Bar News - February 17, 2012
Fellows Decision Illustrates Trust "Non-Entity" Status
By: Ralph F. Holmes
For most purposes, with taxes being a notable exception, a trust is not a legal entity, but rather a mode of property ownership whereby the trustee holds the legal and the beneficiaries hold the equitable title. See generally Restatement Trusts (Third) § 17. This core principle of trust law has myriad liability implications, including fundamentally that a trustee is not an agent of the trust who can subject trust assets to respondeat superior liability. See Rounds, Loring’s Trustee Handbook, p. 103. Generally, creditors are limited in their ability to reach trust assets. See Restatement Trusts (Second) § § 267-271A.
|Ralph F. Holmes
Jurisdictional consequences of the precept of trust law that a trust is not a legal entity were evident in the NH Supreme Court’s recent decision in Fellows v. Robin Tennant Colburn et al., No. 2010-302, slip op. (N.H. Nov. 22, 2011). In Fellows, the plaintiffs claimed that the trustees of the Tennant Family Trust tortiously failed to disclose that the property they sold to the plaintiffs’ predecessor had lead contamination. According to the plaintiffs’ filing, the NH Division of Public Health Services ("DPHS") issued an abatement order against the trustees under DPHS’s Childhood Lead Poisoning Prevention Program and, despite this enforcement action, the trustees failed to disclose the hazard to the buyer. Approximately 10 months after the trustees sold the property, the trust was amended, resulting in the appointment of successor trustees, neither of whom had connections to New Hampshire.
In the litigation, the plaintiffs named the successor trustees as defendants. If the trust was a continuing legal entity, like a corporation, the naming of the successor trustees would not raise jurisdictional issues; the current trustees as the embodiment of the trust would be amenable to suit in New Hampshire because the tortious conduct occurred here. See RSA 510:4 ("Any person who is not an inhabitant of this state who, in person or through an agent, transacts any business within this state [or] commits a tortious act within this state…submits himself, or his personal representative, to the jurisdiction of the courts of this state…."); Steir v. Girl Scouts of USA, 218 F. Supp.2d 58 (D.N.H. 2002)(RSA 510:4 is coextensive with federal due process standard). Consistent with an entity conception of the trust, the Superior Court held that "it had jurisdiction over the trust; [and] over …[the] successor trustees ‘in their fiduciary capacity as representatives of the Trust.’" Fellows, slip op. at 2 (quoting Superior Court Order)(emphasis added). Although the Court did not discuss the reasoning of the Superior Court in further detail, the quoted reference suggests that the trial court believed it had jurisdiction over the trustees as agents of the trust. If that is a fair reading, the trial court misapprehended a fundamental feature of trust law.
On appeal, the Court reversed, holding that the successor trustees lacked sufficient "minimum contacts" with New Hampshire under the due process analysis of World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980). Fellows, slip op. at 2-7. Consistent with the conception of a trust as not being a legal entity, the Court did not impute to the successor trustees any alleged act, omission, or circumstance pertaining to the prior trustees, but rather examined the minimum contacts factors in light of the facts surrounding their appointment and administration of the trust. Importantly, the Court found that the principal place of trust administration during their tenure was not New Hampshire and, as a result, personal jurisdiction over the trustees did not arise under the Uniform Trust Code. Fellows, slip op. at 7 (citing RSA 564-B:2-202).
Trust litigation poses many unique challenges to counsel for a creditor seeking to recover against trust assets, including potentially a quick statute of limitations, see RSA 564-B:10-1005, trust exculpatory provisions, see RSA 564-B:10-1008, and, as illustrated by Fellows, difficult jurisdictional issues. If a trust is thought of as a continuing legal entity akin to a corporation, counsel may make strategic and tactical judgments which cannot be sustained. Litigation in this area requires an appreciation of the unique aspects of a trust as distinguished from other modes of property ownership.