Stearn et al v. Catalus Capital ,LLC

Filing 65

ORDER GRANTING IN PART AND DENYING IN PART 48 Motion for Partial Summary Judgment. The Court holds as a matter of law that Stearn is entitled to at least $9,274.66 in breach-of-contract damages, and that Cataluss third and fourth counterclaim s (negligent misrepresentation and fraud) fail for lack of damages evidence. Stearns Motion is otherwise denied. This matter REMAINS SET for a four-day jury trial beginning on February 16, 2016, with a Final Trial Preparation Conference at 2:00 p.m. on January 29, 2016, in Courtroom A801, by Judge William J. Martinez on 07/23/2015.(cthom, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 13-cv-2514-WJM-KMT
LEATHEM STEARN,
UTE MESA LOT 1, LLC, a Colorado limited liability company, and
UTE MESA LOT 2, LLC, a Colorado limited liability company,
Plaintiffs,
v.
CATALUS CAPITAL, LLC, a Connecticut limited liability company,

Defendant.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION FOR
PARTIAL SUMMARY JUDGMENT

Plaintiffs Leathem Stearn (“Stearn”), Ute Mesa Lot 1, LLC, and Ute Mesa Lot 2,
LLC (collectively, “Stearn”) bring this lawsuit against Catalus Capital, LLC (“Catalus”) for
alleged breach of contract and conversion. (ECF No. 1.) Before the Court is Stearn’s
Motion for Partial Summary Judgment (“Motion”). (ECF No. 48.) For the reasons stated
below, the Court holds that Stearn is entitled to judgment as a matter of law on a subset
of his breach-of-contract claim (i.e., a claim for a particular $9,274.66 that Catalus has
refused to refund). The Court further holds that Catalus’s counterclaims for fraud and
negligent misrepresentation fail as a matter of law. The Motion is otherwise denied.
I. LEGAL STANDARD
Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the
movant shows that there is no genuine dispute as to any material fact and the movant

is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248–50 (1986). A fact is “material” if, under the
relevant substantive law, it is essential to proper disposition of the claim. Wright v.
Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001). An issue is “g enuine” if
the evidence is such that it might lead a reasonable trier of fact to return a verdict for
the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).
In analyzing a motion for summary judgment, a court must view the evidence
and all reasonable inferences therefrom in the light most favorable to the nonmoving
party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In
addition, the Court must resolve factual ambiguities against the moving party, thus
favoring the right to a trial. See Houston v. Nat’l Gen. Ins. Co., 817 F.2d 83, 85 (10th
Cir. 1987).
II. FACTS
The following facts are undisputed unless otherwise noted.
A.

General Background
Stearn alleges that Ute Mesa Lot 1 and Ute Mesa Lot 2, both lim ited liability

companies, developed two separate parcels of real property in Aspen, Colorado, known
as Lot 1 and Lot 2. (ECF No. 1 ¶ 9.) Stearn f urther claims that Ute Mesa Lot 1 and Ute
Mesa Lot 2 procured separate construction loans f rom different lenders to build single
high-end residential properties on each of the parcels of property. (Id. ¶ 11.) While the
house on Lot 2 was constructed, Stearn says, the house on Lot 1 was not constructed

2

because Ute Mesa Lot 1 filed Chapter 11 Bankruptcy in 2010. (Id. ¶¶ 12–13.) Stearn
alleges that he then sought financing that would permit him to complete construction on
Lot 1 and pay off the loan on Lot 2. (Id. ¶ 16.)
B.

The Term Sheet
Stearn’s need for a new lender eventually led him to Catalus. On February 27,

2013, Stearn and Catalus executed a document titled “Aspen—Indicative Summary of
Terms $29 million Debt Facility” (the “Term Sheet”). (ECF No. 48 at 5, ¶ 2; see also
ECF No. 48-1.) As its formal name suggests, the Term Sheet contemplates a
$29 million loan, but it also states explicitly that it is non-binding except with respect to
four specific provisions:
The Borrower, on behalf of itself and its Subsidiaries,
acknowledges that the provisions described above (other
than those under the Indemnification, Governing Law,
Diligence Expenses, and Exclusivity headings) are
non-binding and do not purport to summarize all of the
conditions, covenants, representations, warranties and other
provisions that would be contained in definitive
documentation for the Loan. This Term Sheet is not an
agreement to extend credit. Any agreement of the Lender to
extend credit to the Borrower is subject to due diligence as
well as the negotiation and execution of definitive
documentation required by the Lender. Notwithstanding the
foregoing, Borrower acknowledges the binding nature of,
and agrees to comply with, the provisions under the
Indemnification, Governing Law, Diligence Expenses, and
Exclusivity headings.
(ECF No. 48 at 5, ¶ 3 (emphasis added).)
The referenced Indemnification section requires Stearn to indemnify Catalus for
liabilities “arising out of or relating to the Loan, the transactions contemplated by the
Loan Documents, [or] the Borrower’s use of loan proceeds or the commitments.” (ECF
3

No. 48-1 at 5.)
The Governing Law section specifies Connecticut law. (Id.)
The Diligence Expenses section states that “the loan shall be without cost to
Catalus,” and therefore requires Stearn to deposit money with Catalus “to defray travel,
legal and due diligence expenses and other costs and expenses in connection with this
transaction.” (Id. at 4.) The Term Sheet requires an initial deposit of $15,000 and
allows Catalus to request more as additional expenses are incurred. (Id.) But, “[i]n the
event this Loan is not consummated, the unused portion of the Expense Deposit shall
be refunded to Borrower.” (Id.)
The Exclusivity section requires Stearn, with certain exceptions not relevant
here, to refuse to work with any other potential lender during the due diligence
anticipated by the Term Sheet. (Id.) It also requires Stearn to pay a “break-up fee of
2% of the Loan amount” if he is “unwilling or unable to close for any reason” “within 60
days of the execution of this agreement.” (Id.)
The parties agree that the Term Sheet’s basic purpose was to establish
“indicative” terms of a possible loan and then to facilitate due diligence of that loan.
(ECF No. 48 at 5–6, ¶¶ 5–7.)
C.

Deposit Payments
On February 28, 2013, Stearn (or at least one of the Plaintiffs) deposited

$15,000 with Catalus as required by the Term Sheet. (Id. at 6, ¶¶ 11–12.) Catalus then
began its due diligence. (Id. at 7, ¶ 15.) In early April 2013, Catalus requested and
Stearn remitted an additional $15,000. (Id. ¶¶ 16–17.) In late April, Catalus requested

4

and Stearn remitted another $35,000. (Id. ¶¶ 18–19.) In total, then, Stearn f ronted
$65,000 for Catalus’s due diligence expenses.
D.

The Unraveling
On May 13, 2013, Catalus presented Stearn with a new term sheet, proposing

what Stearn claims to be a very different loan from that contemplated in the original
Term Sheet. (Id. ¶¶ 21–23.) The parties’ relationship fell apart from here.
In June 2013, Catalus calculated that it had not spent $9,274.66 of the $65,000
advanced by Stearn. (ECF No. 51-3 at 3.) Catalus therefore sent a “General Release
and Deposit Return” form to Stearn, requesting that he sign it (and thereby release any
liability claims) to receive a refund of the $9,274.66. (Id. at 4.) As this lawsuit
demonstrates, Stearn did not sign that form.
In July 2013, Stearn’s lawyer sent a demand letter to Catalus, asserting various
damages allegedly suffered due to Catalus’s failure to produce a loan offer according
the Terms Sheet’s expectations, and requesting $150,000 to settle the dispute. (ECF
No. 48-9 at 2–3.) Catalus’s attorney responded by stating, “[I]t is our position that
Catalus Capital does not owe your client anything beyond a return of the remainder of
the initial $65,000.00 investment. This amount is $9,274.66.” (ECF No. 48-10 at 2.)
Surprisingly, however, Catalus’s attorney did not enclose a check or state that one
would be on the way. Rather, he characterized the return of the $9,274.66 as a
“counteroffer” to Stearn’s $150,000 demand, “less the legal expenses Catalus Capital
has incurred thus far in defending this claim.” (Id.) Stearn did not accept this offer, and
Catalus continues to possess the $9,274.66. (ECF No. 48 at 8–9, ¶ 37.)

5

Stearn then brought this lawsuit, suing Catalus for breach of contract and
conversion. (ECF No. 1.) As damages, Stearn requests the entire $65,000 advanced
to Catalus (including the unspent $9,274.66) as well as consequential damages
incurred due to Catalus’s allegedly bad faith conduct. (Id. ¶¶ 53–58.) Catalus has
counterclaimed for breach of contract (alleging that Stearn now owes the 2% break-up
fee, i.e., $580,000), breach of the covenant of good faith and fair dealing, negligent
misrepresentation, and fraud. (ECF No. 33 at 7–13.)
III. ANALYSIS
A.

Contract Claims
1.

“Judicial Admission” of Material Terms

The Term Sheet states that it “is not an agreement to extend credit” and is
“non-binding” save for its “Indemnification, Governing Law, Diligence Expenses, and
Exclusivity” sections. (ECF No. 48 at 5, ¶ 3.) Stearn argues, however, that Catalus has
judicially admitted that the Term Sheet was a binding agreement on all material terms
of the loan and Catalus therefore breached the Term Sheet by refusing to fund the
loan. (Id. at 10–14.) Stearn reaches this conclusion by connecting the following items
of evidence:
First, Stearn points to the Term Sheet’s Exclusivity clause, which states that
Stearn owes Catalus “a break-up fee of 2% of the Loan amount” if he is unwilling or
unable to close within sixty days of the Term Sheet’s execution. (ECF No. 48-1 at 4.)
Second, Stearn highlights negotiations between himself and Catalus principal
Marek Olszewski in May 2013 about extending the Exclusivity provision. (See ECF No.

6

51-2 at 25; ECF No. 57-1 at 2.) Apparently Olszewski proposed, via e-mail, to change
the break-up fee deadline to twenty-one days from the execution of an amended term
sheet. (ECF No. 51-2 at 25.) Stearn responded, “Agreed that [if] I refuse to fund [due
diligence] expenses, then the break-up fee would be due. However, if I cannot fund
then the date should extend until I do fund. Add that language along with a three week
extension for original deal.” (Id.)1 Olszewski replied that “the current language [of the
Term Sheet’s break-up provision] addresses a situation where Catalus would [b]e ready
to close and you would not.” (ECF No. 57-1 at 2.) In other words, Olszewski
interpreted the break-up provision coming into play only when the deal was all but done.
Thus, Olszewski went on, “Since our ability to be in the position to close is based on
you continuing to fund diligence expenses, this clause is essentially meaningless. You
can stop funding diligence and we won’t ever get to a position where we’re ready to
close.” (Id.) Olszewski hoped that an amended term sheet would “address that issue.”
(Id.)
Third, Stearn notes that on July 10, 2014, Catalus filed its answer and
counterclaims in this action, and in particular, counterclaimed for the break-up fee.
(ECF No. 33 at 10–11.)
Fourth, Stearn emphasizes language from Olszewski’s December 2, 2014
deposition, where he represented Catalus as its Rule 30(b)(6) designee. During that
deposition, Stearn’s counsel asked a series of questions about Catalus’s general
procedures for preparing to close a loan. For example:

1

The language of Stearn’s e-mail comes from a portion of a deposition where it is
quoted. The Court cannot locate the e-mail itself in the record.

7

Q. Okay. You would agree with me that Catalus would not
be ready to close on a transaction until the material
terms of the deal were agreed upon and funding for the
transaction had been secured; is that right?
A. Yes.
Q. Okay. And if the deal progressed to the point where the
material terms were agreed upon and Catalus had its
funding lined up, only then would Catalus be ready to
close; is that correct?
A. As long as everything else is satisfactory to us, then yes.
(ECF No. 51-2 at 25.)
Taking these four data points together, Stearn reasons essentially as follows:
Given that (a) Catalus, in the abstract, would not be ready to close without agreement
on all material terms, (b) Catalus (or at least Olszewski) believed that the break-up fee
would not apply unless Catalus was ready to close, and (c) Catalus counterclaimed for
the break-up fee, Catalus has judicially admitted that all material terms for the loan to
Stearn had been agreed upon. (ECF No. 48 at 12–14.) “That,” says Stearn, “is the
only way [Catalus] could allege its Counterclaim for a break-up fee, in good faith, under
Fed. R. Civ. P. 11.” (ECF No. 57 at 11.) So, the argument continues, the Term Sheet
was in fact binding in all respects and Catalus breached it as a matter of law by failing
to fund the loan. (ECF No. 48 at 14.)
The Court disagrees. An indispensable premise of Stearn’s argument is
Olszewski’s May 2013 e-mail interpreting the break-up provision to apply only if Catalus
is ready to close. But that same e-mail exchange between Olszewski and Stearn is
evidence that neither party was, at that time, ready to close. Rather, they were
negotiating an extension of the Term Sheet to continue due diligence.
8

The parties agree that Connecticut law governs the Term Sheet. (ECF No. 48 at
9, ¶ 38.) Like most jurisdictions, Connecticut requires a “meeting of the minds” before a
contract can be said to exist. See, e.g., Farrell v. Twenty-First Century Ins. Co.,
21 A.3d 816, 823 (Conn. 2011); SS-II, LLC v. Bridge St. Assocs., 977 A.2d 189,
197–98 (Conn. 2009). If due diligence was continuing, then evidence exists to show
that no meeting of the minds took place in May 2013, and especially not a meeting of
the minds sufficient to override the Term Sheet’s explicit “non-binding” language.
Moreover, when Stearn, through counsel, sent his July 2013 demand letter to
Catalus (see Part II.D, supra), Stearn did not insist that the parties had com e to a
binding agreement on material terms or that Catalus had breached those terms by
failing to fund the $29 million loan. Rather, Stearn argued that Catalus had misused the
$65,000 advanced for due diligence and had therefore breached the covenant of good
faith and fair dealing. (ECF No. 48-9 at 2.) Stearn then asserted “return of the
$65,000.00” as part of the damages he would claim in any lawsuit, but offered to settle
for $150,000. (Id. at 3.) Thus, evidence exists to show that, as of July 2013, Stearn
himself apparently did not believe that a meeting of the minds took place sufficient to
make the Term Sheet binding for the full $29 million loan.
Indeed, the only event that supposedly converted the Term Sheet from
non-binding to binding was Catalus’s choice to file a counterclaim for the break-up
fee—which, Stearn says, Catalus could not do consistent with Rule 11 absent a
conclusion that the Term Sheet had become binding. This still does not address
Stearn’s own state of mind at that time, or whether the filing of a counterclaim can
effectively amend the Term Sheet, but in any event, Stearn is incorrect. At the pleading
9

phase, “[a] party may state as many separate claims or defenses as it has, regardless
of consistency.” Fed. R. Civ. P. 8(d)(3).
Obviously this creates certain issues going forward, to the extent Catalus
continues to pursue this counterclaim. Catalus presently asserts that the break-up fee
applies regardless of whether Catalus was ready to close (ECF No. 51 at 15), but
Olszewski certainly represented otherwise in his May 2013 e-mail to Stearn. Then, at
his deposition, Olszewski testified that he may have “misread” or “misinterpreted” the
break-up fee provision in that May 2013 e-mail. (ECF No. 51-2 at 27, 28.) So there
may be a question for trial regarding what the parties actually intended when drafting
the break-up fee provision.2 But the existence of the counterclaim is not a judicial
admission that the Term Sheet represents the binding, material terms of an agreement
to lend money. See, e.g., Shell v. Am. Family Rights Ass’n, 899 F. Supp. 2d 1035,
1047 (D. Colo. 2012) (“Generally, judicial admissions are formal, deliberate declarations
which a party or his attorney makes in a judicial proceeding for the purpose of
dispensing with proof of formal matters or of facts about which there is no real
dispute.”). Accordingly, the Court rejects Stearn’s summary judgment argument in this
regard.
2.

The Leftover $9,274.66

Next, Stearn seeks judgment as a matter of law for the $9,274.66 left over from
the $65,000 advanced to Catalus for due diligence. (ECF No. 48 at 14–15.) Notably,

2

This question is all the more interesting given that, in May 2013, it appears that both
parties interpreted the break-up fee provision contrary to their respective best interests. But the
effect of this nuance, if any, is not before the Court at this time. Also not before the Court is the
extent to which contract interpretation questions can go to a jury under Connecticut law.

10

as described above, Catalus itself concluded that it “owe[s] [Stearn] . . . a return of the
remainder of the initial $65,000.00 investment. This amount is $9,274.66.” (ECF No.
48-10 at 2.) Olszewski, testifying for Catalus, even stated at his December 2014
deposition that Catalus intended to return the m oney “soon.” (ECF No. 48 at 8, ¶ 31.)
Catalus, however, has not since acted on that intention. (Id.) Thus, it would seem
beyond dispute that Catalus breached the T erm Sheet provision stating, “In the event
this Loan is not consummated, the unused portion of the Expense Deposit shall be
refunded to Borrower.” (ECF No. 48-1 at 4.) Catalus nonetheless asserts a num ber of
defenses.
First, Catalus argues that Stearn “refused to accept the return of the money.”
(ECF No. 51 at 20.) The Court disagrees. Catalus refers to the June 2013 e-mail from
Olszewski to Stearn where Olszewski states, “I’ve attached a breakdown of the due
diligence expenses incurred on the Ute Mesa loan and a separation f orm. Please sign
the attached agreement and provide us instructions for returning the balance of your
deposit.” (ECF No. 51-3 at 2.) The “separation form” is titled “General Release and
Deposit Return” and states that all parties release each other f rom all potential claims.
(Id. at 4.) But the Term Sheet already unconditionally entitled Stearn to return of the
money. Thus, it should go without saying that refusing to sign a form that conditions
the refund on a general release (or on anything else, for that matter) is not a refusal to
accept the refund.3

3

Catalus insists that the consideration for the release “was $10.00 and was separate
and apart from the return of the $9,274.66.” (ECF No. 51 at 6, ¶ 29.) But that $10 was, in fact,
deducted from the amount to be returned to Stearn. (Compare ECF No. 51-3 at 2 with id. at 3.)
And in any event, the “General Release and Deposit Return” is a one-page, integrated

11

Second, Catalus asserts that “[n]o demand for the return of the $9,274.66 has
been made by [Stearn].” (ECF No. 51 at 20.) Catalus maintains, in particular, that
Stearn’s July 2013 letter demanding $150,000 does not count as a dem and specifically
for return of the $9,274.66. (Id. at 7, ¶ 34.). But the Term Sheet does not require a
demand, so this argument does not excuse liability. At most, the presence of a demand
may affect the date on which prejudgment interest, if any, begins to accrue. See
Ebonie S. v. Pueblo Sch. Dist. 60, 2015 WL 1906086, at *1 (D. Colo. Apr. 23, 2015) (“a
court awarding prejudgment interest must determine the date of accrual”). But whether
to award prejudgment interest (and if so, the accrual date) is governed by standards the
parties’ briefs do not address, see id., so the Court need not reach the accrual question
at this time.
Finally, Catalus at times asserts that it has never received instructions from
Stearn on how to remit the money. (See, e.g., ECF No. 51 at 6, ¶ 29.) Catalus also
suggests confusion regarding which of the three Plaintiffs is actually owed the money.
(Id. ¶ 28.) To the extent this is meant as a serious defense, it fails. Any reasonably
experienced litigator should know that, at least from the beginning of the lawsuit,
Catalus could tender the disputed amount to Stearn’s counsel for deposit into counsel’s
trust account, at which point it would be Stearn’s counsel’s duty to determine the
plaintiff to which the money should be remitted. Under the circumstances, then, it is no
defense to plead ignorance of the repayment details.

document with a single signature block. No reasonable person could interpret it as containing
two independent agreements, one for the release of claims and another for the return of the
$9,274.66.

12

The Court therefore finds that Catalus breached its obligation under the Term
Sheet to return the leftover portion of the due diligence deposit, and Stearn is
consequently entitled to judgment as a matter of law for $9,274.66. This finding,
however, does not constitute a “judgment” under Rules 54 or 58. At this time, the Court
only holds that Stearn’s entitlement to $9,274.66 is established as a matter of law and
therefore no longer an issue for trial.
B.

Conversion
Stearn also requests judgment as a matter of law that Catalus converted the

$9,274.66. (ECF No. 48 at 15–16.) Given the Court’s holding that Catalus owes this
amount as a matter of contract, the Court need not reach the conversion question.
C.

Fraud & Negligent Misrepresentation Counterclaims
Finally, Stearn seeks summary judgment on Catalus’s counterclaims for fraud

and negligent misrepresentation. (Id. at 17–19.) Catalus’s theory seems to be that it
was negligently or intentionally misled by Stearn as to his financial status, ability meet
the projected terms of the loan, etc., and thereby tortiously induced to sign the Term
Sheet. (See ECF No. 33 at 7–10, 11–13; ECF No. 51 at 24 .)
Stearn attacks these counterclaims on several fronts, but the Court finds that it
need only address one of them. Specifically, Stearn argues that Catalus has not
proved and cannot prove damages, because Stearn paid all of Catalus’s due diligence
expenses. (ECF No. 48 at 19.) See also Coppola Const. Co. v. Hoffman Enterprises
Ltd. P’ship, 71 A.3d 480, 487 (Conn. 2013) (damages are an element of negligent
misreprestation); Duplissie v. Devino, 902 A.2d 30, 38 (Conn. App. Ct. 2006) (dam ages

13

are an element of fraud).
Catalus’s only response is that it “invested large amounts of time and human
capital and the effort. Further, Catalus suffered lost time, loss of opportunity, and lost
profits.” (ECF No. 51 at 24.) Assuming without deciding that these items could be
compensable damages under the circumstances, they would require factual support, of
which Catalus has offered none. The sentences just quoted are bare assertions, not
supported by any citation of any kind, much less a citation to factual material in the
record.
In the face of a summary judgment argument that Catalus has suffered no
damages, Catalus cannot simply assert the contrary and thereby preserve the issue for
trial. See Fed. R. Civ. P. 56(c)(1)(A). The Court accordingly grants summary judgment
in Stearn’s favor on Catalus’s fraud and negligent misrepresentation counterclaims.
IV. CONCLUSION
For the reasons set forth above, the Court ORDERS as follows:
1.

Stearn’s Motion for Partial Summary Judgment (ECF No. 48) is GRANTED IN
PART and DENIED IN PART. The Court holds as a matter of law that Stearn is
entitled to at least $9,274.66 in breach-of -contract damages, and that Catalus’s
third and fourth counterclaims (negligent misrepresentation and fraud) fail for
lack of damages evidence. Stearn’s Motion is otherwise denied; and

2.

This matter REMAINS SET for a four-day jury trial beginning on February 16,
2016, with a Final Trial Preparation Conference at 2:00 p.m. on January 29,
2016, in Courtroom A801.

14

Dated this 23rd day of July, 2015.
BY THE COURT:

William J. Martínez
United States District Judge

15