Editor’s note: This is Part 8 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.
In the Interest of Delluomo v. Cedarblade
Colorado Court of Appeals, April 10, 2014
2014 COA 43
Revocable living trust; breach of fiduciary duty; undue influence; no attorney fees under breach of trust exception to American Rule.
Delluomo created a revocable living trust and included all of his assets, including title to his real property. He named two beneficiaries, his niece, Cedarblade, and his nephew, Corcoran. Cedarblade uses undue influence (according to the jury) on her uncle and gets him to convey title to Delluomo and herself in joint tenancy. Corcoran objects, and ultimately a conservator is appointed for Delluomo, who brings suit to set aside the property conveyance. The case is tried to a jury, which finds that Cedarblade breached a fiduciary duty. The court set aside the conveyance and granted Cedarblade’s directed verdict on damages. The court did, however, allow the jury to award attorney fees for prosecuting the litigation, as an exception to the American rule allows fees in actions for breach of trust.
The court of appeals reverses that ruling, drawing a distinction between a garden variety breach of fiduciary duty and the kind of breach of trust in which a court has allowed recovery of attorney fees. The lead case is Buder v. Sartore, 774 P.2d 1383, 1390-91 (Colo. 1989), where a custodian of a minor’s account mismanaged funds by investing the funds in penny stocks. The court here notes that Colorado courts have denied recovery of litigation fees “when the circumstances do not involve a type of fund, type of wrong, or type of wrongdoer” at issue in Buder. In other words, Cedarblade did not manage funds for her brother or serve as his trustee; she was a beneficiary, and only controlled funds after her wrongful act. A mere existence of a fiduciary duty is enough; the breach of trust exception calls for control of funds for another, and egregious conduct of some kind. A breach of trust, the court notes, is but one species of breach of fiduciary duty. It is a “failure by the trustee to comply with any duty that the trustee owes, as trustee, to the beneficiaries.” Restatement (Third) of Trusts § 93. This panel notes that our supreme court has “expressly cautioned against liberally construing exceptions to the American rule on attorney fees, because that is “a function better addressed by the legislative than the judicial branch of government.”