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Alvarez LLC v. Blazar Technology Solutions LLC

United States District Court, D. Colorado

July 16, 2019

ALVAREZ LLC, Plaintiff,



         Three motions for summary judgment are before the Court. ECF Nos. 111-113. The motions became ripe for review upon the filing of five reply briefs. The first two motions were submitted by defendants Epoch Concepts, LLC (“Epoch”) and Anacapa Micro Products, Inc. (“Anacapa”). ECF Nos. 111 and 112. Epoch and Anacapa seek summary judgment on the two claims asserted against them: aiding and abetting a breach of fiduciary duty and joint venture liability. Both motions are substantively similar and thus are treated the same for the purposes of this order. In the final motion, ECF No. 113, plaintiff Alvarez LLC moves for partial summary judgment against defendants Jon Wright and Michael Weiland. Specifically, plaintiff requests that the Court, as a matter of law, first determine that Messrs. Wright and Weiland owed fiduciary duties to plaintiff, and then determine that they breached those duties. ECF No. 113 at 16-19.

         Having reviewed the motions, responses, and reply briefs, it is evident to me that genuine fact disputes surrounding the claims at issue mandate that I deny all three motions.[1]Nevertheless, there are certain questions of law that the parties raise in their respective motions, and I will address those issues in turn to assist the parties with their trial preparation.

         A. Epoch's and Anacapa's Motions for Summary Judgment, ECF Nos. 111 and 112.

         1. The Knowledge Standard Governing Plaintiff's Aiding and Abetting Claims.

         In their motions, Epoch and Anacapa argue that plaintiff's aiding and abetting claims fail as a matter of law because plaintiff cannot meet the heavy burden of showing that Epoch or Anacapa had “actual knowledge” of the predicate breach of fiduciary duty. ECF No. 111 at 10; ECF No. 112 at 8. In response, plaintiff argues that summary judgment on this issue is improper because the standard for proving knowledge is not established in Colorado. ECF No. 122 at 12; ECF No. 123 at 13. As such, plaintiff argues that “constructive knowledge” of the underlying breach should suffice, but nonetheless, suggests that factual disputes concerning Epoch's and Anacapa's knowledge of the breach under either standard prevents summary judgment. As I stated above, I agree with plaintiff that issues of material fact exist as to whether Epoch and Anacapa had knowledge of the underlying breach. However, I will address the legal standard governing the knowledge requirement.

         Colorado courts first recognized the tort of aiding and abetting a breach of fiduciary duty in Holmes v. Young, 885 P.2d 305, 309 (Colo.App. 1994). This tort requires a plaintiff to satisfy the following elements: “(1) breach by a fiduciary of a duty owed to a plaintiff, (2) a defendant's knowing participation in the breach, and (3) damages.” Nelson v. Elway, 971 P.2d 245, 249 (Colo.App. 1998) (emphasis added) (citing Holmes, 885 P.2d at 309). Moreover, the Colorado Court of Appeals has added an “additional” element to compliment the second element above- defendant “must give substantial assistance to the other's breach.” Id. at 249-50 (citing Restatement (Second) of Torts § 876(b)).

         The parties dispute the meaning of knowing participation in the second element, which was an issue that the Holmes court recognized but did not decide. In Holmes, the court relied on two cases as a guide to developing the requisite elements for the tort of aiding and abetting a breach of fiduciary duty. 885 P.2d at 308-09. In the first case, Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270 (2d Cir. 1992), the court noted that Diduck required the plaintiff to show actual knowledge. Id. at 310. In contrast, the second case, Terrydale Liquidating Trust v. Barness, 611 F.Supp. 1006 (S.D.N.Y. 1984), simply required a showing of constructive knowledge. Id. (noting that the Terrydale court found that the defendant was “on notice” that the breach may have been occurring and therefore triggering a duty to investigate). The Holmes decision determined that the plaintiff failed to show knowledge under either standard. Id.

         Plaintiff's counsel has represented to the Court that it has not found any reported Colorado appellate decisions resolving the issue. ECF No. 122 at 12. The Court hasn't located any either. And, Epoch and Anacapa fail to cite any Colorado case to support their position. See ECF No. 111 at 10-11; ECF No. 112 at 10. But they do cite a District of Colorado case. In Sender v. Mann, the court noted that “aiding and abetting requires actual knowledge and is not satisfied by reckless or negligent conduct.” 423 F.Supp.2d 1155, 1176 (D. Colo. 2006) (citing Stat-Tech Liquidating Trust v. Fenster, 981 F.Supp. 1325, 1339-40 (D. Colo. 1997)).[2] In Stat-Tech, however, the court did not address the knowledge standard. Rather, in deciding the standard for aiding and abetting common law fraud, the court ruled that

[u]nder Holmes, liability for aiding and abetting a common law tort may only be imposed on those who knew that the tort was being committed and who understood in a general sense what their role was in conjunction with the tortious activity. In short, the defendant must be aware that his conduct is assisting another in the commission of a tortious act.

Stat-Tech, 981 F.Supp. at 1339.

         Even though I find that the issue is unsettled under Colorado law, I nevertheless must determine which standard governs for trial. While I don't necessarily agree with the Sender court's reading of Stat-Tech, I agree that actual knowledge is required for plaintiff to meet its burden, and I predict that the Colorado Supreme Court would take this same approach. For one thing, it would be difficult for a defendant to “knowingly and substantially assist[] the principal violation” without having actual knowledge of the wrongdoing. Holmes, 885 P.2d at 308. Plus, the jury can infer actual knowledge from circumstantial evidence. Cf. Rider v. Werholtz, 548 F.Supp.2d 1188, 1196 (D. Kan. 2008) (citing Farmer v. Brennan, 511 U.S. 825, 838 (1994)) (noting that in an Eighth Amendment deliberate indifference claim, “a factfinder may infer actual knowledge [of a substantial risk to inmate safety] through circumstantial evidence”). This allows plaintiff to present its circumstantial evidence to the jury to help prove that Epoch and Anacapa had actual knowledge that Messrs. Wright and Weiland were violating fiduciary duties allegedly owed to plaintiff.

         2. The Validity of Epoch's and Anacapa's Joint Venture Disclaimer.

         Plaintiff's fifth and sixth claims for relief are titled “Joint Venture-Defendants Blazar and Epoch” and “Joint Venture-Defendants Blazar and Anacapa.” The purpose of these two claims, according to the third amended complaint, is to hold Epoch and Anacapa vicariously liable for the alleged tortious conduct of Blazar and Blazar's two principals, Messrs. Wright and Weiland. In Colorado, a joint venture relationship exists when there is (1) joint interest in the property by the parties sought to be held as partners; (2) an agreement, express or implied, to share in the profits ...

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