Free Trial Brief - 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

PLAINTIFFS, STOCKMAN'S WATER COMPANY, LLC AND GARY BOYCE'S TRIAL BRIEF Plaintiffs, Stockman's Water Company, LLC, ("Stockman's") and Gary Boyce ("Boyce"), through their counsel, Hale Friesen, LLP, respectfully submit the following Trial Brief: I. FACTS A. The Parties

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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B.

Background

Villa Grove Ranch Co., LLC ("Villa Grove") is a Colorado limited liability company in which Hornick owns a 50% membership interest, and Defendant, Gary C. Boyce and, his wife, 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. 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

rangeland adjacent to the Great Sand Dunes National Park and nearby mountains, and rights to all tributary and non-tributary water associated with the Baca Property. 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 to acquire the Baca Property and develop its water rights ("Water Project"), Boyce sought assistance from Peter Hornick, a New York investor. As early as July 1994, Hornick began proposing to Boyce an organizational and investment structure for acquisition of the Baca Property and development of the Water Project. In his efforts to market the Water Project to potential investors throughout 1994, Hornick

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continued to promote this structure, and on November 9, 1994, proposed it to Jason Fish, of Farallon Capital Management, LLC ("Farallon"). 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 identify and finalize a deal with an ultimate investor. Based on the organizational and investment structure provided by Hornick, Farallon ultimately agreed to invest in the Water Project, and formed Vaca Partners, L.P. ("Vaca Partners"), 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 accept the organizational and investment structure promoted by Hornick and become a member of Cabeza by virtue of both an

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This letter is the focus of Stockman's and Boyce's remaining Breach of Contract claim against Peter Hornick.
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equity and debt component.2 Boyce sent Hornick a copy of Term Sheet Agreement by facsimile on or about February 14, 1995. Hornick continued to endorse and promote the structure and terms of the transaction, as originally proposed by him, accepted by Farallon, and evidenced by the Term Sheet Agreement, when he sent a second 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, in furtherance of the organizational and investment structure promoted by Hornick and 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 certain written contracts, one of being 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, 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

Vaca evidenced 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, and secured it by a Combination Deed of Trust With Assignment of Leases and Rents, Security Agreement and Fixture Filing, by and between the parties, of even date therewith ("Deed of Trust").
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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 and wind down Cabeza, and are hereinafter collectively referred to as the "Cabeza Agreements". In spite of the fact that these agreements evidence the transaction originally promoted by Hornick, their validity, and the actions of Cabeza in furtherance of these agreements, have been challenged by Hornick since 1999. Thus, forming the basis for Boyce's and Stockman's remaining breach of contract claim in this action. In 1996, Hornick sought to enforce his rights pursuant to the Hornick/Boyce Letter Agreement and his participation in the transaction evidenced by the Cabeza Agreements. 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 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 17, 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
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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 Baca Properties water rights, as well as the rights of all third parties in those water rights. No water decree however, was ever obtained that would allow Cabeza to appropriate and develop new water rights at the Baca Property. 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 for the purpose of paying the Note on or before its June 1, 2001, due date. In so doing, Vaca Partners asked Stockman's for one half of this capital call, however, it did not direct the capital call to Hornick. When the capital call did not result in sufficient funds to pay the Note, Cabeza's 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 Cabeza Agreements through various pieces of litigation, Hornick has
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challenged 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 "01-RB-83"). On April 3, 2001, Hornick joined the 01-RB-83 Action as an

intervening plaintiff to contest the validity of the Cabeza Agreements, and any actions of the Cabeza Executive Committee based thereon. Due to the failure of Cabeza to pay the Note when due, Vaca Partners initiated foreclosure upon the defaulted Deed of Trust to obtain title to the Baca Property in May, 2002. 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 also the validity of the Cabeza Agreements. On May 8, 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 Partner's credit bid of $34,367,145.87. Accordingly, Vaca partner's acquired title to the Baca Property, and the rights and interests of

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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 Cabeza Agreements, 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).

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Hornick has since 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.
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With regard to Hornick's attempt to litigate the validity of the Cabeza Agreements and actions of Cabeza based thereon, it is clear that these issues have been previously litigated, judicially determined, and are beyond reproach by Hornick through any litigious efforts. There is no dispute that the Cabeza Agreements 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 Operating Agreement of Cabeza. The claim remaining in this action seeks damages resulting from Hornick's breach of the Hornick/Boyce Letter Agreement through his numerous legal challenges of the Cabeza Agreements, and ensuing actions. Hornick has undertaken significant actions and initiated

numerous pieces of litigation based upon the Cabeza Agreements and subsequent actions of Cabeza's Executive Committee, all of which Hornick alleges are against his economic interest. These theories, as advanced by Hornick were simply clever efforts to "repackage" his earlier 1996 claims, his 2001 claims (decided by Judge Blackburn), an appeal of Judge Ogburn's May 8, 2002 Order Authorizing Sale, and his prosecution of the 02-CV36 Action and ensuing appeal.
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In short, these actions have simply been redundant attacks on the formation of Cabeza, and the terms of its governing agreements, and constitute a breach of the Hornick/Boyce Letter Agreement, which fully authorized Boyce to negotiate and execute said documents. As a result of Hornick's breach, Boyce and Stockman's have incurred significant damages comprised of, inter alia, attorneys' fees and costs in litigating the 02-CV-36 Action and the instant action, as well as indemnity demands from Vaca, Farallon, and Fish. II.ARGUMENT The only claim remaining in this action is Boyce and Stockman's claim against Peter Hornick for Breach of Contract. For Stockman's and Boyce to recover from Peter Hornick, on their claim of breach of contract, they must prove all of the following by a preponderance of the evidence: 1. Peter Hornick entered into a contract with Gary Boyce on January 25, 1995, in Hornick granted Gary Boyce the exclusive right to negotiate the terms of the operating or other agreements of Cabeza with the ultimate investor; and, 2. Peter Hornick failed to honor this provision as evidenced by the fact that Hornick challenges the terms of the Cabeza Agreements, and all actions based thereon, which were agreed upon by Boyce based on the authority granted in the January 25, 1995 letter agreement; and, 3. Gary Boyce performed his part of the contract. Peter Hornick breached his end of the bargain. See CJI-Civ. 4th 30:1 (2003).
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The evidence will show that Peter Hornick entered into a valid and binding contract on January 25, 1995 B the Hornick/Boyce Letter Agreement. In fact, this exact issue has been

determined by Judge Wiley Daniel in Case No. 96-D-1608. 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. in Case No. 96-D-1608. Moreover, Judge O. John Kuenhold, of the Saguache County District Court, Colorado, held that the Hornick/Boyce 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 Hornick/Boyce Letter Agreement is a binding and enforceable contract. The terms of the Hornick/Boyce Letter Agreement granted Boyce the exclusive right to negotiate the terms and conditions of the Cabeza Agreements with the ultimate investor. While the language of the Hornick/Boyce Letter Agreement appears to reserve certain rights "affecting Peter Hornick's economic interest," Boyce=s actions in no way encroached upon this limitation. In fact, Boyce negotiated the terms and conditions of the Cabeza Agreements in accordance with the terms and conditions which Peter Hornick, himself, promoted and marketed, and as further required by Vaca Partners. Further, through entry of Judge Daniel=s Order in Case No. 96-D1608, the economic interest of Peter Hornick in Cabeza, the Baca Property and, the Water Project, was effectuated and protected.

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As such, Boyce has complied with all of his rights, duties, and obligations under the Hornick/Boyce Letter Agreement. Hornick, on the other hand, has engaged in a pattern of contesting both the governing documents of Cabeza, as well as, Boyce's authority pursuant to the Hornick/Boyce Letter Agreement to negotiate and to enter into these agreements. Such conduct clearly constitutes a breach of the Hornick/Boyce Letter Agreement. The claim remaining in this action seeks damages resulting from Hornick=s numerous legal challenges of the Cabeza Agreements, and his corresponding breach of the Hornick/Boyce Letter Agreement, which fully authorized Boyce to negotiate and execute said agreements. In response to Hornick's breach of the Hornick/Boyce Letter Agreement, Boyce and Stockman's were contractually forced to take action to defend the integrity and validity of the Cabeza Agreements, all to their respective economic detriment. Specifically, Boyce and Stockman's have incurred significant damages comprised of, inter alia, attorneys' fees and costs in litigating the 02-CV-36 Action and the instant action, as well as indemnification demands from Vaca and Farallon. III.CONCLUSION In conclusion, Stockman's and Boyce will demonstrate at trial that Hornick's actions have been wholly inconsistent with the commitment he made by virtue of the Hornick/Boyce Letter Agreement, and that the Cabeza Agreements are valid and enforceable, and that the debt to Vaca incurred by Cabeza is legitimate and authorized by the Cabeza Agreements. In fact, Stockman's and Boyce will show that various Courts have already determined these issues, and
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that this Court is empowered to take judicial notice of such conclusions. To that end, it is imperative that the Court, once again, clearly articulate that the Cabeza Agreements, and any actions based thereon, are entirely valid, and have been deemed valid by a number of previous judicial determinations. In addition, the Court must make a clear determination that Hornick's numerous legal challenges of the documents constitute a breach of the Hornick/Boyce Letter Agreement, and have led directly to significant economic losses by Stockman=s and Cabeza. Dated this 26th day of September, 2005. HALE HACKSTAFF TYMKOVICH & ERKENBRACK, LLP

By: ______________________________ Timothy M. Tymkovich Allan L. Hale Scott A. Hyman 1675 Broadway, Suite 2000 Denver, Colorado 80202-3536 Telephone: (303) 592-8700 Attorneys for Plaintiff Stockman's Water Company and Counterclaim Defendant Gary Boyce

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CERTIFICATE OF SERVICE I certify that on September _____, 2005, the foregoing PLAINTIFFS, STOCKMAN'S WATER COMPANY, LLC'S AND GARY BOYCE'S TRIAL BRIEF was served on all parties and other interested persons by depositing copies of the same in the United States Mail, first-class postage prepaid addressed to the following:

Robert J. Bruce, Esq. Lindsey & Bruce, P.C. 730 17th Street, Suite 370 Denver, Colorado 80202

S/Catherine A. Ouzts

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