Cross Country Land Services, Inc. v. PB Telecommunications, Inc. , 276 F. App'x 825 ( 2008 )

FILED
United States Court of Appeals
Tenth Circuit
May 2, 2008
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
CROSS COUNTRY LAND
SERVICES, INC., a Texas corporation,
Plaintiff-Appellant,
v.
PB TELECOMMUNICATIONS, INC.,
a Delaware corporation; LEVEL 3
COMMUNICATIONS, LLC, a
Delaware limited liability company; No. 06-1279
KIEWIT CONSTRUCTION (D.C. No. 01-CV-0568-LTB-PAC)
COMPANY, a Delaware corporation, (District of Colorado)
Defendants-Appellees,
PB NETWORK SERVICES, INC., a
Delaware corporation;KIEWIT
NETWORK SERVICES, INC., a
Delaware corporation,
Defendant-Third-Party-
Plaintiffs - Appellees.
ORDER AND JUDGMENT *
Before KELLY, HOLLOWAY and HOLMES, Circuit Judges.
*
This order and judgment is not binding precedent, except under the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.
I. INTRODUCTION
This case involves a dispute over the validity of and payment due under a
contract between Cross Country Land Services (hereinafter “Cross Country”) and
PB Network Services (hereinafter “PBNS”). The payments sought under the
contract were alleged to be due for work performed by Cross Country on a large
fiber optic telecommunications project (hereinafter “the Project”) owned by Level
3 Communications, LLC (hereinafter “Level 3”). This introduction provides an
overview of the parties involved in the construction of the Project and of the
lower court rulings which provide the basis for the issues on appeal. Cross
Country presents five issues for this court to review on appeal.
There are a number of parties involved in the construction of the Project,
owned by Level 3, at issue in this litigation. An overview of the parties, and the
relationships to one another, is helpful in orienting both the facts and the
remaining claims.
Level 3, owner of the Project, contracted with Kiewit Construction Co.
(hereinafter “KCC”) to design and build the Project. KCC then contracted with
Kiewit Network Services, Co. (hereinafter “KNS”) to manage the non-
construction aspects of the Project’s creation – for the design, engineering,
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permitting and management of land acquisition. KNS contracted with PBNS for
PBNS to perform “the design, engineering, permitting, and management of land
acquisition of land in which to lay the fiber optic cable and on which to install
amplification stations.” District Court Findings of Fact, Conclusions of Law and
Order, December 30, 2005 at pages 2-3. PBNS subcontracted with various
entities, one of which was Cross Country, which were “to perform various
functions relating to the acquisition of land for the Project.” Id. at 3. Cross
Country then entered into service provider agreements with entities which were to
provide personnel assistance in completing Cross Country’s work on the project.
Id. Cross Country entered into such a service provider agreement with the
original plaintiff in this action, Capital Land Services (hereinafter “Capital
Land”). Id.
Having described the parties and their relationships to one another, an
overview of the district court proceedings and relevant claims is necessary. Cross
Country was not the original plaintiff in this action. Capital Land, one of Cross
Country’s service providers, originally brought the action against Level 3 seeking
payment for work performed on the project. Capital Land amended its complaint
to include both Cross Country and PBNS as necessary parties. Cross Country
answered the complaint and also filed cross claims against PBNS for breach of
contract to recover damages. Cross Country added additional cross claims against
Level 3 for unjust enrichment. Cross Country additionally argued that a
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constructive trust should be imposed against KNS, KCC, and Level 3 for funds
that Cross Country claimed it was owed under unpaid invoices. Level 3 also filed
a cross claim against Cross Country for attorney’s fees incurred in defending
itself against the suit brought by Capital Land pursuant to the Indemnification
Provision contained in the contract at issue. The claims stated above are the
source of this appeal.
After explaining the claims, describing the rulings of the district court on
these claims is necessary. In 2003, the district court granted summary judgment
in favor of Level 3 and PBNS, dismissing Capital Land’s claims against Level 3. 1
1
Capital Land made two claims during the district court proceedings: (1)
Capital Land made an unjust enrichment claim against both PBNS and Level 3 for
receiving the benefit of Capital Land’s work on the Project and not paying Capital
Land on its outstanding invoices for work performed and (2) Capital Land argued
that PBNS breached the PBNS-Cross Country Contract which intended Capital
Land to be a third party beneficiary.
With regard to Capital Land’s unjust enrichment claim against PBNS and
Level 3, an overview of the invoicing process is necessary. The court stated that
the
invoicing process was multi-tiered: 1) [Capital Land] submitted its
invoices to Cross Country; 2) Cross Country submitted its invoices,
including charges for [Capital Land’s] and other subcontractors’
services, to PBNS; 3) PBNS submitted its invoices, including charges
for Cross Country’s and other subcontractors’ services, to KNS; and
4) KNS submitted its invoices, including charges from PBNS’ and its
other subcontractors’ services, to KCC or Level 3. Payments were
then remitted from Level 3 to KCC or KNS, from KCC or KNS to
PBNS, from PBNS to Cross Country, and from Cross Country to
[Capital Land]...
District Court Order, August 5, 2003 at pages 5-6.
The court stated that “[a]n unjust enrichment claim does not focus on
(continued...)
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Capital Land did not appeal that dismissal and did not further participate in the
case. The court then ordered Cross Country to be realigned as the plaintiff based
on Cross Country’s remaining claims against the Defendants – Level 3, KCC,
KNS, and PBNS. The Defendants (Level 3, KCC, KNS and PBNS) filed a motion
to compel Cross Country to elect a remedial theory: either (1) rescission of the
contract or (2) affirmance of the contract and assertion of any claims thereon for
relief under the contract. The district court granted the Defendants’ motion to
compel a remedial election and ordered Cross Country to choose between these
two previously stated remedies.
1
(...continued)
whether a claimant can prove that it has not been paid. Rather, a claimant must
prove inequity.” Id. at 7. Based on the record, the court found that Capital Land
could not “...prove that PBNS and Level 3 have not paid the parties with whom
they contracted for allegedly unpaid Capital [Land] services. To the contrary, the
undisputed facts show that PBNS and Level 3 paid Cross Country more than the
amount of the allegedly unpaid services provided by Capital [Land].” Id. at 6.
Finally, the court held that Capital Land’s claim fails because the facts show that
both Level 3 and PBNS paid for Capital Land’s expenses by remitting payment to
Cross Country.
The court then discussed Capital Land’s claim against PBNS that PBNS
breached the PBNS-Cross Country Contract – which Capital Land claimed
intended Capital Land to be a third party beneficiary. The district court found
that the record did not support a finding that Capital Land, or any other
subcontractor, was intended to be a third party beneficiary under the PBNS-Cross
Country Contract. Id. at 13-14. The district court reasoned that Capital Land did
not prove that the PBNS-Cross Country Contract (1) intended Capital Land to be
either directly or specifically benefitted and (2) allowed Capital Land to enforce
the contract. Id. at 12. Further, the court noted that even if Capital Land was a
third party beneficiary under the PBNS-Cross Country Contract, PBNS did not
breach the PBNS-Cross Country Contract. Id. at 15 .
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Cross Country elected to pursue rescission of the contract. In response to
the choice of rescission by Cross Country, and after briefing by the parties on the
consequences of that election, the district court dismissed both Cross Country’s
breach of contract claim against PBNS and Cross Country’s unjust enrichment
claim against Level 3. 2
After a bench trial in November of 2005, the court ruled that Cross Country
2
In the district court’s Order of May 24, 2004, the court considered the
impact of Cross Country’s election to rescind the PBNS-Cross Country Contract
upon Cross Country’s pending claims against Level 3, KCC, KNS, and PBNS.
The Court dismissed (1) Cross Country’s breach of contract claim against
PBNS and (2) Cross Country’s unjust enrichment claim against Level 3. With
respect to Cross Country’s breach of contract claim, the court ruled that the claim
was barred by Cross Country’s election to rescind the PBNS-Cross Country
Contract because any “potential damages for unpaid and untimely invoices under
the PBNS-Cross Country Contract would again be subsumed within a
determination of any restitution damages required to restore Cross Country to the
status quo [should Cross Country succeed in rescinding the PBNS-Cross Country
Contract].” District Court Order, May 24, 2004 at page 6. In sum, the court held
that Cross Country’s breach of contract claim against PBNS was inconsistent with
Cross Country’s elected remedy of contract rescission.
The court then ruled that Cross Country’s unjust enrichment claim against
Level 3 was also barred by Cross Country’s election to rescind the PBNS-Cross
Country Contract. The district court ruled that if Cross Country’s argument that
the PBNS-Cross Country Contract were to be rescinded, the document controlling
the relationship between PBNS and Cross Country would be the PBNS-Cross
Country MOU (memorandum. The PBNS-Cross Country MOU would “dictate the
amount of the restitution damages...[which] would make Cross Country whole.”
Id. at 9. The district court ultimately held that Cross Country’s election of
rescission barred Cross Country’s unjust enrichment claim against Level 3 in
order to prevent Cross Country from recovering the same damages twice. Id.
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failed to show grounds for rescission. 3 However, the court ruled in favor of Cross
Country with respect to the constructive trust claim and imposed a constructive
trust against KNS alone in the amount of $344,810.60. With regard to the
indemnification claim brought by Level 3 (for attorney’s fees incurred by
defending itself against the suit brought by Capital Land), the court awarded
Level 3 $117,557.91 against Cross Country. Finally, the court also awarded
attorney’s fees to PBNS in the amount of $781,886.50 to be paid by Cross
Country pursuant to a contractual provision awarding attorney’s fees to the
“prevailing party” in the event of litigation. This summarizes the district court
rulings on the sole issues currently on appeal.
The district court had diversity jurisdiction over this matter pursuant to 28
U.S.C. § 1332. We exercise appellate jurisdiction under 28 U.S.C. § 1291.
II. BACKGROUND
The appeal before this court is the product of several years of litigation.
The district court provided a thorough background of the facts of the instant case
and of the relationships between the parties in its Findings of Fact and
Conclusions of Law, filed on December 30, 2005. This litigation involves a
number of entities performing work under various memoranda of understanding
3
Cross Country’s claim that the PBNS-Cross Country Contract should be
rescinded is not questioned on appeal. The district court ruling that the PBNS-
Cross Country Contract was valid was not appealed and is not at issue in this
appeal.
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and contracts to construct and facilitate the creation of the fiber optic
communications project owned by Level 3.
Cross Country began work on the Project according to a May 12, 1998
Memorandum of Understanding (“PBNS-Cross Country MOU”) signed between
Cross Country and PBNS. Formal contractual negotiations followed in early 1999
culminating in an April 1999 contract between PBNS and Cross Country (“PBNS-
Cross Country Contract”).
For the sake of clarity, the claims on appeal are as follows: (1) whether the
district court erred by requiring Cross Country to elect a remedy – either
rescission or affirmance of the PBNS-Cross Country Contract, (2) whether Cross
Country’s breach of contract claim asserted against PBNS is barred by Cross
Country’s election to rescind the PBNS-Cross Country Contract, (3) whether
Cross Country’s unjust enrichment claim against Level 3 is barred by the election
to rescind the PBNS-Cross Country Contract, (4) whether Cross Country is
entitled to have a constructive trust imposed against PBNS and not KNS, and (5)
whether the district court erred in awarding Level 3 attorney’s fees pursuant to
the Indemnification Provision of the PBNS-Cross Country Contract for defending
itself against claims made by Capital Land, one of Cross Country’s service
providers.
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III. DISCUSSION
1. Standard of Review and Applicable Law
We exercise de novo review over the district court’s interpretation of
Colorado state law. Salve Regina Coll. v. Russell, 499 U.S. 225, 231 (1991); see
Dang v. UNUM Life Ins. Co. of Am., 175 F.3d 1186, 1189 (10th Cir. 1999). This
is a diversity case and the parties agree that Colorado law applies. The primary
dispute concerns the application of the election of remedies doctrine in Colorado
law. “In a diversity case, the doctrine of election of remedies is an element of
state substantive law which we are bound to apply.” McKinney v. Garnett Co.,
817 F.2d 659, 671 (10th Cir. 1987).
2. Colorado’s Election of Remedies Doctrine
The election of remedies doctrine exists in Colorado law for several
reasons: to prevent a plaintiff from recovering twice for the same wrong, Stewart
v. Blanning, 677 P.2d 1382, 1383-84 (Colo. Ct. App. 1984), to prevent jury
confusion and promote judicial efficiency, Kline Hotel Partners v. Aircoa Equity
Interests, Inc., 729 F. Supp. 740, 743 (D. Colo. 1990), and to preclude the
assertion of mutually inconsistent remedial theories on the same set of facts,
Kalish v. Brice, 315 P.2d 829, 831 (Colo. 1957). See also Trimble v. City and
County of Denver, 697 P.2d 716, 723 (Colo. 1985); Holscher v. Ferry, 280 P.2d
655, 657-58 (Colo. 1955).
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In the instant case, there are two principal issues: (1) whether the election
of remedies doctrine applies and (2) whether the timing of the required remedial
election was appropriate. The Colorado Supreme Court has stated that the
election of remedies doctrine “applies only when different remedies are provided
for a given wrong and based upon one and the same set of facts.” Kalish, 315
P.2d at 831 (emphasis in original). Inconsistency of the remedies mandates
election – if one remedy necessarily negates the assertion of another, then a single
remedy must be chosen. Blanning, 677 P.2d at 1384. In the context of a contract
dispute, the Colorado Supreme Court in Trimble v. City and County of Denver
stated that:
[o]ne seeking to remedy fraudulent inducement of a contract must
elect either to rescind the entire contract to restore the conditions
existing before the agreement was made, or to affirm the entire
contract and recover the difference between the actual value of the
benefits received and the value of those benefits if they had been as
represented.
697 P.2d at 723. See also, Elliott v. Aspen Brokers, Ltd., 825 F. Supp. 268, 269
(D. Colo. 1993); Holscher, 280 P.2d at 657.
In Elliott v. Aspen Brokers, Ltd., the district court called the situation
where a plaintiff has a choice between rescinding the contract, in order to restore
conditions before the agreement, or affirming the contract, in order to recover
damages, the classic circumstance necessitating applying the election of remedies
doctrine. 825 F. Supp. at 269. The Colorado Supreme Court stated in Holscher
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that “[w]here a party has alternative remedies of rescission and of damages for
breach, he must elect which remedy he will base his action upon.” 280 P.2d at
657.
A contract dispute is at the center of this case. Cross Country initially
argued that it should be able to rescind the PBNS-Cross Country contract on the
basis of duress or fraud which would provide it with restitution in the form of
adjusting the rates of compensation between the PBNS-Cross Country MOU and
the PBNS-Cross Country contract. Should it be unsuccessful in its attempt to
rescind, Cross Country argued that it then should be allowed to pursue its breach
of contract claim and recover damages for unpaid invoices. Cross Country
claimed that these were alternative remedies and not inconsistent theories.
Furthermore, Cross Country contended that regardless of whether the contract is
rescinded or affirmed, it should be able to recover damages for unpaid invoices.
The argument offered by Cross Country that the election of remedies
doctrine is inapplicable is premised on the claim that the alleged injuries stem
from two different sets of facts. We disagree. The alleged injuries, stemming
from the breach of contract claim and the fraudulent inducement to contract
claim, are not based on different factual scenarios. Both alleged injuries occurred
in performing work on the Project and arose out of contract negotiations and the
contract concerning that same Project. The services performed pursuant to the
PBNS-Cross Country MOU and the Contract were performed continuously from
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May of 1998 through 2000 while Cross Country submitted invoices during that
period. Both of the alleged injuries occurred in the same time frame, on the same
Project, and concerned the same type of work on the Project. There is no fact that
would be included in one claim and not the other. Thus, both of Cross Country’s
claimed injuries arise from the same set of facts, thereby warranting the
requirement to elect a remedy.
Additionally, these remedial theories – rescission and recovery under the
contract – are inconsistent under Colorado precedent. At the fundamental level,
this is a situation involving a party claiming that a contract should be rescinded
and that it should also be allowed to recover under that same contract which it is
attempting to rescind. In sum, the imposition of the election of remedies doctrine
is necessary because the alleged injuries stem from the same set of facts and the
remedial theories proposed by Cross Country are inconsistent. We therefore hold
that the requirement of an election by Cross Country was proper.
The second issue regarding the election of remedies doctrine is the timing
of the required election. In Elliott v. Aspen Brokers, Ltd., the district court stated
that
under the doctrine of election of remedies, a plaintiff generally is not
forced to chose between its alternate theories until the time of
judgment. See Timmons v. Bender, 601 S.W.2d 688, 690 (Mo. Ct.
App. 1980). The doctrine does not require the plaintiff to abandon
one of its theories before trial. To hold otherwise would require
unfairly the plaintiff to bear the risk of predicting the outcome of his
or her case. Walraven v. Martin, 333 N.W.2d 569, 573 (Mich. Ct.
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App. 1983).
825 F. Supp at 269. However, we are applying Colorado state substantive law in
regard to the election of remedies doctrine. The cases cited in Aspen Brokers,
Ltd. are not Colorado law and are therefore to be considered persuasive, but not
binding precedents.
There is persuasive guidance in another federal district court opinion as to
Colorado’s view on the timing component of the election of remedies doctrine. In
Kline Hotel Partners v. Aircoa Equity Interests, Inc., 729 F. Supp. 740 (D. Colo.
1990), the federal district court directly tackled the issue of timing in Colorado
law when the election of remedies is being enforced. Id. at 742-43. In Kline
Hotel Partners, the plaintiff argued that it need only elect a remedy among the
two inconsistent theories after the case had been submitted to a jury and the
verdict returned but before judgment. Id. at 742. The federal district court noted
that an analysis of Colorado law on the timing of electing a remedy yielded no
particular rule on that issue. Id. at 743. However, based on that research, the
district court concluded that Colorado would do as some other states have done
and leave the timing question up to the discretion of the trial judge. Id.; See also
Whatley v. Crawford & Co., 15 Fed. Appx. 625, 629 n.2 (10th Cir. 2001).
The district court took a number of factors into account in deciding
whether requiring an election before the trial began was proper. Specifically, the
district court stated that if the plaintiff in Kline Hotel Partners were
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permitted to delay election until after the close of its case, the jury
would hear claims that ultimately are triable exclusively to the court
because of Kline's election. The defense would be prejudiced by the
jury hearing evidence irrelevant to any jury question. Further, trial
preparation would be unnecessarily complicated, trial procedures
awkward, trial would be unduly protracted, and the time and
resources of the parties, Court and jurors wasted.
Kline Hotel Partners, 729 F. Supp. at 743. Thus, due to the complexity of the
case and claims, the district court in Kline Hotel Partners ruled that the election
must be made earlier. Id.While the concern for jury confusion is not present in this case, the other
concerns for judicial efficiency and smooth trial procedures do exist.
Furthermore, the election was required here after discovery was completed and
the issue was ripe for determination. The district court considered Kline Hotel
Partners and evaluated the motion with those factors in mind. As noted, “we
have held that deferential review of mixed questions of law and fact is warranted
when it appears that the district court is ‘better positioned’ than the appellate
court to decide the issue in question or that probing appellate scrutiny will not
contribute to the clarity of legal doctrine.” Salve Regina, 499 U.S. at 233(citations omitted). We cannot hold that the timing of the district court’s election
requirement here was in error.
3. Dismissal of the Breach of Contract and Unjust Enrichment Claims
The propriety of the dismissal of the breach of contract claim and the unjust
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enrichment claim presents questions of law which we review de novo, in light of
Colorado precedents. Salve Regina, 499 U.S. at 231. As to the district court’s
interpretation of Colorado law, our review is de novo. Id. As indicated
previously, remedies that are inconsistent with the elected remedial theory may
not be pursued. Thus, the primary question with regard to the dismissal of the
breach of contract and unjust enrichment claims is whether or not they are
inconsistent with the chosen remedy of contract rescission.
Since Cross Country proceeded with argument that the PBNS-Cross
Country contract should be rescinded, it would pay little more than lip service to
the election of remedies doctrine to now allow Cross Country to pursue a claim
for breach of that same contract. It is inconsistent, under Colorado law, to claim
that a contract should be rescinded and then attempt to recover damages under
that same contract. See Trimble, 697 P.2d at 723; Holscher, 280 P.2d at 657;
Aspen Brokers, Ltd., 825 F. Supp. at 269. Here the district court required the
parties to brief the impact of Cross Country’s election of rescission upon its
remaining claims. After such briefing, the district court determined that the
attempts to recover damages under the PBNS-Cross Country Contract (for unpaid
invoice amounts) and the unjust enrichment claim were inconsistent with the
elected remedy of rescission and contained damage requests already encompassed
by the rescission claim. District Court Order, May 25, 2004 at pages 6, 9-10.
The district court consequently dismissed these two claims. We agree that the
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election of rescission as the chosen remedy mandated dismissal of the breach of
contract claim.
Due to the operation of the election of remedies doctrine, the unjust
enrichment claim is subject to the same legal principles and standard of review as
the breach of contract claim. Procedurally, the two are similar as well because
they were both dismissed after Cross Country made its remedial election. The
unjust enrichment claim and the breach of contract claim both appear inconsistent
with the chosen remedy of rescission. However, a material difference is that the
contract between PBNS and Cross Country, if upheld, is between different parties,
while the unjust enrichment claim is asserted against a different although related
party, Level 3. Cross Country argued that because of work performed on the
Project, it conferred a benefit on Level 3 and in this context it would be
inequitable for Level 3 not to pay for the services performed. Further, Cross
Country argued that the remedy consists of damages in the amount of its unpaid
invoices. Thus, the remedy on the unjust enrichment claim is the same as the
remedy for the breach of contract claim – damages in the amount of the allegedly
unpaid invoices.
The structure of Cross Country’s breach of contract claim is as follows.
There are two contractual documents that provide for payment for the services
provided by Cross Country: the PBNS-Cross Country MOU and the PBNS-Cross
Country Contract. Cross Country argued, in light of the election requirement, that
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the PBNS-Cross Country Contract should be rescinded due to fraud or duress and
the price contained in the PBNS-Cross Country MOU should control. Thus, Cross
Country did not argue, and does not do so now, that there was no operative
contract in place. Rather, Cross Country argued that the MOU should control the
amount of damages for the allegedly unpaid invoices and not the Contract. Under
Cross Country’s theory, the PBNS-Cross Country MOU is the operative legal
contract. The question then is whether this argument is consistent with a claim of
unjust enrichment against a third party. The district court answered in the
negative.
In order to prove an unjust enrichment claim, under Colorado law “a
plaintiff...must prove: (1) at plaintiff's expense (2) defendant received a benefit
(3) under circumstances that would make it unjust for defendant to retain the
benefit without paying.” Salzman v. Bachrach, 996 P.2d 1263, 1265-66 (Colo.
2000) (citing DCB Constr. Co. v. Central City Dev. Co., 965 P.2d 115, 119-20
(Colo. 1998)). In Interbank Investments, LLC v. Eagle River Water and
Sanitation Distr., the Colorado Court of Appeals stated that “[i]n general, a party
cannot recover for unjust enrichment by asserting a quasi-contract when an
express contract covers the same subject matter because the express contract
precludes any implied-in-law contract.” 77 P.3d 814, 816 (Colo. Ct. App. 2003).
The Colorado Court of Appeals noted two exceptions to this limitation:
first, “a party can recover on a quasi-contract when the implied-in-law contract
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covers conduct outside the express contract or matters arising subsequent to the
express contract” and second, “a party can recover on a quasi-contract when the
party will have no right under an enforceable contract.” Interbank Investments,
77 P.3d at 816 (quotations and citations omitted). The Colorado Supreme Court
in DCB Constr. Co. v. Central City Dev. Co. cited and adopted the provision of
the Restatement of Restitution § 110 for the legal proposition that “[a] person
who has conferred a benefit upon another as the performance of a contract with a
third person is not entitled to restitution from the other merely because of the
failure of performance by the third person.” 965 P.2d 115, 121 (quoting
Restatement of Restitution § 110 (1937)).
With this legal background in place, Cross Country’s claim of unjust
enrichment against Level 3 may properly be evaluated. It is clear from both the
district court’s ruling below, and Cross Country’s brief before us, that upon
electing to rescind the PBNS-Cross Country Contract, Cross Country argued that
the PBNS-Cross Country MOU would be the controlling contractual document.
Cross Country cannot claim that there is no contract in place. There is an express
contract in place that dictates the terms and type of work to be performed.
Applying Colorado precedent from Interbank Investments we know that the
presence of an express contract, with two exceptions, precludes an unjust
enrichment claim.
Cross Country could proceed with an unjust enrichment claim if (1) the
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PBNS-Cross Country MOU did not cover the services performed by Cross
Country that provided the benefit to Level 3 or (2) if there were no other
enforceable contract under which Cross Country could recover. Neither exception
applies to Cross Country. The benefit conferred on Level 3 is the type of work to
be performed under the PBNS-Cross Country MOU. Since Cross Country argued
that the MOU was the controlling contractual document, it cannot claim that there
was no enforceable contract under which it might recover.
In summary, an express contract existed between Cross Country and PBNS
dictating the terms of the work performed by Cross Country. The work performed
by Cross Country under that contract benefitted Level 3 as owner of the project.
However, as the Colorado Supreme Court in DCB Constr. Co. v. Central City
Dev. Co. points out in adopting § 110 of the Restatement of Restitution, “[a]
person who has conferred a benefit upon another as the performance of a contract
with a third person is not entitled to restitution from the other merely because of
the failure of performance by the third person.” 965 P.2d at 121 (quoting
Restatement of Restitution § 110 (1937)). Thus, under this principle, Cross
Country cannot recover against Level 3 merely because PBNS has failed to
perform by making payments of invoices as required by the MOU.
In other words, Cross Country’s unjust enrichment claim against Level 3 is
a repackaging of its breach of contract damages claim against PBNS. The unjust
enrichment claim concerns the same work performed by Cross Country under the
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contract with PBNS and is for substantially similar damages as those sought by
Cross Country for the breach of contract claim. Cross Country’s breach of
contract claim was properly dismissed by the district court because it is
inconsistent with Cross Country’s elected remedy of rescission. Colorado
precedent, including § 110 of the Restatement of Restitution, also requires
dismissal of Cross Country’s unjust enrichment claim due to its election of
rescission as its remedial theory.
4. The Constructive Trust Claim
As previously stated, our review of a district court’s interpretation of state
law is de novo. Salve Regina, 499 U.S. at 233. As noted previously, “deferential
review of mixed questions of law and fact is warranted when it appears that the
district court is ‘better positioned’ than the appellate court to decide the issue in
question or that probing appellate scrutiny will not contribute to the clarity of
legal doctrine.” Id. (citations omitted).
Cross Country argued in the district court that KNS, KCC and Level 3 were
in possession of funds owed to Cross Country and that it was entitled to
imposition of a constructive trust against KNS, KCC and Level 3. The district
court ruled in favor of Cross Country and imposed a constructive trust in the
amount of $344,810.60 but only against KNS. Cross Country now argues that a
constructive trust for that same amount should be imposed against PBNS and that
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the district court erred in failing to impose the constructive trust against PBNS.
In the proceedings below, Cross Country argued that the constructive trust
should be imposed against KCC, KNS, and Level 3 – not PBNS. Should the
constructive trust be imposed against PBNS on appeal, Cross Country argues that
the award of attorney’s fees in favor of PBNS and against Cross Country should
be overturned. Overturning the award of attorney’s fees would be warranted,
Cross Country contends, because PBNS could no longer be considered the
prevailing party. Section 2.1 of the PBNS-Cross Country Contract states that
with regard to litigation stemming from work performed on the project, “the
prevailing party shall be entitled to recover reasonable attorney’s fees.” Thus,
Cross Country maintains that imposing a constructive trust against PBNS triggers
reversing the award of attorney’s fees to PBNS.
The Colorado Supreme Court has provided two opinions that are instructive
in defining the contours of constructive trusts: In re Marriage of Allen, 724 P.2d
651 (Colo. 1986), and Page v. Clark, 592 P.2d 792 (Colo. 1979). The Colorado
Supreme Court in Allen stated that a “constructive trust is an equitable device
used to compel one who unfairly holds a property interest to convey that interest
to another to whom it justly belongs.” 724 P.2d at 656-57 (citations omitted). In
Page v. Clark, the Colorado Supreme Court stated that “[w]hen property has been
acquired in such circumstances that the holder of legal title may not in good
conscience retain the beneficial interest equity converts him into a trustee.” 592
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P.2d at 798 (quoting Beatty v. Guggenheim Exploration Co., 122 N.E. 378, 386
(N.Y. 1919)). In Lyons v. Jefferson Bank & Trust, the federal district court ruled
that a constructive trust may be imposed even if the property in question is
fungible or has been commingled so long as it is traceable to the defendant. 793
F. Supp. 981, 986 (D. Colo. 1992).
The basis for the district court’s imposition of the constructive trust against
KNS is found in a Motion to Amend and Join Additional Parties filed by PBNS on
March 29, 2002 (prior to Cross Country’s remedial election). In that motion
PBNS stated that it was in possession of funds which it would have paid to Cross
Country. However, PBNS was unsure whether Capital Land or others of Cross
Country’s subcontractors were entitled to these same funds. In light of this,
PBNS paid the funds back to KNS. 4
The district court determined that this “constituted a judicial admission that
these funds were due and owing to Cross Country on the Level 3 Project if no
other party made a claim to them.” District Court Order, April 14, 2006 at page
4
As indicated in the “Findings of Fact and Conclusions of Law” authored
by the district court on December 30, 2005, under the PBNS-Cross Country
Contract, the billing procedure was as follows: Cross Country submitted invoices
and supporting documentation to one of thirteen area offices. The documents
would then be reviewed first by PBNS at the office and then by KNS officials.
Next, the invoices were sent to the PBNS Office in Golden, Colorado for further
review by both PBNS and KNS personnel. PBNS would pay Cross Country with
money it received from KNS. Thus, it seems, PBNS returned the money in
question ($344,810.60) to KNS because it was unsure to whom it should properly
be paid at that time.
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2. The district court reasoned that KNS would be unjustly enriched were it
allowed to maintain possession of those funds and that a constructive trust was
required to attain an equitable result. It is relevant that during the lower court
proceedings, Cross Country did not argue that the constructive trust was
wrongfully imposed on KNS and should have been imposed on PBNS. Cross
Country expressly argued before the district court that the constructive trust
should be imposed against KNS.
Cross Country now claims in its brief on appeal that the district court
“refused” to impose the constructive trust against PBNS. However, our record
shows that Cross Country did not argue below that the constructive trust should
be imposed against PBNS. Cross Country argued for the constructive trust to be
imposed against KNS, KCC, and Level 3 and the district court did so in the
amount of $344,810.60 against KNS alone. The funds in question are traceable to
KNS, since PBNS has admitted receiving the funds, and then returning them to
KNS.
As previously stated, our review of a district court’s interpretation of state
law is de novo while our review of a district court’s determination of mixed
questions of law and fact is a deferential one in the case of circumstances we
noted earlier. Salve Regina, 499 U.S. at 231, 233. In sum, we conclude that the
district court properly interpreted and applied Colorado state law on constructive
trusts and we cannot say that the district court erred in imposing the constructive
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trust on KNS and not PBNS, especially in light of the district court’s familiarity
with the factual underpinnings of this case.
A related claim may be driving this argument offered by Cross Country.
Cross Country makes clear that if this court were to direct the imposition of a
constructive trust against PBNS, the award of attorney’s fees against Cross
Country would need to be vacated because PBNS would no longer be a prevailing
party. 5 The award of attorney’s fees in favor of PBNS and against Cross Country
amounted to $781,886.50. The district court determined PBNS to be a prevailing
party because “the primary focus throughout most of this litigation was whether
Cross Country was entitled to rescission of the PBNS-Cross Country
Contract...There likewise can be no question that PBNS prevailed on this issue
with the enforcement of the PBNS-Cross Country Contract.” District Court
Order, May 9, 2006 at page 3.
Cross Country’s argument that the $781,886.50 award of attorney’s fees
against Cross Country and in favor of PBNS should be overturned depends
entirely on this court imposing the constructive trust against PBNS. As stated
above, if we agreed with Cross Country and imposed the constructive trust against
PBNS, then PBNS could not be considered a prevailing party as stated in note
5
Pursuant to Section 2.1 of the PBNS-Cross Country Contract regarding
litigation, “the prevailing party shall be entitled to recover reasonable attorney’s
fees.”
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two, supra: Section 2.1 of the PBNS-Cross Country Contract states that in the
event of litigation, “the prevailing party shall be entitled to recover reasonable
attorney’s fees.” Thus, overturning the award of attorney’s fees in favor of PBNS
hinges on the imposition of the constructive trust against PBNS. Since we have
already affirmed the district court’s ruling on the imposition of the constructive
trust against only KNS, and not PBNS, in the amount of $344,810.60, it
necessarily follows that the award of attorney’s fees in favor of PBNS and against
Cross Country was proper and we need not extend our inquiry further into the
$781,886.50 award of attorney’s fees in favor of PBNS.
5. The Indemnification Provision
Level 3 argued below that the indemnification provision of the PBNS-Cross
Country Contract required Cross Country to indemnify Level 3 for the costs
associated with defending itself against the lawsuit initiated by Capital Land, the
original plaintiff. The district court found that Cross Country was liable for such
indemnification to Level 3 as a third party beneficiary. Further, the district court
determined Capital Land was a “subcontractor or agent” within the meaning of the
Indemnification Provision contained in the PBNS-Cross Country Contract.
Pursuant to these findings, the district court entered an Amended Judgment in
favor of Level 3, and against Cross Country, in the amount of $117,557.91 for
attorney’s fees in defending itself against Capital Land’s claims. Amended
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Judgment, June 1, 2006 at page 6.
Cross Country’s indemnification claim against Level 3 concerns contract
interpretation under Colorado law which we review de novo. Salve Regina, 499
U.S. at 231. The PBNS-Cross Country Contract provides that it will be governed
by Colorado law and we apply Colorado law in interpreting the contract. See
Parrish v. Kaska, 204 F.2d 451, 452 (10th Cir. 1954); Gossard v. Gossard, 149
F.2d 111, 112 (10th Cir. 1945).
There are two relevant provisions of the PBNS-Cross Country Contract that
must be examined. The Service Provider Provision of the PBNS-Cross Country
Contract provides that
[Cross Country] shall have the right, without prior written consent of
[PBNS] to utilize personnel provided by Service Providers...Service
Providers used herein, shall be defined as being distinct and excluded
from any definitions associated with the terms Subcontractor or Sub-
Subcontractor.
The Indemnification Provision of the PBNS-Cross Country Contract states that
Cross Country will
...defend and indemnify [PBNS], [KNS], and [Level 3] against and
save them and the Project property and premises harmless from and
against any and all claims, suits, or liens therefor brought by [Cross
Country’s] own subcontractors, consultants, agents, suppliers or
employees.
The district court found that Capital Land was a service provider – as defined by
the Service Provider Provision – to Cross Country, one of five which were hired
to augment Cross Country’s labor force in working on the project owned by Level
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3. The district court then determined that Capital Land was also a subcontractor
and/or agent of Cross Country – as defined by the Indemnification Provision. The
district court ruled that pursuant to the Indemnification Provision, Cross Country
was required to indemnify Level 3 for costs associated with defending itself
against the original claim brought by Capital Land, one of Cross Country’s
service providers.
Under Colorado law, when “interpreting a contract, we give effect to the
intent and reasonable expectations of the parties.” Thompson v. Maryland
Casualty Co., 84 P.3d 496, 503 (Colo. 2004). Also, under Ad Two, Inc. v. City
and County of Denver, the Colorado Supreme Court stated that
[t]he intent of the parties to a contract is to be determined primarily
from the language of the instrument itself. In ascertaining whether
certain provisions of an agreement are ambiguous, the instrument's
language must be examined and construed in harmony with the plain
and generally accepted meaning of the words employed.
9 P.3d 373, 376 (Colo. 2004) (citations omitted).
Another canon of statutory interpretation is relevant in our analysis here.
The doctrine of expressio unius est exclusio alterius requires that upon the
enumeration of specific terms that are of a similar nature, without the addition of
a more general or inclusionary term, there should be an exclusion of other similar
terms. Garman v. Conoco, Inc., 886 P.2d 652, 664 (Colo. 1994); See In re Villa
West Associates, 146 F.3d 798, 805 n.6 (10th Cir. 1998) (“the maxim expressio
unius est exclusio alterius-the mention or inclusion of one thing implies the
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exclusion of another”).
By the contract’s terms, it specifically defines the role of service providers,
like Capital Land, that contract with Cross Country. Furthermore, the Service
Provider Provision expressly states that service providers are to be “excluded
from any definitions associated with the terms Subcontractor or Sub-
Subcontractor.” This is a clear expression that service providers are not to be
considered a part of the more general terms Subcontractor or Sub-Subcontractor
found elsewhere in the contract. The Indemnification Provision requires that
Cross Country indemnify Level 3 for expenses incurred in the event that one of
Cross Country’s subcontractor’s files a claim against Level 3. The
Indemnification Provision enumerates the types of subcontractors that are covered
in the provision: “subcontractors, consultants, agents, suppliers or employees.”
The term “subcontractor” appears in the Indemnification Provision and
could be construed to be a general term that might include service providers. But,
when looking at the Indemnification Provision in conjunction with the Service
Provider Provision, construing service providers as subcontractors would frustrate
the intention of the parties to make it clear that service providers are distinct from
subcontractors. The Service Provider Provision makes clear that service
providers are separate from other kinds of subcontractors.
The plain language of the two contractual provisions, the Service Provider
Provision and the Indemnification Provision, makes clear the conclusion that
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service providers are not included in the list of entities in the Indemnification
Provision that would require Cross Country to indemnify Level 3. When the plain
language of the contract and intention of the parties are coupled with the doctrine
of expressio unius est exclusio alterius, it is apparent that the contract intends to
differentiate between subcontractors (“subcontractors, consultants, agents,
suppliers or employees”) and service providers.
In sum, service providers, like Capital Land, are not one of the entities
enumerated in the Indemnification Provision. The Service Provider Provision
makes clear that service providers are to be excluded from being grouped with
and treated like other subcontractors. These two provisions make clear that the
district court erred by requiring Cross Country to indemnify Level 3 against
Capital Land’s claim. The award of $117,557.91 in favor of Level 3 and against
Cross Country must be reversed.
IV. CONCLUSION
We AFFIRM the district court’s requirement, and its timing, that Cross
Country elect a remedy. We also AFFIRM the district court’s dismissal of Cross
Country’s breach of contract claim against PBNS and Cross Country’s unjust
enrichment claim against Level 3. We also AFFIRM the district court’s
imposition of a constructive trust against KNS and not PBNS. Consequently, we
AFFIRM the district court’s determination that PBNS was the prevailing party
and uphold the district court’s award of attorney’s fees in favor of PBNS and
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against Cross Country in the amount of $781,886.50. We REVERSE the district
court’s ruling requiring Cross Country to indemnify Level 3 for $117,557.91
against Capital Land’s claims.
IT IS SO ORDERED.
Entered for the Court
William J. Holloway, Jr.
Circuit Judge
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