2021 COA 2
Colo. Ct. App.2021Background
- In 2004 McWhinney (MCLC) and Poag & McEwen (P&M) formed Centerra LLC to develop The Promenade Shops at Centerra; MCLC provided capital/land and P&M served as managing member under an Operating Agreement.
- The Agreement required P&M to obtain permanent financing before the construction loan matured; P&M instead purchased a $155 million forward interest-rate swap and later arranged a $40 million mezzanine loan.
- The district court found P&M used mezzanine proceeds to buy out a co‑founder (McEwen), concealed material facts from MCLC, and granted lenders veto/control rights harmful to Centerra LLC’s refinancing prospects.
- Centerra defaulted after the 2008 market collapse; the Shops were foreclosed. MCLC sued for breach of contract and multiple torts; the trial court entered judgment for MCLC on contract and dismissed most torts under the economic loss rule.
- On appeal the Court of Appeals (Division II) affirmed the breach‑of‑contract judgment and damages under Delaware law, affirmed dismissal of the civil conspiracy claim, but reversed dismissal of the intentional tort claims for fraudulent concealment, intentional interference with contractual obligations, and intentional inducement of breach and remanded those claims under Colorado law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether P&M owed fiduciary duties to MCLC under the Operating Agreement | MCLC: Agreement imposes duties of good faith, loyalty, fair dealing and candor on P&M | P&M: Agreement eliminates or substantially limits fiduciary duties | Held: Under Delaware law the Agreement did not eliminate fiduciary duties; P&M owed duties of care and loyalty (Sections 6.1, 6.4, 6.6 interpreted together) |
| Whether P&M breached the Agreement (swap, mezzanine loan, failure to obtain permanent financing) | MCLC: Swap and mezzanine loan were risky, self‑dealing, concealed, and prevented refinancing; P&M failed to provide required Permanent Loan Notice | P&M: Business judgment rule protects decisions; impossibility defense for financing failure | Held: Trial court’s findings of breaches are supported; business judgment rule was rebutted, impossibility defense fails because financing opportunities existed |
| Damages calculation for breach (expectation damages; swap loss; lost equity) | MCLC: Damages measured as expectation loss attributable to breaches, using value at date of first material breach | P&M: Awards speculative; 2008 financial crisis was intervening cause | Held: Delaware expectation‑damages framework applied; damages for swap loss ($3.75M) and lost equity ($38.25M) affirmed as not speculative and causation supported |
| Applicability of Colorado economic loss rule to intentional tort claims | MCLC: Bermel and Van Rees support that intentional torts rest on duties independent of contract and thus are not barred by the economic loss rule | P&M: Economic loss rule bars tort claims that arise from contract breaches | Held: Economic loss rule generally does not bar common‑law intentional torts; reversed dismissal of fraudulent concealment, intentional interference, and inducement of breach; affirmed dismissal of civil conspiracy (duty arose solely from the contract) |
Key Cases Cited
- Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256 (Colo. 2000) (articulates Colorado economic loss rule)
- BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004) (economic loss rule applied to negligence/negligent misrepresentation)
- Giampapa v. Am. Fam. Mut. Ins. Co., 64 P.3d 230 (Colo. 2003) (law‑of‑the‑case and reconsideration principles)
- Feeley v. NHAOCG, LLC, 62 A.3d 649 (Del. Ch. 2012) (Delaware LLC agreements and the requirement that elimination of fiduciary duties be plain and unambiguous)
- In re Walt Disney Co. Derivative Litig., 906 A.2d 27 (Del. 2006) (business judgment rule and standards for rebuttal)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (duty of disclosure/candor in fiduciary settings)
- Duncan v. Theratx, Inc., 775 A.2d 1019 (Del. 2001) (expectation damages principle under Delaware contract law)
- Siga Techs., Inc. v. PharmAthene, Inc., 132 A.3d 1108 (Del. 2015) (proof of damages and use of post‑breach evidence to determine expectations)
- In re BankAtlantic Bancorp, Inc. Litig., 39 A.3d 824 (Del. Ch. 2012) (limitations on excuse defenses where party’s own actions cause nonperformance)