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Ravenstar, LLC v. One Ski Hill Place, LLC

Supreme Court of Colorado, En Banc

September 11, 2017

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
v.
One Ski Hill Place, LLC, a Colorado limited liability company. Respondent

         Certiorari to the Colorado Court of Appeals Court of Appeals Case No. 14CA2401

          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.

          OPINION

          RICE, CHIEF JUSTICE

         ¶1 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.[1] 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.

         I. Facts and Procedural History

         ¶2 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.

         ¶3 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.

(Emphasis added.)

         ¶4 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.[2]

         ¶5 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 damages provision.

         ¶6 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.

         II. ...


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