Ravenstar LLC v. One Ski Hill Place LLC

• Decision Date: 28 January 2016
• Docket Number: Court of Appeals No. 14CA2401
• Citation: 405 P.3d 298
• Parties: RAVENSTAR LLC, a Colorado limited liability company; The Chips LLC, a Colorado limited liability company; Let–R–Buck LLC, a Colorado limited liability company; A Rockin Place to Ski LLC d/b/a One Rockin Place to Ski LLC, a Colorado limited liability company; and Rockin OSHP LLC, a Colorado limited liability company, Plaintiffs–Appellants, v. ONE SKI HILL PLACE LLC, a Colorado limited liability company, Defendant–Appellee.
• Court: Colorado Court of Appeals

405 P.3d 298

RAVENSTAR LLC, a Colorado limited liability company; The Chips LLC, a Colorado limited liability company; Let–R–Buck LLC, a Colorado limited liability company; A Rockin Place to Ski LLC d/b/a One Rockin Place to Ski LLC, a Colorado limited liability company; and Rockin OSHP LLC, a Colorado limited liability company, Plaintiffs–Appellants,

v.ONE SKI HILL PLACE LLC, a Colorado limited liability company, Defendant–Appellee.

Court of Appeals No. 14CA2401

Colorado Court of Appeals, Div. V.

Announced January 28, 2016

Rehearing Denied February 25, 2016

Buxman Kwitek, P.C., Linda McMillan, Pueblo, Colorado; Glover Law Office, LLC, Douglas A. Glover, Parker, Colorado, for Plaintiffs–Appellants.

Brownstein Hyatt Farber Schreck, LLP, Jonathan G. Pray, Kerry LeMonte, Denver, Colorado, for Defendant–Appellee.

Opinion by JUDGE RICHMAN

¶ 1 Plaintiffs, Ravenstar LLC, The Chips LLC, Let–R–Buck LLC, A Rockin Place to Ski LLC d/b/a One Rockin Place to Ski LLC, and Rockin OSHP LLC, appeal the district court's orders entering judgment against them on their breach of contract claim and awarding attorney fees and costs to defendant, One Ski Hill Place LLC (OSHP). We affirm.

I. Background and Procedural History

¶ 2 Plaintiffs are five Colorado companies that entered into separate contracts to purchase to-be-built condominium units from developer OSHP in early 2008. Plaintiffs paid earnest money and construction deposits of fifteen percent of the purchase price for each unit. They were unable to obtain financing for the full purchase prices and failed to close on the units by the 2010 deadline.

¶ 3 The contracts contained identical provisions governing default. Upon default by the purchaser, the contracts gave OSHP the option to retain "all or a portion" of the deposits as liquidated damages or, alternatively, to seek an award of actual damages and apply the deposits toward that award:

If Purchaser defaults in the performance of any obligation under this Agreement, ... Seller shall have the right to terminate this Agreement and shall be entitled to retain all or a portion of the Earnest Money and Construction Deposit not to exceed 15% of the Purchase Price (exclusive of interest) as liquidated damages ("Seller's Liquidated Damages"). Alternatively and in lieu of Seller's Liquidated Damages, Seller may elect to terminate this Agreement and recover its actual damages resulting from Purchaser's default calculated in accordance with Colorado law, in which case Seller may seek an award of such actual damages and may retain an amount equal to the Earnest Money and Construction Deposit and apply such funds toward satisfaction of any such award. If Seller elects to seek actual damages, Seller must provide Purchaser with written notice of such election within 30 days after the end of Purchaser's cure period, and if Seller fails to provide such notice, then Seller will only be entitled to Seller's Liquidated Damages.

¶ 4 When plaintiffs defaulted, OSHP opted to retain the full deposits as liquidated damages. Plaintiffs then filed this action against OSHP, seeking the return of their deposits.

¶ 5 Plaintiffs asserted three claims against OSHP in their original complaint: (1) breach of contract; (2) "improper retention of earnest money"; and (3) misrepresentation. As litigation progressed, the parties asserted a number of additional claims and counterclaims, including claims against other defendants who are not parties to this appeal. Eventually, all of the claims in this case were either dismissed by stipulation of the parties or resolved against plaintiffs on summary judgment. In this appeal, plaintiffs challenge only the disposition of their breach of contract claim and the award of attorney fees and costs to OSHP.

¶ 6 As relevant here, plaintiffs contended, in response to OSHP's motion for summary judgment, that the liquidated damages provision in their contracts was unenforceable. They argued that there was no mutual intent to liquidate damages, as required under Colorado law, because the provision gave OSHP the option to elect between liquidated and actual damages. The court rejected this argument in a written order but denied summary judgment to OSHP because the court could not determine on the record before it whether the amount of liquidated damages was reasonable and whether actual damages would have been difficult to ascertain, both requirements of an enforceable liquidated damages provision.

¶ 7 Subsequently, the court denied plaintiffs' motion for summary judgment, again rejecting their argument that the contractual provision preserving the right to pursue the alternative remedy of actual damages rendered the liquidated damages provision unenforceable.

¶ 8 Separately, on August 11, 2014, the parties had entered into a joint stipulation and filed a motion to dismiss many of their other claims, which the court granted. The stipulation provided that each party would pay its own attorney fees and costs related to those dismissed claims.

¶ 9 On October 27, 2014, the parties filed a second joint stipulation and motion for entry of final judgment. Plaintiffs stipulated that the amount of liquidated damages set forth in the contracts was reasonable and actual damages were difficult to ascertain, thereby resolving the remaining disputed issues for the breach of contract claim. They requested an entry of judgment to permit them to appeal the court's earlier ruling that the provision allowing OSHP to elect between liquidated damages and actual damages was enforceable. The parties also stipulated to the dismissal of their remaining claims and counterclaims. This stipulation did not address attorney fees.

¶ 10 Thereafter, the district court granted the parties' stipulation for entry of final judgment, entered judgment against plaintiffs on the breach of contract claim, and dismissed all remaining claims in this case. It then awarded costs and attorney fees to OSHP for all claims that were not resolved by the August 11 stipulation.

¶ 11 On appeal, plaintiffs contend that (1) the liquidated damages clause is unenforceable; (2) OSHP is now barred from seeking actual damages because it did not give notice within the time limit stated in the contract; and (3) the award of attorney fees and costs violated the parties' August 11 stipulation.

II. Liquidated Damages Clause

¶ 12 Plaintiffs contend that the liquidated damages provision in their contracts is invalid as a matter of law because it gave OSHP the option to choose between liquidated damages and actual damages. As a matter of first impression in Colorado, we conclude that the mere presence of an option to elect between liquidated damages and actual damages does not render the liquidated damages clause unenforceable.

A. Standard of Review

¶ 13 The district court ruled on this issue in the context of cross-motions for summary judgment. We review a district court's ruling on a motion for summary judgment de novo. Gibbons v. Ludlow, 2013 CO 49, ¶ 11, 304 P.3d 239. Summary judgment is appropriate when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Id.

¶ 14 Here, the material facts are undisputed, and plaintiffs' contention regarding the enforceability of the liquidated damages provision presents a question of law that we review de novo. See Saturn Sys., Inc. v. Militare, 252 P.3d 516, 525–26 (Colo.App.2011).

B. Applicable Law

¶ 15 In Colorado, a liquidated damages provision is valid and enforceable if three elements are met: (1) the parties intended to liquidate damages; (2) when the contract was made, the amount of liquidated damages was a reasonable estimate of presumed actual damages; and (3) at the time of contract, it was difficult to ascertain the amount of actual damages that would result from a breach. Klinger v. Adams Cty. Sch. Dist. No. 50, 130 P.3d 1027, 1034 (Colo.2006).

¶ 16 As noted, the parties stipulated that the second and third elements were met—that the amount of liquidated damages was "reasonable under the prevailing circumstances" and at the time of contracting the amount of damages that would result from a breach was difficult to ascertain. Thus, the only the element contested here is the parties' intent to liquidate damages.

¶ 17 Relying partly on Perino v. Jarvis, 135 Colo. 393, 312 P.2d 108 (1957), as well as on cases from other states, plaintiffs argue that the presence of an option to choose actual damages negates the required element of intent to liquidate damages and renders the provision invalid as a matter of law. OSHP responds that Colorado is among the states that allow optional liquidated damages provisions. We first examine the Colorado cases and then turn to authority from other jurisdictions.

1. Colorado Cases

¶ 18 Contrary to plaintiffs' position, Perino does not determine, or even address, the issue raised in this case. Although Perino generally sets forth the elements of an enforceable liquidated damages clause, the contract at issue there did not contain "any provision or understanding" for the retention of the deposit as liquidated damages. Id. at 394, 312 P.2d at 108.

¶ 19 OSHP relies on two Colorado cases for the proposition that a seller may elect between liquidated damages and actual damages.

¶ 20 In Cullen v. Park Club Land Co., the Colorado Supreme Court interpreted a real estate agreement that allowed the buyer to pay in installments. 67 Colo. 210, 211–12, 184 P. 303, 304 (1919). The agreement provided that if the buyer defaulted, the seller could retain all payments made as liquidated damages. Id. at 212, 184 P. at 304. The court held that this provision merely gave the seller an "option" to declare the contract forfeited, and the seller could choose instead to affirm the contract and sue for the unpaid purchase price. Id. at 213, 184 P. at 304.

¶ 21 Steinhoff v. Fisch also involved an installment land sale contract. 847 P.2d 191, 192 (Colo.App.1992). The contract provided that upon default, the...