Free Proposed Findings of Fact - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-RB-83 (CBS) STOCKMAN'S WATER COMPANY, LLC, a Colorado limited liability company, and GARY BOYCE, an individual domiciled in Colorado, Plaintiff, v. PETER HORNICK, an individual domiciled in New York, Defendant FINDINGS OF FACT AND CONCLUSIONS OF LAW THIS MATTER came before the Court for a three-day trial on April 25-27, 2005. The claim was taken under advisement and the parties submitted proposed orders and additional argument in writing to the Court. Upon review of all of the relevant pleadings and papers filed, having reviewed and considered all evidence submitted, having heard and considered all arguments of counsel, and being fully advised in the premises, the Court hereby makes the following Findings of Fact and Conclusions of Law and Orders: PARTIES, JURISDICTION, AND VENUE Plaintiff, Stockman's Water Company, LLC ("Stockman's"), is a Colorado limited liability company in good standing with its principal business office at Moffat, Colorado. Plaintiff Gary C. Boyce is an individual and resident of the State of Colorado. Defendant, Peter Hornick ("Hornick"), is an individual and resident of New York.

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The amount at issue in this action exceeds $75,000, and Defendants are citizens of different states than Plaintiff; therefore, this Court has jurisdiction over the original subject matter of this jurisdiction under 28 U.S.C. § 1332. Venue is proper in this Court under 28 U.S.C. § 1391(b) because Plaintiffs reside and are located in this judicial district, the real property in dispute is located in this judicial district, and the principal events, acts, and omissions giving rise to the claims in this action occurred and will, unless enjoined, occur in this judicial district. FACTUAL FINDINGS Villa Grove Ranch Co., LLC ("Villa Grove") is a Colorado limited liability company in which Hornick owns a 50% membership interest, and Defendants, Gary C. Boyce and Joanne S. Boyce jointly own a 50% membership interest. Villa Grove currently owns and operates a ranch in Saguache County, Colorado, consisting of approximately 5,000 deeded acres, and a 12,000 acre Bureau of Land Management allotment. In 1994, Villa Grove Ranch Co., LLC acquired an option to purchase a 100,000 acre ranch known as the Baca Ranch, together with certain adjoining properties (the original Baca Ranch and these adjoining properties are referred to collectively as the "Baca Property") in Saguache County, Colorado. The Baca Property encompasses the thousands of acres of range land adjacent to the Great Sand Dunes National Monument and nearby mountains, and rights to all the tributary and nontributary water associated with all the Ranch's surface real estate. In 1995, Villa Grove transferred the option to purchase the Baca Property, including all water rights, to Cabeza de Vaca Land & Cattle Co., LLC ("Cabeza"), a development company formed by Boyce. In 1995, Boyce was the sole member of Cabeza. To obtain financing so he could develop -2-

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the Baca Property's water rights ("Water Project"), Boyce sought assistance from Peter Hornick ("Hornick"), a New York investor. On or about January 25, 1995, Hornick sent Boyce a letter confirming the terms of their respective financial participation in the Water Project ("Hornick/Boyce Letter Agreement")1, and setting forth the Summary of Terms. Boyce countersigned the Hornick/Boyce Letter Agreement on or about January 26, 1995. The Hornick/Boyce Letter Agreement granted Boyce the exclusive right to negotiate the terms and conditions of the Operating Agreement of Cabeza, as well as the financial structure of the Water Project with the ultimate investor. Boyce then took all necessary actions permitted under the Hornick/Boyce Letter Agreement to finalize the deal with the investor ­ Farallon Capital Management, LLC ("Farallon"). Farallon ultimately agreed to invest in the Water Project, and formed Vaca Partners, L.P. ("Vaca"), for its investment entity. The requirements of Farallon's investment in the Water Project were evidenced by a letter agreement that Jason Fish, of Farallon, sent to Boyce on or about February 10, 1995, and that Boyce subsequently countersigned ("Term Sheet Agreement"). In short, the terms of the agreement provided that Vaca would become a member of Cabeza by virtue of both an equity and debt component.2 Boyce sent Hornick a copy of Term Sheet Agreement by facsimile on or about February 14, 1995.

This letter is the focus of Stockman's and Boyce's remaining Breach of Contract claim against Peter Hornick. Vaca secured the debt component with a May 31,1995 Purchase Money Promissory Note (the "Note") in the amount of $8,000,000 in favor of Vaca Partners. -32

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Hornick subsequently adopted, and further promoted, the structure and terms of the transaction, as structured by Farallon and evidenced by the Term Sheet Agreement, when he sent a letter to Peter and Elena Marano on or about March 10, 1995, outlining the terms of the transaction and transmitting the Baca Water Project revised financials. Subsequently, at the direction of Farallon, Boyce caused Stockman's, and Vaca, to be admitted as members of Cabeza. Stockman's was designated as the Managing Member and Boyce withdrew as a member. The reorganization of Cabeza, with Vaca Partners and Stockman's as members, was effected by written contracts, one of which is known as the Basic Agreement, dated April 6, 1995. Parties to the Basic Agreement were Cabeza, Stockman's, Vaca Partners, Villa Grove Ranch Co., LLC, Sixth and Vermont Corporation, and Boyce. Another of the written contracts through which Cabeza was reorganized, with Farallon and Stockman's as members, is the Operating Agreement of Cabeza, dated April 6, 1995. Parties to the Operating Agreement are Stockman's, Vaca Partners and Boyce. Shortly after executing the Basic Agreement and the Operating Agreement, the parties to the Basic Agreement and others executed the First Amendment to Basic Agreement, dated May 31, 1995 (the "First Amendment"). The Basic Agreement, the Operating Agreement, and the First Amendment govern Cabeza's purpose and operation, as well as the contracting parties' rights to negotiate and agree to a sale of all or any part of the Baca Property or to dissolve Cabeza. The validity of these three documents, and any actions of Cabeza based thereon, have been challenged by Hornick since 1995; forming the basis for Boyce's and Stockman's remaining breach of contract claim in this action.

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In 1996, despite his disagreement with regard to the terms of the Basic Agreement, the Operating Agreement, and the First Amendment, Hornick initiated litigation to enforce his rights pursuant to the Hornick/Boyce Letter Agreement. Stockman's Water Company, LLC v. Peter Hornick, et al., Case No. 96-D-1608 (the "Hornick Action"). By virtue of the Court's August 17, 1999, Findings of Fact, Conclusions of Law and Order for Judgment, Hornick became a member in Cabeza with a 12.5% ownership interest in Cabeza. In reaching its legal determination, the District Court held that the Hornick/Boyce Letter Agreement was a "valid and enforceable contract" between the parties. See August 16, 1999 Judge Wiley Daniel Order in Case No. 96-D-1608. Due to the outcome of the Hornick Action, and in fulfillment of Judge Daniel's Order in Case No. 96-D-1608, Cabeza prepared and provided the First Amendment To Operating Agreement of Cabeza De Vaca Land & Cattle Co., LLC to Hornick. Hornick never executed this document. Subsequently, Hornick prepared and distributed to all parties, as evidenced by a letter sent by Hornick's counsel to Boyce's counsel and Vaca Partner's counsel on or about October 7, 1999, the Amended and Restated Operating Agreement of Cabeza De Vaca Land & Cattle Co., LLC, A Colorado Limited Liability Company. Since 1995, Cabeza has sought to confirm its rights in the Ranch's water rights, as well as the rights of all third parties in those water rights. However, no water decree was ever obtained that would allow Cabeza to appropriate and develop new water rights at the Baca Ranch. At some point after May 31, 1995, Vaca Partners began investigating whether environmental or conservation groups, such as The Nature Conservancy, would purchase the Baca Ranch from Cabeza. On April 17, 2001, Vaca Partners, acting through the Cabeza Executive Committee and on behalf of Cabeza, approved a capital call in the amount of $26,527,149.68 million for the purpose

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of paying the Note on or before June 1, 2001. Vaca Partners asked Stockman's for one half of this capital call and did not direct the capital call to Hornick. When the capital call did not result in sufficient funds to pay the Note, the Cabeza Executive Committee authorized Fish's negotiation of the terms and conditions of the sale of the Baca Property to The Nature Conservancy. As a result of these negotiations, Cabeza and The Nature Conservancy entered into a Purchase Agreement and Escrow Instructions dated December 21, 2001, for the purchase and sale of the Baca Property. In addition to challenging the validity of the Basic Agreement, the Operating Agreement, and the First Amendment through various pieces of litigation, Hornick has challenged any and all actions of the Cabeza Executive Committee, including the sale to the Nature Conservancy. Stockman's initially resisted Cabeza's efforts to discontinue pursuit of the Water Project and to sell the Baca Property. Accordingly, and to protect its ongoing negotiations with potential replacement investors for Vaca Partners, Stockman's initiated the instant suit against Vaca Partners, Farallon and Fish in Stockman's Water Company, LLC, et al v. Vaca Partners, L.P., et al., Case No. 01-RB-83, United States District Court for the District of Colorado (the "01-RB-83 Action"or "01RB-83"). On April 3, 2001, Hornick joined the 01-RB-83 Action as an intervening plaintiff to contest the validity of the Basic Agreement, the Operating Agreement, and the First Amendment, and any actions of the Cabeza Executive Committee based thereon. In May, 2002, Vaca Partners initiated foreclosure upon the defaulted Deed of Trust to obtain title to the Baca Property. On May 8, 2002, a Rule 120 hearing was conducted to determine the existence and validity of Vaca Partners' debt. Hornick participated fully in the Rule 120 hearing and again, contested not only the debt, but the validity of the Operating Agreement. On May 8,

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2002, Judge Ogburn issued an Order Authorizing Sale. On May 30, 2002, the Public Trustee in and for Saguache County, Colorado, conducted an open and public foreclosure sale. At the foreclosure sale, the highest and only bid for the Baca Property was Vaca's credit bid of $34,367,145.87. The rights and interests of Cabeza under the Purchase Agreement and Escrow Instructions with The Nature Conservancy were subsequently assigned to Vaca Partners. On June 3, 2002, Hornick filed a Verified Petition and Complaint For Injunction Against Foreclosure Sale and For Other Relief against Connie Trujillo, as the Public Trustee for Saguache County; Cabeza De Vaca Land & Cattle Co., LLC.; Stockman's Water Co., LLC; Farallon Capital Management, LLC; and American Water Development, Inc. in a further attempt to contest the validity of the governing documents, and actions based thereon. See Saguache County District Court Case No. 2002-CV-36 (the "02-CV-36 Action" or "02-CV-36"). The 02-CV-36 Action was tried to the Court on February 23-26, 2004, and a judgment was entered against Hornick.3 By way of background, in the 01-RB-83 Action, on December 30, 2003, this Court entered its Order Re: Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction ("December 31, 2003 Order") finding that it lacked subject matter jurisdiction over Hornick's claims because the claims: (1) were previously decided in state court proceedings; or (2) were already being litigated before the state court in the 02-CV-36 Action. (See December 31, 2003 Order). With regard to Hornick's attempt to litigate the validity of the Cabeza operating documents and actions of Cabeza based thereon, it is clear that these issues have been previously litigated, judicially

Hornick appealed the Order Denying the Motion to Amend Complaint and Order Denying Motion for Summary Judgment and Findings of Fact, Conclusions of Law and Judgment issued by the Honorable O. John Kuenhold on January 30, 2003 and March 23, 2004, respectively, and both Orders were subsequently affirmed by the Colorado Court of Appeals on June 16, 2005 -7-

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determined, and are beyond reproach by Hornick through any litigious efforts. There is no dispute that the Cabeza Operating Agreement and the Basic Agreement have been validated by various courts over the previous five years. See e.g., the 1999 Federal Court Action, Stockman's Water Co. v. Hornick, Case No. 96-D-1608; Saguache County District Court Rule 120 Foreclosure Proceeding, Vaca Partners, L.P. v. Cabeza de Vaca Land & Cattle Co., LLC, Case No. 02-CV-20; Federal Court Action, Stockman's Water Co., LLC, et al. v. Vaca Partners, L.P., et al., Case No. 01-RB-0083; and Saguache County District Court action, Cabeza de Vaca Land & Cattle Co., LLC v. Connie Trujillo, et al., Case No. 02-CV-15. Moreover, the $8,000,000 debt to Vaca was incurred lawfully and appropriately by Cabeza in 1995 pursuant to the terms of the Cabeza Operating Agreement. Stockman's and Boyce's claim in this action seeks damages resulting from Hornick's numerous legal challenges of the Basic Agreement, the Operating Agreement, and the First Amendment, since Hornick's conduct constituted a breach of the Hornick/Boyce Letter Agreement, which fully authorized Boyce to execute said documents. Hornick has undertaken significant actions and initiated numerous pieces of litigation based upon the Cabeza Executive Committee's actions regarding the foreclosure of the Baca Ranch or the arranged sale of the Baca Ranch to The Nature Conservancy in addition to other related actions of the Cabeza Executive Committee, which allegedly are against the economic interest of Peter Hornick. These theories advanced by Hornick were simply clever efforts to "repackage" his earlier 1996 claims, his 2001 claims (decided by Judge Blackburn), and an appeal of this Court's May 3, 2002 Order Authorizing Sale. In short, these actions have simply been redundant attacks on the formation of Cabeza, and the execution of its governing documents, including the formation of the Executive Committee, and constitute a breach of the Hornick/Boyce Letter Agreement.

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As a result of Hornick's breach, Boyce and Stockman's have incurred significant damages comprised of attorneys' fees and costs in litigating the 02-CV-36 action and the instant action. CONCLUSIONS OF LAW A. Peter Hornick entered into a valid binding contract with the Gary Boyce on January 25, 1995. On January 25, 1995, Peter Hornick entered into a binding and enforceable contract.By virtue of testimony and documentary evidence presented by Plaintiffs, the Court finds the Letter Agreement to be a valid and binding agreement between the Parties, and that the terms thereof granted Gary Boyce the exclusive right to negotiate the terms of the operating or other agreements of Cabeza with the ultimate investor in the Baca Grand Water Project. More importantly, the Court takes judicial notice of the a prior judicial determination to this effect made by Judge Wiley Daniel in 1999. See August 16, 1999 Judge Wiley Daniel Order. Judge Daniel held that the Hornick/Boyce Letter Agreement was a "valid and enforceable contract" between the parties. Moreover, Judge O. John Kuenhold, of the Saguache County District Court, Colorado, held that the Letter Agreement "reflected" the agreement between Gary Boyce and Peter Hornick. See Findings of Fact and Conclusions of Law, dated March 23, 2004, in Civil Action No. 02-CV-36. Accordingly, there can be no mistake that the Letter Agreement was a binding and enforceable contract in which Gary Boyce the exclusive right to negotiate the terms of the operating or other agreements of Cabeza with the ultimate investor in the Baca Grand Water Project. This fact is further supported by the fact that Peter Hornick, himself, marketed the Water Project to potential investors via the same framework that Boyce ultimately settled on in negotiating the financing, formation, and governance of Cabeza, as Hornick clearly adopted, and further promoted, the structure and terms of the transaction, as structured by Farallon and evidenced by the Term Sheet -9-

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Agreement, when he sent a letter to Peter and Elena Marano on or about March 10, 1995, outlining the terms of the transaction and transmitting the Baca Water Project revised financials. Consequently, Peter Hornick cannot, in good faith, object to the governing documents of Cabeza, nor any actions based thereon. This, too, has been previously determined by various Courts. Most recently by Judge Kuenhold in the same order referred to above. B. Peter Hornick failed to honor the Letter Agreement Peter Hornick failed to honor the Letter Agreement, as evidenced by the fact that Hornick challenged the terms of the Operating Agreement, the Basic Agreement, and the First Amendment to the Basic Agreement, and all actions based thereon, which were agreed upon by Boyce based on the authority granted in the January 25, 1995 letter agreement. It is undisputed that Peter Hornick has instuted numerous legal challenges to the Operating Agreement, the Basic Agreement, and the First Amendment to the Basic Agreement, and all actions based thereon, and that none of these legal challenges have been successful. In fact, the Operating Agreement, the Basic Agreement, and the First Amendment to the Basic Agreement, and all actions based thereon have been judicially determined to be valid, enforceable, and beyond reproach. Hornick's actions in pursuing the 1999 Federal Court Action, Stockman's Water Co. v. Hornick, Case No. 96-D-1608; the Saguache County District Court Rule 120 Foreclosure Proceeding, Vaca Partners, L.P. v. Cabeza de Vaca Land & Cattle Co., LLC, Case No. 02-CV-20; the Federal Court Action, Stockman's Water Co., LLC, et al. v. Vaca Partners, L.P., et al., Case No. 01-RB-0083; and the Saguache County District Court action, Cabeza de Vaca Land & Cattle Co., LLC v. Connie Trujillo, et al., Case No. 02-CV-15, collectively constitute a breach of the Letter Agreement due to

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the fact that Hornick has repeatedly challenged the very same documents that he gave Boyce exclusive right to negotiate and finalize. C. Gary Boyce performed his part of the contract In negotiating in good faith, and finalizing a financing structure, and administrative structure, similar, if not identical, to that marketed by Peter Hornick, for the governance of Cabeza, and its business dealings, Boyce fully complied with his obligations under the Letter Agreement. As such, the only party to have breached the Letter Agreement is Peter Hornick. ORDERS For the foregoing reasons, this Court ORDERS the following: 1. Judgment is entered in favor of Plaintiffs and against Defendant on Plaintiffs' breach of contract claim. 2. Plaintiffs' request for damages is granted. 3. Plaintiffs are hereby awarded $__________ in damages immediately and directly incurred due to Peter Hornick's breaches of the Letter Agreement. 4. Plaintiffs are awarded their costs, and shall file a statement of costs within ten (10) days of receiving this Order. Done this ____ day of ____, 2005. By the Court:

_____________________________ District Court Judge

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