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In re Cleopatra Cameron Gift Trust

Supreme Court of South Dakota

June 26, 2019

In the Matter of the CLEOPATRA CAMERON GIFT TRUST, Dated May 26, 1998, and the CAMERON FAMILY EXEMPT GST TRUST FBO CLEOPATRA CAMERON, created under the CAMERON FAMILY TRUST, dated December 20, 1996, as amended.

          ARGUED ON NOVEMBER 13, 2018

          APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT LINCOLN COUNTY, SOUTH DAKOTA THE HONORABLE NATALIE DAMGAARD Judge.

          DREW DUNCAN AMANDA W. ENGEL of The Duncan Law Firm, LLP Sioux Falls, South Dakota Attorneys for appellant Christopher Pallanck.

          COREY THOMAS DENEVAN of Boyce Law Firm, LLP Sioux Falls, South Dakota Attorneys for appellee Trident Trust Company.

          REBECCA L. WILSON of Myers Billion, LLP Sioux Falls, South Dakota Guardian Ad Litem for appellee minor children C.S.C.-P. and T.C.C.-P.

          JAYNA M. VOSS BOBBI L. THURY of Legacy Law Firm, P.C. Sioux Falls, South Dakota Attorneys for appellee Cleopatra Cameron.

          SALTER, Justice.

         [¶1.] Trust beneficiary Cleopatra Cameron filed a petition in the circuit court requesting a determination of whether the trust's spendthrift provision prohibits direct payments of her child support obligation to her ex-husband, Christopher Pallanck. A California family court previously ordered the direct payments as part of the couple's divorce, citing a particular feature of California trust law. The circuit court concluded the direct payment order was a method of enforcing Cleopatra's child support obligation to be determined under local law and, therefore, not entitled to full faith and credit. The court further determined that South Dakota law recognizes the validity of spendthrift clauses and their prohibition upon compulsory direct payments to a beneficiary's creditors, like Christopher, who now appeals. We affirm.

         Background

         [¶2.] Cleopatra's father, Arthur A. Cameron Jr., established the Cameron Family Trust for his own benefit during his life. He also established the Cleopatra Cameron Irrevocable Gift Trust, under which Cleopatra was the primary beneficiary. Arthur died on September 2, 2001, and the Family Trust was partitioned into individual shares for each of his three children, including a share for Cleopatra. This share was further divided into the GST[1] Exempt Trust and the Non-GST Exempt Trust. Spendthrift provisions in the Gift Trust, Non-GST Exempt Trust, and GST Exempt Trust (collectively the Trust) prohibit the trustee from making direct payments to Cleopatra's creditors and grant the trustee the sole discretion to make distributions.

         [¶3.] Cleopatra and Christopher were married in 2005 and lived in California with their two young children. Christopher commenced a divorce action in January 2009 in Santa Barbara County, California. During the pendency of the divorce, the California family law court (the family court) entered interim orders granting Christopher sole custody of the children, as well as establishing temporary child support and spousal support obligations for Cleopatra. At the time, Cleopatra received Trust distributions of $40, 000 per month which, when considered with Christopher's relatively modest income from part-time employment, yielded a monthly child support obligation for Cleopatra of $8, 863. In addition, the court ordered Cleopatra to pay Christopher interim spousal support of $14, 761 per month and interim attorney's fees of $50, 000.

         [¶4.] The family court joined the Trust in the divorce action on February 3, 2009, to facilitate regular payment of the interim financial obligations it had imposed upon Cleopatra. The family court later confirmed that its intent was to utilize a particular feature of California trust law to require the Trust to directly fund Cleopatra's child support obligation.[2]

         [¶5.] On March 10, 2009, the family court conducted a hearing on Christopher's motion to show cause to determine whether Cleopatra and Wells Fargo, who were co-trustees at the time, should be held in contempt for failing to pay temporary child support. The court found that Cleopatra and Wells Fargo acted in bad faith and abused their discretion when they failed to satisfy the child support obligation and issued the following order:

The [c]ourt will order the Bank, and its successor, and Mother to pay child support, spousal support, and attorney fees from Mother's Trust including any other ordered awards in this action until further order of the [c]ourt. Wells Fargo Bank and any successor are joined in this action until further order of [c]ourt.

(Emphasis added.)

         [¶6.] Wells Fargo objected on the basis that the family court had no authority to order direct payments from a spendthrift trust to a creditor or child support obligee. However, it ultimately complied with the March 10, 2009, order, made the payments directly to Christopher, and did not seek interlocutory appellate review.

         [¶7.] Around the time the divorce action was beginning, Cleopatra and Wells Fargo requested approval from a different California judge sitting as a probate court to resign their positions as co-trustees. The probate court granted the request and approved the appointment of BNY Mellon (BNY) as the sole successor trustee in April 2009, after BNY agreed to be bound by the family court's March 10 child support and spousal support order.

         [¶8.] At this juncture, it seems helpful to explain the provisions of California trust law which are at the heart of this appeal. Where, as here, child support obligors are trust beneficiaries who do not have the ability to compel distributions, California's probate code, nevertheless, allows a court to "order the trustee to satisfy . . . [a] support judgment out of . . . future payments that the trustee, pursuant to the exercise of the trustee's discretion, determines to make to or for the benefit of the beneficiary." Cal. Prob. Code § 15305(c) (West 2019) (emphasis added). A California Court of Appeal panel has interpreted this text to authorize an order compelling a trustee to satisfy an unpaid support obligation where the trial court finds the trustee has exercised its discretion in bad faith to deny a request for a distribution. Ventura Cty. Dep't of Child Support Servs. v. Brown, 11 Cal.Rptr.3d 489, 498 (Cal.Ct.App. 2004). Relying upon the fact that the trustee had not exercised its discretion to satisfy a child support obligation, the Ventura County court concluded:

[A] court may overcome the trustee's discretion under the narrow circumstances present here: when there is an enforceable child support judgment that the trustee refuses to satisfy. Under these circumstances, the trial court may order the trustee to ...

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