International Network, Inc. v. Woodard

COLORADO COURT OF APPEALS 2017COA44
Court of Appeals No. 15CA2132
Elbert County District Court No. 13CV30038
Honorable Michael J. Spear, Judge
International Network, Inc., a Colorado corporation,
Plaintiff-Appellee,
v.
Michael W. Woodard,
Defendant-Appellant.
JUDGMENT AFFIRMED AND CASE
REMANDED WITH DIRECTIONS
Division III
Opinion by JUDGE CASEBOLT*
Webb and Nieto*, JJ., concur
Announced April 6, 2017
Reynolds Gillette LLC, Brian R. Reynolds, Patrick Gillette, Denver, Colorado, for
Plaintiff-Appellee
Richard J. Banta, P.C., Richard J. Banta, Denver, Colorado; Robinson Waters
& O’Dorisio, P.C., Tracy L. Ashmore, Denver, Colorado, for Defendant-Appellant
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2016.
¶1 This case involves the admitted breach of a clause contained
in an exclusive right-to-sell real estate listing agreement obligating
the seller to “conduct all negotiations for the sale of the property
only through Broker, and to refer to Broker all communications
received in any form from . . . prospective buyers . . . or any other
source” (referral provision). Defendant, Michael W. Woodard
(seller), appeals the judgment in favor of plaintiff, International
Network, Inc., the real estate broker (broker), in the amount of the
commission that would have been payable under the listing
agreement had seller not breached the above-quoted clause. We
affirm.
I. Background
¶2 In April 2006, seller, who owned a ranch consisting of
approximately 100 acres, signed an exclusive right-to-sell listing
agreement with broker. As pertinent here, the agreement
established a list price of $4.5 million and provided for a percentage
commission to be paid to broker upon sale. The parties agreed to a
six-month listing period, but seller could cancel the agreement at
any time upon written notice.
1
¶3 Approximately four months into the listing period, seller began
negotiating with an attorney who represented a group of potential
buyers. Seller did not disclose his negotiations to broker and
admitted at trial that he had intentionally concealed the
discussions to avoid payment of a commission.
¶4 About a month after negotiations started, seller cancelled the
listing agreement without providing a reason. Broker ceased any
sales activity concerning the property. After the listing period had
expired, but within a ninety-day holdover period set forth in the
agreement, seller and the buyers finalized an agreement, resulting
in the sale of the property for $3.6 million.
¶5 Almost seven years later, broker initiated this action against
seller for breach of contract based upon seller’s failure to comply
with the referral provision.
¶6 Following trial, a jury found in favor of broker and awarded
$252,000 in damages — the commission that would have been
owed under the listing agreement.
II. Statute of Limitations
¶7 Seller contends that the trial court erred in denying his motion
for directed verdict and his post-trial motion for judgment
2
notwithstanding the verdict because broker’s breach of contract
claim was barred by the statute of limitations. We disagree.
A. Standard of Review
¶8 We review de novo a trial court’s rulings on motions for
directed verdict and judgment notwithstanding the verdict. Hawg
Tools, LLC v. Newsco Int’l Energy Servs., Inc., 2016 COA 176M, ¶ 18.
When the motion concerns a factual matter, we view the evidence in
the light most favorable to the nonmoving party and draw all
reasonable inferences from the evidence in that party’s favor. Hall
v. Frankel, 190 P.3d 852, 862 (Colo. App. 2008). Such motions
should be granted only when the evidence “compels the conclusion
that reasonable jurors could not disagree and that no evidence or
inference therefrom had been received at trial upon which a verdict
against the moving party could be sustained.” Boulders at
Escalante LLC v. Otten Johnson Robinson Neff & Ragonetti PC, 2015
COA 85, ¶ 19.
B. Applicable Law
¶9 A breach of contract claim “shall be commenced within three
years after the cause of action accrues.” § 13-80-101(1)(a), C.R.S.
2016. In this context, a cause of action accrues “on the date the
3
breach is discovered or should have been discovered by the exercise
of reasonable diligence.” § 13-80-108(6), C.R.S. 2016.
¶ 10 The cause of action is discovered when the party obtains
knowledge of the facts essential to the claim, not knowledge of the
legal theory supporting it. Murry v. GuideOne Specialty Mut. Ins.
Co., 194 P.3d 489, 492 (Colo. App. 2008). Such knowledge includes
information that would lead a reasonable person to inquire further.
Id.
¶ 11 When a claim accrues and whether it is barred by the statute
of limitations are generally questions of fact for the jury to resolve.
Sterenbuch v. Goss, 266 P.3d 428, 432 (Colo. App. 2011). But
“when the material facts are undisputed and reasonable persons
could not disagree about their import, these questions may be
decided as a matter of law.” Id.
C. Analysis
¶ 12 It is undisputed that seller breached the referral provision in
2006. But the date when broker discovered or should have
discovered seller’s breach is not so clear cut.
¶ 13 Seller argued at trial that the abrupt manner in which he
cancelled the listing agreement, the circumstances surrounding the
4
cancellation, and the recording of a deed transferring the property a
few months later gave rise to a duty on broker’s part to inquire
further into the sale. Upon broker’s investigation, seller asserted it
would have discovered the facts essential to its claim. Thus, the
argument proceeded, through the exercise of reasonable diligence,
broker should have discovered the breach of contract in 2006, and
because broker filed this action more than seven years later, the
statute of limitations barred its claim.
¶ 14 Broker agreed that seller cancelled the listing agreement in
2006. But it asserted that this cancellation provided no indication
that seller had been negotiating with the buyers in violation of the
agreement. Instead, broker asserted that it had no knowledge of
seller’s actions until 2011, when broker’s agent heard seller’s
testimony in another lawsuit. In that case, seller testified that he
had negotiated the sale of his property with the buyers’ attorney in
violation of the listing agreement and that he had intentionally
concealed this negotiation from broker to avoid paying a
commission. According to the agent, only upon hearing this
testimony did he discover seller’s breach. The agent also testified
that, before hearing such testimony, he did not have any knowledge
5
or suspicion that seller had breached the agreement. Broker
therefore asserted that its commencement of this action in 2013,
within three years of its discovery of the breach, was timely.
¶ 15 These arguments were presented to the jury, and it rejected
seller’s statute of limitations defense. Based upon the record, we
cannot conclude that the evidence — viewed in the light most
favorable to broker — compels a different result.
¶ 16 Seller had the absolute right to terminate the listing agreement
at any time. Hence, the cancellation some four months into the
six-month period did not, contrary to seller’s contention, place
broker on notice of a potential claim as a matter of law. And
contrary to seller’s additional contention, the recording of the deed
conveying the property, by itself, did not put broker on notice of the
facts essential to its cause of action or reasonably alert broker of
the need to inquire further as a matter of law.
¶ 17 To be sure, the recording of the deed provides notice to “all
persons . . . claiming any interest in [the] property.”
§ 38-35-106(1), C.R.S. 2016. But broker never claimed an interest
in the property. Instead, it claimed a right to recover damages from
seller’s breach of the listing agreement.
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¶ 18 Seller also points to nothing within the recorded deed that
would have alerted broker that seller had engaged in negotiations
with the buyers in violation of the listing agreement. At most, the
deed evidenced the sale of property a few months after the listing
had expired, which discloses nothing of the facts essential to
broker’s breach of contract claim. And it did not name the potential
purchaser broker had identified under the holdover provision.
¶ 19 We acknowledge the testimony of broker’s agent that could be
viewed as conflicting with broker’s position. The agent testified that
he had previously represented sellers who had gone behind his
back on transactions; that he had been involved in previous
disputes over real estate commissions; that seller refused to
communicate with him after terminating the listing agreement; that
he had seldom been fired from a listing agreement; and that he had
accused seller, in a phone message, of going behind his back with a
different potential purchaser, whom broker identified to seller’s
attorney under the ninety-day holdover provision of the listing
agreement. The agent also agreed that the sale of this property
would have earned him a large commission. Finally, the agent
stated that, after he received a letter from seller’s attorney
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reiterating that the listing was cancelled and directing broker to
communicate only with the attorney, he voluntarily “walked away”
from the commission.
¶ 20 But this evidence merely created conflicts in the facts for the
jury to consider in light of the agent’s testimony that he did not
have any knowledge or suspicion that seller had negotiated with the
ultimate buyers during the term of the listing. In our view,
reasonable jurors could disagree about the effect of all the record
evidence, and there is sufficient evidence or inferences therefrom
upon which a verdict against seller may be sustained.
¶ 21 We therefore cannot conclude that the material facts regarding
broker’s discovery of the breach compel overturning the jury’s
verdict. Accordingly, the court did not err in denying seller’s
motions for directed verdict and judgment notwithstanding the
verdict based on the statute of limitations.
¶ 22 Seller argues for the first time on appeal that the court erred
by shifting the burden of proof concerning the statute of limitations
defense to him. Because this issue was not raised in the trial court,
we decline to address it. See JW Constr. Co. v. Elliot, 253 P.3d
1265, 1271 (Colo. App. 2011) (an appellate court will not address
8
for the first time on appeal an issue not raised in or decided by the
trial court); see also Robinson v. Colo. State Lottery Div., 179 P.3d
998, 1108 (Colo. 2008).
III. Jury Instructions
¶ 23 Seller contends that the court erred in refusing his tendered
jury instructions on (1) the elements of liability for a real estate
commission claim and (2) the defense of laches. We consider and
reject each contention in turn.
A. Standard of Review
¶ 24 We review jury instructions de novo to determine whether the
instructions as a whole accurately informed the jury of the
governing law. Nibert v. Geico Cas. Co., 2017 COA 23, ¶ 8. If they
did, we review the trial court’s decision to give or reject a particular
jury instruction for an abuse of discretion. Id. A court abuses its
discretion when it misconstrues or misapplies the law, or when its
decision is manifestly arbitrary, unreasonable, or unfair. Id.
B. Real Estate Commission
¶ 25 Seller tendered a jury instruction setting forth the elements of
liability for recovery on a real estate commission claim. He argued
that the instruction was appropriate because broker could only
9
recover a commission if it was the procuring cause of the property’s
sale. Tracking the model jury instruction, the tendered instruction
stated the following:
For [broker] . . . to recover from [seller] . . . on
its claim to recover a real estate commission,
you must find all of the following have been
proved by a preponderance of the evidence:
1. [Broker] held a valid license as a real estate
broker under the laws of Colorado;
2. [Broker], acting as a real estate broker,
entered into a listing agreement with [seller] to
sell [seller’s] property;
3. [Broker] produced a purchaser who was
ready, willing and able to complete the
purchase of the property according to the
terms of the listing agreement; and
4. The sale of the property was completed
between [seller] and the purchaser or
prevented by [seller’s] refusal or neglect to
complete the sale.
See CJI-Civ. 4th 30:56 (2016).
¶ 26 The court rejected the instruction, concluding that it was
“based upon the right that a broker has to receive a commission,”
but that it was not applicable in this case because seller’s asserted
breach of the referral provision “interfere[d] with the broker’s ability
to be a procuring agent.” Seller argues that by failing to provide the
10
real estate commission instruction, the court erroneously instructed
the jury on the law. We disagree.
¶ 27 Absent circumstances not present in this case, the general
rule in Colorado is that a real estate broker is entitled to a
commission on the sale of a property only when the broker
produces a buyer who is ready, willing, and able to purchase the
property on the seller’s terms. § 12-61-201, C.R.S. 2016; see
Telluride Real Estate Co. v. Penthouse Affiliates, LLC, 996 P.2d 151,
153 (Colo. App. 1999). That is, the broker must be the procuring
cause of the sale. To be the procuring cause, the broker is required
to set in motion a continuous chain of events that results in the
sale of the property. Telluride Real Estate, 996 P.2d at 153.
¶ 28 Other divisions of this court have recognized an exception to
this general rule when the buyer and seller intentionally exclude the
broker from the property sale. See id.; Winston Fin. Grp., Inc. v.
Fults Mgmt., Inc., 872 P.2d 1356, 1358 (Colo. App. 1994). Under
these circumstances, the seller may not defend on the basis that
the broker was not the procuring cause. Telluride Real Estate, 996
P.2d at 153; Winston Fin. Grp., 872 P.2d at 1358; see generally Reid
v. Pyle, 51 P.3d 1064, 1067 (Colo. App. 2002) (a contracting party
11
who causes the other party’s failure to comply with the contract
terms cannot take advantage of that failure). When this exception
has been previously considered, however, the broker had at least
some part in identifying the potential buyer before the broker’s later
exclusion from the sale. Telluride Real Estate, 996 P.2d at 153;
Winston Fin. Grp., 872 P.2d at 1357.
¶ 29 The parties do not point to a Colorado case — nor have we
found one — that has considered the effect of the procuring cause
requirement when the broker had no contact with and was
completely unaware of a potential buyer who commenced
negotiations with the seller during the term of an exclusive listing
agreement containing a referral clause and later purchased the
listed property.
¶ 30 Other jurisdictions faced with this question generally agree
that the seller’s breach of the referral clause of an exclusive right-
to-sell agreement during the listing period entitles the broker to the
commission based on the subsequent sale of the property. See
Hammond v. C.I.T. Fin. Corp., 203 F.2d 705, 709 (2d Cir. 1953) (the
defendant’s failure to refer the buyer to the broker breached the
listing agreement and thus entitled the broker to a commission);
12
Kislak Co. v. Geldzahler, 509 A.2d 320, 326 (N.J. Super. Ct. Law
Div. 1985) (“The appropriate measure of damages for breach of a
term requiring referral of all inquiries to the listing broker, which is
part and parcel of the exclusive agreement[,] is the stipulated
commission in that agreement.”); E & E Mining, Inc. v. Flying D Grp.,
Inc., 718 P.2d 58, 62-63 (Wyo. 1986) (upholding the broker’s
recovery of the property sale’s commission as damages for the
seller’s breach of the referral obligation in their listing agreement);
accord Van Schaack Land Co. v. Hub & Spoke Ranch Co., 244 F.
Supp. 2d 1231, 1249 (D. Kan. 2003); see also J.C. Nichols Co. v.
Osborn, 12 F. Supp. 2d 1196, 1201 (D. Kan. 1998) (“[E]very court
that has considered the issue has ruled that . . . , where the seller
has breached a referral provision and then sold the property
without the broker, the seller’s breach entitles the broker to the
commission set out in the agreement.”).
¶ 31 We agree with these conclusions and apply the rule to this
case. When the seller’s intentional concealment of the buyer, in
clear violation of the referral provision of the listing agreement,
precludes the broker from engaging with the buyer, the seller may
not employ the procuring cause requirement to prevent the broker
13
from recovering the commission as damages on its breach of
contract claim.
¶ 32 In this case, seller admitted at trial that he contacted and
negotiated with the buyers’ attorney during the term of the listing
agreement, intentionally concealed his discussions from broker,
and ultimately sold the property during the ninety-day holdover
period set forth in the listing agreement. Seller’s conduct was in
direct violation of the referral provision.
¶ 33 Furthermore, broker did not contend that it was the procuring
cause of the sale, nor did it assert that it was entitled to a
commission it had earned through the sale of the property. Rather,
it claimed seller breached the referral provision, and because of this
breach, broker was prevented from procuring the sale.
¶ 34 Seller cannot use his intentional concealment of his
negotiation with the buyers to prevent broker from obtaining
damages in the form of a commission. A real estate broker is
considered an expert in the negotiation and sale of real estate. Doll
v. Thornhill, 6 So. 2d 793, 795 (La. Ct. App. 1942). We therefore
“must presume that [the broker] could have accomplished [the
sale]” or was at least “entitled to the opportunity to try.” Id. Had
14
 seller not intentionally concealed the potential buyer from broker,
broker could have negotiated the sale and earned a commission
under the procuring cause provision. Thus, the damages incurred
as a result of seller’s breach are appropriately measured as the
commission broker was due under the listing agreement. See, e.g.,
Kislak Co., 509 A.2d at 326; see also Watson v. Cal-Three, LLC, 254
P.3d 1189, 1194 (Colo. App. 2011) (“In a breach of contract action,
a plaintiff generally may recover the amount of damages that is
required to place him in the same position he would have occupied
had the breach not occurred.”).
¶ 35 Accordingly, the court did not err in rejecting seller’s proposed
procuring cause instruction.
C. Laches Instruction
¶ 36 The court rejected seller’s proposed instruction on the
affirmative defense of laches. The court ruled that, because of
seller’s improper conduct, seller did not “come[] before this court
with sufficient clean hands to be able to assert” a laches defense.
We agree with the court’s conclusion.
¶ 37 Laches is an equitable defense that precludes a plaintiff from
relief when the plaintiff has unconscionably delayed in enforcing its
15
rights, resulting in prejudice to the asserting party. In re Marriage
of Johnson, 2016 CO 67, ¶ 16. However, “[a] party requesting
equitable relief from the courts must do so with ‘clean hands.’”
Premier Farm Credit, PCA v. W-Cattle, LLC, 155 P.3d 504, 519 (Colo.
App. 2006) (citation omitted). When the requesting party’s
improper conduct relates to the claim in some significant way, the
improper conduct may bar that party’s entitlement to an equitable
remedy. Salzman v. Bachrach, 996 P.2d 1263, 1269 (Colo. 2000).
¶ 38 At trial, seller admitted that he had intentionally breached the
referral provision and agreed that his purpose in concealing his
negotiations was to deprive broker of its commission. Seller cannot
now claim that broker unreasonably delayed bringing this action
when seller intentionally concealed the facts giving rise to broker’s
claim.
¶ 39 Accordingly, the court did not abuse its discretion in rejecting
seller’s equitable defense. See Premier Farm Credit, 155 P.3d at 520
(“[I]t is within the trial court’s discretion to determine . . . whether
the facts support a finding of unclean hands . . . .”).
¶ 40 To the extent seller now also asserts that the court erred in
not giving jury instructions on waiver and estoppel, seller did not
16
request such instructions. We decline to address issues not raised
in the trial court. See JW Constr. Co., 253 P.3d at 1271.
IV. Impeachment of Broker’s Agent
¶ 41 In a pretrial ruling, the court granted broker’s motion in
limine, which sought to exclude evidence of its agent’s recent
personal bankruptcy. Seller does not directly challenge the in
limine ruling. Instead, based on events that developed during trial,
he contends that the court erred in denying him the right to
impeach broker’s agent with this evidence at trial. We disagree.
A. Standard of Review
¶ 42 The scope and limits of cross-examination, as well as the
admission or exclusion of evidence, are within the sound discretion
of the district court. Bonser v. Shainholtz, 3 P.3d 422, 424 (Colo.
2000); Radcliff Props. Ltd. P’ship, LLLP v. City of Sheridan, 2012
COA 82, ¶ 31. Absent a showing of an abuse of that discretion, we
will uphold the district court’s ruling. Scott v. Matlack, Inc., 39 P.3d
1160, 1170 (Colo. 2002). A court abuses its discretion when its
decision misapplies the law or it is manifestly arbitrary,
unreasonable, or unfair. Salazar v. Kubic, 2015 COA 148, ¶ 6;
Radcliff Props., ¶ 31.
17
B. Bankruptcy
¶ 43 During cross-examination, broker’s agent testified that if
broker was successful on its claim, the damages award was going to
be split between him and the other agent who had worked on the
listing. Seller argues that because the bankruptcy trustee in the
agent’s personal bankruptcy case was entitled to a portion of any
amount awarded, the court erred in precluding his questions
seeking to impeach the agent’s credibility on that issue. But during
trial the court made clear that it “[had] not preclude[d] the use of
[the bankruptcy] for potential impeachment of the witness.”
Instead, the court precluded questioning because seller’s attempt to
impeach the agent with a bankruptcy document lacked sufficient
foundation.
¶ 44 Accordingly, the trial court acted within its discretion in
limiting seller’s cross-examination.
C. Additional Impeachment
¶ 45 Seller also asserts that the court erred by precluding
cross-examination of broker’s agent in several other areas. Because
seller did not attempt to impeach broker’s agent at trial on the
18
grounds seller raises before us, seller did not adequately raise or
preserve this issue. See JW Constr. Co., 253 P.3d at 1271.
V. Statute of Frauds
¶ 46 Seller argues that the statute of frauds bars broker’s claim
because a signed listing agreement was not produced. We conclude
seller waived this claim.
¶ 47 The assertion that a plaintiff’s claim is barred by the statute of
frauds is an affirmative defense. C.R.C.P. 8(c); Univex Int’l, Inc. v.
Orix Credit All., Inc., 902 P.2d 877, 879 (Colo. App. 1995), aff’d, 914
P.2d 1355 (Colo. 1996). Unless presented at trial, a defendant
waives this affirmative defense. See Landmark Towers Ass’n v. UMB
Bank, N.A., 2016 COA 61, ¶ 24 (cert. granted Nov. 7, 2016). Merely
asserting the defense in the answer to the complaint and the trial
management order are insufficient to preserve the issue for appeal.
Id. at ¶ 25.
¶ 48 Seller did not raise his statute of frauds defense at trial or
tender an instruction to the jury. Nor did he present this argument
in any dispositive motion. Accordingly, seller waived this defense.
19
VI. Property Transfer
¶ 49 To facilitate the sale of the property to the buyers, seller first
transferred his property to a limited liability company (LLC)
controlled solely by him. The buyers then purchased a ninety-nine
percent interest in the LLC and seller retained the remaining one
percent. Seller argues that, based on this transfer, no sale occurred
that would entitle broker to a commission because seller retained
an interest in the property. See Cooley Inv. Co. v. Jones, 780 P.2d
29, 31 (Colo. App. 1989). Because seller did not present this issue
to the trial court, we again conclude that he has not preserved his
argument for appeal. See JW Constr. Co., 253 P.3d at 1271.
VII. Appellate Attorney Fees and Costs
¶ 50 Broker requests an award of attorney fees and costs incurred
on appeal. The listing agreement entitles the prevailing party in any
litigation relating to the agreement to “all reasonable costs and
expenses, including attorney and legal fees.” Because broker has
prevailed in this appeal, we award attorney fees and costs in its
favor. See Suss Pontiac-GMC, Inc. v. Boddicker, 208 P.3d 269, 272
(Colo. App. 2008).
20
¶ 51 We exercise our discretion under C.A.R. 39.1 to remand the
case to the district court for determination of broker’s reasonable
attorney fees and costs.
VIII. Conclusion
¶ 52 The judgment is affirmed. The case is remanded for further
proceedings to award broker’s costs and attorney fees incurred on
appeal.
JUDGE WEBB and JUDGE NIETO concur.
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