F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
SEP 28 2001
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
ECHO ACCEPTANCE CORP., a
Colorado corporation and
ECHOSPHERE CORPORATION, a
Colorado corporation, Nos. 00-1167 and 00-1190
Plaintiffs - Appellees - Cross-
Appellants,
vs.
HOUSEHOLD RETAIL SERVICES,
INC., a Delaware corporation,
Defendant - Appellant - Cross-
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. No. 95-WY-605-WD)
T. Wade Welch (Ross W. Wooten, with him on the briefs), T. Wade Welch &
Associates, Houston, Texas, for Plaintiffs - Appellees.
Bruce A. Featherstone (John A. DeSisto, with him on the briefs), Featherstone,
DeSisto, L.L.P. Denver, Colorado, for Defendant - Appellant.
Before KELLY, MCWILLIAMS, and REAVLEY *, Circuit Judges.
The Honorable Thomas M. Reavley, Senior Circuit Judge, United States
*
Court of Appeals - Fifth Circuit, sitting by designation.
KELLY, Circuit Judge.
Defendant Household Retail Services, Inc. (“HRSI” or “Household”),
appeals from a jury verdict in favor of Plaintiffs Echo Acceptance Corporation
and Echosphere Corporation (collectively, “Echo”) on Echo’s breach of contract
claim. The district court’s jurisdiction was based on 28 U.S.C. § 1332. We have
jurisdiction under 28 U.S.C § 1291 and we affirm.
Background
The plaintiffs in this case are Echosphere Corporation (“Echosphere”),
which manufactures and sells home satellite television systems, and Echo
Acceptance Corporation (“EAC”), an Echosphere subsidiary organized to
facilitate the financing of such sales. 1 While some Echosphere customers no
doubt make their own financial arrangements, Echosphere referred many of its
customers to EAC. EAC would then enter a loan agreement with the customer,
pursuant to which EAC agreed to finance the system for the customer. EAC then
sold the loan agreements to an ultimate financier. Until 1989, that financier was
the Central Bank of Denver, which purchased the agreements from EAC for a flat,
1
Both EAC and Echosphere are subsidiaries of EchoStar Communications
Corporation. J.A. 2331 (Tr. at 245-46).
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up-front fee. J.A. 249.
On July 7, 1989, EAC entered a Merchandise Financing Agreement
(“MFA”) with the defendant, Household, a private label credit card company.
Pursuant to the MFA, a customer interested in purchasing Echosphere equipment
on credit submitted an application to Echosphere, which was transmitted to EAC
and then to Household for credit approval. Upon approval, EAC purchased the
customer’s financing contract, then resold and assigned that agreement to
Household, which thereafter assumed the credit relationship with the customer.
Upon assignment, the MFA typically relieved EAC from liability for the
customer’s default. Household then issued a credit card to the approved customer
to be used for future purchases of Echosphere equipment. The customer’s
contract provided for finance charges on the credit account. Household also
offered credit insurance to customers, for a separate charge. Through the
arrangement just described, Household provided funding for credit purchases of
Echosphere equipment. The customers made monthly payments on their account
balances toward principal, finance charges, and in some cases, insurance
premiums. Aplt. Br. at 4.
In its initial pricing letter, HRSI confirmed the execution of the MFA and
reiterated that it would “purchase from time to time revolving credit contracts at
the price agreed upon from time to time and as outlined below:
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1) The consumer Annual Percentage Rate will be 17.88% with a
per contract discount of .85% [charged by HRSI].
2) HRSI will pay EAC 8% (eight percent) of billed finance
charges monthly.
3) HRSI will pay EAC a percent of billed finance charges
equivalent to 30% (thirty percent) of billed insurance charges.
4) HRSI understands that EAC does not initiate retail installment
sales or revolving credit sales directly to the consumer.
However, HRSI will respond to EAC as though EAC initiates
all contracts per the Merchandise Financing Agreement.
J.A. 3013 (Pl. Ex. 6); see also id. at 3006-07 (Pl. Ex. 3) (Merchandise Financing
Agreement). Collectively, the credit agreements originated by EAC and sold to
HRSI were referred to as the “EAC Portfolio”. Id. at 2333 (Tr. at 254).
Echo contends, and the district court agreed, that merchant and insurance
participation payments were part of the price HRSI paid for EAC’s accounts.
Aplee. Br. at 40-43; J.A. 1907-08. Accordingly, the court held that payments on
each individual account by HRSI to EAC were to continue for the life of that
particular financing arrangement – i.e., as long as HRSI continued to receive
revenue from the account. J.A. 1906-07. On the other hand, HRSI maintains that
the payments were designed merely as incentives to encourage sales. Aplt. Br. at
38. In HRSI’s view, its payment obligation ended with its interest in encouraging
future sales – i.e., when it stopped purchasing new accounts from EAC. Id.
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Procedural History
As the district court aptly noted: “The word ‘simple’ should not be used in
any sentence involving this case. [T]here’s nothing simple about this. It’s
convoluted and . . . it’s a beast with a strange heartbeat.” J.A. 2449 (Tr. at 633).
We will attempt to simplify the procedural history nonetheless, reciting only those
motions, orders, and proceedings relevant to our analysis. Of the four causes of
action alleged in Echo’s First Amended Complaint, 2 only a portion of the first
claim – for breach of contract – is at issue in this appeal. Specifically, we are
concerned with Echo’s contention that HRSI was contractually obligated to make
merchant participation and insurance percentage payments for the life of each
individual loan in the EAC portfolio, and that HRSI’s failure to make any such
payments after the termination of the MFA constituted a breach. Id. at 66-69.
In December 1995, Echo moved for partial summary judgment on that
portion of its breach claim, id. at 136-70 [hereinafter “Echo’s Breach Motion”]; in
February 1996, HRSI filed a cross-motion for summary judgment on the same
issue. Id. at 472-510 [hereinafter “HRSI’s Cross-Motion”]. Simultaneous with
its Cross-Motion, HRSI also filed a separate motion for summary judgment,
arguing that all four claims were barred by Colo. Rev. Stat. § 38-10-124, the
2
Echo’s First Amended Complaint stated claims for: (1) breach of contract,
(2) misrepresentation/fraudulent concealment, (3) promissory estoppel, and (4)
wanton and willful misconduct. J.A. 66-74.
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statute of frauds for credit agreements. Id. at 443-61 [hereinafter “HRSI’s Statute
of Frauds Motion”]. 3 Three years later, the district court entered an order on the
foregoing and other motions, denying HRSI’s Statute of Frauds Motion, granting
Echo’s Breach Motion, and denying HRSI’s Cross-Motion. Id. at 1899-1919. In
pertinent part, the court held that § 38-10-124 was inapplicable to Echo’s claims
as a matter of law. Id. at 1903-04. The court also found that the MFA
unambiguously provided for payments to continue post-termination, and that
HRSI’s failure to make such payments was a breach of contract. Id. at 1906-08.
Finally, the court noted that the determination of the applicable rates for post-
termination payments was “a question of fact, appropriately decided by a jury . . .
.” Id. at 1913.
Prior to trial, Echo filed a preemptive Motion in Limine, requesting the
exclusion of evidence relating to certain defense theories that the court had
already rejected as a matter of law. Id. at 2147-54. The court granted the motion
in part, confirming that it would not admit evidence or allow arguments
concerning: (1) HRSI’s statute of frauds defense, or (2) HRSI’s claim that post-
termination payments were intended as incentives, rather than part of the purchase
price. Id. at 2230-31 (Order on Mot. in Limine); cf. id. at 1903-04, 1907-08
3
At about the same time, HRSI also moved to dismiss Count IV in part,
J.A. 940-42, and for summary judgment as to Count III. Id. at 866-83. Those
motions are not relevant to this appeal.
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(Order on Mots. for Summ. J.). The remainder of Echo’s motion was taken under
advisement. Id. at 2231-32 (Order on Mot. in Limine).
In a conference with counsel at the close of Echo’s case, the court clarified
that “the only fact issue here is what’s the percentage that applies.” Id. at 2446
(Tr. at 623). In HRSI’s view, this announcement constituted a “restructuring” of
the trial, which prejudiced its case in a variety of ways. Aplt. Br. at 18-19, 44-50.
Accordingly, HRSI moved the court: (1) for a “curative instruction,” advising the
jury to disregard evidence relating to the monetary amount of damages, J.A. at
2459, 2488 (Tr. at 672-75, 788-89) (oral motion); (2) to strike specified testimony
and exhibits relating to the amount of damages, id. at 2461-62, 2488 (Tr. at 683-
86, 788) (oral motion); see also id. at 2431-41 (brief); and (3) to declare a
mistrial. Id. at 2487-88 (Tr. at 786-89); see also id. at 2755-2814 (brief). HRSI
also moved that the court enter judgment in its favor as a matter of law, arguing
that Echo had failed to establish any agreement between the parties as to post-
termination rates. Id. at 2485-86 (Tr. at 779-81) (oral motion); see also id. at
2731-54 (brief). Subject to the foregoing motions, HRSI rested its case. Id. at
2489 (Tr. at 792). All four motions were denied. Id. at 2882-89 (denying
motions for mistrial and for judgment as a matter of law); id. at 2462, 2527 (Tr. at
684-86, 798-99) (denying motions to strike and for curative instruction). But cf.
id. at 2626 (Inst. 15: “You need not be concerned with the actual monetary
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amount owed by HRSI to EAC . . . .”).
In response to a special interrogatory, the jury found that Echo “had
proven, by a preponderance of the evidence, that the applicable merchant
participation rate was 10% and the applicable insurance participation rate was
30%, as agreed upon by the parties and evidenced by a letter from Defendant[.]”
Id. at 2523 (emphasis added). The court then applied the jury’s percentage to the
stipulated value of the portfolio, granted Echo’s motion for prejudgment interest,
and entered judgment for Echo in the amount of $4,840,609 – $3,965,534 in past
damages, $730,824 in prejudgment interest, and $144,251 in future damages. Id.
at 2991-92. The court awarded prejudgment interest at the statutory rate of eight
percent, but reduced the interest award by one-third “in the interest of fairness,”
due to the court’s delay in ruling on the parties’ motions for summary judgment.
Id. at 2887. Both parties filed motions to alter or amend the judgment. See Fed.
R. Civ. P. 59(e). HRSI objected to the court’s methodology in calculating
damages. J.A. 2896-2914. Echo objected to the prejudgment interest award,
contending that the court abused its discretion by failing to award “moratory
interest” at a rate higher than the statutory minimum, and reducing the total
interest award. Id. at 2960-66. HRSI’s motion was granted; Echo’s was denied.
Id. at 2980-87. This appeal followed.
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Discussion
On appeal, HRSI claims that the court erred – as a matter of law and of
procedure – in holding that the MFA is not subject to Colo. Rev. Stat. § 38-10-
124. Second, HRSI contests the district court’s holding that the MFA
unambiguously provides for merchant participation and insurance percentage
payments to continue after the MFA has itself been terminated. Based on the
foregoing arguments, HRSI insists that it was entitled to summary judgment on
the portion of the breach claim at issue. Third, HRSI argues that the evidence
adduced by Echo did not provide the jury with an adequate basis to determine
damages, and that HRSI was therefore entitled to judgment as a matter of law. In
the alternative, HRSI claims that the uncertainty of Echo’s damages precluded any
award beyond nominal damages. Fourth, HRSI claims that various trial errors
caused such prejudice to its case that they resulted in a mistrial. Echo disagrees
with each of the foregoing arguments, and cross-appeals from the court’s
prejudgment interest award on the same grounds asserted in its Rule 59(e) motion.
I. HRSI’s Statute of Frauds Defense
Under Colo. Rev. Stat. § 38-10-124, claims “relating to a credit agreement
involving a principal amount in excess of twenty-five thousand dollars” are barred
unless the credit agreement is in writing. Colo. Rev. Stat. § 38-10-124(2).
According to HRSI, the MFA is a “credit agreement,” and the statute therefore
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bars Echo’s claims “relating to” the MFA. 4 Aplt. Br. at 25-29. In the alternative,
HRSI contends that even if the MFA is not a credit agreement, § 38-10-124 is still
applicable because Echo’s claims “relate to” the individual credit agreements
assigned to HRSI. Id. at 29. In its order on the parties’ respective motions for
summary judgment, the district court concluded that the § 38-10-124 was
inapplicable as a matter of law. J.A. 1903-04. Upon de novo review, see Medina
v. City & County of Denver, 960 F.2d 1493, 1500 (10th Cir. 1992), we agree with
the district court’s conclusion.
HRSI must establish three elements to invoke § 38-10-124: (1) that at least
one plaintiff is a statutory “creditor or debtor,” (2) that Echo’s claims relate to a
credit agreement, and (3) that the underlying credit agreement involves a principal
amount in excess of $25,000. Colo. Rev. Stat. § 38-10-124(2) (“[N]o debtor or
creditor may file or maintain an action or a claim relating to a credit agreement
involving a principal amount in excess of twenty-five thousand dollars unless the
credit agreement is in writing and is signed by the party against whom
enforcement is sought.”). Both at trial and on appeal, the parties’ primary focus
4
On August 11, 2000, HRSI moved this court to certify the question of
whether the MFA and letters incorporated therein “constitute a ‘credit agreement,’
between a statutory ‘debtor’ and ‘creditor,’ to which § 38-10-124, C.R.S. applies”
to the Colorado Supreme Court. On February 8, 2001, HRSI filed an unopposed
motion to withdraw its Motion to Certify. The Motion to Withdraw is granted.
As is evident from our analysis above, the parties’ dispute as to the propriety of
the arguments contained in the Motion to Withdraw is moot.
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has been the second element: whether the claims relate to a credit agreement. 5
A. Echo’s Claims Do Not Relate to a Credit Agreement
The MFA plainly indicates that HRSI is purchasing commercial paper
(“Contract and Slips”). See J.A. 3006 (“Seller [EAC] desires [Household] to
purchase from time to time said Contracts and Slips at the price agreed upon from
time to time by Seller and Household and evidenced by Household’s letter.”).
Thus, the claims in this case relate to the purchase of commercial paper. As the
defendant conceded at oral argument, there is no Colorado authority to support
the construction of the MFA itself as a credit agreement, and in the absence of
such authority, we decline to treat it as one. Section 38-10-124 defines “credit
agreement,” in pertinent part, as “[a] contract, promise, undertaking, offer, or
commitment to lend, borrow, repay, or forbear repayment of money, to otherwise
extend or receive credit, or to make any other financial accommodation . . . .”
Colo. Rev. Stat. § 38-10-124(1)(a)(I) (emphasis added). In HRSI’s view, our
interpretation of the phrase “financial accommodation” is not limited by the other
terms in the definition. See Aplt. Br. at 25 (“[T]he statutory definition is not
5
We decline to address HRSI’s conclusory assertion that Echosphere is
“not a proper party on the claim for post-termination participation,” which only
appears in a footnote to HRSI’s opening brief. Aplt. Br. at 29 n.3. We have
consistently held that “[a]rguments inadequately briefed in the opening brief are
waived . . . .” Adler v. Wal-Mart Stores, Inc. , 144 F.3d 664, 679 (10th Cir.
1998).
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limited only to a lending of money or an extension of credit . . . .”). We disagree.
Colorado courts interpret statutory language to “reach a reasonable result
consistent with the General Assembly’s intent, and . . . [to] give harmonious
effect to all of the statute’s parts.” Sky Fun 1 v. Schuttloffel, 27 P.3d 361, 370
(Colo. 2001) (internal quotations and citation omitted); see also Colo. Dept. of
Revenue v. Cray Computer Corp., 18 P.3d 1277, 1281 (Colo. 2001) (“[W]e
consider statutes as a whole in order to effectuate legislative intent, and give
consistent, harmonious, and sensible effect to all the statute’s parts.”) (internal
quotations, citation, and alteration omitted). The Colorado Supreme Court has
held that the purpose of § 38-10-124 is to “discourage lender liability litigation
and to promote certainty [in] credit agreements involving sums of more than
$25,000.” Schoen v. Morn’s, 15 P.3d 1094, 1098 (Colo. 2000). Because HRSI’s
broad construction of “financial accommodation” would effectively graft an all-
encompassing catch-all onto an otherwise specific statute, thereby eviscerating
the statute’s focus on credit agreements, we must reject it. See Matter of Title,
Ballot Title & Submission Cl., & Summ. for 1997-98 No. 62, 961 P.2d 1077,
1079 (Colo. 1998) (“We must read and interpret statutory language in its
context.”).
An agreement for the purchase of commercial paper, such as the MFA, is
not a “financial accommodation” as that term is used in § 38-10-124. “Financial
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accommodation” must be construed in light of the overall purpose of the statute,
in a manner that is consistent with the rest of the statutory language. That
language is clearly concerned with transactions and agreements that involve the
extension or receipt of credit, and “financial accommodation” cannot be read
without that context in mind. Cf. Beecham v. United States, 511 U.S. 368, 371
(1994) (“That several items in a list share an attribute counsels in favor of
interpreting the other items as possessing that attribute as well.”). We therefore
agree with the district court’s conclusion that the MFA is not a credit agreement.
J.A. 1904, 2071.
B. Echo’s Claims Do Not “Relate To” the Underlying Customer Credit
Agreements for Purposes of § 38-10-124
In the alternative, HRSI argues that even if the MFA itself is not a credit
agreement, Echo’s claims still “relate to” a credit agreement in that the claims
“relate to” the MFA, which in turn, “relates to” the individual credit agreements
and the balances assigned to HRSI. Cf. Univex, 914 P.2d at 1358. This argument
also fails. We agree with the district court’s legal conclusion that the once-
removed connection between Echo’s claims and the credit agreements is too
attenuated to justify the application of § 38-10-124. J.A. 1904. To permit such a
broad reading of the phrase “relating to a credit agreement” would be inconsistent
with the statute’s exclusive concern with discouraging lender liability litigation
and promoting certainty in credit agreements. Schoen, 15 P.3d at 1098; see
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generally Stephanie J. Shafer, “Limiting Lender Liability Through the Statute of
Frauds,” 18 Colo. Law. 1725 (1989). Accordingly, we do not believe the
Colorado Supreme Court would adopt the interpretation urged by HRSI, and we
affirm the district court’s conclusion that Colo. Rev. Stat. § 38-10-124 is
inapplicable. 6
C. No Procedural Error
Finally, HRSI contends that the district court “erred in granting summary
judgment against HRSI without notice.” Aplt. Br. at 31. This argument is also
unavailing, in part because it mischaracterizes the district court’s ruling as to §
38-10-124. The court denied HRSI’s Statute of Frauds Motion on purely legal
6
HRSI’s once-removed theory also fails because the individual credit
agreements at issue involved principal amounts in the $2200 to $2500 range – far
below the statutory threshold of $25,000. J.A. 3014 (Pl. Ex. 18) (showing
average new sales on a monthly basis from Sept. 1989 to May 1990); id. at 3017
(Pl. Ex. 24) (same, for 1990); id. at 3035 (Pl. Ex. 80) (same, for 1991 and 1992);
id. at 3038 (Pl. Ex. 81) (same, for 1993 and 1994); id. at 3044 (Pl. Ex. 82) (same,
for 1994 and 1995). There is nothing in the record to indicate that any individual
credit agreement entered by EAC and sold to HRSI under the MFA involved a
principal amount in excess of $25,000, and the individual agreements cannot be
aggregated to meet the statutory minimum. Cf. J.A. 454 (Def. Mot. for Summ. J.
on All Claims Pursuant to C.R.S. § 38-10-124: “[T]he principal amount is not,
and should not be, calculated by reference to amount of any individual consumer
loan. Rather, the amount is determined by the entire principal sum of the
financial accommodation between defendant and plaintiffs.”). The plain language
of the statute indicates that the phrase “involving a principal amount in excess of
twenty-five thousand” qualifies the term “credit agreement,” not “claim.” Colo.
Rev. Stat. § 38-10-124(2); accord Schoen, 15 P.3d at 1098 (noting legislative
purpose of promoting certainty with respect to “credit agreements involving sums
of more than $25,000”).
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grounds. Given the obviously legal nature of the court’s ruling, we cannot fathom
how an additional opportunity to present statute of frauds-related evidence could
have furthered HRSI’s case, nor do we understand why HRSI expected to be able
to press its statute of frauds argument to the jury. Although the district court’s
ruling as to § 38-10-124 did not become the “law of the case” until the entry of
final judgment, see United States v. U.S. Smelting Refining & Min. Co., 339 U.S.
186, 199 (1950); In re Unioil, Inc., 962 F.2d 988, 993 (10th Cir. 1992), it is
axiomatic that the jury’s role is as fact-finder. Juries are not empowered to
decide questions of law. See, e.g., Jones v. United States, 526 U.S. 227, 247 n.8
(1999) (“The principle that the jury were the judges of fact and the judges the
deciders of law was stated as an established principle as early as 1628 . . . .”); see
also Byrd v. Blue Ridge Rural Elec. Cooperative, Inc., 356 U.S. 525, 537 (1958)
(“An essential characteristic of [the federal] system is the manner in which, in
civil common-law actions, it distributes trial functions between judge and jury
and, under the influence – if not the command – of the Seventh Amendment,
assigns the decisions of disputed questions of fact to the jury.”).
II. Post-Termination Participation
Echo’s claim for post-termination participation encompasses three sub-
issues. First, what is the duration of the defendant’s participation obligation?
Echo contends that the obligation continues through the life of the individual
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loans; HRSI claims that its obligation ended with the termination of the MFA.
Second, assuming a post-termination obligation, what are the applicable merchant
participation and insurance percentage rates? Echo argues that the applicable
rates are 10% and 30%, respectively; HRSI insists that the parties never reached
any agreement as to post-termination rates, and that it was therefore entitled
either to judgment as a matter of law or to an instruction that the jury could only
award nominal damages. See infra Section III. Third, assuming a post-
termination obligation and an agreement as to the applicable rates, how should
those rates be applied to the EAC Portfolio to compute Echo’s total damages?
Echo claims that the rate must be applied to the outstanding balance of the entire
EAC portfolio, while HRSI contends that different rates apply to different
accounts, depending on when each account was created by EAC or sold to HRSI.
See infra Section IV(C). In this section, we deal only with the first issue: the
duration of HRSI’s participation obligation.
In its summary judgment order, the district court held that the MFA “as a
whole and the circumstances surrounding its making unambiguously display an
intent to continue payments until the termination of the loan agreements.” J.A.
1907. We agree. Participation payments are clearly part of the price HRSI agreed
to pay for the revenue-producing accounts (revolving credit contracts) it
purchased from EAC between 1989 and 1994. We are not persuaded by the
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defendant’s contention that the MFA’s silence as to the duration of HRSI’s duty
to make participation payments demonstrates the parties’ intent to make the
participation obligation co-terminous with the MFA. Aplt. Br. at 33-35.
“A fundamental rule of contract law is that the court should strive to
ascertain and give effect to the mutual intent of the parties.” Pepcol Mfg. Co. v.
Denver Union Corp., 687 P.2d 1310, 1313 (Colo. 1984) (citation omitted). “[T]he
intent of the parties to a written instrument must be determined primarily from the
written terms.” KN Energy, Inc. v. Great Western Sugar Co., 698 P.2d 769, 776
(Colo. 1985) (citations omitted). In general, the interpretation of a contract is a
question of law, Pepcol, 687 P.2d at 1313, and where the evidence consists
exclusively of documents, as in this case, the “law is clear that the determination
of their effect is a matter of law.” Radiology Professional Corp. v. Trinidad Area
Health Ass’n, Inc., 577 P.2d 748, 750 (Colo. 1978) (citations omitted). “Whether
an ambiguity exists is also a question of law.” Pepcol, 687 P.2d at 1314.
With these principles in mind, we turn to the contract at issue. In pertinent
part, the MFA provides as follows:
Undersigned [EAC] (herein called Seller) regularly sells merchandise
and desires to offer a plan whereby a qualified customer may elect to
make purchases from us from time to time on a revolving credit
account (herein called Account). . . . An Account is established by
customer execution of a master agreement (herein called Contract)
describing his rights and obligations with respect to all purchases
made from us on such Account. Once established, purchases may be
made on such Account from time to time by means of written
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memoranda (herein called Slips). Each [S]lip . . . shall describe . . .
the total amount of credit extended.
Seller desires Household Retail Services, Inc. (herein called
“Household”), to purchase from time to time said Contracts and Slips
at the price agreed upon from time to time by Seller and Household
and evidenced by Household’s letter.
Id. at 638 (Pl. Ex. 3). 7 The MFA does not define the word “price,” but the first
pricing letter outlined the structure of the “price” as including:
1) The consumer Annual Percentage Rate will be 17.88% with a
per contract discount of .85% [charged by HRSI].
2) HRSI will pay EAC 8% (eight percent) of billed finance
charges monthly.
3) HRSI will pay EAC a percent of billed finance charges
equivalent to 30% (thirty percent) of billed insurance charges.
Id. at 645 (Pl. Ex. 6). The second pricing letter, dated April 16, 1992, also speaks
in terms of “pricing”. Id. at 3028 (Pl. Ex. 33).
We recognize that the third letter, dated January 21, 1993, uses the word
“incentive” rather than “price”. Id. at 3030-31. Nonetheless, we do not believe
that a subtle and unilateral choice of words in a single letter is sufficient to alter
the inherent nature of HRSI’s participation commitment as part of the price it had
agreed to pay for EAC’s Contracts and Slips. Even a cursory reading of the 1993
7
Each of the documents referenced in this section appear at least twice in
the record on appeal: first as summary judgment exhibits, and second as trial
exhibits. The citations in this section refer to the summary judgment exhibits.
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letter reveals that HRSI’s use of the phrase “incentive structure” did not refer to
the payment of merchant and insurance participation as a general matter. Clearly,
“incentive structure” referred specifically to the multi-tiered system outlined in
the letter, according to which participation percentages would increase
proportionately with total credit volume. Id. at 3030.
To the extent that the district court relied on extrinsic evidence – i.e., “the
circumstances surrounding [the contract’s] making – to reach the conclusion that
the contract was unambiguous as to duration, such reliance was consistent with
Colorado law. See, e.g., KN Energy, 698 P.2d at 776-77 (holding that courts may
consider extrinsic evidence, including “the circumstances surrounding the making
of the contract,” in order to determine whether a contractual ambiguity exists). In
this case, the summary judgment record included numerous affidavits as to the
circumstances surrounding each new pricing arrangement, all of which indicate
that participation payments were considered part of the price. For example, James
DeFranco of EAC stated that HRSI offered two options for the 1991 pricing
agreement – (1) an up-front payment equal to 1% of the opening account balance
or (2) merchant participation payments equal to 5% of billed monthly finance
charges. E.g., J.A. 245, ¶¶ 4-5 (DeFranco Aff.). Mr. DeFranco also stated that
HRSI represented that the two options were financially equivalent, and
demonstrated that point by comparing the up-front payment to the participation
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payments, “paid at 5% each month until the account balance reached $0.00.” Id.
at ¶¶ 6-7 (emphasis added); accord id. at 252-53, ¶¶ 7-11 (Fears Aff.); see also id.
at 249, ¶¶ 6, 8 (Ergen Aff., describing initial negotiations in 1989 and declaring
that HRSI stated that participation payments were part of the purchase price).
In sum, the duration of HRSI’s participation obligation was obvious from
the nature of the contract, and confirmed by the terms of the incorporated pricing
letters and the circumstances surrounding the execution of the contract. The price
of each revolving credit contract sold by EAC to HRSI included a percentage of
billed monthly finance charges. Implicit in any arrangement to pay a purchase
price in installments is the expectation that payments will continue until the entire
balance is paid. The fact that the MFA and pricing letters do not explicitly affirm
that common sense expectation does not create an ambiguity. See Cheyenne
Mountain School Dist. No. 12 v. Thompson, 861 P.2d 711, 715 (Colo. 1993)
(“Silence does not by itself necessarily create ambiguity as a matter of law.”); see
also Radiology Professional Corp., 577 P.2d at 751 (“The mere fact that there is a
difference of opinion between the parties does not of itself create an ambiguity.”).
Accordingly, we affirm the district court’s conclusion that the contract, including
the MFA and the pricing letters incorporated therein, are unambiguous as to the
duration of HRSI’s participation obligation. Such payments were part of the
ongoing price that HRSI agreed to pay for the accounts it acquired from EAC, and
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accordingly, the discontinuation of those payments in January 1995 constituted a
breach of contract.
III. HRSI’s Motion for Judgment as a Matter of Law: Damages
At the close of Echo’s case, HRSI moved for judgment as a matter of law
under Rule 50(a), arguing that because the evidence did not show any agreement
between the parties as to the rate of post-termination participation, any damages
award would be necessarily speculative and therefore void under Colorado law.
In the alternative, HRSI argued that plaintiffs could not recover anything beyond
nominal damages.
A. Echo’s Damages Were Not “Impossible of Ascertainment”
“Where claims for damages are premised on breaches of contracts, damages
that are merely speculative, remote, imaginary, or impossible of ascertainment[]
cannot be recovered.” Colo. Nat. Bank of Denver v. Friedman, 846 P.2d 159, 174
(Colo. 1993) (internal quotations, citations, and alteration omitted). This rule is
cited most frequently with respect to claims for lost profits. E.g., Western Cities
Broad., Inc. v. Schueller, 849 P.2d 44, 47- (Colo. 1993) (vacating lost profits
award based on testimony of “econometrician,” an expert in “applying statistical
and mathematical tools to” general economic data in order to “make predictions
or forecast or attempt to examine economic behavior or what makes an economy
tick,” based on “six different hypothetical models”); Master Palletizer Sys., Inc.
- 21 -
v. T.S. Ragsdale Co., 725 F. Supp. 1525, 1535 (D. Colo. 1989) (“Lost profits are
not recoverable if either the amount of the profit that would have been earned or
the fact that the plaintiff would have earned them is too speculative, remote,
imaginary, or impossible to ascertain.”) (citing, inter alia, Prutch v. Ford Motor
Co., 618 P.2d 657 (Colo. 1980)). In this case, HRSI argues that there was no
evidence of any pricing agreement after 1993. That claim is not supported by the
record.
The parties stipulated that between June 29, 1989, and January 7, 1995,
HRSI made monthly merchant and insurance participation payments to EAC at the
following rates:
• June 29, 1989 - December 7, 1990: merchant participation was paid
at 8% and insurance participation at 30%;
• December 8, 1990 - August 7, 1993: merchant participation was paid
at 5% and insurance participation at 30%;
• August 8, 1993 - October 7, 1993: merchant participation was paid at
7% and insurance participation at 30%;
• October 8, 1993 - January 7, 1995: merchant participation was paid
at 10% and insurance participation at 30%.
J.A. 2353 (Tr. at 334-35). Throughout this time period, merchant participation
payments were calculated by multiplying the applicable rate by the finance
charges billed on the total outstanding balance of all loans within the EAC
Portfolio. Id. at 2353-54 (Tr. at 335-36). Similarly, insurance participation
- 22 -
payments were calculated by multiplying the applicable rate by the total insurance
charges billed on all loans within the EAC Portfolio. Id. at 2354 (Tr. at 336).
Not every “pricing letter” between Echo and HRSI set forth specific
numbers. The 1992 pricing letter, for example, merely confirmed that there
would be no change in the parties’ existing arrangement. J.A. 3028 (Pl. Ex. 33);
see also id. at 2468-69 (Tr. at 710-14) (testimony of Frank Nardi, acknowledging
Pl. Ex. 33 as pricing letter). Similarly, HRSI’s letter dated January 12, 1994,
noticing its intent to terminate the MFA, failed to enumerate any specific numbers
in connection with its pledge to honor its current participation commitment.
Specifically, the January 1994 letter promised that HRSI would “continue to
provide [EAC] with the same quality service until May 1, 1994 under our existing
agreement and honor our current participation commitment.” Id. at 3033 (Pl. Ex.
51) (emphasis added). A reasonable jury could have read the foregoing sentence
as evidencing two separate agreements, only one of which was to expire on May
1, 1994. In our view, the jury was entitled to interpret the January 1994 letter as
a dual promise by HRSI: first, to continue to purchase Contracts and Slips
through May 1, 1994; and second, to “honor [its] current participation
commitment” – i.e., to pay 10% merchant and 30% insurance participation –
through the life of each revolving credit contract. There are no doubt alternative
ways to read this and subsequent letters from HRSI. Yet the ultimate question
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presented in HRSI’s Rule 50 motion was whether the facts were so clear that the
law required the entry of judgment in HRSI’s favor. See Weisgram v. Marley
Co., 528 U.S. 440, 448 (2000). In this case, the facts were far from clear, and the
court was correct in submitting the case to the jury.
Nor do we agree that the evidence was insufficient to support an actual
damages award. In their constitutional capacity as triers of fact, jurors are
necessarily required to resolve close factual questions to the best of their ability.
Obviously, not every evidentiary uncertainty renders a damage award
impermissibly speculative. See, e.g., Bohrer v. Church Mut. Ins. Co., 965 P.2d
1258, 1267 (Colo. 1998) (“[W]e instruct jurors to ‘use [their] best judgment based
on the evidence’ when uncertainty arises regarding the amount of damages to be
awarded.”). Indeed, Colorado courts have consistently held that “once the fact of
damage has been established with the requisite degree of certainty, uncertainty as
to the amount of damages will not bar recovery.” Tull v. Gundersons, Inc., 709
P.2d 940, 943 (Colo. 1985); accord Western Cities Broad., 849 P.2d at 48. It is
equally well-established that “a plaintiff will not be barred from recovery for
failing to prove the amount of loss with mathematical certainty . . . .” Pomeranz
v. McDonald’s Corp, 843 P.2d 1378, 1382 (Colo. 1993). Thus, in light of the
evidence recited above, we hold that the court properly denied HRSI’s motion for
judgment as a matter of law.
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B. Nominal Damages
To recover an award beyond “nominal damages for breach of contract a
plaintiff must prove that he suffered a loss resulting from the defendant's
actions.” Isaac v. American Heritage Bank and Trust Co., 675 P.2d 742, 745
(Colo. 1984); see also Doyle v. McBee, 420 P.2d 247, 250 (Colo. 1966) (“[I]n an
action for breach of contract, only nominal damages can be recovered, if there is
no evidence produced from which the facts necessary to determine the damages
under the proper rule can be determined.”). Because there is no question that the
plaintiffs in this case made the threshold showing required to obtain damages in
excess of nominal damages, the court did not err in refusing to limit Echo’s
recovery.
IV. Alleged Trial Errors
The trial errors alleged by HRSI are as follows: (1) the court’s “midstream”
determination that the jury would only decide the applicable rates of post-
termination payments, not the total monetary amount of damages; (2) the
preliminary instruction’s reference to HRSI’s liability; (3) Instruction 15’s
reference to course of performance evidence; (4) the multiple choice format of the
special verdict form; (5) the court’s rejection of various instructions tendered by
HRSI; and (6) the exclusion of three defense exhibits on hearsay grounds. We
reject each assignment of error.
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A. Court’s Determination that Jury Would Only Decide Rate of Post-
Termination Merchant Participation and Insurance Percentage
HRSI claims that “[l]ate in the plaintiff’s case and without adequate prior
notice, the District Court restructured the trial to withdraw certain damages issues
from the jury.” Aplt. Br. at 44. According to the defendant, its trial strategy was
based on its belief that the jury would not only consider the applicable rate of
post-termination payments, but also the total amount of damages. Id. On the
contrary, we find that the court’s plan never changed. From the entry of summary
judgment on March 2, 1999, it was clear to all parties that the only issues left for
the jury were the applicable rates of merchant and insurance participation. See,
e.g., J.A 1913 & n.1 (summary judgment order: characterizing jury issue as
“which was the last pricing letter from Defendant to which the parties agreed,”
and noting “that the present record would not support a jury determination of
Plaintiff’s damages at less than the 5% rate”); id. at 2248 (Tr. at 62-63) (court’s
Statement of the Case, read to venire members during voir dire on July 26, 1999:
“There is a question of fact in this case appropriately decided by you, the jury
regarding which was the applicable pricing letter for purposes of calculating
plaintiffs’ share.”); id. at 2344 (Tr. at 296) (statement by court during the cross-
examination of Echo’s first witness on July 27, 1999: “[T]here’s only one limited
purpose for which this jury is going to sit. They’re going to decide what the rate
is, period.”). At the pretrial motions hearing on July 26, 1999, defense counsel
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himself proposed that the court’s Statement of the Case be modified to state that
the court “found that the obligation continue[d] but that the issue as to the rate, if
any, of that obligation is for the jury to decide.” Id. at 2234 (Tr. at 5) (emphasis
added). In short, HRSI’s professions of “surprise” when the court reiterated its
position two days later is flatly contradicted by the record.
B. Jury Instructions: Preliminary Instruction (Statement of the Case) and
Instruction 15
HRSI claims that the district court’s Statement of the Case “deprived [it] of
the right to a fair and impartial jury” by: (1) stating that HRSI had breached the
contract, thereby casting the defendant as “a wrongdoer from the outset,” (2)
failing to state that the “plaintiffs had the burden to prove their damages,” and (3)
“improperly suggest[ing] that plaintiffs were entitled to some amount of actual
damages.” Aplt. Br. at 51. HRSI also objects to Instruction 15’s failure to
reference certain defense theories, and to its implicit reliance on “course of
performance” evidence for the proposition that the rate at which post-termination
payments should be calculated was the rate set forth in the “last (most recent)
agreed pricing letter concerning participation . . . .” Id. at 51-52. “When
considering a party’s challenge to jury instructions, our initial inquiry is whether
the party properly preserved that issue for appeal by objecting at the district court
level to the instruction on the same grounds raised on appeal.” Comcoa, Inc. v.
NEC Tel., Inc. , 931 F.2d 655, 660 (10th Cir. 1991). This inquiry is mandated by
- 27 -
Rule 51 of the Federal Rules of Civil Procedure, which provides that “[n]o party
may assign as error the giving or the failure to give an instruction unless that
party objects thereto before the jury retires to consider its verdict, stating
distinctly the matter objected to and the grounds of the objection.” Fed. R. Civ.
P. 51.
Although the defendant did raise a number of objections to the court’s
proposed Statement of the Case, see J.A. 2233-35 (Tr. at 4-11); id. at 2276 (Tr. at
173), its current objections were not among them. 8 Similarly, while HRSI did
raise its current objections to Instruction 15 at the penultimate charge conference,
id. at 2446-50 (Tr. at 620-38), it failed to do so the following day at the final
instruction conference. Id. at 2529 (Tr. at 808-09). At the final conference,
HRSI requested only two changes to the court’s revised Instruction 15, both of
which the court agreed to make. Id. Upon inquiry, HRSI stated that it had no
additional objections to the court’s proposed Instruction 15. Id. (Tr. at 809).
Accordingly, HRSI waived its current objections to the Statement of the Case and
to Instruction 15, and we find no plain error.
But cf. J.A. 2267 (Tr. at 138) (voir dire by defense counsel: “[Y]ou’ve
8
heard from the judge that he made a finding that my client breached the contract
and that we’re here now to determine matters pertaining to damages. So the first
thing I need to know . . . is whether there’s anybody here who somehow feels
predisposed to award damages against my client because of anything you heard
the judge say about this case?”).
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C. Special Verdict Form
Next, HRSI objects to the Special Verdict form, claiming that it “left the
jury with no choice but to find a single rate of merchant participation applicable
during the entire damages period to all balances in the EAC portfolio, thereby []
depriving HRSI of its right to have its positions considered on the issue of rates.”
Aplt. Br. at 52. We view this objection as including two components: (1) that the
verdict form forced the jury to select one of the three rates given, and (2) that the
verdict form did not permit the jury to consider whether different rates might
apply to different accounts. Both are without merit. See Webb v. ABF Freight
System, Inc., 155 F.3d 1230, 1249 (10th Cir. 1998) (noting that the language of a
special verdict form is reviewed under the “same abuse of discretion standard that
we apply to jury instructions”). First, the Special Verdict form consisted of three
nearly identical questions, which differed only in terms of the merchant
participation percentage: “Has the Plaintiff proven by a preponderance of the
evidence, that the applicable merchant participation rate was 10% [or 7%, or 5%]
and the applicable insurance participation rate was 30%, as agreed upon by the
parties and evidenced by a letter from Defendant? (Yes or No).” J.A. 2523-24
(emphasis added). Nothing in the Special Verdict form prevented the jury from
answering “No” to all three questions.
As to the court’s determination that a single rate applied to all outstanding
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loans, it is important to note the parties’ stipulation that “HRSI calculated
merchant participation payments to EAC by multiplying the agreed-upon rate in
effect at the time by the finance charges billed on the total outstanding balance of
the loans within the portfolio.” J.A. 2613, ¶ 13; see also id. at ¶ 14 (comparable
stipulation as to insurance participation payments). We recognize that the
stipulation refers only to past practice, but the trial court was legally entitled to
rely on the stipulation in order to eliminate any possible ambiguity as to the
appropriate method of calculating post-termination payments. Under Colorado
law, “[w]hen 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 contracting.” Pepcol, 687 P.2d at 1314 (internal quotations and
citation omitted); see also KN Energy, 698 P.2d at 779 (“The parties’ course of
performance following execution of the contract is [] relevant to the interpretation
of the agreement.”) (citations omitted). The elimination of contractual ambiguity
is a matter for the trial court, not for the jury. Pepcol, 687 P.2d at 1313
(“Whether an ambiguity exists is [] a question of law.”). We find no error in the
court’s legal determination that the MFA and incorporated pricing letters required
that all payments (both pre- and post-termination) by HRSI to EAC be calculated
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by applying a single participation rate to the entire portfolio, regardless of the
dates on which the individual loans originated.
D. Rejection of Defendant’s Tendered Instructions
HRSI also complains that the district court erred in refusing to give:
• Defendant’s Proposed Instructions 2 and 3, J.A. 2508-09, requiring
the jury to “award only nominal damages” if it found that the parties
had failed to agree on merchant participation or insurance
participation rates for any period of time;
• Defendant’s Proposed Instructions 5-7, id. at 2511-13, regarding
contract formation;
• Defendant’s Proposed Instruction 9, Aplt. Br., Ex. E (copy of J.A.
2297 9), stating that “[o]nce agreed upon, the terms of an agreement
on participation under the Merchandise Financing Agreement may be
changed only by a subsequent amendment between HRSI and EAC,
which is evidenced by a letter from HRSI;”
• Defendant’s Proposed Instruction 13, Aplt. Br., Ex. E (copy of J.A.
2306 10), regarding the use of extrinsic evidence; and
• Defendant’s Proposed Instruction No. 16, J.A. 2500, regarding
HRSI’s lack of consideration defense.
Aplt. Br. at 52-54.
9
In the record, the copy of Defendant’s proposed instruction regarding
amendments is not numbered, indicating that HRSI added the number later for the
sake of clarity on appeal. Compare J.A. 2297 (unnumbered instruction regarding
“Amendments”); with Aplt. Br., Att. E (purporting to excerpt J.A. 2297, but
including number “9”).
10
As with Proposed Instruction 9, see supra note 9, Defendant’s proposed
instruction regarding extrinsic evidence is not numbered in the record. Compare
J.A. 2306; with Aplt. Br., Att. E (purporting to excerpt J.A. 2306).
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“[I]t is not error to refuse to give a requested instruction if the same subject
matter is adequately covered in the general instructions.” F.D.I.C. v.
Schuchmann, 235 F.3d 1217, 1222 (10th Cir. 2000) (internal quotations, citations,
and alteration omitted). As to Proposed Instructions 2 and 3, we have already
explained that nothing in the Special Verdict form required the jury to find that
the parties had agreed to applicable rates. See supra Section III(C). The subject
matter of Defendant’s Proposed Instructions 5-7 – i.e., how to determine the
parties’ agreement as to post-termination participation rates – was adequately
addressed in the court’s Instruction 15, which required the jury to determine
“which was the last pricing letter from the Defendant to which the parties
agreed,” J.A. 2626, as required by the MFA. Id. at 3006 (Pl. Ex. 3); see also J.A.
2523 (Special Verdict Form, requiring jury to find that the applicable rates were
“agreed upon by the parties and evidenced by a letter from Defendant”).
Instruction 15 and the Special Verdict Form also adequately addressed the subject
matter of Defendant’s Proposed Instructions 9 and 13: the requirement of the
MFA. Finally, given that the court’s summary judgment order had already
rejected HRSI’s lack of consideration argument as a matter of law by finding that
post-termination payments were part of the price of the Contracts and Slips
assigned to HRSI, the court did not err in rejecting Defendant’s Proposed
Instruction 16, which attempted to resurrect that theory at trial. In sum, we find
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no error in the court’s rejection of Defendant’s Proposed Instructions 2-3, 5-7, 9,
13, and 16.
E. Exclusion of Defense Exhibits 21, 23, and 25
Finally, HRSI claims that the district court erred in sustaining Echo’s
hearsay objections to the admission of three 1994 letters from HRSI. In its
opening brief to this court, HRSI claims that the letters were not offered for the
truth of the matter asserted, but rather: (1) as verbal acts with independent legal
significance, (2) to provide context for various letters that had already been
admitted, and (3) to show notice “of HRSI’s position.” HRSI also claims that the
letters were admissible as business records. 11 Evidentiary rulings are reviewed for
abuse of discretion. General Elec. Co. v. Joiner, 522 U.S. 136, 141-42 (1997).
We see no abuse of discretion here.
1. Non-Hearsay: Verbal Acts
The Federal Rules of Evidence define “hearsay” as an out-of-court
statement “offered in evidence to prove the truth of the matter asserted.” Fed. R.
11
HRSI’s fifth argument, that the letters were admissible to show its state
of mind, was never raised to the district court and is therefore waived. United
States v. Barbee, 968 F.2d 1026, 1031 (10th Cir. 1992) (“Where a party has
shifted his position on appeal and advances arguments available but not presented
to the trial court and where a party has had ample opportunity to make the point in
the trial court in a timely manner the issue will not be entertained on appeal.”)
(internal quotations and citations omitted).
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Evid. 801(c). By contrast, “[i]f the significance of an offered statement lies
solely in the fact that it was made, no issue is raised as to the truth of anything
asserted, and the statement is not hearsay.” Fed. R. Evid. 801 advisory
committee’s note (1972). According to HRSI, the excluded exhibits were not
proffered as evidence of the truth of the statements therein, but rather, for their
independent legal significance. Aplt. Br. at 54-56. Specifically, HRSI claims
that defense exhibits 21, 23, and 25 were offers, and therefore admissible as
verbals acts. We disagree.
The verbal acts doctrine applies only where the out-of-court statement
actually “affects the legal rights of the parties, or where ‘legal consequences flow
from the fact that the words were said.’” U.S. v. Pungitore, 965 F. Supp. 666,
673 n.1 (E.D. Pa. 1997) (quoting Black’s Law Dictionary 1558 (6th ed. 1990)).
Thus, it is not enough to simply characterize a statement as an offer. Only
“utterances by the parties . . . constituting the offer and acceptance which brought
the contract into being” qualify as verbal acts. McCormick on Evidence § 249
(5th ed. 1999) (emphasis added). In this case, HRSI candidly acknowledges that
EAC rejected the “offers” contained in defense exhibits 21 and 23 (dated March
28, 1994, and April 27, 1994, respectively). Aplt. Reply Br. at 29-30 (citing J.A.
3001, 3003). Similarly, there is no evidence that EAC or Echosphere ever
accepted the “offer” contained in defense exhibit 25, dated April 29, 1994, which
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appears to have been superseded on December 19, 1994 (if not earlier), by a
subsequent HRSI letter. J.A. 3005 (Def. Ex. 26). Accordingly, it is clear that
none of the excluded exhibits “brought the contract into being,” McCormick §
249, “affect[ed] the legal rights of the parties,” Pungitore, 965 F. Supp. at 673
n.1, or had any legal consequences independent of its substantive content.
Compare United States v. Montana, 199 F.3d 947, 950 (7th Cir. 1999) (explaining
difference between verbal acts such as “a promise, offer, or demand,” which
“commit the speaker to a course of action,” and hearsay statements, which
“narrate, describe, or otherwise convey information, and so are judged by their
truth value”) (emphasis added), and Trepel v. Roadway Exp., Inc., 194 F.3d 708,
717 (6th Cir. 1999) (upholding exclusion of statement as hearsay where statement
“was not an offer to sell” but rather, a declaration of the price range the owner
“would be willing to take . . . should someone make an offer to buy”); with Puma
v. Sullivan, 746 A.2d 871, 874-76 (D.C. 2000) (holding that oral statement
containing an offer, which statement’s proponents had accepted, was admissible
for consideration on summary judgment as a “verbal act”). The district court did
not abuse its discretion by sustaining Echo’s hearsay objection against HRSI’s
proffer of the exhibits as verbal acts.
2. Non-Hearsay: Context/Completeness
Given our standard of review, HRSI’s argument that the excluded exhibits
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were admissible to provide context is also unpersuasive. The trial court was
familiar with the evidence in this case, and we decline to second-guess its
judgment as to whether the excluded exhibits were necessary to provide context
or completeness. See, e.g., VII Wigmore on Evidence § 2104 (1978 ed.); United
States v. Catano, 65 F.3d 219, 225 (1st Cir. 1995). The case upon which HRSI
relies, United States v. Catano, arose on very different facts. Because the
question of whether a document is necessary to put another in context “will
depend upon the circumstances of each case and the character of each document,”
factually distinct cases have minimal persuasive value, if any. VII Wigmore on
Evidence § 2104. Unlike the written correspondence at issue here, Catano
involved an audio tape of oral conversations between a criminal defendant and an
informant. 65 F.3d at 224-25. In that case, the court held that the informant’s
portions of the conversations were admissible to provide context for the
defendant’s portions because they “served as reciprocal and integrated
utterance(s), reasonably required to place [the defendant’s] admissions into
context and make them intelligible to the jury.” Id. at 225 (internal quotations and
citations omitted); see also, e.g., United States v. McDowell, 918 F.2d 1004, 1007
(1st Cir. 1990) (“Nor can a defendant, having made admissions, keep from the
jury other segments of the discussion reasonably required to place those
admissions into context.”); United States v. Gutierrez-Chavez, 842 F.2d 77, 81
- 36 -
(5th Cir. 1988) (holding that statements on tape recording were admissible “for
the limited purpose of putting the responses of the [defendant] in context and
making them intelligible to the jury and recognizable as admissions”) (internal
quotations and citation omitted). The “intelligibility” difference between a
recorded conversation that has been edited to omit every other line (as in Catano,
McDowell, and Gutierrez-Chavez) and selected pieces of business correspondence
(as in the instant case), is obvious. We find no abuse of discretion in the trial
court’s ruling.
Further, the exhibits that HRSI seeks to put in context were either
stipulated exhibits, see J.A. 2315 (Tr. at 182-83) (Pl. Ex. 51), or introduced by
HRSI itself. See id. at 2395 (Tr. at 484) (Def. Ex. 19); id. at 2403 (Tr. at 515-16)
(Def. Ex. 22); id. at 2480 (Tr. at 758-59) (Def. Ex. 24). In HRSI’s view, the
circumstances under which the exhibits were admitted are irrelevant to its
allegedly absolute right to introduce otherwise inadmissible hearsay in order to
provide context. Aplt. Reply Br. at 31 (“No such limitation exists in the Federal
Rules of Evidence. A party is entitled to put into context any and all evidence.”).
This assertion is patently incorrect.
The rule of completeness provides that “the opponent, against whom a part
of an utterance has been put in, may in his turn complement it by putting in the
remainder, in order to secure for the tribunal a complete understanding of the
- 37 -
total tenor and effect of the utterance.” Beech Aircraft Corp. v. Rainey, 488 U.S.
153, 171 (1988) (citation omitted, emphasis added); see also Fed. R. Evid. 106
(“When a writing or recorded statement or part thereof is introduced by a party,
an adverse party may require the introduction at that time of any other part or any
other writing or recorded statement which ought in fairness to be considered
contemporaneously with it.”) (emphasis added). The rule of completeness, both at
common law and as partially codified in Rule 106, functions as a defensive shield
against potentially misleading evidence proffered by an opposing party. See
United States v. Collicott, 92 F.3d 973, 981 n.9 (9th Cir. 1996) (“Only if the
evidence by one party needs to be met or explained away by the other side does
its mere introduction provide independent warrant for the introduction of other
evidence.”) (quoting J. Weinstein & M. Berger, Weinstein's Evidence, ¶ 106[02]
at 106-18 (1986)); United States v. Corrigan, 168 F.2d 641, 645 (2d Cir. 1948)
(“The rule is protective, merely. It goes only so far as is necessary to shield a
party from adverse inferences . . . .”) (internal quotations, citation, and alteration
omitted). The rule does not allow a party to introduce otherwise inadmissible
hearsay on the coattails of its own or stipulated exhibits. 12 “[I]f evidence is
12
Even if HRSI was entitled to invoke the rule of completeness, it is not
clear whether the rule trumps the prohibition on hearsay statements. See Rainey,
488 U.S. at 173 n.18 (avoiding the question); United States v. Pendas-Martinez,
845 F.2d 938, 944 & n.10 (11th Cir. 1988) (“[T]here are conflicting Circuit Court
decisions on whether [Rule 106] makes admissible parts of a document that
- 38 -
misleading in a way that harms the case of the proponent, he can cure this by not
introducing it.” 21 Charles Alan Wright & Kenneth W. Graham, Fed. Practice &
Procedure § 5076, at 362 (1977). Accordingly, the circumstances under which Pl.
Ex. 51 and Def. Ex. 19, 22, and 24 were admitted are critical to HRSI’s standing
to invoke the rule of completeness. We find no abuse of discretion in the trial
court’s rejection of HRSI’s proffers on completeness grounds.
3. Non-Hearsay: Notice
HRSI’s final “non-hearsay” argument is that the excluded letters were
admissible to show “notice from HRSI advising plaintiffs of HRSI’s position.”
Aplt. Br. at 55. It is true that an out-of-court statement may be admitted over a
hearsay objection if the statement is offered not for the truth of the matter
asserted in the statement but merely to show that a party had knowledge of a
material fact or issue. E.g., Marsee v. U.S. Tobacco Co., 866 F.2d 319, 325 (10th
Cir. 1989) (ruling, in product liability action, that articles regarding health
problems associated with “smokeless tobacco” were not hearsay because they
otherwise would be inadmissible under the Rules of Evidence . . . .”) (collecting
cases); I Hon. Joseph M. McLaughlin, Hon. Jack B. Weinstein, & Margaret A.
Berger, Weinstein’s Fed. Evidence § 106.03[1], at 106-15 (2d ed. 2001) (noting
that language of Rule 106 is ambiguous as to “whether it authorizes the admission
of otherwise inadmissible evidence”); cf. 21 Charles Alan Wright & Kenneth W.
Graham, Jr., Fed. Practice & Procedure § 5071, at 337-40 (West 1977) (noting
Congress’ failure to take any action in response to the Justice Department’s
request that a clause be added to Rule 106 to require “that evidence adduced
under the Rule be otherwise admissible”).
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“were not admitted to prove the truth of the matter asserted,” but only “on the
issue of whether the defendant had notice of the potential dangers its product
posed to consumers”); Benford v. Richards Med. Co., 792 F.2d 1537, 1540 (11th
Cir. 1986) (sustaining admission of deposition testimony that deponent heard
defendant-manufacturer’s former president advise current representative against
use of cast stainless steel in product because testimony was offered to show notice
of associated dangers, not for the truth of the matter asserted). We believe that
doctrine is inapplicable in this case. HRSI’s entire notice argument comprises
only a sentence fragment in its opening brief; it is not referenced at all in the
reply brief. Aplt. Br. at 55. Without further development, we fail to see the
relevance of whether or not Echo had notice of “HRSI’s position” on March 28,
April 27, or April 29, 1994. Cf. Craven v. Univ. of Colo. Hosp. Auth., --- F.3d --
-, ---, No. 99-1519, 2001 WL 909203, at *4 (10th Cir. Aug. 13, 2001) ( “We will
not manufacture arguments for an appellant, and a bare assertion does not
preserve a claim, particularly when, as here, a host of other issues are presented
for review.”) (internal citation omitted); Adler , 144 F.3d at 679 (“Arguments
inadequately briefed in the opening brief are waived . . . .”) . Accordingly, we
conclude that the district court did not abuse its discretion in rejecting notice as a
basis to admit the exhibits at issue.
4. Rule 803(6): Business Records Exception
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The district court also rejected HRSI’s proffer of the letters under the
business records exception to the hearsay rule. See Fed. R. Evid. 803(6). The
court determined that the letters constituted legal “posturing,” drafted by lawyers
in anticipation of litigation, and that Rule 803(6) was therefore inapplicable. J.A.
2399 (Tr. at 497-98) (Def. Ex. 21); see also id. at 2480 (Tr. at 758) (Def. Ex. 23);
id. at 2481 (Tr. at 763) (Def. Ex. 25). Rule 803(6) “requires that the custodian or
other qualified witness testify that (1) the records were made contemporaneously
with the events and ‘kept in the course of a regularly conducted business activity,’
and (2) ‘it was the regular practice of that business activity to make the
[record].’” United States v. Samaniego, 187 F.3d 1222, 1224 (10th Cir. 1999)
(quoting Fed. R. Evid. 803(6)) (footnote omitted). Business records are
inadmissible, however, where “the source of information or the method or
circumstances of preparation indicate lack of trustworthiness.” Fed. R. Evid.
803(6) (emphasis added); see also id. advisory committee notes (1972)
(describing rationale underlying exception as “[t]he element of unusual reliability
. . . said variously to be supplied by systematic checking, by regularity and
continuity which produce habits of precision, by actual experience of business in
relying upon them, or by a duty to make an accurate record as part of a continuing
job or occupation”) (citation omitted). Thus, the motivation of a record’s author
is relevant to admissibility. Id.
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Not every item of business correspondence constitutes a business record.
See, e.g., Breeden v. ABF Freight System, Inc., 115 F.3d 749, 754 (10th Cir.
1997) (sustaining exclusion of letter from chiropractor proffered as “medical
business record”); Timberlake Const. Co. v. U.S. Fidelity & Guar. Co., 71 F.3d
335, 342 (10th Cir. 1995) (holding that court erred in admitting letters “written in
anticipation of litigation” as business records). “It is well-established that one
who prepares a document in anticipation of litigation is not acting in the regular
course of business.” Timberlake, 71 F.3d at 342 (citing Palmer v. Hoffman, 318
U.S. 109, 114 (1943); Fed. R. Evid. 803(6) advisory committee’s note); see also
Certain Underwriters at Lloyd’s, London v. Sinkovich, 232 F.3d 200, 204 n.2 (4th
Cir. 2000) (noting that documents “prepared in view of litigation[] are not
admissible as business records under Rule 803(6) and illustrate . . . that such
documents prepared specifically for use in litigation are ‘dripping with
motivations to misrepresent’”) (citing Hoffman v. Palmer, 129 F.2d 976, 991 (2d
Cir. 1942)); Noble v. Ala. Dep’t of Envtl. Mgmt., 872 F.2d 361, 366 (11th Cir.
1989) (holding that court erred in admitting letter as business record where
“testimony was not adequate to establish that the letter was compiled as a matter
of regular practice, as opposed to one prepared in anticipation of litigation”).
Upon a thorough review of the exhibits and the testimony surrounding their
proffer, we have found nothing to satisfy the foundational requirement that they
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were “kept in the course of a regularly conducted business activity.” Fed. R.
Evid. 803(6). Like the letters we found inadmissible in Timberlake, the exhibits
at issue in this case “have all the earmarks of being motivated and generated to
further [HRSI’s] interest, with litigation . . . not far around the corner.” 71 F.3d
at 342. We see no abuse of discretion in the court’s refusal to admit defense
exhibits 21, 23, and 25 as business records under Rule 803(6).
V. Cross-Appeal as to Prejudgment Interest
The district court granted Echo’s post-trial motion for prejudgment interest,
awarding interest at a rate of eight percent per annum. J.A. 2887. “[I]n the
interests of fairness,” however, the court reduced the total interest award by one-
third, noting that “Defendant’s withholding was not wrongful for one-third of the
prejudgment period due to the Court’s substantial delay in ruling on the parties’
cross motions for summary judgment.” Id.; see also id. at 2982 (Order denying
Echo’s Rule 59(e) Motion). In its cross-appeal, Echo contends that the district
court abused its discretion by reducing the total award and by failing to award
interest at a rate higher than eight percent, the statutory minimum. Aplee. Br. at
19-26. Echo argues for a higher rate based upon HRSI’s shareholders’ overall,
pre-tax return on equity or, in the alternative, HRSI’s average yield on
receivables.
As a preliminary matter, we must address HRSI’s pending Motion to Strike
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Plaintiffs’ December 12, 2000 Reply Brief, filed December 19, 2000. As noted in
that motion, Echo’s Reply Brief addresses not only the cross-appeal, but also the
merits of HRSI’s appeal. Thus, Echo’s Reply Brief effectively constitutes two
briefs: (1) Cross-Appellant Echo’s Reply Brief, and (2) Appellee Echo’s Sur-
Reply Brief. Only the first of the two is authorized by the Federal Rules of
Appellate Procedure. Fed. R. App. P. 28(a)-(c) (providing that appellant may file
an opening brief and a reply brief, that appellee may file an answer brief, and that
“[u]nless the court permits, no further briefs may be filed”). If the latter portion
of Echo’s “Reply Brief” had been submitted to the Clerk of Court under the
correct title, “Appellee’s Sur-Reply Brief,” it would not have been accepted for
filing. See Fed. R. App. P. 28(c). Accordingly, HRSI’s Motion to Strike is
granted as to all portions of the brief that address the merits of HRSI’s appeal.
We now turn to the merits of the cross-appeal. In pertinent part, the
Colorado statute governing prejudgment interest in contract suits provides that:
(a) When money or property has been wrongfully withheld, interest shall
be an amount which fully recognizes the gain or benefit realized by
the person withholding such money or property from the date of
wrongful withholding to the date of payment or to the date judgment
is entered, whichever first occurs; or, at the election of the claimant,
(b) Interest shall be at the rate of eight percent per annum compounded
annually for all moneys or the value of all property after they are
wrongfully withheld or after they become due to the date of payment
or to the date judgment is entered, whichever first occurs.
Colo. Rev. Stat. § 5-12-102(1) (emphasis added). We refer to prejudgment
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interest awarded pursuant to subsection (1)(a) as “moratory interest,” see
Chaparral Res., Inc. v. Monsanto Co., 849 F.2d 1286, 1291 n.4 (10th Cir. 1988),
and interest awarded pursuant to (1)(b) as “statutory interest”.
A. Reduction of Statutory Interest Award
Where a party breaches a contract by failing to make required payments, the
money owed under the contract has been “wrongfully withheld” for purposes of §
5-12-102(1)(a). Mesa Sand & Gravel Co. v. Landfill, Inc., 776 P.2d 362, 366
(Colo. 1989). Thus, Echo was entitled to receive prejudgment interest at a
minimum of eight percent per annum. Ballow v. PHICO Ins. Co., 878 P.2d 672,
684 (Colo. 1994). Section 5-12-102 is not punitive in nature. Cf. Great Western
Sugar Co. v. KN Energy, Inc., 778 P.2d 272, 276 (Colo. Ct. App. 1989). The
statute merely “recognizes the time value of money” in order to “discourage a
person responsible for payment of a claim to stall and delay payment until
judgment or settlement.” Mesa Sand & Gravel, 776 P.2d at 364. Regardless of
the factors that contributed to the length of time during which prejudgment
interest was accruing in this case, it is indisputable that HRSI retained Echo’s
money during that entire period. Under the plain language of § 5-12-102(1)(b),
Echo is entitled to the time value of those funds during the period in which they
were wrongfully withheld. Id. The Colorado General Assembly has adopted a
rate of at least eight percent per annum, and the district court had no discretion to
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modify the statute in that respect. We appreciate the district court’s attempt to
ameliorate the damages that could be perceived to have resulted from the delay,
yet we are constrained by the statute. We hold that the court abused its discretion
by reducing the statutory interest award, and that portion of the district court’s
judgment is hereby vacated.
B. Denial of Moratory Interest Without an Evidentiary Hearing
The plaintiffs also contend that the court abused its discretion by rejecting
their application for moratory interest without an evidentiary hearing. Aplee. Br.
at 19; see also J.A. 2221 (statement by court during pre-trial status conference,
indicating intent to have post-trial hearing on moratory interest). Echo claims
that statutory interest is insufficient to “fully recognize[] the gain or benefit
realized” by HRSI during the period in which payments were withheld. Aplee.
Br. at 19 (quoting Colo. Rev. Stat. § 5-12-102(1)(a)).
“[I]n order to receive the higher interest rate,” it is well-settled that “the
claimant must specifically prove that the withholding party actually benefitted” in
an amount greater than eight percent per annum. Northwest Cent. Pipeline Corp.
v. JER Partnership, 943 F.2d 1219, 1229 (10th Cir. 1991) (emphasis added)
(citing Lowell Staats Mining Co. v. Pioneer Uravan, Inc., 878 F.2d 1259, 1270-71
(10th Cir. 1989)). The statute’s “specific proof” requirement is extremely
demanding and, accordingly, moratory interest awards under § 5-12-102(1)(a) are
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very rare. Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138,
1159 (10th Cir. 2000). Compare Great Western Sugar, 778 P.2d at 273-74, 275-
76 (endorsing sophisticated economic model used to determine gain realized on
the specific property withheld), and Davis Cattle Co. v. Great Western Sugar Co.,
393 F. Supp. 1165, 1194-95 (D. Colo. 1975) (finding sufficient specificity where
claimant showed that the offending party “was able to leave $23-million of [its]
credit line untapped” and thereby save 11.5% in interest), aff’d, 544 F.2d 436
(10th Cir. 1976); with, e.g., Atlantic Richfield, 226 F.3d at 1158-59 (rejecting
return on equity analysis as too speculative where underlying balance sheets
failed to distinguish between corporate entities and were based, in part, on
investments made outside the relevant time period), and Ballow, 878 P.2d at 683-
84 (Colo. 1994) (vacating moratory interest award at 9.4%, the United States
Treasury rate at the time, because “there [was] no evidence in the record to
support [that] interest rate as the gain or benefit realized” by the defendant).
In support of its motion for moratory interest, see J.A. 2683-87, Echo
submitted the following evidence:
(1) HRSI’s financial statements, see J.A. 2688-2700;
(2) excerpts of deposition testimony by HRSI representative Joseph Hoff
that a release of a reserve amount 13 would result in an increase in
13
The record on appeal includes an internal document entitled “Reserve
Definition,” J.A. 3089 (Pl. Ex. 70), prepared by HRSI in March 1995 and
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shareholders’ equity because the amount of the reserve had
previously served to reduce income, and calculating shareholders’
average, pre-tax return on equity, see id. at 2713-18; and
(3) an affidavit by Echo’s expert witness, Steven Williams, explaining
that “at a minimum . . . the economic benefit [HRSI] derived from
the use of [wrongfully withheld funds] is commensurate with the
yield [HRSI] was generating on [the EAC Portfolio].”
Aplee. Br. at 21. Despite the plaintiffs’ insistence that they have made the
specific showing we found to be lacking in Atlantic Richfield, Aplee. Br. at 20-
21, we see no meaningful distinction between the evidence in that case and the
evidence presented to the district court in support of Echo’s motion. As in
Atlantic Richfield, the evidence upon which Echo relied was of a general nature;
the plaintiffs’ arguments, like those that failed to persuade the Atlantic Richfield
court, are entirely based on ratios derived from financial statements – i.e., the
Average Return on Equity and Average Return on Receivables – without any
specific proof as to how the withheld amounts were deployed. Compare J.A.
inadvertently produced to Echo during discovery. Id. at 2421 (Tr. 585). In
Echo’s view, the document indicates that “HRSI set up a reserve fund of 10% of
billed finance charges in regard to EAC’s claim.” Aplee. Br. at 21 n.1. Notably,
the Reserve Definition was never admitted into evidence, nor was it submitted in
connection with the plaintiffs’ motion for prejudgment interest. Early in the
proceedings, the court specifically noted its concerns regarding the Reserve
Definition and instructed Plaintiffs’ counsel not to refer to it in his opening
statement. J.A. 2315 (Tr. at 182). After a discussion with counsel outside the
presence of the jury, the court ruled that it would not receive the document into
evidence. Id. at 2421 (Tr. at 587). As Echo’s reference to the Reserve Definition
in its opening brief makes no mention of this tortured history, we are compelled
to remind counsel of their ongoing duty of candor to the court.
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2685-86 (Echo’s motion), and Aplee. Br. at 21-23; with Atlantic Richfield, 226
F.3d at 1158-59. Indeed, Echo’s own expert noted his “understanding that [HRSI]
did not escrow the[] withheld monies and such funds were commingled with the
working capital of the corporation.” J.A. 2729; cf. Atlantic Richfield, 226 F.3d at
1159 (recognizing that the specific proof requirement has the effect of permitting
large corporate defendants to shield themselves “against claims for moratory
interest simply by co-mingling funds with other corporate assets”).
Echo not only failed to carry its own burden of proof under § 5-12-
102(1)(a), see Chaparral Res., 849 F.2d at 1291 n.4, but also failed to respond to
the evidence submitted by HRSI to contradict Echo’s “forced investment” theory.
Aplee. Br. at 22. That uncontroverted evidence showed that HRSI used the
participation funds at issue to repay its debt and finance Echo’s credit programs.
J.A. 2830-34 (Hoff Aff.), 2841-45 (Hoff Dep.); see also id. at 2831, ¶ 5 (“HRSI
operates its lending business . . . by borrowing money at one rate, from external
sources, and then lending it at a higher rate. . . . The difference or spread between
the finance charges received from customers and HRSI’s borrowing costs is its
gross profit.”). Accordingly, the record indicates that the gain HRSI actually
realized from the withheld funds was in the nature of six percent – the
approximate rate at which HRSI borrowed money from external sources during
the time period in question. Id. at 2834, ¶ 15.
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Finally, Plaintiffs claim that the district court abused its discretion by
denying their request for moratory interest on the basis of the documentary
evidence alone, without conducting an evidentiary hearing. Aplee. Br. at 20. The
only point at which Echo requested an evidentiary hearing on this issue was
during a telephonic hearing on August 5, 1999. J.A. 2723 (Tr. at 18-19). During
the August 5 hearing, counsel for Echo succinctly described the evidence to be
presented at the moratory interest hearing: “We would only have one witness, and
that would be Steve Williams and then the deposition offerings from the CEO of
[HRSI], Joseph Hoff, as well as their financial statement.” Id. (Tr. at 19)
(emphasis added). The deposition excerpts and financial statements had already
been submitted in support of Echo’s motion, id. at 2688-2718; HRSI submitted
additional financial statements and excerpts from Mr. Hoff’s deposition in
opposition to Echo’s motion. Id. at 2835-45. As for Mr. Williams’ testimony,
Echo filed an affidavit which incorporated a letter by Mr. Williams to Mr.
Moskowitz shortly after the telephonic hearing. Id. at 2725-30. Because all of
the evidence that Echo sought to present at the evidentiary hearing had already
been submitted for the court’s consideration, the court did not abuse its discretion
by rendering a decision on the basis of the documents alone. In sum, we see no
error in the district court’s refusal to award prejudgment interest in excess of the
eight percent required by Colo. Rev. Stat. § 5-12-102(1)(b).
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Conclusion
The district court’s judgment is REVERSED as to the one-third reduction
of the pre-judgment interest award, AFFIRMED in all other respects, and
REMANDED to the district court for proceedings consistent with this opinion.
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