McWhinney Centerra Lifestyle Center LLC v. Poag & McEwen Lifestyle Centers-Centerra LLC.
2021 COA 2. No. 19CA0438. Torts—Intentional Torts—Fraudulent Concealment—Intentional Interference with Contractual Obligations—Intentional of Breach of Contract—Economic Loss Rule—Delaware Law—Breach of Contract.
January 14, 2021
McWhinney Holding Company, LLLP (McWhinney) and Poag and McEwen Lifestyle Centers, LLC (PMLC), through their respective subsidiaries McWhinney Centerra Lifestyle Center LLC (MCLC) and Poag & McEwen Lifestyle Centers-Centerra LLC (P&M), formed Centerra LLC to acquire, develop, own, and operate an upscale shopping center. MCLC provided the capital, land, and an established public-private partnership with city and county entities for infrastructure financing. P&M served as the managing member of the joint venture. An operating agreement (the Agreement) was created to govern Centerra LLC. MCLC and P&M signed the Agreement, and McWhinney and PMLC signed as guarantors of certain provisions.
The joint venture failed, and MCLC sued P&M, asserting a breach of contract claim based on the Agreement and seven tort claims. Four of the tort claims were dismissed. After a bench trial, the district court concluded that P&M breached both its fiduciary duties and contractual obligations under the Agreement, and it awarded $42,006,032.50 to MCLC in damages plus interest.
On appeal, P&M contended that the district court erred when it found P&M breached the Agreement because the court improperly (1) imposed fiduciary duties on P&M, (2) found that P&M breached its obligations under the Agreement, and (3) calculated damages. The Court of Appeals applied Delaware law as required by the Agreement. Delaware LLC managers owe traditional fiduciary duties of loyalty and care to an LLC and its managers, and nothing in the Agreement eliminated those duties. Therefore, P&M owed the fiduciary duties of care and loyalty to MCLC under the Agreement. Second, a party is excused from performance of its contractual obligations if the other party commits a material breach of the contract. Here, the district court properly found that P&M breached its obligations under the Agreement on multiple occasions, including when it (1) purchased a forward swap on behalf of Centerra LLC; (2) entered into a $40 million mezzanine loan and purposefully withheld, concealed, and misrepresented material facts about the loan and its effect on Centerra LLC’s operations to get MCLC’s consent; and (3) failed to secure permanent financing. Finally, the district court’s method of calculating damages complied with Delaware’s law on expectation damages.
On cross-appeal, MCLC contended that the district court erred by dismissing MCLC’s common law intentional tort claims after applying the economic loss rule. The Agreement’s choice of law provision applies only to contract claims, and the related tort claims are governed by Colorado law. In Colorado, the economic loss rule provides that a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for the breach without an independent duty of care under tort law. In most instances the economic loss rule will not bar intentional tort claims. Here, the district court erred when it applied the economic loss rule to bar MCLC’s common law intentional tort claims of fraudulent concealment, intentional interference with contractual obligations, and intentional inducement of breach of contract because each of these claims stems from a duty based in tort law independent of the Agreement. However, the economic loss rule barred MCLC’s civil conspiracy claim because as signatories to the contract, P&M and PMLC’s duty not to conspire to breach the contract stemmed solely from the Agreement itself.
The judgment and award of damages in the breach of contract claim were affirmed. The order dismissing MCLC’s tort claim of civil conspiracy was affirmed, but the order dismissing MCLC’s tort claims of fraudulent concealment, intentional interference with contractual obligations, and intentional inducement of breach of contract were reversed. The case was remanded for further proceedings on those claims.