April 19, 2018

Colorado Supreme Court: Trial Court Had Jurisdiction to Impose Constructive Trust where Sister Misspent Multi-party Funds

The Colorado Supreme Court issued its opinion in Sandstead-Corona v. Sandstead on Monday, April 9, 2018.

Implied Trusts—Probate Jurisdiction—C.R.S. § 15-10-501—No-Contest Clause.

This case raised multiple issues arising from a dispute between two sisters concerning their mother’s estate and funds contained in a multi-party account alleged to be non-probate assets. The supreme court first held that pursuant to C.R.S. § 13-9-103(3)(b), the trial court had jurisdiction to resolve the dispute over the funds in the multi-party account and to impose a constructive trust if appropriate because the facts presented a question as to whether the funds were part of mother’s estate. The court further concluded that the trial court properly imposed a constructive trust over these funds because the sister who was the surviving signatory on the multi-party account was in a confidential relationship with her mother and her sister, and she abused that relationship when she misspent the funds. Next, the court held that because an implied trust is included in the fiduciary oversight statute’s definition of an “estate,” the trial court properly surcharged the sister who was the signatory on the multi-party  account because she had misused the funds in the implied trust. Finally, the court found that although a no-contest clause that was contained in mother’s revocable trust was incorporated by reference into her will, by its plain language, that clause applied only to actions contesting the trust, not challenges to the will. Accordingly, the court held that the trial court erred in enforcing the no-contest clause against the sister who challenged the will. The court of appeals’ judgment was reversed and the case was remanded for further proceedings.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Consent of All Beneficiaries Necessary to Ratify Action Contravened by Terms of Trust

The Colorado Court of Appeals issued its opinion in In re Estate of Foiles: Foiles v. Foiles on Thursday, August 14, 2014.

Trust—Beneficiaries—Breach of Fiduciary Duty.

The trustees of the Clyde Foiles Trust were Ruth Foiles, Larry Foiles, and the Farmers State Bank of Fort Morgan (Bank). Larry Foiles, along with Larry’s two children and his nephew Gregory Foiles, were beneficiaries of the trust. The trust prohibited Larry Foiles from exercising powers as trustee that were directly or indirectly for his own benefit, and required that any such actions be taken solely by the Bank. Gregory Foiles contested two transactions undertaken at least in part by Larry Foiles, alleging that the transactions were a breach of his fiduciary duty. The trial court entered judgment in favor of Larry Foiles.

On appeal, Gregory Foiles contended that the trial court improperly ruled on his breach of fiduciary duty claim. In the absence of a trust provision that would allow ratification by a co-trustee of otherwise invalid actions of a trustee, only the consent of all beneficiaries, with full capacity to give such consent and full knowledge of the relevant facts, could ratify an action of a trustee that is in violation of the express terms of a trust. Here, because Larry Foiles’s undertaking of the 2001 Section 1031 exchange of real property violated the terms of the trust, the Bank, as co-trustee, could not validly ratify that action. Under the terms of the trust, only the Bank would have been authorized to undertake such a transaction. Therefore, Gregory Foiles established a prima facie claim that Larry breached his fiduciary duty, and the trial court erred in ruling that ratification by the Bank precluded Gregory Foiles’s breach of fiduciary duty claim. The judgment was reversed and the case was remanded to the trial court to make additional findings as to whether Larry Foiles met his burden to go forward with some evidence that the questionable transaction was fair and reasonable, and, ultimately, whether he was liable for breach of fiduciary duty in connection with that transaction.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Supreme Court: No Fiduciary Relationship Between Bail Bonding Agent and Person Who Was Not an Insured

The Colorado Supreme Court issued its opinion in Trujillo v. Colorado Division of Insurance on Monday, March 17, 2014.

Insurance Law—CRS § 10-2-704(1)(a)—Insurance Producer’s Fiduciary Duty to an Insured—Insurance Commissioner’s Authority to Sanction Licensees.

The Supreme Court held that the court of appeals erred in interpreting CRS § 10-2-704(1)(a) to create a fiduciary relationship between a bail bonding agent and a person who was not an insured. Because the Commissioner of Insurance has authority to sanction the bail bonding agent based on the unappealed findings in this case, the Court remanded the case to the court of appeals and ordered that it be returned to the Commissioner for redetermination of the sanction. The Court remanded because it was unclear whether the Commissioner would have exercised his authority to impose the same sanction on the bail bonding agent absent his erroneous interpretation of CRS § 10-2-704(1)(a).

Summary and full case available here.

Colorado Court of Appeals: Power of Attorney Document Did Not Authorize Agent to Liquidate Principal’s Assets

The Colorado Court of Appeals issued its opinion in People v. Stell on November 7, 2013.

Power of Attorney—Fiduciary Duty—Without Authorization—Theft by Deception.

The People appealed the dismissal of counts one, two, and four, as well as part of count three, of the indictment against defendant Geoffrey Hunt Stell. The Court of Appeals reversed the order and remanded the case with directions.

The victim executed a power of attorney (POA) naming Stell, who is the victim’s son, as his agent. The POA gave Stell broad general powers over the victim’s property. According to the indictment, Stell had liquidated all of the victim’s property for his own personal use. Stell filed a motion to dismiss counts one through four of the indictment, asserting that he had the legal authority to spend, transfer, and liquidate the assets in question pursuant to the POA. The trial court granted the motion.

On appeal, the People contended that the district court erred in concluding, as a matter of law, that the POA authorized Stell to liquidate all of the victim’s assets and to use them for his own benefit. Although the POA provided broad general powers, several provisions of the POA suggest the victim’s intent that Stell would act on the victim’s behalf, as opposed to in his own interest. Therefore, proof of the “without authorization” element of the theft charges at issue should have been given to the jury to decide.

The People further contended that regardless of whether Stell acted without authorization, the district court erred in dismissing count four of the indictment because that count separately alleged theft by deception, and the evidence supports such a charge. Even if Stell was authorized to transfer the victim’s assets to a trust, he still could have committed theft by deception if he fraudulently induced the victim to sign the trust agreement that allowed Stell to facilitate a theft. Therefore, the evidence could potentially have supported such a charge, regardless of any authorization under the POA. Accordingly, the district court erred in dismissing count four.

Summary and full case available here.

Colorado Supreme Court: LLC Act Does Not Allow LLC’s Creditor to Assert Claim Against Managers of LLC

The Colorado Supreme Court issued its opinion in Weinstein v. Colborne Foodbotics LLC on Monday, June 10, 2013.

Limited Liability Company (LLC)—LLC Creditor’s Claims Against Members and Managers—CRS § 7-80-606—Fiduciary Duty of LLC Manager.

The Supreme Court held that, pursuant to CRS § 7-80-606, an LLC’s members are liable for an unlawful distribution to the LLC but not to the LLC’s creditors. The Supreme Court also held that an insolvent LLC’s managers do not owe the LLC’s creditors the same common law fiduciary duty an insolvent corporation’s directors owe the corporation’s creditors. Accordingly, plaintiff, a creditor of an LLC, may not assert a claim for either unlawful distribution against the defendant members or common law breach of fiduciary duty against the defendant managers absent express statutory authority.

Summary and full case available here.

Colorado Court of Appeals: Failure by Trustee to Diversify Investments Not Breach of Fiduciary Duty Where Trust Document Gave Trustee Discretion for Investments

The Colorado Court of Appeals issued its opinion in Van Gundy v. Van Gundy on Thursday, November 8, 2012.

Beneficiary—Trustee—Breach of Contract—Irrevocable Trust—Breach of Fiduciary Duty—Prudent Investor Rule—Discretion.

Defendant Quinton Van Gundy (trustee) appealed a portion of the judgment entered after a bench trial in favor of plaintiff Eldon Van Gundy (beneficiary) on beneficiary’s breach of contract claim, as well as the court’s award of attorney fees to beneficiary. The judgment was affirmed in part and reversed in part, and the case was remanded.

In 2004, beneficiary created an irrevocable trust to be managed by trustee, his son, funding it with real estate and shares of stock in a family business. Beneficiary later filed a complaint against trustee, asserting claims for breach of fiduciary duty, breach of contract, breach of duty to provide a complete accounting, and to quiet title. Following a bench trial, the district court found that trustee had breached his contractual duty to beneficiary by purchasing stocks on margin, which, “under the circumstances,” violated the prudent investor rule. In addition, the court held that trustee was required to diversify trust investments, but had failed sufficiently to do so. The court awarded beneficiary $399,819.24 in damages, plus attorney fees, on his breach of contract claim.

On appeal, trustee contended that the district court erred in applying the prudent investor rule and consequently ruling that he had breached the trust agreement by purchasing stock on margin and failing to sufficiently diversify. If a trustee is empowered to exercise his or her discretion under the terms of the trust in a manner that might otherwise be inconsistent with the prudent investor rule, the trustee’s performance under that power does not give rise to a claim for breach of duty. Here, the trust agreement expressly granted trustee the discretion and power to invest in stocks, “whether or not . . . of the character permissible for investments by fiduciaries under any applicable law, and without regard to the effect [the investment] may have upon the diversity of the investments.” Therefore, the district court erred by deeming trustee’s purchases on margin and failure to diversify investment as breaches of his duty under the trust agreement. The court’s award of attorney fees was reversed and the case was remanded for the court to determine the proper amount of fees to which beneficiary was entitled.

Summary and full case available here.