Background
During their marriage, Devorah Leah Gansburg and Yerachmiel Gorelik founded Chabad-Lubavitch of Northern Colorado, a nonprofit synagogue. Gansburg managed its finances, and the couple used Chabad funds for wages and substantial household expenses. On the day she filed for divorce, Gansburg transferred $60,500 from a Chabad account to her own account, asserting the money was unpaid compensation.
Chabad intervened in the dissolution case and sought return of the money. Lauren E. M. Thompson later represented Gansburg and argued that the funds were unpaid wages which, once transferred to Gansburg during the marriage, constituted marital property. The magistrate ordered the funds returned to Chabad without deciding Gansburg’s wage claim. A district court subsequently sanctioned Thompson under Colorado Rule of Civil Procedure 11, awarding Chabad attorney fees and making Thompson responsible for 15% of the award.
The Court’s Holding
The Colorado Court of Appeals reversed the portion of the sanctions order directed at Thompson. The district court abused its discretion by attributing to Thompson arguments made at an October 2022 hearing before she entered the case.
The appellate court also held that the district court misunderstood Thompson’s position. Thompson did not contend that the spouses owned Chabad or that its nonprofit assets could be divided in the divorce; she argued that the transferred money represented earned but unpaid wages. Although that argument might have been a long shot and Gansburg’s authority to take the funds was disputed, the record provided an adequate factual basis for it. The court declined to affirm sanctions on alternative grounds not addressed by the district court.
Key Takeaways
- Rule 11 sanctions cannot rest on conduct or arguments an attorney did not make.
- A nonprofit cannot be a marital asset, but wages earned from a nonprofit during a marriage may be marital property.
- An argument supported by a colorable factual record is not sanctionable merely because it is ultimately unsuccessful or contested.
Why It Matters
The decision distinguishes an impermissible claim to ownership of nonprofit assets from a claim that a nonprofit owes compensation to a spouse. Attorneys may advance a factually supported wage-based theory without being sanctioned simply because the underlying entity is a nonprofit.
The ruling leaves undisturbed the sanctions and other portions of the order affecting Gansburg; it reverses only the sanction imposed on Thompson.