Marriage of Allen, In re

• Decision Date: 02 September 1986
• Citation: Marriage of Allen, In re, 724 P.2d 651 (Colo. 1986)
• Docket Number: 84SC196
• Parties: In re the MARRIAGE OF Pamela A. ALLEN, Petitioner, and Roger L. Allen, Respondent; and concerning United Mortgage Company, Intervenor-Respondent.
• Court: Colorado Supreme Court

Page 651

724 P.2d 651

In re the MARRIAGE OF Pamela A. ALLEN, Petitioner and Roger L. Allen, Respondent and concerning United Mortgage Company, Intervenor-Respondent.

No. 84SC196.

Supreme Court of Colorado En Banc.

Sept. 2, 1986.

E. Michael Canges, Nina A. Iwashko, Denver, for petitioner.

No appearance for respondent Roger L. Allen.

Holme Roberts & Owen, Donald K. Bain, Spencer T. Denison, Denver, for intervenor-respondent United Mortg. Co.

LOHR, Justice.

We granted certiorari to review the decision of the Colorado Court of Appeals in In re Marriage of Allen, 691 P.2d 749 (Colo.App.1984). In that case, the court of appeals held that United Mortgage Company (UMC) was entitled to impose a constructive trust on some of the property received by Pamela Allen as a result of the dissolution of marriage action involving Pamela Allen and her former husband, Roger Allen. The holding of the court of appeals was based on the facts that prior to the dissolution, Roger Allen had embezzled a large amount of money from UMC and that Pamela Allen had received some of the proceeds of the embezzlement under the terms of the property settlement provisions of the decree of dissolution. The court of appeals remanded the case to the trial court with directions to set aside the permanent orders entered in the dissolution action and to redivide the Allens' property taking into account UMC's interests in that property. We affirm the judgment of the court of appeals.

I.

Roger Allen and Pamela Allen obtained a decree dissolving their marriage on February 7, 1980. Incorporated into the decree was a stipulation for permanent orders containing the Allens' agreement as to property division, child support, and maintenance. The stipulation provided, among other things, that before March 1, 1980, Pamela would receive from Roger cash payments totaling $93,200. In addition, she was to receive a promissory note from Roger in the amount of $75,000 secured by a deed of trust on the Allens' home (the family home). The note and $75,000 of the cash represented one-half of the equity that had accumulated in the family home as of the time of the dissolution. The remainder of the cash payments represented the value of a fur coat and a Jaguar automobile surrendered by Pamela to Roger. The stipulation further provided that upon receipt of the cash, the promissory note, and the deed of trust, Pamela would convey her interest in the family home to Roger.

In January and February 1980, Roger made the cash payments and gave a secured note to Pamela as provided for in the stipulation. Roger obtained $3,200 of the cash through a loan from a friend. He obtained the remaining $90,000 through a loan from Arapahoe Bank & Trust, secured by a second deed of trust on the family home. On the same day that she received the $90,000, Pamela invested $88,413.02 in a house on Driver Lane in Littleton (Driver Lane residence). She sold the Driver Lane residence on July 9, 1980, and received $89,593.74 as proceeds of the sale. She immediately transferred $75,000 of that money to a bank in Florida. Soon after, Pamela purchased an interest in a home in Florida, spending almost $44,000 to buy the interest and to redecorate the home. Within several months of the purchase, she expended the remaining proceeds of approximately $45,000 that she had received from the sale of the Driver Lane residence.

Meanwhile, in late March 1980, Roger Allen's employer, UMC, discovered that Roger had embezzled $589,823.24 from UMC during 1979 and 1980. In his position as vice-president of UMC in charge of construction lending, Roger was able to write checks on some UMC accounts without obtaining the approval of any other UMC employee. Because Roger wrote the checks primarily on accounts for two projects of which he was in charge, the embezzlement went undetected for more than a year. The trial court found that $190,000 of UMC's money was used to pay for construction of the family home, approximately $40,000 was used to buy furnishings for the home, $13,000 was used to purchase the Jaguar automobile, and $3,200 went to repay the loan that Roger had received from his friend.

Criminal charges were filed against Roger, and UMC also brought a civil action to recover the stolen moneys from Roger. Roger entered into a settlement agreement with UMC pursuant to which he conveyed the family home to UMC. He also filed a post-judgment motion in the dissolution of marriage action, requesting that the trial court set aside the stipulated permanent orders that had been incorporated into the decree of dissolution. In his motion, Roger stated that his financial condition would change substantially as a result of the legal proceedings surrounding the embezzlement, rendering unconscionable the enforcement of the permanent orders. UMC filed a motion to intervene in the dissolution action, and the trial court granted that motion. In its complaint in intervention, UMC asked that the permanent orders be set aside because they were based on a fraudulent misrepresentation of marital assets to the court and because they divided property that belonged to UMC. It further asserted, among other things, that UMC was entitled to a constructive trust and an equitable lien on the Driver Lane residence ¹ and to a constructive trust on the promissory note and on the deed of trust on the family home securing that note.

After a hearing, the trial court determined that it would not be proper to reopen the judgment since doing so would directly benefit Roger. It further determined that Pamela was a bona fide purchaser for value and that therefore UMC could not obtain a constructive trust on the promissory note, the deed of trust, or the proceeds of the sale of the Driver Lane residence. UMC appealed this decision, and the court of appeals reversed the judgment of the trial court. The court of appeals held that the provisions of section 18-4-405, 8 C.R.S. (1978), completely disposed of the issues in this case and entitled UMC to impose a constructive trust on any proceeds of the embezzlement that UMC can trace. The court of appeals remanded the case to the trial court with instructions to set aside the previous judgment dividing the Allens' property and to redistribute that property in accordance with the interests of all the parties, including UMC. Although we agree that the judgment must be set aside and the property redivided so as to account for UMC's interests, we do not agree that this result can be based upon section 18-4-405. Accordingly, we affirm the judgment of the court of appeals, but we rely upon a different rationale for doing so.

II.

First we must determine whether the property settlement agreement in this case may be reopened. Section 14-10-122(1), 6 C.R.S. (1973), establishes the circumstances under which a court may set aside previously entered orders concerning property division. That section states in pertinent part that "[t]he provisions [of a dissolution decree] as to property disposition may not be revoked or modified unless the court finds the existence of conditions that justify the reopening of a judgment." The conditions that justify the reopening of a final judgment include the existence of fraud, misrepresentation, or other misconduct of an adverse party, C.R.C.P. 60(b)(2), and "any other reason justifying relief from the operation of the judgment," C.R.C.P. 60(b)(5).

In the present case, it is undisputed that Roger Allen embezzled several hundred thousand dollars from UMC prior to the dissolution and that as a result, his financial statements, upon which the property division was based, were fraudulent and misrepresented his assets. The trial court recognized that fraud on the court necessitates the reopening of a judgment, but refused to set aside the property division on the grounds that Roger, the fraudulent party, should not be allowed to benefit from his fraud by utilizing the property distributed to Pamela to reduce the restitution obligations imposed on him in other civil and criminal proceedings. The trial court's resolution of the issue, however, ignores the position of UMC as a party to this action. From UMC's perspective, Roger is an adverse party who perpetrated a fraud upon the trial court. The trial court and the parties to the dissolution arrived at the property disposition without regard to any rights or interests that UMC might have had in the property. UMC is entitled to have the judgment set aside regardless of whether Roger also benefits from such an action.

III.

We next consider the remedies that will be available to UMC on remand. In reversing the trial court, the court of appeals relied on section 18-4-405, 8 C.R.S. (1978), which states:

All property obtained by theft, robbery, or burglary shall be restored to the owner, and no sale, whether in good faith on the part of the purchaser or not, shall divest the owner of his right to such property. The owner may maintain an action not only against the taker thereof but also against any person in whose possession he finds the property. In any such action, the owner may recover three times the amount of the actual damages sustained by him, if any, and may also recover costs of the action and reasonable attorney's fees; but treble damages and attorney's fees shall not be recoverable from a good-faith purchaser or good-faith holder of the property.

According to the court of appeals, this statute entitles UMC "to trace the embezzled funds to their ultimate destination for the purpose of impressing a constructive trust." In re Marriage of Allen, 691 P.2d at 751.

Pamela Allen argues that section 18-4-405 is merely a codification of the common law remedy of replevin and thus is not authority for the imposition of a constructive trust. UMC argues that the statute does authorize a court to impose a constructive trust on any portion of Pamela's property that can be traced to the embezzled funds. Neither party is entirely...