Pandy v. Independent Bank , 2016 Colo. LEXIS 601 ( 2016 )

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ADVANCE SHEET HEADNOTE
June 20, 2016
2016 CO 49
No. 15SC345, Pandy v. Independent Bank—Revocable Trust—Settlor—Judgment
Lien.
This case principally concerns whether property titled in the name of a judgment
debtor’s co-settled revocable trust is subject to a judgment lien against the debtor. The
petitioners are co-settlors and co-trustees of a revocable trust that holds title to certain
real property in Colorado. The respondent obtained two judgments against one of the
petitioners in another state. After domesticating those judgments and recording
transcripts of the Colorado judgments, the respondent filed an action to quiet title and
for a decree of foreclosure. The petitioner moved for judgment on the pleadings,
arguing that the respondent’s complaint was barred by what the petitioner argued was
the applicable statute of limitations set forth in section 13-80-101(1)(k), C.R.S. (2015).
The district court denied the motion, a division of the court of appeals granted leave to
file an interlocutory appeal and affirmed that ruling, and the supreme court granted
certiorari.
The court now concludes that as a settlor of a revocable trust, the petitioner held
an ownership interest in the trust’s assets. Accordingly, the respondent could properly
seek to enforce its judgment against the petitioner in this case, and its action was not
barred by the statute of limitations set forth in section 13-80-101(1)(k).
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The Supreme Court of the State of Colorado
2 East 14th Avenue • Denver, Colorado 80203
2016 CO 49
Supreme Court Case No. 15SC345
Certiorari to the Colorado Court of Appeals
Court of Appeals Case No. 14CA1733
Petitioners:
Joseph T. Pandy, a/k/a Joseph Pandy Jr., Elizabeth Pandy, a/k/a Elizabeth A. Pandy; The
Joseph Pandy Jr. and Elizabeth Pandy Living Trust, a/k/a Joseph Pandy Jr. and
Elizabeth A. Pandy Living Trust dated November 10, 2003; Joseph T. Pandy as Trustee,
Elizabeth A. Pandy as Trustee,
v.
Respondent:
Independent Bank, a Michigan bank.
Judgment Affirmed
en banc
June 20, 2016
Attorneys for Petitioners:
The Whitmer Law Firm, LLC
Kent H. Whitmer
William G. Berry
Hot Sulphur Springs, Colorado
Attorneys for Respondent:
The Law Firm of John A. Lobus, P.C.
John A. Lobus
Lakewood, Colorado
JUSTICE GABRIEL delivered the Opinion of the Court.
¶1 This case principally concerns whether property titled in the name of a judgment
debtor’s co-settled revocable trust is subject to a judgment lien against the debtor. The
petitioners, Joseph T. Pandy and Elizabeth Pandy, are co-settlors and co-trustees of a
revocable trust that holds title to certain real property in Colorado. The respondent,
Independent Bank (the “Bank”), obtained two judgments against Mr. Pandy in
Michigan. After domesticating those judgments in the district court for Grand County,
Colorado and recording transcripts of the Colorado judgments with the Grand County
Clerk and Recorder, the Bank filed the present action to quiet title and for a decree of
foreclosure.
¶2 The Pandys subsequently moved for judgment on the pleadings, arguing that the
Bank’s complaint was barred by what they argued was the applicable statute of
limitations, namely, the three-year statute set forth in section 13-80-101(1)(k), C.R.S.
(2015). The district court denied the Pandys’ motion, and the Pandys brought an
interlocutory appeal in the court of appeals. A division of that court affirmed the
district court’s denial of the motion for judgment on the pleadings, Indep. Bank v.
Pandy, 2015 COA 3, ¶¶ 1, 31–32, __ P.3d __, and we granted certiorari. 1
¶3 We now affirm. We conclude that as a settlor of a revocable trust, Mr. Pandy
held an ownership interest in the trust’s assets. Accordingly, the Bank could properly
1 We granted certiorari to review the following issue:
Whether the court of appeals erred in holding that property titled in the
name of a judgment debtor’s co-settled, revocable trust can also be the
debtor’s property and is therefore subject to liens obtained by his
judgment creditors pursuant to section 13-52-102(1), C.R.S. 2015.
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seek to enforce its judgment against Mr. Pandy in this case, and its action was not
barred by the statute of limitations set forth in section 13-80-101(1)(k).
I. Facts and Procedural History
¶4 Although this case is before us on an abbreviated record, the pertinent facts
appear to be undisputed.
¶5 The Pandys are co-settlors and co-trustees of a revocable trust known as the
Joseph Pandy Jr. & Elizabeth Pandy Living Trust, aka The Joseph Pandy Jr. &
Elizabeth A. Pandy Living Trust Dated November 10, 2003 (the “Trust”). In 2005, the
Trust took title to certain real property in Grand County (the “Property”).
¶6 In August 2010, the Bank obtained judgments against Mr. Pandy in the amounts
of $923,356.16 and $34,953.93 in a Michigan state court. In April 2012, the Bank
domesticated these judgments in the Grand County district court and recorded
transcripts of the domesticated judgments in that county.
¶7 In March 2014, the Bank filed a Complaint for Quiet Title and Decree of
Foreclosure against the Pandys. The complaint sought, among other things, (1) an
order decreeing that the Bank’s recorded transcripts of judgment were valid liens on the
Property to the extent of Mr. Pandy’s ownership interest therein and (2) a decree of
foreclosure directing the Grand County sheriff to sell the Property in a foreclosure sale
and to apply the proceeds to satisfy the costs and fees associated with the foreclosure
and the Bank’s judgment against Mr. Pandy.
¶8 The Pandys subsequently filed a C.R.C.P. 12(c) motion for judgment on the
pleadings, asserting that the Bank’s complaint was barred by the three-year statute of
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limitations set forth in section 13-80-101(1)(k). In that motion, the Pandys contended
that the Bank’s cause of action accrued in Michigan when the judgment entered there.
They further argued that under Michigan law, the statute of limitations on
noncontractual money obligations is ten years. Section 13-80-101(1)(k), however,
provides that all civil actions accruing outside of Colorado must be commenced within
three years if the limitations period of the place in which the action accrued was greater
than that in Colorado. Accordingly, the Pandys asserted that the present action was
governed by section 13-80-101(1)(k)’s three-year statute.
¶9 In a written order, the district court denied the Pandys’ motion. After expressing
its uncertainty as to the meaning of section 13-80-101(1)(k), the court concluded that
once the Bank domesticated its judgment, section 13-52-102(1), C.R.S. (2015), applied
and allowed the Bank to collect on its judgment.
¶10 In reaching this conclusion, the court noted that in enacting section 13-52-102(1),
the Colorado legislature sought to make it easy for judgment creditors to collect against
Colorado judgment debtors. Specifically, section 13-52-102(1) allowed a judgment
creditor to collect by domesticating a foreign judgment instead of filing a second
lawsuit, which, the court observed, was the proper procedure prior to the enactment of
section 13-52-102. The court also based its finding on the fact that the Bank was no
longer attempting to obtain a judgment. Rather, it was attempting to collect on a
judgment, and section 13-80-101(1)(k) did not address the time period in which a party
may do so.
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¶11 After receiving the district court’s order, the Pandys petitioned the court of
appeals for leave to file an interlocutory appeal pursuant to C.A.R. 4.2. The court
granted the petition, and a division ultimately affirmed the district court’s ruling. See
Indep. Bank, ¶¶ 1, 32. Like the district court, the division concluded that section
13-80-101(1)(k)’s three-year statute of limitations did not bar the Bank’s action to collect
on its previously obtained judgment. Id. at ¶¶ 27, 31. The division further noted the
Bank’s contentions (and the record support therefor) that (1) the Trust was revocable;
(2) as a result, the Trust’s assets were also assets of its settlors, the Pandys; and
(3) therefore, Mr. Pandy’s assets were subject to the claims of his creditors, including the
Bank. Id. at ¶¶ 28–29. The division stated that if the Trust was indeed revocable (which
is undisputed here), then the Bank’s foreclosure and quiet title action “would merely
constitute an attempt to collect on its previously established and properly domesticated
judgment.” Id. at ¶ 30.
¶12 The Pandys then sought, and we granted, certiorari.
II. Standard of Review
¶13 This case presents a question of law, namely, whether property titled in the name
of a judgment debtor’s co-settled revocable trust is subject to a judgment lien against the
debtor. We review issues of law de novo. People in the Interest of S.N. v. S.N., 2014 CO
64, ¶ 5, 329 P.3d 276, 279.
III. Analysis
¶14 We begin by addressing whether Mr. Pandy, as a co-settlor of the Trust, had an
ownership interest in the Trust and, if so, whether the Bank could properly seek to
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enforce its judgment against that interest. We then consider whether the statute of
limitations set forth in section 13-80-101(1)(k) applies and bars the Bank’s claims in this
case.
A. Settlor’s Interest in Revocable Trust Property
¶15 The Pandys contend that the division erred in holding that property titled in the
name of a judgment debtor’s co-settled revocable trust can also be the debtor’s property
and thus is subject to liens obtained by the debtor’s judgment creditors pursuant to
section 13-52-102(1).
¶16 A revocable trust is “[a] trust in which the settlor reserves the right to terminate
the trust and recover the trust property and any undistributed income.” Revocable
Trust, Black’s Law Dictionary (10th ed. 2014). Moreover, the nature and extent of the
beneficial interests or powers that a settlor may reserve or confer on others are not
specifically limited. Restatement (Third) of Trusts § 25 cmt. b (2016). As a result, “the
settlor of a revocable trust necessarily retains the functional equivalent of ownership of
the trust assets.” 3 Austin Wakeman Scott, William Franklin Fratcher & Mark L.
Ascher, Scott & Ascher on Trusts § 15.4.2, at 960 (5th ed. 2007); see also Restatement
(Third) of Trusts § 25 cmt. a (2016) (“In other substantive respects (such as creditors’
rights), the property held in a revocable trust is ordinarily to be treated as if it were
property of the settlor and not of the beneficiaries.”). This is true even though legal title
to the trust’s assets may be held by the trust or a trustee. See Restatement (Third) of
Trusts § 74 cmt. a (2016) (noting that the Restatement section concerning the effect of the
power of revocation “deals with situations in which a person currently has, by reason of
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a power of revocation, . . . the equivalent of ownership of the trust property, even
though the legal title to the property is held by the trustee”); see also § 38-30-108.5(1),
C.R.S. (2015) (“A trust may acquire, convey, encumber, lease, or otherwise deal with
any interest in real or personal property in the name of the trust.”).
¶17 In light of these principles, and absent any contrary authority cited by the
Pandys, we conclude that Mr. Pandy, as co-settlor of the revocable Trust, retained an
ownership interest in the Trust’s assets. The question thus becomes whether that
interest is properly subject to the claims of Mr. Pandy’s creditors.
¶18 Although this court does not appear to have addressed this question, numerous
other courts have done so, and they generally have concluded that the assets of a
revocable trust are properly subject to the claims of the settlor’s creditors. See, e.g., In re
Kester, 339 B.R. 749, 755 (B.A.P. 10th Cir. 2006), aff’d, 493 F.3d 1208 (10th Cir. 2007)
(noting the general rule in Kansas that during a trust settlor’s lifetime, the property of a
revocable trust is subject to claims of the settlor’s creditors); In re Morgenstern, 542 B.R.
650, 656 (Bankr. D. N.H. 2015) (noting that the New Hampshire Uniform Trust Code
provides that during a settlor’s lifetime, the property of a revocable trust is subject to
claims of the settlor’s creditors); In re Nielsen, 526 B.R. 351, 355 (Bankr. D. Haw. 2015)
(“The common law also treats the settlor of a revocable living trust as the owner of the
trust res for purposes of creditors’ rights.”); In re Bogetti, 349 B.R. 14, 18 (Bankr.
E.D. Cal. 2006) (“California law permits a creditor of a settlor of a revocable trust to
satisfy a claim against the settlor from property held by the trust.”); see also
Restatement (Third) of Trusts § 25 cmt. e (2016) (“[P]roperty held in [a revocable] trust
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is subject to the claims of creditors of the settlor . . . if the same property belonging to
the settlor . . . would be subject to the claims of the creditors . . . .”). See generally
Scott & Ascher on Trusts § 15.4.2, at 960 (“The courts, as well as the legislatures, have
concluded, in a variety of contexts, that the assets of a revocable trust are, in fact, subject
to the claims of the settlor’s creditors, both during the settlor’s lifetime and after the
settlor’s death . . . .”). Indeed, the Pandys concede that under appropriate
circumstances, property titled in the debtor’s co-settled revocable trust may be subject
to creditor’s liens under section 13-52-102, which, the Pandys note, attaches liens to a
debtor’s equitable interests.
¶19 A determination that property held in a revocable trust is subject to the claims of
the settlor’s creditors is consistent with section 13-52-105, C.R.S. (2015), which provides,
in pertinent part, “Every interest in land, legal and equitable, shall be subject to levy
and sale under execution . . . .” See also Shepler v. Whalen, 119 P.3d 1084, 1087 (Colo.
2005) (“A lien may attach to any interest the judgment debtor has in land, whether legal
or equitable.”).
¶20 Such a determination is also consistent with our recognition, albeit in a different
context, that (1) a debtor may not tie up his or her property in a trust in such a way as to
allow the debtor to enjoy the property while preventing his or her creditors from
reaching it and (2) an oral irrevocable spendthrift trust could not and did not protect the
settlor-beneficiary from future creditors. See In re Cohen, 8 P.3d 429, 433 (Colo. 1999).
¶21 Accordingly, we conclude that Mr. Pandy’s ownership interest in the Trust’s
assets is properly subject to the Bank’s claims as a judgment creditor of Mr. Pandy’s.
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¶22 We are not persuaded otherwise by the Pandys’ contention that under section
38-30-108.5, a trust is a separate legal entity that can hold legal title to property and thus
a creditor must file a separate action against the trust in order to enforce a judgment
against the settlor’s interests in that trust.
¶23 Section 38-30-108.5(1) provides, “A trust may acquire, convey, encumber, lease,
or otherwise deal with any interest in real or personal property in the name of the
trust.”
¶24 Section 38-30-108.5(3), in turn, provides, in pertinent part:
Nothing in this section shall be construed to be the exclusive manner in
which title to an interest in real or personal property may be held by or on
behalf of a trust, and title to an interest in real or personal property may
be held by or on behalf of a trust in any other manner permitted by law.
¶25 Section 38-30-108.5 was enacted in response to the division’s decision in
Lackner v. King, 972 P.2d 690 (Colo. App. 1998), rev’d sub nom. Lagae v. Lackner,
996 P.2d 1281 (Colo. 2000). See R. Sterling Ambler, Title to Colorado Real Property
Held in Trust, 31 Colo. Law. 85, 85–86 (May 2002) (discussing the history of section
38-30-108.5 and related provisions). In Lackner, 972 P.2d at 691–92, the division
concluded that a deed conveying certain property from a grantor to a debtor in his
capacity as co-trustee of a trust did not satisfy the requirements of a then-existing
statute setting forth the guidelines that a grantor was to follow to provide notice that
the grantee was obtaining the property in a representative capacity. Accordingly, the
property at issue was subject to claims of the debtor-trustee’s creditors, even though
that property belonged to the trust. See id. at 692.
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¶26 In response to this decision, the General Assembly passed legislation modifying
the statute at issue in Lackner to make it easier to avoid the problems created by that
case. See Ambler, 31 Colo. Law. at 86. In addition, the General Assembly enacted
section 38-30-108.5, the purpose of which was to make clear that a trust could hold legal
title to property in its own name without other reporting requirements. See Ambler,
31 Colo. Law. at 86.
¶27 As the foregoing history makes clear, the purpose for section 38-30-108.5’s
enactment was narrow and specific. Consistent with that legislative intent, we perceive
nothing in section 38-30-108.5, nor have we seen any pertinent legislative history,
suggesting that the legislature intended to alter any other ownership interests in trust
assets, including the ownership interest held by the settlor of a revocable trust. Nor
have the Pandys cited any such authority or legislative history.
¶28 We likewise are unpersuaded by the Pandys’ contention that Walker v. Staley,
1 P.2d 924 (Colo. 1931), required the Bank to commence a separate proceeding against
the Trust. In Walker, the plaintiff obtained a judgment against the defendant, and the
court conducted a supplementary proceeding concerning certain real property. Id. at
924–25. In this proceeding, the defendant testified that the real property at issue was
titled in his wife’s name, and he provided a history of his wife’s ownership. Id. at 925.
Notwithstanding the defendant’s undisputed testimony, and without any appearance
or testimony from the defendant’s wife, the court found that the property belonged to
the defendant and that title was kept in his wife’s name in order to defraud the
plaintiff’s judgment creditors. Id. The court then appointed a receiver and ordered the
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receiver to sell the property and to pay the receiver’s expenses, any court costs, and the
judgment against the defendant. Id.
¶29 The defendant appealed, and this court reversed. Id. As pertinent here, we held
that the trial court had no power to enter the orders that it did without affording the
wife her day in court. Id. We stated, “Where title to real property claimed to belong to
a judgment debtor stands in the name of another, a creditor’s suit is the proper
proceeding to subject the property to the satisfaction of a judgment.” Id.
¶30 Walker is distinguishable from the case before us. In Walker, the
defendant-debtor had neither a legal nor an equitable interest in the property at issue.
Thus, the creditor was required to take action to establish the debtor’s interest and to
subject the property to the satisfaction of a judgment. Here, in contrast, Mr. Pandy had
an ownership interest in the Trust’s assets. Accordingly, the Bank was not required to
file a separate action to establish such an interest as a prerequisite to subjecting the
property to the satisfaction of a judgment.2
¶31 Lastly, we are unpersuaded by the Pandys’ contention that for a number of
reasons, requiring creditors to seek real estate trust assets in a separate civil action
would be “good policy.” As noted above, our legislature and this court have made
clear that a lien may properly attach to any interest the judgment debtor has in land,
2 The fraudulent transfer cases on which the Pandys appear to rely are distinguishable
for the same reason. For example, in Shepler, 119 P.3d at 1087–88, the debtor had
neither a legal nor an equitable interest in the property at issue, and thus, the creditor
was required to file an action to establish the debtor’s interest in the property. Here, for
the reasons discussed above, Mr. Pandy’s ownership interest in the co-settled revocable
Trust’s assets existed as a matter of law.
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whether legal or equitable. See § 13-52-105; Shepler, 119 P.3d at 1087. Moreover, our
statutes and civil rules provide the means by which a creditor may execute on such a
lien. See, e.g., § 13-52-102; C.R.C.P. 105. We are bound to follow these legislative
pronouncements and applicable rules, and what may be more appropriate policy is a
matter best left to the legislature.
¶32 For these reasons, we conclude that Mr. Pandy retained an ownership interest
in the assets of his co-settled revocable trust and that this ownership interest was
subject to the Bank’s judgment lien against him. We thus turn to the statute of
limitations question raised by the Pandys.
B. Statute of Limitations
¶33 Based on their view that the Bank’s complaint in this case constituted a new
action against the Trust, the Pandys assert, without further analysis, that the division
erred in concluding that section 13-80-101(1)(k) is inapplicable.3
¶34 Because we disagree with the Pandys’ premise that this action was a new action,
we are not persuaded. Specifically, for the reasons set forth above, this action was not a
new action. Rather, it was an action by the Bank against Mr. Pandy to enforce a
previously obtained and properly domesticated judgment against assets belonging to
Mr. Pandy.4
3 As noted above, section 13-80-101(1)(k) provides that all civil actions accruing outside
of Colorado must be commenced within three years if the limitations period of the place
in which the action accrued was greater than that in Colorado.
4 Other than their assumption that section 13-80-101(1)(k) applies to a new action
against the Trust, the Pandys offer no substantive analysis as to how or why section
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IV. Conclusion
¶35 For these reasons, we affirm the judgment of the court of appeals and remand
this case for further proceedings consistent with this opinion.
13-80-101(1)(k) applies in this case. Accordingly, we express no opinion on the proper
meaning or construction of that statute.
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