In Christo v. Silk, the NH Trust Docket confirmed that a potential creditor who might in the future have a claim against a probate estate must, like a creditor holding a fully actionable claim, exhibit a demand on the administrator within the first six months of administration under RSA 556:2-3. Linda Christo was a principal beneficiary of the estate plan of E. Allen Holbrook and his caregiver. In distributing bequests to Christo, the fiduciary (our client) advised her that she could be required to return the assets to the estate if anticipated claims by creditors Marjorie Swenson and Oliver Robling were asserted given the superior rights of creditors over those of legatees. Both Christo and her then counsel acknowledged that her bequests were subject to claw-back. When the anticipated creditor claims were asserted, Christo brought what she characterized as “defensive” claims against the estate, alleging that she was entitled to retain the bequests because Holbrook had contractually promised them to her and they represented compensation for her services on a quantum meruit basis. Christo did not exhibit a pre-suit demand of her claims, including within the first six months of administration under RSA 556:2-3, but she did file suit within the one-year limitations period of RSA 556:5. The case presented two issues: 1) whether the six-month demand exhibition period applied; and 2) if the period did apply, whether Christo was entitled to an extension of time under RSA 556:28.
In a closely reasoned opinion, Judge David King ruled in favor of the administrator on both issues. On the issue of whether the demand exhibition requirement applied, Judge King held:
This matter presents a textbook example of a contingent claim that should have been noticed, and demand made, before expiration of the six-month notice period. It is undisputed that Ms. Christo and/or her counsel knew of the potential claim by Swenson and Robling, and that it would likely impact her ownership of the property deeded to her by the administrator. Not only were there conversations to that effect, and a demonstration of a complete understanding by Ms. Christo and her counsel, language was included in the deed transferred to her that the property was subject to creditor claims. In addition, after notice and demand was made upon Ms. Silk by Swenson & Robling, including the fact that they would seek approximately $1,000,000 in damages, she promptly informed Ms. Christo that: (1) she had received that notice; (2) if the claim is successful, the assets in the estate would not be adequate to “satisfy Allen’s debts;” and accordingly, (3) ‘[t]he assets of the Survivor’s Trust [including the distributions to Christo] are, therefore subject to claims against Allen’s Estate.” Accordingly, as of [the demand exhibition deadline], Ms. Christo had notice that the assets she had derived from the Survivor Trust may be clawed back to the Estate…. Accordingly, she had an obligation to make a timely exhibition and demand of her contingent claims before the expiration of the six-month period.
This discussion is an important reminder for counsel representing someone who may be a potential estate creditor to be vigilant about the demand exhibition deadline. As I discussed in Skrizowski: A Potential Trap For Creditors, receipt of payments or other contractual performances by a potential creditor from an estate may not be sufficient to bind the administrator to continue to honor the contract. That is going to be especially true when the performance by the administrator is accompanied as it was here with repeated and emphatic statements that the performance is subject to claw-back.
On the issue of whether the six-month exhibition demand period should be extended under RSA 556:28, the Court reviewed the law as follows:
RSA 556:28 gives a court discretion to allow a claim despite the party’s failure to comply with the other statutory requirements of RSA 556. See, e.q., In re Estate of Bennett, 149 N.H. 496, 498 (2003). By its terms, the statute creates an equitable remedy in the absence of “culpable neglect” and if “justice and equity require” the extension. Id. The Supreme Court has
long defined culpable neglect as follows: [i]t is less than gross carelessness, but more than the failure to use ordinary care, it is a culpable want of watchfulness and diligence, the unreasonable inattention and inactivity of ‘creditors who slumber on their rights.’ It exists if no good reason, according to the standards of ordinary conduct, for the dormancy of the claim is found.
Cass v. Ray, 131 N.H. 550 (1989)(quotations and brackets omitted). The term “culpable neglect” therefore “convey[s] the idea of neglect for which the claimant was ‘to blame’; that is, the neglect which exists where the loss can fairly be ascribed to his own carelessness, improvidence or folly.” In re Will and Estate of Bourassa, 159 N.H. 344, 348-49 (2009). The petitioner-creditor has the burden of demonstrating lack of culpable neglect. See, e.g. id. at 348. “In determining what justice and equity require, the . . court should take into account both that the right to recover for personal injuries is an important substantive right, and that the purpose underlying relevant sections of RSA chapter 556 is to secure the speedy settlement of estates.” Stewart v. Farrel, 131 N.H. 458, 461-62 (1989)(quotations, ellipses and citations omitted).
Finally, probate courts are instructed not to find culpable neglect where:
There was no evidence of a mistake of law or fact or some circumstance beyond the plaintiffs or her counsel’s control of the kind we usually understand to provide good reason for the dormancy of a claim. If there is no good reason, according to the standards of ordinary conduct, for the dormancy of the claim, it must be disallowed, although otherwise ‘justice and equity’ sustain it.
Id. 159 N.H. at 349-50 (quotations and citations omitted); see Stewart, 131 N.H. at 461 (plaintiff must set forth sufficient facts sufficient to demonstrate “both that ‘justice and equity’ require an extension and that delay was not the result of the plaintiffs own ‘culpable neglect'”).
The Court held that Christo failed to sustain her burden that “that the failure to serve [the administratrix] with a notice of claim and demand for payment within six months of the grant of administration was not the result of culpable neglect…. To put it another way, it is apparent that Ms. Christo, despite having all requisite knowledge to understand that she possessed a contingent claim against the estate, she slumbered on her rights.”
(Note: Ralph Holmes is currently retired from McLane Middleton. For information on this or other probate litigation issues, please contact Alexandra Cote at alexandra.cote@mclane.com.)