Rocky Mountain Exploration, Inc. v. Davis Graham & Stubbs LLP

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ADVANCE SHEET HEADNOTE
June 11, 2018
2018 CO 54
No. 16SC305, Rocky Mountain Exploration, Inc. and RMEI Bakken Joint Venture
Group v. Davis Graham & Stubbs LLP and Gregory Danielson—Undisclosed
Principals—Fraud—Breach of Fiduciary Duty—Restatement (Third) of Agency.
This case arises out of a sale of oil and gas assets by petitioners to a buyer who
was acting as an agent for a third company. The third company was represented by
respondents, but due to a prior, contentious business relationship between petitioners
and the third company, neither the buyer, the third company, nor respondents
disclosed to petitioners that the buyer was acting on behalf of the third company in the
sale.
After the sale was complete, petitioners learned of the third company’s
involvement and sued respondents, among others, for breach of fiduciary duty, fraud,
and civil conspiracy. The district court ultimately granted summary judgment for
respondents, and a division of the court of appeals affirmed.
The supreme court must now decide whether (1) petitioners can avoid their sale
agreement for fraud when the buyer and respondents purportedly created the false
impression that the buyer was not acting on behalf of the third company; (2) an
assignment clause in the transaction documents sufficiently notified petitioners that the
buyer was acting on behalf of others, such that the third company would not be
considered an undisclosed principal under the Restatement provision on which
petitioners’ contract avoidance argument is exclusively premised; (3) petitioners stated
a viable claim for fraud against respondents; and (4) prior agreements between
petitioners and the third company negated any joint venture relationship or fiduciary
obligations between them.
The court first concludes that the assignment clause in the pertinent transaction
documents made clear that the buyer had partners in the transaction to whom it could
assign a portion of its interests. As a result, the third company was not an undisclosed
principal under the Restatement provision on which petitioners’ rely, and petitioners’
contract avoidance argument and the civil conspiracy claim that flows from it fail as a
matter of law. The court further concludes that, even if the Restatement provision did
apply, the record does not support a finding that either the buyer or respondents
created a false impression that the buyer was not acting on behalf of an undisclosed
principal. For this reason as well, petitioners’ civil conspiracy claim fails as a matter of
law.
The court next concludes that, as a matter of law, petitioners did not demonstrate
the requisite false representation or reasonable reliance to support a viable claim for
fraud against respondents.
Finally, the court concludes that the controlling agreements between petitioners
and the third company expressly disavowed any pre-existing joint ventures and
fiduciary obligations between the parties, and therefore the district court properly
granted summary judgment for respondents on petitioners’ claim for aiding and
abetting a breach of fiduciary duty.
Accordingly, the supreme court affirms the court of appeals division’s judgment.
The Supreme Court of the State of Colorado
2 East 14th Avenue • Denver, Colorado 80203
2018 CO 54
Supreme Court Case No. 16SC305
Certiorari to the Colorado Court of Appeals
Court of Appeals Case Nos. 14CA1483 & 15CA216
Petitioners:
Rocky Mountain Exploration, Inc. and RMEI Bakken Joint Venture Group,
v.
Respondents:
Davis Graham & Stubbs LLP and Gregory Danielson.
Judgment Affirmed
en banc
June 11, 2018
Attorneys for Petitioners:
German May PC
William D. Beil
Phillip G. Greenfield
Kansas City, Missouri
The Viorst Law Offices
Anthony J. Viorst
Denver, Colorado
Attorneys for Respondents:
Connelly Law LLC
Sean Connelly
Denver, Colorado
Lewis Roca Rothgerber Christie LLP
Gregory B. Kanan
Frederick J. Baumann
Tamara F. Goodlette
Denver, Colorado
Attorneys for Amicus Curiae Attorneys’ Liability Assurance Society, Inc.:
Snell & Wilmer L.L.P.
James D. Kilroy
Denver, Colorado
JUSTICE GABRIEL delivered the Opinion of the Court.
JUSTICE MÁRQUEZ dissents, and JUSTICE COATS joins in the dissent.
JUSTICE HART does not participate.
2
¶1 This case arises out of a series of transactions in which petitioners Rocky
Mountain Exploration, Inc. and RMEI Bakken Joint Venture Group (collectively,
“RMEI”) sold oil and gas assets to Lario Oil and Gas Company (“Lario”). In that
transaction, Lario was acting as an agent for Tracker Resource Exploration ND, LLC
and its affiliated entities (collectively, “Tracker”), which were represented by
respondents Davis Graham & Stubbs LLP and Gregory Danielson (collectively,
“DG&S”).
¶2 Prior to RMEI’s sale to Lario, RMEI and Tracker had a business relationship
related to the oil and gas assets that were ultimately the subject of the RMEI-Lario
transaction. The RMEI-Tracker relationship soured after Tracker unsuccessfully sought
to buy out RMEI’s interests at a price that RMEI deemed too low.
¶3 Thereafter, Tracker and Lario reached an understanding by which Lario would
seek to purchase RMEI’s interests and then assign a majority of those interests to
Tracker. Recognizing the history between Tracker and RMEI, however, Tracker and
Lario agreed not to disclose Tracker’s involvement in the deal.
¶4 DG&S represented Tracker throughout RMEI’s sale to Lario. In that capacity,
DG&S drafted the final agreement between RMEI and Lario, worked with the escrow
agent, and hosted the closing at its offices. No party disclosed to RMEI, however, that
DG&S was representing Tracker, not Lario.
¶5 After the sale from RMEI to Lario was finalized, Lario assigned a portion of the
assets acquired to Tracker, and Tracker subsequently re-sold its purchased interests for
a substantial profit. RMEI then learned of Tracker’s involvement in its sale to Lario and
3
sued Tracker, Lario, and DG&S for breach of fiduciary duty, fraud, and civil conspiracy,
among other claims. As pertinent here, the fiduciary breach claims were based on
RMEI’s prior relationship with Tracker. The remaining claims were based on
allegations that Tracker, Lario, and DG&S misrepresented Tracker’s involvement in the
Lario deal, knowing that RMEI would not have dealt with Tracker because of the
parties’ strained relationship. Based on these claims, RMEI sought to avoid its contract
with Lario.
¶6 Lario and Tracker eventually settled their claims with RMEI, and DG&S moved
for summary judgment as to all of RMEI’s claims against it. In this motion, DG&S
argued (1) prior agreements between Tracker and RMEI expressly disavowed any
fiduciary duties between the two companies, (2) RMEI could not establish that it
reasonably relied on the alleged misrepresentations, and (3) DG&S did not owe RMEI a
duty to disclose that it represented Tracker.
¶7 The district court granted DG&S’s motion, and in a unanimous, published
opinion, a division of the court of appeals affirmed. Rocky Mountain Expl., Inc. v.
Davis Graham & Stubbs LLP, 2016 COA 33, ___ P.3d ___. RMEI then sought, and we
granted, certiorari to consider whether (1) Lario and DG&S created the false impression
that Lario was not acting for an undisclosed principal (i.e., Tracker) with whom Lario
and DG&S knew RMEI would not deal; (2) an assignment clause in the RMEI-Lario
transaction agreements sufficiently notified RMEI that Lario acted on behalf of an
undisclosed principal; (3) prior agreements between RMEI and Tracker negated all
previous joint ventures and any fiduciary obligations between them; (4) RMEI stated a
4
viable claim against DG&S for fraud based on affirmative misrepresentations; and
(5) RMEI can avoid the Lario sale based on statements allegedly made after RMEI and
Lario signed the sale agreement but prior to closing.1
¶8 We now affirm the division’s ruling. Addressing the first and second certiorari
questions together, we conclude that the assignment clause in the RMEI-Lario
transaction agreements made clear to RMEI that Lario had partners in the transaction to
whom Lario could assign a portion of its interests. As a result, Tracker was not an
undisclosed principal under the Restatement provision on which RMEI’s contract
avoidance argument is exclusively premised, and that argument and the civil
conspiracy claim against DG&S that flowed from it fail as a matter of law. Even if the
1 Specifically, we granted certiorari to review the following issues:
1. Whether a seller may avoid a contract for fraud when any combination of words,
conduct, and omissions by the buyer and the buyer’s purported attorney
intentionally creates the false impression that the buyer is not acting for an
undisclosed principal with whom the buyer and attorney know the seller would
not deal.
2. Whether the buyer’s assignment clause notifies a seller, as a matter of law, that
the buyer is acting for an undisclosed principal.
3. Whether, where a form agreement commonly used in oil and gas well-drilling
operations disclaims a partnership among the well’s investors and operator, that
form, as a matter of law, negates every other pre-existing joint venture among
the parties.
4. Whether the seller stated affirmative misrepresentation claims against a law firm
for falsely acting as if it represented the buyer when the law firm actually
represented the buyer’s undisclosed principal with whom the seller would not
deal.
5. Whether a party can avoid a contract based on fraud occurring after the contract
has been executed but before it has closed.
5
Restatement provision applied, however, the record does not support the requisite
finding that either Lario or DG&S, as its purported attorney, created a false impression
that Lario was not acting on behalf of an undisclosed principal. For this reason as well,
the civil conspiracy claim against DG&S, which is premised on the allegation that Lario
was a fraudulent strawman purchaser, fails as a matter of law, and in light of this
disposition, we need not address the fifth certiorari question.
¶9 Turning then to the fourth certiorari question, we conclude that, as a matter of
law, RMEI did not demonstrate the requisite false representation or reasonable reliance
to support a viable fraud claim against DG&S.
¶10 Finally, addressing the third certiorari question, we conclude that the controlling
agreements between RMEI and Tracker expressly disavowed any pre-existing joint
ventures and any fiduciary obligations between the parties. Accordingly, the district
court properly granted summary judgment on RMEI’s claim against DG&S for aiding
and abetting a purported breach of fiduciary duty by Tracker.
I. Facts and Procedural History
¶11 In 2006, RMEI and Tracker signed a purchase and sale letter agreement (the
“Tracker Purchase Agreement”) under which RMEI agreed to sell to Tracker an
undivided eighty percent of its oil and gas interests in certain oil and gas leaseholds in
North Dakota. Pursuant to that Agreement, the parties entered into an area of mutual
interest that surrounded and included certain of the leases that RMEI already owned.
The Tracker Purchase Agreement contemplated that Tracker and RMEI would jointly
6
acquire more oil leases within the area of mutual interest, on an undivided
eighty/twenty profit-and-loss basis.
¶12 Over the succeeding two years, RMEI and Tracker entered into a model form of
operating agreement (the “Tracker Operating Agreement”) and a participation
agreement (the “Tracker Participation Agreement”). The purpose of the latter was “to
provide for [the parties’] participation in the development of the Subject Lands and the
[area of mutual interest].” As pertinent here, the Tracker Participation Agreement
provided that “[it] and the [Tracker Operating Agreement] contain the entire agreement
between the Parties concerning the subject matter referred to herein and they shall
supersede and replace any prior agreements between the Parties concerning such
subject matter.” In addition, the Tracker Operating Agreement contained a provision
disclaiming any joint venture or fiduciary relationship between RMEI and Tracker:
It is not the intention of the parties to create, nor shall this agreement be
construed as creating, a mining or other partnership, joint venture, agency
relationship or association, or to render the parties liable as partners,
co-venturers, or principals. In their relation with each other under this
agreement, the parties shall not be considered fiduciaries or to have
established a confidential relationship but rather shall be free to act on an
arm’s-length basis in accordance with their own respective self-interest,
subject, however, to the obligation of the parties to act in good faith in
their dealings with each other with respect to activities hereunder.
¶13 After proceeding under the foregoing agreements for a period of time, the
relationship between Tracker and RMEI deteriorated. Tracker offered to buy out
RMEI’s remaining twenty percent interest in the leases, but RMEI declined Tracker’s
offer as too low. Thereafter, the parties’ relationship continued to decline as a result of
7
disagreements concerning the leases, with Tracker claiming that RMEI had breached the
Tracker Operating Agreement and RMEI denying that allegation.
¶14 Eventually, RMEI engaged a broker to find a third-party purchaser for RMEI’s
interest. RMEI asserts that it did so because of its soured relationship with Tracker.
¶15 Lario subsequently learned both that RMEI’s interest was for sale and that
Tracker had sought to purchase this interest but was unable to do so as a result of
animosity between the two companies. Perceiving an opportunity, Lario spoke with
Tracker about jointly bidding on RMEI’s interest, with Lario receiving twenty-five
percent of the leasehold interests acquired in the sale. Tracker was amenable to such an
arrangement, and it and Lario agreed to have Lario pursue a deal with RMEI. Tracker
and Lario further agreed that they would not disclose Tracker’s involvement to RMEI,
recognizing that the issues between RMEI and Tracker might make a deal impossible if
RMEI knew of Tracker’s involvement. Tracker and Lario’s agreement effectively
established Lario as Tracker’s agent in the transaction.
¶16 Lario then requested RMEI’s permission to use DG&S as its attorney on the deal.
Lario stated that DG&S’s knowledge of RMEI’s assets, which knowledge was based on
DG&S’s prior representation of Tracker, would facilitate the transaction. Although
RMEI’s president agreed to allow such representation, DG&S subsequently determined
that its ongoing representation of Tracker created a conflict of interest that prevented it
from representing Lario in the proposed transaction. Accordingly, DG&S would only
represent Tracker in the deal.
8
¶17 Ultimately, RMEI and Lario signed a letter of intent for RMEI to sell its interest to
Lario (the “Lario Letter of Intent”). Tracker and Lario then signed their own letter of
intent (the “Tracker Letter of Intent”), under which Lario agreed to assign to Tracker
seventy-five percent of Lario’s interest in the Lario Letter of Intent. Several weeks later,
RMEI and Lario signed an asset purchase and sale agreement (the “Lario Purchase and
Sale Agreement”), under which Lario purchased RMEI’s interest in the oil and gas
leaseholds at issue.
¶18 Notably, in its capacity as counsel for Tracker (whose interests Lario was
representing in the RMEI-Lario transaction), DG&S drafted many of the pertinent
documents in that transaction, communicated with RMEI’s bank, and facilitated the
creation of an escrow account. In addition, when preparing deal documents, DG&S
scrubbed the metadata from anything coming from Tracker to prevent RMEI from
learning of Tracker’s involvement, which Tracker feared could threaten the deal.
¶19 After RMEI and Lario had signed the Lario Purchase and Sale Agreement but
before the sale had closed, Lario’s president emailed RMEI’s president, stating, among
other things, “[O]ur attorney is preparing the partial Lien [sic] release for Citizen’s Bank
to execute.” DG&S received a copy of this email and later sent the lien release to
RMEI’s president, but it did not correct Lario’s assertion that its attorney would be
sending the document. Similarly, in a subsequent email that Lario sent and on which
RMEI’s president was copied, Lario again referred to DG&S as its law firm. And
RMEI’s president referred to DG&S as Lario’s counsel in two subsequent emails that
9
DG&S received. Again, DG&S did not correct RMEI’s apparent misunderstanding that
DG&S was Lario’s counsel.
¶20 Both the RMEI-Lario transaction and the Tracker-Lario transaction closed, with
the closings taking place on the same day and in DG&S’s offices, albeit in separate
conference rooms. Thereafter, Tracker sold all of its interests in the North Dakota
leaseholds at issue and received a substantial price premium.
¶21 RMEI then learned of Tracker’s involvement in the RMEI-Lario transaction, and
in a 53-page, 225-paragraph complaint asserting eighteen separate claims, it proceeded
to sue Tracker, Lario, certain of their officers, and DG&S. As pertinent here, RMEI
alleged that DG&S (1) engaged in a civil conspiracy to misappropriate RMEI’s interests
in the leaseholds at issue by setting up Lario as a strawman purchaser; (2) aided and
abetted Tracker’s breach of its fiduciary duty to RMEI; (3) committed fraud; (4) engaged
in a civil conspiracy to commit fraud; and (5) aided and abetted fraud.
¶22 Ultimately, all of the defendants except DG&S either settled their claims with
RMEI or had their claims dismissed. DG&S, however, moved for summary judgment,
asserting, as pertinent here, that RMEI could not establish the requisite justifiable
reliance on the alleged misrepresentations because the RMEI-Lario transaction
documents made clear that Lario had unnamed partners and investors and that Lario
could sell the assets purchased. DG&S further argued that RMEI could not establish
that DG&S owed RMEI a duty to disclose that it represented Tracker. Finally, DG&S
asserted that RMEI could not establish that Tracker owed a fiduciary duty to RMEI
because the Tracker Operating Agreement negated any fiduciary relationship between
10
the parties. Therefore, RMEI’s claim against DG&S for aiding and abetting a breach of
such a fiduciary duty could not survive.
¶23 The district court granted DG&S’s motion, agreeing that as a matter of law, RMEI
could not establish either a duty by DG&S to disclose that it represented Tracker or a
fiduciary duty owed by Tracker to RMEI, which RMEI had to establish to support its
claim against DG&S for aiding and abetting a breach of such a duty. The district court
also concluded that the use of a strawman purchaser was not fraud, citing, among other
authorities, the Restatement (Third) of Agency (Am. Law Inst. 2006).
¶24 RMEI appealed, arguing that the district court erred in granting summary
judgment on RMEI’s fraud and breach of fiduciary duty claims. The division, however,
affirmed the district court’s grant of summary judgment in favor of DG&S. Rocky
Mountain, ¶ 68. As pertinent here, the division observed that under the Restatement
(Third) of Agency, a contracting party may not avoid a contract entered into by an
agent acting for an undisclosed principal unless (1) the agent falsely represented that it
did not act on behalf of a principal and (2) the principal or agent had notice that the
third party would not have dealt with the principal. Id. at ¶ 23. The division concluded
that the foregoing prerequisites for avoiding a contract either did not apply or were not
satisfied because (1) the agreements between RMEI and Lario gave RMEI notice that
Lario was acting as agent for a principal and thus Tracker was an unidentified but not
an undisclosed principal and (2) Lario did not falsely represent that it did not act on
behalf of a principal. Id. at ¶¶ 29–34. The division thus concluded that RMEI did not
establish the existence of a disputed material fact as to the applicability of the pertinent
11
section of the Restatement. Id. at ¶¶ 27–34. In addition, the division concluded that the
district court had correctly determined that Tracker owed no fiduciary duty to RMEI
because the agreements between RMEI and Tracker had expressly disclaimed the
existence of a joint venture or fiduciary relationship. Id. at ¶ 51. Finally, the division
concluded that the district court had properly construed RMEI’s fraud claims as claims
for fraudulent nondisclosure and therefore RMEI could not prevail unless it
demonstrated that DG&S had a duty to disclose Tracker’s involvement in the
RMEI-Lario transaction, which it could not do. Id. at ¶¶ 60–63.
¶25 RMEI petitioned this court for certiorari review, and we granted that petition.
II. Analysis
¶26 We begin by setting forth the applicable standard of review. We then address
together the first two questions on which we granted certiorari and conclude that
RMEI’s civil conspiracy claim against DG&S, which was premised on RMEI’s assertion
that Lario was a fraudulent strawman purchaser, fails as a matter of law. We then
proceed to discuss the fourth question on which we granted certiorari, and we
conclude, as a matter of law, that RMEI did not demonstrate the requisite justifiable
reliance to support its claim against DG&S for fraud based on affirmative
misrepresentations. Finally, we address RMEI’s claim against DG&S for aiding and
abetting Tracker’s alleged breach of fiduciary duty, and we conclude that because the
Tracker Operating Agreement expressly disavowed any fiduciary obligations between
RMEI and Tracker, RMEI’s aiding and abetting claim is not viable as a matter of law.
12
A. Standard of Review
¶27 We review a grant of summary judgment de novo. Hardegger v. Clark, 2017 CO
96, ¶ 13, 403 P.3d 176, 180. When, as here, the material facts are undisputed, summary
judgment is proper only when the pleadings and supporting documents show that the
moving party is entitled to judgment as a matter of law. Id.; accord C.R.C.P. 56(c). In
determining whether summary judgment is proper, a court grants the nonmoving party
the benefit of all favorable inferences that may reasonably be drawn from the
undisputed facts and resolves all doubts against the moving party. Hardegger, ¶ 13,
403 P.3d at 180. In responding to a properly supported summary judgment motion,
however, the nonmoving party may not rest on mere allegations or demands in its
pleadings but must provide specific facts demonstrating a genuine issue for trial. Id.
B. RMEI’s Request to Avoid the Lario Sale
¶28 We first consider the two certiorari questions related to RMEI’s assertion that the
Restatement (Third) of Agency permits it to avoid the sale to Lario because Lario gave
the impression that DG&S was representing it in the sale. We begin with the principles
of agency law that the parties agree apply here, and we then apply those principles to
the facts presented.
1. Restatement (Third) of Agency
¶29 All of the parties before us agree that the principles set forth in the Restatement
(Third) of Agency apply here.
¶30 Section 1.04(2) of the Restatement (Third) of Agency defines three types of
principals on whose behalf an agent can act: disclosed, undisclosed, and unidentified.
13
A principal is disclosed if a third party has notice that the agent with whom it is
interacting is acting for a principal and if the third party has notice of the principal’s
identity. Id. A principal is undisclosed if the third party has no notice that the agent is
acting for a principal. Id. A principal is unidentified if the third party has notice that
the agent is acting for a principal but does not have notice of the principal’s identity. Id.
“A person has notice of a fact if the person knows the fact, has reason to know the fact,
has received an effective notification of the fact, or should know the fact to fulfill a duty
owed to another person.” Id. at § 1.04(4).
¶31 Agents regularly act on behalf of undisclosed and unidentified principals when
entering into contracts. See, e.g., Sigel-Campion Live Stock Comm’n Co. v. Davis, 194 P.
468, 470 (Colo. 1921) (concluding that an undisclosed principal “could take the benefit
of the offer and of the contract”); Filho v. Rodriguez, 36 P.3d 199, 200 (Colo. App. 2001)
(concluding that an unidentified principal could enforce a contract, unless the
principal’s existence was fraudulently concealed); Kelly Asphalt Block Co. v. Barber
Asphalt Paving Co., 105 N.E. 88, 89 (N.Y. 1914) (“The general rule is not disputed. A
contract not under seal, made in the name of an agent as ostensible principal, may be
sued on by the real principal at the latter’s election.”); Restatement (Third) of Agency
§ 6.03 (“When an agent acting with actual authority makes a contract on behalf of an
undisclosed principal, . . . unless excluded by the contract, the principal is a party to the
contract.”). Thus, acting on behalf of an undisclosed or unidentified principal, by itself,
is not fraudulent. See Filho, 36 P.3d at 200.
14
¶32 Indeed, the Restatement has recognized the “practical importance” of
undisclosed principals, noting that they can be useful in certain scenarios. See
Restatement (Third) of Agency § 6.03 reporter’s note b. For example, by acting as an
undisclosed principal, a buyer interested in assembling a tract of land from multiple
owners for a large-scale project can overcome the potential problem of hold-out owners
who, once the buyer’s interest becomes known, may exploit the buyer’s vulnerability by
demanding prices well in excess of current market value. Id.; see also Makowski v.
Mayor & City Council of Baltimore, 94 A.3d 91, 105 n.22 (Md. 2014) (“Private
developers often avoid the ‘hold-out’ problem by utilizing ‘buying agents’ to conceal
the fact that they are seeking to acquire multiple properties to avoid paying a higher
price.”).
¶33 Notwithstanding these general principles allowing for the involvement of
undisclosed principals, the parties here agree that when an agent for an undisclosed
principal enters into a contract, the other party to that contract may avoid the contract if
(1) the agent falsely represents to the third party that the agent does not act on behalf of
a principal and (2) the principal or agent had notice that the third party would not have
dealt with the principal. Restatement (Third) of Agency § 6.11(4); see also Hirsch v.
Silberstein, 227 A.2d 638, 639 (Pa. 1967) (noting that the record may have indicated a
representation by the agent that he was not acting on behalf of a principal but that it
contained no evidence that the sellers would not have dealt with the principal had their
15
existence been known).2 Importantly, this rule does not apply to agents who act on
behalf of unidentified, as opposed to undisclosed, principals. See Restatement (Third)
of Agency § 6.11(4) (stating the rule solely in terms of “an undisclosed principal”); see
also Filho, 36 P.3d at 200 (noting the Restatement’s distinction between undisclosed and
disclosed or partially disclosed, i.e., unidentified, principals).
¶34 The purpose of the foregoing legal principles is straightforward: “[I]n most cases
the principal’s involvement is not material to the third party’s decision-making”
because (1) “most parties decide to commit themselves to transactions on the basis of
the price and other substantive terms plus an assessment of the likelihood that the other
parties will perform duties that the contract creates” and (2) “[a]n undisclosed
principal’s involvement ordinarily should not affect the price and other substantive
terms of the contract.” Restatement (Third) of Agency § 6.11 cmt. d; see also Hirsch,
227 A.2d at 640 (noting that a seller ordinarily may not avoid an agreement based on the
existence of an undisclosed principal because when parties deal at arms-length, the only
important question is the price to be paid). Accordingly, the principles articulated in
the above-described authorities protect an unidentified or undisclosed principal from a
third party who regrets the transaction after learning the purchaser’s identity because
such regret is often based on a belief that had the purchaser’s identity been known, the
2 We acknowledge that in its First Amended Complaint, RMEI did not directly seek to
void its agreement with Lario for fraud. RMEI, however, sought, and we granted,
certiorari to decide whether RMEI could avoid its agreement with Lario for fraud under
the circumstances presented here. In any event, we perceive no basis for applying one
set of principles when a party seeks to avoid a contract based on fraud and a different
set of principles when that party effectively seeks the same result by way of a damages
claim for fraud. We do not understand the parties to argue otherwise.
16
seller would have demanded, and the buyer would have paid, a higher price. See
Restatement (Third) of Agency § 6.11 cmt. d.
¶35 This is not to say, however, that a contracting party cannot protect itself if it
wants assurance that no undisclosed principal (or particular unidentified principal) is
involved in the transaction. A contracting party may insist that the contract provide
that the named parties are the only parties with rights and liabilities under the contract.
Id.; see also Filho, 36 P.3d at 200 (noting that a person who contracts with an agent
acting with authority on behalf of a disclosed or partially disclosed principal is liable to
the principal unless the principal is excluded from the contract); Arnold’s of Miss.,
Inc. v. Clancy, 171 So. 2d 152, 154 (Miss. 1965) (“The rule allowing an undisclosed
principal to sue on a contract made by his agent does not apply where the specific terms
of the contract or the circumstances under which it is made, excludes liability to an
undisclosed principal . . . .”). And, of course, the third party can simply ask the person
with whom it is dealing whether that person is acting as an agent for an undisclosed or
unidentified principal. See Restatement (Third) of Agency § 6.11 cmt. d.
2. Application
¶36 With these principles in mind, we turn to whether RMEI can avoid the Lario sale
for fraud on the facts presented here. RMEI contends that under the Restatement, it is
entitled to do so because Lario was an agent for an undisclosed principal (Tracker) and
(1) Lario and DG&S (as its purported counsel) falsely represented to RMEI that Lario
did not act on behalf of a principal and (2) Tracker, Lario, and DG&S knew that RMEI
would not have dealt with Tracker. We are not persuaded.
17
¶37 As an initial matter, we note that the premise of RMEI’s argument is flawed
because as the division concluded, Tracker was not an undisclosed principal at all.
Rather, based on the Lario Letter of Intent and the Lario Purchase and Sale Agreement,
it was an unidentified principal. As a result, the Restatement does not provide a basis
on which RMEI can avoid the Lario sale. See Restatement (Third) of Agency § 6.11(4).
¶38 The Lario Letter of Intent provided, “The Parties shall not disclose the existence
of this Letter Agreement and its contents to any third party, except . . . to each
Party’s . . . investors (including Buyer’s venture partners in this transaction) . . . directly
and solely for the purpose of evaluating the proposed transaction.” (Emphasis added.)
¶39 The Lario Letter of Intent further provided:
Lario has other investors or partners who may elect to join in the
acquisition of the Properties under the terms of this Letter Agreement.
Lario shall have the right to assign a portion but not all of its interest in
this Letter Agreement to such investors or partners. Lario agrees, and
shall agree in the instrument conveying the Properties, that any
subsequent assignment or transfer of the Properties, or any portion
thereof, made by Lario, shall contain covenants and indemnifications
similar to those contained in this agreement and Lario agrees that any
such assignment or transfer will not relieve it of the obligations assumed
herein.
(Emphases added.)
¶40 These provisions gave RMEI notice that Lario was acting on behalf of itself and
unnamed third parties to whom Lario reserved the right to assign a portion of its
interests in the acquired assets. And this is precisely the kind of agreement that Lario
ultimately entered into with Tracker (i.e., an agreement to assign a portion of its
interest).
18
¶41 Similarly, the confidentiality provision in the Lario Purchase and Sale Agreement
permitted the parties to discuss the agreement with the parties’ investors “including
Buyer’s potential partners in this transaction.” And that agreement further provided:
Assignment: . . . [Lario] shall have the right to assign a portion but not all
of its interest in this Agreement to third parties who have agreed to
participate in this transaction. [Lario] agrees, and shall agree in the
instrument conveying the Assets, that any subsequent assignment or
transfer of the Assets, or any portion thereof, made by [Lario], shall
contain covenants and indemnifications similar to those contained in this
Agreement and [Lario] agrees that any such assignment or transfer will
not relieve it of the obligations assumed herein.
(Emphasis added.) Again, Lario’s ultimate agreement with Tracker was fully consistent
with this provision.
¶42 For these reasons, section 6.11(4) of the Restatement, on which RMEI’s civil
conspiracy claim against DG&S is based, does not apply because Tracker was an
unidentified, rather than an undisclosed, principal.
¶43 In reaching this conclusion, we are not persuaded otherwise by RMEI’s
arguments that (1) the referenced clauses only placed it on notice that Lario could
assign its interest, not that it was acting as an agent and (2) the language in the
assignment clauses suggested that Lario might assign its interest in the future, not that
it had already entered into an agreement to make the assignment.
¶44 We do not agree that the distinction between an assignee and a principal is
pertinent in this context. Indeed, the Restatement recognizes the similarity between
these two concepts, noting that the inclusion of a provision prohibiting the assignment
of a contract can, at least in some instances, protect a third party from an undisclosed
19
principal. See Restatement (Third) of Agency § 6.11 cmt. d. Moreover, the provisions in
the Lario Letter of Intent and the Lario Purchase and Sale Agreement provided RMEI
with notice of the nature of Lario and Tracker’s relationship, namely, that Lario was
acting on behalf of unnamed partners to whom it could assign a portion of the interests
it acquired. See Miller v. Willey, 521 S.W.2d 68, 69 (Ark. 1975) (concluding that the
appellants could not avoid a contract involving an undisclosed principal because the
contract stated that the appellants agreed to execute and deliver to the other contracting
party, Willey, or “to any person or persons as [Willey] * * * shall direct in writing” a
good and sufficient warranty deed and this contractual language put the appellants on
notice that Willey was acting for a principal).
¶45 We also are unpersuaded that the above-referenced contract provisions did not
sufficiently indicate the involvement of a third party because, according to RMEI, they
only indicated that Lario may assign its interest in the future. As noted above, the
provisions identifying the other investors/partners were framed in the present tense:
“Lario has other investors or partners” and “third parties who have agreed to
participate in this transaction.” (Emphases added.) We therefore conclude that even if
the provisions framed the assignment as occurring in the future, the provisions
identifying the investors were sufficiently specific to provide effective notice that other
unidentified parties were working with Lario on the sale.
¶46 Accordingly, we conclude that Tracker was an unidentified, rather than an
undisclosed, principal for Lario, and therefore section 6.11(4) of the Restatement, on
which RMEI’s civil conspiracy claim against DG&S was based, does not apply.
20
¶47 Even assuming that Tracker was an undisclosed principal, however, the record
does not support RMEI’s assertion that Lario falsely represented to RMEI that Lario was
not acting on behalf of a principal.
¶48 A “false representation” is defined as any words or conduct that creates an
untrue or misleading impression of the actual past or present fact in the mind of
another. Nelson v. Gas Research Inst., 121 P.3d 340, 343 (Colo. App. 2005); see also H.B.
Bolas Enter., Inc. v. Zarlengo, 400 P.2d 447, 450 (Colo. 1965) (“Actionable deception may
arise from circumstances and conduct as well as from words.”). Whether
circumstances, conduct, or words are the means allegedly used to deceive, however, the
means used must be of a “definite and specific character” because a party has no right
to rely on circumstances, conduct, or words that are equivocal, such that “they comport
equally with innocence and good faith as with bad motivation.” H.B. Bolas, 400 P.2d at
450.3 Consistent with these principles, an agent does not “impliedly represent that the
agent does not act on behalf of a principal” simply by not disclosing the principal’s
existence. See Restatement (Third) of Agency § 6.11(4) cmt. d.
¶49 Here, RMEI argues that Lario’s suggestions that DG&S was Lario’s attorney (and
DG&S’s not correcting such suggestions) amounted to false representations that Lario
was acting alone in the transaction, rather than acting as an agent of another. We
disagree. Even though Lario’s president referred to DG&S as Lario’s attorney, it does
not follow that this statement amounted to a misrepresentation that Lario was not
3 Absent such a requirement, a party could avoid summary judgment on a fraud claim
merely be alleging that it was misled by vague or equivocal conduct, no matter how
lawful or innocent.
21
acting as an agent for an undisclosed principal. An agent may have its own lawyer (or
share a lawyer with its principal), while at the same time acting on behalf of an
undisclosed principal.
¶50 For these reasons, we conclude that the combination of words and conduct by
Lario (and, RMEI contends, DG&S, as Lario’s purported counsel) were not of a
sufficiently definite or specific character to constitute a false representation that Lario
did not act on behalf of an undisclosed principal. H.B. Bolas, 400 P.2d at 450.
Accordingly, even if Tracker were an undisclosed principal, the Restatement provision
on which RMEI relies does not support its civil conspiracy claim against DG&S.
¶51 In light of the foregoing, we need not reach the fifth question on which we
granted certiorari because even if RMEI could assert fraud claims based on conduct
occurring after the Lario Purchase and Sale Agreement was signed but before the
closing of that transaction, as a matter of law, those assertions would not support
RMEI’s effort to avoid the RMEI-Lario agreement, for the reasons discussed above.
C. Fraud Claims Against DG&S
¶52 Having rejected RMEI’s assertions that it was entitled to avoid its contract with
Lario under the Restatement and that it therefore had a viable civil conspiracy claim
against DG&S, we now turn to whether RMEI adduced sufficient evidence to support a
viable claim against DG&S for fraud based on affirmative misrepresentations. RMEI
argues that by pretending to represent Lario in the sale, DG&S engaged in affirmative
conduct to mislead RMEI into believing that Lario acted alone in the transaction.
Again, we are not persuaded.
22
¶53 To overcome a motion for summary judgment on its claim for fraud by
affirmative misrepresentation (as opposed to concealment), RMEI was required to offer
evidence that would allow a reasonable jury to conclude that (1) DG&S made a
fraudulent misrepresentation of material fact; (2) RMEI relied on this misrepresentation;
(3) RMEI had a right to rely on, or was justified in relying on, the misrepresentation;
and (4) RMEI’s reliance resulted in damages. M.D.C./Wood, Inc. v. Mortimer, 866 P.2d
1380, 1382 (Colo. 1994). A fact is material if a reasonable person under the
circumstances would attach importance to it in determining his or her course of action.
Denberg v. Loretto Heights Coll., 694 P.2d 375, 377 (Colo. App. 1984). A party’s reliance
on a purported misrepresentation is not justified when the party is aware of or on
inquiry notice of the falsity of the representation. See, e.g., Brush Creek Airport,
L.L.C. v. Avion Park, L.L.C., 57 P.3d 738, 749 (Colo. App. 2002) (concluding that a party
did not justifiably rely on a representation that an airport runway was 4700 feet long
when the party had seen or obtained documents showing a 4000-foot runway).
¶54 Here, RMEI asserts that DG&S affirmatively misrepresented that it was acting
solely on Lario’s behalf by (1) drafting the Lario Purchase and Sale Agreement and
other documents related to that transaction; (2) working with the escrow agent on the
transaction; (3) hosting the closing at its offices and preparing the final closing
documents; and (4) knowing of but failing to correct Lario’s references to DG&S as its
lawyer. For several reasons, we are not persuaded.
¶55 First, we perceive nothing in the above-referenced conduct that is of such a
definite and specific character so as to indicate unequivocally that (1) Lario was acting
23
alone in the transaction, (2) DG&S was not representing Tracker (or another
undisclosed or unidentified principal), or (3) Tracker was not involved with the deal.
This is particularly true here, where, as noted above, the Lario Letter of Intent and the
Lario Purchase and Sale Agreement sufficiently advised RMEI that Lario had unnamed
partners in the transaction. Accordingly, any reliance by RMEI on DG&S actions
purportedly suggesting that Lario was acting alone was unjustifiable. See id.
¶56 Second, as both the district court and the division below concluded, the actions
on which RMEI relies amounted, at best, to a claim that DG&S fraudulently concealed
Tracker’s involvement from RMEI. To establish a claim for fraudulent concealment,
however, a plaintiff must prove (1) the concealment of a material existing fact that in
equity and good conscience the defendant should have disclosed; (2) knowledge on the
defendant’s part that such a fact was being concealed; (3) ignorance of that fact on the
plaintiff’s part; (4) the intention that the concealment be acted upon; and (5) action on
the concealment resulting in damages. BP Am. Prod. Co. v. Patterson, 263 P.3d 103, 109
(Colo. 2011). To succeed on a claim for fraudulent concealment or nondisclosure, a
plaintiff must thus show that the defendant had a duty to disclose the material
information. Mallon Oil Co. v. Bowen/Edwards Assoc., Inc., 965 P.2d 105, 111 (Colo.
1998).
¶57 Here, RMEI has not asserted, nor could it assert, that DG&S owed it a duty to
disclose Tracker’s existence. Indeed, were we to impose such a duty on DG&S here,
parties would no longer be permitted to conduct transactions involving undisclosed
principals. Such a ruling, however, would undermine a century of established
24
Colorado law. See, e.g., Sigel-Campion Live Stock, 194 P. at 470. It would also interfere
with attorneys’ well-settled duties of loyalty and confidentiality to their clients in
situations like that present here. We perceive no basis for doing either in this case.
D. Fiduciary Duty Claims
¶58 Finally, we turn to RMEI’s claim that DG&S aided and abetted a breach of
fiduciary duty allegedly owed by Tracker to RMEI. RMEI asserts that Tracker owed it a
fiduciary duty to disclose its involvement in the transaction at issue because the Tracker
Purchase Agreement created a joint venture between the two parties. RMEI further
asserts that DG&S aided and abetted Tracker in breaching this duty. We do not agree.
¶59 Well-established principles of contract law guide our review, with our primary
goal being to determine and give effect to the intent of the parties. Ad Two, Inc. v.
City & Cty. of Denver, 9 P.3d 373, 376 (Colo. 2000). We ascertain the parties’ intent
“primarily from the language of the instrument itself.” Id. In ascertaining whether
certain provisions of an agreement are ambiguous, we examine the instrument’s
language and construe that language in harmony with the plain and generally accepted
meaning of the words employed. Id. When the written contract is complete and free
from ambiguity, we will deem it to express the intention of the parties and enforce it
according to its plain language. Id.
¶60 A claim for breach of fiduciary duty is a tort aimed at remedying economic harm
suffered by one party due to a breach of duties owed in a fiduciary relationship.
Accident & Injury Med. Specialists, P.C. v. Mintz, 2012 CO 50, ¶ 21, 279 P.3d 658, 663. A
fiduciary relationship exists between two persons when one is under a duty to act or
25
give advice for the benefit of the other on matters within the scope of the relationship.
Id.
¶61 This court has recognized certain fiduciary relationships as a matter of law,
including the relationships between an attorney and a client and between a trustee and
a trust beneficiary. Id. at ¶ 42, 279 P.3d at 663. This court has also recognized a
fiduciary relationship as a matter of law when one party occupies a superior position
relative to another and assumes a duty to act in the dependent party’s best interest. Id.
And we have recognized the fiduciary nature of the relationship that exists between the
parties to a joint venture. See Lucas v. Abbott, 601 P.2d 1376, 1379 (Colo. 1979).
¶62 Even when a fiduciary relationship exists, however, the parties to that
relationship may modify—or even disclaim—that relationship. See Dime Box
Petroleum Corp. v. La. Land & Expl. Co., 938 F.2d 1144, 1147–48 (10th Cir. 1991) (noting
that joint venturers owed fiduciary duties to one another unless their contract modified
that obligation); see also Mandelbaum v. Fiserv, Inc., 787 F. Supp. 2d 1226, 1241
(D. Colo. 2011) (concluding that the plaintiff’s breach of fiduciary duty claims failed as a
matter of law because the parties’ agreements “exculpate[d] Defendants of any such
duties.”); Asian Vegetable Research & Dev. Ctr. v. Inst. of Int’l Educ., 944 F. Supp. 1169,
1178 (S.D.N.Y. 1996) (concluding that as a matter of law, no fiduciary relationship
existed between the parties because the contract between them “clearly and
unambiguously disclaim[ed] a fiduciary relationship.”).
¶63 Here, as noted above, the Tracker Participation Agreement provided that it and
the Tracker Operating Agreement contained the entire agreement between RMEI and
26
Tracker and superseded any prior agreements. The Tracker Operating Agreement, in
turn, expressly disclaimed both the creation of a joint venture and any fiduciary
relationship:
It is not the intention of the parties to create, nor shall this agreement be
construed as creating, a mining or other partnership, joint venture, agency
relationship or association, or to render the parties liable as partners,
co-venturers, or principals. In their relations with each other under this
agreement, the parties shall not be considered fiduciaries or to have
established a confidential relationship but otherwise shall be free to act on
an arm’s-length basis in accordance with their own respective self-interest,
subject, however, to the obligation of the parties to act in good faith in
their dealings with each other with respect to activities hereunder.
(Emphases added.)
¶64 In our view, this language is clear and unambiguous and expressly disclaims any
fiduciary relationship that otherwise may have existed between Tracker and RMEI.
Tracker therefore did not owe RMEI any fiduciary obligations, and as a matter of law,
RMEI cannot assert a viable claim against DG&S for aiding and abetting a breach of
such nonexistent obligations.
¶65 We are not persuaded otherwise by RMEI’s contentions that (1) the disclaimer in
the Tracker Operating Agreement applied only to well operations, not to the sale of
leases and (2) as a result, the sale to Lario was governed only by the Tracker Purchase
Agreement and Tracker Participation Agreement, which did not disclaim a fiduciary
relationship between the parties.
¶66 As noted above, the Tracker Participation Agreement made clear that it and the
Tracker Operating Agreement constituted the entire agreement between the parties
concerning the subject matter contained in the Tracker Participation Agreement. As a
27
result, RMEI’s reliance on the Tracker Purchase Agreement is misplaced. Moreover,
notwithstanding RMEI’s assertions to the contrary, the Tracker Operating Agreement
addresses nearly all aspects of the parties’ relationship, including the surrender,
renewal, extension, and assignment of leases. Accordingly, we conclude that under the
plain language of the operative agreements between RMEI and Tracker, the parties
disclaimed any fiduciary obligations to one another, and therefore, RMEI’s purported
claim against DG&S for aiding and abetting an alleged breach of such fiduciary
obligations fails as a matter of law.
III. Conclusion
¶67 For these reasons, we conclude that the district court properly granted summary
judgment on all of the claims asserted against DG&S by RMEI. Accordingly, we affirm
the division’s judgment.
JUSTICE MÁRQUEZ dissents and JUSTICE COATS joins in the dissent.
JUSTICE HART does not participate.
28
JUSTICE MÁRQUEZ, dissenting.
¶68 I respectfully dissent. First, I am unconvinced that section 6.11(4) of the
Restatement (Third) of Agency has any bearing on the claims at issue in this case. Even
if it does, I disagree with the majority’s conclusion that the assignment clauses in the
transaction agreements between Rocky Mountain Exploration, Inc. (“RMEI”) and Lario
Oil and Gas Company (“Lario”) were sufficient, as a matter of law, to disclose to RMEI
that Lario was acting as an agent (and thus, that Tracker Resource Exploration ND, LLC
(“Tracker”) was merely an “unidentified,” rather than an “undisclosed,” principal for
purposes of section 6.11(4)). Next, I disagree with the majority’s “definite and specific
character” requirement for false representations, and the majority’s application of this
(new) requirement in its discussion of section 6.11(4) and its analysis of RMEI’s claims
against Davis Graham & Stubbs LLP (“DG&S”) for fraudulent misrepresentation. And
finally, because I believe the majority misreads the 2007 Operating Agreement, I
disagree with the majority’s resolution of RMEI’s claim that DG&S aided and abetted a
breach of fiduciary duty owed by Tracker.
I.
¶69 The majority notes that “[a]ll parties before us agree that the principles set forth
in the Restatement (Third) of Agency apply” to this case, maj. op. ¶ 29, and asserts that
RMEI’s civil conspiracy claim was “based [on]” section 6.11(4) of the Restatement, id.
at ¶ 46. Yet it is not clear to me why this is so.
¶70 Section 6.11 of the Restatement concerns “circumstances under which
representations made by an agent affect a principal’s legal position in actions brought to
1
enforce or rescind a contract.” Restatement (Third) of Agency § 6.11 cmt. a (Am. Law
Inst. 2006) (emphasis added); see also id. § 6.11(4) (providing that a third party “may
avoid the contract” if an agent who makes a contract on behalf of an undisclosed
principal “falsely represents to the third party that the agent does not act on behalf of a
principal” and “the principal or agent had notice that the third party would not have
dealt with the principal.” (emphasis added)).
¶71 The problem is that this case is not an “action[ ] brought to enforce or rescind a
contract.” Rather, the claims at issue here are for breach of fiduciary duty, fraud, and
civil conspiracy, and RMEI’s First Amended Consolidated Complaint for Damages and
Jury Demand (“Amended Complaint”) seeks only damages with respect to these claims.
Am. Compl. ¶¶ 154 (Count III, Civil Conspiracy), 158 (Count IV, Aiding and Abetting
Breach of Fiduciary Duty), 219 (Count XVI, Fraud), 221 (Count XVII, Conspiracy to
Commit Fraud), 225 (Count XVIII, Aiding and Abetting Fraud). Indeed, although the
majority discusses section 6.11(4) to analyze “whether RMEI can avoid the Lario sale”
maj. op. ¶ 36 (emphasis added), RMEI’s Amended Complaint does not seek to avoid the
sale of its oil and gas assets to Lario.1 In fact, Lario is not named as a defendant in the
1 Neither the amended complaint nor the parties’ summary judgment briefing below
mentions section 6.11. The district court referred to section 6.03 of the Restatement in its
order granting summary judgment, noting that as a general rule, an agent’s failure to
disclose the existence or identity of a principal is not actionable conduct. Then, in its
opening brief before the court of appeals, RMEI contended—in a footnote—that the trial
court’s analysis had ignored section 6.11(4). DG&S responded that this issue was
unpreserved, but addressed it on the merits anyway. RMEI continued to argue the
issue in its reply, and the court of appeals discussed section 6.11(4) at length in its
opinion. As a result, section 6.11(4) of the Restatement has now become a central focus
of this appeal.
2
Amended Complaint because the Lario/RMEI agreement contained an arbitration
clause. In other words, not only did RMEI not seek to avoid the sale to Lario, it could
not have sought such a remedy in its claim against DG&S, which was not a party to the
Lario/RMEI agreement. In any event, it is unclear to me why avoidance of the contract
would be relevant or necessary to prove RMEI’s civil conspiracy claim against DG&S.
See id. at ¶ 52.2 I therefore do not believe section 6.11(4) has any bearing on the claims
at issue here.
II.
¶72 Even assuming that section 6.11(4) does apply to RMEI’s claims, I disagree with
the majority that references to other “investors” or “partners” in assignment clauses in
the RMEI/Lario transaction agreements were sufficient, as a matter of law, to disclose
to RMEI that Lario was acting as an agent (and thus, that Tracker was merely an
“unidentified,” rather than an “undisclosed,” principal for purposes of section 6.11(4)).
Maj. op. ¶¶ 37–46.
¶73 Several comments to related provisions of the Restatement emphasize that
whether a third party has received sufficient notice of the existence or identity of a
principal is a question of fact. See Restatement (Third) of Agency § 6.01 cmt. c
(“Whether the existence and identity of any principal have been disclosed are questions
2 RMEI’s civil conspiracy claim, which is actually based on fraudulent concealment,
does not turn on whether Tracker was “unidentified” or “undisclosed.” An
unscrupulous agent can fraudulently conceal a principal’s existence or mislead the third
party as to the principal’s true identity. Contrary to what the majority derives from
section 6.11(4) of the Restatement, the third party is not precluded from claiming fraud
in the latter case simply because the principal was disclosed but unidentified.
3
of fact.”); id. § 6.02 cmt. d (“It is a question of fact whether a third party has such notice
[of a principal’s identity].”); id. § 6.01 cmt. c (“It is a question of fact whether facts
known by a third party gave the third party reason to know that person with whom it
dealt acted as agent on behalf of a disclosed principal.”); id. § 6.03 cmt. c (“It is a
question of fact whether the third party has received sufficient notice that the contract is
made with an agent who represents a principal and sufficient notice of that principal’s
identity.”); cf. Water, Waste & Land, Inc. v. Lanham, 955 P.2d 997, 1002 (Colo. 1998)
(“Whether a principal is partially or completely disclosed is a question of fact.”).
¶74 Importantly, a third party such as RMEI has no burden to inquire about the
existence of a principal. See Restatement (Third) of Agency § 6.01 cmt. c (“The third
party with whom an agent deals does not have a burden of inquiry [regarding the
existence and identity of any principal].”). Put differently, a principal’s existence is not
considered “disclosed” simply because “a third party could conceivably have
discovered that the agent acted as the principal’s representative.” Id. Moreover, where
an agent’s manifestations as to the principal’s existence or identity are ambiguous, the
third party’s reasonable belief about the existence (or not) of a principal is conclusive.
Id. § 1.04 cmt. b (“If manifestations [by a principal or agent] as to the principal’s
existence or identity are ambiguous, the third party’s belief is conclusive if it is
reasonable.”).
¶75 In my view, references in the transaction agreements regarding the possible
future assignment of interests to “investors” or “partners” were, at best, ambiguous
regarding the existence of an agency relationship. And under the circumstances, RMEI
4
reasonably believed that Lario was not acting as an agent. Pursuant to comment b of
section 1.04 of the Restatement, RMEI’s reasonable belief should be conclusive. Id. At
the very least, whether RMEI had notice is a disputed question of fact for a jury.
¶76 The majority concludes that, as a matter of law, references to “investors,”
“partners,” and “third parties” in assignment clauses in the Lario Letter of Intent and
the Lario Purchase and Sale Agreement provided notice to RMEI that Lario was acting
on behalf of an unidentified principal (Tracker). Maj. op. ¶¶ 37–46. The Lario Letter of
Intent provided, in relevant part, that Lario “has other investors or partners who may
elect to join in the acquisition of the Properties under the terms of this Letter
Agreement” and that “Lario shall have the right to assign a portion but not all of its
interest in this Letter Agreement to such investors or partners.” The Lario Purchase and
Sale agreement includes an assignment clause, which provides that Lario “shall have
the right to assign a portion but not all of its interest in this Agreement to third parties
who have agreed to participate in this transaction.”
¶77 I disagree that these provisions were sufficient, as a matter of law, to put RMEI
on notice that Lario was acting as an agent. The terms “investors,” “partners,” and
references to potential future assignment of interests do not unequivocally disclose an
agency relationship with such parties. At best, such terms are ambiguous as to such a
relationship.
¶78 Moreover, the circumstances of this case led RMEI to reasonably believe that
Lario was not acting as an agent, and that DG&S was involved in the transaction as
counsel for Lario alone—not for an unidentified principal (and certainly not for
5
Tracker). Lario requested RMEI’s permission to use DG&S as its attorney on the deal,
id. at ¶ 16, and Lario later referred to DG&S as its counsel in various communications
with RMEI, id. at ¶ 19. In addition, DG&S drafted many of the pertinent transaction
documents, communicated with RMEI’s bank, facilitated the creation of an escrow
account, and scrubbed metadata from anything coming from Tracker to prevent RMEI
from learning of Tracker’s involvement. Id. at ¶ 18. RMEI thus reasonably believed
DG&S represented Lario in the deal; no one informed RMEI that DG&S had determined
it could not represent Lario because of its ongoing relationship with Tracker, or
otherwise corrected RMEI’s misimpression that DG&S represented Lario. Given the
ambiguity of the references to “investors” and “partners” in the transaction documents,
under comment b of section 1.04 of the Restatement, RMEI’s reasonable belief that no
agency relationship existed should be conclusive. At a minimum, whether RMEI had
notice of the existence of a principal is a disputed question of fact for which summary
judgment was inappropriate here. See Restatement (Third) of Agency §§ 6.01 cmt. c,
6.02 cmt. d, 6.03 cmt. c.
III.
¶79 The majority reasons, in the alternative, that if section 6.11(4) of the Restatement
does apply because Tracker was an unidentified principal for Lario, the record
nevertheless does not support RMEI’s assertion that Lario falsely represented to RMEI
that Lario was not acting on behalf of a principal. Maj. op. ¶ 47. In so doing, the
majority alters the longstanding test for what constitutes a “false representation” by
requiring that the means used to deceive be of a “definite and specific character.” Id.
6
at ¶ 48. The majority then applies this “definite and specific character” requirement
both in its analysis under section 6.11(4) and in its analysis of RMEI’s claim for
fraudulent misrepresentation against DG&S. See id. at ¶¶ 48–50, 55.
¶80 The majority’s new “definite and specific character” requirement for a false
representation is drawn from a single line in H.B. Bolas Enterprises, Inc. v. Zarlengo,
400 P.2d 447, 450 (Colo. 1965). Our decision in H.B. Bolas offered no analysis of this
phrase because that case ultimately did not turn on whether the means used to deceive
were sufficiently “definite and specific.” In that case, no false representation was made
at all. Id. Since that decision issued, H.B. Bolas has not been cited for the proposition
for which the majority relies on it today, nor has any court deemed that language a
dispositive factor in determining whether a party made a false representation. In my
view, whether words and conduct are sufficiently “definite and specific” may, at most,
bear on whether a party reasonably relied on them for purposes of establishing the
“reasonable reliance” element of a fraud claim. See maj. op. ¶ 53 (setting forth elements
of claim for fraud by affirmative misrepresentation); see also id. at ¶ 48 (noting that a
party has “no right to rely on circumstances, conduct, or words that are equivocal”
(quoting H.B. Bolas, 400 P.2d at 450)). But I disagree that “words and conduct” that are
not “sufficiently definite or specific” cannot, as a matter of law, “constitute a false
representation.” Maj. op. ¶ 50 (emphasis added); see also id. at ¶ 55 (concluding that
DG&S’s conduct was not “definite and specific” enough to constitute an affirmative
misrepresentation that Lario was acting alone, and consequently, any reliance by RMEI
was unjustified). The test for what constitutes a “false representation” is simply
7
whether a party engaged in words or conduct (or a combination thereof) that created an
untrue or misleading impression. See CJI-Civ. 4th 19:3; see also Nelson v. Gas Research
Inst., 121 P.3d 340, 343 (Colo. App. 2005). And generally, whether there has been a
misrepresentation and whether a party has a right to rely on the representations are
both “question[s] of fact to be determined by the trier of fact upon the circumstances of
each individual case.” Bassford v. Cook, 380 P.2d 907, 910 (Colo. 1963); Zimmerman v.
DanKamphausen Co., 971 P.2d 236, 240 (Colo. App. 1998); see also Nelson v. Elway, 908
P.2d 102, 123 (Colo. 1995) (recognizing that “reasonable reliance is a question of fact”).
Here, DG&S (1) drafted the Lario Purchase and Sale Agreement and other documents in
the transaction; (2) worked with the escrow agent; (3) hosted the closing at its offices
and prepared the final closing documents; and (4) failed to correct Lario’s references to
DG&S as its counsel. In my view, these allegations amount to “words or conduct” that
“created an untrue or misleading impression” that DG&S was acting solely on Lario’s
behalf and that Lario was acting alone. And because RMEI produced evidence that it
relied on DG&S’s conduct, it is for a jury to determine whether such reliance was
justifiable. Cf. Westin Operator, LLC v. Groh, 2015 CO 25, ¶ 21, 347 P.3d 606, 611
(“Summary judgment is a drastic remedy, to be granted only when there is a clear
showing that the controlling standards have been met. Even where it is extremely
doubtful that a genuine issue of material fact exists, summary judgment is
inappropriate.” (internal quotation marks omitted)).
IV.
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¶81 Finally, I disagree with the majority’s resolution of RMEI’s claim that DG&S
aided and abetted a breach of fiduciary duty owed by Tracker to RMEI. Maj. op. ¶¶ 58–
66.
¶82 RMEI argues that the 2006 Purchase Agreement and the 2008 Participation
Agreement between Tracker and RMEI established a joint venture. During discovery,
RMEI produced an expert report that stated “AMI [Area Of Mutual Interest]
agreements in the oil and gas industry”—like those contained in the 2006 and 2008
agreements—“are common and are understood to create a joint venture/partnership
relationship.” RMEI also produced evidence that the 2006 Purchase Agreement and the
2008 Participation Agreement “separately and collectively” established a joint venture.
¶83 The majority holds that an intervening agreement, a model form operating
agreement signed by Tracker and RMEI in 2007, “expressly disclaims any fiduciary
relationship that otherwise may have existed between Tracker and RMEI.” Id. at ¶ 64. I
disagree. The 2007 Tracker Operating Agreement provides:
It is not the intention of the parties to create, nor shall this agreement be
construed as creating, a mining or other partnership, joint venture, agency
relationship or association, or to render the parties liable as partners,
co-venturers, or principals. In their relations with each other under this
agreement, the parties shall not be considered fiduciaries . . . .
(Emphases added).
¶84 In my view, this provision clarifies that “this agreement,” i.e., the 2007 Tracker
Operating Agreement, does not create a joint venture or fiduciary relationship. I do not
understand it to dissolve any joint venture created by the 2006 Purchase Agreement.
Indeed, when Tracker’s vice president of land was asked during a deposition about this
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disclaimer, he testified: “I believe ‘the agreement’ is referring to this agreement, which
is the operating agreement.”
¶85 Additionally, RMEI produced an expert report stating that joint operating
agreements like the 2007 Tracker Operating Agreement “are typically separate and
distinct from other contracts and agreements such as AMI Agreements.” The expert
report also explains that “[b]y its very nature and terms, the AMI Agreement [within
the 2006 Purchase Agreement] has precedence over the [2007 Operating Agreement] in
regards to the broader, overarching business relationship, most particularly concerning
. . . the avoidance of self dealing and competing interests.” In short, the 2007 Operating
Agreement did not modify or disclaim any joint venture established by the 2006
Purchase Agreement. Rather, the 2007 Operating Agreement is limited, by its own
terms, to well-drilling operations, and does not waive the parties’ fiduciary duties
under the separate AMI provisions that controlled the parties’ purchases, sales, and
trades of oil and gas leases within the AMI. This conclusion tracks the language of the
2007 Operating Agreement, which provides that, “to the extent the provisions of this
Joint Operating Agreement and the AMI Agreement are inconsistent with the [2006
Purchase Agreement], the provisions of [the 2006 Purchase Agreement] shall govern
and control.”
¶86 Even if the 2007 Operating Agreement disavowed any joint venture or fiduciary
relationship “that otherwise may have existed between Tracker and RMEI,” maj.
op. ¶ 64, it did not preclude the parties from forming a joint venture in the future.
RMEI argues—and produced evidence that—the 2008 Participation Agreement
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established a joint venture independent of the 2006 and 2007 agreements.
Consequently, whether Tracker owed RMEI a fiduciary duty is a disputed question of
material fact and should not be decided on summary judgment. See A.B. Hirschfeld
Press, Inc. v. Weston Grp., Inc., 824 P.2d 44, 46 (Colo. App. 1991) (recognizing that
“whether a joint venture exists is a question of fact”), aff’d, 845 P.2d 1162 (Colo. 1993).
V.
¶87 In sum, because I do not believe that section 6.11(4) of the Restatement (Third) of
Agency has any bearing on the claims at issue in this case; because I disagree with the
majority’s conclusion that the assignment clauses in the transaction agreements were
sufficient, as a matter of law, to disclose to RMEI that Lario was acting as an agent;
because I disagree with the majority’s new “definite and specific character” requirement
for false representations; because I believe the majority misreads the 2007 Operating
Agreement; and because I believe disputed issues of material fact exist in this case that
render summary judgment unwarranted, I respectfully dissent.
I am authorized to state that JUSTICE COATS joins in this dissent.
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