In re Durie

456 P.3d 463

IN RE the MARRIAGE OF Steven R. DURIE, Petitioner, and Kelly J. Durie n/k/a Kelly J. Simmerman, Respondent.

Supreme Court Case No. 18SC772

Supreme Court of Colorado.

January 27, 2020

Attorneys for Petitioner: Epstein Patierno, LLP, Steven B. Epstein, Courtney J. Leathers Allen, Wendy J. Smock, John H. Tatlock, Denver, Colorado

Attorneys for Respondent: Stevens, Littman, Biddison, Tharp & Weinberg LLC, Craig A. Weinberg, Boulder, Colorado

En Banc

JUSTICE SAMOUR delivered the Opinion of the Court.

¶1 Although adversarial in nature, domestic relations cases involve parties who are family members and have "a special relationship to one another and to the court system." C.R.C.P. 16.2(a). In these unique cases, the law imposes a "duty of candor." C.R.C.P. 16.2(e)(1). In accord with this duty, the parties must make "full and honest disclosure[s] of all facts that materially affect their rights and interests." Id. The required disclosures include each party's material assets and liabilities. C.R.C.P. 16.2(e)(10). Following entry of a final decree, if a party discovers that the other party's disclosures contained misstatements or omissions, she may seek relief pursuant to Rule 16.2(e)(10). Id. Under that rule, the court retains jurisdiction over the case for a period of five years after the entry of a final decree so that it may "allocate material assets or liabilities" that were misstated or omitted when such misstatement or omission "materially affects" the division of the couple's assets and liabilities. Id.

¶2 But what standards and procedures govern a Rule 16.2(e)(10) motion? Further, where, as here, a party responds to a Rule 16.2(e)(10) motion by filing a motion to dismiss, does C.R.C.P. 12(b)(5) and the "plausibility" standard set forth in Warne v. Hall , 2016 CO 50, 373 P.3d 588, apply? And, is a party entitled to rely on allegations that are based on "information and belief" and to conduct discovery to support her Rule 16.2(e)(10) motion? Today we endeavor to answer all of these questions.

¶3 We hold that Rule 12(b)(5) and the plausibility standard in Warne do not apply to Rule 16.2(e)(10) motions. Rule 12(b)(5) and the plausibility standard govern motions to dismiss a claim for relief in a pleading, and a Rule 16.2(e)(10) motion is not a pleading. Instead, we hold that, consistent with C.R.C.P. 7(b), which governs motions practice in civil cases, a Rule 16.2(e)(10) motion must "state with particularity" the grounds on which it is premised (i.e., the reasons why relief is warranted). C.R.C.P. 7(b)(1). But we hold that this does not preclude allegations that are based on information and belief when the moving party lacks direct knowledge about those allegations. So long as the motion satisfies the particularity requirement in Rule 7(b)(1), it may include such allegations. Lastly, we hold that a party is not automatically entitled to conduct discovery to support her Rule 16.2(e)(10) motion. Rather, the court, in its discretion, may allow discovery or schedule a hearing (or both) if it concludes that the facts asserted in the motion are sufficient to justify doing so. In making this determination, the court should be mindful that the moving party must satisfy Rule 7(b)(1)'s particularity requirement and ultimately bears the burden of demonstrating by a preponderance of the evidence that she is entitled to relief. In the event the court finds that the facts asserted in the motion are not sufficient to justify a hearing or even discovery, it may deny the motion outright.

I. Facts and Procedural History

¶4 Steven R. Durie ("Husband") commenced this dissolution of marriage action in April 2014. Pursuant to C.R.C.P. 16.2(e)(2), (4), he and his then-wife, Kelly J. Durie n/k/a Kelly J. Simmerman ("Wife"), subsequently exchanged sworn financial statements, mandatory disclosures, and supplemental disclosures. In line with C.R.C.P. 16.2(g), the parties jointly selected and retained an expert to value their businesses: Coin Toss, LLC, a holding company, and the two companies owned by Coin Toss—Rock Paper Scissors, Inc., d/b/a Secure Search ("Secure Search"), and Sandbox Sharing, LLC, d/b/a Safeguard from Abuse ("Safeguard from Abuse").¹ As part of his work, the joint expert reviewed materials provided separately by Husband and Wife and considered discussions he had with each of them. Based on his valuation, the joint expert estimated that as of May 31, 2014, Coin Toss (including Secure Search and Safeguard from Abuse) had an investment value of $855,000 and a fair market value of $770,000.

¶5 After receiving the joint expert's report, Wife retained her own expert to perform a complete review of that report. Wife's expert eventually assigned a similar value to Coin Toss: $919,616. Based on the two experts' valuations, the parties agreed to value Coin Toss at $878,589. The parties thereafter integrated this value into the property division of the marital estate set forth in their separation agreement. Pursuant to the separation agreement, Coin Toss was allocated (at a value of $878,589) to Husband as his sole and separate property, and that allocation, in turn, generated a financial payout to Wife in the amount of $338,548.² At the parties' request, the district court then incorporated the separation agreement into the decree of dissolution that entered in September 2014.

¶6 In October 2015, thirteen months after the court issued the decree of dissolution, Husband sold a portion of Secure Search's assets ("post-decree sale") to a Tennessee company, Ministry Brands, LLC, for $6,900,000, an amount more than 685% higher than the value assigned to Coin Toss in the separation agreement.³ After learning about this transaction, Wife recalled that Husband had travelled to Tennessee around May 2014 while this dissolution proceeding was pending and the joint expert was valuing the parties' businesses. Believing she smelled a rat, Wife filed a motion pursuant to Rule 16.2(e)(10) to set aside or reopen the property division in order to reallocate the proceeds from the post-decree sale.

¶7 In addition to asserting that the post-decree sale amount was more than 850% higher than the joint expert's valuation amount and that Husband had travelled to Tennessee in May 2014, Wife alleged, based "on information and belief," that Husband had "engaged in negotiations to sell a portion" of Secure Search's assets before the separation agreement was executed and possibly before the joint expert's valuation was completed. Wife further alleged, again based "[u]pon information and belief," that Husband had "failed to disclose and intentionally concealed material facts that impacted the value of the parties' business[es] and the valuation" of the joint expert "and/or [had] failed to update the information to [the joint expert] or Wife once those negotiations commenced."

¶8 In response, Husband filed a motion to dismiss Wife's motion. He admitted that he had sold some of Secure Search's assets in October 2015 to Ministry Brands for $6,900,000, and that he had travelled to Tennessee around May 2014. But he denied that he had engaged in any negotiations related to the post-decree sale before 2015. Husband informed the court that he had received an out-of-the-blue email from Ministry Brands in February 2015, four months after the dissolution decree entered, expressing interest in acquiring "[b]ackground check services," the type of services performed by Secure Search.⁴ To corroborate his position, Husband produced an "out of the blue" email—the email literally referred to itself as an "out of the blue" email—dated February 2015 from Jon Ellison, the vice president of business development and a senior partner at Ministry Brands. In his email, Ellison opened with an apology "for the out of the blue e-mail," asked to be placed "in the strategic buyer category," and requested a call back to discuss "100% ownership, all cash deals" related to "[b]ackground check services." As for the trip to Tennessee, Husband claimed that he had undertaken it to attend an annual conference and that it had nothing to do with the post-decree sale.

¶9 Although Husband did not cite Rule 12(b)(5) in his motion to dismiss, Wife urged the court to treat it as a Rule 12(b)(5) motion and to apply Warne 's plausibility standard in evaluating her Rule 16.2(e)(10) motion. Since she believed her motion had stated plausible grounds for relief, Wife asked the court to deny Husband's motion to dismiss. Wife also requested attorney fees pursuant to section 13-17-102, C.R.S. (2019), or, in the alternative, pursuant to section 14-10-119, C.R.S. (2019).

¶10 The district court did as Wife suggested and treated Husband's motion as a Rule 12(b)(5) motion to dismiss. In applying Warne 's plausibility standard, it ruled that the allegations in Wife's Rule 16.2(e)(10) motion were insufficient "to nudge her claim from conceivable to plausible." Finding that Wife's motion did not satisfy Warne 's standard, the court granted Husband's motion to dismiss, which rendered her request for attorney fees moot.

¶11 Wife appealed, and a division of the court of appeals reversed. The division held that the district court erred in applying Rule 12(b)(5) and the plausibility standard because they govern pleadings, not motions. Relying instead on C.R.C.P. 8(e)(1), the division found that a party filing a Rule 16.2(e)(10) motion may make allegations based on information and belief. In so doing, the division recognized that, like Rule 12(b)(5), Rule 8(e)(1) refers to pleadings. But because Rule 8(e)(1) also provides that "[n]o technical forms of pleading or motions are required," the division felt that it permits a party to make allegations based on information and belief in a Rule 16.2(e)(10) motion. (Emphasis added.) Next, in the absence of any legal standard set forth in Rule 16.2(e)(10), the division concluded that a court must decide whether the moving party's allegations are sufficient to meet her burden of...