Ravenstar, LLC, a Colorado limited liability company; The Chips, LLC, a Colorado limited liability company; Let-R-Buck, LLC, a Colorado limited liability company; A Rockin Place to Ski, LLC, d/b/a One Rockin Place to Ski, LLC, a Colorado limited liability company; and Rockin OSHP, LLC, a Colorado limited liability company, Petitioners
One Ski Hill Place, LLC, a Colorado limited liability company. Respondent
to the Colorado Court of Appeals Court of Appeals Case No.
Attorneys for Petitioners: Glover Law Office, LLC Douglas A.
Glover Castle Rock, Colorado BuxmanKwitek, P.C. Linda
McMillan Pueblo, Colorado
Attorneys for Respondent: Brownstein Hyatt Farber Schreck,
LLP Jonathan G. Pray Denver, Colorado Bryan Cave LLP Michael
J. Hofmann Denver, Colorado.
This case requires us to determine whether a liquidated
damages clause in a contract is invalid because the contract
gives the non-breaching party the option to choose between
liquidated damages and actual damages. We hold that such
an option does not invalidate the clause and instead parties
are free to contract for a damages provision that allows a
non-breaching party to elect between liquidated damages and
actual damages. However, such an option must be exclusive,
meaning a party who elects to pursue one of the available
remedies may not also pursue the alternative remedy set forth
in the contract. Therefore, under the facts of this case, we
conclude that the liquidated damages clause in the contracts
at issue is enforceable.
Facts and Procedural History
In 2008, Petitioners, five Colorado companies, entered into
separate contracts (the "Agreements") to buy
to-be-built condominium units from Respondent, developer One
Ski Hill Place, LLC ("OSHP"). Petitioners paid
earnest money and construction deposits of fifteen percent of
the purchase price of each unit. But Petitioners were unable
to obtain financing and failed to close by the agreed-upon
2010 deadline, thereby breaching the Agreements.
Each Agreement contains an identical provision governing
default (the "Damages Provision"), which provided,
in sum, that if a purchaser of a unit defaulted, then OSHP
had the option to retain all or some of the paid deposits as
liquidated damages or, alternatively, to pursue actual
damages and apply the deposits toward that award. The Damages
Provision in full stated:
If Purchaser defaults in the performance of any obligation
under this Agreement . . . Seller shall have the right to
terminate this Agreement and shall be entitled to retain
all or a portion of the Earnest Money and Construction
Deposit . . . as liquidated damages
("Seller's Liquidated Damages").
Alternatively and in lieu of Seller's Liquidated
Damages, Seller may elect to terminate this Agreement and
recover its actual damages resulting from
Purchaser's default calculated in accordance with
Colorado law, in which case Seller may seek an award of such
actual damages and may retain an amount equal to the Earnest
Money and Construction Deposit and apply such funds toward
satisfaction of any such award. If Seller elects to seek
actual damages, Seller must provide Purchaser with written
notice of such election within 30 days after the end of
Purchaser's cure period, and if Seller fails to provide
such notice, then Seller will only be entitled to
Seller's Liquidated Damages.
After Petitioners defaulted and breached the Agreements, OSHP
chose to keep the full deposits as liquidated damages.
Petitioners then filed this case against OSHP, seeking the
return of their deposits.
OSHP filed a motion for summary judgment. In response,
Petitioners contended that the Damages Provision in the
Agreements was unenforceable because the Provision gave OSHP
the option to choose liquidated damages or actual damages.
Therefore, Petitioners argued, the parties did not mutually
intend to liquidate damages, as Colorado law requires. The
trial court rejected this argument, ruling that the parties
mutually intended to liquidate damages as a matter of law.
Nonetheless, the trial court denied summary judgment to OSHP
because disputed issues of material fact remained as to
whether the amount of liquidated damages was reasonable and
whether actual damages would have been difficult to
ascertain, both requirements of an enforceable liquidated
Petitioners then stipulated that the amount of liquidated
damages was reasonable and that actual damages were difficult
to ascertain, thereby resolving the remaining disputed issues
of fact. The trial court entered judgment in favor of OSHP,
and Petitioners appealed. A division of the court of appeals
affirmed the trial court's judgment and orders and held
that the "mere presence of an option to elect between
liquidated damages and actual damages does not render the
liquidated damages clause unenforceable." Ravenstar
LLC v. One Ski Hill Place LLC, 2016 COA 11, ¶ 12,
___ P.3d ___, reh'g denied (Colo.App. Feb. 25,
2016). Specifically, the division concluded that optional
liquidated damages clauses do not necessarily operate as a
penalty, nor did the clause here operate as a penalty under
the facts of this case. Id. at ¶¶ 32-33.
We granted certiorari.