Free Motion to Amend/Correct/Modify - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 03-CV-02504-REB-CBS PETER HORNICK, an individual, Plaintiff, vs. GARY BOYCE, and JOANNE BOYCE, individuals Defendants/Counterclaimants ________________________________________________________________ MOTION TO ALTER OR AMEND FINDINGS _______________________________________________________________ Pursuant to Fed. R. Civ. P. 52(b), Defendants Gary and Joanne Boyce ("Defendants" or "Boyces") hereby move the Court to alter or amend its Findings of Fact, Conclusions of Law, and Orders ("Order"), entered August 30, 2006. As grounds, Defendants state as follows: INTRODUCTION The Court's Order awarded $3.5 million to Plaintiff Peter Hornick based on his claim that the Boyces breached an option agreement to sell him their interest in Villa Grove Ranch Co. LLC ("Villa Grove"). (Order 21-22.) The award, which represented the benefit of Hornick's bargain (id. 20-21), was arrived at by determining that the assets of Villa Grove were worth $4 million, then subtracting the $500,000 Hornick agreed to pay under the option agreement (id., 13-14).

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Defendants' motion is premised on two general grounds, both of which address the Court's findings regarding damages. First, the Court's Order miscalculated Hornick's damages. The Order should have reduced Hornick's damages by half to account for Hornick's fifty percent interest in Villa Grove, since "one may not recover that portion, which one already has." (Order 14, n.8.) The Court did not reduce the damages, however, based on its holding that nearly four years after the breach, Hornick lost his ownership interest in the assets of Villa Grove when the Boyces ostensibly exercised their buy-sell rights under the Villa Grove operating agreement. (Id.) That holding results in an impermissible double recovery for Hornick, violates the rule that the damages should be assessed at the time of the breach, and interferes with ongoing state court litigation in violation of the Younger abstention doctrine. The Court's award of pre-judgment interest is also erroneous because even by the terms of the Order, Hornick did not lose his ownership interest in the ranches until August 2005. Accordingly, the Order should be amended to specify that prior to August 2005, Hornick is entitled to pre-judgment interest on only one-half the value of Villa Grove's assets, less the $500,000 he agreed to pay under the option agreement. Second, the damages are not supported by competent evidence. The only evidence as to value was submitted through Hornick, who testified that based on vague conversations with two brokers and a review of unidentified "ranch magazines," the three ranches owned by Villa Grove were worth "around" $4 million. The Court accepted Hornick's testimony as credible, a finding which Defendants do not challenge.

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Rather, even accepting the credibility of Hornick's testimony, it was insufficient evidence to support damages, and Hornick therefore should be entitled only to nominal damages. ARGUMENT I. THE COURT MISCALCULATED HORNICK'S DAMAGES. As discussed below, the Court should have reduced Hornick's damages to reflect his one-half ownership in Villa Grove. The Court's failure to do so (1) results in an impermissible double recovery for Hornick, (2) violates the rule that damages should reflect the Plaintiff's loss at the time of the breach, and (3) interferes with ongoing state court litigation in violation of the Younger abstention doctrine. In addition, even under the Court's holding that Hornick's ownership interest ended in August 2005, the Court's award of pre-judgment interest must be reduced to reflect his ownership interest before August 2005. A. The Failure to Reduce Hornick's Damages to Reflect His Ownership in Villa Grove Results in a Double Recovery.

As this Court acknowledged in its Order, at the time of the breach Hornick owned fifty percent of Villa Grove. (Order 14, n.8.) As the Court stated during closing arguments: THE COURT: Let's talk about the formula, regardless of the actual value of the LLC at the time. . . . Let's assume arguendo that it's worth $4 million. Half of that value is already owned by Mr. Hornick. Correct?

MR. SCHWIESOW: Half of that value is already owned by Mr. Hornick. That's correct. THE COURT: He owns a 50 percent interest. Of that $4 million, $2 million of that he already has, and that brings us to $2 million on the Boyce side, less $500,000 that Mr. 3

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Hornick is going to pay for that interest, leaving us damages of $1.5 million. (Tr. Vol. II, 382:3-14 (emphasis added).) The Court's Order nonetheless failed to reduce the damages because it held that the Boyces later exercised their buy-sell rights to purchase the Villa Grove ranches in August 2005, and therefore Hornick no longer has his fifty percent interest in Villa Grove's assets. (Order 14, n.8.) Accordingly, the Court awarded Hornick $3.5 million rather than $1.5 million. This results in an impermissible double recovery for Hornick. The Court's holding appears to have been motivated by its concern that as a result of the Boyces' breach of the option agreement and their subsequent exercise of buy-sell rights in 2005, Hornick was denied not only the Boyces' interest in Villa Grove (i.e., the benefit of his bargain), but also his own half-interest in Villa Grove. That concern, however, is unfounded. The Boyces' ostensible purchase of the ranches1 is the subject of ongoing state court proceedings in Saguache County District Court (Order 13, ¶ 32), pursuant to which Hornick will either receive $1,125,000 if the Court validates the purchase or, as a half-owner of the Villa Grove entity, remain a fifty percent owner of the ranches if the court invalidates and unwinds the transaction. In either case, this Court's award of $3.5 million effectively gives Hornick an impermissible double recovery because he receives the alleged full value of the ranches while retaining a fifty percent interest in those same assets. See Quist v. Specialties Supply Co., 12 P.3d 863, 865

Unlike the option agreement from which this litigation arose, the buy-sell rights concerned the purchase of the ranches, not the Villa Grove entity itself.

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(Colo. App. 2000) ("A plaintiff may not receive a double recovery for the same injuries or losses arising from the same conduct."). B. The Court's Holding Violates the Rule that Damages Should Be Assessed at the Time of the Breach.

It is well-settled that damages are to be calculated based on the market value at the time of the breach. Sorenson, 536 P.2d at 331; Haynes v. Cumberland Builders Inc., 546 S.W.2d 228, 233 (Tenn. App. 1976) (reversing and remanding award of damages where only evidence of property's value were estimates of value at time of trial). At the time of the breach in December 2001, Hornick owned half of Villa Grove, which in turn owned the ranches. The Court's adjustment of the damages based on a change in ownership in the ranches, occurring nearly four years after the breach, violates the requirement that damages be calculated to reflect the Plaintiff's loss at the time of the breach. Accordingly, any damages awarded to Hornick should be reduced by his one-half ownership at the time of the breach in December 2001. C. The Court's Holding in Footnote 8 Violates the Younger Abstention Doctrine.

The Court's holding that Hornick no longer owns a half-interest in the ranches violates the Younger abstention doctrine. See Younger v. Harris, 401 U.S. 307 (1971). Under that doctrine, the court must abstain when a federal-court judgment would interfere with an ongoing state proceeding. D.L. v. Unified School Dist. No. 497, 392 F.3d 1223, 1227-28 (10th Cir. 2004). "The Younger doctrine extends to federal claims for monetary relief when a judgment for the plaintiff would have preclusive effects on a pending state-court proceeding." Id. at 1228.

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Younger abstention is appropriate where "(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 Med. Exam'rs, 187 F.3d 1160, 1163 (10th Cir. 1999) (internal quotation and citation omitted). Moreover, Younger abstention is a non-discretionary jurisdictional doctrine; it must be invoked once the three conditions are met, absent extraordinary circumstances. Seneca-Cayuga Tribe v. Oklahoma, 874 F.2d 709, 711 (10th Cir. 1989). Here, the Younger doctrine is implicated by the pending case in Saguache County District Court concerning the Boyces' disputed exercise of their buy-sell rights in 2005. (See Complaint, No. 05 CV 53, attached as Exhibit A.) There is no suggestion, either by this Court or by either of the parties in this case, that Judge Kuenhold's court is an inadequate forum in which to address the dispute. The dispute involves a purely state law question that was neither squarely presented to this Court nor addressed in any detail by the parties. Furthermore, Villa Grove LLC, the partnership to which Hornick and the Boyces are members, is a party in the state court action. This Court's ruling in footnote 8 decides precisely the issue before Judge Kuenhold and would have a preclusive effect. See D.L., 392 F.3d at 1228. Accordingly, as a matter of Younger abstention (or, in the alternative, purely as a matter of comity2), Defendants respectfully
2 The doctrine of comity, while not jurisdictional, has been described as "the scrupulous regard for the rightful independence of state governments which should at all times actuate the federal courts." Brooks v. Nance, 801 P.2d 1237, 1240 (10th Cir. 1986) (quoting Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100, 111 (1981)).

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move this Court to amend its findings to avoid interfering with the pending case in state court, and hold that: (1) as of December 2001, when the alleged breach occurred, Hornick held a fifty percent ownership in Villa Grove, and (2) Hornick's damages must be reduced to reflect the then-present value of that ownership. D. No Pre-Judgment Interest Should Be Awarded on the Portion of Villa Grove that Hornick Owned.

The Court's Order awarded Hornick pre-judgment interest on the entire $3.5 million award from December 11, 2001, until the date of judgment, or September 6, 2006. The award of pre-judgment interest is erroneous. Pursuant to footnote 8, Hornick's half-ownership interest in the assets of Villa Grove terminated in August 2005, when the Boyces ostensibly exercised their buy-sell rights. (Order 14, n.8.) Assuming that this Court declines to amend footnote 8, the Order still must be amended to specify that Hornick is not entitled to pre-judgment interest on the entire damage award until after August 2005. Prior to August 2005, Hornick should be awarded pre-judgment interest on only one-half of the value of Villa Grove, less the $500,000 he agreed to pay under the option agreement. II. THERE WAS INSUFFICIENT EVIDENCE TO SUPPORT THE DAMAGE AWARD. Notwithstanding that Hornick's breach of contract claim is based on the purchase of the Boyces' one-half membership in Villa Grove LLC, the $3.5 million damage award is based entirely on the speculative and unsupported value of real property owned by the partnership, without regard for possible encumbrances on the property or other liabilities of the partnership. In turn, the value of the real property is based entirely on

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the testimony of Peter Hornick, who stated that while he conducted no formal appraisal of the value of Villa Grove's ranches, he talked to two brokers and looked at "ranch magazines," from which he concluded that the ranches were worth "around" $4 million. (Tr. Vol. I, 50, 53.) The Court found Hornick's testimony credible, a finding which Defendants do not challenge. Rather, even accepting the presumptively credible testimony of Hornick, it was not adequate proof of damages, and the Court's award based on that testimony constitutes clear error. Sonoco Prods. Co. v. Johnson, 23 P.3d 1287, 1289 (Colo. App. 2001) (applying clear error standard to challenge to adequacy of damages). A plaintiff bears the burden of establishing damages with reasonable certainty by a preponderance of the evidence. Id. This burden requires a plaintiff to submit "substantial evidence, which together with reasonable inferences to be drawn therefrom provides a reasonable basis for computation of the damage." Pomeranz v. McDonald's Corp., 843 P.2d 1378, 1383 (Colo. 1993). "Substantial evidence is that which is probative, credible, and competent. It is evidence of a character that would warrant a reasonable belief in the existence of facts supporting a particular finding . . . ." Roberts v. Adams, 47 P.3d 690, 697 (Colo. App. 2001). "Substantial evidence" also means that damages based on mere speculation and conjecture are prohibited. Id. Absent substantial evidence, a plaintiff is entitled only to nominal damages. General Ins. Co. v. City of Colorado Springs, 638 P.2d 752, 759 (Colo. 1981). Under the substantial evidence standard, courts have struck down damage awards where the evidence was far more convincing than what Hornick adduced here.

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For example, in Realty Loans v. McCoy, 523 P.2d 476 (Colo. App. 1974), the trial court awarded the plaintiff damages for breach of a contract to sell a home. The plaintiff's evidence of market value was (1) a written purchase offer that had been rejected, and (2) the testimony of an expert witness whose valuation was based on the offer. Id. at 477-78. On appeal, the court reversed, holding that the evidence was insufficient to support the award of damages: "Any value placed on the property solely on the basis of an unaccepted offer of purchase is mere conjecture and cannot sustain a judgment, even though evidence of the offer was admitted without objection." Id. at 479. Similarly, in Bennett v. Price, 692 P.2d 1138 (Colo. App. 1984), the plaintiff sued a developer for breach of a contract to purchase a townhome. The trial court awarded the plaintiff damages based on evidence that similar townhomes in the area had been listed at a certain price. Id. at 1140. The Court of Appeals reversed, noting that the plaintiff "presented no evidence of the appraised value of the townhome . . . nor did he offer evidence of the sale price of similar townhomes in the area." Id. Because "[l]isting prices may tend to be inflated and may overstate the value of the property," the court found the evidence "is speculative and unreliable and does not bear a sufficient relationship to the fair market value of the property so as to sustain the purchaser's burden of proof as to damages." Id.; compare Higbie v. Johnson, 626 P.2d 1147, 1149 (Colo. App. 1980) (upholding award of damages based on value of ranches, where evidence included appraisals). Here, Hornick has submitted far less evidence than the plaintiffs in McCoy and Bennett. By his own admission, Hornick conducted no appraisal of the ranches. (Tr.

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Vol. I, 50:10). Nor did he submit to this Court a listing or sale price of the subject ranches, nor a listing or sale price of comparable properties, nor any offers of purchase or sale. Instead, he "call[ed] around [to two brokers] to get a sense of what the values were" (id. 50:11-12) and "checked ranch magazines" (id. 53:9), but failed to specify what information he obtained from those efforts. Even assuming the information he obtained included listing prices, McCoy and Bennett teach that such information still would not have been enough to satisfy the substantial evidence standard. Hornick also testified that "years later" he had a conversation with Gary Boyce (id. 51:18) in which Boyce claimed that they could carve up the Nye Ranch and sell it piecemeal for more than $4 million (id. 52:5-12). Such testimony is mere speculation or conjecture, which cannot serve as the basis of a damage award. Roberts, 47 P.3d at 697; Sonoco Prods., 23 P.3d at 1289. Moreover, it is well-settled that the damages are to be calculated based on the market value at the time of the breach. Sorenson v. Connelly, 536 P.2d 328, 331 (Colo. App. 1975); see also Corpus Christi Dev't Corp. v. Carlton, 644 S.W.2d 521, 522 (Tex. App. 1982) (reversing judgment for buyer on the ground that there was no evidence from which to determine the value of the property at the time of the seller's breach). Whatever Boyce might have said "years later" about the value of the ranches3 is entirely irrelevant. In short, there is no competent evidence in the record to support damages of $3.5 million. Accordingly, "a small sum," without regard to the actual loss, must be
As this Court is aware, the option agreement contemplated the purchase of ownership in Villa Grove, not simply the ranches. (Order 4, ¶ 13.) Although it may be that the ranches were Villa Grove's primary asset, none of the testimony and evidence addressed whether there were any additional assets or, more importantly, whether there were any outstanding liabilities that would have reduced the value of the Villa Grove entity.
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awarded as nominal damages. General Ins. Co., 638 P.2d at 759. Accordingly, Defendants respectfully move the Court, pursuant to Rule 52(b), to amend its findings with regard to damages, and award Hornick only the nominal damages to which he is entitled. CONCLUSION For the reasons set forth above, this Court should (1) alter or amend its Order to reduce the damage award by Hornick's fifty percent ownership interest in Villa Grove; (2) amend the judgment so that prior to August 2005, Hornick is entitled to pre-judgment interest on only half of the value of Villa Grove's assets, less the $500,000 he agreed to pay under the option agreement; and (3) alter or amend its Order to hold that Hornick has failed to produce competent evidence concerning the value of Villa Grove's assets, and he is therefore entitled only to nominal damages. Respectfully submitted this 18th day of September, 2006. Respectfully submitted,

Allan L. Hale______________________ Allan L. Hale (#14885) HALE FRIESEN, LLP 1430 Wynkoop Street, Suite 300 Denver, Colorado 80202-6171 (720) 904-6000 Attorneys for Defendants/Counterclaimants

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CERTIFICATE OF SERVICE I hereby certify that on this 18th day of September, 2006, I caused a true and correct copy of the foregoing MOTION TO ALTER OR AMEND FINDINGS to be served electronically via CM/ECF System, addressed to: Erich Schwiesow, Esq. Helen Sigmond, Esq. 311 San Juan Avenue P.O. Box 1270 Alamosa, CO 81101-7195

____/s/ Ann Grossmann_________________

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