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Investors Title Insurance Co. v. Herzig

August 31, 2010

INVESTORS TITLE INSURANCE COMPANY, PLAINTIFF
v.
DAVID F. HERZIG, SOUTHEASTERN SHELTER CORPORATION, AND SHELDON SMITH, PERSONAL REPRESENTATIVE OF THE ESTATE OF ALPHILD HERZIG, SUBSTITUTED FOR ALPHILD HERZIG, DECEASED, DEFENDANTS
SOUTHEASTERN SHELTER CORPORATION, PLAINTIFF AND APPELLANT
v.
DAVID F. HERZIG; AND SHELDON SMITH, IN HIS CAPACITY AS PERSONAL REPRESENTATIVE OF THE ESTATE OF ALPHILD HERZIG, SUBSTITUTED FOR ALPHILD HERZIG, DECEASED, DEFENDANTS AND APPELLEES



Appeal from the District Court of Ward County, Northwest Judicial District, the Honorable David W. Nelson, Judge.

The opinion of the court was delivered by: VandeWalle, Chief Justice.

On Appeal

AFFIRMED.

[¶1] Southeastern Shelter Corporation ("Southeastern") appealed from the district court order denying its "Motion to Attach Res and Property in Trust for Benefit of Judgment Creditor," granting the application of the personal representative of Alphild Herzig's estate to cancel a lis pendens filed by Southeastern, and refusing to consider Southeastern's motions for an order to prohibit the sale and transfer of property and to compel the production of documents by subpoena, as properly considered by the probate court in the Alphild Herzig estate probate proceedings. We affirm.

I.

[¶2] The relevant facts and extensive procedural background are set forth in our decision in a prior appeal of this case, Investors Title Ins. Co. v. Herzig, 2010 ND 138, ¶¶ 3-21 ("Herzig I"), and we will not repeat them here except as necessary to assist in resolving the issues raised in the present appeal. In 1998, Southeastern commenced these proceedings under the Uniform Enforcement of Foreign Judgments Act, N.D.C.C. ch. 28-20.1, to enforce its 1989 North Carolina judgment for $149,598.13 against David Herzig in North Dakota. This appeal involves further post-judgment proceedings before the district court in the 1998 case, which occurred while the prior appeal and cross-appeal in Herzig I were pending.

[¶3] On January 28, 2009, Southeastern filed a "Motion to Attach Res and Property in Trust for Benefit of Judgment Creditor" in the district court. Before her death on June 5, 2008, Alphild Herzig had executed a trust agreement, which stated: "This Agreement is made this 5 day of June, 2008 between A[l]phild E. Herzig, hereinafter the Trustor and Alphild E. Herzig, hereinafter the Trustee and shall be known as the Alphild E. Herzig Trust, dated September 2007, as amended June 5, 2008." (Emphasis in original.) Among other things, this trust agreement named Sheldon A. Smith as a successor trustee upon Alphild Herzig's death, identified certain property transferred to the trustee, named David Herzig as a beneficiary, and contained a spendthrift provision. On or about April 30, 2009, Southeastern recorded a lis pendens against certain real property. On May 29, 2009, defendant David Herzig and Sheldon Smith, as the personal representative of Alphild Herzig's estate ("personal representative"), filed separate responses and affidavits opposing Southeastern's motion to attach res and property in trust. Southeastern filed a supplemental brief in support of its motion to attach trust res and a reply brief to the response.

[¶4] Southeastern filed a motion for an order prohibiting sale and transfer of property and a motion to compel documents by subpoena. David Herzig and the personal representative filed separate responses opposing Southeastern's motion to prohibit the sale or transfer of property, and Southeastern filed a reply. The personal representative also filed an "Application, Notice and Brief for Cancellation of Lis Pendens," seeking to cancel the lis pendens recorded by Southeastern, in addition to filing a response opposing Southeastern's motion to compel documents by subpoena.

[¶5] On June 8 and 11, 2009, the district court held a hearing on the various motions. In a June 17, 2009, order, the court denied Southeastern's motions to attach res and property in trust, to prohibit the sale and transfer of property, and to compel documents by subpoena. Additionally, the court granted the personal representative's application to cancel the lis pendens.

II.

[¶6] As an initial issue on appeal, David Herzig and the personal representative assert that, depending on the outcome of the prior pending appeal in this case, this Court may be without jurisdiction to review the district court's order in this appeal because it is not a final order and is, therefore, interlocutory and non-appealable under N.D.R.Civ.P. 54(b). This Court has since issued an opinion in the prior appeal resolving the dispositive issues, and we further have discussed the appealability of post-judgment orders. See Herzig I, 2010 ND 138, ¶¶ 25-3 3 (observing that orders regarding a final judgment's enforcement, execution, or interpretation should be final after complete disposition of all present related issues, and stating that "[o]rders denying discovery in aid of execution also are appealable"). Based on our disposition in Herzig I, we conclude the present appeal is properly before us, and we therefore consider the merits of the issues raised for review.

III.

[¶7] Southeastern argues the district court erred in denying its motion to attach trust property. Southeastern asserts a multitude of arguments, contending that the assets of the revocable trust may be used to satisfy a judgment creditor's claim against the beneficiary when the statute permits attachment of both present and future interests; that the trust's spendthrift provision does not protect the trust's property from being attached to satisfy Southeastern's judgment against the trust beneficiary David Herzig; that the language of the spendthrift provision is inapplicable to Southeastern's judgment; that David Herzig is controlling and enjoying the benefits of the trust, should be considered a settlor of the trust, and has been granted various powers under the trust; and that application of the spendthrift provision is against public policy.

[¶8] The personal representative and David Herzig argue that the district court did not err in denying Southeastern's motion to attach trust property because, in addition to their contention the court did not have jurisdiction to hear the motion, the trust's spendthrift provision protects the trust property from being attached to satisfy Southeastern's judgment against David Herzig, and the spendthrift provision language is sufficient to invoke the protections of the spendthrift trust. The personal representative and David Herzig also assert that David Herzig is neither controlling nor enjoying the benefits of the trust, David Herzig is not the settlor of the trust, nor has he been granted or possessed any powers of the trust, powers of appointment or powers of withdrawal under the trust.

A.

[¶9] In construing a trust agreement, our primary objective is to ascertain the settlor's intent. Langer v. Pender, 2009 ND 51, ¶ 13, 764 N.W.2d 159; Alerus Fin., N.A. v. Western State Bank, 2008 ND 104, ¶ 21, 750 N.W.2d 412. "'When a trust instrument is unambiguous, the settlor's intent is ascertained from the language of the trust document itself.'" Langer, at ¶ 13 (quoting Hecker v. Stark County Soc. Serv. Bd., 527 N.W.2d 226, 230 (N.D. 1994)). Whether a trust agreement is ambiguous raises a question of law and is fully reviewable on appeal. Langer, at ¶ 13. We have outlined our rules for construing a trust agreement:

General rules of construction of written documents apply to the construction of trust instruments. See Alerus, 2008 ND 104, ¶¶ 18-1 9, 750 N.W.2d 412. In North Dakota, the interpretation of a contract is governed by N.D.C.C. ch. 9-07. Under N.D.C.C. § 9-07-02, the contract language governs its interpretation "if the language is clear and explicit and does not involve an absurdity." Contracts are construed to give effect to the parties' mutual intention at the time of contracting "so far as the same is ascertainable and lawful." N.D.C.C. § 9-07-03. The rules provided in N.D.C.C. ch. 9-07 are applied "[f]or the purpose of ascertaining the intention of the parties to a contract, if otherwise doubtful...." N.D.C.C. § 9-07-03. "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone if possible, subject, however, to the other provisions of [N.D.C.C. ch. 9-07]." N.D.C.C. § 9-07-04. "The whole of a contract is to be taken together so as to give effect to every part if reasonably practicable. Each clause is to help interpret the others." N.D.C.C. § 9-07-06. Langer, at ¶ 14.

[¶10] In this case, Article XVIII of the trust agreement executed by Alphild Herzig on June 5, 2008, contains the trust's spendthrift clause:

Spendthrift Provision. Except as otherwise provided herein, all payments of principal and income payable or to become payable to the beneficiary of this Trust created hereunder shall not be subject to anticipation, assignment, pledge, sale or transfer in any manner, nor shall any beneficiary have the power to anticipate or encumber such interest, no[r] shall such interest, while in the possession of the fiduciary hereunder, be liable for, or subject to, the debts, contract, obligations, liabilities or torts of any beneficiary. (Emphasis added.) The North Dakota Uniform Trust Code recognizes and enforces valid spendthrift clauses. See N.D.C.C. §§ 59-09-01, 59-13-02.

[¶11] Section 59-13-01, N.D.C.C., provides the rights of a trust beneficiary's creditor or assignee, stating "[t]o the extent a beneficiary's interest is not subject to a spendthrift provision, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances." To determine what is a valid spendthrift provision, N.D.C.C. § 59-13-02 requires the following:

1. A spendthrift provision is valid if it restrains either the voluntary or involuntary transfer or both the voluntary and involuntary transfer of a beneficiary's interest.

2. A term of a trust providing that the interest of a beneficiary is held subject to a "spendthrift trust", or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary's interest.

3. A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision and, except as otherwise provided in this chapter, a creditor or assignee of the beneficiary may not reach the interest or a distribution by the trustee before its receipt by the beneficiary. Section 59-13-03, N.D.C.C., however, provides specific exceptions to a spendthrift provision:

2. A spendthrift provision is unenforceable against:

a. A beneficiary's child, spouse, or former spouse who has a judgment or court order against the beneficiary for support or maintenance;

b. A judgment creditor who has provided services for the protection of a beneficiary's interest in the trust; and

c. A claim of this state or the United States to the extent a statute of this state or ...


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