HomeMy WebLinkAbout2021-cv-2063-CNS-MEH - City Of Fort Collins V. Open International, Et Al. - 315 - City's Closing BriefIN 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.
PLAINTIFF CITY OF FORT COLLINS’ CLOSING BRIEF
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Pursuant to this Court’s November 17, 2023 Order [Dkt. 298], Plaintiff, the City of
Fort Collins (the “City”), respectfully submits this Closing Brief regarding the amounts it is
entitled to recover based on rescission and in support thereof, states as follows:
INTRODUCTION
On November 3, 2023, after a two-week jury trial, the jury found that Open
fraudulently induced the City to enter into the Agreements with Open.1 See Dkt. 296. The
Court denied Open’s laches and unclean hands defenses. Trial Tr. at 1992:6-22. After
the jury verdict, the City timely rescinded the Agreements and seeks an award from the
Court of the amounts required to restore it to the position it was in before Open’s fraud.
Open’s fraudulent conduct inflicted millions of dollars of harm on the City,
including:2 (1) paying Open $11,328,465 during the course of the Project, (2) paying
$537,508 to third-party consultants during the Project, (3) incurring $6,568,998 in labor
costs during the course of the Project, (4) losing $4,148,036 in net revenue, and (5)
incurring significant costs and attorney’s fees for pursuing this action. In addition to PJI
on the first four categories, the City seeks post-judgment interest for all five categories.
Open has conceded, via its rebuttal damages expert, that the City is—at
minimum—entitled to recover categories 1-3, plus PJI. The City is entitled to recover all
of these amounts, however, because they are the natural and proximate result of Open’s
1 Defendants Open International, LLC and Open Investments, LLC’s (collectively, “Open”)
fraudulently induced the City to enter into a Master Professional Services Agreement (the
“MPSA”) and Software License Agreement, as well as a “Scope of Work” (”SOW”) and
First Amendment (collectively “the Agreements”).
2 These numbers include the equivalent of pre-judgment interest (“PJI”) through April 14,
2023. Additional calculations for PJI beginning on April 15, 2023 to an estimated date of
judgment are provided herewith as Ex. 1.
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fraudulent conduct and are necessary to restore the City to its position prior to Open’s
fraud. The Court should deny Open’s unsupported claim for setoff because Open is
precluded from obtaining any setoff under the equitable principles of rescission and
Colorado law, which prohibits a party from benefitting from its own fraudulent conduct. If
the Court relied on Open’s theory, its fraudulent conduct would be improperly rewarded.
Accordingly, the Court should award the City $22,583,007 plus PJI from April 15,
2023 through date of judgment, as well as all of its reasonable attorney’s fees and costs,
and post-judgment interest, and deny any setoff in Open’s favor.
ANALYSIS
A. The City is Entitled to Recover Amounts it Incurred Because of Open’s
Fraudulent Conduct.
Under Colorado law, a party seeking to remedy fraudulent inducement of a
contract may rescind the entire contract to “restore the conditions existing before the
agreement was made”. See Trimble v. City & Cty. of Denver, 697 P.2d 716, 723 (Colo.
1985). “When a party recovers money damages in connection with rescission, those
damages are more accurately called restitution . . . .” Szaloczi v. John R. Behrmann
Revocable Trust, 90 P.3d 835, 841 n.8 (Colo. 2004). Restitution measures the remedy in
order to “prevent the defendants’ unjust enrichment.” See EarthInfo, Inc. v. Hydrosphere
Resource Consultants, Inc., 900 P.2d 113, 119 (Colo. 1995). Beyond just preventing
unjust enrichment, “[d]amages measured by a claimant’s expenditure can be included in
the accounting that accompanies rescission, in order to do complete justice in a single
proceeding.” Ex. 2, Restatement (Third) of Restitution § 54, cmt. i. Ultimately, rescission
is an equitable remedy that requires the use of practicality, and it is in the trial court’s
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discretion to determine how to restore the conditions before the fraud occurred. See
EarthInfo, 900 P.2d at 119; see also Rice v. Hilty, 38 Colo. App. 338, 340-41 (1976);
United States v. Blair, 193 F.2d 557 (10th Cir. 1952).
Consistent with rescission, this Court should award the City the following amounts
which it is entitled to under the law and equitable considerations:
1. Amounts Paid to Open. The City is entitled a return of the full amount paid
to Open under the Agreements ($8,756,659) to restore the conditions existing before the
Open induced the City into the Agreements. See Hilty, 38 Colo. App. at 340 (ordering
return of all payments made); see also Forest View Acres Water Dist. v. Colorado State
Bd. Of Land Comm’rs, 968 P.2d 168 (Colo. App. 1998). Over the course of 33 months,
beginning in September 2018, the City paid Open $8,756,659. T.E. 522; T.E. 743 at Sch.
H; Trial Tr. at 1063:13-24, 1776:22-24. The City would not have paid this amount to Open
but for Open’s fraudulent conduct in inducing the City to enter into the Agreements. Open
conceded this category as appropriate, including $8,756,659 as the appropriate amount,
by including it in its expert’s calculations for rescission. See T.E. 744 at Fig. 7; T.E. 694
at 2. And the City is also entitled to interest on the amount paid to Open. See Hilty, 38
Colo. App. at 340; see also Wall v. Foster Petroleum Corp., 791 P.2d 1148, 1150 (Colo.
App. 1989) (finding trial court erred in not awarding PJI for rescission of payments made).
Contrary to Open’s assertions, Open is not entitled to receive a “credit” for the time
that the City tried to use Open’s partially functioning product. Open relies on EarthInfo for
the notion that rescission requires restitution to both sides—in other words, it requires
returning the “benefits received” under the contract. EarthInfo, 900 P.2d at 118. Open
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received money pursuant to the contract and must return it. The “benefit received” by the
City was supposed to be a working billing software. The City is not retaining (and therefore
need not return) any “benefit received” under the contract since Open has full control of
its software product (in fact, Open has a version that now includes the improvements
made during the Project). There is nothing else for the City to return to Open. Trial Tr.
1856:17-19. Equitably, the Court need not account for the 29 months the City limped
along with Open’s system until it finally terminated the contract and implemented a
replacement. During the time the City had Open’s product, it was never fully functional
and required significant amount of manual labor by City personnel to complete accurate
billing cycles. Trial Tr. at 496:11-498:5, 880:14-881:22. Deducting any amount for the
City’s partial use of Open’s malfunctioning product would not accomplish complete equity
when Open fraudulently induced the City into the relationship to begin with. See Full Tilt
Boogie, LLC v. Kep Fortune, LLC, 2023 U.S. Dist. LEXIS 49142, *21 (C.D. Cal. Mar. 21,
2023) (granting plaintiff full amount in rescission damages against defendant as any
deduction “would not accomplish complete equity.”); see also Ex. 3, 1 Dan B. Dobbs, Law
of Remedies § 9.3(3) at 593 (2d ed. 1993) (“the plaintiff must account to the defendant
only for actual benefits received when the transaction is avoided”).
The City damages expert, Ron Seigneur, has calculated the PJI on the amounts
paid by the City ($8,756,659), on a compound annual basis, through April 14, 2023
equaling $2,625,806, for a total amount of $11,328,465 to the City. See T.E. 743, Sch. H.
The Court would only need to add additional PJI from April 15, 2023 to the date of final
judgment. Open via its expert concedes that the City is due the full amount plus interest
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through the date of judgment. See T.E. 744 at Fig. 7; Ex. 4, 11/17/23 Tr. at 95:10-22
(admitting that the City may be awarded PJI on its monetary award and that it was
calculated correctly by Mr. Seigneur). Wall, 791 P.2d at 1150; Ballay v. Legg Mason
Wood Walker, Inc., 1990 U.S. Dist. Lexis 4412, *6-8 (E.D. Pa. Apr. 13, 1990) (finding
“[w]ithout the element of interest, plaintiffs would not be fully compensated” when electing
rescission).
2. Amounts Paid to Third-Party Consultants. Beginning in 2020, the City
paid $456,024 to its third-party consultants, TMG Consulting (“TMG”) and Vanir
Construction Management (“Vanir”), for services performed on the Project with Open.
Specifically, the City paid Vanir $169,917 in 2020 and an additional $86,810 in 2021 for
project management services. T.E. 743 at Sch. K3; Trial Tr. at 1061:6-12. The City paid
TMG a total of $199,297 for consulting services on the project in 2021. See T.E. 349
(yellow and green highlighting). The City is entitled to recover these amounts because
but for Open’s fraud, it would not have needed to hire or pay TMG or Vanir to provide
consulting or project management services on the Project with Open. Not only was hiring
outside consultants permitted by the Agreements and encouraged by Open, but Open
repeatedly stated that the City should use outside consultants to manage the project. Trial
Tr. at 335:5-17. In other words, the City only incurred these amounts trying to execute on
the Agreements it was fraudulently induced to enter. Open concedes via its expert that
such amounts are due to the City based on rescission and the amount due. See T.E. 744
at Fig. 7. The Court should award the City $456,024 for amounts paid to these third-party
consultants to restore the City to its position before Open’s fraudulent conduct. See Hilty,
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38 Colo. App. at 340-41 (considering capital improvements as a factor resulting from
rescission for purposes of determining equities); see also Ex. 2, Restatement (Third) of
Restitution § 54, cmt. i (“Damages measured by a claimant’s expenditure can be included
in the accounting that accompanies rescission, in order to do complete justice in a single
proceeding.”).
The City is entitled to PJI at 8% compounded annually on these amounts beginning
in March 2020 through the date of judgment. Accordingly, the City should recover
$537,508 in payments to third party consultants and PJI through April 14, 2023 because
of Open’s fraudulent conduct. Open conceded via its expert that the PJI calculation is
correct. Ex. 4, 11/17/23 Tr. at 95:10-22. The Court would only need to add PJI from April
15, 2023 to the date of final judgment. Ballay, 1990 U.S. Dist. LEXIS 4412 at *6-8.
3. The City’s Labor Costs. The City is entitled to recover this amount for the
reasonable value of services that it incurred during the Project because of Open’s fraud,
especially since the Agreements with Open required City personnel to exert significant
efforts on the Project. See Ex. 4, 11/17/23 Tr. at 93:14-17; Hilty, 38 Colo. App. at 340-41
(directing court to consider “the reasonable value of services” in determining rescission
amounts due based on fraud); see also Robinson v. Katz, 610 P.2d 201 (N.M. Ct. App.
1980) (rescinding party should recover “whatever money is necessary to restore [its]
position prior to making the contract.”). Open concedes this category is appropriate by
including it in its expert’s calculations for rescission. See T.E. 744 at Fig. 7. Furthermore,
Open also concedes the amount, as it uses it in its own calculation and admits there is
no need to account for fixed or variable costs. Id.; see Ex. 4, 11/17/23 Tr. at 11:18-20
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(Open’s expert admitting he has no reason to believe that the distinction between fixed
and variable costs has any impact on a rescission analysis.).
The City was required to incur significant amount of resources and labor costs in
order to implement the Project that it would not have incurred but for Open’s fraudulent
conduct. As Open repeatedly stated during trial, the City was required to have certain
number of full-time equivalents (“FTEs”) on the Project per the parties’ Agreements. Trial
Tr. at 1295:3-1297:14. These employees expended even more time and effort due to
Open’s fraud since the product was not ready and the City ended up testing, improving,
and effectively developing Open’s product. From August 15, 2018 to January 15, 2021,
the City had an average of 12 business FTEs at $80.00/hour and an average of 6 IT FTEs
at $100.00/hour on the Project. See T.E. 743, Sch. M; T.E. 24 at 37; Trial Tr. at 801:13-
802:6. While TMG had estimated that each of these individuals had worked an average
of 8 hours per day on the Project during this time-period based on City records, to be
conservative, the City’s damages expert reduced the average daily hours each individual
worked on the Project to 5 hours per day—a 37.5% reduction. See T.E. 743, Sch. M. The
City’s expert made this reduction based on discussions with City management. Id. at 14.
In total, (and reflecting the City’s expert’s reduction), between August 15, 2018 and
January 15, 2021, the City incurred $4,376,969 in labor costs on the Project. Id., Sch. M.
Hilty, 38 Colo. App. at 340-41; Gearhart v. Goehner, 701 P.2d 461, 465 (Or. Ct. App.
1985) (granting cost of expenditures incurred in reliance on fraudulent statements).
The City is entitled to PJI on this amount in order to be made whole due to Open’s
fraud. Accordingly, as of April 14, 2023, the City incurred labor costs from August 15,
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2018 through January 15, 2021, plus PJI compounded annually at 8% totaling
$5,718,383. Moreover, the City incurred labor costs on the Project between January 15
and June 15, 2021, totaling $850,612, including PJI. T.E. 743, Sch. M at fn. b. Open
conceded via its expert that the PJI calculation is correct. Ex. 4, 11/17/23 Tr. at 95:10-22.
Accordingly, the City should recover $6,568,998 in labor costs and PJI through April 14,
2023 because of Open’s fraudulent conduct. The Court would only need to add PJI from
April 15, 2023 to the date of final judgment. Ballay, 1990 U.S. Dist. Lexis 4412 at *6-8.
4. Lost Net Revenue. The City is entitled to recover lost net revenue in order
to restore it to the position it would have been had Open never fraudulently induced the
City into entering the relationship and Agreements. See Hilty, 38 Colo. App. at 340-41
(ordering consideration of “net loss” for rescission damages).
Had Open not defrauded the City, the City could and would have chosen a different
vendor (like GLDS), the Project would have proceeded on time, the City would not have
experienced the delayed customer growth it did with Open, and the City would not have
lost customer revenue. See Ex. 4, 11/17/23 Tr. at 89:17-21 (admitting that if the City had
not entered into a contract with Open, the City would have had the opportunity to choose
and another vendor and be on time and on schedule with adding customers). This is not
hypothetical: the City’s ability to add broadband customers was constrained because
using Open’s poorly functioning software required manual processes for tasks that should
have been automated. T.E. 743 at 14; Trial Tr. at 496:11-499:4, 880:14-881:22. The
inoperability of Open’s system prevented the City from introducing certain broadband
products, which further resulted in lost business opportunities for the City. T.E. 743 at 14.
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Nor is the use of an alternative vendor hypothetical. The City did just that with GLDS and
successfully installed a functioning broadband billing system in five months. Trial Tr. at
807:9-808:6. Based on discussions with City’s management, review of the City’s Business
Plan (T.E. 82), and a comparative approach, whereby the City’s damages expert
compared the City’s position to Longmont’s broadband market share, the City likely lost
6,632 customers due to Open’s fraudulent conduct.3 T.E. 743 at 15. Each of these lost
customers was expected to bring annual revenue of $1,081 per user to the City as of July
2022. Id. To account for the City’s cost of capital due to the bonds it incurred in order to
launch its municipal broadband, the City discounted its future losses by 4.49% to reflect
the weighted interest rate on the City-issued revenue bonds, totaling $3,389,467 in lost
revenue through 2026. See id. at 16 and Sch. F1.
With PJI on all lost net revenue to put the City in the position it would have been
prior to Open’s fraudulent conduct, the City is entitled to $4,148,036 in lost net revenue
as a natural and proximate result of Open’s fraud and PJI compounded annually at 8%
through April 14, 2023. The Court would only need to add PJI from April 15, 2023 to the
date of final judgment. Ballay, 1990 U.S. Dist. Lexis 4412 at *6-8.
5. Attorney’s Fees and Costs. Under U.S. Supreme Court precedent, the
City is entitled to recover all of its costs and attorney’s fees it incurred in pursuing this
action against Open for its fraudulent conduct. Rescission is an equitable remedy and
courts sitting in equity possess the power to award attorney fees in “exceptional cases
3 In total, the City expects to have lost 20,100 customers, but that includes other factors
such as construction delays and the onset of COVID. The City only attributes a third of
the lost customers to Open’s conduct. T.E. 743 at 15.
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and for dominating reasons of justice.” Sprague v. Ticonic Nat’l Bank, 307 U.S. 161, 167
(1939); Nationstar Mortg. LLC v. Stafsholt, 908 N.W.2d 784, 790 (citing Sprague).
Dominating reasons of justice include “fraud or deliberate dishonesty.” In re Estate of
Pirsch, 148 Wis. 2d 425, 433 (Ct. App. 1988). Equitable actions provide an exception to
the American Rule “where attorney fees are necessary to effect an adequate remedy.”
See, e.g., Sprague, 307 U.S. at 164 (holding that the District Court has the power “in
equity suits to allow counsel fees and other expenses entailed by the litigation not
included in the ordinary taxable costs”); Cleveland v. Second Nat’l Bank & Trust Co., 149
F.2d 466, 469 (6th Cir. 1945) (holding that if “fair justice” permits, then awarding attorney
fees in appropriate situations is “part of equity jurisdiction”); In re Appeal of Gadhue, 544
A.2d 1151, 1154 (Vt. 1987) (explaining the exceptions to the American Rule “are flexible
[and] not absolute,” concluding that “[t]o this end, we focus on the historic powers of equity
courts to award attorney's fees as the needs of justice dictate.”).
Here, like the United States Supreme Court held in Sprague, and the Wisconsin
Supreme Court held in Nationstar, the award of attorney fees to the City is proper for
“dominating reasons of justice.”4 Only by awarding the City its attorney fees incurred in
litigating this action would the City obtain complete relief and restore it to its status before
entering into the Agreements with Open. Indeed, since its opening pleading [Dkt. 13],
Open has sought additional money under Agreements that were procured through fraud
via its counterclaims. This required the City to litigate this action for nearly 2.5 years
through trial. At the parties’ pretrial conference, this Court encouraged the parties to
4 Colorado Courts have not yet addressed Sprague.
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mediate in order to attempt to resolve their disputes. See Ex. 5, 7/10/23 Tr. at 20:7-22.
The City agreed to mediate without any preconditions. Open, however, refused unless
the City agreed not to inform the Court of the mediation. Decl. of Case Collard, ¶¶ 2-3.
Nonetheless, the City still provided Open’s counsel a settlement offer in the weeks before
trial that took into account the general risks of trial. Id., ¶ 4. Not only did Open reject the
offer, Open countered seeking the full amount of damages that it was seeking at trial,
essentially requiring the City to proceed through trial. Id., ¶ 5. Throughout the case and
trial, Open consistently and repeatedly re-argued issues despite prior rulings,
necessitating the City to incur significant fees.
In other words, Open’s fraud and unyielding efforts to obtain damages pursuant to
the fraudulently procured Agreements caused the City to expend legal fees that it would
not have otherwise incurred. Accordingly, the City is entitled to recover its attorney’s fees
under equitable principles to effect an adequate remedy to restore the City to the position
it held before Open’s fraudulent conduct.5 See Gibson v. Rotunno, 1996 U.S. Dist. LEXIS
33324, *13 (10th Cir. Dec. 20, 1996) (upholding attorney’s fees to “afford complete relief”
and because “attorney’s fees are available in an action for fraud in the inducement”).
Additionally, the City is entitled to all of its incurred costs in pursuing this action as
a result of Open’s fraudulent conduct. While the City will submit its Bill of Costs as the
prevailing party under Fed. R. Civ. P. 54 and D.C.COLO.LCivR 54.1 after entry of
judgment, it is entitled to more than just the category of costs subject to 28 U.S. Code §
5 As the Court instructed during the parties’ Nov. 17, 2023 damages hearing, the City will
separately move for reasonable attorney’s fees and costs after the Court has determined
whether they are recoverable based on the City’s rescission of the Agreements.
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1920. In particular, Fed. R. Civ. P. 54 “vests in the district court a sound discretion over
the allowance, disallowance, or apportionment of costs in all civil actions.” 6 J. Moore, W.
Toeggart, & J. Wicker, Moore’s Federal Practice para. 54.70[5], p. 54-331 (2d ed. 1987).
This is because Rule 54(d) adopts the practice formerly followed in equity, see id. para.
54.70[3], p. 54-321; 10 Wright § 2668, pp. 197-200, where courts possessed the power
to award costs not expressly provided by statute, as “part of the original authority of the
chancellor to do equity in a particular situation.” Sprague, 307 U.S. at 166 (footnote
omitted). It is equitable to award the City all of its costs incurred in litigating Open’s fraud.
B. Open is Not Entitled to Any Setoff.
Based on its expert’s rebuttal report and trial testimony, Open seeks a setoff of
$20,593,951 for its purported incurred costs and incredibly asserts that this could result
in Open being due millions (to be paid for by the City) for its fraud on the City. See T.E.
744 at Fig. 9. The Court should deny Open’s request in its entirety.
First, because setoff is an equitable defense, it simply is not available to Open in
light of the jury’s fraud verdict. Under Colorado law, a party seeking setoff under
circumstances involving fraud “is precluded by general equitable principles from deriving
any benefit from the fraud perpetrated by him.” Arguelles v. Ridgeway, 827 P.2d 553, 557
(Colo. App. 1991) (emphasis added). This is because a party who seeks equity must do
equity and “may not take advantage of his or her own wrongful acts.” Id. at 557 (citing
Golden Press, Inc. v. Rylands, 124 Colo. 122, 235 P.2d 592 (1951); Toll v. McKenzie, 88
Colo. 582, 299 P. 14 (1931)); EarthInfo, 900 P.2d at 117 (“one should not gain by one’s
own wrong”). Courts will not lend equitable aid to a party who is guilty of fraudulent or
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unconscionable conduct relating to the litigation. Arguelles, 827 P.2d at 557 (citation
omitted); see PHL Variable Ins. Co. v. P. Bowie 2008 Irrevocable Trust, 889 F. Supp. 2d
275, 280 (D.R.I. 2012) (holding that the law does not and should not “allow an entity to
commit an intentional and calculated fraud…and walk away unscathed while the innocent
party bears the financial burden of the fraud.”).6
In Arguelles, defendant Ridgeway attempted to use a default judgment to set off
another judgment. Since the jury found that Ridgeway procured the sale of the motel at
issue through concealment and misrepresentation, the Colorado Court of Appeals
determined Ridgeway was not entitled to a setoff as it “would allow Ridgeway to benefit
from his own wrong and would be contrary to equitable principles.” 827 P.2d at 557. Here,
as in Arguelles, the jury found that Open fraudulently induced the City into entering the
Agreements. Dkt. 296. Even it had a claim that might qualify as a setoff (as discussed
below, it does not). Open is precluded from obtaining any setoff against the amounts the
City is seeking because Open cannot take advantage of its own wrongful acts.
Second, Open’s purported “claim” is not a claim that could be considered a setoff.
In Arguelles, even though there was an actual judgment, the court still denied the request
for setoff. Here, Open does not have a judgment or even a claim based on a liquidated
amount. Instead, Open is attempting to make a shoddy claim for quantum meruit that it
never pled or supported with evidence. Open’s purported setoff is based on work that
6 See also McKay v. Weager, 134 N.Y.S. 66 (N.Y. 1911) (a claim cannot be used as a
setoff where the transaction out of which it arose was fraudulent); Roberts v. Sears,
Roebuck & Co., 471 F. Supp. 372, 202 U.S.P.Q. (BNA) 727 (N.D. Ill. 1979) (equity will
not permit a person to derive any benefit from a fraud perpetrated by him).
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Open claims it performed, but Open’s claim is irrelevant, conclusory, and unsupported by
evidence at trial. Open’s claim is irrelevant because, as discussed above, the City has
not retained any benefit from Open’s product. The City has not used Open’s product since
December 2021 and any purported value of Open’s services is simply not relevant. The
City already has put Open back in the position it was in by returning the software.
Additionally, Open’s purported setoff for $20,593,951 is wholly conclusory. Open’s
rebuttal expert did no analysis of what the amounts represent (Ex. 4, 11/17/23 Tr. at
108:22-24 (admitting to not having analyzed these numbers from a damages
perspective), 111:8-116:4, 117:23-25, 118:1-20)) and the purported detailed testimony by
Jairo Contreras which was referenced at the November 17th hearing simply does not exist.
In fact, the underlying document relied on by Open’s expert was never discussed by a
fact witness or admitted into evidence. That is, Open’s own testimony at trial failed to
provide any support for this amount other than summary testimony through a non-
executive employee. Thus, the Court should deny Open’s request for any setoff.
Third, at best, Open is describing an “uncompensated loss” for time it spent on the
project for which it will no longer be compensated. But Open caused its own purported
uncompensated loss and should not recover from the City. “If the claimant seeks to serve
a transfer induced by fraud or other conscious wrongdoing” then it makes it equitable for
defendant to bear any uncompensated loss. See Ex. 2, Restatement (Third) of Restitution
§ 54(3)(b) and 54(4). Additionally, a “plaintiff owes nothing for expenditures made by the
defendant unless those expenditures result in an unearned benefit to the plaintiff. […] He
owes nothing for improvements on the property which he does not want.” Ex. 3,
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Dobbs, § 9.3(3), at 592-93, (emphasis added). Here, Open’s claimed “setoff” is for its
alleged efforts on the Project and product. That goes directly to Open’s fraud. Open had
to expend effort because it misrepresented the readiness of its product. The City cannot
have to pay for Open to build the plane that was already supposed to be built and ready
to fly. If there is any uncompensated loss, it is appropriately assigned to Open because it
was incurred as a result of its own fraud. See id., cmt. g.
CONCLUSION
The City respectfully requests that the Court deny Open’s request for setoff and
award the City the (1) $22,583,007 plus (2) PJI from April 15, 2023 through date of
judgment plus (3) attorney’s fees and costs (to be determined) plus (4) post-judgment
interest starting as of the date of judgment. The categories supporting the award are:
Category Amount Plus PJI
Through April 14, 2023
Key Legal Basis
Amounts Paid to Open $11,328,465 Conceded by Open; Hilty, 38
Colo. App. at 340-41; EarthInfo,
900 P.2d at 119; Forest View
Acres Water Dist., 968 P.2d 168
Amounts Paid to Third-
Party Consultants
$537,508 Conceded by Open; Hilty, 38
Colo. App. at 340-41
City Labor Costs $6,568,998 Conceded by Open; Hilty, 38
Colo. App. at 340-41
Lost Net Revenue $4,148,036 Hilty, 38 Colo. App. at 340-41
(1976)
Attorney’s Fees TBD Sprague, 307 U.S. at 167;
Nationstar Mortg. LLC v.
Stafsholt, 908 N.W.2d at 790
Costs TBD Sprague, 307 U.S. at 166
Total $22,583,007 plus PJI from April 15, 2023 through date of
judgment plus fees and costs
Case No. 1:21-cv-02063-CNS-SBP Document 315 filed 12/08/23 USDC Colorado pg 16 of
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Respectfully submitted this 8th day of December, 2023.
DORSEY & W HITNEY LLP
s/ Case Collard
Case Collard
Andrea Ahn Wechter
Maral J. Shoaei
1400 Wewatta Street, Suite 400
Denver, Colorado 80202-5549
Telephone: (303) 629-3400
Fax: (303) 629-3450
E-mail: collard.case@dorsey.com
E-mail: wechter.andrea@dorsey.com
E-mail: shoaei.maral@dorsey.com
Attorneys for Plaintiff City of Fort Collins
Case No. 1:21-cv-02063-CNS-SBP Document 315 filed 12/08/23 USDC Colorado pg 17 of
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CERTIFICATE OF SERVICE
I hereby certify that on December 8, 2023 I caused the foregoing document to be electronically filed via CM/ECF system which will send notification of such filing to all counsel of record.
s/ Stacy Starr
DORSEY & W HITNEY LLP
Case No. 1:21-cv-02063-CNS-SBP Document 315 filed 12/08/23 USDC Colorado pg 18 of
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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.
DECLARATION OF CASE COLLARD IN SUPPORT OF THE CITY OF FORT
COLLINS’ CLOSING BRIEF
I, Case Collard, hereby declare and state as follows:
1. I am an attorney licensed to practice in this District. I am a partner with
the law firm Dorsey & Whitney, LLP, counsel for Plaintiff/Counterclaim Defendant the
City of Fort Collins (the “City”) in the above-captioned matter. I submit this Declaration
in support of the City’s Closing Brief. I have personal knowledge of the matters set forth
in this Declaration, and if called to testify in this case I would and could competently
testify as to such matters.
2. Per the Court’s encouragement during the parties’ pretrial conference on
July 10, 2023, the City offered to mediate with Open without any preconditions.
Case No. 1:21-cv-02063-CNS-SBP Document 315-1 filed 12/08/23 USDC Colorado pg 1
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2
3. I communicated the City’s position to Open’s counsel and requested
Open’s position on mediation. Open would not agree to mediate unless the City agreed
not to inform the Court of the mediation. My understanding was that Open did not want
the Court’s knowledge of the mediation to delay rulings on pre-trial motions. The City
would not agree to that condition because the Court had previously instructed the
parties to notify the Court if they scheduled a mediation.
4. Despite Open’s refusal to mediate without preconditions, prior to trial, on
behalf of the City, I provided Open’s counsel a settlement offer seeking an amount that
was less than the full amount the City planned to seek at trial and took into account the
general risks of trial.
5. Open rejected the offer and countered seeking the full amount of damages
that it was seeking at trial under its breach of contract claim.
I declare under penalty of perjury that the foregoing is true and correct. Executed
on December 8, 2023 in Denver, Colorado.
s/ Case Collard
Case Collard
Case No. 1:21-cv-02063-CNS-SBP Document 315-1 filed 12/08/23 USDC Colorado pg 2
of 2
Exhibit 1
Case No. 1:21-cv-02063-CNS-SBP Document 315-2 filed 12/08/23 USDC Colorado pg 1
of 3
Case No. 1:21-cv-02063-CNS-SBP Document 315-2 filed 12/08/23 USDC Colorado pg 2
of 3
Case No. 1:21-cv-02063-CNS-SBP Document 315-2 filed 12/08/23 USDC Colorado pg 3
of 3
Exhibit 2
Case No. 1:21-cv-02063-CNS-SBP Document 315-3 filed 12/08/23 USDC Colorado pg 1
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Restatements of the Law 3d, Restitution and Unjust Enrichment, § 54
Restatement of the Law, Restitution and Unjust Enrichment 3d - Official Text > Part III- Remedies
> Chapter 7- Remedies > Topic 2- Restitution Via Rights In Identifiable Property
§ 54 Rescission and Restitution
(1) A person who has transferred money or other property is entitled to recover it by rescission and
restitution if
(a) the transaction is invalid or subject to avoidance for a reason identified in another section
of this Restatement, and
(b) the further requirements of this section may be satisfied.
(2) Rescission requires a mutual restoration and accounting in which each party
(a) restores property received from the other, to the extent such restoration is feasible,
(b) accounts for additional benefits obtained at the expense of the other as a result of the
transaction and its subsequent avoidance, as necessary to prevent unjust enrichment, and
(c) compensates the other for loss from related expenditure as justice may require.
(3) Rescission is limited to cases in which counter-restitution by the claimant will restore the
defendant to the status quo ante, unless
(a) the defendant is fairly compensated for any deficiencies in the restoration made by the
claimant, or
(b) the fault of the defendant or the assignment of risks in the underlying transaction makes it
equitable that the defendant bear any uncompensated loss.
(4) Rescission is appropriate when the interests of justice are served by allowing the claimant to
reverse the challenged transaction instead of enforcing it. As a general rule:
(a) If the claimant seeks to reverse a transfer induced by fraud or other conscious wrongdoing,
the limitation described in subsection (3) is liberally construed in favor of the claimant.
(b) If the claimant seeks rescission instead of damages as a remedy for material breach of
contract (§ 37), the limitation described in subsection (3) is employed to prevent injustice to the
defendant from the reversal of a valid and enforceable exchange.
(c) If rescission would prejudice intervening rights of innocent third parties, the remedy will on
that account be denied.
(5) Restitution or a tender of restitution by the claimant is not a prerequisite of rescission if
affirmative relief to the claimant can be reduced by (or made subject to) the claimant's reciprocal
obligation of restitution.
(6) Prejudicial or speculative delay by the claimant in asserting a right of rescission, or a change of
circumstances unfairly prejudicial to the defendant, justifies denial of the remedy.
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Restatements of the Law 3d, Restitution and Unjust Enrichment, § 54
COMMENTS & ILLUSTRATIONS
Comment:
a. General principles and scope; relation to other sections. Rescission is the common, shorthand name for a
composite remedy (more fully, "rescission and restitution") that combines the avoidance of a transaction and
the mutual restoration of performance thereunder. A judicial decree of rescission typically provides for (i) the
nullification of a transfer of property between the claimant and the defendant, (ii) the restoration of performance
on either side, and (iii) a mutual accounting in which each party pays for benefits received from the other in
consequence of the underlying exchange and its subsequent reversal.
A party seeking rescission and restitution must first establish a substantive right to avoidance of the transaction
in question. As a further requirement, the proponent of rescission must show that the unwinding of performance
(as opposed to a remedy by money judgment) is both feasible and equitable on the facts of the case. Potential
grounds for avoidance are identified by other sections of this Restatement, while the special requirements of
the rescission remedy are the subject of the present section.
The remedy of rescission is mentioned by name in those sections of this Restatement (§§ 13--17, 34, 37)
where the nature of the liability makes it most likely that judges and lawyers will think of a remedy in those
terms. The same right to avoidance is implied by the substantive rules of other sections that do not use the
word "rescission" in describing the right to restitution, whenever the basis of the restitution claim is a transfer
from the claimant to the defendant that the claimant seeks to undo.
Rescission as a remedy for unjust enrichment usually allows the claimant to recover property that has been
transferred to the defendant pursuant to contract. Performance may be reversed when the contract proves to
be invalid by reason of fraud, duress, undue influence, incapacity, or lack of authority (§§ 13--17), or when it is
subject to avoidance on grounds such as mistake (§ 34) or breach of fiduciary duty (§ 43).
In a different set of cases, also arising in a contractual context, rescission and restitution may be available as
an alternative to damages for material breach (§ 37). Rescission as a remedy for breach is available only in
those circumstances indicated by § 37 (and subject to the express limitation of § 37(2)). In considering the
availability of rescission as a remedy for breach of contract, it is essential that §§ 37 and 54 be read together.
The word "rescission" may also be used to describe the avoidance of a transfer when there is no contract to be
set aside. Common examples of such rescission permit the recovery of property following transfers induced by
fraud, mistake, or undue influence, as authorized by the rules of this Restatement. See, e.g., § 11, Illustration 8
(following mistake in a unilateral conveyance, the remedy known as "cancellation" might also be called
"rescission"); § 13, Illustrations 3, 6--9, and 11 (authorizing rescission of noncontractual transfers induced by
innocent or fraudulent misrepresentation); § 15, passim (authorizing rescission of transfers induced by undue
influence, whether or not the transfers were made pursuant to contract). Specific relief in such cases can often
be achieved without using the language of rescission: for example, by granting cancellation or reformation of a
deed or other instrument, or by making the recipient a constructive trustee of the property transferred (§ 55).
Neither the underlying theory of liability, the availability of defenses, nor the outcome of a particular case should
depend on the language used to describe the remedy.
The object of rescission in the law of restitution is the reversal of a transfer of property. Accordingly, the
Illustrations to this section exclude cases in which the object of an action for "rescission" is to avoid the
plaintiff's obligations under an executory contract. The decisive issues in such cases are predominantly a
matter of contract law. Such a case will nevertheless involve restitution--governed by the rules of this section--
to the extent there has been partial performance of the contract being set aside. See Illustration 1.
Illustration:
1. Employer insures Employee's life for Employer's benefit in the amount of $ 250,000, paying an initial
annual premium of $ 1000. Unknown to Employer, the application for insurance (completed in part by
Employee) states falsely that Employee has never smoked cigarettes. Relying on this misstatement,
Insurer issues the policy at its "non-smoker premium rate." The facts come to light on Employee's death 11
months later. Insurer refuses to pay on the policy and seeks rescission for misrepresentation. Employer
argues that Insurer should be liable for the $ 150,000 death benefit that concededly could have been
purchased with the same $ 1000 premium, had Employee's smoking been disclosed. Leaving aside
particular questions governed by local insurance law, the argument over "rescission" in this case turns on
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issues of contract, not restitution: the question is whether Insurer can avoid an executory obligation, not
whether Insurer can recover something previously transferred. Rescission under these circumstances
nevertheless involves a restitutionary element, consistent with the rules of this section, because Insurer (if
permitted to rescind) will be required to restore Employer to the status quo ante--on the facts supposed, by
repayment of the $ 1000 premium plus interest.
"Rescission and restitution" by the rule of this section is in some respects the paradigm mode of specific relief in
restitution, alias "restitution via rights in identifiable property," since it effects (so far as possible) a literal
restoration of something the claimant previously had and which the claimant is entitled to recover. In other
ways, the remedy of rescission makes a poor fit within the present Chapter and Topic. Rescission sometimes
permits the claimant to reverse a transfer and recover a performance without any showing that the defendant
has been unjustly enriched. See § 13, Illustration 8 (fraud); § 34, Illustration 29 (mistake); § 37, Illustration 2
(breach). Every other section of this Chapter is concerned, in one way or another, with ways to measure and
rectify the unjust enrichment of one party at the expense of another.
A second difference is chiefly a matter of usage. The most important characteristic of all the other rules of
asset-based restitution (§§ 55--61) is that they permit a claimant, to some extent at least, to assert an interest in
property of the defendant that is paramount to the claims of the defendant's creditors. Although "rescission and
restitution" might be employed for this purpose in a proper case--in particular, a case in which the ground of
rescission is fraud or mistake rather than breach of contract--a claimant who seeks to reacquire an asset in
priority to the defendant's creditors will usually ask the court to decree a rescission in conjunction with some
further remedy such as constructive trust. See Illustration 2.
This combination of remedies is unsurprising (if somewhat redundant) in cases of fraud or mistake. By contrast,
a party injured by a material breach of contract--typically, an unpaid credit seller--may not normally obtain
priority over the other creditors of the breaching party by electing rescission rather than damages, or by
claiming that property delivered to the breaching party is held in constructive trust ( see § 55, Illustration 11).
The unpaid seller is usually barred from rescission at the threshold by the rule of § 37(2). Even if the
defendant's breach involves something beyond a failure to pay money, a court will refuse to grant the claimant
a retroactive priority--to the prejudice of third parties--that might have been acquired by contract, employing the
ordinary modes of security. See § 37, Comment b.
b. The availability of rescission. A perfect rescission would restore both parties to the status quo ante by
specific restitution of property previously transferred, leaving no unjust enrichment, no loss to either party (apart
from the defendant's loss of bargain), and no need for the court to place a value on benefits conferred.
Rescission becomes complicated when courts must decide how far to depart from this ideal version to
accommodate a claimant who is unable to restore in specie the benefits received from the defendant; and when
the consequence of rescission, seen in retrospect, is a non-contractual transaction in which one party's
temporary possession and subsequent restoration of the other's property may give rise to unjust enrichment
and reliance loss on either side. While incidental gains and losses from these sources can be addressed in the
parties' mutual accounting, the essence of rescission is specific rather than substitutionary relief. To the extent
that the court must determine the money value of nonreturnable benefits, a remedy that attempts to unwind the
transaction may be no more equitable (or administratively efficient) than enforcement by an award of damages.
Rescission is usually invoked in a contractual setting, where its effect is to release the claimant--with retroactive
effect--from an exchange transaction with the other party. A claimant who is allowed to rescind has usually
been given a choice between (i) dealing with the other party on the basis of their agreement, which the claimant
was free to ratify and enforce, and (ii) dealing with the other party "off the contract," where benefits that either
party may have derived at the expense of the other give rise to a liability in unjust enrichment. The divergence
between contractual and extracontractual values means that rescission and damages will often lead to different
results. The strategic possibilities of the choice between remedies, and the potential for hardship to the party
against whom rescission is sought, explain the elaborate rules and the extensive case law regulating the
availability of rescission as a remedial option.
The availability of rescission thus depends partly on the degree to which the parties' performance is capable of
restoration in specie, and partly on the grounds of the claimant's entitlement to relief. Rescission will almost
certainly be available when the claimant seeks to escape from an agreement that was induced by the other
party's fraud or other wrongdoing. Even when a plaintiff seeks rescission as an alternative to damages for
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breach of a valid and enforceable contract, there are certain simplified situations in which the potential
advantages of rescission over damages--in terms of fairness to the plaintiff as well as remedial efficiency--
appear so evident that a plaintiff is uniformly permitted to pursue either remedy. Such cases typically involve
breach or repudiation by a defendant who has obtained the plaintiff's performance without tendering any return.
By contrast, the complex rules traditionally associated with the remedy of rescission and restitution derive
mostly from transactions in which (i) the parties are bound by a valid and enforceable contract, (ii) the claimant
prefers rescission to damages, yet (iii) rescission is potentially prejudicial to the other party, costly in terms of
judicial resources, or both. Such cases pose the threshold question whether justice will be served by attempting
to unwind the transaction instead of enforcing it.
That determination has always been committed to the sound discretion of the court, though certain factors
relevant to the decision have traditionally been cast as legal rules. Rescission in equity was explicitly subject to
the court's equitable discretion; rescission at law was made subject to formal requirements--ostensibly
objective--that effectively reserved to the courts the same judgment about the suitability of rescission in a
particular case. Such is the function of the familiar rule that a party seeking rescission at law must tender to the
other party, as a precondition of suit, specific restitution of everything received under the contract; with the
result that a plaintiff who is unable (and has not merely neglected) to restore the defendant to the status quo
ante is barred from rescission. As a practical matter, a rule so stated gives a court of law nearly as much
discretion to allow rescission or withhold it as the chancellors enjoyed in equity. Because a requirement of
specific restitution by the claimant cannot be applied without a lengthy list of exceptions, and because
restitution to the status quo ante is literally impossible in any event, the decision whether the claimant has come
close enough to an unattainable standard becomes a decision about the propriety of rescission in the
circumstances of the particular case.
Factors relevant to this ultimate question are sometimes addressed directly. Elsewhere they are implicit in a
judicial conclusion that rescission would not be equitable under the circumstances, or that it is not possible to
place the parties in statu quo. Courts naturally consider the circumstances of the transaction; the quality of the
parties' conduct; the relative ease or difficulty of compensating the claimant's injury in damages; and the
fairness of limiting the claimant to a damage remedy. On the other side of the scale, they consider the difficulty
of measuring noncontractual values; the burden to the defendant of being compelled to reverse a contractual
exchange; and the extent of windfalls and forfeitures resulting from interim variation in the values being
restored.
c. Restitution as a safeguard against forfeiture. There is a visible connection between the beneficial uses of the
rescission remedy and the traditional test for its availability. A plaintiff who can in fact restore the defendant to
the status quo ante by a full restitution in specie will usually be proposing a remedy that is less costly to
administer (because it avoids the necessity for judicial valuation of benefits conferred and losses sustained),
and moreover is not materially prejudicial to the defendant, who (in theory at least) loses only the benefit of the
bargain. To the extent that specific restitution is infeasible in a particular case, these favorable consequences
are less likely to be realized.
Rescission of a valid and enforceable contract overturns legitimate contractual expectations on which both
parties may have significantly relied. The most notable form of reliance in this context is likely to consist in the
defendant's performance (or preparation for performance), resulting in a change of position to the extent that
any performance is not capable of restoration and subsequent resale. The consequences of invalidating the
contractual exchange will not be adverse to the party seeking rescission, because the remedy is chosen at the
claimant's election; but they impose a potential forfeiture on the party in breach, who stands to lose not only the
benefit of the bargain but also the sunk costs of performance.
The potentially inequitable consequences of rescission are therefore limited by the traditional requirement that
the claimant make counter-restitution of property received under the contract, as a means of restoring both
parties to the precontractual status quo. Such a rule reinforces significantly the stability of contractual price
terms. If rescission were an optional remedy for any material breach of contract--with no requirement of
restoration by the plaintiff--the plaintiff might elect in every case between (i) enforcing the bargain and (ii)
dealing with the defendant (in restitution) as if no bargain had ever been made. Such an outcome would expand
the implied conditions of the bargain beyond recognized limits, giving the party injured by material breach the
right not only to terminate the contract (that is, to cease his own performance and recover damages) but, in the
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alternative, to set aside the contract whenever it was advantageous to do so. Rescission as an alternative
remedy for material breach--if unrestricted by the requirement of counter-restitution--would thus give the plaintiff
in effect an option on the defendant's performance, rather than enforceable rights under a bilateral obligation.
As already noted ( see § 54(4) and Comment b), the terms on which rescission is available may be seen to
differ appreciably--although the applicable rules are usually stated in identical terms--depending on whether the
ground of rescission is fraud or mistake, on the one hand, or material breach of contract, on the other. A
claimant (such as a fraud victim) who has been an innocent party to a legally defective exchange will ordinarily
be able to rescind on making restitution (in specie or in value) of any benefits conferred by the other party.
Rescission is available on relatively liberal terms in such cases--especially if the defendant is a conscious
wrongdoer--because the underlying exchange is ineffective to determine the parties' respective entitlements.
See Comment d. Rescission as a remedy for breach of contract is subject to more restrictive requirements
because of its potential to destabilize the contractual exchange, imposing what may be an effective forfeiture as
a penalty for breach. See Comment e. Traditional limitations on rescission in such cases, sometimes expressed
as absolute preconditions, have been restated more realistically in subsections (3) and (4). See Comment g.
d. Rescission of defective agreements. When it extricates the claimant from a defective agreement, rescission
reverses a transfer that lacks an adequate legal basis and prevents the unjustified enrichment that would
otherwise result on either side. Concern for the stability of the contractual exchange has no relevance to such a
case, because there is no valid exchange to protect. Specific restitution is required to the extent feasible, given
the relative efficiency of specific over substitutionary relief, but the parties' residual obligations of restitution may
be satisfied by any means sufficient to prevent unjust enrichment and to compensate for reliance loss as justice
requires.
Unjust enrichment resulting from performance of a defective agreement is frequently remedied without mention
of "rescission." If a transfer from the claimant to the recipient has been procured by fraud or other wrongdoing,
it may sometimes facilitate an understanding of the remedy to point out that the claimant has made a voidable
transfer that is subject to rescission. That explanation may be superfluous once it is understood that the net
profits attributable to the wrongful transaction constitute unjust enrichment that the recipient is liable to disgorge
(§ 51(4)). Even if the claimant is seeking to recover a specific asset from the defendant's possession, the
concept of rescission is easily displaced by alternative descriptions of the same outcome. See Illustration 2.
Compare § 12, Illustration 3 (mistaken conveyance remedied by reformation of the deed).
Illustrations:
2. A conveys Blackacre to B in exchange for B's promise to pay $ 100,000 one year later. B fails to pay,
and A discovers that the transaction was induced by B's fraud. A can enforce B's contractual obligation to
pay. Alternatively, A may choose to avoid the transaction and recover Blackacre from B (§ 13). Specific
restitution to A may be described in terms of "rescission and restitution," or cancellation, or constructive
trust, or quieting title in A, or a combination thereof: the language employed makes no difference to the
outcome. Whatever the form of specific restitution, moreover, complete relief in restitution will require an
accounting for such additional factors as A's claim to interest and rental value and B's claim in respect of
improvements. See Comment h and § 55, Comment l.
3. Purchaser buys Blackacre for $ 300,000, relying on Vendor's fraudulent representation that the house is
free of termites. Purchaser discovers termites within a few weeks of moving in, by which point he has
already spent $ 500 on unrelated repairs to the garage. Extermination and repair of the termite damage
would cost $ 5000. Purchaser may keep the house and recover tort damages for deceit. Alternatively,
Purchaser may seek rescission and restitution for Vendor's fraud (§ 13). If rescission is granted on the
facts supposed, the remedy will involve (i) restitution of Blackacre to Vendor, (ii) restitution of the purchase
price to Purchaser, and (iii) restitution of net enrichment from use value on either side (§ 53), in which
interest on the purchase price is set against the value of Purchaser's interim occupation. The accounting
on rescission will credit Purchaser with his $ 500 expenditure on the garage (§ 54(2)(c)).
e. Rescission as a remedy for breach of contract. The availability of rescission and restitution as an alternative
remedy for breach of contract is introduced at § 37. The topic reappears at this point--despite the resulting
overlap--because the object of § 54 is to describe the operation of the rescission remedy in general terms, while
distinguishing its application to the two most important categories of cases: rescission for fraud and rescission
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for breach. Sections 37 and 54 should be consulted together on the subject of rescission as a remedy for
breach.
When rescission restores a performance rendered under a defective agreement--as when rescission unwinds
an exchange that is invalid by reason of mistake, fraud, or duress--it can usually be understood as a remedy for
unjust enrichment. By contrast, when rescission affords an alternative remedy for breach of a valid and
enforceable contract (as permitted by the rule of § 37)--a breach, in other words, that might be remedied by
damages or specific performance--the effect and the justification of the rescission remedy are significantly
different. Rescission in such a case permits the injured party to make a fundamental election, choosing to go
backward (to the status quo ante) instead of forward (by enforcement of the contractual exchange). The
advantages to the party entitled to this remedial election are self-evident, but the court must determine whether
rescission in place of enforcement serves the interests of justice. Unlike the case of rescission for fraud or
mistake, the justification of rescission as an alternative remedy for breach is not the avoidance of unjust
enrichment, but a concern with fairness to the injured party combined with remedial economy.
For representative circumstances in which rescission may be available as an alternative remedy for breach of
contract, see § 37, Illustrations 5--9.
Rescission may be denied when its effect would give the claimant a form of security for which the claimant
should properly have bargained. See § 37, Illustrations 3--4. Rescission may be limited in some cases by a
traditional concern to protect the stability of land titles. See § 37, Illustrations 15--17. The most difficult cases
are those in which the competing advantages of rescission and damages--measured either by fairness to the
parties or by ease of administration--are the most evenly balanced. See Illustration 4.
Illustration:
4. Vendor sells Blackacre to Purchaser for payment in installments, retaining title, and Purchaser takes
possession. Before payment is completed, one of the buildings on Blackacre is destroyed by fire without
the fault of either party. As a result of this loss, which was uninsured, Vendor can no longer convey the
property described in the parties' agreement. The contract assigns the risk of such loss to Vendor, but
neither the contract nor local law specifies the remedies available to Purchaser in consequence of Vendor's
breach. Purchaser seeks rescission of the transaction; Vendor argues that Purchaser should be limited to
damages in the form of a reduction of the purchase price. The court must determine whether rescission
rather than enforcement serves the interests of justice under the circumstances of the case (§ 54(4)).
Findings by the court that (i) the loss in question is relatively small by comparison with the overall value of
Blackacre, (ii) damages are easily calculated, and (iii) benefits from Purchaser's use and occupation of
Blackacre would be difficult to value, would all weigh against allowing rescission and in favor of limiting
Purchaser to a price adjustment.
f Restitution to the claimant. Rescission is a means to recover money or other property that the claimant has
previously transferred to the defendant. It has no application to remedies, restitutionary in nature, by which the
claimant recovers property from someone with no title (see Illustration 5); nor to a case in which the transaction
creating unjust enrichment does not involve a voidable transfer of title by the claimant (see Illustration 6). For
related reasons, rescission as an alternative remedy for breach of contract is not a means to recover the value
of a performance that by its nature is impossible to restore, such as services or improvements to realty.
Recovery of the cost or value of performance in such cases--as an alternative to expectation damages--is
available by the rule of § 38.
While there is no logical objection to using the language of rescission and restitution to describe a remedy by
which the claimant recovers the traceable product of property that the claimant has previously transferred, in
practice such a claim will almost certainly be described in the language of constructive trust. For this reason,
cases in which claimants obtain legal title to traceable products are presented in this Restatement primarily as
illustrations of the rules governing constructive trust and tracing (§§ 55, 58--59). By contrast, the expression
"rescission and restitution" aptly describes cases in which the claimant may be restored to the status quo ante
by obtaining the fungible equivalent of personal property previously transferred to the other party. See
Illustrations 8 and 11.
Rescission permits the claimant to escape from a failed transaction without proof of damages. It therefore offers
inherent advantages to the claimant whenever damages would be difficult (or merely expensive) to prove, or
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when specific restitution is attractive to the claimant for reasons other than its relative simplicity (as in
transactions involving unique property). A transaction may thus be subject to rescission even if it results in no
measurable loss to the claimant. See Illustration 7; compare § 13, Illustrations 7--9. A more common
consequence of rescission is to protect the claimant against a loss that is causally related to the grounds for
avoidance, without requiring the claimant to establish the amount thereof. See Illustrations 8 and 19.
In some circumstances, rescission will protect the claimant against a loss that is unrelated to the grounds for
avoidance. See Illustration 9 and § 13, Illustration 23. The fact that rescission permits the claimant to escape
from an unfavorable bargain does not by itself make rescission inequitable, but rescission will be denied if its
effect would be the unjust enrichment of the claimant at the expense of the other party. The potential for unjust
enrichment is obvious when one party seeks rescission to pursue opportunistic gain, or as a means of
speculating at the other's expense. See Illustrations 10 and 31. Restrictions on the strategic use of rescission
are generally enforced by the recognition of equitable defenses. See § 54(6) and Comment k.
Illustrations:
5. Acting without authority, A takes possession of B's cattle and B's ranch. B obtains specific restitution of
both kinds of property by an action for replevin and ejectment. B's remedies do not involve a rescission,
because A never obtained title from B.
6. A employs B, a minor, at a salary of $ 50 per week. The reasonable value of B's services is $ 300 per
week. After working for 10 weeks, B disaffirms the contract and sues A to recover the unpaid value of his
work. B has a claim in restitution (§ 16) for the amount of A's unjust enrichment ($ 2500). B's remedy does
not involve a rescission by the rule of this section, because B does not seek to recover title to property.
7. A conveys Blackacre to B, a public utility, for a price equal to its market value. A was induced to sell by
B's fraudulent misrepresentations that the property was needed for public purposes and might be acquired
by eminent domain. A (having suffered no measurable injury) has no claim for damages, but she is entitled
to recover Blackacre on repayment of the price.
8. Buyer purchases 100 shares of XYZ common stock at $ 100 per share, induced by Seller's fraudulent
statements about the prospects of the company. In fact the shares are worth substantially less. On
discovery of the fraud, Buyer is entitled to recover the difference between the actual value of the shares
and the price paid: such a claim might be based on tort (Restatement Second, Torts § 549) or unjust
enrichment (§ 13). Either approach necessitates proof of the value of the shares, including the identification
of a relevant date for valuation purposes. Alternatively, rescission permits Buyer to recover $ 10,000 on
restoring to Seller either the shares originally purchased or any 100 shares of XYZ common as their
fungible equivalent.
9. Buyer purchases 100 shares of XYZ common stock at $ 100 per share, on Seller's assurance that the
shares in question are treasury stock of the newly-formed corporation. Five years later, when XYZ is
bankrupt and its common stock almost worthless, Buyer discovers that the shares purchased were in fact
the property of Seller. The court determines that Seller's misrepresentations as to the source of the shares
sold to Buyer were fraudulent, though if Buyer had purchased treasury stock of XYZ he would have
suffered the same loss. Rescission allows Buyer to recover $ 10,000 plus interest, on restoration to Seller
of the shares originally purchased.
10. Same facts as Illustration 9, except that Buyer sells his XYZ common at $ 100 per share after holding it
for one year. Learning later of Seller's fraud, Buyer reacquires 100 shares of XYZ common at $ 10 per
share and tenders them to Seller, seeking rescission of the transaction and restitution of $ 10,000 plus
interest. Rescission will be denied. Buyer's remedy for Seller's fraud is limited to Buyer's damages or
Seller's unjust enrichment, if any.
The function of rescission as a means to obtain specific restitution tends to be self-limiting, since a claimant
who cannot identify in the defendant's hands either the same thing that the claimant has previously transferred
or its fungible equivalent is unlikely to seek a remedy via rescission. See Illustration 11. Where only part of the
claimant's property is identifiable in the defendant's hands, the claimant may obtain specific restitution of that
part and restitution of value for the remainder. See Illustration 12.
Illustrations:
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11. By fraudulent misrepresentations, A induces B to sell 100 shares of ABC common stock at $ 50 per
share. The value of ABC (which is closely held) is approximately $ 100 per share at the time of the
transaction; by the time B discovers the facts, the value has increased to approximately $ 150 per share. B
is entitled to rescind the sale for A's fraud (§ 13) and to recover from A either (i) the original 100 shares in
specie, (ii) any equivalent 100 shares of ABC, or (iii) any traceable product of the original shares (§ 58).
(Restitution to B of either the ABC shares or their product might alternatively be described using the
language of constructive trust, without changing the outcome.) If specific restitution is unavailable because
neither the shares, nor their fungible equivalent, nor their product can be identified in A's hands, B's
remedy in restitution is by a claim to money in the amount of A's unjust enrichment (§§ 49, 51), not by
rescission under this section.
12. A conveys to B his family house in Arkansas and a one-half interest in a hardware store, in exchange
for B's conveyance to A of 40 acres of land in Texas and $ 10,000. The transaction is induced by B's
fraudulent representations about the attributes and value of the Texas land. Promptly after traveling to
Texas for the first time, A gives notice to B of his intent to rescind the transaction, offering to restore the 40
acres and $ 10,000. B has already sold the interest in the hardware store to C, a bona fide purchaser who
was A's previous partner in the business. A can obtain specific restitution of the house plus restitution of (i)
the value of the interest in the store, or (ii) the price B obtained from C, whichever is greater.
g. Restitution by the claimant. The remedy of rescission and restitution is often invoked (and offers particular
advantages) when the party who seeks to recover a down payment or other performance has not yet received
anything of value in exchange. The claimant who elects rescission under such circumstances gives up only the
benefit of the bargain; this is easy to do if the bargain has proven unprofitable in hindsight. See § 37,
Illustrations 1--2. More often, the reason to choose rescission rather than damages in such circumstances is
simply that the prepaid price exceeds the expected damage award. The relative simplicity of proving the price
paid rather than the damages sustained may be a further advantage of the rescission remedy. See Illustration
13.
Most of the law of rescission is concerned with the contrasting case in which the party seeking to set aside the
transaction has received at least some part of the defendant's performance. The traditional requirement is that
the claimant make specific restitution of everything received from the other party by way of performance. There
are cases in which this sort of restitution is straightforward. Sellers return money; buyers return property.
Rescission is not forfeiture, and the fact that the basis of rescission may be the defendant's fraud or other
wrongdoing does not permit the claimant to recover what has been given without restoring what has been
received.
When the claimant is unable to make full restitution in specie, the court must determine whether restitution of
value makes an acceptable substitute. The reason to require specific restitution is to avoid undue prejudice to
the defendant. See § 54(4) and Comments b and c. Predictably, therefore, the claimant whose transaction was
induced by the other party's fraud has greater latitude in making counter-restitution than the claimant who seeks
rescission for nonfraudulent breach. Compare Illustrations 4 and 14.
Subsequent transactions by which third parties acquire an interest in the property transferred may or may not
be an obstacle to rescission, depending on the circumstances of a particular case. Compare Illustrations 15--
16; see also Comment l and Illustrations 34--35.
If the claimant has received benefits not capable of specific restitution, and the court is prepared to allow
restitution of value instead, the principal difficulty may be the measurement of the benefits for which the
claimant is liable. Answers reflect the same factors that influence any other case in which unjust enrichment is
measured for the purpose of awarding a money judgment (§§ 49--53). See Illustrations 17 and 24.
Illustrations:
13. Buyer agrees with Builder on the purchase of a new house and makes a $ 10,000 down payment.
While the house is still under construction, and before title is conveyed, Buyer with Builder's consent
invests $ 9000 in landscaping the property. The house as completed by Builder contains numerous
defects, and Buyer refuses to proceed to closing. On Builder's suit to terminate the contract and forfeit
Buyer's down payment, the court finds that the defects in construction constitute a material breach of
contract, based on Builder's implied warranties to Buyer. Buyer may enforce the contract by an action for
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damages (measured either by the difference in value or by the cost of correcting the defects); alternatively,
Buyer may elect to rescind the transaction. In the latter case, Buyer is entitled to restitution of $ 10,000 with
interest, plus $ 9000 to compensate his landscaping expenditure (§ 54(2)(c)). Buyer has no reciprocal
obligation of restitution because Buyer has received nothing from Builder.
14. Seller agrees to furnish an oil furnace, with an oil tank and equipment needed for permanent
installation, and to install the system in Buyer's premises, for a combined price of $ 10,000. The furnace
meets all specifications, but it is incorrectly installed and never works properly. After several unsuccessful
attempts by Seller to resolve the problem, Buyer has a replacement furnace installed by another dealer;
this second installation (at a price of $ 9000) makes use of the tank and fuel lines that were permanently
attached by Seller to Buyer's walls. Buyer then sues Seller, asking for rescission. Buyer's theory is that he
should be allowed to return the original furnace to Seller and recover his purchase price ($ 10,000), less
the value (as determined by the court) of the usable tank and fuel lines. Rescission on precisely these
terms would be allowed if the transaction had been induced by Seller's fraud. If Seller is liable only for
nonfraudulent breach of his obligation to install the furnace correctly, rescission will predictably be denied,
and Buyer limited to a remedy in damages. (Buyer may or may not be able to establish that his damages
from Seller's faulty installation are properly measured by the $ 9000 cost of a new furnace.) The traditional
explanation of the denial of rescission is that Buyer cannot make restitution of everything received from
Seller, and that the law does not permit a partial rescission of an indivisible contract. An explanation more
consistent with the rule of this section would note, inter aha, that (i) rescission imposes a near-forfeiture on
Seller, who would recover a used furnace in place of a new one; (ii) Seller's conduct in the underlying
transaction does not make it appropriate that Seller bear a loss in excess of Buyer's damages; and (iii)
rescission would not be appreciably easier to administer than the ordinary assessment of contract
damages, because it requires a valuation of the benefits retained by Buyer from Seller's performance.
15. A conveys Blackacre to B in exchange for Whiteacre and a restaurant business being operated on
Whiteacre. Whiteacre is subject to an existing mortgage to C, which A assumes. On acquiring title, B
mortgages Blackacre to D to secure a new loan of $ 100,000. Two months after the exchange is
completed, A discovers that B has misrepresented the restaurant's profitability. A gives B prompt notice of
her intent to rescind the transaction and later files suit for this purpose. After B refuses to resume
ownership, A takes reasonable steps to close down the business and halt operating losses. While A's suit
for rescission is pending, C forecloses the mortgage on Whiteacre, which neither A nor B takes steps to
redeem. The court finds that B's misrepresentation justified A's election to rescind. Under the
circumstances, the fact that A cannot restore B to the status quo ante (given the closure of the restaurant
and the foreclosure of the C mortgage) does not bar rescission: it would have been inequitable to require
that A make any further investment in the transaction, and B had adequate opportunity to protect his own
interest. To the extent that either event has resulted in a loss to the owner of Whiteacre, that loss is
appropriately assigned to B. If the mortgage to D means that A cannot obtain Blackacre unencumbered, B
can be ordered to reconvey Blackacre subject to the mortgage and to pay A the amount necessary to
compensate for the encumbrance.
16. Vendor agrees to sell Blackacre to Purchaser for $ 60,000 cash. Purchaser obtains a $ 50,000
mortgage loan commitment from Lender, and Lender sells Purchaser's loan to Financer. At the closing (i)
Vendor delivers to Purchaser a deed to Blackacre; (ii) Purchaser delivers to Lender a negotiable note and
mortgage for $ 50,000; (iii) Purchaser delivers to Vendor his personal check for $ 10,000 and Lender's
check, payable to Vendor, for $ 50,000; and (iv) Lender endorses Purchaser's note and delivers it to
Financer in exchange for $ 50,000 (plus an origination fee), paid by wire transfer. The next day, Lender
stops payment on its check and files for bankruptcy. Vendor seeks rescission of the sale on the grounds of
Lender's fraud (§ 13) and Purchaser's breach (§ 37). If Purchaser's note were still in Lender's hands,
rescission would be easily accomplished by repayment to Purchaser of $ 10,000 and cancellation of the
deed, note, and mortgage. The court finds, however, that Financer took the note as a holder in due course.
Rescission is not available, because Vendor cannot restore Purchaser to the status quo ante.
17. Assuring him that he has "exceptional potential to be a fine and accomplished dancer," Studio agrees
to provide 5000 hours of ballroom-dancing instruction to untalented elderly Pupil in exchange for a one-
time payment of $ 250,000. After 100 hourly lessons the relationship suddenly deteriorates. Pupil sues to
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rescind the contract and recover the $ 250,000, variously alleging fraud by Studio (§ 13) and discharge by
supervening circumstances as the result of injuries sustained by Pupil in an automobile accident (§ 34). If
the agreement was induced by Studio's fraud, Pupil is entitled to recover $ 250,000 less the value (if any)
of 100 lessons in advancing Pupil's purposes (§ 49(3)(a)). If Pupil's injury makes the agreement subject to
avoidance in consequence of supervening circumstances--a question of contract law--the court might
instead measure Pupil's obligation of counter-restitution by the market value of 100 lessons, or $ 5000 (§
50(2)(b)).
The standard requirement of two-way restitution may be an obstacle to rescission if property received by the
claimant has been lost, damaged, or disposed of, or has suffered deterioration in value. Traditional statements
of the rules governing rescission for breach of contract usually provide that the claimant must make restitution
of property "in substantially as good condition as when it was received," then qualify this requirement with a
number of exceptions, such as the rule excusing counter-restitution (and thereby permitting rescission) when
intervening loss to goods has been "caused by their own defects" or is otherwise attributable to the fault of the
other party. See, e.g., Restatement Second, Contracts § 384; U.C.C. § 2--608(2).
Instead of enumerating particular exceptions to govern these cases--most of which, in practice, involve further
discussion and qualification--the present section incorporates more general guides to the availability of
rescission. The first of these is the explicit recognition that rescission necessarily involves judicial discretion.
The second is the explicit recognition that a central concern of the overall inquiry--and the realistic focus of the
traditional formula by which courts examine how closely the parties might be restored to the status quo ante--is
the risk of undue prejudice to the defendant. Section 54(3) thus incorporates the traditional status quo ante
benchmark, modified to reflect the reality that loss in value can often be compensated in money and that
uncompensated loss is properly assigned, in certain circumstances, to the party against whom rescission is
obtained.
When property subject to restitution by the claimant has declined in value, therefore, § 54(3) allows the court to
choose between (i) allowing specific restitution supplemented by money compensation; (ii) denying rescission
and leaving the claimant to a damage remedy, on the ground that the shortfall in restoration (by comparison
with the status quo ante) would be unfairly prejudicial to the defendant; and (iii) allocating the resulting loss to
the defendant, on the ground that it is more appropriately borne by the defendant than by the claimant. The
choice between these solutions depends on the grounds for rescission, the source of the loss that must be
assigned, and the relation between them.
Illustrations:
18. Vendor conveys Blackacre and promises to deliver a clean abstract of title; Purchaser makes a down
payment of $ 25,000 and gives a note and mortgage for the balance of the price. When the abstract is
eventually prepared, it reveals that Vendor's title is seriously deficient. Purchaser seeks to rescind the
transaction for Vendor's material breach, offering to restore Blackacre in exchange for repayment of $
25,000 and cancellation of the note and mortgage. Agricultural land values have declined significantly, and
the market value of Blackacre is only 70 percent of what it was at the time of the sale. Vendor resists
rescission on the ground, among others, that specific restitution of Blackacre under these circumstances
will not restore her to the status quo ante. Purchaser may nevertheless be permitted to rescind. The loss in
market value is appropriately borne by Vendor if the court finds that--had the parties been aware of the true
state of Vendor's title--the transaction would not have taken place, with the result that loss would have
been borne by Vendor rather than Purchaser. Compare Illustration 33.
19. An agreement for the purchase and sale of a city lot describes its size as 66 by 22 feet. Purchaser pays
$ 100,000, takes title, and demolishes an existing building in preparation for new construction, before
discovering that the size of the tract is only 55 by 22 feet and insufficient for his purposes. If the transaction
has been induced by Vendor's fraudulent misrepresentations, Purchaser is entitled to recover $ 100,000,
notwithstanding the removal of the buildings, on reconveyance of the vacant lot. If the discrepancy is the
result of a mutual mistake for which neither party is to blame, Purchaser will be allowed to rescind only if
Vendor is compensated for the loss of the building.
20. A trades her team of horses for B's span of mules. After one of the mules dies, A seeks rescission of
the transaction on the ground that B fraudulently misrepresented the age and soundness of the mules. B
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defends on the ground, inter alia, that in returning only one of two mules, A will not restore him to the status
quo ante. A is entitled to rescission on making restitution of the surviving mule. The uncompensated loss
from the transaction is appropriately assigned to B, because it relates directly to the state of affairs that B
misrepresented.
21. Owner sells timberland to Logger under a warranty deed. Logger pays $ 250,000, enters into
possession, and removes 150,000 feet of timber before discovering that Owner is unable to convey good
title to the entire tract. Rescission and restitution is accomplished by restoring the land to Owner and $
250,000 to Logger, less an offset in the amount of the stumpage value of 150,000 feet of timber.
22. Buyer purchases Seller's retail antiques business. In connection with the sale, Seller promises to obtain
further inventory and perform other services on which the continued operation of the business depends.
Seller fails to perform the executory part of his contract, and Buyer demands rescission. Seller defends on
the ground, inter aha, that the parties cannot be restored to the status quo ante: inventory has been sold in
the ordinary course of business, and fixtures and equipment have been destroyed in a flood. The
impossibility of specific restitution in this case does not threaten the kind of hardship to Seller that would
lead the court to deny rescission. Rescission and restitution may be achieved through an accounting in
which (i) Buyer is credited with the price paid and the present value of what is restored in specie, and (ii)
Seller is credited with the value, at the time of the original transfer, of what Buyer is unable to return.
23. Buyer purchases a used car from Seller for $ 10,000, making a down payment of $ 2000 and promising
to pay the balance in 30 days. Before payment is due, the car is stolen from Buyer; it is later discovered
wrecked and abandoned. When Seller demands the balance of the purchase price, Buyer announces his
intent to rescind the transaction on the ground that Seller misrepresented the car's condition by turning
back the odometer. Even if Buyer has acted with reasonable promptness, rescission will be denied.
Allowing Buyer to restore a wrecked car would shift to Seller a risk of loss that the contract (as the parties
fully understood) assigns to Buyer; moreover, the loss that would be shifted bears no relation to the state of
affairs that Seller misrepresented. Had the car not been wrecked, Buyer might have returned the car and
recovered $ 2000, less the value of the interim use of the car.
h. Mutual accounting on rescission. Rescission includes an implicit mutual accounting in which each party
makes restitution of any values received in the transaction being set aside that are not capable of specific
restitution. Calculation of net liability may include reimbursement of incidental or reliance loss to the claimant,
but only to the extent such recovery is consistent with a remedy via rescission. See Comment i.
The more characteristic feature of the mutual accounting on rescission relates, however, not to money
substitutes for the parties' contractual performance, but to the collateral benefits realized on either side from the
parties' temporary exchange and its subsequent reversal. The most common items are well-known forms of
supplemental enrichment (§ 53): the seller's liability for interest on the purchase price, and the purchaser's
liability for the use or rental value of the property being returned. Additional items derive from the circumstance
that each party to the interrupted exchange is revealed--in retrospect--to have been dealing with the other's
property as if it were his own, resulting in nonconsensual benefits conferred as classified by various rules of this
Restatement. So a vendor who recovers real property on rescission may be liable, inter alia, for property taxes
paid in the interim by the purchaser, or for the discharge of an encumbrance on the property recovered, or for
the cost of necessary repairs, or for the value added by improvements. Liability of the rescinding vendor in any
of these circumstances is not just a matter of "accounting," being directly supported by the principles of §§ 26--
27 (or of §§ 7, 8, and 10, if the transaction bears features of mistake).
If the amounts involved are relatively modest, and fault in the underlying transaction is not decisively on one
side rather than the other, courts will often find that benefits on either side (such as interest on the purchase
price versus rental value of the land) balance each other out. Otherwise, the various items comprised by the
parties' mutual accounting on rescission pose the same issues of valuation as when they are asserted as
freestanding claims in unjust enrichment. Here as elsewhere, the choice between different measures of benefit
is made to protect an innocent recipient--so far as possible--from an unfavorable outcome or a forced
exchange. See Illustrations 25--26; compare the general rules stated at §§ 49--53.
Illustrations:
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24. On rescission by the Policyholder of an insurance policy for which the premium has been paid in
advance, Policyholder is entitled in principle to restitution of the prepaid premium, less the value of the
insurance coverage already provided. Valuation of the benefit conferred in such a case will reflect the
reasons for rescission. If Policyholder is merely exercising a contractual right of cancellation, the
nonreturnable benefit will be measured as a ratable portion of the premium. By contrast, if Policyholder
obtains rescission because of the misstatements of Insurer's agent, or because Insurer has committed a
material breach of its obligations under the policy (as in § 37, Illustration 13), the court may find that the
value of the coverage to Policyholder is something less than a ratable portion of the premium; or that it may
properly be set off against the injury to Policyholder caused by Insurer's misconduct.
25. Lawyer sells commercial real estate to Client. After learning of problems that Lawyer had not disclosed,
Client obtains rescission of the sale on the ground of Lawyer's breach of fiduciary duty (§ 43). Because of
the parties' relationship, issues of valuation in their mutual accounting will be resolved in the manner most
protective of Client. For example, Lawyer will be liable for interest on the purchase price from the date of
payment, not from the date on which Client gave notice of rescission; while Client will be liable for the
reasonable rental value of the premises, or for the income actually derived therefrom, whichever is less.
Compare Illustration 26.
26. The completed sale of Blackacre is set aside because of Purchaser's fraud. In this circumstance,
issues of valuation in the parties' mutual accounting will be resolved in the manner most protective of
Vendor. For example, Vendor's liability for interest on the purchase price may run only from the date
Vendor had notice of the grounds for rescission, rather than from the date of payment. Purchaser is liable
for the reasonable rental value of the premises or for the income derived therefrom, whichever is more.
Purchaser may be credited with payments of taxes, and with the saved cost to Vendor of necessary
repairs, but Purchaser has no claim in respect of unsolicited improvements.
i. Incidental or reliance loss. Rescission of the parties' exchange may leave the claimant with losses from
related expenditures (as distinct from payment of the price) made in reliance on the transaction that is being set
aside. Compensation of such loss by an award of damages is a remedy different in kind from rescission and
restitution, but the remedies are not necessarily inconsistent when the claimant's basic entitlement is to be
restored to the status quo ante. Damages measured by the claimant's expenditure can be included in the
accounting that accompanies rescission, in order to do complete justice in a single proceeding.
Recovery of what are commonly called "incidental damages" may thus be allowed in connection with
rescission, consistent with the remedial objective of restoring the claimant to the precontractual position. See
Illustration 27. Reimbursement of other forms of reliance expenditure--as distinguished from restitution of the
claimant's performance itself, in the form of the price paid--may likewise be included in the parties' accounting
on rescission. See Illustration 13, supra, and Illustration 28.
The fact that rescission is consistent with reimbursement of the claimant's reliance expenditures in some cases
should not be allowed to obscure the central distinction between avoidance of a contract and enforcement by
an action for damages. Rescission contemplates a mutual restoration of performance without the need to
compare contract and market values. Its most dramatic applications therefore permit a claimant to recover a
prepaid price without proof of damages from the defendant's breach. See § 37, Illustrations 1--2. By contrast,
no measure of damages for breach of contract--including performance-based damages measured by the
claimant's expenditures--can be calculated without reference to contractual expectations. Because a
nonfraudulent breach does not make the defendant a guarantor of the profitability of the claimant's bargain,
damages measured by unreimbursed expenditures are reduced by losses the claimant would have incurred
had there been full performance (§ 38(2)(a)). Accordingly, when the ground of rescission is breach of contract
(§ 37), the claimant may not combine rescission with a claim to recover expenditures that would circumvent this
fundamental limitation. See § 38, Illustration 8.
Illustrations:
27. Relying on Seller's misleading description, Buyer pays $ 5000 for a boat lying in 100 feet of water. After
spending $ 500 to raise the boat and finding that it is worthless, Buyer obtains rescission of the transaction
based on Seller's fraud. In addition to recovering the $ 5000 paid, Buyer can recover the $ 500 spent in
raising the boat.
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28. Purchaser pays Vendor $ 500,000 for Blackacre and spends $ 100,000 on improvements, increasing
the value of the property by $ 85,000. Rescission for Vendor's fraud allows Purchaser to reconvey the
property and recover the purchase price without proof of damages. In the parties' mutual accounting,
Purchaser will be credited with the $ 100,000 spent on improvements. This element of Purchaser's
recovery represents compensation for Purchaser's reliance expenditure (§ 54(2)(c)) rather than restitution
by Vendor of benefits conferred (§ 54(2)(b)).
j. Tender of restitution not a precondition. Section 54(5) explicitly eliminates previous requirements that the
claimant tender restitution to the other party as a precondition of rescission. No distinction is recognized
between rescission "at law" and "in equity." The effect of former distinctions to govern the right to jury trial in a
suit for rescission is a question outside the scope of this Restatement.
The requirement of a prior tender carried implicit safeguards to the defendant that the present section imposes
more directly. It reduced the risk of a one-sided restitution, whereby the defendant might be compelled to
restore what had been received in the transaction without obtaining restitution of what had been given. But
there is no such danger when a judicial order can make restitution by one party conditional on counter-
restitution by the other. Often the problem is resolved because mutual restitution leads to offsets and a net
liability on one side only. In particular cases, the court may avoid prejudice to the party who is required to
surrender an asset by supplemental devices such as equitable lien and constructive trust. See Illustration 30.
More broadly, the requirement of prior tender imposed a procedural barrier as a proxy for a substantive rule,
since it purported to bar from rescission all claimants who were unable (and had not merely neglected) to
restore the other party to the status quo ante. This ostensibly simple rule, as already noted, engendered a host
of exceptions. Section 54(3)(b) states a more realistic test, requiring the court to determine whether any loss
that will be allocated by rescission is appropriately borne by the party against whom rescission is sought.
Rescission of a release or settlement agreement on grounds of fraud or mistake presents particular difficulties
that are largely outside the scope of this Restatement, because the key determinations turn on issues of
contract law rather than restitution. See § 34, Illustration 21.
Illustrations:
29. By fraudulent misrepresentations, Seller induces Buyer to purchase 100 shares of XYZ common stock
at $ 100 per share. Shortly thereafter, XYZ pays a dividend of $ 2.50 per share. Learning subsequently of
Seller's fraud, Buyer brings an action to rescind the transaction. Buyer need not tender to Seller either the
shares or the dividend as a precondition to bringing suit. Buyer's obligation to make restitution of the
dividend ($ 250) can be set off against his claim to restitution of the price; judgment for a net $ 9750 in
favor of Buyer may be made conditional on Buyer's restitution to Seller of the shares or their fungible
equivalent.
30. Vendor purportedly conveys to Purchaser, for $ 100,000 cash, a fee simple interest in Blackacre. In
fact Vendor has only a life estate. Under local property law, Vendor's breach of the covenant of title allows
Purchaser to rescind the transaction, but Purchaser will not be required to surrender Blackacre before he
obtains restitution of the price or adequate security therefor. Vendor has used the $ 100,000 obtained from
Purchaser to purchase Whiteacre, and Vendor has no other assets with which to satisfy a judgment. The
court might simultaneously (i) cancel the conveyance of Blackacre and (ii) subject both Blackacre and
Vendor's interest in Whiteacre to equitable liens securing Purchaser's claim to $ 100,000.
k. Equitable defenses to rescission. The possibility of reversing a transfer after a change in underlying values
imposes an obvious risk of forfeiture on one side while inviting opportunism on the other. The effect of
rescission in shifting losses can be tolerated as an incidental consequence of a remedy whose principal
function is to release the claimant from an involuntary exchange, or to achieve remedial economies where the
reversal of an exchange is manifestly easier than its enforcement. By contrast, if a claimant were permitted to
entertain for any significant period an election between enforcement and avoidance--against a background of
potentially fluctuating values--the availability of rescission would give the claimant, in effect, an unpaid option on
the defendant's performance. Such a result may be inequitable even if the defendant is guilty of fraud or other
conscious wrongdoing.
The opportunistic use of rescission is barred, within traditional doctrine, by a rule that a claimant seeking to
rescind must give notice of the election to do so with reasonable promptness after learning of the grounds for
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rescission. The purpose of such a rule is to protect the defendant against prejudice from the strategic use of the
rescission remedy, not to foreclose an otherwise appropriate remedy because of an inadvertent and
nonprejudicial delay. There is no need to insist on a formal "election of remedies," nor to require that the
claimant decide at once between rescission and enforcement, so long as the claimant's actions are not
strategic and the defendant is not prejudiced.
Section 54(6) accordingly refers to "prejudicial or speculative delay" as the circumstance justifying denial of the
remedy. This equitable defense to rescission may sometimes be classified as a partial affirmative defense and
an example of laches (§ 70). The same consequences might be described by treating the claimant's undue
delay as a ratification. In some cases, an intervening change in circumstances may make the effects of
rescission unacceptably harsh, even if the claimant acts immediately on learning the relevant facts. See
Illustration 10, supra, and Illustrations 31--33.
Illustrations:
31. Vendor owns two tracts of land in a gold-mining region. Purchaser agrees with Vendor to buy one of
them. The transaction is carried out by inattentive agents, and the deed describes the wrong tract. On
entering the land, Purchaser immediately realizes that a mistake has been made. Instead of notifying
Vendor, Purchaser spends several weeks digging exploratory shafts on the property conveyed. When
these explorations prove fruitless, Purchaser notifies Vendor of the mistake and demands repayment of the
purchase price or reformation of the deed. Rescission and reformation will both be denied because
Purchaser has been seeking, in effect, to profit from the mistake by speculating at the expense of Vendor.
Furthermore, because Purchaser's unsuccessful explorations have reduced the value of the tract--though
in an amount difficult to ascertain--the court might deny rescission and reformation even if Purchaser had
learned of the mistake only after digging the shafts and had given prompt notice thereafter.
32. Vendor and Purchaser agree on the sale of Blackacre for a price of $ 350,000. Purchaser pays $
100,000 down and agrees to pay the balance with interest in annual installments of $ 10,000. After two
years' possession, Purchaser learns that Vendor's title is defective: undisclosed encumbrances affect 20
acres at the margin of the 200--acre tract. Both parties have acted in good faith. On suit by Purchaser, the
court determines that the encumbrances reduce the value of Blackacre by $ 20,000, and (because land
values have not changed appreciably in two years) that the parties might be effectively returned to the
status quo ante via cancellation, restitution of payments on the price, and a mutual accounting for interest,
rental value, taxes, and improvements. Purchaser will be allowed to choose between (i) completing the
purchase of Blackacre at an adjusted price of $ 330,000 and (ii) rescission and restitution.
33. Same facts as Illustration 32, except that the encumbrances come to light five years after the sale.
Purchaser immediately notifies Vendor of his intent to rescind. Because of a general decline in land prices,
the fair market value of Blackacre has fallen from $ 330,000 to $ 250,000. If the court finds that this change
of circumstances would make rescission inequitable to Vendor, rescission will be denied, and Purchaser's
remedy will be limited to an appropriate reduction in the price. Rescission might be allowed,
notwithstanding the intervening decline in market values, if the title defect were more substantial.
Rescission would certainly be allowed if Vendor's misrepresentation had been fraudulent.
l. Rights of third parties. Because the principal effect of rescission and restitution is to reverse any transfer of
property made in connection with the transaction being set aside, the propriety of the remedy in a particular
case requires consideration of the intervening rights of third parties. See § 54(4)(c). The third party protected
by the rule is someone who has acquired an interest in the property, such as a mortgagee or other purchaser
for value, through subsequent dealings with the original transferee. A claimant who attempted to recover the
property from such a third party directly would potentially encounter the affirmative defense of bona fide
purchase (§ 66). The third party is entitled to the same protection if the claimant seeks rescission against the
original transferee. See Illustrations 34--35.
Illustrations:
34. A and B agree to dissolve their partnership, and A sells his interest in the partnership assets to B for $
250,000. B forms a new partnership with C and D: the BCD partnership proceeds to exploit the business
assets of the former AB partnership. Learning thereafter that his interest in the AB assets was worth at
least $ 400,000, A sues B to rescind the sale on the grounds of B's fraud and breach of fiduciary duty (§§
13, 43). The intervening rights of C and D preclude rescission of the A-B transaction, unless A can
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establish that C and D had notice of B's breach of duty to A. If not, A has a claim to restitution measured by
B's unjust enrichment ($ 150,000), but A is not entitled to rescission.
35. Elderly Widow, unable to read or write, owns a one-fifth interest in minerals underlying a 75--acre tract.
Widow makes an oral agreement with Grantee to sell 2/15 of her interest for $ 5000, but Grantee induces
Widow to execute a deed that purports to convey the whole of her interest. (Widow's daughter reviewed the
deed before its execution and told her mother that she "guessed it was all right.") Grantee makes a partial
assignment to A, and A makes a partial assignment to B and C. On discovering the fraud, Widow sues
Grantee to rescind the transaction, offering to restore $ 5000 plus interest in exchange for cancellation of
the deed. The initial question presented, given the intervening interests of A, B, and C, is whether Widow's
deed is void or merely voidable (§ 13(2)). If Widow's deed is void, rescission is available without difficulty. If
the deed is merely voidable, the availability to Widow of specific relief in restitution (whether by rescission
or by cancellation of the deed) depends on whether any of the subsequent purchasers took their interests
for value and without notice of Grantee's fraud (§ 66).
REPORTER'S NOTES
REPORTER'S NOTE
a. General principles and scope; relation to other sections. See generally Restatement of Restitution §§ 64--69,
157--159 (1937); Restatement Second, Contracts § 384; Restatement Second, Restitution §§ 19--29 (Tentative
Draft No. 1, 1983); 5 Corbin, Law of Contracts §§ 1102--1121 (2d ed. 1964) (a thorough survey of rescission as
a remedy for material breach of contract, in which rescission is confusingly referred to as "restitution"); 1 Dobbs,
Law of Remedies §§ 4.3(6), 4.4 (2d ed. 1993); 2 id. § 9.3(3); 3 id. §§ 12.11(2), 12.12(2); 1 Farnsworth, Law of
Contracts § 4.15 (3d ed. 2004) (rescission for misrepresentation); 3 id. §§ 12.19--12.20 (rescission for material
breach); Fischer, Understanding Remedies ch. 15 (2d ed. 2006) (chapter entitled "Rescission (Disaffirmance) of
Bargain"); Laycock, Modern American Remedies 688--692 (4th ed. 2010); 1 Palmer, Law of Restitution §§ 3.11-
-3.15 (1978 & Supp.) (primarily discussing rescission for fraud); id. §§ 4.6--4.8, 4.14--4.24 (primarily discussing
rescission for material breach); 12 Williston, Law of Contracts chs. 44--45 (3d ed. 1970) (chapters entitled
"Rescission and Restitution" and "Fraud and Misrepresentation").
The most comprehensive treatment of rescission, still well worth consulting, is the three-volume treatise by
Henry Campbell Black, Rescission of Contracts and Cancellation of Written Instruments (J. Lee 2d ed. 1929).
(Black is better known as the author of the familiar Law Dictionary.) Much of the work is devoted to a detailed
survey of possible grounds for rescission, enumerating in detail (for example) the various types of
misrepresentation, the different modes of duress, or the recognized forms of mental incapacity, with ample
citations of authority for each. Chapters 33--45, describing the requirements and the effect of the rescission
remedy, correspond more nearly to the issues addressed in the present section.
Rescission as described in this section permits the claimant to reverse a contractual exchange and recover a
performance thereunder, without regard to whether the underlying contract would be classified for other
purposes as "void" from its inception or merely "subject to avoidance." Rescission as defined in § 54 may
therefore be employed to reverse transfers made under unenforceable or illegal agreements (if restitution is
permitted under §§ 31--32), or agreements held to be void for mistake (§ 34), without inquiring whether the
transaction between the parties ever gave rise to a valid agreement.
On the basic choice between specific and substitutionary relief, see generally Laycock, The Death of the
Irreparable Injury Rule ch. 1 (1991).
Illustration 1 is based on Mutual Benefit Life Ins. Co. v. JMR Electronics Corp., 848 F.2d 30 (2d Cir. 1988).
b. The availability of rescission. For the sake of clarity, § 54(4) states as an explicit rule what is only implicit in
the legal half (as opposed to the equitable half) of the law of rescission. There are countless judicial statements,
derived from the equity authorities, to the effect that an application for rescission is addressed to "the sound
discretion of the court," and that it is governed by "equitable principles." On the law side, by contrast, courts
grant or deny rescission after concluding that the case either satisfies or fails to satisfy a manifestly
unattainable standard. See, e.g., Capital Sav. & Loan Ass'n v. Convey, 175 Wash. 224, 229, 27 P.2d 136, 138
(1933) ("The fundamental theory of rescission is that neither party will be hurt by it; that the status quo of the
parties can be established"). In fact the status quo can never be established--as Heraclitus pointed out, we
cannot step into the same river twice--so the real question is whether we can come close enough, given all the
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circumstances of the case. The answer to that question depends on the same exercise of judicial discretion that
equity took as its starting point. Compare Restatement Second, Restitution § 12 (Tentative Draft No. 1, 1983).
The combined judicial inquiry directed by §§ 54(3) and 54(4) may be summarized even more concisely: "The
court must decide, considering all of the facts and circumstances, whether restoring a pre-contractual state is
both possible and fair." Amber Resources Co. v. United States, 78 Fed. Cl. 508, 514 (2007) (Bruggink, J.).
d. Rescission of defective agreements. Illustration 2 is based on Hicks v. Clayton, 67 Cal.App.3d 251, 136
Cal.Rptr. 512 (1977). Illustration 3 is based on Cherry v. Crispin, 346 Mass. 89, 190 N.E.2d 93 (1963).
e. Rescission as a remedy for breach of contract. The role of rescission and restitution as a remedy for breach
of contract has been obscured by its treatment in prior Restatements. This is in large part because of the
determination of the first Restatement of Contracts to avoid using the term "rescission," substituting a word
("restitution") that would shortly acquire the competing connotation of "unjust enrichment." Hic labor ille domus
et inextricabilis error; see Kull, Rescission and Restitution, 61 Bus. Law. 569 (2006). Rescission as a remedy
for breach must be distinguished from termination, by which the aggrieved party repudiates future performance
obligations but brings an action for contract damages:
Termination is not an appropriate term [for the rescission remedy], since the plaintiff seeks more than a
cancellation of future rights and obligations under the contract. If the relief sought is granted, there must be
a specific undoing of a performance rendered under the contract through avoidance of a title transferred
pursuant to the contract.
1 Palmer, Law of Restitution § 4.6, at 424 (1978).
Illustration 4 is based on Capital Sav. & Loan Ass'n v. Convey, 175 Wash. 224, 27 P.2d 136 (1933). See also
Craft v. Bariglio, 1984 WL 8207 (purchaser of pizzeria seeks rescission for vendor's misrepresentations; court
directs price reduction instead of rescission).
f. Restitution to the claimant. "When a plaintiff has transferred property in performance of a contract which he is
entitled to rescind, whether for fraud or the defendant's breach or other reason, there seems to be a tacit
assumption that his primary right is to specific restitution of the property transferred." 1 Palmer, Law of
Restitution § 1.6, at 38 (1978).
Illustration 5 is purely hypothetical, acknowledging that there are methods of specific restitution having no
relation to rescission. Illustration 6 repeats in this context the facts of § 16, Illustration 5, to emphasize the point
that a voidable transaction in which no property is transferred by the claimant may give rise to a claim in unjust
enrichment but not to the remedy of rescission.
Illustration 7 is based on Indiana & Mich. Elec. Co. v. Harlan, 504 N.E.2d 301 (Ind. Ct. App. 1987). See also
Spreckels v. Gorrill, 152 Cal. 383, 92 P. 1011 (1907) (fraudulent sale of shares subject to rescission by buyer,
even though the shares in question were no less valuable than if the seller's representations about the
company had been truthful); Crowell v. Brim, 191 Ga. 288, 12 S.E.2d 585 (1940) (fraudulent representation that
property was unencumbered allows purchaser to rescind; mortgage had not been foreclosed, and the amount
of the payment required to discharge the mortgage might have been deducted by purchaser from the balance
due on the purchase price); Seneca Wire & Mfg. Co. v. A.B. Leach & Co., Inc., 247 N.Y. 1, 159 N.E. 700 (1928)
(innocent but material misrepresentation to the effect that application would be made to list securities on an
exchange allows purchaser to rescind, when purchaser learns of the misrepresentation following insolvency of
the issuer). See also § 13, Comment e. Illustration 8 is a hypothetical case showing the intersection of tort and
restitution claims in this common situation. For the explicit suggestion that the buyer might satisfy his obligation
of counter-restitution by restoring the fungible equivalent of the shares originally purchased from the seller, see
Restatement Second, Restitution § 27, Illustration 1 (Tentative Draft No. 1, 1983).
Illustration 9 is based on Fawkes v. Knapp, 138 Minn. 384, 165 N.W. 236 (1917). Illustration 10 is based loosely
on Marr v. Tumulty, 256 N.Y. 15, 175 N.E. 356 (1931) (Cardozo, C.J.), where the precise holding is that the
rescinding buyer must restore to the fraudulent seller the proceeds of his resale, rather than substitute shares
later acquired at a bargain price. See generally 1 Palmer, Law of Restitution § 3.8 (1978 & Supp.). The
potentially Draconian outcome of rescission apparent in these cases--when values have declined for
extraneous reasons--becomes debatable even in a case of innocent misrepresentation, and unacceptable in a
case (such as mutual mistake) in which neither party is at fault. The innocent defendant may be protected,
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within the scheme of the present section, by the requirement of restoration to the status quo ante (§ 54(3)) or by
the defense of change of circumstances (§ 54(6)).
Illustration 11 takes the facts of Gray v. Trick, 243 Mich. 388, 220 N.W. 741 (1928), modifying the holding to
allow for the accomplishment of rescission by restoration of equivalent shares. Illustration 12 is based on
Stanford v. Smith, 163 Ark. 583, 589, 260 S.W. 435, 437 (1924) (quoting older Arkansas authority to the effect
that "When courts cannot place parties wholly in statu quo, they [are] not thereby precluded from granting relief
against fraud. They may proceed to do so as nearly as possible, and make compensation"). In Hammond v.
Pennock, 61 N.Y. 145 (1874), the claimant had been induced to exchange valuable timberland in New York for
worthless swampland in Michigan. By the time the fraud came to light, the defendant had sold part of the
claimant's timber and part of the claimant's land. Rescission and restitution entitled the claimant to specific
restitution of that part of the property that remained, plus the value of what had been sold, on restoration of title
to the Michigan swamp.
g. Restitution by the claimant. Illustration 13 is based on Petersen v. Hubschman Constr. Co., 76 Ill.2d 31, 27
Ill.Dec. 746, 389 N.E.2d 1154 (1979). Illustration 14 is based on Loveland v. Aymett's Auto Arcade, Inc., 121
Conn. 231, 184 A. 376 (1936), and Blumrosen v. Silver Flame Industries, Inc., 334 Mich. 441, 54 N.W.2d 712
(1952). Both decisions found specifically that the contracts for sale and installation of a furnace were
"indivisible." Assuming a breach of the proper character under a contract for the sale of goods, U.C.C. § 2--608
would permit rescission by the buyer as to any "lot or commercial unit" of the goods delivered. Restatement
Second, Contracts § 384(2)(c) similarly excuses restitution by the claimant of any property "as to which the
contract apportions the price if that part of the price is not included in the claim for restitution."
Illustration 15 is based on Jennings v. Lee, 105 Ariz. 167, 461 P.2d 161 (1969). Compare Delta Investing Corp.
v. Moore, 366 F.2d 516 (6th Cir. 1966), in which the defrauded assignee of a lease was allowed to rescind the
transaction and recover the money paid without restoring the lease, which had been terminated--without
intervention by assignor--for assignee's nonpayment of rent. Illustration 16 is suggested by In re
AppOnline.Com, Inc., 290 B.R. 1 (Bankr. E.D.N.Y. 2003).
Illustration 17 is a composite, based on cases such as Lawless v. Ennis, 3 Ariz.App. 451, 415 P.2d 465 (1966);
Vokes v. Arthur Murray, Inc., 212 So.2d 906 (Fla. Dist. Ct. App. 1968); Parker v. Arthur Murray, Inc., 10
Ill.App.3d 1000, 295 N.E.2d 487 (1973); and Acosta v. Cole, 178 So.2d 456 (La. Ct. App. 1965). Compare
Timmerman v. Stanley, 123 Ga. 850, 51 S.E. 760 (1905) (material breach of contract to furnish secretarial
instruction; rescission allowed without restitution on account of benefit from interrupted lessons).
Illustration 18 is based on Dickerson v. Morse, 203 Iowa 480, 212 N.W. 933 (1927). Illustration 19 is based on
Wilks v. McGovern--Place Oil Co., 189 Wis. 420, 207 N.W. 692 (1926). Illustration 20 is based on Faulkner v.
Klamp, 16 Neb. 174, 20 N.W. 220 (1884). Illustration 21 is based on Wright v. Dickinson, 67 Mich. 580, 589, 35
N.W. 164, 170 (1887) ("He cannot restore the severed trees. It is impossible for him to restore the property in
the same condition it was when he received it . . . . The only thing he can do is to restore its money equivalent,
and that he offers to do"). But cf. Lang v. Home, 156 Fla. 605, 23 So.2d 848 (1945), denying rescission on the
ostensible ground that a purchaser who had similarly cut and removed timber could not restore the vendor to
the status quo ante. The true distinction between such results must presumably be found in the courts'
contrasting views of the seriousness of the vendor's breach and of the surrounding circumstances of the
transactions. Illustration 22 is based on Bellefeuille v. Medeiros, 335 Mass. 262, 139 N.E.2d 413 (1957).
Illustration 23 is based on American Exch. Bank v. Smith, 173 Wash. 441, 23 P.2d 414 (1933).
h. Mutual accounting on rescission. The rule stated in § 54(2)(b) is a radical summary of a vast case law,
treating the innumerable permutations of the accounting between transferors and transferees (either of whom
might be either innocent or at fault) with respect to such pre-rescission items as interest, income or rental value,
repairs, improvements, insurance, taxes, and mortgage payments. To keep the present treatment of rescission
within manageable bounds, § 54(2)(b) subsumes this complexity within the qualification "as necessary to
prevent unjust enrichment," in light of the general principles of the topic and the rules of §§ 49--53 for
measuring enrichment. For the opposite approach--analyzing and then examining the separate strands of the
unjust enrichment problem in the context of the accounting that accompanies rescission--see Restatement
Second, Restitution §§ 20--25 and 28--29 (Tentative Draft No. 1, 1983).
Illustration 24 is a hypothetical composite based on cases cited by 1 Palmer, Law of Restitution § 4.14(c) (1978
& Supp.). Compare § 16, Illustration 14 (rescission on the ground of policyholder's lack of capacity). Illustration
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25 is based on Miller v. Sears, 636 P.2d 1183 (Alaska 1981). See also McCoy v. West, 70 Cal. App.3d 295,
303, 138 Cal.Rptr. 660, 665 (1977) ("when compensating the guilty vendor for [his] use of the subject matter the
innocent vendee is entitled to pay either the reasonable rental value thereof or the profits, if any, which he has
made from the subject matter, whichever is less"); Beaudry v. Favreau, 99 N.H. 444, 114 A.2d 666 (1955)
(against fraudulent vendor, purchaser's liability for use and occupation measured by value (if any) "received by
him"). Illustration 26 is based on Hill v. Watts, 801 S.W.2d 176 (Tex. App. 1990) (as regards taxes), and on
Sanguinetti v. Strecker, 94 Nev. 200, 577 P.2d 404 (1978) (as regards improvements).
i Incidental and reliance loss. Illustration 27 is based on McRae v. Lonsby, 130 F. 17 (6th Cir. 1904). Illustration
28 is based on Bodenhamer v. Patterson, 278 Or. 367, 563 P.2d 1212 (1977).
On the combination of claims for restitution and damages, see generally Restatement Second, Restitution § 15
(Tentative Draft No. 1, 1983) ("Consistency of Remedies"); 1 Palmer, Law of Restitution § 4.8 (1978) (noting
further examples of "reliance losses and special damages" awarded in conjunction with restitution); Wade,
Cases and Materials on Restitution 659 (2d ed. 1966) (observing that some cases have permitted the
combination of restitution with damages for losses incurred in reliance on the contract, and that "there is nothing
essentially inconsistent in it"); Head & Seemann, Inc. v. Gregg, 104 Wis.2d 156, 168, 311 N.W.2d 667, 673 (Ct.
App. 1981) ("rescission and restorative damages are consistent remedies which work together to restore the
injured party to his precontract position").
Combining remedies under U.C.C. §§ 2--711(1) and 2--715(1), a rescinding buyer may add a claim for
"incidental damages" to a claim to restitution of the purchase price. See, e.g., Durfee v. Rod Baxter Imports,
Inc., 262 N.W.2d 349 (Minn. 1977) (rescinding buyer of defective automobile recovers repair expenses as
incidental damages).
Some courts have awarded exemplary damages in conjunction with rescission for fraud. See, e.g., MidState
Homes, Inc. v. Johnson, 294 Ala. 59, 311 So.2d 312 (Ala. 1975); Hutchison v. Pyburn, 567 S.W.2d 762 (Tenn.
Ct. App. 1977); Annot., 19 AL.R.4th 801 (1983).
j. Tender of restitution not a precondition. This Restatement abandons a rule that is obsolete in any court in
which law and equity procedures have been merged. It has long been observed that the requirement of tender
as a precondition to rescission becomes anomalous as soon as a court has the power to issue a conditional
decree. See Restatement Second, Contracts § 384, Comment b ("If all that is to be returned is money, a credit
against a larger sum allowed in restitution will suffice. In other cases a conditional judgment will be proper"); 2
Dobbs, Law of Remedies § 9.3(3), at 586 (2d ed. 1993) ("presuit tender or restoration should no longer present
a problem"); 1 Palmer, Law of Restitution § 3.11 (1978).
On the particular problems involved in rescission of a release or settlement agreement, see 2 Dobbs, Law of
Remedies § 9.3(3), at 590--591 (2d ed. 1993); 1 Palmer, Law of Restitution § 3.11(a), at 300--303 (1978 &
Supp.).
Illustration 29 is based on Vavricka v. Mid-Continent Co., 143 Neb. 94, 8 N.W.2d 674 (1943). Illustration 30 is
based on Matthews v. Crowder, 111 Tenn. 737, 69 S.W. 779 (1902). On the use of the vendee's lien, see 3
Dobbs, Law of Remedies § 12.11(4) (2d ed. 1993); 1 Palmer, Law of Restitution § 3.14(a) (1978 & Supp.).
k. Equitable defenses to rescission. See generally Restatement of Contracts § 483, Comment a (1932) (injured
party "cannot lie by and delay choosing whether avoidance or affirmance will be more profitable"); U.C.C. § 2--
608(2) ("Revocation of acceptance must occur within a reasonable time after the buyer discovers or should
have discovered the ground for it ..."); Gannett Co. v. Register Publishing Co., 428 F.Supp. 818 (D. Conn.
1977). "Affirmance" (ratification) likewise bars a subsequent rescission (Restatement Second, Contracts § 380),
not because of any technical election, but to avoid speculation and prejudice to the other party:
[A] non-breaching party is not required to create an even worse situation by abandoning all performance in
order to preserve access to [the rescission] remedy. As explained in the Restatement (First) of Restitution
§ 68, comment b, a non-breaching party does not waive the right to restitution "where he continues to
perform only for the purpose of preserving what he has already invested in the performance."
First Nationwide Bank v. United States, 431 F.3d 1342, 1352 (Fed. Cir. 2005). Compare Amber Resources
Co. v. United States, 87 Fed. Cl. 16, 30 (2009) ("If a purchaser of a horse brought suit to rescind the
contract of sale, should it stop feeding the horse for fear of losing a cause of action?").
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Illustration 31 is based on Grymes v. Sanders, 93 U.S. 55, 62, 23 L.Ed. 798 (1876) ("Delay and vacillation are
fatal to the right [of rescission] which had before subsisted. These remarks are peculiarly applicable to
speculative property like that here in question, which is liable to large and constant fluctuations in value"), and
Hammond v. Wallace, 85 Cal. 522, 531, 24 P. 837, 838 (1890) ("[A] party cannot wait until time shall
demonstrate whether the contract sought to be rescinded turned out to be good or bad; and this is particularly
true in a new country, where values change rapidly"). See also Kelly v. Furlong, 194 Minn. 465, 261 N.W. 460
(1935) (minor purchases stock in 1929, then sues to rescind on reaching his majority in 1933). Illustrations 32--
33 are based on Bechard v. Bolton, 316 Mich. 1, 5, 24 N.W.2d 422, 423 (1946) (authorizing rescission for
relatively minor title defects, and distinguishing contrary decisions by noting that "There were circumstances in
these cases which would have made it inequitable to order rescission, and, therefore, a reduction in the
purchase price or some other relief was granted because of the defects").
A court is especially likely to deny rescission, even in cases of fraud, when the claimant's delay in seeking the
remedy assumes a speculative character:
Rescission is a radical move, and the law exacts the election of that course to be asserted without wait.
The demand is that advice of the determination be given within a reasonable time after discovery of the
ground for rescission.
This principle is stringently administered. Reasonable time is inceptive from the receipt by the rescinder of
word putting him on notice. It is then incumbent upon him to pick up the scent and nose to the source . . . .
If the quest confirms the suspicion, then he must make decision with reasonable dispatch. Failing this,
entitlement to rescission disappears.
Here, no such vigor was exhibited. Indeed, although plaintiffs are not chargeable with complete awareness
of the knavery earlier than March 1961--when the Gulf stock went public, and [already] more than 14
months after they had wind of the malodor--they pondered another 18 months before disclaiming the sale.
The books teem with support for these propositions.
Baumel v. Rosen, 412 F.2d 571, 574 (4th Cir. 1969) (Bryan, J.).
l. Rights of third parties. Illustration 34 is based on Meyers v. Merillion, 118 Cal. 352, 356, 50 P. 662, 663
(1897) ("Where the rights of others have intervened, and the circumstances have so far changed that rescission
may not be decreed without injury to those parties and their rights, rescission will be denied and the
complaining party left to his action at law for damages for the fraud"). Illustration 35 is based on McCoy v. Love,
382 So.2d 647 (Fla. 1979).
Restatements of the Law 3d, Restitution and Unjust Enrichment
2011
End of Document
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Proceedings reported by mechanical stenography ;
transcription produced via computer .
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 21-cv-02063-CNS-SBP
CITY OF FORT COLLINS,
Plaintiff,
vs.
OPEN INTERNATIONAL, LLC, and OPEN
INVESTMENTS, LLC,
Defendants.
--------------------------------------------------------------
REPORTER'S TRANSCRIPT
Damages Hearing
--------------------------------------------------------------
Proceedings before the HONORABLE CHARLOTTE N. SWEENEY, Judge,
United States District Court for the District of Colorado,
commencing on the 17th day of November, 2023, in Courtroom
A-702, United States Courthouse, Denver, Colorado.
APPEARANCES
For the Plaintiff:
CASE L. COLLARD and ANDREA A. WECHTER and MARAL SHOAEI, Dorsey
& Whitney LLP, 1400 Wewatta St., Ste. 400, Denver, CO 80202
JOHN R. DUVAL, Fort Collins City Attorney's Office, P.O. Box
580, Fort Collins, CO 80522
For the Defendants:
PAUL D. SWANSON and KEVIN MCADAM and ALEXANDRIA PIERCE,
Holland & Hart LLP, 555 17th St., Ste. 3200, Denver, CO 80201
Sarah K. Mitchell, RPR, CRR, 901 19th Street, Room A252,
Denver, CO 80294, 303-335-2108
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 89
customers on schedule as soon as the physical fiberoptic
network was in place, fair?
A.With the caveat that this is starting to sound like a lost
profits rationale.
Q.By entering the contract with Open in 2018 to provide a
broadband billing system, the City was not going to enter
another contract with another vendor in 2018 to build a
broadband billing system. There was only one slot for a
broadband billing system, right?
A.At the time.
Q.And Open took it when they fraudulently induced the City
to enter the contract, right? They took the one spot for a
broadband billing vendor?
A.I understand.
Q.That's what happened, right?
A.Yes.
Q.Okay. So if they had not entered that contract with Open
in 2018, the City would have had the opportunity to choose
another vendor and be on time and on schedule with adding
customers, correct?
A.Yes. I would agree with that.
Q.All right. Your next rescission-related opinion is your
-- that I want to discuss is your restatement of the City's
rescission damages. You talked about that with Mr. McAdam.
Do you recall?
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 93
A.Yes.
Q.Okay. And you agree -- you've heard testimony and seen
evidence that Open really wanted the City to hire outside
consultants and project managers to work on this project,
right?
MR. MCADAM: Objection, foundation.
THE COURT: Overruled.
A.I don't know.
Q.(By MR. COLLARD) Okay. And you agree on the labor costs
that had the City not been fraudulently induced to enter the
contract with Open, it would not have had any labor
expenditures on the project with Open?
A.I would agree with that, yes.
Q.And you would also agree that the City's staffing and
labor requirements were mandated by that contract with Open,
right?
A.Yes.
Q.Okay. Your other change here in your alternative column
was to remove prejudgment interest from Mr. Seigneur's
calculations, correct?
A.Yes.
Q.Okay. So your opinion in your report -- this is on
page 29 of your report, Figure 7, was that even without the
lost net revenue category and removing the PJI, the Schulman &
Company amount for the City's rescission claim is 12,531,849,
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 95
A.Yes.
Q.And the column with your restated rescission damages is
the Schulman & Company amount column, correct?
A.Yes.
Q.And the total for that column is $12,531,849, correct?
A.Yes.
Q.Okay. And you understand that the City has now prevailed
on its claim for fraud, right?
A.On liability, yes.
Q.Yes. And if the City receives a monetary award, you agree
that the Court may award prejudgment interest pursuant to
Colorado statute, correct?
A.My understanding is that's correct, if it's not already
included in Mr. Seigneur's analysis.
Q.Right. And your understanding of Mr. Seigneur's report is
that he was using 8 percent, and that that was equivalent to
prejudgment interest, right?
A.I'm saying it was prejudgment interest.
Q.And if it is prejudgment interest, you agree that the
calculation done by Mr. Seigneur was done properly and
compounded, correct?
A.The calculation of prejudgment interest was correct.
Q.Okay. So based on Mr. Seigneur's report, you would agree
that if the City receives prejudgment interest, Mr. Seigneur
has properly done that calculation through April 14, 2023,
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 108
were you?
A.I don't think so.
Q.I mean, you've testified in court before, and you
understand that you go through background, and then you offer
to admit -- or offer to -- offer expert testimony, and the
other side has a chance to voir dire the expert and object on
qualifications. You've seen that happen in this case, right?
A.Yes.
Q.And Open never offered you as an expert on computer
forensics in this matter, did they, sir?
A.Well, other than the -- in this hearing, Mr. McAdam --
Q.He asked you some questions about your experience, but he
didn't offer you as an expert in computer forensics, did he?
A.I don't know if he did or not.
Q.That's how you analyzed this table. This is your computer
forensics opinion, right?
A.It's -- I used those skills to authenticate the records
that I was given from Open's ticketing system.
Q.So your opinion is that the information in this table
reflects Open's records, fair?
A.Yes. Their accountings records.
Q.But you didn't analyze these numbers from a damages
perspective, did you?
A.I would agree with that.
Q.Because you recall your testimony in this court a couple
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 111
MR. COLLARD: And let's go ahead, and we can pull
that up again. It's Open's demonstrative 6, page 2. Let's
zoom in on the chart.
Q.(By MR. COLLARD) So the only place in your report where
you describe what this data represents is in these notes,
correct?
A.And in the table itself.
Q.Fair. And you described in note A -- all you said was
professional services team for implementation, right?
A.Yes.
Q.And you don't have any analysis in your report tying these
100,000 hours to the Fort Collins project, do you?
A.Not in my report, no.
Q.You put all your opinions in your report, right?
A.I certainly try to.
Q.Okay. So this was a $12 million category covering work
that Open claimed was for a fixed-price contract, but you
don't have any analysis to try to determine -- you don't have
any analysis in your report trying to determine whether this
$12 million of work was a reasonable amount of implementation
work, do you?
A.I would agree with that. I do not.
Q.Okay. You don't have any analysis to try to determine
whether Open was padding its time entries, do you?
A.No. I would agree with that.
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 112
Q.And you don't have any analysis in your report that Open's
records actually reflect work performed for the City, do you?
A.No. I would agree with that.
Q.And you testified in court a few weeks ago that doing
fixed versus variable cost is Damages 101 and a remedial
concept. Do you recall that?
A.Yes.
Q.But you don't have any analysis in your report of whether
these alleged costs are fixed or variable, do you?
A.Well, that -- that concept would not -- that applies to
lost profits. I don't -- I have no reason to believe that it
applies to rescission.
Q.Sir, that's not my question. You're making some sort of
legal opinion about which types of damages analysis it applies
to. My question is much simpler. You don't have any analysis
in your report of whether these alleged costs were fixed or
variable, do you?
A.I'm trying to answer your question in my words. I have no
reason to believe that the distinction between fixed and
variable costs has any impact on a rescission analysis.
Q.Okay. So that's your reason, but the result is that you
don't have that analysis in there because you don't think it's
relevant. So the answer to my question is you don't have a
fixed versus variable cost analysis for any of these
categories of costs, do you?
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 113
A.Then the answer to that question is yes. I'm trying to
give you a yes.
Q.You don't analyze in your report how this work may have
benefited Open, do you?
A.Yes. I agree with that.
Q.You agree that is not in your report?
A.I'm trying to give you a yes.
Q.You don't know whether or not this work made Open's
product more robust?
A.I don't know that.
Q.And you don't know if it made it more ready for North
America?
A.I don't.
Q.Or made its employees more capable and ready to work on
projects in North America?
A.I don't.
Q.And you don't describe how this alleged work is benefiting
the City today anywhere in your report, do you?
A.No, I don't.
Q.That's because this isn't benefitting the City today, is
it? Because the City is not using any of Open's software
anymore?
A.That's rational. I don't have an opinion one way or the
other about that.
Q.Okay. So similar items for Note B. You say this is for
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 114
broadband, support of broadband operations, but you don't have
any analysis in your report confirming that this work was
actually done for the City of Fort Collins, do you?
A.I -- other than what's in their records, no, I don't.
Q.Okay. Your opinion is that this was in their records, but
you don't really know if it actually correlates to hours spent
on the Fort Collins project or not. You didn't try to do that
analysis and vet that question, did you?
A.Other than to say these are contemporaneous records based
on input from the timekeepers daily, I can't say any more than
that.
Q.Okay. And, again, you don't know if Open was padding time
entries, right?
A.I have no reason to believe they were. But I --
Q.You don't -- you don't have any reason to believe they
were or weren't, sir. You didn't do any of that work, did
you?
A.Again, I'm trying to give you a yes.
Q.Then just -- you don't have to try. You can just say yes.
A.Okay.
Q.So you didn't do any analysis that the work performed in
-- under Note B for support by Open allegedly was reasonable,
do you?
A.No.
Q.Again, no analysis of fixed versus variable costs, right?
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 115
A.Right.
Q.No analysis of how this work may have benefited Open,
right?
A.Right.
Q.And no description or analysis of how this alleged work is
still benefiting the City today, right?
A.Right.
Q.So similar questions about the product and technology
category. All you know about that category is what is in Note
C, correct?
A.Yes.
Q.And you don't know if this refers to software or product
development, do you?
A.I would agree with that.
Q.And if it did include product development, you didn't take
into account that Open may be using its product for clients
other than the City, right?
A.Right.
Q.You didn't describe any analysis you did to vet whether
the City even requested the work that's listed under Note C,
did you?
A.Yes.
Q.Again, no analysis of fixed versus variable costs?
A.Again, yes.
Q.No analysis of how this work may have benefited Open?
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 116
A.Yes.
Q.And you don't describe how this alleged work is benefiting
the City today?
A.Yes.
Q.And you understand that Open had performed product
development work on its product including the portal it bought
from Milestone because the portal it bought from Milestone did
not have the functionalities that the City needed and that
Open represented that it had when it defrauded the City?
A.And the question is?
Q.The question is that you understand that part of the
reason that Open had to perform development work was because
it sold the City -- it defrauded the City by saying we have
this product graded A, and then, for example, it had to go buy
a portal from Milestone that did not meet any of those grades,
so that is part of the basis for the product development
category that Open is claiming here, correct?
A.I didn't know all that, but I'm not sure whether -- what
else to say. I'm not challenging what you just said. I just
didn't know all that.
Q.So for these three categories, you cite an average hourly
rate of 117 or $116 per hour. Do you see that?
A.Yes.
Q.Did you calculate the costs using the hourly rate or did
you calculate the hourly rate using the costs in this chart?
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 117
A.Neither. The hourly rate came from their ticketing
system.
Q.And then you multiplied that times the hours to get the
costs that's in this column?
A.I checked the math, but these numbers -- all these numbers
came out of their ticketing system, which I checked, but I
didn't do the original calculations.
Q.And you testified about some PCRs and some other data that
you thought supported this rate on your direct testimony. Do
you recall that?
A.It supported the hourly rates.
Q.Right. Do you remember criticizing Mr. Seigneur to say if
he did an analysis, then that has to be included in the
report, and that just listing information -- something in
information considered is not sufficient? Do you remember
that criticism?
A.Not specifically, but certainly I criticized his report.
Q.Right. But you didn't list any of that analysis in your
report that you did and talked about on your direct
examination on the hourly rate, did you?
A.Other than what I described under Figure 8, I would agree
with that.
Q.Okay. You didn't have any analysis in your report that
those rates are reasonable rates, do you?
A.No.
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Damages Hearing21-cv-02063-CNS-SBP
Sarah K. Mitchell , RPR, CRR
11/17/2023 118
Q.I want to talk a little bit about the Milestone costs.
You don't really know whether the costs listed there were paid
to Milestone for projects other than the City, do you?
A.No. Other than what was in the City's records.
Q.Sir, my question is you don't really know whether the
costs listed here were paid to Milestone for projects other
than the City, do you?
A.No, I don't.
Q.And you don't know the extent of the relationship between
Milestone and Open, do you?
A.No, I don't.
Q.And, again, here there's no analysis of fixed or variable
costs, right?
A.Right.
Q.And no analysis of how this work may have benefited Open,
right?
A.Right.
Q.And no analysis or description of any alleged benefit that
the City is retaining from this Milestone work today?
A.Right.
Q.And do you know, sir, that Open also paid Milestone for
Milestone's portal, for some software around Milestone's
portal?
A.No.
Q.You didn't know that? So you didn't know whether or not
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Sarah K. Mitchell , RPR, CRR
REPORTER'S CERTIFICATE
I, SARAH K. MITCHELL, Official Court Reporter for the
United States District Court for the District of Colorado, a
Registered Professional Reporter and Certified Realtime
Reporter, do hereby certify that I reported by machine
shorthand the proceedings contained herein at the time and
place aforementioned and that the foregoing pages constitute a
full, true and correct transcript.
Dated this 21st day of November, 2023.
/s/ Sarah K. Mitchell
SARAH K. MITCHELL
Official Court Reporter
Registered Professional Reporter
Certified Realtime Reporter
Case No. 1:21-cv-02063-CNS-SBP Document 315-5 filed 12/08/23 USDC Colorado pg 15
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 21-cv-02063-CNS-SP
CITY OF FORT COLLINS,
Plaintiff,
vs.
OPEN INTERNATIONAL, LLC, and OPEN
INVESTMENTS, LLC,
Defendants.
REPORTER'S TRANSCRIPT
Final Pretrial Conference
Proceedings before the HONORABLE CHARLOTTE N. SWEENEY, Judge,
United States District Court for the District of Colorado,
commencing on the 10th day of July, 2023, in Courtroom A702,
United States Courthouse, Denver, Colorado.
APPEARANCES
For the Plaintiff:
CASE L. COLLARD and ANDREA A. WECHTER and MARAL SHOAEI, Dorsey
& Whitney LLP, 1400 Wewatta St., Ste. 400, Denver, CO 80202
JOHN R. DUVAL, Fort Collins City Attorney's Office, P.O. Box
580, Fort Collins, CO 80522
For the Defendants:
PAUL D. SWANSON and ALEXANDRIA E. PIERCE and ALEXANDER D.
WHITE, Holland & Hart LLP, 555 17th St., Ste. 3200, Denver, CO
80201
Sarah K. Mitchell, RPR, CRR, 901 19th Street, Room A252,
Denver, CO 80294, 303-335-2108
Proceedings reported by mechanical stenography;
transcription produced via computer.
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21-cv-02063-CNS-SP Pretrial Conference 07/10/2023
do anything about it in the pretrial order. But rest assured
some of these just simply don't apply. Failure to state a
claim, we've already ruled on that, so that should not be in
there. But I'm not going to have you resubmit this, but I
think you're all in agreement on what the current issues are
and what's going forward, so I'm not too worried about it.
In settlement, you represent you've given it a go.
There appears little possibility of settlement. I haven't
Judge Prose hasn't been here long enough for me to get any
good reports about her luck in settlements. I would simply
say she was a city attorney or a U.S. attorney before and
20
has plenty of experience in mediations, and I believe she will
be a good settlement judge. If you want to approach her with
that idea, you are free to do so. This will be considered
your official referral, so you do not need to file a motion
with me if you wish to do that. I might just add the case is
complicated enough that a private mediator I think might be
your better bet just for the amount of time it would take.
Have you all discussed private mediation or thought of that
option?
MR. COLLARD: We haven't discussed it, Your Honor.
THE COURT: I'll just encourage you to do so. If you
see any light at the end of the tunnel, just shoot us a joint
e-mail to let us know you're pursuing it so we are aware of
that. I'm not getting a strong read that that's in the
Sarah K. Mitchell, RPR, CRR
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REPORTER'S CERTIFICATE
I, SARAH K. MITCHELL, Official Court Reporter for the
United States District Court for the District of Colorado, a
Registered Professional Reporter and Certified Realtime
Reporter, do hereby certify that I reported by machine
shorthand the proceedings contained herein at the time and
place aforementioned and that the foregoing pages constitute a
full, true and correct transcript.
Dated this 18th day of July, 2023.
/s/ Sarah K. Mitchell
SARAH K. MITCHELL
Official Court Reporter
Registered Professional Reporter
Certified Realtime Reporter
Sarah K. Mitchell, RPR, CRR
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