Free Brief - 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 Civil Action No. 03-CV-02504-REB-CBS PETER HORNICK, an individual, Plaintiff, vs. GARY BOYCE, and JOANNE BOYCE, individuals Defendants/Counterclaimants

DEFENDANTS' BENCH BRIEF ON THE ISSUE OF PURPORTED WAIVER BY THE BOYCES OF CLOSING ON MONDAY, DECEMBER 10, 2001

Defendants Gary Boyce and Joanne Boyce (the "Boyces"), through the undersigned counsel, submit this Bench Brief on the Issue of the Boyces' Purported Waiver of Closing on Monday, December 10, 2001. I. INTRODUCTION The Plaintiff, Peter Hornick ("Hornick") claims that the Boyces have somehow waived their right to enforce the closing date mandated by the option contract at issue in this case. Hornick is wrong. As described in detail below, there is simply no evidence of waiver in this case sufficient to support Hornick's position under Colorado law. II. FACTS This case arises from an option agreement (the "Option Agreement") for the Plaintiff, Peter Hornick's ("Hornick") assignee, Ross Brupbacher ("Brupbacher"), to purchase the Boyces' membership interest in Villa Grove Ranch Co., LLC ("Villa Grove") for the sum of

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$500,000. Ex. 5, Option Agreement.1 The Option Agreement required the parties to close the transaction by December 10, 2001 (i.e., 60 days after Hornick exercised the option). Ex. 5 § 4. On December 10, 2001, the Boyces tendered performance by delivering a proposed assignment to Robert Bruce, Brupbacher's escrow agent ( the "Boyces Assignment"). Ex. 45. Bruce did not give a copy of the Boyces' Assignment to Brupbacher to review. Nevertheless, Bruce rejected the Boyces' proposed form of transfer for their membership interest and proposed his own form of assignment (the "Brupbacher Assignment"). Ex. 17. Moreover, the evidence shows that Brupbacher had insufficient funds on deposit with Bruce on December 10, 2001, with which to pay the $500,000 purchase price under the Option Agreement. Ex. 13 and Test. of R. Bruce. Thus even if the Boyces had accepted the terms of Brupbacher's Assignment, Brupbacher still could not have closed on December 10, 2001, as required. The Option Agreement specified that it was the obligations of the Boyces to deliver an "assignment of Interest," but the agreement did not attach an agreed form of assignment or otherwise specify any formal requirements for the document. Ex. 5 § 4. As such, the Option Agreement by necessity conferred upon the Boyces the discretion to determine the terms of the actual conveyance instrument. This discretion was limited by the obligation imposed by the implied covenant of good faith and fair dealing to perform in a manner consistent with the parties' agreed upon common purpose and Brupbacher's justified expectations. Occusafe, Inc. v. EG&G Rocky Flats, Inc., 54 F.3d 618, 624 (10th

All exhibit citations in this bench brief refer to the exhibits included in Defendants' Proposed Findings of Fact, Conclusions of Law and Order.

1

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Cir. 1995). The evidence will show that the Boyces' Assignment was a commercially reasonable transfer of their membership interest and that Brupbacher repudiated the Option Agreement when Bruce unjustifiably (and without authority) rejected the Boyces' Assignment. Brupbacher also repudiated the Option Agreement because he had insufficient funds available at Closing. See Defendants' Proposed Findings of Fact at ¶¶ 24-39. Following the December 10th failed Closing, the parties engaged in settlement discussions (via their respective attorneys) to resolve their dispute over the failed closing. Test. of G. Boyce. As part of these settlement discussions, on December 11, 2001, one day after performance was due under the Option Agreement, Bruce notified the Boyces that he now had funds available in his trust account to pay the $500,000 purchase price. Ex. 16, Letter from R. Bruce to G. Boyce, dated December 11, 2001. This purported tender of performance, however, was conditioned upon the Boyces signing and delivering the Brupbacher Assignment. Ex. 16. The Boyces did not accept Brupbacher's untimely tender of performance. Test. of G. Boyce. On December 18, 2001, the Boyces faxed an executed assignment in the hopes of settling the matter. Ex. 26. Fax from J. Lubitz to R. Bruce, dated December 18, 2001. Despite these efforts, the parties were unable to resolve their dispute. III. APPLICABLE LAW Waiver is the intentional relinquishment of a known right. Dep't of Health v.

Donahue, 690 P.2d 243, 247 (Colo.1984). A waiver may be explicit, as when a party orally or in writing abandons an existing right or privilege; or it may be implied, as, for example, when a party engages in conduct which manifests an intent to relinquish the right or

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privilege, or acts inconsistently with its assertion. People et rel. Metzger v. Watrous, 215 P.2d 344, 346-47 (Colo.1950). To be implied, however, the conduct must clearly manifest an intention not to assert the benefit. Lookout Mountain Paradise Hills Homeowners

Ass'n v. Viewpoint Associates, 867 P.2d 70, 76. Such conduct itself should be free from ambiguity. Donahue, 690 P.2d at 247 (citations omitted). Accordingly, a waiver can be found only on clear unequivocal conduct, or statements betraying an intent to relinquish known rights. MaceRich Real Estate Co. v. Holland Prop. Co., 454 F.Supp. 891, 897 (D.Colo.1978). Whether waiver has been established is a question of fact. Lookout Mountain, 867 P.2d at 76-77. Further, the burden of proving waiver is on the party asserting it. See MaceRich, 454 F.Supp. at 898. IV. ARGUMENT A. There is no evidence to support an explicit waiver by Boyces.

There is simply no evidence of an explicit waiver by the Boyces of their right to enforce the closing deadline mandated by the Option Agreement. To the contrary, on

December 10, 2001, the required "Closing" date, the Boyces discharged their obligations under the Option Agreement by tendering performance. Moreover, Hornick's argument that the parties were operating under a mutual mistake as to the required closing date, even if true, would be insufficient to constitute a waiver. It has long been settled in Colorado that a party's untimely performance under an option contract is not excused by their mistake as to when performance is due even when that mistake is caused by the conduct of the other party. McKenzie v. Murphy, 72 P. 1075, 1077 (Colo. 1903). In McKenzie, the plaintiff brought a claim seeking specific performance of an option contract to purchase an interest in a mining claim. Id., at 1076.

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The defendants argued that the plaintiff had failed to pay the purchase price on the January 1, 1896, the closing date stated in the agreement and, therefore, they had no obligation to convey the interest in the mining claim. Id. The plaintiff admitted that he did not tender performance until January 22, 1896, but argued that his tardy performance was excused because the defendants had told him that his performance was not due under the contract until February 7, 1896. Id. at 1077. The Colorado Supreme Court flatly rejected this argument finding that the statements of the defendants' notwithstanding, the plaintiff was charged with knowing the terms of the contract he had signed and his failure to timely perform in accordance with that contract excused any performance by the defendants. Id. The facts of this case are remarkably similar to McKenzie. The Option Agreement clearly provides that Brupbacher as assignee of Hornick was required to close on December 10, 2001. The fact that Hornick and Brupbacher may have been mistaken as to when closing was required, in no way excuses their late performance because they are both charged with knowledge of the terms of the Option Agreement. Moreover, the fact that the Boyces actually tendered performance on December 10, 2001 as required, shows that they certainly knew what date the transaction was supposed to close. B. There is no evidence to support an implied waiver by the Boyces.

Nor is there any evidence of conduct by the Boyce's which impliedly suggests an intent to waive the closing deadline. While the parties unsuccessfully engaged in settlement discussions after the required Closing date had passed, good faith, albeit unsuccessful, attempts to salvage a contract do not constitute waiver of Boyce's rights. The facts in MaceRich Real Estate Company VI v. Holland Properties Co. are instructive. In MaceRich, MaceRich was required to obtain a financial guarantee for its contract with the Defendant no later than May 15, 1978. On May 17, 1978, the Defendant

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attempted to contact MaceRich to determine whether it had complied with its contractual obligation and obtained the required guarantee. In response, Defendant was advised that MaceRich was still in the process of complying with this provision. At this time, the Defendant did not terminate the contract. MaceRich continued in its efforts to obtain the necessary commitment, but on May 23, advised that it was having difficulties complying and requested additional time. In response, the Defendant wrote MaceRich a letter expressing its intent to terminate the contract for failure to comply with the deadline for the required financial guarantee. The Court held that the Defendant did not impliedly waive its right to enforce the financial commitment deadline by failing to terminate the contract when it discovered that MaceRich had not complied. In so holding, the Court stated that "a slight delay in termination to allow MaceRich to complete an on-going effort to perform does not waive forever the right to terminate the contract." Id. at p. 898. In so holding, the Court noted that the Defendant did not "take any action inconsistent with the preservation of his right to terminate the contract." Id. Like the facts in MaceRich, the Boyces' actions in allowing Brupbacher additional time to perform his obligations under the Option Agreement do not constitute a waiver of his right to treat the contract as breached for failure to comply by the closing deadline. Like the Defendant in MaceRich, the Boyces did not take any actions inconsistent with the preservation of their right to treat the Option Agreement as breached. Notably, they did not attempt to renegotiate the deal with Brupbacher, but simply made an effort to allow Brupbacher to perform under the original terms of the contract provided he withdrew his repudiation and cured his breach. A similar ruling was made by the Colorado Court of Appeals in Highlands Ranch University Park, LLC v. Uno of Highlands Ranch, 129 P.3d 1020 (Colo. App. 2005):

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A continued willingness of the injured party to receive performance after a repudiation is an indication that, if the repudiator will withdraw its renunciation, but not otherwise, the contract may proceed. However, the innocent party does not thereby forfeit its right to treat the renunciation as a breach. The refusal of the renouncing party to retract the repudiation amounts to a continuation of the renunciation. So long as the repudiating party refuses to retract and continues its repudiation, the nonbreaching party may still elect to treat such repudiation as a breach. Highlands Ranch, 129 P.3d at 1024. These cases make it clear that a party's actions in allowing additional time for a breaching party to comply with its obligations under a contract do not constitute a waiver of that party's right to treat the contract as breached and terminate the same. Accordingly, Hornick has failed to sustain his burden to establish that the Boyces waived their right to enforce the terms of Option Agreement. C. Hornick's Reliance on Metropolitan Paving is Misplaced.

Nonetheless, it is Hornick's position that the Boyces waived their right to refuse to proceed with the Option Agreement based on Brupbacher's failure to close on December 10, 2001, because they did not assert this ground for refusal while they did assert others, such as Brupbacher's unjust refusal of the closing documents. In support of this position, Hornick relies solely on the holding in Metropolitan Paving Company v. City of Aurora, 449 F.2d 177 (10th Cir. 1971). Hornick's reliance on Metropolitan Paving is misplaced. In Metropolitan Paving, the plaintiff made a claim to the City of Aurora for extra compensation due to changed conditions in connection with a contract for work done constructing a water pipeline. Under the contract, the plaintiff was required to give notice of any changed conditions, though no such notice was ever given. However, the contract allowed the city to nonetheless adjust payments for changed conditions even absent

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proper notice under the contract. The city subsequently denied the claim not on the ground of improper notice, but on the grounds that the changed conditions should have been anticipated by the plaintiff. The plaintiffs later sued. The City defended by arguing that it was justified in denying the claim on the grounds that the plaintiff did not give proper notice of the changed conditions as required by the contract. The Court held that the City could not now invoke the defense of improper notice: "Where one has refused to comply with a contract on one ground, other possible grounds for refusal are thereby waived." Metropolitan Paving, 449 F.2d at 182. Clearly, the Court felt that the City, in considering the merits of the claim for adjusted payments based on changed circumstances notwithstanding the plaintiff's failure to give notice of such changed circumstances, had led plaintiff to believe that it had decided to waive the notice requirement (as it was expressly permitted to do under the contract). Similar facts were present in all the cases relied upon by the Metropolitan Paving court in rendering its judgment. See Bicknell v. Vollmuth, 147 P.2d 478 (Colo. 1944); Federal Life ins. Co. V. Wells, 56 P.2d 936 (Colo. 1936); Boaz v. Order of Commercial Travelers of America, 168 P. 1178 (Colo. 1917); Hartford Fire Ins. Co. v. Hammond, 92 P. 686 (Colo. 1907); Montelius v. Atherton, 6 Colo. 224 (1882). Notably, all these cases involved fact patterns whereby the first party by necessary implication led the second party to believe that defects in notice would be waived when the first party proceeded to negotiate the merits of the second parties' various claims notwithstanding the defective notice. Id. The court in Boaz explained the basis for this rule of waiver as follows: The doctrine of waiver is based upon the manifest injustice of permitting a party by his acts to mislead another, so that the latter is induced to assume the expense and labor of the trial of an issue tendered, and then be met with a plea that because of something done, or omitted to be done, of which

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the first party all the time had knowledge, such issue is wholly immaterial. Boaz, 168 P. at 1179. The facts and reasoning of the Metropolitan Paving line of cases are clearly not applicable here. First, the Boyces have consistently maintained that Brupbacher breached the Option Agreement because he failed to perform on the required "Closing Date." Ex. 22; First Amended Answer and Counterclaim, p. 6, ¶18. Second, there is nothing in Boyces' objection to Brupbacher's rejection of the closing documents which would imply that the Boyces did not intend to enforce the provisions of the Option Agreement mandating a December 10th closing. Notably, the Boyces' positions are not exclusive of each other, but rather consistent ­ unlike the circumstances presented in Metropolitan Paving and the cases on which that court relied. As discussed above, to constitute an implied waiver, there must be clear unequivocal conduct of an intent to relinquish known rights. There was no such conduct here. V. CONCLUSION There is simply no evidence to support Hornick's position that the Boyces waived, either expressly or impliedly, their right to enforce the provisions of the contract mandating a December 10, 2001, closing. As such, Hornick has failed to meet his burden of establishing a waiver.

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Respectfully submitted this 7 th day of August, 2006. HALE FRIESEN LLP

Allan L. Hale, Reg. No. #14885 Hale Friesen, LLP 1430 Wynkoop Street, Suite 300 Denver, Colorado 80202 Telephone: (720) 904-6000 Counsel for Defendants and Counterclaimants Gary Boyce and Joanne Boyce

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CERTIFICATE OF SERVICE I certify that on the 7th day of August, 2006, the foregoing DEFENDANTS' BENCH BRIEF ON THE ISSUE OF PURPORTED WAIVER BY THE BOYCES OF CLOSING ON MONDAY, DECEMBER 10, 2001 was served on all parties and other interested persons by HAND DELIVERY to the following: Erich Schwiesow, Esq. Helen Sigmond, Esq. 311 San Juan Avenue P.O. Box 1270 Alamosa, CO 81101-7195