Sligh v. First Nat. Bank of Holmes County

• Decision Date: 09 October 1997
• Docket Number: No. 96-CA-00033-SCT,96-CA-00033-SCT
• Citation: 704 So.2d 1020
• Parties: William B. SLIGH and Lucy M. Sligh v. FIRST NATIONAL BANK OF HOLMES COUNTY, Trustee; Virginia Tate and William C. Bardin.
• Court: Mississippi Supreme Court

Page 1020

704 So.2d 1020

William B. SLIGH and Lucy M. Sligh v. FIRST NATIONAL BANK OF HOLMES COUNTY, Trustee; Virginia Tate and William C. Bardin.

No. 96-CA-00033-SCT.

Supreme Court of Mississippi.

Oct. 9, 1997.

J.M. Ritchey, Canton, for appellants.

Robert E. Box, Jr., Keith R. Raulston, Watkins Ludlam & Stennis, Jackson, H.D. Brock, Whittington Brock Swayze & Dale, Greenwood, Stacy E. Thomas, Jackson, for appellees.

En Banc.

MILLS, Justice, for the Court:

¶1 This case comes on appeal from the Chancery Court of Holmes County, where Will and Lucy Sligh sought to garnish Gene Lorance's beneficial interest in two spendthrift trusts in order to partially satisfy a tort judgment for damages resulting from injuries sustained by Will Sligh in an automobile accident with Gene Lorance. On December 15, 1995, the chancellor dismissed the Slighs' complaint, ruling that the assets of spendthrift trusts may not be garnished to satisfy the claims of tort judgment creditors. Aggrieved, the Slighs appeal to this Court, assigning as error the following issues:

I. WHETHER THE CHANCELLOR ERRED IN DISMISSING THE SLIGHS' COMPLAINT WITHOUT GRANTING THEM THE OPPORTUNITY TO AMEND PURSUANT TO MISSISSIPPI RULE OF CIVIL PROCEDURE 15(a).

II. WHETHER THE CHANCELLOR ERRED IN FAILING TO RECOGNIZE AND ESTABLISH A PUBLIC POLICY EXCEPTION TO THE SPENDTHRIFT TRUST DOCTRINE IN FAVOR OF THE BENEFICIARY'S INVOLUNTARY TORT CREDITORS.

FACTS

¶2 On January 30, 1993, William B. Sligh was involved in an automobile accident with Gene A. Lorance, an uninsured motorist who was operating a vehicle while intoxicated. As a result, Will Sligh suffered a broken spine and resulting paralysis, including loss of the use of both legs, loss of all sexual functions and loss of the ability to control bowel and urinary functions. Lorance was convicted of the felony of driving under the influence and causing bodily injury to another, for which he was sentenced to serve ten years, with six years suspended, in the custody of the Mississippi Department of Corrections.

¶3 On April 2, 1993, Will and his wife, Lucy M. Sligh, filed in the Circuit Court of Holmes County an action against Lorance alleging gross negligence resulting in personal injury, property damage and loss of consortium, for which they sought compensatory and punitive damages. Lorance failed to respond, and after entry of default and a hearing on the Slighs' Motion for Writ of Inquiry on January 25, 1994, the circuit court entered default judgment against Lorance for $5,000,000 in compensatory and punitive damages. ¹

¶4 Lorance has no assets other than his interest as beneficiary of two spendthrift trusts established by his mother in 1984 and 1988, respectively, before she died in 1993. Both trusts, whose trustee is First National Bank of Holmes County ("First National Bank"), provide as follows:

1. My said Trustee shall have full and complete authority to expend all or any part of the income or corpus of said trust property for the benefit of myself and my said son, Gene Lorance, and shall have the right to make payments directly to me and to my said son or to anyone for myself or my said son.

2. The Trustee shall have the right to invest, re-invest, manage and care for said property in the same manner as though said property was the individual property of said Trustee, and my said Trustee shall not be required to give bond, or account to Court, and shall have all the powers conferred by the Uniform Trustees' Powers Act as the same is now in force in the State of Mississippi and the power to sell, lease or encumber real property. My said Trustee shall exercise the powers herein granted for what may be, in the discretion of my said Trustee, in the best interest of myself and said Gene Lorance, and shall pay to me or the said Gene Lorance such sums and at such times as my said Trustee thinks in my or his best interest. No part of this trust, either principal or income, shall be liable for the debts of the said Gene Lorance, nor shall the same be subject to seizure by any creditor of his and he shall not have the right to sell, assign, transfer, encumber or in any manner anticipate or dispose of his interest in said property, or any part of same, or the income produced from said trust or any part thereof.

(emphasis added). Lorance is the lifetime beneficiary of the two trusts, which each have two remaindermen, Virginia Tate and William C. Bardin.

¶5 On June 29, 1994, Will and Lucy Sligh filed in the Circuit Court of Holmes County a Suggestion for Writ of Garnishment as to First National Bank, either in its corporate capacity or in its capacity as trustee of the two trusts. A Writ of Garnishment was issued and served upon First National Bank, who, in its answer filed on June 30, 1994, admitted that it was indebted to Lorance in the amount of $313,677.48, but asserted that such sum was held in trust for Lorance and was not subject to seizure. After the Slighs filed a motion for judgment on the answer and First National Bank filed its response, First National Bank moved for a dismissal or, in the alternative, for a transferal of the garnishment proceeding to chancery court. On October 5, 1994, the circuit court transferred the proceeding to the Chancery Court of Holmes County.

¶6 On October 25, 1994, the Slighs filed in that court their complaint naming as defendants First National Bank, Gene Lorance, Viginia Tate and William Bardin. The Slighs alleged, in addition to the aforementioned facts, that Lorance's mother, Edith Lorance, had actual knowledge of the following facts: her son was an habitual drunkard who had been unsuccessfully treated for alcoholism; he was mentally deficient and had been previously committed to mental institutions; he had impaired facilities due to his alcoholism and mental disorders; he regularly operated motor vehicles while intoxicated; he was a reckless driver who had been involved in numerous automobile accidents; and he had been arrested and convicted on numerous occasions for driving under the influence. The complaint alleged that despite her actual knowledge of these facts, Mrs. Lorance established the two trusts as part of her intentional plan and design to enable her son to continue to lead his intemperate, debauched, wanton and depraved lifestyle while at the same time shielding his beneficial interest in the trusts from the claims of his involuntary tort creditors. The Slighs alleged that it was a violation of public policy to enforce and give priority to spendthrift trust provisions over involuntary tort judgments against the beneficiary, and they urged the court to recognize and enforce a public policy exception to the spendthrift trust doctrine in favor of involuntary tort creditors by subjecting Lorance's beneficial interests to the payment of their tort judgment in one or more of several equitable ways suggested in their complaint.

¶7 After the defendants filed their respective answers, First National Bank filed a Motion for Dismissal on October 27, 1995. On December 15, 1995, the chancellor granted the motion, ruling that the Slighs failed to state a claim upon which relief can be granted. The chancellor ruled that "a tort judgment creditor may not garnish the trustee of a spendthrift trust in which the tort judgment defendant is a mere lifetime discretionary income beneficiary, nor are the assets of such trust subject to the claims of the tort judgment creditor."

DISCUSSION

I. WHETHER THE CHANCELLOR ERRED IN DISMISSING THE SLIGHS' COMPLAINT WITHOUT GRANTING THEM THE OPPORTUNITY TO AMEND PURSUANT TO MISSISSIPPI RULE OF CIVIL PROCEDURE 15(a).

¶8 Rule 15(a) provides in relevant part:

On sustaining a motion to dismiss for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6), or for judgment on the pleadings, pursuant to Rule 12(c), thirty days leave to amend shall be granted, provided matters outside the pleadings are not presented at the hearing on the motion.

Miss.R.Civ.P. 15(a) The Slighs argue that because no matters outside the pleadings were presented at the hearing on First National Bank's Motion for Dismissal, the chancellor erred in failing to grant the Slighs thirty days to amend after sustaining the motion.

¶9 The Slighs were not required to petition the court for thirty days leave to amend their complaint. O'Cain v. Harvey Freeman and Sons, 603 So.2d 824, 829 (Miss.1991). Under Rule 15(a), the court's dismissal of their complaint for failure to state a claim for which relief can be granted afforded the Slighs an automatic right to amend within thirty days. Had they done so, their amended complaint would have been accepted. However, because they failed to exercise that right by filing an amended complaint, we find this assignment of error to be without merit.

II. WHETHER THE CHANCELLOR ERRED IN FAILING TO RECOGNIZE AND ESTABLISH A PUBLIC POLICY EXCEPTION TO THE SPENDTHRIFT TRUST DOCTRINE IN FAVOR OF THE BENEFICIARY'S INVOLUNTARY TORT CREDITORS.

A. The Statute on Trust Estates Subject to Execution

¶10 The Slighs cite Miss.Code Ann. § 89-1-43 (1991), first enacted in 1824 and amended in 1857, which provides in part:

Estates of any kind holden or possessed in trust for another, shall be subject to the like debts and charges of the person to whose use or for whose benefit they are holden or possessed as they would have been subject to them if the person had owned the like interest in the thing holden or possessed as he may own in the uses or trusts thereof, whether the trusts be fully executed or not.

Although this statute initially appears to subject trust estates to any claims of the beneficiaries' creditors, the statute goes on to say that "[s]aid estates may be sold under execution at law... " (emphasis added). This Court held long ago that this statute provides no aid to the creditor who proceeds in a court of equity, nor can it subject the trustee's estate to the debts of the beneficiary unless...