Mcwhinney Centerra Lifestyle Ctr. LLC v. Poag & McEwen Lifestyle Ctrs.-Centerra LLC

• Citation: 486 P.3d 439
• Decision Date: 14 January 2021
• Docket Number: Court of Appeals No. 19CA0438
• Parties: MCWHINNEY CENTERRA LIFESTYLE CENTER LLC, a Colorado limited liability company, Plaintiff-Appellee and Cross-Appellant, v. POAG & MCEWEN LIFESTYLE CENTERS-CENTERRA LLC, a Delaware limited liability company, Defendant-Appellant and Cross-Appellee.
• Court: Court of Appeals of Colorado

486 P.3d 439

MCWHINNEY CENTERRA LIFESTYLE CENTER LLC, a Colorado limited liability company, Plaintiff-Appellee and Cross-Appellant,

v.POAG & MCEWEN LIFESTYLE CENTERS-CENTERRA LLC, a Delaware limited liability company, Defendant-Appellant and Cross-Appellee.

Court of Appeals No. 19CA0438

Colorado Court of Appeals, Division II.

Announced January 14, 2021

Rehearing Denied February 4, 2021

Brownstein Hyatt Farber Schreck LLP, Jonathan G. Pray, Denver, Colorado; Hanson Bridget LLP, Gary A. Watt, Adam W. Hofmann, Anthony J. Dutra, San Francisco, California, for Plaintiff-Appellee and Cross-Appellant

Peters Schulte Odil & Wallshein LLC, Jennifer Lynn Peters, Timothy R. Odil, Greeley, Colorado; Senn Visciano Canges P.C., Frank W. Visciano, Charles E. Fuller, Denver, Colorado, for Defendant-Appellant and Cross-Appellee

Opinion by JUDGE ROMÁN

¶ 1 Poag & McEwen Lifestyle Centers-Centerra LLC (P&M) appeals the district court's judgment in favor of McWhinney Centerra Lifestyle Center LLC (MCLC) on MCLC's contract claim following a trial to the court. MCLC cross-appeals the district court's order dismissing its tort claims under the economic loss rule. Applying Delaware law pursuant to the parties’ choice of law agreement, we affirm the district court's judgment and award of damages on the breach of contract claim. Applying Colorado law to the tort claims, we affirm the district court's order dismissing MCLC's civil conspiracy claim. We reverse, however, the district court's order dismissing MCLC's tort claims of fraudulent concealment, intentional interference with contractual obligations, and intentional inducement of breach of contract and remand for further proceedings. In reinstating these intentional tort claims, we expressly hold that the economic loss rule generally does not bar these types of common law intentional tort claims and, thus, we decline to follow prior divisions that have held otherwise.

I. Background

¶ 2 This action arises from a failed joint venture to build and operate The Promenade Shops at Centerra (the Shops), an upscale shopping center in Loveland. The parties have been in contentious litigation since 2011. Consequently, this case has a complex factual and procedural history.

¶ 3 In 2004, McWhinney Holding Company, LLLP (McWhinney) and Poag and McEwen Lifestyle Centers, LLC (PMLC), through their subsidiaries MCLC and P&M, respectively, formed Centerra LLC to acquire, develop, own, and operate the Shops. MCLC provided the capital, land, and an established public-private partnership with city and county entities for infrastructure financing. P&M served as the managing member of the joint venture. An operating agreement (the Agreement) was created to govern Centerra LLC. MCLC and P&M signed the Agreement, and McWhinney and PMLC signed as guarantors of certain provisions.

¶ 4 The Agreement required P&M to obtain a construction loan for Centerra LLC and later a permanent loan before the maturity of the construction loan. In 2005, P&M obtained a construction loan for $116 million in accordance with the terms of the Agreement, and the Shops opened in October 2005. In 2006, P&M purchased a $155 million forward swap on behalf of Centerra LLC without obtaining a permanent loan. The forward swap in this case was an agreement between Centerra LLC and a bank to exchange interest in February 2008 at a rate of 5.4125 percent.

¶ 5 In 2007, P&M entered into a $40 million mezzanine loan agreement.¹ The district court found that P&M used the $40 million mezzanine loan for personal interests — namely, for Dan and Josh Poag to buy out their co-founder, Terry McEwen — and that P&M intentionally concealed the buyout and its intention to use these self-dealings to fund it.² The court further found that MCLC was given limited and misleading or no information regarding these dealings.

¶ 6 The mezzanine loan agreement pledged fifty percent of P&M's ownership interest in Centerra LLC to a different subsidiary of PMLC, Centerra & Dos Lagos Venture, LLC, who likewise pledged fifty percent of its ownership interest in Centerra LLC to the mezzanine loan lender — I&G Promenade Shops Lender, LLC, which was a subsidiary of the bank.

¶ 7 The district court further found that because of the impending cost of the forward swap and P&M's desire to pay off the mezzanine loan, P&M did not seek a permanent loan below $155 million, despite only needing $116 million to refinance the construction loan. Moreover, the court found P&M did not seek permanent financing after 2007. Centerra LLC was forced to pay $7.5 million to settle the forward swap, and P&M never obtained permanent financing.

¶ 8 In mid-2008, the real estate market collapsed and Centerra LLC defaulted on its construction loan. Ultimately, the Shops were foreclosed by the lender and sold in foreclosure to a third party.

¶ 9 In 2011, after the joint venture failed, MCLC sued P&M, asserting a breach of contract claim based on the Agreement and seven tort claims.³ The district court dismissed all seven tort claims under the economic loss rule.⁴ In 2014, on interlocutory appeal, a division of this court affirmed the dismissal of four of those claims based on the economic loss rule, and reinstated the other three claims. See McWhinney Holding Co., LLLP v. Poag & McEwen Lifestyle Ctrs.-Centerra, LLC , 2014 WL 3361595 (Colo. App. No. 13CA0850, July 10, 2014) (not published pursuant to C.A.R. 35(f) ).⁵

¶ 10 In 2017, and in light of the supreme court's opinion in Van Rees v. Unleaded Software, Inc. , 2016 CO 51, 373 P.3d 603, MCLC moved for reconsideration of the dismissal order as to three of its tort claims. The district court denied the motion.

¶ 11 Then, as relevant here, after a thirteen-day bench trial, the district court concluded P&M breached both its fiduciary duties and contractual obligations under the Agreement and awarded $42,006,032.50 to MCLC in damages plus interest.

II. Analysis

¶ 12 On appeal, P&M contends the district court erred when it entered judgment in favor of MCLC on MCLC's breach of contract claim. It also challenges the damages awarded based on the breach of contract. MCLC contends on cross-appeal that the district court erred when it dismissed MCLC's fraudulent concealment, intentional interference with contractual duties, intentional inducement of breach of contract, and civil conspiracy tort claims under the economic loss rule. We first discuss P&M's breach of contract claims on appeal infra Part II.A, and then turn to MCLC's claim on cross-appeal regarding the economic loss rule, infra Part II.B.

A. P&M's Claims

¶ 13 P&M contends the district court erred when it found P&M breached the Agreement because the court improperly (1) imposed fiduciary duties on P&M (2) found that P&M breached its obligations under the Agreement; and (3) calculated damages. Applying Delaware law, as the Agreement requires, we examine these contentions.

1. Standard of Review and Applicable Law

¶ 14 Parties may contract for the application of a state's law to determine particular issues. Hansen v. GAB Bus. Servs., Inc. , 876 P.2d 112, 113 (Colo. App. 1994). Here, the parties agreed that Delaware law would apply. Choice of law is an issue we review de novo. Paratransit Risk Retention Grp. Ins. Co. v. Kamins , 160 P.3d 307, 314 (Colo. App. 2007). "[W]e will apply the law chosen by the parties [in their contract] unless there is no reasonable basis for their choice or unless applying the chosen state's law would be contrary to the fundamental policy of the state whose law would otherwise govern." Target Corp. v. Prestige Maint. USA, Ltd. , 2013 COA 12, ¶ 14, 351 P.3d 493. We will thus apply Delaware law to all substantive legal matters based in contract law in this case, including the relief granted. See id. at ¶¶ 15 -16, 18.

¶ 15 However, we apply Colorado law to "all matters of judicial administration, including ... the rules prescribing how litigation shall be conducted" and the applicable standard of review. Id. at ¶¶ 15, 19. And, we review a judgment following a bench trial as a mixed question of fact and law. Premier Members Fed. Credit Union v. Block , 2013 COA 128, ¶ 26, 312 P.3d 276. "[W]e defer to the trial court's credibility determinations and will disturb its findings of fact only if they are clearly erroneous and are not supported by the record." Amos v. Aspen Alps 123, LLC , 2012 CO 46, ¶ 25, 280 P.3d 1256. We review de novo the court's conclusions of law, Block , ¶ 27, including its conclusions on questions of contract interpretation, Gagne v. Gagne , 2014 COA 127, ¶ 50, 338 P.3d 1152.

¶ 16 With regard to the substantive contract law to be applied in this case, under Delaware law, a party is excused from performance of its contractual obligations if the other party commits a material breach of the contract. BioLife Sols., Inc. v. Endocare, Inc. , 838 A.2d 268, 278 (Del. Ch. 2003). The elements of a breach of contract claim are (1) a contractual obligation; (2) a breach of that obligation by the defendants; and (3) resulting damages to the plaintiff. Kuroda v. SPJS Holdings, L.L.C. , 971 A.2d 872, 883 (Del. Ch. 2009).

2. Did P&M Owe Fiduciary Duties to MCLC?

¶ 17 We start our analysis by deciding whether P&M owed fiduciary duties to MCLC under the Agreement. We conclude that it did.

¶ 18 Under Delaware law, the drafters of an LLC may expand, restrict, or eliminate a member or manager's duties, including fiduciary duties. Del. Code Ann. tit. 6, § 18-1101(c) (West 2020); Feeley v. NHAOCG, LLC , 62 A.3d 649, 661 (Del. Ch. 2012). Unless the LLC agreement's terms include express language to eliminate those duties, Delaware LLC managers owe traditional fiduciary duties of loyalty and care to the LLC and its managers. Feeley , 62 A.3d at 660. In other words, "[d]rafters of an LLC agreement ‘must make their intent to eliminate fiduciary duties plain and unambiguous.’ " Id. at 664 (citation omitted).

¶ 19 P&M insists that the drafting of the Agreement before us intended to eliminate its...