Court Opinion

ID: 4125935
Source: CourtListenerOpinion
Date Created: 2017-02-14 20:06:09.71974+00
Date Added: 2024-06-11T14:22:50.272333
License: Public Domain

COLORADO COURT OF APPEALS                                          2017COA14

Court of Appeals No. 15CA1753
El Paso County District Court No. 13CV30988
Honorable Thomas K. Kane, Judge

Active Release Techniques, LLC, a Colorado limited liability company; ART
Corporate Solutions, Inc., a Colorado corporation; and ART Business Solutions,
LLC, a Colorado limited liability company,

Plaintiffs-Appellants,

v.

Xtomic, LLC, a Colorado limited liability company; Select Seminar Services,
LLC, a Colorado limited liability company; and Jay Ferguson,

Defendants-Appellees.

           JUDGMENT AND ORDER AFFIRMED IN PART, VACATED
             IN PART, AND CASE REMANDED WITH DIRECTIONS

                                    Division IV
                            Opinion by JUDGE ASHBY
                         Freyre and Davidson*, JJ., concur

                           Announced February 9, 2017

Shook, Hardy & Bacon, L.L.P., Richard G. Sander, Daniel E. Rohner, Denver,
Colorado, for Plaintiffs-Appellants

Howard & Jensen LLC, Erin M. Jensen, Colorado Springs, Colorado, for
Defendants-Appellees

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2016.
¶1    Plaintiffs, Active Release Techniques, LLC; ART Corporate

 Solutions, Inc.; and ART Business Solutions, LLC (collectively, ART),

 appeal from the trial court’s entry of judgment and an award of

 damages in favor of defendants, Xtomic, LLC; Select Seminar

 Services, LLC; and Jay Ferguson (collectively, Xtomic). We reverse

 in part and remand the case to the trial court to amend the

 damages award.

                            I. Background

¶2    ART describes itself as a provider of “training, seminars and

 business support software for chiropractor and other health care

 professionals who specialize in soft tissue treatment techniques

 called Active Release Techniques.” Tulio Pena was an employee of

 ART for several years and worked closely with ART’s founder and

 owner, Dr. Michael Leahy. Mr. Pena introduced Jay Ferguson, a co-

 owner of Xtomic, to Dr. Leahy. Dr. Leahy hired Xtomic to manage

 ART’s information technology (IT) services and provide IT support.

 Xtomic also developed software programs and wrote software code

 for ART.

¶3    Approximately ten years later, Mr. Ferguson, Mr. Pena, and

 others formed Select Seminar Services, LLC (S3). S3 was created to

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 market seminar training for a different soft tissue technique than

 that offered by ART, using software programs that Xtomic had

 developed, including a program that ART also used. When ART

 learned about S3, it petitioned the court for a temporary restraining

 order and a preliminary injunction. It also initiated the current

 litigation, asserting claims for, inter alia, misappropriation of trade

 secrets. Xtomic responded by asserting numerous counterclaims

 including, as relevant here, a claim for abuse of process. A jury

 ultimately decided all claims in Xtomic’s favor and awarded

 $1,530,000 in damages. ART appeals.

                           II. Directed Verdict

¶4    ART contends that the trial court erred by denying its motion

 for a directed verdict on Xtomic’s counterclaim for abuse of process.

 We agree.

¶5    We review a trial court’s decision on a motion for directed

 verdict de novo. Top Rail Ranch Estates, LLC v. Walker, 2014 COA
9, ¶ 17. A directed verdict should only be granted in the clearest of

 cases. Huntoon v. TCI Cablevision of Colo., Inc., 969 P.2d 681, 686

 (Colo. 1998). In deciding whether to grant the motion, the court

 should view the evidence and all reasonable inferences arising

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 therefrom in the light most favorable to the nonmoving party.

 Huntoon, 969 P.2d at 686; Bonidy v. Vail Valley Ctr. for Aesthetic

 Dentistry, P.C., 186 P.3d 80, 82-83 (Colo. App. 2008). “If the

 evidence viewed in this light cannot support a verdict in favor of the

 nonmoving party, the court may grant a motion for directed verdict

 and the issue should not be submitted to the jury.” Bonidy, 186
P.3d at 82 (quoting Bryant v. Cmty. Choice Credit Union, 160 P.3d
266, 271 (Colo. App. 2007)).

¶6    A valid abuse of process claim must allege

            (1) an ulterior purpose for the use of a judicial
            proceeding; (2) willful action in the use of that
            process which is not proper in the regular
            course of the proceedings, i.e., use of a legal
            proceeding in an improper manner; and (3)
            resulting damage.

 Mackall v. JPMorgan Chase Bank, N.A., 2014 COA 120, ¶ 39

 (quoting Lauren Corp. v. Century Geophysical Corp., 953 P.2d 200,

 202 (Colo. App. 1998)). “The essential element of an abuse of

 process claim is the use of a legal proceeding in an improper

 manner; therefore, an improper use of the process must be

 established.” Sterenbuch v. Goss, 266 P.3d 428, 439 (Colo. App.

 2011). “[T]here is no liability for abuse of process if the defendant’s

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 ulterior purpose was simply incidental to the proceeding’s proper

 purpose.” Mintz v. Accident & Injury Med. Specialists, PC, 284 P.3d
62, 66 (Colo. App. 2010), as modified on denial of reh’g (Feb. 24,

 2011), aff’d, 2012 CO 50.

¶7    Here, ART moved for a directed verdict on Xtomic’s abuse of

 process counterclaim at the close of the evidence as to the

 counterclaims. At trial, in support of its counterclaims, Xtomic

 argued that ART knew from the outset that it had no legitimate

 claims against Xtomic and the overly aggressive manner in which it

 pursued its claims against Xtomic was evidence of ART’s ulterior

 motive to use the lawsuit as a means to harass Xtomic and run it

 out of business. In denying the directed verdict motion, the court

 relied primarily on the following: (1) ART’s pre-trial settlement with

 Mr. Pena for $3000. Xtomic asserted that Mr. Pena was more

 culpable than Mr. Ferguson because Mr. Pena was an employee and

 close advisor to Dr. Leahy and had violated his fiduciary

 relationship to ART. The nominal settlement was therefore,

 according to Xtomic, proof of ART’s improper motive in filing the

 suit and aggressively pursuing it against Xtomic; (2) ART’s

 reputation for filing lawsuits to control the behavior of former

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 associates and business partners; and (3) the nature and number of

 preservation letters that ART sent to numerous individuals,

 including spouses of Xtomic’s co-owners, clients, and others who

 were not directly involved in the litigation.1 In our view, none of

 these actions, alone or in combination, demonstrates an abuse of a

 legal proceeding or court process.

¶8    Various remedies were developed at common law to balance

 the right of access to the courts against the competing interest of

 being free from unwarranted legal actions. The tort of abuse of

 process was developed to provide a remedy for the filing of what

 could be otherwise meritorious legal actions that are then

 manipulated to achieve an improper advantage unrelated to the

 substance of the actions filed. See Timothy P. Getzoff, Comment,

 Dazed and Confused in Colorado: The Relationship Among Malicious

 Prosecution, Abuse of Process, and the Noerr-Pennington Doctrine, 67

 U. Colo. L. Rev. 675 (1996).

¶9    An abuse of process claim does not require proof of malice.

 Hewitt v. Rice, 154 P.3d 408, 414 (Colo. 2007). The tort is

 1The letters were not admitted at trial but were described as letters
 sent by ART’s attorney requiring the recipients to preserve various
 documents in their possession relating to ART, Xtomic, and S3.

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  specifically designed to address misuse of and access to courts, not

  malicious intent. See Mintz, 284 P.3d at 66; see also Cornelison v.

  TIG Ins., 376 P.3d 1255, 1268 (Alaska 2016) (“The required motive

  in an abuse of process claim is to put pressure on the person who

  is wrongfully sued to perform or to refrain from performing an

  action unrelated to the process.”). And the tort is not actionable

  unless an ulterior purpose is combined with an improper use of a

  legal proceeding or process that is unrelated to, or outside the scope

  of, the action filed. Aztec Sound Corp. v. W. States Leasing Co., 32
Colo. App. 248, 252-53, 510 P.2d 897, 899-900 (1973).

¶ 10   What constitutes a “legal” or “judicial proceeding” for abuse of

  process purposes has not previously been articulated in Colorado

  case law. However other jurisdictions have stated, consistent with

  the purpose behind the remedy, that it must involve an actual court

  process, not just an action taken in connection with a lawsuit. See,

  e.g., Weinstein v. Leonard, 134 A.3d 547, 556 (Vt. 2015) (Abuse of

  process “requires proof of improper use of specific court processes,

  rather than a use of the legal system for improper purposes.”).

  Abuse of process therefore focuses not on the alleged wrongdoer’s

  motivations or intentions, but on whether or not he used the legal

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  system for its intended purpose. See Colo. Cmty. Bank v. Hoffman,

  2013 COA 146, ¶ 37 (“If the action is confined to its regular and

  legitimate function in relation to the cause of action stated in the

  complaint there is no abuse, even if the plaintiff had an ulterior

  motive in bringing the action or if he knowingly brought suit upon

  an unfounded claim.” (quoting Sterenbuch, 266 P.3d at 439)); Mintz,
284 P.3d at 66; see also Weinstein, 134 A.3d at 555.

¶ 11   Here, first, ART’s settlement with Mr. Pena is not evidence of

  abuse of process. A settlement is a process designed to allow

  parties to resolve their conflicts without going through a full trial.

  Whatever ART’s motives in reaching the settlement with Mr. Pena

  may have been, the process itself was used as intended. See Colo.

  Cmty. Bank, ¶ 38 (“[A]lthough an ulterior motive may be inferred

  from the wrongful use of process, the wrongful use may not be

  inferred from the motive.”); Sterenbuch, 266 P.3d at 439.

¶ 12   Second, ART’s reputation for filing, or even its abuse of

  process in, other lawsuits should have no bearing on its alleged

  abuse of process here. We must look at the use of the process in

  this instance objectively. See Moore v. W. Forge Corp., 192 P.3d
427, 438 (Colo. App. 2007) (“Although the litigant’s motive may be

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  important in determining whether there was an ulterior purpose,

  the plaintiff must still establish that, viewed objectively, an

  improper use of judicial process occurred.”).

¶ 13   And third, the letters ART sent out were not a legal proceeding

  or a court process. See Weinstein, 134 A.3d at 556. From the

  evidence in the record, it appears that ART sent letters to numerous

  individuals after becoming concerned that e-mails that may have

  had some bearing on ART’s claims to the software were being

  destroyed. The letters were used to inform the recipients that ART

  was investigating potential litigation and there could be adverse

  consequences if relevant evidence was not preserved. The letters

  were not, however, issued in conjunction with or as the result of a

  hearing or pleading before the court. They were sent prior to any

  court filing and independent of any court action or involvement,

  and there was no evidence that the court was asked to play any role

  in their issuance or enforcement. Therefore, we cannot conclude

  that they were a legal proceeding as contemplated by the abuse of

  process tort. See Walker v. Van Laningham, 148 P.3d 391, 394

  (Colo. App. 2006). Even if we assume, without deciding, that their

  intended purpose was to harass, intimidate, or otherwise harm

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  Xtomic, because sending them was an action taken outside of the

  scope of any legal proceeding, the abuse of process tort is

  inapplicable. See Sterenbuch, 266 P.3d at 439.

¶ 14   Accordingly, we conclude that the trial court should have

  granted ART’s motion for a directed verdict on the abuse of process

  counterclaim as a matter of law.

¶ 15   Based on our conclusion that the motion for directed verdict

  should have been granted, we vacate the abuse of process verdict in

  favor of Xtomic. We also vacate any damages awarded in

  connection with that verdict. Because the damages award included

  other claims, we remand the case to the trial court to modify the

  damages award accordingly. ART’s remaining contentions on

  appeal relate to the damages award for the abuse of process verdict;

  thus, our resolution of this issue renders them moot, and we need

  not address them. See People in Interest of Ofengand, 183 P.3d
688, 691 (Colo. App. 2008); Sopko v. Clear Channel Satellite Servs.,

  Inc., 151 P.3d 663, 668 (Colo. App. 2006).

                      III. Appellate Attorney Fees

¶ 16   Xtomic asserts it is entitled to appellate attorney fees. We

  disagree.

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¶ 17   “When a party is awarded attorney fees for a prior stage of the

  proceedings, it may recover reasonable attorney fees and costs for

  successfully defending the appeal.” Kennedy v. King Soopers Inc.,

  148 P.3d 385, 390 (Colo. App. 2006). Because we have decided the

  appeal in ART’s favor, Xtomic is not entitled to its appellate fees,

  and we decline to award them.

                             IV. Conclusion

¶ 18   We vacate the jury’s verdict in favor of Xtomic on the abuse of

  process claim. Accordingly, we also vacate the damages award

  predicated on that verdict. And we remand the case to the trial

  court to amend the damages award accordingly.

       JUDGE FREYRE and JUDGE DAVIDSON concur.

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