Rocky Mountain Exploration, Inc. v. Davis Graham & Stubbs LLP
| Decision Date | 10 March 2016 |
| Docket Number | Court of Appeals No. 15CA0216,Court of Appeals No. 14CA1483 |
| Citation | 2016 COA 33 |
| Parties | Rocky Mountain Exploration, Inc., and RMEI Bakken Joint Venture Group, Plaintiffs-Appellants, v. Davis Graham & Stubbs LLP and Gregory Danielson, Defendants-Appellees. |
| Court | Colorado Court of Appeals |
City and County of Denver District Court Nos. 11CV5601 & 12CV5910
JUDGMENT AFFIRMED
Opinion by JUDGE BOORAS
¶1 Plaintiffs, Rocky Mountain Exploration, Inc., and RMEI Bakken Joint Venture Group (collectively RMEI), appeal the district court’s order granting defendants’, Davis Graham & Stubbs LLP and Gregory Danielson (collectively DGS), motion for summary judgment. We affirm the district court’s entry of summary judgment and its award of costs.
¶2 This lawsuit arises out of DGS’s representation in connection with RMEI’s 2010 sale of its oil and gas interests to Lario Oil and Gas Company (Lario). Lario served as an agent for Tracker,1 which was an unidentified principal in the transaction. Tracker was also DGS’s client.
¶3 In 2006, RMEI and Tracker executed a purchase and sale letter agreement (2006 purchase and sale agreement) under which RMEI agreed to sell an undivided 80% of its oil and gas interests in certain leaseholds in North Dakota. Pursuant to the terms of the 2006 purchase and sale agreement, the parties (1) created an area of mutual interest and (2) agreed that within sixty days they would enter into a joint operating agreement.
¶4 In 2007, RMEI and Tracker entered into a joint operating agreement as required under the 2006 purchase and sale agreement. In relevant part, the joint operating agreement expressly disclaimed any joint venture or fiduciary relationship between the parties.
¶5 In 2008, RMEI and Tracker executed a participation agreement "to provide for their participation in the development of the Subject Lands and the [area of mutual interest]." In relevant part, the participation agreement provided that it "and the [joint operating agreement] contain the entire agreement between the Parties concerning the subject matter referred to herein and they shall supersede and replace any prior agreements between the Parties concerning such subject matter."
¶6 In 2009, Tracker made several offers to buy out RMEI’s remaining 20% interest in the leaseholds. Tracker offered $10 million, but RMEI declined, apparently seeking a figure in the $15 million range. Tracker and RMEI were ultimately unable to reach an agreement.
¶7 In May 2010, Tracker and Lario "struck a deal" to jointly bid on RMEI’s remaining 20% interest. However, they kept Tracker’s involvement quiet because Tracker and RMEI’s relationship had become strained following Tracker’s unsuccessful bid to buy out RMEI’s remaining interest. In other words, Lario would serve as Tracker’s agent in the transaction.
¶8 On August 12, 2010, RMEI executed a letter of intent to sell its remaining interest to Lario for $14.265 million. The parties formalized their agreement on August 31, 2010, by entering into an asset purchase and sale agreement (RMEI/Lario purchase and sale agreement).
¶9 After the parties had agreed to the transaction, a Lario officer asked the president of RMEI if he had any objections to DGS representing Lario in the deal. RMEI’s president agreed. However, DGS later determined that a conflict of interest existed that prevented it from representing Lario.
¶10 Nevertheless, DGS handled the negotiations for Lario and Tracker because it represented Tracker. As part of its representation, DGS drafted closing documents and hosted the closing at its offices.
¶11 In September, before the sale closed, Lario’s president e-mailed RMEI’s president, stating, "our attorney is preparing the partial [l]ien release for Citizen’s Bank to execute." DGS received a copy of this e-mail and later sent the lien release to RMEI’s president, but it did not correct Lario’s assertion that Lario’s "attorney" would be sending the document. In subsequent e-mails between Lario and RMEI, Lario continued to represent that DGS was its lawyer. Although DGS was copied on some of those e-mails, DGS did not inform RMEI that it represented only Tracker in the transaction.
¶12 The sale closed on September 29, 2010. As agreed, Lario then sold a portion of its acquired interest to Tracker. Lario and Tracker subsequently auctioned all of the interests in the North Dakota leaseholds for what the district court characterized as "a handsome profit."
¶13 After the auction, RMEI sued Lario and Tracker, along with their officers individually, and DGS. All defendants but DGS settled. For purposes of this appeal, RMEI alleged that DGS (1) engaged in a civil conspiracy to use Lario as a strawman purchaser; (2) aided and abetted Tracker’s breach of its fiduciary duty to RMEI; (3) tortiously interfered with RMEI’s business expectancy; (4) committed fraud; (5) aided and abetted fraud; and (6) engaged in a civil conspiracy to commit fraud.
¶14 DGS moved for summary judgment. It contended that RMEI could not establish a duty owed by DGS to support the fraud claims. It also argued that RMEI failed to establish that Tracker owed RMEI fiduciary duties.
¶15 The district court granted DGS’s motion. It agreed with DGS that RMEI failed to establish (1) a duty owed by DGS to support RMEI’s fraud claims and (2) a fiduciary duty to support RMEI’s other claims. The district court also concluded that use of a strawman purchaser is not fraudulent.
¶16 We review a district court’s grant of summary judgment de novo. Armed Forces Bank, N.A. v. Hicks, 2014 COA 74, ¶20.
¶17 "Summary judgment is appropriate when the pleadings and supporting documents demonstrate that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law." Id. In reviewing a district court’s grant of a party’s motion for summary judgment, we view the facts in the light most favorable to the nonmoving party. Id.
¶18 RMEI contends that the district court erred when it granted DGS’s motion for summary judgment on counts III, IV, and XII in RMEI’s first amended complaint. We address each count in turn.
¶19 In count III, RMEI alleged that DGS and the other defendants, who are not parties to this appeal, engaged in "a scheme and conspiracy to unlawfully misappropriate RMEI’s Oil and Gas Interest in the [area of mutual interest] by setting up Lario as a straw man purchaser of such interests at a price/acre they knew was substantially below the price expected to be received in the pending auction."
¶20 RMEI asserts that the district court erred when it granted summary judgment on the basis that use of a strawman purchaser did not support its claim for civil conspiracy. We are not persuaded.
¶21 Agents regularly act on behalf of undisclosed or unidentified principals. See, e.g., Water, Waste & Land, Inc. v. Lanham, 955 P.2d 997, 1002 (Colo. 1998); Filho v. Rodriguez, 36 P.3d 199, 200 (Colo. App. 2001); Restatement (Third) of Agency § 6.03 (2006) (hereinafter Restatement). There is no suggestion in Colorado case law that doing so is fraudulent. See, e.g., Water, Waste & Land, 955 P.2d at 1002; Filho, 36 P.3d at 200.
Id. ().
¶23 Nevertheless, a third party may avoid a contract entered into by an agent acting for an undisclosed principal if (1) the agent falsely represents that it does not act on behalf of a principal and (2) "the principal or agent had notice that the third party would not have dealt with the principal." Id. § 6.11(4).
¶24 In all but such narrow circumstances, however, a third party may not rescind the contract. This is so because, ordinarily, "[i]f a third party wishes certainty that the party with whom it deals will be the only party with rights and liabilities under the contract, the third party may insist that the contract so provide." Id. at cmt. d. Moreover, the third party may "insist on a provision prohibiting assignment of the contract." Id. Lastly, the third party is always free to "ask the person with whom it deals whether that person acts as agent for an undisclosed principal." Id.
¶25 By narrowing the circumstances under which a third party may rescind a contract, "an undisclosed principal who purchases property or goods from a third party" is protected from a third party "who regrets the transaction after learning the purchaser’s identity." Id. "Such regret on the part of a seller is often based on a belief that, had the purchaser’s identity been known, the seller would have demanded, and the buyer would have paid, a higher price." Id.
¶26 As the district court observed and we have set forth above, an agent’s — or strawman’s...
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