Brining v. Donovan, et al. (Lawyers Weekly No. 09-020-18)
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
No. 1684CV03422-BLS1
JENNIFER BRINING, individually and as Trustee of the Jennifer Brining Living Trust and for the Benefit of SENDLATER, INC., in a Derivative Capacity.
vs.
JOHN J. DONOVAN, SENDLATER, INC., SENDLATER II HOLDINGS, LLC AND SIL ENTERPRISES, LLC
and
WILLIAM T. HURLEY. JR. AND MIRANDA P. GOODING ESQ., trustee defendants
MEMORANDUM OF DECISION AND ORDER ON DEFENDANT’S MOTION TO DISSOLVE PLAINTFF’S TRUSTEE PROCESS ATTACHMENT
INTRODUCTION
This case is before the Court on the trustee process defendants’, William T. Hurley Jr. (“Hurley”) and Miranda P. Gooding, Esq (“Gooding”), motion to dissolve plaintiff’s attachments on trustee process. On December 13, 2016, this court entered orders authorizing $ 1 million attachments on trustee process against both William T. Hurley, as Trustee of the Trust One JJD, and Miranda Gooding, as Trustee with respect to an escrow account held by her law firm, Glovsky & Glovsky, LLC (the Escrow and, collectively the Attachments and the Trustees). The Attachments attached any goods, effects or credits of the defendant John J. Donovan, Sr. (Donovan, Sr.) held by each Trustee to secure a judgment that the plaintiff Jennifer Brining
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sought to recover against John J. Donovan, Sr. in this litigation.1 In the principal action, Brining now asserts claims derivatively on behalf of Sendlater, Inc. for approximately $ 2.5 million which she maintains Donovan, Sr. misappropriated from Sendlater during the period that he controlled its accounts and operations. See Motion to Dismiss Decision. After Donovan, Sr.’s motion to dismiss was denied, the Trustees filed this motion to vacate the Attachments (Motion to Vacate).
This Motion to Vacate turns on the issue of whether the assets attached in Trust One JJD and the Escrow are “due absolutely and without contingency” to Donovan Sr. and, therefore, subject to attachment under G.L. c.246 § 20. As will be apparent, neither of the Trustees possess credits absolutely due and owing to Donovan, Sr. and therefore the Motion to Vacate must be ALLOWED.
STATEMENT OF FACTS
As noted above, there are two attachments on trustee process at issue: one attaching assets in Trust One JJD, where Hurley is trustee, and the other attaching credits held in the Escrow by Glovsky & Glovsky, LLC, where Gooding is the Escrow Agent (for simplicity, also referred to as a Trustee).
1 In this action, Brining originally brought only direct claims against Donovan Sr.. At the hearing on the motion for the Attachments, the Court (Leibensparger, J.) observed that the principal claims that Brining was asserting against Donovan, Sr. were claims for corporate waste that belonged to nominal defendant Sendlater, Inc. and could only be brought derivatively on Sendlater’s behalf. The court nonetheless ordered the attachments in anticipation of Brining amending her complaint. Thereafter, Brining made a demand on Sendlater’s Board of Directors and amended her complaint to assert derivative claims. All parties appear to concede that the attachments that are the subject of this motion now secure a judgment that might be entered in favor of Sendlater. The unusual procedural history of this case is set out in this Court’s Memorandum of Decision and Order on Defendants’ Motion to Dismiss dated September 17, 2017 (the Motion to Dismiss Decision).
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Trust One JJD
Trust One JJD was created as part of a court approved settlement agreement (“Final Settlement Agreement”) between Donovan Sr. and his children that resolved two civil litigations between them, one of which is still pending in this court for the purpose of confirming orders entered in arbitrations that have been convened, on and off, over a period of thirteen years under the terms of the settlements. See Rebecca M. Brown & others v. Linda Donovan, Suffolk Superior Court CA No. 03-4247 and No. 06-4149.2 The Final Settlement Agreement is dated March 3, 2007. Pursuant to its terms, former United States District Court Judge John S. Martin, Jr. (“Judge Martin”) was appointed as arbitrator to resolve continuing disputes between the parties. The Final Settlement Agreement also established Trust One JJD in which real property and other assets that were the subject of the parties’ disputes was deposited. Trust One JJD was initially intended to restrict Donovan, Sr.’s ability to control the trust assets for a period of ten years (until 2017), after which, Donovan, Sr. would have had “full power, authority and discretion to manage and administer [Trust One JJD].” Final Settlement Agreement §2.1. During that ten year period, the Trustee was prohibited from making “any distributions of Trust principal to any beneficiary” without Judge Martin’s approval. Trust One JJD Agreement, ¶ 2.1. The Final Settlement Agreement only permitted Trust assets to be used to pay real estate taxes and municipal assessments. Sullivan Aff., ¶ 31.
2 The interrelationship between these two actions is not entirely clear to the court. Retired Judge Alan van Gestel entered orders approving the multiple and complex settlements reached between Donovan, Sr. and his children many years ago. It does not appear that an understanding of all the orders and agreements is necessary to resolve the issue presented by this Motion to Vacate. The court does note that it continues to issue orders confirming awards and findings entered by Judge Martin.
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In December 2014, Donovan Sr. and his children amended the Final Settlement Agreement, and, on January 13, 2015, Judge Martin approved the amendment. The amendment extended the term of the restricted period during which no distributions could be made from the Trust from ten years to Donovan Sr.’s lifetime or his incapacity, effectively preventing any distribution to Donovan, Sr. of principal from the Trust during his life. More specifically, the Amendment provided that the Trustee “shall not, without [Judge Martin’s] express prior approval, disburse, expand, transfer, convey, or alienate any Trust One JJD’s assets.” January 13, 2015 Order, ¶ 2-3. The court intuits that the reason for the extension was the assertion of additional claims against Donovan, Sr. for alleged wrong doing.3 It is the court’s understanding that there are presently still claims asserted against Donovan, Sr. by his children that, if allowed by Judge Martin, would be paid from the corpus of the Trust or result in other disposition of Trust assets.
Trust One JJD also contains a “spendthrift provision” that prevents Donovan, Sr. from alienating his beneficial interest to creditors: “The interest of a beneficiary in their Trust shall not be subject to [or] be taken by his creditors by any process”. Trust One JJD Trust Agreement §4.3.
Glovsky & Glovsky LLC
Gooding is a lawyer with Glovsky & Glovsky LLC. That firm is holding proceeds from real estate transactions in the Escrow pursuant to an order issued by Judge Martin on November 29, 2016 and agreements between Donovan Sr. and his children. The real estate transactions involved the sale of undeveloped land owned by Donovan Conservation and the Essex Land
3 See, e.g., “Ex-MIT Professor Indicted in Property Swindle,” Boston Globe, December, 29, 2017.
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Realty Trust. Sullivan Aff., ¶ 44. Glovsky & Glovsky LLC apparently provided legal services in connection with these transactions. Under the terms of the Escrow, funds are to be “used to pay all other reasonable fees and expenses incurred [in connection with the transaction].” Gooding Answer, ¶ 14. The remainder is to be donated to a mutually agreed upon charity. Amendment of Agreement Regarding Essex Land Realty Trust Mortgage, ¶ 3. Donovan Sr. submitted a list of expenses owed or paid to vendors to Gooding to be paid from part of the balance of the real estate transaction proceeds. Gooding Answer, ¶ 16. Gooding objected to the list of expenses. Judge Martin ordered the proceeds to be retained in the Escrow pending the resolution of the objections. Gooding Answer, ¶ 18.
DISCUSSION
Legal Standard of Review Under G.L. c.246 § 32, “No person shall be adjudged a trustee by reason of money or any other thing due from him to the defendant, unless it is, at the time of service of the summons upon him, due absolutely and without any contingency.” (emphasis added). Trust One JJD
The court finds that there were no credits “due absolutely and without any contingency” to Donovan, Sr. at the time the trustee process summons was served on Hurley. Although, Donovan, Sr. is the sole beneficiary of Trust One JJD, it is apparent that there are presently no funds presently due him or as to which he could demand immediate payment. Indeed, under the terms of the 2014 amendment, he may never receive any further distribution from Trust One JJD. Clearly, even if Brining’s derivative claims are successful and Sendlater obtains a judgment against Donovan, Sr., neither she nor Sendlater, as judgment creditor, could have greater rights
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than Donovan, Sr. to payment from Trust One JJD (measured at the date of the trustee process summons—or, for that matter, any date thereafter).
Jordan v. Lavin, 319 Mass. 362 (1946) is instructive. In Jordan, the defendant had a checking account with Pilgrim Trust Company with a positive balance. However, the defendant also had a note outstanding to Pilgrim in an amount greater than his account balance. The note provided that any deposit at the bank was to be treated as collateral security for payment of the note. The Supreme Judicial Court (SJC) explained that: “ the attachment is not permitted to place the alleged trustee in a worse position than the one he occupied before the attachment. . . The credit balance, under the circumstances, did not constitute a ‘credit’ attachable by trustee process.” Id. at 364-365. Similarly, in this case the cash held by Trust One JJD is not a credit that is “due absolutely and without any contingency,” under the language of the statute governing attachment now in effect. Banions v. Lake, 289 Mass 146, 148 (1935) is also on point. There, the SJC held: “Where, upon some contingency, the debt may not become payable at all, the trustee cannot be charged.” Again, in this case, under the terms of Trust One JJD, as amended in 2014, there is substantial doubt that Donovan, Sr. will ever receive any distribution. See also Wentworth v. Whittemore, 1 Mass. 470, 473 (1805) (“at that time, it was contingent — wholly uncertain whether any thing would become due; if so, then the present process cannot hold the person summoned as trustee”). 4
4 Brining makes the novel argument that “cash” is always subject to attachment by trustee process. Clearly, however, whether the property held by a trustee is cash or personal property, it is subject to attachment only if it is payable to the defendant without any contingency.
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Spendthrift Provision
Hurley argues that the spendthrift provision in Trust One JJD precludes a creditor from attaching any funds that might be held for the benefit of Donovan, Sr. See G.L. c.203E, § 502 (“A term providing that the interest of a beneficiary is held subject to a ‘spendthrift trust,’ or words of similar import, shall be sufficient to restrain both voluntary and involuntary transfer of the beneficiary’s interest, . . . a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary.”) and Phannenstiehl v. Pfannenstiehl, 475 Mass 105, 108 n.11 (2016) (“A spendthrift provision has the effect of prohibiting a creditor or assignee from reaching a beneficiary’s interest in a trust, unless the beneficiary receives such distribution and the creditor then pursues a claim against the beneficiary individually.”) Brining responds by alleging that Trust One JJD was settled by Donovan, Sr. and therefore she may attach “the maximum amount that can be distributed to or for the settlor’s [Donovan, Sr.] benefit.” See G.L. c. 203, §505(a)(2). The court has serious doubt that Trust One JJD is self-settled as it was created as part of a court approved settlement in a 13 year litigation in which Donovan, Sr.’s children appear to have had their interests in the trust property established by court order. In any event, the court need not address the effect of the spendthrift clause on the ability to attach funds in the Trust, as it is clear that no funds are absolutely due and owing to Donovan, Sr.; to the contrary it appears unlikely that he will ever be entitled to any distribution from the Trust. Fraudulent Transfer Brining also argues that the amendment to the Final Settlement Agreement approved by Judge Martin in January 13, 2015 is void as a fraudulent transfer and therefore it must be disregarded. He maintains that he is entitled to litigate his fraudulent transfer claim in this case as
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part of his opposition to the motion to vacate the Attachments. In support of this novel contention he cites Estabrook v. Earle, 97 Mass. 302 (1867). Estabrook, however, did not involve a trial arising out of a trustee process summons in which the plaintiff claimed a right to set aside a trust or void a fraudulent conveyance. Rather, old as it is, the case merely stands for the unremarkable position that when the trust instrument allows the defendant to demand a distribution at any time at her discretion, the cash held in the trust is reachable on trustee process as a debt absolutely due. (“It is true that the money in [the trustee’s] hands is held in trust for the use and benefit of a married woman, but it is on a trust which she can at any moment revoke by a demand of the money, and on a refusal to pay it to her she can immediately maintain an action in her own name to recover it”). If Brining wishes to set aside transfers to the Trust as fraudulent, she must proceed to file an action under G.L. c. 109A, § 8 (entitled: “Creditor’s remedies”) alleging the facts necessary to support such a claim. See G.L. c. 109A, § 5 (entitled: Fraudulent transfer or obligation where creditor’s claim arose before or after transfer or obligation,” as Trust One JJD was amended before the events occurred that Brining alleges gives rise to Sendlater’s claims against Donovan, Sr.). A Trustee Process Summons is not a means of avoiding the rules of civil procedure that govern such actions. See G.L. c. 109A, § 8(a)(3) (which makes relief “subject to applicable rules of equity and in accordance with applicable rules of civil procedure”). It is intended only to attach an asset absolutely due the defendant that could be taken at law to satisfy an execution. See Jordan v. Lavin, 319 Mass. at 366 (“Trustee process is a legal remedy, not an equitable one.”).
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The Escrow It is even more apparent that the cash in held in Escrow cannot be attached. That cash is intended to pay only fees and expenses associated with certain real estate transactions. Donovan, Sr. has made a demand for payment for these expenses, although presumably this is to go to the vendors who performed the services not to him. In any event, Gooding has objected to the demand and Judge Martin has yet to address the issue. Any sums not paid for these expenses must be donated to a charity. Donovan, Sr. will never be entitled to those funds.
ORDER
For the foregoing reasons, the Trustees’ motion to dissolve the Attachments is GRANTED.
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Mitchell H. Kaplan
Justice of the Superior Court
Dated: February 26, 2018