Metropolitan News-Enterprise


Monday, November 23, 2015


Page 1


C.A. Rejects Creditor’s Bid to Tap Debtor’s Trust Interest




A trial court cannot order a judgment debtor to assign payments she receives as a trust beneficiary to her creditor, the Fourth District Court of Appeal has ruled.

Div. Two Thursday affirmed Riverside Superior Court Commissioner David E. Gregory’s denial of motions by FirstMerit Bank, N.A., which sought orders requiring Diana L. Reese to assign payments from two family trusts to the bank, and restraining her from assigning her rights to payment from the trust to a third party.

The bank sued Reese in Ohio and obtained a sister-state judgment from the Riverside court for nearly $135,000. The bank then sought an assignment order under Code of Civil Procedure §708.510 and a restraining order under §708.520.

The trustee responded that Reese was receiving more than $21,000 per month in principal and income from the trusts, which Reese claimed were spendthrift trusts.

In denying the §708.510 motion, Gregory ruled that the statute did not permit the relief the plaintiff was seeking because such an order “must include an order that assigns a right to payment outright and not simply directing a judgment debtor to make payments of funds that the judgment debtor may receive from a third party.”

The bank’s remedy, he said, would be to levy on the funds “once they fall into the hands of the judgment debtor.”  He did not rule on the §708.520 request.

C.A. Ruling

The commissioner was correct, Presiding Justice Manuel Ramirez wrote for the Court of Appeal.

While a money judgment is enforceable against an interest in a trust, he explained, the Legislature has expressly barred judgment creditors from levying on such an interest under a writ of execution. The creditor, he said, is thus limited to enforcing its judgment using §709.010, which requires petitioning “a court having jurisdiction over administration of the trust.”

In Reese’s case, Ramirez noted, the trusts are administered in Ohio, not in Riverside Superior Court. And the exclusivity of §709.010 creates “limitations on the [California] court’s authority” that the commissioner was not free to ignore by granting relief under §708.510.

The bank’s argument, that the two statutes can operate simultaneously because the §708.510 order would not become operative until the trustee disbursed the funds, “ignores the nature of an assignment,” Ramirez said.

Witkin Quoted

He quoted the 2005 edition of Witkin’s Summary of California Law:

“The assignee ‘stands in the shoes’ of the assignor, taking his or her rights and remedies, subject to any defenses that the obligor has against the assignor prior to notice of the assignment.” 

Ramirez elaborated:

“Thus, in seeking an assignment order under section 708.510, FirstMerit sought to acquire Reese’s rights to receive payments from Reese’s trustees….That result is precisely what the Legislature precluded by enacting exclusive procedures for enforcing money judgments against trusts….Those  exclusive procedures allow a court to apply a judgment debtor’s interest in a trust ‘to the satisfaction of the money judgment by,’ among other means, ‘collection of trust income,’ but only if the court has jurisdiction over the administration of the trust….It is uncontested that the trial court did not have jurisdiction over the administration of the Reese trusts, and the trial court was correct to refuse FirstMerit’s invitation to ignore that defect.”

The exclusivity of the §709.010 procedures similarly precludes the issuance of a restraining order under §708.520, the presiding justice went on to say.

The case is FirstMerit Bank, N.A. v. Reese, 15 S.O.S. 5521.


Copyright 2015, Metropolitan News Company