Section Newsletter
Ed Naylor, Editor |
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IN THIS ISSUE
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Optional Liquidated Damages Clauses Declared Enforceable By Colorado Supreme Court, With Important Caveat
By Tobin Kern, Volant Law LLC
On September 11, 2017, the Colorado Supreme Court resolved an important question under Colorado contract law concerning liquidated damages: is a liquidated damages clause enforceable when the contract also gives the non-breaching party the option to elect actual damages? In Ravenstar, LLC v. One Ski Hill Place, LLC, 16SC224, the Court considered whether an optional liquidated damages clause in a condominium purchase contract was enforceable. The contract at issue permitted a condominium developer to choose between liquidated damages of 15% of the purchase price, or actual damages, in the event that the purchaser breached the contract. When the purchaser breached the contract, the developer elected to retain the deposit as liquidated damages. Litigation ensued.
The purchaser and developer in Ravenstar stipulated that the contract’s liquidated damages clause reasonably approximated damages the developer would incur upon breach, and that actual damages would be difficult to ascertain – two of the three necessary elements of an enforceable liquidated damages clause under Colorado law. However, the purchaser disputed the third necessary element, namely, that the parties intended to permit liquidated damages. Purchaser argued that since the contract permitted developer to elect between actual damages and liquidated damages, the parties could not have clearly intended liquidated damages and therefore the optional liquidated damages clause must be treated as an unenforceable penalty.
As the Colorado Supreme Court noted, the Ravenstar purchaser’s argument was supported by decisions of courts in Florida and Illinois. The Court sided, however, with courts in Washington, the District of Columbia and elsewhere that have determined the mere fact that a liquidated damages clause is optional does not render the clause an unenforceable penalty. The Colorado Supreme Court reasoned that an optional liquidated damages clause is a matter of freedom of contract, and that a non-breaching party may elect liquidated damages for reasons that do not amount to a penalty – such as a desire to avoid litigation expense or to obtain a certain result.
An important caveat to the Court’s opinion, however, is that under Colorado law a non-breaching party’s choice between liquidated damages and actual damages must be exclusive. In other words, a non-breaching party may not pursue both liquidated damages and actual damages, even if actual damages are partial, discounted or reduced in some manner.
But a party’s “exclusive” election of liquidated damages may not foreclose non-monetary or injunctive remedies. In a footnote, the Colorado Supreme Court noted that non-monetary and equitable remedies have been permitted – in addition to liquidated damages – by courts in other states who likewise have upheld the enforceability of optional liquidated damages clauses. The Colorado Supreme Court declined to reach that issue in Ravenstar.
Contract drafters in Colorado now can rest assured that optional liquidated damages clauses will be enforceable, so long as the clause requires a clear and exclusive election between liquidated damages and actual damages. Whether non-monetary remedies also may be pursued by a party electing liquidated damages remains to be seen.
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Ooops. I Just Sent Client Confidential Information to the Wrong Person
By Herrick K. Lidstone, Jr., Burns, Figa & Will, P.C.
Rule 1.6 of the Colorado Rules of Professional Conduct (and the comparable Model Rule 1.6) requires lawyers to maintain their client confidences except when the client consents to the disclosure or when one of the enumerated exceptions applies. This creates a real risk to lawyers who use email as a form of communication. Comment [8] to Rule 1.1 of the CRPC states that in providing competent representation to clients as the Rule requires, a lawyer must keep up with “changes in communications and other relevant technologies.”1
One thing that lawyers who use Microsoft Outlook should understand is that the Outlook toolbar automatically completes names of addressees it has seen before or are included in the Outlook contacts file. This is a timesaving and mistake-saving measure allowing the lawyer to avoid typing in the entire email address each time. For example, type a “be” in the address line and a number of alternatives will likely be presented. This feature can, however, be disabled, and the following two cases suggest a reason for it to be disabled notwithstanding its convenience.
Email to the New York Times
An attorney in Los Angeles who was providing information about a possible settlement of a billion-dollar investigation by the FDA prepared an email to his co-counsel. Unfortunately, the “be” that Outlook automatically completed for the attorney was not his colleague, but a reporter for the New York Times. Without noticing the difference, the attorney pushed “send,” which was a significant breach of confidentiality.2 Had the transmission occurred between attorneys, perhaps Rule 4.4(b) (discussed further below) would have saved the day. The reporter was not an attorney, was not bound by the Rules of Professional Conduct, and made use of the information he received.
Email to the Wall Street Journal
More recently, on September 28, 2017, the Wall Street Journal3 reported that a misdirected email from outside counsel to other lawyers working on the SEC matter was sent to a WSJ reporter. According to the article, the law firm said that “it was disappointed the Journal used material from the email” and the law firm is “taking steps to ensure that emails are not misaddressed to unintended recipients” in the future.
Attorney’s Receipt of Confidential Information
However, a reporter (who is not an attorney) has no ethical obligation not to use information presented to him or her. Under CRPC Rule 4.4(b) and Formal Opinion 1194 in Colorado (and under similar interpretations elsewhere), an attorney is subject to different rules. Except where the sender advises an attorney that a communication was inadvertently sent before another attorney reads it,5 an attorney receiving what appears to be an inadvertently sent document, whether or not it is privileged, is only to notify the sender. For this obligation, the 2016 amendments to Formal Opinion 119 provide that “document” includes the metadata associated with the inadvertent transmission.6
Do’s and Don’ts for Attorneys
This raises several points that should be addressed by practicing lawyers using email in Colorado (and in light of Rule 1.1, that should likely be all of us).
- Be cautious when accepting email addresses that automatically populate.
- Do not send messages by using “Reply All” unless you are absolutely certain that the “Reply All” addressees are proper addressees for your email and (for example) do not include the opposing attorney’s client;
- Do not send emails to opposing counsel showing a “cc” to your client.
- Opposing counsel may consider that an invitation to communicate directly with your client through “reply all” rather than simply to the sending lawyer by “reply.”
- Your client may send you a reply to your message by a “Reply All”, thus sending it to the opposing counsel.
- It is better to send the email to the addressee and then, by separate email, forward it to the client separately.
As a reminder from Rule 1.1, Comment [8] and Rule 1.6(c): “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client.”
1 Comment [8] (formerly Comment [6]) was modified in 2016 to make this clear and expands the obligations of lawyers to gain technological competence – or to retain staff who can provide that competence. Delegation of duties to another person does not relieve the lawyer of his or her responsibility.
2 Debra C. Weiss, “Did Lawyer’s E-Mail Goof Land $1B Settlement on NYT’s Front Page?”, posted Feb. 6, 2008 in ABA Journal Law News Now, avail. at abajournal.com/news/lawyers_e_mail_goof_lands_on_nyts_front_page.
3 Andrew Ackerman, et al., SEC Investigates Firing of Top Pepsi Lawyer, online version (entitled SEC Probes Departure of PepsiCo’s Former Top Lawyer) available by subscription at wsj.com/articles/departure-of-pepsico-lawyer-is-focus-of-sec-probe-1506504603.
4 CBA Ethics Comm., Formal Op. 119 (Disclosure, Review, and Use of Metadata) (2008).
5 Comment [2] says, specifically, “[i]f a lawyer receives a document and also receives notice from the sender prior to reviewing the document that the document was inadvertently sent, the receiving lawyer must refrain from examining the document and also must abide by the sender's instructions as to the disposition of the document, unless a court otherwise orders.” For the purposes of this rule, “document” is defined probably to include paper documents, email, and electronically stored information (including metadata).
6 Rule 4.4 (Respect for Rights of Third Persons) Comment [2] (as amended in 2016); CBA Ethics Comm., Formal Op. 108 (Inadvertent Disclosure of Privileged or Confidential Documents) (2000).
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Business Law Section Activities
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Bankruptcy Subsection Programs
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Matt Faga Recognized in American Bankruptcy Institute’s 40 Under 40
The American Bankruptcy Institute selected the inaugural class of its 40 under 40 initiative, which identified Matt Faga of Markus Williams Young & Zimmermann LLC (Denver) as one of the top 40 bankruptcy and insolvency industry professionals. Matt will be recognized at a special luncheon during the ABI’s 2017 Winter Leadership Conference (Nov. 30–Dec.2 in Palm Springs, Calif.). Candidates were chosen from both large and small firms from every region of the country, and represent diverse practice areas such as law, finance, consulting, academia, government and more. Well done, Matt!
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Denver Bankruptcy Bar Brown Bag CLE
Wednesday, Dec. 6, from noon to 1 p.m.
U.S. Bankruptcy Court for the District of Colorado
721 19th St., Rm 183, Denver, CO 80202
The CBA Bankruptcy Subsection and the U.S. Bankruptcy Court for the District of Colorado are co-sponsoring a Denver brown bag lunch with our bankruptcy judges. With the annual changes to the Federal Bankruptcy Rules, and a recent overhaul of the Local Bankruptcy Rules in Colorado to take effect at the end of 2017, a panel will cover the recent revisions of the Local Bankruptcy Rules. Please attend to learn about the changes to the rules before they are implemented, and share your ideas, suggestions, questions, issues and concerns, as the judges are seeking input from the bar.
There is no cost to attend.
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Winter Bankruptcy Case Law Update
Wednesday, Dec. 6, from 4 to 6 p.m.
CBA-CLE, 1900 Grant Street, 3rd Floor, Denver, CO 80203.
Please join us for the Winter 2017 Bankruptcy Case Law Update presented by the Honorable Elizabeth E. Brown, Katharine S. Sender, Esq. and Anne Zoltani, Esq., and hear the latest developments in the bankruptcy practice area. Discussion includes recent bankruptcy cases of interest issued by the Supreme Court, the Tenth Circuit Court of Appeals, the Bankruptcy Appellate Panel for the Tenth Circuit, and District Courts and Bankruptcy Courts within the Tenth Circuit.
Offered for 2 General CLE credits.
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Colorado Springs Bankruptcy Bar Brown Bag CLE
Friday, Jan. 12, 2018, from noon to 1 p.m.
Federal Courthouse
212 N Wahsatch Ave, Courtroom 101, Colorado Springs, CO, 80903
The CBA Bankruptcy Subsection and the U.S. Bankruptcy Court for the District of Colorado are co-sponsoring a Colorado Springs brown bag lunch with Judge McNamara and Judge Rosania for practicing Colorado Springs bankruptcy attorneys. Some of the topics the judges will address include current bankruptcy issues and the recent local rules changes. Please attend to share your ideas, suggestions, questions, issues and concerns on case management, court procedures, and general practice matters.
There is no cost to attend.
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Spring Bankruptcy Case Law Update
Save the Date: Wednesday, April 11, 2018, from 4 to 6 p.m.
CBA-CLE, 1900 Grant St., 3rd Floor, Denver, CO 80203
This update will be presented by the Hon. Judge Kimberley H. Tyson (U.S. Bankruptcy Court), and two local practitioners.
This program has been submitted for 2 general CLE credits, with a complementary networking reception to follow.
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Bankruptcy Subsection Co-Chairs
Matthew Faga (Markus Williams Young & Zimmermann LLC) and Timothy Swanson (Moye White LPP) are the current co-chairs of the Bankruptcy Subsection (July 2017 – June 2019). If you have ideas, suggestions or comments for future subsection events or CLEs, please contact Matt at [email protected] and Tim at [email protected].
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Financial Institutions Subsection Programs
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Hot Topic: Statute of Limitations (Sword or Shield?)
Live Program & Live Webcast
Wednesday, Nov. 15, noon – 1 p.m.
CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203
In recent months, several Colorado borrowers have filed lawsuits seeking to extinguish deeds of trust on their residences based upon the expiration of the statute of limitations. The fact scenarios involve one or more prior withdrawn foreclosures, repeated loss mitigation efforts and a last payment more than six years prior to the lawsuit. While statute of limitations issues are frequently raised by borrowers in connection with Rule 120 hearings, the latest filings can be attributed to one borrower’s success in an unpublished appellate ruling on a motion to dismiss based upon a 1909 Colorado Supreme Court case. This presentation will discuss the statute of limitations, tolling and re-starting of the statute of limitations and case law developments.
Offered for 1 General CLE credit.
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Legal Ethics: Recent Developments, Trends and Recurring Issues
Live Program & Live Webcast
Wednesday, Dec. 20, from noon to 1 p.m
CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203
Practicing in the financial institutions arena can lead to a number of ethical issues involving, but not limited to, dishonesty and pretextual investigations, technology, confidentiality, cybersecurity, conflicts of interest, corporate family conflicts, former client conflicts, communicating with pro se litigants, and limited scope representation.
Presented by Cecil E. Morris, Jr., Fairfield and Woods P.C.
Offered for 1 General CLE credit including 1 Ethics credit.
Registration opens soon!
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International Transactions Subsection Programs
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Navigating Ethical Challenges When Dealing with Foreign Revenue Authorities
Live Program & Live Webcast
Tuesday, Dec. 12, from noon to 1 p.m.
CBA-CLE, 1900 Grant St., 3rd Floor, Denver, CO 80203
With the increasing globalization of the economy, the need to navigate foreign laws and interact with regulatory bodies abroad is ever present. This seminar will focus on the ethical obligations borne by US attorneys when dealing with tax authorities in foreign jurisdictions. The topics canvassed in this interactive session will include (i) the limitations imposed on practitioners when making submissions on behalf of clients to foreign revenue authorities, (ii) the special obligations that arise in negotiating settlements with a foreign revenue authority, and (iii) the unique reporting requirements and liabilities that can be imposed on advisors in the context of aggressive or complex tax planning. A case study will be used to illustrate the practical challenges that can arise in dealing with foreign revenue authorities, particularly when serving a client that may wish to adopt a less than forthright approach to disclosure.
Presented by Michael Friedman and Todd Miller, McMillan LLP, Toronto, Ontario, Canada
Offered for 1 General CLE credit, including 1 Ethics credit.
Registration opens soon!
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M&A Subsection Programs
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How to Optimize Long-Term Success
Live Program & Live Webcast
Tuesday, Nov. 7, from 8 to 9 a.m.
CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203
This one-hour program provides information you need and can use right away, and focuses on how to best help your clients maximize the value of their businesses for a sale. Learn what your clients need to be doing today and every day to receive top dollar for their businesses. It also provides you with a “to do” list for your business clients when they are considering an exit, and tips on an orderly exit for those clients. Impacts on the purchase price of a business are also discussed.
Offered for 1 General CLE credit.
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Good M&A Attorneys and What We Love to See in a Deal
Live Program & Live Webcast
Tuesday, Dec. 12, from 8 to 9 a.m.
CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203
Hear from investment bankers about what really works and doesn’t work, and why, at the Pre Deal and Deal Process stages and during Purchase Agreement negotiations. Best practices for process preparation, moving the ball forward, and purchase agreement negotiations are included in the discussion.
Presented by Adam Fiedor, Managing Director, and Jim Williams, Vice President, GLC Advisors & Co., LLC
Registration opens soon!
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CBA-CLE Upcoming Programs
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2017 Ethics 7.0
All your Ethics credits in one day!
Live Program & Live Webcast
Friday, Nov. 10, 9 a.m. – 4:30 p.m.
CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203
Get the latest information on a wide variety of legal ethics and malpractice issues. Gain insights on ethical conduct and best practices, and not so ethical conduct, from managing partners, associates, “lawyers’ lawyers,” and the Court.
Learn what to watch for and how to be careful from the malpractice perspective. Learn the pitfalls that will jeopardize your practice and prompt grievances and malpractice claims.
Submitted for 7 General CLE credits, including 7 Ethics credits.
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Practitioner’s Guide to Colorado Business Organizations – Advanced Topics
All attendees receive the new edition of Practitioner’s Guide to Colorado Business Organizations!
Live Program & Live Webcast
Thursday, Nov. 30, from 8:30 a.m. to 4:40 p.m.
CBA-CLE Classroom, 1900 Grant Street, Suite 300, Denver, CO 80203
This full day program explores some of the advanced topics discussed in the Practitioner’s Guide to Colorado Business Organizations, including presentations examining less common organizational structures such as cooperatives and public benefit corporations, corporate maintenance and ongoing review, insurance coverage issues, sale of business assets in bankruptcy, and more. All class attendees receive a copy of Practitioner’s Guide to Colorado Business Organizations, 3rd Ed.
Submitted for 8 General CLE credits.
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CBA-CLE Business Law Homestudies
2017 Business Law Institute: Institute highlights include Case Law, Legislative and Secretary of State Updates; Colorado–s Economic Outlook; Staying out of the In-House Dog House! An In-House Counsel Panel Presentation; Improve Your Skill at the Bargaining Table; and Third Party Legal Opinions and Customary Practice: Offering Advice to One Not Your Client — Learn more
2017 Securities Conference — Learn more
2017 Institute on Advising Nonprofit Organizations — Learn more
Bankruptcy Case Law Update — Learn more
2017 Cannabis Symposium — Learn more
Limited Liability Companies in Colorado — Learn more
View our complete catalog of CLE Homestudies on our website and search by practice area or credits!
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Contributions for future newsletters are welcome.
Contact Ed Naylor at [email protected], 303-292-2900.
This newsletter is for information only and does not provide legal advice.
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