Bermel v. BlueRadios, Inc.

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          Certiorari to the Colorado Court of Appeals, Court of Appeals Case No. 16CA102

         Attorneys for Petitioner: Kishinevsky & Raykin, Attorneys at Law, Igor Raykin, Aurora, Colorado, The Law Office of Ian T. Hicks, Esq., Ian T. Hicks, Denver, Colorado

         Attorneys for Respondent: Seserman Law, LLC, David Seserman, Denver, Colorado, Anderson Barkley, LLC, Richard P. Barkley, Denver, Colorado

          En Banc

         OPINION

         MÁ RQUEZ, JUSTICE

         [¶1] In this case, we are asked to determine whether the economic loss rule bars a statutory claim for civil theft where the theft also constitutes a breach of the parties’ contract. We conclude it does not.

         [¶2] Chris Bermel contracted to provide engineering services for BlueRadios, Inc., a wireless data and voice communications company. In 2014, Bermel knowingly forwarded thousands of company emails containing proprietary information to his personal email account without authorization. For this conduct, the trial court found Bermel liable for breach of contract and for civil theft under section 18-4-405, C.R.S. (2018) (titled "Rights

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in stolen property" and also referred to as the "civil theft" statute). The statute allows the rightful owner of stolen property to recover the greater of $ 200 or three times the actual damages sustained, as well as costs and reasonable attorney fees.

         [¶3] Bermel argues that BlueRadios’ remedies were limited to those for breach of contract, and that Colorado’s economic loss rule bars BlueRadios’ claim for civil theft. We disagree and hold that the judge-made economic loss rule cannot bar a statutory cause of action. Accordingly, we affirm the judgment of the court of appeals and remand the case for further proceedings consistent with this opinion.^[1]

          I. Facts and Procedural History

         [¶4] Petitioner Chris Bermel worked as an engineer for Respondent, BlueRadios, Inc., starting in June 2009. As part of their working relationship, Bermel and BlueRadios entered into certain agreements, including a "Contractor Agreement" setting forth Bermel’s work duties and compensation and a "Proprietary Information and Inventions Agreement" governing Bermel’s access to BlueRadios’ company information and materials (collectively, "the Agreements"). Paragraph 6 of the Contractor Agreement, which addresses "Confidential or Proprietary Information," incorporated the Proprietary Information and Inventions Agreement in its entirety.

         [¶5] The Agreements defined "Proprietary Information" to include any information "developed, created, or discovered by or on behalf of [BlueRadios]" that "has commercial value in [BlueRadios’] business," and they further defined "Company Materials" to include "documents or other media or tangible items that contain or embody Proprietary Information or any other information concerning the business, operations or plans of [BlueRadios]."

         [¶6] The Agreements prohibited Bermel from "remov[ing] any Company Materials [including Proprietary Information] from the business premises of [BlueRadios] ..., except as [Bermel was] required to do in connection with performing [his] duties" under the Contractor Agreement. Additionally, the Agreements required Bermel to return Company Materials upon the termination of his working arrangement with BlueRadios. The Contractor Agreement provided that BlueRadios would be entitled to injunctive relief if Bermel revealed or threatened to reveal confidential information or trade secrets without authorization.

         [¶7] Anticipating that he might end up in litigation with BlueRadios, Bermel knowingly forwarded thousands of emails and attachments in his BlueRadios business email account to his personal Gmail account without authorization in June or July 2014. These forwarded emails contained confidential and proprietary information, including trade secrets.

         [¶8] In August 2014, Bermel filed suit against BlueRadios, asserting that BlueRadios owed him unpaid wages and expenses he incurred on behalf of the business. Bermel brought claims for breach of contract, unjust enrichment, and violation of the Colorado Wage Protection Act, § 8-4-109(1)(a), (b), C.R.S. (2018).

         [¶9] Alleging that Bermel had improperly taken confidential and proprietary information from the company, BlueRadios filed counterclaims against Bermel, including claims for breach of contract, civil theft, conversion, and violation of the Uniform Trade Secrets Act ("UTSA").

         [¶10] Bermel moved for summary judgment on BlueRadios’ counterclaims. The trial court initially granted the motion as to the UTSA counterclaim and denied the motion as to the remaining counterclaims. However, the trial court later granted BlueRadios’ motion to reconsider its ruling as to the UTSA counterclaim and allowed all of BlueRadios’ counterclaims to proceed to a bench trial.

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         [¶11] After the close of evidence at trial, Bermel moved for a directed verdict on BlueRadios’ civil theft counterclaim, arguing that this counterclaim was barred by the economic loss rule. The court denied Bermel’s motion, reasoning that the economic loss rule does not bar a statutory cause of action. Ultimately, the court found Bermel liable on all of BlueRadios’ counterclaims, awarding BlueRadios $ 200 in statutory damages on the civil theft and conversion counterclaims^[2] and $ 1 in nominal damages on each of the other counterclaims under the UTSA and for breach of contract.

         [¶12] The court of appeals affirmed the trial court’s conclusion that the economic loss rule did not bar BlueRadios’ civil theft counterclaim. Bermel v. BlueRadios, Inc., 2017 COA 20, ¶ 29, __ P.3d __. The court reasoned that the economic loss rule is "a judge-made" rule intended to "maintain the boundary between the law of contracts and torts," whereas civil theft is a "legislatively created cause of action." Id. at ¶¶ 23-24. The court thus concluded that, under separation of powers principles, the judicially constructed economic loss rule cannot preclude a statutory claim for civil theft. Id. at ¶¶ 24-29.

         [¶13] The division below acknowledged its disagreement with a different division’s ruling in Makoto USA, Inc. v. Russell, 250 P.3d 625 (Colo.App. 2009). The Makoto division held that the economic loss rule barred a plaintiff’s civil theft claim because there was no indication that the legislature intended for the rights in stolen property statute to provide a remedy in addition to the plaintiff’s existing contract law remedies. Id. at 629.

         [¶14] We granted Bermel’s petition for a writ of certiorari to review the court of appeals’ ruling on BlueRadios’ civil theft counterclaim.^[3]

          II. Analysis

         [¶15] Under Colorado’s economic loss rule, "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). Our previous cases have applied the economic loss rule to bar only certain common law negligence claims. Today, we are asked to determine whether the judge-made economic loss rule may also bar a statutory cause of action. In particular, we are asked to decide whether the economic loss rule may bar a claim for civil theft under section 18-4-405 where the theft also constitutes a breach of the parties’ contract.

         [¶16] Bermel urges us to adopt the reasoning of the Makoto division and hold that the legislature did not intend to make redress under section 18-4-405 available in breach-of-contract cases. He argues that because forwarding himself Company Materials breached his Agreements with BlueRadios, the economic loss rule bars the company from asserting a counterclaim against him under the civil theft statute for the same conduct.

         [¶17] BlueRadios responds that the division below correctly held that the economic loss rule does not bar statutory claims for civil theft, and asks us to affirm that holding.

         [¶18] We begin by reviewing our adoption and previous applications of the economic loss rule, noting that we have applied the rule only to common law tort claims for negligence and negligent misrepresentation, and have never addressed whether the rule bars statutory claims for civil theft. Next, we describe the split of authority in the court of appeals on that question. We then consider BlueRadios’ argument that civil theft is not a tort, and therefore that recovery for civil theft cannot be barred by the economic loss rule. Ultimately, we conclude that, even if civil theft is a claim sounding in tort, separation of powers principles dictate that the judge-made economic loss rule cannot bar a statutory cause of action. We observe that it

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would be particularly inappropriate to apply the economic loss rule to bar statutorily imposed liability for intentionally wrongful conduct. Accordingly, we affirm the judgment of the court of appeals and remand with instructions to return the case to the trial court for further proceedings consistent with this opinion.^[4]

          A. Colorado’s Economic Loss Rule

         [¶19] Broadly speaking, the economic loss rule is a judge-made doctrine that "serves to maintain a distinction between contract and tort law." Alma, 10 P.3d at 1262. Under Colorado’s rule as we announced it in Alma, "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." Id. at 1264.

         [¶20] In adopting the economic loss rule in Colorado, we expressed concern about imposing both contract and tort liability for the same economic injury. We compared contract and tort law, observing that "contract obligations arise from promises made between parties," whereas "[t]ort obligations generally arise from duties imposed by law ... without regard to any agreement or contract." Id. at 1262. We reasoned that "[l]imiting the availability of tort remedies" for economic losses when a contract exists between the parties holds parties to the terms of their bargain and serves to "encourage parties to confidently allocate risks and costs ... without fear that unanticipated liability may arise in the future."^[5]Id. Relatedly, we were concerned that the threat of liability in tort for a breach of contract causing only economic losses might undermine the parties’ expectations.^[6]Id. In ...