which is governed by the rules cited above. 691
P.2d at 1150, 1153-54 (rejecting argument that plaintiff waived a damages action
based on lost benefit of the bargain due to fraud). Similarly, Mascio did not
involve a rescission claim, only a claim for damages where the plaintiff had
affirmed the contract but wished to recover losses occasioned by the fraud. 454
B.R. at 153. In contrast, where the plaintiff seeks the rescission remedy, it must act
promptly even without “full knowledge” of the extent of the fraud. Gladden, 426
P.2d at 955.
Moreover, even if Elk River and Mascio were relevant to a rescission claim,
(which they are not), they must yield to long -standing Colorado Supreme Court
authority holding that the “full knowledge” requirement comes into play only if
“one elects to affirm the agreement . . . and thereafter continues to carry it out and
receive its benefits,” which would then result in a remedy of damages, not
rescission. Stoner v. Marshall, 145 Colo. 352, 355, 358 P.2d 1021, 1023 (Colo.
1961); see also Gladden, 426 P.2d at 955-56 (duty to rescind arises where evidence
is sufficient to “reasonably actuate” party to existence of fraud); Halm, 168 P. at
37.
Because the City sought to rescind the contract (and obtain restitution) rather
than affirm it (and obtain damages), the “full knowledge” standard found in the
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“ratification” cases does not apply here. In any event, the trial evidence shows
without dispute that the City continued its participation in the contract with Open
International for months after it had ample knowledge of the material functionality
issues with the portal that dominated its concerns. The City could have rescinded
the contract when it gained that knowledge if that representation truly had been
tainted by fraud. Instead, it continued with the contractual relationship for a year
and a half, repeatedly amending the contract and accepting project change requests.
Because the City continued to accept the benefit of Open’s services and software
license for months while proposing and considering alternatives to rescission, the
City waived any right to rescind the contract. See Holscher v. Ferry, 131 Colo.
190, 194–95, 280 P.2d 655, 657–58 (Colo. 1955) (en banc) (“If a party, having a
right to rescind a contract, does any act which amounts to an admission of the
existence of the contract, he cannot afterwards elect to treat it as void. A party
cannot rescind and at the same time retain a benefit under the contract .”); Gladden,
426 P2d at 956 (where a letter sent to the seller was equivocal and suggested an
alternative remedy to rescission, that conduct was “totally irreconcilable” with
what is required to rescind).
Finally, the district court erred in allowing the rescission remedy on the
ground that the jury found that the City did not waive its fraudulent inducement
claim. That is because, as was argued in the motions for summary judgment and
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motions under Rule 50(a) and (b), the waiver issue never should have gone to the
jury in the first place, as undisputed evidence—admissions from the City’s own
employees—negate this claim as a matter of law.
C. There was no material misrepresentation.
When the trial started, the City’s counsel told the jury that its fraud claim is
based on three purported misrepresentations: (i) the projected timing for deliveries
(which was a future act that cannot constitute fraud); (ii) the plainly incorrect
statement buried in the RFP response saying that version 8 of the software had
been released in 2017 (even though the RFP response repeatedly stated elsewhere
that version 8 would not be released until 2018); and (iii) Open’s self-grading
within functionality matrix and complaints that it used the “Milestone” portal
rather than its own (even though this was known to the City prior to contracting).
See (App. Vol. 12 at 196-97) (City learned, and later approved, that Open would
use the Milestone portal during its April 2018 presentation to the City).
Notably, though the City challenged a percentage of the grading as
inaccurate, its focus at trial was on the portal issues. In any event, the grades given
to the various functionalities are not actionable misrepresentations because the
MPSA, in its introduction, acknowledged that the criteria for the RFP response was
“open to interpretation.” In other words, the grading of a functionality was a
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judgment call, not a statement of fact, and so the grading cannot support fraud
liability.
Further, there is nothing to show that the grading was substantially inflated.
Hernando Parrott provided unrefuted trial testimony explaining that the RFP’s
instructions for grading addressed functionalities contained in Open’s “base
system” or “base code,” not functionalities in a released version of the software.
(App. Vol. 12 at 182-95). And the instructions acknowledged that even
functionalities with a “Grade A” would need additional work in order to configure
them as needed for a future implementation. Id. at 182; see also (App. Vol. 11 at
42). (“[T]here are literally five-plus things we call configuration.”). By definition,
these functionalities were never supposed to be available “out-of-the-box.”
Nor can the City’s fraud recovery be sustained just because an internal Open
document (Trial Exhibit 74) sorted the functionalities using different criteria for a
different type of internal analysis. As Mr. Parrott explained, for the first category
in the internal analysis, Open included only those functionalities that already had
been integrated into version 8 which, though not released yet, had been in the
works for three years already. (App. Vol. 12 at 190). Thus, the first category was
properly graded with an “A.” Id. The second category in the internal document also
addressed fully developed functionalities existing in the base system, but for
internal purposes, Open included them in a separate category from the first because
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these functionalities had not yet been integrated into version 8. Id. at 191-92. They
still deserved a Grade A, however, because they fit the RFP’s criteria for an A
grade, which looked to whether the functionality existed in the “base system,” not
whether it had been integrated into a particular software version. Id. Mr. Parrott
went on to explain how the remaining categories in the internal document
corresponded to the RFP grading criteria and why the grades they were given were
accurate when the RFP grading structure was applied. Id. at 193-95.
So, though the City tried to impeach Mr. Parrott on this subject, nothing
contradicted his testimony. His testimony makes sense considering that Open had
been working on version 8 for years and had every right to sort these
functionalities this way for internal purposes. The evidence when considered as a
whole leaves but one conclusion—the sorting done in Trial Exhibit 74 is
completely consistent with the grading instructions found in the RFP, which the
MPSA itself acknowledges are “open to interpretation.” In fact, the City’s own
expert witness, Jon Brock, corroborated Mr. Parrott’s testimony when he conceded
that even unreleased software can have functionalities that are developed. (App.
Vol. 11 at 133).
Colorado law is well established. A fraud claim cannot succeed based on a
future representation such as a projected delivery schedule. Myers v. Alliance for
Affordable Servs., 371 Fed. Appx. 950, 958 (10th Cir. 2010) (affirming dismissal
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of negligent misrepresentation claim where alleged misrepresentations “related to
the occurrence or non-occurrence of a future event”). Nor, for that matter, can it
rest on articulations of opinion or belief. Steak n Shake Enterprises, Inc., 110 F.
Supp. 3d at 1082. Fraud cannot be based on a representation that the plaintiff knew
was untrue, such as the incorrect statement that OFS.8 had been released in 2017.
ConcealFab Corp. v. Sabre Indus., Inc., 2017 WL 6297672, at *4 (D. Colo. Dec.
11, 2017) (no justifiable reliance where, before contracting, party knew the truth
about facts later alleged to have been mischaracterized to induce the contract). And
it goes without saying that fraud cannot be based on a true statement, which is the
case with Open’s grading of the remaining functionalities, as explained by Mr.
Parrott’s unrefuted direct testimony.
II. Open Investments cannot be liable for the rescission damages.
Open Investments was made a party-defendant solely because of its role as
the guarantor of Open’s performance under the MPSA, and it was brought to trial
solely to answer for Open’s alleged breach of that agreement. So, once the City
elected to rescind the contract, it should have been let out of the case. But the
district court held that, even if the City failed to adduce any evidence of Open
Investments’ liability for fraudulent inducement independent of its liability under
the contract, its objection to being included in the judgment came too late. (App.
Vol. 16 at 135-36). That is not right, however. As soon as the City chose the
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rescission remedy, Open Investments forcefully sought judgment in its favor.
(App. Vol. 15 at 165-67). By finding that Open Investments forfeited its right to an
individualized assessment of its liability, the district court absolved the City of its
burden of persuasion to prove the liability of each defendant individually. The City
eschewed that responsibility by sleight-of-hand, using “Open” as a trial shorthand
to refer to both defendants collectively. But this naming convention does not create
alter ego liability. And there was no legal theory advanced whereby the tort
liability of Open could be expanded to include some sort of vicarious liability
attributable to its parent company. There is no basis for including Open
Investments in this judgment.
A. Open Investments cannot be liable because it made no
misrepresentations.
The pre-verdict Rule 50(a) motion argued that the City failed to present
evidence of (1) a misrepresentation of a past or present fact; (2) justifiable reliance
on any such misrepresentations; or (3) a knowing misrepresentation. See (App.
Vol. 5 at 122-25). Although those arguments were sharpened in the post -verdict
Rule 50(b) motion, the sufficiency challenges in that latter motion were aimed at
the same elements of the same claims—adding additional color by parsing the
evidence as to each defendant individually. See (App. Vol. 6 at 147-53).
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This is enough to preserve Open Investments’ objection to the large
restitution judgment entered against it. Although sufficiency arguments presented
for the first time in a Rule 50(b) motion cannot be considered unless first asserted
in a Rule 50(a) motion, when it comes to matching those arguments across the
Rule 50(a) and 50(b) papers, “technical precision is unnecessary,” both in the
Tenth Circuit and elsewhere. See Perez v. El Tequila, LLC, 847 F.3d 1247, 1255–
56 (10th Cir. 2017) (permitting Rule 50(b) arguments that appellant argued were
not raised with sufficient specificity in Rule 50(a) motion).
Moreover, the record is clear. The City’s case against Open Investments
always was in contract rather than tort. And Open Investments’ status as a
guarantor cannot support a judgment against it for fraud based on representations
made in the RFP response that Open Investments did not author or submit. As the
City itself acknowledged in its closing argument: “The fraud and negligent
misrepresentation claims are focused on conduct from before the contract and the
City’s discovery of those misrepresentations.” (App. Vol. 15 at 81-82).
The RFP response on which the City relies for its judgment was authored
and submitted by Open alone and in no way reflected the “statements” of Open
Investments. The City’s insistence to the contrary has focused on either (1) Open ’s
unchallenged remarks touting the experience of others within the “Open” portfolio
of companies, see (App. Vol. 17 at 86-87) (citing “30 years of experience”;
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“worldwide recognized”; “decades of” development and implementation), or (2)
precontractual review and gladhanding by Open Investments’ CEO William
Corredor who evaluated the RFP Response for “historical accuracy” and met with
the City during the response process. See id. at 87. But that is all, and none of that
amounts to an actionable misrepresentation. Such background involvement cannot
subject Open Investments to liability here.
Indeed, as the City’s counsel stressed in his closing argument, the City’s
fraud case boils down to the grades Open assigned to its new software version in
the functionality matrix incorporated into the RFP as contrasted with an internal
document, (App. Vol. 22 at 15-17 (Trial Ex. 74)), created by Open when
addressing the functionalities of its new software version. (App. Vol. 15 at 67 (the
City’s attorney saying in closing argument that “Open lost this case” when
evidence of their internal grading system (Exhibit 74) was introduced “and instead
of using that accurate internal grading system when they responded to the City’s
RFPs, they gave false grades to the City[.] . . . [T]his is fraud.”); see also id. at 68-
69 (similar), 75 (stating that Open made the misrepresentations / grading in the
RFP knowing it was false and with the intent that the City would rely on it, even
though it conflicted with their own grading system). But Open Investments, the
parent company, was not involved in that functionality assessment. All the trial
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testimony on that subject shows that this was done by Open International
employees. Open Investments simply wasn’t involved.
The City’s bald assertion that fraud was perpetrated by both Open entities
has no support anywhere in the record—not in the complaint or pretrial order,
which limit the allegations against Open Investments to its execution of a pledge in
the Agreement to “unconditionally guarantee the performance of Open
International of all obligations set forth” in that document. (App. Vol. 19 at 5)
(App. Vol. 3 at 206) (sole mention of Open Investments in the pretrial order). And
there is no trial evidence to support that assertion either.
B. Open Investments owes no restitution.
Considering that there is no evidence of any misrepresentation by Open
Investments, the district court exceeded its authority to subject it to an equitable
remedy for damage that it did not cause or value it did not receive. Again, the two
Open entities were grouped together by a shorthand reference for purposes of
convenience only, and this was not an admission by Open Investments of any
vicarious liability beyond that which was established by its status as a guarantor of
the contract. Moreover, once the proceedings shifted to the district court to
determine an equitable remedy of restitution, the district court was tasked with
determining both the law and the facts that were necessary to that decision—a
decision that was beyond the purview of the jury. Palace Expl. Co. v. Petroleum
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46
Dev. Co., 316 F.3d 1110, 1119 (10th Cir. 2003) (observing that a district court is
only bound by a jury’s determination of factual issues common to both the legal
and equitable claims).
Here, no aspect of the jury’s verdict bore on the City’s entitlement to a
restitution award from Open Investments, and indeed, neither damages nor
restitution were even discussed at the jury trial pursuant to the bifurcated procedure
the district court judge imposed. Restitution was solely within the court’s province
to decide, and Open Investments neither invited the court’s error nor caused
prejudice to the City by demanding disambiguation of the two Open entities in
advance of a restitution hearing at which the City could have proffered, and the
court could have received, additional evidence reflecting Open Investments’
individualized responsibility for restitution (of which there is none).
Unlike Rule 50, Rule 52 expressly permits a party to challenge the
sufficiency of the evidence supporting the judge’s findings whether or not it
requested findings, objected to them, moved for amended or additional findings, or
moved for judgment on partial findings. See Fed. R. Civ. Proc. 52(a)(5). There is
no requirement “for a party seeking to question the sufficiency of the evidence on
appeal to have made an objection in the district court to the findings or to have
made a motion to amend them or a motion for judgment.” Wright & Miller, Fed.
Prac. & Proc. Civ. § 2581 (3d ed.). At bottom, a challenge to judicial fact-finding
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simply is not defeated by the City’s insistence that Open Investments waited too
long to object to being subjected to liability for the fraud claim advanced against
its subsidiary.
Finally, Rule 46 of the Federal Rules of Civil Procedure provides that, in all
other contexts, “[f]ailing to object does not prejudice a party who had no
opportunity to do so when the ruling or order was made.” And here, there was no
reason for Open Investments to object to being included in a restitution award
before the City elected the rescission remedy, thereby abandoning the contractual
claim that brought Open Investments into this case in the first place. Open
Investments raised the issue as soon as practicable following the jury’s verdict and
the City’s election of rescission, and despite the benefit of full briefing, the Court
deemed forfeited a matter that had not been relevant before, not even implicitly.
Simply put, there is no factual or legal basis for holding Open Investments
liable for restitution based on a fraudulent inducement claim where Open
Investments made no misrepresentations of any kind and merely served as the
guarantor of a contract the City has since rescinded.
CONCLUSION
For the foregoing reasons, the Court should reverse the denials of
Defendants-Appellants’ motions for judgment as a matter of law and remand with
instructions that judgment be entered in their favor.
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STATEMENT CONCERNING ORAL ARGUMENT
This appeal warrants oral argument, as it addresses a complex commercial
transaction, an extensive record (including a 10-day trial), a significant judgment,
some extraordinary procedural maneuvers, as well as important issues of Colorado
law involving the economic loss rule and the standard applicable to waiver of a
rescission remedy as opposed to waiver of an action at law where the plaintiff has
affirmed the contract but seeks damages due to fraud. The Court’s work would be
well served by the opportunity to question counsel for both sides on these issues of
fact, law, and procedure.
Dated: November 14, 2024 Respectfully submitted,
/s/ Laurie Webb Daniel
Laurie Webb Daniel
Webb Daniel Friedlander LLP
75 14th Street NE
Suite 2450
Atlanta, Georgia 30309
T: (404) 433-6430
laurie.daniel@webbdaniel.law
Jeffrey Keith Sandman
Webb Daniel Friedlander LLP
5208 Magazine Street
Suite 364
New Orleans, Louisiana 70115
T: (978) 886-0639
Jeff.sandman@webbdaniel.law
Attorneys for Defendants-Appellants
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CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMIT AND
TYPEFACE AND TYPE-STYLE REQUIREMENTS
1. This document complies with the type-volume limitation of Fed. R. App. P.
32(a)(7)(B) and the word limit of Fed. R. App. P. 32(a)(7)(B) because,
excluding the parts of the document exempted by Fed. R. App. P. 32(f) and
Fed. R. App. P. 32(g):
[X] this document contains [11,383] words, or
[ ] this brief uses a monospaced typeface and contains ____ lines of text.
2. This document complies with the typeface requirements of Fed. R. App. P.
32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because:
[X] this document has been prepared in a proportionally spaced typeface
using Microsoft Word in 14-point Times New Roman font.
[ ] this document has been prepared in a monospaced typeface using
________ with ___________.
DATE: November 14, 2024
/s/ Laurie Webb Daniel
Laurie Webb Daniel
Webb Daniel Friedlander LLP
75 14th Street NE
Suite 2450
Atlanta, Georgia 30309
T: (404) 433-6430
Laurie.Daniel@webbdaniel.law
Attorney for Defendants-Appellants
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50
CERTIFICATE OF DIGITAL SUBMISSION AND
PRIVACY REDACTIONS
All required privacy redactions have been made to this document, and with
the exception of those redactions, every document submitted in digital form is an
exact copy of the written document filed with the clerk. Said document has been
scanned for viruses and, accordingly, is free of viruses.
/s/ Laurie Webb Daniel
Laurie Webb Daniel
CERTIFICATION OF SUBMISSION OF HARD COPIES OF PLEADING
I hereby certify that the seven (7) copies of this pleading required to be
submitted to the clerk’s office will be exact copies of the ECF filing.
/s/ Laurie Webb Daniel
Laurie Webb Daniel
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CERTIFICATE OF SERVICE
I hereby certify that on the 14th day of November, 2024, I electronically
filed the foregoing Defendants-Appellants’ Opening Brief with the Clerk of the
United States Court of Appeals for the Tenth Circuit using the Court’s appellate
CM/ECF system.
I further certify that all parties are represented by counsel of record who are
registered CM/ECF users and who will be served by the Court’s CM/ECF system.
/s/ Jeffrey Sandman
Jeffrey Sandman
Appellate Case: 24-1152 Document: 46 Date Filed: 11/14/2024 Page: 61
ATTACHMENTS
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Proceedings reported by mechanical stenography ;
transcription produced via computer .
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 21-cv-02063-CNS-SBP
CITY OF FORT COLLINS,
Plaintiff,
vs.
OPEN INTERNATIONAL, LLC,
and OPEN INVESTMENTS, LLC,
Defendants.
(Pages 1085 - 1378)
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REPORTER'S TRANSCRIPT
Jury Trial - Day 6
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Proceedings before the HONORABLE CHARLOTTE N. SWEENEY, Judge,
United States District Court for the District of Colorado, and
a jury of eight, commencing on the 30th day of October, 2023,
in Courtroom A-702, United States Courthouse, Denver,
Colorado.
APPEARANCES
For the Plaintiff:
CASE L. COLLARD and ANDREA A. WECHTER and MARAL SHOAEI, Dorsey
& Whitney LLP, 1400 Wewatta St., Ste. 400, Denver, CO 80202
JOHN R. DUVAL, Fort Collins City Attorney's Office, P.O. Box
580, Fort Collins, CO 80522
For the Defendants:
PAUL D. SWANSON and ALEXANDRIA E. PIERCE and ALEXANDER D.
WHITE and KEVIN C. MCADAM, Holland & Hart LLP, 555 17th St.,
Ste. 3200, Denver, CO 80201
Sarah K. Mitchell, RPR, CRR, 901 19th Street, Room A252,
Denver, CO 80294, 303-335-2108
Case No. 1:21-cv-02063-CNS-SBP Document 309 filed 12/06/23 USDC Colorado
pg 1 of 295
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Jury Trial - Day 621-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
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functionalities of the software, and there was significant
testimony on that.
THE COURT: And the declaratory judgment part? What
are you seeking declaratory judgment of? Let me word it that
way.
MS. WECHTER: I don't have that in front of me.
Excuse me, Your Honor. Your Honor, I believe it kind of
encompasses the same issues, but it would be for Your Honor's
decision, and we would need all the evidence in before that.
THE COURT: All right. Okay. Well, why don't you
have a seat. Let me go through this in the order that the
defendant presented it. For largely the same reasons that
were in the order on motion for summary judgment, I'll deny
defendants' Rule 50(b) motion with the exception of the
declaratory judgment. I don't find that to be proper at this
stage. There's been no evidence that there's anything that I
would need to do separate and apart from the breach of
contract claim, so that will be granted, and that will no
longer be in the case.
With respect to the fraud, I find the plaintiff has
presented sufficient evidence from which a jury could conclude
that there was a misrepresentation on a current fact. While
defendant, I realize, has called it a typo, it is in there,
and I think the jury needs to be able to reach its decision
based on that, and it is not proper for me to take that from
Case No. 1:21-cv-02063-CNS-SBP Document 309 filed 12/06/23 USDC Colorado
pg 151 of 295
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them.
I would also note that I don't -- I don't think the
evidence even aside from that typo is clear that they were not
representing a current product. Again, there's the dispute
about what is A versus what B means. To me, that is
completely a jury decision to conclude whether defendant was
making those representations as to a current fact or a fact in
effect at the time the product went live, so that will go to
the jury.
The economic loss rule I've already dealt with in the
summary judgment order, and I won't add anything new to that.
Same thing for the negligent misrepresentation claim. The
analysis would apply in total to that.
The waiver claim, again, I find those to be questions
of fact. I understand defendants' argument. I think it's an
interesting argument, but I find that to be within the realm
of the jury's decision. I think there's evidence from which
they could determine that the City should have moved for
rescission or said they were rescinding earlier and didn't,
but there's also evidence that at the point of spending that
much money, they made a reasonable decision to proceed. So I
find that to be a question for the jury.
The breach of the contract claim, again, same --
mainly the same issues. The waiver seems to be the most
interesting issue there, but I find that to be a jury decision
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as to whether the first amendment and the PCR 29 somehow would
have put the City on notice or if that's the City's acceptance
of new terms. I find all of that to be within the realm of
the jury's decision-making process.
Let's just talk about damages a little bit. Well,
let me go to the implied covenant. I'm going to leave that
in. I invite the defendant to re-move at the close of
evidence. I'm not sure there's enough here for that claim.
I'm leaving it in the interest of caution at this point.
There has been some discretionary items focused on by the
plaintiff largely in argument versus evidence. So let's
revisit that at the close of evidence to see what comes out
through defendants' witnesses on that point.
With respect to damages, yes, absolutely. In terms
of the breach, the contract damages limitation will be
applied. There is a dispute as to when that time period kicks
in. We will deal with that in the jury instructions, but,
yes, that absolutely will be how this proceeds in the jury
instructions and on the verdict form.
I understand defendants' position on the objection --
or the election of remedies. While I am sympathetic to that,
I feel my decision to have the jury consider the fraud and
negligent misrepresentation first, come back and tell us what
that is, force an election at that point somewhat prevents the
City from having its cake and eating it too because it will
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have to make a decision at that point and will not be able to
see what the jury's decision is on breach or waiver or any of
those items before electing. So, again, when that happens,
the City will be asked to elect immediately if there is a
finding in their favor on those claims.
I think that is all I needed to rule on with respect
to defendants' motion. So with that said, we will come back
at 1:15.
MR. SWANSON: Your Honor, I don't think we heard a
ruling on fraud and negligent misrepresentation damages as
distinct from the contract damages.
THE COURT: You're absolutely right. So I don't
think I need to make another ruling. What I said at the
beginning of the case is I will do those damages. So the jury
will not receive instructions on that should the breach of
contract claim go forward, mainly because, one, negligent
misrepresentation seems to only be seeking rescission. The
fraud is more questionable. But I think the Trimble case does
apply there. There could be some element of damages, but thus
far I agree with defendant that I haven't heard what it would
be in addition to the breach of contract damages.
But in terms of rescission, any damages other than
rescinding the contract and returning the amounts paid will be
done by me, to the extent there are other damages that are
available under that claim, which essentially what I would say
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is if the City elects rescission -- if there's a finding and
the City elects rescission, what I would do is have the
parties brief the issue of damages and we'd hold a hearing on
that. So don't feel like you need to have that all ready to
go if you do elect -- if there is a finding and you do elect
rescission. We would set a separate hearing on.
MR. SWANSON: Thank you, Your Honor.
MR. COLLARD: Just a quick clarification, and I might
be listening too closely for my own good. But you said
something about we'll have to elect not knowing about the
contract and waiver and all those other things. But on
potential waiver of the fraud, you said that was a jury issue,
so we would know about that when we were electing because that
would be part of the first set of instructions.
THE COURT: It would be part of the first set,
because essentially in our first set, which, again, we hope to
have to you after lunch. I'm looking at the final draft
during lunch. So in the first set you will see there is a
waiver instruction on the fraud.
MR. COLLARD: Thank you. Good to go.
MR. SWANSON: And sorry. Does that include the
rescission-specific waiver standard that is, like, the
requirement that a claimant rescind immediately once they are
aware of the basis for rescission?
THE COURT: I think it has language similar to that,
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Charlotte N. Sweeney
Civil Action No. 1:21-cv-02063-CNS-SBP
CITY OF FORT COLLINS, a Colorado home rule municipality,
Plaintiff,
v.
OPEN INTERNATIONAL, LLC, a Florida limited liability company and
OPEN INVESTMENTS, LLC, a Florida limited liability company,
Defendants.
ORDER
This matter comes before the Court on Defendants’ Motion for Judgment under
Rule 52(c), ECF No. 314, as well as the parties’ respective closing briefs regarding
amounts, if any, which may be recovered in recission by Plaintiff, the City of Fort Collins
(the City), see ECF Nos. 314, 315.1
On November 3, 2023, a jury determined that Defendants, Open International, LLC
and Open Investments, LLC (collectively, Open) had fraudulently induced the City to enter
into the Agreements2 for the development of billing software. See ECF No. 296. One day
prior, the Court granted the City’s motion for judgment as a matter of law with respect to
1 Unless otherwise noted, record citations are to material in the Electronic Case File (ECF); pinpoint citations
are to the ECF-generate page numbers placed at the top of the documents.
2 These Agreements included the Master Professional Services Agreement, Scope of Work , and First
Amendment to the MPSA.
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Open’s affirmative defenses of laches and unclean hands, finding that Open had failed to
prove either. See ECF No. 312 at 54:6–22. Following the jury’s fraudulent inducement
determination, the City elected to rescind the Agreements. ECF No. 313 at 31:7–12. On
November 17, 2023, the Court held a hearing at which the parties presented expert
testimony on appropriate restitution amounts in recission.3 See generally ECF No. 301.
At the hearing’s conclusion, the Court further invited the parties to brief the issue of
amounts owed to the City in restitution. See id. at 132:18–134:8. That issue is now fully
briefed.
Broadly speaking, the parties’ briefing centers on five categories of expenses
requested by the City: (1) amounts the City paid to Open under the Agreements ; (2)
amounts the City paid to third-party consultants; (3) the City’s labor costs; (4) the City’s
lost net revenue; and (5) the City’s attorney’s fees and costs. See ECF No. 315 at 2. The
City further requests pre-judgment interest for categories (1) through (4), and post-
judgment interest in all five categories. Id. Separately, Open includes a motion for
judgment under Rule 52(c) in its restitution brief, arguing that the City waived recission as
a remedy and that recission liability cannot lie against Open Investments. See ECF No.
314 at 2–8.
3 “When a party recovers money damages in connection with recission, those damages are more accurately
called restitution: The term recission refers to the avoidance of the transaction or the calling off of the deal,”
whereas restitution (commonly in the form of monetary payment) occurs once the transaction is avoided.
Szaloczi v. John R. Behrmann Revocable Trust, 90 P.3d 835, 841 n.8 (Colo. 2004) (citations omitted);
accord EarthInfo v. Hydrosphere Resource Consultants, Inc., 900 P.3d 113, 118 (Colo. 1995) (rescission
of the parties’ exchange in the form of restitution “seeks to prevent unjust enrichment of the defendant”).
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I. LEGAL STANDARD
“A plaintiff who has been fraudulently induced to enter a contract may either
rescind the contract or affirm the contract and recover in tort for the damages caused by
the fraudulent act.” W. Cities Broad., Inc. v. Schueller, 849 P.2d 44, 48 (Colo. 1993) (citing
Trimble v. City & Cnty. of Denver, 697 P.2d 716, 723 (Colo. 1985)). When the victim of
fraudulent inducement elects rescission, they are “limited in remedy to restoration of
conditions existing before the agreement was made.” Trimble, 697 P.2d at 724. Put
differently, recission requires each party to “return the opposite party to the status quo
ante, or the position in which he or she was in prior to entering the contract.” EarthInfo,
900 P.2d at 118 (citations omitted).
In rescission, a return to the status quo ante entails that each party:
(a) restores property received from the other, to the extent
such restoration is feasible; (b) accounts for additional
benefits obtained at the expense of the other as a result of the
transaction and its subsequent avoidance, as necessary to
prevent unjust enrichment; and (c) compensates the other for
loss from related expenditure as justice may require.
Restatement (Third) of Restitution & Unjust Enrichment § 54(2) (Am. L. Inst. 2011).
“The rule of returning the parties to the status quo ante is equitable and it requires
the use of practicality in the readjustment of the parties’ rights.” EarthInfo, 900 P.2d at
118 (citation omitted). “Since recission is an equitable remedy, it is within the trial court’s
sound discretion to determine the method for accomplishing a return to the status quo
ante based upon the facts as determined by the trier of fact.” Id. (citations omitted); see
Rice v. Hilty, 559 P.2d 725, 727 (Colo. App. 1976) (“Equity may fashion a remedy to effect
justice suitable to the circumstance of the case.”). And in exercising its discretion, this
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Court is guided by the ultimate principle that “one should not gain by one’s own wrong.”
EarthInfo, 900 P.2d at 117 (citation omitted).
II. DISCUSSION
The Court has carefully reviewed the parties’ closing briefs, the exhibits attached
thereto, the record from the parties’ trial conducted between October 23 through
November 3, 2023, the record from the parties’ recission hearing held on November 17,
2023, the entire case file, and the relevant case law. In light of these authorities, the Court
denies Open’s Rule 52(c) motion. The Court then considers each of the City’s five
categories of requested expenses, as well as the City’s request for pre-judgment interest.
A. Open’s Motion for Judgment under Rule 52(c)
Open first moves for judgment against the City—purportedly pursuant to Federal
Rule of Civil Procedure 52(c)—on two grounds: (i) the City waived its right to elect
recission as a remedy in this case, and (ii) there is no evidence to support a judgment of
recission against Open Investments. ECF No. 314 at 2–8.
However, as the City correctly observes, see ECF No. 320 at 3, the procedures
outlined in Rule 52(c) are reserved for nonjury trials. Goodwin v. Smith Chambers, No.
21-cv-3421-WJM-STV, 2024 WL 517865, at *14 (D. Colo. Feb. 9, 2024) (“If a party has
been fully heard on an issue during the nonjury trial and the court finds against the party
on that issue, the court may enter judgment against the party.”) (quoting Fed. R. Civ. P.
52(c)). Here, the action was tried to a jury—including Open’s affirmative defense of
waiver. See ECF No. 309 at 152:14–22, 155:8–156:5. Following the jury’s fraudulent
inducement verdict in the City’s favor and the City’s subsequent election to rescind the
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Agreements, the Court held a hearing at which the only issue before the Court was proper
restitution amounts in recission. Id. at 154:12–155:6; see generally ECF No. 301. As such,
Open’s post-verdict challenges to its liability to the City are more appropriately brought
under Rule 50(b).
Despite this, in the hopes of obviating the need to address these matters in the
future, the Court addresses each of Open’s arguments in turn.
1. Waiver of the right to rescind
Open first argues that no restitution amounts in recission are owed to the City
because, notwithstanding the jury’s clear verdict that the City did not waive its fraudulent
inducement claim, the City nonetheless waived its right to rescind the Agreements. See
ECF No. 314 at 2.
In making this argument, Open suggests that waiver of fraudulent inducement (as
a claim) and waiver of recission (as a remedy) are governed by different tests, and while
fraudulent inducement waiver was presented to the jury, recission waiver was reserved
to the Court as an equitable matter and must be decided now.4 Indeed, according to
4 Interestingly, though, Open’s arguments throughout this case have not always maintained this purported
“fraudulent inducement waiver” and “recission waiver” distinction. At the summary judgment stage, for
instance, Open argued that the City had waived its fraudulent inducement claim. ECF No. 125 at 27–30.
But later in its briefing on election of remedies, Open claimed that it had earlier argued at the summary
judgment stage that the City had “waived recission by electing to affirm the contract.” ECF No. 232 at 3
(citing ECF No. 125 at 27–30) (emphasis added).
Similarly, Open’s election briefing claimed that “[i]n response to the City’s claims, Open pleaded the
affirmative defense of waiver.” ECF No. 232 at 3. But if, as Open maintains, waiver of fraudulent inducement
(as a claim) and waiver of recission (as a remedy) constitute separate defenses, it would appear that Open
specifically pleaded the former as an affirmative defense, but never the latter. See ECF No. 13 at 14 (“The
City’s claims are barred by the doctrines of waiver and estoppel.”) (emphasis added); ECF No. 194 at 18
(same).
Closely related, although the Court clarified at trial that all waiver-related defenses would be encompassed
in a single instruction (i.e., the COLJI pattern instruction), see ECF No. 309 at 155:8–156:5, Open did not
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Open, it is legally possible that, “irrespective of whether the plaintiff waived the fraud
claim, the remedy of recission, if elected, might still be waived.” ECF No. 314 at 3.
For this proposition, Open points to semantic differences between two Colorado
cases purportedly demonstrating that fraudulent inducement waiver and recission waiver
involve separate analyses. See ECF No. 314 at 3. In Gladden v. Guyer, the Colorado
Supreme Court stated:
The duty of rescinding arises immediately upon acquiring
knowledge of the substantial and material facts constituting
the fraud. It is not requisite that the defrauded party shall be
acquainted with all the evidence constituting the fraud before
the duty to act by way of rescission arises. When he has
evidence sufficient to reasonably actuate him to rescind the
contract . . . , no subsequent discovery of cumulative
evidence can operate to execute waiver of the fraud if one has
in the meantime occurred, or to revise a once lost right of
rescission.
426 P.2d 953, 956 (Colo. 1967) (emphasis added) (quoting Richardson v. Lowe, 149 F.
625, 631 (8th Cir. 1906) (internal citations omitted)).
By way of comparison, in Elk River Associates v. Huskin, the Colorado Court of
Appeals stated: “To sustain the defense of ratification and waiver, it must appear that the
defrauded party, with full knowledge of the truth respecting the false representations,
elected to continue to carry out the agreement. This determination involves questions of
object to the unified waiver instruction at the parties’ charging conference, see ECF No. 312 at 6:24–7:13.
Nor did it propose any additional or different instructions for “recission waiver” in its “tendered and rejected”
instructions. See ECF Nos. 284, 289, 290, 294.
Based on the foregoing, it seems that even Open has conflated these “two” waiver standards on numerous
occasions.
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fact, particularly the fact of intent.” 691 P.2d 1148, 1153 (Colo. App. 1984) (emphasis
added).
Based on the above principles, Open argues that Gladden and Elk River apply two
different waiver tests—i.e., fraudulent inducement waiver requires “full knowledge of the
truth” regarding the fraud, whereas recission waiver requires only “knowledge of the
substantial and material facts constituting the fraud.” ECF No. 314 at 3. Open then argues
that Gladden’s purported “recission waiver” test is for the Court to apply, and further
suggests that, under Gladden, the City’s duty to rescind is tied to a lower threshold—i.e.,
its discovery of problems with Open’s software, rather than its discovery that Open’s
defective software was a product of its fraud. Id. at 3–5.
The trouble for Open, however, is that Colorado courts do not treat fraudulent
inducement waiver and recission waiver as separate claims, governed by different tests,
and decided by different factfinders. Indeed, courts in this district have treated the
language in Gladden and Elk River as consistent, if not wholly equivalent. See, e.g., In re
Mascio, 454 B.R. 146, 151 (D. Colo. 2011) (“To sustain the defense [of waiver], ‘it must
appear that the defrauded party, with full knowledge of the truth respecting the false
representations, elected to continue to carry out the agreement.’ Elk River Assocs. v.
Huskin, 691 P.2d 1148, 1154 (Colo.App.1984) (emphasis added). Full knowledge entails
‘knowledge of the substantial and material facts constituting the fraud.’ Gladden v. Guyer,
162 Colo. 451, 426 P.2d 953, 955 (1967).”).
At bottom, fraudulent inducement waiver and recission waiver comprise a single
analysis—under Colorado law, a party’s “right to rescind and sue [is] waived” where “the
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defrauded party, with full knowledge, intentionally condoned the fraud,” and “[w]hether
fraud has been waived involves questions of fact, particularly the fact of intent,” which are
“properly for the jury.” Bankers Trust Co. v. Int’l Trust Co., 113 P.2d 656, 664 (Colo. 1941).
In this case, this exact standard for deciding the question of waiver was presented to the
jury in a single instruction, see ECF No. 285 at 24 (Instruction No. 23), without objection
from either party, see ECF No. 312 at 6:24–7:13, and the jury decided the waiver question
in the City’s favor,5 see ECF No. 296. The Court therefore sees no reason to disturb the
jury’s clear verdict on the waiver issue by passing separately upon the City’s right to
rescind.
Accordingly, Open’s motion as to this “recission waiver” issue is denied.
2. Recission against Open Investments
Next, Open argues that the City failed to adduce evidence to support judgment in
recission against Open Investments. See ECF No. 314 at 6–8. According to Open, the
evidence at trial established that Open Investments’ sole link to this case was as a
contractual guarantor for Open International, and that Open Investments was uninvolved
in the fraudulent conduct at issue. See Tr. Ex. 1 at 4 (setting forth Open Investments’
“unconditional[] guarantee [of] the performance of Open International of all obligations set
forth in [the] MPSA and Software License Agreement”); ECF No. 305 at 15:17–16:10;
ECF No. 311 at 67:22–68:7; Tr. Ex. 66 at 1 (accusing only “Open International LLC” of
5 Indeed, as the City correctly observes, “[a]ll of the purported facts relied on in Open’s [m]otion to assert a
waiver of recission are the same facts that the jury considered when denying Open’s affirmative defense of
waiver.” ECF No. 321 at 4 (citing ECF No. 314 at 2–4) (emphasis in original). And for this reason, to the
extent that Open argues that the City failed to adduce sufficient facts at trial showing that it sought to rescind
promptly, the Court reserves its analysis on this issue for Open’s Rule 50(b) motion.
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breach and fraud). Open further observes that the RFP Response underlying the City’s
fraudulent inducement claim was submitted by Open International, see Tr. Ex. 5, all
payments under the now-rescinded Agreements were made to Open International, see
Tr. Ex. 522, and Open Investments never received any payment or benefit from the City
that would be returnable as restitution. As such, Open contends, now that the City has
elected to rescind the Agreements, Open Investments’ liability in this case—arising solely
in contract—has effectively dissipated. See ECF No. 314 at 7–8.
For substantially the reasons outlined by the City in its response to Open’s motion,
the Court agrees that this argument disclaiming any liability of Open Investments comes
far too late. See ECF No. 320 at 7–11. If, as Open claims, the City failed to adduce any
evidence of Open Investments’ liability for fraudulent inducement independent of its
liability under the Agreements, Open never once raised this issue at trial or in its oral Rule
50(a) arguments. See ECF No. 309 at 142:10–1448:23; ECF No. 312 at 49:5–52:19,
55:8–56:23. Nor did Open raise this issue in its written Rule 50(a) motion memorializing
its earlier oral argument.6 See ECF No. 282. Similarly, Open failed to separate liability for
each entity, and in fact affirmatively represented itself “collectively” or “together” as
“Open,” throughout the entirety of the case—including in its notice of removal, answer,
6 Indeed, Open only advanced a full-throated argument on this issue for the first time in its written Rule
50(b) motion. See ECF No. 302 at 6–8. Given that final judgment has yet to enter in this case, however,
the Court defers consideration of this argument, except to note that if Open maintains its argument that
recission liability does not lie against Open Investments, this argument is probably already waived as
unraised at the Rule 50(a) stage. See Garcia v. Aerotherm Corp., No. 98-2214, 1999 WL 124486, at *3
(10th Cir. Dec. 21, 1999) (“[I]ssues not raised in an initial Rule 50(a) motion for judgment as a matter of law
may not be asserted in a post-judgment motion for judgment as a matter of law under Rule 50(b).”); Brillhart
v. Philips Elecs. N. Am. Corp., 179 F.3d 1271, 1275 (10th Cir. 1999) (“Failure to so move precludes a post -
trial motion . . . for judgment as a matter of law . . . .”).
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partial motion for summary judgment, amended answer, final pretrial order, motion in
limine, trial brief, and written Rule 50(a) motion. See generally ECF Nos. 1, 13, 125, 194,
230, 240, 256, 282.
Perhaps most significantly, Open did not object to language included in the jury
instructions and verdict form applying liability for fraudulent inducement jointly to the
entities.7 See ECF No. 285; ECF No. 296; ECF No. 312 at 3:3–32:20. As such, there is
now a fraudulent inducement verdict against both Open International and Open
Investments, and the Court is not at leisure to “undo” the verdict against one of them , or
to order restitution from only one of them. See Farm Bureau Life Ins. Co. v. Am. Nat’l Ins.
Co., 408 F. App’x 162, 172 (10th Cir. 2011) (“[A] party waives its right to present a legal
argument on appeal by failing to object to [the] jury instruction[s] which authorized the
verdict.”) (citations omitted); see also Glass Containers Corp. v. Miller Brewing Co., 643
F.2d 308, 312 (5th Cir. 1981) (“[A] litigant cannot strategically lie behind the log until after
the trial and the receipt of evidence, argument, and charge to the jury before raising an
issue not found in the pleadings nor included in the pre-trial order and them raise it when
it is too late for his opponent to do anything about it.”). Simply put, Open’s request for this
Court to reconsider the evidence and make a separate determination of Open
Investments’ liability when it was not an issue at trial is inappropriate.
As such, Open’s motion seeking to avoid Open Investments’ liability in recission is
denied.
7 In fact, Open agreed to the City’s request that element 5 of the elemental instruction on fraudulent
inducement be clarified to state “Open’s representation” rather than just “the representation.” See ECF No.
312 at 5:4–10; ECF No. 285 at 16 (Instruction No. 15).
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B. The City’s Restitution Requests
Having determined that judgment in Open’s favor is unwarranted, the Court next
considers each of the City’s requested restitutionary amounts. As set forth below, the
Court, in its equitable power and broad discretion, awards judgment in the City’s favor on
its project costs, third-party consulting costs, and labor costs. The Court declines,
however, to grant the City’s requests to recover its lost net revenue or attorney’s fees.
1. Amounts paid under the Agreements
First, the City seeks to recover $8,756,659 in amounts it paid to Open for the billing
software contracted for in the Agreements.8 See ECF No. 315 at 4–6; see also ECF No.
315-2 at 3; ECF No. 301 at 17:20–20:7 (testimony of the City’s damages expert, Ronald
Seigneur). The Court agrees that the City is entitled to recover this amount in restitution.
Put simply, the relevant law is well settled that under the City’s elected remedy of
recission, Open should return any project costs the City paid pursuant to the Agreements.
See Aaberg v. H.A. Harman Co., 358 P.2d 601, 603 (Colo. 1960) (“Upon discovery of the
fraud, plaintiff had the right . . . to rescind the contract and sue for the return of the money
paid.”); Rice, 559 P.2d at 727 (in recission, awarding restitution in the form of “whatever
consideration [defendants] received under the contract”); In re Sun, 535 B.R. 358, 370
(10th Cir. Bankr. App. Panel 2015) (in recission, awarding restitution in the form of
amounts paid under the parties’ contract plus interest); see also Restatement (Third) of
Restitution & Unjust Enrichment § 54(1) (Am. L. Inst. 2011) (“A person who has
8 In particular, the City specifies that beginning in September 2018, the City paid Open $8,756,659 over the
course of 33 months pursuant to the Agreements. See Tr. Ex. 743 at Sch. H.
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transferred money or other property is entitled to recover it by recission and restitution if
the transaction is invalid or subject to avoidance . . . .”); id., § 13(1) (“A transfer induced
by fraud or material misrepresentation is subject to recission and restitution.”).
Notwithstanding this clear authority, Open argues that no restitution in the form of
project costs should be awarded, because the $8,756,659 in amounts the City paid under
the Agreements is fully offset by the value of the services Open contributed to the project
at the City’s behest, which were purportedly worth more than $20 million.9 ECF No. 314
at 8–10, 12–14; ECF No. 321 at 7–9. More specifically, Open argues that regardless of
the jury’s finding of Open’s liability for fraudulent inducement, recission is properly
effectuated by “restitution on both sides.” ECF No. 314 at 9 (quoting EarthInfo, 900 P.2d
at 118). In turn, when the consideration given by Open is properly accounted for—
“mak[ing] ‘some apportionment’ between the amounts obtained through misconduct and
the amounts the defendant rightly earned independent of its misconduct ,” ECF No. 314
at 10 (quoting EarthInfo, 900 P.2d at 120)—any award of the City’s project costs would
be completely offset by the value of services performed by Open, thereby rendering
restitution in the form of project costs impermissible.
In advancing this argument, Open relies heavily on EarthInfo for the proposition
that even where a defendant’s wrongdoing warrants recission, a trial court must still credit
9 On this point, Open’s damages expert, Peter Schulman, testified that during the three years that Open
worked on the project, it provided 101,880 hours of implementation services and 22,105 hours of support
services, which were worth $117 per hour, plus 29,353 hours of product and technology development
services, which were worth $116 per hour—all for a total of $17,911,166 of services. See ECF No. 301 at
72:17–75:7, 80:10–24, 81:7–82:20. Furthermore, Mr. Schulman testified that during the same period, Open
provided the services of its subcontractor, Milestone, for which Open paid $2,682,785. See id. at 80:21–
81:6, 81:25–82:6, 82:21–83:6.
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the defendant for having “materially contributed effort and investment” into the parties’
contractual relationship. See EarthInfo, 900 P.2d at 120–21; see id. at 120 (“Even the
willful wrongdoer should not be made to give up that which is his own; the principle is
disgorgement, not plunder.”) (citation omitted). Open’s reliance on EarthInfo in this
regard, however, is misplaced. In that case, recission was sought based on a party’s
breach of the contractual obligation to make payments, not fraud inducing a party’s entry
into the contract in the first instance. See EarthInfo, 900 P.2d at 115–17. This distinction
matters—EarthInfo instructs that recission is both equitable in nature and dependent on
the defendant’s level of wrongdoing. See id. at 119. And while “a ‘mere’ breach of contract
is not a ‘wrong’” that strips a defendant of his entitlement to restitution, more “intentional
or substantial” wrongdoing may change the equitable calculus with respect to the
defendant’s retention of benefits under the contract. Id. at 117, 119 (citations omitted);
see id. at 117 (“It is a principle of the law of restitution that one should not gain by one’s
own wrong.”) (citation omitted).
In this case, Open was found to have committed a higher level of wrongdoing than
“a mere breach of contract”—indeed, a jury determined that Open fraudulently induced
the City into executing the contract. In that light, Open’s request for setoff of amounts it
earned under a fraudulently procured contract would seem to offend basic principles of
equity—i.e., if granted, Open’s requested setoff would “allow it to commit fraud, keep and
use [its] software, and keep the nearly $9 million it was paid by the City because it ‘earned
these amounts not by fraud but by work the City requested and accepted.’” ECF No. 326
at 3 (quoting ECF No. 321 at 8). As such, the Court will not credit Open for the work it did
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after its fraud.10 See Arguelles v. Ridgeway, 827 P.2d 553, 557 (Colo. App. 1991) (“A
party who seeks equity must do equity, and a party may not take advantage of his or her
own wrongful acts. A court will not lend its equitable aid to a party who is guilty of
fraudulent or unconscionable conduct . . . .”) (citations omitted); accord Restatement
(Third) of Restitution & Unjust Enrichment § 54(3)(b) (Am. L. Inst. 2011) (“Recission is
limited to cases in which counter-restitution by the claimant will restore the defendant to
the status quo ante, unless the fault of the defendant . . . makes it equitable that the
defendant bear any uncompensated loss.”); id., § 54(4)(a) (“If the claimant seeks to
reverse a transfer induced by fraud or other conscious wrongdoing, the limitation
described in subsection (3) is liberally construed in favor of the claimant.”); see also PHL
Variable Ins. Co. v. P. Bowie 2008 Revocable Trust, 889 F. Supp. 2d 275, 281 (D.R.I.
2012) (the law does not “allow an entity to commit an intentional and calculated fraud . . .
and walk away unscathed while the innocent party bears the financial burden of the
fraud”); McKay v. Weager, 134 N.Y.S. 66, 69 (N.Y. 1911) (a claim cannot be used as a
setoff where the transaction out of which it arose was fraudulent); Duncan v. Dazey, 318
Ill. 500, 505 (Ill. 1925) (“Equity will not permit a person to derive any benefit from a fraud
perpetrated by him.”).
In sum, the Court awards judgment in the City’s favor in the amount of $8,756,659
for project costs it paid to Open during the course of the parties’ Agreements. The Court
10 This is especially true in light of testimony at trial suggesting that (i) the City never received a fully
functional version of Open’s software, but Open continued to develop it with the City’s assistance, and (ii)
after the software was returned to Open’s control, Open proceeded to profit from it in connection with other
North American municipal projects. See ECF No. 311 at 58:19–21; see also ECF No. 320 at 13.
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further declines to award Open any credit or setoff against this amount, as Open will not
be compensated for its fraud.
2. Amounts paid to third-party consultants
Second, the City seeks to recover $456,024 in amounts it paid to third -party
consultants, TMG Consulting and Vanir Construction Management.11 See ECF No. 315
at 6–7; see also ECF No. 315-2 at 3; ECF No. 301 at 6:24–10:25 (Seigneur testimony).
The City contends that it is entitled to recover these amounts because, “but for Open’s
fraud, it would not have needed to hire or pay TMG or Vanir to provide consulting or
project management services on the Project with Open.” ECF No. 315 at 6. In response,
Open argues that the amounts the City paid to its third-party consultants (as well as the
amounts representing the City’s own labor costs, discussed below) would aim to
reimburse the City for its expenditures actually made in performance of the Agreements
and, as such, are reliance damages that are unavailable in the recission context. ECF
No. 315 at 3 (citing Spring Creek Exploration & Prod. Co., LLC v. Hess Bakken Invs. II,
LLC, 887 F.3d 1003, 1026 (10th Cir. 2018)).
Broadly speaking, a claimant who has elected recission is “limited in remedy to
restoration of conditions existing before the agreement was made”—i.e., the simple return
of any consideration each party gave pursuant to the contract. Trimble, 697 P.2d at 724;
see EarthInfo, 900 P.2d at 118 (restitution “differs in principle from damages, which
measure the remedy by the plaintiff’s loss and seek to provide compensation for that
11 More specifically, the City paid Vanir $169,917 in 2020 and an additional $86,810 in 2021 for project
management services. See Tr. Ex. 743 at Sch. K3. The City also paid TMG a total of $199,297 for consulting
services on the project in 2021. See Tr. Ex. 349 (yellow and green highlighting).
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loss”). However, recission may still leave the claimant with losses from related
expenditures—separate from any consideration given under the contract —that were
made in reliance on the contract. While these reliance damages constitute a remedy
“different in kind from recission and restitution,” they are “not necessarily inconsistent
when the claimant’s basic entitlement is to be restored to the status quo ante.”
Restatement (Third) of Restitution & Unjust Enrichment § 54 cmt. i (Am. L. Inst. 2011).
Indeed, “[d]amages measured by the claimant’s expenditure can be included in the
accounting that accompanies recission, in order to do complete justice in a single
proceeding.” Id.; see Trimble, 697 P.2d at 724 (“The defrauded party may recover such
damages as are a natural and proximate consequence of the fraud.”).
Here, the City’s third-party consultant costs were directly related to its performance
under the Agreements—performance which would not have occurred at all, but for the
City having been induced by fraud into entering the Agreements. In that light, the City’s
request to recover these costs appears to the Court to be eminently reasonable. See
Rice, 38 P.2d at 340–41 (directing the lower court to consider “the reasonable value of
services” in determining recission amounts due based on fraud); Elliott v. Aspen Brokers,
Ltd., 811 F. Supp. 586, 591 (D. Colo. 1993) (while a claimant in recission may not recover
expectancy or “benefit-of-the-bargain” damages, the claimant’s out-of-pocket expenses
nonetheless remain available); see also Restatement (Third) of Restitution & Unjust
Enrichment § 54(2)(c) (Am. L. Inst. 2011) (in recission, each party “compensates the other
for loss from related expenditure as justice may require”); Robinson v. Katz, 610 P.2d
201, 207 (N.M. Ct. App. 1980) (explaining that restitutionary damages are “permissible to
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restore the plaintiff to his former position when recission is granted because of fraud”);
Gearhart v. Goehner, 701 P.2d 461, 467 (Or. Ct. App. 1985) (“Where rescission is based
on fraud, and where the innocent party, before discovering the fraud, has made
reasonable expenditures in reliance on the bargain, those expenses may be recovered
upon rescission.”) (citation omitted).
Accordingly, the Court awards judgment in the City’s favor in the amount of
$456,024 for its payments to TMG and Vanir during the course of the parties’ Agreements.
3. Labor costs
Third, the City seeks to recover $4,376,969 in services rendered by City personnel
in connection with the project with Open. See ECF No. 315 at 7–9; see also ECF No.
315-2 at 3; ECF No. 301 at 20:8–24:9 (Seigneur testimony). As the City contends, it “was
required to incur significant amount[s] [in] resources and labor costs in order to implement
the Project that it would not have incurred but for Open’s fraudulent conduct,” and
because Open’s software did not function as promised, the City’s employees had to
spend extra time “testing, improving, and effectively developing Open’s product.”12 ECF
No. 315 at 8. Once more, Open disputes the City’s entitlement to these amounts, arguing
that reliance damages are impermissible in recission. ECF No. 321 at 3.
For the reasons discussed above in connection with the City’s request to recover
its third-party consulting expenses, the Court agrees that the City’s request to recover its
12 In particular, the City explains that, per the parties’ Agreements, it was required to staff a certain number
of full-time equivalents (FTEs) on the project, and that from August 15, 2018, to January 15, 2021, the City
employed an average of 12 business FTEs at $80/hour and 6 IT FTEs at $100/hour, each for an estimated
five hours per day. See Tr. Ex. 743 at Sch. M; ECF No. 307 at 130:13–131:6; ECF No. 309 at 213:11–14.
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own labor costs is similarly reasonable. See Rice, 38 P.2d at 340–41; Elliott, 811 F. Supp.
586 at 591; see also Restatement (Third) of Restitution & Unjust Enrichment § 54(2)(c)
(Am. L. Inst. 2011). Thus, the Court awards judgment in the City’s favor in the amount of
$4,376,969 in labor costs it incurred during the course of the parties’ Agreements.
4. Lost net revenue
Fourth, the City seeks to recover $3,389,467 in revenue lost from the project’s
delays and the City’s resultant loss of customers. See ECF No. 315 at 9–10; see also
ECF No. 315-2 at 3; ECF No. 301 at 11:4–17:19 (Seigneur testimony). Here, the City
argues that “[h]ad Open not defrauded the City, the City could and would have chosen a
different vendor . . . , the Project would have proceeded on time, the City would not have
experienced the delayed customer growth it did with Open, and the City would not have
lost customer revenue.”13 ECF No. 315 at 9. In response, the City contends that the lost
profits the City had anticipated earning from future subscribers amount to expectation
damages and, as such, are unavailable in recission. ECF No. 321 at 3–4.
Here, the Court finds that Open has the better of this argument. Unlike the City’s
requests to recover amounts it paid for labor and third-party consultants—expenditures it
had actually made, and reimbursement for which would aid in its return to the status quo
ante—projected revenues represent benefits the City would have realized after the
13 More specifically, the City contends that its “ability to add broadband customers was constrained because
using Open’s poorly functioning software required manual processes for tasks that should have been
automated,” and that “[t]he inoperability of Open’s system prevented t he City from introducing certain
broadband products, which further resulted in lost business opportunities for the City.” ECF No. 315 at 9.
Mr. Seigneur estimated that the City likely lost 6,632 customers, each of whom was expected to bring
annual revenue of $1,081 to the City as of July 2022. In total, Mr. Seigneur calculated that the City would
lose $3,389,467 in revenue through 2026. See Tr. Ex. 743 at 14–16; id. at Sch. F1.
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Agreements’ successful completion, not before the Agreements were ever executed.
Simply put, these expectancy damages are not recoverable given the City’s election to
rescind. See In re Sun, 535 B.R. at 370 n.33 (if the plaintiff elects recission of the contract,
rather than ratification, benefit-of-the-bargain damages are not available); accord Rice,
559 P.2d at 727; Elliott, 811 F. Supp. at 591; see also Holscher v. Ferry, 280 P.2d 655,
658 (Colo. 1955) (“It is a well-settled rule of law that, when a party has an election to
rescind an entire contract, he must rescind it wholly or in no part. He cannot consider it
void for one purpose, and at the same time in force for the purposes of recovering
damages.”).
As such, the Court declines to award the City any amounts in connection with its
lost net revenue.
5. Attorney’s fees and costs
Fifth, the City seeks to recover attorney’s fees and costs it incurred in pursuing this
action against Open. See ECF No. 315 at 10–13. Under the circumstances, the Court is
not persuaded that an award of attorney’s fees is permissible, let alone warranted.
“Under the bedrock principle known as the ‘American Rule,’ each litigant pays his
own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” Marx v.
Gen. Revenue Corp., 568 U.S. 371, 382 (2013) (internal citations and quotation marks
omitted). Notwithstanding the American Rule, the City points to the U.S. Supreme Court’s
purported recognition that federal courts sitting in equity possess the power to award
attorney’s fees in “exceptional cases and for dominating reasons of justice.” See ECF No.
315 at 10–11 (quoting Sprague v. Ticonic Nat’l Bank, 307 U.S. 161, 167 (1939)); see also
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Sprague, 307 U.S. at 164 (explaining that awards of attorney’s fees and costs in
appropriate situations, aside from those costs contemplated by statute, “is part of the
historic equity jurisdiction of the federal courts”).
By contrast, Open argues that the City’s request for attorney’s fees is premised on
a misreading of Sprague, which more narrowly permitted “the trustee of a fund or other
property” to recover attorney’s fees in equity “from the fund or property itself or directly
from the other parties enjoying the benefit.” See ECF No. 321 at 10–11 (quoting Alyeska
Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 257–58 (1975) (construing
Sprague)). According to Open, the trustee exception identified in Sprague is one of the
few “judicially fashioned exceptions to the general rule against allowing substantial
attorney’s fees,” and it does not extend to any and all actions in equity.14 Id. at 10 (quoting
Alyeska Pipeline, 421 U.S. at 259–60); see Alyeska Pipeline, 421 U.S. at 260 (Congress
has not “extended roving authority to the Judiciary to allow counsel fees as costs or
otherwise whenever the courts might deem them warranted”).
A careful reading of the Supreme Court’s jurisprudence in this area would tend to
support Open’s position. Although the Court presently sits in equity to determine
restitution amounts in a case in which Open was found to have acted fraudulently, the
Court is “not free to fashion drastic new rules with respect to the allowance of attorney’s
fees to the prevailing party in federal litigation.” Alyeska Pipeline, 421 U.S. at 269. Aside
14 Other “judicially fashioned exceptions” to the American Rule recognized by the Supreme Court have
included assessment of attorney’s fees “for the willful disobedience of a court order . . . as part of the fine
to be levied on the defendant,” or “when the losing party has acted in bad faith, vexatiously, wantonly, or
for oppressive reasons.” Alyeska Pipeline, 421 U.S. at 258–59 (collecting cases). The City does not invoke
these exceptions here.
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from the few judicially recognized exceptions to the American Rule noted above,
Congress has “reserved to itself” the power “to carve out specific exceptions to [the]
general rule that federal courts cannot award attorney’s fees.” Id. Thus, absent a specific
statute or a valid contractual provision authorizing an award of attorney’s fees, the Court
declines to grant any.15 Marx, 568 U.S. at 382.
For these reasons, the Court declines to award the City its attorney’s fees and
costs in connection with this action.
6. Pre-judgment interest
Finally, the City seeks pre-judgment interest (PJI) on the restitution categories
identified above, to be calculated on a compound annual basis from April 15, 2023,
through the date of final judgment. See ECF No. 315-2; see also ECF No. 315 at 5–6 (PJI
for project costs), 7 (PJI for third-party consultant costs), 8–9 (PJI for labor costs), 10 (PJI
for lost net revenue).16
An award of pre-judgment interest “rests firmly within the sound discretion of the
trial court.” E.E.O.C. v. W. Trading Co., Inc., 291 F.R.D. 615, 621 (D. Colo. 2013) (quoting
Caldwell v. Life Ins. Co. of N. Am., 287 F.3d 1276, 1287 (10th Cir. 2002)). “A two -step
analysis governs the determination of such an award.” Id. (quoting Caldwell, 287 F.3d at
15 Even assuming that attorney’s fees were authorized, the Court sees little reason to award them as a
matter of equity. In particular, the City unnecessarily prolonged this litigation this by refusing to elect among
its available remedies until forced to do so by the Court. Had the City chosen either to rescind or affirm the
Agreements much earlier in the case, the parties’ trial likely would have been half as long, and the issues
half as complex. The Court is not inclined to reward the City’s counsel for this strategery. See Kline Hotel
Partners v. Aircoa Equity Interests, Inc., 729 F. Supp. 740, 743 (D. Colo. 1990).
16 As discussed above, the Court in its discretion has declined to award any amounts in connection with the
City’s lost net revenue.
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1286). In exercising its discretion, “[t]he district court must first determine whether the
award of pre-judgment interest will serve to compensate the injured party. Second, even
if the award of pre-judgment interest is compensatory in nature, the district court must still
determine whether the equities would preclude the award of pre -judgment interest.” Id.
Here, the Court finds that awarding PJI to the City would be compensatory rather
than punitive. As noted by the Tenth Circuit in Caldwell, “the rule in this circuit is that pre-
judgment interest is generally available to compensate the wronged party for being
deprived of the monetary value of his loss from the time of the loss to the payment of the
judgment.” Caldwell, 287 F.3d at 1286 (citation omitted). Awarding PJI on the City’s
project costs, third-party consulting costs, and labor costs would simply put the City in the
position it would have been but for Open’s fraudulent conduct; as such, PJI in this case
would serve to compensate the City rather than punish Open.
Similarly, the Court finds that awarding PJI to the City would not be inequitable.
The Tenth Circuit has held that “pre-judgment interest should normally be awarded on
successful federal claims.” W. Trading Co., 291 F.R.D. at 621 (citations omitted). Nothing
in this case removes it from the norm; therefore, the Court concludes that the equities
weigh in favor of granting PJI in this case.
Therefore, the Court awards the City PJI for its project costs, third-party consulting
costs, and labor costs discussed above.
III. CONCLUSION
Consistent with the foregoing analysis, the Court ORDERS as follows:
(1) Defendants’ Motion for Judgment Under Rule 52(c), ECF No. 314, is DENIED;
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(2) The Clerk of Court is directed to enter final judgment in favor of the City in the
following amounts, as well as post-judgment interest at the rate set by 28 U.S.C.
§ 1961:
a. $8,756,659 in project costs;
b. $456,024 in third-party consulting costs;
c. $4,376,969 in labor costs; and
(3) Within 10 days of this Order, the City shall file a supplement to Mr. Seigneur’s pre-
judgment interest calculations in ECF No. 315-2, setting forth the amounts of pre-
judgment interest due on the City’s project costs, third-party consulting costs, and
labor costs from April 15, 2023, through the date of final judgment. The Court will
enter a separate Order awarding these pre -judgment interest amounts
accordingly.
DATED this 21st day of March 2024.
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 1:21-cv-02063-CNS-SBP
CITY OF FORT COLLINS, a Colorado home rule municipality,
Plaintiff,
v.
OPEN INTERNATIONAL, LLC, a Florida limited liability company and
OPEN INVESTMENTS, LLC, a Florida limited liability company,
Defendants.
FINAL JUDGMENT
In accordance with the orders filed during the pendency of this case, and
pursuant to Fed. R. Civ. P. 58(a), the following Final Judgment is hereby entered.
This action was tried before a jury of eight duly sworn to try the issues herein with
United States District Judge Charlotte N. Sweeney presiding, and the jury has rendered
a verdict. Pursuant to the jury verdict, orders issued during the trial, and the Order
entered on March 21, 2024, [ECF No. 327] it is
ORDERED that judgment is entered in favor of the plaintiff, City of Fort Collins,
and against the defendants, Open International, LLC and Open Investments, LLC, as to
fraudulent inducement in the following amounts:
a. $8,756,659 in project costs;
b. $456,024 in third-party consulting costs;
c. $4,376,969 in labor costs.
It is
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FURTHER ORDERED that post-judgment interest shall accrue in accordance
with 28 U.S.C. § 1961 at a rate of 5.02% from the date of entry of this Judgment. It is
FURTHER ORDERED that the plaintiff is awarded its costs, to be taxed by the
Clerk of the Court pursuant to Fed. R. Civ. P. 54(d)(1) and D.C.COLO.LCivR 54.1. It is
FURTHER ORDERED that this case is closed.
Dated: March 26, 2024.
FOR THE COURT:
Jeffrey P. Colwell, Clerk
By s/ J. Dynes
J. Dynes, Deputy Clerk
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 1:21-cv-02063-CNS-SBP
CITY OF FORT COLLINS, a Colorado home rule municipality,
Plaintiff,
v.
OPEN INTERNATIONAL, LLC, a Florida limited liability company and
OPEN INVESTMENTS, LLC, a Florida limited liability company,
Defendants.
AMENDED FINAL JUDGMENT
In accordance with the orders filed during the pendency of this case, and
pursuant to Fed. R. Civ. P. 58(a), the following Final Judgment is hereby entered.
This action was tried before a jury of eight duly sworn to try the issues herein with
United States District Judge Charlotte N. Sweeney presiding, and the jury has rendered
a verdict. Pursuant to the jury verdict, orders issued during the trial, and the Orders
entered on March 21, 2024, and March 28, 204, [ECF Nos. 327 and 331] it is
ORDERED that judgment is entered in favor of the plaintiff, City of Fort Collins,
and against the defendants, Open International, LLC and Open Investments, LLC, as to
fraudulent inducement in the following amounts which include pre-judgment interest:
a. $12,245,881 in project costs;
b. $578,280 in third-party consulting costs;
c. $7,067,286 in labor costs.
It is
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FURTHER ORDERED that post-judgment interest shall accrue in accordance
with 28 U.S.C. § 1961 at a rate of 5.02% from March 26, 2024, the date of the Final
Judgment [ECF No. 329]. It is
FURTHER ORDERED that the plaintiff is awarded its costs, to be taxed by the
Clerk of the Court pursuant to Fed. R. Civ. P. 54(d)(1) and D.C.COLO.LCivR 54.1.
Dated: March 28, 2024.
FOR THE COURT:
Jeffrey P. Colwell, Clerk
By s/ J. Dynes
J. Dynes, Deputy Clerk
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Appellate Case: 24-1152 Document: 46 Date Filed: 11/14/2024 Page: 95
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
JUDGE CHARLOTTE N. SWEENEY
Civil Action: 21-cv-02063-CNS-SBP Date: August 15, 2024
Courtroom Deputy: Julie Dynes Court Reporter: Sarah Mitchell
Parties Counsel
CITY OF FORT COLLINS
Case Collard
John Duval
Andrea Wechter
Plaintiff/Counter Defendant
v.
OPEN INTERNATIONAL LLC
OPEN INVESTMENTS LLC
Laurie Daniel
Jeffrey Sandman
Paul Swanson
Defendant/Counter Claimant
COURTROOM MINUTES
ORAL ARGUMENT
Court in Session: 1:01 p.m.
Appearance of counsel. Also present at the plaintiff’s table is City Attorney Carrie Daggett; also
present at defense table is client representative William Corredor.
Argument as to [302] Defendants’ Rule 50(b) Renewed Motion for Judgment as a Matter of Law
given by Ms. Daniel, Ms. Wechter, and Mr. Collard.
As outlined on the record, it is
ORDERED: [302] Defendants’ Rule 50(b) Renewed Motion for Judgment as a Matter of
Law is DENIED.
Argument as to [347] Defendants’ Post-Trial Motions Pursuant to Rule 50(b), Rule 52, and Rule
59(e), and Rule 59(a) given by Ms. Daniel and Mr. Collard.
Case No. 1:21-cv-02063-CNS-SBP Document 367 filed 08/15/24 USDC Colorado
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Appellate Case: 24-1152 Document: 46 Date Filed: 11/14/2024 Page: 96
As outlined on the record, it is
ORDERED: [347] Defendants’ Post-Trial Motions Pursuant to Rule 50(b), Rule 52(b),
Rule 59(e), and Rule 59(a) is DENIED.
The Court will enter a text-only order fixing the original judgment amount, noting that the
amended judgment is correct.
Court in Recess: 2:31 p.m. Hearing concluded Total time in Court: 01:30
Case No. 1:21-cv-02063-CNS-SBP Document 367 filed 08/15/24 USDC Colorado
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Proceedings reported by mechanical stenography ;
transcription produced via computer .
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 21-cv-02063-CNS-SBP
CITY OF FORT COLLINS,
Plaintiff,
vs.
OPEN INTERNATIONAL, LLC and OPEN
INVESTMENTS, LLC,
Defendants.
--------------------------------------------------------------
REPORTER'S TRANSCRIPT
Oral Argument
--------------------------------------------------------------
Proceedings before the HONORABLE CHARLOTTE N. SWEENEY, Judge,
United States District Court for the District of Colorado,
commencing on the 15th day of August, 2024, in Courtroom
A-702, United States Courthouse, Denver, Colorado.
APPEARANCES
For the Plaintiff:
CASE L. COLLARD and ANDREA A. WECHTER, Dorsey & Whitney LLP,
1400 Wewatta St., Ste. 400, Denver, CO 80202
For the Defendants:
PAUL D. SWANSON, Holland & Hart LLP, 555 17th St., Ste. 3200,
Denver, CO 80201
LAURIE W. DANIEL and JEFFREY I. SANDMAN, Webb Daniel
Friedlander, LLP, 75 14th St. NE, Ste. 2450, Atlanta, GA 30309
Sarah K. Mitchell, RPR, CRR, 901 19th Street, Room A252,
Denver, CO 80294, 303-335-2108
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understanding that argument. It doesn't make sense to me. We
covered it in the brief, that if their position is that Open
Investments isn't liable, then you have to bring that up at
the liability stage. It doesn't have anything to do with the
remedy that is chosen.
And then the final -- sorry -- I maybe said final
already -- I think that -- by the way, I think the failure to
make the distinction at the jury instruction and verdict form
phase, that's really the fatal blow right there is that they
didn't object to treating Open together there, so I think I've
covered the idea that I don't think Open Investments is an
innocent party.
But I think the last point is they seem to be
advocating for you to do some independent analysis at the
remedy stage, at the restitution stage as part of your
equitable analysis. I think it's important that there's
probably an issue preclusion issue there where you cannot
contradict the jury's verdict as you handle the equitable
restitution phase of the case, because the jury has already
made this finding, so you can't make a contrary finding when
it's already been litigated in this case. I think that that
would be issue preclusion.
Okay. I think unless you have any questions, that's
all I have.
THE COURT: I do not. Thank you.
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All right. With respect to ECF 302, the Rule 50
renewed motion for judgment as a matter of law, I am denying
that motion largely for reasons that I've already put on the
record, and through our conversation here today there's been
supplemental reasons. I'm just skimming through to see if
there's anything that I had not addressed that I should put
on.
I have addressed I think three other times the issue
of then existing facts and reasonable reliance, justifiable
reliance, the intention to induce. I adopt and incorporate my
prior rulings at trial on those issues. The economic loss
we've discussed significantly today, and for the reasons I've
put on the record, I find Bermel and McWhinney to be
dispositive, though I will note Ms. Wechter's cite to Goodrich
is also critically important given these were alternative
remedies, and if the tort claim went forward, the contract
claim wouldn't, and vice versa. So I think that supplies an
additional reason why the economic loss rule could not
possibly bar the relief on the fraudulent inducement claim.
Waiver, I think that comes up again, and you all
didn't talk about it yet. Are we doing that again in the part
of the next series?
MS. DANIEL: Your Honor, whether we do it in the next
part or now, I do have one additional thing I would like to
say, and when you mentioned waiver, I'm not sure which --
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which waiver.
THE COURT: In 302 it's waiver of the claim.
MS. DANIEL: Right. And, of course, we, you know,
argued in our briefing there's a difference between waiver of
claim and waiver of remedies, so I did want to remind the
Court on that. But there's one other thing that I think is
pertinent here maybe for me to mention now for the Court's
consideration, and that is on the question of fraud, Open
Investments, of course their financials were included. They
were a guarantor.
They were a guarantor, and if the City had affirmed
the contract rather than rescind it, they would have been a
guarantor. So that's a reason why there was no waiver until
-- no waiver at all, but it was when the City chose to rescind
rather than affirm the contract that it became obvious that
they needed to say, wait a minute, that's different. So
that's all I wanted to say on that at this point.
THE COURT: Well, let me proceed. Let me address
this, and maybe we'll address it again, but I think the
subsequent waiver issue is about the rescission remedy. So
let me just say because we didn't talk about it as part of 302
I've already -- we've already discussed whether the claim of
fraudulent inducement was waived by an untimely -- by
continuing the contract allegedly after they knew enough to
rescind. I've already ruled on that as part of the prior
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rulings on Rule 50s.
I would simply note that in reviewing that, the
record in preparation for today, I was reminded that the
evidence that came in at trial was somewhat different than on
summary judgment, and I think it supported my decision that
the claim had not been waived, and the jury's findings that it
had not been waived, more importantly, but there's no basis to
disturb the jury's finding because I would have reached the
exact same conclusion, and the extensive testimony about what
happened in that springtime period really solidified that in
my mind, that the summary judgment ruling was correct, and
then, of course, the jury found that. So let me just note for
the record that I find the evidence was more substantial at
trial than on summary judgment with respect to that issue.
I find the latter two issues in 302 to be completely
moot. They dealt with the contract claims. The contract
claims are not at issue. But to the extent you need a ruling,
that's denied on subsections 2 and 3 in ECF 302.
So with that, let's go to the next motion, which I
don't know -- I feel like I need an explanation, though
perhaps you feel I don't deserve one, but why are we making so
many Rule 50(b) motions? I can't believe you actually wrote
in here you were renewing your Rule 50(a) and your 50(b) in
this document when you've already had four bites at the apple.
So this is -- I was surprised to read that. Again, you don't
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have to comment, but I felt the need to bring it up.
I would also note for the record in both of these
motions you completely violated my page limits which I allowed
simply because I prefer addressing things on the merits rather
than striking them. If this was a pretrial motion, these all
would have been stricken. But I just want to put that on the
record, because I really was dumbfounded that here we are
trying to do yet again a Rule 50.
MS. DANIEL: Your Honor, first off, we appreciate
your accepting the page -- extra pages from both the City and
us. I think it was kind of both sides that did that. I was a
little wondering about it when I was looking at standing
orders and such, but it seemed to me that you had been
accepting it, so I thank you for that.
As far as the Rule 50 renewals, appellate practice
can be a scary thing, and we've heard the word waiver a lot
today, and there's nothing scarier than being told that you
waived it because you hadn't made the right Rule 50(b) motion,
and so it was a little -- the explanation that I can give you
is Rule 52(b) has a quirky piece to it that says if there's an
issue that the jury has not decided, that you need to go ahead
and make your motion within 28 days of the verdict. And
that's -- the question here was the breach of contract claim
was there at the trial, but the jury did not reach it, so I
think that's what prompted that early -- the earliest
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Rule 50(b) motion, which normally you wouldn't see. But then
out of an abundance of caution, because 50(b) does speak in
terms of filing motion after the judgment, that's the
explanation I can give you for additional Rule 50(b) --
THE COURT: Well, all right. Suffice to say, I do
not want to address any of the Rule 50(a) or (b) issues as
part of the argument on ECF 353. We've covered those ad
nauseam. So with that kind of framework for you, you may
proceed to argue the other issues in your motion. So I would
direct you to the more pertinent issues, and, again, you may
pick and choose what you think you need to supplement.
Obviously, I've read the briefs and reviewed the record, so
feel free to focus on those you think warrant additional
explanation.
MS. DANIEL: And really, Your Honor, I think they are
briefed, and I don't want to take up your time unless you have
specific questions. The most important thing I think, though,
is the question on prejudgment interest, for example, and when
that starts, because that's a big difference in money. And we
cited cases saying that if there's a rescission, money is not
wrongfully withheld because prior to that there were claims
going both ways between the parties. But when they elected
the remedy of rescission -- and we have cases that say that
that's what triggers the right to prejudgment interest,
because it's not wrongfully withheld before then, so we do
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have cases here. That's really what I would really want to
point you to.
There's this other sleight of hand argument that we
made as far as what the Court ordered as far as going through
April, not June, as far as adding in interest --
THE COURT: And we'll come back to that, and that's
going to fall in the category I'm afraid for you of be careful
what you wish for, but we'll come back to that.
MS. DANIEL: Okay.
THE COURT: Because I will fix that, and I did see
what happened there, so we will fix that on the record. But
then let me ask you if you weren't going to address it to
address your argument, because we talked about it a little
earlier, but this allegation that the jury verdict is
inconsistent because of its different findings as to the
fraudulent inducement and negligent misrepresentation. I
think you heard Mr. Collard talk a little bit about that, that
there wasn't just one misrepresentation, and the jury could
have found any number, and how do we know what they did. I
kind of would like your response to that argument.
MS. DANIEL: Well, I think basically the response is
that the City's evidence and presentation and arguments was
that misrepresentations went all along the way, and I think
their expert even did that, and they were relying heavily on
this -- you know, this -- the functionality matrix, and I
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think that their expert was talking in terms of negligence,
yet going there into that same area.
So as I look at it, you know, the question is if the
City -- you know, there were problems going along, and they
continued the contract. You know, there were revisions, and
they continued on knowing of the problems. It really doesn't
matter what the scienter was as far as Open International, and
that really the question is was the City accepting the
contract and continuing on, and so the difference between
negligent misrepresentation and intentional misrepresentation
seems to not matter. That's just not -- it doesn't matter.
And there's also -- well, I'll just leave it at that. That's
the explanation I can give you.
THE COURT: All right. Well, let me ask this
question, because as I was reviewing the record, and, frankly,
when I got that jury question, as the Court listening to the
evidence, I agree there were several avenues and statements
the jury could have latched on, and in particular for the
negligent misrepresentation, it struck me that the
representations that continually happened about the go-live
dates fall in the category of perhaps negligent
misrepresentations, and that would easily explain the jury's
verdict, because those would have been discovered the minute
it didn't go live on the date promised, and if the jury found
those were negligent misrepresentations versus something else,
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that would certainly account for their decision on the waiver
issue.
And while it's not our job to rebuild the jury
verdict, it is my job to look at it and see is there a
reasonable explanation for it, and to me, that was an easy
initial source, because at the time the evidence was coming in
that struck me, and I have no basis to conclude the jury did
something different.
MS. DANIEL: Well, you know, Your Honor, I think that
if you look at the jury questions, I think, you know, our take
on that is that the jury was confused, and they were -- there
were a lot of jury questions which is maybe -- maybe I'm -- I
found it unusual, and that they did go to these same issues.
So I think that, you know, given that, you know, the scienter
-- the scienter really is -- I don't see that it changes the
impact of the waiver analysis, and, again, that's my main
response to that is I don't think it's -- I don't think it
saves it.
THE COURT: All right. Well, let me just -- to save
time, because I don't think I need plaintiff to argue, my
finding on that portion of the motion is essentially there
wasn't an inconsistent verdict. There were a variety of
issues and statements that were made that were challenged
through the case. I think so far Mr. Collard has listed five,
being the matrix, the portal, the schedule, the software
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itself, and the version, the Version 8.
A couple of those, again, easily explain why a jury
might find that the statement -- the representation was
negligently made. The City became aware, for instance, when
it didn't go live, for instance, when it was confirmed they
weren't on Version 8 and had a duty to do something it didn't.
But that shouldn't -- in my mind, can't invalidate a jury
verdict as to some of the other what the plaintiff
characterized as intentional misrepresentations, whether it's
the matrix or the portal.
And I think Open's own witness didn't help on that
much, because I think it was -- I want to say it was
Mr. Corredor, but essentially said they spent 30,000 hours,
30,000 hours working on issues with the Milestone portal.
That -- that alone could justify the entire jury verdict's
finding that Open put in the RFP and graded their own portal,
yet used Milestone's, didn't disclose that, and then spent
30,000 hours of time during this contract on fixing the portal
that wasn't even supposed to be used.
So in my mind, the evidence even presented from
Open's side clearly illuminates the jury's decision, and as a
judge you quickly learn juries have a way of sorting through
the morass and really getting to the heart of the matter. And
as I review it under the standard I'm required to, there's
simply no way I could conclude this was an inconsistent
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verdict. There's absolutely a reasonable explanation for that
decision.
And I don't find the cross-out on the verdict form to
be relevant either. Juries frequently cross out things on
verdict forms. You'd be surprised by that. And that to me is
not indicative of anything. We polled the jury. They
confirmed it was their verdict. They heard it. And if there
was any hesitation whatsoever, that could have been remedied.
And I think this will come up on another issue, but
the number of jury questions, I'm one of the few judges that
allow juries to ask questions. I think in our last jury, what
did we have, Julie, 45, 48 questions, so the number in this
case dims in comparison, and that was in just a regular old
insurance contract. So I don't take the jury's questions to
be anything other than normal listening and attentive jurors
taking advantage of perhaps an overly optimistic judge's
willingness to let them ask questions, so that too is not a
reason.
So with that, let me just confirm there's no other
separate issue you want to argue in ECF 353.
MS. DANIEL: No, Your Honor. I think the other
issues that are in the briefing --
THE COURT: Okay.
MS. DANIEL: -- we ask you to consider, but I don't
think that we need to take them up today.
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THE COURT: All right. And so then let me turn to
the plaintiff's side. Do you specifically want to supplement
what's in the briefing about any of the issues raised?
MR. COLLARD: Can I have one moment, Your Honor?
THE COURT: Sure.
MR. COLLARD: Okay. Is there anything you want,
first of all? Maybe I'll ask that.
THE COURT: Well, I'm going to hold off on this
prejudgment interest issue and the labor costs because we're
going to come back to that at the end, so I may be talking to
you at the end about that. I think I understand what
happened, and it was a complete error on our part. But we
will fix that. So I may want to hear from you on that, but
otherwise, I read this as Open properly preserving issues on
appeal and inviting me to take a second look.
MR. COLLARD: One moment. Your Honor, a number --
one quick case that we want to put in the record that we think
-- I mentioned the issue preclusion argument before. I think
a lot -- not a lot -- I think some of these issues have the
same -- in the Rule 59 motion have the same issue where the
jury's finding would preclude a contrary finding from you.
I'll use laches as an example is another one. So I want to
give you Marquardt v. Perry, 200 P.3d 1126. It's a Colorado
appellate case, 2008, that covers that, but other than that,
we'll wait for you on PJI and whatever else you want us to
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cover.
THE COURT: I should ask you is there anything you
want to add about the inconsistent verdict, because it struck
me that a lot of time was spent in the briefing on that, and
if there's anything you want to add, I spent some time on it,
as did Ms. Daniel. So if there's anything you want to add on
that.
MR. COLLARD: Looking at my notes very quickly. I
think, Your Honor, I guess what I would say is, as you pointed
out, the scienter issue is not the only question or the only
difference since different conduct can map to each claim, and
then I would probably have -- if I could go back, cite your
Curtis Park decision which I think lays out the framework for
this analysis in great detail on how to do this analysis.
And then I think the final point that they made, that
this was not -- they made a claim this was a special verdict,
and in our view I don't think it was a special verdict,
because the ultimate legal result was fraud, and then there
was an equitable phase on restitution. I'll leave it there.
THE COURT: All right. Okay. So let's -- let's go
through this. I would add both parties set forth the
applicable standards for Rule 50(b), 52(b), 59(a), 59(e), and
essentially while I would say Rule 50 has its own special
higher burden in that, as I mentioned, I need to find proof
that is overwhelmingly in favor of the party who did not
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prevail to set aside any jury findings, and for the reasons
I've discussed, I just cannot find that based on the record.
The other three kind of combined motions really
target if there's an error in law or fact, and for the reasons
that I'll briefly put on the record, I find there is not, and
I'm denying ECF 347 almost in entirety, but we'll talk about
that error in a moment. So as I go through it, we've
discussed the inconsistent verdict. I don't have anything
else to add for the record there. I just would sum up by
saying there's a very clear path to how the jury got to the
result it did, and I do not feel there's overwhelming proof or
evidence such that I could overturn that in any way, shape, or
form.
We now come to waiver, the waiver of the rescission
remedy versus waiver of the claim. For reasons I've
discussed, the test is largely the same. There could be some
semantics in different cases that find there's a slightly
different way of wording it. I would note under any standard
as to rescission I would not find that -- and I do not find
that the City waived the rescission remedy, and I should
preface that by saying and reiterating that the matter of
election of remedies and when that was to happen was in my
discretion.
Based on discussions with the parties and review of
the record, it was clear to me that all of the evidence was
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Sarah K. Mitchell , RPR, CRR
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going to be presented, and there was no way to separate it
out, and thus there was no need to force an election, a
premature election, and that is why I made the decision I
made, and that is already on the record anyway. But once we
got there and now we have the jury verdict and looking at the
question of is the remedy waived, I find it was not.
Again, I go back to the testimony about the
functional review in the spring of 2021, and that is where
really the City had its first eye-opening look at what was --
had gone on and what was likely to continue. The
conversations between the two -- the two parties after that
solidified that in that really the option was to incur an
expense of $3 million to continue with Open with zero
guarantees of it working then, and that was something the City
chose not to do when faced with that option, so there's
nothing about that that I find the City lied in wait and tried
to get the benefit of a deal and did not elect timely.
I think what was happening was the City was working
in good faith to try and make this product work because it had
already invested a substantial sum into it, and abandoning it
without proper reason would not have been advisable. But once
it was learned as to the complete and utter deficiency of the
product through the functional review, it did elect to
terminate the contract and pursuant to my order could elect
the remedy of rescission upon the finding of liability.
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I should note with respect to -- I think in support
of the notion that some of these problems were not known to
the City until the functional review, I found Dwayne Bishop's
testimony to be extremely damaging to Open. He was running --
the head of the Milestone portal, and some of the e-mails
discussed and produced in evidence with him and Open
employees, frankly, were surprising in the sense that it
appeared Open was being told repeatedly of issues, was not
advising the City of issues, was hiding those issues such that
Mr. Bishop I think called this the worst project he had ever
worked on or something, and expressed dismay about how the
City was being treated.
So when you have your own agent making statements
like that, it doesn't bode well, and I think that is supported
by the notion that the functional review was the first time
the City had a clear and complete look that they had been
defrauded and the statements made to induce them into the
contract were not true, and that is I believe why the jury
found the way they did.
Let's see the next issue. So in that regard, I
certainly am denying the new trial on the waiver issue. With
respect to the handling of jury questions, I know we have a
disagreement about what the jury was confused about. I am
comfortable with the instruction they received, and I see no
error there, so I deny a new trial on that basis.
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In terms of amending the judgment pursuant to 52(b)
and 59(e), the Open Investments issue we've talked about
repeatedly. It is denied in this motion as well. Laches is
an issue for the Court. I made that finding at trial. I see
no basis to disturb it. There is no showing -- there was no
showing of unconscionable delay in enforcing rights in this
case. It did not even come close which is why I granted the
Rule 50 on that for the City and do not disturb that through
this ruling.
All right. Let's talk about the labor costs. I'll
deny the motion as to reimbursement of out-of-pocket costs.
We detailed the authority we were relying on. I'm still
relying on Trimble. I think there's a disagreement, and the
Tenth Circuit is the perfect party to hear that disagreement.
But with respect to the labor costs, let me say, I went back
because I was perplexed as to how we got there, and I'm not
quite sure we're all on the same page.
It is not fair, and it was somewhat misleading for
Open, frankly, to imply that I made a ruling that five-month
period was not included. I clearly made no such ruling. In
fact, what I did is I granted the labor costs. What appears
to have happened is we pulled the wrong number from the
briefing and inserted it. So by no way, shape, or form was I
intending to limit or cut off those five months from the labor
costs.
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So I believe what -- and Mr. Collard, this is where
I'm counting on you -- I think what's happened is in the
original judgment we used the wrong number of 4.4 something,
but in the amended judgment we actually used the correct
numbers assuming we'd use the correct numbers in the
beginning, meaning the amended judgment is correct.
MR. COLLARD: Your Honor, that is my understanding
from when we looked at it -- we looked at it while we were
briefing it, and the way I would say is there was a typo that
-- it's trying to get turned into a substantive thing. But I
think the number is correct. I think that the date range is
all that needs to be corrected.
THE COURT: All right. So -- and I'll let Open
comment on this, but -- and it's not even fair to say it was a
typo. We made an error, and so it's an error, and under
Rule 60 sua sponte I'm going to fix it, so I'm going to do a
nunc pro tunc amendment to the original judgment to get in the
correct number for the labor costs, which then asked for the
interest to be calculated. I think that fixes it unless
you're telling me somewhere there's an error about where we
put the wrong date, but I thought the amended judgment was
actually correct.
MR. COLLARD: You may be right, Your Honor, and when
I say the wrong date, I say the number was based on a
different date range, but I would have to -- rather than it
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actually listing the incorrect date. I'm going to stop. I
agree with you, Your Honor.
THE COURT: Well, that's an easy answer. Let me get
an opinion from Open knowing that you certainly didn't intend
to open a Pandora's box, but you did, but I think it's better
that we all go forward on appeal with the correct amounts, and
clearly we inserted the wrong number in the original judgment
is my feeling about it.
MS. DANIEL: Yeah, so, Your Honor, I have nothing
further to say. The Court says it was an error as far as
those numbers. I will make clear, though, I'm not waiving the
argument that the start date should have been the date of
rescission.
THE COURT: Certainly, yes. I understand that. So
that's what we're going to do, and I'll work on getting that
out. It will just be a text order correcting the first
judgment, and, again, I do not believe the amended judgment
needs to be corrected because by then we assumed the correct
underlying number in awarding prejudgment interest. And,
Mr. Collard, I'll -- you don't have to scramble right this
minute. What I'd say is we'll hold off until tomorrow. If
you think that's not accurate, what I want you to do is
consult and then send a joint e-mail, but I think in my review
that is what happened.
MR. COLLARD: Your Honor, I'm -- we'll do that. I'm
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pulling it up right now. I think I'm seeing this on page 23
of your March 21st order is I think the number that needs to
be updated, but we'll do what you said.
THE COURT: Let me see if I even brought that out.
MR. COLLARD: Maybe we should clarify right now while
we're here.
THE COURT: The March 21st order?
MR. COLLARD: Well, there's two, because there's
Docket 327 and 328, so maybe we should clarify the docket
number.
THE COURT: I would say 328.
MR. COLLARD: Okay.
THE COURT: And then as we look -- no, 328 is denial
of the -- oh, yeah, you're right.
MR. COLLARD: It has on it on page 23, the very last
page. I think it's that number in 2C.
THE COURT: So, yeah, the number in C should not have
been that. The issue is -- and I don't want to bore you with
the details -- but the 4.3 was laid out separately, and then
there was a request for a prejudgment interest. The 850 was
worded in such a way that it said here's what we incurred with
interest, so I think having no way to distinguish we assumed
that was in the 4.3, and it wasn't. But as we look at it, I
don't even -- I'll have to go back and pull that. But -- and
it could be that both parties feel because the amended
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judgment has the correct numbers, we don't need to do
anything.
MR. COLLARD: Your Honor, I'm happy to confer with
them. I think we've identified exactly where you want us to
focus, and so we'll make a proposal to them this afternoon or
this evening or tomorrow morning or as soon as we can, and
we'll e-mail you.
THE COURT: That sounds fine, and if it's not until
Monday, that's fine too, because the conferral could take
time. But that is exactly what happened is we simply pulled
the number for the first portion, didn't include those five
months believing it had been combined for some reason. It
clearly wasn't. But by the amended judgment we were using the
expert's numbers, and he had I think used the correct numbers,
and so the resulting 7 million with interest is correct. So
if you can confirm that or go through some exercise to
demonstrate what else happened, that would be helpful.
With that, is there anything else we need to address?
So let me make clear, I'm granting -- well, I think it's
easier to deny the motion that we just went through at 353,
and then what I'm doing is under Rule 60 is I'll just do a
text order fixing the original judgment amount, but by the
time the interest is added, the interest is using the correct
amount, so the amended judgment does not need to be changed.
Anything else from either party?
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MR. COLLARD: Your Honor, do you want to put
something specific on the record on the date of prejudgment
interest that I think was disputed?
THE COURT: Thank you. That's fair. For the reasons
that I already went through, I did find the cases relied on by
the City more compelling, and so that is the reason that we
used that date. So I'm denying the motion based on the -- on
Open's cites. I think in this case, given what occurred here,
the money was wrongfully withheld from the start given the
fraud, and it was appropriate to use that original date in
calculating the prejudgment interest, so that is why we did
that. So the motion is denied on that as part of the overall
denial. With that, we will be in recess.
MR. COLLARD: Are you going to issue a written order
or is this it?
THE COURT: This is it. It seemed to be the best way
to work through it and to let the parties supplement anything
they wanted to supplement. I think since you've -- the appeal
is waiting for you, it was the easiest way to get you on your
way. So we'll see what the Tenth Circuit does. We'll be in
recess.
THE COURTROOM DEPUTY: All rise. Court will be in
recess.
(The proceedings were concluded at 2:31 p.m.)
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