ECONOMIC LOSS RULE BARS THEFT CLAIM

In Makoto USA, Inc., v. Russell, 08CA1372 (Nov. 25, 2009), the Colorado Court of Appeals ruled that the economic loss rule barred plaintiff's civil theft claim because it was inextricably intertwined with plaintiff's breach of contract claim.

In Makoto, plaintiff asserted claims of breach of contract and civil theft against the defendants arising out of plaintiff's purchase of defendants' business. Among the purchased assets was a utility patent, which, unbeknownst to the plaintiff, was unenforceable because the defendants had failed to make certain maintenance payments. The purchase agreement between the parties required plaintiff to pay defendants annual installments of $50,000 in satisfaction of the purchase price. Upon learning of the unenforceable patent, plaintiff ceased making payments and filed its action for breach of contract and civil theft.

The issue on appeal was whether the civil theft claim under Colorado's stolen property statute, Section 18-4-405, C.R.S. 2009, which provides for treble damages and attorneys fees, was barred by the economic loss rule. The Court of Appeals held that the civil theft claim was predicated on the existence of a breach of the contract, and therefore the economic loss rule barred recovery for civil theft.

The economic loss rule provides that "a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such breach absent an independent duty of care under tort law." Id. For there to be a cognizable independent duty, "(1) the duty must arise from a source other than the relevant contract, and (2) the duty must not be a duty also imposed by the contract." Id.

The Makoto Court found that the civil theft claim was wholly dependent on the plaintiff's contract claim. The relief sought in the two claims were the same, and the theft claim could not have been proven without first proving that defendants also breached the contract. "Had defendants complied with the their reciprocal contractual duties, plaintiff would have no colorable claim that defendants 'stole' a contractual payment." Id. The Court further found that the legislature did not intend the stolen property statute be used to expand contractual remedies.

Posted By: Brent W. Houston, Esq.