Oilman International, FZCO v. Neer et al

Filing 123

ORDER. The 106 Recommendation of United States Magistrate Judge is accepted in part. Plaintiff's 96 Motion for Default Judgment Pursuant to Fed. R. Civ. P. 16(f) is granted in part and denied in part. Upon entry of final judgment in this cas e, default judgment shall be entered in favor of plaintiff and against defendant Marvin Bruce Neer in the amount of $462,550. Plaintiff's claim for civil theft against defendant Marvin Bruce Neer is dismissed. Defendant Marvin Bruce Neer shall be precluded from introducing any evidence in defense of plaintiff's claims of fraudulent conveyance and imposition of a constructive trust or equitable lien. By Judge Philip A. Brimmer on 7/11/12.(mnfsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 10-cv-02810-PAB-BNB
OILMAN INTERNATIONAL, FZCO,
Plaintiff,
v.
MARVIN BRUCE NEER, d/b/a TREE MACHINES, a/k/a Marvin Bartolome, and
JESUSA S. NEER a/k/a Jesusa S. Bartolome,
Defendants.
_____________________________________________________________________
ORDER
_____________________________________________________________________
This matter is before the Court on the Recommendation of United States
Magistrate Judge (the “Recommendation”) [Docket No. 106]. The magistrate judge
recommends that the Court grant plaintiff’s motion for default judgment pursuant to
Fed. R. Civ. P. 16(f) [Docket No. 96] against defendant Marvin Bruce Neer. The
Recommendation states that objections to the Recommendation must be filed within
fourteen days after its service on the parties. See 28 U.S.C. § 636(b)(1)(C). The
Recommendation was served on April 20, 2012. No party has objected to the
Recommendation.
In the absence of an objection, the district court may review a magistrate judge’s
recommendation under any standard it deems appropriate. See Summers v. Utah, 927
F.2d 1165, 1167 (10th Cir. 1991); see also Thomas v. Arn, 474 U.S. 140, 150 (1985)
(“[i]t does not appear that Congress intended to require district court review of a
magistrate’s factual or legal conclusions, under a de novo or any other standard, when

neither party objects to those findings”). In this matter, the Court will review the
Recommendation to satisfy itself that there is “no clear error on the face of the record.”1
Fed. R. Civ. P. 72(b), Advisory Committee Notes. Having engaged in that review, the
Court will accept the recommendation that default judgment enter against Mr. Neer.
The Recommendation proceeded to address the “nature of the default judgment”
that should enter. In its amended complaint, plaintiff summarized that it seeks
pursuant to Colorado law to claim damages from a fraud perpetrated by the
Defendant, Mr. Marvin Bruce Neer, on the Plaintiff, Oilman International,
FZCO, by (1) misrepresenting the material specifications of two new
Caterpillar land-based engines that were required by the Plaintiff in its
business of supplying equipment to the Middle East oil industry; (2)
receiving the contract price of $559,723.66 U.S.D. from the Plaintiff; (3)
failing to deliver the two new Caterpillar land-based engines as requested
by the Plaintiff; and (4) failing to refund the contract price to the Plaintiff.
Instead, Mr. Neer paid another broker $280,000.00 U.S.D. for two used
non-conforming engines, and transferred the balance he received from
Oilman International, FZCO, with the exception of $55,000.00 U.S.D., to his
wife [defendant Jesusa S. Neer], in a fraudulent conveyance.
Docket No. 60 at 1-2. Plaintiff brings claims against Mr. Neer for breach of contract,
fraudulent misrepresentation, fraudulent concealment, and civil theft.2 In a March 29,
2012 order, the Court granted plaintiff leave to elect its remedies and address the
potential implications of Colorado’s economic loss rule. In response, plaintiff elected to

1

This standard of review is something less than a “clearly erroneous or contrary
to law” standard of review, Fed. R. Civ. P. 72(a), which in turn is less than a de novo
review. Fed. R. Civ. P. 72(b).
2

In its complaint, plaintiff also seeks to recover on its claim for fraudulent
conveyance and requests imposition of a constructive trust or equitable lien, but the
Recommendation construed its motion for default judgment as omitting these requests.
The magistrate judge recommends that Mr. Neer nevertheless should be barred from
introducing any evidence in defense of these claims. In regard to this aspect of the
Recommendation, the Court identifies “no clear error on the face of the record.” Fed.
R. Civ. P. 72(b), Advisory Committee Notes.
2

affirm the contract with Mr. Neer so as to proceed on its breach of contract claim.
Plaintiff also seeks to proceed on its claims for fraudulent misrepresentation, fraudulent
concealment, and civil theft, arguing that Colorado’s economic loss rule does not
preclude the claims under the circumstances presented here. The Recommendation
agreed.
As the Court noted in its March 29 order, the Colorado Supreme Court held in
Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256 (Colo. 2000), “that a party suffering
only economic loss from the breach of an express or implied contractual duty may not
assert a tort claim for such breach absent an independent duty of care under tort law.”
Id. at 1264.3 To determine whether a separate tort action may proceed, courts must
identify “the source of the duties of the parties.” Id. at 1262. The Town of Alma court
“recognized that certain common law claims that sound in tort and are expressly
designed to remedy economic loss may exist independent of a breach of contract
claim.” Id. at 1263 (citing cases arising out of common law fraud and negligent
misrepresentation) (emphasis added).4

3

The Colorado Supreme Court has since identified “three main policy reasons”
that support the application of the rule “between and among commercial parties . . . :(1)
to maintain a distinction between contract and tort law; (2) to enforce expectancy
interests of the parties so that they can reliably allocate risks and costs during their
bargaining; and (3) to encourage the parties to build the cost considerations into the
contract because they will not be able to recover economic damages in tort.” BRW, Inc.
v. Dufficy & Sons, Inc., 99 P.3d 66, 72 (Colo. 2004).
4

Cf. Hamon Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 291 (Colo.
App. 2009) (“The court did not articulate any sweeping principle exempting
post-contractual fraud claims from the ambit of the economic loss rule.”)
3

The Court need not determine whether the economic loss rule bars plaintiff’s
fraudulent concealment and fraudulent misrepresentation claims. As the
Recommendation notes, plaintiff seeks the difference between the contract price paid
to Mr. Neer ($559,800) and the amount it received upon sale of the noncomplying
engines ($157,250), or $402,550, as well as consequential damages of $60,000 on its
breach of contract and fraud claims. Because plaintiff will recover these damages on
its breach of contract claim, the Recommendation concluded that plaintiff may not
recover them again on the separate fraud claims. Plaintiff does not object to this
conclusion, and the Court finds “no clear error on the face of the record,” Fed. R. Civ. P.
72(b), Advisory Committee Notes, in that regard.
Plaintiff, however, also seeks to recover treble damages along with costs and
attorney’s fees on its civil theft claim against Mr. Neer. See Colo. Rev. Stat. § 18-4-405;
see Huffman v. Westmoreland Coal Co., 205 P.3d 501, 509 (Colo. App. 2009) (stating
that the elements of a civil theft claim are as follows: “(1) defendant knowingly obtained
control over his property without authorization and (2) defendant did so with the specific
intent to permanently deprive him of the benefit of the property”). 5 Here, plaintiff’s
5

In concluding that plaintiff was permitted to proceed both on its breach of
contract and civil theft claims, the Recommendation relied upon United Int’l Holdings,
Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207 (10th Cir. 2000). The Wharf court
concluded that the economic loss rule did not bar claims for breach of fiduciary duty,
where an independent duty arose “from the parties’ status as joint venturers,” or for
fraud and negligent misrepresentation, noting that an independent duty arises “where it
appears two parties have in good faith entered into a contract but, in actuality, one party
has deliberately made material false representations of past or present fact, has
intentionally failed to disclose a material past or present fact, or has negligently given
false information with knowledge that the other party would act in reliance on that
information in a business transaction with a third party.” Wharf, 210 F.3d at 1227
(emphasis in original). The fact that certain misrepresentations, under appropriate
4

breach of contract and civil theft claim are “inextricably intertwined [in that] the latter
could not be proven without first proving the former.” Makoto USA, Inc. v. Russell, 250
P.3d 625, 629 (Colo. App. 2009). To be truly independent of the contract, the duty (1)
“must arise from a source other than the relevant contract,” and (2) “must not be a duty
also imposed by the contract.” Haynes Trane Service Agency, Inc. v. American
Standard, Inc., 573 F.3d 947, 962 (10th Cir. 2009) (citations omitted) (interpreting
Colorado economic loss rule).
Here, Mr. Neer’s failure to produce the requisite engines in exchange for the
contractually agreed-upon payment cannot support both plaintiff’s breach of contract
and civil theft claims. Cf. H & H Distributors, Inc. v. BBC Int’l, Inc., 812 P.2d 659, 662
(Colo. App. 1990) (“A claim for the tort of fraud cannot be predicated upon the mere
nonperformance of a promise or contractual obligation or upon the failure to fulfill an
agreement to do something at a future time.”). In support of its breach of contract claim,
plaintiff alleges that Mr. Neer was required to supply specific engines in exchange for its
payment. Plaintiff’s civil theft claim essentially alleges that he wrongfully retained
plaintiff’s payment despite his failure to supply the engines. This is merely a recasting of
the breach of contract claim. See Makoto, 250 P.3d at 629 (“[E]conomic loss rule
circumstances, may support independent tort claims does not open the door to
plaintiff’s civil theft claim here.
The Court notes that the Wharf court stated that it was “settled in Colorado that
the economic loss rule applies only to tort claims based on negligence, and only to
some negligence claims.” Wharf, at 1226 (emphasis in original). Although the
economic loss rule is most commonly applied to negligence claims, the Colorado
Supreme Court has since made clear that Town of Alma “did not draw any bright lines
among types of torts (e.g., fraud, negligence) that are always barred by the economic
loss rule, those that may be barred, and those that are never barred.” Hamon
Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 291 (Colo. App. 2009).
5

preclud[es] contract cases from being ‘recast as tort cases in order to escape the
limitations that the law has placed on suits for breach of contract.’”) (quoting Richard A.
Posner, Common-Law Economic Torts: An Economic and Legal Analysis, 48 Ariz. L.
Rev. 735, 745 (2006)).6
To the extent plaintiff argues that it was wrongfully induced into making the
payment by Mr. Neer’s false statements, it seeks to affirm the contract and, therefore,
has sought to bind itself and Mr. Neer to the terms of the agreement. Cf. Makoto, 250
P.3d at 628 (“Plaintiff relies on Rhino Fund, LLLP v. Hutchins . . ., the only reported case
to consider Colorado’s economic loss rule and a civil theft claim. Rhino Fund held a civil
theft claim was not barred by the economic loss rule, where: (1) the investment manager
stole escrowed monies that he had no right to take for his personal benefit; and (2) the
investor ‘ha[d] no contractual remedy’ because the manager was not a party to the
investment contract.”) (citations omitted). Having done so, plaintiff fails to explain how it
could establish its civil theft claim without first proving a breach of the contract or why it
would be entitled to civil theft damages arising out of that breach.7 See Gross v.

6

Cf. Makoto, 250 P.3d at 629 (“There is no indication that the stolen property
statute was intended to expand contractual remedies. To the contrary, that statute,
which dates to 1861, has been construed narrowly in contract cases precisely to avoid
expanding contractual remedies.”).
7

See Makoto, 250 P.3d at 628:
The theft claim could not have been proven without first proving that
defendants also breached their contract with plaintiff. Defendants were
entitled, on the face of the contract, to all the monies paid by plaintiff,
including the last payment of $50,000 that plaintiff contends was stolen by
defendants. In return for these payments, defendants had reciprocal
contractual duties to deliver the utility patent and other property to plaintiff.
Had defendants complied with their reciprocal contractual duties, plaintiff
would have no colorable claim that defendants “stole” a contractual
6

Silverberg, No. 10-cv-00687-REB-BNB, 2010 WL 5147594, at *4 (D. Colo. Dec. 13,
2010) (“Nothing . . . suggests that defendants obtained from plaintiffs anything other
than the money that was to be invested in the properties or that defendants failed to
return to plaintiffs anything other than the payments contemplated by the notes. This
claim, thus, is not independent of the contract, because the source of the alleged duty is
one also imposed by the contract.”); see also Western Convenience Stores, Inc. v.
Thielen, No. 09-cv-02626-LTB-BNB, 2011 WL 866755, at *7 (D. Colo. March 14, 2011).
Therefore, the Court finds that plaintiff may not recover treble damages, costs or fees8
pursuant to Colorado’s civil theft statute.
For the foregoing reasons, it is
ORDERED as follows:
1. The Recommendation of United States Magistrate Judge [Docket No. 106] is
ACCEPTED in part.
2. Plaintiff’s Motion for Default Judgment Pursuant to Fed. R. Civ. P. 16(f)
[Docket No. 96] is GRANTED in part and DENIED in part.
3. Upon entry of final judgment in this case, default judgment shall be entered in
favor of plaintiff and against defendant Marvin Bruce Neer in the amount of $462,550.
4. Plaintiff’s claim for civil theft against defendant Marvin Bruce Neer is
dismissed.

payment.
8

Plaintiff, however, will be entitled, upon entry of final judgment in this case, to
seek its costs pursuant to Fed. R. Civ. P. 54(d)(1). Furthermore, this order does not
foreclose plaintiff from filing a motion for its attorney’s fees pursuant to Fed. R. Civ. P.
54(d)(2) upon some other basis for their recovery.
7

5. Defendant Marvin Bruce Neer shall be precluded from introducing any
evidence in defense of plaintiff’s claims of fraudulent conveyance and imposition of a
constructive trust or equitable lien.

DATED July 11, 2012.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

8