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Bridgwater Apartments, LLC v. 6401 South Boston Street

February 7, 2006

BRIDGWATER APARTMENTS, LLC, A COLORADO LIMITED LIABILITY COMPANY, F/K/A MESA VERDE VILLAS, A CALIFORNIA GENERAL PARTNERSHIP, PLAINTIFF,
v.
6401 SOUTH BOSTON STREET, INC., A FLORIDA CORPORATION, AND HEITMAN CAPITAL MANAGEMENT, LLC, A FLORIDA LIMITED LIABILITY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Judge Robert E. Blackburn

ORDER DENYING DEFENDANTS' JOINT MOTION TO DISMISS

The matter before me is Defendants' Joint Motion to Dismiss [#9], filed October 31, 2005. I deny the motion.

I. JURISDICTION

I have subject matter jurisdiction pursuant to 28 U.S.C. § 1332 (diversity of citizenship).

II. STANDARD OF REVIEW

When ruling on a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), I must determine whether the allegations of the complaint, if true, are sufficient to state a claim within the meaning of Fed.R.Civ.P. 8(a). I must accept all well-pleaded allegations of the complaint as true. McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 997 (10th Cir. 2002). "However, conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." Fernandez-Montes v. Allied Pilots Association, 987 F.2d 278, 284 (5th Cir. 1993); see also Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002) ("All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true."), cert. denied, 123 S.Ct. 1908 (2003). Thus, Rule 12(b)(6) requires dismissal if, taking all well-pleaded facts as true and construing them in the light most favorable to plaintiff, it is clear that it can prove no set of facts entitling it to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Rocky Mountain Helicopters, Inc., v. Bell Helicopter Textron, Inc., 24 F.3d 125, 128 (10th Cir. 1994).

In connection with their motion, defendants cite to and rely on various provisions of the parties' Purchase and Sale Agreement. Consideration of this document, which is referenced in detail in the complaint itself and central to plaintiff's claims, does not transform the motion into one for summary judgment. See GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384-85 (10th Cir. 1997)

III. ANALYSIS

On November 14, 2003, plaintiff purchased a 292-unit apartment complex in Greenwood Village, Colorado, from defendant 6401 South Boston Street, Inc. ("Boston Street"). Beginning in January, 2003, and continuing through the date the property was transferred to plaintiff, the property manager offered tenants who entered into certain types of leases an incentive equal to approximately three months rent, which could be taken up front, such that during the initial months of the lease, the tenant paid no rent at all, or pro rated over the term of the lease.

Although all tenants chose the pro rata option, Boston Street accounted for the rents as if tenants had chosen the up front option. It treated the pro rata rents it received during the initial three months of the affected leases as funds that had been received, but not yet earned, and credited those funds to a "prepaid rent account." At the closing, Boston Street refused to turn over these funds, which amounted to $312,072.35, to plaintiff, claiming that the funds were attributable to rent concessions, which were not part of the contract of sale. Plaintiff alleges that Boston Street based its position in this regard on a duplicate set of accounts, which it did not reveal to plaintiff prior to the closing. It sued Boston Street and its advisor during the sale, Heitman Capital Management, Inc., in Denver County District Court, alleging causes of action for fraud, fraudulent concealment, and negligent misrepresentation. Defendants removed the case to this court and now have filed a motion to dismiss for failure to state a claim on which relief may be granted.

Defendants' motion to dismiss is premised on the so-called "economic loss" rule. As adopted by the courts of Colorado,*fn1 "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." Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269 (Colo. 2000); see also Town of Alma v. Azco Construction, Inc., 10 P.3d 1256, (Colo. 2000) ("'As a general rule, no cause of action lies in tort when purely economic damage is caused by negligent breach of a contractual duty.'") (quoting Jardel Enterprises, Inc. v. Triconsultants, 770 P.2d 1301, 1303 (Colo.App. 1988)). The rule thus seeks to preserve the distinction between tort and contract law:

Limiting the availability of tort remedies in these situations holds parties to the terms of their bargain. In this way, the law serves to encourage parties to confidently allocate risks and costs during their bargaining without fear that unanticipated liability may arise in the future, effectively negating the parties' efforts to build these cost considerations into the contract. The economic loss rule thus serves to ensure predictability in commercial transactions.

Town of Alma, 10 P.3d at 1262. Whether the rule applies depends on the source of the duty the defendant is alleged to have breached. "A breach of a duty which arises under the provisions of a contract between the parties must be redressed under contract, and a tort action will not lie. A breach of a duty arising independently of any contract duties between the parties, however, may support a tort action." Id., 10 P.3d at 1262 (citation and internal quotation marks omitted; emphasis in Town of Alma).

Nevertheless, the Colorado Supreme Court has recognized that certain categories of torts -- including, most importantly for present purposes, fraud and negligent misrepresentation -- although designed to remedy purely economic losses, arise from duties that exist independently of any contractual obligation. See id. at 1262-63; see also Keller v. A.O. Smith Harvestore Products, Inc., 819 P.2d 69, 73 (Colo. 1991) ("[C]laims of negligent misrepresentation are based not on principles of contractual obligation but on principles of duty and reasonable conduct."), ...


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