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Zok v. Estate of Collins (02/06/2004) sp-5777
Zok v. Estate of Collins (02/06/2004) sp-5777
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
HASSAN ZOK, )
) Supreme Court No. S-10604
Appellant, )
) Superior Court No.
v. ) 3AN-01-571 PR
)
THE ESTATE OF RICHARD B. ) O P I N I O N
COLLINS and STEPHAN B. )
COLLINS, as Personal Representative, )
)
Appellees. ) [No. 5777 - February 6,
2004]
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Mark Rindner, Judge.
Appearances: Steven D. Smith, Law Offices of
Steven D. Smith, P.C., Anchorage, for
Appellant. D. Scott Dattan, Law Offices of
D. Scott Dattan, Anchorage, for Appellees.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
MATTHEWS, Justice.
I. INTRODUCTION
A creditor of an insolvent estate objected to its
closure on the ground that the deceased had made fraudulent
transfers. Without deciding whether this claim merited further
inquiry, the court ordered the estate closed. Since property
transferred in fraud of creditors is potentially estate property,
we conclude that it was error to close the estate without
addressing the validity of the claim.
II. FACTS AND PROCEEDINGS
Hassan Zok sued attorney Richard B. Collins for
malpractice in August of 1996.1 Zok was awarded over $200,000 in
this case in February of 2002.2 Before the suit was filed but
after allegedly receiving notice of Zok's claim, Collins conveyed
at least twenty-nine parcels of real property to the Collins
Family Trust. He and his spouse, Anne-Marie, were co-trustees
and Anne-Marie also signed the deeds as a grantor.
Collins died on April 15, 2000. A year later probate
proceedings were opened and his son Stephan was appointed
personal representative. Zok, acting without an attorney, filed
a creditor's claim in the probate proceedings that sought to set
aside as fraudulent the conveyances to the Collins Family Trust.
At about the same time Zok sought to amend his
complaint in the malpractice case to add a claim that fraudulent
transfers had been made. This motion was denied. One ground for
this ruling was that "denial of the motion will not deprive Mr.
Zok of a remedy," because "he has filed the same claim in the
Collins estate probate action."
In November 2001 Stephan Collins filed a final
accounting. The final accounting referred to an inventory that
had been filed a month earlier that indicated that Collins at the
time of his death owned only $1,475 in personal property and no
real property. No bank, brokerage, or IRA accounts that might be
available to satisfy creditors under the non-probate transfer
provisions of AS 13.33.215 were listed. The accounting set out
Zok's claim and two other creditors' claims and noted that the
total expenses of administration were over $19,000.
On December 11, 2001, notice of a hearing on the
closing of the estate was issued. In relevant part the notice
stated: "Any objections to the final accounting prepared by the
Personal Representative or to the closing of the estate must be
presented to the court at or before the time set for the
hearing." Zok promptly filed a written objection. He referred
to the transfers to the trust as fraudulent and objected to
closing the estate without consideration of this claim.
On March 6, 2002, the hearing on closing the estate was
held. Zok, still without counsel, appeared and renewed his
objection. He was allowed to examine Stephan Collins, but the
scope of the examination was constrained. Zok sought to ask
about the estate's failure to respond to discovery concerning the
trust in the malpractice case. He was not allowed to inquire on
this subject. Zok sought to ask about Collins's "life
collections - from Africa, from art," but was told by the
standing master conducting the hearing that he could not do so
since Stephan had testified that they did not exist. Zok
mentioned twenty-nine parcels of property that had been conveyed
to the trust, but the master indicated that this was a futile
inquiry. At the conclusion of Zok's examination the master ruled
that the estate had been fully administered, that it was
insolvent, and that it should be closed. The master stated that
there was no issue concerning Zok's fraudulent conveyance claims.
According to the transcript, the master stated:
I would find that the estate has been fully
administered, would specifically find as far
as Mr. Zok's claims that there is no issue
concerning the trust. There is a provision
concerning the trust in the will. But, based
on the inventory that was filed with the
court . . . (tape ends abruptly).
Two days after the March 6 hearing, Zok hired counsel
and Zok's subsequent acts referred to here were taken through
counsel. On March 18, 2002, Zok filed a renewed objection to the
closing of the estate on the grounds that whether the transfer of
Collins's assets to the trust prior to his death should be set
aside had not been adjudicated. At about the same time that this
objection was filed, Zok also filed a separate civil action to
set aside as fraudulent the challenged conveyances.3 On March 22
the master formally recommended that the estate be closed.
Superior Court Judge Mark Rindner allowed Zok to file a written
objection to this recommendation within ten days. Zok
resubmitted the objection that he had previously submitted on
March 18. The master, after reviewing the resubmission, again
recommended that the estate be closed. Judge Rindner signed an
order closing the estate on April 4, 2002.
On May 10, 2002, Zok moved for relief from the order
closing the estate, again based on the unadjudicated fraudulent
conveyance claim. Zok argued that he was not put on notice that
he was expected to prove his fraudulent conveyance claim by the
notice of hearing. His memorandum in support of the motion
states:
On December 11th the Estate scheduled a
closing hearing and sent notice thereof to
Mr. Zok. . . . Please note that the notice
states only that objections to the closing of
the Estate must be made at the hearing.
There is no reference to any evidentiary
hearing with regard to Mr. Zok's claim that
the Estate's assets had been fraudulently
conveyed to the "family trust." Mr. Zok did
object. He pointed out in both written and
pleading form that he had found a record of
29 real property transfers into the trust by
the decedent after he had notice of Zok's
claim. Mr. Zok advised the Master that he
had in the other action [the malpractice
action] sent interrogatories as to the other
assets of the trust that the personal
representative refused to answer. Mr. Zok
also advised the court, as did the personal
representative that none of the trust assets
were included among the Estate's
inventory. . . . In fact the Estate's
position was that it was entitled to be
closed because it was bankrupt, yet no
disclosure was made as to what entity was
paying the estate's administrative fees or
the attorney fees in the malpractice action.
. . . .
The probate court did not address the
fraudulent conveyance claim as it should have
nor did it give Mr. Zok sufficient notice or
opportunity to conduct a hearing on that
issue.
On May 20, 2002, the standing master recommended denial
of Zok's motion for relief from the judgment. The master wrote:
"Mr. Zok was advised on the record to state his objection to
closing and present evidence. He reiterated his objection that
he had an uncollected judgment. He presented no evidence when
invited to do so several times. The closing order should stand."
Zok filed an objection to this recommendation that
stated:
The gist of the Motion For Relief is
that Mr. Zok, who was pro per, was unfairly
surprised. The fact that he was invited "on
record" to present evidence is at the heart
of the problem. The notice of hearing he
received of the date of the hearing
instructed him only to make his objections
known. He had no adequate notice that he was
supposed to be ready to try a fraudulent
conveyance case at that hearing. He in fact
stated when "invited to put on proof" that he
had not gotten responses to his previous
discovery requests. It is a fundamental
requirement of due process that one be given
adequate notice and a meaningful opportunity
to present one's case.
On June 17, 2002, the superior court denied Zok's motion for
relief from the judgment.
Meanwhile, the estate had moved to dismiss Zok's
separate fraudulent conveyance action. Among the grounds for the
motion was a claim that the order closing the probate estate was
res judicata. Zok opposed the motion and sought to consolidate
the case with the probate proceedings. The motion to dismiss was
granted on June 3, 2002, and Zok's consolidation motion was
denied in the probate proceedings on June 17, 2002.
III. DISCUSSION
Zok now appeals in this, the probate proceeding. He
claims that he was not given notice that his fraudulent
conveyance claims were to be tried at the hearing concerning
closing the estate and that it was error to close the estate
before the claims were resolved.
In reply, the estate claims that Zok had an opportunity
to present his fraudulent conveyance claims at the March 6
hearing, that he failed to do so, and that therefore his claims
are barred. The estate also argues that even if Collins had not
made the real estate conveyances to the trust, the property would
not have become property of the estate; instead it "would have
passed to Anne-Marie directly by operation of law."
Zok is correct that the notice of hearing that he
received did not give him adequate notice that a trial of the
fraudulent conveyance claim was contemplated. No reasonable
person would have so concluded, since the notice only called for
"objections to the final accounting prepared by the Personal
Representative or to the closing of the estate," and stated that
such objections could be presented "at or before the time set for
the hearing." "Due process requires the `opportunity to be heard
at a meaningful time and in a meaningful manner.' The purpose of
this requirement is to allow `the aggrieved party the opportunity
to present his case and have its merits fairly judged.' "4 Given
the content of the notice, it is clear that these requirements
have not been satisfied.
Further, the standing master's conclusion in the May
20, 2002 recommendation that Zok presented "no evidence" is
clearly erroneous. Zok presented a lengthy affidavit in which he
explained that after he gave Collins notice that he was about to
file a malpractice suit, Collins made extensive conveyances of
property to a trust under circumstances suggesting that the
conveyances were made without consideration. The affidavit also
noted that despite the conveyance to the trust Collins retained
control of the property as co-trustee. It was also clear that
Collins died insolvent, excluding any interest he had in the
trust and property that was subject to non-probate transfers at
the time of his death. These circumstances amount to common
"badges of fraud," a term used to describe circumstantial factors
that may justify a conclusion that a conveyance was made with an
intent to defraud creditors. "We have recognized inadequate
consideration, the insolvency of the debtor/transferor, and the
transfer of assets in anticipation of a pending suit to be among
the badges of fraud."5 Thus Zok presented evidence that was at
least suggestive that the conveyances were fraudulent.
It was error to close the estate without formally
addressing and in some manner adjudicating Zok's fraudulent
conveyance claim. Under AS 13.16.385 only the personal
representative may prosecute claims of fraudulent conveyance on
behalf of unsecured creditors of the estate.6 Under this
statute, Stephan Collins, as personal representative, may have a
duty to proceed against his mother, as trustee, to set aside
certain transfers to the trust. What the appropriate remedy
might be if Stephan unreasonably or in bad faith refuses to
undertake this duty has not been briefed. But before any
decision can be made as to whether Stephan Collins should proceed
to recover property, information should be developed as to the
nature of the trust and the property transferred to it, including
the time of each transfer and the character of Collins's title to
the property at the time of transfer. Given the relationship
between the personal representative and the trustee, Zok should
be given an opportunity to participate in reasonable discovery on
these subjects.
As noted, the estate also contends that if the property
transferred to the trust had not been so transferred it would not
have become estate property, but would have passed to Anne-Marie
Collins by operation of law. This contention cannot be decided
on appeal for several reasons. We do not know the estate that
Collins held in particular parcels prior to their transfer.
Further, assuming that real property was held jointly in a
tenancy by the entirety with a right of survivorship, we have not
been directed to any authority concerning the rights of creditors
to such property upon the death of a debtor/co-owner.7 Finally,
the record does not purport to reflect comprehensively all of the
property that was transferred by Collins to the trust, nor does
it reflect property that may have been transferred outside of
probate upon Collins's death. The paucity of Collins's estate
suggests that there may have been such property. If so,
creditors may have a right to it under AS 13.33.215(a).8 Thus,
on this record, we are unable to conclude that any property
transfers made by Collins before or as a result of his death are
necessarily beyond the reach of the estate for the benefit of
creditors.
We express no opinion as to the eventual outcome of
this case on remand. What is required are orderly procedures
with notice to all interested parties that determine whether
Collins had property that should be made available to creditors
of the estate under applicable principles of Alaska law.
IV. CONCLUSION
REVERSED and REMANDED for further proceedings
consistent with this opinion.
_______________________________
1Zok v. Collins, 18 P.3d 39, 41 (Alaska 2001).
2Zok v. Estate of Richard Collins, No. 3AN-96-6415 Civ. (Alaska
Super., April 24, 2002).
3In the separate fraudulent conveyance suit the following are the
main allegations:
5. Subsequent to receiving notice of
the plaintiff's impending lawsuit the
decedent Richard B. Collins, transferred
substantially all his assets to himself and
his wife, Anne-Marie Collins as trustees of
the Collins Family Trust. Said transfer was
fraudulent and done without adequate
consideration in an effort to place the
decedent's assets beyond the reach of
plaintiff and perhaps other potential
creditors.
6. The trust was not registered
although it was required to be registered
pursuant to Alaska Statute 13.36.005. The
exact extent of the assets transferred into
the trust is unknown, however, over a two day
period 29 quit claim deeds were recorded
purporting to transfer various Alaskan
parcels into the trust.
4Matson v. State, Commercial Fisheries Entry Comm'n, 785 P.2d
1200, 1206 (Alaska 1990) (quoting Mathews v. Eldridge, 424 U.S.
319, 333 (1976), and Logan v. Zimmerman Brush Co., 455 U.S. 422,
433 (1982)).
5Nerox Power Systems, Inc. v. M-B Contracting Co., 54 P.3d 791,
797 (Alaska 2002).
6AS 13.16.385 provides:
The property liable for the payment of
unsecured debts of a decedent includes all
property transferred by the decedent by any
means which is in law void or voidable as
against creditors, and subject to prior
liens, the right to recover this property, so
far as necessary for the payment of unsecured
debts of the decedent, is exclusively in the
personal representative.
7AS 13.33.216(b) provides that the provisions of our probate code
relating to rights to multiple person accounts do not "affect the
law governing tenancy by the entirety." But this does not answer
the question as to the rights of estate creditors to real
property so held.
8AS 13.33.215(a) provides:
If other assets of the estate are
insufficient, a transfer resulting from a
right of survivorship or POD designation
under AS 13.33.201_13.33.227 is not effective
against the estate of a deceased party to the
extent needed to pay claims against the
estate and statutory allowances to the
surviving spouse and children.
