HomeMy WebLinkAbout2021-cv-2063-CNS-MEH - City Of Fort Collins V. Open International, Et Al. - 282 - Open's Rule 50 Mot Judgment As A Matter Of Law
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No.: 21-cv-02063-CNS-SBP
CITY OF FORT COLLINS,
Plaintiff/Counterclaim Defendant,
v.
OPEN INTERNATIONAL, LLC and OPEN INVESTMENTS, LLC
Defendants/Counterclaim Plaintiff.
OPEN’S MOTION FOR JUDGMENT AS A MATTER OF LAW
Pursuant to Fed. R. Civ. 50(a), Defendants-Counterclaimant Open International, LLC and
Open Investments, LLC (collectively, “Open”), by and through undersigned counsel, hereby
moves for judgment as a matter of law.
INTRODUCTION
During the presentation of evidence, Plaintiff the City of Fort Collins (“City”) tried—but
failed—to establish a legally sufficient evidentiary basis for the jury to rule in its favor on any of
its claims, including fraudulent inducement, negligent misrepresentation, breach of contract, and
breach of the implied duty of good faith and fair dealing, all which are also waived.1
Additionally, the City’s fraudulent inducement and negligent misrepresentation claims are barred
by the applicable statutes of limitations. Further, the City failed to plead, disclose, or establish
1 The Court granted judgment of a matter of law against the City on its declaratory judgment
claim, so Open does not reassert its arguments on this claim here.
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sufficient evidence in support of its new claim for damages for its fraudulent inducement and
negligent misrepresentation claims. In all events, any damages for breach of contract, fraudulent
inducement, or negligent misrepresentation claims are capped by the Master Professional
Services Agreement’s (“MPSA”) limitation provisions and are limited by the City’s failure to
mitigate its damages. Additionally, judgment in favor of Open’s counterclaim should be granted
because the evidence unequivocally shows the City breached § 13.2 of the MPSA before ever
properly raising any default by Open. Finally, Open maintains that the City must not be
permitted to postpone election of remedies until after the case is submitted to the jury. For these
reasons, judgment should be entered against the City on all of its claims as a matter of law.
BACKGROUND
In February 2018, the City published a request for proposal (“RFP”) for a software
system to support its traditional utilities—water, wastewater, stormwater, and electricity—and a
new broadband service that the City planned to launch. In March 2018, Open submitted a
proposal that pitched its forthcoming 8th-generation software, called Open Smartflex (“OSF”),
which Open explained it was still developing and expected to release later in 2018. After nearly
five months of due diligence, the City chose Open, and in August 2018, the parties executed the
Master Professional Services Agreement (the “MPSA”), which governed the Parties’ software
implementation project. The MPSA integrated Open’s response to the City’s RFP, which
included Open’s grading of the functionalities in OSF Version 8.0 and a proposed schedule for
the implementation of OSF for the City’s needs.
Though the original timeline for the project anticipated a 13-month implementation, the
project was delayed. The City asserts that these delays are attributable to Open because OSF
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Version 8.0 did not have the functionalities represented in Open’s response to the RFP, the self-
service portal demonstrated to the City during the vendor-selection process was not what the City
ultimately received, OSF Version 8.0 was not an out-of-the-box product that was ready to
implement, and that, even under perfect conditions, the project timeline in Open’s RFP response
was impossible to achieve. Notwithstanding these alleged issues, in June 2020, the parties
negotiated an extension of the contract to account for delays. The Parties executed the First
Amendment to the MPSA, which assigned the majority of delay costs to the City and extended
the project with Open. Later, the Parties executed a project change request (“PCR”), titled PCR
29, which further extended the project deadlines and continued the Parties’ relationship.
After approximately six more months, on May 19, 2021, Open sent the City a notice of
default and identified what the City needed to fix for the project to succeed. A week later, rather
than adequately responding to Open’s notice or attempting to cure its defaults, the City
unlawfully terminated the MPSA without giving the required 30 days’ notice or an opportunity
to cure. Even though the City sent Open the letter purporting to terminate the Parties’
agreement, the City continued to work on the project with Open for over a month and asked
Open to propose a project reset plan in which Open would take over more responsibility for the
implementation project with the City so that the project could be completed. Then, despite
previously admitting its culpability, the City sued Open for fraudulently inducing the City into
signing the MPSA more than three years earlier and for breaching the MPSA.
Open respectfully brings this Rule 50 motion for judgment as a matter of law on the
City’s claims, because even taken in the light most favorable to the City, with all inferences in
the City’s favor, the evidence supports judgment only in favor of Open and against the City.
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LEGAL STANDARD
After “a party has been fully heard on an issue,” Fed. R. Civ. P. 50(a)(1), and if “the facts
are sufficiently clear that the law requires a particular result,” Alfred v. Caterpillar, Inc., 262
F.3d 1083, 1089 (10th Cir. 2001), the Court should remove the issue from jury consideration and
enter judgment as a matter of law. Fed. R. Civ. P. 50(a)(1). It is the trial court’s “duty to enter
judgment as a matter of law” when “it is apparent that either party is unable to carry a burden of
proof that is essential to that party’s case.” Fed. R. Civ. P. 50(a) adv. comm. notes to 1991 amdt.
ARGUMENT
I. Judgment Should be Entered Against the City on its Fraudulent Inducement and
Negligent Misrepresentation Claims
The City has failed to provide sufficient evidence to support its fraudulent inducement
and negligent misrepresentation claims as a matter of law. For its fraudulent inducement claim,
the City had the burden, by a preponderance of the evidence, of showing that: (a) Open made a
false representation of a past or present fact; (b) the fact was material; (c) at the time the
representation was made, Open knew the representation was false; (d) Open made the
representation with the intent that the City would rely on the representation; (e) the City relied on
the representation; (f) the City’s reliance was justified; and (g) this reliance caused damage to the
City. See CJI-Civ. 19:1 (2023).
For its negligent misrepresentation claim, the City had to prove that: (a) Open gave false
information to the City; (b) Open gave that information to the City in the course of Open’s
business; (c) Open gave the information to the City for use in a business transaction; (d) Open
was negligent in obtaining or communicating the information; (e) Open gave the information
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with the intent or knowing the City would act in reliance on the information; (f) the City
justifiably relied on the information supplied by Open; and (g) the City’s reliance on this
information caused damage to the City. See CJI-Civ. 9:4 (2023).
The City failed to establish facts sufficient to support two of the essential elements of its
negligent misrepresentation and fraudulent inducement claims: that Open made a
misrepresentation of a then-existing or past material fact or that the City justifiably relied on
Open’s alleged misrepresentations. And, as to the City’s fraudulent inducement claim, the City
failed to establish that Open intended to misrepresent any material fact to the City. Further, the
evidence established during trial demonstrates that the economic loss rule bars the City’s
fraudulent inducement and negligent misrepresentation claims and, in any event, that the City
waived these claims and any right to rescission.
A. The City has presented no evidence of a misrepresentation of a then-existing
or past fact.
The Court should enter judgment as a matter of law on the City’s fraudulent inducement
and negligent misrepresentation claims because the City has not provided any evidence that
Open misrepresented an existing fact. It is a black-letter “element of fraud . . . that the
misrepresentation relied on must be of an existing or past material fact,” United Fire & Cas. Co.
v. Nissan Motor Corp., 433 P.2d 769, 811 (Colo. 1967), so a misrepresentation cannot be “a
matter of intention, or . . . an unfulfilled promise to perform an act,” nor may it address
“something to be done in the future,” People v. Orris, 121 P. 163, 164 (Colo. 1912). See also
Myers v. Alliance for Affordable Servs., 371 Fed. Appx. 950, 958 (10th Cir. 2010) (affirming
dismissal of negligent misrepresentation claim where alleged misrepresentations “related to the
occurrence or non-occurrence of a future event”).
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Throughout this case and during trial, the City asserted that Open’s response to the City’s
Request for Proposal (“RFP”) misrepresented Open’s product, Open Smartflex (“OSF”), and
Open’s capabilities to carry out the project. But, the City has failed to present any evidence of a
representation that Open made of an existing or past fact. Rather, the City only challenges
Open’s promises to perform an act in the future—promises that no jury could find are
misrepresentations of then-existing or past facts.
Open’s response to the City’s RFP proposed OSF version 8, which was in development
and had not yet been released. Nothing in the RFP requested a vendor to grade its then-existing
software; rather, for items graded as A and B, the functional matrix instructions required those
functionalities to be delivered at go-live (Ex. 23 at 18).
Moreover, Open could not grade its then-existing software because it did not have
existing software released that it could grade—and Open explained that to the City throughout
its response to the RFP. (Ex. 5 at 55, 312, 998). Further, for each and every functionality in the
functional matrix, Open disclosed that it was grading the functionalities for Version 8.0 of OSF.
(Id. at 88-365, 366-370).
This is consistent with the City’s own witnesses’ understanding of the RFP and Open’s
response to the RFP. Mr. Colman Keane, director of the City’s broadband utility, testified that
functionalities graded “A” in the RFP response were functionalities that the City expected would
be ready “upon delivery” at go-live—not at the outset of the project.
There is no evidence that Open intentionally or negligently misrepresented an existing
fact—rather, Open proposed what it would deliver in the future should the City select Open and
OSF as the vendor for its utilities and broadband billing system. Accordingly, judgment should
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be entered for Open and against the City on its claims of fraudulent inducement and negligent
misrepresentation.
B. The City has not presented evidence of justifiable reliance on Open’s
representations.
To establish its claims of fraudulent inducement and negligent misrepresentation, the City
had to prove that it was “justified in relying on” Open’s alleged misrepresentations.
M.D.C./Wood, Inc. v. Mortimer, 866 P.2d 1380, 1382 (Colo. 1994) (reliance must be justified for
claim of fraudulent inducement); Colo. Pool Sys. v. Scottsdale Ins. Co., 2012 COA 178, ¶ 60 (“In
every negligent misrepresentation case, the plaintiff must show justifiable reliance on the alleged
misrepresentation”); see also CJI-Civ. 19:8 n.2; 19.9. Even if Open’s RFP response was
misleading, the City could not have justifiably relied on it because it knew that any
representations about then-existing functionalities in OSF version 8.0 were not true. See
Mortimer, 866 P.2d at 1382 (where plaintiff has access to the true facts, there is no justifiable
reliance). The City had “access to information that was equally available to both parties and
would have led to the true facts”—namely, that Open’s proposal was for its future release of
OSF, not a then-existing version of OSF. Id.
The City’s own lead negotiator of the MPSA, Mr. Mike Beckstead, confirmed that he
knew that OSF Version 8.0 was an unproven, untested, and unreleased product when he entered
into contract negotiations with Open during the summer of 2018. Internal City due diligence
documents acknowledged that the City would be the first customer for OSF Version 8—not
released with any other customer. (See Ex. 473 at 6; Ex. 439 at 8). Likewise, internal City
documents from the pre-negotiation phase, in June 2018, acknowledged that part of the City’s
“unique value proposition” was related to “[e]arly adoption/testing of new functionality” in
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Open’s product. (Ex. 459 at 4.) According to the City, this was a risk that the City
acknowledged as well as a benefit should the City select Open.
Moreover, because the City would be the first customer to receive version 8.0, it
necessarily knew that version 8.0 had not yet been delivered by the time that the parties signed
the MSPA—otherwise, the City would have had a release of Version 8.0 in hand.
Finally, the City did not, or at least could not justifiably, enter into the MPSA in reliance
on a representation that Open’s functional matrix grades applied to a then-released product. The
evidence shows that the City knew by necessity that Open was proposing a delivery of a future
system—not representing an existing system.
C. The evidence clearly shows that Open did not knowingly misrepresent
known facts to the City.
For similar reasons, the City has not shown that Open knowingly misrepresented OSF
Version 8.0, its capabilities, and when that functionality would be available. Open disclosed the
true facts that OSF Version 8.0 was in development and would be forthcoming throughout its
response to the RFP. (Ex. 5 at 55, 312, 998). Mr. Hernando Parrott likewise testified about the
oral notice he gave to City personnel—both before the RFP was issued and during the vendor-
selection process—that OSF Version 8.0 was being proposed, had not been released, and still
was in development. And, the City’s own witnesses testified that they knew that Open proposed
implementation of its future release of OSF prior to entering into the MPSA with Open. No
reasonable juror could conclude that Open knowingly lied when, in fact, it disclosed the truth.
Mortimer, 866 P.2d at 1382. As such, judgment should enter in favor of Open and against the
City on its fraudulent inducement claim.
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D. The Economic Loss Rule and Integration Clause Bar the City’s Fraud and
Negligent Misrepresentation Claims Based on Open’s Proposal
In addition to its failure to demonstrate any evidence to support the merits of its claims,
the City has failed to provide any evidence of alleged misrepresentations that were not subsumed
by the MPSA. There is no doubt that the obligation to not fraudulently induce a party’s
agreement to a contract is independent of contractual obligations. However, Colorado appellate
courts and the 10th Circuit hold that, even if a tort duty exists independent of the contract, and
“even if the duty would be imposed in the absence of a contract, it is not independent of a
contract that ‘memorialize[s]’ it.” Haynes Trane Serv. Agency v. Am. Std., Inc., 573 F.3d 947,
962 (10th Cir. 2009). This is because sophisticated parties, such as Open and the City, can build
the anticipated cost of a breach of their respective duties into their bargain. A Good Time Rental,
LLC v. First Am. Title Agency, Inc., 259 P.3d 534, 538 (Colo. App. 2011).
Here, the City contends that Open fraudulently induced the City to sign the MPSA by
misrepresenting facts in the functional matrix response and the proposed project schedule. But,
the performance of the parties’ contract implicated both of those things expressly. Open’s
functional matrix responses were expressly memorialized as contractual obligations (see Ex. 1 at
5, ¶ 3, id. at 88-365 (functional matrix); id. at 366-370 (changes to functional matrix in MPSA).
And the project schedule was incorporated into the Parties’ agreement. (Ex. 1 at 51; Ex. 66 at 4).
The economic loss rule applies even more broadly as against a claim for negligent
misrepresentation. “[T]o determine if a claim is barred under the economic loss rule, a court
must determine whether a duty alleged is independently recognized; if so, whether performance
of the parties’ contract implicates that same duty.” A Good Time Rental, Ltd. Liab. Co. v. First
Am. Title Agency, Inc., 259 P.3d 534, 536 (Colo. App. 2011) (emphasis added). The 10th Circuit
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applied this same standard to similar circumstances under Utah law, finding that there was no
negligent misrepresentation when the subject matter of the representation was covered by the
contract.2 See Donner v. Nicklaus, 778 F.3d 857 (10th Cir. 2015) (affirming dismissal of
negligent misrepresentation claim under comparable circumstances). There, “[t]he central claim
[wa]s that [defendant] induced purchase of a charter membership through material
misrepresentations and omissions in the marketing materials.” Id. at 863. And, “[t]he
[plaintiffs’] alleged damages relate[d] to whether they received the benefit of their bargain under
the charter membership agreement.” This is precisely what the City claims: that it did not get the
benefit of the MPSA because of Open’s negligent misrepresentations.
Because Open’s alleged misrepresentations were “memorialized in the contract[],” and
are implicated by the contract, which was fully integrated with specific reference to Open’s
response to the RFP (Ex. 1 at 5), the City has failed to show any “duty independent of the”
MPSA, BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo. 2004).
Moreover, the MSPA contains the following integration clause: “This Agreement,
including all Exhibits, constitutes the final, complete, and exclusive agreement between the
Parties with respect to the subject matter of this Agreement, and supersedes any prior or
contemporaneous agreement, proposal, warranties and representations.” (Ex. 1 at 18 § 18.15).
“Under Colorado law, ‘[a] contract provision purporting to prohibit a party to the contract from
asserting a claim for negligent misrepresentation must be couched in clear and specific
2 Utah courts, in turn, have adopted the Colorado Supreme Court’s articulation of the economic
loss rule. Hermansen v. Tasulis, 2002 UT 52, ¶¶ 16-17 (adopting reasoning of Grynberg v. Agri.
Tech, Inc., 10 P.3d 1267 (Colo. 2000), and Town of Alma v. Azco Constr., Inc., 10 P.3d 1256
(Colo. 2000)).
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language.’” Pensford Fin. Grp., LLC v. 303 Software, Inc., No. 18-cv-03286, 2019 U.S. Dist.
LEXIS 79436, at *5 (D. Colo. May 10, 2019) (quoting Keller v. A.O. Smith Harvestore Prods.,
Inc., 819 P.2d 69, 74 (Colo. 1991)). Section 18.15 of the MPSA is clear and specific: the MSPA
supersedes any contemporaneous “proposal, warranties, and representations” and expressly
incorporates the proposal and the representations therein into the MPSA. (Ex. 1 at 5).
For these reasons, judgment should enter against the City on its fraudulent inducement
and negligent misrepresentation claims.
E. The City put forth substantial evidence of its own waiver of its fraudulent
inducement and negligent misrepresentation claims.
Waiver arises when “the defrauded party, with full knowledge of the truth respecting the
false representations, elected to continue to carry out the agreement.” Holland Furnace Co. v.
Robson, 157 Colo. 347, 351, 402 P.2d 628, 630-31 (1965); Bd. of County Comm’rs v. City &
Cnty. of Denver, 2022 COA 30, ¶ 29. The evidence has shown that the City listed in detail the
very issues it complains of now—the portal it received was not the portal represented during
vendor-selection workshops or in Open’s RFP response (Ex. 219 at 1; Ex. 464 at 3);
implementation of OSF became a development project rather than the implementation of an out-
of-the-box system due to functional deficiencies with OSF, and OSF was not ready for the North
American market (Ex. 76 at 1-2; Ex. 363 at 1; Ex. 255 at 6; Ex. 529 at 6; Ex. 479 at 1; Ex. 504 );
and the schedule for the implementation of the project was unachievable under even perfect
circumstances (Ex. 151 at 1; Ex. 639 at 2; Ex. 644 at 5; Ex. 739 at 7).
Notwithstanding these issues, the City executed the First Amendment with Open, (Ex.
14), and then executed PCR 29 (Ex. 6). Ms. Rosintoski, the City’s Project Sponsor, testified that
the City agreed to the First Amendment with Open with “eyes wide open.” And, several of the
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City’s witnesses, including Dr. Frey, one of the City’s project managers, testified that the City
did not have to continue the relationship with Open—it could, at any moment, stop the project
with Open and complete the work with a different vendor. Further, even after the City sent Open
the notice of termination letter in May 2021 (Ex. 66), the City continued to work on the project.
Mr. Aaron McClune, the City’s final project manager on the project with Open, testified that
work on the project with Open continued until July 2, 2021—over a month after the City sent its
letter purporting to end the project. In each case, the City knew the bases of its present fraud
claim, and it waived them when it chose to continue the project with Open despite its knowledge
of these issues.
F. The City’s claims of fraudulent inducement and negligent misrepresentation
are barred by the applicable statute of limitations.
As stated above, the City knew the true facts regarding both Open’s alleged fraudulent
statements prior to July 2, 2018 and Open’s alleged negligent misrepresentations prior to July 2,
2019. Under C.R.S. § 13-80-101(1)(c), the statute of limitations for the City’s fraudulent
inducement claim is three years. The statute of limitations for the City’s negligent
misrepresentation claim is two years. See United States Welding, Inc. v. Tecsys, Inc., 2016 U.S.
Dist. LEXIS 193130, at *10 (D. Colo. Sept. 6, 2016) (applying C.R.S. §§ 13-80-102(1)(a) and -
108(3)); accord Ebrahimi v. E.F. Hutton & Co., 794 P.2d 1015, 1017 (Colo. App. 1989).
Internal City documents from the pre-negotiation phase, in June 2018, acknowledged that
part of the City’s “unique value proposition” was related to “[e]arly adoption/testing of new
functionality” in Open’s product. (Ex. 459 at 4.) Further, the City’s own lead negotiator of the
MPSA, Mr. Beckstead, confirmed that he knew that OSF Version 8.0 was an unproven, untested,
and unreleased product when he entered into contract negotiations with Open during summer of
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2018. And, additional internal City due diligence documents acknowledged that the City would
be the first customer for OSF Version 8—not released with any other customer. (See Ex. 473 at
6; Ex. 439 at 8). For these reasons, the City’s claims of fraudulent inducement and negligent
misrepresentation are barred by the relevant statute of limitations.
G. The City waived its right to rescission.
A party waives its right to rescission based on fraud if it does not “promptly” rescind the
contract after discovering the relevant facts. Stoner v. Marshall, 358 P.2d 1021, 1023 (Colo.
1961) (affirming withdrawal of fraud theory from jury where plaintiff did not promptly rescind).
Waiver of rescission prevents a plaintiff from “speculat[ing] upon the advantages or
disadvantages of an agreement, receiv[ing] its benefits and thereafter repudiate[ing] all its
obligations” based on fraud. Tisdel v. Cent. Sav. Bank & Trust Co., 6 P.2d 912, 918 (Colo.
1931). “It is not requisite that the defrauded party shall be acquainted with all of the evidence
constituting the fraud before the duty to act by way of rescission arises.” Gladden v. Guyer, 426
P.2d 953, 956 (Colo. 1967). Once a party “has evidence sufficient to reasonably actuate him to
rescind the contract . . . no subsequent discovery of cumulative evidence can operate to excuse
waiver of the fraud if one has in the meantime occurred, or to revive a once lost right of
rescission.” Id.
As noted above, the evidence shows that the City knew about the alleged bases of its
fraud claim for rescission by 2019. (Ex. 464 at 3; Ex. 529 at 2-6). The City certainly knew of
the bases for its claim when it sent its notice of termination on May 28, 2021. But in both cases,
the City continued working with Open and did not rescind the contract. Instead, it speculated on
the advantages of the contract. The City’s actions—even after the period when they claim that
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they first had knowledge of the alleged misrepresentations—“are totally irreconcilable with
conduct required under the law the rescission” for fraud. Gladden, 426 P.2d at 956.
II. Judgment should enter against the City on its breach of contract claim and in favor
of Open on its claim.
A. The City’s premature termination of the MPSA bars its breach of contract
claim against Open, and requires judgment in Open’s favor on its contract
claims.
The City’s contract claims are barred because it terminated prematurely without the
required notice-and-cure opportunities, which were conditions precedent to the City’s contract
claims. Northwest Water Corp. v. Westminster, 432 P.2d 757, 758-760 (Colo. 1967). Mr.
Storin, the City’s Chief Financial Officer, testified that the City did not provide any notice of
default to Open prior to sending its May 28, 2021 notice of termination letter and admitted that
the City did not follow the MPSA’s termination section. Additionally, the City’s notice of
termination letter does not identify any means to cure or opportunity to cure any alleged breach
of the MSPA. (Ex. 66).
While futility is not an exception under the provisions of the contract, no futility is shown
here—Mr. Storin admitted that, after sending the notice of termination letter, Open could have
provided a proposal to the City that would have completed the project. During the time in which
the City contemplated Open’s “reset proposal,” the City could have lived up to its obligations to
provide notice, specification of cure, and opportunity to cure. Mr. Storin also testified, without
contradiction, that the parties negotiated a path forward, the City expected that Open could
provide a proposal to get the project across the finish line, and that the parties continued working
together after May 28, 2021. Mr. McClune, the City’s final project manager, also testified that
the Parties continued to work on the project in the month following the City’s letter and that he
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thought the project could succeed with Open. Accordingly, because of the City’s premature
termination of the MPSA in contravention of the MPSA’s termination clauses, no juror could
find for the City’s breach of contract claim against Open.
For the same reasons, Open is entitled to judgment on its contract claim against the City.
See Northwest Water Corp. v. Westminster, 432 P.2d 757, 758-60 (Colo. 1967) (Colorado law
strictly enforces notice-and-cure provisions); see also Carleno Coal Sales, Inc. v. Ramsay Coal
Co., 270 P.2d 755, 756-57 (Colo. 1954) (provision stating that “party not at fault may give
[notice] to the defaulting party” was mandatory because “[c]ertainly the parties intended to
accomplish something by the considered language,” so termination without notice was breach).
Because the evidence shows that the City did not follow the MPSA’s notice-and-cure provisions,
and that it would not have been futile for the City follow those provisions, judgment should enter
in favor of Open on its breach of contract claim against the City.
B. The City put on evidence that it waived its breach of contract claim.
“Waiver arises when a contractual party is entitled to assert a right, knows the right
exists, and intentionally abandons that right.” Bd. of Cnty. Comm’rs v. City & Cnty. of Denver,
2022 COA 30, p29. For the same reasons articulated above regarding waiver of the City’s
fraudulent inducement and negligent misrepresentation claims, the evidence shows the City’s
waiver of its breach of contract claim, so judgment should enter against the City on its breach of
contract claim.
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III. Judgment should enter against the City on its implied covenant of good faith and
fair dealing claim.3
“The duty of good faith and fair dealing applies when one party has discretionary
authority to determine certain terms of the contract, such as quantity, price, or time” and the
“covenant may be relied upon only when the manner of performance under a specific contract
term allows for discretion on the part of either party.” Amoco Oil Co. v. Ervin, 908 P.2d 493,
498 (Colo. 1995). The covenant of good faith and fair dealing cannot “contradict terms or
conditions for which a party has bargained.” Id. Therefore, “[w]hen the subject in dispute is
expressly covered by the contract . . . the implied duty to perform in good faith does not come
into play.” Salt Lake Tribune Publ’g Co. v. AT&T Corp., 320 F.3d 1081, 1104 (10th Cir. 2003)
(internal citation and quotations omitted).
The City has not put forth any fact evidence of a contractual obligation of Open for which
the method of performing that obligation was left in Open’s discretion and that Open failed to
perform in good faith. See Zeiler Farms, Inc. v. Anadarko E & P Co., LP, 2009 U.S. Dist.
LEXIS 26886, *17 (D. Colo. Mar. 31, 2009). The only theories that the City put forward as to
obligations within Open’s discretion and that Open failed to perform were arguments made by
the City’s counsel at the Rule 50(a) hearing—not any factual evidence established in support of
those theories. Counsel asserted that Open had discretion to set the project schedule and cost, to
implement a third-party’s portal rather than Open’s homegrown portal, and to select Open’s
project manager for the Parties’ implementation project. All of these subjects are “expressly
3 Open notes that the Court ruled in Open’s favor on the record and dismissed this claim.
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covered” by terms negotiated and agreed to by both Parties in the MPSA and, accordingly, fall
short of the City’s burden of proof on this claim.
First, the Parties negotiated and agreed to the project schedule, which is incorporated into
the MPSA. (Ex. 1 at 7 § 4.1, 51-55; Ex. 66 at 4 (“In the SOW, the Parties agreed to a timeline of
a ‘13-month period with an additional 4-month post-go-live support period as a requirement of
the City’.”)).
Second, the cost of the project—and the procedure by which the Parties could execute a
change control to alter price, scope, or staffing on the project—are addressed by the MPSA. (Ex.
1 at 9, 81, 84; see also Ex. 476 at 2).
Third, Open’s determination to license Milestone’s portal is a determination made prior
to the Parties’ execution of the MPSA. Ms. Mona Walder, a City employee that attended the
vendor-selection workshops where Open demonstrated its solution in 2018 prior to selecting
Open, testified that she knew that Open demonstrated Milestone’s portal to the City and that she
understood Open would use the Milestone portal in the City’s implementation project.
Accordingly, the Parties had an opportunity to bargain for this decision prior to contract
formation. See City of Golden v. Parker, 138 P.3d 285, 292 (Colo. 2006) (“[d]iscretion in
performance occurs when the parties, at formation, defer a decision regarding performance terms
of the contract leaving one party with the power to set or control the terms of performance after
formation”) (internal citations and quotations omitted).
Fourth, while Open did have discretion to choose its project manager, it was not the sole
party “with the power to set or control the terms of performance after formation” as to this term.
The City was equally empowered by the MPSA terms to hire a project manager of its choosing,
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so long as that project manager met the requisite qualifications as set forth in the Parties’
agreement. See id.; (Ex. 1 at 6, 8, 49). And, the City knew that Open would be partnering with
Milestone if the City selected Open for the project. (Ex. 473 at 61, 65; Ex. 493 at 1).
For these reasons, the City’s good faith and fair dealing claim cannot proceed and
judgment must be entered in Open’s favor.
IV. The City has failed to present sufficient evidence of its damages claims.
A. The City cannot be awarded any damages for its claims of fraudulent
inducement and negligent misrepresentation.
The City’s initial and expert disclosures and its statement of its claims and defenses in the
parties’ final pretrial order articulated only two theories of recovery: rescission or, in the
alternative, contract damages. Those are the only two theories of recovery for which the City’s
damages expert did or could provide evidence.
As to its claims of fraudulent inducement and negligent misrepresentation, the City only
put forth evidence to support its theory of rescission—not a damages theory. Mr. Storin testified
that, in the City’s notice of termination letter sent on May 28, 2021, the City asked to “rescind
the contract, pretend as if the contract had never happened.” Further, there has been no evidence
presented as to whether any of Open’s alleged acts caused the City’s newly-claimed damages for
fraud and negligent misrepresentation.
As a matter of non-disclosure, and because there is no competent evidence of the City’s
now-alleged legal damages for fraud—as opposed to the evidence it has put forth for a
rescissionary award—the Court should hold as a matter of law that no claim for legal damages
arising from fraud may be presented to the jury.
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B. The MPSA limits any damages that a jury could award to the City.
The MPSA imposes a limitation against damages in excess of 110% of the price to
complete the contract (Ex. 1 at 13 (MPSA 13.5(c))), further limited to remove consequential
damages or any damages in excess of the amounts paid or payable in the 12 months preceding
the event giving rise to liability (Ex. 1 at 11 (MPSA 12.1)). As a matter of law, if the jury
awards any damages to the City—including any damages for the City’s fraud and negligent
misrepresentation claims, those must be limited by these provisions. See Trimble v. City & Cnty.
of Denver, 697 P.2d 716 (Colo. 1985) (where plaintiff affirmed contract, the plaintiff “may not
also avoid the burdens of that contract”). The MPSA’s limitations clauses negate all but the
direct damages testified to by the City’s expert—i.e., anything that does not flow directly from
the contract. The evidence supports only one of two caps: $2.3 million if liability arose with the
lawsuit; $3.4 million if liability arose from the letter. This cap also applies to any damages
arising from the City’s tort claims. See Trimble, 697 P.2d 716.
C. The City’s breach of contract damages, if any, are limited by its failure to
mitigate.
The City had “the duty to take such steps as are reasonable under the circumstances in
order to mitigate or minimize the damages sustained.” Ballow v. Phico Ins. Co., 878 P.2d 672,
680 (Colo. 1994); see also Fair v. Red Lion Inn, 943 P.2d 431, 437 (Colo. 1997); CJI-Civ. 5:2
(2023). This means that the City “may not recover damages for injuries which [it] reasonably
might have avoided.” Ballow, 878 P.2d at 680. The evidence substantially shows that the City
did not take reasonable steps to mitigate or minimize the damages it claims it sustained. It is
undisputed that the City sent Open its Notice of Termination letter on May 28, 2021—well
before the City filed its lawsuit against Open on July 2, 2021. In that interim period, the City
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could have asked Open to cease its work on the project to avoid incurring additional costs for the
services Open performed. However, multiple witnesses, including Mr. McClune and Mr.
Contreras, testified that the parties continued to work on the project up to the day that the City
filed its lawsuit—all the while incurring additional costs. (See also Ex. 570; 569; 651;
Demonstrative 1; Demonstrative 2.) Accordingly, Open is entitled to judgment as a matter of
law against the City’s breach of contract claim.
V. The City must not be permitted to postpone an election of its remedies until after
the case is submitted to the jury.
Open maintains and does not waive its argument that the Court needed to compel the City
to elect its remedy before trial, and under the circumstances, it was not within the Court’s
discretion to allow the City to wait until a verdict had been rendered on the City’s fraudulent
inducement and negligent misrepresentation claims before electing a remedy. “Where a party
has alternative remedies of rescission and of damages for breach, [it] must elect which remedy
[it] will base [its] action upon.” Holscher v. Ferry, 131 Colo. 190, 194, 280 P.2d 655, 657
(1955).
Even if there had been discretion regarding whether to compel election pretrial, there is
no discretion as to whether to require an election before submission to the jury. American
Furniture Co. v. Veazie, 131 Colo. 340, 346 (Colo. 1995) (observing that “[o]ccasion for this
confusion could have been obviated by the court sustaining defendant’s motion requiring
plaintiff to elect which cause of action should be submitted to the jury.”).
Moreover, should the City elect to affirm the contract, it cannot affirm the contract in
part. “It is a well-settled rule of law that when a party has an election to rescind an entire
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contract, [it] must rescind it wholly or in no part.” Holscher, 131 Colo. at 195; 270 P.2d at 658.
Specifically, the City “cannot rescind and at the same time receive a benefit under the contract.”
Id. The City cannot rely on its claim for damages for protection against an adverse judgment in
its action for rescission. This is precisely what it cannot do. Id. It must choose its remedy; it
must affirm or disaffirm the contract, but it cannot do both. The City cannot hedge its bets under
Colorado law, and Open is prejudiced by having to continue to fight inconsistent theories.
Accordingly, the City should have been compelled to elect its remedy prior to trial, and
certainly prior to submission of the claims to the jury.
CONCLUSION
For the foregoing reasons:
1. Open is entitled to judgment as a matter of law on each of the City’s causes of
action;
2. Open is entitled to judgment of a matter of law in its favor on its cause of action
against the City;
3. Open is entitled to judgment as a matter of law that the damages caps set forth in
the MPSA apply to any damages sought by either party;
4. The City should not be permitted to postpone its election of remedy until after the
case is submitted to the jury.
Open, therefore, respectfully requests that the Court enter judgment in its favor on all
claims and issues.
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Dated: November 2, 2023 Respectfully submitted,
s/ Paul D. Swanson
Paul D. Swanson, pdswanson@hollandhart.com
Kevin C. McAdam, kcmcadam@hollandhart.com
Alexander D. White, adwhite@hollandhart.com
Alexandria E. Pierce, aepierce@hollandhart.com
Holland & Hart LLP
555 17th Street, Suite 3200
Denver, Colorado 80202
Telephone: 303-295-8000
Attorneys for Open International, LLC and Open
Investments, LLC
Case No. 1:21-cv-02063-CNS-SBP Document 282 filed 11/02/23 USDC Colorado pg 22 of
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CERTIFICATE OF SERVICE
I hereby certify that on the 2nd day of November, 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 282 filed 11/02/23 USDC Colorado pg 23 of
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