Ohio Casualty Insurance v. Hallowell

CATHELL, Judge. Ohio Casualty Insurance Company (Ohio), appellant, filed an untimely claim in the Orphans’ Court of Howard County against Mark B. Hallowell, Personal Representative of the Estate of Alma Lee Auguste (Estate), appellee. The orphans’ court denied Ohio’s claim on limitations grounds. Ohio appeals that decision and also appeals the decision of the orphans’ court awarding legal fees to the attorney for the Estate and to the attorney for the legatees.

Appellant presents four questions, which we restate as follows: I. Whether a claim against an estate can be barred when the personal representative fails to send a notice to reasonably ascertainable creditors as demanded by the Estates and Trusts Article, Section 7-103.1.

II

Whether a claim can be disallowed by an Orphans’ Court when the personal representative waives the defense of statute of limitations in a contract.

III

Whether both the attorney representing residuary legatees and an attorney representing an estate are entitled to attorneys’ fees from an estate pursuant to Estates and Trusts Article, Section 7-602, for parallel representation.

IV

Whether the Orphans’ Court may award attorney’s fees when the petition for attorney’s fees fails substantially to meet the criteria of Maryland Rule 6-416. ⁴⁴⁷ FACTS John L. Auguste and Alma L. Auguste were married. Mr. Auguste was the president and majority owner of an electrical contracting company, Auguste Electrical Service, Inc. (Contractor). Ohio issued two payment bonds to Contractor on or about the 28th of March, 1988. As a part of that transaction, Ohio received John and Alma Auguste’s agreement to indemnify Ohio in respect to the bonds.

Thereafter, Contractor experienced difficulties in paying two suppliers for materials used in the projects covered by the payment bonds and by the agreement of indemnity. Alma Auguste died on January 28, 1990. Approximately one month later, on February 28, 1990, the suppliers, Ohio, Contractor, and John Auguste, individually and as personal representative for the Estate, negotiated a forbearance agreement (Agreement) that included a scheduling of payments to the two suppliers in return for their promise to forbear making immediate demand for payment. With respect to the issue before us, the Agreement stated that the Contractor, John Auguste, and the Estate agreed to an extension of the applicable statute of limitations as it applied to Ohio until three years after each date a payment was made by Ohio.

At the time of the execution of the forbearance agreement, John Auguste had not been appointed as personal representative. That appointment occurred twenty to thirty days thereafter. After Mrs. Auguste’s death and the execution of the forbearance agreement, Ohio was required to pay under the bonds. Subsequently, on June 13, 1991, Ohio filed a claim against the Estate based on Mrs. Auguste’s obligation under the indemnification agreement.

The statute then in effect required claims against the Estate to be filed within nine months after the decedent’s death, or in the case sub judice by October 28, 1990. 1 Md.Code Ann., Est. & Trusts § 8-103(a)(l) (1991). As we have said, the orphans’ court ⁴⁴⁸ denied the claim because it was filed after the nine-month period contained in the statute for the filing of such claims. I. WHETHER A CLAIM CAN BE BARRED WHEN REQUIRED NOTICE IS NOT MADE TO CREDITORS. Section 7-103.1(a) of the Estates and Trusts Article 2 requires a personal representative to notify known creditors of the time within which claims can be filed against the estate.

Paragraph (c) provides, however, that if notice is not received, then the time for filing a creditor’s claim is not extended beyond nine months and that the personal representative is not liable to any person to whom notice is not given. Appellant argues that this notice provision denies it due process under the Fourteenth Amendment of the United States Constitution. It relies primarily on Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478 , 108 S.Ct. 1340 , 99 L.Ed.2d 565 (1988). That reliance, we believe, is misplaced.

The statutory provision attacked in Tulsa was not the type of provision applicable in the case at bar. The Maryland law provides that claims will be barred “unless 1 'presented within the earlier of the following dates: (1) Nine months after the ... decedent’s death; or (2) Two months after the personal representative ... delivers to the creditor a copy of a notice ... notifying the creditor that his claim will be barred unless he presents the claim within 2 months____” § 8-103(a). The statute at issue in Tulsa was similar, not to section 8-103(a)(l), but to section 8-103(a)(2), which is not at issue here. In the case sub judice, no notice was given to Ohio.

Thus, its claim, unless otherwise preserved, was ⁴⁴⁹ barred by paragraph (a)(1), which requires no official action and automatically bars claims filed more than nine months after a decedent’s death. We explain the distinction by reviewing Tulsa and Texaco, Inc. v. Short, 454 U.S. 516 , 102 S.Ct. 781 , 70 L.Ed.2d 738 (1982). Short 3 involved an Indiana statute providing that a severed mineral interest not used for a period of twenty years automatically lapses and reverts to the owner of the fee, unless the mineral owner preserves the interest by filing a claim within two years after the twenty-year lapse. 454 U.S. at 518-19 , 102 S.Ct. at 786-87 . The statute does not require that any specific notice be given to the mineral owner prior to a statutory lapse, although it does set out a procedure for giving notice to the owner of the mineral interest after a lapse.

Id. at 520 , 102 S.Ct. at 787 . After noting that the trial court had ruled the statute unconstitutional, the Supreme Court recited in a footnote that the Indiana Supreme Court had distinguished Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 , 70 S.Ct. 652 , 94 L.Ed. 865 (1950), and Bell v. Burson, 402 U.S. 535 , 91 S.Ct. 1586 , 29 L.Ed.2d 90 (1971), “on the ground that these cases set forth notice requirements for adjudicatory proceedings, and not for a self-executing statute that uniformly affected all parties within the State.” 454 U.S. at 524 n. 14, 102 S.Ct. at 789 n. 14. In Short , the Supreme Court noted that the mineral owners asserted two claims in support of their argument that the statute denied them due process of law. Id. at 531 , 102 S.Ct. at 793 .

They contended that the state had not adequately notified them of the legal requirements of the statute and that their interests could not be extinguished unless they were given prior notice that the lapse period was about to expire. The Supreme Court rejected both arguments. As to the former, it opined: Generally, a legislature need do nothing more than enact and publish the law____ It is well established that per ⁴⁵⁰ sons owning property within a State are charged with knowledge of relevant statutory provisions affecting the control or disposition of such property. Id. at 532 , 102 S.Ct. at 793 (footnote omitted).

As to the latter argument, the Court said that it is “essential to recognize the difference between the self-executing feature of the statute and a subsequent judicial determination that a particular lapse did in fact occur.” Id. at 533 , 102 S.Ct. at 794 . The Court stated: The reasoning in Mullane is applicable to a judicial proceeding brought to determine whether a lapse of a mineral estate did or did not occur, but not to the self-executing feature of the ... Act. The due process standards of Mullane apply to an “adjudication” that is “to be accorded finality.” ... [B]ut it has never been suggested that each citizen must in some way be given specific notice of the impact of a new statute on his property before that law may affect his property rights.

Id. at 535-36, 102 S.Ct. at 794-96 . In Tulsa, 485 U.S. at 482 , 108 S.Ct. at 1343 , the assignee of a creditor filed a claim against an estate after the two-month period for the filing of the claim had expired. In reviewing the lower court’s ruling that due process was not implicated, the Supreme Court opined: The Fourteenth Amendment protects this interest, however, only from a deprivation by state action. Private use of state-sanctioned private remedies or procedures does not rise to the level of state action.

Nor is the State’s involvement in the mere running of a general statute of limitations generally sufficient to implicate due process. But when private parties make use of state procedures with the overt, significant assistance of state officials, state action may be found. The question here is whether the State’s involvement with the nonclaim statute is substantial enough to implicate the Due Process Clause. Id. at 485-86 , 108 S.Ct. at 1344-45 (citations omitted).

The Court then opined that “due process does not require that potential plaintiffs be given notice of the impending ⁴⁵¹ expiration of a period of limitations,” but, nevertheless, held that Oklahoma’s statute was not a self-executing statute of limitations. Id. at 486 , 108 S.Ct. at 1345 . The Court reached this conclusion based on its determination that under the Oklahoma statute there was significant state action. Id. at 487 , 108 S.Ct. at 1346 . 4 The Court described significant state action as follows: The nonclaim statute becomes operative only after probate proceedings have been commenced in state court.

The court must appoint the executor or [personal representative] before notice, which triggers the time bar, can be given. [3] Only after this court appointment is made does the statute ... direct[ ] the executor ... to publish notice____ [4] Finally, copies of the notice and an affidavit of publication must be filed with the court. Id. The Court noted that the two-month period did not commence running until all of the above requirements had been met. Id.

The Court then held that because the court’s involvement was “pervasive and substantial,” the Oklahoma statute required significant state action thereby triggering the Fourteenth Amendment. Id. The Court further stated: Where the legal proceedings themselves trigger the time bar, even if those proceedings do not necessarily resolve the claim on its merits, the time bar lacks the self-executing feature that Short indicated was necessary to remove any due process problem. Id.

The Court then noted that it had no “occasion to consider the proper characterization of nonclaim statutes that run from the date of death, and which generally provide for longer time periods, ranging from one to five years.” Id. at 488, 108 S.Ct. at 1346 . ⁴⁵² As stated earlier, the statutory provision at issue here provides that the bar runs automatically from the time of death. The state court is not “intimately” involved. In fact, no action by the state court is necessary to activate the time bar. It is not dependent on the opening of an estate, the appointment of a personal representative, the providing of notice, or the filing of notice.

Death commences the running of the period of time and the passing of that period, regardless of state action. Accordingly, we conclude that the statute at issue here is a self-executing limitation statute. Thus, due process concerns are not implicated, and the statute is not unconstitutional.

II

WHETHER THE TIME FOR FILING CLAIMS WAS EXTENDED BY THE PERSONAL REPRESENTATIVE. A. Authority of John Auguste. As we have indicated, John Auguste acted for the Estate and himself in entering into the forbearance agreement in which he agreed that the period for the filing of claims by Ohio was to be extended to three years after Ohio was required to make payments under the bonds. All the parties to the forbearance agreement knew that Mrs. Auguste was deceased because it included her estate as a party. 5 All the parties agree that John Auguste had not yet been appointed as her personal representative at the time of the Agreement.

Several provisions of the Estates and Trusts Article are relevant to the present issue. Section 5-102(b) provides that “a person may not qualify as or exercise the powers ⁴⁵³ and duties of a personal representative unless he has been appointed administratively or judicially.” Section 5-301 defines administrative probate as commencing with the filing of a petition with the register “for the probate of a will or a determination of the intestacy of the decedent, and for the appointment of a personal representative.” Judicial probate is defined in section 5-401 as commencing with the filing of a petition with the court “for the probate of a will or a determination of the intestacy of the decedent, and for the appointment of a personal representative.” It is conceded in the case sub judice that no estate had been administratively or judicially opened, and that at the time of the alleged waiver no personal representative existed. Nevertheless, section 6-105(a) provides that normally the duties and powers of a personal representative do not commence until he has been appointed, but “when done in good faith, his acts occurring prior to appointment have the same effect as those occurring after.” As we have said, the deceased indemnified Ohio on the payment bonds. By such action she had, while alive, a contingent liability.

Section 8-112 acknowledges the liability of estates for contingent claims against the deceased by providing for a method to secure funds for the payment of such contingencies. Section 7-401(h) expressly provides that a personal representative may “effect a fair and reasonable compromise with a creditor or obligee, or extend or renew an obligation due by the estate.” (Emphasis added.) Section 7-401(u) provides that a personal representative may “perform the contracts of the decedent that continue as obligations of the estate____” 6 ⁴⁵⁴ Appellee does not deny that section 6-105 makes provision for personal representatives to act for and bind an estate prior to their appointment. Appellee emphasizes, however, that the language of section 6-105 requires such acts committed by a personal representative to be done in good faith. Appellee then argues that because the Agreement benefited John Auguste, it was not entered into in good faith.

Appellee also incongruously argues that additional evidence of bad faith is to be found in appellant’s assertions that the forbearance agreement waived the limitations period because it induced Ohio