Rice's Lucky Clover Honey, LLC. v. Hawley

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT August 15, 2017
_________________________________
Elisabeth A. Shumaker
Clerk of Court
RICE’S LUCKY CLOVER HONEY,
LLC., a Colorado limited liability
company,
Plaintiff/Counterclaim
Defendant - Appellant,
v. No. 16-1186
(D.C. No. 1:14-CV-00402-RPM)
JAMIE HAWLEY, an individual (D. Colo.)
Defendant/Counterclaimant -
Appellee.
_________________________________
ORDER AND JUDGMENT *
_________________________________
Before BACHARACH, PHILLIPS, and McHUGH, Circuit Judges.
_________________________________
This appeal grew out of a confusing contract between a honey
business (Rice’s Lucky Clover Honey, LLC) and its president (Mr. Jamie
Hawley). Both parties sued one another for breach of contract, with Rice
Honey also suing for breach of fiduciary duty. 1
*
This order and judgment does not constitute binding precedent except
under the doctrines of law of the case, res judicata, and collateral estoppel.
But the order and judgment may be cited for its persuasive value under
Fed. R. App. P. 32.1(a) and Tenth Cir. R. 32.1(A).
1
Rice Honey also asserted a claim for a declaratory judgment, but this
claim is not involved in the appeal.
The district court awarded judgment as a matter of law to Mr.
Hawley on Rice Honey’s claims for breach of contract and breach of
fiduciary duty. These rulings were correct.
The district court also awarded judgment as a matter of law to Mr.
Hawley on his counterclaim for breach of contract. In our view, the district
court should have let the jury decide this claim. Accordingly, we reverse
the judgment for Mr. Hawley on his counterclaim for breach of contract. In
connection with this counterclaim, the district court also held as a matter
of law that a liquidated-damages clause was enforceable. Under state law,
the enforceability of this clause should have been left for the jury to
decide.
I. Background
The parties negotiated over the contract terms and exchanged
multiple drafts. Rice Honey wanted to hire Mr. Hawley for one year and
see how the relationship worked before deciding whether to continue. Mr.
Hawley wanted a term longer than one year.
Rice Honey proposed a contract with a one-year term that could be
renewed for up to three years. Mr. Hawley changed the language without
alerting Rice Honey to the change. Rice Honey signed, thinking that it was
signing its latest version. Rice Honey was wrong; the written contract
contained indicia reflecting the wishes of both parties:
2
[Mr.] Hawley’s term of employment under this
Agreement (such term of employment, as it may be extended or
terminated, is herein referred to as the “Employment Term”)
shall be for a term commencing on the Effective Date and,
unless terminated earlier as provided in Section 5 hereof,
ending on the third anniversary of the Effective Date (the
“Original Employment Term”) one (1) year period; unless, at
least sixty (60) days prior to the end of the original
employment term Rice [Honey] or [Mr.] Hawley has notified
the other in writing that the Employment Term shall terminate
at the end of that current term. If not so terminated, then the
Employment Term shall be automatically extended, subject to
earlier termination as provided in Section 5 hereof, for an
additional two (2) year period (the “Additional Terms”).
Appellant’s App’x, vol. V, at 846 (emphasis added). In one place, the
contract stated that the employment term would end on “the third
anniversary of the [e]ffective [d]ate.” Id. In the same sentence, however,
the contract stated that the employment term would be a “one (1) year
period.” Id.
Rice Honey soon became disenchanted with Mr. Hawley and notified
him that the employment would not be renewed after one year. Mr. Hawley
viewed this notification as a premature termination, theorizing that the
base term was three years rather than one year. This disagreement led to
the litigation.
After Rice Honey presented its trial evidence, Mr. Hawley moved for
judgment as a matter of law on Rice Honey’s claims. The district court
granted the motion, awarding judgment to Mr. Hawley not only on Rice
Honey’s claims but also on the counterclaim. On the counterclaim, the
3
court awarded Mr. Hawley $412,000 ($250,000 for liquidated damages and
$162,000 for actual damages). In these rulings, the court held for the first
time that even if the contract had only a one-year term, Rice Honey would
be obligated to pay the amount specified in the contract for a termination
without cause. Rice Honey appealed.
II. Standard of Review and the Applicable Substantive Law
We engage in de novo review of a district court’s grant of judgment
as a matter of law, applying the same legal standards that governed in
district court. Elm Ridge Expl. Co. v. Engle, 721 F.3d 1199, 1216 (10th
Cir. 2013). Under these standards, we can uphold the district court’s ruling
only if all of the evidence points one way and precludes a reasonable
inference supporting Rice Honey. See id.
In this diversity case, we consider the evidence based on Colorado’s
substantive law. See McKissick v. Yuen, 618 F.3d 1177, 1184 (10th Cir.
2010). 2 In defining Colorado’s substantive law, we are guided primarily by
the opinions of the Colorado Supreme Court. Belnap v. Iasis Healthcare,
844 F.3d 1272, 1294 (10th Cir. 2017).
III. Rice Honey’s Claim for Breach of Contract
Rice Honey argues that its contract claim should have been submitted
to the jury. For this argument, Rice Honey theorizes that
2
The parties agree on the applicability of Colorado’s substantive law.
4
 the jury could conclude that there was no meeting of the minds
and
 the contract was ambiguous.
But these theories would not create a jury question on Rice Honey’s
contract claim.
In district court, Rice Honey had based its contract claim on Mr.
Hawley’s continued work for Liberty Institute, false representations to
Walmart and Sam’s Club, and dishonest and disloyal conduct. But Rice
Honey’s appellate arguments would not support these theories of liability.
For example, in defending its contract claim, Rice Honey argues that the
jury could have found that there was no meeting of the minds. But if there
was no meeting of the minds, Rice Honey could not have prevailed on its
contract claim. Similarly, Rice Honey argues that the alleged contract was
ambiguous regarding the duration of the employment term and the effect of
the “termination without cause” provision. But ambiguity of those terms
would not have affected the viability of Rice Honey’s contract claim. In
the absence of any other pertinent argument, we affirm the district court’s
award of judgment as a matter of law to Mr. Hawley on Rice Honey’s
contract claim.
IV. Rice Honey’s Claim for Breach of Fiduciary Duty
The district court also properly granted judgment as a matter of law
to Mr. Hawley on Rice Honey’s claim for breach of fiduciary duty.
5
A. Rice Honey had to establish four elements.
On this claim, Rice Honey needed to show that (1) Mr. Hawley had
acted as a fiduciary, (2) Mr. Hawley had breached a fiduciary duty,
(3) Rice Honey had incurred damages, and (4) these damages had been
caused by Mr. Hawley’s breach of a fiduciary duty. See Rupert v. Clayton
Brokerage Co., 737 P.2d 1106, 1109-1100 (Colo. 1987) (en banc).
B. Rice Honey alleges two theories of breach of fiduciary duty.
Rice Honey alleges two theories of how Mr. Hawley breached a
fiduciary duty: (1) by making material misrepresentations to Walmart and
Sam’s Club, and (2) by continuing to work for Liberty after December 31,
2012.
C. The evidence did not support liability for breach of
fiduciary duty based on Mr. Hawley’s alleged
misrepresentations to Walmart and Sam’s Club.
The first theory involves Mr. Hawley’s alleged misrepresentations to
Walmart and Sam’s Club. This theory fails as a matter of law based on the
absence of any resulting damages.
The alleged misrepresentations appeared in a letter from Mr. Hawley
to Walmart and Sam’s Club: “After an extensive review by an outside firm
regarding our pricing and terms to existing customers in like classes of
trade, it was brought to our attention that we are in violation of the federal
law passed in 1936 to outlaw price discrimination.” Appellant’s App’x,
6
vol. V, at 898. 3 Rice Honey presented evidence that this statement was
false because there had not been an outside review of pricing. For the sake
of argument, we may assume without deciding that Mr. Hawley acted as a
fiduciary and that this misrepresentation breached a fiduciary duty to Rice
Honey. Even with that assumption, this theory would fail as a matter of
law because Rice Honey did not incur any damages.
Under Colorado law, Rice Honey must prove “the fact of damages or
injury” with “a reasonable degree of persuasiveness.” W. Cities Broad.,
Inc. v. Schueller, 849 P.2d 44, 48 (Colo. 1993) (en banc). This proof must
go “beyond a mere possibility or speculation.” Gibbons v. Ludlow, 304
P.3d 239, 246 (Colo. 2013) (en banc). Generalized opinions regarding lost
sales are insufficient in the absence of an explanation. See Roberts v.
Holland & Hart, 857 P.2d 492, 497 (Colo. App. 1993) (holding that an
affiant’s projection of net profit was too speculative without an
explanation for how the total had been calculated).
At trial, the vice-president of operations for Rice Honey testified that
there had been no injury from Mr. Hawley’s misrepresentations:
Q. Let’s move down a little further. Did he--here’s the next
question. It says here on Item B, “Intentionally engaged
3
Rice Honey also alleges that Mr. Hawley engaged in other “actions
and omissions that . . . caused [Rice Honey] to lose substantial sales at
their biggest customer, WalMart/Sam’s Club.” Appellant’s Opening Br.
at 12. But Rice Honey makes no further reference to other alleged actions
and omissions.
7
in conduct which is demonstrably and materially injurious
to Rice.” Okay. Then it goes into various conditions and
so forth like this, talking about fraud or dishonesty or
theft against Rice, okay. And your testimony earlier, sir,
had to do with this Robinson/Patmen [sic] communication
on the pricing. And the question I have for you is: was
there a demonstrable and material injury for Rice?
A. No, sir.
Q. Did you lose any sales because of that?
A. No, sir.
Q. Did you lose any profits?
A. No, sir.
Q. Okay. Did you lose a customer?
A. No, sir.
Q. Okay. So there really was no injury there, was there?
A. You’re correct.
Appellant’s App’x, vol. IV, at 593; see also id. at 562-63 (similar
testimony by the same individual). 4
The only contrary evidence consisted of testimony by a co-owner of
Rice Honey, who expressed a thought or feeling that the company had
incurred damages. The co-owner’s thought or feeling regarding lost sales
constitutes speculation, which is insufficient under Colorado law to prove
4
Rice Honey points out that this individual also testified regarding
lost sales in 400 Walmart stores. But Rice Honey did not present any
evidence tying the lost sales to Mr. Hawley’s alleged misrepresentations.
8
the fact of damages. See Nevin v. Bates, 347 P.2d 776, 777-78 (Colo.
1959).
Considering the testimony in the light most favorable to Rice Honey,
we conclude that no reasonable jury could have found damages from Mr.
Hawley’s alleged misrepresentations to Walmart and Sam’s Club. Thus,
Rice Honey’s first theory fails as a matter of law.
D. The economic-loss rule prevents recovery for breach of
fiduciary duty on Rice Honey’s second theory.
Rice Honey’s second theory is based on Mr. Hawley’s alleged work
for Liberty after December 31, 2012. At that point, Mr. Hawley was
serving as the president of Rice Honey. For the sake of argument, we may
assume without deciding that Rice Honey has satisfied each of the four
elements for this theory. Nonetheless, this theory would fail as a matter of
law under Colorado’s economic-loss rule.
The economic-loss rule allows a tort recovery only if the underlying
duty is independent of a duty arising out of a contract. See Haynes Trane
Serv. Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962 (10th Cir.
2009) (applying Colorado law); Town of Alma v. AZCO Constr., Inc.,
10 P.3d 1256, 1262-63 (Colo. 2000) (en banc). Here the alleged duty to
stop working for Liberty was directly tied to the underlying contract.
In district court, Mr. Hawley did not invoke the economic-loss rule.
Thus, the threshold issue is whether we can consider Mr. Hawley’s newly
9
presented argument as an alternative basis to affirm the ruling. We enjoy
discretion to affirm on alternative grounds. Hernandez v. Starbuck, 69 F.3d
1089, 1093-94 (10th Cir. 1995).
In determining whether to exercise this discretion, we consider
(1) whether the ground was fully briefed here and in district court, (2)
whether our decision would involve only questions of law, and (3) whether
the parties had a fair opportunity to develop the factual record. Elkins v.
Comfort, 392 F.3d 1159, 1162 (10th Cir. 2004). The first factor cuts both
ways, but the second and third factors support use of our discretion to
consider Mr. Hawley’s new argument on the economic-loss rule.
The first factor cuts both ways because the economic-loss rule is
fully briefed on appeal but was not raised in district court.
The second factor supports consideration of the issue, for the
applicability of the economic-loss rule is a question of law. See Haynes
Trane Serv. Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962 (10th
Cir. 2009); accord Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247
F.3d 79, 106 (3d Cir. 2001) (stating that the economic-loss doctrine
involves a question of law); Grynberg v. Questar Pipeline Co., 70 P.3d 1,
10 (Utah 2003) (“The district court’s interpretation and application of the
economic loss doctrine is a question of law . . . .”).
The third factor also supports consideration because the issue does
not involve any factual questions. Without a factual component to the
10
issue, Rice Honey would suffer no prejudice if we were to consider the
issue in the first instance.
In light of the second and third factors, we exercise our discretion to
consider this issue. See United States v. Damato, 672 F.3d 832, 845 (10th
Cir. 2012) (considering potential affirmance on an issue raised sua sponte
based on the second and third factors).
We ultimately conclude that the economic-loss rule applies. Under
this rule, the underlying duty must arise from a source independent of the
contract. Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1262-63
(Colo. 2000) (en banc). And even when the underlying duty would arise in
the absence of the contract, the duty is not considered independent if it is
memorialized in the contract. See Haynes Trane Serv. Agency, Inc. v. Am.
Standard, Inc., 573 F.3d 947, 962 (10th Cir. 2009) (applying Colorado
law).
In its reply brief, Rice Honey argues that the economic-loss rule does
not apply to claims involving a breach of fiduciary duty. We disagree, for
the Colorado Court of Appeals has applied the economic-loss rule to claims
for breach of fiduciary duty. See Casey v. Colo. Higher Educ. Ins. Benefits
All. Tr., 310 P.3d 196, 204 (Colo. App. 2012) (“Any tort claim for breach
of fiduciary duty that the employees attempt to interject into this case
concerning the trustees would be barred by operation of the economic loss
rule.”); A Good Time Rental, LLC v. First Am. Title Agency, Inc., 259 P.3d
11
534, 540 (Colo. App. 2011) (stating that a “fiduciary duty between
contracting parties” does not necessarily create a special relationship that
“trumps the economic loss rule”).
Rice Honey argues that if the economic-loss rule applies to claims
for breach of fiduciary duty, the Colorado Supreme Court must have
missed the issue in Jet Courier Service, Inc. v. Mulei, 771 P.2d 486 (Colo.
1989) (en banc), and Rupert v. Clayton Brokerage Co. of St. Louis, Inc.,
737 P.2d 1106 (Colo. 1987) (en banc). But Colorado appellate courts
“[‘]normally decide only questions presented by the parties.’” Zeke Coffee,
Inc. v. Pappas-Alstad P’ship, 370 P.3d 261, 269 (Colo. App. 2015)
(quoting Greenlaw v. United States, 554 U.S. 237, 243-44 (2008)). Thus,
the Colorado Supreme Court has expressly declined to consider an
economic-loss argument that the parties had not presented. A.O. Smith
Harvestore Prods., Inc. v. Kallsen, 817 P.2d 1038, 1039 (Colo. 1991)
(en banc).
We have no indication that the parties raised the economic-loss rule
in Jet Courier Service, Inc. or in Rupert. Thus, we have no reason to think
that the Colorado Supreme Court missed the issue. Instead, we can
reasonably assume that none of the parties invoked the economic-loss rule
in these cases. If they didn’t, the Colorado Supreme Court would not be
expected to address the issue. Our case is different, for Mr. Hawley has
raised the economic-loss rule on appeal.
12
In our view, Mr. Hawley’s new argument is supported by Colorado’s
treatment of the economic-loss rule. Colorado courts have identified
certain special relationships that automatically trigger an independent duty
of care that supports tort liability even when the parties have entered into a
contract. Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1263 (Colo.
2000) (en banc). These special relationships often “entail a fiduciary
relationship.” A Good Time Rental, LLC v. First Am. Title Agency, Inc.,
259 P.3d 534, 540 (Colo. App. 2011). But “not every fiduciary relationship
implicates a risk of damages for which contract law cannot provide a
remedy.” Id. Here the employment contract provided a suitable remedy for
Mr. Hawley’s alleged work for Liberty after December 31, 2012.
The contract arguably required Mr. Hawley to wrap up his consulting
work for Liberty by December 31, 2012, and the jury could reasonably
infer that continued consulting work for Liberty in 2013 would constitute a
breach of contract. For the sake of argument, we can even assume that a
contractual breach would also entail a breach of fiduciary duty. However
the cause of action is framed, the contract would provide a perfectly
suitable remedy. Thus, the economic-loss rule prevents recovery under
Rice Honey’s second theory of a breach of fiduciary duty.
13
V. Mr. Hawley’s Counterclaim for Breach of Contract
The district court awarded judgment as a matter of law to Mr.
Hawley on his counterclaim for breach of contract. For two reasons, this
ruling was erroneous:
1. A reasonable jury could have found that Mr. Hawley had
materially breached the contract prior to Rice Honey’s alleged
breach.
2. The contract was ambiguous regarding the duration of the
employment term. 5
5
Rice Honey also argues that a jury could reasonably find that there
was no meeting of the minds. We disagree.
Rice Honey contends that it was unaware of Mr. Hawley’s revisions
before signing the contract. If Rice Honey signed before the contract was
altered, the alteration might arguably render the contract unenforceable.
But Rice Honey does not suggest that it signed before the contract was
altered. Instead, Rice Honey alleges that it signed the contract unaware
that the latest draft had already been altered by Mr. Hawley.
Even if Rice Honey signed the contract unaware of an alteration, the
contract would not be vitiated, for the failure to read what one signs does
not ordinarily prevent enforcement. See Rasmussen v. Freehling, 412 P.2d
217, 219 (Colo. 1966) (stating that parties may not avoid enforcement of a
contract just because they had failed to read the contract). An exception
exists when the parties were mutually mistaken about the contract. Kuper
v. Scroggins, 257 P.2d 412, 413-14 (Colo. 1953) (en banc); see Smith v.
Whitlow, 268 P.2d 1031, 1035 (Colo. 1954) (en banc). But Rice Honey
does not suggest that Mr. Hawley was mistaken about the contract terms.
Thus, the signed contract would bind the parties even if Rice Honey had
not read the latest version before signing.
14
A. A reasonable jury could have found that Mr. Hawley had
materially breached the contract.
The district court erred in entering judgment as a matter of law to
Mr. Hawley on his counterclaim for breach of contract, for a reasonable
jury could have found that Mr. Hawley had materially breached the
contract prior to Rice Honey’s alleged breach.
Mr. Hawley alleges that Rice Honey breached the contract by
prematurely terminating the employment without paying the amount
specified in the contract for early termination. But Rice Honey could avoid
performance if Mr. Hawley had previously failed to substantially perform
his own contractual duties. See Kaiser v. Mkt. Square Disc. Liquors, Inc.,
992 P.2d 636, 641 (Colo. App. 1999). This principle would create a jury
issue, for a reasonable jury could have found that Mr. Hawley had already
committed a material breach by continuing to work for Liberty after
December 31, 2012. 6
Here the existence of a contractual breach by Mr. Hawley turns on
two questions:
1. Did the contract prevent Mr. Hawley from working for Liberty
after December 31, 2012?
2. If the contract prevented such work, did Mr. Hawley continue
to work for Liberty after December 31, 2012?
6
Rice Honey makes this argument on appeal with respect to Mr.
Hawley’s counterclaim, but not with respect to Rice Honey’s own contract
claim.
15
The jury could reasonably answer “yes” to both questions, finding a
contractual breach from Mr. Hawley’s continued work for Liberty after
December 31, 2012.
First, the jury could reasonably find that the contract prevented Mr.
Hawley from working for Liberty after December 31, 2012. The contract
did not generally prevent Mr. Hawley from working for another employer
while working for Rice Honey. 7 But the contract arguably suggested that
Mr. Hawley’s right to work for Liberty might be limited to approximately
3½ months. The contract was signed by the parties on September 13, 2012
and stated: “[Rice Honey] recognizes that [Mr.] Hawley will need to spend
modest amounts of time until December 31, 2012 at Liberty Institute
completing the shutdown of the consulting aspects of his business.”
Appellant’s App’x, vol. V, at 846. By stating that Mr. Hawley would need
to continue working for Liberty until December 31, 2012, the contract
could have been implying that Mr. Hawley was to stop working for Liberty
by that date.
Second, the jury could reasonably find that Mr. Hawley had
continued to work for Liberty after December 31, 2012. For example, Rice
Honey presented evidence that in 2013, Mr. Hawley had organized
7
Mr. Hawley could not work for another employer involved in the
honey business. But Rice Honey does not suggest that Liberty was in the
honey business.
16
interviews and researched resumes for candidates hoping to land a position
with Liberty as Chief Operating Officer. In addition, six emails between
Mr. Hawley and Liberty management suggested that Mr. Hawley was
continuing to work for Liberty in a managerial position after December 31,
2012:
1. One email (April 18, 2013) referred to Mr. Hawley as part of
the management team and notified him of an upcoming
meeting.
2. A second email (April 19, 2013) contained Mr. Hawley’s
response, which reflected help in planning the meeting and in
giving input on the matters to be discussed.
3. A third email (May 2, 2013) consisted of Mr. Hawley’s
transmission of an offer to hire a Chief Operating Officer for
Liberty.
4. A fourth email (May 3, 2013) thanked Mr. Hawley for his hard
work.
5. A fifth email (May 13, 2013) referred to Mr. Hawley’s
participation in a meeting to “review 2013 KPIs and create new
ones for 2014.” Appellant’s App’x, vol. VI, at 970.
6. A sixth email (May 15, 2013) referred to Mr. Hawley’s
participation in a management meeting.
The resulting issue is whether a jury could reasonably find the fact of
damage from Mr. Hawley’s alleged work for Liberty after December 31,
2012. In our view, such a finding would have been reasonable. Rice Honey
continued to pay Mr. Hawley after December 31, 2012. Part of these
continued payments could constitute damages, for the jury could
reasonably infer that Rice Honey had paid more than it would have if it had
17
known that Mr. Hawley was continuing to serve Liberty in a managerial
capacity. Thus, the existence of damages constituted a factual issue for the
jury to decide.
In sum, a reasonable jury could find that Mr. Hawley had breached
the contract and that this breach of contract had caused damages. Thus, the
district court erred in entering judgment as a matter of law for Mr. Hawley
on his counterclaim for breach of contract. In our view, the jury could
reasonably find that Mr. Hawley had materially breached the contract
before Rice Honey prematurely terminated the contract. Such a finding
could have excused Rice Honey from continued performance under the
contract.
B. A jury could also have reasonably found that Rice Honey
had not breached the contract.
A jury could also have reasonably found that Rice Honey had not
breached the contract because the duration of the contract was ambiguous.
In interpreting the contract, we must determine whether it was
ambiguous. See Boyer v. Karakehian, 915 P.2d 1295, 1300 (Colo. 1996)
(en banc). The contract was ambiguous if it was susceptible to two or more
reasonable interpretations. B&B Livery, Inc. v. Riehl, 960 P.2d 134, 136
(Colo. 1998) (en banc). If the contract was ambiguous, interpretation
would involve an issue of fact. See Ad Two, Inc. v. City & Cty. of Denver
ex rel. Manager of Aviation, 9 P.3d 373, 381 (Colo. 2000) (en banc)
18
(“Interpretation of the intent of the parties in an ambiguous contract
becomes an issue of fact for the trial court to decide in the same manner as
other disputed factual issues.”).
The district court ruled that the contract is ambiguous on how long it
was to last. We agree based on Paragraph (1) of the contract. What is a
term “ending on the third anniversary of the Effective Date . . . one (1)
year period”? The phrase appears to be a nonsensical result of the parties’
failure to fully revise the contractual term of employment. Mr. Hawley
wanted a three-year term; Rice Honey wanted a one-year term. At the end
of the negotiation process, the parties apparently ended up with language
suggesting a duration of both one year and three years. In this respect, the
contract language was ambiguous. 8
Resolution of that ambiguity turns on the parties’ intent, which is a
question of fact. See Ad Two, Inc. v. City & Cty. of Denver ex rel. Manager
of Aviation, 9 P.3d 373, 381 (Colo. 2000) (en banc). A jury might
reasonably agree with Mr. Hawley, finding that the contract term was three
years. Or, a jury might reasonably agree with Rice Honey, finding that the
term was one year.
Depending on whether the contract was one year or three years, Rice
Honey could let the contract come to a natural end by timely exercising its
8
The district court called the contract language “strange” and
“meaningless.” Appellant’s App’x, vol. VII, at 1117-18.
19
right not to renew the employment term. Or, Rice Honey could terminate
the contract (with or without cause) by ending Mr. Hawley’s employment
prior to expiration of the term.
If the term was only one year, Rice Honey could have provided Mr.
Hawley with notice of nonrenewal at least 60 days before the term was to
end. Rice Honey provided such notice. So, if the term was only one year,
there would not have been a “termination without cause” or a contractual
breach by Rice Honey. Instead, the contract would simply have expired.
But if the contract term was three years, Rice Honey’s notice of
nonrenewal could be considered a termination without cause because the
term would have had two more years.
Mr. Hawley argues that even if the contract were one year, there
would have been a “termination.” For this argument, Mr. Hawley points to
a snippet of testimony by Rice Honey’s vice-president of operations:
Q. (by Mr. Burg) But what I’m getting at is, you know, we
construe contracts I think by what the words are that are
used, okay, and this says “terminated.” Now, even if you
were to terminate this thing, even if we construe this
contract the way that Rice wants to construe it, which I
suppose is that it is a contract terminable at the end of a
one-year term with 60 days notice. I assume that’s your
position, right?
A. Correct.
Q. That is a termination, right?
A. Correct.
20
Appellant’s App’x, vol. IV, at 585. But, as the district court explained, the
vice-president’s understanding did not matter if the “termination without
cause” provision had been unambiguous. See Appellant’s App’x, vol. VII,
at 1119-20 (the district court’s explanation that the word “termination” is
unambiguous and that “Rice’s understanding” is immaterial because the
court could interpret the provision for “termination without cause” as a
matter of law). 9
9
The district court apparently changed its view of the case after
hearing the testimony of Rice Honey’s vice-president of operations. On
cross-examination, the vice-president testified that Rice Honey had
terminated Mr. Hawley without cause. After excusing the jury, the district
court told counsel that “in light of [the vice-president’s] testimony, I think
he undercut your case entirely.” Appellant’s App’x, vol. IV, at 633. And
when Rice Honey rested its case the next day, the district court
commented, “Plaintiff rests, all right,” and turned to Mr. Hawley’s motion
under Fed. R. Civ. P. 50. Appellant’s App’x, vol. VII, at 1115-16. In this
motion, Mr. Hawley did not address his counterclaim, for he had not even
presented a case. Nonetheless, the district court sua sponte granted
judgment as a matter of law to Mr. Hawley on his counterclaim. See p. 3,
above. In explaining this ruling, the district court noted that it was
“somewhat taken aback by what [it had] heard is the evidence in this case
and particularly, as respect to [Rice Honey’s attorney] and also as
respecting [Rice Honey’s vice-president of operations].” Appellant’s
App’x, vol. VII, at 1117.
If the district court had intended to rely on its understanding of the
vice-president’s testimony, this reliance would have been misguided. Rice
Honey’s vice-president and co-owner testified extensively about the
decision not to renew Mr. Hawley’s employment. For example, the vice-
president testified that in the days before nonrenewal, Mr. Hawley
repeatedly asked if his employment term would be renewed. In addition,
Rice Honey’s co-owner testified that he had told Mr. Hawley orally and in
writing that his employment would not be renewed. Almost two weeks
21
The district court was correct in viewing the vice-president’s
testimony as immaterial in light of the unambiguous language in the
contract. See Denver Found. v. Wells Fargo Bank, N.A., 163 P.3d 1116,
1126 (Colo. 2007) (en banc) (stating that “intent must be determined from
contract language itself, and an unambiguous document cannot be
explained by extrinsic evidence so as to dispute its plain meaning”). But
we disagree with the district court’s interpretation of the provisions for
termination and nonrenewal.
The contract unambiguously addresses payment obligations if Rice
Honey were to terminate the contract before it would otherwise expire.
These obligations would vary depending on whether the termination is with
cause or without cause. But neither kind of termination took place if the
contract term had been one year. If the term were only one year, Rice
Honey would simply have exercised its contractual right not to renew the
contract, letting it expire. Expiration of the contract would not have been a
termination by either party.
later, Mr. Hawley responded, expressing surprise at the reasons given “not
to renew [his] contract.” Appellant’s App’x, vol. IV, at 570.
The testimony by Rice Honey’s vice-president and co-owner could
support a finding that the parties treated Mr. Hawley’s termination as a
nonrenewal (a termination with at least 60 days’ notice and continued
payment through the one-year term rather than an “early” termination
under the contract). Thus, the district court could not grant judgment as a
matter of law to Mr. Hawley based on a snippet of the vice-president’s
testimony.
22
As a result, the existence of a contractual breach turns on the
duration of the term, one year or three years. Because the duration of the
contract is ambiguous, the district court should have allowed the jury to
decide whether Rice Honey had breached the contract. 10
VI. Guidance Regarding Damages for Mr. Hawley’s Counterclaim for
Breach of Contract
The parties disagree about issues related to the damages that Mr.
Hawley could obtain if he prevails on his counterclaim for breach of
contract. The disagreement involves the duty to mitigate damages, the
enforceability of a liquidated-damages clause, and the availability of both
liquidated damages and the sum specified in the contract. Because these
issues may reappear on remand, we provide the district court with some
guidance. See Fletcher v. United States, 730 F.3d 1206, 1214 (10th Cir.
2013).
A. Mr. Hawley had no duty to mitigate damages.
The existence of a duty to mitigate damages involves a question of
law. See Cherry v. A-P-A Sports, Inc., 662 P.2d 200, 202 (Colo. App.
1983) (deciding the existence of a duty to mitigate as a matter of law). On
this question, we conclude that Mr. Hawley did not bear a duty to mitigate
damages.
10
On remand, Mr. Hawley could prevail on his counterclaim for breach
of contract only if the jury determines that the duration is three years
rather than one year.
23
1. The common law did not require mitigation of damages.
In urging a duty to mitigate damages, Rice Honey relies on the
common law. Under Colorado’s common law, a party injured from a
contractual breach must ordinarily make a reasonable effort to mitigate
damages. Tull v. Gundersons, Inc., 709 P.2d 940, 946 (Colo. 1985) (en
banc). Thus, when a contract is breached, the amount avoided through
mitigation should ordinarily be deducted from the eventual award. Saxonia
Mining & Reduction Co. v. Cook, 4 P. 1111, 1113 (Colo. 1884). But there
is no duty to make a deduction when the contract specifies the amount
owed to the injured party. See Drews v. Denver Recycling Co., 727 P.2d
1121, 1124 (Colo. App. 1986); Cherry, 662 P.2d at 202. Here the amount
owed was specified in the contract, precluding a common-law duty to
mitigate.
Rice Honey relies on Technical Computer Services, Inc. v. Buckley,
844 P.2d 1249, 1255 (Colo. App. 1992). Buckley addressed mitigation in
different circumstances. There an employee was terminated and
successfully sued for breach of the employment contract. Buckley, 844 P.2d
at 1249, 1251. On appeal, the employee argued that his award should not
be reduced by the amount earned elsewhere. Id. at 1255. The Colorado
Court of Appeals rejected this argument, reasoning that the employee could
not (1) treat the employment contract as continuing and (2) sue for wages
as they accrued. The court reasoned that recovery for continued wages
24
would be contrary to the policy of mitigation and permit a multiplicity of
lawsuits. Id at 1255-56.
The court distinguished Cherry v. A-P-A Sports, Inc., 662 P.2d 200
(Colo. App. 1983). Buckley, 844 P.2d at 1256. In A-P-A Sports, the
mitigation doctrine did not apply because the employer had promised to
pay a specific amount upon nonrenewal of the employment term. Id. That
principle was inapplicable in Buckley because there the payment had not
been guaranteed. Id.
Our case closely resembles A-P-A Sports. Here the amount owed to
Mr. Hawley had allegedly been guaranteed upon early termination without
cause. Mr. Hawley’s theory is that he was entitled to the guaranteed
payment regardless of whether he obtained employment elsewhere, for the
contract called for payment of a set amount. As Mr. Hawley points out, the
contract stated that Rice Honey’s early termination without cause would
require payment of the base salary for one year ($162,000), along with
$250,000 in liquidated damages. Thus, Buckley would not support a
deduction from his potential recovery on the contract claim.
In sum, Colorado’s common law did not create a duty for Mr. Hawley
to mitigate damages.
25
2. Rice Honey does not allege that the contract would
independently create a duty to mitigate.
A potential issue could have arisen about the effect of the contract.
The contract stated that the measure of damages for Mr. Hawley was
“subject to the mitigation provisions set forth below.” Appellant’s App’x,
vol. V, at 851. But there were no mitigation provisions “set forth below.”
Rice Honey preemptively argues that this set of provisions did not
vitiate the common-law duty to mitigate damages. This argument assumes
that the common law created a duty to mitigate. But we have elsewhere
concluded that no such duty existed at common law. As a result, the
contract does not bear on the duty to mitigate. 11
B. The enforceability of the liquidated-damages clause involved
a fact-issue for the jury to decide.
The contract contained a liquidated-damages clause that required
Rice Honey to pay Mr. Hawley $250,000 upon a termination without
cause. 12 The district court held that this clause was enforceable as a matter
11
Rice Honey does not argue on appeal that the contract independently
created a duty to mitigate.
12
If the “termination without cause” provision applied, it would also
require Rice Honey to pay one year’s base salary ($162,000). One could
reasonably view this payment as part of the liquidated damages. But both
parties have treated the liquidated damages as $250,000, with the
additional $162,000 as actual damages. We address below the related issue
of whether Mr. Hawley might be able to recover both liquidated damages
($250,000) and actual damages ($162,000).
26
of law. In our view, however, the enforceability of the liquidated-damages
clause involved a fact-issue for the jury to decide.
Liquidated-damages provisions are enforceable if they reasonably
estimate the amount of actual damages and do not constitute a penalty.
Rohauer v. Little, 736 P.2d 403, 410 (Colo. 1987) (en banc). Unless the
contract “on its face establishes that the stipulated liquidated damages are
so disproportionate to any possible loss as to constitute a penalty, the party
challenging the liquidated damages provision bears the burden of proving
that fact.” Id.; see also Chisholm v. Reitler, 352 P.2d 794, 796 (Colo.
1960) (en banc) (stating that the burden of proof falls on the party
characterizing a liquidated-damages clause as a penalty).
The pertinent factors for the enforceability of a liquidated damages
provision are
1. whether the parties intended to liquidate damages,
2. whether the amount of liquidated damages, when viewed as of
the time that the contract was made, was a reasonable estimate
of the presumed actual damages that the breach would cause,
and
3. whether it was difficult at that time to ascertain the amount of
actual damages that would result from a breach.
Rohauer, 736 P.2d at 410. The enforceability of a liquidated-damages
clause involves a question of fact unless the contract shows on its face that
the liquidated damages constitute a penalty. Klinger v. Adams Cty. Sch.
Dist. No. 50, 130 P.3d 1027, 1034 (Colo. 2006) (en banc).
27
The district court decided as a matter of law that the liquidated-
damages clause was enforceable without hearing any evidence on the issue.
Rice Honey never had an opportunity to support its position with evidence.
The district court erred by prematurely deciding this fact-issue prior to the
presentation of evidence on the relationship between the liquidated-
damages amount and the possible loss.
C. If Mr. Hawley prevails on his counterclaim, he may be
entitled to both liquidated damages and payment for a
specified debt.
Liquidated damages may be recoverable in lieu of actual damages.
See 11 Joseph M. Perillo, Corbin on Contracts: Damages § 58.9, at 446
(2005). Thus, an election between the two is ordinarily required. See
Stewart v. Blanning, 677 P.2d 1382, 1384 (Colo. App. 1984) (stating that
the doctrine of election of remedies “is invoked where remedial rights
sought in a given situation are so inconsistent that the assertion of one
necessarily repudiates the assertion of the other”). But payment for a
specified debt is treated differently, for it is awardable regardless of the
employee’s opportunity to mitigate damages. See Drews v. Denver
Recycling Co., 727 P.2d 1121, 1124 (Colo. App. 1986) (holding that no
duty to mitigate existed to collect payments required under a terminated
employment contract); Cherry v. A-P-A Sports, Inc., 662 P.2d 200, 202
(Colo. App. 1983) (holding that no duty to mitigate existed when the
28
employer had promised to pay a specified amount upon nonrenewal of the
contract); see also Part VI(A)(1), above.
Rice Honey lumps together the claims for liquidated damages and
payment of a specified debt, pointing out that both are premised on a
breach of contract. We disagree with this approach. If Mr. Hawley
prevails, Rice Honey would owe money for a specified debt arising out of a
contractual obligation. Thus, Mr. Hawley would be entitled to the
contractual payment of the specified debt even if he were to receive
liquidated damages.
Because our case involves rights to payment of a debt and liquidated
damages, Mr. Hawley could receive both if (1) the jury concludes that the
liquidated damages do not constitute a penalty and (2) Mr. Hawley
ultimately prevails on his counterclaim.
VII. Conclusion
The district court awarded judgment as a matter of law to Mr.
Hawley on Rice Honey’s claims. We affirm this aspect of the district
court’s ruling. But we reverse and remand for a new trial on
 Mr. Hawley’s counterclaim for breach of contract and
 the enforceability of the liquidated-damages clause.
Entered for the Court,
Robert E. Bacharach
Circuit Judge
29