y Centerra v. Poag & McEwen ( 2021 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
January 14, 2021
2021COA2
No. 19CA0438, McWhinney Centerra v. Poag & McEwen —
Torts — Economic Loss Doctrine — Intentional Torts —
Fraudulent Concealment — Intentional Interference with
Contractual Obligations — Intentional Inducement of Breach of
Contract
A division of the court of appeals considers whether the
district court erroneously applied the economic loss rule in
dismissing common law intentional tort claims. In light of the
Colorado Supreme Court’s opinion in Bermel v. BlueRadios, Inc.,
2019 CO 31, the division concludes that in most instances the
economic loss rule will not bar intentional tort claims.
The division also considers whether a breach of contract
occurred, applying Delaware law. The division concludes that a
breach of contract did occur in this case.
COLORADO COURT OF APPEALS 2021COA2
Court of Appeals No. 19CA0438
Larimer County District Court No. 11CV1104
Honorable Thomas R. French, Judge
McWhinney Centerra Lifestyle Center LLC, a Colorado limited liability
company,
Plaintiff-Appellee and Cross-Appellant,
v.
Poag & McEwen Lifestyle Centers-Centerra LLC, a Delaware limited liability
company,
Defendant-Appellant and Cross-Appellee.
JUDGMENT AFFIRMED, ORDER REVERSED,
AND CASE REMANDED WITH DIRECTIONS
Division II
Opinion by JUDGE ROMÁN
Fox and Gomez, JJ., concur
Announced January 14, 2021
Brownstein Hyatt Farber Schreck LLP, Jonathan G. Pray, Denver, Colorado;
Hanson Bridget LLP, Gary A. Watt, Adam W. Hofmann, Anthony J. Dutra, San
Francisco, California, for Plaintiff-Appellee and Cross-Appellant
Peters Schulte Odil & Wallshein LLC, Jennifer Lynn Peters, Timothy R. Odil,
Greeley, Colorado; Senn Visciano Canges P.C., Frank W. Visciano, Charles E.
Fuller, Denver, Colorado, for Defendant-Appellant and Cross-Appellee
¶1 Poag & McEwen Lifestyle Centers-Centerra LLC (P&M) appeals
the district court’s judgment in favor of McWhinney Centerra
Lifestyle Center LLC (MCLC) on MCLC’s contract claim following a
trial to the court. MCLC cross-appeals the district court’s order
dismissing its tort claims under the economic loss rule. Applying
Delaware law pursuant to the parties’ choice of law agreement, we
affirm the district court’s judgment and award of damages on the
breach of contract claim. Applying Colorado law to the tort claims,
we affirm the district court’s order dismissing MCLC’s civil
conspiracy claim. We reverse, however, the district court’s order
dismissing MCLC’s tort claims of fraudulent concealment,
intentional interference with contractual obligations, and
intentional inducement of breach of contract and remand for
further proceedings. In reinstating these intentional tort claims, we
expressly hold that the economic loss rule generally does not bar
these types of common law intentional tort claims and, thus, we
decline to follow prior divisions that have held otherwise.
I. Background
¶2 This action arises from a failed joint venture to build and
operate The Promenade Shops at Centerra (the Shops), an upscale
1
shopping center in Loveland. The parties have been in contentious
litigation since 2011. Consequently, this case has a complex
factual and procedural history.
¶3 In 2004, McWhinney Holding Company, LLLP (McWhinney)
and Poag and McEwen Lifestyle Centers, LLC (PMLC), through their
subsidiaries MCLC and P&M, respectively, formed Centerra LLC to
acquire, develop, own, and operate the Shops. MCLC provided the
capital, land, and an established public-private partnership with
city and county entities for infrastructure financing. P&M served as
the managing member of the joint venture. An operating agreement
(the Agreement) was created to govern Centerra LLC. MCLC and
P&M signed the Agreement, and McWhinney and PMLC signed as
guarantors of certain provisions.
¶4 The Agreement required P&M to obtain a construction loan for
Centerra LLC and later a permanent loan before the maturity of the
construction loan. In 2005, P&M obtained a construction loan for
$116 million in accordance with the terms of the Agreement, and
the Shops opened in October 2005. In 2006, P&M purchased a
$155 million forward swap on behalf of Centerra LLC without
obtaining a permanent loan. The forward swap in this case was an
2
agreement between Centerra LLC and a bank to exchange interest
in February 2008 at a rate of 5.4125 percent.
¶5 In 2007, P&M entered into a $40 million mezzanine loan
agreement.1 The district court found that P&M used the $40
million mezzanine loan for personal interests — namely, for Dan
and Josh Poag to buy out their co-founder, Terry McEwen — and
that P&M intentionally concealed the buyout and its intention to
use these self-dealings to fund it.2 The court further found that
MCLC was given limited and misleading or no information regarding
these dealings.
¶6 The mezzanine loan agreement pledged fifty percent of P&M’s
ownership interest in Centerra LLC to a different subsidiary of
1 Generally, a mezzanine loan is a type of financing that pledges
equity in a company to a lender in exchange for a loan. The plan
was that P&M would obtain a mezzanine loan secured by its
ownership interests in Centerra LLC, and all of the proceeds from a
future permanent loan would go toward paying the mezzanine loan.
2 The district court found that this agreement gave lenders the
impression that P&M would find $155 million in permanent
financing before the swap, as that would be necessary to pay the
interest, but that P&M was in fact not close to finding a permanent
loan in this amount. At trial, an expert for MCLC testified that “in
[his] thirty years in the banking and financing industry he had
never seen anyone purchase a forward swap without either having a
loan already in place or close to closing.”
3
PMLC, Centerra & Dos Lagos Venture, LLC, who likewise pledged
fifty percent of its ownership interest in Centerra LLC to the
mezzanine loan lender — I&G Promenade Shops Lender, LLC,
which was a subsidiary of the bank.
¶7 The district court further found that because of the impending
cost of the forward swap and P&M’s desire to pay off the mezzanine
loan, P&M did not seek a permanent loan below $155 million,
despite only needing $116 million to refinance the construction
loan. Moreover, the court found P&M did not seek permanent
financing after 2007. Centerra LLC was forced to pay $7.5 million
to settle the forward swap, and P&M never obtained permanent
financing.
¶8 In mid-2008, the real estate market collapsed and Centerra
LLC defaulted on its construction loan. Ultimately, the Shops were
foreclosed by the lender and sold in foreclosure to a third party.
¶9 In 2011, after the joint venture failed, MCLC sued P&M,
asserting a breach of contract claim based on the Agreement and
4
seven tort claims.3 The district court dismissed all seven tort
claims under the economic loss rule.4 In 2014, on interlocutory
appeal, a division of this court affirmed the dismissal of four of
those claims based on the economic loss rule, and reinstated the
other three claims. See McWhinney Holding Co., LLLP v. Poag &
McEwen Lifestyle Ctrs.-Centerra, LLC, (Colo. App. No. 13CA0850,
July 10, 2014) (not published pursuant to C.A.R. 35(f)).5
¶ 10 In 2017, and in light of the supreme court’s opinion in Van
Rees v. Unleaded Software, Inc., 2016 CO 51, MCLC moved for
3 MCLC, McWhinney, Centerra LLC, SMP4 Investments, Inc., and
Centerra Retail Sales Fee corporations are listed as plaintiffs on the
complaint. P&M, PMLC, and Poag Lifestyle Centers, LLC are listed
as defendants. In this opinion we refer to plaintiffs collectively as
MCLC and defendants collectively as P&M.
4 The dismissed tort claims were fraudulent concealment, breach of
fiduciary duty, intentional interference with contractual obligations,
intentional inducement of breach of contract, two fraudulent
inducement claims, and civil conspiracy.
5 The four dismissed claims the division affirmed were fraudulent
concealment, breach of fiduciary duty, intentional interference with
contractual obligations, and intentional inducement of breach of
contract. The division reinstated the two pre-contractual
fraudulent inducement claims. It also reinstated the civil
conspiracy claim specifically against Poag Lifestyle Centers, LLC
while affirming the dismissal of the civil conspiracy claim against
P&M and PMLC.
5
reconsideration of the dismissal order as to three of its tort claims.
The district court denied the motion.
¶ 11 Then, as relevant here, after a thirteen-day bench trial, the
district court concluded P&M breached both its fiduciary duties and
contractual obligations under the Agreement and awarded
$42,006,032.50 to MCLC in damages plus interest.
II. Analysis
¶ 12 On appeal, P&M contends the district court erred when it
entered judgment in favor of MCLC on MCLC’s breach of contract
claim. It also challenges the damages awarded based on the breach
of contract. MCLC contends on cross-appeal that the district court
erred when it dismissed MCLC’s fraudulent concealment,
intentional interference with contractual duties, intentional
inducement of breach of contract, and civil conspiracy tort claims
under the economic loss rule. We first discuss P&M’s breach of
contract claims on appeal infra Part II.A, and then turn to MCLC’s
claim on cross-appeal regarding the economic loss rule, infra Part
II.B.
6
A. P&M’s Claims
¶ 13 P&M contends the district court erred when it found P&M
breached the Agreement because the court improperly (1) imposed
fiduciary duties on P&M; (2) found that P&M breached its
obligations under the Agreement; and (3) calculated damages.
Applying Delaware law, as the Agreement requires, we examine
these contentions.
1. Standard of Review and Applicable Law
¶ 14 Parties may contract for the application of a state’s law to
determine particular issues. Hansen v. GAB Bus. Servs., Inc., 876
P.2d 112, 113 (Colo. App. 1994). Here, the parties agreed that
Delaware law would apply. Choice of law is an issue we review de
novo. Paratransit Risk Retention Grp. Ins. Co. v. Kamins, 160 P.3d
307, 314 (Colo. App. 2007). “[W]e will apply the law chosen by the
parties [in their contract] unless there is no reasonable basis for
their choice or unless applying the chosen state’s law would be
contrary to the fundamental policy of the state whose law would
otherwise govern.” Target Corp. v. Prestige Maint. USA, Ltd., 2013
COA 12, ¶ 14. We will thus apply Delaware law to all substantive
7
legal matters based in contract law in this case, including the relief
granted. See id. at ¶¶ 15-16, 18.
¶ 15 However, we apply Colorado law to “all matters of judicial
administration, including . . . the rules prescribing how litigation
shall be conducted” and the applicable standard of review. Id. at
¶¶ 15, 19. And, we review a judgment following a bench trial as a
mixed question of fact and law. Premier Members Fed. Credit Union
v. Block, 2013 COA 128, ¶ 26. “[W]e defer to the trial court’s
credibility determinations and will disturb its findings of fact only if
they are clearly erroneous and are not supported by the record.”
Amos v. Aspen Alps 123, LLC, 2012 CO 46, ¶ 25. We review de novo
the court’s conclusions of law, Block, ¶ 27, including its conclusions
on questions of contract interpretation, Gagne v. Gagne, 2014 COA
127, ¶ 50.
¶ 16 With regard to the substantive contract law to be applied in
this case, under Delaware law, a party is excused from performance
of its contractual obligations if the other party commits a material
breach of the contract. BioLife Sols., Inc. v. Endocare, Inc., 838 A.2d
268, 278 (Del. Ch. 2003). The elements of a breach of contract
claim are (1) a contractual obligation; (2) a breach of that obligation
8
by the defendants; and (3) resulting damages to the plaintiff.
Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 883 (Del. Ch. 2009).
2. Did P&M Owe Fiduciary Duties to MCLC?
¶ 17 We start our analysis by deciding whether P&M owed fiduciary
duties to MCLC under the Agreement. We conclude that it did.
¶ 18 Under Delaware law, the drafters of an LLC may expand,
restrict, or eliminate a member or manager’s duties, including
fiduciary duties. Del. Code Ann. tit. 6, § 18-1101(c) (West 2020);
Feeley v. NHAOCG, LLC, 62 A.3d 649, 661 (Del. Ch. 2012). Unless
the LLC agreement’s terms include express language to eliminate
those duties, Delaware LLC managers owe traditional fiduciary
duties of loyalty and care to the LLC and its managers. Feeley, 62
A.3d at 660. In other words, “[d]rafters of an LLC agreement ‘must
make their intent to eliminate fiduciary duties plain and
unambiguous.’” Id. at 664 (citation omitted).
¶ 19 P&M insists that the drafting of the Agreement before us
intended to eliminate its fiduciary duties. We conclude, however,
that no such intention is plainly and unambiguously revealed. To
the contrary, section 6 of the Agreement contemplates P&M’s duties
as the manager and a member, providing, in relevant part, that
9
 P&M “will owe a duty in carrying out its duties and
responsibilities under this Agreement of good faith, loyalty,
and fair dealing to” Centerra LLC;
 P&M “shall manage or cause the affairs of the Company to be
managed in a prudent and businesslike manner” but “shall
not be restricted in any manner from participating in any
other business activities, notwithstanding the fact that the
same might be competitive with the business of [Centerra
LLC]”;
 “[i]n carrying out its powers and duties hereunder, [P&M]
shall exercise its best efforts, [and] shall owe a duty of good
faith and fair dealing to [Centerra LLC] and to [MCLC]”; and
 P&M “shall not be liable to [Centerra LLC] or [MCLC] for any
actions taken on behalf of [Centerra LLC] in good faith and
reasonably believed to be in the best interest of [Centerra LLC]
or for errors of judgment made in good faith,” but shall be
liable to Centerra LLC and MCLC for “actions and omissions
involving actual fraud, gross negligence, or willful misconduct
or from which such Member derived improper personal
benefit.”
10
¶ 20 The district court found that these provisions, read together
with the contract as a whole and in conjunction with Delaware law,
meant P&M owed fiduciary duties of care and loyalty to Centerra
LLC and MCLC. Based on our reading of Feeley, the district court’s
conclusions are supported by the record and Delaware law.
¶ 21 Not surprisingly then, we reject P&M’s assertion that the
Agreement expressly eliminates its fiduciary duties to Centerra LLC
and MCLC. Simply put, we discern nothing in the contract that
conveys P&M’s “plain and unambiguous” intent to eliminate
fiduciary duties to MCLC. Id. Instead, sections 6.1, 6.4, and 6.6 of
the Agreement provide that P&M owed fiduciary duties of care and
loyalty to Centerra LLC and MCLC. Thus, under Delaware law, the
Agreement itself provides for the fiduciary duties P&M owed to
MCLC.
¶ 22 Moreover, section 6.6(a) of the Agreement provides that P&M
shall be liable for actions or omissions involving “actual fraud, gross
negligence, or willful misconduct or from which [P&M] derived
improper personal benefit.” Once again applying the logic in Feeley,
the Agreement here “assumes that those obligations already exist”
through fiduciary duties. Id. at 665.
11
¶ 23 We also disagree with P&M that the provision in section 6.4(a)
of the Agreement that P&M “shall not be restricted in any manner
from participating in any other business activities, notwithstanding
the fact that the same may be competitive with the business of the
company” eliminated or significantly lessened its fiduciary duty of
loyalty to MCLC. The district court correctly concluded that this
language modified P&M’s duty of loyalty but did not displace or
eliminate it. Indeed, section 6.1 of the Agreement expressly
provides that P&M owed a duty of loyalty to Centerra LLC.
Additionally, section 6.6(a) provides relief to MCLC for “actions or
omissions involving willful misconduct or from which [P&M] derived
improper personal benefit”; this liability stems from an assumed
duty of loyalty. See Feeley, 62 A.3d at 664-65; see also Kuhn
Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393, 396-97 (Del.
2010) (noting that contracts must be construed as a whole).
¶ 24 We therefore agree with the district court that P&M owed the
fiduciary duties of care and loyalty to MCLC under the Agreement.
We next turn to whether the district court’s findings of breach of
contract were proper.
12
3. Obligations and Duties Under the Agreement
¶ 25 P&M next asserts the district court erred when it concluded
that P&M breached fiduciary duties of care and loyalty to MCLC.
Again, we disagree.
¶ 26 The district court found that P&M breached the Agreement on
multiple occasions, including when it (1) purchased the forward
swap on behalf of Centerra LLC; (2) entered into the $40 million
mezzanine loan; and (3) failed to secure permanent financing. We
address each of these findings in turn.
a. $155 Million Forward Swap
¶ 27 The district court found that P&M breached its obligations
under the Agreement when it purchased the $155 million forward
swap on behalf of Centerra LLC. In so finding, P&M contends the
district court contravened the business judgment rule, improperly
substituting its own judgment for P&M’s.
¶ 28 The business judgment rule in Delaware is based on the
presumption that, in making a decision, the manager of a company
“acted on an informed basis, in good faith, and in the honest belief
that the action taken was in the best interests of the company.” In
re Walt Disney Co. Derivative Litig., 906 A.2d 27, 52 (Del. 2006)
13
(quoting Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)).
However, this presumption can be rebutted if a plaintiff
demonstrates that the manager breached the fiduciary duties of
loyalty or care or acted in bad faith. See id.¶ 29 The duty of loyalty requires that the best interest of the
company and its members take precedence over any of the
manager’s individual interests. Cede & Co. v. Technicolor, Inc., 634
A.2d 345, 361 (Del. 1993). As discussed, while the parties in this
case modified the duty of loyalty to allow P&M to participate in
“other business activities,” the duty of loyalty was not eliminated.
Rather, the duty of loyalty here required P&M to affirmatively
protect Centerra LLC’s interests. Id. The duty of loyalty carries the
subsidiary requirement that the manager act in good faith. In re
Rural/Metro Corp. Stockholders Litig., 102 A.3d 205, 252-53 (Del.
Ch. 2014).
¶ 30 Additionally, the duty of care requires that a manager act on
an “informed basis.” In re Walt Disney Co. Derivative Litig., 906
A.2d at 52; In re Rural/Metro Corp. Stockholders Litig., 102 A.3d at
252-53. In section 6.4 of the Agreement, the parties in this case
14
expanded this obligation, requiring P&M to act in a “prudent and
businesslike manner.”
¶ 31 We are unpersuaded by P&M’s contention that the corporate
fiduciary duties imposed in the duty cases cited here or by the
district court are in any way distinct from the “traditional fiduciary
duties” imposed on managers of LLCs. See Feeley, 62 A.3d at 660
& n.1.
¶ 32 The district court found that P&M breached the Agreement
when it purchased the forward swap on behalf of Centerra LLC but
it was not a material breach of the Agreement because it did not “go
to the root or essence of the [A]greement.” However, the district
court found that P&M was nonetheless liable to MCLC because
P&M derived an improper personal benefit from the swap because
P&M used it “as a tool to obtain the $40 million mezzanine loan.”6
6 We disagree with P&M’s contention that the district court’s
determination was illogical and inconsistent where the court found
that P&M’s breach was not material, but was grossly negligent and
constituted willful misconduct. The district court’s findings that
the purchase of the swap was not a material breach means that
MCLC was not excused from performance at the time P&M
purchased the forward swap and, thus, could not have recovered
expectation damages for breach of contract. However, under
section 6.6(a) of the Agreement, MCLC is entitled to indemnification
15
In this regard, the district court found the business judgment rule
did not apply because MCLC demonstrated that P&M’s decision to
enter the forward swap was a breach of P&M’s fiduciary duties of
loyalty and care.
¶ 33 In support of its findings, the court found the swap breached
P&M’s duties of loyalty and care because the forward swap was for
the individual benefit of P&M, Dan Poag, and Josh Poag, and for
PMLC, as it was “an effort by Josh Poag to convince private
investors that he had or was close to permanent financing for $155
million so he could obtain $40 million to purchase McEwen’s share
of the Poag and McEwen businesses.”
¶ 34 The district court further found that P&M breached its duty of
care to act in a “prudent and businesslike manner” in its
management of Centerra LLC. The court found that evidence
presented at trial — including expert testimony that purchasing the
swap was a “cart before the horse . . . kind of situation” that was
for acts of gross negligence or willful misconduct, or acts from
which P&M derived an improper personal benefit — regardless of
whether they constituted material breaches or not. Thus, MCLC
was entitled to damages under this provision of the Agreement, as
discussed in Part II.A.4.a, infra.
16
“very risky” and “made no sense” and Josh Poag’s own testimony
that forward swaps generally were “aggressive” and “unnecessarily
risky” — established that P&M breached its duty of care.
¶ 35 Contrary to P&M’s contentions, the district court did not
ignore Delaware’s business judgment rule. It made detailed
findings, supported by the record, to determine that the business
judgment rule was rebutted because P&M breached its duties of
loyalty and care to MCLC. Accordingly, we discern no error in the
district court’s determination that the business judgment rule was
rebutted as to the forward swap.
b. Mezzanine Loan
¶ 36 P&M also contends that the district court erred by finding
P&M materially breached the Agreement when it obtained the
mezzanine loan. According to P&M, the district court erred by
finding that P&M owed MCLC traditional fiduciary duties of care
and loyalty. P&M also contends that the court imposed a more
onerous disclosure burden than Delaware law requires. But we
have already concluded that the district court properly found that
P&M owed MCLC traditional fiduciary duties of care and loyalty.
17
¶ 37 As relevant here, the district court found that “P&M’s entry
into, and concealment of, the [m]ezzanine [l]oan constituted
material breaches of its fiduciary duties to MCLC and Centerra
LLC.” In support of its findings, the district court found that the
loan improperly gave the lending bank “significant authority over
the management of Centerra LLC and the Shops” without MCLC’s
consent. The court further found that this breached P&M’s duties
of loyalty and good faith, as the decision was “solely for the benefit
of [P&M] and was not in the best interest of Centerra LLC.” These
findings are supported by the record.
¶ 38 The district court also found that P&M purposefully concealed
the purpose of the loan — that is, P&M only revealed to MCLC that
it was a “corporate financing.” The court found that the evidence
and testimony was “unequivocal” that P&M wanted to keep the fact
that the loan was to buy out McEwen’s interest secret from MCLC.
Thus, the district court concluded that P&M’s conduct was a
violation of the duties of fair dealing and candor and constituted “at
least willful misconduct” and “may have amounted to fraud.” In
addition, the district court found that P&M’s concealment of
significant details, including the effect of the loan on Centerra LLC,
18
and its misrepresentations of material facts while obtaining MCLC’s
agreement for the loan constituted another breach of fair dealing
and candor, that this was willful misconduct, and that P&M derived
an improper personal benefit from its actions. These findings, too,
are supported by the record.
¶ 39 Finally, the district court found with record support that the
mezzanine loan had a negative effect on P&M’s ability to obtain
permanent financing pursuant to the Agreement, because all
permanent financing offers P&M received after 2007 were
insufficient to pay off both the mezzanine loan and the construction
loan.
¶ 40 We conclude, moreover, that P&M had a duty to disclose
material facts related to the mezzanine loan to MCLC. In Delaware,
LLC managers are not required to disclose every decision or reason
for their decisions, but they must give “a picture that is materially
accurate, and in which the imperfections and inconsistencies are
not airbrushed away.” Appel v. Berkman, 180 A.3d 1055, 1061-62
(Del. 2018). This did not happen here.
¶ 41 Section 6.6 of the Agreement explicitly provides that P&M
owed a duty of fair dealing to MCLC, which necessarily imposed a
19
duty of candor — sometimes referred to as a duty of disclosure. See
Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983). The district
court made detailed findings — all supported by the record — that
P&M purposefully withheld, concealed, and misrepresented
material facts about the loan and its effect on Centerra LLC’s
operations in order to get MCLC’s consent. Thus, we conclude that
the district court’s findings that P&M failed to give MCLC a
complete or accurate picture of how the loan affected the operation
of Centerra LLC under the Agreement were supported by the record.
We thus affirm the district court’s finding that P&M breached its
duty of fair dealing to MCLC in obtaining the mezzanine loan.
c. Failure to Obtain or Provide Notice of a Permanent Loan
¶ 42 P&M next contends that the district court erred when it
concluded that P&M breached its obligations to MCLC when P&M
failed to obtain or provide notice of a permanent loan before the
construction loan’s maturity date. In particular, P&M contends the
district court erred by concluding that (1) P&M breached the
Agreement when it failed to secure permanent financing in 2007; (2)
P&M breached the Agreement when it failed to issue a permanent
loan impasse notice; and (3) P&M’s affirmative defense of
20
impossibility failed. We agree with the district court’s legal
conclusions for three reasons.
¶ 43 First, the district court noted section 7.3(a) of the Agreement
provides that, prior to the maturity date of the construction loan,
P&M “shall submit to [MCLC] in writing the terms proposed for the
Permanent Loan, including the maximum loan amount, maturity
date, interest rate, fees to the lender, repayment terms and other
material terms (the ‘Permanent Loan Notice’).”
¶ 44 The district court found that P&M breached this contractual
obligation when it ultimately failed to secure a permanent loan or
submit a proper permanent loan notice prior to the maturity date of
the construction loan. The district court found, separately, that
P&M breached its fiduciary duties in 2007 when it abandoned its
search for permanent financing, which was part of a cascade of
breaches stemming from the initial breaches regarding the forward
swap and mezzanine loan.
¶ 45 Contrary to P&M’s contention, the district court did not
conclude that “P&M breached the Agreement by not closing a
permanent loan before April 2007.” Rather, the district court found
that the maturity date for the construction loan was January 23,
21
2009, and that P&M was obligated to provide notice of permanent
financing before that date, which it did not do.
¶ 46 Second, the district court also found that P&M breached its
contractual obligations when it failed to give notice of permanent
financing before the need for an impasse notice arose under the
Agreement. But even if we assume, without deciding, that the
district court erred in this respect, any error was harmless, as it did
not “substantially influence[] the outcome of the case.” Laura A.
Newman, LLC v. Roberts, 2016 CO 9, ¶ 3; see also C.R.C.P. 61.7
¶ 47 Finally, we reject P&M’s contention that the district court
erred when it rejected P&M’s impossibility defense with respect to
the permanent loan. Under Delaware law, a promisor’s contractual
obligations can be released from liability for breach of contract
when further performance is impossible. Martin v. Star Publ’g Co.,
7The district court found that P&M breached these obligations
twice: first, when P&M failed to provide MCLC notice of a
permanent loan pursuant to and in compliance with the Agreement;
and second, when P&M failed to provide MCLC a permanent loan
impasse notice. The result is the same, however, because the
district court based its award of damages on entirely separate
breaches — namely, when P&M entered the mezzanine loan without
making material disclosures to MCLC, and when P&M purchased
the forward swap.
22
126 A.2d 238, 242 (Del. 1956). This defense is applicable only
when the party claiming the defense establishes the impossibility of
performance is caused by a fortuitous event and not by an act of
the promisor’s own volition. Id. The Restatement of Contracts
defines “impossibility” not only as strict impossibility, but
“impracticability because of extreme and unreasonable difficulty,
expense, injury, or loss.” Restatement (First) of Contracts § 454
(Am. L. Inst. 1932).
¶ 48 In this case, the district court found P&M’s impossibility
defense failed because there was substantial evidence that it could
have obtained a permanent loan for the entire amount of the
construction loan. Specifically, the district court found:
 P&M received “numerous” permanent loan offers in 2006
and 2007 that would have fully paid off the construction
loan;
 P&M was able to secure permanent financing for another,
similar property with similar occupancy during that period;
and
 there were loans available in 2008 and 2009, and, even if
those loans did not have favorable terms, they would have
23
allowed P&M to substantially perform its obligations in the
Agreement.
¶ 49 The district court then concluded that, because P&M “waited
too long and sought to leverage the property too high,” it was
ultimately responsible for the breach and failed to establish
impossibility. The record supports the district court’s findings.
¶ 50 P&M passed on multiple opportunities for permanent
financing that were available through January 2009. See In re
BankAtlantic Bancorp, Inc. Litig., 39 A.3d 824, 846 (Del. Ch. 2012)
(“[A] party cannot ‘abrogate a contract, unilaterally, merely upon a
showing that it would be financially disadvantageous to perform
it . . . .’”) (citation omitted). Thus, P&M failed to establish its own
actions were not the cause of its ultimate failure to perform and,
therefore, its impossibility defense fails. Martin, 126 A.2d at 242.
¶ 51 Accordingly, we affirm the district court’s supported findings
that P&M breached its contractual obligations.
¶ 52 Having affirmed the district court’s conclusion that P&M
breached its contractual obligations under the Agreement, we next
consider whether the calculation of damages was correct.
24
4. Calculation of Damages
¶ 53 P&M next contends the district court erred when it calculated
MCLC’s damages related to (1) funds lost as a result of P&M’s
decision to enter a forward swap and (2) MCLC’s lost equity as a
result of P&M’s breach.8
¶ 54 The proper measure of damages presents a question of law
subject to de novo review. Taylor Morrison of Colo., Inc. v. Terracon
Consultants, Inc., 2017 COA 64, ¶ 23. However, “[i]n determining
the issues of causation of injury, the trier of fact is vested with
broad discretion and its assignment . . . will not be set aside absent
a showing that it abused that discretion.” Vento v. Colo. Nat’l Bank-
Pueblo, 907 P.2d 642, 646 (Colo. App. 1995). We further afford the
district court’s damages award “considerable deference and will set
it aside only if clearly erroneous.” Colo. Ins. Guar. Ass’n v. Sunstate
Equip. Co., 2016 COA 64, ¶ 128 (cert. granted in part Oct. 31, 2016).
¶ 55 Under Delaware law,
the standard remedy for breach of contract is
based upon the reasonable expectations of the
parties ex ante. This principle of expectation
8The district court also awarded damages related to the costs of
P&M’s improper tax appeal. P&M does not challenge this
determination on appeal.
25
damages is measured by the amount of money
that would put the promisee in the same
position as if the promisor had performed the
contract. Expectation damages thus require
the breaching promisor to compensate the
promisee for the promisee’s reasonable
expectation of the value of the breached
contract, and, hence, what the promisee lost.
Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001) (footnote
omitted).
¶ 56 Because contract damages are based on the injured party’s
expectation interest, the extent of the loss is determined in
reference to the plaintiff’s particular circumstances. See
Restatement (Second) of Contracts § 347 (Am. L. Inst. 1981); see
also Duncan, 775 A.2d at 1022 (adopting the Restatement (Second)
of Contract’s definition of expectation damages). Courts must (1)
quantify the loss suffered by the injured party, measured at the
date of the breach; and (2) subtract the costs or other losses
avoided by the non-breaching party. Restatement (Second) of
Contracts § 347 cmts. a, b.
¶ 57 We turn now to the district court’s calculation of damages
related to the swap and MCLC’s lost equity.
26
a. Forward Swap
¶ 58 The district court found P&M breached the Agreement by
purchasing the forward swap. See supra Part II.A.3.a. Because the
district court made detailed findings supported by the record that
the decision to purchase the swap caused MCLC’s loss, as opposed
to falling interest rates as P&M contends, we affirm its award of
damages for half of the loss that resulted from the swap — $3.75
million. See Henkel Corp. v. Innovative Brands Holdings, LLC, No.
CIV.A. 3663-VCN, 2013 WL 396245, at *4 (Del. Ch. Jan. 31, 2013)
(unpublished opinion) (“Expectation damages are calculated as the
amount of money that would put the non-breaching party in the
same position that the party would have been in had the breach
never occurred.”).
b. Lost Equity
¶ 59 The district court calculated damages based on its finding that
P&M materially breached the Agreement on April 23, 2007, when it
entered the mezzanine loan agreement. The court then measured
the value of the breach based on the value of the Shops on that
date — $192.5 million — and then subtracted the $116 million
construction loan in place at the time of breach. The district court
27
accordingly concluded the Shops were valued at $76.5 million and
MCLC’s equity was half that amount — $38.25 million. Therefore,
the district court awarded MCLC $38.25 million for its lost equity in
Centerra LLC.
¶ 60 According to P&M, the district court’s conclusion that P&M’s
breach caused MCLC’s lost equity required a series of improperly
speculative conclusions and ignored the 2008 financial crisis as a
proximate, intervening cause of MCLC’s loss. We discern no error.
¶ 61 Contrary to P&M’s contentions, the district court considered
causation at length as follows:
(1) Josh Poag and Dan Poag, through P&M,
used [Centerra LLC] and the Shops to secretly
secure a $40 million loan from [the bank], and
used the proceeds of that loan to buy out
McEwen’s interest in P&M;
(2) The Poags, through P&M, intentionally
kept important details and the purpose of the
$40 million loan from McWhinney for more
than two years;
(3) The $40 million loan agreement secretly
gave [the bank] significant authority to make
management decisions for [Centerra LLC].
This change in decision making amounted to
de facto changes in the Operating Agreement.
McWhinney did not consent [to] or know of
these changes when they were agreed to by
P&M;
28
(4) The proceeds from the $40 million loan
were used solely for the benefit of P&M and the
Poags, and did not benefit the Shops,
[Centerra LLC], or McWhinney;
(5) As part of the $40 million loan, P&M
required MCLC to sign an amendment to the
Operating Agreement. However, P&M obtained
the consent of MCLC without disclosing
material facts concerning the $40 million loan;
(6) P&M failed to disclose to McWhinney that
in order to get the loan, P&M had to approve
agreements giving [the bank] veto power over
the future refinancing of the construction loan;
(7) P&M obtained the $40 million loan
proceeds and immediately used those proceeds
to acquire McEwen’s ownership interest in
P&M;
(8) Days after P&M received and paid the
$40 million to McEwen in 2007, P&M secretly
informed [the bank] that P&M was no longer
interested in obtaining a permanent loan for
the Shops and [Centerra LLC], and then
demanded McWhinney purchase P&M’s
interest in [Centerra LLC];
(9) After that time, P&M did not make good
faith efforts to obtain permanent financing for
[Centerra LLC] before [Centerra LLC] defaulted
on the Construction Loan;
(10) . . . Josh Poag, on behalf of P&M, told the
CFO for P&M that he “let the [construction]
loan go into default” and that he “had the
ability to get a permanent loan” before the
default on the Construction Loan;
29
(11) P&M’s inability to secure permanent
financing before April 2007 was the result of
its attempts to secure a loan which would pay
off the $116 million construction loan and pay
$40 million to P&M so that it could buy out
McEwen’s interest in P&M. . . .
¶ 62 The district court further found that
[t]his series of breaches between 2006 and
2010 also resulted in, led to, and caused
losses because if P&M had not actively
concealed their breaches from [MCLC], [MCLC]
would have fired P&M as the manager
pursuant to Section 6.5 of the Operating
Agreement, and [MCLC] would have obtained
permanent financing for the Shops in 2006 or
2007, which would have avoided foreclosure of
the Shops.
The district court also rejected P&M’s claim that the 2008 financial
crisis was the cause of MCLC’s loss, finding that the mezzanine loan
prevented P&M from finding permanent financing by the deadline
and that, while the financial crisis would have made it difficult or
less profitable to obtain a permanent loan, it was not an
impossibility. See supra Part II.A.3.b-c. Because these findings are
supported by the record, we discern no error.
¶ 63 We also reject P&M’s contention that the district court erred in
its method of calculating MCLC’s expectation damages. While
“expectation damages must be proven with reasonable certainty . . .
30
the injured party need not establish the amount of damages with
precise certainty ‘where the wrong has been proven and injury
established.’” Siga Techs., Inc. v. PharmAthene, Inc., 132 A.3d 1108,
1131 (Del. 2015) (citation omitted). Further, a court may use post-
breach evidence “in order to aid in its determination of the proper
expectations as of the date of the breach.” Id. at 1133.
¶ 64 Here, the district court attributed MCLC’s lost equity in
Centerra LLC to P&M’s first material breach in April 2007, and,
accordingly, it calculated damages based on that date. Because
Centerra LLC’s value fluctuated at the time of breach, the district
court took the average of the value of the Shops over the year
surrounding the breach. We conclude this method of calculating
damages was not speculative — it was a “sparing[]” use of post-
breach evidence to determine MCLC’s proper expectations at the
time of breach. Id. Contrary to P&M’s contentions, the district
court properly ignored post-breach evidence — namely, the rising
value of the Shops, and then the financial crisis — as irrelevant to
discerning MCLC’s approximate equity in Centerra LLC at the time
of breach. Accordingly, because the district court’s method of
31
calculating damages complied with Delaware’s law on expectation
damages, we affirm.
¶ 65 We now turn to MCLC’s cross-appeal.
B. MCLC’s Cross-Appeal
¶ 66 On cross-appeal, MCLC contends that the district court erred
by dismissing MCLC’s common law intentional tort claims after
applying the economic loss rule. Based on Van Rees, 2016 CO 51,
and Bermel v. BlueRadios, Inc., 2019 CO 31, MCLC further
contends that a division of this court on interlocutory appeal erred
when it affirmed the district court’s dismissal in McWhinney
Holding, No. 13CA0850. With one exception, we agree with MCLC.
¶ 67 Departing from prior divisions, we conclude today that in most
instances the economic loss rule will not bar intentional tort claims.
Accordingly, with the exception of the civil conspiracy claim, we
deem the interlocutory decision in this case no longer sound
because of changed conditions of law that substantially alter the
application of the economic loss rule in Colorado.9
9We are aware that, in a case involving separate claims, the same
parties presented the same issue to a federal district court. In that
case, the district court concluded that Bermel substantially
32
1. Standard of Review and Applicable Law
¶ 68 We review a district court’s grant of a motion to dismiss de
novo, “accepting the factual allegations contained in the complaint
as true and viewing them in the light most favorable to the
plaintiff.” Van Rees, ¶ 9.
¶ 69 While the Agreement is governed by and construed in
accordance with Delaware law, we agree with the district court and
the division of this court on interlocutory appeal that the choice of
law provision of the Agreement applies only to contract claims, and
not to related tort claims. McWhinney Holding, No. 13CA0850, slip
op. at 7. Accordingly, Colorado law applies. See URS Grp., Inc. v.
Tetra Tech FW, Inc., 181 P.3d 380, 391 (Colo. App. 2008) (applying
New Jersey law, based on a contractual choice of law provision, to
contract claims, but applying Colorado law to tort claims).
¶ 70 “When a court issues final rulings in a case, the ‘law of the
case’ doctrine generally requires the court to follow its prior relevant
changed the economic loss rule in Colorado and stands for the
proposition that “intentional torts depend on duties independent of
contract and therefore are not barred by the economic loss rule.”
Mcwhinney Holding Co., LLLP v. Poag, Civ. A. No. 17-CV-02853-
RBJ, 2019 WL 9467529, at *2 (D. Colo. Dec. 6, 2019).
33
rulings.” Giampapa v. Am. Fam. Mut. Ins. Co., 64 P.3d 230, 243
(Colo. 2003). However, the law of the case doctrine is “merely
discretionary when applied to a court’s power to reconsider its own
prior rulings.” Id. “[A] court may decline to apply the doctrine if a
previous decision is no longer sound because of changed conditions
of law.” Id. (stating that the court of appeals should have declined
to apply the law of the case doctrine to its own prior decision in the
same case in light of significant developments in the law).
¶ 71 In Colorado, the economic loss rule provides that “a party
suffering only economic loss from the breach of an express or
implied contractual duty may not assert a tort claim for such a
breach absent an independent duty of care under tort law.” Town
of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000). The
purpose of the rule is to “maintain a distinction between contract
and tort law.” Id. at 1262. “To decide whether the economic loss
rule bars a tort claim, courts must first determine the source of the
duty at issue.” Bermel, ¶ 53 (Gabriel, J., dissenting).
¶ 72 As the supreme court has made clear, tort claims based on
theories of negligence and negligent misrepresentation necessarily
stem from duties created by a contract between parties and,
34
therefore, the economic loss rule often applies. See Town of Alma,
10 P.3d at 1264-65 (negligence); BRW, Inc. v. Dufficy & Sons, Inc.,
99 P.3d 66, 67-68 (Colo. 2004) (negligence and negligent
misrepresentation); Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1268
(Colo. 2000) (negligence).
¶ 73 This same principle, however, works in the opposite direction
when it comes to common law intentional torts. In Bermel, ¶ 37,
the supreme court held that the economic loss rule did not bar a
tort claim where a state statute created a cause of action. The
court’s opinion hinged on a concern that interpreting the economic
loss rule — a judicially created doctrine — to bar a statutory claim
would undermine separation of powers principles. Id. at ¶ 20 n.6.
But, in reviewing its own case law on the economic loss rule, the
court pointed out that it had only ever applied the economic loss
rule “to bar common law tort claims of negligence or negligent
misrepresentation.” Id. at ¶ 21.
¶ 74 While the supreme court’s decision in Bermel was limited to
statutory tort claims, we conclude the court’s opinion is instructive
on the economic loss rule’s applicability to common law intentional
tort claims. Notably, the Bermel court observed that “[a]lthough our
35
cases have emphasized the need to ‘prevent tort law from
“swallowing” the law of contracts,’ we have been equally clear that
we must also ‘be cautious of the corollary potential for contract law
to swallow tort law.’” Bermel, ¶ 20 n.6 (first quoting Town of Alma,
10 P.3d at 1260; and then quoting Van Rees, ¶ 19). The Bermel
court elaborated that “the economic loss rule generally should not
be available to shield intentional tortfeasors from liability for
misconduct that happens also to breach a contractual obligation.”
Id.; see also Van Rees, ¶ 12 (concluding that the economic loss rule
did not necessarily apply where a party’s tort claims were related to
contractual obligations, but the tort claims flowed from an
independent duty under tort law).10
10 While we acknowledge that, generally, parties may agree to
exculpatory provisions in contracts that may shield tortfeasors from
liability, we note that such provisions are subject to the close
scrutiny of reviewing courts. See Bermel v. BlueRadios, Inc., 2019
CO 31, ¶ 20 n.6; see also Jones v. Dressel, 623 P.2d 370, 376 (Colo.
1981); Rhino Fund, LLLP v. Hutchins, 215 P.3d 1186, 1191 (Colo.
App. 2008) (“Most courts will not enforce exculpatory and limiting
provisions . . . if they purport to relieve parties from their own
willful, wanton, reckless, or intentional conduct.”).
36
2. Discussion
¶ 75 With these principles in mind, we conclude that the district
court erred when it applied the economic loss rule to bar MCLC’s
common law intentional tort claims of fraudulent concealment,
intentional interference with contractual obligations, and
intentional inducement of breach of contract because each of these
claims stems from a duty based in tort law independent of the
Agreement.11 While the conduct underlying each of these claims
may also support a breach of contract claim in this case, we are not
persuaded that the economic loss rule should “shield intentional
tortfeasors from liability for misconduct that happens also to
breach a contractual obligation.” Bermel, ¶ 20 n.6 (emphasis
added).
¶ 76 Nonetheless, we agree with the district court that the
economic loss rule barred MCLC’s civil conspiracy claim. MCLC
alleged P&M and PMLC conspired to breach the Agreement. As
signatories to the contract, however, P&M and PMLC’s duty not to
11We note that MCLC’s claims of interference with contractual
obligations and intentional inducement of breach of contract alleged
P&M interfered with MCLC’s performance of, or induced MCLC’s
breach of, contracts that were separate from the Agreement.
37
conspire to breach the contract stemmed solely from the Agreement
itself. See Logixx Automation, Inc. v. Lawrence Michels Fam. Tr., 56
P.3d 1224, 1231 (Colo. App. 2002); see also Grynberg, 10 P.3d at
1268 (noting that the focus in an analysis under the economic loss
rule is on the source of the duties alleged to have been breached).
In other words, P&M and PMLC had no independent duty in tort
law not to conspire to breach the Agreement with another signatory
to the Agreement. Thus, the economic loss rule bars MCLC’s civil
conspiracy claim. See Top Rail Ranch Ests., LLC v. Walker, 2014
COA 9, ¶ 40 (economic loss rule barred claim against an individual
who was a member of the contracting entity).
¶ 77 Town of Alma supports our conclusion that, generally, the
economic loss rule does not bar common law intentional tort
claims. There, the supreme court acknowledged that fraud claims
are based on violations of independent duties rather than
contractual ones. Town of Alma, 10 P.3d at 1263 (“We have also
recognized that certain common law claims that sound in tort and
are expressly designed to remedy economic loss may exist
independent of a breach of contract claim.”); see also Glencove
Holdings, LLC v. Bloom (In re Bloom), ___ B.R. ___, 2020 WL
385507485, at *46 (Bankr. D. Colo. Sept. 10, 2020) (interpreting
Bermel and Town of Alma to conclude that “intentional torts depend
on duties independent of contract and thus are not barred by the
economic loss rule”).
¶ 78 We recognize that our conclusion today is contrary to a trilogy
of conclusions from divisions of this court that concluded the
economic loss rule barred common law intentional tort claims
similar to the claims raised in this case. See Hamon Contractors,
Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 289 (Colo. App. 2009),
as modified on denial of reh’g (June 11, 2009) (concluding that the
“economic loss rule can apply to fraud or other intentional tort
claims based on post-contractual conduct”); Former TCHR, LLC v.
First Hand Mgmt. LLC, 2012 COA 129, ¶ 29 (holding that the
economic loss rule barred fraud and concealment claims because
they did not arise out of an independent duty); Walker, ¶ 40.
However, those divisions did not have the benefit of Bermel to guide
their analysis. Thus, we decline to follow them. See People v.
Zubiate, 2013 COA 69, ¶ 48 (we are not bound by another division’s
holding), aff’d, 2017 CO 17.
39
¶ 79 As discussed, our conclusion is also largely contrary to
another division’s conclusions on interlocutory appeal from this
case. See McWhinney Holding, No. 13CA0850. Because of the
significant developments in the law pertaining to the economic loss
rule’s applicability to intentional torts, we decline to follow the law
of the case here. See Giampapa, 64 P.3d at 243.
¶ 80 Accordingly, we conclude that the district court erred when it
applied the economic loss rule to dismiss MCLC’s claims of
fraudulent concealment, intentional interference with contractual
obligations, and intentional inducement of breach of contract. We
thus reverse and reinstate those claims.
III. Conclusion
¶ 81 We affirm the judgment and award of damages in the breach
of contract claim. We affirm the order dismissing MCLC’s tort claim
of civil conspiracy, but we reverse the order dismissing MCLC’s tort
claims of fraudulent concealment, intentional interference with
contractual obligations, and intentional inducement of breach of
contract, and remand for further proceedings on those claims.
JUDGE FOX and JUDGE GOMEZ concur.
40