June 19, 2018

Colorado Court of Appeals: District Court Erred in Summarily Dismissing Conversion and Unjust Enrichment Claims

The Colorado Court of Appeals issued its opinion in Scott v. Scott on Thursday, February 22, 2018.

Torts—Conversion—Unjust Enrichment—Life Insurance Proceeds—Motion to Dismiss under C.R.C.P. 12(b)(5) and (6)—Attorney Fees and Costs.

Roseann’s marriage to Melvin Scott was dissolved. Their separation agreement provided that Melvin’s life insurance policies were to be maintained until Roseann remarried, and at that time the beneficiaries could be changed to the children of the parties. Upon emancipation of the children, if Roseann had remarried, Melvin could change the beneficiary to whomever he wished. A Prudential life insurance policy was the policy at issue in this case.

After the divorce, Melvin married Donna and remained married to her until his death. Roseann never remarried. A few years before Melvin died and decades after his divorce from Roseann, Melvin changed the named beneficiary on his life insurance policies to Donna. Melvin died and Donna received the proceeds from his life insurance policies. Roseann sent a demand letter to Donna, requesting the proceeds pursuant to the separation agreement. The proceeds were placed in a trust account pending the outcome of this litigation.

Roseann sued Donna in Mesa County District Court, alleging civil theft, conversion, and unjust enrichment/constructive trust. Donna did not answer but removed the case to federal district court based on administration of the veteran life insurance policies by the federal government. She then moved to dismiss Roseann’s claims under a theory of federal preemption. Ultimately, the federal court agreed with the preemption argument and dismissed Roseann’s claims with prejudice as to the veteran policies but remanded the remaining claims to the Mesa County District Court for resolution regarding the Prudential policy.

Donna filed a motion in the district court to dismiss under C.R.C.P. 12(b)(5) and (6), arguing that Roseann’s claims failed to state a claim upon which relief could be granted and that she had failed to join Melvin’s estate, a necessary party. The district court granted the motion and a subsequent motion for attorney fees and costs.

On appeal, the court of appeals first examined whether Roseann had stated claims sufficient to withstand the plausibility standard required to survive a motion to dismiss under C.R.C.P. 12(b)(5). To state a claim for civil theft, a plaintiff must allege the elements of criminal theft, which requires the specific intent of the defendant to permanently deprive the owner of the benefit of his property. Roseann made a single, conclusory allegation, repeating the language in the statute, that Donna acted with the requisite intent to state a claim for civil theft. The court concluded that, without more, the allegation was not entitled to the assumption of truth, and the district court did not err in dismissing the civil theft claim.

Conversion, unlike civil theft, does not require that the convertor act with the specific intent to permanently deprive the owner of his property. Even a good faith recipient of funds who receives them without knowledge that they belonged to another can be held liable for conversion. Here, Roseann adequately alleged that Donna’s dominion and control over the Prudential policy proceeds were unauthorized because of the separation agreement language and Donna’s refusal to return the allegedly converted funds. Roseann pleaded each element of conversion sufficiently for that claim to be plausible and withstand a request for dismissal under C.R.C.P. 12(b)(5).

Similarly, the court concluded it was error to dismiss Roseann’s claim for unjust enrichment and constructive trust. In general, a person who is unjustly enriched at the expense of another is subject to liability in restitution. Here, Roseann alleged that Donna received a benefit that was promised to Roseann in the separation agreement and it would be inequitable for Donna to retain the funds. Roseann asked the court to impose a constructive trust on the assets. While this may be a difficult case in that two arguably innocent parties are asserting legal claims to the same insurance proceeds, resolution should be left to the fact finder and not resolved under a C.R.C.P. 12(b)(5) motion to dismiss.

It was not clear whether the district court had dismissed the claims for failure to join a necessary party under C.R.C.P. 12(b)(6), so the court addressed this issue as well. Here, the court held that Melvin’s estate was not a necessary party because Donna has possession of the proceeds at issue, and thus complete relief can be accorded between Roseann and Donna. In addition, the life insurance proceeds were never a part of Melvin’s estate assets and therefore the estate has no interest in those proceeds. Further, this is not an action for enforcement of the separation agreement, but is essentially an action in tort. The district court erred by dismissing the case under C.R.C.P. 12(b)(6).

Lastly, Roseann contended that Donna is not entitled to attorney fees and costs because the court erred in granting Donna’s motion to dismiss. The court agreed.

The judgment was affirmed in part and reversed in part, and the case was remanded with directions. The award of attorney fees and costs was vacated.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Guardian Who Diverted Assets for his Own Family Subject to Treble Damages

The Colorado Court of Appeals issued its opinion in People in Interest of Black on Thursday, January 25, 2018.

Probate—Disability—Conservator—Fiduciary Duty—Conflict of Interest—Jurisdiction—Civil Theft.

Black is the former conservator for his mentally-ill sister, Joanne. When he filed his petition to be appointed conservator, he did not tell the probate court that he sought the appointment to disclaim Joanne’s interest in payable-on-death (POD) assets so that they could be redistributed in accordance with his and his children’s expectations of his mother’s estate plan. Nor did he disclose this conflict of interest when he requested authorization to disclaim Joanne’s assets. Black later admitted this conflict. The probate court found that Black breached his fiduciary duties and committed civil theft by converting his sister’s assets for his own benefit. Specifically, the court concluded that Black failed to adequately disclose his intent to use a disclaimer to divest his sister of one-third of the (POD) assets, and therefore did not have the court’s authorization to redirect the assets. The court determined that his actions were undertaken in bad faith and satisfied the elements of civil theft. Based on its findings, the court surcharged Black in the amount of the converted funds and then trebled those damages under the civil theft statute.

On appeal, Black first argued that the probate court lacked jurisdiction to enter the hearing order because only a C.R.C.P. 60(b) motion, and not a motion to void the disclaimer, could undo the court’s order authorizing the disclaimer. However, the motion to void the disclaimer did not seek relief from a final order. Instead, the motion alleged that Black had breached his fiduciary duties to Joanne while acting as conservator, and it sought to unwind a transaction based on this breach. Thus, the probate court’s jurisdiction was based on the court’s authority to monitor fiduciaries over whom it has obtained jurisdiction. Accordingly, the court had jurisdiction to adjudicate the allegations and issues raised by the motion to void the disclaimer. Additionally, Black had sufficient notice of the proceedings.

Black next argued that he could not have breached his fiduciary duty to Joanne because his conversion of one-third of her POD assets was disclosed to and approved by the probate court in accordance with C.R.S. § 15-14-423. C.R.S. § 15-14-423 allows a fiduciary to engage in a conflicted transaction only when the fiduciary has disclosed the conflict of interest and demonstrated that the conflicted transaction is nonetheless reasonable and fair to the protected person. Black received authority to transfer the POD funds to a Supplemental Needs Trust (SNT) for Joanne’s benefit. Instead, he redistributed the POD funds two-thirds to the SNT and one-third to the Issue Trust, which benefited himself and his children. Because Black did not disclose the conflict of interest or demonstrate that this proposed redistribution was reasonable or fair, he did not have safe harbor under the statute. Thus, the probate court did not err in finding that Black breached his fiduciary duties.

Next, Black contended that the probate court erred in finding him liable for civil theft, arguing that the probate court lacked jurisdiction over the claim; the claim was time-barred; and that, in any event, the evidence was insufficient to establish civil theft. The civil theft claim is coterminous with the breach of fiduciary duty claim and thus directly related to Black’s duties as conservator. The probate court had jurisdiction over the civil theft claim, of which Black had notice. The record amply supports that the civil theft claim was timely asserted. As to the sufficiency of the evidence, Black did not dispute that he obtained control over Joanne’s assets with the intent to permanently deprive her of them; he disputed only the probate court’s finding of deception. The record supports the probate court’s finding that Black made misrepresentations or misleading statements or that he concealed material facts. When a conservator allegedly commits theft from a protected person by deception on the probate court, reliance is established if that court relied on the misrepresentation in authorizing the theft. Here, the court relied on Black’s misrepresentations in authorizing the disclaimer, and it would not have authorized the transaction had it known the true facts. The evidence was sufficient to support the finding that Black committed civil theft.

Black also contended that reversal is required because the probate court committed a series of errors that made the evidentiary hearing unfair. The court of appeals was unpersuaded by these arguments.

Lastly, Black contended that the court erred in concluding that he lacked authority to create a separate trust for Joanne’s workers’ compensation and Social Security disability benefits. The court discerned no error.

Joanne cross-appealed, contending that the court erred by failing to make explicit findings denying her request to void the disclaimer. The court did not abuse its discretion in imposing a surcharge rather than ordering that the disclaimer transaction be unwound.

The order was affirmed and the case was remanded for determination of reasonable appellate attorney fees.

Summary provided courtesy of Colorado Lawyer.