Section Review

Better Late Than Never: Gates v. Reilly and the Circumstances in Which Creditors May Pursue “Late” Claims Against Estates

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.

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