City of Raton v. Arkansas River Power

• Decision Date: 05 December 2008
• Docket Number: No. CIV 08-26 JB/WDS.,CIV 08-26 JB/WDS.
• Citation: 611 F.Supp.2d 1190
• Parties: CITY OF RATON, a municipal corporation and political subdivision of the State of New Mexico, Plaintiff, v. ARKANSAS RIVER POWER AUTHORITY, a public power corporation and political subdivision of the State of Colorado, Defendant.
• Court: U.S. District Court — District of New Mexico

611 F.Supp.2d 1190

CITY OF RATON, a municipal corporation and political subdivision of the State of New Mexico, Plaintiff, v. ARKANSAS RIVER POWER AUTHORITY, a public power corporation and political subdivision of the State of Colorado, Defendant.

No. CIV 08-26 JB/WDS.

United States District Court, D. New Mexico.

December 5, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Luis Stelzner, Nannette M. Winter, Sheehan, Sheehan & Stelzner, P.A., Albuquerque, NM, for Plaintiff.

Lynn H. Slade, Erin E. Langenwalter, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, Craig N. Johnson, Kutak Rock LLP, Denver, CO, for Defendant.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on the Defendant's Motion to Dismiss Counts Three and Five of the Amended Complaint, filed June 27, 2008 (Doc. 29)("Motion"). The Court held a hearing on November 19, 2008. The primary issues are: (i) whether the Court should apply Colorado's Governmental Immunity Act; (ii) whether Colorado's Governmental Immunity Act, if applicable, bars the City of Raton's claims for rescission based on misrepresentation or mistake, (iii) whether Colorado's Governmental Immunity Act bars the City of Raton's claim that ARPA breached the covenant of good faith and fair dealing that is implicitly part of the contract between the City of Raton and ARPA; and (iv) whether the Court should dismiss the City of Raton's rescission claim based on unilateral mistake. Because the Court finds that the Colorado Government Immunity Act applies, and because the rescission claim could have been brought in tort, the Court will dismiss the rescission claim. The Court also dismisses the claim for damages for breach of the covenant of good faith and fair dealing that are grounded in ARPA's misrepresentations. The Court will not dismiss the portion of the claim for breach of the covenant of good faith and fair dealing that is based purely in contract. The Court does not foreclose the possibility of the City of Raton seeking leave from the Court to amend its Complaint to show that it meets the requirements for rescission as a remedy for unilateral mistake of fact.¹

PROCEDURAL BACKGROUND

The facts giving rise to this lawsuit have been set forth elsewhere. See Memorandum Opinion and Order, entered September 17, 2008 (Doc. 49)("Sept. 17 MOO"). ARPA previously moved to dismiss the City of Raton's negligent-misrepresentation claim. See Motion to Stay, or in the Alternative, to Transfer Venue Pursuant to 28 U.S.C. § 1404(a), or Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6) at 19-20, filed February 15, 2008 (Doc. 5). At the hearing on ARPA's first motion to dismiss, held on May 2, 2008, the Court indicated that it was inclined to dismiss the City of Raton's negligent-misrepresentation claim based on the Colorado Governmental Immunity Act, Colo.Rev.Stat. §§ 24-10-101 to 24-10-120. See Transcript of May 2, 2008 Hearing at 102:16-103:15 (the Court)(Doc. 27)("May 2 Tr."). Since the May 2, 2008 hearing, the Court has formally dismissed the City of Raton's negligent-misrepresentation claim. See Sept. 17 MOO at 2.

On June 13, 2008, in light of the Court's inclination to dismiss the negligent-misrepresentation claim, the City of Raton filed an Amended Complaint asserting two new claims for relief: (i) a claim for rescission of the parties' contracts based on certain alleged misrepresentations; and (ii) a claim for breach of the implied covenant of good faith and fair dealing based on the same alleged misrepresentations. See First Amended Complaint for Declaratory Judgment, Breach of Contract, Rescission, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Permanent Injunctive Relief, ¶¶ 76-87, at 95-99, filed June 13, 2008 (Doc. 23)("First Amended Complaint").

ARPA contends that the misrepresentations upon which these new claims are based are the same alleged misrepresentations upon which the City of Raton based its tort claim for negligent misrepresentation in its original Complaint. See Motion at 1. ARPA argues that Colorado's Governmental Immunity Act applies to this lawsuit, and that the Governmental Immunity Act bars claims based in tort. See id. at 8. According to ARPA, the New Mexico Joint Powers Agreements Act, NMSA 1978 § 11-1-6, allows ARPA to rely on its immunity under the Governmental Immunity Act. See Motion at 9. ARPA maintains that, if the New Mexico Joint Powers Agreements Act does not apply, the Governmental Immunity Act should apply as a matter of comity. See Motion at 9.

ARPA cites § 24-10-106 of the Governmental Immunity Act, which provides: "A public entity shall be immune from liability in all claims for injury which lie in tort or could lie in tort regardless of whether that may be the type of action or the form of relief chosen by the claimant except as provided otherwise in this section." Motion at 9 (quoting § 24-10-106). ARPA therefore characterizes the City of Raton's new counts for rescission and breach of the covenant of good faith and fair dealing as part of an attempt to avoid the application of the Governmental Immunity Act by shoe-horning the City of Raton's defunct tort claim into claims based in contract theories. See Motion at 8.

In its response, the City of Raton asks the Court to decline to extend immunity based on Colorado's Governmental Immunity Act to ARPA. See City of Raton's Response to Motion to Dismiss Counts Three and Five of the Amended Complaint, filed July 11, 2008 (Doc. 30)("Response"). The City of Raton argues that the New Mexico Joint Powers Agreements Act does not compel application of the foreign immunity statute. See id. The City of Raton also argues that, under principles of comity, Colorado's Governmental Immunity Act should not apply to the City of Raton's claims against ARPA. See id. Under the four factors that New Mexico courts use to determine whether to extend comity, the City of Raton maintains: (i) the scope of immunity under New Mexico and Colorado law are different, and Colorado would afford immunity under circumstances where New Mexico would not; (ii) it is unclear whether the state sued—in this case, Colorado—would be likely to extent immunity to other states; and (iii) New Mexico, as the forum state, has a strong interest in litigating this matter, because the lawsuit impacts the "economic and fiscal integrity of a small New Mexico mountain town that is more than 100 years old," and because extending comity would offend New Mexico's strong public policy of recognizing the implied covenant of good faith and fair dealing, and allowing rescission of contracts entered into based on misrepresentations and false promises. Response at 4-7.

Alternatively, the City of Raton argues that Colorado's Governmental Immunity Act would not bar its claims for rescission and breach of the covenant of good faith and fair dealing. See id. at 7. The City of Raton argues that the Court must "look to the nature of the alleged injury and the relief sought in order to determine, on a case-by-case basis, if a claim `could lie in tort' for purposes of the [Governmental Immunity Act]." Id. (quoting CAMAS Colorado, Inc. v. Board of County Commissioners, 36 P.3d 135, 138 (Colo.App.2001)). Under such an analysis, the rescission claim lies in contract.

The City of Raton also argues that it has stated a claim for rescission based on unilateral mistake. See Response at 13. The City of Raton maintains that its rescission claim is predicated on information that ARPA presented to members concerning the cost and description of the project and its economic feasibility that was "actually and demonstrably false" at the time the information was given. Response at 13 (emphasis in original).

In its reply, ARPA reiterates that the City of Raton's rescission and breach of covenant claims arise from factual allegations that are virtually identical to those in the misrepresentation claim, and that the new claims "appear to have largely been `cut and pasted' from the initial Complaint and simply `relabeled' as contract-based claims." Defendant's Reply in Support of Motion to Dismiss Counts Three and Five of the Amended Complaint at 2, filed July 28, 2008.(Doc. 33)("Reply").

ARPA also counters the City of Raton's argument that the Governmental Immunity Act would violate New Mexico's public policy intended to permit recovery in equity and damages for the other contracting party's bad-faith conduct by pointing out that the New Mexico Tort Claims Act bars claims against public entities unless those claims are expressly waived. See Reply at 3. ARPA argues that there is no such express waiver for bad-faith claims. See id. ARPA also cites New Mexico cases holding that: (i) public entities are not liable for bad-faith conduct, see El Dorado Util. Inc. v. Eldorado Area Water and Sanitation District, 109 P.3d 305, 312, 137 N.M. 217, 224 (2005); and (ii) New Mexico law provides public entities immunity from claims that are implied from a contract, such as claims for breach of the implied covenant of good faith and fair dealing, see Campos de Suenos Ltd. v. County of Bernalillo, 28 P.3d 1104, 1109, 130 N.M. 563, 568 (2001)(holding that "the legislature placed the risk of loss on a party who transacts business with a governmental entity"). Reply at 4.

ARPA states that, given that Robinson v. Colorado State Lottery Division 179 P.3d 998 (Colo.2008), bars claims against state entities which could be pled alternatively in tort, not only could the allegations underlying counts three and five be pled in tort, but the City of Raton has previously pled them in tort. See Reply at 5. ARPA distinguishes CAMAS Colorado, Inc. v. Board of County Commissioners, upon which the City of Raton relies. See Reply at 5-6. In ARPA's view, the rescission claim in that case was characterized as purely contractual, because it "ar[ose] from the parties' contract" and was the result of a mutual mistake of fact...