McAnulty v. Standard Ins. Co.

• Docket Number: 22-1099
• Decision Date: 28 August 2023
• Citation: 81 F.4th 1091
• Parties: Elizabeth J. MCANULTY, Plaintiff - Counter Defendant - Appellant, v. STANDARD INSURANCE COMPANY, Defendant - Counterclaimant, and Melanie Rae McAnulty, Defendant - Cross Defendant - Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

81 F.4th 1091

Elizabeth J. MCANULTY, Plaintiff - Counter Defendant - Appellant, v. STANDARD INSURANCE COMPANY, Defendant - Counterclaimant,andMelanie Rae McAnulty, Defendant - Cross Defendant - Appellee.

No. 22-1099

United States Court of Appeals, Tenth Circuit

FILED August 28, 2023

Appeal from the United States District Court for the District of Colorado(D.C.No. 1:21-CV-01048-RMR-KLM)

M. Gabriel McFarland, McFarland Litigation Partners, LLC, Golden, Colorado (Frederick T. Winters with him on the briefs), for Plaintiff - Counter Defendant - Appellant.

Samuel M. Ventola, Ventola Law, Denver, Colorado, for Defendant - Cross Defendant - Appellee.

Before HARTZ, MATHESON, and McHUGH, Circuit Judges.

HARTZ, Circuit Judge.

This case presents a dispute over life-insurance proceeds between two women who married Steven J. McAnulty(Husband).The marriage between Husband and Elizabeth J. McAnulty(Plaintiff) ended in divorce.His marriage to Melanie Rae McAnulty(Defendant) ended with his death.

Husband's only life-insurance policy (the Policy) named Defendant as the beneficiary.But the Missouri divorce decree between Plaintiff and Husband required Husband to procure and maintain a $100,000 life-insurance policy with Plaintiff listed as sole beneficiary until his maintenance obligation to her was lawfully terminated (which never happened).Plaintiff sued Defendant and the issuer of the Policy, Standard Insurance Company(Standard), claiming unjust enrichment and seeking the imposition on her behalf of a constructive trust on $100,000 of the insurance proceeds.The district court dismissed the complaint for failure to state a claim.Plaintiff appeals.By stipulation of the parties, Standard has been dismissed with respect to this appeal.

The only question is whether Plaintiff has stated a claim.Resolving that issue requires us to predict whether the Colorado Supreme Court would endorse Illustration 26 in Comment g to § 48 of the Restatement (Third) of Restitution and Unjust Enrichment (Am. L. Inst. 2011)(the Restatement (Third)), which would recognize a cause of action in essentially the same circumstances.We reverse.

I.BACKGROUND

Except where noted, the relevant facts come from Plaintiff's complaint, whose well-pleaded allegations we accept as true for purposes of resolving the motion to dismiss.SeeSmallen v. W. Union Co., 950 F.3d 1297, 1305(10th Cir.2020).Plaintiff married Husband in 1994.They divorced in 2008.The schedule governing the division of property and debt, entered by a Missouri state court as part of the divorce decree, stated in relevant part: "[Husband] shall procure and maintain a life insurance policy with a death benefit of no less than $100,000 and shall name [Plaintiff] as the sole beneficiary of said policy until [Husband's] obligation for payment of maintenance to [Plaintiff] shall terminate by order of this court or by operation of law."Aplt. App.at 19-20.¹

Husband later married Defendant.Their marriage continued until his death in 2020."At no time was [Husband's] obligation to pay maintenance [to Plaintiff] terminated by order of that court or by operation of law.In fact, [Husband] made maintenance payments to [Plaintiff] until the date of his death."Id. at 24(Plaintiff's complaint).Husband died intestate, and no probate estate was opened on his behalf.When he died, the benefit payable under the Policy was $207,000.²Defendant was listed as the Policy's sole beneficiary.Husband had no other life-insurance coverage.

Plaintiff did not learn that Husband had failed to obtain a life-insurance policy in her name—and thus had violated the divorce decree—until after his death.Upon making this discovery Plaintiff sued Defendant and Standard in Colorado state court, claiming unjust enrichment and seeking the imposition of a constructive trust on the life-insurance proceeds in the amount of $100,000 and payment to her of that amount.Standard then removed the case to the United States District Court for the District of Colorado based on diversity of citizenship.See28 U.S.C. §§ 1332(a)(1),1441(a).³

Defendant filed a motion to dismiss for failure to state a claim, which the district court granted.SeeMcAnulty v. Standard Ins. Co., No. 21-cv-1048-RMR-KLM, 2022 WL 1078174, at *2(D. ColoMar. 8, 2022).The court stated that "in the absence of fraud or duress, a constructive trust will attach only upon a showing of unjust enrichment"; and "the claimant must also be able to trace the wrongfully held property to the claimant's own property—that is, she must establish that she is rightfully entitled to the property at issue."Id.After announcing these propositions, the court said:

The Court finds that the Plaintiff here has failed to establish that [Defendant] received a benefit at Plaintiff's expense, and it finds further that she cannot trace the funds sought from the Standard Insurance Policy to her own property.The existence of the Standard Insurance Policy naming [Defendant] as a beneficiary did not prevent [Husband] from maintaining another policy with the Plaintiff as the beneficiary.The Plaintiff thus has failed to establish that [Defendant] was enriched at Plaintiff's expense, nor has she established an entitlement to the proceeds of the Standard Insurance Policy, specifically.

Id.

The district court distinguished Scott v. Scott, 428 P.3d 626(Colo. App.2018), the case"which the Plaintiff relie[d] on almost exclusively" in her opposition to Defendant's motion to dismiss, McAnulty, 2022 WL 1078174, at *2.Scott was also a dispute between a widow and a prior wife over a life-insurance policy.In that case the separation agreement recognized that the husband was "presently insured under several life insurance policies."428 P.3d at 630(internal quotation marks omitted).The agreement provided that "[t]hese policies will be maintained in their current status until" certain conditions were met, none of which came to pass.Id.(internal quotation marks omitted).Yet the husband changed the named beneficiary on the identified insurance policies to his second wife.Seeid.The Colorado Court of Appeals held that the first wife stated a claim against the second wife for unjust enrichment and the imposition of a constructive trust.Seeid. at 636.The Scott court invoked § 48 of the Restatement (Third), which provides: "If a third person makes a payment to the defendant to which (as between claimant and defendant)the claimant has a better legal or equitable right, the claimant is entitled to restitution from the defendant as necessary to prevent unjust enrichment."SeeScott, 428 P.3d at 637.Scott also pointed to Illustration 22 in § 48, which states:

In a property settlement incorporated in a divorce decree, Husband promises to maintain his presently existing life insurance in the amount of $50,000 with ABC Co. for the benefit of First Wife as beneficiary.After his remarriage, Husband designates Second Wife as beneficiary of the ABC policy.The designation is legally effective, and on Husband's death the policy proceeds are properly paid by ABC to Second Wife.Husband leaves no assets apart from the disputed insurance proceeds.First Wife is entitled to recover the insurance proceeds from Second Wife, the usual form of remedy being constructive trust.

Restatement (Third)§ 48 cmt. g, illus.22, SeeScott, 428 P.3d at 637.The court noted that the illustration "explicitly articulate[d] the exact circumstances of this case as an example of a proper claim for unjust enrichment."428 P.3d at 637.Rejecting the argument by the widow that her claim to the insurance benefit should not be denied since it was the decedent (not she) who was the "main wrongdoer,"the court explained that "claims for unjust enrichment and constructive trust do not require wrongdoing on the part of the person receiving the benefit."Id.

In this casethe district court said that Scott was distinguishable because, unlike the insurance policies at issue in Scott, "the Standard Insurance Policy did not exist at the time that the Missouri court issued its order, and the Plaintiff therefore [could not] show that the order entitled her to the proceeds of that policy."McAnulty, 2022 WL 1078174, at *3.It continued: "Plaintiff . . . fail[ed] to allege that [Defendant] received a benefit at Plaintiff's expense, because the existence of a policy benefitting [Defendant] does not preclude a policy benefiting the Plaintiff."Id.Nor had "Plaintiff alleged facts tracing the Standard Insurance Policy proceeds to her own property."Id.

Plaintiff appealed.We have jurisdiction under 28 U.S.C. § 1291.After the parties completed their briefing, we ordered them to submit supplemental briefs "addressing the relevance of Illustration 26 and the related reporter's note in Restatement (Third) of Restitution and Unjust Enrichment§ 48, cmt. g (Am. L. Inst. 2011) and their effect on the issues in this appeal."Order, McAnulty v. McAnulty, No. 22-1099(10th Cir.Feb. 14, 2023).The parties complied.

II.DISCUSSION

A federal court sitting in diversity must apply federal procedural law and state substantive law.SeeGasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427, 116 S.Ct. 2211, 135 L.Ed.2d 659(1996)."We review de novo the district court's dismissal under Federal Rule of Civil Procedure 12(b)(6)."Smallen, 950 F.3d at 1305."To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face."Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868(2009)(internal quotation marks omitted).Plaintiff and Defendant agree that Colorado substantive law applies.We review de novo the district court's interpretation and application of state law.SeeSalve Regina Coll. v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 113 L.Ed.2d 190(1991).

Plaintiff argues that her complaint alleges sufficient facts to support a claim for unjust...