Gold Rush Investments, Inc. v. G.E. Johnson Const. Co., Inc.

• Decision Date: 02 August 1990
• Docket Number: No. 87CA1801,87CA1801
• Citation: 807 P.2d 1169
• Parties: GOLD RUSH INVESTMENTS, INC., Plaintiff-Appellee and Cross-Appellant, v. G.E. JOHNSON CONSTRUCTION COMPANY, INC., and Reliance Insurance Company, Defendants-Appellants and Cross-Appellees. UNICON CONSTRUCTION, INC., Defendant and Third-Party Plaintiff-Appellant and Cross-Appellee, v. SISTERS III PLUMBING AND HEATING, INC., and American Home Assurance Company, Third-Party Defendants-Appellees. . III
• Court: Colorado Court of Appeals

Page 1169

807 P.2d 1169

GOLD RUSH INVESTMENTS, INC., Plaintiff-Appellee and Cross-Appellant, v. G.E. JOHNSON CONSTRUCTION COMPANY, INC., and Reliance

Insurance Company, Defendants-Appellants and

Cross-Appellees.

UNICON CONSTRUCTION, INC., Defendant and Third-Party Plaintiff-Appellant and Cross-Appellee, v. SISTERS III PLUMBING AND HEATING, INC., and American Home

Assurance Company, Third-Party Defendants-Appellees.

No. 87CA1801.

Colorado Court of Appeals,

Div. III.

Aug. 2, 1990.

As Modified on Denial of Rehearing Sept. 20, 1990.

Certiorari Granted March 25, 1991.

Vinton, Slivka & Panasci, Richard P. Slivka, David L. Dain, Jane A. Tidball, Denver, for plaintiff-appellee and cross-appellant Gold Rush Investments, Inc.

Sparks, Dix, Enoch & Winslow, P.C., R. Kenneth Sparks, Robert M. Willson, Colorado Springs, Cooper & Kelley, P.C., Thomas B. Kelley, Denver, for defendants-appellants and cross-appellees G.E. Johnson Const. Co., Inc. and Reliance Ins. Co., and defendant and third-party plaintiff-appellant and cross-appellee Unicon Const., Inc.

Moye, Giles, O'Keefe, Vermeire & Gorrell, Teryl R. Gorrell, Jerry N. Jones, Denver, for third-party defendants-appellees Sisters III Plumbing and Heating, Inc.

Opinion by Judge CRISWELL.

In this breach of contract action, defendant, Unicon Construction, Inc., appeals from the judgment entered on a jury verdict awarding damages in favor of plaintiff, Gold Rush Investments. Unicon also appeals from the judgment entered against it on its claim for indemnity asserted against third-party defendant, Sisters III Plumbing and Heating, Inc. Joining Unicon in this appeal are G.E. Johnson Construction Co., Inc., and Reliance Insurance Co. against whom judgment was entered post-trial based on their liability which was derivative to Unicon's. Gold Rush cross-appeals, arguing that the punitive damage award entered in its favor was erroneously vacated by the trial court in a post-trial ruling. We affirm in part and reverse in part.

Gold Rush hired Unicon to construct a discotheque and hotel. As the project neared completion, various disputes arose, and the parties agreed to submit certain of the disputed issues to binding arbitration. In its decision, the arbitrator, an architecture firm selected by the parties, determined among other findings, that Unicon had constructed the hotel tower without the exterior control joints required under the contract and, in addition, had failed to include the steel reinforcement and grouting called for under the plans and specifications for the exterior walls. In addition to ordering that repairs for the latter omission be undertaken, the arbitrator also ordered Unicon to repair several deficiencies in the hotel's mechanical system.

Gold Rush commenced this action in which it initially asserted both a contract claim and a tort claim based on negligence. It sought to collect consequential damages claimed to have resulted from the deficiencies determined to exist by the arbitrator and from the subsequent repair process. Specifically, Gold Rush sought to recover the diminution in the hotel's market value, and having leased the hotel, Gold Rush also sought to recover as damages an amount of rent it claimed it was forced to forgive because of an alleged reduction in its tenant's income caused by the construction problems. In addition, claiming that Unicon's conduct was willful, wanton, and attended by circumstances of malice, it sought an assessment of punitive damages.

Unicon joined Sisters, its mechanical subcontractor, as a third-party defendant seeking indemnification for any damages that might be awarded as a result of any defect in the hotel's mechanical systems.

At trial, the parties submitted a statement of undisputed facts based on the previous arbitration award. Relying on the arbitration award, the trial court ruled, as a matter of law, that Unicon had breached its contract with Gold Rush. The jury then found for Gold Rush on the damage issues and awarded it $274,500 for lost lease payments, $591,600 for the reduced value of the hotel, and $247,500 in exemplary damages. This latter award was vacated by the trial court in a post-trial order. The jury also returned a verdict in favor of Sisters on Unicon's claim for indemnification under the subcontract between the two.

I.

Unicon first challenges the jury's award of damages for the forgiven lease payments. It argues that the award was improper as a matter of law because the trial court failed to rule on the validity of Gold Rush's agreement to forgive lease payments before submitting the issue of damages arising from that agreement to the jury. It also asserts that there was no basis for the award because the evidence presented at trial conclusively showed that the lease agreement underlying the later agreement to forgive payments was a sham transaction. We disagree with both contentions.

Gold Rush, which was solely owned by Dennis R. Muck, leased the hotel and its improvements to Graystone Castle, Ltd., a corporation that was wholly owned by his brother, Ronald P. Muck. The lease required monthly payments of $55,000 which represented the hotel's share of the mortgage payment for the entire development, based on its square footage. Gold Rush maintains that it agreed to forgive a portion of both past and future rent payments under its lease with Graystone because it recognized that the construction defects would continue adversely to affect Graystone's income from the hotel.

Unicon claims that both the lease agreement and the agreement to forgive rent payments were nothing more than self-dealing arrangements intended to create an element of damage. In support of its assertion, Unicon cites the familial relationship between the Mucks and other evidence that indicated that Dennis Muck was actively involved in the operation of the hotel. Unicon further argues that, because these agreements were not arms-length transactions, the trial court should have closely scrutinized them to determine if they were voidable as the result of fraud or unfairness.

In arguing that these agreements should have been subjected to close judicial scrutiny, Unicon relies on Colorado Management Corp. v. American Founders Life Insurance Co., 145 Colo. 413, 359 P.2d 665 (1961) and Film Enterprises, Inc. v. Selected Pictures, Inc., 138 Colo. 468, 335 P.2d 260 (1959). These cases each involved the enforceability of a contract between two corporations having common officers, directors, or investors, which was challenged by one of the contracting parties. Because the lease and forgiveness agreements are here being challenged by Unicon, a third party, we consider these cases inapposite and conclude that the trial court committed no error in allowing the jury, as the trier of fact, to determine whether the agreement for the reduction in lease payments was a valid agreement or a mere sham. See I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882 (Colo.1986) (whether the parties have entered into a contract is a jury question).

We reach this conclusion because the evidence presented fully explored the relationship between Gold Rush and Graystone. In addition, the jury was instructed that it had to find both the agreement and the amount forgiven reasonable before it could award any damages based upon any forgiveness of lease payments. That the jury heeded this instruction is reflected in its verdict which awarded a considerably lesser amount than would have been warranted by the agreement. Consequently, we are satisfied that the jury's award is supported by the record. See Cooley v. Big Horn Harvestore Systems, Inc., 767 P.2d 740 (Colo.App.1988).

II.

Unicon next contends that the expert testimony presented by Gold Rush should have been stricken because it was speculative and based on the opinions of others. Again, we disagree.

The evidence complained of by Unicon consists, in part, of an accounting expert's testimony regarding the amount of lost income suffered by Graystone. In formulating her opinion, the expert relied on, among other factors, a second expert's opinion that the management and marketing of the hotel did not contribute to the hotel's lost income.

Unicon also attacks the second expert's testimony which concerned that witness' estimate of the hotel's reduced market value. Unicon contends that this expert improperly developed his opinion in reliance on the accounting expert's conclusions as to lost income and a third expert's testimony as to the hotel building's physical life.

CRE 703, which is substantively identical to the corresponding federal rule, provides that,

"The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to him at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence."

CRE 703 incorporates three methods by which an expert may acquire knowledge of the facts upon which his opinion will be predicated. Under the first method, the expert may gather information through firsthand observation. The second method allows the expert to base his testimony upon facts presented at trial, either in the form of hypothetical questions propounded by counsel or by way of the evidence presented to the trier of fact. The third method permits an expert to rely on facts outside the record which are not personally observed, but which are of the type reasonably relied upon by experts in the same field. 11 Moore's Federal Practice § 703.02 (2d ed.1989).

The trial court has broad discretion in determining whether the requirements governing expert opinions have been satisfied and whether the expert's testimony is admissible. See Connell v. Sun Exploration & Production Co., 655 P.2d 426 (Colo.App.1982).

Prior to this state's adoption of the rules of evidence, expert opinions based on...