Sax v. Sax

• Decision Date: 31 July 1961
• Docket Number: No. 18453.,18453.
• Parties: Ronald SAX and Mark Sax, Minors, by their Next Friend and Natural Guardian, Ruth Zeffert Sax, and Ruth Zeffert Sax, Individually, Appellants, v. George D. SAX, Individually and as Trustee et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

294 F.2d 133 (1961)

Ronald SAX and Mark Sax, Minors, by their Next Friend and Natural Guardian, Ruth Zeffert Sax, and Ruth Zeffert Sax, Individually, Appellants, v. George D. SAX, Individually and as Trustee et al., Appellees.

No. 18453.

United States Court of Appeals Fifth Circuit.

July 31, 1961.

Albert M. Lehrman (of Lemelman & Lehrman), Miami, Fla., for appellants.

W. G. Ward, Ward & Ward, Miami, Fla., for appellees, George D. Sax, Individually and As Trustee, and Rhoda Sax.

Before RIVES, BROWN and WISDOM, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

This action was brought in the Southern District of Florida to set aside a supplemental trust agreement on the grounds of fraud. It was instituted by Ruth Sax, individually and as guardian of her two minor children. She alleged that the supplemental agreement was executed for the purpose of fraudulently depriving her of a fair separate maintenance allowance from her husband, Louis Sax, one of the beneficiaries of the trust. Jurisdiction was on diversity only, 28 U.S.C.A. § 1332, as a suit between Ruth Sax, a resident citizen of Florida, and the defendants, Louis (husband) and George (father-in-law) Sax, citizens of Ohio and Illinois respectively. Service was obtained during temporary presence of defendants in Florida.

This relatively simple suit has been complicated somewhat by two factors with which we must deal. First, virtually everything and everybody connected with the trust is situated in Illinois. This includes the trust res as well as the trustee, settlors and beneficiary of the trust. Next, at the time of the allegedly fraudulent supplemental agreement, no separate maintenance settlement had yet been awarded the wife. To the comprehensive fraud allegations contained in the wife's second amended complaint the defendant-appellees filed a motion to dismiss. The grounds asserted were (1) failure to state a claim, (2) situs of trust is Illinois, (3) under construction of trust instrument the wife had "no vested rights," (4) the trust is controlled by Illinois law, and (5) absence of an indispensable party, Max Sax. The District Court sustained this motion without disclosing the basis for its holding. We are completely in the dark. This lack of illumination compels us to canvass every possible theory on which dismissal might have been based. Consequently, several questions are raised by this appeal.

The first one relates to jurisdiction over the subject matter. This is the question of the power of a Federal District Court in one State to determine the validity of an agreement executed in another State, between parties who are residents of that State, solely by obtaining personal jurisdiction over the defendants in the State of the forum. Second, the broad question is presented whether the complaint adequately states a claim upon which relief can be granted under the applicable law. And finally, the point is raised as to whether all necessary parties to the action have been joined.

A brief statement of the facts will suffice. The original trust agreement was executed in Illinois in 1938. The settlors were George D. Sax, his wife, Rhoda Sax, and a brother, Max Sax. It named as beneficiaries the four minor sons of George Sax. Under the provisions of the trust, each of the beneficiaries was to receive his portion of the income of the trust from the time he reached the age of twenty-one until his thirtieth birthday at which time each was to receive his share of the corpus. George Sax was named the trustee and thereby sole administrator of the trust. The instrument expressly provided that no agreements made by the beneficiaries were to be binding on the trust, nor were the creditors of any of the beneficiaries to be able to reach either the corpus or income of the trust. It bears the usual earmarks of a spendthrift trust.

In 1947 Louis Sax, one of the sons named as a beneficiary, married Ruth Sax, the wife-appellant in the present action. Over the next four years two children were born to this marriage. It was, however, far from successful and in 1951 Ruth Sax filed suit in Dade County, Florida, for separate maintenance and support against her husband, Louis. The circumstances and occurrences which took place during the pendency of this suit are of significance. First, during this entire time Louis, the husband, concealed completely the existence of the trust and his beneficial interest therein. It was not until some seven years after the entry of a support decree in the domestic relations proceeding that the wife first learned of the original trust. Next, a few days prior to the entry of that support decree in the Florida State Court, George Sax, Rhoda Sax and Max Sax entered into a supplemental agreement with Louis Sax to modify the trust instrument.

This modification altered significantly the provisions by which Louis was to continue receiving his share of the income until his thirtieth birthday and on that date to receive the corpus. The new provisions specified that income from the trust was only to be distributed to Louis as the "Trustee, in his sole discretion, may deem necessary or advisable * * *." When Louis reached his thirtieth birthday the trustee was to retain the corpus of the trust but to have within his sole discretion the power to distribute whatever portions, if any, of the corpus that he "deems to be in the best interest of Louis H. Sax; * * *." In addition when that date was reached the trustee was to have almost unlimited power and flexibility in administering Louis' share of the trust "irrespective of any other provision in said Trust agreement."

Without knowledge either of the original trust or this supplemental agreement the wife pursued the separate maintenance suit to a final decree based upon a stipulation of settlement between her and her husband. By that agreed decree the husband agreed to pay $50 a week for the support of the wife and the minor children. Soon after learning in 1958 of these concealed matters, the wife brought this action to set aside the supplemental agreement. To establish pecuniary detriment she claimed further that the payments under the original separation agreement are inadequate and to be adequate the payments should be $700 per month.

We turn, first, to the contention made by the appellees that this suit cannot properly be maintained without the joinder of Max Sax as a party since he was one of the signatories to the supplemental agreement under attack and a settlor of the original trust. As he is now a resident of Florida, his joinder would defeat diversity jurisdiction.

The answer to this question depends on whether Max is or is not an "indispensable" party rather than merely a "necessary" party under F.R.Civ.P. 19 (a), 28 U.S.C.A. and the numerous court interpretations of it. 3 Moore, Federal Practice § 19.05 at 2144, § 19.19 at 2206. Of course under subsection (b) of that rule the court may proceed without the joinder of such "necessary" parties when such joinder would deprive the court of jurisdiction of the parties before it.

The answer here is readily apparent. The controversy is over a supplemental agreement which altered the respective rights and duties of the trustee and beneficiary only. It was essentially an agreement between them changing their future relationship in the administration of the trust. True, it was signed by the remaining settlors, Rhoda and Max. But Max is neither a trustee nor a beneficiary under the trust. He does not stand to be deprived of any beneficial interest, nor receive a greater interest, depending on the outcome of this litigation. Under the allegations as set forth in the wife's complaint, this is a case of the father and son conniving to defraud her and her children. Their method was a simple, modifying supplemental agreement. Perhaps Max had to join in the instrument to make it fully effective. But setting aside this supplemental agreement and defeating this plan would have no effect on Max. No action would have to be taken by him. His position would not be changed nor his interest altered. Nullifying the supplemental agreement would merely restore the original trust instrument and Max to the same position each had all along had.

It follows that Max is not an indispensable party under the Rule as it has been interpreted by this and numerous other courts. The "* * * test of indispensability is whether the absent party's interest * * * is such that no decree can be entered * * * which will do justice between the parties actually before the court without injuriously affecting the rights of the absent party." Chance v. Buxton, 5 Cir., 1948, 170 F.2d 187, at page 188; Lawrence v. Sun Oil Company, 5 Cir., 1948, 166 F.2d 466, at page 469. The principles of equity as well compel this result. Cf. Bourdieu v. Pacific Western Oil Co., 1936, 299 U.S. 65, at pages 70-71, 57 S.Ct. 51, 81 L.Ed. 42; McRanie v. Palmer, D.C.Mass.1942, 2 F.R.D. 479, at page 482.

Next we turn to the question of jurisdiction of the District Court over the subject matter. The primary basis for appellees' jurisdictional attack is the contention that since the action involves a thing, the trust, it is an action in rem and therefore local in nature. That is, it is local to Illinois. On that thesis it is urged that the cases holding that a District Court may not act upon property not located at least partially within its District are compelling authority that a court sitting in Florida may not alter or administer a trust having its legal and actual situs in Illinois.

This approach, however, misconceives the nature of the present action. The complaint does not ask the Court to exercise dominion over any property, nor would the exercise of jurisdiction require it to supervise the administration of the trust. The complaint merely seeks to have the Court, utilizing its equitable powers, compel a person to undo a fraudulent conveyance of property. The party charged with perpetrating the...