American Web, Inc. v. Flom Corporation

Filing 95

ORDER. ORDERED that Flom Corporations Amended Partial Motion to Dismiss American Web, Inc.'s Third Amended Complaint 62 is GRANTED IN PART and DENIED IN PART by Judge Wiley Y. Daniel on 03/25/13.(jjhsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior Judge Wiley Y. Daniel
Civil Action No. 11-cv-02444-WYD-KMT
AMERICAN WEB, INC.,
Plaintiff,
v.
FLOM CORPORATION;
LLOYD S. STIRMER;
PETER O. ABELES; and,
JOHN DOE TRUSTEE(S) of the STIRMER TRUST,
Defendants.

ORDER

THIS MATTER is before the Court on Flom Corporation’s Amended Partial
Motion to Dismiss American Web, Inc.’s Third Amended Complaint [ECF No. 62]. For
the reasons discussed below, the motion is GRANTED IN PART and DENIED IN PART.
BACKGROUND
On September 16, 2011, American Web, Inc. (“AmWeb”) filed this suit against
Flom Corporation (“Flom”) seeking a declaratory judgment and constructive trust, and
alleging the following claims: (1) breach of contract for underpayment and nonpayment;
(2) breach of duty of good faith and fair dealing; (3) conversion; (4) fraud by deceit; and,
(5) negligent misrepresentation.
AmWeb is a commercial printing company which, in connection with its business
operations, produces wastepaper. Flom provides consulting services to wastepaper
producers with regard to their recycling options. Defendant, Peter O. Abeles, is a 50%
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owner and Chairman of Flom’s Board of Directors. Defendant, Lloyd S. Stirmer, is
Flom’s President. The John Doe Trustees of the Stirmer Trusts own 46% of Flom.
In 1986, Abeles visited Colorado to discuss the possibility of entering into a
contract with AmWeb regarding wastepaper recycling. In September 2006, AmWeb
and Flom entered the Wastepaper Supply and Equipment Access Agreement (“the
Wastepaper Agreement”) [ECF No. 65-3] in which Flom agreed to purchase all of
AmWeb’s marketable wastepaper and pay AmWeb “in accordance with the prevailing
market conditions.” ECF No. 65-3, p.1, ¶ 3. For five years, Flom purchased wastepaper
from AmWeb on a monthly basis.
After selling wastepaper to Flom for five years, AmWeb obtained a commercially
available schedule of rates considered to be the prevailing market prices for wastepaper
that are paid by consuming paper mills. AmWeb alleges that according to these rates,
Flom has grossly under-compensated AmWeb for its wastepaper purchases dating
back to the beginning of the parties’ business relationship. Following this discovery,
AmWeb ceased its wastepaper shipping operation to Flom in August 2011. At that time,
Flom allegedly owed AmWeb for twelve shipments made since July 1, 2011. According
to AmWeb, Flom should have paid AmWeb for these shipments by November 5, 2011.
AmWeb alleges that Flom has not paid for these final twelve shipments.
On September 16, 2011, AmWeb filed this lawsuit against Flom, Stirmer, Abeles,
and the John Doe Trustees of the Stirmer Trust. AmWeb seeks a declaratory judgment
regarding its rights and obligations under the Wastepaper Agreement and requests this
Court to impose a constructive trust on the funds Flom allegedly withheld from AmWeb
by not paying AmWeb for wastepaper in accordance with prevailing market conditions.

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AmWeb also alleges the following claims: (1) breach of contract for underpayments; (2)
breach of contract for nonpayment; (3) breach of duty of good faith and fair dealing; (4)
conversion; (5) fraud; and, (6) negligent misrepresentation. On May 30, 2012, Flom
filed an Amended Partial Motion To Dismiss Third Amended Complaint [ECF No. 62],
arguing that: (1) Colorado’s Economic Loss Rule (“ELR”) bars AmWeb’s tort claims;
and, (2) this Court lacks personal jurisdiction over Abeles.
ANALYSIS
A. Legal Standard for a Motion to Dismiss Pursuant to FEDERAL RULE of CIVIL
PROCEDURE 12(b)(6)
FED. R. CIV. P. 12(b)(6) provides that a defendant may move to dismiss a claim
for “failure to state a claim upon which relief can be granted.” “The court’s function on a
Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at
trial, but to assess whether the plaintiff’s complain alone is legally sufficient to state a
claim for which relief may be granted.” Dubbs v. Head Start, Inc.. 336 F.3d 1194, 1201
(10th Cir. 2003) (citations and quotation marks omitted). “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.
Ct. 1937 (2007).
In ruling on a motion to dismiss pursuant to FED. R. CIV. P. 12(b)(6), I “‘must
accept all the well-pleaded allegations of the complaint as true and construe them in the
light most favorable to the plaintiff.’” David v. City and County of Denver, 101 F.3d 1344,
1352 (10th Cir. 1996), cert. denied, 522 S.Ct. 858 (1997) (citations omitted). The plaintiff
“must ‘nudge [][his] claims across the line from conceivable to plausible.’” Dennis v.
Watco Co., Inc., 631 F.3d 1303, 1305 (10th Cir. 2011) (quoting Bell Atl. Corp. v.
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Twombly, 550 U,S, 544, 570 (2007)). Conclusory allegations are not sufficient to survive
a motion to dismiss. Gallagher v. Shelton, 587 F.3d 1063, 1068 (10th Cir. 2009); see
also Twombly, 550 U.S. at 546 (2007) (The plaintiff’s burden “requires more than labels
and conclusion, and a formulaic recitation of the elements of the cause of action will not
do”). General allegations “encompass[ing] a wide swath of conduct, much of it innocent”
will fail to state a claim. Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008).
B. Personal Jurisdiction
Flom argues that this Court lacks personal jurisdiction over Abeles and the
Stirmer Trust.
“To obtain personal jurisdiction over a non-resident defendant in a diversity
action, a plaintiff must show that jurisdiction is legitimate under the laws of the forum
state and that the exercise of jurisdiction does not offend the due process clause of the
Fourteenth Amendment.” Far W. Capital, Inc. v. Towne, 46 F.3d 1071, 1074 (10th Cir.
1995) (citation omitted). Thus, a Court must engage in a two prong analysis in which it
“must initially determine whether the exercise of jurisdiction is sanctioned by the
Colorado long-arm statute, which is a question of state law, and then determine whether
the exercise of jurisdiction comports with the due process requirements of the
Constitution.” Wenz v. Memery Crystal, 55 F.3d 1503, 1506-07 (10th Cir. 1995) (internal
citations omitted). The United States Court of Appeals for the Tenth Circuit and the
Colorado Supreme Court have held that Colorado’s long arm statute extends personal
jurisdiction to the greatest extent permitted by due process, obviating the need for a
statutory long arm analysis independent of the due process inquiry. AST Sports Sci.,
Inc. v. CLF Distrib. Ltd., 514 F.3d 1054, 1057 (10th Cir. 2008) (citations and internal

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quotation marks omitted) (“The Colorado Supreme Court has interpreted Colorado’s
long-arm statute to extend jurisdiction to the fullest extent permitted by the Due Process
Clause of the Fourteenth Amendment. This interpretation obviates the need for [a longarm] statutory analysis separate from the due process inquiry . . . ”); Dwyer v. Dist. Ct.,
Sixth Judicial Dist., 532 P.2d 725, 726-27 (Colo. 1975) (internal citations and quotation
marks omitted) (“[I]n enacting the Colorado Long Arm Statute, our legislature intended
to extend the jurisdiction of our courts to the fullest extent permitted by the due process
clause of the Fourteenth Amendment to the United States Constitution. Therefore, the
only question which we must determine is whether exercise of jurisdiction over the
petitioner comports with the protection of the due process clause”).
The due process analysis includes a two part inquiry: (1) whether the nonresident defendant has sufficient “minimum contacts” with the forum state; and, (2) if the
defendant has sufficient “minimum contacts” with the forum state, whether exercising
personal jurisdiction over the non-resident defendant would offend “traditional notions of
fair play and substantial justice.” AST Sports Sci., Inc., 514 F.3d at 1057. When
determining whether the non-resident defendant has sufficient minimum contacts with
the forum state, “we [must] ask whether the non-resident defendant has ‘minimum
contacts’ with the forum state such ‘that he should reasonably anticipate being haled
into court there.’” Id. (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286,
297 (1980)). The “minimum contacts” standard may be met in two ways, through
showing the existence of either general jurisdiction or specific jurisdiction. Trierweiler v.
Croxton and Trench Holding Corp., 90 F.3d 1523, 1532 (10th Cir. 1996). “Where a
court’s exercise of jurisdiction does not arise directly from a defendant’s forum-related

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activities, the court may nonetheless exercise general personal jurisdiction over the
defendant based on the defendant’s general business contacts with the forum state.”
OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir. 1998).
“However, ‘[b]ecause general jurisdiction is not related to the events giving rise to the
suit, courts impose a more stringent minimum contacts test, requiring the plaintiff to
demonstrate the defendant’s continuous and systematic general business contacts.” Id.
(internal quotations and citation omitted). In the absence of continuous and systematic
contacts, specific jurisdiction exists over a nonresident defendant when “the defendant
has purposefully directed his activities at residents of the forum, and the litigation results
from alleged injuries that arise out of or relate to those activities.” OMI Holdings, 149
F.3d at 1090-91 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72 (1985)
(internal quotation marks omitted)).
If the Court finds that the nonresident defendant has sufficient minimum contacts
with the forum state, “the court must see to it that the exercise of jurisdiction ‘does not
offend traditional notions of fair play and substantial justice.’” Trierweiler, 90 F.3d at
1532 (quoting World-Wide Volkswagon, 444 U.S. at 292). In determining such, the
Court considers the following factors:
(1) the burden on the defendant, (2) the forum state’s
interests in resolving the dispute, (3) the plaintiff’s interest in
receiving convenient and effectual relief, (4) the interstate
judicial system’s interest in obtaining the most efficient
resolution of controversies, and (5) the shared interest of the
several states or foreign nations in furthering fundamental
social policies.
Marcus Food Co. v. DiPanfilo, 671 F.3d 1159, 1167 (10th Cir. 2011) (citing Dudnikov v.
Chalk & Vermillion Fine Arts, 514 F.3d 1063, 1080 (10th Cir. 2008)). Traditional notions

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of fair play and substantial justice are not offended when a “district court’s exercise of
personal jurisdiction over a defendant with minimum contacts is reasonable in light of
the circumstances surrounding the case.” AST Sports Sci., Inc., 514 F.3d at 1061
(citation and internal quotation marks omitted).
1. Abeles
a. General Jurisdiction
AmWeb concedes that Abeles traveled to Colorado once in 1986 on behalf of
Flom [ECF No. 65, pp. 14-15] and does not allege that Abeles has been to Colorado
more than that one time. Abeles’s single trip to Colorado in 1986 does not constitute
continuous and systematic contact with Colorado. See Submersible Sys. v. Perforadora
Central, S.A. de C.V., 249 F.3d 413, 419 (5th Cir. 2001) (citation omitted) (“[T]he
continuous and systematic contacts test is a difficult one to meet, requiring extensive
contacts between a defendant and a forum”). Thus, my analysis turns to whether this
Court may exercise specific jurisdiction over Abeles.
b. Specific Jurisdiction
The cornerstone for asserting specific jurisdiction over a non-resident defendant
lies in the determination that the plaintiff’s cause of action arises out of or relates to the
defendant’s contact(s) with the forum state. Based on the facts presented, I find that
AmWeb’s cause of action does not arise from Abeles’s contacts with Colorado.
Abeles traveled to Colorado for the purpose of meeting with AmWeb during 1986
in order to sell Flom’s services. AmWeb suffered no injury and no detriment as a result
of Abeles’s 1986 trip to Colorado. AmWeb’s cause of action, mainly breach of contract,
is not related to Abeles’s 1986 trip to Colorado. AmWeb’s cause of action arises out of

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the alleged breach of the Wastepaper Agreement that the parties executed in
September 2006: twenty years after Abeles’s trip to Colorado. Abeles declares in his
declaration [ECF No. 61-1] that the last time he visited Colorado was over ten years
ago, for personal vacation, and he has not had any communication with AmWeb since
1992. Thus, AmWeb does not allege sufficient facts to establish a prima facie case that
this Court may exercise specific personal jurisdiction over Abeles. GCI 1985-1 Ltd. v.
Murray Properties Partnership, 770 F. Supp. 585, 587 (D. Colo. 1991) (citing Kennedy
v. Freeman, 919 F.2d 126, 128 (10th Cir. 1990)) (“To defeat [a] 12(b)(2) motion, [the
plaintiff] need only make a prima facie case of personal jurisdiction”). The parties
further present argument regarding whether the fiduciary shield doctrine precludes this
Court from exercising personal jurisdiction over Abeles. Because AmWeb’s cause of
action does not arise out of Abeles’s contacts with Colorado, I need not address this
argument.
Because Abeles does not have sufficient minimum contacts with Colorado, I
need not analyze whether exercising personal jurisdiction over him would offend
traditional notions of fair play and substantial justice. Therefore, for the reasons stated
above, Flom Corporation’s Amended Partial Motion to Dismiss American Web, Inc.’s
Third Amended Complaint [ECF No. 62] is GRANTED to the extent that Flom seeks
dismissal of all claims against Abeles for lack of personal jurisdiction. All claims
asserted against Abeles are DISMISSED WITH PREJUDICE.
2. The Stirmer Trusts
“Actions regarding trusts must be brought in a proper court having jurisdiction,
and a court must have jurisdiction over either the trustee or the trust property in order to

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exercise power over the trust.” 76 Am. Jur. 2d Trusts § 601. AmWeb does not fully
allege facts surrounding the Stirmer Trust. However, Stirmer’s Declaration [ECF No.
61-2] provides clarity. Stirmer declares that he is the trustee of two trusts: (1) the
Stirmer Qualified Subchapter S Trust FBO Stacey Stirmer; and, (2) the Stirmer Qualified
Subchapter S Trust FBO Lloyd Stirmer. ECF No. 61-2, p. 1, ¶ 1. Stirmer refers to these
two trusts collectively as the Stirmer Trusts. Id.
Because Stirmer is the trustee of the trusts, I must look to his contacts with
Colorado to determine whether this Court has jurisdiction over the Stirmer Trusts.
However, this inquiry is not necessary because the Defendants waived any objection to
this Court exercising personal jurisdiction over Stirmer when they filed their Partial
Motion to Dismiss Third Amended Complaint [ECF No. 61] and did not raise lack of
personal jurisdiction over Stirmer. United States v. Foster, 4 Fed. Appx. 605, 607 n.2
(10th Cir. 2001) (“Personal jurisdiction is a waivable defense. See FDIC v. Oaklawn
Apartments, 959 F.2d 170, 174-75 (10th Cir. 1992). Any objection a party may have to
the court’s exercise of personal jurisdiction over it must be asserted in the answer or in
a pre-answer motion”); Travelers Cas. & Sur. Co. of Am. V. Unistar Fin. Serv. Corp., 35
Fed. Appx. 787, 789 (10th Cir. 2002) (internal quotations marks omitted) (“In addition,
Rule 12(h)(1) specifically states that the defense of lack of personal jurisdiction is
waived if omitted from a motion in the circumstances described in [Rule 12(g)]”).
Because the Defendants waived any objection to this Court’s exercise of personal
jurisdiction over Stirmer, I find that this Court has jurisdiction over the Stirmer Trusts.
Thus, Flom Corporation’s Amended Partial Motion to Dismiss American Web, Inc.’s

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Third Amended Complaint [ECF No. 62] is DENIED to the extent that is seeks dismissal
of AmWeb’s constructive trust claim.
C. Colorado’s Economic Loss Rule (“ELR”)
AmWeb assets three tort claims against Flom: (1) conversion (Claim 5); (2) fraud
by deceit (Claim 6); and, (3) negligent misrepresentation (Claim 7). Flom argues that
Colorado’s ELR bars AmWeb’s tort claims.1
Under Colorado’s ELR, “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.” Town of Alma v. AZCO Constr.,
Inc., 10 P.3d 1256, 1264 (Colo. 2000). “[T]he question of whether the plaintiff may
maintain an action in tort for purely economic loss turns on the determination of the
source of the duty [the] plaintiff claims the defendant owed.” Id. at 1262. “Contract
obligations arise from promises the parties have made to each other, while tort
obligations generally arise from duties imposed by law to protect citizens from the risk of
physical harm or damage to their personal property.” A.C. Excavating v. Yacht Club II
Homeowners Ass’n., 114 P.3d 862, 865-66 (Colo. 2005) (citing BRW, Inc. v. Dufficy &
Sons, Inc., 99 P.3d 66, 72 (Colo. 2004)). “[A] duty separately recognized under tort law
is not independent if it is also imposed under the parties’ contract.” Good Time Rental,
LLC v. First Am. Title Agency, Inc., 259 P.3d 534, 537 (Colo. App. 2011); Haynes Trane
Serv. Agency v. Am. Std., Inc., 573 F.3d 947, 962 (10th Cir. 2009) (quoting BRW, 99
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Flom states that AmWeb argues that Colorado’s ELR does not apply because the Wastepaper
Agreement contains a choice of law provision stating that the “Agreement shall be construed in conformity
with the laws and State of Maryland.” ECF 65-3, p. 5, ¶ 16. However, AmWeb never presents this
argument in its Plaintiff’s Response In Opposition To Defendants’ Amended Partial Motion To Dismiss
Third Amended Complaint [ECF No. 65]. AmWeb’s arguments regarding the pending motion are based
on Colorado state law and neither AmWeb nor Flom argues that Maryland law applies to the claims
currently before me. Therefore, I need not address the applicability of the Wastepaper Agreement’s
choice of law provision at this time.

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P.3d at 74) (“[E]ven if the duty would be imposed in the absence of a contract, it is not
independent of a contract that ‘memorialize[s]’ it”). “Where there exists a duty of care
independent of any contractual obligations, the economic loss rule has no application
and does not bar a plaintiff’s tort claim because the claim is based on a recognized
independent duty of care and thus falls outside the scope of the economic loss rule.”
A.C. Excavating, 114 P.3d at 866 (citing Town of Alma, 10 P.3d at 1264).
Provisions two and three of the Wastepaper Agreement provide that, “AM Web
agrees to sell and FLOM agrees to buy all of AM Web’s output of marketable
Wastepaper . . . The price to be paid by [FLOM] for the various grades of Wastepaper
generated by AM Web will be in accordance with the prevailing market conditions.” ECF
No. 65-3, p. 1. Pursuant to these provisions, Flom had a contractual duty to pay
AmWeb for its wastepaper under prevailing market conditions, and failure to do so
would constitute a breach. Part and parcel of the Flom’s contractual duty to pay
according to prevailing market conditions is the implied duty of good faith and fair
dealing. Goodson v. Am. Std. Ins. Co., 89 P.3d 409, 414 (Colo. 2004) (citing Cary v.
United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003)) (“Every contract in
Colorado contains an implied duty of good faith and fair dealing”); City of Golden v.
Parker, 138 P.3d 285, 292 (Colo. 2006) (citations omitted) (“Under Colorado law, every
contract contains an implied duty of good faith and fair dealing”).
Flom’s duty not to convert funds properly owed to AmWeb, not to defraud
AmWeb, and to correctly represent the facts regarding the quality and price of
wastepaper arise from the Wastepaper Agreement. Implicit in Flom’s duty to pay a
price according to prevailing market conditions for wastepaper is the corresponding duty

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to accurately represent facts regarding the quality and price of the wastepaper in order
not to defraud AmWeb. There is also a corresponding duty for Flom not to withhold and
therefore convert funds that are rightfully AmWeb’s by paying AmWeb a price for
wastepaper that is lower than the prevailing market price. To hold that such duties are
not implied in and do not arise from the Wastepaper Agreement would be
counterintuitive. Further, the implied duty of good faith and fair dealing encompasses
these duties as well.
It is the source of the duty that controls this discussion, and that necessarily
mandates a fact driven analysis. Here, it is clear that Flom had a duty to correctly
represent wastepaper quality and price in order to pay AmWeb according to prevailing
market prices, and therefore refrain from converting money that was properly owed to
AmWeb by purchasing wastepaper at a price lower than the prevailing market price.
Because the duties corresponding to AmWeb’s tort claims arise from the Wastepaper
Agreement and are not independent of the Wastepaper Agreement, Colorado’s ELR
bars AmWeb’s claims for conversion, fraud, and negligent misrepresentation. Thus,
Flom Corporation’s Amended Partial Motion to Dismiss American Web, Inc.’s Third
Amended Complaint [ECF No. 62] is GRANTED to the extent that Flom seeks dismissal
of AmWeb’s tort claims.
D. AmWeb’s Constructive Trust Claim
Constructive trusts are an equitable device that courts use to compel a party that
unfairly holds a property interest to convey that interest to the party that it justly belongs.
Stephen W. Seifert, Constructive Trusts, 10 Colo. Prac., Creditors’ Remedies – Debtors’
Relief § 8.1 (2012). The purpose of imposing a constructive trust is to prevent the

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defendant from being unjustly enriched at the plaintiff’s expense. Id. “The successful
plaintiff in a constructive trust action wins an in personam order that requires the
defendant, the constructive trustee, to transfer specific property in some form to the
plaintiff, the beneficiary of the trust.” In re Marriage of Allen, 724 P.2d 651, 657 (Colo.
1986).
AmWeb requests this Court to impose a constructive trust on funds that Flom
allegedly withheld from AmWeb by not paying AmWeb for purchased wastepaper
according to prevailing market conditions. Taking AmWeb’s allegations as true, as I
must at this stage of the proceeding, AmWeb has sufficiently pled that Flom withheld
money owed to AmWeb. It is immaterial that AmWeb seeks this Court to impose the
constructive trust against parties that allegedly did not directly contribute to the
withholding of money owed to AmWeb. Yetter Well Serv., Inc. v. Cimarron Oil Co., 841
P.2d 1068, 1070 (Colo. App. 1992) (“It [a constructive trust] is also appropriate if
innocent third persons have subsequently acquired an interest in the property”). Thus,
Flom Corporation’s Amended Partial Motion to Dismiss American Web, Inc.’s Third
Amended Complaint [ECF No. 62] is DENIED to the extent that Flom seeks dismissal of
AmWeb’s constructive trust claim.
CONCLUSION
After careful consideration of the matters before this Court, it is
ORDERED that Flom Corporation’s Amended Partial Motion to Dismiss
American Web, Inc.’s Third Amended Complaint [ECF No. 62] is GRANTED IN PART
and DENIED IN PART. The motion is GRANTED in that: (1) this Court lacks personal
jurisdiction over Peter Abeles; and, (2) Colorado’s Economic Loss Rule bars American

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Web, Inc.’s tort claims (conversion, fraud by deceit, and negligent misrepresentation).
Therefore, American Web, Inc.’s tort claims are DISMISSED WITH PREJUDICE and all
claims asserted against Peter Abeles are DISMISSED WITH PREJUDICE. The motion
is DENIED in all other respects.
Dated: March 25, 2013.
BY THE COURT:

/s/ Wiley Y. Daniel
Wiley Y. Daniel
Senior U.S. District Judge

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