Free Response to Motion - District Court of Colorado - Colorado

Case 1:03-cv-02504-REB-CBS

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Case No. 03-CV-02504-REB-CBS PETER HORNICK, Plaintiff v. GARY BOYCE AND JOANNE BOYCE, Defendants

PLAINTIFF HORNICK'S RESPONSE TO MOTION TO ALTER OR AMEND FINDINGS

Plaintiff, Peter Hornick, by and through his undersigned attorneys, files the following Response to Defendants' Motion to Alter or Amend Findings:

INTRODUCTION Defendants' Motion to Alter or Amend Findings asserts that the Findings of Fact, Conclusions of Law, and Orders entered by this Court must be modified because the calculation of damages was incorrect, and because there was insufficient evidence to support an award of damages. The assertion that there was insufficient evidence to support the damage award will be addressed first, as it is conceptually the simplest. This Response will then address the four grounds Defendants assert for improper calculation of damages, in the following order: 1) the Younger abstention doctrine; 2) 1

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double recovery; 3) assessment of damages at the time of breach, and finally 4) the proper date for calculation of pre-judgment interest. Because this Court correctly assessed damages, Defendants' Motion should be denied in its entirety.

1. THE DAMAGE AWARD IS SUPPORTED BY SUBSTANTIAL EVIDENCE Defendants note that the breach of the option contract that was the subject matter of this dispute concerns Hornick's option to purchase the Boyces' one-half membership interest in Villa Grove Ranch, LLC, not the property itself. Motion at 7. However, as Gary Boyce himself testified, the entirety of the assets of Villa Grove Ranch, LLC, consisted always of the ranch itself. Transcript Vol. II, p. 341, l. 22 to p. 342, l. 2. Thus the value of the LLC in December of 2001 is the value of the real property. Peter Hornick testified quite clearly that the value of the real property as of December 2001 was four million dollars. Defendants also raise the speculation that, as of the date of the Defendants' breach in December, 2001, there might have been "possible encumbrances on the property or other liabilities of the partnership." Theoretically, there might have been, but if so, that fact does not appear in the record, and speculation of counsel is a far cry from evidence. Defendants had an opportunity to object to Mr. Hornick's testimony, to cross examine, or to put on evidence of their own concerning the state of title. They did nothing. Defendants then challenge that there was substantial evidence to support the

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award of damages. Defendants argument seems to center around the notion that substantial means "a lot." They thus cite to two cases that they contend presented evidence "far more convincing" than Hornick presented. The two cases cited by Defendants, however, turned on the fact that there was no competent evidence to support the damage awards in each instance. The appellate courts in those cases did not substitute their weighing of evidence for that of the trial court, but stated that the only evidence adduced was incompetent. In Realty Loans v. McCoy, 523 P.2d 476 (Colo. App. 1974), plaintiff lender had foreclosed on an installment land contract and sought damages consisting of the difference between a sale price of $12,750 and an asserted market value at the time of breach of $10,000. The only testimony concerning the $10,000 value came from an offer to purchase by a third party that plaintiff rejected. Plaintiff's goal was, of course, to prove a market value as far below the contract price as possible, thereby increasing its damages. It is not surprising, therefore, that the court rejected the proffered evidence as unreliable. In Bennett v. Price, 692 P.2d 1138 (Colo. App. 1984), the other case cited by Defendants for the proposition that there must be some quantum of "convincing" evidence adduced to support value, a purchaser introduced evidence of the listing prices of similar town homes in the areas to establish value. The purchaser was not an owner of the property, and thus could not testify as to its value himself without qualifying first as an expert. The holding in Bennett was that such evidence of listing prices was incompetent to establish value, because it does not bear a sufficient relationship to the fair market value so as to sustain the purchaser's

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burden of proof as to damages. 692 P.2d at 1140. In contrast, here Peter Hornick testified that he was an owner of the property, and was clearly familiar with it.1 He testified that he valued the property, as of December 2001, at four million dollars. He broke that value down as between the three ranches comprising the Villa Grove Ranch. Transcript p.49 l.18-p.50, l.22. He confirmed his valuation by talking to respected brokers in the area concerning their valuation of the ranch. Transcript at p.53, ll. 4-16. His discussions with Boyce a few years later where Boyce valued the property at more than four million dollars further confirmed the reasonableness of the figure. Substantial evidence is evidence that is probative, credible, and competent. Roberts v. Adams, 47 P.3d 690-697. It is not "a lot" of evidence. Whether or not there is substantial evidence in the record is an evaluation that turns on whether there is any probative, competent, credible evidence. The general, black letter rule in Colorado is that an owner of real property is competent to testify as to its value. Denver Urban Renewal Authority v. Berglund-Cherne Co., 568 P.2d 478 (Colo. 1977). The reasoning underpinning the rule is that an owner has extensive knowledge of the property and a heightened awareness as to its value. Vista Resorts v. Goodyear Tire and Rubber Company, 117 P.3d 60, 69 (Colo. App. 2004)(approving an owner's testimony as to

At the time of the Option Agreement and its breach, Peter Hornick was actually an owner of a 50% membership interest in the LLC which owned the property. However, as a member of the LLC which owns the property, he is able and competent to express his opinion as to value of the property. Denver Urban Renewal Authority v. Berglund-Cherne Co., 568 P.2d 478 (Colo. 1977). 4

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post- repair diminution in value due to "stigma."). In Baker Metropolitan Water and Sanitation District v. Calvaresi, 397 P.2d 877 (Colo 1965), one of the cases frequently cited for the proposition that a property owner may testify as to the value of his property, the extent of the owner's testimony concerning value in question was much more abbreviated than in this case: "Dan Pomponio was asked on direct examination `How much less is your property worth since this pipeline was put in?' He answered, `More than $9000'." 397 P.2d at 880. The Colorado Supreme Court held that such testimony was certainly sufficient to withstand a challenge that there was "no competent evidence of any damage to the residue," and that it was for the trier of fact to reach its own conclusion as to the proper compensation due. In this case, there is probative, credible, and competent evidence to support the damages awarded. Defendants had ample opportunity to introduce evidence that might counter the uncontested testimony of Hornick, but did not do so. They had ample opportunity to cross examine Hornick concerning his valuation of the property, but did not do so. They cannot now complain that the evidence, though probative, competent, and credible, somehow failed to meet some undefined minimum quantum of evidence necessary to support the judgment.

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2. THE COURT EMPLOYED THE PROPER MEASURE OF DAMAGES A. YOUNGER ABSTENTION IS NOT APPLICABLE It is bizarre for Defendants to argue that the Younger abstention doctrine2 applies not to require a court to stay proceedings (the recognized effect of application of the Younger doctrine), but rather to limit the remedies available from which the Court may select. It is doubly bizarre for Defendants to wait to make such an argument until after this Court has issued its Judgment.3 Defendants argument simply stated is that the only remedies available to this Court, given the pendency of the State Court claim concerning the 2005 exercise of the Buy/Sell agreement between the parties, are either to find for Defendants, or to limit the damages available to Plaintiff, so as not to moot the state court proceeding. Such is simply not the law. The Younger abstention doctrine was first applied to prohibit a federal district

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Younger v. Harris, 401 U.S. 307 (1971).

The strange timing of Defendants' Younger argument is brought home by the fact that when Plaintiff attempted to remove Case No. 05CV53 from the Saguache County District Court to Federal Court, Plaintiff argued: "Mr. Hornick's refusal to agree to the proposed buyout is the subject of this removed action. However, if Mr. Hornick is granted the specific performance he seeks in his related Option Suit [the instant case, 03-CV-2504-REB] the lawsuit removed to this Court is moot. Mr. Hornick would have obtained 100% ownership interest in Villa Grove as of the date of the Option Agreement. Any purported sale from the Boyces to themselves, after Mr. Hornick became the sole owner of Villa Grove, is void." Defendant Peter Hornick's Combined Response to Order to Show Cause and Motion to Remand, Case No. 05-CV-1704-WYD-MJW, United States District Court for the District of Colorado, p. 3, para. 4. (September 30, 2005). Certainly the Boyces cannot claim to be surprised by the overlap created by the two cases. 6

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court from directly interfering in a state court criminal proceeding.4 As Defendants note, it has since been expanded to include civil proceedings when 1) there is an ongoing state criminal, civil, or administrative proceeding, 2) the state court provides an adequate forum to hear the claims raised in the federal complaint, and 3) the state proceedings involve important state interests, matters which traditionally look to state law for their resolution or implicate separately articulated state policies. Amanatullah v. Colorado Bd. of Medical Examiners, 187 F.3d 1160 (10th Cir. 1999). The analysis in Amanatullah made clear that the pendency of state court proceedings is to be analyzed as of the date of filing of the federal action. That requirement was clearly stated in Gilbertson v. Albright, 381 F.3d 965, 975 (9th Cir. 2004), where the Court held "in [civil] cases, the proceeding must be pending when the federal action is filed, it must be in the nature of a judicial proceeding that implicates important state interests (akin to those involved in criminal prosecutions), and it must afford the federal plaintiff an adequate opportunity to present his federal constitutional challenges." In this case, while the state court provides an adequate forum to hear the claims raised in the complaint involved in this case, the other two requirements for Younger abstention to apply are not met. The state proceeding was not filed until some time after August 15 of 2005, almost two years after this case was filed.5 Furthermore, as is

For a thorough discussion of the Younger doctrine, see Gilbertson v. Albright, 381 F.3d 965 (9th Cir. 2004). The Complaint in this case was filed December 9, 2003. Although the state court Complaint attached to Defendants' Motion as Exhibit A does not contain a reference to the date 7
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evident from the allegations contained in the Complaint in this case and in the state court action, neither case concerns matters that implicate important state interests. They are both merely actions for breach of contract between two private parties. There is no scope for application of the Younger abstention doctrine to this case. Because of the Boyces' unilateral actions, taken while title to the LLC and thereby the property was in dispute in this matter, it is impossible to adjudicate matters in one proceeding without affecting matters in the other. The issue of Gary Boyce's unilateral transfer of property to himself and his wife was embraced by the claim for damages. The 2005 unilateral transfer by the Boyces to themselves was possible only because of the Boyces' breach of the option agreement, and caused additional damages stemming from that breach. If not embraced by the claim for damages, the issue was tried by consent. Fed. R. Civ. P. 15(b). Because the breach of contract in this case occurred prior to the transaction at issue in the state court proceeding, this matter must be resolved prior to proceeding in that action. Because this case resolved the issue of the breach of the option contract in favor of Hornick, the state action becomes moot. Only if resolved in favor of Boyce would there be anything for the state court to act upon. This Court having now ruled, it is both too late and unworkable to ask for abstention, even if abstention was appropriate in this case.

it was filed, it embodies a reference to actions taken on August 15, 2005. See Motion, Exhibit A, paragraph 20. 8

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B. THERE IS NO DOUBLE RECOVERY As of the date of trial, Hornick had no interest in the assets making up the Villa Grove Ranch LLC. This is due entirely to Boyces' actions in transferring those assets to themselves. It is, accordingly, entirely correct to award Hornick his damages in light of that transfer. Obviously, because Hornick has been awarded damages on the entire value of the ranch in this action, which is what his bargain (the Option Agreement) would have given him, he can have no claim in the state court action. Boyce also has no surviving state court claim, as, having breached the Option Agreement in 2001, he was in no position to transfer the assets of the LLC to himself in 2005. The state court action is made moot by the determination that Boyce breached the option agreement.

C. DAMAGES WERE ASSESSED AS OF THE TIME OF THE BREACH The evidence adduced at trial is quite clear that at the time of the breach of the Option Agreement, on December 11, 2001, the value of the Villa Grove Ranch was four million dollars. The evidence also clearly showed that in 2005, around the time of the unilateral transfer of the ranch property by the Boyces to themselves, Gary Boyce valued the ranch at more than four million dollars. Transcript p.51, l. 25 - p. 52, l. 22. Accordingly, the valuation of the ranch at four million dollars as of December 11, 2001, is a valuation of the damage basis at the time of the breach. Boyces' argument that damages were not assessed as of the time of the breach is really an argument that it was inappropriate to consider Boyces' 2005 transfer of the real property to themselves

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as part of Hornick's damages. As noted above, the Court was entirely correct in doing so.

D. PRE-JUDGMENT INTEREST ON THE ENTIRE DAMAGE AWARD IS PROPER FROM DECEMBER 11, 2001 Boyces' argument that pre-judgment interest should only run from December 11, 2001, on $1.5 million (being the $2 million value of half of the LLC interest, less the $500,000 purchase price) is incorrect. The purpose of pre-judgment interest is to "fully recognize the gain or benefit realized by the person withholding such money or property from the date of wrongful withholding to the date of payment or to the date judgment is entered, whichever first occurs." C.R.S. § 5-12-102(a). In this case, the benefit to Hornick of the Option Agreement was the ownership of the entire ranch property. The evidence was clear that not only did Hornick own only his half of the LLC interest following Boyces' breach, Boyce also excluded him from day to day managerial decisions concerning the ranching operation, and failed to pay him any of his share of profits from the ranch. See Transcript p. 44, l. 1 - p.45, l.3. The situation in this case is very analogous to that analyzed by the Colorado Court of Appeals in Cooper v. Peoples Bank, 725 P.2d 78 (Colo. App. 1986). In that case, plaintiffs, as purchasers, had entered into an installment land contract whereby they were to be delivered a warranty deed upon payment of 70% of the purchase price. That payment was made on April 1, 1977, but the bank, which had become the owner

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of the property by assignment and deed, refused to deliver a warranty deed, having failed to record its own deed prior to the filing of transcripts of judgments against its transferor. Purchasers continued to make payments under the contract, and the final payment was made some two and one half years later, on October 23, 1979. The Court awarded rescission to the plaintiffs, and awarded pre-judgment interest pursuant to C.R.S. § 5-12-102 for the amount of the entire purchase price, dating from April 1, 1977, the date of the breach. Defendants made an argument very similar to the argument made by the Boyces: pre-judgment interest cannot run on the entire purchase price from April 1, 1977 because the entire price was not paid until October 23, 1979. The Court of appeals upheld the trial court's award of interest dating from April 1, 1977, because it was on April 1, 1977, that the bank was to have transferred title to the entire property. Similarly in this case, on December 11, 2001, Boyce was to have transferred his half interest such that Hornick would be the owner of the entire property as of December 11, 2001. In order for Hornick to be completely compensated for Boyces' breach, interest on the value of the entire property must accrue from December 11, 2001.

CONCLUSION Because this Court's Findings of Fact, Conclusions of Law, and Orders are appropriate and correct, Boyces' Motion to Alter or Amend Findings should be denied in

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its entirety.

Respectfully Submitted this 6th day of October, 2006

s/ Erich Schwiesow Erich Schwiesow Lester, Sigmond, Rooney & Schwiesow P.O. Box 1270 Alamosa, Colorado 81101 Telephone: (719) 589-6626 FAX (719) 589-5555 Email: [email protected] Attorney for Plaintiff, Peter Hornick

CERTIFICATE OF SERVICE I hereby certify that on the 6th day of October, 2006, I electronically filed the foregoing PLAINTIFF HORNICK'S RESPONSE TO MOTION TO ALTER OR AMEND FINDINGS with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: [email protected] [email protected] [email protected]

s/ Erich Schwiesow

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