Court Opinion

ID: 173270
Source: CourtListenerOpinion
Date Created: 2010-08-14 19:17:56+00
Date Added: 2024-06-11T17:19:06.530434
License: Public Domain

FILED
                                                            United States Court of Appeals
                                                                    Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                 February 22, 2010
                                 TENTH CIRCUIT
                                                                Elisabeth A. Shumaker
                                                                    Clerk of Court

 MICHAEL J. WARD,

                Plaintiff-Appellee
                /Cross-Appellant,                  No. 08-1475 & 08-1502
          v.                                            (D. Colorado)
 SIEBEL LIVING TRUST,                     (D.C. No. 1:06-CV-00036-WYD-MJW)

                Defendant-Appellant
                /Cross-Appellee,

          and

 THOMAS SIEBEL, JUSTIN
 DOOLEY, and FIRST VIRTUAL
 MANAGEMENT, INC.,

                Defendants.

                              ORDER AND JUDGMENT *

Before MURPHY, HOLMES, Circuit Judges, and ARMIJO, ** District Judge.

      *
        This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.

      **
        The Honorable M. Christina Armijo, District Judge, United States District
Court for the District of New Mexico, sitting by designation.
I.    Introduction

      In 2006, Plaintiff-Appellee, Michael J. Ward, sued Defendant-Appellant,

The Siebel Living Trust (the “Trust”), seeking to recover a commission on the

sale of a residential property in Telluride, Colorado. Ward is a registered real

estate agent and the Trust was the owner of the residence. Ward alleged, inter

alia, that the Trust breached an implied duty of good faith and fair dealing under

the holdover provision in the listing agreement signed by the parties. The district

court denied the Trust’s motion for judgment as a matter of law on the good faith

and fair dealing claim. The jury found in favor of Ward on the claim and

awarded damages for the breach. The district court, however, reduced the Trust’s

obligation to zero because Ward settled with Justin Dooley, a second defendant,

for the full amount of the commission. The court also denied Ward’s motion for

prejudgment interest and denied the Trust’s renewed motion for judgment as a

matter of law. The Trust filed the instant appeal, challenging the denial of its

motion for judgment as a matter of law premised on its argument the implied duty

of good faith and fair dealing applies only when the manner of performance under

a contract term is left to a party’s discretion. Ward cross-appeals, arguing the

district court erred in concluding he is not entitled to prejudgment interest.

      Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court reverses

the denial of the Trust’s motion for judgment as a matter of law and dismisses

Ward’s cross-appeal as moot.

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II.   Factual Background

      Ward is a real estate broker in Colorado. In 2004, Ward and the Trust

entered into an Exclusive Right-to-Sell Listing Contract (the “Listing

Agreement”). Pursuant to the terms of the Listing Agreement, Ward agreed to act

as the Trust’s broker and agent to list and sell real property owned by the Trust

(the “Trust Property”). With extensions agreed upon by the parties, the term of

the Listing Agreement ran from April 22, 2004 to April 30, 2005 (the “Listing

Period”). If the Trust Property sold during the Listing Period, the Trust agreed to

pay Ward a commission of six percent. After the expiration of the Listing Period,

the six-percent commission was payable to Ward if the following terms of the

Listing Agreement (the “Holdover Provision”) were met:

      b. When Earned. Such commission shall be earned upon the
      happening of any of the following:

      ....

      (3) Any Sale of the Property within 180 calendar days subsequent to
      the expiration of the Listing Period (Holdover Period) to anyone with
      whom Broker negotiated and whose name was submitted, in writing,
      to Seller by Broker during the Listing Period (including any
      extensions thereof); provided, however, that Seller shall owe no
      commission to Brokerage Firm under this subsection (3) if a
      commission is earned by another licensed real estate brokerage firm
      acting pursuant to an Exclusive Right-to Sell [sic] Listing Contract or
      an Exclusive Agency Listing Contract entered into during the
      Holdover Period.

      The Trust Property remained unsold at the end of the Listing Period. The

Trust subsequently entered into a new exclusive listing agreement with Stephen

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Cieciuch. During the term of the agreement between the Trust and Mr. Cieciuch,

the Trust Property was sold to a buyer with whom Ward negotiated during the

Listing Period. The Trust paid a commission to Mr. Cieciuch under the terms of

his agreement and, therefore, did not pay a commission to Ward under the terms

of the Holdover Provision.

      Ward sued the Trust and three other defendants, asserting claims arising

from the sale of the Trust Property and the nonpayment of the commission. The

matter proceeded to trial. At the close of evidence, the Trust moved for judgment

as a matter of law under Fed. R. Civ. P. 50(a) as to all of Ward’s claims. The

district court denied the Trust’s motion and four claims against the Trust were

submitted to a jury. The jury returned a verdict against the Trust only on Ward’s

claim the Trust breached an implied duty of good faith and fair dealing when it

refused to pay a commission pursuant to the terms of the Holdover Provision.

The Trust renewed its motion for judgment as a matter of law, reiterating its

argument that Colorado law only recognizes an implied duty of good faith and

fair dealing when the contract term at issue confers discretion on a party as to

how an obligation will be performed. The district court denied the motion.

Ward, however, settled with a second defendant for the full amount of his

commission. The district court ruled Ward could not recover the damages

awarded by the jury from the Trust because such recovery would constitute an

impermissible double recovery. The court then denied Ward’s request for

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prejudgment interest, concluding he was not “entitled to prejudgment interest on a

judgment amount reduced to zero.”

       On appeal, the Trust challenges the denial of its motion for judgment as a

matter of law. Ward cross-appeals, arguing the district court erred when it

concluded he could not recover prejudgment interest.

III.   Discussion

       This court reviews the denial of a Rule 50 motion de novo. Veile v.

Martinson, 258 F.3d 1180, 1188 (10th Cir. 2001). In the course of that review,

we apply “the same legal standard as the district court.” Id. (quotation omitted).

In this diversity action, Colorado law controls the interpretation of the Listing

Agreement. See City of Aurora v. Bechtel Corp., 599 F.2d 382, 386 (10th Cir.

1979). “Colorado . . . recognizes that every contract contains an implied duty of

good faith and fair dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo.

1995). That duty, however, applies “only when the manner of performance under

a specific contract term allows for discretion on the part of either party.” Id.

       Because the Trust Property sold during the 180-day holdover period, Ward

was entitled to a commission under the Holdover Provision if three conditions

were satisfied: (1) Ward negotiated with the buyer during the Listing Period, (2)

Ward provided the name of the buyer to the Trust in writing during the Listing

Period, and (3) no other broker earned a commission on the sale of the Trust

Property. The parties do not dispute that these three conditions were not met

                                         -5-
because Mr. Cieciuch earned a commission on the sale of the Trust Property.

Ward, however, asserted a claim the Trust breached an implied duty of good faith

and fair dealing by entering into a new listing agreement that had the practical

effect of extinguishing his entitlement to a commission on the sale of the Trust

Property. In its motion for judgment as a matter of law, the Trust challenged the

submission of Ward’s claim to the jury, arguing no duty of good faith and fair

dealing applied to the Holdover Provision under Colorado law because that

provision did not confer discretion on the Trust to determine the terms of its

performance. The district court rejected the Trust’s argument, instead agreeing

with Ward that the Trust had discretion because it retained the power to enter into

a new listing agreement with another broker once the Listing Agreement with

Ward expired.

      The district court’s ruling is inconsistent with Colorado law and, thus,

erroneous. In Amoco Oil Co. v. Ervin, the defendant entered into lease

agreements with its dealers which provided for fixed, monthly rental payments.

908 P.2d at 495. Under the terms of the contracts, however, it also reserved the

right to modify future rental payments. Id. at 495-96, 499. The lease agreement

did not specify how any variable monthly rental would be calculated. At first,

Amoco calculated the monthly rental payments based on the sale of gasoline. Id.

at 495. It then switched to an asset-based calculation. Id. at 495-96. The lessees

sued, arguing, inter alia, that the asset-based calculation resulted in redundant

                                         -6-
charges and, therefore, by using that method Amoco breached an implied duty of

good faith and fair dealing. Id. at 497. The Colorado Supreme Court held the

contract contained an implied duty of good faith and fair dealing because “Amoco

retained discretion to modify the monthly rental amount,” thereby leaving the

rental provision “open.” Id. at 499 (“Under the agreements, Amoco retained

discretion to modify the monthly rental amount. . . . By allowing Amoco to

adjust the rental terms, the parties, in effect, left these future provisions open.”).

      Discretion in performance occurs when “the parties, at formation [of the

contract], defer a decision regarding performance terms of the contract leaving

one party with the power to set or control the terms of performance after

formation.” City of Golden v. Parker, 138 P.3d 285, 292 (Colo. 2006) (quotation

omitted). The contact provision in Amoco was discretionary because Amoco

retained not just the right to modify future rental payments, but also the discretion

to determine how those payments would be calculated. That is not the situation

presented here. The Trust did not reserve any discretion under the Holdover

Provision to control the terms of its performance. For example, the Trust did not

retain discretion to approve or reject the names submitted by Ward; it did not

retain discretion to alter the amount of the commission; and it did not retain

discretion to determine the timing of any payment or the length of the holdover

period. If the unambiguous and unequivocal conditions were met, Ward was

                                           -7-
entitled to a specific commission; if the conditions were not met, he was not

entitled to the commission.

      Ward’s argument that the Trust’s discretion arose from its retention of the

right to enter into a listing agreement with a new broker is flawed. Although the

Trust’s exercise of its unrestricted right to contract with a new broker ultimately

affected Ward’s entitlement to the commission, the implied duty of good faith and

fair dealing applies only to the performance of obligations owed to one party by

the other under a specific contract term that allows for the exercise of discretion.

Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., 872 P.2d 1359, 1363

(Colo. App. 1994). The obligation owed to Ward under the terms of the Holdover

Provision was to pay Ward a commission if the three conditions were met. But,

as discussed, supra, the Holdover Provision does not allow for the exercise of

discretion in the performance of that obligation. Ward’s argument fails because

he has not identified any provision in the Listing Agreement pursuant to which

the Trust owed him a duty with respect to the continued marketing of the Trust

Property during the holdover period. The Trust’s right to enter into a new listing

agreement with a different broker is not restricted in any way by the Holdover

Provision or any other clause in the Listing Agreement. Because the Trust owed

no obligation to Ward under the Listing Agreement when it exercised its right to

retain a new broker, no implied duty of good faith and fair dealing applies to the

                                          -8-
Trust’s actions and the district court erred when it permitted the good faith and

fair dealing claim to go to the jury.

      Our conclusion that the district court erroneously permitted Ward’s claim

to be submitted to the jury renders Ward’s cross-appeal on the issue of

prejudgment interest moot.

IV.   Conclusion

      The order of the district court denying the Trust’s motion for judgment as a

matter of law is reversed and the matter remanded with instructions to enter

judgment in favor of the Trust. Appeal No. 08-1502 is dismissed as moot.

                                               ENTERED FOR THE COURT

                                               Michael R. Murphy
                                               Circuit Judge

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