Ninth Circuit So Holds In Arizona Case, But Relies on California Authorities.
All of you trustees out there—whether in a probate or bankruptcy context—can breathe a little easier given the next holding from a recent Ninth Circuit case. Although involving Arizona substantive law, the Court of Appeals relied on analogous California authority so that it will have force in this state.
In Biltmore Associates, LLC v. Twin City Fire Ins. Co., Case No. 06-16417 (9th Cir. July 10, 2009) (for publication), a bankruptcy creditor’s committee hired Biltmore as its trustee, with bankruptcy court approval. In turn, Biltmore brought a nonbankruptcy civil action against certain insurance companies in Arizona. It lost, with a district court awarding $88,565.59 in favor of the insurers and against “Biltmore, as trustee” (based upon an Arizona fee-shifting statute similar to California Civil Code section 1717), albeit later denying a motion to bar execution against trustee’s own assets versus assets of the trust.
Trustee appealed, and won an important clarification.
The Ninth Circuit remanded to clarify that Biltmore was only liable as a representative of the trust, rather than being liable personally. It primarily relied on California Probate Code section 18001, which only makes a trustee personally liable with respect to ownership or control of trust property when the trustee did something by which he, she or it was personally at fault. The Court of Appeals also cited in support the California decision of Haskett v. Villas at Desert Falls, Inc., 108 Cal.Rptr.2d 888 (2001), which tracked the result reached by other decisions from outside California.
Because the fee award was a “normal” cost award and not the product of any sanctionable conduct by trustee, Biltmore’s personal assets could not be touched for purposes of judgment satisfaction. Instead, insurers had to look for recovery from trust assets.
So, trustees, rejoice! Rejoice!
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