Core-Mark Midcontinent Inc., Core-Mark International Inc., United States Fire Insurance Co., and Commonwealth Insurance Co., Plaintiffs-Appellants and Cross-Appellees,
Sonitrol Corporation, Defendant-Appellee and Cross-Appellant
County District Court No. 03CV3836. Honorable C. Scott
Graham & Stubbs LLP, Andrew M. Low, Shannon Wells
Stevenson, Kyle W. Brenton, Benjamin B. Strawn, Gregory
Silbert, Thomas Dunford, Denver, Colorado; Weil, Gotshal
& Manges LLP, Adam Banks, New York, New York; Watkins
& Letofsky, LLP, Brian Letofsky, Newport Beach,
California, for Plaintiffs-Appellants and Cross-Appellees.
Beck Herman Palenchar & Scott LLP, Sean C. Grimsley, John
M. Hughes, Katherine L.I. Hacker, Daniel C. Taylor, Denver,
Colorado, for Defendant-Appellee and Cross-Appellant.
J., concurs. Webb, J., specially concurs.
[¶1] Plaintiffs, Core-Mark International,
Inc. and its wholly owned subsidiary, Core-Mark Midcontinent,
Inc. (collectively, Core-Mark); and Core-Mark's casualty
insurers, United States Fire Insurance Company and
Commonwealth Insurance Company (collectively, the Insurers),
appeal the judgment entered after a jury trial to determine
damages on their breach of contract claims against defendant,
Sonitrol Corporation. Sonitrol cross-appeals the judgment and
conditionally cross-appeals the district court's denial
of its motion to strike a portion of Core-Mark's damages
claim. We affirm the judgment and dismiss Sonitrol's
[¶2] Core-Mark distributes merchandise to
convenience stores. Core-Mark contracted with Sonitrol to
install and monitor a security system at a warehouse
Core-Mark used to store inventory.
[¶3] In 2002, three men burglarized
Core-Mark's warehouse. Sonitrol employees failed to
detect or respond to the break-in while the burglars looted
the building for several hours. Sonitrol employees ignored
several alarms activated by the burglars' noise. One of
the burglars started a fire in the warehouse that destroyed
the building and its contents.
[¶4] Core-Mark and the Insurers sued
Sonitrol, asserting both tort and contract claims to recover
for losses resulting from the burglary. The district court
dismissed Core-Mark's tort claims and granted
Sonitrol's motion for summary judgment on the contract
claims based on a limitation of liability clause in
Core-Mark's contract with Sonitrol.
[¶5] On appeal, a division of this court
affirmed the dismissal of the tort claims, but reversed the
grant of summary judgment on the contract claims, holding
that Core-Mark's claims for willful and wanton breach of
contract were not subject to the contractual limitation of
liability. U. S. Fire Ins. Co. v. Sonitrol Mgmt.
Corp., 192 P.3d 543 (Colo.App. 2008) ( Sonitrol
I ). The division remanded the case for a trial on the
breach of contract claims.
[¶6] On remand, a jury found that Sonitrol
had willfully and wantonly breached its contract with
Core-Mark and breached the contractual duty of good faith and
fair dealing. The jury awarded $7,348,732 to Core-Mark and
$10,965,777 to the Insurers.
[¶7] On appeal, a division of this court
affirmed the jury's verdict as to Sonitrol's
liability, but reversed the damages award. Core-Mark
Midcontinent, Inc. v. Sonitrol Corp., 300 P.3d 963, 2012
COA 120 ( Sonitrol II ). The division held that the
district court erred by excluding the testimony of
Sonitrol's expert witnesses regarding the foreseeability
of the extent of Core-Mark's losses. The division
remanded the case for a new trial on damages, at which
Sonitrol's experts would be permitted to testify.
Id. at ¶ ¶ 35, 39-40.
[¶8] On remand, a jury awarded Core-Mark
[¶9] Core-Mark makes three primary
contentions on appeal: (1) the district court erred in
allowing Sonitrol to present evidence that the arson was not
foreseeable; (2) the district court erred in refusing to give
the jury Core-Mark's tendered instruction explaining the
phrase " natural and probable consequence" used in
a damages instruction; and (3) the district court abused its
discretion by excluding evidence of how Sonitrol breached the
contract. We address and reject these contentions in turn.
Foreseeability of Arson
[¶10] In Sonitrol II, the division
held that to be liable for the losses claimed by a plaintiff,
" [t]he defendant must have had reason to foresee both
the type and the general magnitude of damages."
Sonitrol II, ¶ 31. The division reversed and
remanded " for a new trial on damages,"
Id. at ¶ 1; see id. at ¶
¶ 40, 50, because the district court had erroneously
precluded three experts from testifying for Sonitrol that
Core-Mark's storage of excessive amounts of flammable
liquids in the warehouse, and other related actions and
circumstances, contributed significantly to the loss
resulting from the fire. Id. at ¶ ¶ 30-40.
On remand, Core-Mark filed a motion in limine asking the
court to exclude " all evidence attempting to controvert
the Court of Appeals' ruling that the type of damages
resulting from the fires was foreseeable to Sonitrol."
Core-Mark characterized the " type" of damages at
issue as " an arson fire started by an undetected
burglar," and argued that the Sonitrol II
division's statement " [w]e assume that Sonitrol
could have foreseen that if it failed to detect a break-in at
the warehouse, a burglar could start a fire,"
see Sonitrol II, ¶ 32, was the "
law of the case" as to whether the fire was foreseeable.
In short, Core-Mark argued that the division's assumption
that the fire was foreseeable was a holding that the fire was
[¶11] Sonitrol's opposition to
Core-Mark's motion in limine argued, as now relevant,
that the division's assumption was not a holding, the law
of the case doctrine does not apply to an issue (like the
foreseeability of the fire) that the appellate court did not
decide, and the Sonitrol II mandate did not limit
the trial on remand to the question of the extent of
fire-related damages, but to " damages generally."
In so arguing, Sonitrol also characterized " arson"
as a " type" of damages.
[¶12] The district court denied
Core-Mark's motion, for two reasons. First, the court
ruled that the division's assumption that the fire was
foreseeable was not the law of the case because it was not
necessary to the division's holdings. Second, the court
ruled that evidence regarding the foreseeability of the fire
was not precluded by the scope of the division's remand.
[¶13] At trial, one of Core-Mark's
experts testified that the arson was foreseeable. He did not
say that arson was a " probable" result of the
breach, noting that burglars committing arson in connection
with a burglary was " statistically quite rare."
Rather, he opined that the fire was foreseeable in the same
sense that a commercial airline pilot becoming incapacitated
is foreseeable because though " statistically
rare," it does happen. Another of Core-Mark's
experts testified, in response to a question whether
Core-Mark's damages were " a natural and probable
consequence of the breach of contract," that "
Sonitrol's breach of contract flowed through the natural
flow, probable breach of what they did." Core-Mark has
not pointed to any other evidence it introduced at trial as
to the foreseeability of its claimed damages.
[¶14] A long-time Sonitrol employee
testified that the purpose of Sonitrol's burglar alarm
system was to detect break-ins, not fires, and that the
nature of what was stored in the warehouse was not relevant
to services Sonitrol was to provide under the burglar alarm
contract. He also testified that, in the thirty-six years he
had worked for Sonitrol, the only burglary of a
Sonitrol-monitored facility that involved a fire, of which he
was aware, was the burglary of Core-Mark's warehouse. Two
experts testified on behalf of Sonitrol that Core-Mark stored
more than thirty times the amount of flammable or combustible
materials allowed by fire and building codes, and that
Core-Mark's violations of those codes was a significant
contributing factor to the extent of the fire loss.
[¶15] The district court's instruction
to the jury on the foreseeability of damages read:
General damages is the amount required to put the plaintiff
in the same position as if the breach had not occurred. You
may award general damages if you find that they were a
natural and probable consequence of the defendant's
breach of contract that the defendant reasonably could have
foreseen at the time the parties entered into the contract
and the damages would probably occur if defendant breached
If general damages have been proved, you shall award damages
in the following categories:
o Inventory lost
o Fixed assets lost
o Accounts receivable lost
o Extra expenses
o Business income lost[.]
[¶16] During closing argument,
Core-Mark's attorney argued that damages are the "
natural and probable consequence" of a breach if the
breach was the " but for" cause of the damages, and
asserted that arsons are a common occurrence in the United
States. Counsel also argued the following regarding whether
damages " probably result" from a breach:
Can I talk to you for a second about probabilities? And
you'll see this in Instruction 4. Here's the number
one. This number one represents an absolute certainty,
something is going to happen. Here's the number zero.
This number represents an impossibility, it will not occur.
Somewhere in between zero and one is probability, and
Sonitrol wants you to believe that because of arson fire
statistics, that they couldn't have predicted this.
It's on the probability scale. It is probable that an
arson fire will occur if you do not detect a burglar in one
of the buildings that you're monitoring. Sonitrol knows
that from the testimony that we presented and based on their
experience as a nationwide fire alarm company.
[¶17] Sonitrol's attorney, in contrast,
argued that probable and probably mean more likely than not.
Specifically, Sonitrol's attorney said,
And as John, my colleague, told you in the opening statement,
there is a concept in these instructions that is fundamental
under Colorado law for contracts. There's a word in
there, a word that is so significant it actually appears
twice in these instructions, and it's a word that
basically Mr. Dunford ignored for almost the entirety of his
closing, and that word is probably. Probable. Probably.
Let's look through what this instruction says about what
they have to prove to get general damages. First, general
damages is the amount required to put the plaintiff in the
same position. That's just the general definition. But
here are the things they have to prove. " You may award
general damages if you find that they are the natural and
probable consequence of the defendant's breach."
The breach here is the failure to detect these three
burglars. So what would be the natural and probable
consequence of the failure to detect burglars at a warehouse?
But that's not the only place it's used. Let's
keep going. It says that the defendant -- you only get
damages if the defendant reasonably could have foreseen at
the time the parties entered into the contract and the
damages would probably occur if defendant breached the
contract. Not just that they're foreseeable, the types of
things that might happen, could happen, sometimes happen, can
happen, could occur, it's for things that will probably
occur when there's a breach of this type.
. . .
Now let's talk a minute about probably. It's a pretty
familiar concept to all of us. I think it's intuitive.
What does probably mean? It means likely to happen. It means
more than 50 percent chance. It's a concept so intuitive
that even our kids understand this. When I drop my kids off
at school in the morning, if I tell them, When I pick you up,
we're probably going to get ice cream, and then I pick
them up and we don't get ice cream, I better have a darn
good explanation for why we didn't do it, because
they're thinking when I drop them off, We're likely
going to get ice cream.
And that's what this word " probably" means.
It's the word that the plaintiffs would like you to
ignore in these instructions. It's the word that Mr.
Dunford didn't talk about at all. He talked about a scale
of probabilities, zero to 100 percent. He didn't talk
Probably isn't 1 percent, it's not 5 percent.
It's more than 50 percent. We all know that. And this is
a concept that appears not just in this instruction, but in
other instructions that the judge has given you.
So, for instance, you were given this instruction. One of
your jury instructions says any finding of fact you make must
be based on probabilities, not possibilities. Probabilities.
Possibility is not a probability. Just because something
might happen doesn't mean it's probably something
that's going to happen.
[¶18] Sonitrol's attorney then used a
magnetic board to illustrate the concept, showing that theft
was probable but that arson was not. Counsel said that
the burglars intended to steal cigarettes and cold medicine,
and that the total value of the cigarettes and cold medicine
in the warehouse was $2,750,000. As noted, the jury awarded
Core-Mark that figure.
[¶19] Core-Mark filed a motion for new trial
under C.R.C.P. 59. As now relevant, Core-Mark argued that
" [t]he issue remanded [in Sonitrol II ] was
whether the extent of the fire was foreseeable, not whether
an arson fire was foreseeable" because the latter issue
(1) had been decided by the jury in the first trial and (2)
was beyond the scope of the Sonitrol II mandate. The
district court denied the motion without discussing the
merits of these arguments.
[¶20] On appeal, Core-Mark argues that the
district court erred in allowing Sonitrol to contest the
foreseeability of the fire because (1) Sonitrol failed to
appeal that issue in Sonitrol II ; (2) the
Sonitrol II mandate remanding the case precluded
retrial of that issue; and (3) it was not fair to allow
Sonitrol to retry the issue. Core-Mark premises the last
argument on the court's authority under C.R.C.P. 59 (as
construed in Gerrity Oil & Gas Corp. v. Magness,
946 P.2d 913, 934 (Colo. 1997)) to order a new trial on only
certain issues and on a statement in Sonitrol's reply
brief in Sonitrol II that it was not "
challeng[ing] the foreseeability of arson resulting in a fire
at a warehouse," which Core-Mark characterizes as a
" judicial admission."
[¶21] We conclude that the only argument
that Core-Mark preserved for appeal is that the issue of the
foreseeability of the fire was outside the scope of the
[¶22] Core-Mark's motion in limine
argued only that the law of the case doctrine barred retrial
of the foreseeability of the fire because the Sonitrol
II division had decided that issue. In response,
Sonitrol somewhat recast the argument as whether the mandate
rule -- which it characterized as part of the law of the case
doctrine -- barred retrial of the issue. The district court
addressed the motion on those terms. Therefore, we conclude
that the issue of the scope of the mandate remanding the case
was preserved. See Target Corp. v. Prestige
Maint. USA, Ltd., 2013 COA 12, ¶ 23, 351 P.3d 493.
[¶23] But Core-Mark never argued in the
district court that Sonitrol's failure to appeal this
specific foreseeability question waived the issue. Nor did
Core-Mark ever argue in the district court that the court
should limit the retrial in the interest of fairness as
allowed by C.R.C.P. ...