Fort Collins says it is due $22M from its Connexion software billing developer

FORT COLLINS — The city of Fort Collins says it is owed $22.58 million from Open International LLC and Open Investments LLC for the failed attempt to build a utility billing system to support Connexion broadband services and the traditional city utilities.

Attorneys for Fort Collins on Friday filed the city’s closing brief in the matter that previously resulted in a jury verdict that determined that the related Open companies committed fraud in inducing the city to buy the software company’s services. 

Open filed a motion Dec. 1 in which it asked the court to ignore the jury verdict. 

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On Thursday, City Manager Kelly DiMartino said the city would file a response to that motion in a timely manner. On Friday, however, the city filed its closing brief and Open filed an immediate response to that brief.

Fort Collins argued in the brief that because Open fraudulently induced the city to buy its software — software that the city was never able to operate as represented — that it was required to pay the city for damages and should not be permitted to benefit from its fraud.

“After the jury verdict, the city timely rescinded the agreements and seeks an award from the court of the amounts required to restore it to the position it was in before Open’s fraud.”

Open “inflicted millions of dollars of harm on the city,” the city’s brief argued. 

It itemized the damages plus post-judgment interest into several categories:

• Amounts paid to Open — $11.3 million.
• Amounts paid to third party consultants — $537,508.
• City labor costs — $6.57 million.
• Lost net revenue — $4.1 million.
• Attorney fees and court costs — to be determined.

The city supported its damage demands, and its argument that Open should not be able to set off any of those damages with costs that it incurred, because of the fraud that the jury determined.

The city said that it has returned the software that didn’t work, and that Open will be able to capture the engineering time that it put into it if it chooses to continue to develop it for use in other markets.

“There is nothing else for the city to return to Open,” the brief said.

The city said that it had to hire third-party consultants because of Open’s fraud — expenses that it would otherwise have not incurred.

It also said it was entitled to reimbursement for city labor costs because the Open contract required certain staffing levels and city staff members ended up working above and beyond those commitments trying to make the software work.

The lost revenue claim stems from the inability to roll out its Connexion broadband internet services to the degree that it had envisioned in its plan because billing software was ineffective. Using Longmont’s NextLight broadband rollout as an example, the city said that it should have been able to capture 6,632 additional customers; with interest, that loss of business resulted in $4.1 million that it was unable to capture.

In its arguments, Open said it was entitled to $20.59 million in setoffs for its incurred costs in a deal that went bad and it was entitled to recover some of what it invested.

The city, however, said that “a party seeking setoff under circumstances involving fraud ‘is precluded by general equitable principles from deriving any benefit from the fraud perpetuated.’”

The court had not acted on the briefs as of Monday.

The case, city of Fort Collins vs. Open International LLC and Open Investments LLC, was 21cv02063 filed in U.S. District Court for the District of Colorado.