January 20, 2012

Suing a Trust

One of the more common fallacies in regards to trusts is the notion that a trust itself is the appropriate party to sue. Instead, the trustee of the trust is the appropriate party to sue. This distinction was raised in a recent California court case with unfortunate results for one party.

Portico Management Group, LLC v. Harrison (2011) 202 CA4th 464

Portico Management Group, LLC contracted with the Harrison Children's Trust and the Harrison Family Enterprise II, a limited partnership, to purchase an apartment building it owned jointly. Naturally, the sale was never completed and Portico sued the Trust and limited partnership, and ultimately was awarded $1.6M through arbitration. In 2007, Portico had the arbitration award entered by the trial court but judgment was entered against the Trust rather than the Trust's trustees. Portico then sought to enforce the judgment against the Trust but the Trust's trustees objected because Portico had obtained a judgment against the wrong party, the Trust as opposed to the Trust's trustees. The trial court ruled in trustees' favor and Portico appealed. 

The appellate court affirmed the trial court's decision because the trustee is the real party in interest, not the trust itself, and thus judgment had been entered against the wrong party. Still, even though the arbitrator incorrectly listed the wrong party as the judgment debtor, Portico had an opportunity to correct this mistake by either utilizing the arbitrator or the trial court within certain time periods. Yet, Portico failed to act in a timely manner and deprived itself of the opportunity to correct this mistake. Thus, the appellate court ruled that Portico could not levy upon trust assets for recovery.

The obvious takeaway from this case, is that if a litigant ever sues a trust, they must name the trustee in the complaint or else you might end up with a judgment against an entity, namely a trust, that does not fall within the statutory definition of a judgment debtor and recovery will be thwarted.