Fort Collins to get $13.59M in damages in software dispute; appeal in works

FORT COLLINS — The city of Fort Collins, having proved to a federal court jury’s satisfaction that it was fraudulently induced to enter into a contract with billing software developers Open International LLC and Open Investments LLC, has now been awarded $13.59 million in damages.

But the case may not be over, as Open International has engaged an appellate attorney.

In a ruling March 21 and posted March 26, U.S. District Court Judge Charlotte Sweeney wrote that the city of Fort Collins was entitled to recover project costs, third-party consulting fees and labor costs that it incurred as a result of the fraudulent inducement to enter into the contract with Open.

SPONSORED CONTENT

How Platte River Power Authority is accelerating its energy transition

Platte River Power Authority, the community-owned wholesale electricity provider for Northern Colorado, has a history of bold initiatives.

The city had hoped to receive $22.58 million, but the court said that it was not entitled to receive pre-judgment interest, attorney fees nor lost net revenue that resulted from delays in implementing billing software for the city’s Connexion broadband utility as well as the city’s other utilities.

The case reaches back years to when the city contemplated its citywide broadband network and decided to replace its utility billing software to accommodate the new utility. It hired Florida-based Open International, which had experience in Central and South America but not in the United States. 

The software provider was unable to produce what the city required in its contract. After spending $8.6 million on a $7.3 million contract, the city filed a lawsuit, claiming fraudulent inducement.

A jury agreed with the city, and what remained was determination of damages.

In the judgment posted Tuesday, the judge said the city was entitled to $8.75 million in project costs, $456,024 in third-party consulting costs and $4.37 million in labor costs, plus 5.02% interest applied post-judgment.

Open International had argued that it was entitled to amounts it was paid during the time the contract was in force. The court, however, said, “Open was found to have committed a higher level of wrongdoing than ‘a mere breach of contract’ — indeed, a jury determined that Open fraudulently induced the city into executing the contract. In that light, Open’s request for setoff of amounts it earned under a fraudulently procured contract would seem to offend basic principles of equity — i.e., if granted, Open’s requested setoff would ‘allow it to commit fraud, keep and use (its) software, and keep the nearly $9 million it was paid by the city because it ‘earned these amounts…,’” the court wrote.

The court also said that because of Open’s inability to perform after fraudulently inducing the city into the contract, the city had to hire third-party vendors and it was entitled to recover those costs. Similar determinations applied to labor costs.

However, the court determined that the city was not entitled to recover lost revenue. “Projected revenues represent benefits the city would have realized after the agreements’ successful completion, not before the agreements were ever executed. Simply put, these expectancy damages are not recoverable…”

The court also said it was not able to award attorney fees. “The court is ‘not free to fashion drastic new rules with respect to the allowance of attorney’s fees to the prevailing party in federal litigation,’” the decision said.

Hernando Parrott, Open International’s president, said in a statement sent to BizWest that his company is not satisfied with the result to date. 

“In 2021, three years into a system implementation contract with the city of Fort Collins, Open International sent a notice of default to the city due to the city’s persistent failure to fulfill key contractual commitments for a successful project. But, instead of accepting responsibility for its own shortcomings, the city filed a lawsuit asserting claims against Open International that we believe are frivolous and will not survive an appeal. In fact, the jury verdict in this case is inconsistent on its face, both finding and rejecting misrepresentation liability. And Open International — having earned an impeccable reputation as an industry leader — trusts that the American system of justice will remedy this untenable outcome as proceedings move forward in the higher courts.”

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.