United States Court of Appeals
For the First Circuit
No. 04-2241
IN RE BOSTON REGIONAL MEDICAL CENTER, INC.,
Debtor.
____________________
BOSTON REGIONAL MEDICAL CENTER, INC.,
Plaintiff, Appellee,
v.
HANSON S. REYNOLDS, TRUSTEE, ET AL.,
Defendants, Appellees.
____________________
FIRST LUTHERAN CHURCH AND THE FIRST CHURCH OF CHRIST, SCIENTIST,
Intervenors, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
[Hon. Carol J. Kenner, U.S. Bankruptcy Judge]
Before
Boudin, Chief Judge,
Torruella and Selya, Circuit Judges.
Theodore E. Dinsmoor, with whom Burns & Levinson LLP was on
brief, for appellant First Church of Christ, Scientist.
Michael C. Gilleran and Pepe & Hazard, LLP on brief for
appellant First Lutheran Church.
Charles R. Bennett, Jr., with whom David C. Kravitz,
Christopher M. Morrison, and Hanify & King, P.C. were on brief, for
debtor-appellee.
Robert B. Foster and Rackemann, Sawyer & Brewster, P.C. on
brief for trustee-appellee.
June 14, 2005
SELYA, Circuit Judge. This appeal presents a mare's nest
of exotic legal problems. At the outset, it requires us to resolve
a novel question of bankruptcy jurisdiction. After deciding that
question, we must then determine whether, under Massachusetts law,
a nonprofit organization that has ceased operations may nonetheless
receive a charitable bequest. Because the charitable organization
was still functioning as such at the time its entitlement to the
bequest vested, we conclude that the bequest may be paid.
I. BACKGROUND
Elizabeth Krauss executed her last will and testament in
1975. That instrument bequeathed the residue of her estate in
equal shares to the New England Sanitarium and Hospital of
Stoneham, Massachusetts (New England Sanitarium), First Lutheran
Church of Boston (First Lutheran), and First Church of Christ,
Scientist (the Mother Church). It specified that the bequest to
the New England Sanitarium was "to be used to provide a bed for
indigent patients."
In 1988, a state probate court adjudged Ms. Krauss
incompetent and placed her under guardianship. Eight years later,
the court appointed successor guardians in the persons of Gary
Douglas Rose (Ms. Krauss's grand-nephew) and Hanson S. Reynolds (an
attorney). The new guardians found Ms. Krauss's financial affairs
in disarray. They concluded that it would be best to sell her
realty, thus making her estate more liquid and raising funds that
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could be used to settle her debts and defray the costs of her
nursing care.
To minimize potential tax liabilities, the guardians
proposed to transfer the real estate to certain inter vivos
charitable trusts as a precursor to any sale. These transfers
would render the testamentary bequests nugatory but, to effectuate
Ms. Krauss's original intent, the guardians drew the trust
indentures to provide that, upon Ms. Krauss's death, the remaining
corpus would be divided in equal portions among the three residuary
beneficiaries named in the will. By then, the New England
Sanitarium had changed its name to Boston Regional Medical Center
(BRMC), and the indentures of trust named BRMC, First Lutheran, and
the Mother Church as residuary beneficiaries. This stipulation did
not include the preexisting limitation on the gift to BRMC (that
the funds "be used to provide a bed for indigent patients").
According to Reynolds, the guardians deliberately eliminated the
restriction because they believed that it was ambiguous and, as
such, might cause a failure of the bequest.
On October 10, 1997, the probate court confirmed the
guardians' plan for transferring and then selling Ms. Krauss's
assets. The real estate was transferred and sold, and the trusts
were funded. The guardians were named as co-trustees.
On March 1, 1998, Ms. Krauss died at the age of 105. The
trustees neither initiated any contact with the named beneficiaries
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at that time nor made any immediate distribution of the corpus.
The record does not indicate that BRMC even knew of Ms. Krauss's
death, let alone of the windfall that her demise betokened.
Approximately eleven months later, BRMC closed its doors,
halted hospital operations, and filed for bankruptcy protection
under Chapter 11 of the Bankruptcy Code. At the time, it was still
not aware that it was a beneficiary of the Krauss trusts. Thus,
BRMC did not list any expected distribution from the trusts among
the assets of the bankruptcy estate.
On January 18, 2000, the bankruptcy court confirmed
BRMC's plan of reorganization (the Plan). The Plan was strictly a
liquidating plan. Under it, all of BRMC's assets were vested in a
reorganized BRMC, which we shall call liquidating BRMC or L-BRMC.1
L-BRMC's sole purpose is to liquidate the marshaled assets and
distribute the net proceeds to BRMC's creditors in accordance with
the provisions of the Plan.
In May of 2000, the nature and extent of Ms. Krauss's
philanthropy became known to her intended beneficiaries. Citing
BRMC's bankruptcy, First Lutheran and the Mother Church filed a
complaint against the trustees and L-BRMC in the probate court
seeking to prohibit any distribution from the trust corpus to the
bankrupt hospital. L-BRMC objected on several grounds, asserting
1
BRMC and L-BRMC are not distinct legal entities. Rather, L-
BRMC is the continuation of BRMC as reorganized. We distinguish
between them solely for purposes of clarity.
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in the first instance that the injunctive provisions of the Plan
barred the maintenance of the suit.2 The churches agreed to drop
L-BRMC from the state court proceeding and filed a motion in the
bankruptcy court for relief from the injunction so that the probate
court proceeding could go forward. The bankruptcy court denied
that motion on July 12, 2000.
Shortly thereafter, L-BRMC initiated an adversary
proceeding in the bankruptcy court to compel the trustees to turn
over the hospital's share of the trust assets. The churches
intervened and counterclaimed for reformation of the indentures of
trust, seeking to reimpose the "bed" limitation that had been
contained in Ms. Krauss's will. First Lutheran simultaneously
moved to dismiss the turnover complaint and the Mother Church filed
a motion entreating the bankruptcy court to abstain. The
bankruptcy court denied both of these motions. In re Boston Reg'l
Med. Ctr., 265 B.R. 645, 651-52 (Bankr. D. Mass. 2001) (BRMC I).
Although it agreed that the adversary proceeding was not
2
The Plan provides in pertinent part:
[T]he confirmation of the Plan shall act to permanently
enjoin . . . all persons . . . (a) from commencing or
continuing in any manner any action or other proceeding
of any kind with respect to any such claim or interest
against the Debtor and/or reorganized BRMC; . . . (c)
from creating, perfecting or enforcing any encumbrance of
any kind against reorganized BRMC, or against the
property of the reorganized BRMC with respect to any such
claim or interest; . . . . (excess capitalization
omitted).
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appropriately characterized as a turnover action (and, thus, was
not a core proceeding), the court nevertheless found "related to"
jurisdiction under 28 U.S.C. § 1334(b) (2000), id. at 651, and
determined that abstention would be inappropriate, id. at 652.
On February 7, 2003, the bankruptcy court held a hearing
on the merits. It thereafter concluded that because Ms. Krauss
died before BRMC ceased to function as a hospital and because BRMC
incurred its debts in furtherance of its charitable mission, there
was no obstacle to paying out a one-third share of the trust
residue. In re Boston Reg'l Med. Ctr., 298 B.R. 1, 27-30 (Bankr.
D. Mass. 2003) (BRMC II). The court further determined that the
churches' counterclaim was barred by the doctrine of res judicata.
Id. at 18-23. Based on these findings and conclusions, the
bankruptcy court recommended that the district court enter an order
directing the trustees to pay the disputed funds to L-BRMC.
The churches filed objections to the bankruptcy court's
recommended decision. See 28 U.S.C. § 157(c)(1) (2000); Fed. R.
Bankr. P. 9033(b). They also moved in the district court for (i)
dismissal for want of subject matter jurisdiction, (ii) abstention,
or (iii) certification of the state law questions to the
Massachusetts Supreme Judicial Court (SJC). The district court
denied the motions, conducted a de novo review of the record,
adopted the bankruptcy court's proposed findings and conclusions
with minor modifications, and entered judgment accordingly. In re
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Boston Reg'l Med. Ctr., No. Civ. A. 03-12215, 2004 WL 1778881, at
*6 (D. Mass. Aug. 9, 2004) (BRMC III). The churches now appeal.
II. JURISDICTION
We start with the jurisdictional question. The churches
strive to persuade us that there is no "related to" jurisdiction
because this litigation arose after the bankruptcy court confirmed
the Plan. We are not convinced.
Bankruptcy jurisdiction is governed principally by
statute. The general grant of bankruptcy jurisdiction is contained
in 28 U.S.C. § 1334. That provision vests original jurisdiction in
the district courts over "all civil proceedings arising under title
11, or arising in or related to cases under title 11." Id. §
1334(b). In what is a typical arrangement, the District of
Massachusetts, by standing order, has delegated to the bankruptcy
court all cases in which jurisdiction is premised on section 1334,
see D. Mass. R. 201, subject to review by the district court (or,
alternatively, by the bankruptcy appellate panel) in accordance
with 28 U.S.C. §§ 157, 158.
The statutory grant of "related to" jurisdiction is quite
broad. Congress deliberately allowed the cession of wide-ranging
jurisdiction to the bankruptcy courts to enable them to deal
efficiently and effectively with the entire universe of matters
connected with bankruptcy estates. See Pacor, Inc. v. Higgins, 743
F.2d 984, 994 (3d Cir. 1984). Thus, bankruptcy courts ordinarily
-8-
may exercise related to jurisdiction as long as the outcome of the
litigation "potentially [could] have some effect on the bankruptcy
estate, such as altering debtor's rights, liabilities, options, or
freedom of action, or otherwise have an impact upon the handling
and administration of the bankrupt estate." In re G.S.F. Corp.,
938 F.2d 1467, 1475 (1st Cir. 1991) (quoting In re Smith, 866 F.2d
576, 580 (3d Cir. 1989)).
In this instance, the bankruptcy court found the
adversary proceeding to be "related to [a] case[] under title 11,"
as that phrase is used in section 1334(b). At first blush, this
seems to be a garden-variety application of the general rule.
Whether or not BRMC prevails will directly affect the amount of the
liquidating dividend paid to creditors. There is, therefore, a
fairly close connection between the adversary proceeding and the
administration of the bankruptcy estate. That seemingly would
suffice to bring this case within the bankruptcy court's related to
jurisdiction. See In re Toledo, 170 F.3d 1340, 1345-46 (11th Cir.
1999) (finding related to jurisdiction when the outcome of the suit
would affect the amount of funds available to creditors).
The churches urge us not to apply the general rule here.
In their view, the distinguishing feature is that L-BRMC commenced
this proceeding after the bankruptcy court confirmed the Plan.
This argument presupposes that the scope of the bankruptcy court's
related to jurisdiction narrows dramatically once a plan of
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reorganization has been confirmed and that, thereafter, related to
jurisdiction only includes those matters that have a particularly
close nexus to the confirmed plan — a nexus that the churches
assert is absent in this case.
On its face, section 1334 does not distinguish between
pre-confirmation and post-confirmation jurisdiction. Nonetheless,
courts sometimes have found a need to curtail the reach of related
to jurisdiction in the post-confirmation context so that bankruptcy
court jurisdiction does not continue indefinitely. See, e.g., In
re Pegasus Gold Corp., 394 F.3d 1189, 1193-94 (9th Cir. 2005)
(suggesting that post-confirmation bankruptcy court jurisdiction is
necessarily more limited than pre-confirmation jurisdiction); In re
Resorts Int'l, Inc., 372 F.3d 154, 164-69 (3d Cir. 2004) (similar).
The rationale behind this line of decisions starts with
the premise that a reorganized debtor is emancipated by the
confirmation of a reorganization plan. It emerges from bankruptcy
and enters the marketplace in its reincarnated form. From that
point forward, it is just like any other corporation; "it must
protect its interests in the way provided by the applicable non-
bankruptcy law," without any special swaddling. Pettibone Corp. v.
Easley, 935 F.2d 120, 122-23 (7th Cir. 1991). Given the broad
sweep of related to jurisdiction, applying the general rule without
qualification after the confirmation of a reorganization plan
easily could result in the bankruptcy court retaining jurisdiction
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of all cases affecting the reorganized debtor for many years
thereafter. This prospect not only would work an unwarranted
expansion of federal court jurisdiction but also would unfairly
advantage reorganized debtors by allowing such firms to funnel
virtually all litigation affecting them into a single federal
forum. See id. at 122.
The solution, however, is not to discard the baby with
the bath water. While courts have interpreted the term "related
to" more grudgingly in some post-confirmation settings, context is
important. Those narrowing interpretations have been invoked only
with respect to actions involving reorganized debtors that have
reentered the marketplace. No case has suggested that courts
should abandon the general rule in all post-confirmation cases.
Here, the Plan calls for the liquidation of BRMC, not its
continuation as a going concern. The most salient difference
between the usual Chapter 11 reorganization and a liquidating plan
is that, in the latter instance, the reorganized debtor's sole
purpose is to wind up its affairs, convert its assets to cash, and
pay creditors a pro rata dividend. By definition, it has no
authority to reenter the marketplace. That fact undercuts the
primary purposes for parsimoniously policing the perimeter of post-
confirmation jurisdiction: the specter of endless bankruptcy
jurisdiction and a kindred concern about unfairly advantaging
reorganized debtors. Accordingly, there is much less reason to
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depart from the general rule for related to jurisdiction where a
claim involves a liquidating plan of reorganization.
There is another, perhaps more important, reason for
distinguishing between liquidating plans and true reorganization
plans. Courts that have limited the scope of post-confirmation
jurisdiction have based their holdings on the conclusion that, once
confirmation has occurred, fewer proceedings are actually related
to the underlying bankruptcy case. See, e.g., Resorts Int'l, 372
F.3d at 165-67; In re Craig's Stores of Tex., Inc., 266 F.3d 388,
390 (5th Cir. 2001). That makes good sense: as the corporation
moves on, the connection attenuates.
This justification is absent in the case of a liquidating
plan. Typically, a reorganized debtor is attempting to make a go
of its business. Thus, its actions (including any involvement in
litigation) redound primarily to that end and only affect the
underlying bankruptcy proceeding in a tangential or derivative way.
See Pettibone, 935 F.2d at 122-23. By contrast, a liquidating
debtor exists for the singular purpose of executing an order of the
bankruptcy court. Any litigation involving such a debtor thus
relates much more directly to a proceeding under title 11.
This case is a paradigmatic example: L-BRMC's success or
lack of success in securing a share of the trust corpus will
directly impact the amount of the liquidating dividend eventually
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paid to BRMC's creditors. That is a matter intimately connected
with the efficacy of the bankruptcy proceeding.3
We add, moreover, that in the case of a liquidating plan
of reorganization, there exists a substantial policy interest in
favor of adhering to the general rule governing related to
jurisdiction: the strong federal policy in favor of the
expeditious liquidation of debtor corporations and the prompt
distribution of available assets to creditors. See In re Holiday
Mart, Inc., 715 F.2d 430, 435 (9th Cir. 1983); In re Cartridge
Television, Inc., 535 F.2d 1388, 1390 (2d Cir. 1976). This policy
is furthered by concentrating in a single forum any litigation that
will impede or advance that goal.
The existence vel non of related to jurisdiction must be
determined case-by-case. See Pegasus Gold, 394 F.3d at 1194
(recognizing that post-confirmation related to jurisdiction should
be determined with "a certain flexibility"). The language of the
jurisdictional statute, 28 U.S.C. § 1334, is protean, and what is
"related to" a proceeding under title 11 in one context may be
unrelated in another. With this in mind, we feel confident that
there will be situations in which the fact that particular
3
Although there is authority for the proposition that the
prospect of increasing the funds available to creditors, without
more, is insufficient to establish related to jurisdiction in a
post-confirmation case, see, e.g., Craig's Stores, 266 F.3d at 391,
those cases concern operating corporations, not liquidating
corporations. They are, therefore, inapposite.
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litigation arises after confirmation of a reorganization plan will
defeat an attempted exercise of bankruptcy jurisdiction. See,
e.g., Resorts Int'l, 372 F.3d at 166-68. We are equally confident,
however, that there are other situations in which the fact that
particular litigation arises after confirmation of a reorganization
plan will not defeat an attempted exercise of bankruptcy
jurisdiction.
Insofar as we can tell, no court has yet addressed the
scope of post-confirmation related to jurisdiction in a case
involving a liquidating plan of reorganization. For the reasons
alluded to above, we hold that when a debtor (or a trustee acting
to the debtor's behoof) commences litigation designed to marshal
the debtor's assets for the benefit of its creditors pursuant to a
liquidating plan of reorganization, the compass of related to
jurisdiction persists undiminished after plan confirmation. Based
on this holding, we affirm the bankruptcy court's exercise of
subject matter jurisdiction.
III. THE MERITS
We turn now to the merits. In this court, the churches
have abandoned their counterclaim for reformation of the trust
indentures. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir.
1990) (explaining that legal points alluded to in a perfunctory
manner, but unaccompanied by developed argumentation, are deemed
abandoned). Instead, they focus on their thesis that L-BRMC is
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ineligible to receive a share of the trust residue. This thesis
runs as follows. Under Massachusetts law, an organization is only
eligible to receive a charitable bequest if it is capable of using
the bequest for the purpose for which it was intended4 — and an
entity that exists solely for the benefit of creditors (like L-
BRMC) is incapable of using such a bequest (like Ms. Krauss's) for
the intended purpose ("provid[ing] a bed for indigent patients").
Like the district court, we review de novo the bankruptcy
court's conclusions of law. In re Mailman Steam Carpet Cleaning
Corp., 212 F.3d 632, 636 (1st Cir. 2000). We review its findings
of fact, as modified by the district court, for clear error. Id.
Inasmuch as the parties and the courts below have addressed this
case on the plausible assumption that Massachusetts law furnishes
the substantive rules of decision, we follow suit. See In re
Newport Plaza Assocs., 985 F.2d 640, 643-44 (1st Cir. 1993); see
also Ungar v. PLO, 402 F.3d 274, 283-84 (1st Cir. 2005).
Massachusetts law on certain issues central to this
appeal is fuliginous. We are therefore required to make an
informed prophecy as to how the SJC would rule if confronted with
4
L-BRMC asserts rights both as a legatee under Ms. Krauss's
will and as a beneficiary under the inter vivos trusts established
on her behalf. Depending on which instrument is under
consideration, Ms. Krauss technically may be a testator or a
settlor and her largesse technically may be described either as a
bequest or as a distribution. Since the parties' rights are the
same in either event, we refer throughout to Ms. Krauss as the
testator and to the gift as a bequest.
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the same questions. Blinzler v. Marriott Int'l, Inc., 81 F.3d
1148, 1151 (1st Cir. 1996). In making this prediction, we rely
first on settled Massachusetts law and build from there by
reference to case law in other jurisdictions5 and to the policies
enunciated in the Massachusetts cases. See Moores v. Greenburg,
834 F.2d 1105, 1107 (1st Cir. 1987); Murphy v. Erwin-Wasey, Inc.,
460 F.2d 661, 663 (1st Cir. 1972). We are entitled to assume that
the highest court of the state would apply the rule that would best
implement those policies. Kathios v. Gen. Motors Corp., 862 F.2d
944, 949-50 (1st Cir. 1988); Moores, 834 F.2d at 1107.
We begin with what can be gleaned from the Massachusetts
cases. In construing a will or other testamentary instrument, the
testator's intent governs. Clymer v. Mayo, 473 N.E.2d 1084, 1094
(Mass. 1985). Charitable gifts are impressed with a kind of quasi-
trust, which demands that they be applied to charitable purposes.
See Hillman v. Roman Catholic Bishop of Fall River, 508 N.E.2d 118,
119 n.3 (Mass. App. Ct. 1987) ("A gift with a general charitable
intent, of course, imposes a trust of a sort in the sense that the
grantee may not use the assets for private, personal purposes; the
assets must be used for charitable purposes consistent with those
of the designated charity."); see also Brigham v. Peter Brent
Brigham Hosp., 134 F. 513, 517 (1st Cir. 1904) (describing this
5
Here, the authorities are divided and are thus of little
help.
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phenomenon, under Massachusetts law, as "a quasi trust" not "a true
trust"); Smith v. Livermore, 10 N.E.2d 117, 125 (Mass. 1937)
(stating that gifts to charitable corporations in Massachusetts are
considered gifts upon trust for charitable purposes).
In Massachusetts, an organization that is the beneficiary
of a charitable bequest is not disqualified from receiving the
bequest merely because it has merged with another charity or has
ceased actively to provide charitable services. See Old Colony
Trust Co. v. Winchester Home for Aged Women, 85 N.E.2d 622, 623-24
(Mass. 1949); Old Colony Trust Co. v. Third Universalist Soc'y of
Cambridge, 188 N.E. 711, 711-12 (Mass. 1934); Boston Safe Deposit
& Trust Co. v. Stratton, 156 N.E. 885, 888-89 (Mass. 1927). In
each of these cases, however, the beneficiary, though no longer
itself providing charitable services, had the capacity to redirect
its funds to another organization that was actively engaged in
charitable endeavors. See, e.g., Winchester Home, 85 N.E.2d at 623
(noting that although the named beneficiary itself no longer
functioned as a home for elderly women, it continued to exist as a
corporation and to use its resources to support a comparable
facility in the same community).
This distinction seems to have driven the SJC's decision
in Sleeper v. Camp Menotomy, 223 N.E.2d 696 (Mass. 1967). There,
a testator left a bequest to the Arlington Girl Scouts (AGS). Id.
at 696. Before the testator's death, the corporation that
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previously had operated as AGS disaffiliated with the Girl Scouts
and went forward as the same corporate entity, albeit under the new
name Camp Menotomy. Id. at 697. As such, it ran a nonprofit
summer camp for girls. Id. The SJC held that the corporation was
ineligible to receive the bequest because it no longer had any
involvement in the scouting movement. Id. at 697-98.
Massachusetts law thus appears to require that a donee of
a charitable bequest be able and willing, at a bare minimum, to
direct the funds received to charitable purposes of the same
general type and kind that it historically had performed. Failing
that, the courts will appoint a trustee to effectuate the
testator's charitable intent. See Hubbard v. Worcester Art Museum,
80 N.E. 490, 494 (Mass. 1907) (explaining that "[i]f the
corporation, at the time of the probate of the will, was incapable
of taking the property and carrying out the general charitable
intent of the testator, the court . . . would appoint a trustee to
act in its place"); Bliss v. Am. Bible Soc'y, 84 Mass. 334, 336-37
(1861) (similar).
We conclude, therefore, that the Massachusetts cases
point strongly to a rule that an organization cannot receive a
charitable bequest unless it is both capable of using that bequest
for the intended purpose and willing to do so. Against this
backdrop, we must decide whether the bequest to BRMC was intended
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for a charitable purpose and, if so, whether BRMC had the capacity
to carry out that purpose at the critical time.
Under Massachusetts law, a gift to a charitable
organization is ordinarily construed as a gift for a charitable
purpose. See Wellesley Coll. v. Att'y Gen., 49 N.E.2d 220, 223
(Mass. 1943); Osgood v. Rogers, 71 N.E. 306, 308 (Mass. 1904).
There is no dispute that both at the time Ms. Krauss executed her
will and at the time the probate court sanctioned the proposed
trusts, BRMC was a nonprofit corporation, duly qualified under
section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. §
501(c)(3), and, thus, a charitable organization. Against this
backdrop, we readily conclude that Ms. Krauss intended the bequest
to be used for a charitable purpose. The will's explicit reference
to "a bed for indigent patients" makes this clear, as does the
trust article naming BRMC as a beneficiary (which states that the
residue of the trust shall be distributed "in equal shares to such
of the following charitable organizations" so long as each
organization then qualifies as a charity under the Internal Revenue
Code).
Viewed in this light, the question reduces to whether
BRMC, in its new incarnation as a corporation whose sole purpose is
to marshal its assets, liquidate them, and distribute the proceeds
to creditors, is eligible to receive a charitable bequest. On this
issue, the Massachusetts cases are silent and the authorities
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elsewhere are divided. Compare, e.g., In re Will of Kraetzer, 462
N.Y.S.2d 1009, 1012-13 (Sur. Ct. 1983) (holding that a bankrupt
hospital is not capable of implementing the purpose of a charitable
bequest and that the hospital is therefore ineligible to receive
the bequest), with, e.g., Montclair Nat'l Bank & Trust Co. v. Seton
Hall Coll. of Med. & Dentistry, 233 A.2d 195, 200 (N.J. Super. Ct.
App. Div. 1967) (concluding otherwise on the ground that the
payment of debts incurred in the furtherance of charitable purposes
is itself a charitable purpose).
We navigate through these uncharted waters by following
a pole star of Massachusetts law: the principle that, in
construing testamentary instruments, courts, whenever possible,
should give full effect to the testator's intent. See Clymer, 473
N.E.2d at 1094. The language that Ms. Krauss used in her will
offers a window into her intent: she was concerned about helping
sick persons who could not afford to pay for health care. That is
a fairly typical species of charitable intent; a charitable act
generally is thought to be an act of benevolence or generosity
toward others, in particular the needy. See W. Mass. Lifecare
Corp. v. Bd. of Assessors, 747 N.E.2d 97, 103 (Mass. 2001);
Saltonstall v. Sanders, 93 Mass. 446, 469 (1865).
Normally, a testator who leaves a charitable bequest acts
with a prospective intention. See Will of Kraetzer, 462 N.Y.S.2d
at 1013. She intends that the bequest will increase the charity's
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good works by helping it to continue furnishing services, to expand
service delivery, or the like. We find it difficult to imagine
that, in the absence of special circumstances, a person with a
generic charitable intent would choose to subsidize a charitable
organization if she knew that the funds would be used only to pay
creditors and not to assist in providing any future or additional
charitable services.6
The bankruptcy court thought that since BRMC incurred its
debts in the furtherance of its charitable mission, the payment of
those debts could be deemed charitable in nature. BRMC II, 298
B.R. at 28-30. That reasoning has some superficial appeal: it
would have been impossible for BRMC to function effectively as a
hospital without credit and in that sense the provision of credit
was vital to its ability to discharge its charitable function. In
the usual case, however, the extension of credit is not itself an
act of charity, and in a real-world sense, the payment of debts
after a hospital ceases operations does not further the hospital's
ability to carry out its charitable mission. For that reason, we
think it would be inconsistent with Ms. Krauss's intent for a dead-
as-a-doornail hospital to receive a portion of the trust corpus
6
Of course, a testator might leave a bequest for the specific
purpose of enabling a charitable organization, whether or not
solvent, to pay its debts. That sort of bequest is beyond the
scope of this opinion.
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with the understanding that it would be spent solely to reimburse
creditors for debts previously incurred.
We are also unpersuaded that holding a bankrupt hospital
incapable of taking a charitable bequest will have the dire
consequences predicted by the appellees. While a rule that
charitable bequests could not be used to pay debts might have a
crippling effect on a charity's ability to obtain credit and,
hence, on its ability to function, our holding is not nearly so
broad. We decide only that, absent a contrary provision in the
will or indenture of trust, a charitable organization that has
ceased to perform any charitable work and that is incapable of
redirecting new funds for charitable purposes is ineligible to
receive a charitable bequest or gift. That rule will have the
effect, in a few cases, of blocking a charity's creditors from
access to a new source of funds — but that is a small price to pay
for honoring the testator's intent.7
This decision does not end our odyssey. We still must
consider the significance (if any) of the time lapse between the
testator's death and the ensuing bankruptcy. When Ms. Krauss died,
BRMC was running a fully functioning hospital and was actively
7
Our emphasis on the testator's intent is buttressed by our
knowledge that, under Massachusetts law, a testator could expressly
include a provision in her will precluding a bankrupt charity from
taking thereunder. See Springfield Safe Deposit & Trust Co. v.
Friele, 23 N.E.2d 138, 141 (Mass. 1939) (holding that a testator is
generally entitled to place such conditions and limitations on a
bequest as she sees fit).
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engaged in performing its charitable mission. By any standard, it
was then able to receive the bequest. The question is whether that
datum makes a dispositive difference.
In the churches' view, this accident of timing is
irrelevant. The only thing that matters is that BRMC is bankrupt
now and no money it receives will be used for charitable purposes
on a going-forward basis. BRMC has a different viewpoint; it
asseverates that its rights to the bequest vested as of the date of
Ms. Krauss's demise; that it was then eligible to receive the
funds; and that subsequent events cannot defease that entitlement.
Neither of these positions is foolproof.
On the one hand, the churches' proposed rule that a
beneficiary's status at the time of distribution is the relevant
benchmark seems as shaky as a shack built upon shifting sands. The
Massachusetts cases offer no support for such a hard-and-fast rule;
what little authority we have found points in the opposite
direction. See, e.g., Hubbard, 80 N.E. at 494 (suggesting, in
dictum, that the capacity to receive a charitable bequest should be
judged at the time of probate of the will). Moreover, such a rule
would have the potential to work serious mischief. If those in
charge of the distribution of funds have the power, through action
or inaction, to affect the identity of those who receive the funds,
the risk of abuse might well be unacceptable. See Montclair, 233
A.2d at 199-200.
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The churches' suggested rule also raises the boggart of
unnecessary litigation aimed at influencing the timing of
distributions. We think that the Massachusetts cases, to the
extent they shed any light on this issue, exhibit a preference for
a rule that is not contingent on the whims of third parties. See
Sleeper, 223 N.E.2d at 697 (indicating that the eligibility of a
charitable organization to receive a bequest ought to be determined
at the time "the will became effective").
On the other hand, BRMC's position is also open to
question. While Massachusetts law is clear that the bequest vested
at Ms. Krauss's death, see Cook v. Hayward, 51 N.E. 1075, 1076
(Mass. 1898), vesting is a concept that has different shades of
meaning in different contexts. For example, although non-
contingent bequests vest at the time of the testator's death, a
will may provide for a built-in delay in distribution (as in the
case of an intervening life estate). See, e.g., Brigham, 134 F. at
518-19. In such cases, many years may pass before the beneficiary
is entitled to a distribution.8 Id.
8
In the case of charities, a named beneficiary may become
unable to carry out the charitable purpose of the bequest after the
death of the testator but before it is eligible to receive the
bequest under the will. In that scenario, the mere fact that the
bequest vested might not be enough to entitle the beneficiary to
payment. Cf. Stratton, 156 N.E. at 887-88 (discussing the
eligibility of a charitable legatee to take under a will when the
asserted disability accrued after the death of the testator, but
during an intervening life estate). Since the case at bar involves
an outright bequest, with no intervening life estate or other
built-in reason for a delay in payment, we need not decide how the
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One thing is certain: vesting notwithstanding, the
bequest was not payable immediately upon Ms. Krauss's death. An
unbroken skein of Massachusetts cases, dating back to the early
nineteenth century, recognizes that time is needed for an estate to
gather the testator's assets and settle any debts. See, e.g.,
Andrews v. Hunneman, 23 Mass. 126, 129-130 (1828). This
consideration has particular force with respect to the payment of
residual legacies, as debts, expenses, taxes, and other bequests
all must be paid before the amount of the residue can be
determined, let alone distributed. See Blaney v. Blaney, 55 Mass.
107, 115 (1848).
As a result, unless a will specifies some later date —
and Ms. Krauss's will did not — Massachusetts courts hold that
bequests are deemed payable one year after the death of the
testator. See Porter v. Ketchum, 203 N.E.2d 84, 84 (Mass. 1964).
Not coincidentally, this interval corresponds to Massachusetts's
one-year period for filing claims against an estate. See Mass.
Gen. Laws ch. 197, § 9. Although an executor, in his discretion,
may pay a bequest before this prescriptive period expires, a suit
to compel payment of a bequest will not lie until a year has
passed. See Brooks v. Lynde, 89 Mass. 64, 67 (1863); see also
Mass. Gen. Laws ch. 197, § 20 (providing that interest does not
rule would operate in such a configuration.
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begin to accrue on legacies or bequests until after the limitations
period for claims against the estate has expired).
In sum, the bequest to BRMC vested upon Ms. Krauss's
death on March 1, 1998 (when BRMC was operating a hospital).
However, BRMC had no right to demand payment of the bequest until
March 1, 1999 (by which time it had entered bankruptcy and halted
hospital operations). The crucial question, then, is which of
these dates controls in determining BRMC's eligibility to receive
the bequest.
Although the question is close, we conclude that the SJC
would choose the date of vesting as the vantage point from which to
determine a charitable organization's eligibility to receive a
bequest. We reach this conclusion partially by analogy to the case
of natural persons. The SJC has held that when a will contains a
bequest that is contingent on the donee surviving the testator and
the donee does survive but dies before distribution of the bequest,
the donee's heirs (rather than the testator's heirs) are entitled
to receive the bequest. Childs v. Russell, 52 Mass. 16, 25 (1846).
This holding makes it transparently clear that, in the usual case,
the Massachusetts courts measure a donee's eligibility to receive
a bequest from the time of the testator's demise, notwithstanding
the absence of a right to immediate possession. Given that the
human mind cannot devise a rule that would apply perfectly in all
circumstances, we believe that the SJC would hew to this same line
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of reasoning in a case involving a charitable bequest to a
charitable beneficiary.
We also give weight to the fact that a "date of vesting"
rule is an easier one to administer. Although BRMC had no absolute
right to receive its share of the trusts until a year after Ms.
Krauss's death, the trustees had the authority to make such a
distribution at an earlier date. Had they done so, we do not think
anyone would suggest with a straight face that BRMC should be
required to refund the bequest because it ceased operations before
a full year had passed. Thus, measuring the organization's
eligibility to receive the bequest as of the date when distribution
could be mandated would reintroduce the prospect of manipulation on
the part of the fiduciary and, thus, would wind up at cross
purposes with the Massachusetts policy favoring mechanical rules in
the distribution of estates.9
That ends this aspect of the matter. We conclude that the
SJC would find it preferable to measure eligibility from the time
of death. Thus, BRMC's right to the bequest was complete upon Ms.
Krauss's death. As BRMC was a fully functioning hospital at that
time, it was eligible to receive the bequest. The fact that its
9
Of course, the "date of vesting" rule that we endorse today
is a default rule. Within wide limits, a testator retains the
ability to specify the terms on which a beneficiary is eligible to
receive a bequest and, thus, to modify the "date of vesting" rule
as he or she sees fit. See Springfield Safe Deposit & Trust Co. v.
Friele, 23 N.E.2d 138, 141 (Mass. 1939).
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continued existence as a hospital was short-lived did not alter
that reality. Accordingly, as between these claimants, L-BRMC is
entitled to the disputed funds.
IV. RELIEF FROM THE INJUNCTION
One loose end remains. As a fallback position, the
churches contend that even if we find L-BRMC eligible to receive
the bequest — as we have — we nonetheless should reverse the lower
courts' refusal to grant relief from the Plan's injunctive
provisions, quoted supra note 2, so that the churches can initiate
a proceeding in the Massachusetts probate court to conform the
trusts to the will and reintroduce the "bed for indigent patients"
limitation. BRMC argues that this is a non-issue because the
earlier probate orders constitute a bar to further proceedings on
res judicata grounds.
We need not reach the res judicata issue (and,
consequently, do not attempt to resolve it). While the record does
not reveal the bankruptcy court's reasons for denying relief from
the injunction, the district court's opinion affords some guidance.
In upholding the bankruptcy court's refusal to relax the
injunction, that court cited the substantial delay in the
liquidation of BRMC that this litigation already had caused and
concluded that, in all events, any proceeding brought by the
churches in the probate court likely would be a waste of time.
BRMC III, 2004 WL 1778881, at *5-*6 & n.12.
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Although the matter is far from clear, we assume, for
argument's sake, that the probate court retains the authority, even
at this late date, to modify its decree confirming Ms. Krauss's
estate plan. Cf. O'Brien v. Dwight, 294 N.E.2d 363, 380-81 (Mass.
1973) (holding that probate courts have the continuing power to
revoke or modify their decrees, but suggesting that such action
would only be appropriate in limited circumstances). Even so, the
mere fact that relief which is not available to a litigant in the
bankruptcy court conceivably might be available in another forum is
not, in and of itself, sufficient to require the bankruptcy court
to lift an injunction or a stay. See, e.g., In re Federated Dep't
Stores, Inc., 328 F.3d 829, 836-37 (6th Cir. 2003) (holding that
the bankruptcy court acted within its discretion in refusing to
relax an anti-suit injunction, even though the denial of relief
might cause hardship to the movant's ability to litigate a state
law claim). The bankruptcy court is entitled to consider not only
the nature of the remedies that might be available in a parallel
(non-bankruptcy) proceeding but also the substantiality of the
asserted claim and the effect of granting the exception on the
bankruptcy case as a whole. See In re Calore Express Co., 288 F.3d
22, 35-36 (1st Cir. 2002).
We review a bankruptcy court's decision not to exempt a
particular claim from the sweep of an injunction or stay
prohibiting the maintenance of non-bankruptcy litigation for abuse
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of discretion. In re C & S Grain Co., 47 F.3d 233, 238 (7th Cir.
1995). Having reviewed the record with care, we discern no abuse
of discretion here. There are a series of obstacles standing in
the churches' way. First, we question whether the probate court
would entertain the churches' belated petition to modify the estate
plan. Second, even if the probate court would entertain the
petition, we view the chances of the churches winning reformation
as small. Third, even if the churches were to prevail in reforming
the indentures of trust, it is problematic whether that victory
would change the ultimate analysis vis-à-vis BRMC's entitlement to
the bequest. After all, at the time of Ms. Krauss's death, BRMC
was functioning as a hospital and, thus, was still capable of
applying the bequest to the care of indigent patients. And,
finally, even if the churches succeeded in stripping away BRMC's
entitlement to the bequest, it is not certain that they would
benefit. Cf., e.g., Town of Brookline v. Barnes, 87 N.E.2d 843,
845-47 (Mass. 1949) (holding that a charitable gift, which could
not be distributed because of the legatee's unwillingness to carry
out the testator's charitable intent, could inspire an application
of the doctrine of cy pres so that the court could order the
bequest paid to a different institution and, thus, effectuate the
testator's charitable intent).
The bottom line, then, is that the churches' anticipated
probate claim is tenuous at best. That fact, coupled with the
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district court's accurate observation that the battle for the
bequest already has caused protracted delay in winding up the
bankruptcy case, convinces us that the refusal to lift the
injunction was comfortably within the encincture of the lower
courts' discretion.
V. CONCLUSION
We need go no further. In life, timing often is
important. So it is here: on the date of the testator's death,
BRMC was eligible to receive the charitable bequest because it was
then operating a nonprofit hospital. Our conclusion that the date
of death (and, hence, the date of vesting) controls may in some
sense seem arbitrary (after all, a few months either way would have
made a dispositive difference). But there are no perfect solutions
to imbricated problems of this sort. Thus, we base our conclusion
not on its inevitability, but, rather, on our belief that the SJC,
if squarely confronted with this conundrum, would hold that the
relevant date for determining the capacity of a beneficiary to take
a charitable bequest is the vesting date, regardless of whether the
distribution is made on that date or at some later time. In our
view, this result represents a reasonable accommodation of
competing centrifugal and centripetal forces, most particularly,
Massachusetts's policy favoring the preservation of charitable
gifts for charitable purposes and Massachusetts's expressed
-31-
preference for mechanical rules of descent and distribution in
matters of testamentary distribution.
Affirmed.
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