Court Opinion

ID: 5157022
Source: CourtListenerOpinion
Date Created: 2022-01-02 02:24:15.563232+00
Date Added: 2024-06-11T08:25:24.551554
License: Public Domain

QUINN, Justice,
dissenting:
I respectfully dissent. Although the complaint might be construed as setting forth claims on behalf of the plaintiffs in their individual capacity as taxpaying residents of the City and County of Denver, see Dodge v. Department of Social Services, 198 Colo. 379, 600 P.2d 70 (1979), I accept the majority’s characterization of the complaint as a representative action on behalf of the city. However, I disagree with the majority’s conclusion that the complaint fails to allege any injury to the city. I also disagree with the rule adopted by the majority that as a condition of standing the plaintiffs must allege sufficient facts to show the city’s refusal to bring suit was the result of fraud, collusion, bad faith or an ultra vires act.
The purpose of any inquiry on standing is to determine whether a plaintiff has a sufficient legal stake in the controversy to ensure a vigorous presentation of the case. E.g., Harman v. City and County of San Francisco, 7 Cal.3d 150, 496 P.2d 1248, 101 Cal.Rptr. 880 (1972); L. Tribe, American Constitutional Law 79 (1978). A review of the complaint leads me to conclude that the plaintiffs have standing to sue based on the following allegations: (1) the existence of a cause of action by the city against the defendants for tortious misrepresentation arising out of a confidential relationship; (2) substantial unjust enrichment to the defendants; (3) a demand by the plaintiffs on the city to bring an action against the defendants; and (4) the city’s refusal to litigate without advancing a good and sufficient reason for its refusal. Since the plaintiffs in this case have pled sufficient facts to establish their standing, the burden of pleading and establishing their lack of standing should have been on the defendants.
I.
The traditional rule of standing in Colorado is that the complaint must allege an injury in fact to a legally protected interest. *58E.g., Wimberly v. Ettenberg, 194 Colo. 163, 570 P.2d 535 (1977). In determining whether an injury in fact has been established the court must accept the allegations of the complaint as true. E.g., Board of County Commissioners v. City of Thornton, Colo., 629 P.2d 605 (1981). These allegations must then be analyzed to determine whether the injury is to a legally protected interest. Tortious conduct, a breach of a fiduciary duty, legal or equitable fraud, and other forms of misconduct are cognizable at common law and may be redressed by various forms of judicial relief. These forms of illegal conduct may affect adversely the legal interests of municipal government and its taxpaying citizens just as severely as a statutory or constitutional violation.
The plaintiffs in this case are resident-taxpayers of the city and sue on behalf of themselves and all interested taxpaying citizens. The named defendants are Carl H. Gustafson (Gustafson) and Quinn & Company, Inc. (Quinn & Co.). At all times pertinent to the transactions alleged in the complaint Gustafson was the vice president of Quinn & Co., which was a licensed broker dealer as defined under the Colorado Securities Act. On March 27,1978 the plaintiffs through their counsel made demand on the City and County of Denver (city) to sue for recovery of monies received by Gustafson and Quinn & Co. but the city, by and through its mayor, refused to take legal action. Because of the city’s refusal to sue or to join the action as a plaintiff, it has been named as a defendant, C.R.C.P. 19(a), with no claim being stated against it.
The factual allegations of the complaint are as follows. For several years prior to December 1975, Gustafson had been a paid bond consultant and fiscal agent to the city, holding himself out as a bond expert and bond counsel for the city. He enjoyed a favorable reputation among municipal officials with respect to his ability, knowledge and expertise in the field of municipal bond financing and municipal financing in general. During this period of time Gustafson encouraged city officials to rely on him in matters of municipal funding and financing. On or about December 8,1975, Gustaf-son approached the mayor with a proposal for the refinancing and refunding of outstanding municipal bond issues. Thereafter, he represented to members of the city council and other city officials that the city and its taxpayers would save $3,000,000 by his proposal. He further emphasized that time was of the essence and the refunding must be accomplished prior to December 31, 1975. City officials instructed Gustafson to proceed with his proposal. Notwithstanding a confidential relationship with the city over the years, Gustafson and Quinn & Co. failed to disclose to members of the city council or city officials the following facts: (1) that Gustafson and Quinn & Co. would receive a windfall of approximately $2,700,-000 from the bond refunding transaction; (2) that there was available an alternative means of bond refinancing which would have resulted in the payment of $2,700,000 to the federal government, rather than a windfall to Gustafson and Quinn & Co.; (3) that their windfall of $2,700,000 would exceed the present value of the proposed saving to the city; (4) that the present value of the refunding proposal was substantially less than $3,000,000 and, in fact, was substantially less than the $2,700,000 to be received by Gustafson and Quinn & Co.
The complaint alleges that Gustafson, due to his confidential relationship with the city over many years, had an obligation to disclose these matters to the city council and to city officials and as a result of his failure to do so Gustafson and Quinn & Co. were unjustly enriched in the amount of $2,700,000.1 The plaintiffs pray for damages for the benefit of the city in the amount of $2,700,000, plus exemplary damages, reasonable attorney fees and costs.
That the city has suffered no out-of-pocket loss is not to say that it has sustained no injury to a legally protected interest. The plaintiffs’ claims for unjust enrichment are based on Gustafson’s alleged abuse of a *59longstanding confidential relationship with the city in failing to disclose material facts. In a confidential relationship a person has a duty not only to avoid making false representation but, as pertinent here, has a duty to disclose all material facts which in equity and good conscience should be disclosed. See, e.g., Morrison v. Goodspeed, 100 Colo. 470, 68 P.2d 458 (1937). Such nondisclosure, if established, may entitle the city to a money judgment or the imposition of a constructive trust to the extent of the defendants’ unjust enrichment. See, e.g., United States v. Kearns, 595 F.2d 729 (D.C.Cir.1978); County of Cook v. Barrett, 36 Ill.App.3d 623, 344 N.E.2d 540 (1976); Restatement of Restitution § 197 (1937).
If the majority’s finding of no injury to the city is based on a consideration of adverse tax consequences in the event of favorable judgment for the city, the majority in effect is indulging in the type of ultimate fact finding which has no place in determination of standing. As this court observed in Wimberly v. Ettenberg, supra, 194 Colo, at 168, 570 P.2d at 539, the question “whether the injury resulted from the alleged action of the defendant ... is properly reserved for the trier of fact and is the primary question to be resolved on the merits.” The complaint in this case clearly alleges an injury in fact to a legally protected interest of the city.
II.
Turning to the standing requirement adopted by the majority, I believe this requirement sets up an undesirable obstacle to a taxpayer’s representative lawsuit for redress of alleged wrongdoing by third parties acting in a confidential relationship to the city. The majority imposes on the taxpaying plaintiffs the requirement that they allege sufficient facts to show fraud, collusion, bad faith or ultra vires in the city’s decision not to bring an action against the defendants. Such a requirement, however, is both unnecessary and impractical.
It is unnecessary because the allegations of the complaint already have pled sufficient facts to establish the plaintiffs’ “legal stake” in the controversy. The plaintiffs have alleged a tortious misrepresentation and breach of a confidential relationship by the defendants in their business dealings with the city and have pled a demand on the city to sue which has been summarily rejected. If the plaintiffs prevail on the merits against the defendants for an accounting of profits, “recovery of those profits would necessarily reduce, pro tanto, the amount of taxes which the plaintiff and other taxpayers would otherwise have to pay.” City of Chicago ex rel. Cohen v. Keane, 64 Ill.2d 559, 563, 2 Ill.Dec. 285, 287, 357 N.E.2d 452, 454 (1976). Moreover, the allegations of the complaint exceed the requisites of standing previously established by this court for a taxpayer’s suit in Ferch v. Hansen, 115 Colo. 366, 174 P.2d 719 (1946). In that case citizen-taxpayers commenced an action on behalf of themselves and all other taxpayers seeking to set aside an allegedly illegal contract between the City and County of Denver and Hansen for garbage collection services. The complaint, seeking to hold Hansen accountable to the city for all monies previously collected and received under the contract, alleged that “a demand upon said City and County of Denver and its duly authorized and responsible agents to bring this action, or any other action designed to afford the relief herein prayed, would be wholly futile and unavailing.” 115 Colo. at 374, 174 P.2d at 723. In addressing the issue of standing this court stated:
“May the suit be maintained by a taxpayer? We are persuaded that the answer should be in the affirmative. The allegations make clear that the municipality, as such, does not purpose, nor through the years has it proposed, to proceed on the theory that illegality attends the contracts involved, or any of them, but, on the contrary, by its act of opposition to this suit, below and here, it unquestionably makes common cause with defendant Hansen, the contract beneficiary. Considering the plaintiff’s grave allegations, the manifest attitude of the city itself in relation thereto, the potential consequences involved, and the cir-*60eumstances generally, we may not, becomingly, as we are persuaded, give countenance to a judgment that precludes judicial inquiry in the premises. [Colo.] Const.Art. II, § 6. The taxpayer here, proceeding at his own expense, and at the risk of judicial visitation of burdens incident to failure, disinterestedly prays recovery in behalf of defendant city, that is to say, for all taxpayers.” 115 Colo. at 380, 174 P. at 726.
For purposes of standing, I see no difference between a surrogate action on behalf of the city against a third party where, as in Ferch v. Hansen, supra, the city is a party to an arguably illegal contract and refuses to sue for municipal monies paid out under the contract and, where, as here, the city allegedly is an unwilling victim of the third party’s non-disclosure and breach of confidential relationship and refuses to redress the unjust enrichment.
In addition to being unnecessary, the majority’s rule on standing is impractical. It requires the plaintiffs to establish misconduct on the part of the city in its decision not to litigate the city’s claim. The reasons for the city’s refusal to sue, however, involve subjective matters which are within the unique knowledge of the city. Requiring the plaintiffs to plead and establish these subjective factors as a condition of standing creates an insurmountable barrier to a taxpayer’s representative action. I would hold that taxpayer-citizens establish a prima facie case of standing when the complaint alleges, as here, a colorable claim of tortious misrepresentation and breach of a confidential relationship by third parties against the city, with a resulting and substantial unjust enrichment to the third parties, and further pleads that the plaintiffs have made a formal demand on the city to litigate but the city has refused without advancing any reason in support of its refusal. Under such circumstances any challenge to the plaintiffs’ standing should be a matter of defense and the court then should resolve the standing issue under C.R.C.P. 12(c), with the burden devolving upon the party who contests standing.
Although the defendants raised the issue of the plaintiffs’ lack of standing, neither the city, which is a party defendant, nor Gustafson and Quinn & Co. offered any reason whatever for their assertion that somehow the plaintiffs lack standing to sue. Since the defendants failed to meet their burden of establishing the plaintiffs’ lack of standing, the plaintiffs should be permitted to litigate their claims on behalf of the city.
Just as taxpaying citizens have legal standing on the basis of their interest in insuring “the form of government under which [they live] be in accord with the state constitution,” Dodge v. Dept. of Social Services, supra, 198 Colo. at 382, 600 P.2d at 71; see also Howard v. City of Boulder, 132 Colo. 401, 290 P.2d 237 (1955), so too they have a cognizable legal interest in protecting their municipal government against col-orable tortious misrepresentation resulting in unjust enrichment to the alleged wrongdoers especially when the government declines to take protective action on its own behalf and offers no reason for its inaction. When official action is challenged on grounds of illegality, whether the illegality be by governmental officials or others, values beyond tangible economic injury come powerfully into play and, if anything, the standing of citizens to redress the wrong-should be broadened rather than narrowly circumscribed.
“Both the value of legality as such, and the public respect which rests on it, may be seriously impaired whenever courts equipped to remedy an illegality at the behest of a factually injured party allow clearly illegal procedures or results to stand on the sole ground that all of the material interests required to be considered or ‘accommodated’ by the statutory (or even constitutional) scheme were satisfied with the official action.” L. Tribe, American Constitutional Law, 111-12 (1978).
To engraft the standing requirement adopted by the majority onto Colorado law is, in effect, to deny redress for clearly cognizable claims which, if true, can be vindicated in no other forum.
*61III.
The trial court in this case granted summary judgment in favor of the defendants, not on the issue of standing, but on the merits of the controversy. Neither the court of appeals nor this court has addressed the question whether summary judgment was properly entered. I believe the judgment of the court of appeals should be reversed on the issue of standing and the cause returned to that court for consideration of whether the trial court erred in granting the defendants’ motion for summary judgment on the merits of the controversy.

. Plaintiffs also allege that Gustafson breached his constitutional duty as a state legislator not to make a profit directly or indirectly out of city money. Colo.Const. Art. X, Sec. 13.