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Estate Planning & Probate Law FLASHPOINTS November 2021

Elizabeth A. Garlovsky & Sarah Barnes, Harrison & Held, LLP, Chicago
312-753-6185 | E-mail Elizabeth A. Garlovsky | 312-753-6155 | E-mail Sarah Barnes

Civil Procedure 101: Minimum Contacts

In Silver v. Horneck, 2021 IL App (1st) 201044, the First District upheld the dismissal of a trust beneficiary’s complaint for lack of personal jurisdiction against a Colorado trustee. Reading the Silver opinion may give you flashbacks of your 1L civil procedure class, as it is written like a law school exam hypothetical, with reference to minimum contacts, the Illinois long-arm statute, and the interplay with the relevant sections of the Illinois Trust Code (ITC), 760 ILCS 3/101, et seq. While dismissal of the beneficiary’s complaint in Silver may seem like the obvious result, the court distinguished its holding in Capra v. Lipschultz, 2020 IL App (1st) 192160, 162 N.E.3d 323, 443 Ill.Dec. 689, which reversed dismissal for lack of personal jurisdiction in an opinion published last year on similar facts. Besides providing a refresher on general and specific jurisdiction, Silver reminds us that when dealing with an out-of-state trustee or beneficiary, the plaintiff bears the initial burden of establishing a prima facie basis for the Illinois court to exercise personal jurisdiction over a nonresident defendant. This means sufficiently pleading facts that establish the out-of-state defendant’s minimum contacts with Illinois such that exercise of jurisdiction does not offend notions of fair play and substantial justice.

Facts of Silver

In Silver, plaintiff Elizabeth Silver, a Florida resident and beneficiary of two trusts established by her late parents, brought a complaint for an accounting and breach of fiduciary duty against the trustee — her cousin, a Colorado resident — and the other trust beneficiary — her brother, a Washington resident. The Circuit Court of Cook County dismissed the plaintiff’s complaint for lack of personal jurisdiction over the defendants pursuant to 735 ILCS 5/2-301. The plaintiff appealed, and the First District affirmed.

Prior to their deaths, the plaintiff’s parents, Robert and Corrine Silver, executed the Robert D. Silver Revocable Trust and the Corrine K. Silver Revocable Trust. 2021 IL App (1st) 201044 at ¶4. At the time, Robert and Corrine resided in Illinois. Id.

Relevant to the dispute, the trusts provided as follows:

Illinois Law Governs; Situs and Administration of Trusts; Substitute Trustees. The validity and effect of each trust created hereunder is governed by Illinois law. The situs of any trust created hereunder may, however, be transferred at any time or times to such place or places as the Trustees deem to be for the best interests of such trust. 2021 IL App (1st) 201044 at ¶17.

Upon Robert’s death in 2000, Corrine began acting as successor trustee of Robert’s trust. 2021 IL App (1st) 201044 at ¶5. Corrine also amended her trust several times after Robert’s death, including that the final distribution of the residuary trust would go to the plaintiff and her brother in equal shares in trust. 2021 IL App (1st) 201044 at ¶6. In 2012, consistent with the terms of the trusts, Corrine named Peter Horneck as successor trustee of both trusts. 2021 IL App (1st) 201044 at ¶7. Two years later, Corrine moved from Illinois to Florida. In 2015, she resigned as trustee of the trusts, and Peter began acting as successor trustee of the trusts. 2021 IL App (1st) 201044 at ¶8.

Corrine died on April 22, 2017. 2021 IL App (1st) 201044 at ¶9. Upon her death, Peter, who was residing in Colorado, retained counsel in Illinois and corresponded with the plaintiff and her brother regarding the estate and trust administration. He also contacted Robert and Corrine’s Illinois drafting attorney to assist with the administration. 2021 IL App (1st) 201044 at ¶10.

After about two and a half years after her mother’s death, communications between the plaintiff and Peter broke down, and the plaintiff filed an action in the Circuit Court of Cook County for breach of fiduciary duty, an accounting from trustee, repayment of expenses purportedly owed to the plaintiff under the trust, and final distribution of the trust assets. 2021 IL App (1st) 201044 at ¶16.

The plaintiff’s complaint alleged that Illinois had jurisdiction over the defendants “because it involve[d] trusts governed by Illinois law with situs in Illinois.” 2021 IL App (1st) 201044 at ¶17. The plaintiff relied on the earlier referenced situs provision in the trusts and the ITC. Peter moved to dismiss the complaint for a lack of personal jurisdiction. The crux of Peter’s argument for dismissal was (1) the cited provision of the trust allows for the situs of the trust to be transferred; (2) under Illinois law, the situs is where the trustee administers the trust, which in this case is Colorado; (3) and the plaintiff had not established her prima facie burden of showing that the defendants had sufficient contact with Illinois to establish either general or specific jurisdiction over the defendants. 2021 IL App (1st) 201044 at ¶18. The trial court agreed with Peter and dismissed the complaint for lack of jurisdiction, and the plaintiff appealed.

General vs. Specific Jurisdiction

The appellate court first took inventory of Peter’s contacts with Illinois. Even though Peter was a Colorado resident, he hired counsel in Illinois to advise him in his fiduciary capacity on the trust administration. He also hired an Illinois accountant to advise on Illinois tax issues. He corresponded through his Illinois legal and financial advisors to the trust beneficiaries, including the plaintiff. Based on the contacts found, the court determined that general jurisdiction was not applicable because the out-of-state defendant did not have sufficient contacts with Illinois such to render him “at home” in the forum state. Neither defendant (trustee nor beneficiary) maintained a business or presence in Illinois such that their contacts were continuous or systemic. See 2021 IL App (1st) 201044 at ¶36.

The court next looked at specific jurisdiction, namely the Illinois long-arm statute that enumerates 14 acts that if engaged in by the nonresident defendant, may subject them to personal jurisdiction in Illinois. Relevant to the court’s analysis is the defendant’s “ownership of an interest in any trust administered in this State.” 2021 IL App (1st) 201044 at ¶40.

In support for her assertion that the situs of the trust was Illinois, and therefore specific jurisdiction was conferred, the plaintiff stated “(1) the settlors designated Illinois as the principal place of administration in the trust instruments and that designation must be honored under the newly adopted Trust Code, (2) the original situs of the Trusts was Illinois and Mr. Horneck never did anything to formally transfer the Trusts to Colorado, and (3) Illinois is the principal place of administration under the common-law factors historically considered to make such a determination.” 2021 IL App (1st) 201044 at ¶41.

The plaintiff first argued that §108 of the ITC controlled, and under such statute, Illinois, not Colorado, was designated the principal place of administration.

Section 108(a) states in a relevant part:

Without precluding other means for establishing a sufficient connection with the designated jurisdiction, the terms of a trust designating the principal place of administration are valid and controlling if:

(1) a trustee’s principal place of administration is located in or a trustee is a resident of the designated jurisdiction; or

(2) all or part of the administration occurs in the designed jurisdiction. 2021 IL App (1st) 201044 at ¶43, quoting 760 ILC 3/108(a).

The plaintiff argued that because Illinois was designated in the trust instruments, it remains the situs of the trust because some part of administration occurred in Illinois, namely Peter’s hiring of legal and accounting professional in connection with the trust administration. 2021 IL App (1st) 201044 at ¶44.

The appellate court agreed that the ITC controls; however, they disagreed that the language of the trusts anchors the trustee to the situs in Illinois. Rather, consistent with the comments to §108 of the Uniform Commercial Code, from which the ITC is modeled, “[a] settlor is free to designate one jurisdiction as the principal place of administration and another to govern the meaning and effect of the trust’s provisions.” 2021 IL App (1st) 201044 at ¶47. In other words, just because the choice-of-law provision is Illinois, the situs is not required to be the same state. The First District disagreed that the applicable provisions of the trusts rendered the situs of the trusts in Illinois, even considering the applicable ITC provisions.

The plaintiff then argued that, since Illinois is the original situs of the trust, a finding is required before a transfer can be made and that the transfer is in the “best interests” of the trust. 2021 IL App (1st) 201044 at ¶52. Specifically, the plaintiff argued that the trustee never took any formal action to move the trust to Colorado, “for example, registering the Trusts in Colorado, filing Colorado tax returns, or personally notifying Elizabeth that the Trusts would henceforth be administered in Colorado.” Id. The appellate court disagreed. The court explained that the situs of the trust is generally understood to occur where the trustee is located. The court noted that when Corrine moved to Florida, the situs of the trusts was Florida until her resignation in 2015. 2021 IL App (1st) 201044 at ¶53. The court also determined that no formal notice is required under the terms of the trusts. 2021 IL App (1st) 201044 at ¶54.

Lastly, the plaintiff argued that under the common-law factors outline by Burgauer v. Burgauer, 2019 IL App (3d) 170545, 127 N.E.3d 941, 431 Ill.Dec. 408, in which the Illinois long-arm statute was applied, the Illinois court may confer jurisdiction over Peter. 2021 IL App (1st) 201044 at ¶57. These factors include (1) provisions of the trust, (2) the residence of the trustee, (3) residence of the beneficiaries, (4) location of the trust assets, and (5) the location in which the business of the trust is to be conducted. Burgauer, supra, 2019 IL App (3d) 170545 at ¶44.

Comparison to Capra v. Lipschultz

In finding that the Burgauer factors weigh in favor of the defendant, the court also compared the facts at bar to Capra, supra, in which the same court reversed the lower court’s dismissal of a breach of fiduciary duty complaint against an out-of-state trustee. 2021 IL App (1st) 201044 at ¶¶58 – 60.

While the Silver court was quick to distinguish Capra, which was decided a year earlier, it bears mentioning that the facts in Capra are not that dissimilar to Silver in some respects.

In Capra, the beneficiaries of a trust established in Illinois filed a complaint against the trustee, a Nevada resident, in the Circuit Court of Cook County Illinois for an accounting after the trustee depleted the almost $3 million estate. 2020 IL App (1st) 192160 at ¶3.

The trust at issue in Capra contained the following language: “[t]he situs of jurisdiction is hereby changed to the State of Nevada, and not Illinois, in every legal respect referred to throughout this Agreement and Amendments.” 2020 IL App (1st) 192160 at ¶5.

However, the most recent amendment to the trust did not expressly remove a prior provision that “[t]he powers and duties of the Trustee hereunder and all questions of interpretation of this instrument shall be governed by the laws of the State of Illinois.” Id.

The trustee moved to dismiss the complaint for lack of jurisdiction and with his motion submitted an affidavit in which he attested to the fact that (1) “beginning in 2004, he began managing the trust assets from his office in Las Vegas and had continued to manage the assets in Nevada for the past 14 years,” (2) “portions of the trust assets were invested at financial institutions including several national banks, but that it was not necessary for him to travel to conduct trust business and all trust business was conducted from Nevada,” (3) “[n]o physical trust assets were located in Illinois,” and (4) trustee had not “transacted any trust business in the state of Illinois, but that ‘[f]rom time to time, [he] would prepare accountings in Nevada and send them to beneficiaries wherever they resided.” 2020 IL App (1st) 192160 at ¶¶7 – 8.

In response, the plaintiff-beneficiaries argued that “since 2003, defendant had been the sole trustee of a trust created under Illinois law, and that he also held power of attorney over [decedent’s] healthcare and property, both of which were granted pursuant to Illinois law.” 2020 IL App (1st) 192160 at ¶9. The plaintiffs also argued that the defendant-trustee had engaged in activity in Illinois as agent under a power of attorney during the decedent’s life including entering into contracts in connection with the decedent’s care in Illinois, namely, “a contract with an assisted living facility in Carol Stream to provide care and housing for [the decedent] and a contract with a funeral home in Itasca for [the decedent’s] funeral.” Id. The plaintiffs also claimed that the defendant-trustee directed payment to healthcare providers in Illinois and made distributions from the trust to the decedent in Illinois.

The focus for purposes of the appeal was the Illinois court’s exercise of specific jurisdiction over the nonresident defendant based on the Illinois long-arm statute, 735 ILCS 5/2-209(a)(2) (committing a tortious act in the state), 5/2-209(a)(11) (breach of a fiduciary duty within the state), and 5/2-209(c) (the “catch-all provision”). Specifically, the plaintiffs argued that the defendant-trustee lost or misappropriated over $1 million in assets while serving as trustee. 2020 IL App (1st) 192160 at ¶10.

Unlike the plaintiff in Silver, the plaintiffs in Capra sought to extend jurisdiction under the catchall provision of the long-arm statute, which broadly provides that a court “may also exercise jurisdiction on any other basis now or hereafter permitted by the Illinois Constitution and the Constitution of the United States.” 735 ILCS 5/2-209(c). Specifically, when a plaintiff alleges that personal jurisdiction over a nonresident defendant is proper under subsection (c) of the Illinois long-arm statute, the only issue before the court is “whether the nonresident defendant’s connection or contact with Illinois is sufficient to satisfy federal and Illinois due process.” 2020 IL App (1st) 192160 at ¶21, citing Russell v. SNFA, 2013 IL 113909, 987 N.E.2d 778, 370 Ill.Dec. 12.

Under this analysis, “due process requires that a nonresident defendant have certain minimum contacts with the forum state ‘such that maintenance of the suit there does not offend “traditional notions of fair play and substantial justice.” ’ ” 2020 IL App (1st) 192160 at ¶23, citing Russell, supra, 2013 IL 113909 at ¶34.

Ultimately, the appellate court in Capra, supra, held that the trustee’s prior contacts with Illinois were sufficient to establish specific jurisdiction over the trustee in Illinois and that such exercise of jurisdiction complies with due process. Interestingly, the court also found that the litigation arose out of or was related to the defendant’s contacts with Illinois. 2020 IL App (1st) 192160 at ¶¶28 – 29. While the Silver court was quick to dismiss Peter’s contact with Illinois during the administration of the trusts, the Capra court largely focused on the trustee’s contacts with the decedent before her death. Capra also largely focused on the beneficiaries’ location in Illinois, which was different from Silver.

Turning back to Silver, the court noted that the plaintiff did not invoke the catchall provision under the Illinois long-arm statute, nor were the beneficiaries located in Illinois such that the trustee’s actions were “directed” to Illinois. 2021 IL App (1st) 201044 at ¶61. Finally, the Silver court distinguished the situs provision in Capra as broadly extending to all “powers and duties of the Trustee” as governed by Illinois law. Id. Again, it is interesting that the Capra court largely dismissed the language of the trust expressly changing the situs to Nevada, where it is expressly provided in the trust, unlike the language of the trusts in Silver.

The merits of this case appear to remain unaddressed due to a lengthy battle over a technical, albeit interesting, jurisdiction issue. Four years following the death of the plaintiff’s mother, the issue of whether the trustee actually breached his duty to her may still be in its infancy stage of being resolved. In theory, could notions of fair play and substantial justice be offended by that? Inquiring minds want to know.

For more information about estate planning and probate, see ESTATE PLANNING FORMS AND COMMENTARY: IRREVOCABLE LIFE INSURANCE TRUSTS (IICLE®, 2021). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.

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