Fort Collins, Colorado—A federal appeals court has upheld a jury’s decision that a technology vendor misled the city in its attempts to secure a contract, ultimately ordering the company to pay nearly $20 million. The ruling follows a protracted legal battle after Fort Collins voters approved municipal broadband in 2017, leading the city to seek a provider for a utility billing system to support its new Internet services.
In selecting Open International, LLC as the vendor, Fort Collins soon encountered disputes over responsibility for missed deadlines. Open claimed the city hampered progress by not providing adequate staffing, while officials from Fort Collins contended that Open misrepresented its software capabilities. After a trial in 2023, jurors sided with the city, deciding that Open had committed fraud in its dealings.
U.S. District Court Judge Charlotte N. Sweeney awarded Fort Collins nearly $20 million in restitution after rescinding the contract. Open then appealed the decision, contesting the sufficiency of evidence, arguing that terms of the vendor contract barred the city’s claims and claiming that Fort Collins had delayed too long in voiding the agreement. A three-judge panel from the U.S. Court of Appeals for the 10th Circuit rejected these claims unanimously.
Judge Gregory A. Phillips, writing for the panel, noted that while warning signs regarding the contract were evident, the jury was justified in believing that Fort Collins had acted in good faith to remedy the situation. The judge emphasized that it was the jury’s responsibility to judge the credibility of witnesses and assess the evidence presented during the trial.
The software project, which underwent 29 changes over multiple years, was marred by allegations of fraud. Evidence showed that Open had initially claimed that 90% of the project requirements were feasible using its existing software. Internally, however, it reportedly found that only 59% of those requirements had been met. Additionally, Open misrepresented its intentions regarding providing software to Fort Collins, claiming to use its custom solutions while planning to source from a third party.
In mid-2021, not long before terminating the contract, Fort Collins discovered discrepancies in Open’s claims regarding its software capabilities. Following the trial, Judge Sweeney denied Open’s request to overturn the jury verdict, affirming that the evidence substantiated the jury’s findings and that the city maintained its right to rescind the contract despite ongoing collaboration with Open during the issues.
On appeal, Open further contended that the city’s claims were precluded by the “economic loss rule,” which limits recovery for financial losses resulting from a contract breach to the contractual terms alone. However, during oral arguments, Judge Robert E. Bacharach suggested that the rule did not pertain to deceptive conduct that occurred prior to contract signing, affirming that misrepresentation could be treated separately from contractual obligations.
The court ultimately concurred that Open’s fraudulent actions took place independently of the contractual terms. Philosophizing a scenario in which high promises are made without the capability to deliver, Bacharach underscored the fundamental duty not to misrepresent facts.
Despite conflicting testimonies regarding the timeline of Fort Collins’ awareness concerning the project’s issues, the 10th Circuit saw no basis to overturn the jury’s findings. The case emphasizes the importance of due diligence in contractual relationships and the implications of misrepresentation in business dealings.
This ruling will likely have significant repercussions for both Fort Collins and Open International, potentially setting a precedent for how municipal contracts are approached in the future.
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