UAP-Columbus JV326132 v. YoungUAP-Columbus JV326132 v. Young
Rendered on February 16, 2010
Taft Stettinius & Hollister LLP, and Benjamin J. Parsons, for plaintiff-appellee.
Ronald B. Noga, for defendant-appellant.
APPEAL from the Franklin County Court of Common Pleas.
FRENCH, J.
{¶1} Defendant-appellant, Michael J. Young, appeals the Franklin County Court of Common Pleas’ entry of summary judgment in favor of plaintiff-appellee, UAP Columbus JV326132 (“UAP“), and the trial court‘s denial of Young‘s own motion for
{¶2} In UAP-Columbus JV326132 v. O Valeria Stores, Inc. (July 2, 2007), Franklin C.P. No. 06CVH-03-2850, the Franklin County Court of Common Pleas entered judgment in favor of UAP and against Young in the amount of $168,147.19, together with interest from March 17, 2007, as a result of Young‘s liability as a personal guarantor under a commercial lease. Pursuant to
{¶3} On December 20, 2007, UAP initiated this foreclosure action to collect on its judgment. UAP alleged that Young owned real property located at 5550 Wood Ridge Drive (the “Wood Ridge property“) in Columbus, upon which UAP had a valid and subsisting lien as a result of its unpaid judgment. UAP further alleged that it was entitled to have its lien foreclosed, to have the Wood Ridge property sold at public auction, and to receive the net proceeds to satisfy its judgment.
{¶4} In his answer, Young asserted that UAP‘s lien was not enforceable against the Wood Ridge property because that property was held in trust, with Young serving only as trustee. On September 25, 2008, Young filed a motion for summary judgment, similarly arguing that UAP‘s complaint failed to state a claim upon which relief could be granted because, when UAP obtained its judgment, the Wood Ridge property was titled, not in his name individually, but in the name of “Michael J. Young Trustee of the Michael
{¶5} Young attached to his motion for summary judgment a copy of a Trust Agreement, dated January 24, 2006, which provides as follows:
This Trust Agreement, subscribed by Michael J. Young (hereinafter “Trustee“), hereby sets up a revocable trust for Justin M. Young (hereinafter “Beneficiary“), son of Michael J. Young, for the property known as 5550 Wood Ridge Drive, Columbus, Ohio (hereinafter “Real Estate“), more fully described in the Legal Description attached hereto as “Exhibit A” and made a part hereof.
Upon the death of Trustee, the title to said Real Estate shall vest in Justin M. Young, free and clear of all other claims except for real estate taxes, mortgages and other liens of record at the time of death of Trustee. Until such event of death of Trustee, possession and operation of said Real Estate shall remain fully under the control of Trustee, including the right to mortgage, pledge and otherwise assign said Real Estate as security to third parties during the period of this trust.
During the time of existence of this trust, title to said Real Estate shall be held in the name of Michael J. Young, Trustee.
Also attached to Young‘s motion was a quit claim deed, dated May 9, 2006, transferring the Wood Ridge property from “MICHAEL J. YOUNG” to “MICHAEL J. YOUNG, TRUSTEE of the Michael J. Young Trust dated January 24, 2006.” Young admits that the Wood Ridge property was titled in his name, individually, for several days in May 2006, for purposes of refinancing.
{¶6} UAP opposed Young‘s motion for summary judgment, arguing that the Trust Agreement did not establish a valid trust because Young was the sole trustee and
{¶7} The trial court denied Young‘s motion for summary judgment. The court concluded that no trust was created to shield the Wood Ridge property from Young‘s creditors because, pursuant to the Trust Agreement, Young was the sole trustee and sole beneficiary during the existence of the purported trust. The trial court also found that, even if a trust had been created, summary judgment was not warranted because genuine issues of material fact remained with respect to whether the conveyance of the Wood Ridge property to the trust amounted to a fraudulent transfer.
{¶8} With leave of court, UAP subsequently filed its own motion for summary judgment, arguing that it was entitled to judgment as a matter of law based on the trial court‘s finding that Young failed to create a valid trust. Young opposed UAP‘s motion and essentially asked the court to reconsider issues decided in the court‘s denial of his motion for summary judgment. Specifically, Young argued that the Trust Agreement named Justin Young (“Justin“) as beneficiary and that the trial court, thus, erroneously concluded that Young was the sole trust beneficiary. Young also disputed the trial court‘s finding of a genuine issue of material fact regarding the allegedly fraudulent nature of the conveyance of the Wood Ridge property and argued that UAP waived that issue by failing to plead a claim of fraudulent transfer in its complaint.
{¶10} In his timely appeal, Young asserts the following assignments of error:
Assignment of Error No. 1
THE TRIAL COURT ERRED IN NOT GRANTING SUMMARY JUDGMENT TO APPELLANT MICHAEL J. YOUNG AS THE PROPERTY WHICH WAS THE SUBJECT OF THE FORECLOSURE COMPLAINT WAS THE RES OF A VALID TRUST AND NOT SUBJECT TO A JUDGMENT LIEN AGAINST THE TRUSTEE AS AN INDIVIDUAL.
Assignment of Error No. 2
THE TRIAL COURT ERRED IN GRANTING APPELLEE SUMMARY JUDGMENT BASED ON THE ERRONEOUS CONCLUSION OF LAW THAT A NAMED BENEFICIARY OF A TRUST IS NOT A BENEFICIARY IF THE DISTRIBUTION TO THE BENEFICIARY DOES NOT OCCUR UNTIL THE TRUST TERMINATES.
Assignment of Error No. 3
THE APPELLEE‘S FAILURE TO JOIN THE TRUST OR THE BENEFICIARY AS A PARTY WILL PREVENT THE TRANSFER OF CLEAR TITLE TO THE SUBJECT PROPERTY AND WILL BE A FRAUD ON ANY PURCHASER AT PUBLIC SALE.
{¶11} We review a summary judgment de novo. Koos v. Cent. Ohio Cellular, Inc. (1994), 94 Ohio App.3d 579, 588, citing Brown v. Scioto Cty. Bd. of Commrs.
{¶12} Pursuant to
{¶14} A trust fundamentally involves a separation of the legal and equitable or beneficial interests in property. In re Estate of Bicknell (1958), 108 Ohio App. 51, 54. “If the legal title to the trust property and the beneficial interest become united in one person who is not under an incapacity, the trust fails.” Id. at 55. It is well-established in Ohio law that a trustee may not be the sole trustee and the sole beneficiary of a trust. See Hill v. Irons (1953), 160 Ohio St. 21, 27, citing 54 American Jurisprudence 117, Section 137. This principle is codified in
{¶15} UAP argued that the trust failed because Young was not only the sole trustee, but also the sole beneficiary in as much as he retained the complete beneficial enjoyment of the Wood Ridge property during his life (and thus during the existence of the trust). The trial court held that, despite the Trust Agreement‘s designation of Justin as a beneficiary, “the actual beneficial enjoyment and/or interest in the trust property and the legal title of that property are in the same person: Michael J. Young.” The trial court concluded that, because “Young is both the designated trustee and also the actual (if not designated) beneficiary of the trust during the term of the trust – and he thereby possesses both legal and beneficial interests with respect to the trust property – * * * the Trust Agreement does not actually create a trust that can operate to shield the at-issue property from this foreclosure action.”
{¶16} Upon review of the Trust Agreement and the applicable law, we conclude that the trial court erred in its finding that Young was the sole beneficiary and that the legal and equitable title to the trust property merged in Young. In effect, the trial court concluded that Justin is not a beneficiary of the purported trust, despite contrary language in the Trust Agreement, because Young, the settlor, retains the entire present beneficial enjoyment of the trust property during his lifetime and Justin is not entitled to
{¶17} The Supreme Court of Ohio addressed an interest similar to that granted Justin under the Trust Agreement here in First Natl. Bank of Cincinnati v. Tenney (1956), 165 Ohio St. 513. In that case, a trust agreement provided that the settlor, who retained the power to amend, revoke or terminate the trust during her lifetime, was to be paid all of the net income from the trust property during her lifetime and that, upon the settlor‘s death, all trust property and accumulated income be paid over to her sister. At paragraph two of the syllabus, the court held that “[a]n inter vivos trust which reserves to the trustor the income for life and an absolute power to revoke during his lifetime, with a remainder over at his death, creates in the remainderman a vested interest subject to defeasance by the exercise of the power to revoke.” Although no one other than the settlor was entitled to share in the trust property or income until the settlor‘s death, the court treated the trust agreement as creating a valid inter vivos trust. The court noted that, unlike a will, which speaks from the date of the testator‘s death, “a trust speaks from the date of its creation.” Id. at 518. Thus, the court concluded that the beneficiary‘s interest vested upon creation of the trust. Id. at 518-19. See also Adams v. Fleck (1961), 171 Ohio St. 451, 456.
{¶18} Like the Trust Agreement here, the trust agreement in Tenney provided that the settlor retained the beneficial enjoyment of the trust property during her lifetime and provided for the complete transfer of the trust property to an identified beneficiary
{¶19} Unlike in Tenney, Young not only reserved the right to revoke the trust and to retain the beneficial enjoyment of the trust property for his life, but also serves as the sole trustee. That fact, however, does not compel a different result.
{¶20} The official comment to
* * * The doctrine of merger has been inappropriately applied by the courts in some jurisdictions to invalidate self-declarations of trust in which the settlor is the sole life beneficiary but other persons are designated as beneficiaries of the remainder. The doctrine of merger is properly applicable only if all beneficial interests, both life interests and remainders, are vested in the same person, whether in the settlor or someone else. An example of a trust to which the doctrine of merger would apply is a trust of which the settlor is sole trustee, sole beneficiary for life, and with the remainder payable to the settlor‘s probate estate. * * *
UAP argues that the example in the official comment requires a finding of merger here, even though, under the Trust Agreement‘s terms, the Wood Ridge property is to be transferred to Justin upon Young‘s death rather than to Young‘s probate estate. UAP‘s argument directly contravenes the comment, which notes that merger does not apply simply because the settlor is the sole trustee and sole life beneficiary. Despite UAP‘s contrary assertions, the doctrine of merger applies in the stated example precisely because of the payment of the remainder to the settlor‘s estate, rather than to an identified beneficiary, upon the settlor‘s death. Where the settlor is the sole trustee, sole life beneficiary, and where the remainder is payable to the settlor‘s probate estate, “all beneficial interests, both life interests and remainders, are vested in the same person.”
{¶21} We also reject UAP‘s argument that, to the extent a trust was created, it was a testamentary trust, subject to the requirements of a will.
{¶22} If a property owner intends and takes steps to create a trust by declaration, its validity as an inter vivos trust is not affected by the fact that the settlor serves as sole trustee, that the interests of beneficiaries other than the settlor take effect in possession or enjoyment only after the settlor‘s death, or that those interests are contingent or subject to conditions subsequent, including the exercise of a power of revocation, withdrawal or amendment reserved to the settlor. Restatement (Third) of Trusts (2003), Creation of Trusts, Section 25(1), Comment b. Illustration 3 to that comment states as follows:
By an unattested instrument, O declares herself trustee of certain of her property, to hold and manage it in her discretion and to pay the income to herself or to others, or to accumulate income, and on her death to distribute the property to her issue. She reserves the power to revoke the trust and the power to amend its terms. O dies without having exercised either of these powers. O‘s issue are entitled to the trust property in accordance with the terms of the declaration of trust. * * *
{¶23} For these reasons, we sustain Young‘s second assignment of error. We do not, however, address whether there may be other bases, not argued in the trial court or on appeal, to support a judgment for UAP. In particular, neither party addressed the applicability of
{¶24} We now turn to Young‘s first assignment of error. While Young‘s second assignment of error revolved around the trial court‘s entry of summary judgment in favor of UAP, his first assignment of error asks this court to further conclude that the trial court erred by denying Young‘s own motion for summary judgment. Young contends that he was entitled to summary judgment on UAP‘s foreclosure complaint because the
{¶25} The Ohio Uniform Fraudulent Transfer Act permits a creditor to challenge a debtor‘s transfer of property in specified circumstances and to avoid the transfer to the extent necessary to satisfy the creditor‘s claim.2 See
{¶26} While Young responded to UAP‘s fraudulent transfer arguments in his reply memorandum in support of his motion for summary judgment, he did not substantively address those arguments. Instead, he argued that UAP‘s failure to plead a claim of fraud or fraudulent transfer in its complaint precluded the trial court from considering those issues.
{¶27} The Supreme Court of Ohio expressly dismissed the argument raised here by Young in Wagner v. Galipo (1990), 50 Ohio St.3d 194. In Wagner, the plaintiffs filed a foreclosure action to have property sold to satisfy a defendant‘s debt, which had been reduced to judgment. The defendants, the debtor and his wife, moved for summary judgment, arguing that the defendant-debtor had no interest in the subject property, based on a deed purporting to create an “estate by the entireties” in the defendants. The trial court granted summary judgment in favor of the plaintiffs, but the court of appeals reversed and remanded for a factual determination of whether the estate by the entireties was validly created. On appeal to the Supreme Court of Ohio, the defendants argued that they were entitled to summary judgment on the foreclosure complaint, in part because the plaintiffs’ complaint contained no claim that the estate by the entireties was created by a fraudulent transfer. The Supreme Court explained that the
{¶28} Based on the evidence in the record when the trial court denied Young‘s motion for summary judgment, the court did not err by finding genuine issues of material fact as to whether the transfer of the Wood Ridge property to the trust constituted a fraudulent transfer. Specifically, genuine issues of material fact remained as to whether Young transferred the Wood Ridge property with actual intent to defraud, hinder or delay UAP. The statutory elements are straight-forward. “[P]ursuant to
{¶29} With respect to the second statutory element, the existence of fraudulent intent is to be determined based on the facts and circumstances of each case. Stein v. Brown (1985), 18 Ohio St.3d 305, 308. Ohio has recognized that proof of actual intent to defraud, hinder or delay will often be difficult to procure. Id. As a result, courts look to inferences from the circumstances surrounding the transaction and the relationship of the parties. Id. at 308-09. A creditor may establish a debtor‘s fraudulent intent if the circumstances demonstrate various “badges of fraud,” now statutorily defined in
{¶30} Here, evidence going to at least three badges of fraud demonstrates a genuine issue of material fact as to whether Young transferred the Wood Ridge property with actual intent to defraud, hinder or delay UAP. First, the record contains evidence that Young transferred the Wood Ridge property “to an insider” and that Young retained possession and control of the Wood Ridge property after the transfer. See
{¶31} The timing of the creation of the trust and the transfer of the Wood Ridge property are also relevant to the question of whether Young acted with an actual intent to defraud, hinder or delay UAP. The evidence before the trial court established that UAP‘s counsel mailed Young a letter dated January 6, 2006, identifying various breaches of the commercial lease that Young personally guaranteed and stating that UAP would pursue collection against Young‘s personal assets were the breaches not cured. Two and a half weeks later, Young executed the Trust Agreement. Additionally, UAP filed the underlying lawsuit against Young on March 1, 2006, two months before the May 9, 2006 quit claim deed. From that evidence, reasonable minds could conclude that Young transferred the Wood Ridge property after being threatened with suit by UAP and shortly before incurring a substantial debt to UAP, two additional badges of fraud. See
{¶32} Young disputes the evidence regarding the timing of the various actions and contends that the trial court based its finding of genuine issues of material fact on a misunderstanding of the timeline in this case. Specifically, Young maintains that the
{¶33} In support of his argument regarding the factual timeline, Young relies on evidence filed after the trial court denied his motion for summary judgment. The additional evidence, attached to Young‘s memorandum in opposition to UAP‘s motion for summary judgment, includes the following: (1) a quit claim deed, recorded September 22, 2005, transferring the Wood Ridge property from “HOME INVESTORS, INC., TRUSTEE” to “MICHAEL J. YOUNG, TRUSTEE“; and (2) a deed, recorded May 5, 2006, transferring the Wood Ridge property from “Michael J. Young, Trustee by the power conferred by the Michael J. Young Trust, Dated January 24, 2006” to
{¶34} Finally, by his third assignment of error, Young maintains that UAP‘s failure to join Young, in his capacity as trustee, or Justin, as the trust beneficiary, in this action will prevent the transfer of clear title to the Wood Ridge property. Because the trial court concluded that the Trust Agreement failed to create a trust, it did not address Young‘s arguments regarding the necessity of joining either Justin or Young, in his capacity as trustee, as parties to this action.
{¶35} Young admits in his appellate brief that, even were we to conclude that necessary parties were not joined in this action, the absence of those parties would not be sufficient to warrant dismissal of UAP‘s complaint. Rather, Young argues only that the absence of necessary parties would preclude summary judgment in favor of UAP. Because we have already concluded that the trial court erred by granting UAP‘s motion
{¶36} In conclusion, we overrule Young‘s first assignment of error, sustain Young‘s second assignment of error, and render moot Young‘s third assignment of error. Accordingly, we reverse the judgment of the Franklin County Court of Common Pleas and remand this matter for further proceedings consistent with this decision and the law.
Judgment reversed and cause remanded.
BROWN and CONNOR, JJ., concur.