Fehlhaber v. Fehlhaber ex rel. Estate of Fehlhaber

850 F.2d 1453
CourtCourt of Appeals for the Eleventh Circuit
DecidedAugust 1, 1988
DocketNo. 86-5512
StatusPublished
Cited by1 cases

This text of 850 F.2d 1453 (Fehlhaber v. Fehlhaber ex rel. Estate of Fehlhaber) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fehlhaber v. Fehlhaber ex rel. Estate of Fehlhaber, 850 F.2d 1453 (11th Cir. 1988).

Opinion

RONEY, Chief Judge:

In this case, we hold that a judgment-creditor, through a Florida garnishment procedure, can reach the assets of a trust of which the judgment-debtor was both the settlor and the sole beneficiary, and in which capacities he retained complete control over the disposition of the assets of the trust. The trust contained no assets but those of the settlor. The district court reached a contrary decision on the ground that the judgment-debtor’s interest in the trust was only contingent and that under Florida law, garnishment would not reach contingent interests of a judgment debtor. Under the facts of this case, there is no substantial difference between the debtor’s interest, in the assets of the trust and a person’s interest in a brokerage account which holds securities for its customer. We, therefore, reverse the dissolution of the writs of garnishment and remand for further proceedings.

In February 1974, while married to Ver-one, Fred R. Fehlhaber set up an inter vivos trust. He named himself the income beneficiary for life, and his wife Verone, his son Robert, and his granddaughters as remaindermen. He included a spendthrift clause in the trust instrument. Fred retained the power to invade the trust principal, to modify its terms, and to manage the trust. He named his son as the trustee.

In May 1974, Verone sued Fred in California for legal separation. She obtained three state court judgments totaling in excess of $10,000,000. Fred obtained a divorce from Verone in Florida and thereafter married Muriel. Fred had amended the trust to eliminate Verone’s interest and to replace it with one in favor of his new wife. On March 14, 1978, Fred had signed a Restatement of Trust Agreement which continued his powers over the trust, and which remained in effect at the time of his death on March 2, 1980.

Verone sued Fred in the Southern District of Florida seeking full faith and credit of the three California judgments. After appeal to this Court, Verone held a money judgment for $7,500,000. Fehlhaber v. Fehlhaber, 669 F.2d 990 (5th Cir. Unit B), reh’g granted, 681 F.2d 1015 (5th Cir. Unit B 1982), reh’g denied, 702 F.2d 81 (5th Cir. Unit B), cert. denied, 464 U.S. 818, 104 S.Ct. 79, 78 L.Ed.2d 90 (1983).

Verone thereafter caused a writ of garnishment to be served upon Robert Fehlha-ber, as trustee, and two writs of garnishment to be served on Sun Bank of Miami. They denied any indebtedness. The denials were traversed by Verone, and the matter pended on cross motions of the parties until the district court granted the garnishees’ motions to dissolve the writs, which mooted [1455]*1455Verone’s motions for summary judgment against the garnishees. Rehearing was denied and this appeal followed.

The district court held, relying on Plymouth Cordage Co. v. Ward, 202 So.2d 600 (Fla.Dist.Ct.App.1967), that writs of garnishment cannot reach contingent interests of a judgment-debtor. Here, however, the judgment-debtor’s interest is fixed and not subject to any contingency, because under the terms of the trust the trustee had no discretion with respect to disbursements upon the judgment-debtor’s demand. This, however, only begins the inquiry.

There seems to be little question but that this trust is valid under Florida law. A trust agreement is not rendered invalid merely because the settlor possesses the power to revoke, alter, or modify the trust in whole or in part, invade its principal, or has retained the right to receive all or part of the income of the trust during his lifetime. Fla.Stat.Ann. § 689.075. Although at one time suspect, see, e.g., Croom v. Ocala Plumbing & Elec. Co., 62 Fla. 460, 57 So. 243 (1911), a spendthrift clause is valid today. Waterbury v. Munn, 159 Fla. 754, 32 So.2d 603 (1947).

That the trust may be valid for some purposes, however, does not insulate it from claims of creditors. Although Florida may not have clearly decided the question, there is abundant authority that with a proper approach, the assets of such a trust might be available to satisfy this judgment-creditor’s claims. The general rule appears to be that “[i]t is against public policy to permit a man to tie up his property in such a way that he can enjoy it but prevent his creditors from reaching it....” Nelson v. California Trust Co., 33 Cal.2d 501, 202 P.2d 1021, 1021 (1949).

As this Court stated, under the common law of trusts

[i]f a settlor creates a trust for his own benefit and inserts a spendthrift clause, it [the spendthrift clause] is void as far as then existing or future creditors are concerned, as they can reach his interests under the trust.

Matter of Witlin, 640 F.2d 661, 663 (5th Cir. Unit B 1981) (citing Bogert, Trusts & Trustees, 2d.ed. § 223, pp. 438-39). Accord Matter of Goff, 706 F.2d 574, 587 (5th Cir.1983); American Security & Trust Co. v. Utley, 382 F.2d 451, 452 (D.C.Cir.1967); Liberty Nat’l Bank v. Hicks, 173 F.2d 631, 634 (D.C.Cir.1948). See generally Scott, The Law of Trusts, § 156 (4th ed. 1987); Restatement, Second, Trusts § 156; Annotation, Validity of Spendthrift Trusts, 34 A.L.R.2d 1335 (1954). In other words, notwithstanding the validity of spendthrift trusts created by a settlor who is also the beneficiary of the trust, where the dominion is, as here, such that the beneficiary has the power to acquire all of the trust estate upon request, the interest should not be exempt from the claims of creditors. See Croom v. Ocala Plumbing & Elec. Co., 62 Fla. 460, 57 So. 243 (1911); see generally 56 Fla.Jur.2d, Trusts § 36 (1985).

The garnishees do not here argue, however, that there is no procedure or no theory by which the judgment-creditor could get to these assets. Nor do they need to. The issue in this case is not whether there is some other procedure by which the judgment-creditor could reach the assets of the trust, but whether Florida garnishment proceedings are available for that purpose.

There are no Florida cases on point. Since the debtor was alive at the time the writs of garnishment were served, his subsequent death has no significance. The status of the debtor in relationship to the trust at the time the writs of garnishment were served would control. See Lorthioir v. McLeod, 102 Fla. 12, 135 So. 143, 143-44 (1931) (attachment); Curle v. Jones, 18 Ky. L.Rep. 785, 38 S.W. 677, 677 (Ky.Ct.App.1897) (garnishment). See generally 13 Fla. Jur.2d, Creditors’ Rights and Remedies § 169 (Death of principal defendant at any stage of proceedings after the levy of attachment will have no effect on its enforceability); Annotation,

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Fehlhaber v. Fehlhaber
850 F.2d 1453 (Eleventh Circuit, 1988)

Cite This Page — Counsel Stack

Bluebook (online)
850 F.2d 1453, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fehlhaber-v-fehlhaber-ex-rel-estate-of-fehlhaber-ca11-1988.