De Prins v. Michaeles ( 2019 )

United States Court of Appeals
For the First Circuit
Nos. 18-2191
19-1095
HARRY DE PRINS,
Plaintiff, Appellee,
v.
MICHAEL J. MICHAELES, Trustee of the Donald Belanger Irrevocable
Trust dated October 28, 2008; DONALD BELANGER IRREVOCABLE TRUST
DATED OCTOBER 28, 2008,
Defendants, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Timothy S. Hillman, U.S. District Judge]
Before
Torruella, Lynch, and Kayatta,
Circuit Judges.
Michael J. Rossi, with whom Conn Kavanaugh Rosenthal Peisch
& Ford LLP was on brief, for appellants.
J. Mark Dickison, with whom Ryan A. Ciporkin, Laura S. Sawyer,
and Lawson & Weitzen, LLP, were on brief, for appellee.
November 15, 2019
LYNCH, Circuit Judge. This is an important case about
Massachusetts trust law which we think is better answered by the
Massachusetts Supreme Judicial Court (SJC). Accordingly, we
certify to the SJC under its Rule 1:03 an unresolved question under
both state common law and state statutes concerning whether a
judgment creditor of the settlor's estate may reach and apply
assets in an irrevocable spendthrift trust after the death of the
self-settlor of the trust.
I.
Harry De Prins brought this reach and apply action
against a Massachusetts spendthrift trust created by his parents'
murderer, Donald Belanger, to enforce an Arizona wrongful death
judgment against Belanger's estate. The parties do not dispute
the relevant facts, which we draw from the record.
In 2000, Donald and Ellen Belanger moved from
Massachusetts to Arizona. In 2005, their neighbors Armand and
Simonne De Prins filed a lawsuit against the Belangers and others
over shared water rights. In 2007, the De Prinses obtained a
monetary judgment against the Belangers.
In June 2008, the Belangers moved from Arizona to
California. Ellen Belanger committed suicide there on October 4,
2008, distressed at least in part about the loss of the lawsuit.
Immediately after Ellen Belanger's death, the Belangers' daughter,
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Christina Clark, drove to California and convinced her father to
return to Arizona with her.
One week after his wife's suicide, Donald Belanger
contacted his attorney, Michael J. Michaeles, about creating an
irrevocable trust. On October 28, 2008, Belanger created the
Donald A. Belanger Irrevocable Trust Dated October 28, 2008 ("the
Trust"), a self-settled trust that named Michaeles as its sole
trustee and Belanger himself as its sole beneficiary during his
life. The Trust provided that Clark would become the sole
beneficiary after Belanger's death. It also contained a
spendthrift clause and provided that Belanger could not "alter,
amend, revoke, or terminate" the Trust. Belanger signed the Trust
on November 3, 2008, and conveyed substantially all of his assets
to Michaeles as trustee.
Four months after he signed the Trust, on March 2, 2009,
Belanger shot and killed Armand and Simonne De Prins in a Walmart
parking lot in Show Low, Arizona. The next morning, police stopped
Belanger on Interstate 25 in New Mexico. Before the officer
approached Belanger's car, Belanger shot and killed himself.
Michaeles, who was already the trustee of the Trust,
then became personal representative of Belanger's estate, which he
probated in Arizona.
On June 10, 2010, the De Prinses' son, Harry De Prins
("De Prins"), brought a wrongful death action in Arizona state
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court against Michaeles as personal representative of Belanger's
estate. That action was removed to the U.S. District Court for
the District of Arizona.
In November 2014, De Prins commenced this separate reach
and apply action in the Arizona federal district court against the
Trust and Michaeles as its trustee, having learned of the Trust
through the wrongful death litigation. In July 2015, De Prins
settled the wrongful death action against the estate with Michaeles
as personal representative of the estate for $750,000. The
judgment entered in the probate action of Belanger's estate
stipulated that collection of De Prins's consent judgment against
the estate would be exclusively against the Trust and that the
reach and apply action against the Trust would be transferred to
the U.S. District Court for the District of Massachusetts. The
operative amended complaint in this action states a single claim
to reach and apply the Trust's assets to satisfy De Prins's
$750,000 wrongful death judgment against Belanger's estate.
After cross-motions for summary judgment, the district
court entered judgment for De Prins, holding that he had satisfied
the three elements for a reach and apply action required by
Massachusetts law. De Prins v. Michaeles, 342 F. Supp. 3d 199,
205 (D. Mass. 2018). The district court also held that, under
Massachusetts law, a self-settled trust cannot be used to shield
one's assets from creditors, even where the trust has a spendthrift
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provision and the trustee had made no distributions to the settlor
prior to his death. Id. at 206.
Michaeles timely appealed.
II.
Since we dispose of some preliminary questions by
affirming summary judgment as to those questions, we review those
grants of summary judgment de novo, and do so by "'scrutiniz[ing]
the evidence in the light most agreeable to the nonmoving party,
giving that party the benefit of any and all reasonable
inferences.'" Pena v. Honeywell Int'l, Inc., 923 F.3d 18, 27 (1st
Cir. 2019) (alteration in original) (quoting Murray v. Kindred
Nursing Ctrs. W. LLC, 789 F.3d 20, 25 (1st Cir. 2015)), reh'g
denied, 931 F.3d 100 (1st Cir. 2019).
A. Statute of Limitations
We describe and dispose of the Trust's statute of
limitations defense. We do not certify any limitation issues to
the SJC.
Michaeles argues that De Prins's reach and apply action
is time-barred by Massachusetts's one-year statute of limitations
for claims by creditors of the deceased against estates or trusts.
Mass. Gen. Laws ch. 190B, § 3-803(a), (b). But that statute
plainly does not apply to this action.
It is quite clear that Arizona law provides the choice-
of-law rules applicable to this action, which was brought in
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Arizona. See Ferens v. John Deere Co., 494 U.S. 516, 523 (1990)
("A transfer under § 1404(a) . . . does not change the law
applicable to a diversity case."); Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487, 496 (1941) (requiring federal courts
sitting in diversity to apply the choice-of-law rules of the forum
state). Arizona follows the Restatement (Second) of Conflicts of
Laws, applying to a given legal question the law of "the state
that has the most significant relationship to the issue." Pounders
v. Enserch E & C, Inc., 306 P.3d 9, 14 (Ariz. 2013).
Arizona has the most significant relationship to this
question, given that Belanger executed the Trust in Arizona,
Belanger and both De Prinses were Arizona residents when they died,
Belanger murdered the De Prinses in Arizona, and Belanger's estate
was probated in Arizona. The Trust's provision that it is governed
by Massachusetts law does not determine which statute of
limitations governs this action. The Trust states that it "shall
be interpreted in accordance with the laws of the Commonwealth of
Massachusetts, and [that] its validity and administration shall be
governed by the laws of the Commonwealth of Massachusetts." The
question of which statute of limitations to apply thus falls
outside the categories of disputes covered by the limited choice-
of-law provision. Michaeles cites no Arizona statute of
limitations that would bar this action. The only Arizona statute
he cites by its terms does not apply to this suit as it applies
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only to "claims against a decedent's estate," which this reach and
apply action is not. See Ariz. Rev. Stat. Ann. § 14-3803(A)(1).1
We conclude the reach and apply action is not time barred.
B. Collateral Estoppel
We also rule against De Prins's collateral estoppel
argument and do not certify this issue to the SJC.
De Prins argues that Michaeles is collaterally estopped
from arguing that De Prins may not reach the Trust because of the
final judgment in the underlying wrongful death action, which
included a stipulation that the judgment could only be enforced
against the Trust's assets.
This argument has no merit. Collateral estoppel applies
"[w]hen an issue of fact or law is actually litigated and
determined by a valid and final judgment, and the determination is
essential to the judgment." Restatement (Second) of Judgments
§ 27 (Am. Law Inst. 1982); see also Commonwealth v. Two Parcels of
Land, 724 N.E.2d 739, 743–44 (Mass. App. Ct. 2000); Indus. Park
Corp. v. U.S.I.F. Palo Verde Corp., 547 P.2d 56, 61 (Ariz. Ct.
App. 1976). "There are many reasons why a party may choose not to
raise an issue, or to contest an assertion, in a particular
1 Michaeles also argues that the district court was wrong
to hold that the twenty-year period found in Mass. Gen. Laws ch.
260, § 20 was the applicable statute of limitations. Because
Massachusetts law does not govern the timeliness of this action,
this question is irrelevant.
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action," so we generally err on the side of not finding an issue
precluded when it is not clear that it was fully litigated. See
Restatement (Second) of Judgments § 27 cmt. e; Two Parcels of Land,
724 N.E.2d at 744 (explaining that to apply collateral estoppel
"the court must . . . find that the party to be estopped had a
'full and fair opportunity to litigate the issue in the first
action'" (quoting Brunson v. Wall, 541 N.E.2d 338, 341 (Mass.
1989))). For that reason, stipulations and consent judgments are
not usually preclusive. Restatement (Second) of Judgments § 27
cmt. e ("In the case of a judgment entered by . . . consent, . . .
none of the issues is actually litigated."). Instead, they are
preclusive only on issues for which the parties clearly intended
that result. Id. ("A stipulation may . . . be binding in a
subsequent action between the parties if the parties have
manifested an intention to that effect."); see also Chaney Bldg.
Co. v. City of Tucson, 716 P.2d 28, 30 (Ariz. 1986) ("Because the
issues involved in the . . . dispute were never actually litigated,
one of the prerequisites to giving a judgment collateral estoppel
effect is patently absent. Nothing is adjudicated between parties
to a stipulated dismissal.").
Here the parties stipulated that "collection of [the]
judgment would be exclusively against the Decedent's irrevocable
trust . . . ." There is no indication from that language that the
parties intended the agreement to be binding on the issue of De
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Prins's ability to reach and apply trust assets and income.
Instead, they simply stipulated that the reach and apply action
against the Trust would be De Prins's sole avenue for collection.
Put another way, the agreement was that De Prins would not attempt
to collect anything further from the estate -- not necessarily
that he would be able to collect from the Trust. And the fact
that Michaeles agreed to the consent judgment in his capacity as
personal representative of the estate and not as trustee of the
Trust furthers the conclusion that he was not seeking to waive any
rights of the Trust.
C. Certification of the Dispositive Question in the Reach and
Apply Action
We turn to the matter that we certify.
The crux of Michaeles's argument on appeal is that the
district court erred in its core legal holding that De Prins is
entitled under Massachusetts law to reach and apply the irrevocable
trust assets to satisfy the wrongful death judgment. This argument
turns on whether in these circumstances, under state common law
and state statutes, a self-settled spendthrift irrevocable trust
which provided for unlimited distributions to the settlor during
his lifetime (and to no one else) protects assets in the trust
from a reach and apply action by the settlor's creditors after the
settlor's death. Massachusetts law has not resolved this question.
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Under Massachusetts case law, a self-settled spendthrift
trust does not protect assets from the settlor's creditors to the
extent that the settlor retains use and control of the funds. Ware
v. Gulda, 117 N.E.2d 137, 138 (Mass. 1954); Restatement (Second)
of Trusts § 156(1), (2) (Am. Law Inst. 1959).2 And where, "[d]uring
his lifetime," the self-settlor of a revocable trust "enjoyed all
the indicia of ownership of the property he placed in the trust"
by being "settlor, trustee, and sole beneficiary . . ., the
successor trustees hold the trust property subject to the claims
of creditors." Nile v. Nile, 734 N.E.2d 1153, 1158 (Mass. 2000)
(characterizing the holding of State St. Bank & Tr. Co. v. Reiser,
389 N.E.2d 768 (Mass. App. Ct. 1979)).
An aspect of the State Street rule approved in Nile now
appears to be codified at Mass. Gen. Laws ch. 203E, § 505(a)(3),
which provides that "[a]fter the death of a settlor, . . . the
property of a trust that was revocable at the settlor's death shall
be subject to claims of the settlor's creditors," even despite a
spendthrift clause. See 2012 Mass. Acts 140 (2012).
But, as Michaeles points out, the statute does not
resolve the question as to an irrevocable spendthrift trust.
2 While we recognize the Restatement (Third) of Trusts
(Am. Law Inst. 2003) may have some relevance to this issue, neither
party has argued to us that it makes any material change for the
purpose of this case.
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Indeed, another section of the same statute provides
that, "[w]ith respect to an irrevocable trust, a creditor or
assignee of the settlor may reach the maximum amount that can be
distributed to or for the settlor's benefit." Mass. Gen. Laws ch.
203E, § 505(a)(2). Michaeles argues that, because no trust assets
may be distributed for Belanger's benefit after his death, De Prins
cannot reach any trust assets. But this statute does not, by its
terms, expressly address the question.3
De Prins urges that this case is governed by Calhoun v.
Rawlins, 106 N.E.3d 684 (Mass. App. Ct. 2018), review denied, 480
Mass. 1110 (2018). In that case, the settlor-beneficiary of an
irrevocable spendthrift trust caused a car accident that killed
him and injured two others, who then sued to recover for the
injuries. Id. at 688. But, although the court held that the
plaintiffs could reach the assets of the trust, it did not address
the effect of the defendant's death. Rather, the issue on appeal
was whether the trust was self-settled. Id. at 688-93. Further,
it is a decision of Massachusetts's intermediate appellate court
and not the SJC. See United States v. Tavares, 843 F.3d 1, 14
3 De Prins argues that Michaeles waived any argument
related to Mass. Gen. Laws ch. 203E, § 505 by not making it to the
district court. Not so. Michaeles clearly argued that
Massachusetts law bars De Prins's action because Belanger's
interest in the Trust assets ended when he died. He offers the
statute for its consistency with that proposition. Given that the
statute does not by its terms bar De Prins's action, Michaeles did
not waive the argument.
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(1st Cir. 2016) ("We are not bound by a decision of a state
intermediate appellate court . . . .").
As we have just explained, Massachusetts law does not
clearly answer the question upon which the disposition of this
case depends. Although neither party requested certification,
neither party objected to it when asked at oral argument.4 In any
event, "'we have the discretion to certify questions to the SJC
sua sponte.'" Phillips v. Equity Residential Mgmt., L.L.C., 844
F.3d 1, 4 n.7 (1st Cir. 2016) (quoting Easthampton Sav. Bank v.
City of Springfield, 736 F.3d 46, 50 n.4 (1st Cir. 2013)); Mass.
S.J.C. R. 1:03. "[C]ertification is particularly appropriate here
since the answers to these questions may hinge on policy judgments
best left to the Massachusetts court and will certainly have
implications beyond these parties." Ropes & Gray LLP v. Jalbert
(In re Engage, Inc.), 544 F.3d 50, 53 (1st Cir. 2008); accord
Steinmetz v. Coyle & Caron, Inc., 862 F.3d 128, 142 (1st Cir.
2017). For these reasons, "we exercise our discretion in favor of
certification." GGNSC Admin. Servs., LLC v. Schrader, 917 F.3d
20, 25 (1st Cir. 2019).
We thus certify the following question to the
Massachusetts SJC:
4 In Rule 28(j) letters submitted after argument at the
court's request, De Prins conceded that no SJC decision is
controlling, while Michaeles deemed that a "close question."
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On the undisputed facts of this record, does
a self-settled spendthrift irrevocable trust
that is governed by Massachusetts law and
allowed unlimited distributions to the settlor
during his lifetime protect assets in the
irrevocable trust from a reach and apply
action by the settlor's creditors after the
settlor's death?
We also welcome any other observation about
Massachusetts law that the SJC considers relevant.
III.
We direct the Clerk of this court to forward to the
Massachusetts SJC, under this court's official seal, a copy of the
certified question and this opinion, along with a copy of the
parties' briefs and appendix, which set forth all facts relevant
to the issue certified. We retain jurisdiction pending that
court's determination.
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