Vinton v. Virzi, 2012 Co. 10, 2012 Colo. LEXIS 92 (Feb. 13, 2012)
Walter and Elaine created a trust in 2002, with themselves as initial trustees and their daughter Debra as successor trustee upon their deaths. Debra became successor trustee in 2007, after the death of Elaine. The trust provided for the distribution of three-quarters of the trust assets to Debra and one-quarter to Sharon, her half-sister. The trust included two pieces of real property in California.
After disputes arose over the administration of the trust, Sharon requested an accounting of the trust property. She received several accountings and then petitioned the probate court to review Debra’s actions as trustee. Sharon alleged that Debra undervalued the trust property and committed fraud by falsely listing the California real property as trust assets. The California real property had previously been titled in Debra’s name.
During a deposition, Debra provided statements that were interpreted by Sharon to be concessions that Debra’s attorney was aware of the correct titling of the California real estate when Debra provided the accountings. In light of these statements, Sharon amended her fraud claim and added Debra’s attorney, Amanda, as a defendant. The probate court permitted the amendment, which forced Amanda to withdraw as Debra’s counsel. Amanda filed two motions to dismiss for lack of subject matter jurisdiction and failure to state a claim. The probate court denied both and took the extra step of awarding attorney fees to Sharon on the ground that Amanda’s motions were frivolous. Amanda petitioned directly to the Supreme Court of Colorado for relief.
The Supreme Court of Colorado dismissed Sharon’s claim of fraud against Amanda and overturned the probate court’s award of attorney fees. The court noted that strong public policy concerns require a trial court to “carefully scrutinize the totality of the circumstances” to determine if permitting an amended pleading amounts to undue prejudice when it forces the removal of an adverse party’s counsel. The court stated that a determinative factor of the analysis is whether the amended pleading would be “futile” — unable to withstand a motion to dismiss.
Sharon’s claim of fraud lacked a necessary element because she failed to establish that she relied on Amanda’s representations concerning the ownership of the California real property. The deeds were publicly accessible and Colorado case law does not permit a party claiming fraud to rely on a false representation where the true facts are equally available to both parties. Additionally, Debra was never required to title the property with reference to the trust in order to hold the property as a trust asset. Merely titling the real estate in her name did not contradict the inventories’ listing the same as assets of the trust. For these reasons, the Supreme Court of Colorado concluded that Sharon’s amended claim of fraud against Amanda was futile, and should not have been granted in light of the undue prejudice to Debra that resulted.
The court also held that Amanda’s motions to dismiss were rational arguments based on Colorado statutory authority and case law, as well as legal principles from other states.
The court held that her motions were therefore not frivolous and the award of attorney fees was in error.