Domo v. McCarthy

Decision Date02 June 1993
Docket NumberNo. 92-372,92-372
PartiesDOMO, Appellant, v. McCARTHY, Trustee, et al., Appellees.
CourtOhio Supreme Court

SYLLABUS BY THE COURT

1. A court's purpose in interpreting a trust is to effectuate, within the legal parameters established by a court or by statute, the settlor's intent.

2. In Ohio, a spendthrift provision of a trust, when applicable, will be given full force and effect. (Scott v. Bank One Trust Co., N.A. [1991], 62 Ohio St.3d 39, 577 N.E.2d 1077, followed.)

The facts in this case are not in dispute. On August 22, 1988, appellant, John M. Domo, obtained a judgment against appellee, James V. Stouffer, Jr. ("James Jr.") in the amount of $1,656,149 plus interest and costs. James, Jr. did not have sufficient assets to satisfy the judgment and, on December 1, 1988, appellant brought a suit in equity (creditor's bill) in the Court of Common Pleas of Ottawa County, naming as defendants James, Jr. and appellee, John F. McCarthy, Trustee. The suit was commenced for purposes of reaching any "legal, beneficial, and equitable" interest James, Jr. had in a trust created on June 1, 1978 by James, Jr.'s father, James V. Stouffer ("James V. Stouffer Trust"), and in a trust created on December 22, 1983 by James, Jr.'s mother, Mary H. Stouffer ("Mary H. Stouffer Trust"). James, Jr. was trustee of his father's trust and John F. McCarthy was named as trustee of the Mary H. Stouffer Trust. James V. Stouffer named as beneficiaries his wife, Mary, and his lineal descendants, including James, Jr. Mary named as beneficiaries her children, including James, Jr., her children's spouses and Mary's grandchildren.

In February 1989, appellant filed a motion for leave to file an amended complaint. It appears that an amended complaint was filed, adding as defendants, James, Jr. as trustee of his father's trust, Mary H. Stouffer, Mary's children, her children's spouses, and Mary's grandchildren--all of whom are appellees herein.

Thereafter, various defendant-appellees filed a counterclaim against appellant and a cross-claim against James, Jr., his wife and their children, seeking declaratory relief. On June 28, 1989, these same defendant-appellees filed a motion for judgment on the pleadings, claiming that the James V. Stouffer Trust and the Mary H. Stouffer Trust contained valid spendthrift provisions that precluded appellant from acquiring James, Jr.'s interests in either trust, and that upon filing the 1988 creditor's bill, appellant extinguished any right he may have had in reaching James, Jr.'s interest in the James V. Stouffer Trust. Further, these defendants-appellees requested that appellant's complaint be dismissed for failure to state a claim upon which relief can be granted.

On September 13, 1989, counsel for Mary H. Stouffer, pursuant to Civ.R. 25(E), filed a suggestion of death, stating that Mary died on September 6, 1989. Subsequently, on October 3, 1989, appellant filed a cross-motion for judgment on the pleadings. Appellant also filed an amended complaint and later filed a supplemental complaint. In the supplemental complaint, appellant claimed that upon Mary's death, James, Jr. became entitled to a one-third interest in the corpus of his father's trust.

On June 28, 1990, the trial court granted appellant's motion for judgment on the pleadings. The court also dismissed the counterclaim and cross-claim filed by some of the defendants-appellees. The trial court concluded, with respect to the James V. Stouffer Trust, that upon Mary's death, the trust terminated and the spendthrift provision therein did not prevent appellant from reaching James, Jr.'s one-third interest in that trust. The trial court also concluded, relying on Sherrow v. Brookover (1963), 174 Ohio St. 310, 22 O.O.2d 373, 189 N.E.2d 90, that regardless of the spendthrift provision contained in the Mary H. Stouffer Trust, appellant was entitled to James, Jr.'s interest in the net income of that trust. Additionally, the trial court determined, citing Martin v. Martin (1978), 54 Ohio St.2d 101, 8 O.O.3d 106, 374 N.E.2d 1384, that James, Jr., upon reaching the age of thirty-five, will obtain an absolute right to the trust principal and, therefore, such a right is an "equitable future interest which may be subjected to a court order requiring the trustee, James F. McCarthy, to apply it to plaintiff Domo's judgment when it becomes payable."

Upon appeal, the court of appeals reversed the judgment of the trial court. The court of appeals essentially determined that appellant could not reach any of James, Jr.'s interest in either income or principal under the James V. Stouffer Trust. In addressing the Mary H. Stouffer Trust, the court of appeals concluded that appellant could attach James, Jr.'s interest in the net income, but could not reach James, Jr.'s interest in the principal.

This cause is now before this court pursuant to the allowance of a motion to certify the record.

Ulmer & Berne and Marvin L. Karp, Cleveland, for appellant.

Cooper, Straub, Walinski & Cramer, Cary Rodman Cooper and Margaret J. Lockhart, Toledo, for appellees Susan S. Madison, individually and as executrix of the estate of Mary H. Stouffer, Jack B. Madison, Sarah H. Drew, John Drew, and Sarah and John Drew as parents of Mary C. Drew.

Nathan & Roberts and H. Buswell Roberts, Toledo, for appellees James V. Stouffer, Jr., Vicki J. Stouffer, James V. Stouffer III, and David B. Stouffer.

Fuller & Henry, Mary Ann Whipple and Lance M. Keiffer, Toledo, for appellee John F. McCarthy.

DOUGLAS, Justice.

This appeal requires us to analyze certain provisions of the James V. Stouffer Trust and the Mary H. Stouffer Trust. Specifically, we are asked to construe and give effect to certain spendthrift provisions and determine what interests under the trusts, if any, appellant is entitled to reach as a creditor of James, Jr.

I

We are mindful that one of the fundamental tenets for the construction of a will or trust is to ascertain, within the bounds of the law, the intent of the testator, grantor or settlor. See Townsend's Executors v. Townsend (1874), 25 Ohio St. 477; Martin v. Martin (1978), 54 Ohio St.2d 101, 8 O.O.3d 106, 374 N.E.2d 1384; Ohio Citizens Bank v. Mills (1989), 45 Ohio St.3d 153, 543 N.E.2d 1206; and Scott v. Bank One Trust Co., N.A. (1991), 62 Ohio St.3d 39, 577 N.E.2d 1077. Generally, when the language of the instrument is not ambiguous, intent can be ascertained from the express terms of the trust itself. See Restatement of the Law 2d, Trusts (1959) 13, Section 4; I Scott, Law of Trusts (4 Ed. Fratcher Ed.1987) 53-54, Section 4; IIA Scott, Law of Trusts, supra, at 253-261, Section 164.1; and Bogert, Trusts & Trustees (2 Ed.Rev.1984) 463, Section 45.

Recently, in Scott, supra, we overruled Sherrow v. Brookover (1963), 174 Ohio St. 310, 22 O.O.2d 373, 189 N.E.2d 90, and put to rest any uncertainty as to whether spendthrift trusts were enforceable in Ohio. In Scott, we balanced competing policies favoring and disfavoring spendthrift trusts, and concluded that " * * * enforcing a spendthrift provision 'takes nothing from the prior or subsequent creditors of the beneficiary to which they previously had the right to look for payment * * *.' " (Citation omitted.) Scott, supra, 62 Ohio St.3d at 47, 577 N.E.2d at 1083. We further emphasized that a beneficiary owns no greater interest in the trust property than the settlor has given him and, "[i]n the case of a spendthrift trust, the settlor has not given the beneficiary an alienable interest." Id. at 48, 577 N.E.2d at 1084. We also addressed the creditor's bill statute in Ohio, R.C. 2333.01, and further concluded that this statute was not applicable because it speaks to only those interests which the judgment debtor has, and, in the case of a spendthrift trust, the beneficiary does not have any interest in the trust because the settlor did not give the beneficiary an interest. Id. at 49, 577 N.E.2d at 1084.

Keeping these foregoing principles in mind, we turn our attention to the trusts in question.

II James V. Stouffer Trust

The James V. Stouffer Trust is a comprehensive instrument, creating a "Marital Trust" and a "Family Trust." In general terms, the trust was created to provide for the settlor's wife, Mary H. Stouffer, and the settlor's lineal descendants. Further, during Mary's life, the trustees were empowered to pay net income and principal to Mary from both the marital trust and the family trust, and net income from the family trust to the settlor's lineal descendants "as they deem proper." Upon Mary's death, the trustees were instructed to divide the remaining trust assets, from the marital trust and/or the family trust, equally among the settlor's three children, including James, Jr.

Moreover, the trust contains a spendthrift provision. 1 Paragraph eight of Article II of the trust provides, in relevant part, that:

"8. Protective Provision. No interest of my wife or of any lineal descendant of mine in income or principal shall be anticipated, encumbered or assigned. No such interest shall be subject to claims of such person's creditors, spouse or divorced spouse or others. If any part or all of any such interest, but for this provision, would vest in or be enjoyed by any other individual or entity, other than by disclaimer or release, such interest shall terminate. Thereafter the Trustees from time to time may, in their discretion, but shall not be obligated to, pay to or expend for such person, any dependent of his or any other lineal descendant of mine, such amounts of the income or principal comprising such interest as the Trustees in their discretion deem proper * * *. Upon the death of such person all such income or principal, if any, then held by the Trustees shall be treated as provided in this agreement for disposition upon his death. * * * " (Emphasis added.)

The court of appeals, interpreting the spendthrift provision,...

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