By David H. Abbott and Andrew D. Berman1
On March 24, 2009, the Massachusetts
Supreme Judicial Court ("SJC") handed down a decision concerning
the circumstances in which a creditor may pursue a claim against an
estate notwithstanding the creditor's failure to prosecute his
claim within the "short" one (1) year statute of limitations set
forth in G. L. c. 197, § 9 ("§ 9"). In
Gates v. Reilly, 453 Mass. 460 (2009), the SJC provided its
most detailed explanation yet as to the circumstances in which
creditors will be entitled to relief pursuant to G. L. c. 197,
§ 10. The decision is therefore of importance to practitioners
who represent estates and to those of us who may be contacted by a
client who has a claim against an estate that appears time-barred
under § 9.
Background2
Mildred Dooling died
testate on May 12, 2003. At the time of her death, Dooling owned
the Devereux School, located at 44 Smith St. in Marblehead, and a
substantial interest in the property at 44 Smith St. M.D. Realty
Trust owned the remaining interest in that property. The school and
Dooling's interest in the real property at 44 Smith St. were assets
subject to the probate of her estate. Dooling never married and had
no issue. She was survived by eight nephews and nieces, including
the plaintiffs Gates and Russell, and the defendant executors
Joseph Reilly and James Georges. Dooling's will left her estate
(including the school and her interest in the school property) to
her eight nieces and nephews in equal shares.
Gates and Russell (who
are sisters) worked at the school for many years (since 1969 and
1971, respectively), first as teachers, and eventually came to be
responsible for all aspects of the school's operations except
bookkeeping and financial affairs. Gates and Russell alleged that
they justifiably relied on Dooling's repeated promise, made over
more than three decades, that in exchange for their services at the
school (for which they were compensated far below market rates),
Gates and Russell would become the sole owners of the school and
the property at 44 Smith St. on their aunt's
death.
Gates and Russell
pursued challenges to their aunt's will in the Probate Court,
claiming that the will was the product of duress and undue
influence. While the will contest was pending (and within one year
of Dooling's death), their attorneys filed a number of documents
that put the executors on notice that Gates and Reilly were
claiming to be creditors of the estate. On May 26, 2004, the judge
allowed the executors' motion to strike Gates and Reilly's
challenge to the will. On June 14, 2004 (thirteen months after
Dooling's death), Gates and Russell filed a complaint in the
Superior Court against the executors, again claiming to be
creditors of the estate. They filed an amended complaint on July
16, 2004 which, in addition to claims of breach of contract, unjust
enrichments, services rendered, deceit, and constructive trust,
also included claims in which Gates and Russell sought, pursuant to
various theories, to enforce an equitable interest in the school
and school property. The executors moved to dismiss Gates and
Russell's Superior Court action on the grounds that it was not
commenced within one year of Dooling's death as required by G. L.
c. 197, § 9(a). On June 7, 2005, the Superior Court allowed in
part and denied in part the executor's motion. The Superior Court
dismissed all of Gates and Russell's claims as time-barred under
§ 9 except for those claims in which they sought an equitable
interest in the school property and related injunctive
relief.3 The Superior Court also entered a preliminary
injunction enjoining the executors from selling, transferring, or
otherwise disposing of the school or the school
property.
In May 2006, Gates and
Reilly hired the authors of this article as new counsel and, on
Sept. 15, 2006, they filed a bill in equity pursuant to G. L. c.
197, § 10 ("§ 10"), in the Supreme Judicial Court for Suffolk
County (the "county court"). On Oct. 2, 2007, based on the
documents, affidavits, and pleadings filed in the § 10
proceeding, a single justice of the Supreme Judicial Court issued a
memorandum of decision and judgment in which he found and concluded
that: (1) Gates and Russell's attorney filed a notice of creditor's
claim well within the one-year statute of limitations, but did not
file the corresponding civil action until one year and thirty-three
(33) days after the death of Dooling; (2) the delay of thirty-three
(33) days was due solely to former counsel's neglect; (3) the
neglect may not be attributable to the plaintiffs under principles
of agency; (4) the plaintiffs' claims are meritorious; (5) justice
and equity require that the plaintiffs be allowed to pursue those
claims; and (6) the defendants have shown no prejudice from the
delay. Based on these findings of fact and conclusions of law, the
single justice ordered that the plaintiffs' claims be reinstated in
the Superior Court. The executors appealed to the full
court.
After rejecting a couple
of preliminary arguments raised by the executors4 and
articulating the standard of review applicable to a decision of the
single justice under § 10,5 the Court examined the
statutory framework governing the time within which claims may be
brought against estates. In sum, § 9 sets forth a one-year
statute of limitations for an "action by a creditor of the
deceased" against the deceased's executor or
administrator.6 Section 10, however, allows a creditor
who has failed to comply with § 9's one-year statute of limitations
to file a bill in equity seeking "judgment for the amount of his
claim against the estate of the deceased person." To be entitled to
relief under § 10, the Court observed that the statute
requires a creditor to demonstrate two things: (1) that justice and
equity require recognition of the claim; and (2) that the creditor
is not chargeable with culpable neglect in not prosecuting the
claim within the one-year statute of limitations.
Justice and
Equity
Citing
The Court also concluded
that the executors had not shown that they had been prejudiced by
the filing of Gates and Russell's creditor claims thirty-three (33)
days after the one-year statute of limitations had expired. First,
the Court observed that the executors were on notice of the claims
well within the one-year limitations period. Second, the Court
reasoned that, even if relief under § 10 was denied, the
executors would have to defend against Gates and Russell's other
related claims which remained pending in the Superior Court.
Finally, the Court noted that the school and school property
remained in the estate as a result of a preliminary injunction
entered in the Superior Court.7 For these reasons, the
Court concluded that the executors had failed to demonstrate the
type of prejudice8 that might otherwise counsel against
the granting of relief under § 10.
Matter of the Estate of Grabowski, 444 Mass. 715,
719-720 (2005), the Court observed that justice and equity favor
recognizing a creditor's time-barred claims where the claims are
meritorious and the estate has not shown prejudice. The Court
further stated that a claim is "meritorious" where "it has both
legal and factual support," see id. at 719-720, and that a
court is unlikely to find "prejudice" where the estate was on
notice of the creditor's claims within the one-year limitations
period. See id. at 720; Mullins v. Garthwait, 875 F.Supp.
14, 21 n.10 (D. Mass. 1994). In the case at bar, the Court observed
that Gates and Russell's claims, which were based on alleged
promises made over more than three decades upon which they claimed
to have relied, were supported by their own affidavits and
corroborating deposition testimony from family members, friends and
others in support of their claims. Indeed, in addition to their own
detailed affidavits, the plaintiffs submitted corroborating
testimony from eight family members, friends and others. The Court
also noted that the plaintiffs had submitted an affidavit from an
expert establishing that they had been compensated at far below
market rates during their employment by the school. Based on this
evidence, the Court concluded that the time-barred claims were
sufficiently grounded in law and fact to be deemed
meritorious.
Culpable Neglect
Citing
In the case at bar, the
executors claimed that Gates and Russell were chargeable with
culpable neglect because they had "intentionally" waited for the
outcome of the will contest before filing suit in the Superior
Court, and therefore they were not entitled to relief under
§ 10. Had this been true, the plaintiffs may well have not
qualified for relief under § 10. See
Since the Court concluded
that Gates and Reilly had met their burden of demonstrating that
justice and equity required recognition of their claims, and that
they were not chargeable with culpable neglect in not prosecuting
their claims within one year of their aunt's death, the Court
affirmed the single justice's order reinstating their creditors'
claims. The case is scheduled for trial in the Superior Court in
early 2010.
Downey v, Union Trust Co., 312 Mass. 405, 408-409
(1942), the Court emphasized that a creditor seeking relief under
§ 10 must establish that his failure to file suit within the
one-year limitations period "was not due to his carelessness or to
any lack of diligence for which he might properly be censured or
blamed." In Grabowski, the Court had written that "[a]gency
principles (which might operate to make an attorney's neglect
attributable to the client as principal) do not apply to [§
10]."9 The executors in Gates argued that this
rather unequivocal statement in Grabowski was mere dicta, and
that it was inconsistent with prior cases interpreting § 10.
See Hastoupis v. Gargas, 9 Mass. App. Ct. 27, 33 (1980), and
cases cited ("'creditors' can be charged with the result of their
lawyers' blameworthy conduct under [§] 10"). In Gates, the
Court narrowed the scope of the sweeping statement that it had made
in Grabowski. The Court stated that "agency principles do not
strictly apply to equitable proceedings brought under § 10,
where a creditor's attorney is responsible for missing the one-year
statute of limitations … however, the attorney's conduct may be
attributable to the client where the attorney exhibits a 'disregard
of professional responsibilities' as opposed to 'a misunderstanding
of the controlling law.'" 453 Mass. at 472 (internal citations
omitted). This is a significant clarification of the law in this
area.Monaghan v. Monaghan, 323 Mass. 96, 97-98 (1948).
However, based on the affidavits filed by Gates, Russell and the
attorney10 who represented them at the time that the
one-year statute of limitations expired, the Court concluded that
their attorney's failure to timely file suit in the Superior Court
was not "intentional" or based on any strategic decision, but
rather it "was sufficiently the product of a misunderstanding of
the controlling law that it ought not be attributed to Gates and
Russell." Gates, 453 Mass. at 473. Although Gates and Russell's
attorneys may have been negligent in not timely filing suit, that
negligence was a product of a misunderstanding of the controlling
law, rather than the result of the attorneys' mere procrastination
or callous disregard of their professional responsibilities, and
therefore it was not attributable to Gates and Reilly under
§ 10. Id. at 472-473.
Analysis
Although § 10 relief
also requires a finding that a creditor's claim be "meritorious",
§ 10 cases tend to turn on the other prong of the analysis:
whether the creditor is chargeable with "culpable neglect." In all
of the last six reported decisions interpreting § 10,
including
If a creditor does not
timely retain counsel, it will be considerably more difficult for
the creditor to avoid a finding that he is chargeable with culpable
neglect and therefore ineligible for relief under § 10. That
is because the creditor's neglect in failing to timely file suit
will be attributed to the creditor, rather than to an attorney.
Further, any failure to prosecute the creditor's claim within
§ 9's one-year limitations period must not have been the
result of an intentional decision or strategic choice. It must also
not have been the consequence of the creditor's attorney's
procrastination or callous disregard of his professional duties.
Rather,
Gates, the creditors had timely retained counsel to
pursue their claims against an estate. See Gates, 453 Mass. at
462; Grabowski, 444 Mass. at 721; Mullins, 875 F.Supp. at
26; Hastoupis, 9 Mass. App. Ct. at 32-34; Herman v.
Watson, 330 Mass. 414, 414-415 (1953); Downey, 312 Mass.
at 410. The attorneys in all of these cases failed to timely
file suit either due to their misunderstanding of the controlling
law, see Gates, 453 Mass. 460; Grabwoski, 444 Mass. 715;
Mullins, 875 F.Supp. 14; and Hastoupis, 9 Mass. App. Ct.
27; or for reasons that were not clear on the record. See
Downey, 312 Mass. at 410; Herman, 330 Mass. 414. In
all of these cases, the creditors were awarded relief under
§ 10.Gates emphasizes that, for an attorney's failure to
timely prosecute his client's claim to be "pardonable" under
§ 10, it must have resulted from a bona fide misunderstanding
of the controlling law. In that case, the client will be granted
leave to pursue a meritorious claim against an estate. Otherwise,
the creditor's sole recourse will likely be an action for legal
malpractice against his attorney.
Notes
1.
David H. Abbott practices civil litigation (including
appeals), and Andrew D. Berman practices both civil and criminal
litigation, as members of Simonds, Winslow, Willis & Abbott, in
Boston. The authors represented the plaintiffs Katherine Gates
and Elizabeth Russell in Gates v. Reilly, 453 Mass. 460
(2009).
2. The factual
allegations set forth in this background section are taken from the
SJC's opinion.
3. The Superior Court
relied on
4. The Court rejected
the executors' claim that Gates and Reilly's dismissed "creditors"
claims were
5. The Court declared
that it will review without deference factual findings made solely
on documentary evidence, and review
6. M.G.L. c. 197,
§ 9(c), provides that the same statute of limitations applies
to an action by a creditor of a deceased against a trustee of a
trust, the assets of which are subject as a matter of substantive
law to being reached by creditors of the
deceased.
7. It should be noted
that any judgment that a creditor may obtain pursuant to § 10
"shall not affect any payment or distribution made [from the
estate] before the filing of such bill and notice." M.G.L. c. 197,
§ 10.
8. The executors'
principal claim of prejudice was that, as a result of the
reinstatement of the plaintiffs' creditors claims, the estate faced
potential liability for prejudgment interest (at twelve percent
(12%) per annum) on those claims dating back five years to the date
that they were originally filed. Plainly, the SJC did not view that
alleged "prejudice" as the variety of prejudice that will counsel
against the granting of relief under § 10.
9. 444 Mass. 715 at
721.
10. Although the executors attempted to discredit
the testimony of the plaintiffs' former attorney, her testimony was
not contradicted in the record and, indeed, it was corroborated by
Gates and Russell's own affidavits.
New England Trust Co. v. Spaulding, 310 Mass. 424,
430 (1941), which the Supreme Judicial Court held that § 9
"does not apply to suits to enforce equitable interests in property
of a decedent in the possession of an executor, as such a suit is
not only by a creditor to collect a debt but one by the holder of
an equity to enforce his title."res judicata and therefore
could not be reasserted via § 10, on the ground that no final
judgment had been entered on the dismissed claims under Mass. R.
Civ. P. 54(b). 453 Mass. at 464-465. The Court also rejected the
executors' claim that the single justice committed reversible error
by not ordering an evidentiary hearing or appointing a commissioner
or special master, on the ground that the executors did not request
before the single justice either an evidentiary hearing or the
appointment of a special master. Id. at 464, n.7. de novo
questions of law. Id. at 466.