Court of Chancery Clarifies What is a Valid Debt Claim Against an Estate

In re: Estate of Bennie Farren, C.A. No. 8714-MA & McGlaughlin v. Farren, C.A. No. 9385-MA (January 19, 2016)

In this case, the Delaware Court of Chancery declined to accept the Petitioner’s argument that, for a claim to be valid as a just debt against an estate it must be brought against the estate in the form of a final judgment. We addressed a previous recommendation by the court related to this decedent’s estate (the “Estate”) in a recent blog post. To access our earlier blog post for more detailed information about the facts of the case, please go to: http://www.gfmlaw.com/blog/master-recommends-removal-executor

The disputed claim (the “Arrearage Claim”) was brought against the Estate by the Executor’s mother (the Decedent’s ex-wife), which she filed based on a child support order entered by a Florida court in 1986 (modified in 1987) totaling $228,459.47, including $24,300 in missed payments plus compound interest on the amounts due. The Executor, the claimant’s son, accepted the Arrearage Claim as a valid debt of the Estate but his decision to do so meant that the Estate’s debts exceeded its liquid assets. The excess debt led the Executor to file a petition to sell the Decedent’s former residence to compensate for the Estate’s debt. However, the Decedent, in his will, left a life estate in the residence to the Petitioner (the Decedent’s live-in companion at the time of his death). The Court recognized that if the Executor’s petition were granted the Petitioner “will not be able to continue living in [the Decedent’s] former residence,” and “[a]t the age of 77, she would have to leave the place she has called home for nineteen years.”

The Petitioner objected to the Executor’s petition to sell the former residence and moved to prevent the Estate from accepting the Arrearage Claim as a just debt. Additionally, she sought to remove the Executor as executor of the Estate. She argued that by accepting his own mother’s claim against the Estate, the Executor “breached the fiduciary duties he owes to the Estate and its beneficiaries.” The Petitioner contended that, first, the Florida child support order needed to be registered with the Delaware Family Court to determine the amount of arrearage. Only then could the Arrearage Claim be brought against the Estate as a just debt. Since “the deadline for filing claims against the Estate has passed,” according to the Petitioner, the Decedent’s ex-wife’s claim would be invalid because of the ex-wife’s failure to file the claim against the Estate in time.

On the validity of the debt, the court held that, under Delaware law, “[t]here is no requirement that a claim be based on a judgment or any other court document.” And regardless, the court wrote, “the Florida orders constituted a final judgment entitled to full faith and credit under the United States Constitution.” Although the claimant “had the option to register the orders with the Family Court and have that court calculate the amount due under the orders, she was not required to follow that course as a prerequisite to asserting a claim against the Estate.”  In fact, the Arrearage Claim “complied with the statutory requirements for presentation” under both state and federal law. The court noted that an executor “must recognize the effect of a foreign judgment,” therefore, the Executor correctly “accepted the claim based on the Child Support Order and the arrearage affidavit” that were submitted to him by his mother.

The court declined to agree with the Petitioner that the Delaware Court of Chancery “lacks jurisdiction to address any disputes relating to the claim because exclusive jurisdiction over child support orders lies with the Family Court.”  Although the claimant “had the option of registering the orders with the Family Court, she did not have to take that route.” The court, pointing to the various grants of authority of jurisdiction between the Court of Chancery and the Family Court, held that this is “an area where this court and the Family Court can and should cooperatively exercise concurrent jurisdiction.” Accordingly, the court determined, “if the party subject to the support order is alive, this court logically should defer to the Family Court.” But “[o]nce a support obligor is dead. . . the ability to grant relief falls” to the Court of Chancery.

The court granted summary judgment, in part, and determined that the Arrearage Claim was a valid claim. But the court determined that calculating the amount of interest due on the arrearage required additional proceedings. With regard to the Executor’s petition to sell the property, the court declined to authorize the sale and reasoned that, based on the circumstances, “a more equitable alternative to an immediate sale may be available.” Lastly, the court held that “issues of fact preclude granting summary judgment” on the Petitioner’s motion to remove the Executor as executor of the Estate. Based on the evidence presented, the court found that there exists “a dispute of fact for trial regarding whether [the Executor] administered the Estate in good faith.”