Court Opinion

ID: 4409924
Source: CourtListenerOpinion
Date Created: 2019-06-25 17:02:57.351588+00
Date Added: 2024-06-11T12:31:48.620730
License: Public Domain

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                                                        ADVANCE SHEET HEADNOTE
                                                                      June 24, 2019

                                       2019 CO 62

No. 18SA284, In re Feldman—Slayer Statute—Preliminary Injunctive Relief.

       Feldman and the law firm of Haddon, Morgan & Foreman petitioned for relief

pursuant to C.A.R. 21 from an order of the probate court requiring the law firm to provide

information to the special administrator concerning its representation of Feldman in a

criminal prosecution for the murder of his wife, and to deposit funds held in its client

trust account into the registry of the court. In response to the assertion of the special

administrator that Colorado’s “slayer statute” applies to the funds at issue as proceeds of

the decedent’s life insurance policy, the probate court determined that if Feldman were

later found, in the manner prescribed by the statute, to be the decedent’s killer, he would

be ineligible to receive those proceeds. Against that eventuality, the probate court found

that compelling the return of the unearned funds in the firm’s client trust account would

be the only way to protect the children’s interests, and that the court’s equitable powers

permitted it to do so.

       The supreme court issued a rule to show cause and now concludes that the probate

court abused its discretion by issuing its order without weighing the considerations

inherent in preliminarily enjoining the law firm from expending further funds in the
representation of Feldman. In addition, however, because the slayer statute expressly

protects third parties who receive a payment in satisfaction of a legally enforceable

obligation from being forced to return that payment or from liability for the amount of

the payment, the supreme court determines that no finding of a reasonable likelihood of

success in attempting to force the return of the insurance proceeds would have been

possible. Given this resolution, the court further concludes that the disclosures ordered

by the probate court would not serve their intended purpose.

      The court therefore makes the rule to show cause absolute.
                    The Supreme Court of the State of Colorado
                    2 East 14th Avenue • Denver, Colorado 80203

                                     2019 CO 62

                        Supreme Court Case No. 18SA284
                      Original Proceeding Pursuant to C.A.R. 21
              Denver Probate Court Case Nos. 18PR30274 & 18PR30656
                       Honorable Elizabeth D. Leith, Judge

                                      In Re
                           In the Matter of the Estate of

                             Stacy Feldman, Decedent.

                                Rule Made Absolute
                                      en banc
                                   June 24, 2019

Attorneys for Elizabeth Greenberg:
Wade Ash Woods Hill & Farley, P.C.
Herbert E. Tucker
Jody J. Pilmer
       Denver, Colorado

Attorneys for Special Administrator Melissa R. Schwartz:
Gill & Ledbetter, LLP
Anne Whalen Gill
       Castle Rock, Colorado

Attorneys for Robert Feldman:
Lathrop Gage, LLP
Alison Z. Sheahen
      Denver, Colorado

Attorneys for Haddon, Morgan and Foreman, P.C.:
Haddon, Morgan and Foreman, P.C.
Jeffrey S. Pagliuca
David S. Kaplan
David G. Maxted
       Denver, Colorado
CHIEF JUSTICE COATS delivered the Opinion of the Court.

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¶1     Feldman and the law firm of Haddon, Morgan & Foreman petitioned for relief

pursuant to C.A.R. 21 from an order of the probate court requiring the law firm to provide

information to the special administrator concerning its representation of Feldman in a

criminal prosecution for the murder of his wife, and to deposit funds held in its client

trust account into the registry of the court. In response to the assertion of the special

administrator that Colorado’s “slayer statute” applies to the funds at issue as proceeds of

the decedent’s life insurance policy, the probate court determined that if Feldman were

later found, in the manner prescribed by the statute, to be the decedent’s killer, he would

be ineligible to receive those proceeds. Against that eventuality, the probate court found

that compelling the return of the unearned funds in the firm’s client trust account would

be the only way to protect the children’s interests, and that the court’s equitable powers

permitted it to do so.

¶2     We issued our rule to show cause and now conclude that the probate court abused

its discretion by issuing its order without weighing the considerations inherent in

preliminarily enjoining the law firm from expending further funds in the representation

of Feldman. In addition, however, because the slayer statute expressly protects third

parties who receive a payment in satisfaction of a legally enforceable obligation from

being forced to return that payment or from liability for the amount of the payment, no

finding of a reasonable likelihood of success in attempting to force the return of the

insurance proceeds would have been possible. Given this resolution, the disclosures

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ordered by the court would not serve their intended purpose. The rule is therefore made

absolute.

                                             I.

¶3     As indicated in the probate court’s order, Stacy Feldman died in 2015 and that

same year her husband, Robert Feldman, received a disbursement of approximately

$751,910 as the sole beneficiary of an insurance policy on the decedent’s life. Almost three

years after his wife’s death, Feldman was charged with her murder. Pursuant to a fee

agreement, he retained the law firm of Haddon, Morgan & Foreman to represent him in

this criminal matter, and his retainer was deposited into the firm’s client trust account.

¶4     Those trust account funds, the probate court found, were derived from the life

insurance proceeds distributed to Feldman, and he intended to spend approximately

$550,000 remaining from those proceeds to fund his criminal defense.

¶5     The record demonstrates that after criminal charges were filed against Feldman,

Elizabeth Greenberg, as guardian for the Feldmans’ two minor children, filed two

petitions with the Denver probate court concerning the decedent’s estate. The first

petition asked for relief under Colorado’s “slayer statute,” § 15-11-803, C.R.S. (2018), and

for a constructive trust, and the second petition requested the appointment of a special

administrator.

¶6     The probate court then appointed a special administrator in both probate matters

and granted her the authority to investigate and provide an inventory of the decedent’s

assets, pursue appropriate legal action on behalf of the decedent’s estate, prevent further

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dissipation of estate assets by Feldman, review Feldman’s attorney billing statements and

attorney fee agreements, and ascertain the amounts held in client trust accounts for

Feldman.

¶7     As recounted by the probate court in its order, the special administrator then sent

the law firm a letter requesting copies of Feldman’s fee agreement, copies of attorney

billing statements, and the balance of funds remaining in the firm’s client trust account

for Feldman. Additionally, the special administrator notified the law firm that she would

be attempting to recover the life insurance proceeds paid to Feldman.

¶8     The parties filed various motions with the probate court concerning the special

administrator’s requests.    After oral argument, the probate court issued an order

requiring the law firm to (1) deposit the funds held in the firm’s client trust account into

the court’s registry or another trust account set up by the special administrator, and

(2) disclose information relating to its fee agreement with, and billing records to, Feldman

and the amount and source of funds in the client trust account.

¶9     The probate court determined it could issue this order under authority of the

slayer statute and its equitable powers to carry out that statute’s intent. Without freezing

those funds, the court reasoned a large portion, if not all, of the insurance proceeds would

be spent on Feldman’s legal defense, depriving his children of money that would belong

to them if Feldman were later convicted of murdering his wife.

¶10    Feldman and the law firm petitioned this court for relief pursuant to C.A.R. 21,

asserting that the probate court exceeded its authority and abused its discretion by

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freezing the funds held in the client trust account and ordering disclosures. We issued a

rule to show cause.

                                               II.

¶11    Exercise of our original jurisdiction under C.A.R. 21 is within our sole discretion.

Fognani v. Young, 115 P.3d 1268, 1271 (Colo. 2005). An original proceeding under C.A.R.

21 is an extraordinary remedy that is limited in purpose and availability. Wesp v. Everson,

33 P.3d 191, 194 (Colo. 2001). It may be appropriate, however, to review an interlocutory

order for an abuse of discretion when appellate review would be inadequate. Smith v.

Jeppsen, 2012 CO 32, ¶ 6, 277 P.3d 224, 226.

¶12    In their petition, Feldman and the law firm assert that the probate court exceeded

its jurisdiction and abused its discretion when it ordered the law firm to deposit the funds

held in its client trust account in the court’s registry pending a determination of whether

its client, Feldman, killed his wife. Without access to those funds, they assert that

Feldman will be unable to pay the firm’s legal fees, the firm will have to withdraw from

representing Feldman, and he will be deprived thereby of his legal counsel of choice for

the serious criminal charges brought against him. Because appellate review would be

inadequate to rectify an abuse of discretion under these circumstances, we conclude that

exercise of our original jurisdiction is appropriate.

                                               III.

¶13    In Lunsford v. Western States Life Insurance, 908 P.2d 79, 83 (Colo. 1995), we

addressed the scope of protection provided by a forerunner of Colorado’s “slayer statute”

                                                6
to insurance companies that paid life insurance proceeds to a primary beneficiary who

was later determined to have murdered the insured. Finding that the statute was silent

regarding a beneficiary’s entitlement to insurance proceeds in situations other than those

in which the beneficiary was determined, by the means prescribed by the statute itself, to

have murdered the person upon whose life the policy was issued, we found the statute

simply inapplicable to the question of insurance company liability in that case. Id. at 84–

85. Unlike the question of liability for the distribution with which we were faced in

Lunsford, the question before us in this original proceeding concerns the discretion of the

probate court to freeze life insurance proceeds that had already been distributed to the

primary beneficiary, until such time as a statutorily prescribed determination whether he

was the killer of the insured could be made.

¶14    While the statute has been amended and no longer expressly provides for the

disposition of proceeds of a life insurance policy, see § 15-11-803(3), C.R.S. (1987), it

nevertheless currently provides for the revocation of any disposition of property made

by the decedent to the killer in a governing instrument, and it continues to prescribe the

means by which a felonious killing, for purposes of such revocation, must be established.

See § 15-11-803(1)(b), (3)(a). The probate court specified in its order that if it should be

proven under the provisions of the slayer statute that Feldman is the decedent’s killer,

that determination would make him ineligible to receive the insurance proceeds at issue

in this case, and neither party appears to dispute that those insurance proceeds would

qualify as a disposition as to which a felonious killing would require the revocation of

                                             7
benefits by section 15-11-803(3). Although the statute makes a person who receives a

payment to which that person is not entitled obligated to return the payment,

§ 15-11-803(9)(a), the statute does not expressly address the question of freezing

insurance proceeds until it can be determined, according to the statute, whether the

person receiving the payment was entitled to receive it or not.

¶15    As the probate court below noted in issuing its order, probate courts in Colorado

enjoy equitable jurisdiction in addition to the authority granted to them under particular

provisions of the Probate Code. Beren v. Beren, 2015 CO 29, ¶ 19, 349 P.3d 233, 241. But

“equity jurisdiction” in this sense has never been equated with a roving commission to

do good. See 1 Dan B. Dobbs, Law of Remedies § 2.2 (2d ed. 1993) (tracing the development

of equity jurisdiction). Rather, it more accurately refers to a court’s powers derived from

the body of equity precedent, doctrine, and practices attributable to the equity courts of

old. See id. § 2.1(3). More specifically, we have characterized the equity jurisdiction of

Colorado’s probate courts as limited to those powers the probate court “traditionally

exercised before adoption of the Probate Code” and only then if that exercise of equity

has not been “displaced” by particular provisions of the Code. Beren, ¶ 19, 349 P.3d at

241. The Probate Code displaces a court’s general equitable authority “when an exercise

of equity conflicts with the plain language of that specific provision and the two cannot

be reconciled.” Id. at ¶ 21, 349 P.3d at 241.

¶16    Notwithstanding other formal or procedural limitations, the probate court

therefore clearly has the jurisdiction to impose established equitable remedies, whether

                                                8
or not those powers have been expressly granted to the probate court in its enabling

legislation. No more than any other court, however, is the probate court relieved of

exercising its discretion according to the limitations that have developed for the

imposition of such equitable remedies. However designated, the probate court’s order

here, compelling the law firm, as it does, to deposit in the court registry the funds

remaining in the firm’s client trust account, necessarily implicates the equitable remedies

of constructive trust, as well as preliminary injunction.

¶17    Generally, a constructive trust is an equitable device used to compel one who

unfairly holds a property interest to convey that interest to another to whom it justly

belongs. In re Marriage of Allen, 724 P.2d 651, 656–57 (Colo. 1986). And although assets

subject to a constructive trust may be frozen under some circumstances to preserve the

corpus of the constructive trust pending trial on the merits, see 2 Dan B. Dobbs, Law of

Remedies § 6.1(5) (2d ed. 1993), enjoining the holder from access to its property in this way

necessarily implicates the balance of equities required for a preliminary injunction, see,

e.g., Lyons v. Jefferson Bank & Tr., 781 F. Supp. 1525, 1530–31 (D. Colo. 1992) (applying test

for granting a preliminary injunction to freeze assets claimed under a constructive trust);

Wilty v. Prudential Ins. Co. of Am., 2018 WL 7019197, at *1–2 (W.D. Tenn. Sept. 25, 2018)

(applying test for granting temporary restraining order to freeze already-disbursed funds

claimed under a constructive trust and state slayer statutes). Among the other concerns

we have identified as prerequisites to preliminarily enjoining someone is a reasonable

                                              9
likelihood of the moving party’s success on the merits. Rathke v. MacFarlane, 648 P.2d 648,

653 (Colo. 1982).

¶18    In much the same way a constructive trust “cannot operate against a third party

who acquired the property in good faith, for value, and without notice,” In re Marriage of

Allen, 724 P.2d at 657, Colorado’s slayer statute protects bona fide purchasers for value

from disgorgement or liability, see § 15-11-803(9)(a). In addition, however, it similarly

protects a person “who receives a payment or other item of property in partial or full

satisfaction of a legally enforceable obligation” from being compelled to return that

payment or from being liable for its amount. Id. The language of this provision plainly

applies to the funds held in the law firm’s client trust account and thereby protects those

funds from disgorgement.

¶19    When the law firm accepted Feldman’s payment, it did so in exchange for

undertaking one or more “legally enforceable obligation[s]” within the meaning of

section 15-11-803(9)(a). By agreeing to represent Feldman, the law firm became obligated

to uphold all the duties attendant upon an attorney in an attorney-client relationship in

addition to its obligations arising under the express and implied terms of its fee

agreement with Feldman. See Restatement (Third) of the Law Governing Lawyers § 55

(Am. Law Inst. 2019) (describing an attorney’s liability under theories of tort, contract,

and breach of fiduciary duty stemming from the attorney-client relationship); 23 Richard

A. Lord, Williston on Contracts § 62:5 (4th ed. 2019) (stating that agreements between

                                            10
attorneys and clients concerning the attorney-client relationship are enforceable and

should generally be treated as any other contract).

¶20      Greenberg and the special administrator maintain that section 15-11-803(9)(a) is

inapplicable because the firm has not yet “received” those funds within the meaning of

that provision. They point out that those funds are being held in trust for Feldman and

have not yet been earned by the law firm. But in ordinary parlance “receive” merely

means “to come into possession of,” see receive, Merriam-Webster’s Online Dictionary,

https://perma.cc/434N-QZQ6, which the law firm indisputably has done with regard to

these funds, see Colo. RPC 1.15A(a) (treating client trust account funds as being “in the

lawyer’s possession”).

¶21      Where the probate court’s order assumes, and the parties do not dispute, that the

funds held in the client trust account represent a disposition of property covered by

section 15-11-803(3), cf. § 15-11-803(6) (providing for a “wrongful acquisition of property

or interest by a killer not covered by this section”), they also fall within the ambit of

section 15-11-803(9)(a)’s protection. As such, even if Feldman is ultimately proven to be

a killer within the contemplation of the statute, the statute will not obligate the firm to

return the funds or render the firm liable for their expenditure, but rather the firm may

continue to earn those funds in accordance with their fee agreement.           The special

administrator therefore can have no reasonable likelihood of succeeding in recouping

those funds covered by the statute for the benefit of the decedent’s estate and its rightful

heirs.

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                                          IV.

¶22   The probate court’s order also required the law firm to disclose information

relating to its fee agreement with, and billing records to, Feldman and the amount and

source of funds in the client trust account. This information would have allowed the

court to determine the amount of funds already earned by the firm and therefore exempt

from the freeze order.

¶23   Because the probate court could not freeze any of the funds held in the trust

account, however, those disclosures would not serve their intended purpose, and it is

unnecessary for the firm to now make them.

                                           V.

¶24   The probate court abused its discretion by issuing its order without weighing the

considerations inherent in preliminarily enjoining the law firm from expending further

funds in the representation of Feldman, and because the slayer statute expressly protects

third parties who receive a payment in satisfaction of a legally enforceable obligation

from being forced to return that payment or from liability for the amount of the payment,

no finding of a reasonable likelihood of success in attempting to force the return of the

insurance proceeds would have been possible. Given this resolution, the disclosures

ordered by the court would not serve their intended purpose. The rule is therefore made

absolute.

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