APRIL 25, 2016 VOLUME 23 NUMBER 16
It was a horrible, tragic story. In June, 2012, Phoenix resident James Butwin killed his wife and three children, drove the family car to a remote area in the desert, set the car on fire and killed himself. News stories soon revealed that the couple were enmeshed in a divorce, that there was a dispute about whether a prenuptial agreement was valid, and that Mr. Butwin was undergoing treatment for a brain tumor.
Mr. Butwin had an estate, but no surviving family. His mother-in-law filed a probate proceeding for Mrs. Butwin, and that estate sued Mr. Butwin’s estate for “wrongful death” — for the murder of his wife. After a trial, she won an award of over $1 million against Mr. Butwin’s estate. Then she sought to impose a “constructive trust” against his estate’s assets to satisfy that judgment.
Meanwhile, Mr. Butwin’s business associates were studying his books. They discovered that, as manager of several properties they owned, Mr. Butwin had embezzled almost $1 million. They filed a claim against his estate, seeking repayment of $965,000.
Mr. Butwin’s estate was insufficient to satisfy the two million-dollar claims. Who should be paid first? Or should the claimants have their claims reduced proportionally?
An Arizona statute (the so-called “Slayer Statute” at A.R.S. sec. 14-2803) says that a person who “feloniously and intentionally” kills another person automatically forfeits any claim they might have against the victim’s estate. Clearly, Mr. Butwin could not inherit any share of his wife’s estate. But that doesn’t change the fact that some — perhaps most — of their assets were his before the killing. In one subsection, the statute goes further: it allows imposition of a “constructive trust” on the killer’s assets:
K. The decedent’s estate may petition the court to establish a constructive trust on the property or the estate of the killer, effective from the time of the killer’s act that caused the death, in order to secure the payment of all damages and judgments from conduct that, pursuant to subsection F of this section, resulted in criminal conviction of either spouse in which the other spouse or a child was the victim.
But what is a “constructive trust”? It is a legal device employed by the courts to sequester assets that should not have belonged to the record owner in the first place. It is often used, for instance, to seize property purchased with ill-gotten proceeds — even though the property might itself not be available to satisfy debts. If, for instance, a public official were to take bribes, and use the bribe money to purchase a farm, the court might impose a “constructive trust” on the farm to allow the government, as the injured party, to seize the property to recover the bribe money. That’s not an imaginary story — that’s precisely the story behind a leading British case allowing use of a constructive trust.
Arizona’s statute on collecting wrongful death proceeds from a killer in circumstances like Mr. Butwin’s would seem to speak precisely to the claim of his wife’s estate. But there was one problem: Mr. Butwin didn’t live long enough to face criminal prosecution, much less conviction.
That was the basis on which the probate court denied the request for a constructive trust by Mrs. Butwin’s estate (and her mother). Before the Court of Appeals, Mrs. Butwin’s estate argued that requiring a criminal conviction was absurd, since the statute would only apply when the killer himself had died. Besides, the wrongful death action can be maintained even when there is no criminal conviction, since the standard of proof for civil actions is different (and easier to meet).
The Arizona Court of Appeals upheld the probate court decision. It is not absurd, ruled the appellate judges, to apply the statute only where the killer has survived long enough to be convicted and then dies. While that may not be a common circumstance, it certainly could happen — and if the legislature wanted to apply the constructive trust statute to murder-suicide cases like the Butwins’, they could certainly have written the statute in that fashion. Estate of Butwin v. Estate of Butwin, April 19, 2016.
The Court of Appeals decision doesn’t actually resolve the sequence of payments from James Butwin’s estate. It might be possible, for instance, for his business associates to argue that all — or substantially all — of his assets are traceable to the embezzled funds. If that argument is not made, or is not successful, the statutes spell out a sequence of payments to be made when an estate is insufficient. Arizona Revised Statutes section 14-3805 spells out that sequence, which starts with administrative costs (filing fees, lawyer’s fees and the like), then moves on to funeral expenses, federal tax claims, expenses of the decedent’s final illness, state taxes, and then “all other claims.”
The statute explicitly rejects payment of any creditor in a given class ahead of other creditors of that class. Since neither the embezzlement claims nor the wrongful death judgment fit into any of the other categories, they will probably both be characterized as “other claims.” That will likely mean that each will receive approximately equal shares of Mr. Butwin’s estate — and that any other claimants will also have their claims reduced to about half of the amount due.
Given the size of the estate, the size and nature of the claims, and the emotional impact of the case, it seems likely that there will be further litigation to resolve the competing claims. We’ll let you know if there is another legal footnote to this tragic, horrible story.