Procedural Posture
Appellants, former creditors of an individual who was adjudicated a bankrupt (former creditors), sought review of an order from the Superior Court of Sacramento County (California), which granted judgment in favor of respondent, trustee in bankruptcy (trustee), in the trustee's action to recover money that each former creditor received from the bankrupt's share of proceeds from a spendthrift trust.
Overview:
intentional misrepresentation tort
The debtor was an income beneficiary of a testamentary spendthrift trust. During the period between the termination of the trust and the distribution of the trust estate by the probate court, some of the debtor's creditors filed claims in the probate proceedings against the debtor's trust interest. On the day before the trust estate was distributed, two of the debtor's creditors filed an involuntary petition in bankruptcy against the debtor. The trial court granted the trustee's action to recover money that each former creditor received from the bankrupt's share of the trust proceeds. The former creditors appealed. First, the court stated that when the bankruptcy court adjudicated the debtor a bankrupt, it also determined its own jurisdiction, and this jurisdiction was res judicata in subsequent collateral proceedings. Next, the court determined that the decree of distribution of the probate court distributing the proceeds of the trust directly to the debtor was not res judicata and did not defeat the trustee's claim. Finally, the court held that under 11 U.S.C.S. § 70, title to the debtor's share of the trust proceeds vested in the trustee.
Outcome
The court affirmed the trial court's order, which granted judgment in favor of the trustee in the trustee's action to recover money that each former creditor received from the bankrupt's share of proceeds from a spendthrift trust.
