Free Response to Objection to Report and Recommendation - District Court of Colorado - Colorado

Case 1:01-cv-00693-LTB-BNB

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-cv-693-LTB-BNB TY REX, LLC, Plaintiff, v. MARK NEWMAN; JAPHETH B. BOYCE, individually and dba RJB ROCK SHOP; TRANS UNION GEM & MINERAL, INC.; KAREN NEWMAN; JOHN C. BOLAN; ROBERT L. STODDARD and GAIL L. STODDARD, Defendants. MARK NEWMAN and JAPHETH B. BOYCE, Defendants and Third Party Plaintiffs, v. JEFFREY S. MILLER, Third Party Defendant. DEFENDANTS' AND THIRD PARTY PLAINTIFFS' RESPONSE TO PLAINTIFF'S AND THIRD PARTY DEFENDANT'S OBJECTIONS TO RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE Defendants and Third Party Plaintiffs, Mark Newman and Japheth Boyce, together with Defendants, Trans Union Gem & Mineral, Inc. and Karen Newman (all collectively referred to hereinafter as "these Defendants"), through their undersigned counsel, respectfully submit the

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following Response to the Objections filed by the Plaintiff and Third Party Defendant to the Recommendation of the United States Magistrate Judge dated August 23, 2005. This Response is submitted pursuant to this Court's Minute Order of October 4, 2005. POSTURE OF THE CASE This case was initially filed by the Plaintiff on April 17, 2001. The Magistrate Judge accurately summarizes the claims among the principal parties in his Recommendation (pp. 2-3).1 After much initial litigious swirling, in this Court and elsewhere, the parties entered into a "Stipulation of Settlement" ultimately executed in the summer of 2003. Stipulation of Settlement ("Stipulation") is attached hereto as Exhibit A. As noted in the Recommendation (pp. 3-4), the Stipulation of Settlement compromised the parties' claims by providing a specified a process whereby the principal parties would attempt cooperatively to sell the collection of tyrannosaurus rex fossils (and accompanying cast) over which they had been litigating and divide the proceeds of such a sale between them. First the Plaintiff, and then both the Plaintiff and these Defendants, would attempt for specified periods of time to consummate a private sale for their mutual benefit, with the proceeds from such a sale to be distributed between the parties according to specified formulas. Failing this, it was agreed that the fossils and cast would be consigned to a public auction (such auction to occur prior to December 31, 2004), with the net proceeds of the auction sale to be divided between the Plaintiff and these Defendants according to a formula set forth in the Stipulation. As noted in the
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While there is a good deal more detail and color that could be provided, including discussion of collateral litigation in other jurisdictions and the pendency of multiple potentially dispositive motions among the principal parties and others, none of this is particularly pertinent to the limited issue before the Court here. Further, a point-by-point refutation of the narrative presented by the Plaintiff in its Objections, while tempting, would be less useful still.
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Recommendation (pp. 3-4), the Stipulation provided that this Court would retain jurisdiction over the parties and the subject matter of the litigation regarding disputes in carrying out the terms of the Stipulation. As described in the Recommendation (pp. 4-5), the fossils were ultimately auctioned through Bonhams & Butterfields in Los Angeles on May 16, 2004.2 As noted by the Magistrate Judge, the fossils that the parties had jointly hoped would bring in something between $400,000 and $1 million ultimately sold for only $80,000 ­ and that to a bidder procured by one of these Defendants. As everyone agrees, the auction was a disaster. Yet, it was the disposition agreed to by the parties in their Stipulation of Settlement and was conducted in accordance with the requirements of the Stipulation. In the wake of the auction, as noted by the Magistrate Judge (pp. 4-5), the parties ­ albeit amid much acrimony and finger-pointing ­ discussed the possibility of jointly seeking a rescission of the auction sale (of the fossils only) and entering into a new agreement to attempt to re-sell them at a more palatable price prior to the stipulated December 31, 2004 deadline. Preliminary discussions along these lines quickly died out, however, and the severely strained communications between the principal parties all but ceased. As months dragged by and communication languished, and as the December 31 deadline approached, these Defendants grew increasingly suspicious that something was afoot of which they were not aware. This fear was ultimately bolstered by an inquiry from Bonhams &

Butterfields as to whether these Defendants had any objection to the auction house delivering As the Recommendation notes (p. 4, ftn. 4), the consignment agreement with the action house was entered into by the Plaintiff, as the owner of the fossils through the contested and as yet unpaid for purchase from Defendant Newman, though under the terms of the Stipulation of Settlement and continuing stipulated jurisdiction of the Court.
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physical possession of the fossils to the Plaintiff in the wake of what quite apparently was a contemplated or already consummated rescission of the May 16 auction, details of which were stated as being confidential. This led these Defendants to file their Motion for Clarification and Enforcement of Terms of Stipulation of Settlement (the "Motion") on December 22, 2004, which was the precipitator of the Magistrate Judge's present Recommendation. A copy of the Motion is attached as Exhibit B. As diplomatically as possible, the Motion sought to smoke out whatever it was that the Plaintiff was up to. As noted by the Magistrate Judge (p. 6), these Defendants were amenable to a rescission as long as some time frame and parameters could be established for further disposition of the fossils under the general terms of the parties' settlement. Failing that, and failing some other agreement or order of Court, these Defendants requested that the May 16 auction be honored and that any unilateral extra-judicial efforts to rescind it be terminated. As noted by the Magistrate Judge (p. 5), the Plaintiff responded with the pronouncement that the auction sale "has been rescinded" and that these Defendants were not entitled to know the "exact terms" of the rescission. Further, as noted by the Magistrate Judge (p. 7) and as argued by the Plaintiff in its present Objections to the Magistrate Judge's Recommendation, the Plaintiff's position is that it should now be entitled to retain full possession and ownership of the fossils and re-sell them completely for its own benefit free and clear of any interests or claims whatsoever of these Defendants. POSTURE OF THE PRINCIPAL PARTIES' CLAIMS AND BARGAINS At risk of some oversimplification, the Plaintiff's original claims against these Defendants, as noted by the Magistrate Judge (pp. 2-3), arise from various purported acts of

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fraud, constructive fraud, misrepresentation, breach of contract, and tortious interference dating from the days prior to the commencement of the lawsuit. These Defendants' counterclaims and third party claims, as noted by the Magistrate Judge (p. 3), are for the contracted purchase price for the sale of the fossils by Defendant Newman to the Plaintiff and Third Party Defendant and various incidental services provided in conjunction therewith. It is these claims that were compromised by the parties' entry into the Stipulation of Settlement. The Stipulation of Settlement is a contract. Citywide Bank v. Herman, 978 F.Supp. 966, 977 (D.Colo. 1997). The primary goal of contract interpretation is to give effect to the intent of the parties. Ad Two, Inc. v. City and County of Denver, 9 P.3d 373, 376 (Colo. 2000). The essence of the Stipulation of Settlement was that the principal parties agreed to compromise their legal claims in exchange for a mutual commitment to effectuate a sale of the fossils for their mutual benefit pursuant to a precisely delineated scenario. Formulas were agreed upon for distribution of the proceeds from such a sale, these formulas reflecting a compromised effort to address the parties' legal claims vis a vis one another. For an initial period up until April 1, 2003, the Plaintiff was given exclusive authority to market and contract for a private sale (Stip. ¶ I(A)(1)), with the initial $500,000 in proceeds to go to these Defendants and everything above that to the Plaintiff (Stip. ¶ I(A)(3)), and with the sale price to be no less than $810,000 (Stip. ¶ I(B)(1)). Failing that, both groups of principal parties were permitted to market the fossils up until September 30, 2003, (Stip. ¶ I(B)(1)) ­ with (a) the distribution of proceeds and minimum sale price to be as noted above with regard to any sale to a party that had initially been contacted by the Plaintiff prior to April 1 (Stip. ¶ I(B)(1), I(B)(1)(a)) or (b) otherwise with the price subject to the approval of both the Plaintiff and these Defendants

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(Stip. ¶ I(B)(1)) and with the proceeds to be distributed with the first $250,000 going to the Plaintiff, the next $400,000 to these Defendants, and everything above that to be split 50/50 (Stip. ¶ I(B)(1)(b)). Finally, failing all of this, the fossils would be consigned to an auction subject to the $250,000/$400,000/50-50 proceeds distribution formula and to be completed by December 31, 2004 (Stip. ¶ I(B)(2)). From the perspective of these Defendants, their contractual expectancy, in return for the surrender of their legal claims, was commitment to a process. Under the first sale scenario or a later sale to a party initially contacted by the Plaintiff during that first period, these Defendants would receive an assured $500,000 and relinquish all upside above that to the Plaintiff. Under the second scenario, these Defendants agreed to permit the Plaintiff to receive the first dollars in the door, but maintained the power to nix any sale that did not generate enough additional proceeds to provide a meaningful satisfaction of their own claims. Finally, only through the auction did the parties agree to risk a loss ­ with these Defendants compromising their legal claims for a low or even zero return only in a context of: (a) an auction as provided in the agreement; and (b) yielding no more than $250,000 in indisputable value to the Plaintiff. The latter point is critical. These Defendants did not bargain away their legal claims in return for a process that would yield them nothing and permit the Plaintiff to walk away with the full, albeit indeterminate, value of the fossils (i.e., the fossils themselves), let alone through a secret and unilateral rescission of the auction to which the parties had contractually committed. The point is not whether these Defendants would have received anything more in purely economic terms had the Plaintiff abided by the Stipulation of Settlement. The point is that these

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Defendants have been deprived of the process for which they bargained and for which they agreed to surrender their legal claims. 3 THE OPTIONS AVAILABLE AT THIS STAGE While these Defendants do not object to the ultimate Recommendation of the Magistrate Judge, they do take issue with a portion of his analysis. Particularly, the Magistrate Judge states (p. 10) that "the parties have clearly and unequivocally given up their rights under the Stipulation of Settlement." Whether or not that is true of the Plaintiff, that is absolutely not the case for these Defendants. In their Motion for Clarification which gave rise to the Recommendation, these Defendants explicitly requested, as one alternative, that the auction be honored and protected from unilateral efforts at rescission. The Magistrate Judge accurately quotes these Defendants (p. 5) to the effect that "all parties concurred that it would be in all of their best interests to seek a rescission of at least the portion of the auction sale dealing with the fossils . . . and renew alternative efforts to dispose of the fossils under the terms of the Stipulation" (emphasis added). These Defendants have never suggested that they would even consider

consenting to a rescission of the auction under any other circumstances. These Defendants have never, with or without equivocation, given up their rights under the Stipulation of Settlement. Having said that, the practical remedy of reinstating the auction sale (i.e., rescinding the rescission) is at best problematic. While these Defendants have never been provided with any information regarding the details of the purported rescission, it may be presumed that any This point is emphasized as the Plaintiff suggests that these Defendants have not been damaged by the rescission of the auction and the Plaintiff's unilateral seizure of the fossils, as they would have received no distribution through the auction that did in fact take place. But, this is not the process for which these Defendants agreed to compromise their legal claims. This was not the bargain. The Plaintiff's point is more properly directed at the fashioning of a remedy for the present conundrum, which is addressed below.
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rescission agreement involved the auction house and the successful bidder, neither of whom are parties to this case nor, probably, subject to the personal jurisdiction of this Court. Yet, if such a remedy could be effectuated, it would be consistent with the parties' Stipulation of Settlement and therefore unobjectionable to these Defendants. The most even-handed alternative appears to be that suggested in the Magistrate Judge's Recommendation, though ­ rather than deeming there to be "no settlement to be enforced" (p. 10), as there very much is a settlement to be enforced ­ to deem the settlement agreement to have failed and return the parties to their status quo ante. The proper theory, one would suppose, would be supervening frustration of principal purpose through no fault of either party, thus discharging performance by either party. Restatement (Second) of Contracts §265 (1981). As performance entails a surrender of pre-existing claims, the result would be the reinstitution of those claims and, as the Magistrate Judge recommends, return of the parties "to their previous status before they entered into the Stipulation of Settlement" (p. 10). This is more than a little hard to swallow in view of the fact that the Plaintiff admittedly unilaterally and intentionally caused the supervening frustration by effectuating the rescission of the auction ­ but these Defendants can swallow hard and live with it. A third (and more accurate) approach would be to deem the Stipulation of Settlement to have been breached, or perhaps repudiated, by the Plaintiff through the unilateral engineering of the rescission of the auction and seizure of the fossils. In that case, these Defendants are entitled to a remedy. Direct monetary expectancy damages would be impossible to calculate at this point as these Defendants (as discussed above) bargained for a process rather than a sum of money; part of the bargain was that any losses suffered by them would only occur: (a) through an

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auction under the Stipulation; and (b) with a precise limitation on the value conferred upon the Plaintiff. The Plaintiff abrogated the process ­ as effectively as if it had seized the fossils prior to the auction ­ and now seeks to retain their full indeterminate value to be realized exclusively for its own benefit through such future sale or other disposition as it may choose. These Defendants, through no fault of their own, have been left with nothing and deprived of the process for which they bargained. The appropriate remedy under this analysis would be

restitution of the benefit conferred ­ Restatement (Second) of Contracts §373(1) (1981) ­ in this case reinstitution at a minimum of the claims compromised by these Defendants, accompanied by imposition of an equitable lien (to replace the possessory lien evidenced by the Pledge Agreement attached to Plaintiff's Amended Complaint as Exhibit C) upon the fossils for that value to prevent the Plaintiff from being unjustly enriched through their sale. Restatement of Restitution §161 (1937). This approach would not, as with the Magistrate Judge's

Recommendation, revive the Plaintiff's claims, as the Plaintiff would not be entitled to a remedy for the breach, repudiation, or supervening frustration it unilaterally and deliberately caused. This resolution would also be unobjectionable to ­ in fact preferred by ­ these Defendants. A final approach ­ and most certainly the approach least burdensome to the resources of both the Court and all parties and potential parties ­ would be simply to invoke the broad equitable powers of the Court, which by the parties' agreement has retained jurisdiction over the parties and the subject matter (the fossils) of the lawsuit, as well as conferred authority to enforce the Stipulation of Settlement ­ Stip. ¶ II(3) ­ to direct that the fossils be delivered forthwith into the custody of the Court and re-auctioned at a venue to "be designated by the Court" ­ Stip. ¶ I(B)(2)(a)(i) ­ under the direction of the Magistrate Judge ­ Stip. ¶ II(3) ­ and otherwise subject

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to the terms of the Stipulation of Settlement. This would be easiest and quickest and, again, would be unobjectionable to, and indeed preferred by, these Defendants. Other approaches that presently escape these Defendants may suggest themselves to the Court. Respectfully, the only approach these Defendants would be disposed to vigorously contest at this stage would be an acceptance of the Plaintiff's invitation to dismiss the case and leave the Plaintiff with the fruits of its surreptitious subversion of the parties' settlement agreement. Respectfully submitted this 24th day of October, 2005.

/s/ Edward T. Ramey Edward T. Ramey ATTORNEYS FOR DEFENDANTS AND THIRD PARTY PLAINTIFFS, MARK NEWMAN AND JAPHETH BOYCE, AND DEFENDANTS, TRANS UNION GEM & MINERAL, INC. AND KAREN NEWMAN Isaacson Rosenbaum P.C. 633 17th Street, Suite 2200 Denver, CO 80202 Phone: 303/256-3978 Fax: 303/292-3152 E-mail: [email protected]

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CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 24th day of October, 2005, I electronically filed a true and correct copy of the foregoing DEFENDANTS' AND THIRD PARTY PLAINTIFFS' RESPONSE TO PLAINTIFF'S AND THIRD PARTY DEFENDANT'S OBJECTIONS TO RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email address: ([email protected]) Joe T. Reece, Esq. Reece & Baker, LLC Post Office Box 6670 Denver, CO 80206 /s/ Jayne M. Wills

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