In the Interest of Joanne Black, Protected Person, Appellee and Cross-Appellant,
Bernard Black, in his Capacity as Trustee for the Supplemental Needs Trust for the Benefit of Joanne Black, Appellant and Cross-Appellee.
and County of Denver Probate Court No. 12PR1772 Honorable
Elizabeth D. Leith, Judge
Holland Hart LLP, Christina Gomez, Matthew S. Skotak, Morgan
M. Wiener, Denver, Colorado, for Appellee
Graham Stubbs LLP, Shannon Wells Stevenson, Paul D. Swanson,
Denver, Colorado, for Appellant
ORDER AFFIRMED AND CASE REMANDED WITH
1 Bernard Black is the former conservator for his sister,
Joanne Black. The probate court found that Mr. Black breached
his fiduciary duty by converting Joanne's assets for his
own benefit. Based on its findings, the court surcharged Mr.
Black in the amount of the converted funds and then trebled
those damages under the civil theft statute.
2 Mr. Black's primary argument on appeal is that he could
not have breached his fiduciary duty because the conflicted
transaction that resulted in the conversion of his
sister's assets was disclosed to, and approved by, the
probate court. But we are not persuaded that Mr. Black
complied with his obligations under section 15-14-423, C.R.S.
2017, the statute that he contends provides him safe harbor.
3 Nor are we persuaded that the court erred in finding Mr.
Black liable for civil theft or that the evidentiary hearing
was so unfair as to require reversal.
4 Accordingly, we affirm the probate court's order.
5 The Black siblings' mother died in New York in 2012.
Mr. Black believed that his children would inherit one-third
of mother's entire estate. But his belief was mistaken.
6 Joanne suffers from chronic schizophrenia and cannot manage
her own financial affairs. To account for Joanne's
condition, mother created a special needs trust (the SNT)
and, in her will, devised two-thirds of her estate to the
SNT. The remaining one-third of the estate was devised to a
trust for the benefit of Mr. Black and his children (the
7 The bulk of mother's estate consisted of multiple
accounts, including a Roth individual retirement account
(Roth IRA), with a total value of approximately $3 million.
Mr. Black expected that, upon mother's death, the $3
million would become part of the estate and be distributed to
the SNT and the Issue Trust. But shortly before her death,
mother designated the accounts as payable-on-death (POD)
directly to Joanne. (More precisely, mother left 95% of the
value of the accounts to Joanne and 1% to each of Mr.
Black's five children from his first marriage. The Roth
IRA was left entirely to Joanne.) That left only the residual
estate to be divided two-thirds to Joanne and one-third to
Mr. Black and his children.
8 The discovery that he and his children had mostly been cut
out of $3 million of mother's estate did not sit well
with Mr. Black. Nor did it sit well with Mr. Black's
second wife, with whom he had two children. Mr. Black's
wife, along with his older children, threatened to mount a
legal challenge to the validity of mother's POD
9 As Mr. Black saw it, the situation presented only two
options: his family could litigate the POD designation, or he
could figure out another way to get what he considered to be
his fair share of the money. But either way, as Mr. Black
candidly admitted at the later evidentiary hearing, his goal
was to "get the POD assets back into the estate."
10 Mr. Black, a tenured law professor who has written on the
subject of corporate directors' fiduciary duties, decided
that the best course of action was to seek appointment as
Joanne's conservator. Then, acting on Joanne's
behalf, he could "disclaim" the money in the POD
accounts, and the money would revert to the estate and be
distributed two-thirds to the SNT and one-third to the Issue
Trust. In this way, Mr. Black later explained, he could
unilaterally correct the "mistake" made in
mother's designation of the POD accounts without enduring
11 Joanne had been a longtime resident of New York. But at
the time of mother's death, Joanne was in Denver,
homeless and in a deteriorated state. Thus, Mr. Black
initiated the conservatorship action in the probate court in
Denver. In his petition, he told the court that Joanne's
approximately $3 million in assets were at risk of being
"wasted or dissipated" because mother had
"inadvertently" designated the accounts as POD to
Joanne, rather than routing the funds through the SNT. In
support of his petition, Mr. Black emphasized that the
"assets need to be secured."
12 After a hearing on the petition in December 2012, during
which Mr. Black first proposed the disclaimer as a method for
securing the assets, the probate court appointed Mr. Black as
Joanne's conservator. The order of appointment authorized
the conservator to disclaim Joanne's interests in the POD
accounts and further provided that "[Joanne's]
assets will be placed into a Supplemental Needs Trust for
13 Mr. Black promptly executed the disclaimer. Pursuant to
his plan, the POD assets (with the exception of the Roth IRA)
were then redistributed two-thirds to the SNT and one-third
to the Issue Trust. As for the $300, 000 Roth IRA, Mr. Black
simply moved those funds into new accounts in the name of his
14 Questions about the propriety of the disclaimer were first
raised two years later. By that time, Joanne had returned to
New York and parallel guardianship proceedings had been
initiated in that state. During the course of those
proceedings, and in response to Joanne's inquiries, Mr.
Black admitted that he had diverted approximately $1 million
of the POD assets to the Issue Trust.
15 Joanne's court-appointed counsel filed a motion to
void the disclaimer. Counsel argued that Mr. Black's
diversion of one-third of the POD assets was
"antithetical to the terms and intent of [mother]. All
of this money was meant for [Joanne's] care and
benefit." Counsel alleged that, in failing to
"preserve and maintain [Joanne's] assets for her
sole benefit, " Mr. Black had breached his fiduciary
duty as Joanne's conservator.
16 At a subsequent status conference, the court approved a
request for an independent accounting of Joanne's assets
and scheduled an evidentiary hearing to resolve the issue of
whether Mr. Black had properly disclosed his intent to
redirect one-third of Joanne's POD assets to Mr.
Black's children and whether the disclaimer gave Mr.
Black the authority to do so. The court advised the parties
that it would consider whether "disgorgement or
unwinding of fiduciary actions" was appropriate.
17 Shortly before the first day of the evidentiary hearing,
Joanne's guardian ad litem (GAL) filed a motion alleging
that Mr. Black's conduct amounted to civil theft and
requesting that the court award treble damages.
18 The evidentiary hearing occurred over the course of four
days, from June to September 2015. Following the hearing, the
court issued a written "hearing order" finding that
Mr. Black had breached his fiduciary duty to Joanne.
Specifically, the court concluded that Mr. Black had failed
to adequately disclose his intent to use the disclaimer to
divest his sister of one-third of the POD assets and,
therefore, he did not have the court's authorization to
redirect the assets. Mr. Black's actions in redirecting
the funds were "deceptive and undertaken in bad faith,
" the court determined, and his conduct satisfied the
elements of civil theft. Accordingly, the court
"surcharged" - or, ordered reimbursement by - Mr.
Black in the amount of $1.5 million, the value of the
improperly diverted assets, including the Roth IRA. Then,
under the civil theft statute, it trebled the damages.
19 We begin by addressing Mr. Black's jurisdictional
challenges to the court's hearing order. First, he
contends that the probate court lacked jurisdiction to enter
the hearing order because any challenge to the disclaimer had
to be brought under C.R.C.P. 60, the procedural mechanism for
attacking a final judgment. And second, he says that he did
not receive sufficient notice that the evidentiary hearing
was a "surcharge proceeding."
20 When resolution of a jurisdictional issue involves a
factual dispute, we apply a clearly erroneous standard of
review. Tulips Investments, LLC v. State ex rel.
Suthers, 2015 CO 1, ¶ 11. But when there are no
disputed facts, the determination of a court's subject
matter jurisdiction presents a question of law we review de
Motion to Void the Disclaimer
21 Mr. Black argues that only a Rule 60(b) motion - not a
motion to void the disclaimer - could undo the court's
order authorizing the disclaimer.
22 True, a final judgment may be vacated only as provided for
in C.R.C.P. 60. In re Marriage of Scheuerman, 42
Colo.App. 206, 208, 591 P.2d 1044, 1046 (1979). But the
motion to void the disclaimer did not seek relief from a
final order. Instead, the motion alleged that Mr. Black had
breached his fiduciary duties to Joanne while acting as
conservator, and it sought to unwind a transaction based on
this breach. Levine v. Katz, 167 P.3d 141, 144
(Colo.App. 2006) ("[I]t is the facts alleged and the
relief requested that decide the substance of a claim, which
in turn is determinative of the existence of subject matter
jurisdiction.") (citation omitted).
23 Thus, the probate court's jurisdiction to conduct a
hearing regarding a possible breach of Mr. Black's
fiduciary duties and to enter the hearing order (which, we
note, did not unwind the transaction) was based not on Rule
60 but on the court's authority to monitor fiduciaries
over whom it has obtained jurisdiction. See §
15-10-501, C.R.S. 2017. Pursuant to section 15-10-503, C.R.S.
2017, the probate court has authority, either by petition or
on its own motion, to address alleged misconduct of a
fiduciary. Accordingly, the court had jurisdiction to
adjudicate the allegations and issues raised by the motion to
void the disclaimer.
Notice of Surcharge Proceeding
24 Mr. Black further contends that the court lacked subject
matter jurisdiction because he did not receive sufficient
notice of the surcharge proceeding.
25 Section 15-10-504, C.R.S. 2017, sets forth remedies,
including imposition of a surcharge, against a fiduciary who
has breached his fiduciary duties:
(2) Surcharge. (a) If a court, after a hearing, determines
that a breach of fiduciary duty has occurred or an exercise
of power by a fiduciary has been improper, the court may
surcharge the fiduciary for any damage or loss to the estate,
beneficiaries, or interested persons. Such damages may
include compensatory damages, interest, and attorney fees and
See also § 15-10-503(2)(g) (listing remedies
available for fiduciary's breach of his duties, including
"[a] surcharge or sanction of the fiduciary pursuant to
section 15-10-504"). Under section 15-10-401, C.R.S.
2017, the fiduciary must receive notice by mail of the time
and place of the surcharge proceeding fourteen days before
26 We are not convinced that the notice was statutorily
deficient. The court bifurcated the proceedings into a
liability phase and a damages phase. On August 6, after the
conclusion of the liability phase, the court issued a minute
order, explaining that the next hearing, set for September 8,
would address the issues of surcharge and civil theft. Thus,
Mr. Black had more than fourteen days' notice of the
damages portion of the hearing.
27 But even if we assume that notice of the hearing did not
strictly comply with section 15-10-401, we disagree that any
defect divested the court of jurisdiction. Mr. Black had
actual notice of the proceedings, and the possible
consequences, more than fourteen days before the evidentiary
hearing. "[I]n the absence of explicit statutory
language requiring it, a statute requiring the providing of
notice by a specified means need not be strictly
applied." Feldewerth v. Joint Sch. Dist. 28-J,
3 P.3d 467, 471 (Colo.App. 1999). Nothing in section
15-10-401 indicates that the form of notice is a
jurisdictional requirement; thus, "actual notice may be
substituted for it." Id.
28 The GAL filed her motion to void the disclaimer on
February 9, 2015, approximately four months before the first
day of the evidentiary hearing. The motion alleged that Mr.
Black had breached his fiduciary duties by converting more
than $1 million of Joanne's assets for his own benefit.
The GAL sought an order voiding the disclaimer and the return
of the converted assets to the court registry.
29 The court held a status conference on April 2, 2015. In
response to a suggestion that the disclaimer could not be
unwound, the court reminded Mr. Black that
"disgorgement" was a possible remedy: "And
does Mr. Black understand that under this process he can be
required to disgorge money?"
30 Following the status conference, the court issued a status
conference order, explaining that Mr. Black was "the
subject of allegations of misconduct" and suspending him
as conservator pending an evidentiary hearing to resolve the
allegations. The court's order advised the parties that
the evidentiary hearing would address "whether the
allegations of breach of fiduciary duty are supported by the
evidence and whether any disgorgement or unwinding of
fiduciary actions, including the creation of trusts, is
31 We conclude that the notice of the allegations of breach
of fiduciary duty, and warnings that "disgorgement"
was a possible remedy, gave Mr. Black actual notice that he
might be ordered to reimburse Joanne for any funds improperly
diverted out of the conservatorship estate.
32 In any case, by the time of the hearing, the parties and
the court specifically used the term "surcharge"
instead of "disgorgement" to describe the possible
remedy for a breach of fiduciary duty. In her prehearing
brief, Joanne's counsel asked the court to
"surcharge the fiduciary" under section
15-10-504(2)(a).Mr. Black did not object to proceeding with
the evidentiary hearing. Then, on the second day of the
hearing, the court noted that "this is a surcharge
action." Again, Mr. Black did not object on the ground
that he was unaware of the nature of the proceedings. In
fact, on the third day of the hearing, Mr. Black's
counsel objected to certain cross-examination as irrelevant
because "it has nothing to do with the issue[s], "
one of which he defined as "whether or not a surcharge
ought to be imposed." Later during the hearing, Mr.
Black's counsel suggested to the court that a surcharge
"would be the only remedy available" for any breach
of fiduciary duty.
33 Indeed, Mr. Black does not dispute that he had actual
notice of the surcharge proceedings. His argument is that any
failure to strictly comply with the statutory notice
requirement constituted a due process violation that deprived
the court of jurisdiction to impose sanctions. But we must
reject that argument in light of Mr. Black's actual
notice, coupled with his failure to object to a purported
lack of notice and his participation in the surcharge
proceedings. See Feldewerth, 3 P.3d at 471; see
also City of Philadelphia v. Urban Mkt. Dev., Inc., 48
A.3d 520, 522 (Pa. Commw. Ct. 2012) (no due process claim
based on lack of notice where party had actual notice and
participated in hearing).
Breach of Fiduciary Duty
34 We turn now to Mr. Black's primary argument on appeal:
that he could not have breached his fiduciary duty to Joanne
because his conversion of one-third of her POD assets was
disclosed to, and approved by, the probate court, in
accordance with section 15-14-423.
35 We review de novo the legal questions concerning the
fiduciary duty's nature and scope, but whether a
fiduciary duty has been breached is a factual question we
review for clear error. Mintz v. Accident & Injury
Med. Specialists, PC, 284 P.3d 62, 68 (Colo.App. 2010),
aff'd, 2012 CO 50. We review questions of
statutory interpretation de novo. Taylor v. Taylor,
2016 COA 100, ¶ 26.
Fiduciary Has a Duty of Loyalty That Generally Precludes
36 A conservator is a fiduciary and must "observe the
standards of care applicable to a trustee." §
15-14-418(1), C.R.S. 2017. Thus, as Joanne's conservator,
Mr. Black owed her a "duty of undivided loyalty."
Estate of Keenan v. Colo. State Bank & Tr., 252
P.3d 539, 543 (Colo.App. 2011) (citation omitted). Indeed,
the "duty of loyalty is, for trustees, particularly
strict even by comparison to the standards of other fiduciary
relationships." Restatement (Third) of Trusts § 78
cmt. a (Am. Law Inst. 2007) (hereinafter Restatement).
37 Consistent with the duty of loyalty, a conservator must
manage the protected person's assets for her sole
benefit, without regard to the interests of others. Jones
v. Estate of Lambourn, 159 Colo. 246, 250, 411 P.2d 11,
13 (1966); see also § 15-1.1-105, C.R.S. 2017
("A trustee shall invest and manage the trust assets
solely in the interests of the beneficiaries.");
Hilliard v. McCrory, 110 Colo. 369, 371, 134 P.2d
1057, 1058 (1943) ("[I]t is the duty of a conservator to
conserve . . . the property and safeguard the interest of its
owner . . . .").
38 To that end, the duty of loyalty strictly prohibits a
conservator from entering into transactions involving the
protected person's property if the transaction is for the
conservator's personal benefit or otherwise involves or
creates a conflict between the fiduciary duties and personal
interests of the conservator. See Restatement §
78; see also In re Estate of Heyn, 47 P.3d 724, 726
(Colo.App. 2002) (trustee's use of trust property creates
presumption that trustee has breached his fiduciary duties).
Fiduciary May Engage in a Conflicted Transaction if He Gives
Notice of the Conflict and Shows That the Transaction is
Nonetheless Reasonable and Fair
39 Still, a conservator may obtain approval to engage in a
conflicted transaction if he (1) complies with section
15-14-423's notice requirement and (2) establishes that
the conflicted transaction is nonetheless reasonable and fair
to the protected person.
Notice Requirement Under Section 15-14-423
40 Section 15-14-423 provides that "[a]ny transaction
involving the conservatorship estate that is affected by a
substantial conflict between the conservator's fiduciary
and personal interests is voidable unless the transaction is
expressly authorized by the court after notice to interested
persons." The provision explains that a
"transaction affected by a substantial conflict between
personal and fiduciary interests includes any sale,
encumbrance, or other transaction involving the
conservatorship estate entered into by the conservator . . .
41 Mr. Black acknowledges that the act of disclaiming
Joanne's assets created a conflict between his fiduciary
duties to Joanne and his own personal interests. But he
insists that he did not breach his fiduciary duties by
engaging in the conflicted transaction because he satisfied