Cherry Creek Mortgage Co., Inc. v. Jarboe et al

Filing 200

ORDER by Magistrate Judge Kristen L. Mix on 10/17/2022. IT IS HEREBY ORDERED that Cherry Creek's Motion 165 is GRANTED in part and DENIED in part. The Motion is granted to the extent that summary judgment is entered in fa vor of Cherry Creek on Jarboe's following counterclaims: (1) breach of contract, to the extent based on HUD and state law; (2) conversion, to the extent based on telephone numbers, and (3) declaratory judgment. The Motion is otherwise denied con cerning Jarboe's following counterclaims: (1) breach of contract (other than breach based on HUD or state law) and (2) conversion, to the extent based on office equipment. IT IS FURTHER ORDERED that Jarboe's Motion 169 is DENIED.(alave, )

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 18-cv-00462-KLM
CHERRY CREEK MORTGAGE, LLC,
Plaintiff and Counter Defendant,
v.
THOMAS R. JARBOE,
Defendant and Counter Plaintiff.
_____________________________________________________________________
ORDER
_____________________________________________________________________
ENTERED BY MAGISTRATE JUDGE KRISTEN L. MIX
This matter is before the Court on Plaintiff/Counter Defendant Cherry Creek
Mortgage Company, LLC’s (“Cherry Creek”) Amended Motion for Summary Judgment
on Jarboe’s Counterclaims Pursuant to Fed. R. Civ. P. 56 [#165] and on
Defendant/Counter Plaintiff Thomas R. Jarboe’s (“Jarboe”) Motion for Summary
Judgment [#169] (the “Motion”). Jarboe filed a Response [#178] in opposition to Cherry
Creek’s Motion [#165], and Cherry Creek filed a Reply [#184]. Cherry Creek filed a
Response [#177] in opposition to Jarboe’s Motion [#169], and Jarboe filed a Reply [#186].
The Court has reviewed the Motions, the Responses, the Replies, the entire case file,
and the applicable law, and is sufficiently advised in the premises. Based on the following,
Cherry Creek’s Motion [#165] is GRANTED in part and DENIED in part, and Jarboe’s
Motion [#169] is DENIED.1

This case has been referred to the undersigned for all purposes pursuant to 28 U.S.C. § 636(c),
on consent of the parties. See Consent [#27]; Order [#29].
1

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I. Background2
Cherry Creek asserts a claim against Jarboe, a former employee of Cherry Creek,
for breach of contract. Compl. [#3] ¶¶ 15-24.3 Jarboe has three remaining counterclaims
against Cherry Creek which assert breach of contract, conversion, and declaratory
judgment. Counterclaims [#72] at 19-22 ¶¶ 60-71, 23 ¶¶ 80-85.
Prior to his employment with Cherry Creek, Jarboe worked as a regional branch
manager for another mortgage company in Southern California.

Depo. of Sean

McCluskey (“McCluskey”) [#177-2] at 21:15-21; Decl. of Jarboe [#170] ¶ 2.

After

meetings between Jarboe and Cherry Creek’s executives, Cherry Creek sent Jarboe an
“Employment Offer Agreement” on December 11, 2015. Depo. of McCluskey [#177-2] at
18:3-20:21; Decl. of Jarboe [#170] ¶¶ 2-5; Jarboe’s Ex. A, Employment Offer Agreement
[#174-1] (the “Employment Offer Agreement”) at 2. Jarboe signed the Employment Offer
Agreement on December 18, 2015. Decl. of Jarboe [#170] ¶ 5. The Employment Offer
Agreement offered Jarboe the position of “Vice President, Regional Production Manager,”
with duties including oversight and management of twenty-two of Cherry Creek’s
branches in Southern California. Employment Offer Agreement [#174-1] at 2. The
Employment Offer Agreement further provided Jarboe a minimum monthly override

The facts referenced in the Background section are undisputed unless otherwise noted. For
purposes of adjudicating the Motions [#165, #169], the Court recites in its Analysis section any
disputed summary judgment evidence in a light most favorable to the non-movant. See Ellis v.
J.R.’s Country Stores, Inc., 779 F.3d 1184, 1186 (10th Cir. 2015) (“We . . . recit[e] all summaryjudgment evidence in the light most favorable to . . . the nonmovant.”).
2

All other claims previously asserted against Jarboe by Cherry Creek have been voluntarily
dismissed with prejudice. See Stipulation [#164].
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payment, or “Override Guarantee,” of $20,833 per month.4 Employment Offer Agreement
[#174-1] at 2. The Override Guarantee was linked to Jarboe’s Responsibility Code (“RC”)
roll-up, which was associated with the branches he managed. See Depo. of Jeffrey May
(“May”) [#171-11]; Depo. of Michael Hogan (“Hogan”) [#177-4] at 134-35. Sometime in
early 2017, the parties agreed to continue the Override Guarantee payments to Jarboe.
See Cherry Creek’s Ex. 25, Emails Between Jarboe and Cherry Creek [#177-3] (the “My
Pay Emails”) at 2; Jarboe’s Ex. 10, Internal Cherry Creek Emails [#171-10] (the “Internal
Emails”) at 2.
When the parties executed the Employment Offer Agreement, they also entered
into a “Regional Production Manager Agreement” (the “Regional Agreement”).
Employment Offer Agreement [#174-1] at 4-10.

See

The Regional Agreement provided

Cherry Creek defines “guarantee” as a term “commonly used to refer to an advance or draw
against future commissions.” Response [#177] at 19 n.6 (citing 29 C.F.R. § 779.413(a)(5)
(“Straight commission with “advances,” “guarantees,” or “draws.” This method of compensation
[means] that the employee is paid a fixed weekly, biweekly, semimonthly, or monthly ‘advance,’
‘guarantee,’ or ‘draw.’ At periodic intervals a settlement is made at which time the payments
already made are supplemented by any additional amount by which his commission earnings
exceed the amounts previously paid.”); 29 C.F.R. § 779.416(a) (“Employment arrangements
which provide for a commission on goods or services to be paid to an employee of a retail or
service establishment may also provide, as indicated in § 779.413, for the payment to the
employee at a regular pay period of a fixed sum of money, which may bear a more or less fixed
relationship to the commission earnings which could be expected, on the basis of experience, for
an average period of the same length. Such periodic payments, which are variously described in
retail or service establishments as ‘advances,’ ‘draws,’ or ‘guarantees,’ are keyed to a time base
and are usually paid at weekly or other fixed intervals which may in some instances be different
from and more frequent than, the intervals for payment of any earnings computed exclusively on
a commission basis. They are normally smaller in amount than the commission earnings
expected for such a period and if they prove to be greater, a deduction of the excess amount from
commission earnings for a subsequent period, if otherwise lawful, may or may not be customary
under the employment arrangement. . . .”)). Jarboe does not object to this extrinsic evidence of
the contract term’s definition or offer any contradictory evidence himself. See Reply [#186] at 34 (discussing the Override Guarantee and stating that it was a “guaranteed minimum
compensation to be paid monthly for Jarboe’s labor on behalf of Cherry Creek”); see also Pepcol
Mfg. Co. v. Denver Union Corp., 687 P.2d 1310, 1313-14 (Colo. 1984) (en banc) (“In the absence
of contrary manifestation of intent in the contract itself, contractual terms that have a generally
prevailing meaning will be interpreted according to that meaning.”).
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Jarboe with a salary of $100,000 in addition to overrides pursuant to each “Branch Office
Agreement” adopted by the parties as each new branch was opened.

Id. at 4.

Throughout Jarboe’s employment, Cherry Creek paid Jarboe the $20,833 monthly
Override Guarantee and an additional $8,333 monthly as part of his base salary. See
Decl. of Jarboe [#170] ¶¶ 9, 12. The Regional Agreement does not specifically permit
Cherry Creek to recover deficits from Jarboe for losses suffered by branches under his
supervision, although it does note that overrides are subject to the “terms and conditions
of each Branch Office Agreement.” Employment Offer Agreement [#174-1] at 4.
Cherry Creek and Jarboe later entered into two successive “Non-Producing
Branch Manager Agreements” (the “NPBM Agreements”). See Jarboe’s Ex. B, February
Agreements [#174-2]; Jarboe’s Ex. C, April Agreements [#174-3].

Each NPBM

Agreement included a “Compensation Agreement” (“Comp. Agreement”).

February

Agreements [#174-2] at 15; April Agreements [#174-3] at 14. The two pairs of NPBM and
Comp. Agreements were executed in February 2016 (the “February Agreements”) and
April 2016 (the “April Agreements”). See generally February Agreements [#174-2]; April
Agreements [#174-3].

Both NPBM Agreements stated that neither execution nor

performance of the contracts would, to Cherry Creek’s knowledge, violate any state or
federal law or regulation. February Agreements [#174-2] at 9; April Agreements [#173-3]
at 9. The February Agreements provided a guaranteed minimum salary to Jarboe of
$2,000 per month, and the April Agreements provided a guaranteed minimum salary of
$5,000 per month. February Agreements [#174-2] at 17; April Agreements [#174-3] at
16.

Furthermore, both NPBM Agreements contained an “Originator Net Loss

Accommodations” provision, stating that:

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In the event the [branch managed by Jarboe] experiences a Net Loss on a
cumulative basis, [Cherry Creek] shall consider such loss as a draw against
future earnings and a personal liability of [Jarboe]. [Cherry Creek] reserves
the rights to either deduct the draw amounts from future earned Overrides
or make demand on [Jarboe] to cover such draw. If demand is made,
[Jarboe] agrees that he/she will refund to [Cherry Creek], within 5 business
days, any such draw balance.
See February Agreements [#174-2] at 18; April Agreements [#174-3] at 17. A branch’s
“Net Income or Loss” is calculated as “Gross Revenue less Direct Expenses, Indirect
Expenses, and Other Expenses.” February Agreements [#174-2] at 17; April Agreements
[174-3] at 16.

“Other Expenses” include “distributions paid to [Jarboe].”

February

Agreements [#174-2] at 17; April Agreements [174-3] at 16.
Jarboe’s employment with Cherry Creek ultimately lasted from February 2016 to
the end of June 2017. See Cherry Creek’s Ex. 27, Jarboe Resignation Email [#177-5]
(the “Resignation Email”) at 2. Jarboe notified Cherry Creek of his resignation on June
16, 2017, citing the fact that he had “struggled” while working for Cherry Creek.
Resignation Email [#177-5] at 2. On June 20, Cherry Creek’s Senior Vice President
informed Jarboe that his “current accrued liability stood at $704,735 through May [2017].”
See Jarboe’s Ex. 9, McCluskey Email [#171-9] at 3. This deficit was based on the
operating deficits of the branches under Jarboe’s oversight, including override payments
received by Jarboe. See id.; Depo. of May [#171-3] at 3:4-19; February Agreements
[#174-2] at 18. Cherry Creek now contends that Jarboe owes it a total amount of
$1,079,423.21. See Jarboe’s Ex. 14, Cherry Creek’s Objections and Responses to
Jarboe’s Second Set of Interrogatories [#171-14] (the “Cherry Creek Objections”) at 13.
Cherry Creek brings a claim for breach of contract against Jarboe for failing to pay
the “amount of any net loss to branch offices under [his] management” as purportedly

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required by the Net Loss Accommodations provisions of the February and April
Agreements.

See Compl. [#3] ¶ 17; February Agreements [#174-2] at 18; April

Agreements [#174-3] at 17. Jarboe seeks entry of summary judgment in his favor on this
sole claim asserted by Cherry Creek. Motion [#169] at 2.
Jarboe brings a counterclaim for breach of contract against Cherry Creek for failing
to pay him guaranteed compensation, for violating Department of Housing and Urban
Development (“HUD”) rules and regulations by collecting expenses from an employee,
and for violating state laws prohibiting employers from clawing back an employee’s salary
and forcing an employee to pay for the employer’s operating expenses. Counterclaims
[#72] at 21-22 ¶¶ 66-71; Response [#178] at 12. He also brings a counterclaim against
Cherry Creek for conversion of office equipment and telephone numbers. Counterclaims
[#72] at 23 ¶¶ 80-85; Response [#178] at 18-19. Finally, he brings a counterclaim for
declaratory judgment against Cherry Creek. Counterclaims [#72] at 19-21 ¶¶ 60-65.
II. Standard of Review
Summary judgment is appropriate 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving
party bears the initial burden of showing an absence of evidence to support the
nonmoving party's case. Celotex, 477 U.S. at 325. “Once the moving party meets this
burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for trial
on a material matter.” Concrete Works, Inc. v. City & Cnty. of Denver, 36 F.3d 1513, 1518
(10th Cir. 1994) (citing Celotex, 477 U.S. at 325). The nonmoving party may not rest
solely on the allegations in the pleadings, but instead, must designate “specific facts

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showing that there is a genuine issue for trial.” Celotex, 477 U.S. at 324; see also Fed.
R. Civ. P. 56(c).
“A ‘judge's function’ at summary judgment is not ‘to weigh the evidence and
determine the truth of the matter but to determine whether there is a genuine issue for
trial.’” Tolan v. Cotton, 572 U.S. 650, 656 (2014) (quoting Anderson v. Liberty Lobby, 477
U.S. 242, 249 (1986)). Whether there is a genuine dispute as to a material fact depends
on “whether the evidence presents a sufficient disagreement to require submission to a
jury,” or conversely, whether the evidence “is so one-sided that one party must prevail as
a matter of law.” Carey v. U.S. Postal Serv., 812 F.2d 621, 623 (quoting Anderson, 477
U.S. at 251-52). A disputed fact is “material” if “under the substantive law it is essential
to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670
(10th Cir.1998) (citing Anderson, 477 U.S. at 248). A dispute is “genuine” if the evidence
is such that it might lead a reasonable jury to return a verdict for the nonmoving party.
Thomas v. Metro. Life Ins. Co., 631 F.3d 1153, 1160 (10th Cir. 2011) (citing Anderson,
477 U.S. at 248). “Where the record taken as a whole could not lead a rational trier of
fact to find for the [nonmovant], there is no ‘genuine issue for trial.’” Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing First Nat’l Bank of Ariz.
v. Cities Serv. Co., 391 U.S. 253, 289 (1968)). Interpretation of both statutory and
contractual language are appropriately resolved as questions of law when adjudicating a
motion for summary judgment. See Thomas, 631 F.3d at 1160 (“Statutory interpretation
is a matter of law appropriate for resolution on summary judgment.”); Echo Acceptance
Corp. v. Household Retail Servs., Inc., 267 F.3d 1068, 1080 (10th Cir. 2001) (recognizing

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that “[i]n general, the interpretation of a contract is a question of law”) (citing Pepcol Mfg.
Co. v. Denver Union Corp., 687 P.2d 131, 1313 (Colo. 1984)).
In evaluating a motion for summary judgment, a court may consider admissible
evidence only. Johnson v. Weld Cnty., 594 F.3d 1202, 1209–10 (10th Cir. 2010). The
factual record and reasonable inferences therefrom are viewed in the light most favorable
to the party opposing summary judgment. Concrete Works, 36 F.3d at 1517. However,
this standard does not require the court to make unreasonable inferences in favor of the
nonmoving party. Carney v. City & Cnty. of Denver, 534 F.3d 1269, 1276 (10th Cir. 2008).
The nonmovant must establish, at a minimum, an inference of the presence of each
element essential to the case. Hulsey v. Kmart, Inc., 43 F.3d 555, 557 (10th Cir. 1994).
III.
A.

Analysis

Jarboe’s Motion [#169]
Under Colorado law, a claim for breach of contract requires proof of the following

elements: “(1) the existence of a contract; (2) performance by the plaintiff or some
justification for nonperformance; (3) failure to perform the contract by the defendant; and
(4) resulting damages to the plaintiff.” W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058
(Colo. 1992) (internal citations omitted). Here, Jarboe first argues that Cherry Creek
failed to perform its obligation to pay him a minimum salary under the February and April
Agreements. Motion [#169] at 14. Jarboe further argues that federal regulations and
state law bar Cherry Creek’s claim. Id. at 15. Finally, Jarboe contends that the April
Agreements are unenforceable because they lack essential terms as well as mutuality of
assent and obligation. Id. at 22-23. The Court first considers whether Cherry Creek failed
to perform its minimum salary obligation.

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1.

Whether Cherry Creek Failed to Perform

Jarboe argues that Cherry Creek did not perform because it failed to pay him a
“guaranteed minimum salary” of $2,000 per month under the February Agreements and
$5,000 per month under the April Agreements. Motion [#169] at 14. The parties agree
that Cherry Creek paid Jarboe $8,333 per month in base salary throughout his
employment. See id. at 19; Response [#177] at 19. Jarboe contends that while this
amount satisfied Cherry Creek’s obligation under the Regional Agreement, it did not
satisfy the additional amounts later agreed to in the February and April Agreements.
Motion [#169] at 15. Cherry Creek responds that it paid Jarboe all amounts owed
because the salary provisions in the Regional, February, and April Agreements were
integrated, rather than aggregable. Response [#177] at 13. Cherry Creek emphasizes
that the Regional and NPBM Agreements each contained a merger clause providing that
the respective document constituted the parties’ entire agreement.5 Id.; see Employment
Offer Agreement [#174-1] at 8; February Agreements [#174-2] at 12; April Agreements
[#174-3] at 12. Therefore, Cherry Creek argues that it only owed Jarboe the minimum
salary guaranteed in the most recent contract—$5,000 per month under the April
Agreements—because the April Agreements superseded the previous contracts. See
April Agreements [#174-3] at 12.
The key question regarding this issue is whether the April Agreements’ merger
clause constitutes a novation, superseding the prior February Agreements and the
Regional Agreement.

“A novation extinguishes a previously existing contract by

In their briefs, the parties refer to this provision as an “integration clause.” See generally Motion
[#169]; Response [#177]; Reply [#186]. The terms integration clause and merger clause are
synonymous. See Integration Clause, Black’s Law Dictionary (11th ed. 2019) (“Also termed
merger clause; entire-agreement clause.”).
5

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substituting a new contract or obligation.” Phoenix Power Partners, L.P. v. Colo. Pub.
Utils. Comm’n, 952 P.2d 359, 364 (Colo. 1998).6

“[M]ere modification [of the prior

contract] will not suffice; anything remaining of the original obligation prevents a novation.”
Crew Tile Distrib., Inc. v. Porcelanosa Los Angeles, Inc., No. 13-cv-3206-WJM-KMT,
2016 WL 8609397, at *9 (D. Colo. Sept. 9, 2016) (citing Moffat Cnty. State Bank v. Told,
800 P.2d 1320, 1323 (Colo. 1990)). For a novation to exist, four requirements must be
met: “(1) a previous valid contract[;] (2) agreement between the parties to abide by the
new contract[;] (3) a valid new contract[;] and (4) extinguishment of the old contract by
substitution of the new one.” Id.
Determination of whether a new agreement acts as a novation is “ordinarily a
question of fact, and proof of a novation may be established by evidence of an express
understanding to this effect or by circumstances showing such assent.” Moffat, 800 P.2d
at 1323 (citing 15 S. Williston on Contracts § 1873B (3d ed. 1972)). However, “a court
can determine intent of the parties based on unambiguous terms set forth in a new
agreement.” Nw. Bldg. Components, Inc. v. Adams, No. 22-cv-00790-CMA-KLM, 2022
WL 1689293, at *4 (D. Colo. May 26, 2022) (citing Aronowitz v. Health-Chem Corp., 513
F.3d 1229, 1237 (11th Cir. 2008)). While the inclusion of a merger clause may establish
a novation as a matter of law, the new agreement must clearly show the parties’ intent to
extinguish the prior obligation. Stillwater Mining Co. v. Power Mount Inc., No. 14-cv-2475-

Interpretation of a contract is a matter of state law. DIRECTV, Inc. v. Imburgia, 136 U.S. 463
(2015). The Court has previously held that the Colorado choice-of-law provision in the contracts
between the parties is enforceable. See Order [#159] at 13. Further, both parties cite to Colorado
case law in their briefing. See Response [#177] at 13 n.3; Reply [#186] at 5. The Court therefore
applies Colorado law for purposes of interpreting the Agreements between the parties. See
Johnson v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002) (“When the federal courts are called
upon to interpret state law, the federal court must look to the rulings of the highest state court,
and, if no such rulings exist, must endeavor to predict how that high court would rule.”).
6

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WYD-CBS, 2016 WL 9735770, at *3 (D. Colo. Aug. 16, 2016) (finding a merger clause
insufficient to create novation where other portions of a contract purported to amend a
prior agreement and there was “room for debate” as to the parties’ intentions).
Here, the Court first finds that there is no genuine issue of material fact that the
April Agreements constitute a novation of the February Agreements.

The April

Agreements clearly and comprehensively extinguish the terms of the February
Agreements. See id. (noting that a new contract with a merger clause can establish
novation when it comprehensively addresses obligations under prior agreements);
compare February Agreements [#174-2] with April Agreements [#174-3]. Therefore,
whether the April Agreements effect a novation of the Regional Agreement is the
remaining question. As an initial matter, the Court notes that the April Agreements satisfy
the first three requirements of a novation. As to the first two elements, neither party
contests that the Regional Agreement is valid, nor that the parties agreed to be bound by
the April Agreements.

See Crew Tile, 2016 WL 8609397, at *9.

Furthermore, as

explained in Section III.C., infra, the Court finds that the April Agreements are valid,
satisfying the third element of a novation. See id. The Court therefore turns to the final
element of a novation, i.e., whether the April Agreements unambiguously extinguish and
substitute for the Regional Agreement.

For the reasons stated below, the Court

concludes that they do not, and thus finds that genuine issues of material fact persist
regarding whether the parties intended that the April Agreements would extinguish the
Regional Agreement.
The April Agreements’ merger clause states in relevant part that the Agreements
“constitute[ ] the entire agreement of the Parties with respect to the subject matter hereof

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and supersede[ ] all prior and contemporaneous agreements and understandings . . . .”
April Agreements [#174-3] at 12. However, such a broadly written merger clause does
not automatically extinguish the Regional Agreement. See Crew Tile, 2016 WL 8609397,
at *9-10 (finding that a merger clause stating that a contract “supersedes and takes place
of all prior agreements” was insufficient to establish novation on summary judgment when
the contract did not address “numerous issues” covered by prior agreements, and that a
factual issue remained as to the parties’ intent); but see Nelson v. Elway, 908 P.2d 102,
107 (Colo. 1995) (enforcing a broad and unambiguous merger clause, noting that where
“sophisticated parties who are represented by counsel have consummated a complex
transaction and embodied the terms of that transaction in a detailed written document, it
would be improper for this court to rewrite that transaction by looking to evidence outside
the four corners of the contract to determine the intent of the parties”).
As in Crew Tile Distribution, Inc. v. Porcelanosa Los Angeles, Inc., 2016 WL
8609397, the April Agreements leave unaddressed multiple topics from the Regional
Agreement. First, the “General Business Conduct” sections in the competing agreements
appear to describe parallel, rather than replaced, job duties relating to Jarboe’s dual
positions as Regional Production Manager and Branch Manager/Loan Originator. See
Employment Offer Agreement [#174-1] ¶ 5; April Agreements [#174-3] at 3. Jarboe
continued to list his job title as “VP-Regional Production Mgr.” in his email signature well
after the April Agreements were executed, suggesting his belief that the April Agreements
only modified his employment relationship with Cherry Creek under the Regional
Agreement. See, e.g., My Pay Emails [#177-3] at 2. Furthermore, the April Agreements
fail to reconcile Cherry Creek’s guaranteed minimum salary of $5,000 per month with the

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$100,000 base salary stipulated in the Regional Agreement. The parties offer competing
interpretations of record evidence regarding Jarboe’s and Cherry Creek’s intentions as to
these salary provisions. See Response [#177] at 13; Reply [#186] at 6.
Finally, the Regional Agreement’s merger clause requires that a future agreement
“specifically refer[ ]” to the Regional Agreement in order to modify, amend, or terminate
it. The April Agreements make no reference to the Regional Agreement anywhere in their
twenty-one pages. The Court does not hold that the Regional Agreement’s specific
reference requirement in its merger clause single-handedly prevents novation if future
agreements fail to make perfunctory reference to the Regional Agreement. However,
failure to reference the earlier agreement, even indirectly, cuts against a finding that the
April Agreements unambiguously show the parties’ intent to extinguish the Regional
Agreement. See Crew Tile, 2016 WL 8609397, at *10 (citing Andrikopoulos v. Broadmoor
Mgmt. Co., 670 P.2d 435, 440-41 (finding no novation on summary judgment “where
subsequent contract contained no reference to the previous contract”) (internal quotation
marks, brackets, and ellipses omitted)); cf. Nw. Bldg. Components, 2022 WL 1689293, at
*6 (finding unambiguous intent to effect a novation based on merger clause, new
contract’s explicit statement of intent to fully resolve all issues relating to parties’
employment relationship, and new contract’s coverage of terms contained in all prior
agreements).
The available evidence, both based on the terms of the Regional and April
Agreements and extrinsically, presents conflicting views of whether the parties intended
to extinguish the Regional Agreement. Deciding whether these facts are sufficient to
overcome the April Agreements’ broad merger clause is an issue for the fact-finder rather

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than for the Court on summary judgment. See Crew Tile, 2016 WL 8609397, at *10
(noting that “competing inferences only confirm that the factual issue of whether a
novation occurred is not appropriate for summary judgment”). Accordingly, Jarboe’s
Motion [#169] is denied to the extent that it relates to Cherry Creek’s failure to perform.
2.

Federal Regulations and State Law

Jarboe argues that Cherry Creek’s claim violates both federal regulations and state
law. Motion [#169] at 15. The Court considers both aspects of this argument in turn.
a.

Federal Regulations

Jarboe claims that Cherry Creek’s attempt to recover net losses from branches
under his oversight violates HUD regulations. Motion [#169] at 16. However, Jarboe only
cites to the HUD Handbook, not to formal regulations. See generally id.; Reply [#186].
Provisions of the HUD Handbook do not have the force of law and are only relevant to
evaluating whether an agency acted capriciously amounting to an abuse of discretion.
Anderson v. U.S. Dep’t of Hous. & Urb. Dev., 701 F.2d 112, 114 (10th Cir. 1983) (“The
HUD Handbook contains ‘“instructions,” “technical suggestions,” and “items” for
consideration.’ Thorpe v. Hous[.] Auth[.], 393 U.S. 268, 275 . . . [(1969)]. It establishes
no private cause of action. The Handbook provisions are pertinent only to the question
of capricious action amounting to abuse of discretion.”) (internal citation omitted); see also
Mathews v. PHH Mortg. Corp., No. 20-cv-00200-JFH-JFJ, 2020 WL 5260813, at *2 (N.D.
Okla. Sept. 3, 2020) (“HUD Handbooks do not consist of binding regulations, nor do they
impose any binding obligations or legal duties upon parties.”) (citation omitted); Carson
v. Est. of Golz, No. 17-cv-01152-RBJ-MEH, 2018 WL 4090866, at *6 (D. Colo. Aug. 28,
2018) (“And the Tenth Circuit has reaffirmed, ‘[T]he HUD Handbook . . . is not law.’ . . .

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Rather, it is ‘intended for internal use for the information and guidance of HUD officials’
and has ‘no binding force.’”) (citing United States v. Hauck, 980 F.2d 611, 614 (10th Cir.
1992)); Williams v. Hanover Hous. Auth., 871 F. Supp. 527, 531-34 (D. Mass. 1994)
(collecting cases that show how “[c]ourts have consistently held that government
agenc[ie]s’ handbooks are not legally binding but merely advisory”).
Therefore, because Jarboe identifies federal regulations only in the form of a
nonbinding HUD Handbook as opposed to formal regulations, he has not shown that
Cherry Creek’s claim violates federal law.7 Thus, summary judgment in favor of Jarboe
on this basis is inappropriate.8
b.

Colorado Law9

For the purposes of adjudicating the Motion [#169], the Court assumes, without
deciding, that the Colorado Wage Claims Act (the “CWCA”) applies to Jarboe. Jarboe
argues that “Colorado . . . law prohibit[s] employers from requiring employees to repay
their salaries . . . .” Motion [#169] at 22.10 Under the CWCA, “‘[w]ages’ or ‘compensation’

This finding is supported by the fact that Cherry Creek contacted and later deposed HUD
attorneys who ultimately concluded that the April Agreements do not violate HUD regulations
which do have binding authority. Response [#177] at 14-15.
7

Cherry Creek’s Motion [#165] seeking entry of summary judgment in its favor in connection with
HUD and federal law is addressed in § III.B.1. below.
8

The Court declines to address yet again Jarboe’s arguments that California law should govern
the validity of the February and April Agreements. The Court has previously found that the broadly
written Colorado choice-of-law provision in the Agreements is enforceable and therefore
precludes the application of California law to the employment relationship at issue here. See
Order [#188] at 11; Order [#159] at 8; Order [#59] at 10.
9

Jarboe further argues that Colorado law prohibits employers from requiring employees to repay
their expenses. Motion [#169] at 22. The Court rejects this argument because Jarboe exclusively
provides authority relating to the recovery of wages and salaries under Colorado law. See
generally id.; Reply [#186]. Furthermore, Cherry Creek has conceded that it is not seeking to
recover business expenses from Jarboe. See Response [#177] at 21.
10

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means: . . . bonuses or commissions earned for labor or services performed in
accordance with the terms of any agreement between an employer and employee.” Colo.
Rev. Stat. Ann. § 8-4-101(14)(a)(II) (emphasis added). The CWCA further provides that:
All wages or compensation . . . earned by any employee . . . shall be due
and payable for regular pay periods of no greater duration than one
calendar month or thirty days, whichever is longer, and on regular paydays
no later than ten days following the close of each pay period unless the
employer and the employee shall mutually agree on any other alternative
period . . . .
Colo. Rev. Stat. Ann. § 8-4-103(1)(a) (emphasis added).
However, “[n]o amount is considered to be wages or compensation until such
amount is earned, vested, and determinable, at which time such amount shall be payable
to the employee . . . .” Colo. Rev. Stat. Ann. § 8-4-101(14)(a)(I) (emphasis added). In
the context of summary judgment, “[i]n order to establish a violation of the CWCA, [a
party] must show he was owed commissions that were earned, vested, and determinable
under the terms of the Offer and the parties’ course of conduct at the time of his . . .
termination.” Kirkland v. Robert W. Baird & Co., Inc., No. 18-cv-02724-MSK-SKC, 2020
WL 1452165, at *8 (D. Colo. Mar. 25, 2020) (citing Barnes v. Van Schaack Mortg., 787
P.2d 207, 209 (Colo. App. 1990) (stating that the CWCA applies “only to compensation
that has been earned under the employment agreement.”)).
Here, the parties do not dispute that the Employment Offer Agreement provided
Jarboe a minimum monthly override payment, or “Override Guarantee,” of $20,833 per
month. Employment Offer Agreement [#174-1] at 2. The Override Guarantee was linked
to Jarboe’s RC roll-up, which was associated with the branches he managed. See Depo.
of May [#171-11]; Depo. of Hogan [#177-4] at 134-35. Cherry Creek further points to
evidence that Earned Overrides were based on the cumulative net income or loss of the
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branches managed by Jarboe. Employment Offer Agreement [#174-1] at 2 (“Should your
earned overrides exceed the monthly guarantee you will receive the amount of those
earned overrides in excess of the guarantee.”); February Agreements [#174-2] at 17 §
3.1 (stating that Cherry Creek “will pay [Jarboe] an Override in the amount of 100% of the
Branch Net Income which is based upon the Gross Revenue less Direct Expenses,
Indirect Expenses and Other Expenses for the period”); April Agreements [#174-3] at 16
§ 3.1 (same); Ex. 23, Depo. of Jarboe [#177-1] at 174:18-175:3 (“I believe I was supposed
to [receive compensation that was tied to my management for the branches], but it never
materialized as the guaranteed income that I received. Well, the compensation that I
might have received or potentially could have received was never, never materialized,
because I was still on a guarantee that was more than that amount would have been.”);
Ex. 25, Apr. 2, 2017 Email from Stacey L. Harding, Senior VP of Cherry Creek Mortgage,
to Jarboe [#177-3] at 2 (“My recollection is that we agreed to continue the monthly amount
to you (assigned to your rollup RC beginning the 2nd year of employment) regardless of
whether or not the RC rollup balance was sufficient to cover the salary.”); Ex. 26, Depo.
of Hogan [#177-4] at 134:9-135:25 (stating that the roll-up account was created because
“Jarboe wanted one profit and loss statement to be able to track the information out of all
the cost centers that reported up under him. . . . [The roll-up account] does not include
line by line income for . . . specific branches. . . . It takes the bottom line of each of those
individual branches, so one number – it nets all of the income and expenses to get down
to a bottom line, and then it takes that bottom line number and rolls it up to the roll-up cost
center.”). In other words, Cherry Creek presents evidence that the Override Guarantee
pertaining to Jarboe was not based on labor he performed but was instead an advance

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on future Branch Net Income, which he never earned. Response [#177] at 19. The Court
has found no legal authority, and Jarboe has provided none, that an employer is
prohibited from recouping “unearned compensation” provided in the form of overrides.
Therefore, Jarboe has not shown that Cherry Creek’s claim violates state law, and
thus has not shown that there is no genuine issue of material fact on this aspect of the
claim. Accordingly, summary judgment in favor of Jarboe on this basis is inappropriate.11
3.

Validity of the April Agreements

The primary goal of contract interpretation is to give effect to the written expression
of the parties’ intent. Ad Two, Inc. v. City & Cnty. of Denver, 9 P.3d 373, 376 (Colo. 2000).
Where the words of a written contract are clear and unambiguous, its meaning is to be
ascertained in accordance with its plainly expressed intent. M & G Polymers USA, LLC
v. Tackett, 574 U.S. 427, 435 (2015). Interpretation of a contract is a question of law
where the contract’s construction does not depend on extrinsic evidence and where the
language is susceptible to only one reasonable interpretation. Zink v. Merrill Lynch Pierce
Fenner & Smith, Inc., 13 F.3d 330, 332 (10th Cir. 1993); see also Stegall v. Little Johnson
Assoc., Ltd., 996 F.2d 1043, 1048 (10th Cir. 1993) (applying Colorado law); Evensen v.
Pubco Petroleum Corp., 274 F.2d 866, 872 (10th Cir. 1960). Interpretation of a contract
is a question of fact only when a contract term is found to be ambiguous. Dorman v.
Petrol Aspen, Inc., 914 P.2d 909 (Colo. 1996).

The provisions of a contract are

ambiguous when they are subject to more than one reasonable interpretation. Union Ins.
Co. v. Houtz, 883 P.2d 1057 (Colo. 1994).

Cherry Creek’s Motion [#165] seeking entry of summary judgment in its favor in connection with
Colorado state law is addressed in § III.B.1. below.
11

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“Whether a contract exists when ‘the evidence is conflicting or admits of more than
one inference’ is a question for the jury.” Clingman v. Drive Coffee, LLC, No. 20-cv01485-RBJ, 2021 WL 4990303, at * (D. Colo. Oct. 27, 2021) (quoting I.M.A., Inc. v. Rocky
Mountain Airways, Inc., 713 P.2d 882, 887 (Colo. 1986)). Here, Jarboe argues that the
April Agreements are invalid because they are missing essential terms relating to how
profit is calculated in relation to market price, and they therefore reflect a lack of mutual
assent/obligation.12
Under Colorado law, “[m]utuality of obligation is required to form a contract . . . .”
Scarlett v. Air Methods Corp. 538 F. Supp. 3d 1205, 1226 (D. Colo. 2021). In other words,
a valid contract “‘requires a bargain in which there is a manifestation of mutual assent to
the exchange and consideration.’” Hickerson v. Pool Corp., No. 19-cv-02229-CMA-STV,
2020 WL 5016938, at *5 (D. Colo. Aug. 25, 2020) (quoting Vernon v. Qwest Commc’ns
Int’l, Inc., 857 F. Supp. 2d 1135, 1149 (D. Colo. 2012)). “[I]llusory promises, . . . which
render performance wholly discretionary, cannot form the basis of an enforceable
contract.” Cahey v. Int’l Bus. Machs. Corp., No. 20-cv-00781-NYW, 2020 WL 5203787,
at *15 (D. Colo. Sept. 1, 2020) (citing Vernon, 857 F. Supp. 2d at 1153-54 (explaining that
“an illusory contract is said to lack mutuality of obligation”)).

In a footnote in his Motion [#169], Jarboe also states that “branch” was not adequately defined
by the parties in the agreements. See Motion [#169] at 24 n. 8 (referencing id. at 22-23). A
contract term is ambiguous “if it is fairly susceptible to more than one interpretation.” Dorman v.
Petrol Aspen, Inc., 914 P.2d 909, 912 (Colo. 1996). At best, given the very limited information
before the Court, the term appears to be ambiguous regarding which branch the term referred to
or whether it referred to each branch managed by Jarboe. “[T]he meaning of [an ambiguous term]
is generally an issue of fact to be determined in the same manner as other disputed factual
issues,” i.e., by the jury. Id. Thus, based on the limited briefing provided, the Court cannot find
that entry of summary judgment on Cherry Creek’s breach of contract claim is appropriate on this
basis alone.
12

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“A contract only exists when the parties have a meeting of the minds as to all
essential terms of the contract.” Clingman, 2021 WL 4990303, at *8 (citing Jorgensen v.
Colo. Rural Props., LLC, 226 P.3d 1255, 1260 (Colo. App. 2010)). “The parties need not
discuss every material term for there to be a meeting of the minds if a party can show that
both parties knew and agreed to the term.” Clingman, 2021 WL 4990303, at *8 (citing
Harper v. Mancos Sch. Dist. RE-6, 837 F. Supp. 2d 1211, 1218 (D. Colo. 2011)). “A
material term goes to the root of the matter or essence of the contract. Materiality must
be assessed in the context of the expectations of the parties at the time the contract was
formed.” Coors v. Sec. Life of Denver Ins. Co., 112 P.3d 59, 64 (Colo. 2005) (internal
citation omitted)). “‘The law is clear that although the parties may intend to enter into a
contract, if essential terms are omitted from their agreement, or if some of the terms
included are too indefinite, no legally enforceable contract will result.’” Brightspot Sols.,
LLC v. A+ Prods., Inc., No. 20-cv-03335-MEH, 2021 WL 2935942, at *5 (D. Colo. July 13,
2021) (quoting Ellis Canning Co. v. Bernstein, 348 F. Supp. 1212, 1223 (D. Colo. 1972)).
Cherry Creek points to evidence that the relevant agreements explained how the
“market price” was determined. Response [#177] at 23; April Agreements [#174-2] at 16
§ 1.3.1.2 (defining “Market Price” as Cherry Creek’s “price provided to the Branch”).
“Market Price” was one part of “Gross Revenue,” which was “[t]he loan related revenue
and fees associated with the loans originated by the Branch.” April Agreements [#174-2]
at 16 § 1.3.1. The Court notes that this evidence is, at best, thin regarding how “market
price” was to be calculated pursuant to the contract. In fact, Jarboe points to opposing
evidence from Cherry Creek’s Rule 30(b)(6) deposition that, “typically,” calculation of the
market price set by Cherry Creek would be set forth in “an addendum” to the “branch

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manager agreement,” laying “out the specific basis point amount for these fees.” Rule
30(b)(6) Depo. of Cherry Creek [#171-7] at 57:4-23). Here, though, there was no such
addendum or other specific agreement “setting out the market price that would be
allocated to the branches [Jarboe] was responsible for managing as a regional manager.”
Id. at 57:16-58:12.
However, the fact that the contract does not specify how to calculate market price
is not determinative here because of Jarboe’s explicit agreement in the contract that
Cherry Creek would provide the market price. See April Agreements [#174-2] at 16 §
1.3.1.2 (defining “Market Price” as “[Cherry Creek’s] price provided to the Branch”); see
Ad Two, Inc. v. City & Cnty. of Denver, 9 P.3d 373, 376 (Colo. 2000) (stating that contract
language “must be examined and construed in harmony with the plain and generally
accepted meaning of the words employed”). Pursuant to the contract, Jarboe retained
no right to calculate “market price” or to define how that price was calculated.

See April

Agreements [#174-2] at 16 § 1.3.1.2. Although the contract does not specify how to
calculate “market price,” Jarboe provides no legal authority that an agreement must do
so in order to be legally enforceable where the contracting parties have given discretion
to one party to make that determination. In short, the law requires no meeting of the
minds or mutual assent on how to calculate the market price where the contract gave
Cherry Creek the discretion to calculate and provide that number.
This is not a case like Jorgensen v. Colorado Rural Properties, LLC, 226 P.3d at
1260, where “the parties simply took different positions in the bargaining process and no
agreement was reached as to either side’s proposed term.” In Jorgensen, the parties
made no agreement on how to split commissions from particular transactions. 226 P.3d

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at 1260. There, the essential term regarding division of commissions was “so uncertain
it could [not be] determined whether or not [the contract had] been breached,” and
therefore the Court found that “there [was] no contract.” Id. Here, viewing the evidence
in a light most favorable to Cherry Creek as the non-movant, the contract gave Cherry
Creek the authority to determine the market price, and the parties chose not to define
precisely how Cherry Creek was required to make that calculation.
Of course, under Colorado law, every contract contains the implied covenant of
good faith and fair dealing. Doe v. Univ. of Denver, 516 P.3d 946, 956 (Colo. App. 2022)
(citing Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo. 2003)). “The duty
of good faith and fair dealing applies ‘when the manner of performance under a specific
contract term allows for discretion on the part of either party.’” Doe, 516 P.3d at 956
(quoting City of Golden v. Parker, 138 P.3d 285, 292 (Colo. 2006)). “Whether a party
acted in good faith is a question of fact which must be determined on a case by case
basis.” Doe, 516 P.3d at 956 (quoting Amoco Oil Co. v. Ervin, 908 P.2d 493, 499 (Colo.
1995)). Here, the parties’ agreement explicitly gives Cherry Creek the discretion to
calculate the market price.13 April Agreements [#174-2] at 16 § 1.3.1.2. Thus, under
Colorado law, Cherry Creek was required to calculate the market price in good faith. See

Cherry Creek presents evidence that it calculated market price from the revenue credited to a
branch for each loan it closed, an amount determined by the branch margins on the loan, which
was based, in part, on each branch’s market, the loan program, loan originator compensation,
and branch operating costs. Response [#177] at 23 (in part citing Depo. of Michael Hogan [#1774] at 123:18-25 (“Branch margin is a rate that is paid out or credited to a cost center based on a
contractual agreement with the branch manager for this particular cost center. . . . It is a revenue
calculation that is allocated to this branch operating statement.”), 184:19-22 (“The market price is
a line item that is on the branch operating statement. It is a general ledger account that gets
revenue credited to it for each loan that closes. Generally, that market price is the branch margin
on the loan.”); Depo. of Jarboe [#177-1] at 180:22-181:13 (stating that Jarboe’s role in setting the
branch margin for his branch consisted of “consultant” and that he and his co-branch manager
would have both “set the margin, the branch margin for this branch”).
13

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Doe, 516 P.3d at 956. The Court takes no position on whether the specific calculations
made by Cherry Creek involving setting the market price (and related tasks such as
allocating the deficits, if any, from Jarboe’s branches to his Roll-up RC, and/or setting
income and expense items) was reasonable and complied with the covenant of good faith
and fair dealing. See Response [#177] at 23-25. It is the provenance of the jury as the
finder of fact to determine whether Cherry Creek did so. See id.
Thus, the Court cannot find, as Jarboe argues, that the April Agreements are
invalid because they are missing essential terms, and that they therefore lack mutual
assent/obligation. Therefore, summary judgment in favor of Jarboe on this issue is
inappropriate.
In conclusion, having reviewed the parties’ arguments, the Court finds that genuine
issues of material fact remain with respect to Cherry Creek’s breach of contract claim,
and that summary judgment in favor of Jarboe is not appropriate. Accordingly, Jarboe’s
Motion [#169] is denied.
B.

Cherry Creek’s Motion [#165]
Cherry Creek moves for entry of summary judgment in its favor on Jarboe’s three

remaining counterclaims: (1) breach of contract, (2) conversion, and (3) declaratory
judgment.
1.

Breach of Contract

Jarboe states that Cherry Creek breached their agreements in three ways: (1) by
“failing to pay the compensation – wages – guaranteed under those agreements,” (2) by
“violating HUD rules and regulations by collecting its expenses from an employee,” and
(3) by “violating state laws prohibiting employers from clawing back an employee’s salary

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and forcing an employee to pay for the employer’s operating expenses.” Response
[#178] at 12. In Section III.A. above, the Court addressed whether there are genuine
issues of material fact with respect to Cherry Creek’s claim that Jarboe breached their
agreements. Here, the Court addresses whether there are genuine issues of material
fact with respect to Jarboe’s counterclaim that Cherry Creek breached their agreements.
However, the arguments made by the parties are materially the same regarding both
Cherry Creek’s claim and Jarboe’s counterclaim, and for essentially the same reasons
stated above, the Court concludes as follows.
First, regarding Cherry Creek’s alleged failure to pay compensation, the Court
found in § III.A.1. above that there are issues of material fact regarding whether Cherry
Creek owes Jarboe any remaining sums under the contracts. No new argument is
presented here on this point, and for the reasons stated above, the Court finds there are
genuine issues of material fact which must be decided by a jury.
Second, regarding Cherry Creek’s compliance with HUD rules and regulations, the
Court found in § III.A.2.a. above that the HUD Handbook is not covered by Cherry Creek’s
contractual obligation to comply with “all rules and regulations” promulgated under “any
federal, state, local or foreign statute or law.” Thus, to the extent Jarboe bases his breach
of contract counterclaim on the HUD Handbook, Cherry Creek is entitled to entry of
summary judgment in its favor.
Finally, regarding compliance with state laws, the Court noted in § III.A.2.b. above
that it found no legal authority, and Jarboe provided none, that an employer is prohibited
from recouping “unearned compensation” provided in the form of overrides. Jarboe’s
argument here is that Cherry Creek breached the contract by failing to comply with state

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law by attempting to recoup these overrides. For the reasons stated above, the Court
finds that Jarboe has not shown, even taking the facts in a light most favorable to him,
that Colorado state law was violated by Cherry Creek. Thus, summary judgment on this
basis in favor of Cherry Creek is appropriate.
Accordingly, Cherry Creek’s Motion [#165] is granted in part. Summary judgment
shall enter in favor of Cherry Creek on Jarboe’s breach of contract counterclaim to the
extent it is based on purported violations of federal or state law. This Motion is denied
with respect to Jarboe’s breach of contract counterclaim to the extent it is based on failure
to pay Jarboe’s full compensation.
2.

Conversion

“Conversion is any distinct, unauthorized act of dominion of ownership exercised
by one person over personal property belonging to another.” Byron v. York Inv. Co., 296
P.2d 742, 745 (Colo. 1956). Under Colorado common law, to state a claim for conversion
Jarboe must show that: “(i) [Cherry Creek] exercised dominion or control over property;
(ii) that property belonged to [Jarboe]; (iii) [Cherry Creek’s] exercise of control was
unauthorized; (iv) [Jarboe] demanded return of the property; and (v) [Cherry Creek]
refused to return it.” DTC Energy Grp., Inc. v. Hirschfield, 420 F. Supp. 3d 1163, 1181
(D. Colo. 2019) (quoting L-3 Commc’ns Corp. v. Jaxon Eng’g & Maint., Inc., 863 F. Supp.
2d 1066, 1081 (D. Colo. 2012)).

Importantly, conversion “does not require that a

wrongdoer act with the specific intent to permanently deprive the owner of his property.”
Itin v. Ungar, 17 P.3d 129, 136 n.10 (Colo. 2000). In other words, “[c]onversion is a
species of strict liability in which questions of good faith, lack of knowledge, and motive
are ordinarily immaterial.” Scott v. Scott, 428 P.3d 626, 634 (Colo.

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Ct. App. 2018). “The structure of conversion claims under Colorado law . . . suggests
that they function mostly as a legal remedy for the wrongful removal or retention of
material things.” Williams v. Genesis Fin. Techs. Inc., 790 F. App’x 161, 165 (10th Cir.
2019).
a.

Equipment

Cherry Creek argues that it is entitled to summary judgment on the equipmentrelated portion of Jarboe’s conversion counterclaim because he lacks standing to bring
such a claim for personal property owned by his business, Strategic Mortgage
Corporation (“SMC”). Motion [#165] at 11-13. This goes to the second element of a
conversion counterclaim, i.e., the required showing that Jarboe owned the property at
issue. See DTC Energy Grp., Inc., 420 F. Supp. 3d at 1181.
Cherry Creek points to evidence that SMC was a California corporation owned, in
whole or in part, by Jarboe.

Depo. of Jarboe [#165-2] at 243:7-245:3.

SMC had

purchased and owned the personal property located within the Diamond Bar Property,
which was commercial real estate located in Diamond Bar, California. Id. at 102:7-103:5.
The Diamond Bar branch there later joined First Mortgage Corp. then Primary Residential
Mortgage, Inc. (“PRMI”), which used certain equipment during its lease of the Diamond
Bar Property. Id. at 139:17-140:12.

That personal property remained at the Diamond

Bar Property after PRMI had assigned its leases to Cherry Creek.

Id.

Upon its

assumption of the Diamond Bar leases, Cherry Creek had access to and use of the
personal property located therein. Id.
As of sometime in 2018 or 2019, SMC no longer owned or leased office equipment
and had sold the personal property that it had in its possession. Depo. of Jarboe [#165-

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2] at 102:15-104:2. However, the Court finds that there is genuine issue of material fact
regarding whether Cherry Creek retained at least some of SMC’s property when Jarboe
left Cherry Creek’s employment. See Decl. of Jarboe [#179] ¶ 3 (“After I left Cherry Creek,
Cherry Creek kept the property in the branches that stayed with Cherry Creek, including
branches in Apple Valley, Riverside, Pasadena, Montebello and Victorville.”). Cherry
Creek further asserts that Jarboe “does not contend that Cherry Creek is in possession
of [SMC’s] personal property.” Motion [#165] at 4 (citing Depo. of Jarboe [#165-2] at
164:6-11 (“Q. Do you contend that Cherry Creek is in possession of specific items of your
personal property? A. My personal property? Q. Yes. A. No.”). However, the Court
agrees with Jarboe that, given the context of the exchange at Jarboe’s deposition, there
is, at best, a question of fact as to whether either the question or the answer was meant
to refer to the office equipment at issue here.
The Court also finds that there is a genuine issue of material fact regarding whether
the equipment at issue belonged to Jarboe or to his company SMC. Jarboe does not
contest that SMC owned the equipment that PRMI rented during its time at the Diamond
Bar Property. Depo. of Jarboe [#180-7] at 112:17-113:11. However, Jarboe points to
evidence that, on April 21, 2021, SMC, as well as his other company D B Prop, “assigned
their claims to Jarboe and ratified Jarboe’s claims concerning the real and personal
property at issue.” Response [#178] at 18 (citing Ex. E [#128-1] at 25-26; Ex. F [#128-1]
at 28-29. In his May 13, 2021 declaration, Jarboe stated: “I recently noticed that SMC
has been suspended and am in the process of reinstating that corporation”). Decl. of
Jarboe [#128-1] ¶ 2. Cherry Creek shows that SMC was still suspended, or suspended
again, by the California Franchise Tax Board as of October 29, 2021. Ex. 13, Entity Status

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Letter [#165-13] at 2. Jarboe presents evidence that SMC returned to good standing as
a corporation as of November 26, 2021. See Certificate of Status [#179] at 6. However,
no party presents evidence regarding SMC’s standing on April 21, 2021, the date when
SMC signed the “Assignment and Ratification” document. See United States v. 2.61
Acres of Land, 791 F.2d 666, 668 (9th Cir. 1985) (applying California law to hold that “a
delinquent corporation may not bring suit and may not defend a legal action”); McLaughlin
Land & Livestock Co. v. Bank of Am., 94 F.2d 491, 493 (9th Cir. 1938) (applying California
law to hold that “the appellant was incapable of performing any corporate acts . . . during
the two-year period of suspension”).14 Thus, there remains a genuine issue of material
fact about whether SMC was legally permitted to assign any claims it may have had to
Jarboe on the date when it purportedly did so.
Accordingly, Cherry Creek’s Motion [#165] is denied with respect to Jarboe’s
counterclaim regarding conversion of office equipment.
b.

Telephone Numbers

The second part of Jarboe’s conversion counterclaim concerns certain telephone
numbers which were associated with Jarboe prior to his employment with Cherry Creek.
Response [#178] at 19-20. Cherry Creek presents the following evidence regarding this
issue.
On May 5, 2016, Cherry Creek was assigned telephone numbers 800-259-0090
and 909-869-6588 by PRMI for use at the Diamond Bar Property. Ex. 2, Depo. of Jarboe
[#165-2] at 89:2-11; Ex. 15, E-mail from Todd Keller [#165-15] (titled “IT Alert: DB Phone

Cherry Creek asserts: “Because this assignment [from SMC to Jarboe] did not involve Cherry
Creek or its contract with Jarboe, California law would presumably govern such an assignment
from a California company to a California resident.” Motion [#165] at 12. Jarboe does not contest
that California law applies to the assignment. Response [#178] at 18-19.
14

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System swing over, Friday, May 6th, 10am (PST)”). This was done at Jarboe’s direction
and Cherry Creek used these numbers with Jarboe’s permission. Ex. 2, Depo. of Jarboe
[#165-2] at 262:12-263:12. In June 2016, Cherry Creek entered into a 36-month contract
with Mitel to service the telephone numbers, an agreement which was set to expire in
June 2019. Ex. 16, July 2017 E-mail Chain [#168-2] at 3.
Jarboe had used these telephone numbers at previous employers. See Ex. 2,
Depo. of Jarboe [#165-2] at 249:7-250:5. Jarboe does not possess documentation
demonstrating any ownership in these numbers. See id. at 250:18-251:19, 253:19256:10, 265:6-266:16. At the time when the telephone numbers were assigned by Jarboe
to Cherry Creek, there was no agreement between Cherry Creek and Jarboe for Cherry
Creek to transfer the numbers to Jarboe or his subsequent employer. See id. at 90:7-10;
263:13-15. On June 16, 2017, Jarboe submitted his resignation to Cherry Creek effective
June 30, 2017. See Ex. 5, June 16, 2017 E-mail from Jarboe to Jeff May et al. [#165-5].
Sometime after Cherry Creek’s employment relationship with Jarboe ended, Cherry
Creek released the telephone numbers. See Ex. 2, Depo. of Jarboe [#166-2] at 76:1113.
Jarboe offers the following evidence in his Declaration:
For years before my employment with PRMI or Cherry Creek, I maintained
a local telephone number (909.869.6588) and a toll free “800” number
(800.259.0090). Continuity with these contact numbers is important in my
business because people . . . with whom I have done business know that
those numbers are how they can contact me. As I explained during my
deposition, even though I owned these numbers, I had to arrange with the
telephone providers of my employers to register these numbers in their
systems. Every one of my employers prior to Cherry Creek recognized my
“ownership” of those telephone numbers and returned them to me when I
left their employ so I could use them for my next employer. When I left
PRMI, I caused the assignment of these telephone numbers from PRMI’s

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telephone provider for use at Cherry Creek’s provider, and PRMI permitted
this transition without controversy or requiring me to pay anything.
When I left Cherry Creek, Cherry Creek demanded that I arrange to relieve
Cherry Creek of liability for its contract with its telephone provider (Mitel) or
take on that liability personally, before they would release my telephone
numbers to me. Cherry Creek had no use for these telephone numbers
after I left their employment; Cherry Creek intended to close the Diamond
Bar branch where these telephone numbers were used. However, Cherry
Creek took this opportunity to hold these numbers hostage in order to
relieve Cherry Creek of its remaining liability for its contract with Mitel. This
required me to spend thousands of dollars, and cost me unknown amounts
for lost business opportunities, before I could recover these numbers.
Cherry Creek only released the numbers to me after I complied with their
demands to pay these amounts to relieve Cherry Creek of its liability for its
telephone contract with Mitel.
Decl. of Jarboe [#179] ¶¶ 5-6.
Cherry Creek argues that Jarboe had no property interest in the telephone
numbers and, even if he did, the property rights belonged to Cherry Creek or,
alternatively, that Cherry Creek was using the numbers with Jarboe’s authorization.
Motion [#165] at 13-15. Cherry Creek also argues that Colorado does not recognize
conversion with respect to intangible property unless it has been merged with a
document. Id. at 16-17. The Court begins with this last argument, to which Jarboe made
no cognizable response. See Response [#178] at 19-20.
First, a telephone number is, by itself, intangible. See, e.g., T2 Techs., Inc. v.
Windstream Commc’ns, Inc., No. 14-cv-03151-MSK-KLM, 2016 WL 9735763, at *8 (D.
Colo. Sept. 26, 2016) (recognizing that “the right to use a telephone number” is
intangible); In re Al-Naji, 521 B.R. 65, 72 (W.D.N.Y. Oct. 30, 2014) (stating that
“intangibles” include “customer lists and a telephone number”); Preferred Home
Inspections, Inc. v. Bellsouth Telecomm., LLC, No. 3:14-cv-00673-MBS, 2014 WL
4793824, at *7 (D.S.C. Sept. 24, 2014) (“Given . . . a telephone number’s status as
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intangible property . . . .”); In re Andress, No. 05-11919-M, 20017 WL 2401815, at *1
(N.D. Okla. Aug. 17, 2007) (stating that “the intangible assets of Kite to be purchased
included . . . all of Kite’s business telephone numbers”). The Court is aware of no
Colorado law holding that telephone numbers are tangible.
Second, under Colorado law, an intangible must be converted to a tangible in order
for a conversion claim to be cognizable. In Williams v. Genesis Financial Technologies
Inc., 790 F. App’x at 165-66, the Tenth Circuit Court of Appeals examined a conversion
claim regarding intangible intellectual property, which the District Court had dismissed as
the type of property that could not be converted. The Circuit noted that “[t]he structure of
conversion claims under Colorado law . . . suggests that they function mostly as a legal
remedy for the wrongful removal or retention of material things.” Williams, 790 F. App’x
at 165. Discussing McLaughlin v. Clementi, 355 P.2d 100, 104 (1960), the Circuit noted
that the trucking permit at issue there, although an intangible right, “was held [by the
Colorado Supreme Court to be] convertible because it fell ‘within the category of
conversion of a document amounting to the conversion of an intangible right.’” Id. at 166
(emphasis in original). The Circuit found that the intangible intellectual property at issue
could not be converted in the absence of a similar document. Id. Similarly, in Tolbert v.
High Noon Productions LLC, No. 20-cv-01734-DDD-NYW, 2021 WL 1877612, at *4 (D.
Colo. Feb. 3, 2021), the Court held that a claim for conversion failed where the plaintiff
did not allege that the defendant “exercised physical control over any tangible object,”
thus making the claim “inadequate under Colorado law.”

The Court noted that

“conversion requires dominion over physical property.” Tolbert, 2021 WL 1877612, at *4.

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Third, there is no genuine issue of material fact here that Jarboe has not reduced
his property right, if any, in the intangible phone numbers to a tangible object, like a
document, evidencing that right. See Ex. 2, Depo. of Jarboe [#165-2] at 250:18-251:19,
253:19-256:10, 265:6-266:16.
Thus, even assuming arguendo that a person may have a property right in a
telephone number, under Colorado law there can be no successful cause of action for
conversion in the absence of merging the intangible property right with a document.
Although the Court has found no Colorado case directly on point, South Carolina law
appears to be materially similar regarding conversion and intangible property.

In

Preferred Home Inspections, Inc. v. Bellsouth Telecommunications, LLC, 2014 WL
4793824, at *7, the District Court of South Carolina held:
Plaintiffs allege that AT & T converted the telephone number when they
failed to port it properly. An action for conversion ordinarily lies only for
personal property that is tangible, or to intangible property that is merged
in, or identified with, some document. The Supreme Court of South
Carolina is reluctant to expand the tort of conversion as it relates to
intangible property and has concluded that actions for conversion should be
limited to intangible property rights that are identified with some document.
Given the South Carolina Supreme Court’s expressed reluctance to expand
the tort of conversion to intangible property not attached to a document and
a telephone number’s status as intangible property, the court concludes a
telephone number is not subject to conversion.
(internal citations, quotations marks, and footnote omitted). Based on the law recited
above, and the persuasive authority of Preferred Home Inspections, the Court finds that
telephone numbers are not subject to conversion under Colorado law.
Accordingly, the Motion [#165] is granted in part to the extent that summary
judgment shall enter in favor of Cherry Creek regarding Jarboe’s conversion counterclaim
relating to telephone numbers.

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3.

Declaratory Judgment

The Declaratory Judgment Act (“DJA”), 28 U.S.C. § 2201, “validly confer[s]
jurisdiction on federal courts to issue declaratory judgments in appropriate cases.”
Calderon v. Ashmus, 523 U.S. 740, 745 (1998). The DJA explicitly incorporates the case
or controversy requirement of the Constitution by stating: “In a case of actual controversy
within its jurisdiction, . . . any court of the United States . . . may declare the rights and
other legal relations of any interested party seeking such declaration.” 28 U.S.C. §
2201(a). The Court therefore considers the issue of jurisdiction pursuant to Rule 12(b)(1)
with respect to Jarboe’s requests for declaratory judgment. See, e.g., Van Deelen v.
Fairchild, No. 05-2017, 2005 WL 3263885, at *7 (D. Kan. Dec. 1, 2005).
“It is well established that what makes a declaratory judgment action a proper
judicial resolution of a case or controversy rather than an advisory opinion is the settling
of some dispute which affects the behavior of the defendant toward the plaintiff.” Jordan
v. Sosa, 654 F.3d 1012, 1025 (10th Cir. 2011) (citations omitted). In other words, “where
a plaintiff seeks a declaratory judgment against his opponent, he must assert a claim for
relief that, if granted, would affect the behavior of the particular parties listed in his
complaint.” Id. To establish that a case or controversy exists, Jarboe must demonstrate
that the controversy is: (1) definite, concrete, and touches on the legal relations of the
parties, and (2) sufficiently immediate and real. Aetna Life Ins. Co. v. Haworth, 300 U.S.
227, 240-41 (1937); Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941). In
short, “[t]he ultimate question is whether declaratory relief will have some effect in the real
world.” Van Deelen v. Fairchild, No. 05-2017, 2005 WL 3263885, at *7 (D. Kan. Dec. 1,

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2005) (citing Citizens for Responsible Gov’t State Political Action Comm. v. Davidson,
236 F.3d 1174, 1182 (10th Cir. 2000)).
Further, “[e]ven if subject matter jurisdiction exists, the Court has unique and
substantial discretion to determine the propriety of declaratory judgment[.]” Id. (citing
Exec. Risk Indem. Inc. v. Sprint Corp., 282 F. Supp. 2d 1196, 1202 (D. Kan. 2003)). The
Court has discretion under 28 U.S.C. § 2201 to decide whether to hear a declaratory
judgment action. Wilton v. Seven Falls Co., 515 U.S. 277, 289 (1995) (holding that the
statute “vest[s] district courts with discretion in the first instance, because facts bearing
on the usefulness of the declaratory judgment remedy, and the fitness of the case or
resolution, are peculiarly within their grasp”); State Farm Fire & Cas. Co. v. Mhoon, 31
F.3d 979, 982 (10th Cir. 1994) (“The Supreme Court has long made clear that the
Declaratory Judgment Act gave the federal courts competence to make a declaration of
rights; it did not impose a duty to do so.”).
The factors to be considered are:
(1) whether a declaratory action would settle the controversy; (2) whether it
would serve a useful purpose in clarifying the legal relations at issue; (3)
whether use of a declaratory remedy is being used merely for the purpose
of ‘procedural fencing’ or ‘to provide an arena for a race to res judicata’; (4)
whether the use of a declaratory action would increase friction between our
federal and state courts and improperly encroach upon state jurisdiction;
and (5) whether there is an alternative remedy which is better or more
effective.
St. Paul Fire & Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1169 (10th Cir. 1995) (quoting
State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994)). These factors
are “fact intensive and highly discretionary . . . .”

Mhoon, 31 F.3d at 983. When

considering whether to exercise jurisdiction over a declaratory judgment action, courts
“must determine whether hearing the case would ‘serve the objectives for which the
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Declaratory Judgment Act was created.’ . . . [W]hen these objectives are served,
dismissal is rarely proper . . . .” Capo, Inc. v. Dioptics Med. Prods., Inc., 387 F.3d 1352,
1355 (Fed. Cir. 2004) (internal citation omitted).

The objective of the Declaratory

Judgment “Act is to enable resolution of active disputes.” Id. at 1357.
Here, the Court appears to have subject matter jurisdiction over the controversy
underlying this counterclaim, because the parties dispute the meaning and/or application
of certain parts of their contracts. Jarboe seeks declaratory judgment on two remaining
topics, asking the Court to declare: (1) that “Cherry Creek must indemnify or pay its
employees including Mr. Jarboe for all necessary expenditures and losses incurred in the
discharge of their duties in furtherance of Cherry Creek’s business,” and (2) “that any
provisions in employment contracts between Cherry Creek and its California employees,
including Mr. Jarboe, which contradict California law or HUD or FHA regulations are
unenforceable.” Answer and Counterclaim [#72] at 21; Order [#159] at 14-16; see also
Jarboe’s Response [#178] at 20 (arguing in connection with his declaratory judgment
counterclaim that “Cherry Creek’s efforts to collect its operating expenses from Jarboe
violates HUD’s rules and regulations,” that “Cherry Creek may not violate HUD
regulations simply because it requires employees to enter into various agreements in the
abstract,” that “Cherry Creek does violate HUD regulations when it uses those
agreements to force employees to reimburse it for its expenses and operating deficits,”
and that “Cherry Creek’s enforcement of its NPBM Agreements against Jarboe seeking
indemnification . . . for business expenses and losses, violates state laws and [Cherry
Creek’s] express promise to comply with all federal and state laws and regulations”).15
As previously noted, Cherry Creek has conceded that it is not seeking to recover operating
expenses from Jarboe. See Response [#177] at 21.
15

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However, the Court finds that the discretionary factors here favor Cherry Creek’s
position. First, the declaratory action would not settle the controversy, because the
primary issue in this case concerns what money damages, if any, are owed under the
contracts, an issue which will be adjudicated in connection with Jarboe’s breach of
contract counterclaim. Thus, separately clarifying the legal relations between the parties
here would be duplicative of the Court’s determination of the legal relations between them
under the breach of contract counterclaim. In addition, Jarboe’s declaratory judgment
requests appear to be a way of procedural fencing; if declaratory judgment is entered in
favor of Jarboe, then his breach of contract counterclaim becomes easier to win. Next,
there is no indication that allowing the declaratory action here would have any effect
whatsoever on jurisdictional issues between the federal and state courts. Finally, the
alternative remedy which is better or more effective is the simple adjudication of the
breach of contract counterclaim.
In short, the issues under the remaining declaratory judgment requests are
covered by the breach of contract disputes between the parties, essentially going to the
heart of what the parties may or may not owe to one another based on those contracts.
There are no continuing or future issues here regarding the parties’ relationship because
Jarboe is no longer employed by Cherry Creek.

Thus, the only issues are those

concerning the parties’ former relationship and any monies which one or the other may
legally owe under the terms of the contracts and the law governing those contracts. As
such, allowing the declaratory judgment portion of Jarboe’s counterclaims to proceed is
inappropriate.

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Accordingly, Cherry Creek’s Motion [#165] is granted to the extent that summary
judgment is entered in favor of Cherry Creek on Jarboe’s declaratory judgment
counterclaim.
IV. Conclusion
Based on the foregoing,
IT IS HEREBY ORDERED that Cherry Creek’s Motion [#165] is GRANTED in part
and DENIED in part. The Motion is granted to the extent that summary judgment is
entered in favor of Cherry Creek on Jarboe’s following counterclaims: (1) breach of
contract, to the extent based on HUD and state law; (2) conversion, to the extent based
on telephone numbers, and (3) declaratory judgment. The Motion is otherwise denied
concerning Jarboe’s following counterclaims: (1) breach of contract (other than breach
based on HUD or state law) and (2) conversion, to the extent based on office equipment.
IT IS FURTHER ORDERED that Jarboe’s Motion [#169] is DENIED.

Dated: October 17, 2022

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