Hoiles v. Alioto
| Decision Date | 05 September 2006 |
| Docket Number | No. 05-1376.,05-1376. |
| Citation | 461 F.3d 1224 |
| Parties | Timothy C. HOILES, Plaintiff-Counterclaim-Defendant-Appellee, v. Joseph M. ALIOTO, Defendant-Counterclaim-Plaintiff-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Ronald S. Rauchberg, Proskauer Rose LLP, New York, New York (Norman Brownstein, Timothy R. Beyer, Richard P. Barkley, Josephine Sandler, Brownstein Hyatt & Farber, P.C., Denver, Colorado, Ian L. Saffer and Chad King, Townsend & Townsend & Crew, LLP, Denver, Colorado, Scott L. Levin, Fisher, Sweetbaum & Levin, P.C., Denver, Colorado, Elise A. Yablonski, Proskauer Rose LLP, New York, New York, Daniel Rees Shulman, Gray Plaint, Mooty, Motty & Bennett, P.A., Minneapolis, Minnesota, Maxwell M. Blecher, John E. Andrews, Blecher & Collins, P.C., Los Angeles, California, with him on the briefs), for Defendant-Counterclaim-Plaintiff-Appellant.
E. Glen Johnson, Kelly Hart & Hallman LLP, Fort Worth, Texas (Bart A. Rue, Frank P. Greenhaw IV, Kelly Hart & Hallman LLP, Fort Worth, Texas, Kenneth B. Siegel, Sherman & Howard, L.L.C., Denver, Colorado, with him on the brief), for Plaintiff-Counterclaim-Defendant-Appellee.
Before MURPHY, BALDOCK, and McCONNELL, Circuit Judges.
This appeal arises out of a contingent fee agreement (the "Fee Agreement") entered into by Plaintiff-Appellee Timothy Hoiles, a resident of Colorado, and Defendant-Appellant Joseph Alioto, an attorney licensed to practice law in California. Hoiles hired Alioto to assist him in selling stock he owned in a private, family-owned media company, Freedom Communications, Inc. ("Freedom"). Approximately two years after the parties entered into the Fee Agreement, Freedom was recapitalized, enabling Hoiles to exchange his shares in the company for cash. Hoiles subsequently filed suit seeking a declaratory judgment that Alioto was not entitled to a contingent fee based on the selling price of the stock. Alioto counterclaimed, asserting breach of contract, unjust enrichment, fraud, and negligent misrepresentation. The United States District Court for the District of Colorado determined Colorado law governed all issues in the case and that the Fee Agreement was unenforceable under Colorado law. The district court also dismissed Alioto's fraud and negligent misrepresentation claims. The case proceeded to trial, and the jury found in favor of Alioto on his unjust enrichment claim. Alioto challenges several of the district court's rulings on appeal. We assert jurisdiction pursuant to 28 U.S.C. § 1291. Because the district court erred in applying Colorado law to determine the validity of the Fee Agreement, we reverse the district court's dismissal of Alioto's breach of contract claim. We remand with instructions for the district court to determine whether the Fee Agreement is enforceable under California law. We also reverse the district court's dismissal of Alioto's fraud and negligent misrepresentation claims.
In 2001, Freedom was a closely-held media conglomerate owning various newspapers, magazines, and broadcast television stations throughout the country. Timothy Hoiles, the grandson of Freedom's founder, owned 511,221 shares in the company. Hoiles' ex-wife and two daughters (the "Davidson Defendants") owned a total of 155,740.5 shares. Hoiles' and the Davidson Defendants' shares represented approximately 8.6% of the outstanding shares of Freedom; the remaining shares were owned by other descendants of Hoiles' grandfather. Hoiles believed mismanagement of the company and family shareholder disputes were damaging the value of Freedom's stock. Therefore, he hired a consultant, Joseph Barletta, to develop a plan to improve Freedom's operations so Hoiles could sell his shares at a fair price and exit the company. Hoiles' relatives, however, were unwilling to pay what Hoiles considered a fair price and outside buyers were reluctant to purchase a minority interest in a family-owned company.
At Hoiles' direction, Barletta contacted Joseph Alioto, an attorney licensed to practice law in California, about the possibility of providing legal representation on a contingent fee basis. Hoiles subsequently traveled from his home in Colorado to meet with Alioto in California. The parties dispute the substance of their conversation. According to Hoiles, the parties discussed pursuing a lawsuit against Freedom shareholders to force the purchase of Hoiles' stock. Alioto claims Hoiles wanted him to take any action that was necessary, including but not limited to filing a lawsuit, to force the purchase of Hoiles' and the Davidson Defendants' interest in Freedom. At the end of the meeting, the parties reached an oral agreement whereby Alioto would represent Hoiles on a contingent fee basis. Hoiles paid a $500,000 retainer and advanced Alioto $100,000 for expenses and costs.
Several weeks after the meeting, Alioto faxed a letter to Hoiles in Colorado, memorializing the terms of the legal representation. The letter indicated Alioto's firm would represent Hoiles in the "Freedom Communications matter." It provided Alioto was to receive "[f]ifteen percent (15%) of anything recovered before the filing of a complaint; 20% of anything recovered after the filing of a complaint but before the commencement of the trial; and 25% of anything recovered after the commencement of the trial." If Hoiles withdrew from or dismissed the case, or refused to settle against Alioto's recommendation, he was obligated to pay a reasonable hourly rate of $1000 for Alioto's time and $500 for co-counsel's time. The Fee Agreement also required Hoiles to pay all out-of-pocket and litigation expenses. Hoiles signed the Fee Agreement in Colorado approximately six months after receiving it.
Two years later, Freedom entered into a recapitalization agreement with Blackstone/Providence Merger Corp. The cause of the recapitalization is disputed. Alioto contends the recapitalization of Freedom was instigated by the following actions on his part: (1) his drafting of, and threatening to file, a complaint against Freedom shareholders; and (2) his hiring of Christopher Shaw, an English newspaper broker, to generate market interest in the sale of Freedom. Hoiles, on the other hand, claims Alioto's contribution to the recapitalization was minimal. Instead, he contends the recapitalization was the result of an independent effort by shareholders to restructure the ownership of Freedom. Whatever its cause, the recapitalization enabled all Freedom shareholders to exchange their shares for cash or shares in a newly-formed corporation. Hoiles and the Davidson Defendants elected the cash option and received $212.71 per share, a total of $141,869,380.67.
After the recapitalization, Hoiles asked Alioto to submit a billing statement for his services at $1000 per hour in accordance with the Fee Agreement. Alioto responded by demanding a $28.4 million contingent fee. Hoiles subsequently filed suit in Colorado state court seeking, inter alia, a declaration that Alioto was not entitled to a contingent fee. Alioto removed the case to federal district court in Colorado based on diversity, and then filed his own suit against Hoiles and the Davidson Defendants in California state court. Alioto's complaint asserted claims for breach of contract, unjust enrichment, fraud, and negligent misrepresentation. Hoiles removed Alioto's California state court action to federal district court in California. The parties then filed dueling motions to dismiss for lack of personal jurisdiction, Alioto in the Colorado case and Hoiles in the California case. Each motion alternatively asked that the venue be transferred to the other federal district court. The Colorado federal district court denied Alioto's motion, and the California federal district court transferred Alioto's suit to Colorado. The two cases were consolidated in the United States District Court for the District of Colorado.
Alioto subsequently filed counterclaims in Colorado federal district court that mirrored his claims in his original California state court action. Specifically, he alleged Hoiles and the Davidson Defendants breached the Fee Agreement by failing to pay him fifteen percent of the amount they received from the sale of their Freedom shares. In the event the Fee Agreement was deemed unenforceable, Alioto asserted Hoiles and the Davidson Defendants had been unjustly enriched by his efforts. Finally, if it was determined Hoiles lacked authority to represent the Davidson Defendants' shares, Alioto claimed Hoiles misrepresented this fact and was therefore obligated to pay Alioto's contingent fee with respect to the Davidson Defendants' shares.
The district court dismissed all of Alioto's claims against the Davidson Defendants, and Alioto does not appeal this ruling. The district court also dismissed Alioto's breach of contract, fraud, and negligent misrepresentation claims against Hoiles. Applying Colorado's conflict of law rules, the district court determined Colorado law governed all issues in the case. The district court further determined, as a matter of law, that the Fee Agreement did not substantially comply with Colorado's rules governing contingent fee agreements. See Colo. R. Governing Contingent Fees ch. 23.3. Thus, the Fee Agreement was deemed unenforceable, and Alioto's breach of contract claim was dismissed. The district court also dismissed Alioto's fraud and negligent misrepresentation claims stating, "[t]his is not going to be a tort case." The case proceeded to trial on the issue of whether Alioto was entitled to quantum meruit.1 The jury returned a verdict in favor of Alioto for $1,150,000, which the district court reduced by the $500,000 retainer Hoiles had previously paid.
Alioto argues the district court erred in applying Colorado law to...
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