The economic loss rule no longer bars civil theft – a Colorado Supreme Court game changer in business litigation

The Colorado Supreme Court recently ruled the economic loss rule does not bar recovery for
damages on a civil theft claim in Bermel v. BlueRadios, Inc., 2019 CO 31. Chris Bermel, a former
employee of BlueRadios, Inc., forwarded company emails with proprietary information to his
personal email account, which breached various contracts he entered into with the company.
Bermel brought suit claiming lost earnings and the company counterclaimed based on breach
of contract and civil theft alleging the forwarding of emails was an unlawful taking of the
BlueRadios’ property.

Bermal knowingly forwarded thousands of emails and attachments from his business email
account to his personal email account that contained confidential and proprietary information,
including trade secrets, in violation of an agreement not to remove company materials from the
business premises and a confidentiality agreement. At trial, Bermel requested directed verdict
claiming BlueRadios’ civil theft claim was barred by the economic loss rule. The district court
held the economic loss rule could not bar a statutory cause of action and denied the motion.
BlueRadios prevailed at trial and Bermel appealed.

The Colorado Court of Appeals affirmed the district court’s holding and reasoned that the
economic loss rule is a “judge-made” rule intended to “maintain the boundary between the law
of contracts and torts.” Civil theft on the other hand is a “legislatively created cause of action.”
2019 CO 19 at ¶ 12. Thus, a judicially created rule cannot preclude a statutory claim, otherwise
such reasoning would run afoul of the separation of powers between the judicial and legislative
branches of government. Id.

Colorado’s economic loss rule bars a party from recovering pure economic losses suffered from
the breach of a contractual duty under tort claims unless an independent duty of care exists.
Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo, 2000). In BlueRadios, the
Colorado Supreme Court determined the economic loss rule does not bar recovery under a
statutory cause of action, specifically the civil theft statute where the theft also constitutes a
breach of the parties’ contract. 2019 CO 19 at ¶ 15.

Bermel argued the parties’ contracts provided redress for the forwarding of company emails, so
the economic loss rule should bar BlueRadios from asserting claims based in tort for the same
damages recoverable under the contract. 2019 CO 19 at ¶ 16. BlueRadios argued the economic
loss rule bars recovery for tort claims such as negligence and negligent misrepresentation, but
that civil theft is a statutory claim not sounding in tort, is independent of a contractual duty
under the parties’ agreement. BlueRadios argued a judicially created rule cannot bar a statutory
cause of action. Id. at ¶ 27.

The Colorado Supreme Court agreed and held “it would be particularly inappropriate to apply
the economic loss rule to bar statutorily imposed liability for intentionally wrongful conduct.”
Id. at ¶ 18. The legislature enacted the civil theft statute as a punitive measure to deter the
conduct. Id. at ¶ 35. The Colorado Supreme Court reasoned that the civil theft statute was
enacted and applied long before the common law economic loss rule. Id. at ¶ 38. Further, the
Court did not desire to abrogate a clear legislative act by reason of judicial policy because it
would offend the separation of powers, and there was no allegation the statute was
unconstitutional so there was no basis in law to limit the remedy the statute provides. Id. at ¶
37, 41. Finally, the Court reasoned the civil theft statute expressly makes available redress for
purely economic losses and thus cannot be barred by the economic loss rule. Id. at ¶ 42.

The reach of this new court decision was questioned in the dissent by Justices Gabriel and Hart
who expressed concern that future contract claims will be asserted as civil theft claims. Id. at ¶
44. Colorado practitioners may want to analyze each breach of contract case to see if the facts
of their case are similar to BlueRadios. Adding a civil theft claim will allow for treble damages
and attorney fees which may contribute to the value of each case.

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