Tuesday, February 17, 2015

Dispute Over Sewage System Creates a Mess in Probate Proceeding

Hayes v. Town of Manchester, 2014 VT 126

By Andrew Higley

If you build it, well . . . the townsfolk will use it. In this case, a privately owned sewage system and two roads. The issue is whether the Town of Manchester is entitled to money from an Estate, in the form of a constructive trust, to inspect and maintain that sewer system. On top of that, a group of homeowners want the Estate to continue paying for maintenance of two private roads. They are arguing that certain evidence at trial was improperly excluded under the morbidly named “Dead Man’s Statute.” Sidenote: I think that would make a great title to an Edgar Allan Poe story.

What originally began as one lawsuit, the Town of Manchester (“Town”) against the Hayes Estate (“Estate”), mushroomed into different lawsuits after a group of homeowners “intervened.” This is basically a procedural mechanism that allows other parties to join in on the fun (speak now or forever lose your claim). So, there are actually two suits here: (1) the Town versus the Hayes Estate; and (2) the Homeowners versus the Hayes Estate. 

Richard and Nadine Hayes began subdividing Mountain View Estates on land they owned jointly in the late 1970s. The subdivision had fixtures reminiscent of a small town: houses, a school building, and even a chiropractic clinic. More important for this case, The Hayes’s also installed a sewer system and two private roads. Richard Hayes initially supplied all the subdivision’s water through his water company. In 1982, he sold portions of the water sewage system to the Town. He continued to own—and maintain—the remaining portion of the system, until he and Nadine were tragically killed in a car accident in 2004. This portion includes its own pump station, which carries water underground to the Town’s sewer system and wastewater facility. So, whether from private or public sewers, the entire Town’s waste ends up in the same place. All roads lead to Rome, indeed.

The Town v. the Estate: As part of the probate proceedings below, the Town’s main concern was that private sewer line was “in disrepair and threatened the Town’s water supply.” Remember, all the Town’s waste ends up the same place. In 2008, the probate court ordered the Estate to set aside $1 million dollars to inspect and maintain the sewer line, and to eventually dedicate the line over to the Town.

The Superior Court heard the case in 2012, de novo (meaning “like new,” so the court did not have to defer to any of the probate court’s factual or legal findings). Both parties presented their own, conflicting expert testimony on the condition of the sewer. In the interests of brevity, the Town’s expert basically testified that the sewer was in disrepair, the Estate’s co-administrators were failing at maintaining it, and it potentially threatened the entire Towns’ water aquifer. The Town asked the Court to either: (1) set aside funds from the Estate in the form of a trust; or (2) dedicate the entire sewer over to the Town, with funds. The Estate’s expert testified that the pump station and sewer were properly installed, remained in good working condition, and that the Town’s proposed changes were “unnecessary.”

After considering this evidence, the Superior Court concluded the sewer did not pose any “imminent risk” to the Town’s water supply, and therefore declined to order a common-law constructive trust be created. The court only considered the Town’s common-law constructive trust argument.

At the SCOV, the Town argues that the Superior Court erred by only considering its common-law constructive trust argument. The Town argues that the Court forgot, sort of, to consider its statutory trust argument. “Statutory” means law made by our state legislature or Congress, while “common law” means judge made law. Yep, under the legal system we inherited from England judges can make law when they feel like it. The “constructive trust” is a prime example: an equable trust created by the court in the interests of fairness and justice. The statute in question allows a court to create a trust from Estate funds in order to satisfy a claim that will become due in the future. It essentially provides protection for a claimant who’s claim will not “mature” until some later date.

But wait, what are the appellate standards or review? There’s actually two separate standards here: (1) for the common-law constructive trust, review is strictly factual and SCOV will defer to the lower court’s findings of fact “unless clearly erroneous;” and (2) whether the statute applies is a legal argument, so SCOV reviews the conclusion de novo (like new, no deference; you get the idea by now).

SCOV quickly dismisses the Town’s argument on appeal. The Town is essentially arguing that future and potential threats that the sewer threatens the Town’s aquifer is a “claim” under the statute. As SCOV points out, a claim means “those obligations which are in the broad sense of the term, debts and would include obligations arising out of contract express or implied.” Here, a threat of future harm is not an “obligation” arising out of a contract. No contract, no claim. Thus, SCOV holds that the Superior Court was correct to not apply the statute. Next, SCOV holds that the Court’s factual finding that the “Town was not entitled to equitable or injunctive relief in the form of a common law constructive trust” was not erroneous based on the record before it. Affirmed, affirmed, on to the next lawsuit . . .

The Homeowners v. the Estate: this suit concerns application of the ghostly titled “Dead Man’s Statute.”

Some more facts: During his life, Richard Hayes maintained and plowed the private roads located on the subdivision at his own expense. After he died in 2004, his son Jeffrey Hayes sent a letter to the homeowners group saying that the Estate would no longer plow and maintain the roads, and it was now the homeowner’s responsibility. The homeowners did not assume this responsibility, so the Estate has still maintained the roads throughout the litigation.

In probate court, the homeowners testified that Richard Hayes had made promises to certain homeowners when they bought the property that he would maintain the roads, pave them, and eventually dedicate them to the Town. The Estate objected based on the Dead Man’s Statute, but the probate court admitted the testimony. The court ordered that Estate set aside money be to pave and eventually dedicate to the Town the roads (part of the same probate proceeding involving the Town, just to be clear). On de novo appeal to Superior Court, the Homeowners asked the Court for the same.

Now, this is where the Dead Man’s Statute gets more important to the story. The statute is essentially a rule of evidence. I’m betting, and also assuming from personal experience, it’s not a rule most attorneys learned until studying for the bar exam (and in true bar exam fashion, they probably wasted valuable mental energy stressing about whether it will show up on the exam . . . and of course it does not). Anyway, the rule prevents a party to a contract from testifying in his or her favor when that other party is dead. Like all rules though, there’s an exception: otherwise barred testimony may be admitted “to meet or explain the testimony of living witnesses produced against” that party.

In Superior Court, the Estate again objected to the testimony concerning the alleged oral promises made by Richard. The Court split the baby. First, the Court ruled that the Estate had “partially waived” the protections of statute because Jeffrey Hayes actually testified that his father intended to continue maintaining the infrastructure and eventually dedicate it to the Town. It was waived, the Court concluded, because the Estate did not object at the hearing.

Second, as to the actual oral promises, testimony by both Jeffrey and the homeowners of alleged oral promises by Richard was excluded under the statute. This decision was fatal to the Homeowners claim. Why? Another old and antiquated rule known as the “Statute of Frauds” generally bars oral agreements concerning interests in land. However, there’s an exception in Vermont for when one party makes an oral promise to another party for which they should reasonably expect reliance, and the other party relies and changes position to their detriment: the “equitable exception” (I know, too many exceptions to keep track of). So the Homeowners aren’t dead in the water so long as they can prove the oral agreement. The nail in the coffin to the Homeowner’s case is that, because the Court excluded testimony about the oral agreement, there was no evidence of a “meeting of the minds” as to an agreement.

Time for SCOV to clean up this mess. First, as to Jeffrey’s testimony concerning promises by his dad to the Homeowners, SCOV simply looks at the clear words of the statute. The statute restricts parties to the contract from testifying. Jeffrey was not an alleged party. Next, regardless of whether or not he was a party, the statute only prevents testimony in favor of the testifying party. Jeffrey’s testimony would actually be to the Estate’s detriment because it helps in establishing there was an agreement. Thus, SCOV concludes that the Superior Court clearly erred in excluding the testimony of the co-administrators.

As to the Homeowners testimony, SCOV concludes the Superior Court erred for a different reason. Remember that exception the Dead Man’s Statute concerning testimony admitted “to meet or explain the testimony of living witnesses produced against” that witness? Well, SCOV concludes that this exception is satisfied here. The co-administrators had testified both about their dad’s intent and the alleged promises made to the Homeowners. This testimony “opened the door,” under the above exception, for explanation from the Homeowners themselves. Next, SCOV finds that this error was prejudicial to the Homeowners entire case. This testimony would have established a “meeting of the minds” so that “court could have concluded that the equitable exception to the Statute of Frauds applied.”

Finally, SCOV throws in that, on remand, the Superior Court should consider the Homeowner’s promissory estoppel argument (another exception). The Town is done, but the Homeowners continue to fight another day.

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