Society of Lloyd's v. Estate John McMurray ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-1965
THE SOCIETY OF LLOYD’S,
Plaintiff-Appellee,
v.
ESTATE OF JOHN WILLIAM MCMURRAY,
deceased, judgment debtor,
Defendant,
and
HARRIS TRUST AND SAVINGS BANK,
executor of the Estate of John William
McMurray and trustee of John William McMurray’s
trust dated September 18, 1996,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 6111--Blanche M. Manning, Judge.
Argued November 5, 2001--Decided December 11, 2001
Before COFFEY, ROVNER, and EVANS, Circuit
Judges.
EVANS, Circuit Judge. Harris Trust and
Savings Bank, the trustee of a trust
created by John William McMurray, appeals
from the district court’s order that it
pay a million dollar judgment that the
Society of Lloyd’s/1 obtained against
McMurray. McMurray died on August 28,
1997, while Lloyd’s was suing him in an
English court.
Lloyd’s is the regulator of an English
insurance market in London. It is not an
insurer. Individual underwriting members
of Lloyd’s, known as "Names,"
independently assume insurance risks, and
each Name faces personal liability, much
like a partner in a general partnership.
See Indiana Gas Co. v. Home Insurance
Co., 141 F.3d 314, 316 (7th Cir. 1998).
McMurray was a Lloyd’s Name.
In the late 1980’s and early 1990’s, the
Names incurred underwriting losses of
more than $12 billion. Many could not
obtain reinsurance. To resolve this
crisis, Lloyd’s introduced a
reconstruction and renewal plan under
which it created Equitas Reinsurance, a
company that would reinsure the Names. As
part of the plan, Lloyd’s required each
Name to pay a reinsurance premium by
September 11, 1996.
Most Names voluntarily paid their
premiums. Some, however, including
McMurray, refused to pay. Lloyd’s
suedMcMurray and the other noncomplying
Names, and England’s High Court of
Justice found them liable for the
reinsurance premium. Lloyd’s obtained a
judgment against McMurray on March 11,
1998, for $551,644.97 plus interest,
which totaled about $827,000. The
judgment, with interest, is now worth
about $1 million.
One week after the Equitas premium
payment deadline expired, but before
Lloyd’s filed suit against him, McMurray
created a trust into which he transferred
the bulk of his real and personal assets,
worth about $3.8 million. McMurray
appointed himself sole trustee and made
the trust completely revocable and
amendable. The trust instrument named
McMurray as the sole beneficiary during
his life, stating "the trustee shall pay
to me, or on my signed order, all the net
income and so much of the principle as I
may from time to time direct in writing."
In unmistakably clear language, as we
shall soon see, the trustee was directed
to pay McMurray’s debts after his death.
On March 5, 1998, the circuit court for
Cook County, Illinois, opened a probate
case for McMurray’s estate. The estimated
value of McMurray’s estate, which
excluded the trust assets, was only
$400,000./2 On March 20, 1998, Harris,
acting as the administrator of
McMurrary’s estate (it was, of course,
also the trustee), sent claims notices to
Lloyd’s and Equitas notifying them of
McMurray’s death. The notices stated
that, under Illinois law, claimants have
a limited period in which to file claims
against the probate estate.
Lloyd’s filed a registration of its
English judgment in the United States
District Court for the Northern District
of Illinois on September 15, 1999. The
next day it filed a citation to discover
assets in McMurray’s estate and trust.
Harris filed a motion to quash Lloyd’s
citation. The district court referred the
case to Magistrate Judge Rosemond, who
ruled that the English judgment was
valid, conclusive, final, and
enforceable. The judge granted the motion
to quash with regard to the estate assets
because Lloyd’s filed its claim after the
expiration of the 2-year period for
probate claims. See 755 ILCS 5/18-12(b)
(stating that all claims against an
estate are barred 2 years after death).
But the judge denied the motion to quash
with respect to the trust, holding that
its assets were not part of McMurray’s
probate estate and, therefore, not
subject to the 2-year enforcement period
for probate claims. The general statute
of limitations for enforcing foreign
money judgments is 7 years. See 735 ILCS
5/12-620; La Societe Anonyme Goro v.
Conveyor Accessories, Inc., 286 Ill. App.
3d 867, 869-70 (2nd Dist. 1997).
The district court entered judgment for
Lloyd’s, which filed a motion for
turnover of trust assets. In response,
the district court clarified its order,
ordering Harris to turn over trust assets
to satisfy the judgment. The district
court’s turnover order is a final
judgment, which we review de novo. See
Denius v. Dunlap, 209 F.3d 944, 949 (7th
Cir. 2000).
Harris argues that the district court
should not have entered the turnover
order without conducting a hearing on the
trust’s liability for the debt. The
district court’s initial decision, Harris
argues, merely affirmed the magistrate
judge’s order granting discovery of the
trust assets. Thus, Harris argues that
the district court did not give it an
adequate opportunity to argue the merits
of the trust’s potential liability. A
district court may, however, summarily
compel the application of discovered
assets to satisfy a judgment. See
Matthews v. Serafin, 319 Ill. App. 3d 72,
77 (3rd Dist. 2001); Mid-American
Elevator Co. v. Norcon, Inc., 287 Ill.
App. 3d 582, 587 (1st Dist. 1996). This,
of course, is consistent with the sound
principle that statutes authorizing a
judgment creditor to discover the assets
of a debtor or of a third party in order
to enforce a judgment are to be broadly
construed. 735 ILCS 5/2-1402. See Chicago
v. Air Auto Leasing Co., 297 Ill. App. 3d
873, 878 (1st Dist. 1998). The Illinois
statute vests courts with broad powers
not only to order discovery, but also to
compel application of discovered assets
to satisfy a judgment. See id. (citing
Kennedy v. Four Boys Labor Serv., Inc.,
279 Ill. App. 3d 361 (2nd Dist. 1996)).
Additionally, it is clear from the
district court’s initial opinion that
Harris did indeed argue the merits of the
trust’s potential liability. Harris
argued that Lloyd’s judgment was against
McMurray individually and not against the
trust. The district court dismissed this
contention because it was "wholly
unsupported." The magistrate judge’s
order likewise indicated that Harris
argued that the trust was not liable
because it did not contain McMurray’s
"property." Thus, it appears that Harris
raised arguments on the merits of the
trust’s liability but simply failed, to
the satisfaction of the district court,
to support them adequately.
Harris repeats its argument here that
the trust is not liable because once
McMurray transferred his assets into the
trust, they were no longer his property.
The trust instrument provides, however,
in crystal-clear language, that at
McMurray’s death "the trustee shall pay
from the residuary trust estate without
reimbursement my legally enforceable
debts." We construe trusts according to
their plain and unambiguous language. See
Dunker v. Reichman, 841 F.2d 177, 180
(7th Cir. 1988); Williams v. Springfield
Marine Bank, 131 Ill. App. 3d 417, 419-20
(4th Dist. 1985). Here, the trust
expressly directed Harris to pay
McMurray’s legally enforceable debts.
Harris argues that the judgment against
McMurray is no longer legally enforceable
because the 2-year period for filing
claims against probate estates has
passed. The argument goes something like
this: (1) McMurray’s trust directs the
trustee to pay McMurray’s "legally
enforceable debts"; (2) for a debt to be
"legally enforceable" against McMurray,
it must be enforceable against his estate
because the trust assets are now separate
property owned by another entity; and (3)
because Lloyd’s missed the probate filing
deadline, it does not have a legally
enforceable debt against McMurray’s
estate. This line of reasoning depends on
a tortured reading of the trust
instrument.
Although the judgment is no longer
legally enforceable against McMurray’s
estate, that fact is irrelevant for
purposes of enforcing it against the
trust. The trust instrument, as we said,
directed the trustee to pay McMurray’s
debts. It did not instruct the trustee to
wait until McMurray’s creditors sued to
collect. Nor did it instruct the trustee
to hide behind legal technicalities in an
attempt to avoid paying valid debts.
Therefore, Harris had a duty to pay
Lloyd’s upon McMurray’s death once the
English court entered judgment against
McMurray. The debt became legally
enforceable at that point. Harris ignored
this duty.
Allowing Harris to escape the debt would
not only violate the terms and the spirit
of McMurray’s trust but would also be
inequitable. Harris had notice of the
judgment well within the probate
limitations period--which might not make
a legal difference, but which certainly
makes an equitable difference. This is
not a situation in which a long-lost
creditor seeks to enforce a forgotten
debt years after the decedent’s death,
compromising the State of Illinois’
interest in swift resolution of the
decedent’s affairs. Harris simply seeks
to evade a valid debt of which it had
prior and timely notice. Lloyd’s notified
McMurray of the reinsurance premium in
July 1996. It obtained judgment against
him in March 1998, more than a year
before the probate enforcement period ran
in August 1999. There is no question that
the debt was legally enforceable
throughout that entire period. Harris
simply refused to pay it.
In support of its argument that the debt
is not legally enforceable, Harris cites
Exchange National Bank of Chicago v.
Harris, 126 Ill. App. 3d 382 (1st Dist.
1984) , in which the court held that a
trust provision similar to the one at
issue here did not give the creditor a
property right in the debtor’s trust
assets. See id. at 388. Exchange National
Bank, however, is easily distinguishable
from this case. There, as here, the
creditor had not yet obtained a judgment
when the debtor died. See id. at 384.
Hoping to go after the debtor’s trust in
the event of a judgment, the creditor
tried to enjoin the trustee from
distributing the trust assets until the
court resolved the collection action. See
id. The trial court denied the motion,
holding that the injunction would have
been an equitable attachment, a device
that courts discourage because it
unnecessarily deprives owners of control
over their property in anticipation of
judgments that may never materialize. See
id. at 386. Here, Lloyd’s does not seek
an equitable attachment--it has already
obtained a valid judgment against
McMurray. Nor does Lloyd’s seek an
injunction, which is an extraordinary
remedy requiring heightened scrutiny. It
seeks only to enforce a valid judgment.
The district court’s judgment that it may
do so against the assets of the McMurray
trust is AFFIRMED.
FOOTNOTES
/1 This case does not raise the subject matter
jurisdiction problem that we addressed in Indiana
Gas Co. v. Home Insurance Co., 141 F.3d 314, 319
(7th Cir. 1998). There, we held that complete
diversity did not exist between the parties
because the complaint named as defendants "Cer-
tain Underwriters at Lloyd’s, London" and "Cer-
tain London Market Insurance Companies." See id.
at 316. Because these entities were not corpora-
tions, we treated them as partnerships for pur-
poses of diversity jurisdiction, and since at
least one Lloyd’s Name was domiciled in the same
state as the plaintiff, complete diversity did
not exist. See id. at 319. Here, the plaintiff is
the Society of Lloyd’s, a corporation incorporat-
ed under the laws of England, and there is no
question that diversity jurisdiction exists.
/2 The assets that McMurray’s executor ultimately
collected as estate property totaled about
$850,000. See rec. doc. 27, ex. B.