Ward v. Siebel Living Trust ( 2010 )

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
February 22, 2010
TENTH CIRCUIT
Elisabeth A. Shumaker
Clerk of Court
MICHAEL J. WARD,
Plaintiff-Appellee
/Cross-Appellant, No. 08-1475 & 08-1502
v. (D. Colorado)
SIEBEL LIVING TRUST, (D.C. No. 1:06-CV-00036-WYD-MJW)
Defendant-Appellant
/Cross-Appellee,
and
THOMAS SIEBEL, JUSTIN
DOOLEY, and FIRST VIRTUAL
MANAGEMENT, INC.,
Defendants.
ORDER AND JUDGMENT *
Before MURPHY, HOLMES, Circuit Judges, and ARMIJO, ** District Judge.
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
**
The Honorable M. Christina Armijo, District Judge, United States District
Court for the District of New Mexico, sitting by designation.
I. Introduction
In 2006, Plaintiff-Appellee, Michael J. Ward, sued Defendant-Appellant,
The Siebel Living Trust (the “Trust”), seeking to recover a commission on the
sale of a residential property in Telluride, Colorado. Ward is a registered real
estate agent and the Trust was the owner of the residence. Ward alleged, inter
alia, that the Trust breached an implied duty of good faith and fair dealing under
the holdover provision in the listing agreement signed by the parties. The district
court denied the Trust’s motion for judgment as a matter of law on the good faith
and fair dealing claim. The jury found in favor of Ward on the claim and
awarded damages for the breach. The district court, however, reduced the Trust’s
obligation to zero because Ward settled with Justin Dooley, a second defendant,
for the full amount of the commission. The court also denied Ward’s motion for
prejudgment interest and denied the Trust’s renewed motion for judgment as a
matter of law. The Trust filed the instant appeal, challenging the denial of its
motion for judgment as a matter of law premised on its argument the implied duty
of good faith and fair dealing applies only when the manner of performance under
a contract term is left to a party’s discretion. Ward cross-appeals, arguing the
district court erred in concluding he is not entitled to prejudgment interest.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court reverses
the denial of the Trust’s motion for judgment as a matter of law and dismisses
Ward’s cross-appeal as moot.
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II. Factual Background
Ward is a real estate broker in Colorado. In 2004, Ward and the Trust
entered into an Exclusive Right-to-Sell Listing Contract (the “Listing
Agreement”). Pursuant to the terms of the Listing Agreement, Ward agreed to act
as the Trust’s broker and agent to list and sell real property owned by the Trust
(the “Trust Property”). With extensions agreed upon by the parties, the term of
the Listing Agreement ran from April 22, 2004 to April 30, 2005 (the “Listing
Period”). If the Trust Property sold during the Listing Period, the Trust agreed to
pay Ward a commission of six percent. After the expiration of the Listing Period,
the six-percent commission was payable to Ward if the following terms of the
Listing Agreement (the “Holdover Provision”) were met:
b. When Earned. Such commission shall be earned upon the
happening of any of the following:
....
(3) Any Sale of the Property within 180 calendar days subsequent to
the expiration of the Listing Period (Holdover Period) to anyone with
whom Broker negotiated and whose name was submitted, in writing,
to Seller by Broker during the Listing Period (including any
extensions thereof); provided, however, that Seller shall owe no
commission to Brokerage Firm under this subsection (3) if a
commission is earned by another licensed real estate brokerage firm
acting pursuant to an Exclusive Right-to Sell [sic] Listing Contract or
an Exclusive Agency Listing Contract entered into during the
Holdover Period.
The Trust Property remained unsold at the end of the Listing Period. The
Trust subsequently entered into a new exclusive listing agreement with Stephen
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Cieciuch. During the term of the agreement between the Trust and Mr. Cieciuch,
the Trust Property was sold to a buyer with whom Ward negotiated during the
Listing Period. The Trust paid a commission to Mr. Cieciuch under the terms of
his agreement and, therefore, did not pay a commission to Ward under the terms
of the Holdover Provision.
Ward sued the Trust and three other defendants, asserting claims arising
from the sale of the Trust Property and the nonpayment of the commission. The
matter proceeded to trial. At the close of evidence, the Trust moved for judgment
as a matter of law under Fed. R. Civ. P. 50(a) as to all of Ward’s claims. The
district court denied the Trust’s motion and four claims against the Trust were
submitted to a jury. The jury returned a verdict against the Trust only on Ward’s
claim the Trust breached an implied duty of good faith and fair dealing when it
refused to pay a commission pursuant to the terms of the Holdover Provision.
The Trust renewed its motion for judgment as a matter of law, reiterating its
argument that Colorado law only recognizes an implied duty of good faith and
fair dealing when the contract term at issue confers discretion on a party as to
how an obligation will be performed. The district court denied the motion.
Ward, however, settled with a second defendant for the full amount of his
commission. The district court ruled Ward could not recover the damages
awarded by the jury from the Trust because such recovery would constitute an
impermissible double recovery. The court then denied Ward’s request for
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prejudgment interest, concluding he was not “entitled to prejudgment interest on a
judgment amount reduced to zero.”
On appeal, the Trust challenges the denial of its motion for judgment as a
matter of law. Ward cross-appeals, arguing the district court erred when it
concluded he could not recover prejudgment interest.
III. Discussion
This court reviews the denial of a Rule 50 motion de novo. Veile v.
Martinson, 258 F.3d 1180, 1188 (10th Cir. 2001). In the course of that review,
we apply “the same legal standard as the district court.” Id. (quotation omitted).
In this diversity action, Colorado law controls the interpretation of the Listing
Agreement. See City of Aurora v. Bechtel Corp., 599 F.2d 382, 386 (10th Cir.
1979). “Colorado . . . recognizes that every contract contains an implied duty of
good faith and fair dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo.
1995). That duty, however, applies “only when the manner of performance under
a specific contract term allows for discretion on the part of either party.” Id.Because the Trust Property sold during the 180-day holdover period, Ward
was entitled to a commission under the Holdover Provision if three conditions
were satisfied: (1) Ward negotiated with the buyer during the Listing Period, (2)
Ward provided the name of the buyer to the Trust in writing during the Listing
Period, and (3) no other broker earned a commission on the sale of the Trust
Property. The parties do not dispute that these three conditions were not met
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because Mr. Cieciuch earned a commission on the sale of the Trust Property.
Ward, however, asserted a claim the Trust breached an implied duty of good faith
and fair dealing by entering into a new listing agreement that had the practical
effect of extinguishing his entitlement to a commission on the sale of the Trust
Property. In its motion for judgment as a matter of law, the Trust challenged the
submission of Ward’s claim to the jury, arguing no duty of good faith and fair
dealing applied to the Holdover Provision under Colorado law because that
provision did not confer discretion on the Trust to determine the terms of its
performance. The district court rejected the Trust’s argument, instead agreeing
with Ward that the Trust had discretion because it retained the power to enter into
a new listing agreement with another broker once the Listing Agreement with
Ward expired.
The district court’s ruling is inconsistent with Colorado law and, thus,
erroneous. In Amoco Oil Co. v. Ervin, the defendant entered into lease
agreements with its dealers which provided for fixed, monthly rental payments.
908 P.2d at 495. Under the terms of the contracts, however, it also reserved the
right to modify future rental payments. Id. at 495-96, 499. The lease agreement
did not specify how any variable monthly rental would be calculated. At first,
Amoco calculated the monthly rental payments based on the sale of gasoline. Id.
at 495. It then switched to an asset-based calculation. Id. at 495-96. The lessees
sued, arguing, inter alia, that the asset-based calculation resulted in redundant
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charges and, therefore, by using that method Amoco breached an implied duty of
good faith and fair dealing. Id. at 497. The Colorado Supreme Court held the
contract contained an implied duty of good faith and fair dealing because “Amoco
retained discretion to modify the monthly rental amount,” thereby leaving the
rental provision “open.” Id. at 499 (“Under the agreements, Amoco retained
discretion to modify the monthly rental amount. . . . By allowing Amoco to
adjust the rental terms, the parties, in effect, left these future provisions open.”).
Discretion in performance occurs when “the parties, at formation [of the
contract], defer a decision regarding performance terms of the contract leaving
one party with the power to set or control the terms of performance after
formation.” City of Golden v. Parker, 138 P.3d 285, 292 (Colo. 2006) (quotation
omitted). The contact provision in Amoco was discretionary because Amoco
retained not just the right to modify future rental payments, but also the discretion
to determine how those payments would be calculated. That is not the situation
presented here. The Trust did not reserve any discretion under the Holdover
Provision to control the terms of its performance. For example, the Trust did not
retain discretion to approve or reject the names submitted by Ward; it did not
retain discretion to alter the amount of the commission; and it did not retain
discretion to determine the timing of any payment or the length of the holdover
period. If the unambiguous and unequivocal conditions were met, Ward was
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entitled to a specific commission; if the conditions were not met, he was not
entitled to the commission.
Ward’s argument that the Trust’s discretion arose from its retention of the
right to enter into a listing agreement with a new broker is flawed. Although the
Trust’s exercise of its unrestricted right to contract with a new broker ultimately
affected Ward’s entitlement to the commission, the implied duty of good faith and
fair dealing applies only to the performance of obligations owed to one party by
the other under a specific contract term that allows for the exercise of discretion.
Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., 872 P.2d 1359, 1363
(Colo. App. 1994). The obligation owed to Ward under the terms of the Holdover
Provision was to pay Ward a commission if the three conditions were met. But,
as discussed, supra, the Holdover Provision does not allow for the exercise of
discretion in the performance of that obligation. Ward’s argument fails because
he has not identified any provision in the Listing Agreement pursuant to which
the Trust owed him a duty with respect to the continued marketing of the Trust
Property during the holdover period. The Trust’s right to enter into a new listing
agreement with a different broker is not restricted in any way by the Holdover
Provision or any other clause in the Listing Agreement. Because the Trust owed
no obligation to Ward under the Listing Agreement when it exercised its right to
retain a new broker, no implied duty of good faith and fair dealing applies to the
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Trust’s actions and the district court erred when it permitted the good faith and
fair dealing claim to go to the jury.
Our conclusion that the district court erroneously permitted Ward’s claim
to be submitted to the jury renders Ward’s cross-appeal on the issue of
prejudgment interest moot.
IV. Conclusion
The order of the district court denying the Trust’s motion for judgment as a
matter of law is reversed and the matter remanded with instructions to enter
judgment in favor of the Trust. Appeal No. 08-1502 is dismissed as moot.
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
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