Opinion
Civil Action 1:22-cv-01762-RM-SBP and
08-18-2023
EAGLEBANK, Plaintiff/Counterclaim Defendant, v. YAJIA HU SCHWARTZ AND MARK ALAN SCHWARTZ, Defendants/Counterclaimants, and TAX LIEN LAW GROUP, LLC, Counterclaimant, YAJIA HU SCHWARTZ, Cross-Plaintiff, JAMES ADAMS, CHRISTINA ADAMS, MICHAEL K. HAGEMANN, and M.K. HAGEMANN, P.C., Cross-Defendants, JAMES ADAMS, and CHRISTINA ADAMS, Third-Party Plaintiffs, v. YAJIA HU SCHWARTZ, MARK ALAN SCHWARTZ, EAGLEBANK, and TITLE COMPANY OF THE ROCKIES, LLC, Third-Party Defendants.
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE TO GRANT MOTION TO DISMISS (ECF NO. 29)
SUSAN PROSE, UNITED STATES MAGISTRATE JUDGE
The resolution of the motion to dismiss now pending before this court hinges on this question: whether a seller can force buyers to purchase property-after a title commitment revealed that the property is encumbered by a judgment in excess of three-and-a-half million dollars-where the purchase contract gives the buyers the right to terminate the contract in their “sole subjective discretion, based on any title matters.” The court finds that the answer to this question, as a matter of law, is no. The court further concludes that the seller has failed to state any plausible claim for relief against the buyers. The court therefore respectfully RECOMMENDS that the buyers' motion to dismiss, EB ECF No. 29, be granted, and the seller's claims against the buyers DISMISSED WITH PREJUDICE.
The above-captioned case, which is referred to herein as the “Lead Case,” was consolidated on October 14, 2022, with Case No. 1:22-cv-00930-RM-SBP, captioned Schwartz v. James and Christina Adams Family Trust (the “Adams Case”). This recommendation refers to filings from both cases. Docket entries from the Lead Case will be referred to herein as “EB [for “EagleBank”] ECF No.__,” and docket entries from the Adams Case will be referred to herein as “Adams ECF No. __.”
BACKGROUND
James and Christina Adams are the potential buyers in the scenario described above. Yajia Hu Schwartz, the nominal owner of the property, is the seller. Ms. Schwartz sued the Adamses and their attorney, Michael K. Hagemann, and his law firm, M.K. Hagemann, P.C., after the Adamses refused to proceed with the purchase of the property. For the sake of simplifying the tangle of claims, cross-claims, and counter-claims among the numerous parties to this action, the court collectively refers to the Adamses, their attorney, and his law firm as the “Cross-Defendants.”
I. Procedural History
The court begins by chronicling those aspects of the procedural history of this action relevant to the Cross-Defendants' motion to dismiss now pending a recommendation by this court. See EB ECF No. 29 (hereafter, “Motion to Dismiss,” “Motion,” or “Mot.”).
On April 18, 2022, Ms. Schwartz filed a complaint against the Cross-Defendants in the Adams Case (Adams ECF No. 1). The next day, she filed an amended complaint. Adams ECF No. 7. In this recommendation, the court refers to the complaint docketed at Adams ECF No. 7, which is the operative complaint against the Cross-Defendants and the target of their Motion to Dismiss, as the “Complaint” or “Compl.” In it, Ms. Schwartz purports to bring claims against the Cross-Defendants for breach of contract, specific performance, slander of title, fraud in the inducement, rescission of an “invalid amendment,” and declaratory judgment. Id. ¶¶ 50-115.
While Ms. Schwartz claims that she amended her complaint against the Cross-Defendants a second time in a document labeled “Answer, Counterclaims, and Third Party Complaint,” Adams ECF No. 26, that document is not an amended complaint and has never been accepted by the court as such. Having amended her pleading once “as a matter of course” on April 19, 2022, Ms. Schwartz could amend her complaint again only with the consent of the opposing parties or upon motion granted by this court. See Fed.R.Civ.P. 15(a)(2). Moreover, she would have been required to submit with a motion for leave to amend the proposed amended complaint, highlighting all alterations. See D.C.COLO.LCivR 15.1(a), (b). Ms. Schwartz did not submit an amended pleading that complies with these rules-a failure highlighted by her strained argument that she somehow alerted the court to her intention to have the “Answer, Counterclaims, and Third Party Complaint” function as a de facto amended complaint. See EB ECF No. 35 at 3. The Complaint, docketed at Adams ECF No. 7, therefore remains the operative pleading. The court notes that the “Answer, Counterclaims, and Third Party Complaint” purports to assert claims against the Cross-Defendants on behalf of “Yajia, Mark, their Trusts, and Mark's law firm, TLLG[.]” ECF No. 26 ¶ 11. Any claims brought by “Mark, their Trusts, and Mark's law firm” would not be able to succeed where Ms. Schwartz's claims have not, for the same reasons explained herein.
An interpleader claim seeking the deposit of the Adamses' earnest money, Compl. ¶¶ 45-49, is moot. The funds were deposited into the court's registry on June 24, 2022. Adams ECF No. 24 (Order Granting Unopposed Motion to Interplead Disputed Funds); Adams ECF No. 25 (Confirmation of Payment Received).
The Cross-Defendants first moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on May 25, 2022, see Adams ECF No. 15, but when the Adams Case and the Lead Case were consolidated on October 14, 2022, United States District Judge Raymond Moore denied that motion without prejudice “subject to re-filing in light of the consolidation.” Adams ECF No. 54 at 3. On November 8, 2022, the Cross-Defendants again moved to dismiss the Complaint. Ms. Schwartz filed a response in opposition to the Motion on December 12, 2022 (“Resp.”), EB ECF No. 35, and the Cross-Defendants filed a reply on January 6, 2023 (“Reply”). EB ECF No. 40.
The court does not find that the Motion to Dismiss was untimely filed, as Ms. Schwartz argues. See EB ECF No. 35 at 4-5. Judge Moore did not designate a date by which a renewed motion to dismiss was required to be filed, and the Federal Rules of Civil Procedure do not specify a deadline by which a party must refile a motion to dismiss after consolidation of cases. The Cross-Defendants filed the Motion to Dismiss twenty-five days later, which does not constitute an unreasonable delay.
Plaintiff/Counterdefendant/Third-Party Defendant EagleBank also filed a response to the Motion to Dismiss (EB ECF No. 30) and a reply to the Opposition (EB ECF No. 36). However, EagleBank took no position on the Motion to Dismiss and did not address the arguments made by the Cross-Defendants. See EB ECF No. 36 at 3. The court thus understands EagleBank to have voiced no opposition to the relief sought by the Cross-Defendants in the Motion to Dismiss.
II. Facts
Ms. Schwartz seeks, at bottom, compensation for a failed real estate transaction between herself and the Adamses to purchase a home located in Edwards, Colorado (the “Property”). The court draws the following well-pleaded facts from the Complaint, the briefing on the Motion, and other information it is authorized to consider in evaluating a motion to dismiss under Rule 12(b)(6):
A. The $10 Transfers of the Property to Ms. Schwartz by Quit Claim Deeds
The Property was transferred from the Mark Alan Schwartz Revocable Living Trust-Mark Alan Schwartz is Ms. Schwartz's husband and her attorney in this action-“by its Grantor and Trustee, Mark A. Schwartz” to Axis Investment Holdings Trust (the “Axis Trust”) c/o “Yajia Hu-Schwartz, Trustee” on June 20, 2016, for ten dollars. See 6/20/2016 Quitclaim Deed, Eagle Cty., Colo. Doc. No. 201609829, available at https://acclaim.eaglecounty.us/; see also EB ECF No. 19-2 (copy of 6/20/2016 Quitclaim Deed). Mark Schwartz was also a co-Trustee and “Original Settlor” of the Axis Trust. See 10/30/2020 Quitclaim Deed, Eagle Cty., Colo. Doc. No. 202112157 (“2020 Quitclaim Deed”), available at https://acclaim.eaglecounty.us/; see also EB ECF No. 19-4 (copy of 2020 Quitclaim Deed).
The court may take judicial notice of these public records and consider them in recommending a ruling on the Motion to Dismiss without converting the Motion to one for summary judgment. See Fed.R.Evid. 201; see also, e.g., Tal v. Hogan, 453 F.3d 1244, 1264 n.24 (10th Cir. 2006) (“facts subject to judicial notice may be considered in a Rule 12(b)(6) motion without converting the motion to dismiss into a motion for summary judgment”); McGregor v. Gibson, 248 F.3d 946, 955 (10th Cir. 2001) (noting that a court may take judicial notice of public records); Cunningham v. Bank of Am., N.A., No. 12-cv-03316-MSK-GPG, 2013 WL 2455945, at *2 (D. Colo. June 6, 2013) (taking judicial notice of facts “contained within documents filed with the Mesa County Clerk and Recorder”).
The Property was transferred again on October 30, 2020, this time from the Axis Trust to the Yajia Hu Schwartz Revocable Trust for ten dollars (the “2020 Transfer”). See 2020 Quitclaim Deed.
B. The Real Estate Contract
There is no dispute regarding the substance of the Contract to Buy and Sell Real Estate (the “Contract”), which was executed by Ms. Schwartz and the Adamses on January 30, 2022. See Compl. Ex. A, Adams ECF No. 7-1 (“Contract to Buy and Sell Real Estate”) and Compl. Ex. B, Adams ECF No. 7-2 (“Contract Counterproposal”). The Closing Date was originally set for April 4, 2022. Contract Counterproposal § 3.1. The Contract is a form agreement that has been approved by the Colorado Real Estate Commission and is required for use by licensed real estate brokers in Colorado. See Code of Colo. Regulations, 4 C.C.R. 725-1-7-1 (“A Broker must use a Commission-Approved Form when such form exists and is appropriate for the transaction.”); Commission Approved Contracts, COLO. DEP'T OF REGULATORY AGENCIES DIV. OF REAL ESTATE, https://dre.colorado.gov/real-estate-broker-contracts-and-forms (last visited Aug. 15, 2023).
In evaluating the Motion to Dismiss, the court may consider documents attached as exhibits or incorporated by reference into the pleadings, including the Contract documents here. Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). Unless otherwise noted, the terms of the Contract Proposal and the Contract Counterproposal that are relevant to this dispute are identical. The court will refer to these documents collectively as the “Contract” unless specifically discussing changes made in the Contract Counterproposal.
The court may take judicial notice of information on an agency's website and does so here. See, e.g., Winzler v. Toyota Motor Sales U.S.A., Inc., 681 F.3d 1208, 1212-13 (10th Cir. 2012) (taking judicial notice of the existence of “documents filed with [an agency] and now available on the agency's public website”).
The Contract includes the following terms that bear on the issues raised in the Motion to Dismiss:
1. Earnest Money . The Adamses were required to (and did) provide $120,000 in Earnest Money. ECF No. 7-1, Contract § 4.1, Compl. ¶ 11. According to the Contract, “[i]f the Buyer has a right to Terminate and timely terminates, Buyer is entitled to the return of Earnest Money as provided in this Contract.” Contract § 4.3.2.
2. Title Objections and Termination. The Contract provides that Ms. Schwartz was obligated to furnish title insurance for the Property:
8.1. Evidence of Record Title.
[X] 8.1.1. Seller Selects Title Insurance Company. If this box is checked. Seller will select the title insurance company to furnish the owner s title insurance policy at Seller's expense. On or before Record Title Deadline, Seller must furnish to Buyer, a current commitment for an owner s title insurance policy (Title Commitment), in an amount equal to the Purchase Price, or if this box is checked, [ ] an Abstract of Title certified to a current date. Seller will cause the title insurance policy to be issued and delivered to Buyer as soon as practicable at or after Closing.
[ ] 8.1.2. Buyer Selects Title Insurance Company. If this box is checked, Buyer will select the title insurance company to furnish the owner s title insurance policy at Buyer's expense. On or before Record Title Deadline, Buyer must furnish to Seller, a current commitment for owner's title insurance policy (Title Commitment), in an amount equal to the Purchase Price.
If neither box in S 8.1.1. or § 8.1.2. is checked. § 8.1.1. applies. Id. § 8.1.1; see also Contract Counterproposal § 3.1 (setting Record Title Deadline of February 7, 2022). And “[i]f the Title Insurance Commitment is not satisfactory to Buyer, Buyer has a right to object under § 8.7[.]” Contract § 8.1.3. Section 8.2 of the Contract states:
8.2. Record Title. Buyer has the right to review and object to the Abstract of Title or Title Commitment and any of the Title Documents as set forth in § 8.7. (Right to Object to Title, Resolution) on or before Record Title Objection Deadline. Buyer's objection may be based on any unsatisfactory form or content of Title Commitment or Abstract of Title, notwithstanding § 13, or any other unsatisfactory title condition, in Buyer's sole subjective discretion. If the Abstract of Title, Title Commitment or Title Documents are not received by Buyer on or before the Record Title Deadline, or if there is an endorsement to the Title Commitment that adds a new Exception to title, a copy of the new Exception to title and the modified Title Commitment will be delivered to Buyer. Buyer has until the earlier of Closing or ten days after receipt of such documents by Buyer to review and object to: (1) any required Title Document not timely received by Buyer, (2) any change to the Abstract of Title, Title Commitment or Title Documents, or (3) any endorsement to the Title Commitment. If Seller receives Buyer's Notice to Terminate or Notice of Title Objection, pursuant to this § 8.2. (Record Title), any title objection by Buyer is governed by the provisions set forth in § 8.7. (Right to Object to Title, Resolution). If Seller has fulfilled all Seller's obligations, if any, to deliver to Buyer all documents required by § 8.1. (Evidence of Record Title) and Seller does not receive Buyer s Notice to Terminate or Notice of Title Objection by the applicable deadline specified above. Buyer accepts the condition of title as disclosed by the Abstract of Title, Title Commitment and Title Documents as satisfactory. Id. Section 8.7 provides the Adamses with “a right to object or terminate, in Buyer's sole subjective discretion, based on any title matters including those matters set forth in” Sections 8.2, 8.3, 8.5, and 13. Id. § 8.7 (emphasis added). It further provides:
8.7.1. Title Objection, Resolution. If Seller receives Buyer s written notice objecting to any title matter (Notice of Title Objection) on or before the applicable deadline and if Buyer and Seller have not agreed to a written settlement thereof on or before Title Resolution Deadline, this Contract will terminate on the expiration of Title Resolution Deadline, unless Seller receives Buyer's written withdrawal of Buyer's Notice of Title Objection (i.e., Buyer's written notice to waive objection to such items and waives the Right to Terminate for that reason), on or before expiration of Title Resolution Deadline If either the Record Title Deadline or the Off-Record Title Deadline, or both, are extended pursuant to § 8.2 (Record Title) or § 8.3. (Off-Record Title) the Title Resolution Deadline also will be automatically extended to the earlier of Closing or fifteen days after Buyer's receipt of the applicable documents; or
8.7.2. Title Objection, Right to Terminate. Buyer may exercise the Right to Terminate under § 24.1., on or before the applicable deadline, based on any title matter unsatisfactory to Buyer, in Buyer's sole subjective discretion. Id. According to the Contract, if either party “has a right to terminate, as provided in this Contract . . . the termination is effective upon the other party's receipt of a written notice to terminate (Notice to Terminate) provided such written notice was received on or before the applicable deadline specified in this Contract.” Id. § 24.1.
3. Remedies in the Event of Breach. The Contract provides specific remedies in the event of a breach. Section 20.1 in particular outlines the available remedies if the Buyer is in default:
20.1. If Buyer is in Default:
[ ] 20.1.1. Specific Performance. Seller may elect to cancel this Contract and all Earnest Money (whether or not paid by Buyer) will be paid to Seller and retained by Seller. It is agreed that the Earnest Money is not a penalty, and the Parties agree the amount is fair and reasonable. Seller may recover such additional damages as may be proper. Alternatively, Seller may elect to treat this Contract as being in full force and effect and Seller has the right to specific performance or damages, or both.
20.1.2. Liquidated Damages, Applicable. This § 20.1.2. applies unless the box in § 20.1.1. is checked . Seller may cancel this Contract, All Earnest Money (whether or not paid by Buyer) will be paid to Seller and retained by Seller, It is agreed that the Earnest Money amount specified in § 4,1. is LIQUIDATED DAMAGES and not a penalty, which amount the parties agree is fair and reasonable and (except as provided in §§ 10.4. and 21), such amount is SELLER S ONLY REMEDY for Buyer's failure to perform the obligations of this Contract. Seller expressly waives the remedies of specific performance and additional damages. Id. § 20.1.1-2. The box allowing for specific performance or damages in excess of the Earnest Money was not checked by the parties.
C. The Title Dispute
On February 2, 2022, Land Title Guarantee Company (“LTGC”) issued a Title Commitment for the Property (the “LTGC Title Commitment”). See Compl. Ex. D, Adams ECF No. 7-4. The original LTGC Title Commitment required the “release of the deed of trust dated June 06, 2003 from Mark A. Schwartz and Wendy R. Schwartz to the Public Trustee of Eagle County for the use of Bank of America, N.A. to secure the sum of $1,000,000.00 recorded June 11, 2003, under reception no. 836327” (the “Bank of America Debt”). LTGC Title Commitment at 4. It also required the “release of deed of trust dated March 30, 2007 from Mark A. Schwartz and Wendy R. Schwartz to the Public Trustee of Eagle County for the use of Countrywide Home Loans, Inc. to secure the sum of $1,850,000.00 recorded April 05, 2007, under reception no. 200708827.” Id. at 5.
For ease of reading, capitalization in the LTGC Commitment and other exhibits referenced here is removed.
A number of amendments, or endorsements, were attached to the LTGC Title Commitment after its February 2, 2022 issue date. The court summarizes the relevant timeline here:
March 17, 2022: Bank of America filed a Notice of Election and Demand For Sale by Public Trustee of Eagle County, Colorado, “placing the [P]roperty in foreclosure.” Compl. ¶ 15, and Ex. I, Adams ECF No. 7-9. Bank of America sought repayment of the remaining $659,776.78 of the Bank of America Debt. Id. The LTGC Title Commitment was thereafter revised on March 23, 2022, to include a requirement of “proper withdrawal of notice of election and demand for sale by the Public Trustee recorded March 17, 2022 under reception no. 202204403 pursuant to the foreclosure of deed of trust recorded June 11, 2003, under reception no. 836327.” Compl. ¶ 16 and Ex. J, Adams ECF No. 7-10 at 5.
March 30, 2022: The LTGC Title Commitment was again revised, this time adding an amendment for a “certificate of satisfaction issued by the Clerk of Combined Courts of Judgment in favor of Eagle Bank c/o Benjamin P. Smith of Shulman, Rogers, Gandal, Pordy & Ecker, P.A. against Tax Lien Law Group, LLC, in the amount of $3,534,029.08 plus court costs entered on January 30, 2020, transcript of which was recorded March 07, 2022, under reception no. 202203811, Civil Action No. 2022CV30022, Combined Court in and for the County of Eagle.” Compl. ¶ 17 and Ex. L, Adams ECF No. 7-12, at 5-6.
The Cross-Defendants and Ms. Schwartz do not dispute that this amendment to the LTGC Title Commitment refers to a $3,534,029.08 Judgment by Confession entered against Tax Lien Law Group (Mark Schwartz's law firm), Mark Schwartz himself, and the Axis Trust “jointly and severally” in favor of EagleBank. See 1/29/2020 Judgment by Confession, EagleBank v. Tax Lien Law Grp., LLC, No. V478002 (Cir. Ct. Md. Montgomery Cty.) (the “EagleBank Judgment”); see also Resp. at 9. The foreign EagleBank Judgment had been filed by EagleBank in the Eagle County Combined Courts on February 24, 2022. See Notice of Filing of Foreign Judgment, Case No. 2022CV30022.
As noted above, the court may take judicial notice of facts which are a matter of public record, including filings in other court proceedings. Binford v. United States, 436 F.3d 1252, 1256 n.7 (10th Cir. 2006).
March 30, 2022: Ms. Schwartz notified the Adamses of the EagleBank Judgment and the amendment to the LTGC Title Commitment. Resp. at 9.
April 1, 2022: Two days after the amendment to the LTGC Title Commitment triggered by the revelation of the $3.5 million judgment against Mark Schwartz and entities related to him, Ms. Schwartz was forced to secure a new Title Commitment from another title company: this time, from Title Company of the Rockies (“TCR”) as an agent for Chicago Title Company (the “TCR-Chicago Title Commitment”). Compl. ¶ 18.
April 4, 2022: Ms. Schwartz and the Cross-Defendants agreed to an amendment to the Contract. Compl. Ex. S, Adams ECF No. 7-19 (the “Contract Amendment”). The Contract Amendment, which was executed on April 4, 2022, provided that the new closing date would be April 8, 2022. Contract Amendment at 2. It also provided a new Record Title Objection Deadline of April 7, 2022, and a Title Resolution Deadline of April 8, 2022. Id. at 1.
The Contract Amendment also included the following language, which mirrors the language from § 8.7 of the Contract: “The parties further specifically agree that if any Title Objection is not resolved in Buyers' sole subjective discretion by the Title Resolution Deadline included herein, the Contract shall terminate and the Buyers shall be entitled to the return of their Earnest Money within three business days.” Contract Amendment at 2 (emphasis added).
D. The Notice to Terminate the Contract
Following the Contract Amendment, Mr. Hagemann, the Adamses' attorney, reached out to TCR-Chicago on April 5, 2022, requesting that TCR-Chicago “revise the standard language of the Owner's Policy Jacket.” Compl. ¶ 36. TCR-Chicago denied the request and informed Ms. Schwartz the same day (on April 5, 2022) that it had “now declined to commit to insure the pending transaction.” Compl. ¶ 36.
In the Motion to Dismiss, the Cross-Defendants assert that Mr. Hagemann requested “additional language in the standard insurance binder to clarify Chicago Title Company's intent to indemnify the Adams Defendants from any potential fraudulent transfer claim arising out of their purchase of the Property,” Mot. at 11, but that statement is not reflected in the Complaint or any of its attachments and therefore is not considered by the court here.
As a result, the Adamses tendered to Ms. Schwartz a Notice to Terminate on April 5, 2022. Id. ¶ 38. The Notice to Terminate was therefore provided six days after the Adamses learned of the March 30, 2022 endorsement to the LTGC Title Commitment concerning the EagleBank Judgment, two days before the amended Record Title Objection Deadline, and three days before the amended Closing Date.
On April 5, 2022, EagleBank filed a Complaint against the Yajia Hu Schwartz Revocable Trust and the Axis Trust, alleging that the 2020 Transfer “was made with actual intent . . . to hinder, delay or defraud EagleBank as a creditor” by placing the Property “beyond the reach of EagleBank via the EagleBank Judgment so that EagleBank had no means of collecting upon the EagleBank Judgment.” See EB ECF No. 19 ¶ 25. EagleBank seeks avoidance of the 2020 Transfer to allow it to obtain the Property from the Axis Trust in satisfaction of the EagleBank Judgment. EagleBank's claims will not be resolved by the disposition of the Cross-Defendants' Motion to Dismiss.
RULE 12(b)(6) STANDARD
Under Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a motion under Rule 12(b)(6), the court must “accept as true all well-pleaded factual allegations . . . and view these allegations in the light most favorable to the plaintiff.” Casanova v. Ulibarri, 595 F.3d 1120, 1124-25 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). Nevertheless, a plaintiff may not rely on mere labels or conclusions, “and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citation omitted). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Id. (internal quotation marks omitted). That is, the complaint must include well-pleaded facts that, taken as true, “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
The Twombly/Iqbal pleading standard first requires the court to identify which allegations “are not entitled to the assumption of truth” because, for example, they state legal conclusions or merely recite the elements of a claim. Id. at 679. It next requires the court to assume the truth of the well-pleaded factual allegations “and then determine whether they plausibly give rise to an entitlement to relief.” Id. In this analysis, courts “disregard conclusory statements and look only to whether the remaining factual allegations plausibly suggest the defendant is liable.” Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012). Additionally, “factual allegations that contradict . . . a properly considered document are not well-pleaded facts that the court must accept as true.” Peterson v. Martinez, 707 F.3d 1197, 1206 (10th Cir. 2013) (internal citation omitted). The ultimate duty of the court is to “determine whether the complaint sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed.” Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007).
ANALYSIS
In six variously-labeled claims-all fundamentally resting on a breach-of-contract theory-Ms. Schwartz seeks to compel the Cross-Defendants to purchase the Property, clouded as it is by a $3.5 million dollar judgment lien. This court concludes that, as a matter of law, the Adamses had a right to terminate the Contract and that Ms. Schwartz therefore has not alleged facts plausibly giving rise to an entitlement to relief against the Cross-Defendants. The court analyzes each claim, in turn, in the order in which they are presented in the Complaint.
I. Claim II: Breach of Contract Against the Adamses
Ms. Schwartz asserts that the Adamses breached the Contract by refusing to close and proceed with the purchase of the Property. See Compl. ¶¶ 50-61.
The elements of breach of contract under Colorado law are: (1) the existence of a contract; (2) performance by the plaintiff or some justification of non-performance; (3) failure to perform by the defendant; and (4) resulting damages to the plaintiff. See, e.g., Adams Cty. Hous. Auth. v. Panzlau, 527 P.3d 440, 450 (Colo.App. 2022). The well-pleaded facts plausibly allege three of the four elements: the existence of the Contract; that she “performed all that was required of her under the contract, and stood ready to perform and deliver the Property at closing[;]” and that she sustained damages when the Adamses declined to purchase the Property. Compl. ¶¶ 57, 59-60. However, the claim is subject to dismissal because Ms. Schwartz has not set forth sufficient facts to plausibly support the “failure to perform” element of her breach of contract claim, where the Adamses were legally entitled to terminate the Contract. See Mot. at 6-7.
The Contract provides: “This Contract and all disputes arising hereunder are governed by and construed in accordance with the laws of the state of Colorado[.]” Contract § 26.4. Additionally, “except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in [diversity cases] is the law of the forum state.” McGehee v. Forest Oil Corp., 908 F.3d 619, 624 (10th Cir. 2018) (quoting Erie R.R. v. Thompkins, 304 U.S. 64, 78 (1938)) (cleaned up). Because Ms. Schwartz's claims arise out of state law, Colorado law applies.
“The overriding rules of contract interpretation require a court to apply the plain meaning of the words used . . . subject to interpretation from the context and circumstances of the transaction.” First Christian Assembly of God v. City & Cty. of Denver, 122 P.2d 1089, 1092 (Colo.App. 2005). A contractual term is ambiguous only “if it is susceptible on its face to more than one reasonable interpretation.” Am. Family Mut. Ins. Co. v. Hansen, 375 P.3d 115, 121-22 (Colo. 2016). A court will not consider extraneous evidence to prove intent absent some ambiguity in the contract itself. Id. at 121.
Here, the court finds no ambiguity in the Contract, which gave the Adamses the right to object to either of the Title Commitments (the LTGC Title Commitment and the TCR-Chicago Title Commitment) if the Commitments were “not satisfactory” to them. Contract § 8.1.3. The Contract further specifies that the Adamses had “the right to review and object to the . . . Title Commitment” for “any unsatisfactory title condition, in Buyer 's sole subjective discretion.” Id. § 8.2 (emphasis added). In the event there was an endorsement to the Title Commitments, the Adamses had “until the earlier of Closing or ten days after receipt of [the endorsement] to object to . . . any change to the . . . Title Commitment.” Id. And Section 8.7 conferred on the Adamses “a right to object or terminate, in Buyer S sole subjective discretion, based on any title matters including those matters set forth in” Sections 8.2, 8.3, 8.5, and 13. Id. § 8.7 (emphasis added).
The timeline derived from the well-pleaded facts does not permit this court to infer a breach by the Adamses. They received the endorsement to the LTGC Title Commitment on March 30, 2022-their first notice that the Property was encumbered by the $3.5 million EagleBank Judgment-just five days before the April 4, 2022 Closing Date. Mot. at 7. Upon learning of the exception, the Adamses had until closing on April 4, 2022, to object to the “change to the [TCR-Chicago] Title Commitment.” Contract § 8.2. Indeed, the Adamses had a right to terminate the Contract on March 30, 2022, “in [their] sole subjective discretion,” given the emergence of this “title matter.” Contract § 8.7.
The facts show that the Adamses did not call an immediate halt to the deal (though they could have done so pursuant to the Contract terms) but instead negotiated with Ms. Schwartz to extend the Closing Date from April 4, 2022 to April 8, 2022. See Contract Amendment. The last straw for the Adamses came on April 5, 2022, when they were informed that TCR-Chicago refused to amend the Title Commitment as requested. See Compl. ¶ 36 (Schwartz informed by TCR-Chicago that they “now declined to commit to insure the pending transaction”). When the Adamses submitted the Notice to Terminate on April 5, 2022, they thus were in compliance with the terms of the Contract Amendment affording them the “sole subjective discretion” to terminate the Contract by the Title Resolution Deadline of April 8, 2022. Contract Amendment at 1-2.
Finally, the court notes Ms. Schwartz's assertion that the Adamses breached “implied duties of good faith and fair dealing in slandering Plaintiff's title in order to intentionally defeat it.” Compl. ¶ 53. The slander of title allegation is addressed in the court's discussion of Ms. Schwartz's separate slander of title claim, below. Here, the court observes that this allegation states no claim for breach of contract, either express or implied.
No term in the Contract prohibits the Adamses or their counsel from communicating with TCR-Chicago to discuss the terms of the Title Commitment, and this court declines to read into the Contract a term restricting a home-buyer's ability to contact a title commitment insurer as part of its due diligence in determining whether the title is “satisfactory” to them. See Contract § 8.1.3. And because the Contract does not bar such communications, the communications likewise did not violate the covenant of good faith and fair dealing implied in every contract. See Compl. ¶ 53; see also, e.g., Cobank, ACB v. Reorganized Farmers Co-op. Ass'n, 170 Fed.Appx. 559, 565 (10th Cir. 2006) (recognizing that, under Colorado law, “the duty of good faith and fair dealing does not obligate a party to accept a material change in the terms of the contract, assume obligations that vary or contradict the contract's express provisions,” or inject substantive terms into the contract”) (quoting Wells Fargo Realty Advisors Funding, Inc. v. Uioli, Inc., 872 P.2d 1359, 1363 (Colo.App. 1994)) (cleaned up); ADT Sec. Servs., Inc. v. Premier Home Prot., Inc., 181 P.3d 288, 293 (Colo.App. 2007) (same). There are no allegations plausibly demonstrating that the Adamses acted other than in a good faith and in a reasonable manner in contacting TCR-Chicago after the endorsement for the $3.5 million EagleBank Judgment lien came to light. See, e.g., Crown Life Ins. Co. Haag Ltd. P'ship, 929 P.2d 42, 46 (Colo.App. 1996) (duty of good faith and fair dealing “requires only that the parties to a contract perform the obligations imposed by the agreement in good faith and in a reasonable manner”). The court finds no reasonable basis to infer a breach of the implied duty of good faith and fair dealing from the well-pleaded facts here.
To sum up, the facts-which include a plethora of documents whose undisputed terms governed the purchase of the Property-permit no inference of a breach by the Adamses. The court therefore recommends that Claim II be dismissed with prejudice.
The court further observes that these facts emphasize the considerations underlying the requirement that brokers in Colorado use the forms approved by the Colorado Division of Real Estate, including the form contract used by the parties here that affords prospective buyers the right to terminate the contract in their “sole subjective discretion.” See 4 C.C.R. 725-1-7-1 and https://dre.colorado.gov/real-estate-broker-contracts-and-forms. Absent such a provision, buyers could be compelled to purchase real property after learning the seller does not have marketable title to convey.
II. Claim III: Specific Performance Against the Adamses
In this claim, Ms. Schwartz seeks to compel the Adamses to specifically perform under the Contract, i.e., to force them to close and proceed with the purchase of the Property. See Compl. ¶¶ 62-64. This court concludes that Ms. Schwartz's assertion that she is entitled to specific performance contradicts the Contract itself, in which Ms. Schwartz expressly waived the right to seek specific performance. See Peterson, 707 F.3d at 1206 (“factual allegations that contradict . . . a properly considered document are not well-pleaded facts that the court must accept as true”).
The Contract provided an option for Ms. Schwartz to elect specific performance as a remedy for a potential default by the Adamses, but she declined that remedy by not checking the box:
20.1. If Buyer is in Default:
[ ] 20.1.1. Specific Performance. Seller may elect to cancel this Contract and all Earnest Money (whether or not paid by Buyer) will be paid to Seller and retained by Seller. It is agreed that the Earnest Money is not a penalty, and the Parties agree the amount is fair and reasonable. Seller may recover such additional damages as may be proper. Alternatively, Seller may elect to treat this Contract as being in full force and effect and Seller has the right to specific performance or damages, or both.
20.1.2. Liquidated Damages, Applicable. This § 20.1.2. applies unless the box in § 20.1.1. is checked . Seller may cancel this Contract. All Earnest Money (whether or not paid by Buyer) will be paid to Seller and retained by Seller. It is agreed that the Earnest Money amount specified in § 4.1. is LIQUIDATED DAMAGES and not a penalty, which amount the parties agree is fair and reasonable and (except as provided in §§ 10.4. and 21), such amount is SELLER S ONLY REMEDY for Buyer's failure to perform the obligations of this Contract. Seller expressly waives the remedies of specific performance and additional damages. Contract § 20.1.1-2.
The Contract Counterproposal contains changes to the Contract, made by Ms. Schwartz, to Sections 3.1, 4, 9.1.1-2, 15.3.3, 15.6, and 16.2. Contract Counterproposal at 3. Ms. Schwartz did not choose to amend Section 20.1.1 of the Contract. Id.
In her Complaint, Ms. Schwartz has alleged no facts permitting this court to conclude that she is entitled to specific performance in the face of a contract provision expressly disallowing that remedy. And irrespective of any allegations Ms. Schwartz could have raised, the interpretation of the Contract would still be a question of law for this court to resolve. See Carlson v. Colo. Ctr. for Reproductive Med., LLC, No. 21-cv-01528-RMR-MEH, 2023 WL 2722443, at *2 (D. Colo. Feb. 27, 2023) (“Carlson I”) (citing Coors v. Sec. Life of Denver Ins. Co., 91 P.3d 393, 2003 WL 22019815 (Colo.App. 2003)). There is no pleading around the unambiguous waiver of specific performance in the Contract.
Under Colorado law, if the language of a contract “is plain, clear and unambiguous, a contract must be enforced as written.” Carlson 1, 2023 WL 2722443, at *2 (quoting Randall & Blake, Inc. v. Metro Wastewater Reclamation Dist., 77 P.3d 804, 806 (Colo.App. 2003)), report and recommendation adopted, 2023 WL 2722443 (D. Colo. Feb. 27, 2023); see also Anderson v. Eby, 998 F.2d 858, 861-62 (10th Cir. 1993) (enforcing exculpatory contractual waiver that was clear and unambiguous). This court has “no authority to rewrite contracts and must enforce unambiguous contracts in accordance with their terms.” Randall, 77 P.3d at 806; Shaw v. Sargent Sch. Dist. No. RE-33-Jex rel. Bd. of Educ., 21 P.3d 446, 449 (Colo.App. 2001) (if the language of the contract is plain, its meaning clear, and no absurdity is involved, it must be enforced by the court as written); see also In re Parsons, 272 B.R. 735, 753 (D. Colo. 2001) (unless there is ambiguity in a contract's terms, under Colorado law a court should avoid strained interpretations, give effect to the terms according to their ordinary meaning, and enforce the contract as written). Moreover, Ms. Schwartz is presumed to have known the contents of the Contract that she signed and, absent fraud, “is not relieved from the obligations contained within the contract.” Carlson v. Colo. Ctr. For Reproductive Med., LLC, No. 21-cv-01528-RMR-MEH, 2022 WL 18777081, at *2 (D. Colo. Dec. 21, 2022) (“Carlson IE) (citing B&B Livery, Inc. v. Riehl, 960 P.2d 134, 138 n.5 (Colo. 1995)).
Here, the Contract is clear. It is unambiguous. The facts suggest no fraud or dissimulation on the part of the Adamses. It thus is clear, based on the well-pleaded facts which this court can consider in evaluating the Motion to Dismiss, that it was the parties' intention to disallow the remedy of specific performance and that this intention was clearly and unambiguously expressed in the Contract. Cf. Anderson, 998 F.2d at 862 (“If the plain language of the waiver is clear and unambiguous, it is enforced as a matter of law.”).
Indeed, as Ms. Schwartz acknowledges, “[t]he Contract was the result of negotiations between highly trained persons, who enjoyed independent legal representation during the process and sufficient resources to seek adequate legal representation.” Compl. ¶ 51. The record also demonstrates that Ms. Schwartz understood the repercussions of not checking a box, given that multiple other provisions of the Contract required a checked box. See, e.g., Contract §§ 2.7.6; 3.3.3; 4.4.3; 4.5.3; 6.4; 8.1.1; 8.1.3; 8.5; 12.2; 13; 15.2; 15.3.1-4; 15.4-8; 16.1.1; and 16.2.
While this disposes of Ms. Schwartz's specific performance claim, because this is a recommendation, the court briefly examines whether (even if the Contract did not preclude the remedy of specific performance), Ms. Schwartz's allegations otherwise plausibly would support an entitlement to such relief.The court concludes that they do not.
The Cross-Defendants did not raise any additional arguments on this issue in their Motion to Dismiss or Reply. However, a court may dismiss a case sua sponte under Rule 12(b)(6) where, as here, it finds that “it is patently obvious that the plaintiff could not prevail on the facts alleged.” E.g., Mendoza v. Macias, No. 22-2013, 2022 WL 2168325, at *1 (10th Cir. June 16, 2022) (quoting Andrews v. Heaton, 483 F.3d 1070, 1074 n.2 (10th Cir. 2007)); see also Hous. Cas. Co. v. Swinerton Builders, No. 20-cv-03558-NYW, 2022 WL 3716523, at *1-2 (D. Colo. Aug. 29, 2022) (dismissing breach of contract counterclaim sua sponte when it was “patently obvious” that the defendant could not prevail on its claims). Further, by means of this recommendation, Ms. Schwartz is receiving notice and will have an opportunity to respond to these additional bases for dismissing this claim, before a final order is entered. See infra n. 22.
Specific performance is an equitable remedy available only when there is no adequate remedy at law. Air Sols., Inc. v. Spivey, 529 P.3d 644, 658 (Colo.App. 2023) (recognizing that “[t]he primary criterion of the availability of specific performance has been the inadequacy of the legal remedy”); Schreck v. T&C Sanderson Farms, Inc., 37 P.3d 510, 515 (Colo.App. 2001) (“Equity will not decree specific performance of a contract to convey land if there is an adequate remedy at law.”). “The right to specific performance is not absolute. Whether the remedy should be granted depends upon the equities of the case and rests within the sound discretion of the trial court.” Schreck, 37 P.3d at 515 (internal citations omitted). Here, Ms. Schwartz has an adequate remedy at law and is pursuing it: damages for breach of contract in excess of $5 million, even though the purchase price for the Property in the Contract was only $3.8 million. If she succeeds on her other claims, she could be made whole with financial compensation.
For these reasons, the court respectfully recommends that Ms. Schwartz's claim for specific performance, Compl. ¶¶ 62-64, be dismissed with prejudice.
III. Claim IV: Slander of Title Against All Cross-Defendants
Ms. Schwartz next claims slander of title, Compl. ¶¶ 65-79, asserting that the Cross-Defendants “tortiously slandered Plaintiff's title [to the Property],' leaving a “permanent and uncurable stain on” it. Id. ¶ 73.
To begin, a valid claim for slander of title requires: (1) slanderous words; (2) falsity; (3) malice; and (4) special damages. See, e.g., Mackall v. JPMorgan Chase Bank, N.A., 356 P.3d 946, 955-56 (Colo.App. 2014) (quoting Skyland Metro. Dist. v. Mountain W. Enter., LLC, 184 P.3d 106, 131 (Colo.App. 2007)). “The alleged slanderous words must be “a substantial factor in bringing about the loss[.]” Fountain v. Mojo, 687 P.2d 496, 500 (Colo.App. 1984). Evaluating the well-pleaded facts pursuant to these elements, the court is unable to reasonably infer that Ms. Schwartz has plausibly alleged that the Cross-Defendants are liable to her for slander of title.
First, Ms. Schwartz has not plausibly alleged the existence of any slanderous or false statements made by the Cross-Defendants. She asserts that the Cross-Defendants collectively- but appears to mean Mr. Hagemann specifically-reached out to TCR-Chicago after the EagleBank Judgment was discovered to “insist[] that Chicago Title Company alter their standard insurance jacket and owners' policy just for them.” Compl. ¶ 72 (emphasis in original). But no inference of untruth arises from that allegation or the description of it in a related email communication attached to the Complaint. See Adams ECF No. 7-20 (statement by TCR employee to Schwartz's realtor that “Buyer's counsel submitted a request today to revise the language of the Owner's Policy Jacket,” and noting that the “request was denied” and that “Chicago Title has now declined to commit to insure the pending transaction”).
Rather, these allegations do permit this court to infer simple diligence on the part of Mr. Hagemann: after the revelation on March 30, 2022, of the $3.5 million cloud on the Property's title, Mr. Hagemann asked the title insurer to implement measures designed to protect his clients from the consequences of the EagleBank Judgment. TCR-Chicago declined to take that risk, prompting the Adamses to exercise their “sole discretion” to terminate the Contract. Even if this was how TCR-Chicago first learned of the EagleBank Judgment, that is inconsequential: the well-pleaded facts show that the statement was true and that it was made for the purpose of assessing whether the Adamses believed they could safely proceed with the deal. And for Ms. Schwartz to argue otherwise is to ignore the proverbial elephant in the room: on April 5, 2022, the very day the Adamses terminated the Contract, EagleBank initiated an action (subsequently consolidated with the case before this court now) raising claims for fraudulent transfer of the Property. See EB ECF No. 1-1.
To the extent Ms. Schwartz claims that Mr. Hagemann and the other Cross-Defendants were contractually prohibited from contacting TCR-Chicago to discuss their concerns, this court has rejected that claim for the reasons set forth above.
In conclusion, because Ms. Schwartz has not alleged that the Cross-Defendants made any false or slanderous statements to TCR-Chicago, the court finds that her slander of title claim cannot proceed and respectfully recommends that the claim be dismissed with prejudice.
IV. Claim V: Fraud in the Inducement Against all Cross-Defendants
Ms. Schwartz contends that the Cross-Defendants fraudulently induced her to enter into the Contract Amendment. Compl. ¶¶ 80-92. She claims that the Cross-Defendants “misrepresented to the Plaintiff that they would act in good faith, that the Adams Defendants intended to purchase the Property, and intended to be bound by the terms of the Contract.” Id. ¶ 81. According to Ms. Schwartz, these misrepresentations induced her to enter into the Contract Amendment on April 4, 2022 to the “detriment of herself.” Id. ¶ 84.
The Cross-Defendants argue that the fraudulent inducement claim is barred by Colorado's economic loss doctrine, which 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 such a breach absent an independent duty of care under tort law.” Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000); see also Mot. a 13. This court respectfully disagrees.
“To survive a motion to dismiss based on the economic loss rule, [a plaintiff] merely has to allege sufficient facts, taken in the light most favorable to [it], that would amount to the violation of a tort duty that is independent of the contract.” Van Rees v. Unleaded Software, Inc., 373 P.3d 603, 608 (Colo. 2016). Here, Ms. Schwartz challenges the Cross-Defendants' pre-contractual conduct. Compl. ¶ 81 (alleging that, before Schwartz signed the Contract Amendment, the Cross-Defendants “misrepresented to the Plaintiff that they would act in good faith, that the Adams Defendants intended to purchase the Property, and intended to be bound by the terms of the Contract”). The Colorado Supreme Court has expressly held that the economic loss rule does not apply where, as here, a plaintiff alleges that the defendant made misrepresentations before a contract's formation. Van Rees, 373 P.3d at 607. As the Colorado Court of Appeals has recently put it, “[t]he economic loss rule does not apply to claims arising from a defendant's pre-contractual conduct because, at that time, there was no contract that could have subsumed identical tort duties.” Dream Finders Homes LLC v. Weyerhaeuser NR Co., 506 P.3d 108, 120 (Colo.App. 2021) (further noting that, “[i]n contrast, fraud occurring during the parties' performance of their contract is post-contractual and may be barred by the economic loss rule”); see also Genesis Cap. Ventures, LLC v. Restore With Apex, Inc., 282 F.Supp.3d 1225, 1233 (D. Colo. 2017) (recognizing that “the duty to refrain from making negligent or intentional misrepresentations to induce a contractual agreement is an independent tort duty”).
Having concluded that the economic loss rule does not apply here, the court next assesses the well-pleaded facts to determine whether Ms. Schwartz has plausibly alleged a claim for fraudulent misrepresentation. “A claim for fraudulent misrepresentation has four elements: ‘a knowing misrepresentation of material fact, reliance on the material misrepresentation, the right or justification in relying on the misrepresentation, and reliance resulting in damages.'” Clark v. Green Tree Servicing LLC, 69 F.Supp.3d 1203, 1223 (D. Colo. 2014) (quoting Williams v. Boyle, 72 P.3d 392, 399 (Colo.App. 2003)). The court finds that the claim should be dismissed because Ms. Schwartz has failed to allege the first element.
The well-pleaded facts do not allow the court to infer that there was any knowing misrepresentation of any material fact by any Cross-Defendant. The court can infer no “knowing misrepresentation” in the Cross-Defendants' purported statement to Ms. Schwartz that they would act in good faith, see Compl. ¶ 81, where the well-pleaded facts show that, rather than exercising their right to immediately terminate the Contract, they agreed to extra time to address the impact of the newly-revealed endorsement of the EagleBank Judgment. For the same reason, the court can infer no “knowing misrepresentation” in the alleged statement that the Adamses “intended to purchase the Property.” See id. Finally, the court cannot infer a “knowing misrepresentation” from any statement by the Adamses that they “intended to be bound by the terms of the Contract,” see id., because the well-pleaded facts show that the Adamses acted in conformity with the Contract-including by exercising their “sole subjective discretion” to terminate the deal when they discovered that the title was compromised by the EagleBank Judgment.
To sum up, Ms. Schwartz's fraud theory rises and falls with her argument that the Adamses were not legally entitled to terminate the Contract on April 4, 2022, and that they induced her to enter into the Contract Amendment in order to “utilize [it] to terminate the Contract.” Id. ¶ 85. That position is contradicted by the clear and unambiguous terms of the Contract, and Ms. Schwartz alleges no other misrepresentations or omissions plausibly demonstrating that the Cross-Defendants' actions constituted fraudulent inducement. The court respectfully recommends that the claim be dismissed with prejudice.
V. Claim VI: Rescission of the April 4, 2022 Contract Amendment Against the Adamses
In this claim, Ms. Schwartz seeks rescission of the Contract Amendment that extended the closing date by four days, from April 4, 2022 to April 8, 2022, after the Adamses learned of the endorsement on the LTGC Title Commitment reflecting the $3.5 million EagleBank Judgment. See Contract Amendment, Adams ECF No. 7-19; Compl. ¶¶ 93-108. The claim rests on the alleged invalidity of paragraph 22 of the Contract Amendment, the provision that gave the Adamses broad discretionary authority to terminate the Contract:
The parties further specifically agree that if any Title Objection is not resolved in Buyers' sole subjective discretion by the Title Resolution Deadline included herein [April 8, 2022], the Contract shall terminate and the Buyers shall be entitled to the return of their Earnest Money within three business days.Contract Amendment ¶ 22 (emphasis added).
Ms. Schwartz provides no supporting factual allegations for her legal conclusion that paragraph 22 is “invalid.” To the contrary, as discussed above, that exact termination provision is found in the forms that the State of Colorado requires licensed real estate brokers to use. Supra Facts § II.B. No inference of invalidity arises from the inclusion of that term in the Contract Amendment. While this disposes of the issue, because this is a recommendation, the court addresses other legal arguments made by Ms. Schwartz in her pleading and finds that these arguments reveal no basis to conclude that Ms. Schwartz has alleged facts plausibly entitling her to rescission of the Contract Amendment. The court addresses Ms. Schwartz's arguments in turn.
A. Consideration
Ms. Schwartz first asserts that the Contract Amendment is subject to rescission because the Adamses gave no consideration for it. Compl. ¶ 99.
In Colorado, an agreement is valid and enforceable only if it is supported by consideration. Lucht's Concrete Pumping, Inc. v. Horner, 255 P.3d 1058, 1061 (Colo. 2011). The standard for consideration is not high: “any benefit to a promisor or any detriment to a promisee at the time of the contract-no matter how slight-constitutes adequate consideration.” Id. (emphasis added); see also Colo. Jury Instr., Civil § 30:7 (2017) (defining consideration as “a benefit received or something given up as agreed upon between the parties”). The requirements of “[b]enefit and detriment have a technical meaning.” Troutman v. Webster, 257 P. 262, 264 (Colo. 1927) (quoting 1 Williston on Contracts § 102a (1924)). Thus, an agreement is supported by consideration if “the promisee, in return for a promise, does anything legal which he is not bound to do, or refrains from doing anything which he has a right to do, even though there is no actual loss or detriment to him or actual benefit to the promisor.” Id. at 263-64 (emphasis added); see also Lucht's Concrete Pumping, Inc., 255 P.3d at 1061 (noting that “[c]onsideration may take the form of forbearance by one party to refrain from doing something that it is legally entitled to do”). “Almost any form of consideration will support a valid contract and except in extreme circumstances, [courts] do not inquire into the adequacy of consideration.” LoPresti v. Brandenburg, 267 P.3d 1211, 1218 (Colo. 2011).
Here, Ms. Schwartz alleges that “[t]he Adams gave no consideration for” the Contract Agreement because they were already “legally and contractually obligated to proceed under the Contract to closing and perform all acts necessary to effectuate that closing.” Compl. ¶¶ 95, 99. Both assertions are legal conclusions not entitled to the presumption of truth, and further, both are contradicted by the well-pleaded facts.
The Contract Amendment unequivocally states that the Adamses were not “legally and contractually obligated” to proceed to closing, but rather had a legal right to terminate the Contract, based on their subjective dissatisfaction with the change in the Title Commitment and the diminished quality of title resulting from the EagleBank Judgment. And the Adamses did provide consideration for the Contract Amendment by refraining from exercising their right to terminate the Contract on April 4, 2022-restraint exercised in the face of their recently-acquired knowledge of the EagleBank Judgment and the specter of its impact on the marketable title of the Property. The Adamses having refrained from taking an action that they were legally entitled to take, see Luchts, 25 P.3d at 1061, Ms. Schwartz has failed to allege that consideration for the paragraph 22 was lacking.
B. Meeting of the Minds
Ms. Schwartz next contends that the Contract Amendment is subject to rescission because there was “no meeting of minds” concerning paragraph 22. Compl. ¶ 100.
Under Colorado law, mutual assent is lacking when the parties “ascribe different meanings to a material term of a contract,” but there is an exception to this rule when the meaning given by one party is “the only reasonable meaning under the circumstance.” Brush Creek Airport, LLC v. Avion Park, LLC, 57 P.3d 738, 745 (Colo.App. 2002). Here, Ms.
Schwartz has not alleged what meaning she ascribed to paragraph 22, but the well-pleaded facts show that “the only reasonable meaning” to ascribe to paragraph 22 is that the Adamses had the “sole subjective discretion” to terminate the Contract if they were dissatisfied with the resolution of any Title Objection. Her unsupported allegation that there was “no meetings of the minds” is too conclusory to support a viable claim for rescission of the Contract Amendment.
C. Unconscionability
Third, Ms. Schwartz claims that the Contract Amendment is subject to rescission because paragraph 22 is unconscionable. Compl. ¶ 101.
Under Colorado law, “for a contract to be unconscionable, it must be both substantively and procedurally unconscionable.” Vernon v. Qwest Commc'ns Int'l Inc., 925 F.Supp.2d 1185, 1194 (D. Colo. 2013) (citing Davis v. M.L.G. Corp., 712 P.2d 985, 991 (Colo. 1986)). In Davis, the Colorado Supreme Court listed seven factors that are relevant in determining whether a contract is unconscionable: (1) a standardized agreement executed by parties of unequal bargaining power; (2) lack of opportunity to read or become familiar with the document before signing it; (3) use of fine print in the portion of the contract containing the provision; (4) absence of evidence that the provision was commercially reasonable; (5) the terms of the contract; (6) the relationship of the parties, including factors of assent, unfair surprise, and notice; and (7) all the circumstances surrounding the formation of the contract. See 712 P.2d at 991.
The first, second, third, six, and seventh factors relate to procedural unconscionability. As to the first factor, while the Contract Agreement was a standardized agreement, it is the form that is required for use by the parties under Colorado law. See Code of Colo. Regulations, 4 C.C.R. 725-1-7-1 (“A Broker must use a Commission-Approved Form when such form exists and is appropriate for the transaction.”). Moreover, as Ms. Schwartz herself alleges in her pleading, “[t]he Contract was the result of negotiations between highly trained persons, who enjoyed independent legal representation during the process and sufficient resources to seek adequate legal representation.” Am. Compl. ¶ 51. The second and third factors concern whether there was an opportunity to read and become familiar with the agreement and whether paragraph 22 was hidden in “fine print.” Here, the Contract Amendment was only three pages long, and Ms. Schwartz had legal counsel to assist her. There is no fine print in the Contract Amendment generally and in paragraph 22 in particular.
As for the sixth factor, there are no allegations plausibly suggesting that Ms. Schwartz, who was represented by counsel, was in an unfair bargaining position in comparison with the Adamses, such that paragraph 22-a contractual term approved by the Colorado Division of Real Estate and also found in the Contract itself, see Contract § 8.7-should have occasioned unfair surprise on the part of Ms. Schwartz. In looking at the seventh factor, a catchall that allows for consideration of all factors surrounding the formation of a contract, the well-pleaded facts plausibly suggest no procedural unconscionability toward Ms. Schwartz. It was the Adamses who had no advance knowledge that the LTGC Title Commitment would be endorsed to include an exception for a $3.5 million judgment against Ms. Schwartz's husband.
Ms. Schwartz has not explained why she deems the term unconscionable in the Contract Amendment but not so in the Contract itself. See Compl. ¶¶ 10 (“Plaintiff's Counter was mutually accepted and executed by the Adams parties on January 30, 2022, resulting in a legally binding and mutually enforceable contract between the Adams' and Plaintiff[.]”), 51 (“The Contract is valid and enforceable and, as such, it is the law between the parties.”).
Examining the well-pleaded facts here pursuant to the fourth and fifth factors, which go to substantive unconscionability, the court finds no allegations plausibly suggesting unconscionability. As to the fourth factor, there are no allegations from which this court can infer that a provision mandated for use by the Colorado Division of Real Estate was “commercially unreasonable.” Were it not for such a provision, potential buyers surprised by the last-minute revelation of significant title issues could never extricate themselves from going through with purchase agreements.
Finally, as to the fifth factor, the well-pleaded facts do not plausibly show that the Contract Amendment, and paragraph 22 specifically, are lacking in fundamental fairness. Ms. Schwartz has failed to allege that the enforcement of the Contract Agreement would be “so unconscionable that no decent, fair-minded person would view the ensuing result without being possessed of a profound sense of injustice[.]” Lincoln Gen. Ins. Co. v. Bailey, 224 P.3d 336, 341 (Colo.App. 2009). Put another way, no inference of unconscionability arises from a rule of contract that shields a buyer from being compelled to purchase property revealed to have clear title flaws, the outcome Ms. Schwartz seeks in this lawsuit.
D. Economic Duress
Ms. Schwartz's final legal theory is that paragraph 22, and the Contract Amendment itself, must be rescinded on grounds of economic duress. Compl. ¶ 102.
A contract is voidable on the grounds of duress only if “a party's manifestation of assent is induced by an improper threat that leaves no reasonable alternative.” Conagra Trade Grp., Inc. v. Fuel Exploration, LLC, 63 F.Supp.2d 1166, 1173 (D. Colo. 2009) (internal quotation omitted). Any force or threats utilized must have “actually subjugated the mind and the will of the person against whom they were directed[.]” Premier Farm Credit, PCA v. W-Cattle, LLC, 155 P.3d 504, 521 (Colo.App. 2006). Notably, “[a] party that coerces another into signing a contract by threatening to take an action that it has a legal right to take does not inflict duress sufficient to void the contract.” Conagra Trade Grp., Inc., 63 F.Supp.2d at 1173 (citing DeJean v. United Airlines, Inc., 839 P.2d 153, 1160 (Colo. 1992)).
Here, there are no allegations plausibly indicating that Ms. Schwartz faced any threats from the Cross-Defendants when she signed the Contract Amendment on April 4, 2022. She alleges no factual specifics concerning threatening behavior or speech on the part of any Cross-Defendant directed toward her. To the contrary, the well-pleaded facts suggest a considerate response to the revelation of the multi-million-dollar EagleBank Judgment lien on the property, manifested in the Cross-Defendants' willingness to refrain from immediately exercising their contractual right to terminate the Contract.
Moreover, the well-pleaded facts show that Ms. Schwartz had reasonable alternatives to executing the Contract Amendment. Had she declined, the Adamses would have terminated the Contract and she could have relisted the Property; Ms. Schwartz was under no obligation to limit the universe of persons to whom the Property could be sold. Had the Contract terminated on April 4, 2022, there was also no prohibition on Ms. Schwartz from renting the property until she located another buyer. See Compl. ¶ 14, n.2 (claiming lost rental income for “guest reservations for the Property” between January 30, 2022, when the Contract was signed, and April 5, 2022, when it was terminated). Ms. Schwartz's allegation that the Property generates approximately $60,000 per month in rental income does not plausibly suggest the absence of any reasonable alternative to signing the Contract Amendment.
In sum, Ms. Schwartz has not plausibly alleged that she faced economic duress of the type required to void the Contract Amendment under Colorado law.
VI. Claim VII: Declaratory Judgment Against the Adamses
The declaratory judgment claim is mislabeled in the complaint as Claim VI.
Ms. Schwartz seeks a declaratory judgment pursuant to 28 U.S.C. § 2201(a) declaring “the Contract to be in full force and legal effect” and the purportedly “Invalid Amendment” (i.e., the Contract Amendment) to be “unenforceable] and invalid[].” Compl. ¶¶ 110-15. In essence, this is the relief Ms. Schwartz seeks for her other claims-in particular, the claims for breach of contract, specific performance, and rescission-rendering the claim for declaratory relief duplicative of those claims. Because this court has concluded that Ms. Schwartz has failed to plausibly allege the claims reiterated in the declaratory judgment claim, the court further recommends dismissal of that duplicative claim. See, e.g., Tom S Urban Master LLC v. Fed. Ins. Co., No. 20-cv-03407-PAB-SKC, 2022 WL 974654, at * (D. Colo. Mar. 31, 2022) (dismissing breach of contract claims and corresponding claims for declaratory judgment); PDX Pro Co., Inc. v. Dish Network, LLC, No. 12-cv-01699-RBJ, 2013 WL 3296539, at *2 (D. Colo. July 1, 2013) (dismissing declaratory judgment claim because it would be resolved in deciding plaintiff's allegations of breach of contract and breach of duty of good faith and fair dealing); Cafe Plaza de Mesilla Inc. v. Cont'l Cas. Co., 519 F.Supp.3d 1006, 1016 (D.N.M. 2021) (“Having ruled against Plaintiff on its breach of contract claims, necessarily resolving all issues identified in Plaintiff's declaratory judgment claims, the Court also dismisses those claims . . . as duplicative.”); see also TBL Collectibles, Inc. v. Owners Ins. Co., 285 F.Supp.3d 1170, 1197 (D. Colo. 2018) (granting summary judgment for defendant on declaratory judgment claim where it was not independent of the breach of contract claim).
This court respectfully recommends that the declaratory judgment claim, like the underlying claims on which it rests, be dismissed with prejudice.
VII. Ms. Schwartz's Demand for Sanctions
In her response to the Motion to Dismiss, Ms. Schwartz argues that she is entitled to “costs and sanctions for having to respond to [the Motion to Dismiss] as it is filled only with false, inaccurate, conclusory and self-serving statements, and without any requisite accord for the legal standard required or good faith attempt to provide any analysis of Plaintiffs [sic] claims and averments in keeping with that legal standard required of a Motion under Rule 12(b)(6).” Resp. at 10. This court respectfully disagrees and recommends that the request for imposition of sanctions on the Cross-Defendants be denied.
As an initial matter, Ms. Schwartz has failed to comply with the requirements of Federal Rule of Civil Procedure 11:
A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates Rule 11(b). The motion must be served under Rule 5, but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets. If warranted, the court may award to the prevailing party the reasonable expenses, including attorney's fees, incurred for the motion.Fed. R. Civ. P. 11(c)(2). The request for sanctions may be denied on this basis alone.
In addition, this court rejects Ms. Schwartz's characterization of the Motion to Dismiss, which is wholly belied by the record. As explained in detail in this recommendation, after careful consideration, this court recommends granting the Motion to Dismiss because Ms. Schwartz has failed to allege any plausible claim for relief. Therefore, should Judge Moore decide to consider Ms. Schwartz's demand for sanctions, this court respectfully recommends that it be denied.
VIII. Dismissal With Prejudice
The court concludes by explaining the reasons for its recommendation that all claims brought against the Cross-Defendants in the Complaint be dismissed with prejudice.
No matter how Ms. Schwartz labels them, any claim she raises against the Cross-Defendants will always rest on the flawed premise that she has a legal right to extricate herself from the clear and unambiguous term of the Contract-a standard term in a standard form explicitly directed for use by the Colorado Division of Real Estate-that allowed the Adamses to terminate the Contract at any time, in their “sole subjective discretion.” The Contract terms can never be altered, nor can the Contract be revised to insert a term that would have prohibited the Adamses or their counsel from discussing the title-clouded Property with anyone of their choosing-including to evaluate the risks associated with its purchase. Moreover, the facts subject to judicial notice will always include a public record showing that Mark Schwartz and his “Tax Lien Law Group,” not the Cross-Defendants, caused the “stain” on the Property in the form of a $3.5 million judgment lien.
Finally, the court notes that Ms. Schwartz is not a pro se litigant whose claims might ordinarily be dismissed without prejudice on a Rule 12(b)(6) motion. See Gee v. Pacheco, 672 F.3d 1178, 1186 (10th Cir. 2010) (“[O]rdinarily the dismissal of a pro se claim under Rule 12(b)(6) should be without prejudice.”). Ms. Schwartz, by contrast, is represented by a sophisticated attorney who prepared a lengthy complaint and full briefing in response to a dispositive motion.
The court discerns no way that Ms. Schwartz can plead around the facts before this court now in a manner that would plausibly allege entitlement to the relief she seeks: forcing the Adamses to buy (or pay her damages for not buying) property for which she could not provide marketable title. See, e.g., Knight v. Mooring Capital Fund, LLC, 749 F.3d 1180, 1199 (10th Cir. 2014) (“A dismissal with prejudice is appropriate where a complaint fails to state a claim under Rule 12(b)(6) and granting leave to amend would be futile.” (quoting Brereton v. Bountiful City Corp., 434 F.3d 1213, 1219 (10th Cir. 2006)) (emphasis added). Therefore, after careful consideration, the court respectfully recommends that Ms. Schwartz's claims be dismissed with prejudice.
CONCLUSION
For the reasons stated above, it is hereby respectfully RECOMMENDED that the Motion to Dismiss, EB ECF No 29, be granted and that the First Amended Complaint, Adams ECF No. 7, be DISMISSED WITH PREJUDICE. It is further RECOMMENDED that the $120,000 Earnest Money be returned to the Adamses in accordance with Sections 4.3.2, 8.2, and 24.1 of the Contract and page 2 of the Contract Amendment. Finally, if Judge Moore concludes that Plaintiff's request for sanctions is properly before the court, it is RECOMMENDED that that request be DENIED.
Rule 72 of the Federal Rules of Civil Procedure provides that within fourteen (14) days after service of a Magistrate Judge's order or recommendation, any party may serve and file written objections with the Clerk of the United States District Court for the District of Colorado. 28 U.S.C. §§ 636(b)(1)(A), (B); Fed.R.Civ.P. 72(a), (b). Failure to make any such objection will result in a waiver of the right to appeal the Magistrate Judge's order or recommendation. See Sinclair Wyo. Ref. Co. v. A & B Builders, Ltd., 989 F.3d 747, 783 (10th Cir. 2021) (firm waiver rule applies to non-dispositive orders). But see Morales-Fernandez v. INS, 418 F.3d 1116, 1119, 1122 (10th Cir. 2005) (firm waiver rule does not apply when the interests of justice require review, including when a “pro se litigant has not been informed of the time period for objecting and the consequences of failing to object”).