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Borden v. Rose, et al., Docket No. 361-10-05 Bncv ( Wesley, J., Dec. 20, 2005)

[The text of this Vermont trial court opinion is un official. It has been reformatted from the original. The accuracy of the text and the accompan ying data included in the Vermont trial court opinion database is not guaranteed.]

STATE OF VERMONT BENNINGTON SUPERIOR COURT BENNINGTON COUNTY, SS. DOCKET NO. 361-10-05 Bncv JANE BORDEN (f/k/a Rose) ) ) VS. ) ) JOHN ROSE, JULIUS ) ROSENWALD, & B.S. KRIMPETT, LLC

ORDER RE MOTION TO DISMISS

Introduction - Plaintiff's complaint sounds in tort but it aris es from circumstances that were previously the subject of l itigation in the Bennington Family Court. She claims damages for fraud and unjust enr ichment, and invokes equity for the imposition of a constructive trust on the real esta te formerly occupied as a marital home by herself and Defendant John Rose, her ex-husband. She asserts this claim notwithstanding the fact that each party's equity o f redemption has been extinguished by a foreclosure judgment, and the property has bee n purchased by Defendants Rosenwald and Krimpett. Defendants have moved to d ismiss for failure to state a claim, principally relying on the argument that anyjusticiable issue is vested solely within the Family Court's jurisdiction. As discuss ed below, the Court expresses grave doubts that the Superior Court has subject matter j urisdiction over any of the claims asserted against Defendant Rose. Furthermore, altho ugh technically vested with2

jurisdiction over the claims against the other defe ndants, the Court questions whether the facts as plead are sufficient to sustain the ca uses of action alleged. However, inasmuch as the Court = s reasoning expands upon any of the arguments in th e memoranda and requires certain inferences that migh t be described as beyond the pleadings as presently framed, the Court invokes th e provision of V.R.C.P. 12(b) appropriate to such circumstances, deferring a defi nitive ruling until A all parties shall be given a reasonable opportunity to present all mater ial made pertinent to such a motion b Rule 56". Nonetheless, the Court writes presentl y at some length in an effort to apprise the parties of its concerns regarding the c laims based on the record made thus far, thus affording an opportunity to bolster the r ecord as contemplated by V.R.C.P.(e) and to supply additional legal authorities addressi ng the issues set forth below. Factual Background - Taking all well-plead facts as true, Defendant R ose resided in the former marital home in Pownal after he and Plaintiff separated and throughout their divorce proceedings. He remained responsible for the mortgage payments. At the time the parties were negotiating a final stipulation, Defendant Rose "made affirmative representations that the mortgage payments had been re-negotiated, a payment plan had been agreed upon between him and Inter-State Federal Savings...and that the entire legal action was in a beyance." Complaint at & 10. Nevertheless, as he was aware, Defendant Rose did not make a "repayment agreement" nor was the foreclosure action ever in a beyance. Plaintiff claims to have relied on these false representations as to the sta tus of the foreclosure matter when she entered into a final stipulation for a divorce decree. By the terms of that decree,

Defendant Rose was awarded title to the marital hom e, subject to a provision for3

dividing any equity at the time the parties younges t child reaches 18 or graduates from high school. The portion of the decree related to property settlement recites as to the foreclosure proceedings: The matter is currently in abeyance. Should judgme nt be entered in the said complaint or any complaint for foreclosure the property shall be immediately listed for sale with Hoisington Realty or any other reputable realtor as agree upon by the parties at a price set by the Realtor and any offer within 5% of said listing must be accepted bythe parties. If the property is sold as the result of a foreclosure jud gment, Defendant, Mr. Rose shall be solely responsible for all fees assoc iated with the foreclosure resulting from his failure to pay on th e mortgage. Notwithstanding the above, Mr. Rose is solely respo nsible for and shall hold Ms. Rose harmless from any and all expenses re lated to the marital residence since the date of separation on or about February 5, 2001. Such expenses may include, but are not limited to, taxes , principal, interest on the mortgage payment. On June 4, 2002 Inter-State obtained a judgment by default in the mortgage proceedings. The Court infers from the pleadings t hat Plaintiff was unaware of this fact at the time of the divorce in November, 2002, notwi thstanding the recitation in the decree that there was a foreclosure proceeding pend ing. On the present state of the pleadings, however, the Court does not construe the complaint as alleging that Defendant Rose did any act, fraudulently or otherwi se, that prevented Plaintiff from becoming aware of this matter of public record. Th e complaint is likewise silent as to whether either party invoked the provisions in the divorce decree which specified a procedure for attempting to effectuate a sale in th e event of foreclosure - an event which in fact had already occurred at the time of t he divorce decree. Nevertheless, if such efforts were made they were unavailing. The s ix month period of redemption expired shortly after the divorce was final without the equity being redeemed by payment of the amount established by the foreclosur e accounting, and Inter-State took4

title to the property on December 20, 2002. The allegations as to the other defendants are sp are. On March 3, 2003, Defendant B.S.Krimpett, LLC purchased the property from Inter-State for the sum of $68,639.60, "believed to be the amount of the payof f of the loan." Complaint at & 19. Krimpett is a business entity of unknown origin bel ieved to be closely associated with

Defendant Rosenwald. Defendants Rosenwald and Rose are familiar with one another. Defendant Rose continues to reside at the propertyand pay rent. On the present state of the pleadings, the Court does not consider it a reasonable inference in the absence of explicit allegations to such effect that the oth er defendants acted in furtherance of any claimed conspiracy at any time prior to Inter-S tate = s acquisition of the subject property.

Discussion a) Procedural History and Legal Context - Defendants Rosenwald and Krimpett were first to file their motion to dismiss , a two page document that recites the statutory authority for Family Court jurisdiction, 4 V.S.A. ' 454, observes that all Plaintiff's claims spring originally from the Family Court stip ulation and decree, and asserts without further discussion that subject matter juri sdiction is plainly absent. Defendants do not address the fact that the claims against the m are conspiracy to defraud, or that they were not parties to the Family Court proceedin gs, nor suggest how these claims could have been brought in Family Court. Shortly a fter Rosenwald and Krimpett sought dismissal, Defendant Rose filed a similar request i ncorporating the earlier arguments by reference with no additional briefing. Plaintiff opposed the motion to dismiss claiming th at all her claims "against all5

Defendants are unique and separate ...from any matt ers related to the Final Order for Divorce". She cites Demgard v. Demgard 173 Vt.526 (2001) and Slansky v. Slansky , 150 Vt. 438 (1988) for the proposition that certain causes of action between former spouses will support separate claims in Superior Co urt, even if they arose during the marriage and could also have been relevant to claim s in the divorce proceedings. Defendants Krimpett and Rosenwald respond that the circumstances here are far more analogous to Tuthope v. Riehle , 167 Vt. 174 (1997) in which the dismissal of a Su perior Court suit claiming fraudulent inducement during th e negotiation of a final divorce stipulation was upheld as an impermissible collater al attack on the divorce decree; (although Defendant Rose has made no additional fil ings beyond his initial adoption of the arguments of the other defendants, the Court tr eats all arguments raised by Defendants Rosenwald and Krimpett as applicable to Rose's motion to dismiss). Plaintiff has not addressed how Tuthope is distinguishable from her claim. As to the complaint against Defendant Rose, the Court does no t believe that it can be on the record presently established. In Slansky , the parties had been divorced by a stipulated dec ree that vested each with the property then in that person = s name. Although no specific mention was made of the health insurance policy, it was undispu ted that at the time of the divorce Mr. Slansky knew that the policy had been changed i nto Ms. Slansky = s name alone excluding him from any coverage. Nonetheless, onlya few months after the divorce was final, Mr. Slansky brought a Superior Court act ion for fraudulent conversion alleging that he had provided the funds for the pol icy prior to the separation expecting that it would name the entire family as insureds, t hat Ms. Slansky put the policy in her6

name alone without his knowledge, and that as a res ult he had been unable to obtain insurance coverage for a health condition that subs equently developed. The Superior Court granted defendant = s motion for summary judgment concluding that the i ssue was res judicata

since it could have been raised in the divorce act ion. While the Supreme Court acknowledged that A the dispute concerning the insurance policy was cle arly at issue during the parties = negotiations @ in the divorce action, and that A it might have been a more prudent course to have expressly reserved th e issue in the property distribution agreement @ , it nevertheless refused to extend res judicata to bar A a unique claim sounding in tort that is separate and distinct from the divorce decree. @ Id. 150 Vt. at

441-42. By its analysis in Tuthope , the Court distinguished Slansky . Tuthope was decided after the creation of the Family Court duri ng which the Legislature delimited the Superior Court = s jurisdiction so as to preclude it from considerin g actions cognizable in the Family Court. 4 V.S.A. ' 113. Thus, the Court upheld dismissal of Ms. Tudho pe = s Superior Court complaint against Mr. Riehle, her ex-husband, by wh ich she alleged that he had procured her consent to a stipulated divorce decree by unconscionable means including fraud, deceit and duress. The Court ruled that a s ettlement agreement incorporated

into a divorce decree A becomes a part of the judgment of the court and is assailable only through a motion to set aside the judgment. @ Id . 167 Vt at 177. The Court rejected the argument that the plaintiff = s attempt at a collateral attack on the divorce was covered by the principles discussed in Slansky . Looking to the A substance of the complaint @ rather than the A precise terminology @ of the tort label, the Court concluded7

that Tudhope was A attempting to relitigate the property distribution agreement that the family court adopted rather than asserting a unique claim separate and distinct from the

divorce decree @ . Id . at 179-80. The parameters of what constitutes a A unique claim @ sufficient to avoid the preclusive effect of a divorce decree are further r efined by Demgard . In that matter, Mr. Demgard filed a Superior Court claim seeking contri bution from his ex-wife for payments he had made on a promissory note the parties had ex ecuted prior to their divorce. The divorce decree had issued after a contested hearing , but made no specific disposition of the parties marital debts and omitted any mention o f the promissory note. Although Ms. Demgard argued that issues regarding the note had b een the subject of a portion of a memorandum filed prior to the divorce trial, the Su preme Court found nothing in the record to support the conclusion that the Family Co urt had ever been presented with evidence as to the debt so as to incorporate consid eration of it into the division of the marital estate. Furthermore, the Court noted that u nder 4 V.S.A. ' 453(a) A Vermont statutes governing divorce proceedings do not oblig ate the family court to allocate responsibility for marital debt absent the parties = invocation of the court = s equitable jurisdiction to do so. @ Id . 173 Vt. at 528. Tuthope was distinguished because it involved a collateral attack on a property stipulation incor porated into the divorce decree by consent of the parties, whereas the claim for equit able contribution between the Demgards was not required to have been presented to the Family Court which, in fact, had never considered it during the trial on the mer its. By this reasoning, the Court found

it A a unique and separate claim from the property divis ion in the final divorce judgment @ , and thus A cognizable in superior court @ . Id

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b) Claims against Defendant Rose - Notwithstanding her conclusory insistence to the contrary, Plaintiff = s claim against her ex-husband does not appear to b e A unique and separate @ from the divorce judgment but rather constitutes a direct attack on the consent decree, seemingly indistinguishable from th e situation in Tuthope . As Defendants note, Plaintiff = s complaint specifically alleges that A Defendant Rose fraudulently induced the Family Court into signing a Final Order of Divorce @ , Complaint

at & 16, the exact claim rejected in Tuthope as an impermissible collateral attack. Indeed, absent the further development of facts to support the contention, the Court would find it hard to accept Plaintiff = s argument that because her ex-husband A no longer retains an ownership interest in the subject proper ty, the family court would have little or no mechanism available to it to adjudicate the issu es raise in Plaintiff = s Complaint and the relief requested @ . Rather, as in Tuthope , the conclusion would appear inescapable that Plaintiff is bound by the settlement she made, and that any means of relief ought to have been either a petition to enforce the settleme nt agreement regarding the rights provided relative to the foreclosure proceeding, ora timely motion to set aside the

consent decree. Significantly, the decree discloses no absolute rel iance on the recitation that the

foreclosure action was A in abeyance @ , the core element of Plaintiff = s claim for misrepresentation. Although the stipulation and dec ree charge Defendant Rose with responsibility for the mortgage payments, they make no explicit provision as to how the foreclosure action must be resolved. Instead, the s tipulation expressly contemplated the prospect that judgment could A be entered in the said complaint or any complaint

foreclosure @ , making particular provision for a method by which the property could be9

A sold as the result of a foreclosure judgment. @ Given the contingencies contemplated by the divorce decree regarding the pending foreclosur e action, Plaintiff must be charged with the duty of taking reasonable steps to protect her inchoate interest in any equity in the marital home, which plainly could not materiali ze except for the resolution of the foreclosure. Assuming as Plaintiff alleges that th e balance to satisfy the mortgage was almost $70,000, the prospect of having to sell the home to save any potential equity was palpable at the time of the final divorce decree. Yet, for all that appears from the complaint, Plaintiff apparently claims reliance on the asserted state of A abeyance @ for having remained uninformed as to the entry of defau lt in the foreclosure, the establishment of the period of redemption scheduled to expire within a matter of weeks, and the subsequent expiration of that period and tr ansfer of title to the mortgagee. Each of the parties was represented by counsel at t he time of the divorce (including Plaintiff = s representation by her current attorney). The fore closure action had been pending since before April 2002 at the time th e divorce was settled in November 2002. From its attempts to parse the limited histo ry presented by the pleadings, the Court is left with the disquieting prospect that at the time of the divorce decree neither Plaintiff, nor counsel, was aware of the default ju dgment more than five months earlier that had triggered the running of the redemption pe riod set to expire less than a month hence. If that is the case, however, claiming that Defendant misrepresented the nature of any state of A abeyance @ in the foreclosure proceedings does not make out ac tionable misrepresentation, as the Court presently understan ds the law. See,Winton v. Johnson & Dix Fuel Corp. 147 Vt. 236, 241(1986)(misrepresentations as to a matter of law are

not actionable A where it is clear... from facts about the relations hip of the parties that10

reliance should only follow an independent inquiry @ ). As a party to the action whose existence she acknowledged in the divorce stipulati on, Plaintiff and her counsel must be charged with knowledge of its status which would ha ve been disclosed by a simple inquiry to the court clerk. In any event, since no express provision was made in the decree for how the parties expected the foreclosure claim would be resolved, except by the eventual need to sell the house, Plaintiff sure ly must have been advised that her potential rights under the divorce decree would req uire vigilance regarding the

foreclosure suit. Under the circumstances presented, it is unclear wh ether there were any remedies in either the divorce proceedings or the f oreclosure proceedings by which

Plaintiff could have forestalled the loss of the ho use. However, by the exercise of reasonable prudence either before or after the divo rce decree, she might have enforced the remedy specifically bargained for in the divorc e settlement - sale of the house - or, to the extent she was able to demonstrate other prejud ice flowing from claimed misrepresentation, grounds for seeking to have the divorce decree vacated. That she allowed the time for exercising her potential remed ies to lapse without asserting them does not strengthen her present claim of for a A unique and separate @ action. Tuthope , 167 Vt. at 178 (superior court action not justified by expiration of period for seeking postjudgment relief in divorce proceeding since such li mits are consistent with the need for finality of judgments). c) Claims against Defendants Krimpett and Rosenwald - By the foregoing analysis, the Court presently believes that the fun damental claim that Defendant Rose = s misrepresentations regarding the status of the fore closure action tainted the divorce11

decree is res judicata

as regards the complaint against him. However, co ntrary to the briefing of the other defendants, reliance on Tutho pe alone is insufficient to afford the basis for dismissal of the claims against them. As that opinion notes, A the type of relief

available in a tort action is not available in a di vorce action. @ Id, 167 Vt. at 179. Thus, since the claim for conspiracy to defraud could not have been joined with the original divorce, the decree in that action cannot have prec lusive effect with respect to the complaints against the other defendants. Nonethele ss, although not deprived of subject matter jurisdiction, this Court doubts that Plainti ff has plead sufficient facts to state a cause of action on which relief could be granted as to the other defendants. Plaintiff alleges in Count I that Defendants Rosenw ald and Krimpett A conspired to de-fraud Plaintiff of her rightful portion of th e marital home @ . In Count II, she alleges

that those other defendants A will be unjustly enriched should they receive the e ntire portion of the value of the subject property @ , and on that basis she invokes by her Count III an equitable entitlement to the remedy of a con structive trust. As previously noted, the facts already discussed with respect to Plainti ff = s complaint against Defendant Rose do not presently permit the inference that he engag ed in any act of conspiracy with the other defendants prior to the judicial transfer of title to the property to Inter-State. Thus, the allegations supporting Plaintiff = s additional claims against the other defendants ar e decidedly meager. They are limited to: i) Defendan t Krimpett purchased the property from the judgment holder in the foreclosure action for an amount equal to what would have been necessary to redeem, presumably well belo w fair market value; ii) Krimpett is closely associated with Defendant Rosenwald, who is familiar with Defendant Rose; iii) Defendant Rose never moved from the property, and now pays rent to Krimpett12

and/or Rosewald as agent for Krimpett. These facts are plainly insufficient to establish either a conspiracy to defraud or unjust enrichment

. The parties have yet to brief the elements of an ac tion for civil conspiracy, but the Court = s research discloses scant jurisprudence from the o pinions of the Vermont Supreme Court; see, e.g. Schwartz v. Frankenhoff 169 Vt. 287 (1999)(no court will accept conclusory allegations of a conspiracy, with out more, as sufficient to establish personal jurisdiction over an alleged member of the conspiracy), State v. Heritage Realty

of Vermont 137 Vt. 425 (1979)(state = s evidence insufficient to show anything more than similar prices reached independently which would no t support the agreement elemental to an illegal price-fixing conspiracy, but summary judgment was premature in light of State = s petition for additional discovery). As described in 16 Am Jur2d ,Conspiracy ' 50, the definition of a civil conspiracy is A a combination of two or more persons by some concerted action to accomplish some criminal or unl awful purpose @ , with A the essence of civil conspiracy @ being a claim for damages. But there A can be no conspiracy where the acts complained of, and the means employed in doing the acts, are lawful. @ As to elements, a civil conspiracy A requires an object to be accomplished, a meeting of minds on the object or course of action, one or more over t acts, and damages as a proximate

result thereof. @ Id ., ' 51. In this case as plead, there are neither factual al legations, nor reasonable inferences to be drawn from them, sufficient to est ablish any claim of an unlawful agreement, or acts taken in furtherance of it. Plai ntiff does not allege that the defendants plotted in concert at the time of the divorce to de prive her of any hope of realizing her share of the equity in the home. In any event, no such agreement could have13

succeeded had Plaintiff invoked her right to compel a sale of the house, the free exercise of which was unimpeded by the acts of any of the defendants as far as can be inferred from the allegations of the complaint. Fu rthermore, even assuming Defendant

Rose = s misstatement about the nature of the foreclosure A in abeyance @ had been actionable, the link between such misrepresentation and the later acts of the other defendants are too attenuated to demonstrate any re sulting damage to Plaintiff = s interests. As already discussed, such proximate ca use as against Defendant Rose is dubious, even had it been properly raised in the Fa mily Court, because Plaintiff failed to

resort to remedies available to her under the divor ce decree. As to the other defendants, the linkage is so indistinct as to disa ppear on the current state of the record. Simply put, no nefarious purpose can reasonably be inferred from the allegations against Defendants Krimpett and Rosenwald. They bo ught a property from a foreclosing creditor at a bargain price, in itself an unnotewor thy event. They then made an unspecified arrangement with the prior owner to con tinue to occupy the premises presumably involving rent. Each of these events ca n be explained in terms of commercially reasonable behavior, and without addit ional allegations that plainly frame them as unlawful, there can be no conspiracy. By similar reasoning, Plaintiff has failed to alleg e facts showing unlawful actions by either Defendant Krimpett or Rosenwald that prox imately caused damage to Plaintiff by way of unjustly enriching those defendants. The allegations of the complaint show no more than that Defendants realized a possible barga in by purchasing the property from a foreclosing creditor typically anxious to elimina te a losing investment from its portfolio. In this regard, it must be noted that long-establis hed authority supports Vermont = s14

tradition of strict foreclosure, though in circumst ances such as this one it can produce the harsh consequence of the liquidation of signifi cant equity lost to mortgagors who fail to redeem. See, Aldrich v.Lincoln Land Corp. , 130 Vt. 372 (1972)(the right of redemption

is the device that removes a foreclosure from the c ondemnation of a forfeiture), Dieffenbach v. Attorney General of Vermont , 604 F.2d 187 (2nd Cir, 1977)(upholding the constitutionality if Vermont = s strict foreclosure statute). Based on the foregoing, it is hereby ORDERED : The Court will defer further ruling on

Defendants = Motions to Dismiss pending an opportunity to devel op the record pursuant to Rule 56 in light of the discussion in this opini on. The parties shall consult with respect to an appropriate discovery schedule and file a sti pulation with the Court no later than January 6, 2006, which shall specify a deadline forthe completion of all written discovery and depositions. Supplemental memoranda shall be f iled within 20 days after the close of discovery. DATED December 20, 2005, at Bennington, Vermont.

John P. Wesley Presiding Judge