August 4, 2009
ADRIANNE A/K/A "ANDEE" C. LERMAN, PLAINTIFF-RESPONDENT,
DAVID LERMAN, DEFENDANT.
THE PEARL LERMAN REVOCABLE TRUST, RICHARD B. SABRA AND ROY LERMAN, TRUSTEES, APPELLANTS.
On appeal from the Superior Court of New Jersey, Family Part, Bergen County, Docket No. FM-02-26962-87.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 6, 2009
Before Judges Winkelstein and Gilroy.
Appellants, The Pearl Lerman Revocable Trust (the Trust), and its trustees, Richard B. Sabra and Roy Lerman, appeal from the November 9, 2007 order of the Family Part directing that Bank of America (BOA) turn over $50,000 of the Trust's funds to the Bergen County Probation Services Division (Probation) in partial payment of defendant David Lerman's alimony and child support arrearages. We reverse.
On February 26, 1976, Florida resident Pearl Lerman (the grantor) established the Trust. On May 10, 2002, the grantor executed the "Third Amended and Restated Pearl Lerman Revocable Trust U/A/D February 26, 1976." The grantor had three children: Toby L. Appel, Roy Lerman, and defendant. On the grantor's death sometime prior to December 2004, the Trust's balance of approximately $1,500,000 was evenly divided amongst the grantor's three children. Pursuant to Article 7.2 of the Trust, Roy Lerman and Toby Appel each received approximately $500,000 outright. The remaining funds were distributed to a trust established under Article VIII of the Trust (David's Trust).
Defendant is the lifetime beneficiary of David's Trust. Paragraph 8.1 of Article VIII provides that disbursements of funds from David's Trust are within the Trustees' absolute discretion.
The Trustee may, in the Trustee's sole and absolute discretion, distribute to or for the direct or indirect benefit of DAVID LERMAN so much of the net income and/or principal from David's Trust, up to the whole thereof, during his lifetime, as Trustee deems advisable. DAVID LERMAN nor any other person or entity shall [have] any right to require or compel Trustee to make any distribution for any purpose whatsoever. Trustee is expressly exonerated and held harmless from any and all liability to DAVID LERMAN or any other person or entity by reason of the exercise or non-exercise of Trustee's discretionary powers granted herein. Any portion of the net income not so distributed shall be added to and become principal of David's Trust annually.
Pursuant to Paragraph 8.2 of Article VIII of the Trust, upon defendant's death, the balance of his share is to be distributed to his lineal descendents, per stirpes. Defendant has two children from his marriage with plaintiff, both of whom are emancipated.
Article IX of the Trust provides for a restriction against alienation. The Article provides:
No share or interest of any beneficiary shall vest in the beneficiary until actually paid or delivered to him or her by Trustee; nor shall any share or interest of any beneficiary be liable for his or her debts, or be subject to the process or seizure of any [c]court, or be an asset in bankruptcy of any beneficiary. No beneficiary shall have the power to anticipate, pledge, assign, sell, transfer, alienate or otherwise encumber his or her interest in any trust created hereunder in any way, or in the income therefrom; nor shall any interest in any manner be liable for, of subject to, the debts, liabilities or obligations of any such beneficiary or claims of any sort against such beneficiary.
Following distribution of Roy Lerman's and Toby Appel's shares, the Trust's remaining assets were transferred into the Trust's two accounts at BOA in Florida. One account, ending in Nos. -2759, is in the name of the Trust and has a balance of $508,455.05. The funds in that account are held as security for a letter of credit the Trustees authorized the BOA to issue at defendant's request to secure a loan from an Australian bank to a business in which defendant has an interest. The second account ending in Nos. -6055 is in the name of the Trust "F/B/O David Lerman," and has a balance of $66,574.06.
In 1987, plaintiff Adrianne Lerman filed a complaint for divorce against defendant in the Superior Court of New Jersey. On August 15, 1990, the trial court entered a dual judgment of divorce. On December 18, 1992, the court entered a judgment against defendant for failure to pay child support. On April 18, 1996, the court entered an amended judgment against defendant in the amount of $298,873 for alimony, child support arrearages, and equitable distribution. As of November 9, 2007, defendant owed plaintiff $657,363.05 on the amended judgment and for additional alimony and child support arrearages.
In October 2007, following his arrest in California for failure to pay child support, defendant was extradited to New Jersey and incarcerated at the Bergen County Jail. On October 5, 2007, Probation, pursuant to Rule 5:7-5, obtained a writ of execution and served it on a BOA branch office in Hackensack, requesting that BOA place a hold on the "cash or cash-equivalent assets that are in your possession or that are being managed by you on behalf of David Lerman at the time this Writ is served upon you." BOA froze the account ending in Nos. -6055.
On October 17, 2007, the trial court conducted an enforcement hearing to determine defendant's ability to pay the judgment and his support obligations. Pursuant to a "special voluntary appearance" without waiving jurisdictional objections, the Trust, through its trustees, participated in the hearing. The trustees testified concerning the nature of the Trust and the pledge of the funds in the BOA account ending in Nos. -2759 as security for the letter of credit issued to the Australian bank. The court determined that defendant would not be released from jail unless and until the Trust paid Probation the funds in the BOA account ending in Nos. -6055.
On October 26, 2007, Probation filed a motion to turn over the funds in the BOA account ending in Nos. -6055, and the Trust, again by special voluntary appearance, filed opposition and cross-moved to release the levy on the account. On November 9, 2007, the court entered an order, supported by an oral decision, directing that the BOA pay to Probation, on behalf of plaintiff, $50,000 out of the funds from the account ending in Nos. -6055. In so ordering, the trial court reasoned:
And I'm going to order that $50,000 of the funds in the [BOA] account be turned over to the Probation Department.
With regard to the [T]rust's arguments, I am very concerned about the fact that the trustees voluntarily presented themselves before the [c]court and yet, they claim that the [c]court does not have the authority to turn over the funds because they have the exclusive decision to decide what is in [defendant's] interest. And even though they believe that it [is] in his interest to be released from the jail, they choose not to provide the funds for that to occur.
The behavior of the trustees in this litigation, in my view, has been not in the best interest of [defendant] and not consistent with the public policy of the [S]tate of New Jersey, that the payment of child support is the paramount debt that any person could have. It is the most important obligation that a person has, is to support their children.
On November 13, 2007, appellants filed a verified emergency complaint for declaratory relief in the 17th Judicial Circuit in Broward County, Florida. The complaint alleged that the November 9, 2007 turnover order was invalid because the New Jersey court did not have jurisdiction over the Trust, and the funds in the BOA account did not belong to defendant.
On January 7, 2008, the 17th Judicial Circuit issued a restraining order prohibiting the parties from transferring, disbursing or dissipating the Trust's assets pending further order of the court. The Florida proceedings are stayed pending this appeal.
On appeal, appellants argue that for the trial court to have had authority to direct the turnover of the funds in the BOA account to Probation, the court must have had either jurisdiction over the Trust and/or its trustees, or over the funds in the bank account. Appellants contend the court had neither. Appellants assert that a writ of execution to enforce a judgment may only be levied upon assets of the debtor and the funds contained in the bank account belonged to the Trust, not defendant. Appellants further argue the Trust is governed by the laws of the State of Florida, and under that state's law, only disbursements from, and not the corpus of, the Trust can be garnished.
On the jurisdiction issue, plaintiff concedes that the trial court did not have personal jurisdiction over the Trust when it entered the turnover order; rather, plaintiff counters that the court "properly exercised its quasi in rem jurisdiction over the res of the [T]rust on deposit with [BOA], which has branches in New Jersey." We disagree.
Appellate review of a trial court's decision on motion to dismiss a complaint for lack of jurisdiction is de novo. Mastondrea v. Occidental Hotels Mgmt. S.A., 391 N.J. Super. 261, 268 (App. Div. 2007). "We review the court's factual findings with respect to jurisdiction to determine whether they were supported by substantial, credible evidence." Ibid.
The primary process to enforce a judgment is a writ of execution. R. 4:59-1(a). A copy of the fully endorsed writ shall be served "on the judgment-debtor after a levy on the debtor's property has been made by the sheriff or other officer . . . ." Ibid. (emphasis added). Accordingly, by its own terms, a writ of execution to enforce a judgment may only be made against property of the judgment-debtor. Plaintiff served the writ on the Hackensack branch of the BOA, seeking to collect funds to partially satisfy a judgment against defendant.
A court's "power to act at all may be based upon either personal jurisdiction, in rem jurisdiction or quasi in rem jurisdiction, and the extent of its power to act will be circumscribed by the predicates of whichever of these jurisdictional bases underlies its control of the controversy." Drobney v. Drobney, 146 N.J. Super. 317, 322 (App. Div. 1977). In explaining the difference between in rem and quasi in rem jurisdiction, Judge Pressler stated:
In rem jurisdiction is adequate where the bases of the relief sought involves only defendant's status or action vis-à-vis specific tangible property or a specific, tangible thing which is subject to the court's control and the nature of the remedy pursued is limited to affecting defendant's interest in that res. Quasi in rem jurisdiction is available where the bases of the relief sought is personal to defendant but where the nature of the remedy is limited to the defendant's interest in a res which has been subjected to the court's control by the issuance of a writ of attachment. [Ibid.]
Accordingly, for a court to have limited in rem or quasi in rem jurisdiction over a non-resident party, that party must possess an interest in the res under the control of the court. In addition, the party must also have sufficient contacts with the forum state to meet the fairness standard of International Shoe Co. v. Washington, 326 U.S. 310, 319, 66 S.Ct. 154, 161, 90 L.Ed. 2d 95, 104 (1945). Shaffer v. Heitner, 433 U.S. 186, 213-14, 97 S.Ct. 2569, 2584; 53 L.Ed. 2d 683, 703-04 (1977); Dickstein v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 295 N.J. Super. 550, 560 (App. Div. 1996), certif. denied, 149 N.J. 141 (1997).
The Trust is a non-self-settled trust established by a Florida resident, and comprised solely of the settlor's property. Neither trustee is a resident of New Jersey. Sabra is a resident of Florida, and Roy Lerman is a resident of New York. Defendant is the lifetime beneficiary of David's Trust. Other than the trustees subjecting the Trust to the special voluntary appearance to contest jurisdiction, the Trust has had no other contact with New Jersey.
Plaintiff argues that the trial court properly exercised quasi in rem jurisdiction over the Trust's assets at BOA's branch in Hackensack, citing Drobney, supra, 146 N.J. Super. at 325. Plaintiff's reliance on Drobney is misplaced.
In Drobney, the plaintiff-wife and the defendant-husband were divorced in the State of Colorado in 1975. Id. at 320. Pursuant to an earlier property settlement agreement, the parties divided the marital assets between them, including proceeds of three mortgages on properties located in New Jersey. Ibid. Following the plaintiff's return to New Jersey, she filed a complaint against the defendant, who remained a Colorado resident, seeking to increase the amount of child support he was obligated to pay pursuant to the property settlement agreement. Id. at 321. The defendant was served with process in Colorado, together with the plaintiff's motion for pendente lite relief, requesting "that any order of increased child support inferentially pendente lite or final, be directed to be satisfied directly out of defendant's share of the New Jersey mortgage proceeds." Ibid. On motion of the defendant, the trial court dismissed the complaint for lack of personal jurisdiction. Ibid.
On appeal, we reversed. Id. at 320. We concluded that the trial court had quasi in rem jurisdiction to the extent of the defendant's receipt of the proceeds from the three New Jersey mortgages.
Since [the plaintiff] expressed her contentment both below and in this court with quasi in rem jurisdiction and since defendant's share of the mortgage proceeds could patently be brought within the control of the court by writ of attachment and are sufficient to provide her with the full final relief she seeks, the trial judge, rather than dismissing the complaint, should have regarded plaintiff's application as one for issuance of a writ of attachment and so proceeded pursuant to the applicable provisions of the statutes and rules governing attachment of personal property. [Id. at 325.]
Here, contrary to Drobney, the funds in the bank account did not belong to defendant, thus allowing the court to enforce an obligation against him to the extent of his interest in the account already subject to the court's control; rather, the funds in the bank account belonged to the Trust.*fn1 Pursuant to its own terms, the Trust is governed by Florida law. Florida recognizes the validity of spendthrift trusts. Arellano v. Bisson, 847 So. 2d 998, 1000 (Fla. Dist. Ct. App. 2003). The right of a third party to garnish assets of a beneficiary of a spendthrift trust is limited to disbursements from the trust and "[i]f disbursements are wholly within the trustee's discretion, the court may not order the trustee to make such disbursements." Bacardi v. White, 463 So. 2d 218, 221 (Fla. 1985).*fn2 Accordingly, we reverse that part of the order of November 9, 2007, directing BOA to turn over $50,000 of the Trust's funds in the bank account ending in Nos. -6055.