HomeMy WebLinkAbout2021-cv-2063-CNS-MEH - City Of Fort Collins V. Open International, Et Al. - 314 - Dfs' Mot For Judgment Under R 52(C) And Brief Re Remedy Of Rescission
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,
Defendant/Counterclaim Plaintiff,
and
OPEN INVESTMENTS, LLC,
Defendant.
DEFENDANTS’ MOTION FOR JUDGMENT UNDER RULE 52(c)
AND BRIEF REGARDING REMEDY OF RESCISSION
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 1 of
18
Pursuant to Fed. R. Civ. P. 52(c), and the Court’s November 17, 2023 Order, Dkt. 298 at
2, Defendants Open International, LLC (“Open International”) and Open Investments, LLC
(“Open Investments” and, together, “Defendants”) move for judgment against Plaintiff City of
Fort Collins (the “City”) on its claim for rescission because the City waived that remedy.
Alternatively, judgment should be entered against the City and in favor of Open Investments
since there is no evidence to support a judgment of rescission against Open Investments. Finally,
even if a judgment of rescission could be sustained against either or both Defendants, there is no
evidence to support a monetary award, both because the consideration the City paid to Open
International under the rescinded contract is offset by the consideration Open International
provided to the City and because the City rescinded the contractual fee-shifting provision.
I. THE CITY’S YEARS-LONG ACCEPTANCE OF CONTRACT BENEFITS—
EVEN AFTER CLAIMING FRAUD—WAIVED RESCISSION AS A REMEDY.
Although the Court instructed the jury on waiver of the City’s fraudulent inducement
claim, the Court did not instruct on the separate question of waiver of rescission; rather, the
Court held that it would resolve issues regarding rescission. See Hrg. (Oct. 13, 2023) at 4:14-21;
TR (Nov. 2, 2023) at 2060:10-13.1 The evidence showed unequivocally that the City was aware
of facts sufficient to plead rescission years before it sought rescission, and the City continued to
use Open International’s software until December 2021—nearly six months after suing for fraud.
Accordingly, the Court should find that the City waived the right to rescind.
1 Defendants argued both waiver of fraudulent inducement and waiver of rescission as a matter
of law after the City’s evidence and at the close of all evidence, see TR (Oct. 30, 2023)
1227:22-1228:24; Dkt. 282 at 11-12, 13-14, but since the Court ruled that it will resolve all
issues of rescission, Defendants raise waiver of rescission now for the Court’s finding as to
wavier of that remedy.
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 2 of
18
2
A party waives the right to rescission if it does not “promptly” and “unconditionally”
rescind the contract after discovering the relevant facts. Gladden v. Guyer, 426 P.2d 953, 956
(Colo. 1967). Critically, “[i]t is not requisite that the defrauded party shall be acquainted with all
the evidence constituting the fraud before the duty to act by way of rescission arises.” Gladden
at 955 (citation and quotation omitted). Rather, once a party “has evidence sufficient to
reasonably actuate him to rescind the contract . . . no subsequent discovery of cumulative
evidence can operate to excuse waiver of the fraud if one has in the meantime occurred, or to
revive a once lost right of rescission.” Id. Waiver of rescission as a remedy therefore differs
from waiver of fraudulent inducement as a claim in that waiver of the claim requires “full
knowledge of the truth respecting the false representations,” rather than simply enough
knowledge to seek rescission. Elk River Assocs. v. Huskin, 691 P.2d 1148, 1153 (Colo. App.
1984) (observing that, irrespective of whether the plaintiff waived the fraud claim, the remedy of
rescission, if elected, might still be waived).
Here, the City knew in 2018 that Open International’s proposed software, OSF version 8,
had not been installed for any other customer and was untested. Ex. 439 at 4; Ex. 473 at 6; TR
(Oct. 24, 2023) at 297:13-18; 343:2-10 (testimony of City’s lead negotiator, Mike Beckstead,
that City was “beta” customer). By fall 2019, the City had received and approved delivery of
OSF version 8, which it used for nearly two years before eventually seeking rescission. Ex. 467
at 2. During that time using OSF, the City raised the issues on which it eventually predicated its
rescission claim. In late 2019, it complained to Open International that the “presented portal”
during demonstrations was “not the same” as the one delivered. Ex. 464 at 3. By early 2020, the
City claimed that, “with the rate of failed requirements, the total successful delivery [of
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 3 of
18
3
functionalities] was 58%” when OSF was launched for broadband in August 2019. Ex. 76 at
1-2. And by spring 2020, the City had articulated the issues that underlie its fraud claim: that
Open International was engaged in “a development project” with the City, “OSF was not
matured to the degree the City anticipated for the North American market,” “the City was a beta”
customer, and the “[p]ortal delivery was not the same as product demonstration, and was
ineffective for the North American market.” Ex. 529 at 3, 6. With these issues fully in mind, the
City not only continued with the contract; it also extended the contract, admitted responsibility
for project overruns, and praised Open International for its partnership. Ex. 14 (First
Amendment); Ex. 529 at 5 (City project leaders acknowledging primary responsibility of City);
Ex. 720 at 7:48-11:38, 12:13-13:23 (Mr. Beckstead identifying City shortcomings,
acknowledging “more of the responsibility” on the City’s side, and “applaud[ing]” Open
International for its partnership in sharing costs). Despite identifying the issues that ultimately
“actuated” it to rescind, the City opted to proceed with the project.
Moreover, even when it eventually claimed fraud and threatened rescission in its May 28,
2021 termination letter, the City was equivocal and offered alternatives to rescission. See Ex. 66
at 6-8. This waived any right to rescission. Gladden, 426 P.2d at 956 (affirming judgment
against rescission where demand letter “was equivocal and suggested an alternative remedy to
that of rescission”). The City then continued accepting Open International’s services, see Ex.
570 (July 2, 2021 status report reflecting ongoing work); TR (Oct. 27, 2023) at 905:1-18,
906:9-907:2 (City project manager Aaron McClune), negotiating over completion of the project,
see TR (Oct. 23, 2023) at 217:3-8 (City CFO Travis Storin), and using Open International’s
software through the end of 2021, nearly half a year after suing for rescission, see TR (Oct. 27,
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 4 of
18
4
2023) at 886:15-18 (Mr. McClune testifying to use of Open International software license
through end of 2021); accord TR (Oct. 26, 2023) at 807:13-808:6 (City consultant Greg Galluzzi
testifying that City stopped using OSF only after completing implementation with GLDS in late
2021); TR (Nov. 1, 2023) at 1855:13-20 (William Corredor testifying that, as to OSF, the City
“kept it. They used it until I think the end of the year.”); TR (Nov. 17, 2023) at 28:10-29:6 (City
expert, same). The City cannot have properly rescinded while proposing and considering
alternatives to rescission and, thereafter, continuing to accept the benefit of Open International’s
services and software license. See Gladden, 426 P.2d at 956; see also Baker v. Penn Mut. Life
Ins. Co., 788 F.2d 650, 662 (10th Cir. 1986) (“In order to accomplish a rescission ‘there must be
within reasonable time after knowledge of the existence of the cause . . . an election to rescind’
. . . and the electing party must cease accepting benefits under the contract.” (quoting 12
WILLISTON ON CONTRACTS § 1460, at 115-119 (3d ed. 1970))). The City couldn’t have it both
ways. It could not “play ‘fast and loose’ at the same time, await results, and then make [its]
election.” Auld v. Travis, 39 P. 357, 360 (Colo. App. 1895).2
The City’s request for rescission is waived, coming long after the City discovered the
relevant facts and half a year before the City finally stopped accepting the benefit of Open
International’s services and software. “If a party, having the right to rescind a contract, does any
act which amounts to an admission of the existence of the contract, he cannot afterwards elect to
2 Moreover, the City’s counsel acknowledged, and Mr. Corredor was prepared to testify (but was
barred by a sustained relevance objection), that the City even today holds Open International’s
software in escrow by contract and has refused to release it from escrow. TR (Nov. 1, 2023) at
1853:7-1854:12; 1856:3-21; see also Ex. 1 at 14-15 (MPSA § 16, “Escrows and US Assets”); id.
at 378-80 (Ex. G to MPSA regarding escrow release).
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 5 of
18
5
treat it as void. A party cannot rescind and at the same time retain a benefit under the contract.”
Holscher v. Ferry, 280 P.2d 655, 657-58 (Colo. 1955) (quotation and citation omitted). Under
Rule 52(c), the Court should find that the City waived its right to rescission and should enter
judgment against the City.
II. THERE IS NO EVIDENCE TO SUPPORT A RECISSION AWARD AGAINST
OPEN INVESTMENTS, SO IT IS ENTITLED TO JUDGMENT IN ITS FAVOR.
Even if the City had not waived rescission, it adduced no evidence to support a rescission
judgment against Open Investments. The evidence at trial established only that Open
Investments gave an “unconditional[] guarantee [of] the performance of Open International of all
obligations set forth in [the] MPSA and Software License Agreement” (the “Agreements”) that
was integrated into the Agreements. Ex. 1 at 4 (irrevocable guarantee); TR (Oct. 24, 2023) at
298:17-299:10 (Mr. Beckstead explaining Open Investments’ role as contractual guarantor); TR
(Nov. 1, 2023) at 1718:4-7, 1797:25-1798:15 (Mr. Corredor testifying to Open Investments’ role
as guarantor of Open International contract obligations); Ex. 66 (accusing only Open
International of breach and fraud). The City has known since the outset that the guarantee is the
only fact connecting Open Investments to this case. Compl. (Dkt. 1) ¶¶ 5-6 (asserting
entitlement only to “enforcement” against Open Investments); Am. Compl. (Dkt. 192) ¶¶ 5-6
(same). The RFP response that undergirds the City’s fraudulent inducement claim was submitted
by Open International, see Ex. 5, and all payments under the rescinded Agreements were made to
Open International, see Ex. 522. Not a dime was paid to Open Investments, so there is not a
dime of restitution that could be owed by Open Investments to the City under a rescission award.
See infra Section III. Put simply, the City had no basis to expect recourse against Open
Investments independent of the now-rescinded guarantee. See Bock v. Am. Growth Fund
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 6 of
18
6
Sponsors, 904 P.2d 1381, 1387 (Colo. App. 1995) (rejecting disgorgement remedies against
corporations for agent’s fraudulent representations when plaintiff “did not expect from the
corporations” performance of the representations, “which the corporations were incapable of
delivering”).
Thus, when the City elected to rescind the Agreements, including the guarantee therein,
the City severed the sole link between Open Investments and this case. Kennedy v. Gillam Dev.
Corp., 80 P.3d 927, 930-31 (Colo. App. 2003) (“Once they elected . . . rescission . . . the option
of obtaining the benefits of a provision in the rescinded contract was no longer available . . . .”).
“Generally speaking, the effect of rescission is to extinguish the contract. The contract is
annihilated so effectually that in contemplation of law it has never had any existence, even for
the purpose of being broken.” ClearOne Commc’ns, Inc. v. Nat’l Union Fire Ins., 494 F.3d
1238, 1252 n.7 (10th Cir. 2007) (applying Utah law) (citation and quotation omitted). Because
the guarantee and the guaranteed Agreements no longer exist, Open Investments’ obligation to
the City under those Agreements no longer exists either. See Alien, Inc. v. Futterman, 924 P.2d
1063, 1069 (Colo. App. 1995) (holding that, if guaranteed “contracts are avoided, any benefit
[guarantor] alleges he would be obligated to confer on plaintiffs no longer exists”).3
3 Nor may Open Investments, a limited liability company, be held liable simply because it owns
80% of Open International. See United States v. Bestfoods, 524 U.S. 51, 61 (1998) (“It is a
general principle of corporate law deeply ingrained in our economic and legal systems that a
parent corporation . . . is not liable for the acts of its subsidiaries.” (quotation and citation
omitted)); Nobody in Particular Presents, Inc. v. Clear Channel Commc’ns, Inc., 311 F. Supp.
2d 1048, 1068-69 (D. Colo. 2004) (“Absent allegations or evidence of ‘independent conduct’ on
the part of the parent, there is no basis upon which to hold a parent directly liable for the acts of a
subsidiary.”).
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 7 of
18
7
By rescinding the Agreements that formed the sole link between it and Open Investments,
the City “annihilated” any obligation of Open Investments to the City, and no extra-contractual
equitable link exists by virtue of payments to Open Investments, since Open Investments
received no payments. Accordingly, there is no evidence to support judgment against Open
Investments for the City’s elected remedy. The Court should enter judgment against the City on
its claims against Open Investments under Rule 52(c).
III. ANY MONETARY AWARD ASSOCIATED WITH RESCISSION IS ENTIRELY
OFFSET BY THE CONSIDERATION OPEN INTERNATIONAL CONFERRED.
Even if rescission could properly be awarded against Open International or both
Defendants, the measure of rescission is limited under Colorado law to the consideration paid by
the City to Open International—$8,756,659.16—offset by the value of the services Open
International provided to the City, directly and through Milestone. That value exceeds the value
of the City’s payments and therefore negates any monetary award for rescission.
The City’s damages expert predicated his analysis on the notion that rescission should
“put[] the City back in the position that they would be but for the fraudulent inducement.” TR
(Nov. 17, 2023) at 20:20-21). But that is the wrong standard. That is the standard for
expectation or benefit-of-the-bargain damages, not for rescission. See, e.g., RESTATEMENT 2D OF
CONTRACTS § 347 cmt. a; Kim v. Sun, 535 B.R. 358, 370 (10th Cir. Bankr. 2015) (holding that
rescission does not provide “benefit-of-the-bargain” damages). Rescission “differs in principle
from damages [that] measure the remedy by the plaintiff’s loss and seek to provide compensation
for that loss.” EarthInfo, Inc. v. Hydrosphere Res. Consultants, 900 P.2d 113, 118 (Colo. 1995);
see also Aaberg v. H. A. Harman Co., 358 P.2d 601, 603 (Colo. 1960) (explaining rescission is
an alternative to “su[ing] for damages” that, instead, lets plaintiff “sue for the return of money
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 8 of
18
8
paid” (citation and quotation omitted)). Rescission, in contrast, imposes “restitution on both
sides.” EarthInfo, 900 P.2d at 118. Rescission therefore is effectuated by the return of
consideration that each party actually contributed to the other under the agreement—not by
awarding what the plaintiff expected to receive as a result of the agreement or any other harms or
losses. See id. (prescribing “restoration of benefits received under the contract”); Kim, 535 B.R.
at 370 (holding that, under circumstances of fraud, rescission will “restore the parties to their
precontract position”—“the return of the money” less benefits “received”); Rice v. Hilty, 559
P.2d 725, 727 (Colo. App. 1976) (after finding plaintiffs had tendered consideration received,
requiring defendants to “return whatever consideration they received under the contract”).
Courts have some discretion to shape a rescission remedy that equitably restores the
status quo before the contract. For example, a court may take “into account the nature of the
defendant’s wrong” when deciding whether the defendant must disgorge profits it realized as a
direct result of its wrongdoing, in addition to the specific consideration the defendant received.
EarthInfo, 900 P.2d at 119. That discretion, however, does not include authority to remedy
losses or other harm the plaintiff suffered beyond the benefits the defendant received under the
contract. Id. (providing five options for awarding rescission, all keyed to value defendant
realized, not keyed to harm suffered by plaintiff); see also Transamerica Mortg. Advisors v.
Lewis, 444 U.S. 11, 24 n.14 (1979) (rejecting a rescission award that accounted for the
diminution of value of plaintiff’s property, since that measure of harm to plaintiff is a component
of legal damages rather than of rescission (citing 5 A. CORBIN, CONTRACTS § 1114 (1964)).
Nor does the Court’s discretion include authority to grant one-sided restitution. Because
rescission effectuates “restitution on both sides,” if the consideration paid by a plaintiff is offset
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 9 of
18
9
by the value of consideration provided by the defendant, then a monetary award to the plaintiff
must be reduced or withheld to properly achieve restitution on both sides. See Durango v.
Durango Transp., Inc., 807 P.2d 1152, 1154 n.3 (Colo. 1991) (noting affirmance by Court of
Appeals of rescission without monetary award because “the amounts paid by the City under the
contract were fully offset by the value of services received from [defendant] under the
contract.”); see also Transamerica Mortg., 444 U.S. at 24 n.14 (holding that rescinding party
may “have restitution of the consideration given under the contract, less any value conferred by
the other party”). Even in circumstances of “extreme culpability” like fraud, a court must make
“some apportionment” between the amounts obtained through misconduct and the amounts the
defendant rightly earned independent of its misconduct. See Univ. of Colo. Found., Inc. v. Am.
Cyanamid Co., 153 F. Supp. 2d 1231, 1244-45 (D. Colo. 2001) (quoting EarthInfo, 900 P.2d at
120); EarthInfo, 900 P.2d at 120-21 (holding that, although defendant’s “conscious” misconduct
weighed in favor of disgorgement of the profits realized as a direct result of the alleged
wrongdoing, the trial court must still credit the defendant for “materially contribut[ing] effort and
investment” into the parties’ relationship).
Here, the evidence at trial showed that the City paid Open International $8,756,659.16
during the course of the project. Ex. 694 (list of payments Open International received from the
City throughout project); TR (Nov. 1, 2023) at 1775:21-1776:24, 1777:3-7 (Mr. Corredor); id. at
1871:14-22, 1874:17-21 (Defendants’ damages expert Peter Schulman); TR (Nov. 17, 2023) at
17:20-18:4 (City damages expert Ron Seigneur). That is the only consideration paid by the City
to either Defendant, and there was no evidence that either Defendant obtained interest, profits, or
any other secondary benefit from their possession of that consideration. Removing any “growth
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 10 of
18
10
factor,” “growth rate,” “inflation,” or “prejudgment interest” that the City’s expert varyingly
opined about, the evidence showed only that the City paid Open International $8,756,659.16.4
Because rescission allows only a return of consideration paid to Open International, not damages
for other losses or harms the City may have suffered, the cap on the City’s rescission award is
$8,756,659.16. Indeed, that is all the City ever pleaded. Am. Compl. (Dkt. 192) ¶¶ 2, 79.
The City’s three other categories of rescission damages—labor costs, third-party costs,
and lost revenue—are unavailable through the remedy of rescission. Ex. 743 at 19 ln. 5-6, 8; TR
(Nov. 17, 2023) at 6:8-22 (Mr. Seigneur). Two of the categories relate entirely to payments the
City made to others, not to Defendants: (1) the amount the City paid to its third-party
consultants, and (2) the amount the City paid its own employees for work on the project. There
is no evidence—nor any logic—to support the conclusion that those payments by the City for
labor and support were consideration paid to Defendants, thus they are not recoverable. See
EarthInfo, 900 P.2d at 118 (rescission measured by restoration of “benefits received” by each
party, unlike damages “measure[d] . . . by the plaintiff’s loss”); TR (Nov. 17, 2023) at 33:8-25
(Mr. Seigneur testifying that payments to consultants did not benefit Defendants); id. at 41:23-
42:13 (same regarding City’s internal labor costs). Further, Mr. Seigneur calculated the labor
category in reliance on faulty assumptions made by TMG Consulting regarding a speculative
implementation—not any actual records of time spent by City employees on the project. TR
(Oct. 30, 2023) at 1176:1-24; 1185:6-1190:12; 1192:3-15; TR (Nov. 17, 2023) at 44:1-24.
4 The City’s expert added compound interest of 8%, which improperly inflated the value of the
consideration that the City paid to Open International and usurped the Court’s function. See
C.R.S. § 13-21-101(1) (stating “it is the duty of the court” to apply interest after judgment).
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 11 of
18
11
Further, Mr. Seigneur admitted that, although the City used OSF for 29 months, he did not
account for that use when calculating the claimed value of the City’s labor and consultant costs,
despite accounting for that use in the City’s claimed disgorgement of payments to Open
International. TR (Nov. 17, 2023) at 45:10-46:8.
The final category of “lost net revenue” imagines what the City might have earned from
its broadband business if the project had been completed on time—i.e., the City’s expectancy,
not a benefit the City conferred on Defendants. TR (Nov. 17, 2023) at 36:12-18 (Mr. Seigneur
admitting lost revenue was not a benefit to Defendants, only a detriment to the City); see Kim,
535 B.R. at 370 (rejecting “benefit-of-the-bargain” damages for rescission). And this category,
too, was predicated on unreliable, cherry-picked assumptions that were belied by the City’s own
pre-litigation projections for its Broadband business. TR (Oct. 30, 2023) at 1198:11-1202:8
(Mr. Seigneur); Ex. 82 at 25. Indeed, Mr. Seigneur assumed more lost broadband customers than
the City projected ever having. Id. at 1203:17-1205:16. The Court should reject the City’s
“Trojan Horse” approach to the rescission remedy.
Also, as noted above, the $8,756,659.16 that the City conferred on Open International
under the Agreements must be offset by the amounts Open International contributed to the
project—regardless of the finding of liability for fraudulent inducement. EarthInfo, 900 P.2d at
120 (“‘Even the wilful wrongdoer should not be made to give up that which is his [or her] own;
the principle is disgorgement, not plunder.’” (quoting DAN B. DOBBS, LAW OF REMEDIES § 4.3(6)
at 614 (2d ed. 1993))); see also Univ. of Colo. Found., 153 F. Supp. 2d at 1244 (even in fraud
case with “extreme culpability,” “some apportionment” is required); Durango, 807 P.2d at 1154
n.3 (no monetary award where “amounts paid by the City under the contract were fully offset by
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 12 of
18
12
the value of services received from [Defendant] under the contract”). The City conceded that it
received more than $1 million of value from OSF, Ex. 743 at 13 ¶ 7; id. at 19 ln. 7, but the City
altogether ignored the value of Open International’s services. The undisputed evidence showed
that Open International worked on the project with the City for nearly three years and provided
to the City 101,880.28 hours of implementation services and 22,104.7 hours of support services,
which were worth $117 per hour, plus 29,352.78 hours of product and technology development
services, which were worth $116 per hour—i.e., $17,911,165.14 of services, all to the benefit of
the City. See TR (Nov. 17, 2023) at 19:3-23 (Mr. Seigneur); id. at 72:17-75:7, 80:10-24;
81:7-82:20 (Mr. Schulman); TR (Nov. 1, 2023) at 1664:5-1666:18 (Project Management Office
leader Jairo Contreras); id. at 1871:14-22 (Mr. Schulman); Ex. 5 at 789 (RFP rate of $117 per
hour for additional implementation services); Exs. 44 and 48 (PCRs setting $116 hourly rate for
development work). Further, Open International provided to the City under the Agreements the
services of its subcontractor Milestone, for which Open International paid more than $2.6
million. TR (Oct. 31, 2023) at 1503:22-1504:22 (Project Management Office director Diego
Lopez); TR (Nov. 17, 2023) at 80:21-81:6; 81:25-82:6; 82:21-83:6 (Mr. Schulman).
In total, Open International provided services to the City worth more than $20 million,
which entirely offsets the consideration the City paid (and offsets, too, the additional amounts the
City seeks that are not recoverable as a measure of rescission). TR (Nov. 17, 2023) at
83:13-84:21; 85:3-8 (Schulman). And even without accounting for the full value of the labor
Open International provided, the record does not contain any evidence to rebut the fact that Open
International provided, and the City accepted and paid the $8,756,659.16 for, 30-plus months of
labor. Ex. 694 (transaction list of payments Open International received from the City
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 13 of
18
13
throughout project); TR (Nov. 17, 2023) at 17:20-18:4 (Mr. Seigneur admitting City paid Open
International roughly “8 million, 7” over the life of the project, as supported by analysis of
invoices). Under the MPSA, the City contracted for Open International’s services, Ex. 1 at 5
(services contract for “consulting” and “software support services”), Open International provided
services for the first four contract milestones, and the City accepted and paid for those services,
see Ex. 522. Open International earned what the City paid, so there is no unearned, unjust
enrichment to disgorge from Open International.
Because the value of the labor Open International provided to the City under the
Agreements exceeded the consideration paid to Open International by the City—and the City
acknowledged and never rebutted that Open International provided the labor the City did pay
for—any award of restitution to the City is completely offset by restitution to Open International.
A money judgment based on the City’s rescission theory is therefore legally impermissible.
Even if the Court enters judgment of rescission, the evidence does not support a monetary award
in favor of the City.
IV. ATTORNEYS’ FEES ARE NOT AVAILABLE TO THE CITY BECAUSE IT
ELECTED TO RESCIND THE AGREEMENTS.
Finally, the Court may not award the City its attorneys’ fees. In a “‘diversity case where
the state law does not run counter to a valid federal statute or rule of court, and usually it will
not, state law denying the right to attorney’s fees or giving a right thereto, which reflects a
substantial policy of the state, should be followed.’” Alyeska Pipeline Serv. Co. v. Wilderness
Soc’y, 421 U.S. 240, 259 n.31 (1975) (quoting 6 J. MOORE, FEDERAL PRACTICE § 54.77 [2] at
1712-13 (2d ed. 1974)), superseded on other grounds by statute, see Perez v. Rodriguez, 575
F.2d 21, 24 (1st Cir. 1978). Colorado applies the American Rule, so the City “is not entitled to
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 14 of
18
14
attorney fees unless attorney fees are authorized by statute or allocated in an enforceable
contract” or covered by certain common law exceptions. TC Equity Invs., LLC v. Vandre, 2016
U.S. Dist. LEXIS 34666, *7 (D. Colo. Mar. 16, 2016) (citing Alyeska, 421 U.S. at 247); Eder v.
Cedarblade, 328 P.3d 291, 293 (Colo. App. 2014).
No statutory or common law exception applies here.5 Consequently, the sole basis for the
City’s request for attorneys’ fees is the fee provision in the rescinded Agreements.6 Colorado
law is clear: an election to rescind a contract “cancel[s] all of plaintiffs’ contractual rights to the
benefits of the contract, including an award of attorney’s fees in the event of litigation.”
Destination Travel, Inc. v. McElhanon, 799 P.2d 454, 457-58 (Colo. App. 1990) (quotation and
citation omitted); accord Kennedy, 80 P.3d at 930-31 (Colo. App. 2003) (holding that plaintiffs
could not be awarded attorneys’ fees under the contract that plaintiffs elected to rescind).
Holding otherwise “would allow plaintiffs to insist on defendant’s performance of the contract
insofar as the performance benefits plaintiffs, while avoiding those aspects of the contract which
5 See C.R.S. § 38-12-103(3)(a) (attorneys’ fees and costs upon finding that landlord unlawfully
withheld security deposit from tenant in violation of statute); C.R.S. § 6-1-113(2)(b) (attorneys’
fees in successful class action under Colorado Consumer Protection Act); C.R.S. § 14-10-119
(attorneys’ fees in the Court’s discretion after considering financial resources of both parties in
action to dissolve marriage); C.R.S. § 13-17-102 (attorneys’ fees where court determines that
claim or defense was frivolous, groundless, or vexatious); Allstate Ins. Co. v. Huizar, 52 P.3d
816, 821 n.2 (Colo. 2002) (recognizing only four Colorado common law exceptions to the
American Rule: (1) the “common fund” doctrine, (2) a party’s “bad faith and lack of candor in
dealing with the court,” (3) a “breach of fiduciary duty or breach of trust,” and (4) where “a
party’s wrongful act proximately cause[d] the wronged party to become engaged in litigation
with others”).
6 Even if it were not rescinded, the fee provision in the MPSA does not extend to a claim for
rescission based on fraud. Ex. 1 at 17 § 18.8 (providing that the “prevailing Party” is entitled to
“reasonable attorneys’ fees” only in an “action at law or in equity” to “enforce or interpret the
terms of this Agreement”).
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 15 of
18
15
are burdensome to plaintiffs.” Destination Travel, 799 P.2d at 458 (citation and quotation
omitted). Indeed, the Colorado Court of Appeals expressly rejected decisions to the contrary
from other jurisdictions. See Kennedy, 80 P.3d at 930 (rejecting contrary Montana, Nevada, and
Florida authority because “Colorado courts have consistently [held]: remedies of rescission of a
contract and enforcement of a provision of the same contract are inherently inconsistent”).
Nor do the Court’s inherent equitable powers permit the Court to go beyond the specific
exceptions that the legislature has “carve[d] out” from the American Rule. Alyeska, 421 U.S. at
269. Federal “courts are not free to fashion drastic new rules with respect to the allowance of
attorneys’ fees to the prevailing party in federal litigation or to pick and choose among plaintiffs
and the statutes under which they sue and to award fees in some cases but not in others,
depending upon the courts’ assessment of the importance of the public policies involved in
particular cases.” Id.; id. at 241 (reversing fee award that was predicated on “court’s equitable
powers”). Accordingly, the City has no basis to recover any of its attorneys’ fees and no fees
may be awarded by the Court.
CONCLUSION
For the foregoing reasons, judgment should be entered against the City and in favor of
Defendants on the City’s claim for rescission, and Open International’s contract claim should be
reinstated because rescission is not available to the City as a remedy. In the alternative, the
Court should enter judgment in favor of Open Investments, as to which there is no evidence to
support a judgment of rescission and, in all events, should award no damages, fees, or other
monetary relief to the City.
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 16 of
18
16
Dated: December 8, 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 314 filed 12/08/23 USDC Colorado pg 17 of
18
CERTIFICATE OF SERVICE
I hereby certify that on the 8th day of December, 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
31008081
Case No. 1:21-cv-02063-CNS-SBP Document 314 filed 12/08/23 USDC Colorado pg 18 of
18