CMS Inv. Holdings, LLC v. Estate of Wilson

2016 Ark. App. 545

506 S.W.3d 292

CMS INVESTMENT HOLDINGS, LLC, Appellant

v.ESTATE OF Robert M. WILSON, Jr., Deceased Appellee

No. CV–15–716

Court of Appeals of Arkansas, DIVISION I.

Opinion Delivered: November 16, 2016

Wright, Lindsey & Jennings, LLP, by: Gordon S. Rather, Jr., John R. Tisdale, and Gary D. Marts, Jr., Little Rock, for appellant.

Campbell Law Firm, P.A., by: H. Gregory Campbell, for appellee.

RAYMOND R. ABRAMSON, Judge

This appeal from a probate case arises out of the denial of two claims appellant CMS Investment Holdings, LLC (CMSIH) made against appellee the Estate of Robert M. Wilson, Jr. (Estate). The overarching questions presented in this appeal are whether CMSIH's claims were timely made and whether the circuit court erred by denying them. Finding no error, we affirm the circuit court's order denying CMSIH's claims.

I. Background

On August 3, 2012, Robert M. Wilson, Jr. (Wilson) died.¹ On August 8, 2012, a case was opened in Pulaski County Circuit Court to probate his Estate, and his former wife, Jennifer Wilson–Harvey, was appointed as personal representative of the Estate.

Arkansas Code Annotated section 28–40–111(a)(1)(A) requires that a "personal representative shall cause a notice of his or her appointment to be published stating the date of his or her appointment and requiring all persons having claims against the estate to exhibit them, properly verified to him or her, within six (6) months from the date of the first publication of the notice, or they shall be forever barred and precluded from any benefit in the estate." On August 11, 2012, the Estate published notice to creditors pursuant to this requirement, alerting creditors of the necessity of filing their claims against the estate no later than February 11, 2013.

Our law also requires that "within one (1) month after the first publication of the notice, a copy of the notice shall also be served ... upon all unpaid creditors whose names, status as creditors, and addresses are known to or reasonably ascertainable by the personal representative." Ark. Code Ann. § 28–40–111(a)(4)(A). Pursuant to this statutory requirement, the Estate served notice on certain creditors, but CMSIH was not among them.

With regard to the acceptance or denial of claims, the general rule is that all claims against a decedent's estate must be filed with the court within six months after the date of the first publication of notice to creditors. Ark. Code Ann. § 28–50–101(a)(1). Notwithstanding this rule, the claims of all known or reasonably ascertainable creditors shall be barred at the end of two years from the date of first publication of notice to creditors, even if they have not been provided actual notice in accordance with Arkansas Code Annotated § 28–40–111(a)(2). Ark. Code Ann. § 28–50–101(h).

CMSIH did not file a claim against the Estate prior to the six-month deadline of February 11, 2013. In fact, it did not file its claims until June 6, 2014—twenty-two months after notice was published. After CMSIH filed its claims, the Estate filed a motion to deny the claims as untimely. CMSIH responded contending that its claims were timely filed pursuant to the two-year time limit imposed on known or reasonably ascertainable creditors. Ark. Code Ann. § 28–50–101(h).

The circuit court conducted an evidentiary hearing on the Estate's motion to deny CMSIH's claims on November 24 and December 19, 2014. At the hearing, the Estate presented extensive evidence in support of its position that CMSIH was not entitled to service of notice of the probate of Wilson's Estate. Most notable was the testimony of Rufus Wolff, Wilson's longtime attorney and an attorney for his Estate, and Stephanie Pollard, an accounting supervisor at the Wilson Law Firm who was also employed by the Estate. Wolff, who had authority and access to search Wilson's records and documents, testified that there was no information that CMISH was a creditor or that it sought to assert a claim against the estate. Likewise, Pollard indicated that she prepared an exhaustive list of Wilson's books and records, including all vendors and creditors, and found no files on CMSIH.

On May 15, 2015, the circuit court entered a detailed order granting the Estate's motion to deny CMSIH's claims wherein it outlined its decision and the reasons supporting it. CMSIH brings this appeal.

II. CMSIH's Claims Against the Estate

This appeal focuses on whether there was evidence to establish that CMSIH was a known or reasonably ascertainable creditor of the Estate. Accordingly, we will discuss the events giving rise to CMSIH's claims, focusing on the evidence CMISH deems most relevant.

CMSIH's claims stem from two lawsuits. Both suits were initiated in March 2014—subsequent to Wilson's death and the opening of his Estate. CMSIH sued the Estate, Jennifer Wilson–Harvey, and others in Colorado on the basis of fraud. CMSIH also sued the Estate in Delaware alleging breach of contract, breach of fiduciary duty, and various torts. Both lawsuits alleged that CMSIH sustained substantial losses in connection with its investment and membership in a corporation known as RP Holdings Group, LLC (RPHG).

RPHG is a corporation that, in April 2008, purchased the non-legal-services businesses of the Wilson Law Firm. At that time, RPHG and the Wilson Law Firm entered into an Exclusive Services Agreement wherein RPHG agreed to provide certain services to the Wilson Law Firm. It is pertinent to acknowledge that CMSIH invested in this transaction, and an LLC Agreement to which Jennifer Wilson–Harvey was a signatory identifies CMSIH as an owner of RPHG.

Also relevant to our review are the actions of Ben Cukier. Cukier personally participated in the April 2008 negotiations on behalf of RPHG and ultimately became the chairman of the board of RPHG. Cukier also served as a representative of CMSIH and was a partner at FTV Capital—a private equity firm that organized CMSIH.

Financial issues arose with regard to the contract between the Wilson Law Firm and RPHG. In 2011, Cukier, in his role with RPHG, communicated with Wilson and Rufus Wolff about Wilson Law Firm's non-payment of its obligations and misappropriation of funds. These discussions resulted in a series of interim agreements between Wilson and RPHG regarding the financial issues at RPHG. CMSIH was not a party to any of these agreements, and Cukier did not act on behalf of CMSIH during these negotiations.

The financial issues persisted. In July 2012, an attorney for Wilson sent a demand letter proposing a settlement with RPHG and all associated owners, affiliates, and individuals but that effort was ultimately unsuccessful. Shortly thereafter, Wilson commenced two lawsuits—one against RPHG in Arkansas and another against Cukier and others in Colorado. The lawsuit against Cukier prompted a letter written on behalf of Cukier by his counsel Scott McMillin, who protested the lawsuit filed by Wilson and threatened claims and litigation by FTV and equity holders in RPHG. CMSIH was not involved or specifically mentioned in any of these communications.

III. Issues on Appeal and Standard of Review

CMSIH's arguments on appeal are as follows: (1) due process requires actual notice to "known or reasonably ascertainable" creditors; (2) a "creditor" must be given actual notice by personal service; (3) due process requires the personal representative to make a reasonably diligent search for creditors; (4) "actual notice" must be served on any identifiable creditor with more than a conjectural claim; and (5) known or reasonably ascertainable creditors not served actual notice have two years to file claims. In arguing for reversal, CMSIH often contends that findings of fact and conclusions of law made by the circuit court were reached using erroneous legal standards.

On appeal, this court conducts a de novo review of probate cases, but the circuit court will not be reversed unless its findings are clearly erroneous. Whatley v. Estate of McDougal , 2013 Ark. App. 709, 430 S.W.3d 875. Our court gives due deference to the superior position of the circuit court to determine the credibility of witnesses and the weight to be accorded their testimony. Id.

IV. Due Process Requires Actual Notice to "Known or Reasonably Ascertainable" Creditors

CMSIH begins its argument by basically reciting the legal standards that this court and the circuit court are required to adhere to in this case. Any arguments for reversal raised in this section are addressed more fully in CMSIH's other points on appeal. For this reason, we take this opportunity to provide a general overview of the law as it relates to claims against estates.

Non-claim probate statutes, such as those at issue in this case, implicate constitutional due-process considerations. Tulsa Prof'l Collection Servs. v. Pope , 485 U.S. 478, 108 S.Ct. 1340, 99 L.Ed.2d 565 (1988). Known or reasonably ascertainable creditors must receive actual notice that will inform them of the need to file a claim, the date and manner by which the claim must be filed, and that any potential claim will be barred if no claim is filed. Id. "[A]ctual notice is a minimum constitutional precondition to a proceeding which will adversely affect the liberty or property interests of any party." Id. at 485, 108 S.Ct. 1340. Nevertheless, the Supreme Court also held that "extended searches" for potential creditors are not required. Id. at 490, 108 S.Ct. 1340. "[A]ll that the executor or executrix needs to do is make ‘reasonably diligent efforts' to uncover the identities of creditors." Id.

V. A "Creditor" Must be Given Actual Notice by Personal Service

It is undisputed that the Estate did not serve CMSIH with written notice of the probate of Wilson's Estate. The U.S. Supreme Court requires that a known or reasonably ascertainable creditor receive actual notice that will inform the potential creditor of the need to file a claim, the date and manner by which the claim must be filed, and that the claim will be terminated...