HomeMy WebLinkAbout2021-cv-2063-CNS-MEH - City Of Fort Collins V. Open International, Et Al. - 232 - Motion To Compel Election Of Remedies And Limit Jury Demand
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.
MOTION TO COMPEL ELECTION OF REMEDIES AND LIMIT JURY DEMAND
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 1 of
11
1
Defendants and Counterclaimant Open International, LLC and Open Investments, LLC
(together, “Open”) respectfully move to compel an election of remedies by the City of Fort
Collins (the “City”) and to limit its jury demand. The City claims that Open’s pre-contract
misrepresentations justify contract rescission, both as affirmative relief and as an affirmative
defense. Yet the City simultaneously claims that Open breached the contract and that the City is
entitled to contract damages. The City may not pursue inconsistent theories to rescind and to
enforce the parties’ contract. The City must elect between its remedies and the claims that
support them, and, for several reasons, pretrial election is necessary. First, the City’s
inconsistent theories would be resolved by different factfinders. Rescission is equitable and may
not be tried to a jury, whereas the City’s contract-based claims fall within the City’s jury
demand. Open will suffer substantial prejudice if the jury hears misrepresentation claims that it
cannot decide but that surely would color its view of the contract claims that it can decide.
Relatedly, swirling theories and jury instructions about contract rescission and contract
affirmance—with different evidence (pre-contract misrepresentations v. post-contract
performance) and remedies (rescission v. damages)—will confuse the jury. Finally, a pretrial
election will maximize efficiency. If the City elects rescission, a bench trial on the City’s
misrepresentation claims may well resolve this case completely and would, at a minimum, limit
the follow-on jury trial to Open’s contract counterclaims. If the City elects to affirm the contract,
the narrowed case would be triable entirely to a jury. Either way, the volume of fact and expert
witnesses and exhibits will be reduced, and the evidence presented to the factfinder will be
confined to the issues the factfinder must resolve. The Court should compel an election, dismiss
claims for non-elected remedies, and limit the City’s jury demand.
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 2 of
11
2
BACKGROUND
The City’s complaint asserted two sets of claims that sought inconsistent relief. On the
one hand, the City alleged fraudulent inducement and thereby sought to equitably rescind the
parties’ contract. Dkt. 1-1 ¶¶ 67-77 & Prayer for Relief ¶¶ A-B; Dkt. 30 at ECF page 34
(alleging fraud affirmative defense). On the other hand, the City alleged breach claims for
contract damages. Dkt. 1-1 ¶¶ 78-94 & Prayer for Relief ¶ C.1 Likewise, in its initial Rule 26
submission, the City disclosed its wish to rescind the parties’ contract and, alternatively, to
recover its damages based on Open’s alleged breach of that contract. Dkt. 125-68 at ECF page 8.
Eventually, the City amended its pleadings to add a negligent misrepresentation claim for which
the City also sought rescission. Dkt. 192 ¶¶ 104-114. In a supplemental disclosure, the City
added negligent misrepresentation to its grounds for rescission and incorporated by reference the
rescission and contract damages analysis of its disclosed expert Ronald Seigneur. Dkt. 125-69 at
ECF page 3. Mr. Seigneur offered two damages theories—one based on rescission and the other
based on contract damages. Dkt. 125-70 at ECF page 9. The City has never sought, disclosed,
or supported any form of relief for Open’s alleged misrepresentations other than rescission.
In response to the City’s claims, Open pleaded the affirmative defense of waiver. Dkt. 13
at ECF page 14; Dkt. 194 at ECF page 18. At summary judgment, Open argued that the City
waived rescission by electing to affirm the contract: the City had extended the contract after it
claims to have learned about Open’s alleged misrepresentations and did not raise rescission until
Open served the City a notice of default nearly three years after contracting. Dkt. 125 at ECF
1 This City also asserted a claim for duplicative declaratory relief. Dkt. 1-1 ¶¶ 95-101.
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 3 of
11
3
pages 27-30. But the Court held that fact questions precluded summary judgment on waiver,
Dkt. 225 at 10-11, so the City maintains inconsistent theories between which it now must elect.
ARGUMENT
I. THE CITY CANNOT MAINTAIN CLAIMS AND DEFENSES TO RESCIND THE
CONTRACT AND CLAIMS TO ENFORCE IT.
“It is inconsistent, under Colorado law, to claim that a contract should be rescinded and
then attempt to recover damages under that same contract.” Cross Country Land Servs. v. PB
Telecomms., Inc., 276 F. App’x 825, 830-33 (10th Cir. 2008) (affirming dismissal under
Colorado law of contract-based claims when party sought contract rescission for fraudulent
inducement). Accordingly, the City must “elect either to affirm or rescind” its contract with
Open. Kline Hotel Partners v. Aircoa Equity Interests, Inc., 729 F. Supp. 740, 742 (D. Colo.
1990) (citing Trimble v. City & Cty. of Denver, 697 P.2d 716, 723-24 (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)). Thereafter, the claims supporting the non-elected remedy should be
dismissed. See Whatley v. Crawford & Co., 15 F. App’x 625, 629-31 (10th Cir. 2001) (affirming
that party “can’t seek rescission and then also seek damages on the contract as if it had been fully
performed” and reversing for “a new trial on all claims” where misrepresentation claim for non-
elected remedies “should have been dismissed after the election to affirm”).
The same rule applies to the City’s affirmative defense of fraud. If the City claims
rescission for fraud, it “may also use the fraud as a defense to [Open’s] breach of contract”
counterclaim. But if the City affirms the contract, “fraud may not be used as a defense” to
Open’s counterclaim because the City thereby “affirms the contract and is liable to render . . .
what is due under the contract.” CJI-Civ. 30:18 (2023), Source & Authority § 3(c). A fraud
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 4 of
11
4
affirmative defense operates by way of rescission and therefore is inapplicable if the defending
party asserts claims to affirm the contract. See id. (listing elements of fraudulent inducement,
plus return of benefits conferred like with rescission, to make out fraud defense).
Across its claims and defenses, the City “must elect either to rescind the entire contract to
restore the conditions existing before the agreement was made, or to affirm the entire
contract . . . .” Trimble, 697 P.2d at 723. If it “affirm[s] the . . . contract,” the City through a
fraud defense “may not also avoid the burdens of that contract.” Id.
II. ELECTION MUST OCCUR BEFORE TRIAL, AND CLAIMS FOR RESCISSION,
IF ELECTED, MUST BE TRIED TO THE COURT.
In circumstances like these, pretrial election is necessary. Post-trial election will
substantially prejudice Open, confuse the factfinder, and unnecessarily burden jurors, the court,
and the parties. Kline, 729 F. Supp. at 743; adopted by Cross Country, 276 F. App’x at 832-33
(rejecting argument for post-trial election predicated on foreign law and applying Kline to affirm
pretrial election and dismissal of claims supporting non-elected remedies); see also Peppers v.
Metzler, 206 P. 945, 946 (Colo. 1922) (holding that denial of motion for election “[b]efore trial”
was “reversible error”). The Court should require an election well before trial.
A. THE JURY MAY DECIDE ONLY CONTRACT CLAIMS, IF ELECTED,
SO HEARING MISREPRESENTATION CLAIMS PREJUDICES OPEN.
Open will suffer undue prejudice if the City presents its misrepresentation claims to a
jury because the jury may not resolve them. Although the City demanded a jury trial, the jury
right does not cover misrepresentation claims for rescission. “The federal rule has historically
been that rescission is equitable in nature and no right to a jury attaches to such actions.” Kline,
729 F. Supp. at 744 (collecting cases, including Pioneer Props., Inc. v. Martin, 776 F.2d 888,
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 5 of
11
5
892 (10th Cir. 1985)). Thus, when a party alleges misrepresentations and seeks “rescission,
equity cloaks the claims”—not just the remedy—“and they are triable to the court.” Id. at 745 &
App’x C (holding jury right precluded for fraudulent inducement and negligent
misrepresentation claims where remedy is rescission). No part of the City’s claims for
fraudulent inducement and negligent misrepresentation, for which the City has sought and
supported only the remedy of rescission, may be tried to a jury. See McKinney v. Gannett Co.,
1987 U.S. App. LEXIS 7167, at *2-4 (10th Cir. June 5, 1987) (denying rehearing and holding
that claimant “waived his right to a jury trial as well as his claim for legal damages, electing
rescission”); accord 8 Moore’s Fed. Practice – Civil § 38.31[8][a]-[b] (2023) (“When plaintiff is
forced to elect between a suit for damages and rescission of the contract, and chooses the
equitable remedy, the right to a jury trial is waived.”).
Because the jury cannot decide the City’s misrepresentation claims, a post-trial election
either would require separate trials for the City’s inconsistent claims or would permit the jury to
“hear claims that ultimately are triable exclusively to the court” thereby prejudicing Open by
letting the jury “hear[] evidence irrelevant to any jury question.” Kline, 729 F. Supp. at 743.
Indeed, the jury will have no role in a final judgment unless the City abandons its
misrepresentation claims. The Court should require a pretrial election to prevent the jury from
hearing misrepresentation claims and defenses that it cannot resolve and that will not be resolved
at all if the City elects to affirm the contract.
B. THE JURY WILL BE CONFUSED BY CITY EVIDENCE AND
ARGUMENTS TO ENFORCE AND RESCIND THE CONTRACT.
In addition to prejudicing Open, a two-week trial tacking back and forth between
mutually inconsistent theories will confuse the factfinder. Cross Country, 276 F. App’x at 830
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 6 of
11
6
(noting that election doctrine exists, among other reasons, “to prevent jury confusion” and “to
preclude the assertion of mutually inconsistent remedial theories” and affirming trial court’s
order to elect remedy pretrial). The jury would be presented with competing narratives from the
City, trying to show simultaneously that the contract was invalid from the start due to fraud and
that the City performed the contract, Open breached, and the City’s contract expectations should
be vindicated.
The presentation of damages sharply illustrates how the failure to elect before trial will
make “trial procedures awkward.” Kline, 729 F. Supp. at 743. The City’s damages expert will
present two entirely different and complicated theories, only one of which the City ultimately
can maintain, and only one of which the jury can rightly consider. Open’s expert will rebut
them, raising different defects and limitations for the two separate theories. With these layers of
expert testimony in mind, the jury will then have to process the Court’s instructions that remove
some of the experts’ testimony from jury consideration. Nine lay jurors will have challenge
enough processing complicated damages theories for the contract claims they are permitted to
resolve and do not need the extra complication of irrelevant rescission testimony and jury
instructions negating that testimony. Because the City will have to choose its remedy eventually,
and because the jury has a role only if the City chooses to affirm the contract, the Court should
compel a pretrial election and avoid confusing evidence, contradictory theories, and needlessly
complicated jury instructions.
C. TRYING BOTH SETS OF CLAIMS WILL WASTE RESOURCES
AND TIME OF JURORS, THE COURT, AND THE PARTIES.
Without an election before trial, trial preparation and trial itself will be more complicated,
costly, and time-consuming. Kline, 729 F. Supp. at 743 (opting for pretrial election because,
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 7 of
11
7
with a post-trial election, “trial preparation would be unnecessarily complicated, . . . trial would
be unduly protracted, and the time and resources of the parties, Court and jurors wasted”). If the
parties must prepare to assert and defend misrepresentation and contract claims, they will have to
develop testimony and documentary evidence that thoroughly covers pre-contract
representations, negotiations, knowledge, and intent—none of which are relevant to determining
whether either party breached the contract after its execution. And they will have to prepare
detailed evidence of the parties’ performance or non-performance of the contract after its
execution—none of which bears on whether there were intentional pre-contract material
misrepresentations. The Court and the parties will have to craft longer and more complicated
jury instructions, and the Court will have to resolve more in limine issues. These dynamics will
carry over to trial, which will last longer as the parties address a wider range of events and
broader set of damages theories than a narrowed case would require, wasting the time of the jury,
the Court, and the parties.
Election will simplify trial preparation, likely will shorten trial, and may prevent the need
to impanel a jury at all. If the City elects to pursue it misrepresentation claims for rescission, a
one-week bench trial with judgment for the City would resolve the entire case, without
impaneling a jury. Even a judgment for Open in the bench trial would result in an abbreviated
follow-on jury trial narrowly focused on Open’s breach of contract counterclaims and the City’s
contract-based affirmative defenses.2 Alternatively, if the City elects to affirm the contract, a
2 In the event the City elects to pursue only its misrepresentation claims for rescission, Open
would agree to the City’s withdrawal of its jury demand as to Open’s counterclaims so that the
City’s misrepresentation claims and Open’s contract claim could be tried in a single bench trial.
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 8 of
11
8
single jury trial with no testimony or exhibits about pre-contract misrepresentations would take
less time to prepare and less time to try. The City’s liability expert, who focuses chiefly on
issues related to industry standards around pre-contract representations that bear on the City’s
misrepresentation claims, would be streamlined, as would the City’s damages expert, who would
cut out half his analysis. Open’s liability expert would focus almost entirely on the testimony
disclosed in his affirmative report, leaving out testimony from the bulk of his rebuttal disclosure
that focused on standards related to misrepresentations. And Open’s damages expert would cut
out half his disclosed testimony that relates to rescission.
Forcing the City to elect its remedy before trial will save the parties time and money
preparing for trial, and reduce the burden on the Court and the jury. The City should not be
permitted to impose costs on others simply to delay an election it will have to make eventually.
CONCLUSION
In this case, the likelihood of undue prejudice, jury confusion, and unnecessary
inefficiency arising from a post-trial election necessitate an immediate election. See Kline, 729
F. Supp. at 743 (concluding that plaintiff “must make an immediate election” in light of these
factors); Whatley, 15 F. App’x at 631 (concluding that “wholesale reversal [was] needed to
correct” presentation to jury of theories that should have been dismissed); accord Peppers, 205
P. at 946. Any other course would be unfair to Open and would unnecessarily complicate and
expand trial. For these reasons and the reasons set forth above, Open respectfully requests that
the Court compel the City to elect between claims to rescind or enforce the parties’ contract,
dismiss claims that support the remedy the City does not elect to pursue, and order the
appropriate bench or jury trial for Open’s and the City’s elected claims and defenses.
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 9 of
11
9
Dated: July 24, 2023 Respectfully submitted,
s/ Paul D. Swanson
Paul D. Swanson
Alexander D. White
Alexandria E. Pierce
Holland & Hart LLP
555 17th Street, Suite 3200
Denver, Colorado 80202
Telephone: 303-295-8000
pdswanson@hollandhart.com
adwhite@hollandhart.com
aepierce@hollandhart.com
Attorneys for Defendants Open International, LLC
and Open Investments, LLC
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 10 of
11
10
CERTIFICATE OF SERVICE
I hereby certify that on the 24th 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
Case No. 1:21-cv-02063-CNS-SBP Document 232 filed 07/24/23 USDC Colorado pg 11 of
11