Colorado Visionary Academy v. Medtronic, Inc.

• Decision Date: 07 February 2005
• Docket Number: No. 02-1234.,02-1234.
• Citation: Colorado Visionary Academy v. Medtronic, Inc., 397 F.3d 867 (10th Cir. 2005)
• Parties: COLORADO VISIONARY ACADEMY, a Colorado non-profit corporation, Plaintiff-Appellant, v. MEDTRONIC, INC., a Minnesota corporation; Tobin Real Estate Company d/b/a Cresa Partners-Minneapolis/St. Paul, a Minnesota corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

397 F.3d 867

COLORADO VISIONARY ACADEMY, a Colorado non-profit corporation, Plaintiff-Appellant, v. MEDTRONIC, INC., a Minnesota corporation; Tobin Real Estate Company d/b/a Cresa Partners-Minneapolis/St. Paul, a Minnesota corporation, Defendants-Appellees.

No. 02-1234.

United States Court of Appeals, Tenth Circuit.

February 7, 2005.

Miles M. Gersh (James S. Helfrich with him on the briefs) of Gersh & Helfrich, LLP, Denver, CO, for Plaintiff-Appellant.

Stuart Pack (Kevin C. Paul and Todd P. Walker with him on the brief) of Gorsuch Kirgis LLP, Denver, CO, for Defendant-Appellee Medtronic, Inc.

Before KELLY, HOLLOWAY and HARTZ, Circuit Judges.

HOLLOWAY, Circuit Judge.

In this diversity action arising from negotiations for the sale of a building, the district court granted summary judgment for the defendant Medtronic, Inc. (Medtronic) on the negligent misrepresentation claim of plaintiff Colorado Visionary Academy (Colorado Visionary). Order and Memorandum of Decision (November 9, 2001) at 30. Judgment for Medtronic was granted on Colorado Visionary's promissory estoppel claim after a bench trial. III Aplt.App. 993-94. Final judgment was entered and the appeal therefrom is timely.¹

We first hold that the district court erred in concluding that Colorado Visionary's negligent misrepresentation claim could not be maintained under the circumstances of the case, and we reverse that ruling. Because Colorado Visionary was entitled to a jury trial on that claim, and because any explicit findings of the jury and any necessary inferences from a general verdict would have been binding on the district court in the bench trial of the promissory estoppel claim, we vacate the judgment for Medtronic on the promissory estoppel claim with directions to reconsider that claim after the jury trial of the negligent misrepresentation claim. We also vacate the district judge's pretrial ruling which precluded plaintiff from presenting evidence of lost profits on its promissory estoppel claim. The remedies available, if that claim succeeds, must be determined in light of the specific facts and circumstances as they are finally determined.

I THE FACTUAL BACKGROUND

Only a very general overview of the background of this litigation is necessary for the context of our analysis of the legal issues involved in this appeal. Because of our holdings in Part II and Part III, infra, the relevant facts are stated in the light most favorable to Colorado Visionary; we need not give deference to the findings of the district court.

Plaintiff Colorado Visionary Academy is a charter school. In the spring and summer of 1999, it needed to find a new site for the upcoming school year. Although plaintiff had explored other possibilities, it was very interested in a facility owned and operated by Medtronic. Defendant Medtronic manufactures and sells health equipment. Medtronic had a large building in Parker, Colorado, that it used for research and manufacturing. Medtronic was interested in selling the facility to Colorado Visionary and leasing back a portion of the space for its continued operations.

A proposal along those lines was made. Negotiations were quite serious and reached the point where apparently at least some of those involved believed that a final deal would be struck. Colorado Visionary had begun moving some administrators into the building and was preparing to do some renovation. In the end, however, Medtronic's management decided against the sale, apparently over liability concerns about having schoolchildren in the same building where it was conducting its operations. This decision was communicated to Colorado Visionary on August 4, 1999.

In June, 1999, however, Colorado Visionary had allegedly been given assurances that the deal would close. Among the statements allegedly made by representatives of Medtronic was that the deal "had been approved at the highest corporate level," that the deal was "a friendly transaction," and that any problems would be worked out.

In reliance on these assurances, Colorado Visionary declined an opportunity to lease a different site and began preparations for moving into Medtronic's building. With Medtronic's consent, parents were invited to a meeting there. Medtronic began moving out of the area that was to be used by the school. In early August 1999, contractors began physical work at the facility, including some demolition. But on August 4, with school to begin in September, word came that Medtronic would not go through with the deal. This announcement came from Medtronic's general counsel. About one hundred students who had been expected to enroll did not, and this of course substantially reduced Colorado Visionary's revenues. After trying for a year to continue on a temporary campus, the school lost its charter from the local school district.

This suit by Colorado Visionary against Medtronic and Tobin Real Estate Company was commenced on August 20, 1999. On June 12, 2000, Medtronic moved for summary judgment on Colorado Visionary's amended complaint in that action. This amended complaint had been accepted by a magistrate judge on March 30, 2000. In its motion for summary judgment, Medtronic argued that Colorado Visionary's promissory estoppel claim should be dismissed because Colorado Visionary did not rely on Medtronic's representations and because the proposed transactions between Colorado Visionary and Medtronic were illegal and impossible to perform. See Order and Memorandum of Decision at 13. Medtronic contended that Colorado Visionary's negligent misrepresentation claim should be dismissed because it was premised on a promise to act in the future; there was no third party action to support the claim; negligent misrepresentation cannot properly be stated as a claim between parties to a contract; and the economic loss rule barred Colorado Visionary's negligent representation claim.

Medtronic's motion for summary judgment was granted in part and denied in part. Summary judgment was granted with respect to Colorado Visionary's negligent misrepresentation claim and denied with respect to Colorado Visionary's promissory estoppel claim. Order and Memorandum of Decision at 30.

II THE NEGLIGENT MISREPRESENTATION CLAIM

We will first determine whether the district court was correct in deciding that under Colorado law, Colorado Visionary's negligent misrepresentation claim against Medtronic could not be maintained under the circumstances of this case. This is an issue of law that we review de novo. See Lampkin v. Little, 286 F.3d 1206, 1210 (10th Cir.2002).

Colorado has adopted the Restatement (Second) of Torts § 552 definition of a claim for negligent misrepresentation. That section provides:

Information Negligently Supplied for the Guidance of Others.

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

Restatement (Second) of Torts § 552 (1977).

The district judge characterized the heart of Medtronic's argument for summary judgment on the negligent misrepresentation claim as based on the contention that "the economic loss rule prevents recovery because Colorado Visionary has not shown an independent duty of care between two parties negotiating a contract at arm's length." Order and Memorandum of Decision (Nov. 13, 2001) at 23. We note this succinct definition of the economic loss rule: "As a general rule, no cause of action lies in tort when purely economic damage is caused by negligent breach of a contractual duty." Jardel Enterprises, Inc. v. Triconsultants, Inc., 770 P.2d 1301, 1303 (Colo.App.1988) (quoted in Town of Alma v. AZCO Construction, Inc., 10 P.3d 1256, 1261 (Colo.2000)).² The parties devote considerable attention in their appellate briefs to discussion of the economic loss rule, disputing whether or not the district court applied the rule in its decision on Colorado Visionary's negligent misrepresentation claim.

The district judge clearly recognized that under Colorado law, the economic loss rule has no application to a valid claim for negligent misrepresentation, stating: "Where a duty independent of contractual obligation exists however, the economic loss rule is inapplicable because the claim is not within the scope of the rule." Order and Memorandum of Decision at 24. The issue is whether or not Colorado Visionary's negligent misrepresentation claim is viable, and that in turn depends on whether Medtronic was under a duty to avoid negligently misrepresenting facts on which Colorado Visionary might reasonably be expected to rely.

The district judge held that the negligent misrepresentation theory does not apply to negotiations for a contract, absent some special circumstances. After reviewing the Colorado decisions, the judge concluded: "Colorado caselaw indicates that section 552 has not been used to establish an independent duty of care between contracting parties without affirmative action or expertise on the part of the party supplying information." Memorandum and Order of Decision at 25. The judge later observed that "[t]o the extent that Colorado law has arguably not restricted liability for negligent misrepresentation to professional suppliers of information, a situation beyond adversarial bargaining existed — i.e. the party making [the] representation had a special expertise about the information conveyed." Id. at 27 (citing First Nat. Bank v. Collins, 44 Colo.App. 228, 616 P.2d 154 (1980)). "Most importantly," the judge said, "in all cases where liability was found, the supplier of information was allegedly acting to further the recipient's economic interests, not the economic...