Rocky Mountain Exploration, Inc. v. Davis Graham & Stubbs LLP

• Decision Date: 11 June 2018
• Docket Number: Supreme Court Case No. 16SC305
• Court: Colorado Supreme Court
• Parties: ROCKY MOUNTAIN EXPLORATION, INC. and RMEI Bakken Joint Venture Group, Petitioners v. DAVIS GRAHAM & STUBBS LLP and Gregory Danielson, Respondents.

420 P.3d 223

ROCKY MOUNTAIN EXPLORATION, INC. and RMEI Bakken Joint Venture Group, Petitioners

v.DAVIS GRAHAM & STUBBS LLP and Gregory Danielson, Respondents.

Supreme Court Case No. 16SC305

Supreme Court of Colorado.

June 11, 2018

Attorneys for Petitioners: German May PC, William D. Beil, Phillip G. Greenfield, Kansas City, Missouri, The Viorst Law Offices, Anthony J. Viorst, Denver, Colorado

Attorneys for Respondents: Connelly Law LLC, Sean Connelly, Denver, Colorado, Lewis Roca Rothgerber Christie LLP, Gregory B. Kanan, Frederick J. Baumann, Tamara F. Goodlette, Denver, Colorado

Attorneys for Amicus Curiae Attorneys’ Liability Assurance Society, Inc.: Snell & Wilmer L.L.P., James D. Kilroy, Denver, Colorado

En Banc

JUSTICE GABRIEL delivered the Opinion of the Court.

¶ 1 This case arises out of a series of transactions in which petitioners Rocky Mountain Exploration, Inc. and RMEI Bakken Joint Venture Group (collectively, "RMEI") sold oil and gas assets to Lario Oil and Gas Company ("Lario"). In that transaction, Lario was acting as an agent for Tracker Resource Exploration ND, LLC and its affiliated entities (collectively, "Tracker"), which were represented by respondents Davis Graham & Stubbs LLP and Gregory Danielson (collectively, "DG&S").

¶ 2 Prior to RMEI’s sale to Lario, RMEI and Tracker had a business relationship related to the oil and gas assets that were ultimately the subject of the RMEI–Lario transaction. The RMEI–Tracker relationship soured after Tracker unsuccessfully sought to buy out RMEI’s interests at a price that RMEI deemed too low.

¶ 3 Thereafter, Tracker and Lario reached an understanding by which Lario would seek to purchase RMEI’s interests and then assign a majority of those interests to Tracker. Recognizing the history between Tracker and RMEI, however, Tracker and Lario agreed not to disclose Tracker’s involvement in the deal.

¶ 4 DG&S represented Tracker throughout RMEI’s sale to Lario. In that capacity, DG&S drafted the final agreement between RMEI and Lario, worked with the escrow agent, and hosted the closing at its offices. No party disclosed to RMEI, however, that DG&S was representing Tracker, not Lario.

¶ 5 After the sale from RMEI to Lario was finalized, Lario assigned a portion of the assets acquired to Tracker, and Tracker subsequently re-sold its purchased interests for a substantial profit. RMEI then learned of Tracker’s involvement in its sale to Lario and sued Tracker, Lario, and DG&S for breach of fiduciary duty, fraud, and civil conspiracy, among other claims. As pertinent here, the fiduciary breach claims were based on RMEI’s prior relationship with Tracker. The remaining claims were based on allegations that Tracker, Lario, and DG&S misrepresented Tracker’s involvement in the Lario deal, knowing that RMEI would not have dealt with Tracker because of the parties’ strained relationship. Based on these claims, RMEI sought to avoid its contract with Lario.

¶ 6 Lario and Tracker eventually settled their claims with RMEI, and DG&S moved for summary judgment as to all of RMEI’s claims against it. In this motion, DG&S argued (1) prior agreements between Tracker and RMEI expressly disavowed any fiduciary duties between the two companies, (2) RMEI could not establish that it reasonably relied on the alleged misrepresentations, and (3) DG&S did not owe RMEI a duty to disclose that it represented Tracker.

¶ 7 The district court granted DG&S’s motion, and in a unanimous, published opinion, a division of the court of appeals affirmed. Rocky Mountain Expl., Inc. v. Davis Graham & Stubbs LLP, 2016 COA 33, ––– P.3d ––––. RMEI then sought, and we granted, certiorari to consider whether (1) Lario and DG&S created the false impression that Lario was not acting for an undisclosed principal (i.e., Tracker) with whom Lario and DG&S knew RMEI would not deal; (2) an assignment clause in the RMEI–Lario transaction agreements sufficiently notified RMEI that Lario acted on behalf of an undisclosed principal; (3) prior agreements between RMEI and Tracker negated all previous joint ventures and any fiduciary obligations between them; (4) RMEI stated a viable claim against DG&S for fraud based on affirmative misrepresentations; and (5) RMEI can avoid the Lario sale based on statements allegedly made after RMEI and Lario signed the sale agreement but prior to closing.¹

¶ 8 We now affirm the division’s ruling. Addressing the first and second certiorari questions together, we conclude that the assignment clause in the RMEI–Lario transaction agreements made clear to RMEI that Lario had partners in the transaction to whom Lario could assign a portion of its interests. As a result, Tracker was not an undisclosed principal under the Restatement provision on which RMEI’s contract avoidance argument is exclusively premised, and that argument and the civil conspiracy claim against DG&S that flowed from it fail as a matter of law. Even if the Restatement provision applied, however, the record does not support the requisite finding that either Lario or DG&S, as its purported attorney, created a false impression that Lario was not acting on behalf of an undisclosed principal. For this reason as well, the civil conspiracy claim against DG&S, which is premised on the allegation that Lario was a fraudulent strawman purchaser, fails as a matter of law, and in light of this disposition, we need not address the fifth certiorari question.

¶ 9 Turning then to the fourth certiorari question, we conclude that, as a matter of law, RMEI did not demonstrate the requisite false representation or reasonable reliance to support a viable fraud claim against DG&S.

¶ 10 Finally, addressing the third certiorari question, we conclude that the controlling agreements between RMEI and Tracker expressly disavowed any pre-existing joint ventures and any fiduciary obligations between the parties. Accordingly, the district court properly granted summary judgment on RMEI’s claim against DG&S for aiding and abetting a purported breach of fiduciary duty by Tracker.

I. Facts and Procedural History

¶ 11 In 2006, RMEI and Tracker signed a purchase and sale letter agreement (the "Tracker Purchase Agreement") under which RMEI agreed to sell to Tracker an undivided eighty percent of its oil and gas interests in certain oil and gas leaseholds in North Dakota. Pursuant to that Agreement, the parties entered into an area of mutual interest that surrounded and included certain of the leases that RMEI already owned. The Tracker Purchase Agreement contemplated that Tracker and RMEI would jointly acquire more oil leases within the area of mutual interest, on an undivided eighty/twenty profit-and-loss basis.

¶ 12 Over the succeeding two years, RMEI and Tracker entered into a model form of operating agreement (the "Tracker Operating Agreement") and a participation agreement (the "Tracker Participation Agreement"). The purpose of the latter was "to provide for [the parties’] participation in the development of the Subject Lands and the [area of mutual interest]." As pertinent here, the Tracker Participation Agreement provided that "[it] and the [Tracker 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." In addition, the Tracker Operating Agreement contained a provision disclaiming any joint venture or fiduciary relationship between RMEI and Tracker:

It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or principals. In their relation with each other under this agreement, the parties shall not be considered fiduciaries or to have established a confidential relationship but rather shall be free to act on an arm’s-length basis in accordance with their own respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other with respect to activities hereunder.

¶ 13 After proceeding under the foregoing agreements for a period of time, the relationship between Tracker and RMEI deteriorated. Tracker offered to buy out RMEI’s remaining twenty percent interest in the leases, but RMEI declined Tracker’s offer as too low. Thereafter, the parties’ relationship continued to decline as a result of disagreements concerning the leases, with Tracker claiming that RMEI had breached the Tracker Operating Agreement and RMEI denying that allegation.

¶ 14 Eventually, RMEI engaged a broker to find a third-party purchaser for RMEI’s interest. RMEI asserts that it did so because of its soured relationship with Tracker.

¶ 15 Lario subsequently learned both that RMEI’s interest was for sale and that Tracker had sought to purchase this interest but was unable to do so as a result of animosity between the two companies. Perceiving an opportunity, Lario spoke with Tracker about jointly bidding on RMEI’s interest, with Lario receiving twenty-five percent of the leasehold interests acquired in the sale. Tracker was amenable to such an arrangement, and it and Lario agreed to have Lario pursue a deal with RMEI. Tracker and Lario further agreed that they would not disclose Tracker’s involvement to RMEI, recognizing that the issues between RMEI and Tracker might make a deal impossible if RMEI knew of Tracker’s involvement. Tracker and Lario’s agreement effectively established Lario as Tracker’s agent in the transaction.

¶ 16 Lario then requested RMEI’s permission to use DG&S as its attorney on the deal. Lario stated that DG&S’s knowledge of RMEI’s assets, which knowledge was based on DG&S’s prior representation of Tracker, would facilitate the transaction. Although RMEI’s president agreed to allow such representation, DG&S subsequently determined that its ongoing representation of...