CourtListener 10297322•Veolia Water v. Antero
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The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
December 19, 2024
2024COA126
No. 23CA0897, Veolia Water v. Antero — Contracts — Breach of
Contract — Terms — Incorporation by Reference; Torts —
Economic Loss Doctrine — Intentional Fraud
A division of the court of appeals holds that in a contract
dispute over the construction of a hydraulic fracturing wastewater
treatment plant the district court did not err in finding that Veolia
Water Technologies, Inc. breached the contract and committed
fraud. The division also holds that the district court did not err in
considering representations made by Veolia via email and
incorporated into the contract via change order when rejecting
Veolia’s claim that Antero Resources Corporation instead breached
the contract. The division also affirms the district court’s damages
award. Finally, adding to the evolving application of the economic
loss rule in Colorado, the division holds that that the rule does not
bar Antero’s intentional tort fraud claims against Veolia because,
here, Veolia’s common law tort duties are independent of its
contractual duties and of the implied duty of good faith and fair
dealing that exists in every contract.
COLORADO COURT OF APPEALS 2024COA126
Court of Appeals No. 23CA0897
City and County of Denver District Court Nos. 20CV31008 & 20CV31009
Honorable Eric M. Johnson, Judge
Honorable Marie Avery Moses, Judge
Honorable Martin F. Egelhoff, Judge
Veolia Water Technologies, Inc.,
Plaintiff-Appellant and Cross-Appellee,
v.
Antero Treatment LLC, Antero Resources Corporation, Antero Midstream
Partners LP, and Antero Midstream Corporation,
Defendants-Appellees and Cross-Appellants.
JUDGMENT AFFIRMED AND CASE
REMANDED WITH DIRECTIONS
Division II
Opinion by JUDGE FOX
Johnson and Schock, JJ., concur
Announced December 19, 2024
Fox Rothschild LLP, Marsha M. Piccone, Risa B. Brown, Denver, Colorado;
Mayer Brown LLP, Nicole A. Saharsky, Minh Nguyen-Dang, Washington, D.C.;
Troutman Pepper Hamilton Sanders LLP, Misha Tseytlin, Chicago, Illinois;
Troutman Pepper Hamilton Sanders LLP, Ralph A. Finizio, Robert A. Gallagher,
Pittsburgh, Pennsylvania, for Plaintiff-Appellant and Cross-Appellee
Lewis Roca Rothgerber Christie LLP, Kenneth R. Rossman, IV, Kendra N.
Beckwith, Denver, Colorado; Davis Graham & Stubbs LLP, James R.
Henderson, Denver, Colorado; Vinson & Elkins, LLP, Marie R. Yeates, James D.
Thompson, III, Stephanie L. Noble, Matthew C. Hoffman, Garrett T. Meisman,
Houston, Texas, for Defendants-Appellees and Cross-Appellants
Hall & Evans, LLC, Nicholas J. Deaver, Denver, Colorado, for Amici Curiae
Colorado Defense Lawyers Association, DRI Center for Law and Public Policy,
and the Colorado Civil Justice League
Berg Hill Greenleaf Ruscitti LLP, Geoffrey C. Klingsporn, Boulder, Colorado, for
Amicus Curiae Gregory Klass
¶1 Veolia Water Technologies, Inc. (Veolia), appeals the district
court’s judgment in favor of Antero Resources Corporation and its
subsidiaries Antero Midstream Corporation, Antero Midstream
Partners LP, and Antero Treatment LLC (collectively, Antero), and
its attorney fees and costs award.
¶2 We hold that the economic loss rule does not bar Antero’s
intentional tort fraud claims against Veolia because, here, Veolia’s
common law tort duties are independent of its contractual duties
and of the implied duty of good faith and fair dealing that exists in
every contract.1 Accordingly, we affirm the district court’s judgment
and damages award and remand the case so the district court may
calculate reasonable appellate attorney fees and costs to Antero.
I. Background
¶3 This appeal concerns a dispute over a facility designed to treat
wastewater from natural gas hydraulic fracturing (fracking)
operations located in Pennsboro, West Virginia (Clearwater or the
1 Two amici have filed helpful briefs in this case — one in favor of
Antero and the other in favor of Veolia — urging different
applications of the economic loss rule to claims for intentional torts
like fraud.
1
facility).2 Antero primarily relied on “deep well injection” to discard
fracking wastewater in disposal wells, but, as this posed economic,
technological, and environmental challenges, it sought an
alternative solution. Antero approached Veolia to design and build
Clearwater to separate and crystallize the solids within fracking
wastewater to create waste salt to be landfilled, leaving water clean
enough to reuse or release into surface waterways.
¶4 On October 31, 2014, Veolia provided Antero with a “Bench
Scale Proposal” (the Proposal) for conducting preliminary
experiments to test Veolia’s processes and inform the potential
construction of a treatment facility. Antero authorized the work
reflected in the Proposal on November 26, 2014, and paid Veolia
$355,000 for this preliminary testing and analysis. Antero later
twice authorized interim “Limited Notice to Proceed” (LNTP)
agreements with Veolia, thus allowing Veolia to continue its
2 Veolia and Antero contractually agreed to litigate any suits related
to the facility in federal court in Denver, Colorado. But the federal
court lacked jurisdiction as diversity does not exist between the two
companies. As a result, the parties litigated the case in Colorado
state court.
2
preliminary testing and improve its design before reaching a final
agreement. Antero paid Veolia $750,000 for each LNTP.
¶5 On August 18, 2015, Antero and Veolia entered into the
“Design/Build Agreement” (DBA), the principal contract governing
Clearwater’s construction. The DBA also explicitly provided that
the DBA, the Proposal, and the two LNTPs “set[] forth the entire
agreement between the Parties” unless the DBA was later modified
via written “Change Orders” executed by both parties. The DBA
specified that Veolia would be responsible for Clearwater’s design
and construction as a “turnkey facility.” Antero agreed to pay
Veolia $255,765,2533 (plus or minus additions or deductions
identified in the DBA) once Clearwater was completed. A Veolia
subsidiary, Veolia Water North America Operating Services, LLC
(VNA), would then operate the facility within specified guidelines.
¶6 As relevant here, the DBA contained two key requirements for
Clearwater, one relating to the characteristics of the waste salt and
the other relating to the facility’s power consumption. First, adding
to the Proposal’s representation that Veolia’s proprietary CoLD
3 The DBA’s original contract price was $239.8 million, but the
contract price was modified by a later executed change order.
3
process would provide a “zero liquid waste process” that could treat
wastewater to leave “a stable, non-hazardous solid for disposal
and/or re-use,” the DBA provided that the waste salt’s “Free
Liquids” requirement was “Pass, No free liquids.” The waste salt’s
“Total Solids” requirement was “no limit, must pass paint filter
test.” Second, the DBA restricted Clearwater’s power consumption
from exceeding 505,500 kWh/day with its “chillers” on or 340,000
kWh/day with its chillers off. Both requirements later proved
problematic.
A. Waste Salts
¶7 To treat wastewater influent using Veolia’s CoLD process, the
facility required lower temperatures than other treatment methods
and used three main stages. First, a “pretreatment” stage
separated grit and solids from the influent. Then, a thermal
“crystallizer train” treatment heated the influent to evaporate and
concentrate the wastewater before centrifuges separated the waste
salt from the water. The final “post treatment” phase sanitized the
separated water and removed any remaining contaminants.
¶8 The second stage of this process used four sequential
chambers, or “effects,” where wastewater was heated and
4
crystallized waste salt was separated. In Veolia’s original design for
Clearwater, the fourth effect used a single chamber, but on August
26, 2015 (after the DBA was executed), Veolia proposed a design
alteration, later designated as “Change Order 1” (CO-1).
¶9 As a cost-saving measure, Veolia proposed that it be allowed to
“split” the fourth effect into two separate chambers, chambers 4A
and 4B — each producing different waste salts — to decrease power
usage by reducing the need for the power-demanding “chillers.”
¶ 10 Antero was concerned about this change, however, as it
wanted to ensure that the waste salt Clearwater produced would be
dry because Antero planned to dispose of it in a landfill near
Clearwater. In the Proposal — expressly incorporated into the DBA
— Veolia promised to produce a stable and nonhazardous solid
waste salt. Relatedly, Antero’s landfill application, prepared in
October 2016 and February 2017 with its landfill contractor,
advised regulators that Antero anticipated the waste salt would be a
“fine[-]grained” “sand material” that could be sufficiently compacted
5
by bulldozers and earthmoving equipment driving over it without
the need for additional processing or solidification.4
¶ 11 Consistent with what Veolia promised in the Proposal it could
deliver to Antero, Veolia’s meeting minutes (of weekly Antero/Veolia
calls) dated September 22, 2015, noted that the waste salt would
“teepee” (i.e., pile up in a conical shape) in the truck in which the
salt was being loaded, requiring the truck to move periodically.
Again, in a September 29, 2015, email, Veolia employees explained
that one of 4B salt’s characteristics would be an “angle of repose”
(the salt teepee’s angle) of “41.5° +/- 3.5°” — consistent with
generating solid salt.
¶ 12 In a September 1, 2015, email, attached as an exhibit to CO-1,
Veolia’s Project Director, Michael Pietropaoli, represented that
splitting the fourth effect into two chambers would not change the
waste salt’s quality. But, unbeknownst to Antero, Veolia was aware
4 Because of the waste salt’s propensity to absorb water from the
air, to prevent liquification over time Antero planned to mix native
soil into the salt or cover it with soil or tarps to avoid absorption,
but did not plan to use additives to “solidify” the waste salt. In a
“risk register” Veolia provided to Antero two months before CO-1
was signed, the risk of waste salt leaving the 4B effect as a liquid
was not included — though the document did highlight that salt
“[m]aterial can turn to mush if exposed for too long.”
6
that splitting the fourth effect risked causing the 4B waste salt to be
too unstable for Antero’s landfill plans. VNA (which would later
operate Clearwater) warned Veolia on August 26, 2015 (the same
day Veolia sent Antero the request to split the fourth effect) of
concerns with the 4B salt, noting, “How will a truck from [4B]
behave after sitting and/or after handling? While technically we
need to meet paint-filter at the centrifuge, we will all be in trouble if
[4B] material melts anywhere between the centrifuge and the
landfill.” Yet Veolia did not communicate these risks to Antero
before the DBA and CO-1 were executed.5
¶ 13 Having been assured of the stability of the waste salt leaving
the 4B effect, Antero approved splitting the fourth effect, thus
modifying the DBA per CO-1 on December 16, 2015.6
¶ 14 Clearwater began treating wastewater and producing waste
salt in 2017. While the 4A waste salt was solid as anticipated, the
5 Well after the August 2015 DBA and the December 2015 CO-1, a
Veolia employee told an Antero employee in a March 2016 email
that the 4B salt would “not be granular” and would “carry more
moisture.”
6 Antero’s signature on CO-1 is dated “12/16/18,” while Veolia
signed it on “1/8/16.” Testimony at trial indicated that the
12/16/18 date was a typo, as “Change Order 2” was signed in June
2016.
7
4B waste salt was consistently “soupy.” Because the 4B salt was so
wet and unstable, Antero was unable to landfill waste salt from the
4B effect without mixing in significant and expensive amounts of
“fly ash” (a fine powder residue produced from burning coal), which
Antero’s initial landfill permit prohibited.
¶ 15 Antero’s expert, Dr. Hubert Fleming, testified that the soupy
salt was likely the result of the split fourth effect, which caused the
4B effect to have a higher ratio of calcium chloride to sodium
chloride than anticipated because most of the sodium chloride was
removed in the 4A effect. This prevented sodium chloride from
producing a “stabilizing” effect on the calcium chloride that could
have occurred had they been treated within a single fourth effect.
The 4B salt issue was never resolved and Antero canceled the DBA
on September 12, 2019, after Veolia informed Antero that the salt
issue would not be resolved and disclaimed responsibility. Antero
subsequently halted operations at Clearwater, “mothballing” the
facility.
B. Power Consumption
¶ 16 Veolia split the fourth effect to meet the DBA’s power
consumption guarantee for Clearwater. Power consumption directly
8
affected Clearwater’s economic viability. The power consumption
guarantee changed several times as the DBA was negotiated and as
the plan to split the fourth effect took shape.
¶ 17 On May 20, 2015, Veolia calculated that Clearwater’s total
expected power usage would be 395,759.4 kWh/day (with chillers
on) to treat 60,000 barrels of wastewater per day. This estimate
assumed that Clearwater would require seven chillers (six active
chillers with one nonactive backup chiller) running twenty-four
hours a day for 105 days per year. Brad Biagini, a former senior
process engineer with Veolia, testified that the chillers represented
a significant portion of the facility’s power needs, “on the order of
40[%] of the overall power demand.”
¶ 18 In a draft power consumption guarantee Veolia sent to Antero
on August 6, 2015, shortly before the DBA was executed on August
18, Veolia proposed an increased power guarantee of 450,615
kWh/day with chillers on and 278,615 kWh/day with chillers off.
But internal Veolia emails dated August 10 and 11, 2015, indicated
that Veolia had underestimated its chiller needs and feared it might
surpass its most recent, increased power guarantee limits. Mark
Wozniak, Veolia’s senior engineering advisor, informed managers
9
that, based on his calculations, two more chillers (totaling nine
active chillers) would be required — a significant power increase
that would exceed the then-current power guarantees. When Lnsp
Nagghappan, VNA’s vice president of business development, learned
of this, he responded to Veolia: “Why this increase at the last
minute. We changed power multiple times. We had a tough time 2
weeks ago when we increased power demand by 20%. Now another
increase. Can we optimize the design to avoid this increase.” Jim
Rieke, Veolia’s director of process design, noted, “This is extremely
upsetting. We knew that this interface point was important to get
right and still somehow dropped the ball. Now we might not have
an option but to split the 4th effect.”
¶ 19 Veolia’s internal meeting minutes from an August 11, 2015,
team meeting indicate that the change to split the fourth effect was
to address this increase in power demand. The header read,
“Chiller Power — There is an issue with the current design — it
exceeds power requirements and we are investigating a work
around by splitting the 4th Effect in half.” The meeting notes
further documented, “If we split the 4th Effect, there is an
opportunity to save $1mm . . . for the redesign. If we do nothing,
10
we need to put in 2 more chillers and are over our power
requirements.” The minutes recommended, “Downplay the splitting
change, no warranties would change and the benefits of less power
consumption . . . . No more than 4 chillers are needed, if we
proceed with the 4A/4B option.”
¶ 20 On August 13, 2015, Veolia proposed to Antero the later
finalized power guarantee in the DBA of 505,500 kWh/day with
chillers on and 340,000 kWh/day with chillers off. Later that day,
Biagini sent Veolia employees an updated power usage projection,
assuming ten chillers (with one nonactive backup) would be
running twenty hours a day for 105 days per year and including a
10% “safety factor” to account for unanticipated power needs, now
totaling 498,020 kWh/day (or 452,745 kWh/day without the safety
factor).
¶ 21 Wozniak’s reply noted that, according to his calculations, the
power rate could be nearly 20,000 kWh/day higher than Biagini
estimated before applying the 10% safety factor. Or — assuming
the absolute maximum power rate that the chillers could run (as
the manufacturer represented) — the rate could be 34,511
11
kWh/day higher (though Biagini argued that the 10% safety factor
would not be added to the maximum power rate).
¶ 22 While Biagini agreed with Wozniak’s calculations, he noted
that a difference between their analyses was that Biagini looked at
predicted power rates that assumed Clearwater’s “final completion
performance test” (FCPT) would be conducted in cooler months
(November to February). Thus, Biagini’s predictions were based on
a lower energy demand, so his “chillers on” analysis was more
conservative (hence the twenty-hour-a-day run time), while Wozniak
was looking at energy use in summer months with a higher energy
demand. None of the information contained in Veolia’s internal
meeting notes or emails was shared with Antero before the
execution of CO-1.
¶ 23 Despite ongoing power concern conversations and the risk
identified in the emails that the chillers would exceed Veolia’s power
consumption guarantee, the DBA was executed days later on
August 18, 2015, and included a power guarantee of 505,500
kWh/day with chillers on or 340,000 kWh/day with chillers off.
But when CO-1 was implemented, Veolia proceeded with the new
12
split fourth effect design, significantly reducing the number of
chillers required.
C. Mechanical Failures and Contractual Delays
¶ 24 In operation, Clearwater faced repeated mechanical failures
that led to outages, prevented Clearwater from reaching its full
operating capacity, and caused frequent shutdowns. Antero’s
director of water operations, Conrad Baston, testified to several
problems the facility faced, including, for example, the following:
• “[B]elt presses” meant to last “months or a year” tore and
broke within days, causing sludge from the pretreatment
stage to build up and overflow into the thermal train.
• “[S]tructural steel” design repairs to “prevent collapse”
caused a month-long shutdown.
• Repairs to “thermal oxidizers” were required to prevent
volatile organic compounds from escaping into the
atmosphere.
• The facility produced treated effluent that surpassed
“chronic toxicity” testing limits and thus could not be
discharged into the surface water.
13
• “[S]olid contact clarifier” (SCC) rakes seized multiple
times due to overly dense sludge, causing immediate
shutdowns so sludge could be vacuumed out of the
pretreatment chambers, an issue that continued through
March 2019, just two weeks before Veolia’s first
“substantial completion performance test” (SCPT)
attempt.
¶ 25 According to Fleming, Antero’s expert, the “design basis” for
Clearwater was not based on the water samples that Antero
provided. Instead, it employed a “midpoint design basis” that tried
to calculate the expected average constituents in Antero’s
wastewater rather than testing the provided water samples to
determine the actual minimum and maximum ranges of
constituents. Fleming testified that the midpoint design basis did
not conform to prudent industry standards because the facility
would not be appropriately designed to treat wastewater with low or
high ranges of contaminants; instead, the facility would only
function at the assumed single average contaminant level.
¶ 26 VNA and an external third-party report (commissioned by
Veolia) detailed ways to help fix the problems at Clearwater, but
14
Veolia passed on implementing the recommended mitigation
measures.
¶ 27 Between the 4B waste salt problems and mechanical and
design failures, Clearwater never met some of the DBA’s crucial
contractual “milestones.” Most importantly, by September 23,
2017, Clearwater had to pass a SCPT, and by December 12, 2017,
it had to pass a FCPT.
¶ 28 Veolia attempted two SCPTs, the first in March 2019 and the
second in August 2019, and argued Clearwater had passed. Antero
disagreed and, regardless, contended that Veolia had not completed
the required “Work” under the DBA or met the SCPT process
requirements.
¶ 29 The DBA defined Veolia’s required “Work” as “the design,
project management, supervision, procurement, construction,
testing, commissioning, startup, and, during the Interim Operations
Period, operation and maintenance . . . described in this Agreement
for the turnkey supply by Veolia to Antero of the Facility in
accordance with the Scope of Work hereunder.”
¶ 30 Regarding the waste salt specifically, the parties contested
whether the waste salt met the paint filter test and the DBA’s
15
requirements. Veolia informed Antero on August 29, 2019, that it
wished to proceed with a FCPT on September 16, 2019. Protesting
that Veolia’s Work had not been completed and that Clearwater had
not passed a SCPT, Antero terminated the DBA on September 12,
2019.
II. The District Court’s Findings
¶ 31 Veolia and Antero separately sued each other in March 2020,
and the cases were consolidated. As relevant here, Antero brought
claims for breach of contract and fraud. After a lengthy bench trial,
the district court issued detailed findings of fact and conclusions of
law.
¶ 32 The district court found that Veolia breached the DBA by
failing to meet the DBA’s SCPT and FCPT deadlines. It found that,
even if Veolia had completed a SCPT, it never completed a FCPT.
As a result, the district court found that, per DBA article 16.4.2,
even if Veolia had passed the SCPT in March 2019, delay liquidated
damages (DLDs) began to accrue and hit the DLD cap (10% of the
DBA’s value) in June 2019, causing Veolia to default.
¶ 33 The district court also found that Veolia breached the DBA
and CO-1 by failing to provide compliant 4B waste salt. The district
16
court found that CO-1 created specific salt requirements when it
incorporated by reference Pietropaoli’s September 1 email (Exhibit 1
to CO-1). The soupy salt leaving the 4B centrifuge could not be
placed in a landfill without solidification, thus violating the terms of
the DBA (and CO-1).
¶ 34 The district court further found that Veolia failed to construct
Clearwater in accordance with “[p]rudent [i]ndustry [p]ractices” as
defined by the DBA, failed to deliver to Antero a turnkey facility,
and did not complete the Work required by the DBA. This, along
with Clearwater’s failure to produce compliant waste salt, meant
that Veolia had breached the DBA (and CO-1).
¶ 35 As for Antero’s fraud claims, the district court first found that
Veolia fraudulently induced Antero to sign the DBA by failing to
disclose that Clearwater could not meet the power consumption
guarantee while misrepresenting otherwise and by failing to disclose
why it was redesigning Clearwater to split the fourth effect. The
district court also found that Veolia fraudulently induced Antero
into signing CO-1 because it failed to disclose the risks of splitting
the fourth effect while “fraudulently representing it would deliver
stable, solid salt waste.”
17
III. The District Court’s Damages Award
¶ 36 The district court found that the “economic loss rule” did not
bar Antero’s recovery of damages for fraud. It reasoned that the
economic loss rule did not apply because, at the time of Veolia’s
misrepresentations, there was no contract with Antero because the
Proposal and the LNTPs did not form a “network of interrelated
agreements.”
¶ 37 In determining the amount of damages, the district court first
found that a “benefit-of-the-bargain” approach was the proper
measure of damages for both Antero’s breach of contract and fraud
claims. The court generally credited the damages calculation from
Dr. Stephen Becker, Antero’s damages expert, totaling
$253,309,102, but it applied a “discount rate” in the range
suggested by Michael Emmert, Veolia’s damages expert, to reduce
that amount to $144,105,246. The district court also rejected the
argument that this benefit-of-the-bargain approach was actually a
form of lost profits damages, or “consequential damages,” which the
DBA barred.
¶ 38 The district court next awarded Antero its incremental out-of-
pocket costs — costs Antero would not have incurred had
18
Clearwater been designed and delivered in accordance with the
DBA. Becker testified that these costs amounted to $88,657,845.
The district court agreed for the most part and found that Antero
had proved these costs by a preponderance of the evidence, less
$16,646,795 in expenses incurred after December 2017 for
“trucking, pit and commissioning expenses,” resulting in
incremental out-of-pocket damages of $72,011,50.
¶ 39 Turning to Antero’s unpaid DLDs, the court found that Veolia
failed to prove that the delays were attributable to Antero, and
because it was undisputed that Veolia failed to meet the DBA’s
critical milestones, the court determined that Antero was entitled to
$25,576,525 in unpaid DLDs. The court also found that Antero
was entitled to attorney fees.
¶ 40 The district court then moved to the DBA’s limitation on
damages in article 25.2, providing that “in no event shall Veolia be
liable, alone or in the aggregate, to Antero for any Losses in excess
of an amount equal to sixty (60%) of the Contract Sum”
($153,459,152.35), except for, as relevant here, any liability arising
from “gross negligence, fraud or willful misconduct.” The district
court found that Veolia had fraudulently induced Antero to execute
19
the DBA and CO-1 and that Veolia’s design and operations of
Clearwater, the facility’s mechanical failures and salt issues, and
Veolia’s failure to implement any recommended changes constituted
gross negligence and willful misconduct. It thus concluded that the
DBA’s liability limitation did not apply.
¶ 41 The district court therefore ordered that Veolia pay the (1)
benefit-of-the-bargain damages; (2) incremental out-of-pocket
damages; and (3) DLDs. In sum, the district court awarded the
following damages to Antero:
Damages Category Amount
Benefit-of-the-Bargain Damages $144.1 million
Incremental Out-Of-Pocket
$72.0 million
Costs
Delay Liquidated Damages $25.6 million
Subtotal $241.7 million
¶ 42 When Veolia later pointed out that Antero owed an unpaid
balance of $26.6 million under the DBA, the district court reduced
Antero’s damages by that amount for a final subtotal of $215.2
million (before pre- or post-judgment interest).
20
IV. Issues on Appeal
¶ 43 On appeal, Veolia raises five main contentions: (1) the district
court erred by creating a new waste salt requirement when it
incorporated the emails included as exhibits to CO-1 into the DBA;
(2) the district court erred by finding that Antero did not breach the
DBA by providing influent with “abnormal substances”; (3) the
economic loss rule barred Antero’s fraud claims, and, regardless,
the DBA’s damages cap could not have been reached, so the court
did not need to reach Antero’s fraud claims; (4) Veolia never
fraudulently induced Antero into signing the DBA or CO-1; and
(5) the district court erred by using a benefit-of-the-bargain
approach, instead of a cost-of-repair approach, in calculating
Antero’s damages.
¶ 44 Veolia also argues, in the alternative, that the district court’s
approach to determining Clearwater’s market value applied the
wrong legal standards. Veolia also requests appellate attorney fees
per the DBA.
¶ 45 Antero, in turn, disputes each contention and urges us to
affirm the district court. Antero’s “conditional” cross-appeal argues
that if we conclude that the district court’s benefit-of-the-bargain
21
damages approach (which incorporated future income
considerations) is a form of lost profits or consequential damages
otherwise barred by the DBA, then the DBA’s article 25 damages
limitation exception should apply. Antero also requests appellate
attorney fees.
V. Waste Salt Breach of Contract
¶ 46 Veolia contends that the district court erred by finding that
Veolia breached the DBA by producing 4B waste salt that did not
meet the DBA’s requirements. Focusing on the waste salt’s
chemical composition, Veolia argues that that the DBA’s “Table 2”
clearly identified the required waste salt composition; and the only
moisture requirement was that the salt not contain “free liquids.”7
Veolia further argues that free liquids are tested with the paint filter
test, which it contends was consistently met.
¶ 47 Yet the district court found that Veolia breached the DBA
because it never satisfied the requirements in Pietropaoli’s
September 1, 2015, email (Exhibit 1 to CO-1). Because the email
7 Veolia also contends that Table 2’s “Total Solids – no limit, must
pass paint filter test” requirement means that the paint filter test is
the only liquid/solid waste salt specification.
22
was incorporated into the DBA, it imposed express requirements,
and the court found that “the Parties’ indisputable intent was to
include the . . . September 1, 2015 email, and the other emails and
documents attached as Exhibit 1, as part of the terms of [CO-1].”
Because the 4B waste salt never met the salt’s physical state
requirement, the district court found that Veolia breached the DBA.
A. Standard of Review
¶ 48 “The interpretation of a contract is a question of law that we
review de novo. Whether contract terms have been incorporated by
reference into a contract is also a question of law subject to de novo
review.” French v. Centura Health Corp., 2022 CO 20, ¶ 24 (citation
omitted). We defer to the district court’s factual findings “unless
they are clearly erroneous.” Id.
¶ 49 When “interpreting a contract, our primary goal is to give effect
to the parties’ intent.” Id. at ¶ 25. And “it has long been settled
that contracting parties may incorporate contract terms by
reference to another document. In Colorado, for an incorporation
by reference to be effective, ‘it must be clear that the parties to the
agreement had knowledge of and assented to the incorporated
terms.’” Id. at ¶ 29 (citations omitted).
23
¶ 50 So, for extrinsic terms to be incorporated into a contract by
reference “the terms to be incorporated generally must be clearly
and expressly identified,” while “[g]eneral or oblique references to a
document to be incorporated, in contrast, are usually insufficient to
support a finding that the document was incorporated by
reference.” Id. at ¶¶ 30-31.
B. Analysis
¶ 51 We conclude that the terms detailed in Pietropaoli’s September
1 email were added to the DBA as part of CO-1 and created specific
requirements for the waste salt consistent with Veolia’s obligations.
The record supports the district court’s finding that Veolia breached
the DBA by failing to meet these physical property requirements.
¶ 52 CO-1 first mentioned the emails to be incorporated in its
introductory recitals, which provided, in part, as follows:
(1) Veolia identified and presented to Antero
the following design optimizations and
associated changes to . . . material of
construction optimization, as described under
Section “Corrosion Risk Reduction Discussion”
of Veolia’s letter dated August 26, 2015 and
subsequent email by Veolia dated September
1, 2015 Included in Exhibit 1 . . . .
(2) Antero and Veolia . . . reviewed and agreed
to the proposed design optimizations, per
24
Veolia . . . and Antero’s emails dated
September, 3, 2015 Included in Exhibit 1 . . . .
Pursuant to Section 5.1 of the Agreement,
Veolia and Antero hereby agree to the following
changes to the Agreement.
The exhibits attached to CO-1 detailed specific changes to the DBA.
¶ 53 Exhibit 1 contained the September 3, 2015, emails from Mark
Kachmar, Antero’s manager of completions and water, and John
Brinker, VNA’s vice president of major projects. Kachmar’s email
explained, regarding the fourth effect split, that “Antero approves
the described design changes as proposed in the 8/26/15 technical
memo and supported by the emails below describing that no cost or
schedule impacts to either the [Veolia] or VNA contract will occur
due to these changes.” (Emphasis added.) Brinker’s email stated,
“VNA confirms the design change is acceptable with no changes to
our contractual obligations, performance guarantee or price
required.”
¶ 54 Pietropaoli’s September 1 email, included below these
statements, made several representations about the fourth effect
split redesign, “confirming,” for example, that “the design change
can be implemented with no additional cost over the contracted
25
value” and “that the design change does not [compromise] Antero’s
ability to recover byproducts in the future when compared to the
originally contracted scope.”
¶ 55 Most importantly, it provided,
Veolia confirms that the salt quality from 4B
will be suitable stable for the envisaged landfill
strategy. This is based on previous test work
at similar ratios of NaCl to CaCl2‐2H2O (1:1
ratio) that were likely to occur with separate
removal of an NaCl byproduct salt. This test
work showed 4 hours plus stability at worst
case temperature/humidity before visible signs
of liquefaction began to occur.
¶ 56 Pietropaoli unambiguously confirmed that the 4B waste salt
would be “suitable stable” so that it could be landfilled. And
Pietropaoli added that this confirmation was based on previous
testing. Antero and Veolia knew the terms Pietropaoli referenced
and understood that Veolia’s representations would bind it. See
French, ¶ 29. Indeed, Kachmar specifically noted that Antero
approved the design change “supported by the emails below.”
¶ 57 These are not general or vague references to unknown or
unidentified documents or terms; the documents were explicitly
named in CO-1’s recitals and were included as an exhibit to CO-1.
Cf. id. at ¶¶ 32-35 (“chargemaster” document not incorporated by
26
reference when one party had no knowledge of its existence or
terms). CO-1 evidences the parties’ intent to add these
representations to the DBA, consistent with what Veolia
understood, and Antero expected. See id. at ¶ 25. Indeed, in the
Proposal, incorporated into the DBA, Veolia represented that its
CoLD process could produce a “stable, non-hazardous solid for
disposal and/or re-use.”
¶ 58 Veolia argues, however, that the introductory recitals cannot
extend contractual obligations and that only the changes on page
two of CO-1 — detailing the “description of change” information and
referencing the exhibits — can be considered explicit changes, and
page two does not mention waste salts. But this restrictive reading
of CO-1 is not supported by the plain language of its second page.
¶ 59 The second page provides that “[t]he preliminary Drawings &
Lists Included in Appendix A to Exhibit D of the Agreement will be
updated to reflect the aforementioned design optimizations.” These
optimizations include the ones “Antero and Veolia . . . reviewed and
agreed to” in the “emails dated September 3, 2015 included in
Exhibit 1.” More specifically, the optimizations included the
“implementation of a flow scheme and resulting equipment
27
changes, as described in Veolia’s letter dated August 26, 2015
included in Exhibit 1” and “material of construction optimization, as
described under Section ‘Corrosion Risk Reduction Discussion’ of
Veolia’s letter dated August 26, 2015 and subsequent email by
Veolia dated September 1, 2015 Included In Exhibit 1.” (First and
third emphases added.) Pietropaoli’s September 1 email says that
“Veolia confirms our technical preference for the use of carbon steel
materials for the recirculation ducts of all vessels except 4B in order
to reduce corrosion risks.” The incorporation of the exhibits, which
reference waste salt, into the recitals and express changes detailed
in CO-1 indicate that Veolia’s rigid interpretation does not reflect
the parties’ intent.
¶ 60 Veolia also argues that, in context and when read as a whole
in accordance with the DBA, the “suitable stable” language from the
September 1 email did not add new salt requirements; it merely
reaffirmed existing requirements in the DBA (i.e., passing the paint
filer test), and the email was too vague to impose a new
requirement. But the suitable stable language clarified a specific
requirement — that the salt be stable and landfillable — consistent
with what Veolia’s Proposal promised — that was incorporated into
28
the DBA. The September 1 email detailed Veolia’s previous testing,
which showed that the waste salt would remain stable for at least
four hours in the worst temperature and humidity conditions.
¶ 61 The September 1 email reiterated a specific requirement for
the 4B waste salt that was clearly and expressly detailed in CO-1 —
incorporating this requirement effectuates the intent of the parties.
See id. at ¶¶ 30-31. Thus, because Veolia violated this requirement
by producing soupy salt that was not suitable and stable to be
landfilled, it breached the DBA.8 The district court did not err by
finding that Veolia breached the DBA by producing 4B waste salt
that failed to meet DBA requirements.
VI. Other Contractual Breaches
¶ 62 Veolia next argues that the district court erred by finding that
Veolia breached the DBA by failing to build Clearwater in
accordance with “[p]rudent [i]ndustry [p]ractices,” failing to meet its
contractual milestone deadlines, failing to deliver to Antero a
turnkey facility, and failing to complete the Work required by the
8 We consequently need not reach Antero’s alternative contention
that, regardless of whether the terms were incorporated by
reference, the soupy salt nevertheless violated the DBA’s “no free
liquids” requirement for waste salt.
29
DBA. Veolia also argues that the $26.5 million DLD cap would
have applied regardless.
¶ 63 Veolia argues that the district court clearly erred in its factual
findings and that Antero failed to present any proof of damages
because it failed to present cost-of-repair calculations (which we
address infra Part IX.B). Veolia also argues that its failure to meet
Clearwater’s contractual milestones was due to delays Antero
caused by providing wastewater with abnormal substances.
A. Standard of Review
¶ 64 “[W]e review the trial court’s factual findings for clear error,
‘meaning that we won’t disturb such findings if there is any
evidence in the record supporting them.’” Heights Healthcare Co. v.
BCER Eng’g, Inc., 2023 COA 44, ¶ 39 (citation omitted). “Evaluation
of the credibility of witnesses, including expert witnesses, is a
matter solely within the fact finding province of the trial court, and
we will not reweigh testimony or reevaluate evidence on appeal.” In
re Estate of Romero, 126 P.3d 228, 231 (Colo. App. 2005).
¶ 65 Veolia repeatedly asks that we apply “heightened scrutiny” to
the district court’s factual findings as the court’s order used large
portions of Antero’s proposed findings of fact and conclusions of law
30
verbatim. See Trask v. Nozisko, 134 P.3d 544, 548-49 (Colo. App.
2006). But while the district court’s order extensively relied on
portions of Antero’s proposed findings of fact and conclusions of
law, it did not simply adopt Antero’s proposal without careful
scrutiny. Comparing the district court’s order and Antero’s
proposed order reveals that the district court fine-tuned the final
order, added its own analysis and assessments of witnesses’
credibility, and came to its own conclusions about Antero’s
damages. Therefore, when the record supports the district court’s
conclusions and indicates the basis for its decisions, we cannot
overturn its factual findings. Heights Healthcare, ¶ 39.
B. Analysis
¶ 66 To support its finding that Veolia failed to conform to prudent
industry practices when building Clearwater, failed to provide a
turnkey facility, failed to complete the required Work, and failed to
meet the contractual milestones in the DBA, the district court
looked to several overlapping pieces of evidence. The court found
that prudent industry practices meant
(1) ensuring that the Facility’s design basis
adequately reflected the Facility’s purpose;
(2) aligning the process and equipment
31
validated in bench and pilot testing with the
Facility ultimately constructed; (3) installing
appropriate materials, machinery, and
instrumentation for the Facility; and
(4) ensuring that the Facility was a safe place
to work.
Trial testimony and exhibits support this finding.
¶ 67 As evidence of Veolia’s failure to adhere to prudent industry
standards, the district court pointed to, among other things, the
limitations in Clearwater’s “midpoint design basis” (that is,
assuming an average constituent level for the influent to be
treated); mechanical problems (including structural steel repairs
necessary to prevent structural collapse); frequent shutdowns from
problems such as the SCC rake seizures; and Clearwater’s failure to
produce compliant waste salt from effect 4B. Tellingly, Robert
Cook, VNA’s senior vice president of engineering and technology
development, described the situation as a “fiasco.” The record
supports all of these findings.
¶ 68 Veolia asks us to second-guess the district court’s factual
findings on these issues. But we must defer to the district court’s
factual findings as they have record support, and we may not
32
reweigh conflicting evidence. See Heights Healthcare, ¶ 39; Romero,
126 P.3d at 231.
¶ 69 Veolia also argues there is no basis for the district court’s
findings that it breached the DBA by failing to deliver a turnkey
facility and by failing to complete the required Work, as the court’s
findings regarding these breaches were “lumped” together with its
findings related to the prudent industry practices breach. But the
record evidence supporting the failure to adhere to prudent
industry practices also supports the district court’s findings that
Veolia never delivered a turnkey facility and, thus, had not
completed its Work under the DBA.
¶ 70 While the DBA does not define “turnkey,” Black’s Law
Dictionary defines it as a product “provided in a state of readiness
for immediate use.” Black’s Law Dictionary 1833 (12th ed. 2024).
The facility Veolia provided, which could not produce contractually
compliant waste salt, suffered frequent mechanical issues requiring
immediate shutdowns, and was not designed to treat the full range
of influent wastewater, was not ready for immediate use. And
because Veolia’s Work under the DBA required it to provide a
turnkey facility, both of the district court’s breach findings are
33
supported. We must therefore affirm the district court’s factual
findings on these contract breaches as well. See Heights
Healthcare, ¶ 39; Romero, 126 P.3d at 231.
VII. Veolia’s Abnormal Substances Claim
¶ 71 The district court also rejected Veolia’s argument that Antero
breached the DBA, and caused the disruptions to Clearwater’s
operations, by providing influent containing “abnormal
substances” — specifically guar gum, scale inhibitors, and biocides.
¶ 72 Clearwater was designed to treat “Compliant Influent”
wastewater, defined as wastewater that met the DBA’s influent
specifications and did not contain “abnormal substances.”
Abnormal substances are defined, in part, as any “substances or
materials” in the influent not identified “in Table 1 of Appendix A of
this Exhibit B” of the DBA, if Veolia could demonstrate “with
reasonable supporting evidence” the unidentified substance (1) was
material; (2) did not result from Veolia’s actions; and (3) materially
disrupted Clearwater’s operations.
¶ 73 The district court rejected Veolia’s arguments for six reasons.
It found that Veolia, first, failed to prove that the influent was
noncompliant and, second, failed to show that the influent caused a
34
material impact on Clearwater’s operations. It noted that it
interpreted Table 1 to be a list of “constituents of elemental water
chemistry,” not a list of specific products, and Veolia failed to show
the existence of noncompliant elemental constituents in the
influent. It also found that the substances Veolia alleged may have
been disrupting Clearwater were captured in the “Total Organic
Carbon” (TOC) parameter in Table 1. The district court also noted
that Veolia failed to show that any of these chemicals had
materially affected Clearwater’s operation. And, finally, the district
court found that Veolia failed to prove that any material disruptions
did not result from its own actions. Alternatively, the district court
found that Veolia failed to seek a CO (which it had done many times
for other reasons) to modify the DBA or the project schedule after it
alleged that abnormal substances affected Clearwater’s operations,
and therefore Veolia had waived the contention.
¶ 74 Veolia argues that it proved that Antero caused the presence of
guar gum, biocides, and scale inhibitors and that these substances
materially impacted Clearwater’s operation. But the district court
highlighted conflicting evidence in the record on these points. It
noted, for example, that Veolia itself added chemicals to the influent
35
similar to the alleged abnormal substances that could have caused
the claimed disruptions. And Clearwater’s design caused even
small amounts of these chemicals to become further concentrated
as water was recycled and reused throughout different portions of
the plant. These findings enjoy record support, and we may not
reweigh conflicting evidence; thus, the district court did not err.
See Heights Healthcare, ¶ 39; Romero, 126 P.3d at 231.
¶ 75 Veolia also objects to the district court’s interpretation of
Table 1 and the “abnormal substances” not identified in Table 1.
Veolia contends that the district court erred by concluding that
Table 1 lists “constituents of elemental water chemistry” rather
than specific categories of chemical products or specific chemical
products and by finding that the alleged abnormal substances were
part of TOCs listed in Table 1.
¶ 76 We agree with the district court’s interpretations. See French,
¶ 24. As for the “constituents of elemental water chemistry” point,
testimony at trial supported framing Table 1 as a list of
“constituents.” Indeed, TOCs are listed under the broader
subheading of “other constituents.” More importantly, Table 1 does
not list specific chemical products — it lists acceptable ranges of
36
broader types of chemicals or elements, and testimony at trial
supports the district court’s finding that guar gum, scale inhibitors,
and biocides fall under TOCs, not abnormal substances.
¶ 77 Dr. Jennifer Hornemann, Antero’s vice president of
production, testified explicitly that biocides, guar gum, and scale
inhibitors are captured in Table 1 under the TOC category, a
position supported by academic research presented to the district
court. See David N. Harry et al., Method for Estimating and
Analyzing for TOC of Hydraulic Fracturing Fluids 1-6, 9 (2017),
https://perma.cc/8TGL-TDTJ. Thus, because the substances
Veolia highlights are included in Table 1,9 they are not abnormal
substances. And, again, we may not reweigh competing evidence
on this point. See Heights Healthcare, ¶ 39; Romero, 126 P.3d at
231.
¶ 78 Because Veolia’s abnormal substances claim fails on the
merits, we need not address Veolia’s alternative contention that the
district court erred by finding that Veolia waived this claim by
failing to seek a change order.
9 Testimony at trial also showed that the TOC levels in the influent
never surpassed the maximum range specified in Table 1.
37
VIII. Fraud
¶ 79 Veolia next contends that the district court erred by finding
that the economic loss rule did not bar Antero’s fraud claims and
contends that the court need not have reached the fraud claims at
all because the damages would not have exceeded the DBA’s
damages cap regardless.
A. The Economic Loss Rule
¶ 80 “‘Whether the economic loss rule precludes a particular claim
raises a legal issue subject to de novo appellate review.’ ‘The
existence and scope of a tort duty is a question of law to be
determined by the court.’” In re Estate of Gattis, 2013 COA 145,
¶ 10 (citations omitted).
¶ 81 In Town of Alma v. AZCO Construction, Inc., the supreme court
held 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 a breach absent an independent duty of care under tort
law.” 10 P.3d 1256, 1264 (Colo. 2000). The supreme court,
explaining the origins of the economic loss rule, noted that it “is
intended to maintain the boundary between contract law and tort
law.” Id. at 1259. The rule “serves to ensure predictability in
38
commercial transactions. The key to determining the availability of
a contract or tort action lies in determining the source of the duty
that forms the basis of the action.” Id. at 1262. On this point, the
supreme court was careful to note that the focus of an economic
loss rule inquiry is not the type of damages suffered by the
aggrieved party, cautioning that while this may be relevant, “the
relationship between the type of damages suffered and the
availability of a tort action is inexact at best.” Id. at 1262-63.
¶ 82 In BRW, Inc. v. Dufficy & Sons, Inc., the supreme court
recognized that the economic loss rule can apply when the parties
are bound by a single two-party contract but can also come into
play when the parties “rely on a network of contracts to allocate
their risks, duties, and remedies.” 99 P.3d 66, 72 (Colo. 2004). The
supreme court explained that this outcome was supported by three
overarching policy considerations behind the economic loss rule:
(1) to maintain a distinction between contract
and tort law; (2) to enforce expectancy
interests of the parties so that they can reliably
allocate risks and costs during their
bargaining; and (3) to encourage the parties to
build the cost considerations into the contract
because they will not be able to recover
economic damages in tort.
39
Id.
¶ 83 In determining whether a duty in tort is independent of a
contractual duty, the court should look to three factors: “(1)
whether the relief sought in [tort] is the same as the contractual
relief; (2) whether there is a recognized common law duty of care in
[tort]; and (3) whether the [tort] duty differs in any way from the
contractual duty.” Id. (citing Grynberg v. Agri Tech, Inc., 10 P.3d
1267, 1269 (Colo. 2000)). This analysis becomes murky, however,
when the question is whether the economic loss rule applies to
intentional torts like fraud.
¶ 84 As relevant here, in Van Rees v. Unleaded Software, Inc., the
supreme court held that “pre-contractual misrepresentations are
distinct from the contract itself, and may form the basis of an
independent tort claim.” 2016 CO 51, ¶ 3. The supreme court
explained that “[t]here is an important distinction between failure to
perform the contract itself, and promises that induce a party to
enter into a contract in the first place,” and when “tort claims are
based on misrepresentations made prior to the formation of the
contract[],” these are not barred by the economic loss rule. Id. at
¶¶ 13, 15. The supreme court added that while the economic loss
40
rule helps ensure that tort law does not swallow contract law, “we
also must be cautious of the corollary potential for contract law to
swallow tort law.” Id. at ¶ 19.
¶ 85 In Bermel v. BlueRadios, Inc., the supreme court cautioned,
To the extent the economic loss rule treats
parties’ assumption of contractual duties as
disclaimers of their existing obligations in tort,
it should be applied with some of the
circumspection with which we have
approached other exculpatory agreements.
And just as we have held that “[u]nder no
circumstances will an exculpatory agreement
be permitted to shield against a claim of willful
and wanton negligence,” we note that the
economic loss rule generally should not be
available to shield intentional tortfeasors from
liability for misconduct that happens also to
breach a contractual obligation.
2019 CO 31, ¶ 20 n.6 (alteration in original) (citations omitted). The
supreme court also noted that it has only applied the economic loss
rule to “to bar common law tort claims of negligence or negligent
misrepresentation.” Id. at ¶ 21.
¶ 86 Since Bermel, divisions of this court have split on the question
of whether the economic loss rule bars intentional tort claims based
on breaches of duties that may also arise under a contract.
Compare McWhinney Centerra Lifestyle Ctr. LLC v. Poag & McEwen
41
Lifestyle Centers-Centerra LLC, 2021 COA 2, ¶¶ 73-75, 77, 80
(holding that intentional tort claims stemmed from tort law duties
independent of the contract and the economic loss rule did not
apply, adding “generally, the economic loss rule does not bar
common law intentional tort claims”), with Dream Finders Homes
LLC v. Weyerhaeuser NR Co., 2021 COA 143, ¶¶ 63-67.
¶ 87 Veolia chiefly relies on Dream Finders; there, the division held
that a series of interrelated documents between a lumber product
distributor and homebuilder/contractor arranging for the sale of a
product constituted a single agreement. Id. at ¶¶ 45-48. The
division concluded that because the alleged misrepresentations
(about lumber products off-gassing formaldehyde) were made after
the contract was formed, Van Rees’ carve-out for precontractual
misrepresentations did not apply. Id. at ¶¶ 49-52. Finally, the
division held that to the extent a party had a “duty to not make
misrepresentations or engage in fraud after they entered into the
contract, such duty was subsumed within the contract through the
implied duty of good faith and fair dealing.” Id. at ¶¶ 65-67.
¶ 88 The division noted that because the lumber supplier had “the
discretion to modify the design and construction” of their products
42
without the buyer’s consent, the “contract incorporated the implied
duty of good faith and fair dealing.” Id. at ¶ 67. Therefore, the
supplier had “concurrent contractual and tort duties not to engage
in fraud or to misrepresent the condition and safety” of its products,
and the economic loss rule applied to its fraud and negligence
claims. Id. at ¶¶ 65-74.
¶ 89 The Dream Finders division declined to conclude that the
economic loss rule was inapplicable to intentional tort claims like
fraud, noting that, despite the language in McWhinney and Bermel,
“no Colorado case has held that the economic loss rule can never
apply to claims for fraud or other intentional torts.” Id. at ¶ 63. It
also noted as distinguishing factors that the aggrieved parties in
Dream Finders had “received the full benefit of their bargain
documented in the contract” and also sought “to recover through
their tort claims the very type of damages expressly excluded under
the warranty they received” from the supplier, adding that
“sophisticated commercial entities . . . may not circumvent the
43
exclusion of damages in their contracts by cloaking their claims in
tort theories.”10 Id. at ¶¶ 64, 80, 82.
¶ 90 The interplay of these cases presents us with two questions we
must resolve. First, are the contracts at issue here — namely, the
Proposal, LNTPs, DBA, and CO-1 — an “interrelated network” of
contracts to the point they become a single contract? If so, then
any misrepresentation Veolia made after the beginning of the
parties’ contractual relationship would not meet the black and
white precontractual exception from Van Rees. See Van Rees,
¶¶ 13, 15. Second, looking to the duties involved in Antero’s fraud
and breach of contract claims, are the duties associated with fraud
in the inducement independent of the contractual duties and,
therefore, not barred by the economic loss rule?
10 The special concurrence in Dream Finders Homes LLC v.
Weyerhaeuser NR Co., stressed that its holding should be
interpreted narrowly and expressed concern that it could be
misused to permit parties “to engage in fraudulent conduct during
the course of a contractual relationship and then hide behind the
economic loss rule to avoid economic damages caused by the fraud
simply by arguing that fraudulent conduct necessarily breaches the
duty of good faith and fair dealing implied in every contract.” 2021
COA 143, ¶¶ 132-134 (Brown, J., specially concurring).
44
1. Interrelated Agreements
¶ 91 The first agreement between Veolia and Antero was the
November 2014 Proposal. The Proposal provided that (1) Veolia
agreed to test water samples to ensure its treatment methods would
be viable for Antero; (2) Veolia would provide information on its
methods and objectives to Antero; and (3) Veolia would provide
Antero a report on the preliminary testing, all in exchange for
$355,000. The Proposal also included an appendix of “terms and
conditions” applicable to the contract and warranted, in part, that
Veolia’s “services will be free from defects in material and
workmanship” for one year after Antero executed the contract.
¶ 92 While the Proposal included a liability limitation clause
providing that neither Veolia nor Antero would be liable for any
indirect damages (“any consequential, incidental, special, [or]
punitive damages”), the limitation was made expressly inapplicable
to “gross negligence, fraud, or willful misconduct by Veolia.” And
the liability limitation applied whether the liability was based in
“contract, tort, strict liability, or any other theory.”
¶ 93 The Proposal did not require Antero and Veolia to engage in
any further business or contracts. While an implied duty of good
45
faith and fair dealing exists in every contract, see, e.g., Hamon
Contractors, Inc. v. Carter & Burgess, Inc., 229 P.3d 282, 292 (Colo.
App. 2009), nothing in the Proposal created contractual duties
mandating the eventual construction of (or payment for) Clearwater.
¶ 94 However, Veolia made several representations in the Proposal
(subsequently incorporated into the DBA) that would later become
important — including that Veolia’s CoLD process could treat
wastewater to produce “a stable, non-hazardous solid for disposal
and/or re-use.” So, while the Proposal is not quite as extensive as
the contracts in Dream Finders, representations made in the
Proposal were relevant to the DBA and CO-1. See Dream Finders,
¶¶ 45-52.
¶ 95 Therefore, we conclude that the Proposal, the LNTPs, and the
DBA were part of an interrelated network of contracts — meaning
that all of Veolia’s misrepresentations were made after the contracts
were executed. To the extent the district court found that the
economic loss rule did not bar Antero’s fraud claims because they
were made before the DBA was signed, we conclude this was error.
But this conclusion does not mean that the economic loss rule bars
Antero’s fraud claims.
46
2. Does the Economic Loss Rule Apply?
¶ 96 We must now determine whether (1) the relief Antero sought
via fraudulent concealment is the same as the relief it sought via its
breach of contract claims; (2) there is a recognized common law
duty of care to avoid fraudulently concealing or misrepresenting
material facts; and (3) the duty in tort is independent of Veolia’s
contractual duties, including the implied duty of good faith and fair
dealing. See BRW, 99 P.3d at 72.
¶ 97 To the first issue, Antero sought the same economic relief from
its breach of contract and fraud claims: benefit-of-the-bargain
damages and incremental out-of-pocket costs.11 See Dream
Finders, ¶ 54; Top Rail Ranch Ests., LLC v. Walker, 2014 COA 9,
¶ 33. Second, there is “a recognized common law duty in tort to
refrain from deliberate concealment or misrepresentation of
material facts.” Top Rail, ¶ 36.
¶ 98 The remaining question is whether the common law tort duty
to refrain from deliberate concealment or misrepresentation of
material facts is independent of the implied duty of good faith and
11 Antero’s request for DLDs relief was purely contractual through
its breach of contract claims and was not part of its fraud claims.
47
fair dealing and Veolia’s express contractual obligations. We
conclude that Veolia’s duty to refrain from fraudulently concealing
or misrepresenting material facts is independent of Veolia’s
contractual obligations, including the implied duty of good faith and
fair dealing. See McWhinney, ¶ 77 (“[G]enerally, the economic loss
rule does not bar common law intentional tort claims.”).
¶ 99 “The covenant of good faith and fair dealing exists in every
contract to enforce the reasonable expectations of the parties.”
Amoco Oil Co. v. Ervin, 908 P.2d 493, 499 (Colo. 1995). The duty
specifically applies “when one party has discretionary authority to
determine certain terms of the contract, such as quantity, price, or
time.” Id. at 498. “A party breaches the implied duty of good faith
and fair dealing by using the ‘discretion conferred by the contract to
act dishonestly or to act outside of accepted commercial practices to
deprive the other party of the benefit of the contract.’” Dream
Finders, ¶ 66 (citation omitted). “Discretion in performance occurs
‘when the parties, at formation [of the contract], defer a decision
regarding performance terms of the contract’ leaving one party with
the power to set or control the terms of performance after
formation.” McDonald v. Zions First Nat’l Bank, N.A., 2015 COA 29,
48
¶ 67 (alteration in original) (quoting City of Golden v. Parker, 138
P.3d 285, 292 (Colo. 2006)).
¶ 100 Here, unlike the contracts in Dream Finders, Veolia had no
discretion to modify Clearwater’s core requirements under the
DBA — such as its effluent quality requirements or process
guarantees — without Antero’s written consent. See Dream
Finders, ¶¶ 67-69 (noting that contracts gave the company
unrestricted discretion to modify products without the other party’s
knowledge or consent).
¶ 101 Veolia contends in its opening brief that “[t]he DBA does not
require any particular design but instead specifies operational
criteria that the facility must meet.” And before the many pages of
two-dimensional technical diagrams in the DBA’s Appendix A, the
DBA provides, “The constructed Facility may differ from what is
depicted.” We agree Veolia had some degree of discretion in how it
designed Clearwater (though the limits of its discretion are evident
from the fact that it had to seek a CO to split the fourth effect).
This discretion, in turn, gave rise to an implied duty of good faith
and fair dealing in Veolia’s exercise of its discretion. But the
challenged misrepresentations concerned the waste salt and power
49
consumption guarantees — Veolia had no discretion to change
either. So, there is not such a direct overlap between Veolia’s
common law tort duty and its implied contractual duty as was the
case in Dream Finders.
¶ 102 Moreover, unlike in Dream Finders, Antero’s fraud claims were
not asserted to “recover under a tort theory damages expressly
excluded under the contract.” Id. at ¶ 75. To the contrary, the DBA
specifically contemplates increased damages in the case of fraud.
¶ 103 The DBA’s overall damages limitation provides that “[i]n no
event shall Veolia be liable, alone or in the aggregate, to Antero for
any Losses in excess of an amount equal to sixty (60%) of the
Contract Sum” — with one of the few exceptions being that the
limitation does not apply to damages resulting from “either party’s
gross negligence, fraud or willful misconduct.” To hold that the
economic loss rule prohibits Antero’s fraud claims because the
implied duty of good faith encompasses them would render
meaningless the explicit exception to the damages cap for damages
resulting from fraud — despite the parties’ clear intent to allow for
greater damages in the event of fraud. Such an outcome would
50
bring to life the special concurrence’s concern in Dream Finders. Id.
at ¶ 133.
¶ 104 We therefore hold that the economic loss rule does not bar
Antero’s fraud claims because (1) the fraud concerned aspects of
Veolia’s performance over which Veolia had no discretion, thus
undermining the implied duty of fair dealing’s application;
(2) Antero is not using tort claims to pursue damages explicitly
prohibited by the DBA; and (3) the DBA explicitly permitted
additional damages in the event of fraud — an intentional decision
bargained for by two sophisticated commercial parties that would
be greatly undermined if all fraud claims were barred. See Dream
Finders, ¶¶ 67-69, 75.
¶ 105 We also note that this outcome better effectuates the supreme
court’s evolving guidance on application of the economic loss rule,
as explained in Bermel, that “the economic loss rule generally
should not be available to shield intentional tortfeasors from
liability for misconduct that happens also to breach a contractual
obligation.” Bermel, ¶ 20 n.6; see also McWhinney, ¶ 77.
¶ 106 A rigid application of the economic loss rule to intentional
torts like fraudulent concealment based on the implied duty of good
51
faith (which exists in all contracts) would effectively insulate a party
to a contract from their own fraudulent actions and would
effectively allow contract law to swallow valid tort law fraud claims.
See Bermel, ¶ 20 n.6.
¶ 107 Thus, we conclude that, while the Proposal, LNTPs, and DBA
formed an interrelated network of contracts, the economic loss rule
does not bar Antero’s fraud claims because the DBA excepted such
claims, and Veolia’s challenged common law duties are independent
of its contractual ones. See Bermel, ¶ 20 n.6; McWhinney, ¶ 77; see
also Deutsche Bank Tr. Co. Ams. v. Samora, 2013 COA 81, ¶ 38 (“An
appellate court may affirm the trial court’s ruling based on any
grounds that are supported by the record.”).
B. Remaining Fraud Contentions
¶ 108 Having determined that the economic loss rule does not bar
Antero’s fraud claims, we move to Veolia’s arguments that it did not
fraudulently induce Antero into entering into the DBA and CO-1
and that the district court need not have addressed fraud at all
because the DBA’s damages cap could not have been reached.
¶ 109 The district court found that Veolia fraudulently induced
Antero to enter into the DBA by failing to disclose that it (1) could
52
not meet the DBA’s power consumption guarantee under the
original design and (2) was actively planning to redesign Clearwater
to satisfy those concerns. Veolia argues that, as a matter of law,
Antero could not have established that fraud occurred because
Veolia disclosed the fourth effect split plan and Antero ratified the
change. It also argues that the district court clearly erred by
finding that Clearwater could not meet the power consumption
guarantees without a redesign.
¶ 110 As for CO-1, the district court found that Veolia
misrepresented the risks associated with splitting the fourth effect
and misrepresented that the 4B effect would produce stable waste
salt. Veolia argues that it disclosed the risks of the fourth effect
split, Antero ratified the change, and Pietropaoli’s September 1
email was too vague to constitute fraud.
1. Applicable Law
¶ 111 A fraudulent concealment claim has five elements:
(1) the concealment of a material existing fact
that in equity and good conscience should be
disclosed; (2) knowledge on the part of the
party against whom the claim is asserted that
such a fact is being concealed; (3) ignorance of
that fact on the part of the one from whom the
fact is concealed; (4) the intention that the
53
concealment be acted upon; and (5) action on
the concealment resulting in damages.
BP Am. Prod. Co. v. Patterson, 263 P.3d 103, 109 (Colo. 2011)
(citation omitted).
¶ 112 “A fact is material if a reasonable person under the
circumstances would attach importance to it in determining his or
her course of action,” but “[a] party’s reliance on a purported
misrepresentation is not justified when the party is aware of or on
inquiry notice of the falsity of the representation.” Rocky Mountain
Expl., Inc. v. Davis Graham & Stubbs LLP, 2018 CO 54, ¶ 53. Thus,
a defrauded party may ratify a contract entered into via fraud, and
waive any fraud claims, but only if the party “with full knowledge of
the truth respecting the false representations, elected to continue to
carry out the agreement.” Elk River Assocs. v. Huskin, 691 P.2d
1148, 1153 (Colo. App. 1984). Whether a party ratified a contract
entered into via fraud is a question of fact for the fact finder. Id.
2. Fraudulent Inducement and the DBA
¶ 113 For the power consumption guarantee, the district court
highlighted that the guarantee was a “material term.” This finding
is supported by the record. The guarantee was the subject of
54
extensive negotiation and was a key part of the DBA. And the
district court pointed to Veolia employee emails from August 14,
2015, indicating that Veolia’s most recent power consumption
figures showed that Clearwater’s power needs could be higher than
the guarantee ultimately included in the DBA.
¶ 114 Veolia contests this finding as clear error, but the evidence the
district court highlighted enjoys record support. See Romero, 126
P.3d at 231; Heights Healthcare, ¶ 39. The district court also
highlighted, with record support, that Veolia represented to Antero
that it could meet the power consumption guarantee when it knew
it could not without splitting the fourth effect and that Veolia knew
of the associated risks the redesign entailed, yet allowed Antero to
execute the DBA despite this knowledge.
¶ 115 For Clearwater’s redesign, the district court stressed that
Veolia employee emails indicated that Veolia concealed its plan to
split the fourth effect, and the risks this plan posed, until after the
DBA was signed in an effort to secure the DBA. The record
supports this finding.
¶ 116 Veolia counters that it disclosed the plan to split the fourth
effect because it included a “preliminary” reference to splitting the
55
fourth effect in the DBA’s technical diagrams. In the DBA’s initial
design specifications for Clearwater, Veolia added two text boxes
labeled with “4A” and “4B” on a diagram of the fourth effect, with
another text box nearby with the words “PRELIMINARY –
SPLITTING THE CRYSTALLIZER.”
¶ 117 The district court found that the diagram was “ambiguous at
best” and, thus, did not provide Antero with adequate notice of the
plan to split the fourth effect or the implications of this change. We
agree. See Rocky Mountain, ¶ 53; Huskin, 691 P.2d at 1153.
¶ 118 Even assuming the diagram put Antero on notice that Veolia
might split the fourth effect, the diagram told Antero nothing about
the potential risks for Clearwater’s waste salt production or power
consumption created by implementing the split-effect design. Nor
does the diagram disclose that this design might be required for
Clearwater to meet its power guarantees or that Veolia had been
planning to implement it before the DBA was signed. The record
supports the district court’s finding that Veolia failed to disclose
these crucial details to Antero.
56
3. Fraudulent Inducement and CO-1
¶ 119 Next, Veolia argues that the district court erred by finding that
Veolia fraudulently induced Antero to enter into CO-1. The district
court found that Veolia fraudulently induced Antero into executing
CO-1 through representations in Pietropaoli’s September 1 email
regarding the quality of the 4B waste salt, while Veolia failed to
disclose known risks about the waste salt’s stability and that the
waste salt might leave the centrifuge as a liquid. Veolia argues that
Pietropaoli’s email was too vague to constitute fraud. See Rocky
Mountain, ¶ 48 (“Whether circumstances, conduct, or words are the
means allegedly used to deceive, however, the means used must be
of a ‘definite and specific character’ because a party has no right to
rely on circumstances, conduct, or words that are equivocal . . . .”)
(citation omitted). But, as discussed, the email created definite and
specific representations about the quality of the 4B waste salt, and
the record supports the district court’s finding that, when Veolia
made these representations, it failed to disclose the known risks to
the waste salt’s quality created by splitting the fourth effect.
¶ 120 Veolia also argues that it disclosed the salt moisture risk to
Antero when it provided the risk register before CO-1 was signed,
57
warning that “[m]aterial can turn to mush if exposed for too long.”
But this was, in essence, a less specific representation than the one
made in Pietropaoli’s email that the salt could become unstable if
exposed to moisture for too long. It did not warn Antero that
splitting the fourth effect could mean that the 4B salt would leave
the centrifuge as an unstable liquid and would never be stable.
4. Ratification
¶ 121 Finally, Veolia argues that Antero ratified Veolia’s fraud when
it executed both the DBA and CO-1.
¶ 122 Veolia first argues that Antero ratified Veolia’s concealment of
the risks associated with splitting the fourth effect ahead of the
DBA when Antero entered into CO-1, which disclosed the redesign.
But to ratify a contract entered into via fraud the aggrieved party
must decide to carry out the agreement “with full knowledge of the
truth respecting the false representations.” Huskin, 691 P.2d at
1153. Even if one could ratify a fraudulent contract with full
knowledge of the fraud by later entering into another agreement
resulting from continued fraud, Antero still did not have full
knowledge of Veolia’s misrepresentations when it entered into CO-1.
Veolia revealed the plan to split the fourth effect by presenting it as
58
a “design optimization” that would reduce power costs — not as a
design necessary to meet Veolia’s power consumption guarantee
that risked producing waste that could leave the 4B centrifuge as a
liquid.
¶ 123 Veolia next argues that Antero ratified the fraud related to
CO-1 by continuing to accept the 4B waste salt after a Veolia
employee’s email mentioned that the 4B waste salt would not be
“granular” in March 2016 — notably, after CO-1 was signed in
December 2015. But ratification is a question of fact, see id., and
the district court explicitly noted that, while the email said that the
“4B salt would not be granular,” it did not provide notice that the
“4B salt would be soupy or that it would need to be mixed with fly
ash so that it would solidify.”
¶ 124 Further, Antero’s conduct following this email can hardly be
described as an “acceptance” of 4B’s soupy waste salt. The
noncompliant waste salt became a problem for the entire operation
of Clearwater that was never resolved, and eventually led Antero to
cancel the DBA. That Antero hoped that the waste salt issue could
be fixed does not mean that it agreed to carry out the DBA
59
regardless of Veolia’s fraud. Indeed, Antero terminated the DBA
when Veolia revealed that the salt issue would never be fixed.
¶ 125 The elements of fraud were met for both the DBA and CO-1.
Veolia’s plan to redesign Clearwater to split the fourth effect, the
risks this posed for the 4B waste salt’s stability, and Clearwater’s
inability to meet the power consumption guarantee without the
redesign are material issues Veolia should have disclosed. See
Rocky Mountain, ¶ 53; see also Patterson, 263 P.3d at 109. Further,
Veolia knew of these issues while Antero did not, and the record
supports the district court’s findings that Veolia concealed this
information to induce Antero to enter into the DBA and CO-1,
which caused Antero damages. See Patterson, 263 P.3d at 109.
The district court did not err.
5. The Damages Cap
¶ 126 Veolia argues that because it did not violate the DBA’s waste
salt requirements, the damages cap could not have been reached,
and thus, the finding of fraud was immaterial. But we have
affirmed the district court’s finding that Veolia breached the DBA’s
waste salt requirements, so the cap would otherwise have applied —
necessitating the district court’s fraud analysis to award damages
60
in excess of that cap. Veolia also argues that the district court’s
benefit-of-the-bargain damages award should be reversed, and thus
the cap would not be implicated. For the reasons explained below,
we disagree.
IX. Damages
¶ 127 Antero asked the court to award it out-of-pocket costs totaling
$451,003,827, but the district court declined to award damages for
out-of-pocket costs, noting that such damages are not recognized
by Colorado law. But Antero also offered the district court two
alternative damages calculations if the court found Veolia liable for
breach of contract or fraud, as shown in the table below:
Damages Model Fraud Contract
Benefit-of-the-
$253,309,102 $253,309,102
Bargain Damages
Incremental Out-of-
$88,567,845 $88,657,845
Pocket Costs
Delay Liquidated
$0 $28,269,765
Damages
Subtotal (without
$341,966,947 $370,936,713
fees and costs)
¶ 128 As previously noted, after applying a discount rate to the
benefit-of-the-bargain damages category and finding Veolia liable
61
for fraud and breach of contract, the court awarded Antero the
following damages:
Damages Category Amount
Benefit-of-the-Bargain Damages $144.1 million
Incremental Out-of-Pocket
$72 million
Costs
Delay Liquidated Damages $25.6 million
Subtotal $241.7 million
¶ 129 The district court later reduced Antero’s damages by the $26.6
million balance due under the DBA, for a subtotal of $215.2 million
(before pre- or post-judgment interest). Having concluded that
Veolia engaged in gross negligence, fraud, or willful misconduct, the
district court had no reason to apply the DBA’s damages cap.
¶ 130 According to Veolia, the district court erred (1) by basing its
benefit-of-the-bargain award on a diminution of market value
instead of the cost of repair; (2) because even if market value was
the correct approach, the court only considered the potential
income Clearwater could have produced and thus violated the
DBA’s consequential damages limitation; and (3) alternatively, by
relying on “income from the business that Antero intended to
62
conduct from Clearwater, rather than the income generated from
Clearwater itself.”
A. Standard of Review
¶ 131 We review the district’s court’s assessment of the amount of
damages for clear error, but “[i]t is within the district court’s
discretion to determine the appropriate measure of damages.” Sos
v. Roaring Fork Transp. Auth., 2017 COA 142, ¶¶ 35-36. We review
de novo whether “the district court misapplied the law when
determining the measure of damages.” Id. at ¶ 37.
B. Cost of Repair Versus Market Value
¶ 132 The parties first contest whether the district court’s alleged
error in choosing the market value damages measure was preserved
and which party bore the burden of proof.
¶ 133 Antero argues that Veolia’s cost-of-repair argument is a “back-
door attempt to resurrect an affirmative defense that the [district]
court rejected as waived for lack of timely pleading.” Antero argues
that Veolia raised its cost-of-repair argument in a motion to amend
its answer to add an affirmative defense to limit damages under
Colorado’s Construction Defect Action Reform Act (CDARA) in June
63
2021.12 §§ 13-20-801 to -808, C.R.S. 2024. The district court
denied the motion because (1) Veolia’s request to amend its answer
was untimely, not justified by good cause, and would cause undue
delay; and (2) the court was unconvinced that the CDARA limit
applied to the case, which concerned a commercial facility in West
Virginia that was governed by the “extensively negotiated” DBA;
thus, an amendment could have been “futile.”
¶ 134 Antero contends that in Hildebrand v. New Vista Homes II,
LLC, a division of this court held that claims to limit damages under
CDARA were an affirmative defense, and the party asserting the
affirmative defense bore the burden of proving the mitigating
circumstances per C.R.C.P. 8. Hildebrand, 252 P.3d 1159, 1171
(Colo. App. 2010).
¶ 135 Veolia counters that the default measure of damages in a
defective construction case is cost of repair. On this point, Gold
Rush Investments, Inc. v. G.E. Johnson Construction Co. provides
that “[d]amages for defective construction are to be measured by the
12 The statute limits damages in civil claims against “construction
professional[s]” (engineers, developers, architects, and builders,
etc.) for construction defects to actual damages. § 13-20-802.5(1),
(4), C.R.S. 2024; § 13-20-806(1), C.R.S. 2024.
64
cost to place the defective structure in its intended condition,
unless to do so would cause unreasonable economic waste.” 807
P.2d 1169, 1174 (Colo. App. 1990). Therefore, because the cost of
repair is the presumed measure of damages, Veolia argues that
Antero bore the burden of proving that repairing Clearwater would
constitute economic waste.
¶ 136 Veolia preserved this issue for appeal via its proposed findings
of fact and conclusions of law. See Cuevas v. Pub. Serv. Co. of Colo.,
2023 COA 64M, ¶ 35 n.3 (cert. granted July 1, 2024). And we
conclude that Veolia’s argument does not concern mitigation that
must be affirmatively pleaded. CDARA’s damages cap acts as a
specific means to limit a damages award, but Veolia argues that
Antero failed to prove the applicable measure of damages — and “[a]
plaintiff bears the burden of proof on both the fact and the amount
of damages.” Buckley Powder Co. v. State, 70 P.3d 547, 563 (Colo.
App. 2002).
¶ 137 Ultimately, however, it is within the district court’s discretion
to determine which measure of damages is appropriate. See Sos,
¶ 36. The district court did not abuse its discretion in selecting
market value as the appropriate measure of damages because
65
Antero provided sufficient evidence that repairing the facility would
constitute economic waste. See Streu v. City of Colorado Springs ex
rel. Colo. Springs Utils., 239 P.3d 1264, 1268 (Colo. 2010) (The
district court’s decision “simply must not ‘exceed[] the bounds of
the rationally available choices.’” (quoting Big Sky Network Can.,
Ltd. v. Sichuan Provincial Gov’t, 533 F.3d 1183, 1186 (10th Cir.
2008))) (alteration in original).
¶ 138 The district court highlighted that Veolia spent over $59
million in efforts to resolve the issues with Clearwater and ensure it
could meet its contractual demands, without success.13 The district
court also noted that Veolia told Antero that the waste salt issue
would never be resolved. And the court added that VNA and the
external expert report Veolia commissioned recommended
numerous design changes to address Clearwater’s issues — but
Veolia never implemented the changes. Based on “Veolia’s decision
not to attempt these repairs,” the district court concluded that
“making these repairs was not economically feasible.”14
13 Veolia argues that this figure is even higher at $81 million.
14 Alvyn Schopp, Antero’s regional senior vice president, also
testified that Antero believed “trying to repair the plant in its
current condition would . . . not be economically viable.”
66
¶ 139 Recall that without splitting the fourth effect, Veolia could not
meet its power consumption guarantee, but splitting the fourth
effect compromised the stability of the 4B waste salt. Veolia
unsuccessfully spent millions of dollars and years of work
attempting to resolve this problem. The record thus supports the
district court’s decision to use the market value measure of
damages. See Sos, ¶ 36.
C. The Income Approach to Calculate Market Value
¶ 140 Veolia next contends that the district court’s benefit-of-the-
bargain measure of damages approach to calculate market value
erroneously considered only Clearwater’s potential income (a
prohibited form of “lost profits” damages).
¶ 141 The income approach is one of several methods available to
calculate the fair market value of a property as a measure of
damages, and it “values the property based on projections of the
‘net income generated by the property during the remainder of its
productive life.’” Bd. of Cnty. Comm’rs v. DPG Farms, LLC, 2017
COA 83, ¶¶ 25, 27 (quoting Denver Urb. Renewal Auth. v. Berglund-
Cherne Co., 568 P.2d 478, 480 (Colo. 1977)).
67
¶ 142 “An income approach uses potential income from the property,
along with all other factors that would be considered by a buyer, as
evidence of the fair market value of the property in its current
condition.” Id. at ¶ 39 (emphases omitted). But, importantly, “it is
merely one factor to be considered by the jury in conjunction with
all other material evidence of fair market value.” Id.
¶ 143 The district court credited much of the testimony of Antero’s
damages expert, Becker, in determining the damages Antero
suffered under a benefit-of-the-bargain approach. Becker testified
that Antero suffered $253.3 million in damages. This was derived
from the value of Clearwater if constructed in accordance with the
DBA and CO-1 (but-for value) minus Clearwater’s value as of
September 2019 (actual value), when the DBA was terminated.
¶ 144 To calculate Clearwater’s but-for value, Becker used the
income valuation approach, what he also called a “discounted cash
flow analysis,” and evaluated Clearwater’s value as a potential
income producing asset. Becker estimated that Clearwater’s but-for
value, if completed in compliance with the DBA, was $258,409,102.
In performing this calculation, Becker applied a six-time “terminal
value” multiplier — a multiplier Becker used to calculate the
68
present value of Clearwater as an income-producing asset through
2028 — to Clearwater’s estimated annual income and applied a
10% “discount rate” for the present value of future cash flow after
accounting for the cost of capital. Becker then compared this but-
for value to Clearwater’s net actual value in September 2019 —
$5.1 million based on Antero’s internal accounting reports.
¶ 145 The court probed the residual $5.1 million net actual value at
trial, and Becker testified that it was his understanding that this
figure did not derive from an income approach, it was instead
Antero’s calculation of Clearwater as an “idle asset.” The $5.1
million net value figure was Antero’s internal assessment of
Clearwater’s actual value that accounted for the “marketable
potential of the land, of the land the facility sits on, the salvage
value of the parts of the facility minus whatever [Antero] thought
were the costs that they would incur to” sell it. It was a calculation
of actual value for a facility that had an “income of zero” and
essentially represented its salvage value, though Becker noted that
he had not conducted an independent salvage value analysis.
69
¶ 146 Subtracting the net actual value of Clearwater from its but-for
value (derived using the income approach), Becker opined that
Antero’s damages were $253,309,102.
¶ 147 Veolia’s rebuttal damages expert, Emmert, testified that he
believed a higher discount rate would be more appropriate because
there were greater risks to Clearwater’s future cash flow that
needed to be accounted for. The risks included that Antero had no
prior experience managing a facility like Clearwater, Clearwater was
specifically designed for only one purpose, Clearwater risked not
receiving sufficient influent, and Clearwater was a “start-up”
business.
¶ 148 Finding that these risks justified a higher discount rate than
Becker used, the court applied a higher discount rate to Becker’s
but-for valuation of Clearwater. This brought the valuation of the
property to $149,205,246, from which the court subtracted the net
actual value of $5.1 million, resulting in the court’s finding that
Antero suffered $144,105,246 in benefit-of-the-bargain damages.
¶ 149 All of this is to say that the record shows that Becker’s and the
district court’s benefit-of-the-bargain damage calculations did not
rely exclusively on Clearwater’s income to determine its fair market
70
value — it was but one factor considered. See id. at ¶ 25. Becker
did not “simply compute[] prospective income from the property.”
Id. at ¶ 39. Instead, he used estimates of prospective income to
determine the but-for fair market value of the facility as a
potentially income-producing asset. And he compared this value to
Clearwater’s actual value according to Antero’s internal estimations
when looking at Clearwater as a salvage asset that could produce
no income at all.
¶ 150 Furthermore, the district court’s determination also accounted
for other factors, albeit admittedly related to income, to significantly
reduce the final damages award, including that Antero’s income
analysis did not properly account for the greater risks raised by
Veolia. As a result, we conclude that the district court’s benefit-of-
the-bargain damages calculation did not rest solely on Clearwater’s
potential income and has record support. Therefore, its damages
award must stand. See Sos, ¶¶ 36, 37.
¶ 151 This also means that we reject Veolia’s contention that
Becker’s analysis constituted a “lost profits” form of consequential
damages prohibited by the DBA. See Lawry v. Palm, 192 P.3d 550,
561 (Colo. App. 2008) (“Consequential damages may be awarded, in
71
some cases, for profits lost as a result of a breach of contract.”).
Consequently, we need not address Antero’s conditional cross-
appeal on this point concerning whether the DBA’s overall liability
limitation exception for gross negligence, fraud, or willful
misconduct applied to the DBA’s prohibition on consequential
damages.
D. Income as a Facility and Not a Business
¶ 152 Next, Veolia contends that Becker mistakenly accounted for
Antero’s value as a business rather than solely Clearwater’s value
as a facility. Veolia relies chiefly on Western Cities Broadcasting,
Inc. v. Schueller, which held that “in computing the value of real
property, the value of the realty must be separated from the value of
the business.” 849 P.2d 44, 48 (Colo. 1993). There, the plaintiff
presented evidence of the value a hypothetical radio station could
have produced for a radio business on a leasehold property but
failed to prove the actual value of the leasehold itself and failed to
prove that the radio business’s value “had any bearing on the value
of the leasehold.” Id. at 48-49.
¶ 153 That is not the case here. Clearwater is an existing asset, and
Becker’s analysis relied on concrete data about Clearwater’s
72
expected operations. And the different valuations presented by
Antero’s and Veolia’s respective damages experts considered the
impact Antero’s management might have had on Clearwater’s value
through the discount rate calculation. Becker also explicitly
testified that his calculations considered only Clearwater’s value as
a facility and excluded the value of any of Antero’s other revenue
streams.
¶ 154 Because the district court did not erroneously conflate
Antero’s value as a business with Clearwater’s value as a facility, its
damages award stands. See Sos, ¶¶ 36, 37.
X. Appellate Attorney Fees
¶ 155 As a final matter, both parties request appellate attorney fees
and costs under C.A.R. 39 and 39.1. The DBA provides that the
“prevailing party” as determined by the court “shall be reimbursed
by the other Party for all costs, expenses and charges, including,
without limitation, reasonable attorneys’ fees.” When a contract
contains a fee-shifting provision and the prevailing party requests
appellate attorney fees and explains the legal and factual basis for
the award, we may award appellate attorney fees. See Saturn Sys.,
Inc. v. Militare, 252 P.3d 516, 530 (Colo. App. 2011).
73
¶ 156 C.A.R. 39(a)(2) details that “if a judgment is affirmed, costs are
taxed against the appellant.” We have affirmed the district court’s
judgment on every claim Veolia raised; thus, costs must be taxed
against Veolia. And because we conclude that Antero is the
prevailing party on appeal, under the DBA and in accordance with
C.A.R. 39.1, we award Antero its reasonable appellate attorney fees
and costs incurred in this appeal. We exercise our discretion under
C.A.R. 39.1 to remand the case to the district court to determine
Antero’s reasonable appellate attorney fees and costs in addition to
its damages award and attorney fees incurred at trial.
XI. Disposition
¶ 157 We affirm the district court’s judgment and remand the case to
the district court to calculate Antero’s reasonable appellate attorney
fees and costs. And because we affirm the district court’s
judgment, we also decline Veolia’s request to reverse the district
court’s award of attorney fees and costs.
JUDGE JOHNSON and JUDGE SCHOCK concur.
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