Borden v. Rose, et al., Docket No. 361-10-05 Bncv (Wesley, J., Dec. 20, 2005)


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STATE OF VERMONT                                    BENNINGTON SUPERIOR COURT
BENNINGTON COUNTY, SS.                              DOCKET NO. 361-10-05 Bncv

JANE BORDEN (f/k/a Rose) )
                         )
    VS.                  )
                         )
JOHN ROSE, JULIUS        )
ROSENWALD, & B.S.
KRIMPETT, LLC

                             ORDER RE MOTION TO DISMISS

       Introduction - Plaintiff's complaint sounds in tort but it arises from

circumstances that were previously the subject of litigation in the Bennington Family

Court. She claims damages for fraud and unjust enrichment, and invokes equity for the

imposition of a constructive trust on the real estate formerly occupied as a marital home

by herself and Defendant John Rose, her ex-husband. She asserts this claim

notwithstanding the fact that each party's equity of redemption has been extinguished

by a foreclosure judgment, and the property has been purchased by Defendants

Rosenwald and Krimpett. Defendants have moved to dismiss for failure to state a

claim, principally relying on the argument that any justiciable issue is vested solely

within the Family Court's jurisdiction. As discussed below, the Court expresses grave

doubts that the Superior Court has subject matter jurisdiction over any of the claims

asserted against Defendant Rose. Furthermore, although technically vested with

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jurisdiction over the claims against the other defendants, the Court questions whether

the facts as plead are sufficient to sustain the causes of action alleged. However,

inasmuch as the Court=s reasoning expands upon any of the arguments in the

memoranda and requires certain inferences that might be described as beyond the

pleadings as presently framed, the Court invokes the provision of V.R.C.P. 12(b)

appropriate to such circumstances, deferring a definitive ruling until Aall parties shall be

given a reasonable opportunity to present all material made pertinent to such a motion

b Rule 56". Nonetheless, the Court writes presently at some length in an effort to

apprise the parties of its concerns regarding the claims based on the record made thus

far, thus affording an opportunity to bolster the record as contemplated by V.R.C.P.(e)

and to supply additional legal authorities addressing the issues set forth below.

       Factual Background - Taking all well-plead facts as true, Defendant Rose

resided in the former marital home in Pownal after he and Plaintiff separated and

throughout their divorce proceedings. He remained responsible for the mortgage

payments. At the time the parties were negotiating a final stipulation, Defendant Rose

"made affirmative representations that the mortgage payments had been re-negotiated,

a payment plan had been agreed upon between him and Inter-State Federal

Savings...and that the entire legal action was in abeyance." Complaint at &10.

Nevertheless, as he was aware, Defendant Rose did not make a "repayment

agreement" nor was the foreclosure action ever in abeyance. Plaintiff claims to have

relied on these false representations as to the status of the foreclosure matter when

she entered into a final stipulation for a divorce decree. By the terms of that decree,

Defendant Rose was awarded title to the marital home, subject to a provision for

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dividing any equity at the time the parties youngest child reaches 18 or graduates from

high school. The portion of the decree related to property settlement recites as to the

foreclosure proceedings:

      The matter is currently in abeyance. Should judgment be entered in the
      said complaint or any complaint for foreclosure the property shall be
      immediately listed for sale with Hoisington Realty or any other reputable
      realtor as agree upon by the parties at a price set by the Realtor and any
      offer within 5% of said listing must be accepted by the parties. If the
      property is sold as the result of a foreclosure judgment, Defendant, Mr.
      Rose shall be solely responsible for all fees associated with the
      foreclosure resulting from his failure to pay on the mortgage.
      Notwithstanding the above, Mr. Rose is solely responsible for and shall
      hold Ms. Rose harmless from any and all expenses related to the marital
      residence since the date of separation on or about February 5, 2001.
      Such expenses may include, but are not limited to, taxes , principal,
      interest on the mortgage payment.

      On June 4, 2002 Inter-State obtained a judgment by default in the mortgage

proceedings. The Court infers from the pleadings that Plaintiff was unaware of this fact

at the time of the divorce in November, 2002, notwithstanding the recitation in the

decree that there was a foreclosure proceeding pending. On the present state of the

pleadings, however, the Court does not construe the complaint as alleging that

Defendant Rose did any act, fraudulently or otherwise, that prevented Plaintiff from

becoming aware of this matter of public record. The complaint is likewise silent as to

whether either party invoked the provisions in the divorce decree which specified a

procedure for attempting to effectuate a sale in the event of foreclosure - an event

which in fact had already occurred at the time of the divorce decree. Nevertheless, if

such efforts were made they were unavailing. The six month period of redemption

expired shortly after the divorce was final without the equity being redeemed by

payment of the amount established by the foreclosure accounting, and Inter-State took

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title to the property on December 20, 2002.

        The allegations as to the other defendants are spare. On March 3, 2003,

Defendant B.S.Krimpett, LLC purchased the property from Inter-State for the sum of

$68,639.60, "believed to be the amount of the payoff of the loan." Complaint at & 19.

Krimpett is a business entity of unknown origin believed to be closely associated with

Defendant Rosenwald. Defendants Rosenwald and Rose are familiar with one another.

Defendant Rose continues to reside at the property and pay rent. On the present state

of the pleadings, the Court does not consider it a reasonable inference in the absence

of explicit allegations to such effect that the other defendants acted in furtherance of

any claimed conspiracy at any time prior to Inter-State=s acquisition of the subject

property.

       Discussion

       a) Procedural History and Legal Context - Defendants Rosenwald and

Krimpett were first to file their motion to dismiss, a two page document that recites the

statutory authority for Family Court jurisdiction, 4 V.S.A.'454, observes that all Plaintiff's

claims spring originally from the Family Court stipulation and decree, and asserts

without further discussion that subject matter jurisdiction is plainly absent. Defendants

do not address the fact that the claims against them are conspiracy to defraud, or that

they were not parties to the Family Court proceedings, nor suggest how these claims

could have been brought in Family Court. Shortly after Rosenwald and Krimpett sought

dismissal, Defendant Rose filed a similar request incorporating the earlier arguments by

reference with no additional briefing.

       Plaintiff opposed the motion to dismiss claiming that all her claims "against all

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Defendants are unique and separate ...from any matters related to the Final Order for

Divorce". She cites Demgard v. Demgard 173 Vt.526 (2001) and Slansky v. Slansky,

150 Vt. 438 (1988) for the proposition that certain causes of action between former

spouses will support separate claims in Superior Court, even if they arose during the

marriage and could also have been relevant to claims in the divorce proceedings.

Defendants Krimpett and Rosenwald respond that the circumstances here are far more

analogous to Tuthope v. Riehle, 167 Vt. 174 (1997) in which the dismissal of a Superior

Court suit claiming fraudulent inducement during the negotiation of a final divorce

stipulation was upheld as an impermissible collateral attack on the divorce decree;

(although Defendant Rose has made no additional filings beyond his initial adoption of

the arguments of the other defendants, the Court treats all arguments raised by

Defendants Rosenwald and Krimpett as applicable to Rose's motion to dismiss).

Plaintiff has not addressed how Tuthope is distinguishable from her claim. As to the

complaint against Defendant Rose, the Court does not believe that it can be on the

record presently established.

      In Slansky, the parties had been divorced by a stipulated decree that vested

each with the property then in that person=s name. Although no specific mention was

made of the health insurance policy, it was undisputed that at the time of the divorce

Mr. Slansky knew that the policy had been changed into Ms. Slansky=s name alone

excluding him from any coverage. Nonetheless, only a few months after the divorce

was final, Mr. Slansky brought a Superior Court action for fraudulent conversion

alleging that he had provided the funds for the policy prior to the separation expecting

that it would name the entire family as insureds, that Ms. Slansky put the policy in her

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name alone without his knowledge, and that as a result he had been unable to obtain

insurance coverage for a health condition that subsequently developed. The Superior

Court granted defendant=s motion for summary judgment concluding that the issue was

res judicata since it could have been raised in the divorce action. While the Supreme

Court acknowledged that Athe dispute concerning the insurance policy was clearly at

issue during the parties= negotiations@ in the divorce action, and that Ait might have been

a more prudent course to have expressly reserved the issue in the property distribution

agreement@, it nevertheless refused to extend res judicata to bar Aa unique claim

sounding in tort that is separate and distinct from the divorce decree.@ Id. 150 Vt. at

441-42.

       By its analysis in Tuthope, the Court distinguished Slansky. Tuthope was

decided after the creation of the Family Court during which the Legislature delimited the

Superior Court=s jurisdiction so as to preclude it from considering actions cognizable in

the Family Court.

4 V.S.A.'113. Thus, the Court upheld dismissal of Ms. Tudhope=s Superior Court

complaint against Mr. Riehle, her ex-husband, by which she alleged that he had

procured her consent to a stipulated divorce decree by unconscionable means including

fraud, deceit and duress. The Court ruled that a settlement agreement incorporated

into a divorce decree Abecomes a part of the judgment of the court and is assailable

only through a motion to set aside the judgment.@ Id. 167 Vt at 177. The Court rejected

the argument that the plaintiff=s attempt at a collateral attack on the divorce was

covered by the principles discussed in Slansky. Looking to the Asubstance of the

complaint@ rather than the Aprecise terminology@ of the tort label, the Court concluded

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that Tudhope was Aattempting to relitigate the property distribution agreement that the

family court adopted rather than asserting a unique claim separate and distinct from the

divorce decree@. Id. at 179-80.

        The parameters of what constitutes a Aunique claim@ sufficient to avoid the

preclusive effect of a divorce decree are further refined by Demgard. In that matter, Mr.

Demgard filed a Superior Court claim seeking contribution from his ex-wife for payments

he had made on a promissory note the parties had executed prior to their divorce. The

divorce decree had issued after a contested hearing, but made no specific disposition of

the parties marital debts and omitted any mention of the promissory note. Although Ms.

Demgard argued that issues regarding the note had been the subject of a portion of a

memorandum filed prior to the divorce trial, the Supreme Court found nothing in the

record to support the conclusion that the Family Court had ever been presented with

evidence as to the debt so as to incorporate consideration of it into the division of the

marital estate. Furthermore, the Court noted that under 4 V.S.A.'453(a) AVermont

statutes governing divorce proceedings do not obligate the family court to allocate

responsibility for marital debt absent the parties= invocation of the court=s equitable

jurisdiction to do so.@ Id. 173 Vt. at 528. Tuthope was distinguished because it involved

a collateral attack on a property stipulation incorporated into the divorce decree by

consent of the parties, whereas the claim for equitable contribution between the

Demgards was not required to have been presented to the Family Court which, in fact,

had never considered it during the trial on the merits. By this reasoning, the Court found

it Aa unique and separate claim from the property division in the final divorce judgment@,

and thus Acognizable in superior court@. Id.

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       b) Claims against Defendant Rose - Notwithstanding her conclusory insistence

to the contrary, Plaintiff=s claim against her ex-husband does not appear to be Aunique

and separate@ from the divorce judgment but rather constitutes a direct attack on the

consent decree, seemingly indistinguishable from the situation in Tuthope. As

Defendants note, Plaintiff=s complaint specifically alleges that ADefendant Rose

fraudulently induced the Family Court into signing a Final Order of Divorce@, Complaint

at &16, the exact claim rejected in Tuthope as an impermissible collateral attack.

Indeed, absent the further development of facts to support the contention, the Court

would find it hard to accept Plaintiff=s argument that because her ex-husband Ano longer

retains an ownership interest in the subject property, the family court would have little or

no mechanism available to it to adjudicate the issues raise in Plaintiff=s Complaint and

the relief requested@. Rather, as in Tuthope, the conclusion would appear inescapable

that Plaintiff is bound by the settlement she made, and that any means of relief ought to

have been either a petition to enforce the settlement agreement regarding the rights

provided relative to the foreclosure proceeding, or a timely motion to set aside the

consent decree.

       Significantly, the decree discloses no absolute reliance on the recitation that the

foreclosure action was Ain abeyance@, the core element of Plaintiff=s claim for

misrepresentation. Although the stipulation and decree charge Defendant Rose with

responsibility for the mortgage payments, they make no explicit provision as to how the

foreclosure action must be resolved. Instead, the stipulation expressly contemplated the

prospect that judgment could Abe entered in the said complaint or any complaint

foreclosure@, making particular provision for a method by which the property could be

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Asold as the result of a foreclosure judgment.@ Given the contingencies contemplated by

the divorce decree regarding the pending foreclosure action, Plaintiff must be charged

with the duty of taking reasonable steps to protect her inchoate interest in any equity in

the marital home, which plainly could not materialize except for the resolution of the

foreclosure. Assuming as Plaintiff alleges that the balance to satisfy the mortgage was

almost $70,000, the prospect of having to sell the home to save any potential equity was

palpable at the time of the final divorce decree. Yet, for all that appears from the

complaint, Plaintiff apparently claims reliance on the asserted state of Aabeyance@ for

having remained uninformed as to the entry of default in the foreclosure, the

establishment of the period of redemption scheduled to expire within a matter of weeks,

and the subsequent expiration of that period and transfer of title to the mortgagee.

        Each of the parties was represented by counsel at the time of the divorce

(including Plaintiff=s representation by her current attorney). The foreclosure action had

been pending since before April 2002 at the time the divorce was settled in November

2002. From its attempts to parse the limited history presented by the pleadings, the

Court is left with the disquieting prospect that at the time of the divorce decree neither

Plaintiff, nor counsel, was aware of the default judgment more than five months earlier

that had triggered the running of the redemption period set to expire less than a month

hence. If that is the case, however, claiming that Defendant misrepresented the nature

of any state of Aabeyance@in the foreclosure proceedings does not make out actionable

misrepresentation, as the Court presently understands the law. See,Winton v. Johnson

& Dix Fuel Corp. 147 Vt. 236, 241(1986)(misrepresentations as to a matter of law are

not actionable Awhere it is clear... from facts about the relationship of the parties that

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reliance should only follow an independent inquiry@). As a party to the action whose

existence she acknowledged in the divorce stipulation, Plaintiff and her counsel must be

charged with knowledge of its status which would have been disclosed by a simple

inquiry to the court clerk. In any event, since no express provision was made in the

decree for how the parties expected the foreclosure claim would be resolved, except by

the eventual need to sell the house, Plaintiff surely must have been advised that her

potential rights under the divorce decree would require vigilance regarding the

foreclosure suit.

        Under the circumstances presented, it is unclear whether there were any

remedies in either the divorce proceedings or the foreclosure proceedings by which

Plaintiff could have forestalled the loss of the house. However, by the exercise of

reasonable prudence either before or after the divorce decree, she might have enforced

the remedy specifically bargained for in the divorce settlement - sale of the house - or, to

the extent she was able to demonstrate other prejudice flowing from claimed

misrepresentation, grounds for seeking to have the divorce decree vacated. That she

allowed the time for exercising her potential remedies to lapse without asserting them

does not strengthen her present claim of for a Aunique and separate@ action. Tuthope,

167 Vt. at 178 (superior court action not justified by expiration of period for seeking post-

judgment relief in divorce proceeding since such limits are consistent with the need for

finality of judgments).

        c) Claims against Defendants Krimpett and Rosenwald - By the foregoing

analysis, the Court presently believes that the fundamental claim that Defendant Rose=s

misrepresentations regarding the status of the foreclosure action tainted the divorce

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decree is res judicata as regards the complaint against him. However, contrary to the

briefing of the other defendants, reliance on Tuthope alone is insufficient to afford the

basis for dismissal of the claims against them. As that opinion notes, Athe type of relief

available in a tort action is not available in a divorce action.@ Id, 167 Vt. at 179. Thus,

since the claim for conspiracy to defraud could not have been joined with the original

divorce, the decree in that action cannot have preclusive effect with respect to the

complaints against the other defendants. Nonetheless, although not deprived of subject

matter jurisdiction, this Court doubts that Plaintiff has plead sufficient facts to state a

cause of action on which relief could be granted as to the other defendants.

        Plaintiff alleges in Count I that Defendants Rosenwald and Krimpett Aconspired

to de-fraud Plaintiff of her rightful portion of the marital home@. In Count II, she alleges

that those other defendants Awill be unjustly enriched should they receive the entire

portion of the value of the subject property@, and on that basis she invokes by her Count

III an equitable entitlement to the remedy of a constructive trust. As previously noted,

the facts already discussed with respect to Plaintiff=s complaint against Defendant Rose

do not presently permit the inference that he engaged in any act of conspiracy with the

other defendants prior to the judicial transfer of title to the property to Inter-State. Thus,

the allegations supporting Plaintiff=s additional claims against the other defendants are

decidedly meager. They are limited to: i) Defendant Krimpett purchased the property

from the judgment holder in the foreclosure action for an amount equal to what would

have been necessary to redeem, presumably well below fair market value; ii) Krimpett is

closely associated with Defendant Rosenwald, who is familiar with Defendant Rose;

iii) Defendant Rose never moved from the property, and now pays rent to Krimpett

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and/or Rosewald as agent for Krimpett. These facts are plainly insufficient to establish

either a conspiracy to defraud or unjust enrichment.

        The parties have yet to brief the elements of an action for civil conspiracy, but

the Court=s research discloses scant jurisprudence from the opinions of the Vermont

Supreme Court; see, e.g. Schwartz v. Frankenhoff 169 Vt. 287 (1999)(no court will

accept conclusory allegations of a conspiracy, without more, as sufficient to establish

personal jurisdiction over an alleged member of the conspiracy), State v. Heritage Realty

of Vermont 137 Vt. 425 (1979)(state=s evidence insufficient to show anything more than

similar prices reached independently which would not support the agreement elemental

to an illegal price-fixing conspiracy, but summary judgment was premature in light of

State=s petition for additional discovery). As described in 16 Am Jur2d ,Conspiracy '50,

the definition of a civil conspiracy is Aa combination of two or more persons by some

concerted action to accomplish some criminal or unlawful purpose@, with Athe essence of

civil conspiracy@ being a claim for damages. But there Acan be no conspiracy where the

acts complained of, and the means employed in doing the acts, are lawful.@ As to

elements, a civil conspiracy Arequires an object to be accomplished, a meeting of minds

on the object or course of action, one or more overt acts, and damages as a proximate

result thereof.@ Id., '51.

        In this case as plead, there are neither factual allegations, nor reasonable

inferences to be drawn from them, sufficient to establish any claim of an unlawful

agreement, or acts taken in furtherance of it. Plaintiff does not allege that the defendants

plotted in concert at the time of the divorce to deprive her of any hope of realizing her

share of the equity in the home. In any event, no such agreement could have

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succeeded had Plaintiff invoked her right to compel a sale of the house, the free

exercise of which was unimpeded by the acts of any of the defendants as far as can be

inferred from the allegations of the complaint. Furthermore, even assuming Defendant

Rose=s misstatement about the nature of the foreclosure Ain abeyance@ had been

actionable, the link between such misrepresentation and the later acts of the other

defendants are too attenuated to demonstrate any resulting damage to Plaintiff=s

interests. As already discussed, such proximate cause as against Defendant Rose is

dubious, even had it been properly raised in the Family Court, because Plaintiff failed to

resort to remedies available to her under the divorce decree. As to the other

defendants, the linkage is so indistinct as to disappear on the current state of the record.

Simply put, no nefarious purpose can reasonably be inferred from the allegations

against Defendants Krimpett and Rosenwald. They bought a property from a foreclosing

creditor at a bargain price, in itself an unnoteworthy event. They then made an

unspecified arrangement with the prior owner to continue to occupy the premises

presumably involving rent. Each of these events can be explained in terms of

commercially reasonable behavior, and without additional allegations that plainly frame

them as unlawful, there can be no conspiracy.

        By similar reasoning, Plaintiff has failed to allege facts showing unlawful actions

by either Defendant Krimpett or Rosenwald that proximately caused damage to Plaintiff

by way of unjustly enriching those defendants. The allegations of the complaint show no

more than that Defendants realized a possible bargain by purchasing the property from

a foreclosing creditor typically anxious to eliminate a losing investment from its portfolio.

In this regard, it must be noted that long-established authority supports Vermont=s

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tradition of strict foreclosure, though in circumstances such as this one it can produce

the harsh consequence of the liquidation of significant equity lost to mortgagors who fail

to redeem. See, Aldrich v.Lincoln Land Corp., 130 Vt. 372 (1972)(the right of redemption

is the device that removes a foreclosure from the condemnation of a forfeiture),

Dieffenbach v. Attorney General of Vermont, 604 F.2d 187 (2nd Cir, 1977)(upholding the

constitutionality if Vermont=s strict foreclosure statute).

Based on the foregoing, it is hereby ORDERED: The Court will defer further ruling on

Defendants= Motions to Dismiss pending an opportunity to develop the record pursuant

to Rule 56 in light of the discussion in this opinion. The parties shall consult with respect

to an appropriate discovery schedule and file a stipulation with the Court no later than

January 6, 2006, which shall specify a deadline for the completion of all written discovery

and depositions. Supplemental memoranda shall be filed within 20 days after the close

of discovery.

        DATED December 20, 2005, at Bennington, Vermont.




                                             John P. Wesley
                                             Presiding Judge




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