Attorney Fee Award Nixed Because DHHS Claim Takes Precedence

A probate court’s order awarding an attorney his fees from a decedent’s estate must be reversed because the Department of Health and Human Services’ claim for fees under the Michigan Medicaid Estate Recovery Program has higher priority, the Michigan Court of Appeals has ruled.

Attorney James R. Modrall III, the appellee in In re Estate of Nothnagel (Docket No. 367551), filed a statement and proof of claim with the Benzie County Probate Court asserting that he was owed $22,876.20 in fees for legal services he provided regarding the decedent’s Medicaid eligibility. The successor personal representative of the decedent’s estate listed the appellee as the final creditor to be compensated $0 due to insufficient assets. The appellee filed an objection, asserting his claim had higher priority than a claim made by the Department of Health and Human Services (DHHS), which was related to its Michigan Medicaid Estate Recovery Program (MMERP) under MCL 400.112g. The Benzie County Probate Court entered an order of allowance, ruling that the appellee’s claim should be paid before the DHHS’s claim.

The DHHS appealed, arguing that MCL 700.3805 governed the priority of claims related to the distribution of the decedent’s estate and that its MMERP claim had higher priority than the appellee’s pre-death legal services claim.

“We agree,” the Court of Appeals said, reversing the probate court’s order and remanding the case.

“The DHHS maintained a valid MMERP claim, and pursuant to MCL 700.3805, its claim was of a higher priority than appellee’s claim when determining the appropriate distribution of decedent’s estate,” the Court of Appeals wrote. “Accordingly, the probate court erred by applying MCL 700.5429(6) to the instant matter, and ordering appellee’s claim to be paid before the DHHS’s higher priority MMERP claim pursuant to MCL 700.3805.”

Judge Stephen L. Borrello, Judge Christopher M. Murray and Judge Anica Letica were on the panel that issued the published opinion.

Order Of Priority

In its analysis, the Court of Appeals examined the plain language of the applicable statutes to determine legislative intent and noted that the Estates and Protected Individuals Code (EPIC) is to be “liberally construed.”

The Court of Appeals further explained that MCL 700.5429 says:

“(1) A conservator may pay or secure from the estate a claim against the estate or against the protected individual arising before or during the conservatorship upon the presentation of the claim and allowance in accordance with the priorities in subsection (4).

…

(3) A claimant whose claim has not been paid may petition the court for determination of the claim at any time before it is barred by the applicable statute of limitations and, upon due proof, may procure an order for the claim’s allowance, payment, or security from the estate.

…

(6) If a protected individual dies while under conservatorship, upon petition of the conservator and with or without notice, the court may hear a claim for burial expense or another claim as the court considers advisable. Upon hearing the claim, the court may enter an order allowing or disallowing the claim or a part of it and may provide in an order of allowance that the claim or a part of it shall be paid immediately if payment can be made without injury or serious inconvenience to the protected individual’s estate.”

In other words, “MCL 700.5429 provides a procedure for a claimant to follow when seeking payment on a claim against a protected individual or against the estate,” the Court of Appeals said. “MCL 700.5429 is encompassed under Part 4 of Article V, titled, ‘Protection of Property of an Individual under Disability or of a Minor,’ with various subsections detailing the processes related to the creation and termination of conservatorships, duties of a conservator, and the proper method for handling transactions related to the protected person’s estate.”

Meanwhile, MCL 700.3805 sets forth the priority of claim payments, the Court of Appeals observed. The statute says:

“(1) If the applicable estate property is insufficient to pay all claims and allowances in full, the personal representative shall make payment in the following order of priority:

• (a) Costs and expenses of administration.

• (b) Reasonable funeral and burial expenses.

• (c) Homestead allowance.

• (d) Family allowance.

• (e) Exempt property.

• (f) Debts and taxes with priority under federal law, including, but not limited to, medical assistance payments that are subject to adjustment or recovery from an estate under section 1917 of the social security act, 42 USC 1396p.

• (g) Reasonable and necessary medical and hospital expenses of the decedent’s last illness, including a compensation of persons attending the decedent.

• (h) Debts and taxes with priority under other laws of this state.

• (i) All other claims.

(2) A preference shall not be given in the payment of a claim over another claim of the same class, and a claim due and payable is not entitled to a preference over a claim not due.”

According to the Court of Appeals, the DHHS’s claim fell under MCL 700.3805(1)(f) because it related to the MMERP. On the other hand, the appellee’s claim fell under MCL 700.3805(1)(i), the appeals court said, noting it could not be classified as an estate administration expense because the legal services were incurred while the decedent was alive.

“The parties do not dispute the validity of their respective claims under the EPIC,” the Court of Appeals observed. “Rather, the parties challenge whether MCL 700.5429(6) may essentially override the order of priority under MCL 700.3805, such that appellee’s predeath legal fees were properly compensated before the DHHS’s medical assistance payments. We conclude that the probate court erred when it entered its order of allowance providing that appellee’s claim be paid pursuant to MCL 700.5429(6).”

The plain language of MCL 700.5429 “reflects that it pertains to claims against a protected person during his or her lifetime, as opposed to the appropriate means of distributing the estate of protected persons after their death,” the Court of Appeals said, citing subsections (1) and (6) of the statute.

Here, the appellee provided legal services to the decedent’s conservators regarding Medicaid eligibility more than one year before the decedent’s death, the Court of Appeals pointed out. “However, appellee failed to collect fees until after the administration of decedent’s estate; therefore, his claims are not the type contemplated in MCL 700.5429(6). While the term ‘advisable’ [as used in the statute] certainly maintains a broad definition, it is unreasonable to conclude that one subsection, which is not encompassed under the proper article governing the administration of a decedent’s estate, renders a statute dedicated to delineating the proper priority of claims against an estate, MCL 700.3805, meaningless.”

Moreover, “[e]ven assuming, arguendo, that MCL 700.5429(6) was applicable to appellee’s claim, we recognize that the … subsection does not address the priority of such ‘advisable’ claims, but MCL 700.5429(4) does,” the Court of Appeals said. MCL 700.5429(4) says:

“(4) If it appears that the estate in conservatorship is likely to be exhausted before all existing claims are paid, the conservator shall distribute the estate in money or in kind in payment of claims in the following order:

• (a) Costs and expenses of administration.

• (b) Claims of the federal or state government having priority under law.

• (c) Claims incurred by the conservator for care, maintenance, and education that were previously provided to the protected individual or the protected individual’s dependents. (d) Claims arising before the conservatorship.

• (e) All other claims.”

Therefore, under MCL 700.5429(4), “the DHHS’s claim, which falls under MCL 700.5429(b), would take priority over appellee’s claim, which may be considered under MCL 700.5429(c) as a claim incurred by the conservator for the care of decedent, as appellee’s legal services fundamentally pertained to decedent’s Medicaid eligibility, or MCL 700.5429(e), under all other claims,” the Court of Appeals stated. “Moreover, MCL 700.3805 contemplates the priority of reasonable funeral and burial expenses under MCL 700.3805(1)(b); comparatively, the priority provision under MCL 700.5429(4) does not, which may explain the exception delineated under MCL 700.5429(6) allowing the probate court to consider such expenses.”

However, MCL 700.3805 “expressly addresses circumstances when an estate, such as decedent’s estate, maintains insufficient assets to pay all permissible claims, after a protected person’s death, and it delineates the priority of claims,” the Court of Appeals explained. “MCL 700.3805 additionally falls under Article III, which governs estate administrations. Appellee failed to present an adequate reason to overlook the priority provision under MCL 700.3805, and to require the probate court to use its equitable power to bypass the Legislature’s clear intent and order payment of appellee’s claim. Moreover, there is no prior caselaw, published or unpublished, addressing the applicability of MCL 700.5429 to the distribution of a decedent’s estate, whereas MCL 700.3805 has been repeatedly cited to determine the priority of claims following a decedent’s passing.”

Although the appellee contended the probate court, as a court of equity, could “consider the circumstances surrounding his delay in seeking compensation for his legal services,” the Court of Appeals pointed out that equitable courts “are not exempt from following the plain language of a statute.”

The appellee’s conduct, “while admirable, remains subject to the priority provision delineated under MCL 700.3805,” the Court of Appeals concluded. “The DHHS maintained a valid MMERP claim, and pursuant to MCL 700.3805, its claim was of a higher priority than appellee’s claim when determining the appropriate distribution of decedent’s estate. Accordingly, the probate court erred by applying MCL 700.5429(6) to the instant matter, and ordering appellee’s claim to be paid before the DHHS’s higher priority MMERP claim pursuant to MCL 700.3805. Reversed and remanded ….”