In re the Marriage of Steven R. Durie, Appellee, and Kelly J. Durie, n/k/a Kelly J. Simmerman, Appellant.
Court of Appeals No. 17CA1295
COLORADO COURT OF APPEALS
September 20, 2018
2018COA143
Opinion by JUDGE TAUBMAN; Welling and Kapelke, JJ., concur
Douglas County District Court No. 14DR30238; Honorable Michael Spear, Judge; ORDER REVERSED AND CASE REMANDED WITH DIRECTIONS
The summaries of the Colorado Court of Appeals published opinions constitute no part of the opinion of the division but have been prepared by the division for the convenience of the reader. The summaries may not be cited or relied upon as they are not the official language of the division. Any discrepancy between the language in the summary and in the opinion should be resolved in favor of the language in the opinion.
SUMMARY
September 20, 2018
2018COA143
No. 17CA1295, In re Marriage of Durie — Civil Procedure — Court Facilitated Management of Domestic Relations Cases — Disclosures
A division of the court of appeals considers whether the district court erred in granting husband‘s motion to dismiss wife‘s motion to reopen the division of marital property under
The division also concludes, as matters of first impression, that a moving party may make allegations on information and belief in a Rule 16.2(e)(10) motion and that such party may be permitted to undertake discovery to support his or her motion.
Accordingly, the division reverses the district court‘s order and remands the case with directions.
Epstein Patierno, LLP, Steven B. Epstein, Wendy J. Smock, Denver, Colorado, for Appellee
Stevens, Littman, Biddison, Tharp & Weinberg, LLC, Craig A. Weinberg, Boulder, Colorado, for Appellant
*Sitting by assignment of the Chief Justice under provisions of
¶
¶ 2 In this case, we follow the division‘s opinion in In re Marriage of Runge, 2018 COA 23M, 415 P.3d 884, concluding that filing a motion to dismiss under
I. Overview
¶ 3 In this post-dissolution of marriage proceeding between Steven R. Durie (husband) and Kelly J. Durie (wife), now known as Kelly J. Simmerman, wife appeals the district court‘s order dismissing her motion to reopen the property division.
¶ 4 About three years after the district court entered a decree incorporating a separation agreement dividing the parties’ marital property, wife moved under Rule 16.2(e)(10) to reallocate proceeds from husband‘s post-decree sale of business assets. In response, husband filed a motion to dismiss wife‘s motion, which the district court granted. Wife appealed.
¶ 5 Both parties initially focused their arguments on whether the district court properly applied Rule 12(b)(5) and the “plausibility” standard set forth in Warne v. Hall, 2016 CO 50, 373 P.3d 588. After the parties submitted their briefs but before oral argument, a division of this court decided Runge, holding that Rule 12(b)(5) and the Warne plausibility standard do not apply to a Rule 16.2(e)(10) motion.
¶ 6 Therefore, we asked the parties to address this holding of Runge during oral argument, as well as whether wife could allege facts on information and belief in her motion and whether she was entitled to conduct discovery on her motion. Wife‘s counsel asserted at oral argument (1) that he did not agree with the Runge division‘s holding and (2) that
¶ 7 We now reverse the district court‘s order and remand with directions for further proceedings.
II. Background
¶ 8 Husband filed for divorce in April 2014. At the parties’ request, the district court incorporated a separation agreement dividing the marital estate in a decree of dissolution issued in September 2014. Under the separation agreement, husband received the parties’ business interests with an equalization payment due to wife for half of the value. In the separation agreement, the parties agreed that the total business assets were valued at $878,589. A joint appraisal expert had valued the business assets at $855,000 investment value and $770,000 fair market value as of August 2014. Additionally, wife hired an independent expert, who valued the business assets at just under $920,000.
¶ 9 In 2017, wife moved under Rule 16.2(e)(10) and under a similarly worded provision of the separation agreement to set aside or reopen the property division and reallocate the proceeds from husband‘s post-decree sale of a portion of the business interests.
¶ 10 Wife alleged in her motion that husband had failed to disclose facts that materially impacted the value of the parties’ business assets. Specifically, she alleged that in October 2015 — just over a year after the decree was entered — husband sold a portion of the business interests that were allocated to him under the separation agreement to a Tennessee company for $6,900,000, over 850% more than the parties’ joint expert had valued the total business interests.
¶ 11 She further alleged, on information and belief, that husband had traveled to Tennessee in May 2014 and had “engaged in negotiations to sell a portion of the business” interests prior to the parties entering into the separation agreement. Wife claimed that,
[u]pon information and belief, Husband had been in negotiations with [the Tennessee purchaser] involving a deal or potential deal to sell [the business or a portion thereof] prior to the time that the joint expert had performed his valuation. Upon information and belief, Husband failed to disclose and intentionally concealed material facts that impacted the value of the parties’ business and the valuation performed by [the expert] and/or failed to update the information to [the expert] or Wife once those negotiations commenced.
¶ 12 Husband moved to dismiss wife‘s motion, asserting that she had not alleged sufficient facts to trigger Rule 16.2(e)(10). Husband admitted that he had sold “some” of the business assets in October 2015 for $6,900,000 to a Tennessee purchaser. He further admitted that he had travelled to Tennessee in May 2014, but denied that the purpose of the trip was to engage in any negotiations. Nevertheless, husband argued that there was no basis to reopen the property division because the parties had retained a joint valuation expert to appraise their businesses before entering into the separation agreement.
¶ 13 Wife responded, arguing that, although husband had not set forth a standard for evaluating his motion, the court should treat it as one under Rule 12(b)(5). Thus, wife argued that Warne‘s plausibility standard applied. She asserted that she had stated plausible grounds for relief. She also requested attorney fees under
¶ 14 The district court applied the plausibility standard as articulated in Warne and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-56 (2007), and held that wife‘s allegations were insufficient “to nudge her claim from conceivable to plausible.” It therefore granted husband‘s motion to dismiss. The district court did not address wife‘s request for attorney fees.
III. Rule 16.2
¶ 16 “[T]he purpose of Rule 16.2 [is] to provide a uniform procedure for resolution of all issues in domestic relations cases that reduces the negative impact of adversarial litigation wherever possible.”
¶ 17 Specifically, parties in dissolution proceedings must provide certain mandatory financial disclosures, which are specified in the appendix to the rule, as well as a sworn financial statement with supporting schedules, if applicable. See
¶ 18 As relevant here,
If the disclosure contains misstatements or omissions, the court shall retain jurisdiction after the entry of a final decree or judgment for a period of 5 years to allocate material assets or liabilities, the omission or non-disclosure of which materially affects the division of assets and liabilities. The provisions of
C.R.C.P. 60 shall not bar a motion by either party to allocate such assets or liabilities pursuant to this paragraph. This paragraph shall not limit other remedies that may be available to a party by law.
This provision serves the important purpose of providing a remedy when a party fails to comply with the rigorous disclosure requirements of Rule 16.2. See David M. Johnson et al., New Rule 16.2: A Brave New World, 34 Colo. Law. 101, 106 (Jan. 2005) (stating that the provision “gives teeth” to the mandatory disclosure requirements).
IV. Standard of Review
¶ 19 We review de novo whether the district court applied the correct legal standard in ruling on the motions. Freedom Colo. Info., Inc. v. El Paso Cty. Sheriff‘s Dep‘t, 196 P.3d 892, 897-98 (Colo. 2008). Similarly, because it raises a question of law, we review de novo the district court‘s interpretation of the rules of civil procedure. City & Cty. of Broomfield v. Farmers Reservoir & Irrigation Co., 239 P.3d 1270, 1275 (Colo. 2010).
V. Discussion
¶ 20 Wife contends that the district court erred in dismissing her Rule 16.2(e)(10) motion to set aside or reopen the property division and to allocate the post-decree sale proceeds husband received. We agree.
A. Applicability of Rule 12(b)(5) and Warne
¶ 21 As noted, both parties on appeal addressed whether the district court misapplied Rule 12(b)(5) and Warne‘s plausibility standard. However, their briefing preceded this court‘s decision in Runge.
¶ 22 As discussed, the majority in Runge “conclude[d] that the Warne ‘plausibility’ standard does not apply to the dismissal of a motion under
¶ 23 Here, as in Runge, husband did not cite Rule 12(b)(5) as authority in his motion to dismiss. In response, wife “presume[d]” that husband had relied on Rule 12(b)(5) and argued that her Rule 16.2(e)(10) motion should not be dismissed. Following wife‘s lead, the district court characterized husband‘s motion as a motion to dismiss for failure to state a claim and dismissed wife‘s motion. We agree with the Runge division that Rule 12(b)(5) and the plausibility standard do not apply in determining wife‘s motion under Rule 16.2(e)(10).
¶ 24 We therefore conclude that the district court erred in dismissing wife‘s motion under that standard.
B. Applicability of Rule 9(b)
¶ 25 We also reject husband‘s contention, raised during oral argument in response to our questions, that
¶ 26 Here, wife alleged intentional nondisclosure on husband‘s part. In other cases, parties may allege unintentional nondisclosure. Thus, contrary to husband‘s contention at oral argument, not all motions under Rule 16.2(e)(10) will “sound[] in fraud.” See State Farm Mut. Auto. Ins. Co. v. Parrish, 899 P.2d 285, 289 (Colo. App. 1994) (construing Rule 9(b) to apply to claims of civil conspiracy, intentional misrepresentation, unjust enrichment, and theft by deception). While some claims not denominated as fraud may be subject to the pleading requirements of Rule 9(b), id., that conclusion does not apply, for the reasons stated, to motions filed under Rule 16.2(e)(10). As a result, we conclude that the particularity requirement of Rule 9(b) does not apply to motions under Rule 16.2(e)(10).
C. Allegations Based on Information and Belief
¶ 27 The parties disagree as to whether a movant under Rule 16.2(e)(10) can make allegations based on information and belief.
¶ 28 That conclusion is bolstered by the plain language of Rule 16.2(e)(10), which allows the reopening of the property division provisions of the permanent orders where there has been a failure to disclose “material assets or liabilities” or when a spouse‘s disclosures regarding an asset contained “misstatements or omissions.” A moving party may make allegations based on “information and belief,”
¶ 29 Thus, we conclude that wife properly included allegations based on information and belief in her motion.
D. Standard for Consideration of Rule 16.2(e)(10) Motion
¶ 30 Rule 16.2(e)(10) provides no applicable standard for determining a motion under the rule. In Runge, the majority did not articulate a precise standard, but concluded that the wife‘s “vague assertions [we]re not sufficient to trigger an allocation of omitted or misstated assets under
¶ 31 In the absence of any express standard, we conclude that a district court must decide whether a former spouse moving under Rule 16.2(e)(10) is entitled to relief under the preponderance of the evidence standard. See generally
¶ 32 In some cases, a moving party‘s motion may not allege facts sufficient to warrant even limited discovery, a topic we discuss below, and the district court in those cases could deny a party‘s motion as insufficient on its face. See
¶ 33 We conclude that wife‘s allegations here did not enable the district court to conclude that her motion was insufficient on its face. Wife alleged that husband sold marital property — part of the parties’ business — for 850% of its appraised value a little over a year after the entry of permanent orders. She further alleged on information and belief that husband had begun negotiations to sell this part of the business before the entry of permanent orders and had failed to disclose such negotiations and possible sale during the negotiations over their separation agreement. These allegations were sufficient to warrant further proceedings on wife‘s motion.
¶ 34 Thus, on remand, the district court must determine whether wife can prove by a preponderance of the evidence that husband omitted facts material to the valuation of their business interests during the negotiations for their separation agreement and before the entry of the permanent orders. See
E. Discovery
¶ 35 We now turn to whether, on remand, wife is entitled to undertake discovery in support of her motion. We conclude that she is.
¶ 36
¶ 37 First,
¶ 38 In addition,
¶ 39 Finally, we note that the supreme court in other contexts has expressed the importance of liberal interpretation of discovery rules to effectuate their truth-seeking purpose. See Antero Res. Corp. v. Strudley, 2015 CO 26, ¶ 26, 347 P.3d 149, 157 (concluding that the Colorado Rules of Civil Procedure do not “authorize a trial court to condition discovery upon the plaintiff establishing a prima facie case“).
¶ 40 We consider discovery especially important in the context of Rule 16.2(e)(10), where the movant spouse is unlikely to possess relevant information precisely because he or she is claiming that the other party failed to disclose material assets or liabilities. See Runge, ¶ 64, 415 P.3d at 894 (Taubman, J., dissenting) (noting that, in most cases, “discovery may be necessary to establish whether an initial disclosure of assets and liabilities contained material misstatements or omissions“).
¶ 41 We acknowledge that the majority in Runge stated that Rule 16.2(e)(10) “does [not] provide for post-decree discovery into an ex-spouse‘s assets.” ¶ 40, 415 P.3d at 891. In our view, that language is dicta because the Runge majority determined that the wife‘s motion in that case was insufficient to trigger the rule, and, therefore, the majority‘s position on discovery was not essential to its determination. In any event, to the extent the Runge majority looked only to Rule 16.2(e)(10), we conclude that the other provisions of Rule 16.2 noted above support the right of a movant under Rule 16.2(e)(10) to conduct discovery in a manner regulated by the district court so that it is not burdensome.
¶ 42 Here, wife alleged and husband admitted that he sold part of the business for $6.9 million, about 850% of its valuation at the time of the decree. Wife also alleged on information and belief that husband had begun negotiations to sell the business — unbeknownst to her, the joint appraisal expert, or her independent expert — prior to the entry of permanent orders.
¶ 43 In keeping with the principle of proportionality expressed in Rules 16.2 and 26, the district court may, on remand, appropriately limit wife‘s discovery to the issue of whether husband engaged in negotiations to sell the business assets before the parties entered into the separation agreement. Thus, contrary to husband‘s arguments, allowing wife to engage in limited discovery should not be burdensome for husband.
¶ 44 Accordingly, we conclude that wife made sufficient allegations to warrant discovery on the specific issue of whether husband engaged in negotiations to sell business assets prior to the entry of permanent orders. We express no opinion as to whether wife will establish facts supporting her motion via discovery. However, we conclude that she should be afforded the opportunity to do so.
VI. Attorney Fees
¶ 45 Wife sought attorney fees in the district court under section 13-17-102 for responding to husband‘s motion to dismiss, and prospectively under section 14-10-119 in order to litigate her Rule 16.2(e)(10) motion. Based on its dismissal of wife‘s motion, the district court did not rule on her request for attorney fees under either provision.
¶ 47 However, we conclude that wife is not entitled to attorney fees under
VII. Appellate Attorney Fees and Costs
¶ 48 Both parties request appellate attorney fees and costs. As she did in the district court, wife requests her fees under sections 13-17-102 and 14-10-119. Husband requests his fees under section 13-17-102, arguing that wife abused process in bringing this appeal.
¶ 49 We deny both parties’ requests under
¶ 50 As for wife‘s claim under
VIII. Conclusion
¶ 51 Accordingly, the order is reversed and the case is remanded for further proceedings consistent with this opinion.
JUDGE WELLING and JUDGE KAPELKE concur.