Dec 21,2020
On November 13, 2020 lawyers from Moriarty Bielan & Malloy LLC, led by Tom Moriarty, Chair of the firm’s Litigation Department, were successful in reversing the decision of the United States District Court for the District of Massachusetts in the case Wilmington Sav. Fund Soc’y v. Collart, No. 19-1533 (1st Cir. 2020). The United States Court of Appeals for the First Circuit (“First Circuit”) held that the District Court abused its discretion in granting the Plaintiff, Wilmington Savings Fund Society (“Wilmington”) an equitable lien and directed entry of judgment for MBM’s client, Nina B. Collart.
On appeal, the First Court agreed with MBM’s position that the District Court erred in granting an equitable lien on the Harwichport Property because no owner agreed to encumber the property and the proceeds of the transaction did not benefit the property or its true owners.
The underlying dispute concerned a $500,000 home equity line of credit (“HELOC”) from Bank of America that had been taken out in 2007 by Collart’s father, Lucien Collart, against a property in Harwichport, Massachusetts (“Harwichport Property”). The Harwichport Property was owned in trusts in the names of Lucien’s late wife Anne, Lucien, and Nina. In April of 2007 along with other assets, Lucien used the home equity line of credit to purchase a property in South Dennis, Massachusetts (the “Bass River Property”) for $2.3 million.
Lucien died in 2013 and in 2015 a probate court granted all of Lucien’s estate to Nina. Bank of America assigned the HELOC to Wilmington in January of 2016. In the case before the District Court, Wilmington sought, among other relief, a declaratory judgment that the HELOC was valid, or, in the alternative, an equitable lien on the Harwichport Property. The District Court held that the HELOC was invalid, but the District Court held that Wilmington was entitled to an equitable lien against the Harwichport Property under the theory of unjust enrichment.
On appeal, the First Court agreed with MBM’s position that the District Court erred in granting an equitable lien on the Harwichport Property because no owner agreed to encumber the property and the proceeds of the transaction did not benefit the property or its true owners.
In its analysis, the Court cites the Restatement (Third) of Restitution and Unjust Enrichment which essentially provides that a transactional nexus must exist between the property and the events giving rise to the equitable lien. Wilmington first argued that a transactional nexus can exist even when no owner agreed to encumber the Harwichport Property and the HELOC proceeds did not benefit the property or its true owners. This was because the debtor, Lucien, had expressly agreed to pay the creditor, Wilmington, out of a specific fund, the Harwichport Property. The Court rejected this argument agreeing with the District Court’s finding that Lucien did not have the authority to pledge the Harwichport Property.
Wilmington next argued that Lucien’s possession of the Harwichport Property and his intent to encumber it was sufficient to establish a transactional nexus. The Court once again disagreed that mere possession and intent to encumber are enough to create a transactional nexus.
A contrary holding would have meant that any person inheriting money from an estate could have a lien placed on his or her property to satisfy personal loans that were unpaid by a decedent at the time of their death. Such a holding would have had significant negative implications for any person inheriting money from an estate in Massachusetts.
A copy of the decision in Wilmington Sav. Fund Soc’y v. Collart can be found here.