Rees v. Unleaded Software, Inc., Court of Appeals No. 12CA1014

Citation2013 COA 164,383 P.3d 20
Decision Date05 December 2013
Docket NumberCourt of Appeals No. 12CA1014
Parties John Van REES, Sr. d/b/a Exquisite Crystals.com, Plaintiff–Appellant, v. UNLEADED SOFTWARE, INC., a/k/a The Unleaded Group, Defendant–Appellee.
CourtCourt of Appeals of Colorado

The Westerfield Law Firm, LLC, Zachary S. Westerfield, Denver, Colorado, for PlaintiffAppellant.

Law Offices of Peggy Stevens, P.C., Peggy E. Stevens, Lakewood, Colorado, for DefendantAppellee.

Opinion by JUDGE FOX

¶ 1 Plaintiff, John Van Rees, Sr., contends that the trial court erred in dismissing his claims against defendant, Unleaded Software, Inc. As an apparent issue of first impression, we interpret the scope and applicability of Colorado's economic loss rule in the context of three agreements for the design and maintenance of a website. We hold that under the economic loss rule, no independent duty exists for tort claims of fraud, fraudulent concealment, constructive fraud, or negligent misrepresentation when the alleged misrepresentations and false statements are about the ability to perform contractual duties. We also affirm the trial court's dismissal of Van Rees's claims of negligence, violation of the Colorado Consumer Protection Act, and civil theft.

I. Background

¶ 2 The following facts are taken from Van Rees's complaint, which we must accept as true in reviewing the trial court's dismissal. See Denver Post Corp. v. Ritter, 255 P.3d 1083, 1088 (Colo.2011)

.

¶ 3 Between December 2009 and March 2010, Van Rees and Unleaded executed three contracts wherein Unleaded agreed to (1) design and build a website for Van Rees's on-line business, Exquisite Crystals; (2) perform “search engine optimization” (SEO) services for the website; and (3) host the website on a dedicated server.

¶ 4 On April 1, 2010, the new Exquisite Crystals website went live,1 but many aspects of the site were broken, not working, or missing. In addition, Unleaded hosted the website on a shared—rather than dedicated—server, allegedly resulting in slower performance. Unleaded conducted no SEO work. The website was finished over three months after the contracted for date of “on or about” January 22, 2010.

¶ 5 Van Rees's complaint asserts ten causes of action resulting in economic losses from:

• Fraud, constructive fraud, fraudulent concealment, and negligent misrepresentation for making false or deceptive representations (or concealing material facts) relating to Unleaded's ability to create a website, conduct SEO work, and provide dedicated web hosting (four claims);2
• Negligent manufacture, development, and deployment of the website (one claim);
Violation of the Colorado Consumer Protection Act (CCPA), §§ 6–1–101

to –112, C.R.S.2013 (one claim);

Civil Theft, § 18–4–405, C.R.S.2013, for depriving Van Rees of “thing[s] of value” (one claim); and

• Breach of contract (three claims).

¶ 6 Unleaded moved to dismiss, pursuant to C.R.C.P. 12(b)(5)

, the seven tort claims (all the claims except the three breach of contract claims) as barred by the “economic loss rule.” See

Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo.2000) ([A] party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.”). Unleaded argued that it did not owe Van Rees an independent duty of care outside of the three contracts.

¶ 7 The trial court granted Unleaded's motion to dismiss without additional written analysis.

¶ 8 After a five-day trial, a jury found in favor of Van Rees on his three remaining breach of contract claims.

¶ 9 Van Rees appeals the dismissal of his seven tort claims.

II. C.R.C.P. 12(b)(5)

¶ 10 We review de novo a ruling granting a C.R.C.P. 12(b)(5)

motion to dismiss for failure to state a claim, accepting all factual allegations in the complaint as true and viewing them in the light most favorable to the plaintiff. Denver Post Corp., 255 P.3d at 1088 ; Gandy v. Colo. Dep't of Corr., 2012 COA 100, ¶ 20, 284 P.3d 898.

¶ 11 We will uphold an order granting a C.R.C.P. 12(b)(5)

motion to dismiss only if the plaintiff's factual allegations do not, as a matter of law, support a claim for relief. Denver Post Corp., 255 P.3d at 1088 ; Gandy, ¶ 21. A “complaint may be dismissed if the substantive law does not support the claims asserted.” W. Innovations, Inc. v. Sonitrol Corp., 187 P.3d 1155, 1158 (Colo.App.2008).

III. Sufficiency of the Dismissal Order

¶ 12 Van Rees first contends that the trial court erred in dismissing his claims without sufficient written analysis. We disagree. A trial court need not make findings of fact and conclusions of law when it dismisses a complaint for failure to state a claim under C.R.C.P. 12(b)(5)

. Henderson v. Romer, 910 P.2d 48, 54 (Colo.App.1995), aff'd sub nom.

Henderson v. Gunther, 931 P.2d 1150 (Colo.1997).

IV. Economic Loss Rule

¶ 13 The economic loss rule provides that a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law. AZCO Constr., Inc. , 10 P.3d at 1264

.

¶ 14 The applicability of the economic loss rule to a particular tort claim depends on the source of the duty owed by the defendant. Id. at 1262

. And, to determine if the alleged duty is independently recognized, we consider (1) whether the relief sought in tort is the same as the contractual relief; (2) whether there is a recognized common law duty of care in tort; and (3) whether the tort duty differs in any way from the contractual duty. See

BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo.2004) (negligence claim); Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 293 (Colo.App.2009) (fraud claims); Makoto USA, Inc. v. Russell, 250 P.3d 625, 627–28 (Colo.App.2009) (civil theft claim); see also

Stan Clauson Assocs., Inc. v. Coleman Bros. Constr., LLC, 2013 COA 7, ¶ 8, 297 P.3d 1042 (negligence claim); A Good Time Rental, LLC v. First Am. Title Agency, Inc., 259 P.3d 534, 538 (Colo.App.2011) (negligence and negligent misrepresentation claims).

¶ 15 The existence of a tort duty is a question of law that we review de novo. A.C. Excavating v. Yacht Club II Homeowners Ass'n, 114 P.3d 862, 866 (Colo.2005)

; Engeman Enters., LLC v. Tolin Mech. Sys. Co., 2013 COA 34, ¶ 18, 320 P.3d 364, 369, 2013 WL 979508. We, likewise, review the applicability of the economic loss rule de novo. Makoto USA, Inc., 250 P.3d at 627.

V. Fraud and Negligent Misrepresentation

¶ 16 Van Rees first contends that the trial court erred in dismissing his claims of fraud, fraudulent concealment, constructive fraud, and negligent misrepresentation because he alleged duties independent of the three contracts. We disagree.

¶ 17 In each of these claims, the complaint alleges that Unleaded made false representations or concealed material facts related to (1) its ability to design and deliver a functional website in a timely fashion and (2) the nature of its web hosting and SEO capabilities. According to Van Rees, these claims implicate duties independent of the three contracts because they concern precontract representations about Unleaded's ability to perform its contractual duties. In support, Van Rees relies on Brody v. Bock, 897 P.2d 769, 776 (Colo.1995)

, and Keller v. A.O. Smith Harvestore Prods., Inc., 819 P.2d 69, 72 (Colo.1991).

¶ 18 Brody

is factually distinguishable. Bock alleged that Brody promised to (1) amend his will to leave all of his stock in his two companies to Bock and (2) guarantee Bock a lifetime directorship on the board of either company. Brody, 897 P.2d at 772. Bock claimed he acted in justifiable reliance on Brody's promises by remaining an employee of Brody's companies. Id.

¶ 19 The supreme court held that Bock's fraud claim was for an alleged false representation intended to induce action:

The gist of the fraud action is Bock's change of position in justifiable reliance on Brody's knowing false statement. The content of the allegedly fraudulent statement is material not for the purpose of requiring Brody to perform the promise but for the purpose of establishing that Bock acted reasonably but detrimentally in justifiable reliance upon the false statement.
Id. at 776

(emphasis added).

¶ 20 Here, however, Van Rees's claims of fraud, fraudulent concealment, constructive fraud, and negligent misrepresentation are based on Unleaded's promise to perform, which was subsequently memorialized in the three contracts. Thus, Unleaded's promises are not independent of its contractual duties. Rather, the duties here implicate performance of contract terms not matters extrinsic to the contract. See Hamon Contractors, Inc., 299 P.3d at 289

(concluding that the duty Hamon alleged—to provide truthful information about the cause of the challenged drainage problem—arose out of the parties' interrelated contracts).

¶ 21 Keller

is also factually distinguishable. The Kellers claimed that the defendant manufacturer made false representations about the quality of its farm products to induce the Kellers to purchase the products. Keller, 819 P.2d at 71. The defendant manufacturer moved to dismiss the claim because an integrated sales agreement stated that the buyer was not relying on any promises or guarantees made by the seller or manufacturer. Id.

¶ 22 The supreme court did not evaluate whether the negligent misrepresentation claim was independent of a contract claim because the alleged misrepresentations related to claims intended to induce action—to purchase the farm equipment—not, as here, to a promise to perform duties in three service contracts. Id. at 71

; see also

Brody, 897 P.2d at 776 (distinguishing between a promise to perform and a promise intending to induce reasonable reliance and action on the part of the promisee).3

¶ 23 Accepting Van Rees's position would frustrate the purpose of the economic loss rule. See AZCO Constr., Inc., 10 P.3d at 1262

([T...

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1 cases
  • Van Rees v. Unleaded Software, Inc.
    • United States
    • Supreme Court of Colorado
    • June 27, 2016
    ...related to promises memorialized in the contracts, and the CCPA claim failed to allege a significant public impact. Van Rees v. Unleaded Software, Inc. , 2013 COA 164, ¶¶ 26, 43, 47, ––– P.3d ––––.¶3 We granted Van Rees's petition for certiorari and now affirm in part and reverse in part. T......

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