HomeMy WebLinkAbout2021-cv-2063-CNS-MEH - City Of Fort Collins V. Open International, Et Al. - 236 - Open's Response To [233]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 2021-cv-02063-CNS-SBP
CITY OF FORT COLLINS,
Plaintiff and Counter-Defendant,
vs.
OPEN INTERNATIONAL, LLC,
Defendant and Counterclaimant,
and
OPEN INVESTMENTS, LLC,
Defendant.
OPEN’S RESPONSE TO THE CITY’S BRIEF (DKT. 233) OPPOSING
MOTION TO COMPEL ELECTION OF REMEDIES AND TO LIMIT JURY DEMAND
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The City seeks special treatment as a “victim,” forgetting that it has not proved any claim
or any defense to Open’s claims. Dkt. 233 (“Opp. Br.”) at 3. Like Open, the City is just a
claimant, and claimants who seek contract rescission and contract damages in Colorado have
uniformly been required to choose, before trial, between those remedies and the claims that
underpin them. The Court should treat the City no differently.
Although the City argues Open waived the opportunity to compel an election, the City
also admits it must elect eventually, and its cited authority lends no support to waiver or delayed
election. Nor does the City explain how dismissing certain claims and defenses, and thereby
reducing or eliminating the jury’s role, will not create efficiencies. If the City elects rescission,
all its claims are triable exclusively to the Court, without need for a jury. If the City elects
contract damages, then a streamlined trial—without any misrepresentation claims or defenses, or
any evidence for rescission—will proceed entirely before a jury. Either way: less evidence,
fewer damages theories, and lighter burden on the jury, the parties, and the Court. More
importantly, with an election, the jury will hear only the evidence relevant to its decision and no
gratuitous, prejudicial accusations that Open is a liar. For more than two years, the City has
relied on [its] claim [for damages] for protection against an adverse judgment in
[its] action for rescission. This is precisely what [it] cannot do. [It] must choose
[its] remedy; [it] must affirm or disaffirm the contract, but [it] cannot do both.
Holscher v. Ferry, 280 P.2d 655, 658 (Colo. 1955). The City must elect now.
I. THE DOCTRINE THAT A PARTY MUST ELECT BETWEEN INCONSISTENT
PLEADED REMEDIES IS NOT A WAIVABLE, AFFIRMATIVE DEFENSE.
The Court can readily dispense with the City’s threshold argument that the duty to elect
between inconsistent pleaded remedies is a waived affirmative defense. Opp. Br. at 7. To start,
the City contradicts its waiver argument by admitting that it must elect eventually. Id. at 3
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(arguing that it may defer, but not avoid, an election of remedies). The City argues only that
election should be postponed, not that the obligation to elect has been irrevocably waived.
The City’s argument also misunderstands the difference between the doctrine requiring
election between two inconsistent, pending claims and the affirmative defense that shows an
election already occurred, thus barring a different remedy sought in litigation. Open’s motion
relies on the black-letter Colorado rule that “[e]lection is necessary whenever the theories of
recovery are inconsistent.” Trimble v. City & Cty. of Denver, 697 P.2d 716, 723 (Colo. 1985),
abrogated on other grounds by statute, as recognized in Colo. DOT v. Brown Grp. Retail, Inc.,
182 P.3d 687, 690 (Colo. 2008). Open needn’t allege or prove facts to show the inconsistency
between the City’s theories. In contrast, if a party seeks to show that, by some collateral act, the
claimant already elected a different remedy than it seeks through the case-in-suit, that prior act of
election is an affirmative defense. Opp. Br. at 7 (citing Donner v. Nicklaus, 778 F.3d 857, 876
(10th Cir. 2015) (addressing whether pre-suit settlement elected one remedy that barred different
pleaded remedy); Kuhl v. Hayes, 212 F.2d 37, 39 (10th Cir. 1954) (noting that election defense
requires proof of “decisive act” of election and addressing whether claimant already elected by
filing a prior suit for remedies inconsistent with pleaded remedy)). Open’s motion seeks to
compel an election between two inconsistent, pleaded remedies, not to show that the City
already chose its remedy by some prior act of election.1 Pretrial election is not waived.
1 Separately, Open has pleaded and argued that the City waived its rescission claim by repeatedly
electing to affirm the contract—a defense the City acknowledged but opposed, not for waiver but
for open questions of fact. Dkt. 125 at ECF pages 27-30 (“By affirming the MPSA, the City
waived its fraudulent inducement claim.”); Dkt. 156 at ECF page 29 (arguing that the City never
irrevocably “elected to continue” the contract because it “did not know” basis for rescission).
The Court denied summary judgment citing open fact issues. Dkt. 225 at ECF pages 10-11.
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II. THE CITY MUST ELECT NOW TO AVOID WASTE, CONFUSION, AND
PREJUDICE.
The City claims an unqualified “Right to Elect Post-Verdict” and cites two cases, neither
of which supports that proposition. Opp. Br. at 3. In Miller v. Rush, there was no jury or bench
trial, no motion to compel an election, and no election at any stage. Rather, “[o]nly one
question” was presented: “May a court which has entered a judgment go outside of the record to
determine whether the judgment is discharged” by a bankruptcy? 393 P.2d 565, 567-69 (Colo.
1964). The court answered “no” and said nothing of election or timing. Id. In H&K Automotive
Supply Co. v. Moore & Co., the court considered whether the plaintiffs had, by their prior
conduct, elected rescission as their remedy, not when or even whether an election needed to be
made between two pending, inconsistently pleaded remedies. 657 P.2d 986, 988 (Colo. App.
1982) (addressing “question whether there ha[d] been an election of remedies” based on prior
conduct and noting no inconsistency of remedies because the pleadings asserted “only to affirm
the contract and sue for damages”).
In contrast to these cases, when the District of Colorado, the Tenth Circuit, and the
Colorado Supreme Court have considered the question before this Court, they have required
pretrial election between claims to rescind a contract and to affirm it. In Kline Hotel Partners v.
Aircoa Equity Interests, Inc., this court defined the relevant factors, explaining that a plaintiff
“must make an immediate election” before trial if, without a pretrial election, trial would
unnecessarily waste time and resources of the jury, Court, and parties, and evidence on unelected
claims would confuse the jury and prejudice the defendant. 729 F. Supp. 740, 743 (D. Colo.
1990) (striking jury demand for elected rescissory claims). Thus, courts may exercise discretion
to time an election between, e.g., duplicative reliance damages and expectation damages on a
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single breach of contract claim. But the prejudice, confusion, and waste inherent in trying
inconsistent remedial theories of rescission and affirmance necessitate pretrial election.
This court subsequently applied the Kline factors in Cross Country Land Services, Inc. v.
PB Telecommunications, Inc. and compelled pretrial election. No. 2001-cv-00568-LTB-PAC,
Dkt. 320 (D. Colo. Mar. 1, 2004) (limiting jury demand upon election). On appeal, the Tenth
Circuit affirmed and concluded that, even without jury confusion or prejudice, “the other
concerns for judicial efficiency and smooth trial procedures” justified pretrial election between
claims to rescind and affirm a contract. 276 F. App’x 825, 830-33 (10th Cir. 2008) (affirming
application of Kline factors below and dismissal of claims for non-elected remedy); see also
Peppers v. Metzler, 205 P. 945, 946 (Colo. 1922) (holding that failure to grant motion to elect
“[b]efore trial” was “reversible error”); Whatley v. Crawford & Co., 15 F. App’x 625, 629-31
(10th Cir. 2001) (affirming pretrial election and requiring “wholesale reversal” for presentation
of unelected claim and remedy). The Kline factors require pretrial election here.
A. Election Will Increase Efficiency Before and During Trial by Reducing the
Number of Claims and Defenses in the Case and the Need for a Jury.
While the City mentions the Kline factors, it does not give them a fair accounting. It
insists that “[e]arly election would do nothing to streamline the case,” both because the City may
choose to affirm the contract and seek damages for breach, negligent misrepresentation, or fraud,
Opp. Br. at 4, and because the “jury will hear the same evidence going to the City’s fraud and
negligent misrepresentation claims” in the context of the City’s defense to Open’s contract claim,
irrespective of election, Opp. Br. at 5-6. Both rationales are wrong.
As to the former, the City has never pleaded facts, disclosed a theory, or produced
evidence to support damages based on negligent misrepresentation or fraudulent inducement.
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Dkt. 1-1 ¶¶ 67-94 & Prayer for Relief ¶¶ A-C (claims and damages pleadings); Dkt. 125-68 at
ECF page 8 (initial damages disclosure); Dkt. 125-69 at ECF page 3 (supplemental damages
disclosure); Dkt. 192 ¶¶ 104-114 (amended pleading seeking rescission for negligent
misrepresentation); Dkt. 125-70 at ECF page 9 (damages expert disclosure). The City’s only
pleaded and supported remedy for those claims is rescission, and that remedy withdraws the jury
right from the misrepresentation claims entirely. See Kline, 729 F. Supp. at 745.2
As to the latter, the City’s election will govern not only its claims, but also its defenses.
If the City opts to affirm the contract, “fraud may not be used as a defense” to Open’s
counterclaim any more than it could be used as a claim. CJI-Civ. 30:18 (2023), Source &
Authority § 3(c); see also id. § 8 (“When one uses fraud in the inducement as a defense to a
breach of contract action he is in effect claiming a right to ‘rescind’ . . . “). And if the City elects
rescission, misrepresentations will not be triable to a jury either—not for legal fraud damages,
which the City has not pleaded or supported, or as an equitable, rescissory defense to Open’s
contract claim.3 See McKinney v. Gannett Co., 1987 U.S. App. LEXIS 7167, at *2-4 (10th Cir.
June 5, 1987) (party “waived his right to a jury trial [by] electing rescission”). Rather, the Court
2 The City cites Anson v. Trujillo, 56 P.3d 114, 119 (Colo. App. 2002), for the proposition that a
jury may resolve fraud claims, but the fraud plaintiff there sought damages, not rescission.
3 The City suggests that, even electing rescission, it could maintain its breach of contract claim.
Br. at 4. But that election still would place all the City’s contract and misrepresentation claims
for rescission before the Court. See Arber v. Essex Wire Corp., 490 F.2d 414, 422 (6th Cir.
1974); Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165, 170 (9th Cir. 1989).
Moreover, the City cannot show the necessary irreparable or unquantifiable harm to justify
rescission -for-breach when the contract provides specific damages parameters and the City itself
articulates detailed damages. See Cooper v. People Bank & Tr. Co., 725 P.2d 78, 80 (Colo. App.
1986); Dkt. 124-4 §§ 12.1(B), 13.5(c) (specifying available damages in contract); Dkt. 125-69 at
ECF page 3 (City expert’s damages analysis).
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would rule on the City’s misrepresentation theory, and that ruling would become preclusive,
either barring Open’s contract claims by virtue of rescission or limiting the follow-on jury trial to
Open’s contract claims and the City’s non-equitable defenses. With either election, fewer claims
and defenses will be tried, so a jury trial currently set for two weeks will become either a shorter
jury trial only of contract claims or a one-week bench trial of misrepresentation claims that will
reduce or eliminate a jury’s role and reduce the burden on the parties and the Court. Kline, 729
F. Supp. at 743.
B. Because the Jury Cannot Resolve the City’s Misrepresentation Claims,
Presenting Those Claims Will Confuse the Jury and Prejudice Open.
The City assumes that presenting all claims and defenses to the jury, irrespective of
inconsistences, will neither confuse the jury nor prejudice Open, Opp. Br. at 5, 7, but this
assumption is wrong. The City insists the jury must consider pre-contract evidence of
misrepresentations in all events since that evidence supports the City’s fraud defense to Open’s
contract claim. But, as noted above, the fraud defense would apply only if the City elects
rescission and would then be resolved by the Court along with the City’s misrepresentation
claims. The City also argues that jury instructions will mitigate any confusion, but th e City
understates the voluminous, complicated evidence that jurors would have to parse, in real time,
during deliberations: dueling expert witnesses with dozens of tables, charts, and graphs
supporting testimony about two mutually inconsistent remedial theories; half the fact witnesses
and exhibits addressing pre-contract statements and negotiations related to alleged
misrepresentations, and the other half addressing post-contract performance and alleged breach.
Even a perfectly instructed jury could not reliably discern the relevant half of contract-
performance evidence while ignoring the other half, which “necessarily encompasses . . .
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pre[-]agreement activity” that is irrelevant to the contract theories the jury may consider. Kline,
729 F. Supp. at 745. And in the wake of a last-minute election, the risk of imperfect instructions
and “wholesale reversal” would increase. See Whatley, 15 F. App’x at 631; see also MacDonald
Equip. Co. v. McMillon Constr. Co., 480 P.2d 589, 591 (Colo. App. 1970) (after election to
affirm “[a]t the outset of the trial,” jury instruction consistent with non-elected rescission theory
required reversal, despite correct supplemental instruction, because “correct instruction cannot
cure the error in another contradictory erroneous instruction”).
The risk of confusion goes hand-in-hand with the prejudice Open will suffer “by the jury
hearing [fraud] evidence irrelevant to any jury question.” Kline, 729 F. Supp. at 743. Under the
Advisory Committee Notes to Federal Rule of Evidence 403, even relevant evidence warrants
exclusion if it causes “unfair prejudice”—i.e., “an undue tendency to suggest decision on an
improper basis.” Here, the jury would be distracted with irrelevant evidence of alleged pre-
contract misrepresentations with no bearing on the contract claims before it.4 Letting the City, in
effect, tell jurors that Open is a liar, when the jury cannot resolve misrepresentation claims,
needlessly smears Open and taints the jury’s proper consideration of the legal claims before it.
Moreover, to address those gratuitous accusations, Open would have to waste additional time
putting on evidence to rebut the City. Delayed election will cause prejudice, confusion, and
wasted resources.
4 Notably, the City induced Open with false pre-contract statements that it had fully developed
specifications for its broadband business when, in reality, it had hardly begun developing that
business and its operations. See, e.g., Dkt. 125-41, at ECF pages 2-3. But the CGIA blocked
Open from alleging fraud and, for the same reasons Open presumably will be blocked from
trying a fraud claim the jury cannot consider, the City ought to be blocked from doing so, too.
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III. DELAYING ELECTION ALLOWS THE CITY IMPROPERLY TO HEDGE ITS
CLAIMS AT TRIAL.
The City may not maintain inconsistent claims just to hedge its bets. Once a party
discovers grounds for rescission, it “may not play fast and loose [and] speculate upon the
advantages and disadvantages of the contract.” Ponder v. Altura Farms Co., 143 P. 570, 572
(Colo. 1914) (citation omitted) (collecting cases). It “must either stop or go on with the contract.
It is manifestly unjust that [it] should be permitted to do both.” Id. at 573. If a party must
choose immediately to affirm or disaffirm a contract after discovering fraud, a fortiori it must not
be allowed to pursue both theories through trial in order to reckon the advantages of each. The
City is correct that a pretrial election will be irrevocable and that failure to recover on its elected
remedy will not revive the non-elected remedy. Opp. Br. at 8. But this is the natural and proper
consequence of election. See, e.g., Doyle v. McBee, 420 P.2d 247, 247, 250 (Colo. 1966)
(affirming pretrial election and award of only nominal damages after plaintiff elected to affirm
but proved no damages). The City may not “rel[y] on [its] claim [for damages] for protection
against an adverse judgment in [its] action for rescission.” Holscher, 280 P.2d at 658.
CONCLUSION
Open respectfully requests that the Court compel an election, dismiss claims that seek
only the non-elected remedy, and limit the City’s jury demand accordingly.
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Dated: July 31, 2023 Respectfully submitted,
s/ Paul D. Swanson
Paul D. Swanson
Kevin C. McAdam
Alexander D. White
Alexandria E. Pierce
Holland & Hart LLP
555 17th Street, Suite 3200
Denver, Colorado 80202
Telephone: 303-295-8000
pdswanson@hollandhart.com
kcmcadam@hollandhart.com
adwhite@hollandhart.com
aepierce@hollandhart.com
Attorneys for Defendants Open International, LLC
and Open Investments, LLC
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CERTIFICATE OF SERVICE
I hereby certify that on the 31st day of July, 2023, the foregoing was electronically filed
with the Clerk of Court using the Court’s electronic filing system and that a copy of the
foregoing was sent to all counsel of record via same in compliance with the Federal Rules of
Civil Procedure and the Local Rules of this Court.
s/ Paul D. Swanson
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