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In re Supervised Estate of Short

Court of Appeals of Minnesota

August 26, 2019

In re the Supervised Estate of: Brian Scott Short, Deceased.

          Hennepin County District Court File No. 27-PA-PR-15-1210

          John G. Westrick, Savage Westrick, P.L.L.P., Bloomington, Minnesota (for appellant East Coast Test Prep LLC, d/b/a Achieve Test Prep)

          John D. Reddall, James J. Kretsch, Kretsch Law Office, PLLC, Lakeville, Minnesota (for respondent/cross-appellant personal representative David Smits)

          Considered and decided by Reilly, Presiding Judge; Johnson, Judge; and Hooten, Judge.

         SYLLABUS

         When determining whether to distribute assets or hold open an estate with a contingent claim, courts must apply a balancing test to weigh the interests of efficient administration of an estate against protection of the contingent claim, considering the following factors: (1) the nature of the claim being asserted before another tribunal; (2) the hardship on the estate of deferred distribution of principal or income; and (3) the adverse effect of refusing any asset withholding and thereby potentially impairing satisfaction of a meritorious claim.

          OPINION

          REILLY, JUDGE.

         Appellant East Coast Test Prep LLC, d/b/a Achieve Test Prep (ATP) filed a contingent claim against decedent's estate related to appellant's pending federal lawsuit. The merits of appellant's claim against the estate are still being litigated in federal court. ATP appeals the district court's decision to allow the distribution of income from decedent's estate before the federal litigation is finally resolved. The personal representative of the estate (the PR) cross-appeals, arguing that the district court erred by (1) converting administration of the estate from unsupervised to supervised, (2) denying the PR's request to disallow appellant's claim against the estate, and (3) barring the distribution of principal from the estate. We affirm.

         FACTS

         The decedent, Brian Short, died testate in September 2015. Before decedent's death, ATP sued decedent and his company, Allnurses.com, in federal district court.[1]ATP's lawsuit alleged, among other things, that Allnurses.com breached its terms of service by failing to remove internet posts about ATP that were false and defamatory (federal claim).

         In October 2015, the probate court (district court) ordered an unsupervised administration of decedent's estate and appointed a PR. Due to ATP's federal claim against the PR, ATP filed a statement of unsecured claim against the estate, alleging the estate may become indebted to ATP in an amount in excess of $50, 000 (contingent claim). The PR disallowed ATP's contingent claim. In order to protect its contingent claim against the estate, ATP petitioned for supervised administration of decedent's estate. The district court issued an order reserving its decision on whether to convert the estate to supervised administration until after the federal district court's decision on a then-pending motion to dismiss the PR and Allnurses.com as parties in the federal proceeding.

         In January 2018, the federal district court dismissed all claims against the PR and Allnurses.com with prejudice, stating that "ATP alleges few specific facts in support of [its] allegations, and despite two years of trying it has discovered virtually no evidence that they are true." E. Coast Test Prep LLC v. Allnurses.com, Inc., 307 F.Supp.3d 952, 956 (D. Minn. 2018), appeal docketed, No. 18-3197 (8th Cir. Oct. 15, 2018). ATP appealed the federal district court's decision; that appeal is still pending in the Eighth Circuit Court of Appeals. Id. Based upon the federal district court's dismissal of all claims against the PR and Allnurses.com, the PR moved the district court to confirm its disallowance of ATP's contingent claim. In June 2018, after a hearing on the matter, the district court converted the estate to a supervised administration until ATP's federal claim is finally resolved in the federal litigation. The district court also denied the PR's request to confirm the disallowance of ATP's contingent claim against the estate and instead requested that the parties propose a sum to be reserved in the estate to protect ATP's contingent claim. ATP proposed that the estate set aside $7.56 million; the PR proposed that the estate set aside no more than $50, 000.

         The PR also moved the district court for permission to distribute estate income (not principal) to avoid adverse tax consequences. The district court held another hearing and, in October 2018, filed an order which allowed the PR to distribute estate income. However, the district court determined that it could not identify a reasonable amount for the estate to reserve because the amounts proposed by ATP and the PR were "dramatically different" and the court was "unable to independently determine the likelihood of success of ATP's appeal." The district court barred the PR from distributing any principal from the estate and ordered that the estate remain under supervised administration until the federal litigation is finally resolved.

         The PR challenges the district court's decision to allow the conversion of the estate to supervised administration, the district court's denial of the PR's request to confirm disallowance of ATP's contingent claim and the decision to bar the distribution of principal. ATP challenges the district court's decision to allow the distribution of income.

         ISSUES

         I. Did the district court abuse its discretion when it granted ATP's motion to convert the ...


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