Free Brief - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 04-F-0438 (OES) TIMOTHY C. HOILES, Plaintiff and Counterclaim Defendant, v. JOSEPH M. ALIOTO, Defendant and Counterclaim Plaintiff,

MEMORANDUM OF JOSEPH M. ALIOTO RE: IDENTIFIED ISSUES

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TABLE OF CONTENTS Page

I. II.

INTRODUCTION ............................................................................................................1 SUBSTANTIAL COMPLIANCE WITH THE STATUTORY SCHEME REGULATING ATTORNEYS.......................................................................1 THE COURT SHOULD CONSIDER PAROL EVIDENCE IN DETERMINING THE ISSUEOF SUBSTANTIAL COMPLIANCE .........................................................7 INTERPRETATION OF THE CONTRACT IS AN ISSUE FOR THE COURT............11 CAUSATION IS NOT AN ELEMENT OF MR. ALIOTO'S CLAIM FOR BREACH OF CONTRACT .............................................................................................12 UNJUST ENRICHMENT IS AN EQUITABLE ISSUE TO BE TRIED BY THE COURT..............................................................................................................13 CONCLUSION.................................................................................................................16

III.

IV. V.

VI.

VII.

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TABLE OF AUTHORITIES CASES Page(s) All Direct Travel Services, Inc. v. Delta Air Lines, Inc., 120 Fed. Appx. 673 (9th Cir. 2005), cert. denied, 73 U.S.L.W. 3604 (U.S. June 6, 2005) (No. 04-1338).........................................................................14 Armstrong v. O'Toole, 917 P.2d 1274 (Colo. 1996).....................................................................................5 Baker O'Neal Holdings, Inc. v. Massey, 403 F.3d 485 (7th Cir. 2005) ..................................................................................14 Beeson v. Industrial Claim Appeals Office, 942 P.2d 1314 (Colo. App. 1997) .........................................................................12 Board of County Commissioners v. City & County of Denver, 548 P.2d 922 (Colo. App. 1976) ..............................................................................5 East Ridge of Fort Collins, LLC v. Larimer & Weld Irrigation Co., 109 P.3d 969 (Colo. 2005).....................................................................................11 Elliott v. Joyce, 889 P.2d 43 (Colo. 1994).......................................................................................12 Fabec v. Beck, 922 P.2d 330 (Colo. 1996).......................................................................................5 Finnie v. Jefferson County School District R-1, 79 P.3d 1253 (Colo. 2003).......................................................................................4 Fortin v. Commissioner of the Massachusetts Department of Public Welfare, 692 F.2d 790 (1st Cir. 1982).....................................................................................4 Grant Investments Co. v. Fuller & Co., 464 P.2d 859 (Colo. 1970).......................................................................................6 Haynes Trane Service Agency, Inc. v. American Standard, Inc., 51 Fed. Appx. 786 (10th Cir. 2002).................................................................13, 15 Hendricks v. Colorado, 10 P.3d 1231 (Colo. 2000).......................................................................................1 Hinkle v. Blinn, 19 P.2d 1038 (Colo. 1933).....................................................................................10 I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882 (Colo. 1986).......................................................................................5 Joseph A. v. New Mexico Department of Human Services, 69 F.3d 1081 (10th Cir. 1995), cert. denied, 517 U.S. 1190 (1996).........................4 ii

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KN Energy, Inc. v. Great Western Sugar Co., 698 P.2d 769 (Colo. 1985), cert. denied, 472 U.S. 1022 (1985) .............................7 Lederman Enterprises, Inc. v. Allied Social Science Ass'ns, 709 P.2d 1 (Colo. App. 1985) ..................................................................................7 Martinez v. Colorado Department of Human Services, 97 P.3d 152 (Colo. App. 2003) ..............................................................................15 Massachusetts Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 2005 WL 1404459 (1st Cir. June 16, 2005) ...........................................................14 McPhee v. Young, 21 P. 1014 (Colo. 1889)...........................................................................................7 Mullens v. Hansel-Henderson, 65 P.3d 992 (Colo. 2002).......................................................................................15 Murdock v. Cohen, 762 P.2d 691 (Colo. App. 1988) ............................................................................15 Nahring v. City & County of Denver, 484 P.2d 1235 (Colo. 1971)...................................................................................10 Newcomb v. Schaeffler, 279 P.2d 409 (Colo. 1955).......................................................................................5 Nichols v. Heslep, 273 F.3d 1098 (5th Cir. 2001) (unpublished opinion) ............................................14 Peckham v. Gem State Mutual of Utah, 964 F.2d 1043 (10th Cir. 1992) ................................................................................4 Salzman v. Bachrach, 996 P.2d 1263 (Colo. 2000).............................................................................13, 15 Sierra Club v. Yeutter, 911 F.2d 1405 (10th Cir. 1990) ..............................................................................14 Simler v. Conner, 372 U.S. 221, 83 S. Ct. 609 (1963)........................................................................13 South Valley Health Care Center v. Health Care Financing Administration, 223 F.3d 1221 (10th Cir. 2000) ................................................................................5 Starzynski v. Sequoia Forest Industries, 72 F.3d 816 (10th Cir. 1995) ....................................................................................1 Thompson v. Sweet 17 P.2d 308 (Colo. 1932).......................................................................................10 United States ex rel. Rahman v. Oncology Associates, P.C., 198 F.3d 489 (4th Cir. 1999) .................................................................................14 iii

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University of Colorado Foundation, Inc. v. American Cyanamid Co., 974 F. Supp. 1339 (D. Colo. 1997), vacated in part on other grounds, 196 F.3d 1366 (Fed. Cir. 1999)..............................................................................14 Western Distributing Co. v. Diodosio, 841 P.2d 1053 (Colo. 1992)...............................................................................1, 12 Woodsmall v. Regional Transportation District, 800 P.2d 63 (Colo. 1990).................................................................................2, 3, 4 STATUTES, RULES AND REGULATIONS 42 C.F.R. § 488.301 .............................................................................................................5 Colorado Rules of Civil Procedure, Chapter 23.3 Rule 4 .......................................................................................................................9 Rule 4(6) ..................................................................................................................9 Rule 5 ...............................................................................................................1, 6, 9 Rule 5(a)...................................................................................................................9 Rule 5(b) ..................................................................................................................9 Rule 5(c)...................................................................................................................8 Rule 5(e)...................................................................................................................9 Rule 5(f) ...................................................................................................................9 MISCELLANEOUS John D. Calamari & Joseph M. Perillo, The Law of Contracts § 11-15 (3d ed. 1987)........4 Tape Recording of House State Affairs Committee Hearing on House Bill 1196, 55th General Assembly, Second Session, February 6, 1986 ...............................................3

iv

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I. INTRODUCTION As noted by Magistrate Judge Schlatter in his Order dated June 6, 2005, the parties agree that the issue of "substantial compliance" with the requirements of Rule 5 of Chapter 23.3 of the Colorado Rules of Civil Procedure ("C.R.C.P.") is an issue for the Court. This is because statutory construction (like contract construction) is an issue of law. Starzynski v. Sequoia Forest Indus., 72 F.3d 816, 822 (10th Cir. 1995); Hendricks v. Colo., 10 P.3d 1231, 1235 (Colo. 2000). Should the Court determine that the fee agreement substantially complies with Chapter 23.3 and that the agreement is enforceable, the only material factual controversy remaining will be Mr. Hoiles's liability for his ex-wife and daughters' stock. This is because under the agreement, Mr. Alioto's agreed upon performance and the occurrence of the desired contingency are not disputed factual issues requiring jury determination.1 II. SUBSTANTIAL COMPLIANCE WITH THE STATUTORY SCHEME REGULATING ATTORNEYS Colorado law provides that "[n]o contingent fee agreement shall be enforceable by the involved attorney unless there has been substantial compliance with all of the provisions of this

This conclusion flows from recognition that, contrary to Mr. Hoiles position, the issue of Mr. Alioto's performance is not tied to "causation," of a certain result but is defined by the terms of the agreement. See Western Distributing Co. v. Diodosio, 841 P.2d 1053, 1057 (Colo. 1992). Should the Court hold that the contract does not substantially comply with Chapter 23.3, Mr. Alioto submits that his unjust enrichment claim is to be tried to the Court and not a jury as discussed below.

1

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Chapter 23.3." (C.R.C.P. Rule 6 (emphasis added)).2 There is a dearth of case law construing this particular standard; however, it is not the first time the Colorado Legislature has chosen to include or consider the phrase "substantial compliance" in connection with legislation. Moreover, courts have had to apply the doctrine of substantial compliance in other contexts and their reasoning may be extrapolated into the present analysis. No matter what the context, construction of the phrase generally turns on the objective of the statute and whether the alleged noncompliance detracts from that objective being realized. Here, Mr. Hoiles received every benefit of the contract he could have hoped for, so the laudable statutory purpose of ensuring full disclosure and honest dealing with clients has been served and any deviation from strict compliance must be considered immaterial. Considering usage of the compliance terminology in other contexts, the Colorado Supreme Court in Woodsmall v. Regional Transportation District, 800 P.2d 63 (Colo. 1990), analyzed the meaning of "compliance" with respect to the notice requirements for bringing claims against public entities under the Colorado Governmental Immunity Act. Noting, that "[a] court's primary task in statutory construction is to ascertain and give effect to the legislative purpose underlying a statutory enactment," the court set forth well-settled rules about statutory construction. Id. at 67. It then discussed the meaning of "compliance," finding that it "involves the act of conforming to formal or official requirements or norms, and without further modification, connotes an element of degree." Id. (citations omitted). Because compliance "may be absolute or strict, on the one hand, or somewhat less than absolute but nonetheless substantial, on the other," id., a court imposes "a degree of compliance consistent with the

2

As set forth in the Pretrial Order, Mr. Alioto has retained Lawrence Theis to testify as his summary witness on the issue of substantial compliance. 2

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objective sought to be achieved by the legislation under consideration" in determining whether a requirement has been satisfied (id.). In order to determine whether compliance is consistent with the legislative objective, the Colorado Supreme Court considered the legislative history of this statute and recounted committee discussions about the degree of compliance to be included in the bill and whether the modifier "substantial" should be reinstated from an earlier version. Id. at 68. The sponsor of the bill "stated that the word `substantial' had been deleted in the bill because "certain cases had interpreted the word too loosely, so as to allow suit to be brought where the notice should have been fatally defective.'" Id. In response to concerns that deletion of the word "substantial" would be construed as requiring "absolute" compliance, it was stated that such deletion would "'still leave room for the court to determine whether substantial compliance had occurred. . . [and] would prevent the court from seizing on the word 'substantial' to allow all manner of defective notice to be considered.'" Id. The sponsor of the bill agreed with this position, stating: `We do leave the court some discretion by using the word "compliance" and letting the court decide what that means, and, on the other hand, taking out the word "substantial" removes what, at least, in a couple of cases, apparently has been a loophole . . . . " Id. (quoting Tape Recording of House State Affairs Committee Hearing on House Bill 1196, 55th General Assembly, Second Session, February 6, 1986.) This legislative colloquy clearly indicates that the sponsor of the legislation: did not intend to create a standard of absolute or literal compliance with the notice requirement, but rather intended a degree of compliance that was considerably more than minimal but less than absolute. The only fair characterization of such a degree of compliance is `substantial compliance.

3

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Id.; see also Finnie v. Jefferson County School District R-1, 79 P.3d 1253, 1256 (Colo. 2003). In the instant context, unlike in Woodsmall, the legislature chose to include the modifier "substantial," which would appear to indicate an intent to allow courts greater flexibility in determining compliance on a case-by-case basis. In a case from another context ­ construction of a consent decree -- the Tenth Circuit has observed that "[t]he phrase `substantial compliance' is not susceptible of a mathematically precise definition" Joseph A. v. New Mexico Dept. of Human Services, 69 F.3d 1081, 1085 (10th Cir. 1995), cert. denied 517 U.S. 1190 (1996), and took guidance from a First Circuit decision addressing a similar issue: `[N]o particular percentage of compliance can be a safe-harbor figure, transferable from one context to another. Like "reasonableness," "substantiality" must depend on the circumstances of each case, including the nature of the interest at stake and the degree to which noncompliance affects that interest.` Id. (quoting Fortin v. Commissioner of the Massachusetts Department of Public Welfare, 692 F.2d 790, 795 (1st Cir. 1982). The Tenth Circuit has also addressed the doctrine of substantial compliance in the context of ERISA preemption, stating: By definition, the doctrine of substantial compliance does not materially modify a plan, but rather is simply a doctrine to assist the court in determining whether conduct should, in reality, be considered the equivalent of compliance under the contract. See John D. Calamari & Joseph M. Perillo, The Law of Contracts 1115, at 454 (3d ed. 1987) (`If a party has substantially performed, it follows that any breach he may have committed is immaterial.'). Peckham v. Gem State Mutual of Utah, 964 F.2d 1043, 1052 (10th Cir. 1992). In the context of regulations governing nursing home requirements, the Code of Federal Regulations defines substantial compliance as "'a level of compliance with the requirements of

4

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participation such that any identified deficiencies pose no greater risk to resident health or safety than the potential for causing minimal harm'"), South Valley Health Care Ctr. v. Health Care Financing Administration, 223 F.3d 1221, 1224 (10th Cir. 2000) (quoting 42 C.F.R. § 488.301). Substantial compliance" has also been articulated as the standard for determining whether signatures gathered for a ballot initiative were acceptable. See, e.g., Fabec v. Beck, 922 P.2d 330, 341 (Colo. 1996) (in determining substantial compliance, court must consider "(1) the extent of noncompliance, (2) the purpose of the applicable provision and whether that purpose is substantially achieved despite the alleged noncompliance, and (3) whether there was a good-faith effort to comply or whether noncompliance is based on a conscious decision to mislead the electorate."); accord Armstrong v. O'Toole, 917 P.2d 1274, 1276 (Colo. 1996). In yet another context, the city of Denver sought to annex a parcel of land to the city and the opponents raised numerous failures to comply with the controlling statutes. The court applied the substantial compliance standard in upholding the annexation because, regardless of deficiencies, all those affected by the annexation had notice and the resolution describing the area was published; hence, any variance from requirements was immaterial. Board of County Commissioners v. City & County of Denver, 548 P.2d 922, 926-27 (Colo. App. 1976) Finally, the term "[s]ubstantial compliance with reference to contracts, means that although the conditions of the contract have been deviated from in trifling particulars not materially detracting from the benefit the other party would derive from a literal performance, he has received substantially the benefit he expected, and is, therefore, bound to pay." Newcomb v. Schaeffler, 279 P.2d 409, 412 (Colo. 1955); see also I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 889 (Colo. 1986) ("The words . . . "substantial compliance" mean that, although the terms of the contract may have been departed from in small ways, such departures

5

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did not materially detract from the benefits Defendant . . . would have derived from an exact performance, with the result that Defendant . . . received substantially the benefit it contracted for."). Construction of contracts, like statutes, is an issue of law. Grant Investments Co. v. Fuller & Co., 464 P.2d 859, 861 (Colo. 1970). In determining whether any deviation from compliance with the Colorado statutory scheme was material in this particular context, the Court should consider the following criteria distilled from the foregoing authorities. a. b. the objectives to be achieved by Rule 5 of Chapter 23.3 of the C.R.C.P;3 the nature of the interest at stake and the degree to which a particular act of noncompliance affects that interest; c. the purpose of the applicable provision and whether that purpose is substantially achieved; d. whether any departure from the statutory requirements detracted from the benefits received by Mr. Hoiles; and, e. whether Mr. Hoiles substantially received the benefit he expected.

These factors tend to focus on whether the purpose of the contract was realized and whether the purpose of ensuring straightforward attorney/client relations was served. In light of the fact that this was a private transaction where Mr. Alioto indisputably did the job expected of him, and Mr. Hoiles indisputably got the benefit he desired, any deviation from formal, technical requirements should fall into the "no harm, no foul" category. Mr. Alioto substantially complied

3

These rules were obviously enacted to protect clients from being subjected to undisclosed terms and/or overreaching imposed by lawyers, neither of which happened here. 6

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and Mr. Hoiles should be estopped to contend otherwise by his acceptance of the benefits of the contract. III. THE COURT SHOULD CONSIDER PAROL EVIDENCE IN DETERMINING THE ISSUEOF SUBSTANTIAL COMPLIANCE The law of Colorado has long recognized that "'[p]arol evidence, though not admissible to add to or vary the terms of a written contract, is admissible to prove facts and circumstances as to the relations of the parties, and the nature, quality and condition of the property which is the subject of the contract, and also the acts of the parties at and subsequent thereto, for the purpose of showing their understanding of its terms." McPhee v. Young, 21 P. 1014, 1016 (Colo.1889) (citation omitted); accord KN Energy, Inc. v. Great Western Sugar Co., 698 P.2d 769, 776-77 (Colo. 1985) ("[T]he court may consider extrinsic evidence bearing upon the meaning of the written terms, such as evidence of local usage and of the circumstances surrounding the making of the contract."), cert. denied, 472 U.S. 1022 (1985). Mr. Alioto does not contend that the retainer agreement should be varied by parol or extrinsic evidence; rather, he contends that because contract construction and the existence of ambiguity are both issues of law (Lederman Enterprises, Inc. v. Allied Social Science Ass'ns., 709 P.2d 1, 2 (Colo. App. 1985)), such evidence should be admitted and considered so that the Court can then construe the agreement as a matter of law in accordance with the parties' undisputed understanding. The written retainer agreement coupled with extrinsic evidence in the record demonstrates that the retainer is susceptible to only one interpretation based on the undisputed understanding of the parties. Mr. Hoiles desired to obtain liquidity for his stock in Freedom

7

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Communications and retained Mr. Alioto to develop an approach toward that end. Mr. Hoiles does not claim that he was misled by a failure to be more specific in describing the nature of the "claim, controversy and other matters with reference to which the services are to be performed" as required by Rule 5(c). To the contrary, Mr. Hoiles testified in his deposition that he understood that the purpose of Mr. Alioto's representation was to bring about, by whatever means, the sale of the Freedom shares at a fair price, and that such an event would trigger application of the contingent fee percentage to the proceeds received for the stock. Q. But I'm trying to find out if she -- if she and you discussed why, that the purpose of going after them was to get the shares sold somehow at a fair price? I'm not sure that was said, but because of the length of time we were married and the fact that I was in Freedom all the time we were married, almost, she would understand that. *** Okay. But the legal -- the purpose of the legal strategies, as you put it here, was to get the shares sold at a fair price? If, in fact, the legal strategy was correct. *** I understand. But you were talking to Ms. Davison specifically about the possibility that there might be some -- ultimately some fees attached to Mr. Alioto's undertaking if it were successful; is that correct? A. Uh-huh. Yes. Excuse me. Sorry.

A.

Q. A. Q.

Hoiles Depo. at 17-19.4

4

The Hoiles deposition and other relevant evidence was lodged in connection with the summary judgment briefing and is not resubmitted herewith. 8

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Mr. Hoiles has admitted that Mr. Alioto's performance triggered a chain of events that led to liquidity of the shares, as planned. Mr. Hoiles is arguing after the fact that the agreement is deficient in certain technicalities, but he has never claimed that he did not understand the arrangement or that he was in any way prejudiced.5 As for the requirements of C.R.C.P. Rule 4, it is not material that Mr. Alioto did not describe "the nature of other types of fee arrangements" because Mr. Hoiles came to him with prior knowledge of other types of fee arrangements.6 In fact, Mr. Hoiles specifically informed Mr. Alioto that a contingent fee arrangement was the only arrangement he was interested in pursuing, due primarily to the fact that he did not want to place his own assets at risk going after what was perceived as an extreme long shot. Moreover, the fee agreement clearly spells out how fees and costs are to be calculated and paid, and Mr. Hoiles has never claimed that he did not understand the obligations he undertook. "Associated counsel" and their impact on Mr. Hoiles's fee obligations are also explained in the fee agreement.
7

In construing a contract, the court should receive any parol or extrinsic evidence so that it

5

Hoiles considered the fee agreement for seven months before signing, and gave it to three lawyers to review. During the pre-execution period, (1) Mr. Hoiles and one of his lawyers, Mr. Barletta met with Mr. Alioto in September 2001 to review the agreement; (2) Mr. Hoiles had Mr. Alioto assist him in drafting demand letters to other shareholders; (3) Mr. Hoiles reviewed drafts of the complaint Mr. Alioto was planning to file; (4) Mr. Hoiles consulted frequently and regularly with Mr. Alioto about a variety of matters relating to Freedom; and (5) Mr. Hoiles tried unsuccessfully to negotiate a private sale of his stock. All of this evidence is documented and not disputed in the summary judgment record.
6

Mr. Alioto clearly complied with other provisions of C.R.C.P. Rule 5. He described the parties to the agreement (Rule 5(a) and (b)), set forth the precise contingency percentage (Rule 5(e)), and made a detailed disclosure of liability for expenses (Rule 5(f)).
7

Nor did other provisions, relevant in other contexts, have any meaning in connection with this representation. For example, Rule 4(6) requires disclosure of what is meant by subrogation and its effect, which are not in issue here. 9

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can determine if a true ambiguity exists. Here, that parol evidence consists of the details of the parties' conduct under the agreement and Mr. Hoiles's testimony regarding his understanding, and it shows that the only true interpretation of the agreement is the one the parties accepted in practice. "[I]f . . . the parties themselves have, by their conduct, construed the writing, that construction is the best possible guide in ascertaining their meaning at the time of the execution of the document." Thompson v. Sweet, 17 P.2d 308, 309 (Colo. 1932). It is well established law that when a contract or agreement has been given a practical construction, as reflected by the conduct and acts of the parties in its performance, such construction may, and perhaps even should, be considered by the court in eliminating any ambiguity, and in ascertaining the mutual meaning of the parties at the time of the contracting. Nahring v. City & County of Denver, 484 P.2d 1235, 1237 (Colo. 1971). Consideration of the factual record will shed light on the fact that the parties interacted for two years based on a consistent interpretation of their agreement, and that disagreement only arose after Mr. Alioto had completed his performance, when it came time for Mr. Hoiles to perform his commitment under the agreement. [T]he conduct of the parties before the controversy arose, acting under the contract, is a reliable test of their interpretation of the instrument, and whatever the stress of subsequent disagreement, neither in his own interest may be heard to urge a different construction. Hinkle v. Blinn, 19 P.2d 1038, 1039 (Colo. 1933). In sum, the Court should consider extrinsic evidence in order to ascertain the absence of ambiguity so that it may construe the agreement as a matter of law based on the parties' uniform understanding. "Colorado has long recognized the rule that in construing a contract, the courts will follow the construction placed upon it by the parties themselves. Thus, we have found the conduct of the parties before the controversy arose to be a reliable test of their interpretation of

10

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the agreement." East Ridge of Fort Collins, LLC v. Larimer & Weld Irrigation Co., 109 P.3d 969, 974-75 (Colo. 2005). IV. INTERPRETATION OF THE CONTRACT IS AN ISSUE FOR THE COURT As discussed in the preceding section, contractual interpretation and the existence of ambiguity are both issues to be decided by the Court and a review of the extrinsic evidence demonstrates that there was no perceived ambiguity during the performance of the contract. Rather, supposed ambiguities have been asserted for the first time in post-performance litigation as a pretext for Mr. Hoiles to avoid his contractual obligations. While it will not be fully recited here, the evidence in the record demonstrates that while Mr. Hoiles has raised the argument in this litigation that certain terms of the retainer agreement are ambiguous and uncertain (such as the meaning of "Freedom Communications Matter"), Mr. Hoiles fully understood the meaning of the contingent fee provisions, particularly in terms of what the applicable contingency was and to what res the percentage applied; he also recognized and understood that the purpose of Mr. Alioto's representation was to bring about, by whatever means, the sale of the Freedom shares at a fair price, and that such an event would trigger application of the contingent fee percentage to the proceeds received for the stock. As discussed above, consideration of the extrinsic evidence demonstrates that there is no question about Mr. Hoiles' understanding of the meaning of the contingent fee provisions, when they became applicable, the matter to which the agreement applied, and how the contingent fee was to be calculated.

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V. CAUSATION IS NOT AN ELEMENT OF MR. ALIOTO'S CLAIM FOR BREACH OF CONTRACT The contingent fee agreement at issue obligated Mr. Alioto to perform certain services on behalf of Mr. Hoiles in an effort to cause the specified contingency to happen. In consideration therefor, Mr. Hoiles agreed to pay Mr. Alioto a specified amount if the contingency occurred. Mr. Alioto is not required to prove that his performance caused the occurrence of the contingency, because that is not the nature of contracts. Rather, the elements a plaintiff must prove to establish a breach of contract claim are (in addition to damages): (1) the existence of a contract; (2) performance by the plaintiff or some justification for nonperformance; [and] (3) failure to perform the contract by the defendant. Western Distributing Co. v. Diodosio, 841 P.2d 1053, 1057 (Colo. 1992) (citations omitted). Causation is relevant in a tort context, but a contract claim is concerned with the performance of agreed upon promises and, in this context, the occurrence of a specified contingency. See generally Beeson v. Industrial Claim Appeals Office, 942 P.2d 1314, 1316 (Colo. App. 1997). See also Elliott v. Joyce, 889 P.2d 43, 46 (Colo. 1994). As also noted above, there does not appear to be a factual issue with respect to the contract claim insofar as it relates to the shares held by Mr. Hoiles ­ the controversy involves only the legal issue of substantial compliance. Hence, it would appear that the contract claim can, for the most part, be determined by the Court. Should the contingent fee agreement be deemed unenforceable, and Mr. Alioto is limited to his unjust enrichment claim, the connection between Mr. Alioto's efforts and the result achieved would be relevant. To establish a claim for unjust enrichment, Mr. Alioto would have

12

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to establish that at his expense, Mr. Hoiles receive a benefit under circumstances that would make it unjust for Mr. Hoiles to retain the benefit without paying Mr. Alioto. See Salzman v. Bachrach, 996 P.2d 1263, 1265-66 (2000). VI. UNJUST ENRICHMENT IS AN EQUITABLE ISSUE TO BE TRIED BY THE COURT In Simler v. Conner, 372 U.S. 221 (1963), the United States Supreme Court addressed the issue of right to jury trial in a case involving a lawyer's contingent fee agreement, recognizing that "[i]n diversity cases, of course, the substantive dimension of the claim asserted finds its source in state law, but the characterization of that state-created claim as legal or equitable for purposes of whether a right to jury trial is indicated must be made by recourse to federal law." Id. at 222, 83 S. Ct. at 610-611. (citations omitted). But see Haynes Trane Service Agency, Inc. v. American Standard, Inc., 51 Fed. Appx. 786, 800 (10th Cir. 2002) (not selected for publication) (implicitly considering the issue to be one of state law and concluding that "[b]oth Colorado and Texas courts have recognized that claims for unjust enrichment are equitable"). Irrespective of whether state or federal law controls, however, the result is the same: Mr. Alioto's claim for unjust enrichment is an equitable claim to be decided by the Court. Applying federal law, the Simler Court held that the suit before it "was in its basic character a suit to determine and adjudicate the amount of fees owing to a lawyer by a client under a contingent fee retainer contract, a traditionally `legal' action" which should not be obscured by its form as an action for declaratory judgment but tried to a jury. Simler, 372 U.S. at 223, 83 S. Ct. at 611. While declaratory relief is generally considered an equitable remedy (see, e.g., Sierra Club v. Yeutter, 911 F.2d 1405, 1420 n.8 (10th Cir. 1990)), Mr. Hoiles's declaratory

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relief claim, like the one in Simler, is a "mirror image" of Mr. Alioto's counterclaim for breach of contract. Mr. Alioto thus concedes that to the extent there are triable factual issues on the breach of contract/declaratory relief claims, they are to be tried to a jury. On the other hand, under either federal law or Colorado law, Mr. Alioto's counterclaim for unjust enrichment is essentially equitable. As a matter of federal law, this Court expressly has defined unjust enrichment as "an equitable doctrine." University of Colorado Foundation, Inc. v. American Cyanamid Co., 974 F. Supp. 1339, 1354 (D. Colo. 1997), vacated in part on other grounds, 196 F.3d 1366 (Fed Cir. 1999), cert. denied, 529 U.S. 1130 (2000).. Other circuits are in agreement. See, e.g., Massachusetts Eye & Ear Infirmary v. QLT Phototherapeutics, Inc., 2005 WL 1404459, at *12*13 (1st Cir. June 16, 2005) (holding that "[u]njust enrichment provides an equitable stopgap for occasional inadequacies in contractual remedies at law," and finding that an agreement, while unenforceable as indefinite, might yet "form the basis for equitable relief on a theory of unjust enrichment"); Baker O'Neal Holdings, Inc. v. Massey, 403 F.3d 485, 489 (7th Cir. 2005) ("Unjust enrichment is an equitable doctrine . . . ."); All Direct Travel Services, Inc. v. Delta Air Lines, Inc., 120 Fed. Appx. 673, 676 (9th Cir. 2005) (not selected for publication) (`Unjust enrichment is an equitable rather than a legal claim; consequently, no action for unjust enrichment lies where a contract governs the parties' relationship to each other.' (citation omitted)), cert denied, 73 U.S.L.W. 3604 (U.S. June 6, 2005) (No. 04-1338); Nichols v. Heslep, 273 F.3d 1098 (5th Cir. 2001) (unpublished opinion) (per curiam)("[W]e also conclude that the Nichols' claim for unjust enrichment was an equitable one and not triable of right by a jury.") (citing state and federal precedent); United States. ex rel Rahman v. Oncology Associates, 198 F.3d 489, 498 (4th Cir. 1999) ("The unjust enrichment count is recognized as equitable.").

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Colorado law also treats a claim for unjust enrichment as equitable. As stated by the Colorado Supreme Court in Mullens v. Hansel-Henderson, 65 P.3d 992, 999 (Colo. 2002): "When a contract fails, equity steps in to prevent one party from taking advantage of another. Quantum meruit, founded upon the principle of equity, exists to prevent unjust enrichment." Id. at 999. (emphasis in original); accord Haynes Trane Serv. Agency, 51 Fed. Appx. at 800 (noting that Colorado law recognizes unjust enrichment as an equitable claim). "Unjust enrichment is a judicially created remedy designed to avoid benefit to one to the unfair detriment of another. Unjust enrichment occurs when (1) at the plaintiff's expense, (2) the defendant received a benefit, (3) under circumstances that would make it unjust for the defendant to retain the benefit without paying." Martinez v. Colorado Department of Human Services, 97 P.3d 152, 159 (Colo. App. 2003); Salzman, 996 P.2d at 1265-66; see also Murdock v. Cohen, 762 P.2d 691, 692 (Colo. App. 1988) ("In order to recover under the theory of quantum meruit, a plaintiff must show that: (1) a benefit was conferred on defendant by plaintiff; (2) the benefit was appreciated by defendant; and (3) the benefit was accepted by defendant under such circumstances that it would be inequitable for it to be retained without payment of its value."). Hence, under either state or federal law, unjust enrichment is considered an equitable claim. Accordingly, Mr. Hoiles's demand for a jury is inapplicable to Mr. Alioto's claim for unjust enrichment, and that claim should be decided by the Court, not by a jury.

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VII. CONCLUSION It is respectfully submitted that the Court should find that Mr. Alioto substantially complied with the requirements for a contingent fee contract and that any departure therefrom was immaterial and only raised by Mr. Hoiles after the fact in order to avoid his obligations thereunder. In making this determination, the Court should consider evidence extrinsic to the contingent fee agreement, including evidence surrounding the making of the agreement and evidence of the parties' performance of the agreement. Additionally, contract construction is an issue for the Court to decide, as is the existence of ambiguity, and the Court should consider parol evidence to determine whether there are actual as opposed to pretextual ambiguities. Finally, to the extent factual issues remain on the breach of contract/declaratory relief claims, they may be submitted to the jury. Mr. Alioto's claim for unjust enrichment is to be decided by the Court in the event he is unsuccessful on his breach of contract claim.

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Dated: June 20, 2005

Respectfully submitted,

/s/ Ian L. Saffer Ian L. Saffer Chad E. King Townsend and Townsend and Crew, LLP One Tabor Center 1200 Seventeenth Street, Suite 2700 Denver, Colorado 80202 (303) 571-4000 (303 571-4321 (fax) [email protected] (E-mail) Maxwell M. Blecher John E. Andrews Blecher & Collins, P.C. 611 West Sixth Street, 20th Floor Los Angeles, California 90017-3120 (212) 622-4222 (213) 622-1656 (fax) [email protected] (E-mail) Daniel R. Shulman Gray, Plant, Mooty, Mooty & Bennett, P.A. 500 IDS Center 80 South Eighth Street Minneapolis, MN 55402 (612) 632-3335 (612) 632-4335 (fax) [email protected] (E-mail) Attorneys for Defendant and Counterclaim Plaintiff Joseph M. Alioto

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