Court Opinion

ID: 4195895
Source: CourtListenerOpinion
Date Created: 2017-08-15 16:01:19.160515+00
Date Added: 2024-06-11T07:47:28.930499
License: Public Domain

FILED
                                               United States Court of Appeals
                UNITED STATES COURT OF APPEALS         Tenth Circuit

                       FOR THE TENTH CIRCUIT                       August 15, 2017
                     _________________________________
                                                                 Elisabeth A. Shumaker
                                                                     Clerk of Court
RICE’S LUCKY CLOVER HONEY,
LLC., a Colorado limited liability
company,

       Plaintiff/Counterclaim
       Defendant - Appellant,

v.                                                  No. 16-1186
                                          (D.C. No. 1:14-CV-00402-RPM)
JAMIE HAWLEY, an individual                          (D. Colo.)

       Defendant/Counterclaimant -
       Appellee.
                   _________________________________

                        ORDER AND JUDGMENT *
                     _________________________________

Before BACHARACH, PHILLIPS, and McHUGH, Circuit Judges.
               _________________________________

      This appeal grew out of a confusing contract between a honey

business (Rice’s Lucky Clover Honey, LLC) and its president (Mr. Jamie

Hawley). Both parties sued one another for breach of contract, with Rice

Honey also suing for breach of fiduciary duty. 1

*
      This order and judgment does not constitute binding precedent except
under the doctrines of law of the case, res judicata, and collateral estoppel.
But the order and judgment may be cited for its persuasive value under
Fed. R. App. P. 32.1(a) and Tenth Cir. R. 32.1(A).
1
      Rice Honey also asserted a claim for a declaratory judgment, but this
claim is not involved in the appeal.
      The district court awarded judgment as a matter of law to Mr.

Hawley on Rice Honey’s claims for breach of contract and breach of

fiduciary duty. These rulings were correct.

      The district court also awarded judgment as a matter of law to Mr.

Hawley on his counterclaim for breach of contract. In our view, the district

court should have let the jury decide this claim. Accordingly, we reverse

the judgment for Mr. Hawley on his counterclaim for breach of contract. In

connection with this counterclaim, the district court also held as a matter

of law that a liquidated-damages clause was enforceable. Under state law,

the enforceability of this clause should have been left for the jury to

decide.

I.    Background
      The parties negotiated over the contract terms and exchanged

multiple drafts. Rice Honey wanted to hire Mr. Hawley for one year and

see how the relationship worked before deciding whether to continue. Mr.

Hawley wanted a term longer than one year.

      Rice Honey proposed a contract with a one-year term that could be

renewed for up to three years. Mr. Hawley changed the language without

alerting Rice Honey to the change. Rice Honey signed, thinking that it was

signing its latest version. Rice Honey was wrong; the written contract

contained indicia reflecting the wishes of both parties:

                                         2
            [Mr.] Hawley’s term of employment under this
      Agreement (such term of employment, as it may be extended or
      terminated, is herein referred to as the “Employment Term”)
      shall be for a term commencing on the Effective Date and,
      unless terminated earlier as provided in Section 5 hereof,
      ending on the third anniversary of the Effective Date (the
      “Original Employment Term”) one (1) year period; unless, at
      least sixty (60) days prior to the end of the original
      employment term Rice [Honey] or [Mr.] Hawley has notified
      the other in writing that the Employment Term shall terminate
      at the end of that current term. If not so terminated, then the
      Employment Term shall be automatically extended, subject to
      earlier termination as provided in Section 5 hereof, for an
      additional two (2) year period (the “Additional Terms”).

Appellant’s App’x, vol. V, at 846 (emphasis added). In one place, the

contract stated that the employment term would end on “the third

anniversary of the [e]ffective [d]ate.” Id. In the same sentence, however,

the contract stated that the employment term would be a “one (1) year

period.” Id.

      Rice Honey soon became disenchanted with Mr. Hawley and notified

him that the employment would not be renewed after one year. Mr. Hawley

viewed this notification as a premature termination, theorizing that the

base term was three years rather than one year. This disagreement led to

the litigation.

      After Rice Honey presented its trial evidence, Mr. Hawley moved for

judgment as a matter of law on Rice Honey’s claims. The district court

granted the motion, awarding judgment to Mr. Hawley not only on Rice

Honey’s claims but also on the counterclaim. On the counterclaim, the

                                        3
court awarded Mr. Hawley $412,000 ($250,000 for liquidated damages and

$162,000 for actual damages). In these rulings, the court held for the first

time that even if the contract had only a one-year term, Rice Honey would

be obligated to pay the amount specified in the contract for a termination

without cause. Rice Honey appealed.

II.    Standard of Review and the Applicable Substantive Law
       We engage in de novo review of a district court’s grant of judgment

as a matter of law, applying the same legal standards that governed in

district court. Elm Ridge Expl. Co. v. Engle, 721 F.3d 1199, 1216 (10th

Cir. 2013). Under these standards, we can uphold the district court’s ruling

only if all of the evidence points one way and precludes a reasonable

inference supporting Rice Honey. See id.

       In this diversity case, we consider the evidence based on Colorado’s

substantive law. See McKissick v. Yuen, 618 F.3d 1177, 1184 (10th Cir.

2010). 2 In defining Colorado’s substantive law, we are guided primarily by

the opinions of the Colorado Supreme Court. Belnap v. Iasis Healthcare,

844 F.3d 1272, 1294 (10th Cir. 2017).

III.   Rice Honey’s Claim for Breach of Contract
       Rice Honey argues that its contract claim should have been submitted

to the jury. For this argument, Rice Honey theorizes that

2
       The parties agree on the applicability of Colorado’s substantive law.

                                         4
          the jury could conclude that there was no meeting of the minds
           and

          the contract was ambiguous.
But these theories would not create a jury question on Rice Honey’s

contract claim.

      In district court, Rice Honey had based its contract claim on Mr.

Hawley’s continued work for Liberty Institute, false representations to

Walmart and Sam’s Club, and dishonest and disloyal conduct. But Rice

Honey’s appellate arguments would not support these theories of liability.

For example, in defending its contract claim, Rice Honey argues that the

jury could have found that there was no meeting of the minds. But if there

was no meeting of the minds, Rice Honey could not have prevailed on its

contract claim. Similarly, Rice Honey argues that the alleged contract was

ambiguous regarding the duration of the employment term and the effect of

the “termination without cause” provision. But ambiguity of those terms

would not have affected the viability of Rice Honey’s contract claim. In

the absence of any other pertinent argument, we affirm the district court’s

award of judgment as a matter of law to Mr. Hawley on Rice Honey’s

contract claim.

IV.   Rice Honey’s Claim for Breach of Fiduciary Duty
      The district court also properly granted judgment as a matter of law

to Mr. Hawley on Rice Honey’s claim for breach of fiduciary duty.

                                         5
        A.   Rice Honey had to establish four elements.

        On this claim, Rice Honey needed to show that (1) Mr. Hawley had

acted as a fiduciary, (2) Mr. Hawley had breached a fiduciary duty,

(3) Rice Honey had incurred damages, and (4) these damages had been

caused by Mr. Hawley’s breach of a fiduciary duty. See Rupert v. Clayton

Brokerage Co., 737 P.2d 1106, 1109-1100 (Colo. 1987) (en banc).

        B.   Rice Honey alleges two theories of breach of fiduciary duty.

        Rice Honey alleges two theories of how Mr. Hawley breached a

fiduciary duty: (1) by making material misrepresentations to Walmart and

Sam’s Club, and (2) by continuing to work for Liberty after December 31,

2012.

        C.   The evidence did not support liability for breach of
             fiduciary duty based on Mr. Hawley’s alleged
             misrepresentations to Walmart and Sam’s Club.

        The first theory involves Mr. Hawley’s alleged misrepresentations to

Walmart and Sam’s Club. This theory fails as a matter of law based on the

absence of any resulting damages.

        The alleged misrepresentations appeared in a letter from Mr. Hawley

to Walmart and Sam’s Club: “After an extensive review by an outside firm

regarding our pricing and terms to existing customers in like classes of

trade, it was brought to our attention that we are in violation of the federal

law passed in 1936 to outlaw price discrimination.” Appellant’s App’x,

                                         6
vol. V, at 898. 3 Rice Honey presented evidence that this statement was

false because there had not been an outside review of pricing. For the sake

of argument, we may assume without deciding that Mr. Hawley acted as a

fiduciary and that this misrepresentation breached a fiduciary duty to Rice

Honey. Even with that assumption, this theory would fail as a matter of

law because Rice Honey did not incur any damages.

     Under Colorado law, Rice Honey must prove “the fact of damages or

injury” with “a reasonable degree of persuasiveness.” W. Cities Broad.,

Inc. v. Schueller, 849 P.2d 44, 48 (Colo. 1993) (en banc). This proof must

go “beyond a mere possibility or speculation.” Gibbons v. Ludlow, 304
P.3d 239, 246 (Colo. 2013) (en banc). Generalized opinions regarding lost

sales are insufficient in the absence of an explanation. See Roberts v.

Holland & Hart, 857 P.2d 492, 497 (Colo. App. 1993) (holding that an

affiant’s projection of net profit was too speculative without an

explanation for how the total had been calculated).

     At trial, the vice-president of operations for Rice Honey testified that

there had been no injury from Mr. Hawley’s misrepresentations:

     Q.    Let’s move down a little further. Did he--here’s the next
           question. It says here on Item B, “Intentionally engaged

3
      Rice Honey also alleges that Mr. Hawley engaged in other “actions
and omissions that . . . caused [Rice Honey] to lose substantial sales at
their biggest customer, WalMart/Sam’s Club.” Appellant’s Opening Br.
at 12. But Rice Honey makes no further reference to other alleged actions
and omissions.

                                         7
           in conduct which is demonstrably and materially injurious
           to Rice.” Okay. Then it goes into various conditions and
           so forth like this, talking about fraud or dishonesty or
           theft against Rice, okay. And your testimony earlier, sir,
           had to do with this Robinson/Patmen [sic] communication
           on the pricing. And the question I have for you is: was
           there a demonstrable and material injury for Rice?

     A.    No, sir.

     Q.    Did you lose any sales because of that?

     A.    No, sir.

     Q.    Did you lose any profits?

     A.    No, sir.

     Q.    Okay. Did you lose a customer?

     A.    No, sir.

     Q.    Okay. So there really was no injury there, was there?

     A.    You’re correct.

Appellant’s App’x, vol. IV, at 593; see also id. at 562-63 (similar

testimony by the same individual). 4

     The only contrary evidence consisted of testimony by a co-owner of

Rice Honey, who expressed a thought or feeling that the company had

incurred damages. The co-owner’s thought or feeling regarding lost sales

constitutes speculation, which is insufficient under Colorado law to prove

4
      Rice Honey points out that this individual also testified regarding
lost sales in 400 Walmart stores. But Rice Honey did not present any
evidence tying the lost sales to Mr. Hawley’s alleged misrepresentations.

                                        8
the fact of damages. See Nevin v. Bates, 347 P.2d 776, 777-78 (Colo.

1959).

     Considering the testimony in the light most favorable to Rice Honey,

we conclude that no reasonable jury could have found damages from Mr.

Hawley’s alleged misrepresentations to Walmart and Sam’s Club. Thus,

Rice Honey’s first theory fails as a matter of law.

     D.    The economic-loss rule prevents recovery for breach of
           fiduciary duty on Rice Honey’s second theory.

     Rice Honey’s second theory is based on Mr. Hawley’s alleged work

for Liberty after December 31, 2012. At that point, Mr. Hawley was

serving as the president of Rice Honey. For the sake of argument, we may

assume without deciding that Rice Honey has satisfied each of the four

elements for this theory. Nonetheless, this theory would fail as a matter of

law under Colorado’s economic-loss rule.

     The economic-loss rule allows a tort recovery only if the underlying

duty is independent of a duty arising out of a contract. See Haynes Trane

Serv. Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962 (10th Cir.

2009) (applying Colorado law); Town of Alma v. AZCO Constr., Inc.,

10 P.3d 1256, 1262-63 (Colo. 2000) (en banc). Here the alleged duty to

stop working for Liberty was directly tied to the underlying contract.

     In district court, Mr. Hawley did not invoke the economic-loss rule.

Thus, the threshold issue is whether we can consider Mr. Hawley’s newly

                                         9
presented argument as an alternative basis to affirm the ruling. We enjoy

discretion to affirm on alternative grounds. Hernandez v. Starbuck, 69 F.3d
1089, 1093-94 (10th Cir. 1995).

      In determining whether to exercise this discretion, we consider

(1) whether the ground was fully briefed here and in district court, (2)

whether our decision would involve only questions of law, and (3) whether

the parties had a fair opportunity to develop the factual record. Elkins v.

Comfort, 392 F.3d 1159, 1162 (10th Cir. 2004). The first factor cuts both

ways, but the second and third factors support use of our discretion to

consider Mr. Hawley’s new argument on the economic-loss rule.

      The first factor cuts both ways because the economic-loss rule is

fully briefed on appeal but was not raised in district court.

      The second factor supports consideration of the issue, for the

applicability of the economic-loss rule is a question of law. See Haynes

Trane Serv. Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962 (10th

Cir. 2009); accord Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247
F.3d 79, 106 (3d Cir. 2001) (stating that the economic-loss doctrine

involves a question of law); Grynberg v. Questar Pipeline Co., 70 P.3d 1,

10 (Utah 2003) (“The district court’s interpretation and application of the

economic loss doctrine is a question of law . . . .”).

      The third factor also supports consideration because the issue does

not involve any factual questions. Without a factual component to the

                                         10
issue, Rice Honey would suffer no prejudice if we were to consider the

issue in the first instance.

        In light of the second and third factors, we exercise our discretion to

consider this issue. See United States v. Damato, 672 F.3d 832, 845 (10th

Cir. 2012) (considering potential affirmance on an issue raised sua sponte

based on the second and third factors).

        We ultimately conclude that the economic-loss rule applies. Under

this rule, the underlying duty must arise from a source independent of the

contract. Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1262-63

(Colo. 2000) (en banc). And even when the underlying duty would arise in

the absence of the contract, the duty is not considered independent if it is

memorialized in the contract. See Haynes Trane Serv. Agency, Inc. v. Am.

Standard, Inc., 573 F.3d 947, 962 (10th Cir. 2009) (applying Colorado

law).

        In its reply brief, Rice Honey argues that the economic-loss rule does

not apply to claims involving a breach of fiduciary duty. We disagree, for

the Colorado Court of Appeals has applied the economic-loss rule to claims

for breach of fiduciary duty. See Casey v. Colo. Higher Educ. Ins. Benefits

All. Tr., 310 P.3d 196, 204 (Colo. App. 2012) (“Any tort claim for breach

of fiduciary duty that the employees attempt to interject into this case

concerning the trustees would be barred by operation of the economic loss

rule.”); A Good Time Rental, LLC v. First Am. Title Agency, Inc., 259 P.3d
11
534, 540 (Colo. App. 2011) (stating that a “fiduciary duty between

contracting parties” does not necessarily create a special relationship that

“trumps the economic loss rule”).

      Rice Honey argues that if the economic-loss rule applies to claims

for breach of fiduciary duty, the Colorado Supreme Court must have

missed the issue in Jet Courier Service, Inc. v. Mulei, 771 P.2d 486 (Colo.

1989) (en banc), and Rupert v. Clayton Brokerage Co. of St. Louis, Inc.,

737 P.2d 1106 (Colo. 1987) (en banc). But Colorado appellate courts

“[‘]normally decide only questions presented by the parties.’” Zeke Coffee,

Inc. v. Pappas-Alstad P’ship, 370 P.3d 261, 269 (Colo. App. 2015)

(quoting Greenlaw v. United States, 554 U.S. 237, 243-44 (2008)). Thus,

the Colorado Supreme Court has expressly declined to consider an

economic-loss argument that the parties had not presented. A.O. Smith

Harvestore Prods., Inc. v. Kallsen, 817 P.2d 1038, 1039 (Colo. 1991)

(en banc).

      We have no indication that the parties raised the economic-loss rule

in Jet Courier Service, Inc. or in Rupert. Thus, we have no reason to think

that the Colorado Supreme Court missed the issue. Instead, we can

reasonably assume that none of the parties invoked the economic-loss rule

in these cases. If they didn’t, the Colorado Supreme Court would not be

expected to address the issue. Our case is different, for Mr. Hawley has

raised the economic-loss rule on appeal.

                                        12
      In our view, Mr. Hawley’s new argument is supported by Colorado’s

treatment of the economic-loss rule. Colorado courts have identified

certain special relationships that automatically trigger an independent duty

of care that supports tort liability even when the parties have entered into a

contract. Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1263 (Colo.

2000) (en banc). These special relationships often “entail a fiduciary

relationship.” A Good Time Rental, LLC v. First Am. Title Agency, Inc.,

259 P.3d 534, 540 (Colo. App. 2011). But “not every fiduciary relationship

implicates a risk of damages for which contract law cannot provide a

remedy.” Id. Here the employment contract provided a suitable remedy for

Mr. Hawley’s alleged work for Liberty after December 31, 2012.

      The contract arguably required Mr. Hawley to wrap up his consulting

work for Liberty by December 31, 2012, and the jury could reasonably

infer that continued consulting work for Liberty in 2013 would constitute a

breach of contract. For the sake of argument, we can even assume that a

contractual breach would also entail a breach of fiduciary duty. However

the cause of action is framed, the contract would provide a perfectly

suitable remedy. Thus, the economic-loss rule prevents recovery under

Rice Honey’s second theory of a breach of fiduciary duty.

                                         13
V.   Mr. Hawley’s Counterclaim for Breach of Contract
     The district court awarded judgment as a matter of law to Mr.

Hawley on his counterclaim for breach of contract. For two reasons, this

ruling was erroneous:

     1.    A reasonable jury could have found that Mr. Hawley had
           materially breached the contract prior to Rice Honey’s alleged
           breach.

     2.    The contract was ambiguous regarding the duration of the
           employment term. 5

5
     Rice Honey also argues that a jury could reasonably find that there
was no meeting of the minds. We disagree.

      Rice Honey contends that it was unaware of Mr. Hawley’s revisions
before signing the contract. If Rice Honey signed before the contract was
altered, the alteration might arguably render the contract unenforceable.
But Rice Honey does not suggest that it signed before the contract was
altered. Instead, Rice Honey alleges that it signed the contract unaware
that the latest draft had already been altered by Mr. Hawley.

      Even if Rice Honey signed the contract unaware of an alteration, the
contract would not be vitiated, for the failure to read what one signs does
not ordinarily prevent enforcement. See Rasmussen v. Freehling, 412 P.2d
217, 219 (Colo. 1966) (stating that parties may not avoid enforcement of a
contract just because they had failed to read the contract). An exception
exists when the parties were mutually mistaken about the contract. Kuper
v. Scroggins, 257 P.2d 412, 413-14 (Colo. 1953) (en banc); see Smith v.
Whitlow, 268 P.2d 1031, 1035 (Colo. 1954) (en banc). But Rice Honey
does not suggest that Mr. Hawley was mistaken about the contract terms.
Thus, the signed contract would bind the parties even if Rice Honey had
not read the latest version before signing.

                                       14
     A.    A reasonable jury could have found that Mr. Hawley had
           materially breached the contract.

     The district court erred in entering judgment as a matter of law to

Mr. Hawley on his counterclaim for breach of contract, for a reasonable

jury could have found that Mr. Hawley had materially breached the

contract prior to Rice Honey’s alleged breach.

     Mr. Hawley alleges that Rice Honey breached the contract by

prematurely terminating the employment without paying the amount

specified in the contract for early termination. But Rice Honey could avoid

performance if Mr. Hawley had previously failed to substantially perform

his own contractual duties. See Kaiser v. Mkt. Square Disc. Liquors, Inc.,

992 P.2d 636, 641 (Colo. App. 1999). This principle would create a jury

issue, for a reasonable jury could have found that Mr. Hawley had already

committed a material breach by continuing to work for Liberty after

December 31, 2012. 6

     Here the existence of a contractual breach by Mr. Hawley turns on

two questions:

     1.    Did the contract prevent Mr. Hawley from working for Liberty
           after December 31, 2012?

     2.    If the contract prevented such work, did Mr. Hawley continue
           to work for Liberty after December 31, 2012?

6
      Rice Honey makes this argument on appeal with respect to Mr.
Hawley’s counterclaim, but not with respect to Rice Honey’s own contract
claim.

                                       15
The jury could reasonably answer “yes” to both questions, finding a

contractual breach from Mr. Hawley’s continued work for Liberty after

December 31, 2012.

      First, the jury could reasonably find that the contract prevented Mr.

Hawley from working for Liberty after December 31, 2012. The contract

did not generally prevent Mr. Hawley from working for another employer

while working for Rice Honey. 7 But the contract arguably suggested that

Mr. Hawley’s right to work for Liberty might be limited to approximately

3½ months. The contract was signed by the parties on September 13, 2012

and stated: “[Rice Honey] recognizes that [Mr.] Hawley will need to spend

modest amounts of time until December 31, 2012 at Liberty Institute

completing the shutdown of the consulting aspects of his business.”

Appellant’s App’x, vol. V, at 846. By stating that Mr. Hawley would need

to continue working for Liberty until December 31, 2012, the contract

could have been implying that Mr. Hawley was to stop working for Liberty

by that date.

      Second, the jury could reasonably find that Mr. Hawley had

continued to work for Liberty after December 31, 2012. For example, Rice

Honey presented evidence that in 2013, Mr. Hawley had organized

7
     Mr. Hawley could not work for another employer involved in the
honey business. But Rice Honey does not suggest that Liberty was in the
honey business.

                                        16
interviews and researched resumes for candidates hoping to land a position

with Liberty as Chief Operating Officer. In addition, six emails between

Mr. Hawley and Liberty management suggested that Mr. Hawley was

continuing to work for Liberty in a managerial position after December 31,

2012:

        1.   One email (April 18, 2013) referred to Mr. Hawley as part of
             the management team and notified him of an upcoming
             meeting.

        2.   A second email (April 19, 2013) contained Mr. Hawley’s
             response, which reflected help in planning the meeting and in
             giving input on the matters to be discussed.

        3.   A third email (May 2, 2013) consisted of Mr. Hawley’s
             transmission of an offer to hire a Chief Operating Officer for
             Liberty.

        4.   A fourth email (May 3, 2013) thanked Mr. Hawley for his hard
             work.

        5.   A fifth email (May 13, 2013) referred to Mr. Hawley’s
             participation in a meeting to “review 2013 KPIs and create new
             ones for 2014.” Appellant’s App’x, vol. VI, at 970.

        6.   A sixth email (May 15, 2013) referred to Mr. Hawley’s
             participation in a management meeting.
        The resulting issue is whether a jury could reasonably find the fact of

damage from Mr. Hawley’s alleged work for Liberty after December 31,

2012. In our view, such a finding would have been reasonable. Rice Honey

continued to pay Mr. Hawley after December 31, 2012. Part of these

continued payments could constitute damages, for the jury could

reasonably infer that Rice Honey had paid more than it would have if it had

                                          17
known that Mr. Hawley was continuing to serve Liberty in a managerial

capacity. Thus, the existence of damages constituted a factual issue for the

jury to decide.

      In sum, a reasonable jury could find that Mr. Hawley had breached

the contract and that this breach of contract had caused damages. Thus, the

district court erred in entering judgment as a matter of law for Mr. Hawley

on his counterclaim for breach of contract. In our view, the jury could

reasonably find that Mr. Hawley had materially breached the contract

before Rice Honey prematurely terminated the contract. Such a finding

could have excused Rice Honey from continued performance under the

contract.

      B.    A jury could also have reasonably found that Rice Honey
            had not breached the contract.

      A jury could also have reasonably found that Rice Honey had not

breached the contract because the duration of the contract was ambiguous.

      In interpreting the contract, we must determine whether it was

ambiguous. See Boyer v. Karakehian, 915 P.2d 1295, 1300 (Colo. 1996)

(en banc). The contract was ambiguous if it was susceptible to two or more

reasonable interpretations. B&B Livery, Inc. v. Riehl, 960 P.2d 134, 136

(Colo. 1998) (en banc). If the contract was ambiguous, interpretation

would involve an issue of fact. See Ad Two, Inc. v. City & Cty. of Denver

ex rel. Manager of Aviation, 9 P.3d 373, 381 (Colo. 2000) (en banc)

                                        18
(“Interpretation of the intent of the parties in an ambiguous contract

becomes an issue of fact for the trial court to decide in the same manner as

other disputed factual issues.”).

      The district court ruled that the contract is ambiguous on how long it

was to last. We agree based on Paragraph (1) of the contract. What is a

term “ending on the third anniversary of the Effective Date . . . one (1)

year period”? The phrase appears to be a nonsensical result of the parties’

failure to fully revise the contractual term of employment. Mr. Hawley

wanted a three-year term; Rice Honey wanted a one-year term. At the end

of the negotiation process, the parties apparently ended up with language

suggesting a duration of both one year and three years. In this respect, the

contract language was ambiguous. 8

      Resolution of that ambiguity turns on the parties’ intent, which is a

question of fact. See Ad Two, Inc. v. City & Cty. of Denver ex rel. Manager

of Aviation, 9 P.3d 373, 381 (Colo. 2000) (en banc). A jury might

reasonably agree with Mr. Hawley, finding that the contract term was three

years. Or, a jury might reasonably agree with Rice Honey, finding that the

term was one year.

      Depending on whether the contract was one year or three years, Rice

Honey could let the contract come to a natural end by timely exercising its

8
     The district court called the contract language “strange” and
“meaningless.” Appellant’s App’x, vol. VII, at 1117-18.

                                        19
right not to renew the employment term. Or, Rice Honey could terminate

the contract (with or without cause) by ending Mr. Hawley’s employment

prior to expiration of the term.

      If the term was only one year, Rice Honey could have provided Mr.

Hawley with notice of nonrenewal at least 60 days before the term was to

end. Rice Honey provided such notice. So, if the term was only one year,

there would not have been a “termination without cause” or a contractual

breach by Rice Honey. Instead, the contract would simply have expired.

But if the contract term was three years, Rice Honey’s notice of

nonrenewal could be considered a termination without cause because the

term would have had two more years.

      Mr. Hawley argues that even if the contract were one year, there

would have been a “termination.” For this argument, Mr. Hawley points to

a snippet of testimony by Rice Honey’s vice-president of operations:

      Q.    (by Mr. Burg) But what I’m getting at is, you know, we
            construe contracts I think by what the words are that are
            used, okay, and this says “terminated.” Now, even if you
            were to terminate this thing, even if we construe this
            contract the way that Rice wants to construe it, which I
            suppose is that it is a contract terminable at the end of a
            one-year term with 60 days notice. I assume that’s your
            position, right?

      A.    Correct.

      Q.    That is a termination, right?

      A.    Correct.

                                            20
Appellant’s App’x, vol. IV, at 585. But, as the district court explained, the

vice-president’s understanding did not matter if the “termination without

cause” provision had been unambiguous. See Appellant’s App’x, vol. VII,

at 1119-20 (the district court’s explanation that the word “termination” is

unambiguous and that “Rice’s understanding” is immaterial because the

court could interpret the provision for “termination without cause” as a

matter of law). 9

9
      The district court apparently changed its view of the case after
hearing the testimony of Rice Honey’s vice-president of operations. On
cross-examination, the vice-president testified that Rice Honey had
terminated Mr. Hawley without cause. After excusing the jury, the district
court told counsel that “in light of [the vice-president’s] testimony, I think
he undercut your case entirely.” Appellant’s App’x, vol. IV, at 633. And
when Rice Honey rested its case the next day, the district court
commented, “Plaintiff rests, all right,” and turned to Mr. Hawley’s motion
under Fed. R. Civ. P. 50. Appellant’s App’x, vol. VII, at 1115-16. In this
motion, Mr. Hawley did not address his counterclaim, for he had not even
presented a case. Nonetheless, the district court sua sponte granted
judgment as a matter of law to Mr. Hawley on his counterclaim. See p. 3,
above. In explaining this ruling, the district court noted that it was
“somewhat taken aback by what [it had] heard is the evidence in this case
and particularly, as respect to [Rice Honey’s attorney] and also as
respecting [Rice Honey’s vice-president of operations].” Appellant’s
App’x, vol. VII, at 1117.

      If the district court had intended to rely on its understanding of the
vice-president’s testimony, this reliance would have been misguided. Rice
Honey’s vice-president and co-owner testified extensively about the
decision not to renew Mr. Hawley’s employment. For example, the vice-
president testified that in the days before nonrenewal, Mr. Hawley
repeatedly asked if his employment term would be renewed. In addition,
Rice Honey’s co-owner testified that he had told Mr. Hawley orally and in
writing that his employment would not be renewed. Almost two weeks

                                         21
      The district court was correct in viewing the vice-president’s

testimony as immaterial in light of the unambiguous language in the

contract. See Denver Found. v. Wells Fargo Bank, N.A., 163 P.3d 1116,

1126 (Colo. 2007) (en banc) (stating that “intent must be determined from

contract language itself, and an unambiguous document cannot be

explained by extrinsic evidence so as to dispute its plain meaning”). But

we disagree with the district court’s interpretation of the provisions for

termination and nonrenewal.

      The contract unambiguously addresses payment obligations if Rice

Honey were to terminate the contract before it would otherwise expire.

These obligations would vary depending on whether the termination is with

cause or without cause. But neither kind of termination took place if the

contract term had been one year. If the term were only one year, Rice

Honey would simply have exercised its contractual right not to renew the

contract, letting it expire. Expiration of the contract would not have been a

termination by either party.

later, Mr. Hawley responded, expressing surprise at the reasons given “not
to renew [his] contract.” Appellant’s App’x, vol. IV, at 570.

      The testimony by Rice Honey’s vice-president and co-owner could
support a finding that the parties treated Mr. Hawley’s termination as a
nonrenewal (a termination with at least 60 days’ notice and continued
payment through the one-year term rather than an “early” termination
under the contract). Thus, the district court could not grant judgment as a
matter of law to Mr. Hawley based on a snippet of the vice-president’s
testimony.

                                         22
      As a result, the existence of a contractual breach turns on the

duration of the term, one year or three years. Because the duration of the

contract is ambiguous, the district court should have allowed the jury to

decide whether Rice Honey had breached the contract. 10

VI.   Guidance Regarding Damages for Mr. Hawley’s Counterclaim for
      Breach of Contract
      The parties disagree about issues related to the damages that Mr.

Hawley could obtain if he prevails on his counterclaim for breach of

contract. The disagreement involves the duty to mitigate damages, the

enforceability of a liquidated-damages clause, and the availability of both

liquidated damages and the sum specified in the contract. Because these

issues may reappear on remand, we provide the district court with some

guidance. See Fletcher v. United States, 730 F.3d 1206, 1214 (10th Cir.

2013).

      A.   Mr. Hawley had no duty to mitigate damages.
      The existence of a duty to mitigate damages involves a question of

law. See Cherry v. A-P-A Sports, Inc., 662 P.2d 200, 202 (Colo. App.

1983) (deciding the existence of a duty to mitigate as a matter of law). On

this question, we conclude that Mr. Hawley did not bear a duty to mitigate

damages.

10
      On remand, Mr. Hawley could prevail on his counterclaim for breach
of contract only if the jury determines that the duration is three years
rather than one year.

                                        23
      1.    The common law did not require mitigation of damages.
      In urging a duty to mitigate damages, Rice Honey relies on the

common law. Under Colorado’s common law, a party injured from a

contractual breach must ordinarily make a reasonable effort to mitigate

damages. Tull v. Gundersons, Inc., 709 P.2d 940, 946 (Colo. 1985) (en

banc). Thus, when a contract is breached, the amount avoided through

mitigation should ordinarily be deducted from the eventual award. Saxonia

Mining & Reduction Co. v. Cook, 4 P. 1111, 1113 (Colo. 1884). But there

is no duty to make a deduction when the contract specifies the amount

owed to the injured party. See Drews v. Denver Recycling Co., 727 P.2d
1121, 1124 (Colo. App. 1986); Cherry, 662 P.2d at 202. Here the amount

owed was specified in the contract, precluding a common-law duty to

mitigate.

      Rice Honey relies on Technical Computer Services, Inc. v. Buckley,

844 P.2d 1249, 1255 (Colo. App. 1992). Buckley addressed mitigation in

different circumstances. There an employee was terminated and

successfully sued for breach of the employment contract. Buckley, 844 P.2d

at 1249, 1251. On appeal, the employee argued that his award should not

be reduced by the amount earned elsewhere. Id. at 1255. The Colorado

Court of Appeals rejected this argument, reasoning that the employee could

not (1) treat the employment contract as continuing and (2) sue for wages

as they accrued. The court reasoned that recovery for continued wages

                                       24
would be contrary to the policy of mitigation and permit a multiplicity of

lawsuits. Id at 1255-56.

     The court distinguished Cherry v. A-P-A Sports, Inc., 662 P.2d 200

(Colo. App. 1983). Buckley, 844 P.2d at 1256. In A-P-A Sports, the

mitigation doctrine did not apply because the employer had promised to

pay a specific amount upon nonrenewal of the employment term. Id. That

principle was inapplicable in Buckley because there the payment had not

been guaranteed. Id.

     Our case closely resembles A-P-A Sports. Here the amount owed to

Mr. Hawley had allegedly been guaranteed upon early termination without

cause. Mr. Hawley’s theory is that he was entitled to the guaranteed

payment regardless of whether he obtained employment elsewhere, for the

contract called for payment of a set amount. As Mr. Hawley points out, the

contract stated that Rice Honey’s early termination without cause would

require payment of the base salary for one year ($162,000), along with

$250,000 in liquidated damages. Thus, Buckley would not support a

deduction from his potential recovery on the contract claim.

     In sum, Colorado’s common law did not create a duty for Mr. Hawley

to mitigate damages.

                                        25
      2.    Rice Honey does not allege that the contract would
            independently create a duty to mitigate.
      A potential issue could have arisen about the effect of the contract.

The contract stated that the measure of damages for Mr. Hawley was

“subject to the mitigation provisions set forth below.” Appellant’s App’x,

vol. V, at 851. But there were no mitigation provisions “set forth below.”

      Rice Honey preemptively argues that this set of provisions did not

vitiate the common-law duty to mitigate damages. This argument assumes

that the common law created a duty to mitigate. But we have elsewhere

concluded that no such duty existed at common law. As a result, the

contract does not bear on the duty to mitigate. 11

      B.    The enforceability of the liquidated-damages clause involved
            a fact-issue for the jury to decide.

      The contract contained a liquidated-damages clause that required

Rice Honey to pay Mr. Hawley $250,000 upon a termination without

cause. 12 The district court held that this clause was enforceable as a matter

11
      Rice Honey does not argue on appeal that the contract independently
created a duty to mitigate.
12
      If the “termination without cause” provision applied, it would also
require Rice Honey to pay one year’s base salary ($162,000). One could
reasonably view this payment as part of the liquidated damages. But both
parties have treated the liquidated damages as $250,000, with the
additional $162,000 as actual damages. We address below the related issue
of whether Mr. Hawley might be able to recover both liquidated damages
($250,000) and actual damages ($162,000).

                                         26
of law. In our view, however, the enforceability of the liquidated-damages

clause involved a fact-issue for the jury to decide.

      Liquidated-damages provisions are enforceable if they reasonably

estimate the amount of actual damages and do not constitute a penalty.

Rohauer v. Little, 736 P.2d 403, 410 (Colo. 1987) (en banc). Unless the

contract “on its face establishes that the stipulated liquidated damages are

so disproportionate to any possible loss as to constitute a penalty, the party

challenging the liquidated damages provision bears the burden of proving

that fact.” Id.; see also Chisholm v. Reitler, 352 P.2d 794, 796 (Colo.

1960) (en banc) (stating that the burden of proof falls on the party

characterizing a liquidated-damages clause as a penalty).

      The pertinent factors for the enforceability of a liquidated damages

provision are

      1.    whether the parties intended to liquidate damages,

      2.    whether the amount of liquidated damages, when viewed as of
            the time that the contract was made, was a reasonable estimate
            of the presumed actual damages that the breach would cause,
            and

      3.    whether it was difficult at that time to ascertain the amount of
            actual damages that would result from a breach.

Rohauer, 736 P.2d at 410. The enforceability of a liquidated-damages

clause involves a question of fact unless the contract shows on its face that

the liquidated damages constitute a penalty. Klinger v. Adams Cty. Sch.

Dist. No. 50, 130 P.3d 1027, 1034 (Colo. 2006) (en banc).

                                         27
      The district court decided as a matter of law that the liquidated-

damages clause was enforceable without hearing any evidence on the issue.

Rice Honey never had an opportunity to support its position with evidence.

The district court erred by prematurely deciding this fact-issue prior to the

presentation of evidence on the relationship between the liquidated-

damages amount and the possible loss.

      C.    If Mr. Hawley prevails on his counterclaim, he may be
            entitled to both liquidated damages and payment for a
            specified debt.

      Liquidated damages may be recoverable in lieu of actual damages.

See 11 Joseph M. Perillo, Corbin on Contracts: Damages § 58.9, at 446

(2005). Thus, an election between the two is ordinarily required. See

Stewart v. Blanning, 677 P.2d 1382, 1384 (Colo. App. 1984) (stating that

the doctrine of election of remedies “is invoked where remedial rights

sought in a given situation are so inconsistent that the assertion of one

necessarily repudiates the assertion of the other”). But payment for a

specified debt is treated differently, for it is awardable regardless of the

employee’s opportunity to mitigate damages. See Drews v. Denver

Recycling Co., 727 P.2d 1121, 1124 (Colo. App. 1986) (holding that no

duty to mitigate existed to collect payments required under a terminated

employment contract); Cherry v. A-P-A Sports, Inc., 662 P.2d 200, 202

(Colo. App. 1983) (holding that no duty to mitigate existed when the

                                         28
employer had promised to pay a specified amount upon nonrenewal of the

contract); see also Part VI(A)(1), above.

     Rice Honey lumps together the claims for liquidated damages and

payment of a specified debt, pointing out that both are premised on a

breach of contract. We disagree with this approach. If Mr. Hawley

prevails, Rice Honey would owe money for a specified debt arising out of a

contractual obligation. Thus, Mr. Hawley would be entitled to the

contractual payment of the specified debt even if he were to receive

liquidated damages.

     Because our case involves rights to payment of a debt and liquidated

damages, Mr. Hawley could receive both if (1) the jury concludes that the

liquidated damages do not constitute a penalty and (2) Mr. Hawley

ultimately prevails on his counterclaim.

VII. Conclusion

     The district court awarded judgment as a matter of law to Mr.

Hawley on Rice Honey’s claims. We affirm this aspect of the district

court’s ruling. But we reverse and remand for a new trial on

          Mr. Hawley’s counterclaim for breach of contract and

          the enforceability of the liquidated-damages clause.

                                   Entered for the Court,

                                   Robert E. Bacharach
                                   Circuit Judge
                                           29