July 23, 2019

Colorado Court of Appeals: Bringing Malpractice Claim to Reduce Liability for Attorney Fees is Not Abuse of Process

The Colorado Court of Appeals issued its opinion in Parks v. Edward Dale Parrish, LLC on Thursday, February 7, 2019.

Torts—Malpractice—Abuse of Process—Breach of Fiduciary Duty—Attorney Fees—Expert Witness

Parrish and Edward Dale Parrish LLC (defendants) represented plaintiff in two cases, a partition case and a dissolution case, against plaintiff’s former, long-term girlfriend. Plaintiff was not satisfied with the results. After he failed to pay Parrish for his legal services, Parrish filed a notice of attorney’s lien in the partition case. In response, plaintiff filed this case against defendants, alleging that they provided negligent representation and breached their fiduciary duty to him in both cases. Defendants counterclaimed for breach of contract (seeking an award of fees incurred in previously representing plaintiff) and abuse of process (based on plaintiff bringing this case).

At the close of plaintiff’s evidence, defendants moved for directed verdicts on all of his claims. The district court concluded that the breach of fiduciary duty claim was duplicative of the negligence claim and dismissed that claim. Plaintiff moved for a directed verdict on the counterclaims, which the court denied. The jury returned verdicts for defendants on all claims and counterclaims. The court also awarded defendants costs for their expert witness. Plaintiff moved for judgment notwithstanding the verdict (JNOV). This motion was deemed denied when the district court did not timely act on it. 

On appeal, plaintiff first contended that the district court erred in denying his motion for directed verdict and motion for JNOV on defendants’ abuse of process counterclaim. Bringing a malpractice case to obtain a result that such an action is designed to achieve doesn’t constitute an improper use of process, regardless of the motive. Here, the district court erred in reasoning that the jury could find an abuse of process if it found merely that defendants didn’t provide negligent representation. Given the lack of evidence of any improper use of process, the district court should have granted plaintiff’s motion for a directed verdict or motion for JNOV on the abuse of process counterclaim.

Plaintiff next contended that the district court erred in dismissing as duplicative his breach of fiduciary duty claim relating to the partition case. Where the professional negligence claim and breach of fiduciary duty claim arise from the same material facts and the allegations pertain to an attorney’s exercise of professional judgment, the breach of fiduciary duty claim should be dismissed as duplicative.  Here, plaintiff alleged that Parrish breached his fiduciary duty by entering into a stipulation without his consent. The same allegation underlies in part the negligence claim and implicates Parrish’s exercise of professional judgment. Therefore, the district court did not err in dismissing the breach of fiduciary duty claim.

Plaintiff also contended that the district court erred in denying his motion for a directed verdict on defendants’ breach of contract counterclaim. Defendants claimed that plaintiff breached a contract by failing to pay them attorney fees. Plaintiff argued that defendants had to prove the reasonableness of the fees they sought through expert testimony, and because defendants didn’t present any such testimony, the claim necessarily fails. When breach of contract damages are unpaid attorney fees, laypersons can determine the reasonableness of fees without an expert’s help. Here, Parrish testified about the services rendered, the reasonableness of the time spent on the services, and the fees charged for the services, and the jury considered the bills to plaintiff. Thus, the jury had sufficient evidence to assess the reasonableness of the claimed fees.

The judgment in favor of defendants on the abuse of process counterclaim was vacated. The judgment was affirmed in all other respects. The case was remanded for the district court to enter judgment in plaintiff’s favor on the abuse of process counterclaim and to amend the judgment as to damages accordingly.

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.

Colorado Court of Appeals: Notice of Appeal Timely Filed 49 Days After Denial of Motion for Reconsideration

The Colorado Court of Appeals issued its opinion in Semler v. Hellerstein on Thursday, October 6, 2016.

Notice of Appeal—Timeliness—Amended Complaint—Jurisdiction—Motion to Dismiss—Fraud—Concealment—Misrepresentation—Civil Conspiracy—Breach of Fiduciary Duty—Breach of Contract—Third Party Beneficiary—Attorney Fees.

Plaintiff Semler and defendant Perfect Place, LLC are both members of the 1940 Blake Street Condominium Association (Association). Defendant Hellerstein owns and controls both Perfect Place, LLC and Bruce S. Hellerstein, CPA P.C. (collectively, Perfect Place defendants). Hellerstein also served as treasurer of the Association. Defendant Bewley is an attorney employed by defendant law firm Berenbaum Weinshienk, P.C. At all relevant times, Bewley represented Hellerstein and his two corporate entities.

The current litigation stems from a related quiet title action in which Perfect Place asked the court to determine that it was the rightful owner of parking spaces C, D, and E. The court presiding over the quiet title action determined that Semler owned parking spaces C and D, while Perfect Place owned parking space E. Semler then brought the current suit, claiming that Bewley and Hellerstein devised a scheme to gain title to Semler’s parking spaces C and D. Semler’s first amended complaint alleged claims only for breach of fiduciary duty against Hellerstein, aiding and abetting that breach against Bewley, and civil conspiracy against all defendants. The court granted defendants’ motions to dismiss. Semler then moved to amend his complaint a second time, proposing to add claims for fraud, nondisclosure and concealment, negligent misrepresentation, negligent supervision, vicarious liability, and breach of contract. He also more clearly explained that he was seeking damages for lost income opportunities he suffered as a result of having to defend against the quiet title action. The court denied Semler’s second motion to amend based on lack of standing to pursue alleged fraud or misrepresentation against the prior owner of the parking spaces and awarded attorney fees in favor of defendants.

On appeal, defendants asserted that Semler’s notice of appeal was untimely and, therefore, the Colorado Court of Appeals lacked jurisdiction to consider the appeal. The court determined that Semler timely filed his notice of appeal 49 days after the court denied his C.R.C.P. 59 motion for reconsideration.

Semler contended that the trial court erred by denying his motion for leave to amend his complaint a second time. The court’s dismissal of the action was specifically premised on Semler’s fraud claims, which were new to the second amended complaint. It was therefore apparent to the court that although the trial court denied the motion to amend, it considered the claims in the second amended complaint when ruling on the motion to dismiss.

Semler argued that the trial court erred in granting defendants’ motions to dismiss. Semler’s fraud, concealment, and misrepresentation claims were all premised on conversations and transactions between the prior owner of the parking spaces and defendants in which Semler was not involved. Semler lacked standing to bring those claims. Semler’s claims for lost opportunity damages are too remote and unforeseeable to be recoverable under these claims. Therefore, these claims failed to state a claim upon which relief could be granted and should have been dismissed under C.R.C.P. 12(b)(5).

Semler also contended that defendants conspired with each other to obtain his parking spaces. He is not entitled to relief on a civil conspiracy claim against Bewley because a director cannot conspire with the corporation that he serves, which is the premise of Semler’s argument. Additionally, because Hellerstein was not acting in his role as treasurer when he engaged in the allegedly fraudulent conduct, Semler’s breach of fiduciary duty claim against Hellerstein fails. Because these claims fail, Semler’s aiding and abetting breach of fiduciary duty claim against Bewley and negligent supervision and vicarious liability claims against Bewley’s law firm, Berenbaum Weinshienk, fail as well.

As to his breach of contract claim, although Semler was not a party to the contract between Berenbaum Weinshienk and the Association in which Berenbaum Weinshienk agreed that it would not represent one Association member against another, Semler sufficiently pleaded a third-party beneficiary breach of contract claim pursuant to this agreement. Therefore, the case was remanded to the trial court for further proceedings on this claim.

Semler also contended that if the dismissal order is reversed, the attorney fees award in favor of defendants must also be reversed. Only Semler’s breach of contract claim survives C.R.C.P. 12(b) dismissal. Thus, because that claim was not pleaded against the Perfect Place defendants, the attorney fees award to them remains undisturbed. The order awarding fees award under this statute to Bewley and Berenbaum Weinshienk was reversed.

The orders were affirmed in part and reversed in part, and the case was remanded with directions.

Summary provided courtesy of The Colorado Lawyer.

Tenth Circuit: ERISA Plan Consultant Did Not Act as ERISA Fiduciary When Calculating Benefits

The Tenth Circuit Court of Appeals issued its opinion in Lebahn v. National Farmers Union Uniform Pension Plan on Monday, July 11, 2016.

Trent Lebahn contacted a consultant hired by his company’s employee pension plan for information regarding his monthly distribution amount. The consultant told Mr. Lebahn that he would receive $8,444.18 per month and verified the amount when Mr. Lebahn asked her to double-check. He retired and began receiving the monthly payments, only to be informed a few months later that he had been being overpayed by nearly $5,000 per month. The plan’s attorney told Mr. Lebahn that he would need to return over $43,000 in overpayments. Unable to retire on the plan’s true monthly distribution, Mr. Lebahn tried to go back to work, but could not find a job. Mr. Lebahn and his wife sued under ERISA, arguing that the plan, the pension committee, and the consultant’s employer incurred liability under theories of breach of fiduciary duty and equitable estoppel. The defendants moved for dismissal based on failure to state a claim, which the district court granted, and the Lebahns appealed.

On appeal, the Tenth Circuit first addressed the Lebahns’ claims for breach of fiduciary duty. The district court dismissed the claims because the consultant had not acted as an ERISA fiduciary when calculating the pension benefits. The Tenth Circuit agreed, finding that because the consultant lacked discretionary authority in administering the pension plan, she was not a plan fiduciary and therefore the district court properly dismissed the claims.

The Tenth Circuit found that the district court also correctly dismissed the Lebahns’ equitable estoppel claims. The district court found that the Lebahns had failed to plead facts to satisfy two of the five prongs of equitable estoppel: awareness of the true facts and justifiable reliance. The Lebahns failed to adequately address justifiable reliance on appeal and therefore forfeited their argument.

The Tenth Circuit affirmed the district court’s dismissal of the Lebahns’ claims.

Colorado Court of Appeals: Trust Beneficiaries Can Recover for Breach of Fiduciary Duty Owed to Settlor

The Colorado Court of Appeals issued its opinion in In the Matter of Donald C. Taylor and Margaret Ann Taylor Trust on Thursday, June 30, 2016.

Revocable Trust—Fiduciary Duty—Breach—Standing—Attorney Fees—Exception to American Rule.

Donald and Margaret Ann Taylor were married to each other. They each had children from prior marriages: defendant is Donald’s son, and plaintiff and intervenor (plaintiffs) are Margaret Ann’s children. Donald and Margaret Ann created a revocable trust, the primary purpose of which was to benefit whichever spouse survived the other. Upon the death of the surviving spouse, half of the trust’s remaining assets were to be distributed to Donald’s children, with the other half going to Margaret Ann’s children. Donald and Margaret Ann also each had investment accounts, which would pass to only their respective children upon death. Upon Donald’s death, defendant became co-trustee with Margaret Ann. Shortly before her death, Margaret Ann, at defendant’s urging, transferred into the trust monies that she had separately placed in her investment accounts and designated as payable upon death only to her children. A jury found that defendant had breached his fiduciary duty. The court entered judgment and awarded attorney fees to plaintiffs.

On appeal, defendant contended that the trial court erroneously allowed plaintiffs to recover damages when there was no evidence of a breach of fiduciary duty to Margaret Ann. Because plaintiffs here alleged an injury-in-fact to a legally protected interest, they had standing to assert the breach of fiduciary claims. Therefore, plaintiffs could pursue a claim for a breach of fiduciary duty that proved harmful to them, even though the duty was owed to Margaret Ann.

Defendant also contended that the trial court erred in awarding plaintiffs attorney fees under C.R.S. § 15-10-504(2). Here, the jury determined that defendant had breached a fiduciary duty owed to Margaret Ann and the undisputed evidence was that defendant was a trustee, Margaret Ann was a trust beneficiary, and defendant and his siblings stood to personally gain by the inclusion of the challenged property in the trust. Under these circumstances, the requirements for recovery of attorney fees under the breach of trust exception to the American Rule are satisfied.

The judgment and order awarding attorney fees were affirmed.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Exculpatory Clause Applicable Even Though Only Owners’ Association Named

The Colorado Court of Appeals issued its opinion in McShane v. Stirling Ranch Property Owners Association, Inc. on Thursday, April 27, 2015.

Real Property—Declaration of Covenants—Property Owners Association—Exculpatory Clause—Breach of Fiduciary Duty.

Plaintiffs purchased a lot in Stirling Ranch on which to construct a residential home. The lot was subject to the Second Amended and Restated Declaration of Covenants, Conditions, Restrictions and Easements for Stirling Ranch, P.U.D. (Declaration). Under the Declaration, each lot owner in the Stirling Ranch community is a member of the Stirling Ranch Property Owners Association, Inc. (POA). The POA is governed by an Executive Board, and the Board appoints and removes members of the POA’s Design Review Board (DRB). Although the DRB approved plaintiffs’ initial designs, it did so mistakenly based on representations by plaintiffs’ architect. After plaintiffs began construction on the initial designs, they were ordered to stop work and submit redesigned plans to conform to the Design Guidelines. Plaintiff later filed this action against the POA, claiming damages for the redesign of their home. The trial court found in favor of the POA.

On appeal, plaintiffs asserted that the court erred in concluding that the exculpatory clauses barred their claims against the POA for declaratory judgment/equitable estoppel and negligence. The Court of Appeals disagreed. The Declaration and the Design Guidelines include provisions limiting the DRB’s liability, one of which states that the DRB and the Board are components of the POA and have no separate identity. Therefore, the exculpatory clauses are applicable even though plaintiffs only named the POA as a defendant. Additionally, the exculpatory clauses are valid because they do not implicate a public duty, do not involve an essential service, were fairly entered into, and plainly express the intent to release the DRB from liability.

The Court also rejected plaintiffs’ argument that the trial court erred in concluding that the POA did not breach its fiduciary duty. The record contains sufficient evidence as to why the POA and the DRB rejected plaintiffs’ redesign plans. The record also supports the court’s conclusion that these reasons for rejecting the redesign plans were consistent with the Design Guidelines’ goals. The judgment was affirmed.

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

Tenth Circuit: Six-Year Statute of Repose for Breach of Fiduciary Duty in ERISA Contains Exception for Fraud or Concealment

The Tenth Circuit Court of Appeals issued its opinion in Fulghum v. Embarq Corporation on Tuesday, February 24, 2015.

A class of retirees (plaintiffs) of Sprint-Nextel Corporation, Embarq Corporation, or a predecessor or successor of those companies (collectively, defendants) brought suit after defendants altered or eliminated health and life insurance benefits for retirees. Plaintiffs asserted defendants violated ERISA by breaching their obligation to provide vested health and life insurance benefits, breached their fiduciary duty by misrepresenting the terms of multiple welfare benefit plans, and violated the ADEA and state laws by reducing or eliminating health and life insurance benefits. The district court granted summary judgment to defendants on the breach of fiduciary duty claims, the ADEA claims, the state-law age discrimination claims, and some of the contractual vesting claims. Plaintiffs obtained a Rule 54(b) certification and appealed.

The Tenth Circuit examined the applicable insurance contracts and summary plan descriptions (SPDs). Defendants organized 32 SPDs into five groups based on language and coverage similarities, and the district court used these groupings in its analysis of plaintiffs’ claims. Because plaintiffs did not object to the groupings, the Tenth Circuit also based its analysis on the defendants’ classifications.

The first group of SPDs contained 16 documents, each including a statement that the retiree’s coverage ends upon death and a reservation of rights clause where the employer reserved the right to modify or terminate benefits at any time. Plaintiffs argued the plan language was ambiguous because it both offered coverage until death and reserved the right to modify or terminate benefits. The Tenth Circuit found the language unambiguously informed plaintiffs of defendants’ right to modify or terminate coverage, and therefore affirmed the district court’s summary judgment as to group 1.

Next, the Tenth Circuit analyzed the three SPDs in group 2, and found none containing “clear and express language” promising vested benefits. Plaintiffs pointed to language in the SPDs, but the Tenth Circuit found the language more pertinent to amount of benefits and not duration. The Tenth Circuit affirmed summary judgment as to group 2, finding the SPDs unambiguously contemplated termination of the plans.

The third group contained 4 SPDs regarding medical benefits. Plaintiffs claimed entitlement to lifetime benefits because the plans contained language that they “will be insured” and benefits “will continue after retirement.” The Tenth Circuit found the language insufficient to confer lifetime benefits, since it did not clearly and expressly promise unaltered lifetime benefits. The Tenth Circuit also noted that each SPD contained reservation of rights language. The district court’s summary judgment was affirmed as to group 3.

As for the benefits for group 4, the Tenth Circuit found the plaintiffs “wholly failed” to point to any language in the plans promising lifetime benefits. The Tenth Circuit found as to all groups that “no reasonable person in the position of a plan participant would have understood any of the language identified by Plaintiffs as a promise of lifetime health or life insurance benefits,” and that the same reasonable person would have understood defendants’ rationale for amending the plans.

The Tenth Circuit similarly rejected plaintiffs’ attempt to incorporate by reference arguments made in district court regarding why the district court’s denial of plaintiffs’ motion for reconsideration was abuse of discretion, commenting “this is not acceptable appellate procedure.” The Tenth Circuit deemed this argument waived. The Tenth Circuit conceded defendants were only entitled to summary judgment on the claims presented to the district court based on SPDs considered by the district court, and reversed the grant of summary judgment to the extent a class member’s claim for benefits arose from an SPD not presented to the court.

Turning to the breach of fiduciary duty claims, the district court had dismissed all claims as untimely, but the Tenth Circuit found that the district court applied the wrong statutory analysis. The Tenth Circuit reversed the district court’s dismissal of the breach of fiduciary duty claims. The Tenth Circuit examined 29 U.S.C. § 1113, finding the six-year statute of repose undisputed by the parties, but discovered a circuit split on whether § 1113’s statute of limitations applies solely to claims where a fiduciary fraudulently conceals the alleged breach of fiduciary duty or if it applies where the underlying breach of fiduciary duty claim involves allegations of fraud. The Tenth Circuit declined to conflate “fraud or concealment” to “fraudulent concealment” and also declined to consider the clause a separate statute of repose. Instead, the Tenth Circuit found the language to create an exception to the six-year statute of repose for instances when the breach of fiduciary duty resulted from fraud or concealment. The Tenth Circuit found support for its construction in the legislative purpose of ERISA.

Applying its framework to the instant case, the Tenth Circuit did not find evidence of concealment by defendants, and instead looked at whether there was fraud. The district court dismissed plaintiffs’ breach of fiduciary duty claims based on defendants’ claim that the argument was not properly briefed. The Tenth Circuit reversed on this point, finding instead that defendants did not move to dismiss plaintiffs claims on the basis on which the district court granted dismissal, resulting in error.

Finally, the Tenth Circuit addressed plaintiffs claims that the reduction or termination of benefits violated the ADEA because it constituted disparate impact discrimination based on age. Defendants produced evidence of effecting the policy changes based on reasonable factors other than age, and the district court granted summary judgment to defendants. The Tenth Circuit affirmed, finding that the narrow scope of ADEA disparate impact claims only required a showing that defendants’ decision was based on reasonable factors other than age and defendants made that showing.

The Tenth Circuit affirmed in part, reversed in part, and remanded for further proceedings.

Frederick Skillern: Real Estate Case Law — Contracts, Purchase and Sale, Transactions (5)

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.

By Frederick B. Skillernfrederick-b-skillern

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.”

Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

People v. Stell: Breach of POA Agent’s Fiduciary Duty is Properly Included in Criminal Indictment

CashmanBy Barbara Cashman

In an 11/7/13 published opinion, the Colorado Court of Appeals ruled on substantial questions relating to the Uniform Power of Attorney Act (UPOA) as it relates to an agent’s duties, and the types of activities authorized under a power of attorney (POA). In People v. Stell, 2013CA0492, the court of appeals reversed and remanded with directions a case involving a criminal indictment of an agent who under a POA who liquidated the principal’s assets. This decision has wide and beneficial implications for principals who have executed POAs and whose agent are acting in their own self-interests, are converting their principal’s assets for the agent’s use, or who are otherwise stealing from them. Here’s a sketch of the factual background of the case.

The principal (referred to as “victim” in the opinion) executed a POA in 2009 in Virginia. Both Virginia and Colorado have adopted the UPOA so, even though the statutory citations vary, the law is substantially the same. In the POA, the principal named as agent his son, the defendant, Stell. While acting as agent under the POA, Stell wasted no time liquidating all of principal’s bank accounts, CDs, a 401K account, a piece of real property and the timber sold from that land – to the tune of $453,928.81. The following year, Stell proposed that the principal place other assets into a trust so they would be protected from creditors. The trust document that the principal signed at his agent Stell’s direction did not name the principal as beneficiary of such trust, and so the principal was permanently deprived of the use and benefit of those assets. In October 2010, principal terminated the POA and asked the Denver District Attorney’s office to investigate. As a result of the investigation, a nine-count indictment was drawn, eight counts for theft and one count for conspiracy. The appeal of the trial court’s ruling is based on the dismissal of counts 1, 2, 4 and part of 3 – relating to the authority of the agent, Stell, to transfer the principal’s property as agent under the POA. In its dismissal of those counts, the trial court ruled that because Stell had authority under the POA to do anything with the principal’s property that principal could do with it, Stell could not commit theft against his principal. The court of appeals soundly rejected this line of thinking.

The POA is a document that confers broad powers, but it is no license to steal. In this criminal case, the court of appeals examined carefully the fiduciary duty owed by an agent to his principal under the UPOA. Citing a Virginia Supreme Court decision, the court of appeals stated that “powers of attorney are strictly construed.” (Opin. at ¶17) Going further, the court ruled that the expansive language in a POA should be interpreted narrowly and should be construed in light of the surrounding circumstances. It soundly rejected the argument that, because a POA typically gives a broad grant of authority, it could somehow give an agent the authority to misbehave, commit theft, and otherwise breach fiduciary duties owed as a consequence of the nature of the principal-agent relationship.

The fact that a POA contains a broad grant of authority to the agent does not mean that an agent can abuse that authority. The agent is duty-bound (as in an agent’s fiduciary duty, as described in the UPOA) to exercise authority while acting as agent with the utmost good faith and loyalty. The court of appeals rejected the trial court’s reasoning that a broad grant of authority to the agent implied that an agent’s actions were somehow still “authorized” because agent was acting under a POA, even though the agent’s actions were in violation of his fiduciary duties. In ¶21 of the decision, the court of appeals identified the factual questions appropriate for a jury’s determination of whether an agent under a POA was acting within or outside of his or her scope of authority as determined by agent’s fiduciary duties. They included the following questions of whether agent acted: (1) in accordance with principal’s reasonable expectations and consistently with the principal’s interests and intent; (2) in good faith; (3) loyally for the principal’s benefit; and (4) with the care, competence, and diligence ordinarily exercised by agents in similar circumstances.

In reversing and remanding the counts of the indictment dismissed by the trial court, the court of appeals gives an indication that the days of the POA as a “license to steal” for non-criminal law purposes are over. This is an important development for Colorado – for both the new mandatory reporting of financial exploitation law (read my post about that law here) as well as the ability of exploited elders and other at-risk persons to recover funds improperly taken from them by an agent under a POA. It gives more protection for principals who have been taken advantage of by their agents to establish that the agent’s conduct was improper and to strengthen the ability to recover such funds that were improperly used or converted for the agent’s exclusive benefit.

Barbara Cashman is a solo practitioner in Denver, focusing on elder law, estate law, and mediation. She is active in the Trust & Estate and Elder Law sections of the CBA and is the incoming chair of the Solo/Small Firm section. She contributes to the SOLOinCOLO blog and blogs weekly on her law firm blog, where this post originally appeared.  She can be contacted at barb@DenverElderLaw.org.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Colorado Court of Appeals: Rules of Professional Conduct and Common Law Do Not Establish Standard of Care for Disclosure of Representing Attorney’s Medical and Arrest History

The Colorado Court of Appeals issued its opinion in Moye White LLP v. Beren on Thursday, June 6, 2013.

Law Firm Fiduciary Duty to Disclose Information About Attorneys.

Defendant David I. Beren appealed the trial court’s judgment and order of costs in favor of plaintiff Moye White LLP, denying, as relevant here, Beren’s counterclaim for breach of fiduciary duty. The judgment and order were affirmed.

Moye White sued Beren for recovery of attorney fees incurred during its representation of Beren in a probate matter form 2009 to 2010. Moye White sought $229,118.10 from Beren on a breach of contract claim. Beren counterclaimed, alleging that Moye White breached its fiduciary duty to him by failing to disclose and intentionally concealing material information related to one of the attorneys working on his case (Attorney A), who had a history of disciplinary proceedings, mental illness, alcoholism, and related arrests. The trial court found in favor of Moye White on all claims. As the prevailing party, Moye White moved for an award of costs totaling $76,637.49 and was awarded $69,975.59.

On appeal, Beren asserted it was error to find no duty existed for Moye White to disclose Attorney A’s medical and arrest history, because the duty exists under common law and Colo. RPC 1.4 and 7.1. The Court of Appeals disagreed. Neither party cited cases in Colorado or other jurisdictions addressing this issue. The Court looked to cases involving other professionals’ fiduciary duty to disclose material information to a principal and concluded no duty existed here, because the failure to disclose did not pose a demonstrable risk to the firm’s ability to represent Beren.

Attorney A was added to the team representing Beren at the recommendation of the partner assigned to the case. Attorney A had a longstanding history of marital, alcohol, domestic violence, and other issues. He self-reported to the Office of Attorney Regulation Counsel (OARC), which, following a full investigation, suspended his license to practice law conditioned on his receiving ongoing substance abuse treatment. He was monitored and tested positive several times. From June 2010 until the date of the trial court’s order in this case, he remained sober. Moye White was aware of these issues but allowed him to return to work and instituted a supervision plan under which his legal work was reviewed by another attorney.

Moye White never advised Beren regarding Attorney A’s medical and arrest history, and his stayed suspension. Beren found out about Attorney A’s history after Moye White moved to withdraw from representing Beren in July 2010; however, the information was of public record.

Beren asserted that had he known about Attorney A’s medical and arrest history, he would have objected to his representation. The Court noted that a fiduciary relationship exists as a matter of law between an attorney and his or her client. To prevail on a claim of breach of fiduciary duty against an attorney, a plaintiff must establish that a particular standard of care existed and that the attorney failed to adhere to that standard. Here, Beren asserted that the common law and Colo. RPC 1.4 and 7.1 established a standard of care that required such a disclosure when any such history has a possibility of interfering with the representation. The Court disagreed.

Under the common law, the information has to be material to require disclosure. The Court found that the information was not material, because the presented evidence demonstrated that Attorney A’s medical and arrest history did not adversely affect the quality of Moye White’s representation. The risk was speculative and not material.

The Colorado Rules of Professional Conduct do not create a fiduciary duty, but they may evidence standards of care. Colo. RPC 1.4 was inapposite because it relates to disclosure of information necessary for a client to give informed consent. There is no requirement for a client’s informed consent before a law firm can allow an additional attorney to work on a case. Moreover, the information was not material.

Colo. RPC 7.1(a)(1) also is inapposite. The rule pertains to attorneys’ advertisements of legal services. Even if it were applicable, it would again not impose a duty to disclose because the information was not material to the representation.

Summary and full case available here.