Rocky Mountain Exploration, Inc. v. Davis Graham & Stubbs LLP
2018 CO 54
Colo.2018Background
- RMEI sold oil and gas assets to Lario; unbeknownst to RMEI, Lario was acting for Tracker and planned to assign most interests to Tracker. DG&S (law firm) represented Tracker and drafted/managed closing activities for the RMEI–Lario transaction.
- Transaction documents (letter of intent and purchase agreement) included confidentiality and assignment clauses referencing "investors," "partners," and Lario’s right to assign a portion of its interest.
- After closing, Tracker received a profit by reselling assigned interests; RMEI then sued Tracker, Lario, and DG&S alleging fraud, civil conspiracy, and aiding/abetting breach of fiduciary duty. Lario and Tracker settled or were dismissed; DG&S moved for summary judgment.
- DG&S argued (inter alia) the contracts put RMEI on notice of unnamed partners, RMEI could not reasonably rely on alleged misrepresentations, and prior agreements disclaimed fiduciary/joint-venture duties between RMEI and Tracker.
- The district court granted summary judgment for DG&S; the court of appeals affirmed; the Colorado Supreme Court granted certiorari and affirmed the lower courts.
Issues
| Issue | Plaintiff's Argument (RMEI) | Defendant's Argument (DG&S) | Held |
|---|---|---|---|
| Whether RMEI can avoid the sale for fraud where buyer and counsel created impression buyer acted alone | Lario/DG&S created false impression that Lario was acting alone; RMEI would not have dealt with Tracker | Transaction documents disclosed unnamed partners/assignees; no actionable false representation; Restatement §6.11(4) inapplicable if principal was unidentified | Court: Tracker was an unidentified (not undisclosed) principal because assignment/investor clauses put RMEI on notice; RMEI cannot avoid contract on that Restatement theory; civil conspiracy fails |
| Whether assignment clauses disclosed agency/unidentified principal as a matter of law | Clauses only allowed possible future assignment and did not unequivocally show agency | Clauses and confidentiality/investor language informed RMEI that buyer had unnamed partners and could assign interests | Court: As a matter of law clauses provided notice that Lario acted for unnamed partners/assignees; Tracker was an unidentified principal |
| Whether DG&S committed fraud (affirmative misrepresentation) by acting as counsel for Tracker but appearing to represent Lario | DG&S’s drafting, hosting closing, escrow work, and failure to correct references led RMEI to justifiably rely and were affirmative misrepresentations | Such acts were not definite/specific misrepresentations that Lario acted alone; RMEI had notice from documents and reliance was unjustified | Court: No viable fraud claim — RMEI failed to show a definite/specific false representation or justified reliance; summary judgment proper |
| Whether prior agreements disclaimed fiduciary/joint-venture duties so aiding/abetting claim fails | RMEI: earlier agreements and AMI/participation structure created joint-venture-like fiduciary duties; DG&S aided breach | Tracker and RMEI executed agreements (Operating Agreement/Participation Agreement) that expressly disclaimed joint venture, agency, fiduciary relationship | Court: Operating and participation agreements unambiguously disclaimed fiduciary/joint-venture duties; Tracker owed no fiduciary duty and RMEI’s aiding/abetting claim fails as a matter of law |
Key Cases Cited
- Sigel-Campion Live Stock Comm’n Co. v. Davis, 194 P. 468 (Colo. 1921) (recognizes that an undisclosed principal can take benefit of contract and that agent’s acting for undisclosed principal is not per se fraudulent)
- Filho v. Rodriguez, 36 P.3d 199 (Colo. App. 2001) (distinguishes undisclosed vs. unidentified/partially disclosed principals; discusses enforcement by principals)
- Hirsch v. Silberstein, 227 A.2d 638 (Pa. 1967) (states that seller may avoid contract where agent falsely represents no principal exists and seller would not have dealt with principal)
- BP Am. Prod. Co. v. Patterson, 263 P.3d 103 (Colo. 2011) (elements for fraudulent concealment/nondisclosure and duty-to-disclose analysis)
- Westin Operator, LLC v. Groh, 347 P.3d 606 (Colo. 2015) (summary judgment is drastic; genuine issues of fact preclude disposition)