HomeMy WebLinkAbout2024-1152 - City v. Open International - 56 - Answer BriefCase No. 24-1152
In the
United States Court of Appeals
for the
Tenth Circuit
CITY OF FORT COLLINS, a Colorado home rule municipality,
Plaintiff-Appellee,
v.
OPEN INTERNATIONAL, LLC, a Florida limited liability company;
OPEN INVESTMENTS, LLC, a Florida limited liability company,
Defendants-Appellants.
_______________________________________
Appeal from a Decision of the United States District Court for the District of Colorado - Denver
Case No. 1:21-cv-02063-CNS-SBP ∙ Honorable Charlotte N. Sweeney, U.S. District Judge
ANSWERING BRIEF OF PLAINTIFF-APPELLEE
[ORAL ARGUMENT NOT REQUESTED]
CASE L. COLLARD*
(collard.case@dorsey.com)
MARAL J. SHOAEI
(shoaei.maral@dorsey.com)
ANDREA AHN WECHTER
(wechter.andrea@dorsey.com)
DORSEY & WHITNEY LLP
1400 Wewatta Street, Suite 400
Denver, CO 80202-5549
(303) 629-3400
*Counsel of Record
CARRIE MINEART DAGGETT, City Attorney
(cdaggett@fcgov.com)
JOHN R. DUVAL, Senior Litigation Counsel
(jduval@fcgov.com)
Fort Collins City Attorney
P.O. Box 580
Fort Collins, CO 80522
(970) 221-6520
Attorneys for Plaintiff-Appellee
COUNSEL PRESS ∙ (213) 680-2300
PRINTED ON RECYCLED PAPER
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TABLE OF CONTENTS
STATEMENT OF PRIOR OR RELATED CASES .............................................. IX
COUNTER-STATEMENT OF THE ISSUES PRESENTED FOR REVIEW ......... 1
COUNTER-STATEMENT OF THE CASE ............................................................. 2
Nature of the Case ........................................................................................... 2
Statement of Facts ............................................................................................ 4
A. The City’s RFP and Open’s Response. ....................................... 4
B. The 2021 Functional Matrix Review and Subsequent
Termination. ................................................................................ 6
C. The City Learns the Full Extent of Open’s
Misrepresentations During Discovery. ....................................... 8
Open’s Waived Arguments ............................................................................. 9
SUMMARY OF THE ARGUMENT ...................................................................... 11
ARGUMENT AND STANDARD OF REVIEW .................................................... 13
I. Substantial Evidence Supports the Jury’s Verdict on the City’s
Fraudulent Inducement Claim. ............................................................ 13
Standard of Review ............................................................................. 13
Argument ............................................................................................. 14
A. Substantial Evidence Was Presented to Jury on Open’s
Fraudulent Representations in its RFP Response
Regarding Then-Existing Functionalities of OSF. ................... 15
B. Other Substantial Evidence Supports the Jury’s Verdict. ......... 22
C. Open Cannot Reverse the Verdict Based On A Waived
Argument. ................................................................................. 26
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II. The City’s Fraudulent Inducement Claim is Not Subject to or
Barred By the Economic Loss Rule or the Subsequent MPSA’s
General Integration Clause. ................................................................. 27
Standard of Review ............................................................................. 27
Argument ............................................................................................. 27
A. The Economic Loss Rule Does Not Apply to Bar the
City’s Fraudulent Inducement Claim, Nor Its Rescission
Remedy. .................................................................................... 28
B. The MPSA’s Integration Clause Also Fails to Bar the
Claim. ........................................................................................ 34
III. The City Timely Rescinded After Learning of Open’s
Fraudulent Representations. ................................................................ 37
Standard of Review ............................................................................. 37
Argument ............................................................................................. 37
IV. Open Investments Is Liable for Fraudulent Inducement
Pursuant to the Jury Verdict and the Resulting Rescission
Award by the District Court. ............................................................... 42
Standard of Review ............................................................................. 42
Argument ............................................................................................. 42
A. Open Long Waived Any Argument that “Open
Investments” Should Be Excepted from the Verdict
Against Open on the City’s Fraudulent Inducement
Claim. ........................................................................................ 44
B. Open Investments Cannot Avoid the Fraudulent
Inducement Claim by Discounting the Evidence
Presented in Support of that Claim Against Open or
Avoid its Liability Based on the City’s Decision to
Rescind. ..................................................................................... 48
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iii
C. Open Investments is Liable for the Rescission Award. ............ 50
CONCLUSION ........................................................................................................ 52
CERTIFICATE OF COMPLIANCE ....................................................................... 54
CERTIFICATE OF DIGITAL SUBMISSION ....................................................... 55
CERTIFICATE OF SERVICE ................................................................................ 56
ADDENDUM
Day 6 Rule 50 motion to include the argument and the entirety of
the Court’s ruling ..................................................................................... Add.1
Day 9 Rule 50 motion to include the argument and the entirety of
the Court’s ruling ................................................................................... Add.18
August 15, 2024 hearing transcript to include the argument and
the entirety of the Court’s ruling .......................................................... Add.38
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TABLE OF AUTHORITIES
Page(s)
Cases
1881 Extraction Co., LLC v. Kinja Corp.,
660 F. Supp.3d 1059 (D. Colo. 2023)................................................................. 30
Agri-Systems v. Structural Techs., LLC,
19-cv-02238-CMA-STV, 2023 U.S. Dist. LEXIS 145780 (D. Colo.
Aug. 18, 2023) .................................................................................................... 30
America’s Collectibles Network, Inc. v. Sterling Commerce (Am.),
Inc., 3:09-cv-143, 2016 U.S. Dist. LEXIS 195369 (E.D. Tenn.,
Sept. 7, 2016) ...................................................................................................... 41
Bangert Bros. Constr. Co., Inc. v. Kiewit W. Co.,
310 F.3d 1278 (10th Cir. 2002) .......................................................................... 14
Bankers Trust Co. v. International Trust Co.,
113 P.2d 656 (Colo. 1941) .................................................................................. 38
Barfield v. Hall Realty, Inc.,
232 P.3d 286 (Colo. App. 2010) ......................................................................... 15
Bermel v. BlueRadios, Inc.
440 P.3d 1150 (Colo. 2019) ................................................................................ 31
BRW, Inc. v. Dufficy & Sons, Inc.,
99 P.3d 66 (Colo. 2004) ...................................................................................... 32
In Re Busch,
369 B.R. 614 (B.A.P. 10th Circ. 2007)............................................................... 51
Cabs, Inc. v. Hartford Ins. Grp.,
151 F. App’x 604 (10th Cir. 2005) ..................................................................... 37
Colorado Coffee Bean, LLC v. Peaberry Coffee, Inc.,
251 P.3d 9 (Colo. App. 2010) ............................................................................. 36
Appellate Case: 24-1152 Document: 56 Date Filed: 01/15/2025 Page: 5
v
Connett v. Justus Enters.,
68 F.3d 382 (10th Cir. 1995) .............................................................................. 27
Dream Finders Homes LLC v. Weyerhaeuser NR Co.,
506 P.3d 108 (Colo. App. 2021) ......................................................................... 31
Elk River Assocs. v. Huskin,
691 P.2d 1148 (Colo. App. 1984) ........................................................... 37, 38, 39
Evanston Ins. Co. v. Desert State Life Mgmt.,
56 F.4th 899 (10th Cir. 2022) ............................................................................. 37
Farm Bureau Life Ins. Co. v. Am. Nat’l Ins. Co.,
408 F. App’x 162 (10th Cir. 2011) ............................................................... 42, 48
Former TCHR, LLC v. First Hand Mgmt. LLC,
317 P.3d 1226 (Colo. App. 2012) ....................................................................... 32
Gladden v. Guyer,
426 P.2d 953 (Colo. 1967) ............................................................................ 38, 39
Glass Containers Corp. v. Miller Brewing Co.,
643 F.2d 308 (5th Cir. 1981) .............................................................................. 51
Goodrich v. Alterra Mt. Co.,
20-cv-01057-RM-SKC, 2021 U.S. Dist. LEXIS 118676 (D. Colo.
June 25, 2021) ..................................................................................................... 29
Goodwin v. Smith-Chambers,
21-cv-3421-WJM-STV, 2024 U.S. Dist. LEXIS 24203
(D. Colo. Feb. 9, 2024) ....................................................................................... 51
Hamon Contractors, Inc. v. Carter & Burgess, Inc.,
229 P.3d 282 (Colo. App. 2009) ......................................................................... 32
Home Loan Inv. Co. v. St. Paul Mercury Ins. Co.,
827 F.3d 1256 (10th Cir. 2016) .......................................................................... 45
Johnson v. Ablt Trucking Co.,
412 F.3d 1138 (10th Cir. 2005) .......................................................................... 15
Appellate Case: 24-1152 Document: 56 Date Filed: 01/15/2025 Page: 6
vi
Keller v. A.O. Smith Harvestore Prods., Inc.,
819 P.2d 69 (Colo. 1991) .................................................................................... 35
Knowlton v. Teltrust Phones, Inc.,
189 F.3d 1177 (10th Cir. 1999) ..................................................14, 26, 33, 42, 45
Levin v. Five Corners Strategies,
541 F. Supp.3d 1262 (D. Colo. 2021)........................................................... 28, 29
In re Mascio,
454 B.R. 146 (D. Colo. 2011) ............................................................................. 39
McNees v. Ocwen Loan Servicing, LLC,
853 Fed. Appx. 211 (10th Cir. 2021) .................................................................. 29
McWhinney Centerra Lifestyle Center LLC v. Poag & McEwen
Lifestyle Centers-Centerra, LLC,
486 P.3d 439 (Colo. App. 2021) ......................................................................... 31
Mile High Indus. v. Cohen,
222 F.3d 845 (10th Cir. 2000) ............................................................................ 37
Miller v. Eby Realty Grp., LLC,
396 F.3d 1105 (10th Cir. 2005) .......................................................................... 46
Pensford Fin. Grp. LLC v. 303 Software Inc.,
1:18-cv-03286-RM-SKC, 2019 U.S. Dist. LEXIS 79436 (D. Colo.
May 10, 2019) ..................................................................................................... 35
Perez v. El Tequila, LLC,
847 F.3d 1247 (10th Cir. 2017) .......................................................................... 45
Ralston Oil and Gas Co. v. July Corp .,
719 P.2d 334 (Colo. 1985) ............................................................................ 37, 41
RE/MAX, LLC v. Quicken Loans Inc.,
295 F. Supp.3d 1163 (D. Colo. 2018)................................................................. 33
Romero v. Helmerich & Payne Int’l Drilling Co.,
768 F. App’x 838 (10th Cir. 2019) ..................................................................... 25
Appellate Case: 24-1152 Document: 56 Date Filed: 01/15/2025 Page: 7
vii
S K Peightal Engineers, LTD v. Mid Valley Real Est. Sols. V, LLC,
342 P.3d 868 (Colo. 2015) .................................................................................. 32
Scheeler v. Canopy Holdings LLC,
22-cv-02417-DDD-NRN, 2023 U.S. Dist. LEXIS 97487 (D. Colo.
June 5, 2023) ....................................................................................................... 31
Servants of the Paraclete v. Does,
204 F.3d 1005 (10th Cir. 2000) .......................................................................... 52
Skinner v. Total Petroleum, Inc.,
859 F.2d 1439 (10th Cir.1988) ........................................................................... 52
Steak n Shake Enterprises, Inc. v. Globex Co., LLC,
110 F. Supp.3d 1057 (D. Colo. 2015)................................................................. 36
Stroup v. United Airlines, Inc.,
26 F.4th 1147 (10th Cir. 2022) ........................................................................... 15
Thunder Basin Coal Co. v. Sw. Pub. Serv. Co.,
104 F.3d 1205 (10th Cir. 1997) .......................................................................... 13
Tigerdirect, Inc. v. Manhattan Assocs.,
05-22591-CIV-MOORE, 2006 U.S. Dist. LEXIS 114699 (S.D. Fla.
Nov 6, 2006) ....................................................................................................... 41
Town of Alma v. AZCO Constr., Inc.,
10 P.3d 1256 (Colo. 2000) .................................................................................. 27
United Int’l Holdings, Inc. v. Wharf (Holdings) Ltd.,
210 F.3d 1207 (10th Cir. 2000) .......................................................................... 45
Univ. of Denv. v. Doe,
547 P.3d 1129 (Colo. 2024) ................................................................................ 32
Van Rees v. Unleaded Software, Inc.,
373 P.3d 603 (Colo. 2016) ..................................................................... 27, 29, 30
Veolia Water Techs., Inc. v. Antero Treatment LLC,
2024 COA 126 .................................................................................. 28, 38, 39, 40
Appellate Case: 24-1152 Document: 56 Date Filed: 01/15/2025 Page: 8
viii
Webb v. ABF Freight Sys., Inc.,
155 F.3d 1230 (10th Cir. 1998) .................................................................... 27, 42
Other Authorities
Fed. R. Civ. P. 46 ..................................................................................................... 52
Fed. R. Civ. P. 50(a)........................................................ 9, 10, 33, 43, 44, 45, 46, 49
Fed. R. Civ. P. 50(a)(2) ............................................................................................ 46
Fed. R. Civ. P. 50(b) .............................................................................. 10, 29, 33, 45
Fed. R. Civ. P. 52 ..................................................................................................... 51
Fed. R. Civ. P. 52(a)(5) ............................................................................................ 51
Fed. R. Civ. P. 52(c)................................................................................................. 44
Fed. R. Civ. P. 59 ..................................................................................................... 51
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STATEMENT OF PRIOR OR RELATED CASES
There are no prior or related cases.
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COUNTER-STATEMENT OF THE ISSUES PRESENTED FOR REVIEW
1. Whether the record, viewed in the light most favorable to the City, lacks
substantial evidence to support the jury’s verdict on the City’s fraudulent
inducement claim.
2. Whether the economic loss rule or a subsequent contract’s general
integration clause bars an intentional tort claim of fraudulent inducement based on
pre-contractual misrepresentations.
3. Whether the City’s judgment should be affirmed when the City
promptly sought to rescind the contract even before obtaining full knowledge of
Open’s pre-contractual misrepresentations.
4. Whether Open can separate Open Investments from Open International
and carve Open Investments out of the jury verdict finding both entities jointly liable
for fraudulent inducement despite not preserving the issue and contrary evidence.
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COUNTER-STATEMENT OF THE CASE
Nature of the Case
This action arises out of misrepresentations made by Defendants/Appellants
Open International, LLC and Open Investments, LLC’s (jointly “Open”) when
trying to win a bid for a billing software contract with the City of Fort Collins (the
“City”). During the bid process, Open claimed to have a software product that met
nearly all of the City’s requirements for a new billing system for its broadband and
utility systems, but Open’s contemporaneous, internal documents revealed that Open
knew its software fell far short. Open’s misrepresentations fraudulently induced the
City and won Open the contract. But Open failed to implement a functional,
integrated broadband and utilities billing system as required under the parties’
Master Professional Services Agreement (the “MPSA”) and Software License
Agreement, as well as a “Scope of Work” (“SOW”) (collectively “the Agreements”).
Instead, Open partially delivered a delayed, sub-standard system replete with major
flaws that failed to meet the City’s needs and remained mired in development from
the time the Agreements were signed until the City stopped the project.
Open constantly tried to shift blame to the City. The City still attempted to
address Open’s performance issues amicably, including entering into 29 project
change requests (“PCRs”) and a First Amendment to the MPSA (“First
Amendment”). After nearly three years of empty promises and despite receiving
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over $9 million from the City ($3 million more than the original contract price),
Open failed to deliver a functioning product . Accordingly, after following the
termination procedures in the MPSA, the City brought this action for fraudulent
inducement, negligent misrepresentation, breach of contract, breach of the implied
covenant of good faith and fair dealing, and declaratory judgment.
Following more than two years of litigation, the City presented its case to a
jury who unanimously found in favor of the City and against Open for fraudulent
inducement. In turn, the City rescinded the Agreements and, following a hearing on
the City’s rescission restitution amounts, the District Court entered judgment in the
City’s favor.
Open seeks to set aside the sound decisions of the jury and the District Court.
To do so, Open applies the wrong standard of review, seeking de novo review on
issues of credibility, the sufficiency of the evidence, and resolution of supposedly
conflicting evidence. Open also attempts to reverse the jury’s verdict based on a n
application of the economic loss rule, the integration clause, and the rescission
remedy that contradict case law. Further, Open raises arguments that it never raised
and/or waived, both at trial and during post-trial motions, especially with respect to
Open Investments’ liability. Open's arguments fail and judgment should be affirmed.
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Statement of Facts
A. The City’s RFP and Open’s Response.
On February 10, 2018, the City issued a Request for Proposal 8697 for
“Vendor Selection and Implementation of a Comprehensive Solution for
Utilities/Broadband Billing (CIS/OSS)” (the “RFP”) to implement a new Customer
Information System (“CIS”), manage its field services, and to serve the range of
software needs for both current City utilities (water, wastewater, stormwater, and
electric) and the City’s new municipal broadband utility called “Connexion.” See
(Supp. App. Vol. 8 at 2225, 2228-30).1
Open was one of eight vendors who responded to the City’s RFP. (App. Vol.
8 at 183). The City sought an integrated billing solution for utilities and broadband
and Open’s response claimed that its product “complies with the vast majority of the
functional and technical requirements of this RFP with one single and uniform
product: Open Smartflex” (“OSF” or “Smartflex”). (Supp. App. Vol. 4 at 1011).
Open further represented it had more than 30 years of experience and that its
software implementation “methodology is integrated with Open Smartflex” and
“[d]ue to this, Open has efficiently implemented many projects in a predictable
1 Pursuant to 10th Cir. R. 28.1(A), record citations are to the volume and page
number of Appellants’ appendix and Appellee’s contemporaneously filed
supplemental appendix.
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timeframe [], and the implementation time has been reduced by up to 60% over the
last five years. (Supp. App. Vol. 5 at 1154).
The RFP included a functional matrix—a chart listing all the functional
requirements needed for the product—and directed bidders to “accurately and
factually” complete the functional matrix. (Supp. App. Vol. 8 at 2143). In its RFP
response, Open graded its OSF product and responded to approximately 90% of the
functional requirements with an “A”—or as already existing in its current system.
See generally (Supp. App. Vol. 6 at 1506-1689); (Supp. App. Vol. 7 at 1690-1783);
see also (App. Vol. 11 at 90-91).
For example, a critical software requirement was an online portal so
customers could order services and manage their accounts. Open graded the
functionalities of a purported “homegrown” portal it built with nearly all “A’s” but
ultimately provided the City with a different portal created by a third party,
Milestone. It never told the City that the portal it graded was the “homegrown” portal
and not Milestone’s portal. (Supp. App. Vol. 1 at 172, 215); see also (Supp. App.
Vol. 2 at 388). Open also stated that its implementation would occur in two phases—
the first would take “12 months with a three-month post-go-live support period” and
the second would “occur one month later [and] have four months post -go-live
support” (i.e. 13 months of implementation)—and that this time was “quite
adequate” based on its experience. (Supp App. Vol. 5 at 1155).
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Open was the expert on its own product and its capabilities. Relying on Open’s
misrepresentations, the City selected Open as the vendor. See (App. Vol. 8 at 113-
16); id. at 184-85, 190-92. The parties engaged in negotiations and executed the
MPSA and Software License Agreement on August 9, 2018, incorporating the RFP,
Open’s RFP Response, and the SOW into the MPSA. See (App. Vols. 19-20). Under
the SOW, Open agreed to deliver its SmartFlex product by June 2019 for Connexion
(known as “Go Live for Broadband”) and by mid-September 2019 for the City’s
other utilities (known as “Utilities Go Live”). (App. Vol. 19 at 53).
The project kicked off in late 2018 and over its course (often based on Open’s
representations and attempts to blame the City for delays or understaffed resources),
the parties negotiated and executed 29 PCRs, as well as a First Amendment dated
June 2, 2020, to allocate responsibility for additional costs and continue moving the
project forward. (App. Vol. 8 at 26-30).
B. The 2021 Functional Matrix Review and Subsequent Termination .
In early 2021, after years of delays, the parties undertook a joint,
comprehensive review of the functional matrix to evaluate whether OSF was
performing as Open represented. The City also retained TMG Consulting to provide
an in-depth project analysis. This 2021 work revealed that Open’s software lacked
significant functionalities that Open had claimed were a part of its software. See
(App. Vol. 7 at 89-90, 108) (City’s CFO, Travis Storin, testifying that the realization
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about Open’s misrepresentations “was a gradual process” and that “the TMG report
and functional matrix work was the point in time where [he] said I think we may
have gotten swindled”). Specifically, during the functional matrix review in April
and May 2021, the City determined for the first time that Open’s pre-contractual
assertions about its software’s capabilities were false. Id. at 111.
On May 28, 2021, the City served its Notice of Dispute and Notice of
Termination pursuant to Sections 13 and 17 of the MPSA and indicated that it would
seek to rescind the MPSA. (App. Vol. 22 at 6-14). As of that time, testing of the
system for the City’s traditional utilities had not been completed, Utilities Go-Live
had not occurred, and stabilization of OSF for Connexion had not been successfully
completed. See (App. Vol. 11 at 63 (confirming that the system was not fully
functioning); id. at 191-92 (testifying that the City never fully accepted OSF, Open
did not deliver a fully functioning OSF, and Open never delivered the utilities
portion of OSF). Pursuant to Section 13.2 of the MPSA, the City allotted Open 30 -
days to cure the issues. (App. Vol. 19 at 13). In June 2021, Open provided a “Reset
Proposal” including acknowledging the results of the functional matrix audit which
showed that only 240 out of 2,205 requirements—or 11.8%—were accepted by the
City as of June 2021. (Supp. App. Vol. 9 at 2473). The Reset Proposal also required
significant additional funds (i.e., over $3 million) and 15 months to complete. (App.
Vol. 14 at 176-86).
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Open’s Reset Proposal failed to cure the issues raised by the City in its Notice
“within thirty (30) days” as required (App. Vol. 19 at 13), so the City initiated this
lawsuit on July 2, 2021. (App. Vol. 1 at 49-186); (App. Vol. 2); (App. Vol. 3 at 46-
69). The City also promptly: (1) retained a second vendor, GLDS, to provide an
alternative to OSF for Connexion, (2) began the implementation work in August
2021, and (3) stopped all use of OSF for Connexion as soon as GLDS’s platform
was available in December 2021. (App. Vol. 7 at 107-08); (App. Vol. 11 at 30-32);
see also (App. Vol. 14 at 206).
C. The City Learns the Full Extent of Open’s Misrepresentations During
Discovery.
The City learned of the full extent of Open’s misrepresentations through
discovery. Despite having graded almost 90% of the required functionalities as “A”
in its March 2018 RFP response, the City learned for the first time through discovery
that Open’s undisclosed March 7, 2018 internal assessments confirmed that Open’s
OSF actually only had 59.4% of the City’s required functionalities at the time of the
RFP response. (App. Vol. 22 at 16-17) (emphasis added); see also (App. Vol. 13 at
41) (Open’s President, Hernando Parrott, admitting that Open never told the City
about this internal grading).
With respect to the portal, the City learned in discovery that Open had decided
on March 1, 2018—prior to submitting its RFP response—to stop developing its
“homegrown” portal and use instead a portal built by its partner, Milestone. (App.
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Vol. 14 at 145); see also id. at 147. Open knew it was going to use the Milestone
portal for the City, but graded its “homegrown” portal, falsely representing to the
City that almost all the required functionalities were grade “A.” See (App. Vol. 13
at 254-55) (confirming Open never told the City that it did not grade the Milestone
portal in the RFP response or that it graded only the “homegrown” portal).
Open’s Waived Arguments
Throughout the 2.5-year period of this case, including pre-trial and trial
proceedings, the City accused both Open entities jointly and Open repeatedly
represented itself “collectively” or “together” as “Open” or “Defendants,” including
in the Notice of Removal (Supp App. Vol. 1 at 46-49), Answer (App. Vol. 3 at 1-
45), Partial Motion for Summary Judgment (Supp. App. Vol. 1 at 50-85), Amended
Answer (App. Vol. 3 at 70-119), Final Pretrial Order (App. Vol. 3 at 184-224), and
written Rule 50(a) motion (App. Vol. 5 at 118-40). At trial, Open chose to present
itself as one collective entity. Open’s counsel affirmed this treatment in both
Opening Statements and Closing Arguments, asking the jury to find for “Open”
because “Open” was honest. (App. Vol. 7 at 24-26); (App. Vol. 15 at 91-103).
Importantly, Open never objected to the opening jury instructions which stated “The
defendants are Open International, LLC and Open Investments, LLC. We will now
just refer to them as Open or Open International .” (Supp. App. Vol. 4 at 925)
(emphasis added). Open also failed to object to the closing jury instru ctions’ use of
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10
“Open.” See (App. Vol. 5 at 143-74). Open also agreed to the City’s request that
element 5 for Instruction No. 15 on Fraudulent Inducement be clarified to state
“Open’s representation” (attributable to both Open entities) rather than just “the
representation.” (App. Vol. 15 at 5); (App. Vol. 5 at 158).
Most importantly, Open did not object to the verdict form, which applied
liability jointly to both entities. (App. Vol. 6 at 4-7). Finally, Open did not object to
the verdict before or after the District Court released the jury, despite opportunities
from the District Court to do so. (App. Vol. 15 at 154-56). Rather, it was two months
after the jury verdict, in its post-trial motions, when Open first claimed that
misrepresentations attributed to “Open” could not subject Open Investments to
liability. Similarly, Open never asserted that a rescission remedy would not apply to
Open Investments, despite the parties’ numerous briefings on election of remedies.
(App. Vol. 4 at 1-81).
In its Rule 50(a) and 50(b) motions at trial, Open argued that the City had
“waived” its right to rescission. See (App. Vol. 5 at 130); (App. Vol. 6 at 155)
(asserting waiver of rescission). However, Open’s rescission waiver argument was
decided by the jury. (App. Vol. 6 at 4-7). The District Court stated that the issue of
“waiver” would be included as “part of the first set of instructions” to the jury prior
to the City’s election of remedies and clarified—upon Open’s counsel’s specific
request—that the waiver instruction would be the CJI instruction and would
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11
encompass waiver of rescission. (App. Vol. 12 at 155-56). Despite being informed
that all waiver defenses (whether of fraud or rescission) were going to the jury under
a single waiver instruction, Open failed to object to the instruction —Instruction No.
23, (App. Vol. 5 at 166). (App. Vol. 15 at 6-7). On November 3, 2023, the jury
rejected any waiver defense to the fraudulent inducement claim.
SUMMARY OF THE ARGUMENT
First, Open ignores and mischaracterizes the evidence presented over the two -
week jury trial to assert that “the record is devoid of any evidence of an actual and
actionable material misrepresentation.” (Appellants’ Opening Brief (“Br.”) at 21).
Open applies the wrong standard of review, purportedly seeking de novo review on
issues of credibility, sufficiency of the evidence, and resolution of conflicting
evidence. Substantial evidence supports the jury’s determination that Open
fraudulently induced the City into the MPSA based on false material representations
about its software’s capabilities and functionalities that existed at the time of Open’s
March 2018 RFP response.
Second, Open intentionally misrepresented its then -existing software
functionalities and capabilities to induce the City into selecting it as the bid-winning
vendor and entering into the MPSA. Neither the economic loss rule nor the MPSA’s
general integration clause precludes the intentional tort of fraudulent inducement
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12
(nor the ultimate judgment and rescission remedy) based on Open’s pre-contractual
misrepresentations.
Third, the City did not waive its right to rescind because it timely rescinded
even before gaining full knowledge of Open’s fraudulent representations. The City
did not know of Open’s false representations until spring 2021, when the parties
conducted a comprehensive review of the functional matrix to evaluate whether OSF
was performing as required. After meetings between executives failed, the City sent
Open a default notice indicating that the City would seek to rescind the MPSA. After
waiting the necessary 30-day period, the City filed its complaint seeking rescission.
The City did not obtain the requisite “full knowledge” as to Open’s fraud until Open
disclosed during discovery its internal assessment showing that its system only met
59.4% of the City’s required functionalities at the time of its RFP response. The City
timely rescinded and did not waive its right to rescind.
Finally, knowing the City accused both Open entities of liability jointly as
“Open,” Open chose to affirmatively refer to Open Investments and Open
International collectively as “Open” for the entire case, including on the verdict
form. Open has long waived any argument that “Open Investments” is separate and
not liable under the elements of the City’s fraudulent inducement claim despite the
jury verdict against “Open.” Based on the parties’ agreement, the District Court
instructed the jury from the beginning of the trial that “Open” referred to both
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13
defendants, consistent with how the parties had referred to them throughout the 2.5-
year case. While Open now alleges that “Open” is the “appellation used exclusively
for Open International, LLC” (Br. at 2), no such distinction was ever made in the
record during trial, much less prior to the verdict, and no such jury instruction was
ever sought. More than sufficient evidence supports the jury’s finding of Open’s
fraud because evidence regarding “Open” pertained to both entities as instructed by
the District Court without any objection from Open. Open cannot now choose to cut
one of the entities out of the jury verdict with a belated claim that evidence
concerning “Open” only pertained to Open International.
The jury verdict and the District Court’s judgment should be affirmed.
ARGUMENT AND STANDARD OF REVIEW2
I. SUBSTANTIAL EVIDENCE SUPPORTS THE JURY’S VERDICT ON
THE CITY’S FRAUDULENT INDUCEMENT CLAIM.
Standard of Review
“When a jury verdict is challenged on appeal, our review is limited to
determining whether the record—viewed in the light most favorable to the prevailing
party—contains substantial evidence to support the jury's decision.” Thunder Basin
Coal Co. v. Sw. Pub. Serv. Co., 104 F.3d 1205, 1212 (10th Cir. 1997) (quotations
2 The City responds to Open’s arguments in a different order than Open’s Opening
Brief to address the issues chronologically.
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omitted).3 “Substantial evidence is something less than the weight of the evidence,
and is defined as such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion, even if different conclusions also might be
supported by the evidence.” Bangert Bros. Constr. Co., Inc. v. Kiewit W. Co., 310
F.3d 1278, 1292 (10th Cir. 2002) (quotations omitted). “Because the jury has the
exclusive function of appraising credibility, determining the weight to be given to
the testimony, drawing inferences from the facts established, resolving conflicts in
the evidence, and reaching ultimate conclusions of fact, th is standard of review is
quite deferential to the jury’s verdict.” Knowlton v. Teltrust Phones, Inc., 189 F.3d
1177, 1183-84 (10th Cir. 1999) (quotations omitted).
Argument
Substantial evidence supports the jury’s determination that “Open made a
false representation of a past or present fact to the City during the request for
proposal process,” that “[t]he fact was material,” that “[a]t the time of the
representation was made, Open knew that the representation was false,” that Open
made the representation with the intent that the City would rely on the
representation,” that “[t]he City relied on Open’s representation ,” that the “reliance
was justified,” and that “[t]his reliance caused damages or losses to the City.” (App.
3 For its citations, the City uses the uniform system set out in the Bluebook: a
Uniform System of Citations, and uses Lexis citations for unpublished caselaw.
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15
Vol. 5 at 159-163); see also Barfield v. Hall Realty, Inc., 232 P.3d 286, 290 (Colo.
App. 2010) (citing CJI-Civ. 4th 19:1). Open’s assertion that “the record is devoid of
any evidence of an actual and actionable material misrepresentation” from Open (Br.
at 21) requires this Court to ignore evidence and reject the jury’s evidentiary and
credibility determinations.
Judgment should be affirmed.
A. Substantial Evidence Was Presented to Jury on Open’s Fraudulent
Representations in its RFP Response Regarding Then-Existing
Functionalities of OSF.
The record contains substantial evidence supporting the jury verdict on the
City’s fraudulent inducement claim and judgment should not be reversed. See
Johnson v. Ablt Trucking Co., 412 F.3d 1138, 1144 (10th Cir. 2005) (“If there is any
plausible theory that supports the verdict, the reviewing court must affirm the
judgment.”). In any event, “the mere existence of contrary evidence does not itself
undermine the jury’s findings as long as sufficient other evidence supports the
findings.” Stroup v. United Airlines, Inc., 26 F.4th 1147, 1157 (10th Cir. 2022)
(quotations omitted).
The most striking example of Open’s false representation was its fraudulent
grading of its software in response to the City’s RFP in March 2018. The City, in
issuing the RFP for a software implementation vendor, listed thousands of functional
requirements for a software in a “functional matrix” and required that each vendor
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grade its software’s capabilities with respect to each functionality. More specifically,
the RFP required an “A” grade for functionalities that are “part of base system” and
for which “No Modification is required,” while “B” was for functionalities that were
still “In Development” at the time of the response and which are “Not Currently in
the system.”
(Supp. App. Vol. 6 at 1507).4 Open, in response, graded 89.7% of the required
functionalities as “A”—or as already existing in the current OSF system. See
generally id. at 1507-1689); (Supp. Vol. 7 1690-1783); see also (App. Vol. 11 at 90-
91) (the City’s expert’s quantification of the grading).
However, evidence at trial showed that Open’s March 7, 2018 internal
assessments (which took place before Open’s submission of the RFP response to the
City) confirmed that Open’s OSF actually only met 59.4% of the City’s required
4 Grades C through F indicated additional levels of development, modification and
coding, and Grade G indicated that the functionality would not be possible. (Supp.
App. Vol. 6 at 1507).
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functionalities as “Current functionalities” at that time, with 24.9% simply “Planned
for 2018,” 6.1% being other “Future developments” (beyond 2018), and so on:
(App. Vol. 22 at 16-17). Open’s President, Mr. Parrott, admitted that the percentage
of OSF’s then-current functionalities was actually 59.4% (i.e., should be graded A
per the RFP instructions) and that the planned functionalities for OSF was another
24.9% (i.e., should be graded B or lower) (with the two adding up to 84.3%). (App.
Vol. 13 at 36). Open’s internal grading was never disclosed to the City; instead,
Open made fraudulent representations in its RFP response. See id. at 41 (Mr. Parrott
admitting that no one at Open told the City about Open’s internal grading ).
Open now argues that the jury verdict cannot be sustained because its internal
grading chart (App. Vol. 22 at 16 -17) was “for a different type of internal analysis”
and Mr. Parrott’s purported explanation of why Open’s internal grading differed
from those in the functional matrix were “unrebutted” and “unrefuted .” (Br. at 39-
41). Open ignores that Mr. Parrott did not have knowledge about the internal
document during his deposition but allegedly gained an understanding by trial “from
reviewing the attachments to th[e] email.” (App. Vol. 12 at 185-86, 190). Mr. Parrott
then attempted to explain that the 24.9% noted as “Planned for 2018” pertained to
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“current functionalities” that just needed to be integrated . Id. at 191. He attempted
to justify Open’s grading of both “Current functionalities” and “Planned for 2018”
as grade “A” and currently existing in the system because , as he claimed, no
development was necessary. See id. But Mr. Parrott was impeached on cross -
examination when those “attachments” he reviewed revealed that Open had—in
Spanish—noted that the 24.9% indicated as “Planned for 2018” were not actually
“current functionalities” but were functionalities in development for 2018 (noted in
Spanish as “desarollo product 2018”) and thus, a grade “B”:
(Supp. App. Vol. 9 at 2506); see also (App. Vol. 13 at 37-41) (admissions as to the
same by Mr. Parrott, including confirming that “desarrollo producto 2018” means
“product development 2018”). That spreadsheet—which was aptly titled “resumen
cumplimiento” or “compliance summary” regarding OSF’s compliance with the
City’s functional matrix —reinforced that only 59.4% of OSF’s functionalities were
current functionalities in March 2018 (noted as “nativamente”), and thus a grade
“A.” (Supp. App. Vol. 9 at 2506); see also (App. Vol. 13 at 37-41). Mr. Parrott
provided no contrary testimony or explanation on re-direct. See generally (App. Vol.
12 at 159-292); (App. Vol. 13 at 85-98) (lacking the same).
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Not only did the City impeach Mr. Parrott, but the jury itself was concerned
with his conflicting testimonies. At the close of the trial day when Mr. Parrott
completed his testimony,5 the jury voiced its concern about the inconsistent
testimony presented by Open, asking: “I heard a lot of in -person testimony today
that was inconsistent with recorded deposition. What are your instructions for us, the
jury, how to deal with that?” (App. Vol. 13 at 261). This led the District Court to
provide the parties’ agreed-upon jury instruction on “Impeachment, Inconsistent
Statement or Conduct,” instructing the jury, in part, that “[i]f a witness is shown
knowingly to have testified falsely about any material matter, you have a right to
distrust such witness’s other testimony, and you may reject all of the testimony of
that witness, or give it such credibility as you may think it deserves.” Id. at 261-62;
(App. Vol. 14 at 4-5). Of course, the jury ultimately found Open to have committed
fraud, indicating that it did not find Open’s witnesses (or their explanations) to be
credible.6
5 See (App. Vol. 13 at 2) (listing “Defendants’ Witnesses” Hernando Parrott, Diego
Lopez, and Juan Corredor as witnesses for Trial Day 7).
6 Open was desperate for a U.S. customer and motivated to make misrepresentations
to be selected by the City, even writing its own customer reviews and references .
See (Supp. App. Vol. 9 at 2456-63) (internal email stating City was “the most
important opportunity we have in North American” and that “[n]ot having a winning
[RFP] proposal cannot be an option for us!!); (App. Vol. 12 at 201-02) (discussing
internal email warning that draft customer reviews should not “sound similar” to
avoid “rais[ing] the alarms of Fort Collins.”).
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Open’s misrepresentations did not involve promises to do something in the
future but were about the existing capabilities and functionalities of Open’s software
at the time of its RFP response in March 2018.7 The Functional Matrix requested
what “is part of base code” (present tense) versus what is “not currently in the
system.” (Supp. App. Vol. 6 at 1507). City witnesses testified that Open and all
vendors were expected to fill out the functional matrix based on current
functionalities of their respective software. (App. Vol. 9 at 119-20). The sole
industry expert at trial, Jon Brock, testified on behalf of the City that “[i]ndustry
standard is to provide factual and accurate responses of [the vendor’s] product or
solution at that time, at the time of response,” which means the “then -current
functionalit[ies].” (Vol. App. 11 at 83-84); see also id. at 85-87. Current information
provides “the ability to differentiate across bidders” and otherwise plan for the
project. Id. at 84. Following Mr. Brock’s testimony, Open decided not to call its
rebuttal expert. (App. Vol. 14 at 279).
The City relied on Open’s representations and believed the false grading in
the RFP response to be true because Open’s internal grades w ere never shared with
7 The same is true for the project schedule, which misrepresented Open’s current
capabilities based on its past experience. Open represented that its schedule was
“quite adequate, based on [its] experience” of over 30 years and its view of the
functional scope. (Supp. App. Vol. 5 at 1155). But Open knew it had never done this
type of implementation in such a short time period. (Supp. App. Vol. 1 at 172);
(Supp. App. Vol. 2 at 519).
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the City. Mona Walder testified for the City that it was the vendor’s responsibility
“to ensure that the functional matrix is completed as accurately as possible.” (App.
Vol. 9 at 90).8 Ms. Walder also testified that Edith Mercado of Milestone, acting as
her counterpart on Open’s side, referred to the functional matrix as “our bible,”
further supporting the City’s justifiable reliance on it. Id. at 96. The City acted on its
reliance by selecting Open as the winning bidder and entering into the MPSA —an
action that multiple witnesses confirmed the City would not have done if it had
known that OSF only had 59.4% of the required functionalities. See (App. Vol. 8 at
113-16); id. at 184-85, 190-92; see also (App. Vol. 9 at 94-96).
Moreover, the City’s reliance was justified since Open was the expert on its
own system and software implementation, the City lacked experience in utility and
broadband billing software, and similarly situated entities would rely on the vendor.
As Mr. Brock explained, these projects come around every 10 to 20 years for utilities
and without recent experience it was appropriate for the City to rely on the RFP
response. (App. Vol. 11 at 84 -85, 115); see also (App. Vol. 10 at 34) (non-retained
expert’s testimony). Witnesses at trial confirmed that Open, as the vendor, was the
8 City witnesses testified about the importance of the distinction between an A grade
(indicating functionality in the software “as it existed”) and a B grade (indicating
future software development required for the functionality) provided and how
“[t]here wouldn’t be a difference” between these grades if a vendor could grade
functionalities not currently in the system as an “A” simply because the vendor
thought it could build it by go-live. (App. Vol. 9 at 139-41).
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expert about not only its software but also implementation projects. See (App. Vol.
8 at 112); (App. Vol. 10 at 120); (Supp. App. Vol. 1 at 106, 122, 129)9; (Supp. App.
Vol. 1 at 172); (Supp. App. Vol. 3 at 644). Even Mr. Parrott admitted that he
expected the City to rely on Open’s representations made in the RFP response: “I
would expect them to do that, yeah.” (Supp. App. Vol. 1 at 172); (Supp. App. Vol.
2 at 504).10
The jury verdict on fraudulent inducement based on Open’s RFP response is
supported by substantial evidence and cannot be disturbed.
B. Other Substantial Evidence Supports the Jury’s Verdict.
The City presented evidence of Open’s additional misrepresentations which
the jury could have also considered to support its fraud verdict.
First, a part of the functionalities graded in Open’s RFP response related to
the portal. Open graded its portal as all A’s, with one G grade. See generally (Supp.
App. Vol. 6 at 1507-1689); (Supp. App. Vol. 7 at 1690-1783). Open’s Juan Corredor
testified that Open’s RFP response described Open’s own “homegrown” portal.
(Supp. App. Vol. 1 at 172, 215); see also (Supp. App. Vol. 2 at 388). But Open’s
9 See also (Supp. App. Vol 1 at 169-71).
10 Moreover, the City was under no duty to further investigate Open’s
misrepresentations as it had no reasonable ability to do so and had no knowledge of
any specific facts that raised suspicion of those misrepresentations. No one at Open
told the City about Open’s internal grading. (App. Vol. 13 at 41) and Mr. Parrott
confirmed that there was no way for the City to tell what was going to be new
functionality versus what was existing functionality. (App. Vol. 13 at 41).
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CEO, William Corredor, admitted that Open had decided on March 1, 2018 —prior
to its submission of the RFP response—to stop developing its purported
“homegrown” portal and to go with Milestone’s portal. (App. Vol. 14 at 145); see
also id. at 147. The timing showed Open intentionally provided the City with grades
for an alleged “homegrown” portal that it had already decided not to use while
falsely representing that almost all of the required portal functionalities were grade
“A.” Open knew that it was not grading the portal it intended to use and never
provided the City with a matrix grading the functionalities of the Milestone portal.
(App. Vol. 14 at 146); (Supp. App. Vol. 1 at 172); (Supp. App. Vol. 2 at 388).
While Open argues that the City knew it was using the Milestone portal, Juan
Corredor conceded that no one at Open told the City that it did not grade the
Milestone portal and instead graded a “homegrown” portal. (App. Vol. 13 at 254-
55). That is, even if the City knew that Open was using the Milestone portal, it did
not know that the portal functionalities Open represented as A’s in its RFP response
were not representative of the Milestone portal but were about a different portal. Mr.
Corredor did not recall anyone at Open providing the City with any supplement
saying that Open was actually using a different portal than the one it had made
representations about in its RFP response. (Supp. App. Vol. 1 at 172, 217). Even
after Open finally received the Milestone portal from Milestone in late July 2018
(before the parties executed the MPSA), it did not update the grading in the
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functional matrix to reflect the functionalities of the Milestone portal. (Supp. App.
Vol. 1 at 172); (Supp. App. Vol. 2 at 389). The City only learned during discovery
that Open switched from the “homegrown” portal before submitting the RFP
response and that it never graded the Milestone portal. (App. Vol. 14 at 145); see
also id. at 147.
Second, Open misrepresented that its product had “out -of-the-box”
functionality and was highly configurable and flexible —all past or present material
facts about its OSF. Mr. Brock, the City’s unrebutted expert, did not see any
evidence supporting such representations. (App. Vol. 11 at 100-03); see also (App.
Vol. 8 at 111-12, 115, 142-44) (Colman Keane’s testimony that Open represented
its system as “out of the box” and “very flexible, easy -to-configure” but the system
often required complete rebuilds and was not easy to work with); see (App. Vol. 10
at 12, 28-31) (non-retained expert Dr. Michelle Frey’s testimony about
configurability and her experience with OSF’s lack of configurability).11 Even
Open’s Brief concedes that the system was “never supposed to be available ‘out -of-
the-box’” (Br. at 39).
11 Contrary to Open’s arguments that the City knew it was “beta” customer or the
first U.S. customer, Open never represented its OSF as a “beta” product. See
generally (Supp. App. Vol. 4 at 1000-09); (Supp. App. Vol. 5); (Supp. App. Vol. 6);
(Supp. App. Vol. 7); (Supp. App. Vol. 8 at 1980 -2127) (collectively, lacking any
such assertion). Open represented that it had 30 years of experience developing OSF
and had implemented the same all across numerous countries. See id.; see also (App.
Vol. 11 at 108) (Mr. Brock testimony on the same).
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Third, Open fraudulently represented that Open’s “version 8 was released in
2017”:
(Supp. App. Vol. 5 at 1311). While William Corredor claimed that this was a “typo”
(App. Vol. 14 at 61, 134-35), Open admits that this was a “plainly incorrect
statement” (Br. at 38) and thus fraudulent. In any event, Open cannot seek a
judgment as a matter of law based on arguments about the weight of the evidence or
credibility determinations.
There is more than adequate evidence that Open misrepresented material facts
about the current functionalities of OSF, supporting the verdict, and “[i]f there is any
plausible theory that supports the verdict, the reviewing court must affirm the
judgment.” Romero v. Helmerich & Payne Int’l Drilling Co., 768 F. App’x 838, 844
(10th Cir. 2019) (quotations omitted); see also (App. Vol. 12 at 151-52); (App. Vol.
15 at 61); (App. Vol. 17 at 169-72).12
12 Despite Open’s assertion that the District Court denied its post -trial motions
“without explanation” (Br. at 29), the District Court fully explained its denials during
the August 15, 2024 hearing. See generally (App. Vol. 17 at 158-209).
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C. Open Cannot Reverse the Verdict Based On A Waived Argument.
Open argues that its fraudulent grading of the functionalities of OSF was
excused by an introductory paragraph in the MPSA including the language “open to
interpretation.” (Br. at 21-22). Open never preserved this argument and cannot raise
it on appeal. Knowlton, 189 F.3d at 1183 (“This court will not review issues not
timely raised below, except in exceptional circumstances . . . .”).
In any event, the MPSA does not excuse Open’s fraud. Open asserts that the
Introduction in the MPSA states that the “RFP grading criteria were ‘open to
interpretation’” and that “the grading of a functionality was a judgment call.” (Br.
22, 38-39) (emphasis added). Neither statement is found in the Introduction. Rather,
it provides that the requirements “may be open to interpretation”; however, with
respect to Open’s grading of its software in its response, it provides that they are
“based on the capabilities of the Open Smartflex solution” (see (App. Vol. 19 at 6)
(lacking the same)), which were fraudulent. Even if the grading criteria were “open
to interpretation” it would not explain why Open had different (and worse) internal
grades than its RFP response. This provision does not bar the City’s claim.
Judgment should be affirmed.
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II. THE CITY’S FRAUDULENT INDUCEMENT CLAIM IS NOT
SUBJECT TO OR BARRED BY THE ECONOMIC LOSS RULE OR
THE SUBSEQUENT MPSA’S GENERAL INTEGRATION CLAUSE.
Standard of Review
This Court reviews “de novo a district court's denial of judgment as a matter
of law, using the same standard applicable in the district court.” Webb v. ABF Freight
Sys., Inc., 155 F.3d 1230, 1238 (10th Cir. 1998). In so doing, this Court construes
the evidence and makes all reasonable inferences in the light most favorable to the
nonmoving party. Connett v. Justus Enters., 68 F.3d 382, 384 (10th Cir. 1995).
Argument
Open fundamentally misunderstands the City’s claim and the law . Open asks
the Tenth Circuit to interpret the economic loss rule as permitting a party to
fraudulently induce another into a contract, as long as it generally incorporates those
prior fraudulent representations into a contract and includes an integration clause.
Open urges that, otherwise, the “freedom of contract” would be eviscerated (Br. at
31). Open is seeking freedom to lie and defraud others to win and enter into
contracts. More importantly, Open is seeking to eviscerate the purpose of the
economic loss rule—“to maintain the boundary between contract law and tort
law”13 —by permitting contract law to swallow up tort law. However, as the
Colorado Supreme Court warned in Van Rees v. Unleaded Software, Inc., “we also
13 Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1259 (Colo. 2000).
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must be cautious of the corollary potential for contract law to swallow tort law.” 373
P.3d 603, 608 (Colo. 2016); see also Veolia Water Techs., Inc. v. Antero Treatment
LLC, 2024 COA 126, ¶ 106 (fraudulent concealment not barred because otherwise,
it “would effectively insulate a party to a contract from their own fraudulent actions
and would effectively allow contract law to swallow valid tort law fraud claims”).
A. The Economic Loss Rule Does Not Apply to Bar the City’s Fraudulent
Inducement Claim, Nor Its Rescission Remedy.
The economic loss rule provides that “a party suffering only economic loss
from the breach of an express or implied contractual duty may not assert a tort claim
for such a breach absent an independent duty of care under tort law.” Levin v. Five
Corners Strategies, 541 F. Supp.3d 1262, 1269 (D. Colo. 2021) (quotations omitted).
“To determine the source of the duty, Colorado law asks (1) whether the relief sought
in tort is the same as the contractual relief; (2) whether the common law recognizes
the tort duty at issue; and (3) whether there is any difference between the common-
law and contractual duties.” Id.
As to the first factor, the City never sought “only economic loss” and did not
seek relief that was the same as the contractual relief. Since the initial Complaint,
the City sought the option to rescind the MPSA based on Open’s fraudulent
inducement and did indeed rescind the contract following the jury verdict ,
maintaining a clear distinction between tort and contract law . “[W]here the economic
loss doctrine applies to an action for money had and received, it is not subject to
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dismissal on that basis where the contracting party may be entitled to rescind the
contract.” Goodrich v. Alterra Mt. Co., 20-cv-01057-RM-SKC, 2021 U.S. Dist.
LEXIS 118676, *25 (D. Colo. June 25, 2021) (unpublished). As the District Court
explained in denying Open’s Rule 50(b) motion, “Goodrich is . . . critically
important given these were alternative remedies, and if the tort claim went forward,
the contract claim wouldn’t, and vice versa” and so “the economic loss rule could
not possibly bar the relief on the fraudulent inducement claim.” (App. Vol. 17 at
188).
As to the second and third factors, a duty not to defraud to induce a party into
a contract has long been recognized as an independent tort duty. Indeed, “the
economic loss rule does not bar . . . claims to the extent they are premised on pre -
contractual misrepresentations” which “were made ‘to induce the formation of the
contract itself,’” as “the contract was not the source of the duty not to make those
false representations.” Levin, 541 F. Supp.3d at 1270 (quoting Van Rees, 373 P.3d
at 607). “A claim for fraud in the inducement of a contract is not barred by the
economic loss rule.” See McNees v. Ocwen Loan Servicing, LLC, 853 Fed. App’x
211, 215 (10th Cir. 2021) (citing Van Rees, 373 P.3d at 607).
Here, Open conflates (a) its March 2018 fraudulent representations about its
software which induced the City into the MPSA with (b) its ultimate failures to
provide and deliver the software functionalities in breach of its contractual
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obligations. As the Van Rees Court emphasized, “[t]here is an important distinction
between the failure to perform the contract itself, and the promises that induce a
party to enter into a contract in the first place.” 373 P.3d at 607. “The critical question
. . . is not whether [plaintiff’s] tort claims are related to the promises that eventually
formed the basis of the contract” but “whether the tort claims flow from an
independent tort duty under tort law.” Id. The Van Rees Court held that claims that
a defendant wrongfully induced plaintiff into ent ering a contractual relationship
“knowing that it did not have the capability to perform any of the promised web -
related services” state “a violation of a tort duty that is independent of the contract”
and independent of claims that the defendant breached its obligations under the
contract. Id. Because such tort claims were “based on misrepresentations made prior
to the formation of the contracts” they “violated an independent duty in tort to refrain
from such conduct” and thus “are not barred by the economic loss rule.” Id. Federal
District Courts in Colorado have repeatedly confirmed that the economic loss rule
does not apply to claims arising from a defendant’s pre-contractual conduct, prior to
any contract. See 1881 Extraction Co., LLC v. Kinja Corp., 660 F. Supp.3d 1059,
1070-71 (D. Colo. 2023); Agri-Systems v. Structural Techs., LLC, 19-cv-02238-
CMA-STV, 2023 U.S. Dist. LEXIS 145780, *22 (D. Colo. Aug. 18, 2023)
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(unpublished); Scheeler v. Canopy Holdings LLC, 22-cv-02417-DDD-NRN, 2023
U.S. Dist. LEXIS 97487, *13 (D. Colo. June 5, 2023) (unpublished).14
The Colorado Supreme Court also cautioned in Bermel v. BlueRadios, Inc.
that “the economic loss rule generally should not be available to shield intentional
tortfeasors from misconduct . . . .” 440 P.3d 1150, 1154 n.6 (Colo. 2019). Following
Bermel, the Colorado Court of Appeals in McWhinney Centerra Lifestyle Center
LLC v. Poag & McEwen Lifestyle Centers-Centerra, LLC held that the district court
erred when it applied the economic loss rule to bar intentional tort claims of fraud.
486 P.3d 439, 454-55 (Colo. App. 2021). While Open relies heavily on Dream
Finders Homes LLC v. Weyerhaeuser NR Co., it ignores that the fraud in Dream
Finders pertained to post-contractual misrepresentations. 506 P.3d 108, 120 (Colo.
App. 2021) (“Because any negligent or fraudulent misrepresentations that
[defendant] may have made were post-contractual, we proceed with our analysis of
the economic loss rule.”). Dream Finders affirms that “[t]he economic loss rule does
not apply to claims arising from a defendant’s pre-contractual conduct because, at
that time, there was no contract that could have subsumed identical tort duties ”;
14 Open argues that the MPSA was between “sophisticated parties” as a basis to bar
the fraud claim. (Br. at 25, 28, 30). However, as noted above, Open was the sole
expert and the City was not a sophisticated party with respect to Open’s software or
the implementation process.
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“[i]n contrast, fraud occurring during the parties’ performance of their contract is
post-contractual and may be barred.” Id. (emphasis added).
Other cases cited by Open also concern post-contractual misrepresentations
that do not involve a fraudulent inducement claim and thus, are irrelevant.15 See
BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 75 (Colo. 2004) (distinguishing
misrepresentations made “prior to the execution of an agreement” but noting that
“the alleged negligent misrepresentation complained of in this case occurred during
performance, by which time the parties had bargained for the allocation of risks,
duties, and remedies”) (emphasis in original); S K Peightal Engineers, LTD v. Mid
Valley Real Est. Sols. V, LLC, 342 P.3d 868, 871 (Colo. 2015) (Mid Valley sued for
purely economic damages under a negligence theory for breaching duties in
providing services performed under contracts); Hamon Contractors, Inc. v. Carter
& Burgess, Inc., 229 P.3d 282, 289 (Colo. App. 2009) (acknowledging that “[t]he
economic loss rule can apply to fraud or other intentional tort claims based on post -
contractual conduct” and applying it to post-contractual fraud claims); Former
TCHR, LLC v. First Hand Mgmt. LLC, 317 P.3d 1226, 1232-33 (Colo. App. 2012)
15 Univ. of Denv. v. Doe is also irrelevant. 547 P.3d 1129, 1147 (Colo. 2024)
(concluding DU did not owe its students a tort -based duty in connection with
procedures related to the investigation and adjudication of sexual -misconduct
claims).
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(“[I]t is important to note that the alleged fraud . . . occurred during the performance
of the [contract].”).16
Open relies on the “Limited Warranty” provisions in Section 2 of the MPSA
and the related SOW (Br. at 5-6, 24, 26, 30) regarding (a) its warranties on how
services were to be provided, (b) the “exclusive remedy” for “breach of the foregoing
warranty” and (c) disclaimers about whether the services would be provided “error-
free”, “uninterrupted” or that “errors will be corrected .” (App. Vol. 19 at 6-7). But
Open failed to preserve this issue in any Rule 50(a) motion, much less in its Rule
50(b) or other post-trial motions. See generally (App. Vol. 12 at 141-48) (lacking
any such argument); (App. Vol. 15 at 55-56) (same); (App. Vol. 5 at 118-40) (same);
(App. Vol. 6 at 143-59) (same); (App. Vol. 15 at 160-77) (same); (App. Vol. 17 at
7-39) (same). Indeed, Open only cites to pages of the contracts. Open cannot raise
this issue on appeal. See Knowlton, 189 F.3d at 1183.
16 RE/MAX, LLC v. Quicken Loans Inc., 295 F. Supp.3d 1163 (D. Colo. 2018) is also
distinguishable. The parties had already entered into a contract for RE/MAX to
provide certain marketing services. Id. at 1166. The economic loss rule did not bar
claims related to three of the four representations made prior to an amendment that
were not specifically memorialized in the contract and were brought under the
independent duty not to make misrepresentations to induce the signing of a contract .
Id. at 1170-71. The only barred representation involved parallel obligations that were
already part of the prior contract and additional obligations in the amendment to
make a “good faith” efforts. Id. at 1171. In other words, representing in an
amendment (while already under contract) that a party will make “good faith” efforts
in the future, is not comparable with misrepresenting the present capabilities of a
software at the time of the fraudulent inducement prior to the entry of any contract.
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Notwithstanding the failure to preserve, the duty not to defraud the City into
executing the MPSA was not memorialized. See generally (App. Vols. 19-20)
(lacking the same). Thus, Open’s assertion that “there simply were no duties at law
alleged to have been breached that did not become duties under the contract” (Br. at
20 (emphasis in original)) is wrong and does not preclude the claim.
The City’s fraudulent inducement claim and the jury’s verdict were not about
whether Open breached the warranty obligations under the MPSA. Open
misrepresented OSF’s existing capabilities and functionalities at the time of the RFP
response in March 2018; the fraud pre-dated the MPSA signed in August 2018.
Open’s continued focus on its failures to deliver the functionalities under the MPSA
misses the point.
In short, under Colorado law, the economic loss rule does not bar the City’s
fraudulent inducement claim and judgment should be affirmed. See (App. Vol. 3 at
166); (App. Vol. 12 at 152); (App. Vol. 17 at 160 -88).
B. The MPSA’s Integration Clause Also Fails to Bar the Claim.
Neither the MPSA’s integration clause nor the incorporation of the RFP into
the MPSA bars the City’s fraudulent inducement claim. The MPSA’s obligations
and representations about the software implementation and the provision and
delivery of functionalities are different than Open’s pre-contractual
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misrepresentations in its RFP response. The fact that the RFP was later incorporated
into the MPSA does not absolve Open of its fraud.
While “[i]ntegration clauses generally permit contract parties to limit future
contractual disputes to issues related to the reciprocal obligations expressly set forth
in the executed document,” the “mere presence of a general integration clause in an
agreement does not bar a claim for negligent or fraudulent misrepresentation.” Keller
v. A.O. Smith Harvestore Prods., Inc., 819 P.2d 69, 72-73 (Colo. 1991) (“seller
should not be allowed to hide behind an integration clause to avoid the consequences
of a misrepresentation, whether fraudulent or negligent”) (quotations omitted).
Rather, the language must “clearly and specifically disclaim reliance by the
[plaintiff] on all representations made by [the defendant] prior to the execution of
the contract.” Id. at 74; see also Pensford Fin. Grp. LLC v. 303 Software Inc., 1:18-
cv-03286-RM-SKC, 2019 U.S. Dist. LEXIS 79436, *5-6 (D. Colo. May 10, 2019)
(unpublished) (integration clause did not “clearly and specifically disclaim
Plaintiff’s reliance on all representations made by Defendants before entering into
the agreements,” determining, in part, that it stated “nothing about Plaintiff’s
reliance or lack thereof” and there were no other provisions identified purporting to
limit defendants’ potential tort liability).
Here, the integration clause in Section 18.15 of the MPSA is a general
integration clause and does not clearly and specifically disclaim the City’s reliance
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on all pre-contractual misrepresentations. (App. Vol. 19 at 19). The “Introduction”
of the MPSA (relied on by Open) does the exact opposite stating that “the City has
proceeded with reasonable reliance on Open’s representations.” Id. at 6.
Unlike the cases cited by Open (Br. at 23), Section 18.15 of the MPSA is
neither clear nor specific. In Steak n Shake Enterprises, Inc. v. Globex Co., LLC, the
clause specifically provided that “[f]ranchisees were entering into the agreement as
a result of their own investigation and not as a result of any representation by
Plaintiffs[.]” 110 F. Supp.3d 1057, 1082 -83 (D. Colo. 2015). In Colorado Coffee
Bean, LLC v. Peaberry Coffee, Inc., the Colorado Court of Appeals concluded that
the trial court erred in dismissing a fraudulent nondisclosure claim alleging failure
to disclose the parent company’s losses based on exculpatory clauses, even where
the clause was much more specific than the MPSA ’s and provided that the agreement
contained the entire agreement and disclaimed that defendant “shall not be liable or
obligated for any oral representations or commitments made prior to the execution
hereof or for claims of negligent or fraudulent misrepresentation[.]” 251 P.3d 9, 16-
22 (Colo. App. 2010) (emphasis added).
Likewise, neither the “Limited Warranty” provisions in Sections 2.1 and 2.3
(which Open failed to preserve) nor the limitation of liability in Section 12.1 clearly
or specifically disclaim the City’s reliance on Open’s pre-contract representations.
Judgment should be affirmed.
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III. THE CITY TIMELY RESCINDED AFTER LEARNING OF OPEN’S
FRAUDULENT REPRESENTATIONS.
Standard of Review
Rescission is an equitable remedy. Evanston Ins. Co. v. Desert State Life
Mgmt., 56 F.4th 899, 906 (10th Cir. 2022). This Court reviews a district court’s
award of an equitable remedy for an abuse of discretion. Cabs, Inc. v. Hartford Ins.
Grp., 151 F. App’x 604, 609 (10th Cir. 2005). Furthermore, factual determinations
of whether a party timely rescinds or waives to do so are issues of fact and are
reviewed for clear error. See Ralston Oil and Gas Co. v. July Corp ., 719 P.2d 334,
340 (Colo. 1985); Cabs, 151 F. App’x at 610. A “finding of fact is not clearly
erroneous unless it is without factual support in the record, or if the appellate court,
after reviewing all the evidence, is left with the definite and firm conviction that a
mistake has been made.” Mile High Indus. v. Cohen, 222 F.3d 845, 854 (10th Cir.
2000) (quotations omitted).
Argument
Open’s assertions that the City somehow delayed or waived its right to rescind
based on Open’s fraudulent conduct by entering PCRs or the First Amendment is
without merit.
First, whether the City waived its right to rescind based on Open’s fraudulent
conduct is a matter for the jury as it involves questions of intent. See Elk River
Assocs. v. Huskin, 691 P.2d 1148, 1153 (Colo. App. 1984); see also (App. Vol. 12
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at 152). Here, the jury found, based on the evidence discussed above—including but
not limited to Open’s internal grading, the functional matrix review in June 2021
showing Open had only delivered 11.8% of functionalities, and the City’s actions
after the review—that the City did not waive its right to rescind. (App. Vol. 6 at 4-
7). As such, there is “no reason to disturb the jury’s clear verdict on the waiver issue
by passing separately upon the City’s right to rescind.” (App. Vol. 16 at 131-34).
Second, the law regarding waiver with respect to fraud and rescission supports
the District Court’s ruling. A party’s “right to rescind and sue [is] waived [only if]
the defrauded party with full knowledge, intentionally condoned the fraud.” Bankers
Trust Co. v. International Trust Co., 113 P.2d 656, 664 (Colo. 1941) (emphasis
added); see also Elk River, 691 P.2d at 1154 (a party waives fraud only if the party
"with full knowledge of the truth respecting the false representations, elected to
continue to carry out the agreement”); Veolia, 2024 COA 126, ¶ 112 (same). Open
seeks to lower this threshold by arguing that the City did not need to be “acquainted
with all the evidence constituting fraud” and as such, the City waived its “right to
rescission” by not “promptly” and “unconditionally” rescinding the parties’
agreements after “discovering the facts giving rise to the fraud.” (Br. at 34-35 (citing
Gladden v. Guyer, 426 P.2d 953, 956 (Colo. 1967))). Open wants this Court to apply
two different waiver tests under Elk River and Gladden—i.e., fraudulent inducement
waiver requires “full knowledge of the truth” regarding the fraud, whereas recission
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waiver requires only “knowledge of the substantial and material facts constituting
the fraud.”
While there would be no waiver under either test, Open is wrong on the law.
As the District Court held, “Colorado courts do not treat fraudulent inducement
waiver and recission waiver as separate claims, governed by different tests .” (App.
Vol. 16 at 133). Rather, “courts in this district have treated the language in Gladden
and Elk River as consistent, if not wholly equivalent.” Id. (citing 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.’”) (quoting Elk River,
691 P.2d at 1154)). The Colorado Court of Appeals confirmed the District Court’s
approach finding, “to ratify a contract entered into via fraud the aggrieved party must
decide to carry out the agreement with full knowledge of the truth respecting the false
representations.” Veolia, 2024 COA 126, ¶ 122 (emphasis added).
Open asserts that the City did not promptly rescind the MPSA because it
entered into PCRs and the First Amendment, even though it complained about
Open’s portal or that it had “significant issues with Open’s product .” (Br. at 31-32).
Open conflates the discovery of problems with its software and software
implementation performance with the City’s discovery of Open’s false, pre-contract
representations. While the City had concerns about Open’s software, it was not
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aware of Open’s misrepresentations until it conducted its functional matrix review
in spring 2021. See (App. Vol. 7 at 89-90, 108) (City’s CFO, Travis Storin, testifying
that the realization about Open’s misrepresentations “was a gradual process” and
that “the TMG report and functional matrix work was the point in time where [he]
said I think we may have gotten swindled”). At that time, the City began to
understand Open’s misrepresentations and on May 28, 2021, submitted it s Notice of
Default asserting rescission. See (App. Vol. 9 at 110-11) (describing the functional
matrix review and how the results were “[a]stonishing” because after years of
working with Open, “only several hundred [functionalities]. . . were accepted and
passed in testing” and “the system was not working” and “could not b ill”); (App.
Vol. 22 at 7-14). More importantly, the City only obtained “full knowledge” of
Open’s fraud in discovery, when Open finally disclosed its internal grading showing
that OSF actually only met 59.4% (vs. the nearly 90% represented) of the City’s
required functionalities. (App. Vol. 22 at 16-17). Since the City did not know of
Open’s fraud when it entered into PCRs or the First Amendment , its actions could
not have ratified the MPSA. See Veolia, 2024 COA 126, ¶ 125 (finding no
ratification when Antero did not have full knowledge of misrepresentation when it
entered into another agreement).
Once the City provided its Notice of Default, neither party treated the contract
as continuing—the City moved as quickly as possible to obtain a replacement, and
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Open immediately stopped supporting its software and adding updates. (App. Vol.
11 at 26). As soon as a new software was available and Open’s software could be
tendered back to Open, without disturbing City residents, the City ceased its use.
(App. Vol. 10 at 137). Accordingly, there is adequate evidence that the City promptly
rescinded that should not be disturbed on appeal. See, e.g., America’s Collectibles
Network, Inc. v. Sterling Commerce (Am.), Inc., 3:09-cv-143, 2016 U.S. Dist. LEXIS
195369, at *56 (E.D. Tenn., Sept. 7, 2016) (unpublished) (continued use of software
did not waive rescission because returning it would have damaged party’s business);
Tigerdirect, Inc. v. Manhattan Assocs., 05-22591-CIV-MOORE, 2006 U.S. Dist.
LEXIS 114699, *10-11 (S.D. Fla. Nov 6, 2006) (unpublished) (failure to return
software did not bar rescission).
Finally, the District Court made clear that the issue of “waiver” would be
included as “part of the first set of instructions” to the jury prior to the City’s election
of remedies and clarified—upon Open’s counsel’s specific request—that the waiver
instruction would be the CJI instruction and would encompass waiver of rescission.
(App. Vol. 12 at 155-56); Ralston Oil, 719 P.2d at 340, (“A party must rescind a
contract within a reasonable time, but what constitutes a reasonable time depends
upon the facts of a particular case and must be determined by the trier of fact.”).
Despite knowing that the District Court had determined all waiver defenses (whether
of fraud or rescission) went to the jury under a single waiver instruction, Open failed
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to object to the instruction—Instruction No. 23 (App. Vol. 5 at 166). Open waived
the issue and cannot raise it on appeal. (App. Vol. 15 at 6-7); 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.”) (quotations omitted).
Judgment should be affirmed.
IV. OPEN INVESTMENTS IS LIABLE FOR FRAUDULENT
INDUCEMENT PURSUANT TO THE JURY VERDICT AND THE
RESULTING RESCISSION AWARD BY THE DISTRICT COURT.
Standard of Review
This Court reviews “de novo a district court's denial of judgment as a matter
of law, using the same standard applicable in the district court.” Webb, 155 F.3d at
1238. This Court “will not review issues not timely raised below, except in
exceptional circumstances not applicable here.” Knowlton, 189 F.3d at 1183.
Argument
Contrary to Open’s assertion that the City never alleged its fraudulent
inducement claim against Open Investments (Br. at 16) or that Open Investments
was a defendant “solely because of its role as the guarantor of Open’s performance
under the MPSA” and “brought to trial solely to answer” for Open’s breach of that
agreement (Br. at 41), the City’s Complaint alleged from the very first line that both
“Defendants Open International, LLC and Open Investments, LLC (jointly ‘Open’)
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intentionally misled and induced the City into entering into a costly professional
services agreement….” (App. Vol. 1 at 49). Having “jointly” identified both
defendants as “Open,” the City asserted claims, including its First Claim for Relief
for Fraudulent Inducement against Open. Id. at 62; see also (App. Vol. 3 at 46-69).
In response, Open filed a Notice of Removal to the District Court, identifying both
Open International and Open Investments as “together, ‘Open’ or ‘Defendants’” and
acknowledging the City’s allegations that “Open made fraudulent
misrepresentations . . . .” (App. Vol. 1 at 49).
Since that very first filing in the action in July 2021, and throughout the 2.5 -
year period of the case, Open repeatedly represented itself “collectively” or
“together” as “Open” or “Defendants” to refer to both Open International and Open
Investments, including in its Answer (App. Vol. 3 at 1-45), Partial Motion for
Summary Judgment (Supp. App. Vol. 1 at 50-85), Amended Answer (App. Vol. 3
at 70-119), Final Pretrial Order (App. Vol. 3 at 184-224), and written Rule 50(a)
motion (App. Vol. 5 at 118-40). At trial, Open similarly chose to present itself as
one collective entity. Open’s counsel affirmed this treatment in both Opening
Statements and Closing Arguments, asking the jury to find for “Open” because
“Open” was honest. (App. Vol. 7 at 24-26); (App. Vol. 15 at 91-103). Per the agreed
upon opening instructions, the jury was instructed that “Open International” and
“Open Investments” would be referred to during the trial as “Open” or “Open
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International”—that is, either reference was meant to encompass both Open entities,
jointly. (Supp. App. Vol. 4 at 925). Likewise, the liability instruction on fraudulent
inducement referred to the defendants jointly as “Open” and the verdict form again
used the joint reference “Open.” (App. Vol. 5 at 158). In line with those instructions,
the evidence presented were against “Open” as a whole. (App. Vol. 7 at 24-26);
(App. Vol. 15 at 91-103). In turn, the jury found both Open entities jointly liable to
the City for fraudulent inducement. (App. Vol. 6 at 4-7); see also (App. Vol. 16 at
127).
Throughout the entirety of the underlying case, Open never distinguished
“Open Investments” from “Open International,” much less argued that there were
no misrepresentations made by Open Investments that could subject it to liability.
With both entities being found jointly liable for fraudulent inducement by jury
verdict, Open cannot now seek to carve out one defendant from the liability verdict
or distinguish liability for the rescission remedy.
A. Open Long Waived Any Argument that “Open Investments” Should
Be Excepted from the Verdict Against Open on the City’s Fraudulent
Inducement Claim.
First, Open’s arguments are waived and precluded on appeal for failure to
preserve the same. Open concedes that it never raised this issue until following the
jury verdict in a Rule 52(c) motion, which is reserved for non-jury trials. (Br. at 42).
Open cannot raise an issue on appeal that was not made in a Rule 50(a) motion.
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Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., 827 F.3d 1256, 1266 (10th Cir.
2016) (“[F]or this court to entertain a sufficiency-of-the-evidence challenge,
[appellant] must have properly presented such a challenge to the district court first
in a preverdict Rule 50(a) motion….”); United Int’l Holdings, Inc. v. Wharf
(Holdings) Ltd., 210 F.3d 1207, 1228 (10th Cir. 2000); Knowlton, 189 F.3d at 1183
(“This court will not review issues not timely raised below, except in exceptional
circumstances….”).17
Open never claimed in either its oral or written Rule 50(a) motion that: (1)
Open Investments’ only potential liability under the fraudulent inducement claim is
based on the guarantee provision of the MPSA, (2) Open Investments could not
legally be directly liable for the fraudulent inducement tort claim and the City had
to prove vicarious liability or alter ego, (3) the representations of Open could not be
attributed to “Open Investments”, (4) that there had been no evidence as to “Open
Investments” specifically, and so on. See generally (App. Vol. 12 at 141-48); (App.
Vol. 15 at 50-52, 55-56) (lacking any such argument); (App. Vol. 5 at 118-40).
Despite Open’s citation to its written Rule 50(a) motion in its brief, none of the above
17 Open’s reliance on Perez v. El Tequila, LLC, 847 F.3d 1247, 1255-56 (10th Cir.
2017) is misplaced. There, the Tenth Circuit found that appellant’s Rule 50(a)
motions “contained identical arguments” as those set forth in its Rule 50(b) motion.
Id. The statement that “technical precision is unnecessary” pertained not to the fact
that arguments need not first be preserved in a Rule 50(a) motion but related to the
facts that were relied on for the same arguments. Id.
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issues were preserved therein. While Open alleges it broadly challenged the
sufficiency of the evidence for the restitution judgment (Br. at 53), that is not what
Open seeks on appeal; rather, Open is seeking to parse the evidence in a new way to
remove Open Investments from liability for the judgment. Since that objection came
following the jury verdict and was never raised in any Rule 50(a) motion , it was
waived.18
As the District Court already found, Open’s argument “disclaiming any
liability of Open Investments comes far too late.” (App. Vol. 16 at 135) (finding that
“Open never once raised this issue at trial or in its oral Rule 50(a) arguments” or “in
its written Rule 50(a) motion”); (App. Vol. 17 at 174-77). The jury found “Open”
liable for fraudulent inducement (App. Vol. 6 at 4-7) and Open’s attempt to sever
Open Investments from that liability is precluded for failure to preserve the same.
Second, Open’s arguments are further waived by its repeated failures to object
to the use of “Open” to refer to, and hold liable, both Open entities. The use of
“Open” to refer to both defendants was not “sleight -of-hand” by the City aimed at
“creat[ing] an illusion of liability”, as Open asserts (Br. at 42, 22). It was in the
parties’ agreed-upon opening instructions provided by the District Court on the first
18 The purpose of Rule 50(a)(2) “is to alert the opposing party (and the court) of any
deficiencies in the case, thereby giving the party the opportunity to rectify any
deficiencies prior to the case being submitted to the jury.” Miller v. Eby Realty Grp.,
LLC, 396 F.3d 1105, 1114 (10th Cir. 2005) (quotation omitted). Open failed to give
the City or the District Court this required opportunity.
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day of trial: “The defendants are Open International, LLC and Open Investments,
LLC. We will now just refer to them as Open or Open International.” (Supp. App.
Vol. 4 at 925). Open did not object to this instruction or reference at any point,
including when it was first provided to the jury or throughout the trial when all
parties and the District Court continued to use that reference.
Most importantly, Open failed to object—at any point, including at the
charging conference—to the closing jury instructions’ repeated use of “Open,” as
defined in the opening instructions, including in Instruction No. 15 on the “Elements
of Liability—Fraudulent Inducement.” See (App. Vol. 5 at 143-74); see also (App.
Vol. 15 at 3-32) (charging conference).19 Open never sought separate liability
instructions for each Open entity and did not submit any such proposed instructions.
It was not the District Court’s ruling (as Open argues) but Open itself who “forfeited
its right to an individualized assessment of its liability” (Br. at 42). Equally
important, Open did not object to the verdict form the jury used to apply liability
jointly to the entities as “Open.” (App. Vol. 6 at 4-7).
A verdict entered jointly against both entities and Open, having failed to
object to the jury instructions which authorized the verdict, cannot “undo” it against
19 Open even agreed to the City’s request that element 5 for Instruction No. 15 be
clarified to state “Open’s representation” (attributable to both Open entities) rather
than “the representation.” (App. Vol. 15 at 5); (App. Vol. 5 at 158).
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one entity here. See Farm Bureau Life Ins. Co., 408 F. App’x at 172 (failure to object
to jury instruction waives right to present legal argument).
B. Open Investments Cannot Avoid the Fraudulent Inducement Claim
by Discounting the Evidence Presented in Support of that Claim
Against Open or Avoid its Liability Based on the City’s Decision to
Rescind.
Notwithstanding Open’s waiver, Open Investments cannot avoid the
judgment. As detailed above, Open’s assertion that “[t]he City’s case against Open
Investments always was in contract rather than tort” (Br. at 43) is untrue. See (App.
Vol. 1 at 49, 62). Open’s assertion that references to “Open” somehow only referred
to “Open International” not only flies in the face of how the parties and District Court
referred to and treated the entities, but also fails to acknowledge the jury instruction
that “Open” and “Open International” referred to both Open entities.
Nevertheless, there was clear and significant evidence that Open—consisting
of both Open entities—made intentionally false statements to the City to induce it
into a contract. While Open now tries to parse out what Open Investments did or did
not do from what Open International did or did not do, the jury verdict cannot be so
sliced when the evidence and testimonies of “Open” were never so distinguished and
further could not have been based on the jury instructions and jury verdict.20 As the
20 Beyond Open’s choice (and acquiescence) to treating the parties collectively, the
record shows that all such evidence pertained to both entities. Open’s collective
representations in the RFP response could not have been Open International’s alone
because they claimed, “30 years of experience developing and implementing
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District Court determined, 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.” (App. Vol. 16 at 135); (App. Vol. 17 at 174-77).
Finally, Open Investment’s assertion that “once the City elected to rescind the
contract, it should have been let out of the case” (Br. at 41) was not preserved and is
wrong. Open Investment’s argument is that it cannot be liable under the elements of
the fraudulent inducement claim because it was only a guarantor of the ultimate
contract and once the City rescinded that contract, Open Investments could not be
liable for fraudulent inducement. But, if liability of Open Investments could not
possibly be based on the elements of fraudulent inducement itself, Open should have
asserted that argument long ago, at least at the Rule 50(a) stage. It also should have,
but failed to, separate out Open Investments from the jury instructions on fraudulent
customer information, billing and field services solutions in worldwide recognized
comparable utility & telecommunications companies” with a “reputation for agility
and innovation” (Supp. App. Vol. 4 at 1007) along with decades of OSF
development and implementation. While Open now attempts to argue that any
representations in the RFP only concerned “Open International,” William Corredor
admitted that Open International was founded only in 2015 (just 3 years prior to the
RFP response) and was set up to pursue the U.S. market in which Open had no
customers. (App. Vol. 14 at 44). In other words, Open’s representations about its
capabilities, its 30+ years of experience in the industry, and the capabilities of OSF
(in existence since 1988 or 1989) were being made by and about “Open” as a whole,
including Open Investments (which was in existence since 1987) and Open
International (since 2015). Id. at 35-37, 45. Even if these statements about Open
Investments are true, it evidenced that the representations about OSF were by both
entities.
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inducement and the related verdict form. Significantly, this point was also never
made in any of Open’s repeated briefs concerning the election of remedies—i.e., that
the election of rescission would result in the undoing of Open Investments’ liability
under the fraudulent inducement claim. See (App. Vol. 3 at 218-20); (App. Vol. 4 at
1-11, 37-47); (Supp. App. Vol. 4 at 864-73). The issue of Open Investments’ liability
under the fraudulent inducement claim had nothing to do with any provision in the
MPSA including the guarantee. See (App. Vol. 5 at 158) (Instruction No. 15,
“Elements of Liability-Fraudulent Inducement”). The remedy that the City elected
does not and cannot retroactively change the jury’s verdict on liability and absolve
Open Investments’ liability.
The District Court rightfully rejected this argument but, despite Open’s
claims, the District Court never stated, much less “held,” that the City need not
“adduce any evidence of Open Investments’ liability for fraudulent inducement [.]”
(Br. at 41); (App. Vol. 16 at 135); (App. Vol. 17 at 174 -77). In fact, the District
Court found the City had adduced adequate evidence. (App. Vol. 16 at 135).
Open’s arguments fail and judgment should be affirmed.
C. Open Investments is Liable for the Rescission Award.
Open’s argument that Open Investment s should have been excluded from
providing restitution for fraud at the judgment stage is legally incorrect.
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Open cannot ask this Court to reconsider the evidence presented to the jury
and make a separate determination of Open Investments’ liability when it was not
separately an issue at trial. See Glass Containers Corp. v. Miller Brewing Co., 643
F.2d 308, 312 (5th Cir. 1981). Open’s attempt to avoid this fundamental requirement
by relying on Fed. R. Civ. P. 52(a)(5) is without merit. Rule 52 is only reserved for
“nonjury” trials. (Supp. App. Vol. 4 at 831) (citing Goodwin v. Smith Chambers, 21-
cv-3421-WJM-STV, 2024 U.S. Dist. LEXIS 24203, at *36 (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.”)). Even if Rule 52 applied—which it does not—Open cannot bring a new
theory to avoid liability. In Re Busch, 369 B.R. 614, 621 (B.A.P. 10th Circ. 2007)
(Rule 52 “is not to relitigate old issues or rehear the merits of a case.”).21
This case was tried to a jury and after the jury entered a verdict in the City’s
favor, the Court held a hearing on November 17, 2023 at which, as the District Court
held, the only issue was the restitution amounts for the City’s rescission—not
liability. (Supp. App. Vol. 4 at 831-32). The District Court’s subsequent hearing
does not allow the re-opening of liability questions or convert this case from a jury
trial to a nonjury trial and Open cites to no cases in support of this proposition.
21 Rule 59 is no help either. Rule 59 “is not appropriate to revisit issues already
addressed or advance arguments that could have been raised in prior briefing.”
Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000).
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Skinner v. Total Petroleum, Inc., 859 F.2d 1439, 1443 (10th Cir.1988) (“[F]actual
issues which are central to both [legal and equitable issues] must be first tried to the
jury, so that the litigants’ Seventh Amendment jury trial rights are not foreclosed on
common factual issues. Moreover, the court is bound by the jury’s determination of
factual issues common to both the legal and equitable claims.”) (internal citations
omitted).
Further, Open’s reliance on Fed. R. Civ. P. 46 to avoid liability is equally
unavailing as Rule 46 forecloses relief on appeal when a party raises no objection at
trial to a trial court’s inquiry. Here, Open never raised an issue with Open
Investments’ presence as a party and inclusion in the jury verdict until after the jury
was discharged and after the District Court’s hearing on restitution . See (App. Vol.
6 at 143-59) (raising questions as to Open Investment for the first time on December
1, 2023).
Open Investments is equally liable to the City and judgment should be
affirmed.
CONCLUSION
For the foregoing reasons, this Court should affirm the jury verdict and the
District Court’s judgment.
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53
Respectfully submitted,
/s/ Case L. Collard
Case L. Collard*
(collard.case@dorsey.com)
Maral J. Shoaei
(shoaei.maral@dorsey.com)
Andrea Ahn Wechter
(wechter.andrea@dorsey.com)
DORSEY & WHITNEY LLP
1400 Wewatta Street, Suite 400
Denver, CO 80202-5549
(303) 629-3400
*Counsel of Record
Carrie Mineart Daggett, City Attorney
(cdaggett@fcgov.com)
John R. Duval, Senior Litigation
Counsel (jduval@fcgov.com)
Fort Collins City Attorney
P.O. Box 580
Fort Collins, CO 80522
(970) 221-6520
Attorneys for Plaintiff-Appellee
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CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMIT,
TYPEFACE REQUIREMENTS AND TYPE STYLE REQUIREMENTS
1. This document complies with the type-volume limit 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 12,764 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, or
[] this document has been prepared in a monospaced typeface using
_______ with ________.
DATE: January 15, 2025
/s/ Case L. Collard
Case L. Collard
DORSEY & WHITNEY LLP
1400 Wewatta Street, Suite 400
Denver, CO 80202-5549
Telephone: (303) 629-3400
E-mail: collard.case@dorsey.com
Attorneys for City of Fort Collins
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CERTIFICATE OF DIGITAL SUBMISSION
I hereby certify that with respect to the foregoing:
(1) all required privacy redactions have been made per 10th Cir. R.
25.5;
(2) if required to file additional hard copies, that the ECF submission is
an exact copy of those documents;
(3) the digital submissions have been scanned for viruses with the
most recent version of a commercial virus scanning program, Vipre
Endpoint Security, Version 13.1.8510, updated January 15, 2025, and
according to the program, are free of viruses.
/s/ Case L. Collard
Case L. Collard
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56
CERTIFICATE OF SERVICE
I hereby certify that on the 15th day of January, 2025, I electronically filed
the foregoing Answering Brief of Plaintiff-Appellee 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/ Case L. Collard
Case L. Collard
Appellate Case: 24-1152 Document: 56 Date Filed: 01/15/2025 Page: 66
ADDENDUM
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TABLE OF CONTENTS TO ADDENDUM
Day 6 Rule 50 motion to include the argument and the entirety of
the Court’s ruling ............................................................................................... Add.1
Day 9 Rule 50 motion to include the argument and the entirety of
the Court’s ruling ............................................................................................. Add.18
August 15, 2024 hearing transcript to include the argument and the entirety
of the Court’s ruling ........................................................................................ Add.38
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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)
--------------------------------------------------------------
REPORTER'S TRANSCRIPT
Jury Trial - Day 6
--------------------------------------------------------------
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
Add.1
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-- I hate having you be in the position where you have to
interpret for him.
THE COURT: Okay. We won't ask it because I'm not
sure what it means either.
(The following proceedings were held in open
court:)
THE COURT: So at the beginning I warned you some
questions might not be asked and that was one of them, so we
won't ask that question, not because it was an improper
question. It just may call for a legal conclusion on the part
of the witness, so we will not ask that.
You will be excused.
All right. At this time what we're going to do is
we're going to break for lunch until 1:30, and then we will
come back and -- well, let me put it this way.
Plaintiff, do you have another witness? Let me have
you rest before lunch actually.
MR. COLLARD: No, Your Honor. Plaintiff rests.
THE COURT: All right. With that, the plaintiff has
rested. We will start with defendants' witness after lunch at
1:30, so we will see the jury back here at 1:30.
THE COURTROOM DEPUTY: All rise for the jury.
(Jury left the courtroom at 12:16 p.m.)
THE COURT: Let's have a seat. I assume defendant
has a motion to make?
Add.2
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MR. SWANSON: Yes.
THE COURT: Let me just give you the warning that I'm
going to limit you to five minutes max.
MR. SWANSON: Okay. In that case, Your Honor, just
to note, we'll -- I assume we will renew at the end of
evidence and at that point, with leave, we may make a written
submission just to make sure we've made a clear record. Is
that okay?
THE COURT: Yes.
MR. SWANSON: Okay. I will move quickly. We seek
judgment against the City on its fraud claims, first, for
failure of proof on the elements. No misrepresentation of
then-existing fact was made, and there's no evidence of that.
All the evidence shows representations as to future
performance, future facts. Even if there were a
misrepresentation, it could not have been justifiably relied
on. The City's lead negotiator testified that he knew that
Open was proposing an unreleased, untested, unproven product.
In his words it was a beta-tested product -- beta product for
the City. It was going to be working on testing it out with
the City.
And then for similar reasons, no intentional
misrepresentation. All of that information was provided by
Open, that it was presenting a future release to the City, not
intentionally misrepresenting then-existing facts. As
Add.3
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addressed at summary judgment, the economic loss rule should
bar the fraud claims based on the RFP response because those
RFP responses were incorporated expressly into the contract.
We didn't get to address at summary judgment how the
economic loss works for a negligent misrepresentation because
that claim had not been permitted by the time of summary
judgment. But we note that the economic loss rule applies
more broadly to all subject matter of a negligent
misrepresentation claim that is also covered, that same
subject matter, by the contract, which is clearly the case
here as recognized both by the Colorado Court of Appeals and
then the Tenth Circuit applying a similar standard.
Relatedly, the integration clause within the
contract, because it -- because the contract expressly
incorporates not only the RFP response, but even the specific
functional matrix responses, the integration clause then,
which says parties were not relying on any other
representations or other proposals, that squarely and
expressly forecloses any reliance on representations and
proposals outside of those reflected in the contract, so that
would bar misrepresentation-based claims .
As to waiver, the evidence has shown that the City
knew by November 2019 that this was a -- that the portal that
was delivered was not the same as the portal that was
proposed. The City was already making that allegation then.
Add.4
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And then in February of 2020, that they reiterated that, and
Dr. Frey said in evidence that only 58 percent of the
functionality from Open's proposal had been delivered, which
is almost exactly what the City is saying was Open's
misrepresentation here, that only 59 percent was ready at the
time. And then in March of 2020, Ms. Rosintoski submitted a
memo saying that this was a development project. All the same
things that are the basis of the alleged fraud here the City
knew about, yet then entered into the first amendment after
that, executed PCR 29, both of which reaffirmed, extended the
contract, and required more payments from the City to Open.
I will not go through with that recitation again, but
note that as to rescission, waiver applies even more strongly.
That as soon as a party has knowledge of facts sufficient to
seek rescission, so knowledge of facts sufficient to claim
fraud in the inducement, that's when they have to rescind.
They can't step back and say, hey, we're going to go forward
with the contract and then if we don't like how it's playing
out, then we'll go back and seek rescission. And so, for
example, as soon as Ms. Rosintoski said, hey, the portal that
was delivered, that's not the same as the portal that was
promised, at that point the City had enough information to say
we were fraudulently induced into this contract and that only
continued.
Shifting to breach of contract, Your Honor, as we
Add.5
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said at summary judgment, the City's premature termination of
the contract without notice and opportunity to cure as
required by Section 13.2 of the MPSA, that prevents the City's
claims here as found in -- or as held in Colorado Supreme
Court precedent. Mr. Storin testified there was no notice of
default, and in the City's termination letter they gave no
identification of the means to cure and no opportunity to
cure.
That was justified by the City because they said the
cure was futile, but the evidence has shown that the City
continued to work with Open after that date. The City
launched a new release of OSF with Open after that date.
Mr. Storin testified that he expected Open to deliver a
proposal to get the project across the finish line, I believe
were his words. The City did not behave as though this was a
futile project, that curing by Open was futile. They, in
fact, welcomed further performance and also expected to be
able to finish with Open. Mr. McClune testified to the same
thing during his time as project manager in spring of 2021.
The City also waived its contract claims. For many
of the same reasons identified earlier in the record evidence,
the City knew what it's claiming now, that Open was not
delivering at the time, that Open was not delivering what it
was required to under the contract, but then 22 months into
the project with the first amendment the City said, okay,
Add.6
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we're going to wipe all that away. First amendment, let's
resolve all those problems.
And so really from the first amendment forward,
June 2020 forward, that's -- that's all that would still be in
play, and that's only if we don't consider PCR 29 when the
City and Open agreed to waive prior breaches of deadlines and
move forward toward a new project plan. So that's
December 2020. That's the operative set of deadlines that
were in effect at the time the City terminated. So the
contract claims, if they are not waived entirely by the City's
conduct, they certainly should be waived for conduct prior to
the first amendment or PCR 29.
I hope I'm going fast enough, Your Honor.
THE COURT: I'd go a little faster. I mean, do your
arguments in an efficient way, but talk slowly.
MR. SWANSON: Implied covenant, the City has put on
no evidence of a contractual obligation of Open for which the
method of performing that obligation was left in Open's
discretion. That was a critical factor to Your Honor at
summary judgment, and we have heard no evidence and seen no
evidence of a discretionary obligation that Open did not
perform in good faith. The City has presented no evidence of
any conduct by Open that was not squarely covered by the
contract, so judgment should be entered against the City on
its implied covenant claim.
Add.7
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Declaratory judgment, the City has offered no jury
instructions on that, and it would -- that claim is
duplicative, in any event, of the breach claims, and so
judgment should be entered on declaratory judgment.
Damages, we heard from the City's damages expert. He
was not opining on fraud damages. He was opining on contract
damages only. And this is a nuanced point, so I want to make
sure I can make it as clearly and as quickly as possible. But
under Trimble, Colorado Supreme Court, 697 P.2d 716, you have
contract damages, and then there would be -- there could be
separate fraud damages conceivably, but there's no evidence of
any fraud damages or any negligent misrepresentation damages.
Now, I'm not talking about rescission, but legal
damages arising from fraud or arising from a negligent
misrepresentation. No evidence of those. We only have
evidence arising from enforcement of the contract, so breach
of contract damages. The City has tendered two damages
instructions, one for negligent misrepresentation damages, one
for fraud damages. There's no evidence to support those.
They were never disclosed in either expert disclosures or
Rule 26(a) disclosures, nor were those disclosed in the final
pretrial order. So damages -- legal damages arising from
fraud or a legal damages arising from negligent
misrepresentation should be barred.
Final point on damages, that the contract limitations
Add.8
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must apply. If we are going to affirm the contract, under
Trimble, you affirm the contract in total. You cannot affirm
in part, rescind in part. So the contract damages must apply
if -- either if the -- there's no finding of fraud or
negligent misrepresentation, and thus no rescission, or if the
City elects to affirm the contract.
Last point, Your Honor, is election. We acknowledge
your ruling that there was no pretrial election and that was
not required. We maintain our objection to that. But then at
this point, the City still needs to elect before this goes to
the jury. Colorado Supreme Court has noted that is the better
practice because of the confusion this creates for the jury.
That's in American Furniture v. Veazie, 131 Colorado 340.
And then in Holsher v. Ferry, the Supreme Court has
said that a party like the City cannot rely on its claims for
damages for protection against an adverse judgment in its
action for rescission, and that's just what the City is doing
here. And the Supreme Court says this is precisely what a
party cannot do. It must choose its remedy. It must affirm
or disaffirm the contract, but it cannot do both. And so the
City should not be permitted to go to the jury hedging its
bets, so that if one outcome doesn't go the way they hope,
that they can move on to the next one. Thank you, Judge.
THE COURT: All right. Response.
MS. WECHTER: Thank you, Your Honor. Your Honor, if
Add.9
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there's a way to short-cut my response, I believe almost all
of what Mr. Swanson said were legal arguments that were
already ruled on in the MSJ and prior briefs. I can short-cut
that and address just the portions related to whether a
reasonable jury has legally sufficient evidence presented by
the City this last week, but would you like me to reargue --
THE COURT: Why don't you comment on the implied
covenant and the declaratory judgment.
MS. WECHTER: The good faith and fair dealing claim?
THE COURT: Yes.
MS. WECHTER: Sure, Your Honor. I believe
Mr. Swanson said there's been no evidence that there was any
discretion by Open in performing. First element, there was a
common purpose to successfully implement a fully integrated
CIS/OSS product on time and on budget. There were several
things -- several testimonies with respect to Open's
discretion as to setting of the schedule and cost of the
implementation. We saw that they proposed the schedule as a
quite adequate -- as quite adequate in their experience and
based on all of their methodologies, despite the internal
documents that we saw that said this was extremely aggressive
and that there were lots of delays that had already
materialized.
They chose to implement Milestone's own portal that
turned out, they didn't even meet nine percent of what
Add.10
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milestones represented to Open as grade A. They chose to
implement Milestone's portal even though Open apparently had
this homegrown portal that no one has seen that was graded as
almost all A in the RFP response. There were admissions that
they graded the homegrown portal, not the Milestone portal.
They also chose to hire Mr. Dwayne Bishop as the project
manager for its first U.S. market implementation. He had no
broadband experience, had no knowledge of Open's OSF product.
You heard as part of his deposition that he hadn't even seen
the portal until it was presented to the City.
So -- and they also chose to submit an invoice to the
City on August 23, 2018, as purportedly the software delivery
-- this is Exhibit 738 -- knowing they had not delivered. So
there was a lot of testimony about Open's discretion as to
setting of the schedule, setting of the cost, selection of its
project manager, selection of what portal it would implement
and provide, which were all contrary to the common purpose of,
you know, successfully implementing a fully integrated product
on time and on schedule.
The claim also applies to -- may apply to the
enforcement of the contract, as well as its performance, and
it bars dishonest conduct. They failed to raise any broadband
or staffing issues when they purportedly knew what was
happening, and I believe that was because they knew it was
based on the lack of configurability of the software and
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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
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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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doesn't it, Hanna? I'll have to look.
MR. SWANSON: We'll take a look.
THE COURT: But I think it is whatever was in the CJI
instructions on that. So I think it does, but let us look
during lunch. So we'll plan to get those to you after lunch.
Julie, you said I said 1:30?
THE COURTROOM DEPUTY: Yes, Your Honor.
THE COURT: So we'll be back at 1:30. Who -- what's
the order of witnesses for this afternoon?
MR. SWANSON: It's going to be Hernando Parrott.
He's our longest witness. We've tried to get him well down
from the estimate. But I expect that between direct and cross
we're going to go through the end of the day and into
tomorrow. Diego Lopez after him.
THE COURT: Okay. Perfect. We'll be in recess.
(Break was taken from 12:40 p.m. to 1:35 p.m.)
THE COURT: Please have a seat. Before we get the
jury back, Julie, let me just ask a question. Sorry I'm late.
That's our fault. We were looking at the instructions. Let
me ask, Mr. Swanson, what's the condition precedent you're
claiming the City didn't meet in the breach of contract?
MR. SWANSON: The condition precedent is the notice,
opportunity to cure, and identification of the steps to cure.
THE COURT: Okay. Anything else?
MR. SWANSON: I don't believe so. Just checking with
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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 1939 - 2060)
--------------------------------------------------------------
REPORTER'S TRANSCRIPT
Jury Trial - Day 9
--------------------------------------------------------------
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 2nd day of November, 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 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
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it wants to call?
MR. SWANSON: Sorry, Your Honor. Defendant and
counterclaimant rest.
THE COURT: Does plaintiff have any rebuttal
witnesses they would like to call?
MR. COLLARD: No, Your Honor. No rebuttal.
THE COURT: All right. The evidence is now in. So
our break is coming earlier than we thought, which is good
news. So here's what I'll tell you. We will shoot to be
ready no later than 10 to 10:00. So if you want to go for a
walk, I'd say be back by a quarter to 10:00 just in case we
finish early, and then we will get going. I will first read
the closing instructions to you, and then each side will give
their closing argument. We'll be in recess.
THE COURTROOM DEPUTY: All rise for the jury.
(Jury left the courtroom at 9:21 a.m.)
THE COURT: Have a seat. We will go back -- I don't
know that Hanna has got those ready because that was quicker
than we thought. So we'll go back and finalize those. I'd
just say wait here. We will hand those out.
Hanna, is it going to disturb you if we do the
Rule 50 now?
Let's just do the Rule 50 now actually, and then come
back with the instructions. All right.
MS. WECHTER: Thank you, Your Honor. Your Honor, we
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move on Open's remaining breach of contract claim. There has
been significant evidence last week that Open breached first
with respect to the RFP, which was incorporated into the MPSA,
the delivery, the scope, the schedule, the cost, and just as
an example, the portal. They graded a portal that they did
not even use. I'm moving through these quickly, Your Honor.
As to -- so they breached first and materially
breached first. As to some of their allegations of the City's
breaches, there's been no breach of Section 13.2 regarding
termination. We met the -- the City met the requirements of
Section 13.2 in its May 28, 2021, notice -- that's Exhibit 66
-- and provided 30 days.
In any event, any opportunity to cure would have been
futile. No one on Open's side testified that they could have
addressed the missed deadlines and the inadequate support
within the 30-day period. Instead, they sent a June 2021
reset proposal, Exhibit 323, that required more time to get a
minimally viable product.
Mr. McClune, the City's PM at the time, testified
that Open would have eventually delivered with unlimited time
and resources and not in 30 days. There's been no testimony
about being able to meet that in 30 days. There's also been
no testimony tied to any alleged breach of Section 13.2. No
one laid this out.
As to the alleged breach of Section 13.4 of the SOW,
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Open didn't rebut any of the issues with the requirements for
broadband setup that Mr. Keane talked about, and Open waived
any breach because that section required specific things such
as investigating the impact and going through the PCR process
in Section 6.
Open -- it's undisputed that there was no PCR. Open
knew by contract signing in August 2018 what they did or did
not have. Open knew at the project kickoff in October 2018
what they did and did not have. Open knew at broadband
go-live what they did and did not have, and undisputed that
there was no PCR.
Your Honor, may I also move on our claims?
THE COURT: Sure.
MS. WECHTER: As Ms. Shoaei discussed, we'd like to
move on several of Open's defenses. There's been no evidence
of a failure to mitigate by the City. In essence, Open is
asserting that it did commit fraud, and we should have
discovered fraud sooner or that it breached -- we should have
terminated the contract sooner for Open's breaches. What you
heard from Open is that they presented that -- they said they
were upset about the termination, the City should not have
terminated, and that the termination was actually inconvenient
for them, and they kept trying to keep it going with the reset
proposal.
There's no statute of limitations defense either with
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respect to July 2018, which is before the contract, or
July 2019, before broadband go-live. There's no evidence that
the City should have known about Open's fraud or breaches by
either of those points, and there's been absolutely no
evidence presented. And even though they raised some issues
about, oh, there were some issues in the project, the City
didn't know all of the information to trigger its claims until
the functional matrix review in spring or May of 2021.
For similar reasons, Open has no waiver defense. The
City must have had full knowledge of all the facts they didn't
fully know until that functional matrix review, which is
Exhibit 471, and then they promptly sent a letter regarding
rescission on May 28th and promptly filed on July 2nd.
There is no laches defense. There was no
unreasonable delay. There is no unclean hands defense. I'm
not clear what the unclean hands argument is. That the City
didn't share its litigation strategy? Your Honor, that's not
unclean hands.
And for the same reasons you mentioned during the
charge conference, there is no setoff defense or claim or
affirmative defense. There's been no damages presented for
setoff to apply and no evidence. Oh, I think I covered this,
but there's been no specific damages to the improper
termination under 13.2.
Do you want me to go ahead with what they may raise?
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THE COURT: No. I'll let you -- we'll do yours
first. Then he will get up and argue his from the get-go.
MS. WECHTER: That's it, Your Honor.
THE COURT: All right. A response?
MR. SWANSON: Thank you, Judge. In response, I think
the breach issue when it comes to the substantive performance
of the contract, pretty bound up in fact questions and lots of
evidence on both sides as to who did what in compliance, so I
think that's something that goes to the jury. That is,
though, in contrast to Your Honor's existing finding that the
City did violate the terms of 13.2 and its only escape clause
-- or escape hatch, rather, is if they can show that cure was
futile.
On that point, I think the City confuses what was
supposed to be cured and how that would be futile. If Open
had to cure something, it was a particular default. There was
no pending deadline for Open, so the City's claim that, oh,
Open couldn't perform its obligations timely, there were no
deadlines on Open at that point. PCR 29 had put two deadlines
on the City, so there's no deadline issue for Open to cure.
And Open -- the evidence -- evidence has shown that
at that point what needed to be done was steps by the City,
and so the City, from our perspective, cannot show that it was
futile to cure and to complete the project. There was, in
fact, nothing that needed to be cured. So the 13.2 violation
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does not get excused by the futility argument.
On the portal, I think that there is a dispute
between the parties about what was promised, what was
provided. The evidence shows that Open was clear about what
it would be providing, that the City proved that, that the
City knew it after the time of the contract. So, if anything,
we think that that issue has been resolved definitively in
Open's favor, but certainly is not grounds for a Rule 50
ruling against Open.
Moving to affirmative defenses -- oh, and I'm sorry,
the PCR issue that the City mentioned, that there was no
project change request immediately for the issues that got
resolved in the first amendment, I think preliminarily, as
explained by witnesses, that was not possible to do a PCR when
it had not been determined what the change in scope, change in
time, change in cost would be.
But then ultimately the parties did sign a PCR, and
they did sign the first amendment, and thereby waived any
defect in the PCR process that got to that point. They said,
That's fine. Let's move on. The City even raised that issue
during negotiations as was discussed in evidence and
testimony.
I think now to the affirmative defenses. Mitigation,
here the City continued with the project with Open after it
had determined it was going to abandon that project, and the
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City's damages expert runs damages through the time of the
termination, of the lawsuit. And so there's a delta of time
in there where the City is continuing stringing Open along,
incurring additional damages when by its own accounting it
knew it was out. The City shouldn't be able to make Open pay
for the City's own delay.
Waiver, you've already ruled, Your Honor, of course,
that this is a fact issue. We think waiver is pretty
definitive in Open's favor and against the City when it comes
to a signed contractual amendment, but certainly it is an
affirmative defense that should at least be presented to the
jury, if not resolved definitively in Open's favor. Laches, I
think for the same reasons that the Court has a damages for a
legal statute of limitations instruction to the jury, laches
can apply here as well, but it would be on the equitable side
as resolved by Your Honor.
There was unreasonable delay. The evidence shows in
2019 the City knew what they say now, the portal was not
delivered as it was represented. Open had -- OSF had become a
development project. OSF required too much. There was
evidence showing that the City had those concerns at that
time, and they just kept going.
Unclean hands, I think Ms. Wechter's argument misses
the point that this defense is addressing. In equity, the
claimant has to come with clean hands, not the claimant's
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fault. Here, in June of 2020, the claimant said, Hey, the
majority of this is our fault. Mr. Beckstead testified to
that in front of the city council. That is how the first
amendment resolved things.
And so at the very least there is a question of
whether the City can come in equity and say we get to rescind
this and get back everything when the City acknowledged that
for at least two-thirds of the project it was responsible for
the majority of delays and costs.
And I won't belabor setoff except to say we believe
setoff is necessary here to account for the retainage that
Open earned and that the City is holding, and that should be
credited against any award that the City obtains.
Do you want me to do my renewal of our motion at this
point?
THE COURT: Is it on this same basis or is there
anything new?
MR. SWANSON: I was just going to touch a few new
things.
THE COURT: Let me hold off, and let's do plaintiff's
first.
MR. SWANSON: Thank you, Judge.
THE COURT: All right. With respect to the breach of
contract claim, I'm denying plaintiff's motion on that. I
find that there are too many questions of fact as to that on
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both sides. I mean, so this will apply if defendant were to
move the same. It is clear that the jury has had a lot of
evidence about who did what when, who knew what when. All of
that goes to factual issues that are best left to the jury.
That includes any issue about the portal or the -- no PCR in
the first amendment, how that played out.
In terms of no breach of Section 13.2, I have already
ruled on that, and the issue there, again, is while the City
laid out the reasons, but there was not a reasonable
opportunity to cure in any meaningful way, that is why
futility is being allowed to proceed. I do find there's
sufficient evidence of futility, though, to let that go to a
jury. But at any rate, I find that there is evidence from
which the jury could conclude that there was a breach of that
section and that it may not have been futile to do it.
In terms of the defenses, I'm denying plaintiff's
motion on that as well. The failure to mitigate, there does
seem to be some issue remaining as to if -- if and when the
plaintiff should have gotten out of this contract earlier. I
think that goes to that defense.
The statute of limitations, again, because of
largely, if not singularly, Mr. Beckstead's testimony, I find
there's evidence to support the statute of limitations going
to the jury, as well as the waiver. I realize there's
evidence on both sides that the City didn't fully know until
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the functional matrix was done later, but certainly by the
time of the first amendment, there was definitely knowledge of
problems, knowledge of the delay, knowledge of the nondelivery
of the portal as promised. So all those issues will be
resolved by the jury.
Let me turn, though, to the affirmative defenses. I
am ruling as a matter of law and denying those affirmative
defenses to defendant. I don't believe laches applies here,
and because that issue is with me, I am not finding in
defendants' favor on that defense. I just don't find there's
sufficient evidence here that would justify application of
that equitable defense to defendants' behavior.
More importantly, I don't find there's any unclean
hands whatsoever. Clearly this, to quote one witness, may
have been the worst project ever, but it's on both sides, and
those will be dealt with by the jury. But I don't find that
the plaintiff behaved with unclean hands, and Mr. Beckstead
clearly had some knowledge and elected to proceed, but I do
find that the City doesn't have adequate knowledge to decide
what to do until there were further reviews of the product and
its delivery. So those affirmative defenses I am finding
against defendant on.
The setoff I've already ruled on, but, again, I would
just note that the plaintiff has claimed under the contract
until those amounts -- until the project was completed, those
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amounts weren't due. This project wasn't completed. That is
also -- has been presented as an element of defendants'
damages. To the extent the jury believes defendant breached,
that would include in their damage award. So, again, I think
a setoff would be a double recovery to defendant in that
event.
With that said, let's hear defendants' motion.
MR. SWANSON: Thank you, Judge. Just renewing on the
points raised previously, and then wanted to add on implied
covenant, during the argument earlier this week, counsel
identified pre-contractual obligations that they say Open did
not -- that Open had discretion in and did not perform in good
faith. They've not identified a single provision in the
contract that gave discretion to Open and that Open performed
in its discretion in bad faith.
This going to the jury, I'm very concerned they will
be confused, and they will just say, well, did Open act in
good faith or not? And that's -- that is not what this claim
entails under Colorado law. And so we renew that, and now on
the full evidence I think we can say definitively there's been
nothing that pins a contractual obligation with discretion
that Open improperly performed.
In light of the clarification we received -- or that
we've understood finally yesterday on damages related to fraud
and negligent misrepresentation, we add that we believe those
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should be removed as a matter of law because they were not
adequately disclosed, and because there's not been evidence
showing causation from the fraud to particular damage or the
negligent misrepresentation to particular damages limitation,
we understand that is applied and will be given to the jury.
The only evidence on that has -- on how the 12 months is
calculated has been between 2.3 and $3.4 million, so as a
matter of law, that cap should be 3.4 at the most.
Open's own breach of contract claim, because of the
wrongful termination without complying with Section 13.2 under
Northwest Water, Colorado Supreme Court case, we believe that
requires judgment as a matter of law in Open's favor on its
claims. We understand Your Honor's summary judgment ruling,
but we raise it for purposes of the record.
And then, finally, on the City's affirmative defense
of failure to mitigate, we move for judgment as a matter of
law because there's not been evidence that Open failed to
mitigate some measure of damages that it's seeking. It's
seeking payment for services performed, and if the jury finds
that Open performed those services and was prevented from
payment because of the City's misconduct, there's no
mitigation that would apply against that. Thank you, Your
Honor.
THE COURT: All right. Response?
MS. WECHTER: Yes, Your Honor.
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THE COURT: And no need to cover the points we
already addressed in the first Rule 50, so let's focus on the
implied covenant on forward.
MS. WECHTER: Okay. Just what he covered today, not
what he covered previously?
THE COURT: Yes.
MS. WECHTER: Okay. Your Honor, the City did raise
contract issues with the good faith and fair dealing claim
last time, and we'll re-raise it now. The milestone payments
for the project were fully discretionary and Open's choice in
the MPSA. Mr. Parrott testified that he -- it was Open's
choice to invoice the delivery of the software in August 2018.
We saw the software invoice is Exhibit 738. At broadband
go-live they invoiced again for a failed delivery. And also
the MPSA incorporated the RFP response, and the functional
matrix was updated and reattached to the MPSA.
With respect to the damages on fraud and negligent
misrepresentation, Your Honor, you've ruled on this several
times. We stand on those same arguments. The 12 months issue
on the statute of limitations, I believe that was connected
to, that's clearly a factual issue, and Open didn't present
any evidence on this from any factual witness as to what that
timing was.
With respect to the lack of a failure to mitigate
defense by the City, Your Honor, the big risk register,
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Exhibit 145, Open said they didn't share this with the City
because it was for them to mitigate. They didn't do it. All
of the Dwayne Bishop e-mails, please help us, please support
us, please give us your expertise, Open didn't do it. Open
had a homegrown portal that had all these functionalities.
Didn't revert back to it. So we believe the failure to
mitigate defense should remain in place.
No further argument, Your Honor.
THE COURT: Well, let me -- stay right where you are.
Let's talk about the implied covenant, because the milestone
payments were governed by the contract and have specific
terms. I didn't really understand what you were saying was
discretionary in the functional matrix. In terms of the
ratings?
MS. WECHTER: Oh, sorry. That was just a response to
Mr. Swanson's argument that the RFP wasn't the contract. It
was pre-contractual. It was incorporated. And then there are
other discretionary terms that I did refer to last time, such
as the schedule that is set in the MPSA, which was slightly
different than in the RFP response. The setting of the
schedule was clearly Open's discretion based on its own
experience and knowledge and years -- decades in the industry,
and they represented -- and they set that schedule based on
their expertise on a very unique OSS CIS system.
THE COURT: All right. But that schedule was set in
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the MPSA, so there was no discretion tied to it because it was
set by contract. So what else -- what else is the plaintiff
relying on to say these were discretionary components of the
contract that were breached?
MS. WECHTER: Well, the milestone -- milestones for
the project, Your Honor. They were laid out, but Open had the
discretion to say this is met, and Mr. Parrott testified to
that.
THE COURT: Anything else the plaintiff's relying on?
MS. WECHTER: That's it, Your Honor.
THE COURT: All right. And then let me go back to
the 12 months, because what Mr. Swanson was arguing was the
contract limitations, the evidence about when the 12 months
should begin and go back to.
MS. WECHTER: Same response, Your Honor. There's
been no evidence by any factual witness about that. I think
their damages expert just used a date. It's clearly a factual
issue as to when that date is triggered, and it should go to
the jury.
THE COURT: And let me go, again, to the failure to
mitigate. What was Open's failure to mitigate?
MS. WECHTER: I'm not clear which claim that they
were referring to on the failure to mitigate.
THE COURT: Well, let's assume it's the breach of
contract.
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MS. WECHTER: Failure to mitigate in terms of
addressing risk that they had in the large risk register they
said they didn't share with the City because it was really for
them to address and mitigate issues. They didn't do that.
They didn't share it with the City either.
Mr. Bishop repeatedly sent e-mails to Open saying we
can't keep having these late deliveries. You guys need to
advise us. You are the experts here. We need people here.
We need people responding. You can't keep changing things
without telling us, causing all sorts of delays and issues and
untested deliverables.
And especially with the homegrown product, there was
purportedly a fully grade A product that they never went back
to. When Milestone -- Milestone's portal was delivered and
had all sorts of issues on only nine percent of those
requirements met, they could have mitigated by using a portal
that would have helped the schedule, the cost, and all of
those items, Your Honor.
THE COURT: All right.
MR. SWANSON: Do you need a response, Your Honor?
THE COURT: No, that's okay.
MR. SWANSON: Thank you.
THE COURT: All right. At this point I'm granting
defendants' motion on the implied covenant of good faith and
fair dealing. I just don't see anything that's not covered by
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the contract that's discretionary in nature. The milestone
payments were set out in the contract. A witness testified
that Open may have had discretion on when to -- when to pay
them doesn't matter because the City had the right to not pay
unless it was met. So that was set by contract, and since
that's been what is named as the discretionary piece, I find
there's insufficient evidence to support a breach of the
implied covenant of good faith and fair dealing, so that claim
is dismissed.
With respect to the remainder of the Rule 50, it will
be denied. The fraud negligence claim, I find there's
sufficient evidence on that. I find there's sufficient
evidence for the jury to conclude that. With respect to the
12 months, how far it goes back, honestly, I don't know that
either party has argued that very well, so I'm not sure what
the jury does. Presumably you both will address that in
closing, because, as of now, I don't think they have adequate
guidance on that. But that will stay in because neither side
has conclusively established that one way or another.
On Open's breach of contract claim, I do find there's
defenses that the plaintiff has and that's not been proved
such as that I could take it away from the jury. I largely
ruled on that in the summary judgment response, but even more
so the evidence at trial has been even more sufficient. And I
might just comment on the 13.2 section. The evidence as
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developed, it has really -- would have supplemented my summary
judgment ruling, and I'm not sure I would have ruled the same
way.
I don't know that there's a conclusive breach based
on the testimony of the effect of the meetings with the
executives and the 30 days, et cetera. That wasn't
necessarily how it was presented in summary judgment.
Regardless, that will go to the jury to decide.
The failure to mitigate is a closer call. I think
the City's argued there's some questionable items that Open
could have done to mitigate its breach of contract damages.
There's sufficient evidence, I think of the ones mentioned
perhaps the portal and not addressing the risks in its own
internal matrix that assessed risks of the project not
addressing those sooner. So I will leave in the failure to
mitigate instruction on that.
So with that, we will take out the implied covenant
instruction, which hopefully was one instruction and hopefully
Hanna didn't frantically add damages to it, which it looks
like she did.
So with that we will take a break. Ms. Dynes will
tell the jury we're probably looking at 10:10 because we've
got to get this printed and have you all go back on the record
to take a look and note any other objections. So we'll be in
recess. Ms. Bustillo will come back out when she's got the
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jury instructions modified, and then we will proceed.
And I will -- when I read jury instructions,
Ms. Mitchell doesn't have to type them since they're written,
so I intend to read fairly quickly because each juror will get
a set of the instructions, so don't feel like I'm rushing
them. They all get the instructions and will have a chance to
study them individually.
All right. We'll be in recess.
THE COURTROOM DEPUTY: All rise. Court will be in
recess.
(Break was taken from 9:49 a.m. to 10:35 a.m.)
THE COURT: Please have a seat. Did you get a chance
to get through those?
MR. MCADAM: Certainly on all of the part one
instructions and verdict form, yes.
THE COURT: Okay. That's good. Once the jury starts
deliberating, you can just confirm part two. We'll just print
out the first part obviously and give it to them. We've got
the stipulation printed out. Julie will have the exhibit
reference list printed out, so we should be good to go.
Anything else before we get the jury?
MR. COLLARD: I just have a question, Your Honor.
We're closing the whole case, so we're talking about breach of
contract things, so can I use these instructions?
THE COURT: You can. Just note they're not numbered
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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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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 2
*****
(The proceedings commenced at 1:01 p.m.)
THE COURT: We are here in 21-cv-2063 for a hearing
on two post-trial motions. It's City of Fort Collins v. Open
International and Open Investments. May I have entries of
appearance, please.
MR. COLLARD: Yes, Your Honor. Good afternoon. Case
Collard and Andrea Wechter for the City of Fort Collins from
Dorsey & Whitney. And also with us today we have John Duval,
who despite being retired has agreed to provide some support
for the City as this case continues. And then we have the
City attorney with us today, Carrie Daggett.
THE COURT: Good afternoon.
MR. SWANSON: Hi, Your Honor. Paul Swanson from
Holland & Hart on behalf of Open International and Open
Investments, joined by appellate counsel Laurie Daniel and
Jeffrey Sandman, and our client representative Mr. Corredor.
THE COURT: Good afternoon to everybody. Here's how
we're going to do this. I understand why you did it, but the
City kind of addressed the 50(b) arguments of both motions in
one response, but I'm going to take them in order of how Open
briefed the matter. So first we're going to hear argument on
302, ECF 302, defendants' first -- well, that would be wrong.
It's not its first Rule 50. It's about its fourth Rule 50,
but we're going to hear 302 first, and then we'll go to the
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 3
next one.
MS. DANIEL: Thank you, Your Honor. Should I stand
at the podium?
THE COURT: Please.
MS. DANIEL: So, of course, as you mentioned, there
have been motions for judgment as a matter of law made and
then renewed and then renewed again. I'd like to start with
-- and there's no way I'm going to cover everything. I think,
you know, we can leave certain things to the briefing, but
there are a few things I think worthy of further discussion.
And one point that I want to start with is the
economic damages rule, because that's an overarching issue. I
mean, basically it would require judgment in favor of Open.
And by the way, Your Honor, when I say Open, there are two
defendants. They are not the same. There's no alter ego
here. It's Open International and Open Investments, but for
now I'm just going to use the shorthand and refer to Open.
So, Your Honor, you did address the economic loss
rule at the summary judgment phase, and respectfully I'm going
to ask the Court to look at it again, because we think that
with further analysis perhaps we can convince Your Honor to
agree with us that the fraud claims were barred by the
economic loss rule. And I'd like to refer the Court to a case
that actually was not cited in the briefing. Of course the
briefing touched on the economic loss rule throughout all of
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 4
the Rule 50 motions and briefs touch on this.
The case I'm going to refer the Court to is called
S K Peightal Engineers Limited. Let me grab my glasses, I'm
sorry. It's a case from the Colorado Supreme Court, and
what's most helpful about this is it first addresses the goal
of the economic loss rule.
MS. WECHTER: Excuse me. Could you provide us the
cite, please?
MS. DANIEL: I'm sorry. My papers dropped right as I
was about to do that. 342 P.3d 868. Okay. So it's helpful
because it talks about the goal of the economic loss rule.
Basically if you've got claims that are covered by a contract,
the law -- and you're dealing with economic damages, which we
are dealing with here -- the law requires the plaintiff to sue
in contract, and in order to get around that, there has to be
an independent tort duty separate and apart from the duties in
the contract.
And this case, this S K case, it's helpful because it
addresses specifically what is the meaning of independent
duty. And it starts off at page 875. It says, Initially we
set about clarifying the precise meaning of independent duty
in the context of the economic loss rule, and then it gives a
little bit of history on the economic loss rule, and then it
summarizes, sums up really a very concrete way of
understanding when the economic rule applies.
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 5
It says, First, any general tort duty is independent
of contractual duties if the contract contains no duties.
Well, our contract contains duties, so that's out. Or the
allegedly breached tort duty is beyond the scope of the duties
contained in the contract at issue, and this is the part that
I suggest invokes the economic loss rule here. I'll read that
again. The economic loss rule does not apply where the
allegedly breached tort duty is beyond the scope of the duties
contained within the contract at issue.
So we look at the contract here to see does the
contract address the duties that are claimed to have been
breached. And the core of this case, this fraud claim is that
there was a misrepresentation -- basically there were two, but
I think one of them has been abandoned. There was a typo in
the RFP regarding when Version 8 of the software was released.
Everybody knows that was a typo. The City's admitted that, so
that's out.
The second thing goes to the functionality matrix,
and the City's fraud claim turns on whether there were
misrepresentations as to functionality. In other words,
whether the grade A was given to too many functionalities that
were listed. The problem that the City has is that that
functionality matrix was part of the contract. It was a
contractual duty, and that is found in the very beginning of
the -- it's called the master professional services agreement,
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 6
in the introduction, which is I think maybe Trial Exhibit
Number 1 is the contract, page 5 of that document.
It says that the requirements of the requests for
proposal, RFP, in Open's proposal dated March 12th, 2018, are
incorporated herein by reference. But it goes on. It's more
than that. It's not even just incorporating by reference. If
you go on and thumb through what's actually in this contract,
we'll get down to page -- page 88 of 391, part of the
contract, you have Exhibit C, Attachment 1, statement of work,
number one, functional requirements matrix. And the next page
has the template for the matrix defining what the grades are,
and then for the following many, many, many, many, many pages,
you have the actual representations with the grading on each
of the functionality.
So this is the -- this is the duty. The contractual
duty was to comply with this. The alleged breach,
misrepresentation crux of the fraud claim is the same. It's
exactly the same. So applying the S K test for deciding when
the economic loss rule applies, it must be concluded that it
does apply here, because it's one and the same.
Now, Your Honor, you did address this in your summary
judgment order. It was argued that the merger clause,
integration clause in the contract incorporated all prior
representations. Your Honor ruled that a general integration
clause is not sufficient to be enforced, but respectfully,
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 7
Your Honor, this contract does more than have just a general
integration clause.
This representation is not some prior verbal, you
know, representation trying to induce someone to go into the
contract. It is part of the contract. Every bit of it is
part of the contract. Every bit of this functionality matrix
is in the contract. It is a contractual duty. They are one
and the same, and therefore, respectfully, we ask the Court to
look at the contract again, see that the same representations
that the City has sued on on their fraud claim are actually
contractual representations, also hence the economic loss rule
does apply.
THE COURT: Let me ask you, have you considered the
case of McWhinney v. Centerra, 486 P.3d 439.
MS. DANIEL: I think I may have read that, Your
Honor, but I don't have my notes on it right in front of me.
Is there a specific thing in that case that I should address?
THE COURT: Well, a couple things, because the case
you're citing precedes Bermel, which is a Colorado Supreme
Court case that was issued that dramatically changed the
landscape of the economic loss doctrine and made clear that it
generally does not bar intentional torts. McWhinney followed
that and embraced Bermel and specifically held that the
economic loss rule did not bar a fraudulent inducement claim.
So I'm just wondering if you've reviewed those and if it
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changes your --
MS. DANIEL: I have, Your Honor. I have.
THE COURT: Let me finish. And if it changes your
analysis.
MS. DANIEL: It does not. My understanding of that
Bermel case is that it addressed a criminal statute, and there
was dicta saying that generally the economic loss rule would
not generally apply to intentional torts. And I've looked at
that and looked at the more recent case law on it. It's my
understanding that there's no ruling by the Colorado Supreme
Court that the economic loss rule does not apply to
intentional torts. There's a lot of cases that have applied
it to fraud which is intentional tort.
Often they are in situations where the fraud occurred
after the contract. Sometimes they say it doesn't apply to
pre-contractual representations where, for example, you might
have an oral representation, fraud in the inducement. I've
not seen a single case from Colorado that has said where the
representation is part of the contract, that the economic loss
rule does not apply, and that's what we have here. I've not
seen anything.
And what I have seen in looking at the more recent
cases is that there's a pushback, and the Colorado appellate
courts and maybe even some going one way and some going the
other way, but it appears to me that there is a distinct
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Oral Argument21-cv-02063-CNS-SBP
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movement away from strict imposition of an intentional
misconduct rule. And I can give you a couple of these.
They're not exactly on point as far as their holdings,
because, for example, in one, the Mid-Century Insurance
Company case, and that citation is 531 P.3d 427, it's Colorado
Court of Appeals, Division 5. It involved allegations of
willful and wanton conduct. It said that did not bar
application of the economic loss rule.
It goes through a discussion of Colorado case law on
this issue and shows how the trending -- the trend is away
from a strict bar of application of the economic loss rule
based on intentional conduct, and it makes sense in a way.
You know, you can have an intentional breach of contract, and,
you know, that -- it's almost so what. That's not going to be
a problem. If you've got part of -- the defining question on
application of the economic loss rule is whether the duty
alleged to have been breached is part of the contract, and so
the goals, the purposes of that rule apply here, and there's
no controlling Colorado Supreme Court authority to the
contrary.
THE COURT: Let me ask you, because I believe
McWhinney is on all fours with this case, and in McWhinney, I
think it's Judge Ramon indicates that in looking at whether
the tort claim addresses an independent duty, you look at
three factors. Is the relief in tort the same as the relief
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 10
in contract? Here the answer is clearly no. Is there a
common law duty? Clearly the answer is yes. And does the
tort differ from -- does the tort duty differ from the
contractual duty. Doesn't the obligation not to make
fraudulent misrepresentations to induce somebody to enter a
contract, isn't that a different duty than following the terms
of the contract?
MS. DANIEL: No, Your Honor, it's that third part of
that case -- and, yes, I have read that case. No, I would say
the duty -- the duty is to comply and have this representation
that you're going to do this thing, and that is the same duty
that is incorporated into this contract. So respectfully,
Your Honor, I think that whether you look at it under the
McWhinney case or the S K case, if you look at what the
economic loss rule is about, then it is if you've got the same
representation in the contract, that is the contractual duty
you're supposed to comply with. So for those reasons,
respectfully, we submit that the economic loss rule bars the
fraud claims in this case.
THE COURT: And let me ask one further question,
because let's assume that's true, but I've indicated I
disagree with it -- but if it was true, what about the
argument about the portal, that Open really made the RFP bid
based on its homegrown portal knowing that it had already
selected Milestone, and it turns out Milestone's portal was
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08/15/2024 11
only about 20 percent compliant with what was represented in
the RFP. So there that hidden fact that they were using
different portals certainly couldn't be the same as the
contractual duty embraced in the contract, because it was
based on information that was inaccurate.
MS. DANIEL: Well, let me go to the question of the
information that's alleged to be inaccurate, the
misrepresentation, and we think also that the evidence and
unrefuted evidence in the record is that there was no
misrepresentation. And specifically I would refer the Court
to -- again, as I understand it, it really boils down to this
grading system. The City claims Open International gave too
many grade As to functionality and that it just was not ready
on the shelf which is the way the City interprets the grade A
requirement. Be ready to go on the shelf.
But if you look at the Table 2 in this document which
is -- it's the matrix for the grading, and it goes through the
various grades, grade A -- grade A, there's a column where the
label of the grade, that's column one. Column two has a
general description. Column three has further description of
what it is. So grade A, the summary description is provided
as part of base system. And you go into the more specific
description, which is -- and I'm going to quote this slightly
bit more elaborate description. It says no modification is
required. Desired functionality is achieved through
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 12
configuration and is part of base code. Cost of configuration
is part of solution implementation.
So what that means, what I think it says, and its
meaning to Open was described by Hernando Parrott who
testified as to this, that doesn't mean it's on the shelf
ready to go. It means it's part of their base system. What
it says is desired functionality is achieved through
configuration, which is a future act, and it's -- when they
say it's part of base code -- the next sentence is really
important -- it says cost of configuration is part of solution
implementation. So a lot of this grading went to cost issues
and concerns over how quickly this could be implemented.
And Mr. Parrott testified without contradiction that
base system, they already -- everything that was graded A.
All of these functionalities that were graded A were in their
base system, and their base system is what they had in
general. Everybody knew there were going to be some
additional configuration. Everybody knew that Version 8 was
not on the shelf, that there was additional work to be done.
But that was contemplated that it was in the base system, and
Open had been working on this Version 8 for three years. They
had done a lot of work. They had a lot in their base system,
and that's what he said. That's his testimony.
THE COURT: Well, I just have to interrupt you,
because that is not the testimony. The base system was not in
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08/15/2024 13
existence according to Open, that it was in development, and
that's why they're asserting the As really didn't mean what
the City thought they meant. It meant when the City -- when
it would go live, those would be at those As. Not at the time
it did the bid and not in the system as it existed, but that
it needed further development, but it would be ready by
go-live.
MS. DANIEL: Respectfully, Your Honor, we did quote
Mr. Parrott's testimony in our reply brief, and --
THE COURT: Let me interrupt you, because,
respectfully, Mr. Parrott's testimony was contradicted
numerous times in his own video and in-person testimony, so
you'd have to be more specific as to which testimony you're
quoting.
MS. DANIEL: I can grab the citation.
THE COURT: That's okay. I'll just accept your
point, and it's in there, but that's certainly not the thrust
of the remainder of the evidence.
MS. DANIEL: I think, Your Honor, the question is
there's -- there's a difference between things still needing
to be done and in development, meaning that it's not part of
the base system. So that's where the confusion has been. But
I do think that the part of his testimony that we quoted and
is unrefuted and I think is consistent with the rest of the
evidence is that it -- in doing these grades, this was part of
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Sarah K. Mitchell, RPR, CRR
08/15/2024 14
Open International's system that they had in hand. It needed
some additional work, and that's where -- why it was included
-- these were included in the grade As.
And he explained, and if you look at the exhibit,
Trial Exhibit 74, which I think, again, is basically what the
City is basing their case on, it has something -- it has
current functionalities, 59.4 percent. It has planned for
2018 at 24.9 percent. It has future development, 6.1 percent,
and then it goes in and has a couple other smaller ones.
Mr. Parrott went through this at trial and explained
current functionality didn't need anything else, but that's
not the definition of grade A. Grade A contemplates some
additional work. That's where plan for 2018 comes in. And he
said, yes, needs some additional work, but it was already in
the base system. You add those two together, and you're
getting up to 80-something percent plus. And he testified
there's some in this future development -- some of the 6.1.
And the problem is this exhibit, this T74, it was
based on -- it's not used -- it's not using the same language.
It was not -- this was not meant to be what the City is saying
it is. And his -- because plan for 2018, it's consistent with
grade A. Yes, grade A contemplated additional work through
configuration. Mr. Parrott explained that, and so it was not
actually a misrepresentation. And, you know, people might get
confused by a document that was not part of the RFP, and it's
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Oral Argument21-cv-02063-CNS-SBP
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08/15/2024 15
not inconsistent, because if you looked at the backup on this
document, it's very complex, but it has -- it has all kinds of
data in there. It simply is not something that refutes what
Mr. Parrott explained.
THE COURT: Well, let me ask this to cut to the
chase. What is it about what you're arguing that would
possibly allow me to set aside a jury verdict, the jury who
looked at this evidence, who heard it all, who heard the
inconsistencies as you're claiming they exist and reached
their conclusion? What authority gives me the right to step
in and say there was some error in what the jury determined?
MS. DANIEL: Well, I don't -- when you say
inconsistencies, I'm not suggesting that there are
inconsistencies or fact disputes. What I'm suggesting is that
unrefuted direct testimony establishes what the grade A meant,
and it's consistent if you look at the definition of grade A
in the template. On its face it contemplates additional work.
THE COURT: I'm going to have you move on from this
point, because I think on this issue I'm comfortable with my
prior rulings on it. There's just -- there was significant
evidence from which a jury could determine the opposite.
MS. DANIEL: All right. So, Your Honor, the next
point I'd like to go on -- and I know we're addressing 50 --
Rule 50(b) points now. It's one we raised in connection with
the briefing on 52 -- Rule 52(c). I think Your Honor
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 16
indicated that would be more appropriately considered in a
50(b) presentation, so if it's --
THE COURT: Well, that wasn't exactly the message I
was sending. I was sending the message it should have been
dealt with that way but wasn't, so I was going to consider it,
and I consider my ruling on the 52(c) to be a conclusive
answer from me on whether Open Investments is a proper party
here. I consider that a ruling. That was posed that way. I
specifically said while it should be this way, let me address
it so you don't. You did anyway. There's nothing that you
have submitted in any of your briefs that has changed my
position on that. With that said, if you feel you need to
make a further record, you can. I would submit you don't.
The record is replete with arguments about this.
MS. DANIEL: Thank you, Your Honor. I would like to
say a few additional words on this.
THE COURT: All right.
MS. DANIEL: And I'll just -- I hear what you're
saying, and I don't want to belabor or take up your time
unduly. However, I have some things. I would say keep in
mind plaintiff has the burden of proof with regard to each
defendant showing each defendant committed fraud. There's no
evidence that Open Investments made any misrepresentation. It
was part of this case as a guarantor. The jury did not
specifically address this issue as far as being instructed as
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 17
to particular liability of a particular defendant.
And the jury's -- it was -- it's an unusual procedure
that was used here as far as the jury trial and then having
the Court address equitable issues. The jury did not
specifically rule on that. There was, as the Court referred,
to shorthand reference to Open. At the time of the jury --
that the jury heard evidence, there was very much evidence of
the contract, and Open Investments was, of course, a guarantor
in that contract, and if there had been a finding of breach of
duty, contractual duty by Open International, Open Investments
was a guarantor, and they've accepted that. That's why it was
not broken out previously before the election of remedies.
When the election of remedies came down and they said
they're going with fraud, it's, wait a minute, Open
Investments did not engage in fraud.
THE COURT: Let me interrupt you there. That was
contemplated all along. That wasn't a surprise that was
pulled out by me at trial. We discussed this prior to trial.
The parties knew that was how it was going to be handled. To
me, it strikes me that what's happening here is Open is trying
to get the benefit of in some circumstances relying on Open
Investments as the parent company, the person they could
trust, they had 30 years of experience, they'd been working on
this for a long time, they've got all these employees behind
it, but yet never mentioning the notion that there should be
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 18
two separate jury instructions or a verdict form for the two
defendants, and when there's a finding against them, all of a
sudden bringing this issue up in a manner that is far too late
to deal with it.
MS. DANIEL: Well, Your Honor, respectfully, I think
that the defendants did object to the procedure that was
followed here and the failure to elect remedies before trial
which would have eliminated this issue, this problem. But
there's no evidence of alter ego liability. These were two
separate corporations. Again, the plaintiff had the burden of
proof. And, again, I'd say subjecting Open Investments to a
rescissionary remedy does not -- that doesn't restore the
status quo. That creates a penalty against an innocent party,
someone who did not commit fraud. It's a penalty because Open
Investments did not owe anything, and that would not be
restoring the status quo. It would be going beyond the status
quo and penalizing Open Investments which was a parent
company.
And I might mention that when Mr. Corredor was
interacting, I think he's CEO of Open International, and it
doesn't necessarily mean just because he was there and knew of
what was going on, that that was the parent company making
representations. I just think there's no evidence on that.
And I would suggest, Your Honor, that a Court sitting in
equity has a duty to make a determination whether one of the
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 19
defendants, here Open Investments, could be liable for
restitution when there is no evidence that it made any
misrepresentation. I suggest, Your Honor, that that is
something for you to decide and evaluate if there's any
evidence in the record of Open Investments.
THE COURT: I think the point is the claim, the
liability was found. The time to bring this up was before a
finding of liability was made against Open Investments, and
much less any sort of objection that would have alerted me to
this argument beforehand I think is required, because now what
we're left with is -- I understand your argument and how --
but I more understand how it should have been made before a
finding of liability was made.
MS. DANIEL: Well, respectfully, Your Honor, again,
there was no election of remedies at that time, and until
there was an election of remedies, Open Investments was in the
picture.
THE COURT: But why would Open Investments want a
finding of liability regardless of whether there was a remedy?
MS. DANIEL: Open Investments protested the handling
of this in this way from the beginning.
THE COURT: Prior to your Rule 50 motion, had this
issue ever been brought up?
MS. DANIEL: Your Honor, I don't think it was brought
up until the election of remedies, so our position is that it
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Sarah K. Mitchell, RPR, CRR
08/15/2024 20
was at that point that it became a ripe issue and an important
issue for the Court sitting as a Court in equity to weigh
equities and look at the equitable positions here and the
equities with regard to a party where there is no evidence
that that party engaged in any type of fraud, made no
misrepresentations, and whether -- as a Court sitting in
equity, the Court can enter judgment -- and that's what we're
talking about, judgment -- can the Court enter judgment
against a party when it's acting in equity and deciding
rescissionary -- what the rescissionary award should look
like.
So I think I've pretty much made the points there for
Your Honor. I think, again, this goes beyond restoring the
status quo. It punishes Open Investments and, respectfully,
possibly even has due process considerations. That's all I
was going to -- we have additional arguments, of course, in
our papers, limited time today. So I want to -- of course,
you know, the City is going to want to say what they're going
to say, and then on the Rule 59 motion I've got some points on
that as well.
THE COURT: All right. Fair enough. We'll return to
that.
Mr. Collard.
MR. COLLARD: Your Honor, we split up things.
Ms. Wechter is going to handle economic loss. I'm going to
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 21
speak to the other two issues I heard, weight of the evidence
and the Open Investments issue.
THE COURT: All right.
MR. COLLARD: Do you have an order that you'd prefer
to go in?
THE COURT: Any order is fine with me.
MR. COLLARD: We'll go in the same order they went.
THE COURT: All right.
MR. COLLARD: So we'll do economic loss first. Then
we'll switch out. Thanks for your flexibility.
MS. WECHTER: Good afternoon, Your Honor.
THE COURT: Good afternoon.
MS. WECHTER: Your Honor, just briefly, I know you've
heard all this before, I want to start out by acknowledging
the case law that you pointed to, the McWhinney case, I think
Open fundamentally misunderstands the law. As you noted the
three elements or, you know, requirements, I don't think it's
disputed that the relief sought is not the same as the
contractual relief. The City has always sought rescission as
well, and there is case law, and I can read it into the
record, where -- Goodrich vs. Altera Mountain Company, 2021
U.S. Dist. LEXIS 118676, District of Colorado, June 25th,
2021. That talks about where the -- where the contracting
party is also seeking rescission, dismissal based on the
economic loss rule would not be appropriate.
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Sarah K. Mitchell, RPR, CRR
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And Open's counsel mentioned -- started out by
mentioning the goal of the economic loss rule, and that's
really important. The purpose of the economic loss rule is so
that the contract law doesn't swallow up the tort law and that
the tort law doesn't swallow up the contract law. Here, by
always seeking rescission and ultimately electing rescission,
the City sought and did avoid the contract. As to the
independent tort duty, all of the cases we cited, Levin, Van
Rees, talks about how a duty not to defraud to induce a
contract is an independent tort duty.
And, of course, obviously at the time there is no
contract to require or govern the duty not to defraud. Your
Honor mentioned the McWhinney case. That case actually takes
it a step farther and talks about and makes a clear
distinction about the differences between negligent
misrepresentation claims and independent -- I apologize --
intentional fraud claims.
That case talked about how -- on paragraph 75 it
states, While the conduct underlying each of these claims may
also support a breach of contract claim in this case, we are
not persuaded that the economic loss rule should shield
intentional tortfeasors from liability for misconduct that
happens to also breach a contractual obligation. And that
case further went on to state that the economic loss rule
should -- quote, generally should not be available to shield
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 23
intentional tortfeasors from liability for misconduct that
happens to also breach the contractual obligation.
That case was also cited by the district -- by the
federal district court in Scheeler vs. Canopy Holdings, 2023
U.S. Dist. LEXIS 97487, District of Colorado, June 5th, 2023.
That was a decision by Judge Neureiter, and that case goes
through some of the other Colorado cases and states, Even
where a negotiation ultimately results in a written contract
that might include specific warranties and representations,
there exists an independent common law duty not to engage in
pre-contractual fraud that might induce a party to enter into
the contract.
So not -- you know, other cases we've cited
previously like Van Rees, you know, explain the distinction
between fraud -- fraudulent misrepresentation claims and
inducing a party to enter into a contract relationship knowing
that that party did not have the capability to perform the
promised services. And even buying all of Open's arguments
and disregarding all of that, the duty not to defraud was not
memorialized in the MPSA.
The Van Rees case that was cited talks about how the
contractual promises were different than inducing a party into
entering a contractual relationship knowing they did not have
the capacity to perform any of the promised services. The
Levin case that we've also cited also talked about how the
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Sarah K. Mitchell, RPR, CRR
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pre-contractual issues in the case were about the defendant
representing that it had the capacity to handle certain
projects and so on.
So the fact that the functional matrix or schedule
was incorporated into -- the RFP was incorporated into the
MPSA, it did not address the duty not to defraud a party to
enter into a contract. And I don't think Open's counsel
addressed this, but this kind of flows into that integration
clause issue, because there are cases -- the cases that Open
cited do have such incorporation.
For example, the Steak N Shake case Open cited, in
that case there was a contractual provision that said -- that
said that franchisees were entering into an agreement as a
result of their own investigation and not as a result of any
representation by the plaintiffs.
Similarly, the Allonhill case that Open cited
expressly limited the parties' liabilities to those arising
out of the contract and expressly disclaimed that they were
owed any duties other than those expressly set forth in the
agreement. And in that case actually the Court had already
found that there were no misrepresentations because they were
part of promises to perform in the future, and that
integration clause talked about how the parties'
understandings were limited to the agreement, so that made
sense.
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That's all I have, Your Honor, unless you have
questions.
THE COURT: No. That's sufficient. Thank you.
MR. COLLARD: Your Honor, feel free to move me along
if I'm taking too much time on these issues.
THE COURT: All right.
MR. COLLARD: I'm going to address sufficiency of the
evidence first which is something that Open went into,
specifically around what they called Hernando Parrott's
unrebutted testimony. Calling it unrebutted doesn't make it
so. There was a fraud verdict in this case which is an
overarching determination by the jury of credibility. They
decided that one party, Open, committed fraud, an intentional
tort. They clearly had issues with Open's credibility. You
may even remember a juror question saying what do we do with
all this inconsistent testimony we're hearing from Open?
And right at the beginning of Mr. Parrott's
testimony, it appeared to be fabricated for trial. None of
that testimony that is cited by Open was given during his
deposition when he was asked about Exhibit 74. It was all
new, this new idea about integration and the base system, and
so the idea that it's unrebutted, especially in light of the
cross-examination, using Exhibit 74 and the underlying
spreadsheet, Exhibit 741, it was rebutted via
cross-examination alone. He had to admit that the Spanish
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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 26
language in the underlying spreadsheet said product
development, which maps to B, not A.
But it's not just his cross-examination. There was
another Open witness who in their deposition didn't understand
what Exhibit 74 was. It was Diego Lopez in his 30(b)(6)
capacity, and that was read into the record, that's Docket
267-2, Exhibit B, page 10, explaining what was going on in
Exhibit 74 and how it does map to the analysis that they were
doing for the RFP. And that's a logical conclusion based on
the time and what's discussed in that e-mail, and that e-mail,
Exhibit 74, was about a week before they submitted the RFP
response.
The City also had an expert who explained these
issues and rebutted Open's interpretation of how the grading
should go. Now, that expert actually was unrebutted. Open
called no expert of their own to explain a different
interpretation of how that grading should work. And I do want
to make the record clear that the City has not limited its
arguments or its approach to say the only fraud could have
been based on, you know, the grading that's shown in
Exhibit 74 and Exhibit 741.
And I think you can see in our briefs we said that
there were misrepresentations about the portal, which you
raised, the version of the software, the overall nature of the
software as off the shelf and the schedule. We recapped
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Sarah K. Mitchell, RPR, CRR
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those, and I think as we'll get to in the other -- when we're
arguing the other motion, we're not claiming to know which
exact conduct the jury mapped onto the fraud claim or which
exact conduct the jury mapped onto the negligent
misrepresentation claim, and we don't have to, but we aren't
limiting it just to that grading.
That's what I have on the weight of the evidence
issue. I have more, but it's -- I'm just going to refer to
the briefs for that, because it wasn't really raised by Open's
counsel.
THE COURT: That's fine.
MR. COLLARD: So reliance and things like that I'm
not going to get into. On the Open Investments issue, Your
Honor, I actually think that there are two waivers and a
substantive failure. So the one waiver that we've been
talking about is the failure to raise it on Rule 50(a). It
first came up on Rule 50(b), and you can't do that. That's
one waiver that Your Honor has pointed out.
But I think that there is another waiver that's just
a more standard estoppel argument, and that the way that Open
conducted the trial they waived the argument for the reasons
you said. They were trying to get the benefits of referring
to them together. And so even -- even if they raised it for
the first time on 50(a), I think it still would have been
waived by how they conducted not actually just the trial, but
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Sarah K. Mitchell, RPR, CRR
08/15/2024 28
the entire case. So I want to make that point.
And then I think it's worth making a record, Your
Honor, two waivers, and even if it wasn't waived, there's
plenty of evidence that Open Investments committed the fraud.
And the first issue is that Open now seems to argue that when
the parties -- either party is referring to Open for
shorthand, that they meant Open International, but that's not
the case. When the parties used Open for shorthand, they were
referring to both Open Internation and Open Investments. It
was defined that way on the record multiple times and in
multiple pleadings.
And so you can no more say, well, the things that
refer to Open, that didn't refer to Open Investments. You
can't -- you couldn't do that any more than you could say when
we referred to Open, we were referring to -- we weren't
referring to Open International. We were only referring to
Open Investments. They're both equally a part of Open. So
any time evidence was coming in about Open, it applied to Open
Investments. Did I mix up my language there saying
Investments when I meant International?
THE COURT: I understood.
MR. COLLARD: You understand my point? Okay.
Apologies if I did, but my brain was catching up, and I
thought I may have misspoken. But Your Honor pointed out
there were certain items in the representations that had to
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Sarah K. Mitchell, RPR, CRR
08/15/2024 29
go, had to be from Open Investments that shows that they were
using it jointly like the history of Open, but I think an
important one is the software itself, Your Honor. This case
-- when I talk to this case about what I'm working on with
somebody, I say it's a software case. It's a software
installation, you know, issue involving the City of Fort
Collins.
The software was Open Investments' software. That's
why it was on Version 8. That's why it goes way back before
2018 when Open International was incorporated. So it's Open
Investments' software, so there's plenty of evidence. And
then I'm not going to pull it up, but I'm going to point it
out to Your Honor and put it in the record. I can pull it up
if you'd like, Your Honor, but it's in Trial Exhibit 5, which
is the RFP response, Open Investments' consolidated financials
are included in that.
That's page 962 and about the next ten pages. And on
page 99 of the RFP response that the City was -- that induced
the City to enter the contract, William Corredor is listed as
Open CEO, not Open Investments, not Open International, Open's
CEO. That's page 99 of Exhibit 5. So there's no evidence
pointing in the other direction that these are actually
separate entities.
And, finally, the argument that they could only bring
this up after election, I'm missing it, Your Honor. I'm not
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Sarah K. Mitchell, RPR, CRR
08/15/2024 30
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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Sarah K. Mitchell, RPR, CRR
08/15/2024 31
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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Sarah K. Mitchell, RPR, CRR
08/15/2024 32
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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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 33
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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Sarah K. Mitchell, RPR, CRR
08/15/2024 34
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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Sarah K. Mitchell, RPR, CRR
08/15/2024 35
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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Sarah K. Mitchell, RPR, CRR
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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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Sarah K. Mitchell, RPR, CRR
08/15/2024 37
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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Sarah K. Mitchell, RPR, CRR
08/15/2024 38
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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Sarah K. Mitchell, RPR, CRR
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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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Sarah K. Mitchell, RPR, CRR
08/15/2024 40
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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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
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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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Oral Argument21-cv-02063-CNS-SBP
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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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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 45
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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Oral Argument21-cv-02063-CNS-SBP
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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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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
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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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Oral Argument21-cv-02063-CNS-SBP
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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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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
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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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Oral Argument21-cv-02063-CNS-SBP
Sarah K. Mitchell, RPR, CRR
08/15/2024 50
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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Sarah K. Mitchell, RPR, CRR
REPORTER'S CERTIFICATE
I, SARAH K. MITCHELL, Official Court Reporter for the
United States District Court for the District of Colorado, a
Registered Professional Reporter and Certified Realtime
Reporter, do hereby certify that I reported by machine
shorthand the proceedings contained herein at the time and
place aforementioned and that the foregoing pages constitute a
full, true and correct transcript.
Dated this 20th day of August, 2024.
/s/ Sarah K. Mitchell
SARAH K. MITCHELL
Official Court Reporter
Registered Professional Reporter
Certified Realtime Reporter
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