Kohut v. Lois & Richard Lewiston Living Trust (In re Lewiston)
| Decision Date | 24 June 2015 |
| Docket Number | Case No. 12–58599,Adversary Proceeding No. 14–5115–PJS |
| Citation | 532 B.R. 36 |
| Parties | In re: Richard Martin Lewiston, Debtor. Gene R. Kohut, Chapter 7 Trustee, of the bankruptcy estate of Richard Martin Lewiston, Plaintiff, v. Lois and Richard Lewiston Living Trust, dated September 10, 1986, Richard M. Lewiston, individually and in his capacity as trustee of the Lois and Richard Lewiston Living Trust, dated September 10, 1986, and Lois C. Lewiston, individually and in her capacity as trustee of the Lois and Richard Lewiston Living Trust, dated September 10, 1986, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Charles D. Bullock, Stevenson & Bullock, P.L.C., Elliot G. Crowder, Michael A. Stevenson, Southfield, MI, Patrick Anthony Foley, Dearborn, MI, for Debtor.
Ryan D. Heilman, Anthony J. Kochis, Scott A. Wolfson, Wolfson Bolton PLLC, Troy, MI, Kelley Callard, Sean M. Cowley, United States Trustee, Detroit, MI, for Plaintiff.
Tracy M. Clark, Southfield, MI, for Defendants.
Opinion Granting Plaintiff's Motion For Summary Judgment And Denying Defendant's Motion For Summary Judgment
This matter is before the Court on a complaint filed by a Chapter 7 trustee that seeks a declaratory judgment holding that the interest of a Chapter 7 debtor in a trust is property of his bankruptcy estate that can be administered by the Chapter 7 trustee. The Chapter 7 trustee filed a motion for summary judgment. The Chapter 7 debtor, who is one of the defendants, filed his own motion for summary judgment. For the reasons explained in this opinion, the Court will grant the Chapter 7 trustee's motion for summary judgment and deny the debtor's motion for summary judgment.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(a) and (b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E), and (O).
Based on its review of the parties' cross motions for summary judgment and the papers that they have filed in support of their cross motions, the Court finds that the following facts are not in dispute.
Richard M. Lewiston (“Richard”) is a lawyer and real estate developer who has been involved in the business of developing and managing real estate projects for many years. Richard is married to Lois C. Lewiston (“Lois”). On September 10, 1986, Richard and Lois entered into the Lois and Richard Lewiston Living Trust (“Trust”). The prefatory recital in the Trust states that Richard, “desiring to create a trust for the benefit of the beneficiaries hereafter set forth, hereby assigns, transfers and delivers to the Trustees the property listed in Exhibit A, attached.” Exhibit A lists Richard's interests in various partnerships and corporations he owned at that time.
There are several sections of the Trust that are relevant to the matters before the Court.
Section 1.1 of the Trust states that Richard and Lois are the “Initial Trustees.” Section 1.2, titled “Managing Trustee,” states that:
Anything in this Agreement to the contrary notwithstanding, during his lifetime and provided he is not mentally incapacitated, RICHARD shall be the Managing Trustee of the trust created hereunder. In such capacity, he shall have the sole and absolute authority to exercise the rights, powers and duties outlined in 5.1 and 5.2 below, in connection with the management, investment and administration of the trust assets; and his signature on any documents relating to any of these matters shall be sufficient to bind the trust. After RICHARD's death or incapacity, LOIS shall become Managing Trustee, with the same powers and responsibilities.
Richard and Lois are the only beneficiaries of the Trust for as long as either of them are alive. Section 3.1 of the Trust, titled “Distributions to Richard and Lois,” states that “[t]he Trustees shall pay over to or for the benefit of the [sic] RICHARD and LOIS during their joint lifetimes all of the annual net income of the trust and such amounts of principal as RICHARD and LOIS jointly may request from time to time, subject to 1.2 above.”
Section 4.3 of the Trust is titled “Spendthrift Provision,” and reads in part:
The right of any beneficiary to receive distributions under this Agreement shall not be subject to any conveyance, transfer or assignment by any beneficiary, or be pledged as security for the debts of any beneficiary, and the same shall not be subject to any claims by creditors of any beneficiary through legal process or otherwise. It is RICHARD's intention to place the absolute title to the property held in trust, together with all income, accruals and increases thereof, in the Trustees, with power and authority to pay out the same only as authorized hereby.
Section 5.1 of the Trust, titled “Rights, Powers and Duties of Trustees,” reads in part:
Section 6.1 of the Trust, titled “Trust Amendments, Revocation, etc.,” reads in part that, “[d]uring the joint lifetimes of RICHARD and LOIS, this Agreement may be amended, modified or revoked, in whole or in part, but only by the joint action and consent of RICHARD and LOIS.”
On February 15, 2008, Richard and Lois made an Amendment to Lois and Richard Lewiston Living Trust (“Amendment”). The first recital states that “Richard and Lois are all of the Trustees and present beneficiaries” of the Trust. The Amendment then makes two changes to the Trust. The first change is to Section 1.2 of the Trust, which identifies the “Managing Trustee.” The Amendment provides that this section is now amended and restated in its entirety as follows:
Either Richard or Lois, acting alone, shall be considered the Managing Trustee of the trust created hereunder. In such capacity, either shall have the authority to exercise the rights, powers and duties outlined in 5.1 and 5.2 below, in connection with the management, investment and administration of the trust assets; and the signature of either on any document relating to any of these matters shall be sufficient to bind the trust.
The second change is to Section 6.1 of the Trust, governing “Trust Amendments, Revocation, etc.,” which is now amended and restated in its entirety as follows:
During the joint lifetimes of Richard and Lois, this Agreement may be amended, modified or revoked, in whole or in part, but only by the joint action and consent of Richard and Lois. Upon the death of either Richard or Lois, the trust shall become irrevocable.
On August 13, 2012, Richard filed this Chapter 7 case. On his schedules of assets and liabilities, Richard listed over $11 million of assets and over $18 million of liabilities. On schedule B, Richard disclosed the Trust, but explained that this disclosure was for notice purposes only, and that the Trust is not property of his bankruptcy estate.
On October 24, 2014, Gene R. Kohut (“Plaintiff”), as the Chapter 7 trustee in Richard's bankruptcy case, filed a single count complaint (“Complaint”) (ECF No. 1) that names as defendants the Trust, and Richard and Lois, both individually and in their capacities as trustees of the Trust (collectively, the “Defendants”). Paragraph 12 of the Complaint alleges that Richard is the settlor of the Trust. Paragraph 14 alleges that the Trust has two trustees, Richard and Lois. Paragraph 15 alleges that Richard and Lois are the beneficiaries of the Trust. Paragraph 20 alleges that Richard transferred the assets of the Trust into the Trust. Paragraph 21 alleges that the assets of the Trust were owned by Richard before he transferred them into the Trust. Paragraph 24 alleges that the Trust contains a spendthrift provision.
In his answer to the Complaint (ECF No. 8), Richard admits all of the allegations in paragraphs 12, 14, 15, 21 and 24 of the Complaint. Richard admitted paragraph 20 in part, that he transferred some assets into the trust, but not all. In her amended answer to the Complaint (ECF No. 12), Lois admits all of the allegations in those same paragraphs of the Complaint, with three qualifications. As to paragraph 12, Lois admits that Richard was the “original” settlor of the Trust, but denies that Richard continues to be the “sole” settlor of the Trust. As to paragraph 20, Lois admits that Richard transferred some, but not all, of the assets into the Trust. As to paragraph 21, Lois admits only that some of the assets of the Trust were owned by Richard before he transferred them into the Trust.
The Complaint further alleges that (i) the spendthrift provision of the Trust is not enforceable under Michigan law, (ii) the Trust is against public policy and unenforceable because it is a self-settled trust designed to place Richard's assets beyond the reach of his creditors, and (iii) Richard's interest in the Trust is property of his bankruptcy estate. The Defendants deny these allegations. The Complaint requests a declaratory judgment in favor of the Plaintiff and an order requiring the Defendants to surrender the property of the Trust to the Plaintiff for liquidation in Richard's Chapter 7 case.
On April 13, 2015, the Plaintiff filed a motion for summary judgment (ECF No. 33). The motion argues that the Trust is a self-settled trust in that Richard is both a settlor and a beneficiary of the Trust and, as a result, the spendthrift provision restricting the transfer of his interest in the Trust is unenforceable under Michigan law. In support, the Plaintiff relies on the provisions in the Trust and in the Amendment that establish that Richard is both a settlor and a beneficiary of the Trust. In addition, the Plaintiff attaches...
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