The Honorable Morris B.

Hoffman
June 16, 2010
Page 7

Kevin L. Opp
Direct Dial Number: (303) 299-8396
E-mail: KOpp@ShermanHoward.com

June 16, 2010

Via Hand Delivery

The Honorable Morris B. Hoffman

2nd Judicial District Court Judge
1437 Bannock Street, Courtroom 3
Denver, CO 80202

Re: Confidential Settlement Statement of Plaintiff Jennifer Wallace, in

Jennifer Wallace v. Design Success University et. al., Case No. 09CV9790,
Mediation Scheduled for June 21, 2010, 5:00 p.m.

Dear Judge Hoffman:

Thank you for agreeing to mediate this dispute on Monday, June 21, 2010. I will attend the
mediation along with Plaintiff, Jennifer Wallace (“Wallace”). This settlement statement has two
sections: a summary of the case and an overview of Wallace’s settlement position.

I. SUMMARY OF THE CASE, THE CLAIMS, AND THE PRINCIPAL ISSUES

A. Factual Background

Wallace is an experienced IT professional with over twenty years experience in the field.
Through her company, Denver Geeks, she offers a variety of services, including computer repair,
training, and website development.

In early 2008, one of Wallace’s clients introduced her to Gail Doby (“Doby”), who had an
interior design business called Renaissance Design. Doby explained to Wallace that Doby was
thinking about developing a new business based on an interactive website to provide resources
for other interior designers. Wallace suggested that for that type of website, a content
management system platform (“CMS”) would have more functionality than a brochure-style
website, and suggested that she take a look at a CMS called Drupal, a free, open-source system
that was being used by thousands of interactive websites around the world. Wallace told Doby
that she had built sites using Drupal, and found it to be very flexible and expandable. Doby asked
Wallace what she charged and what her rates were. Wallace gave Doby her business card and
told her that her hourly rates were listed at the website on her card. Doby then asked Wallace
what she charged and if she would be interested in doing some consulting work to help her figure
out how to build the website. Wallace agreed.

A week or so later Wallace received a call from Doby, asking if they could meet to consult on
her web project. Wallace agreed. Doby and her colleague, Erin Weir (“Weir”) attended the
meeting. They provided several documents that described and outlined the new website they
wanted to develop (Exhibits C-??). They told Wallace that they already had a blog, and they
were trying to decide how to implement the rest of the features they wanted. Wallace suggested,
based on what they were describing, that using Drupal as a platform could provide the features
that they needed. She told them that to set up a basic Drupal site was not very difficult and that
she could do this for them, and teach them how to use it.

A month or so later Weir called Wallace, telling her that they had decided to try out Drupal, and
asked if she would set up the basic site, and provide training on how to use it. Wallace agreed,
and asked her how they would like to be billed. Weir said just keep track of your hours and we’ll
pay you when you bill us. Wallace agreed, and installed the Drupal site on to their web server.

Over the course of the next seven months, they (mostly Weir) called and emailed Wallace asking
for help and technical support in configuring and adding/editing content on the website. On
many occasions they asked Wallace to come into their office and sit down with them to provide
this training. On some occasions they asked Wallace to fix problems they were having with their
computers (e.g.. slowness and freeze-ups) and with their local network (e.g. loss of internet
access). This was entirely separate from the web design work.

A few months into the working relationship, Doby asked Wallace if she could outsource more of
the ongoing site development and maintenance to her. Specifically, she asked Wallace if she
would be willing to hire, manage, and pay some additional support techs through her company so
that the work could go faster. Wallace explicitly declined the offer, telling her that she would be
happy to train more people if she wanted to hire or subcontract them directly herself. She told her
that she is a company of one, and was not interested in hiring or managing other people.

After the first month, Doby brought up the subject of billing. She told Wallace that the design
business was struggling, and that they would be operating on a shoestring to build this new
business, and asked if Wallace would be patient with them regarding billing. Each month or so
Gail initiated a conversation with Wallace regarding billing, by strongly expressing their
gratitude for her patience and great work, and reassured Wallace that they would pay her, and
asked her to just keep on keeping track of my hours. Often, Weir would follow that up the next
time Wallace met privately with her, also thanking Wallace and reassuring her that she would get
paid. Each month, Wallace agreed.
All of the work Wallace did for them was on an ad hoc, hourly basis providing consulting,
support and training. At no time did she make any statements or promises warranting
functionality. She would never do that unless she had exclusive control over the development
and editing on the live server. Both Doby and Weir were configuring, adding content and events,
working on graphics, and editing the content on the live site on a day-in and day-out basis.
Wallace was not. After installing Drupal initially, Wallace was simply responding to their
ongoing requests for support and training on how to configure and operate the site.

In November of 2008, when Doby brought up billing, she told Wallace that because of financial
concerns, they were going to have to scale back their plans for the website, and switch to using a
hosted service called Infusionsoft. She reassured Wallace once again that they would pay her for
her work, but that they just did not have the money right now. Wallace told her that she
understood, that she trusted them, and would continue to be patient.

Several months later, Wallace sent the list of her hours worked, and requested that they at least
begin to make payment. (Exhibit A.) She received no response. After several months of repeated
request and no response, Wallace filed a formal request for arbitration. (Exhibit B.) After several
months of no response again, she filed this court action.

At no time did Weir or Doby tell her that they needed to hire someone else to do the work or that
they had lost income of any kind. At all times, Wallace was responsive to Weir’s and Doby’s
many requests for assistance in updating the site. She performed her obligations and must be paid
for them.

B. Wallace’s Claims

Wallace asserts the following claims: Breach of Contract, Promissory Estoppel, Unjust
Enrichment, and Breach of Implied Contract.

1. Breach of Contract

The elements for a breach of contract claim are: (1) the existence of a contract; (2) performance
by the plaintiff or some justification for nonperformance; (3) failure to perform the contract by
the defendant; and (4) resulting damages to the plaintiff. W. Distrib. Co. v. Didosio, 841 P.2d
1053, 1058 (Colo. 1992). The “performance” element in a breach of contract action means
“substantial” performance. Id. Substantial performance occurs when, “although the conditions of
the contract have been deviated from in trifling particulars not materially detracting from the
benefit the other party would derive from a literal performance, the defendant has received
substantially the benefit he expected, and is, therefore, bound to pay.” Id.

Here, Wallace meets the elements for breach of contract. She had an agreement with the
Defendants to both (1) design install a basic Drupal website and (2) perform other computer
consulting work. She performed those tasks. She has not been paid for her work and has been
damaged thereby.

2. Promissory Estoppel
The elements of a promissory estoppel claim are: (1) the promisor made a promise to the
promisee; (2) the promisor should reasonably have expected that the promise would induce
action or forbearance by the promise; (3) the promisee in fact reasonably relied on the promise to
the promisee’s detriment; and (4) the promise must be enforced to prevent injustice. Marquardt
v. Perry, 200 P.3d 1126, 1129 (Colo. App. 2008).

Even if it is determined that there was not a formal contract between Wallace and the
Defendants, Wallace can (?) still has a promissory estoppel claim. In this instance, the
Defendants made multiple, ongoing promises to pay Wallace for her work creating Design
Success’ website and in providing other computer consulting work. Wallace relied on this
promise by continuing to provide the services Defendants requested of her. Despite this,
Defendants have not fulfilled their promise to pay Wallace for her work.

3. Unjust Enrichment

The elements of unjust enrichment are: (1) at the expense of a plaintiff; (2) a defendant received
a benefit; (3) under circumstances making it unjust for the defendant to retain the benefit without
paying for it. Harris Group, Inc. v. Robinson, 209 P.3d 1188, 1205 (Colo. App. 2009). The scope
of this equitable remedy is broad, “cutting across both contract and tort law, with its application
guided by the underlying principle of avoiding the unjust enrichment of one party at the expense
of another.” Id. It is a form of restitution designed to restore the plaintiff to his or her prior
status. Id.

As with her promissory estoppel claim, Wallace still has an unjust enrichment claim against
Defendants even if it is determined that there was no formal contract with Defendants. In this
case, there is no doubt that Defendants received the benefit of Wallace’s services. She provided
the services that were requested of her—namely to build a website and to provide computer
consulting services. It would be unjust for Defendants to retain those benefits without paying
Wallace for them.

4. Breach of Implied Contract

A “contract implied in fact” is based on the conduct of the parties to the agreement and it is the
conduct itself that establishes the agreement. Agritrack, Inc. v. DeJohn Housemoving, Inc., 25
P.3d 1187, 1192 (Colo. 2001); Osband v. United Airlines, Inc., 981 P.2d 616, 621 (Colo. App.
1998) (“A contract implied in fact is not created by express written or oral agreement of the
parties but is inferred from their acts or conduct giving rise to the existence of an enforceable
contract. And, a contract implied in law is one imposed upon a party because the circumstances
between the parties are such as to render such imposition just”). There is no difference in legal
effect between express and implied contracts. Agritrack, Inc., 25 P.3d at 1192.

In this case, the conduct of the parties show that a contract was created between Wallace and the
Defendants. Wallace agreed to provide web design and other computer consulting work, and she,
in fact, provided such services. Defendants agreed to pay Wallace for her services and, in fact,
made multiple promises to pay her. They have not done so, and have thus breached this implied
contract.
C. Defendants’ Defenses

The Defendants have not served their witness disclosure, so it is difficult to fully understand the
full basis of their defenses to not paying Wallace. However, in conversations with Defendants’
attorneys, a few consistent themes have emerged. First, Defendants claim the website that
Wallace designed did not work and they had to hire someone else to design it. Second,
Defendants claim they lost close to $50,000 because of the allegedly faulty website. Third,
Defendants claim that Wallace performed her services for a different company, not Design
Success University. Each is addressed in turn.

Regarding the functionality of the website, Wallace did what was asked of her, she designed a
Drupal-based website which allowed Doby and Weir to maintain control over the content of the
website. As mentioned above, after developing the site, Doby and Weir were configuring, adding
content and events, working on graphics, and editing the content on the live site on a day-in and
day-out basis. Wallace was not. After installing Drupal initially, Wallace was simply responding
to their ongoing requests for support and training on how to configure and operate the site. In
fact, Wallace specifically rejected their request that she take a larger role in operating the site.
That is why she made no statements or promises warranting functionality. She would never do
that unless she had exclusive control over the development and editing on the live server.

So, if after using the site, Defendants decided to go in a different direction, that was their choice.
However, that decision does not relieve them of their obligation to pay Wallace for her services.
Notably, at no time have Defendants ever disputed that Wallace also provided other computer
consulting work for them and that they have failed to pay Wallace for those services as well.

Regarding the alleged $50,000 in lost profits, Defendants cannot prove this and if they persist in
proffering such testimony, Wallace will file a Motion in Limine to exclude such evidence. Under
Colorado law, lost future profits are only recoverable if the party requesting damages provides
the trier of fact with (1) proof of fact of actual damages that will accrue in the future, and (2)
sufficient admissible evidence which allows the trier of fact to compute a fair approximation of
damages in compliance with Colorado law regarding methods of calculation and pre-trial
disclosures. Denny Constr. Inc. v. City & Cty of Denver, 199 P.3d 742, 746 (Colo. 2009)
(emphasis added). Lost future profits cannot be recovered unless proven with reasonable
certainty. Id. A party’s claim for loss of future net profits “may not be sustained by evidence
which is speculative, remote, imaginary or impossible of ascertainment.” Wojowcz v. Greeley
Anesthesia Serv., P.C., 961 P.2d 520, 522–23 (Colo. App. 2007). “Under certain circumstances,
the existence of lost profits from an ‘anticipated business venture’ may be too uncertain as a
matter of law’ and, thus, inadmissible. Employment Television Enter., LLC v. Barocas, 100 P.3d
37, 43 (Colo. App. 2004). In this case, Defendants’ estimates of their lost future profits are
entirely speculative and cannot be proved.

Moreover, unless Defendants intend to retain a damages expert, neither Doby or Weir are
qualified to testify about their lost future profits. C.R.E. 701 allows for opinion testimony by lay
witnesses. Such testimony is limited to those opinions or inferences which are “(a) rationally
based on the perception of the witness, (b) helpful to a clear understanding of the witness’
testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or
other specialized knowledge within the scope of Rule 702.”

The primary purpose of this rule is to allow non-expert witnesses to give opinion testimony
when, as a matter of practical necessity, events which they have personally observed cannot
otherwise be fully presented to the court or the jury. According to the Tenth Circuit, this rule
does not permit a lay witness to express an opinion as to matters which are beyond the realm of
common experience and which require the special skill and knowledge of an expert witness.
Randolph v. Collectramatic, Inc, 590 F.2d 844, 846 (10th Cir. 1979). Therefore, because
scientific, technical, or other specialized knowledge is necessary to explain Design Success’
alleged lost future profits, it must present that evidence via expert testimony, and not from Doby
or Weir. Thus, courts will exclude damages evidence from lay witnesses when their testimony is
based on factors outside their area of expertise. See, e.g., LifeWise Master Funding v. Telebank,
374 F.3d 917, 928 (10th Cir. 2004) (excluding a CEO’s testimony about lost future profits when
“such subject matters fail to be rationally based on Mr. Livingston’s perception, and therefore
cannot be admissible as lay opinion testimony”).

Finally, Defendants have alleged that the work was performed for Renaissance Design Group
(“Renaissance”) and that Design Success University is a separate company. To begin, all the
work Wallace did was for the project called “Design Success University,” and the actions she did
benefited that project. In fact, Wallace will testify that many of the features on the current site
are those she designed. much of the content on the new site was originally created and published
on the site she built, and then imported into the new site. In addition, that 487 new customers
members had registered as members on the original site she built, which were also were imported
into the new site. This site content and these customers/members were imported into the new site
from the database file which was created and emailed by Wallace to Weir and Doby in
December of 2008. TRUE? JEN, PLEASE VERIFY. If Doby and Weir decided to take those
benefits and transfer them to a new and separate company, then Wallace’s unjust enrichment
claim applies. Further, if, in their witness disclosures, it is revealed that Defendants intend to
take this approach, then Wallace will move, pursuant to C.R.C.P. 15 to add Renaissance as a
party and add a claim for piercing the corporate veil because Wallace believes Renaissance is
defunct and that the new company is merely an alter image of Renaissance. Apart from that,
Wallace will testify that she always believed she was working for Weir and Doby, as well as
Design Success and her conduct supports that. Therefore, her breach of implied contract claim
applies. Finally, Wallace’s promissory estoppel claim applies because Doby and Wallace
repeatedly promised to pay Wallace for the work she did, work which included non-website
development work and relate to general computer consulting.

III. SETTLEMENT POSITION

To this point, the only thing that Defendants have offered is a walk away. Under no
circumstances, will Wallace agree to this. If this case is going to settle, then Defendants need to
pay Wallace for her time and services. Wallace is interested in settling this case and believes that
this is a case that should settle. That said, she is confident in her claims and is willing to go
forward.
Excluding pre-judgment interest and costs, the amount that Defendants owe Wallace is
$22,712.00. For purposes of settlement only, and to avoid the cost and uncertainty of litigation,
Wallace is willing to settle this case for $__,____.00

I appreciate your efforts and look forward to working with you.

Sincerely,

Kevin L. Opp

Enclosures

Subject to C.R.E. 408

LITIGATION\2551121.1