Former TCHR, LLC v. First Hand Mgmt. LLC

• Decision Date: 02 August 2012
• Docket Number: 11CA1081.,Nos. 11CA0990,s. 11CA0990
• Citation: 317 P.3d 1226
• Parties: FORMER TCHR, LLC, Plaintiff–Appellant, v. FIRST HAND MANAGEMENT LLC, Defendant, and Richard Oneslager, Jr., Daniel P. Genovese, and Balmar Management Group LLC, Defendants–Appellees.
• Court: Colorado Court of Appeals

317 P.3d 1226

FORMER TCHR, LLC, Plaintiff–Appellant,
v.
FIRST HAND MANAGEMENT LLC, Defendant,
and
Richard Oneslager, Jr., Daniel P. Genovese, and Balmar Management Group LLC, Defendants–Appellees.

Nos. 11CA0990, 11CA1081.

Colorado Court of Appeals,
Div. VI.

Aug. 2, 2012.

[317 P.3d 1228]

Hutchinson Black and Cook, LLC, William D. Meyer, Keith M. Edwards, Boulder, Colorado, for Plaintiff–Appellant.

Blain Myhre LLC, Blain D. Myhre, Englewood, Colorado; Lapin & Lapin, P.C., Theresa L. Corrada, Denver, Colorado, for Defendants–Appellees.

Opinion by Judge GABRIEL.

¶ 1 Plaintiff, Former TCHR, LLC, appeals the trial court's judgment rejecting its fraudulent concealment and misrepresentation claims against defendants Richard Oneslager, Jr. and Daniel P. Genovese and the trial court's midtrial dismissal of Former TCHR's conversion claim against defendant Balmar Management Group LLC. Former TCHR also appeals the district court's grant of attorney fees to Oneslager, Genovese, and Balmar.

¶ 2 We conclude that the trial court did not err in finding that Former TCHR's fraudulent concealment and misrepresentation claims were barred by the economic loss rule. We further conclude, as an apparent matter of first impression in Colorado, that a conversion claim may lie against a defendant who gave value, received delivery, and then sold property with actual knowledge that the plaintiff had an unperfected security interest in that property. Thus, we hold that the

[317 P.3d 1229]

trial court erred in granting Balmar's midtrial motion to dismiss Former TCHR's conversion claim and remand for further proceedings on that claim. Finally, we conclude that we lack jurisdiction to consider Former TCHR's appeal of the attorney fee award because that award is not yet final.

¶ 3 Accordingly, we affirm the judgment in favor of defendants Oneslager and Genovese on the fraudulent concealment and misrepresentation claims, reverse the dismissal of Former TCHR's conversion claim against Balmar and remand for a new trial on that claim, and dismiss without prejudice Former TCHR's appeal of the fee award to Oneslager, Genovese, and Balmar.

I. Background

¶ 4 Through a predecessor in interest, Former TCHR, whose sole member was attorney and sophisticated real estate investor Samuel Brown, signed a Real Estate Sale Agreement with Town Center Investors, LLC (TCI) to purchase a shopping center from TCI. TCI was owned by Oneslager, and Genovese was the shopping center's property manager.

¶ 5 The Sale Agreement required that TCI provide Former TCHR with certain due diligence materials within ten business days after the execution of the Agreement. These materials included the leases and rent roll applicable to the property; any contracts affecting the property; environmental, mechanical, structural, soils, and other reports or evaluations concerning the property; rental and operational expense records for the prior twelve months; and the most recent survey of the property. In addition, the Agreement gave Former TCHR extensive investigation rights and allowed it to terminate the Agreement on or before the expiration of a defined investigation period if it was not satisfied with the results of its investigation and testing.

¶ 6 The Agreement also contained a lengthy “as is” clause, which stated, in all capital letters:

[E]xcept as provided expressly herein and in the closing documents, neither Seller nor anyone acting for or on behalf of Seller, has made any representation, warranty, statement or promise to Buyer concerning the real estate, the quality, value, physical aspects or condition thereof, ... the current or projected income or expenses of the real estate, or any other matter with respect to the real estate; that entering into this agreement, Buyer expressly releases Seller from all such matters and acknowledges that it is relying solely on its own investigation and has not relied upon any representation, statement or warranty of Seller or anyone acting for or on behalf of Seller, other than as expressly contained in this agreement or the closing documents and is thereby purchasing the real estate as is; and that Buyer does hereby waive and Seller does hereby disclaim all warranties of any kind or type whatsoever with respect to the real estate, whether expressed or implied.... Buyer has not relied and will not rely on, and Seller is not liable for or bound by, any express or implied warranties, guaranties, statements, representations or information pertaining to the property or relating thereto made or furnished by Seller, property manager, Broker, or any real estate broker or agent representing or purporting to represent Seller, to whomever made or given, directly or indirectly, verbally or in writing, unless specifically set forth herein, and Buyer expressly holds Seller harmless in relation to such matters.

¶ 7 The shopping center's anchor tenant, Willary Town Center LLC, operated a gas station and convenience store on the premises. Balmar, which was also owned by Oneslager and which employed Genovese, supplied fuel to Willary.

¶ 8 After TCI and Former TCHR signed the Sale Agreement but before the closing, Former TCHR received information that Willary had lost money in the prior year and that, on occasion, it was late in paying rent to TCI. Former TCHR then entered into a “side letter” with defendant First Hand Management, LLC, another company that Oneslager owned. Under this side letter, if Willary defaulted on its lease during the first twenty-four months after the date of the letter, Former TCHR could exercise a “Replacement Option” and require First Hand,

[317 P.3d 1230]

among other things, to assume Willary's lease and operate the gas station and convenience store in Willary's stead.

¶ 9 Former TCHR subsequently closed on the shopping center and assumed TCI's lease with Willary. As pertinent here, that lease provided:

In addition to the statutory landlord's lien, Landlord [Former TCHR] shall have at all times a valid security interest to secure payment of all rentals and other sums of money becoming due under the Lease from Tenant, ... upon all goods, wares, equipment, fixtures, furniture, improvements, and other personal property of Tenant presently, or which may hereafter be, situated on the Premises, and all proceeds therefrom. Such property shall not be removed without the consent of Landlord until all arrearages ... shall first have been paid and discharged.

The Willary lease also provided that upon the event of a default by Willary, Former TCHR could, on reasonable notice, enter the premises, take possession of any of Willary's property situated thereon, and sell such property at a public or private sale.

¶ 10 Soon after Former TCHR closed on the shopping center, Willary defaulted on its lease. Thereafter, Former TCHR served a demand for payment of rent or possession on Willary. Willary subsequently vacated the premises, leaving behind convenience store and fuel inventory. Former TCHR then chose to exercise the Replacement Option, and pursuant to that agreement, First Hand assumed Willary's lease obligation and took over the operation of the gas station and convenience store.

¶ 11 Upon its departure from the premises, Willary, through counsel, wrote to Former TCHR and offered to turn over the lease and its then-existing convenience store and fuel inventory to First Hand, provided that Former TCHR release Willary from the lease and pay it fair compensation or give it a credit against its rent deficiency for the inventory. We have seen no indication in the record as to whether Former TCHR responded to this offer. The record, however, reflects that Willary, which had also incurred a substantial debt to Balmar for fuel, constructively transferred the inventory to Balmar in exchange for a reduction in Willary's debt to Balmar. Balmar then sold the inventory to its sister company, First Hand (both Balmar and First Hand were owned by Oneslager), for sale to First Hand's customers.

¶ 12 Former TCHR subsequently sued, among others, Oneslager, Genovese, and Balmar. As pertinent here, Former TCHR alleged that after the Sale Agreement was signed but before closing, Oneslager and Genovese had (1) fraudulently misrepresented the shopping center's revenues and (2) fraudulently concealed facts concerning Willary's financial strength, including its substantial outstanding debt to Balmar. Former TCHR further alleged that Balmar had converted the Willary inventory.

¶ 13 The case proceeded to a trial to the court. At the conclusion of Former TCHR's case-in-chief, defendants moved for dismissal pursuant to C.R.C.P. 41(b)(1). As pertinent here, Balmar argued that Former TCHR's conversion claim failed because, although Former TCHR had a security interest in Willary's inventory, it did not commence a C.R.C.P. 120 proceeding and took no other steps to protect its interest. Thus, Balmar contended that Former TCHR did not possess or have any ownership interest in the inventory.

¶ 14 Former TCHR responded that the Willary lease gave it a security interest in the inventory and that Balmar was well aware of the lease and its provisions, given that Balmar's owner, Oneslager, also owned TCI and First Hand. Former TCHR further noted that it had given defendants written notice of its security interest, and it argued that its rights were superior to those of either First Hand or Balmar. Nonetheless, Balmar took the inventory, even though in Former TCHR's view, it had no right to it, and then sold it to First Hand. Former TCHR also disagreed with Balmar's contention that Former TCHR was required to commence a C.R.C.P. 120 proceeding to preserve its security interest in the inventory.

¶ 15 The trial court granted defendants' motion as to Former TCHR's conversion claim against Balmar but denied the motion

[317 P.3d 1231]

in all other respects. As to the conversion claim, the court stated:

I do not find that the Plaintiffs have submitted sufficient evidence to establish by...