December 7 2011
DA 11-0157
IN THE SUPREME COURT OF THE STATE OF MONTANA
2011 MT 308
IN RE: MARJORIE Q. WARD REVOCABLE
TRUST, dated January 2, 1992
JAMES G. WARD, Trustee of the Marjorie Q.
Ward Revocable Trust, dated January 2, 1992,
Petitioner and Appellee,
v.
JACK L. WARD,
Respondent and Appellant.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and For the County of Yellowstone, Cause No. DV 10-605
Honorable G. Todd Baugh, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Bruce O. Bekkedahl; Patten, Peterman, Bekkedahl & Green, PLLC,
Billings, Montana
For Appellee:
John T. Jones; Kathryn J. Bell; Brian O. Marty; Moulton Bellingham, PC,
Billings, Montana
For Intervenor:
Andrew T. Billstein, Billstein Law Firm, PLLC, Billings, Montana
Submitted on Briefs: October 5, 2011
Decided: December 7, 2011
Filed:
__________________________________________
Clerk
Justice Michael E Wheat delivered the Opinion of the Court.
¶1 Jack L. Ward (Jack) appeals from an order of the Thirteenth Judicial District
Court, Yellowstone County, reducing Jack’s one-half share of the Marjorie Q. Ward
Revocable Trust by $298,356.16. Jack appeals two issues, which we have restated as
follows:
¶2 Issue One: Did the District Court comply with the requirements of M. R. Civ. P.
52(a) (2009) by orally stating its findings of fact and conclusions of law?
¶3 Issue Two: Did the District Court err in ordering that Jack’s share of the Marjorie
Q. Ward Revocable Trust be reduced by the amount he owed his stepsister, when that
debt was previously discharged in bankruptcy proceedings?
¶4 We affirm.
BACKGROUND
¶5 In 1989, Jack, acting individually and on behalf of JW Enterprises, Inc., executed
a promissory note in favor of his stepsister Joan M. Camp (Joan) for the amount of
$100,000, plus interest at a rate of ten percent per year until paid. Although the
promissory note was due within six months, neither Jack nor JW Enterprises, Inc., ever
made a single payment to Joan.
¶6 In 1992, Marjorie Q. Ward (Ms. Ward), Jack’s mother and Joan’s stepmother,
executed a trust agreement, establishing the Marjorie Q. Ward Revocable Trust (Trust).
Subject to certain smaller specific devises, including a $100,000 devise to Joan, the Trust
provided that Trust residue be distributed in equal shares to Ms. Ward’s two sons, Jack
and James G. Ward (James).
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¶7 Ms. Ward amended the Trust in 1998 to provide that before Jack would receive
any distributions from the Trust, his share would be decreased, and Joan’s increased, by
the amount he owed Joan under the promissory note at the time of Ms. Ward’s death.
Specifically, Section 4(c)(iii) of the Trust provides:
The residue of all trust income and principal, after the satisfaction of the
specific bequests and devises above, shall at my death be distributed
outright and free of trust to my sons, JACK L. WARD and JAMES G.
WARD, in equal shares, if living. Before any distribution is made to my
son, JACK, however, my Trustee is directed to first reduce JACK’s share by
any amounts he owes to my stepdaughter, JOAN, at the time of my death.
JOAN must provide written documentation to my Trustee of the exact
amount owed by JACK, including any accrued but unpaid interest. My
Trustee is then directed to pay that amount over to JOAN outright and my
Trustee may then distribute to JACK the balance of his share.
(Emphasis added.)
¶8 In 2005, Jack filed for Chapter 7 bankruptcy and received a discharge of his debt.
Ms. Ward died on March 3, 2009. On that date, Jack owed Joan principal and interest
under the promissory note totaling $298,356.16. Joan confirmed this amount to her
stepbrother James, who is the Trustee of the Trust. In April 2010, the Trustee filed a
petition in the District Court to determine the appropriate distributions under the Trust.
Ruling from the bench, the District Court concluded Jack’s share should be reduced by
the amount he owed Joan on the date of Ms. Ward’s death—$298,356.16.
¶9 Jack appeals.
STANDARD OF REVIEW
¶10 The interpretation of a trust agreement is a question of law that this Court reviews
for correctness. In re Bair Family Trust, 2008 MT 144, ¶ 32, 343 Mont. 138, 183 P.3d
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61.
DISCUSSION
¶11 Issue One: Did the District Court comply with the requirements of M. R. Civ. P.
52(a) (2009) by orally stating its findings of fact and conclusions of law?
¶12 As an initial matter, we must address Jack’s argument that this Court has to
remand this matter because additional findings are required under M. R. Civ. P. 52(a),
since the District Court’s written order does not contain specific findings of fact or
conclusions of law.
¶13 M. R. Civ. P. 52(a) (2009)1 requires that “[i]n all actions tried upon the facts
without a jury . . . the court shall find the facts specially and state separately its
conclusions of law thereon . . . .” The requirement that a district court set forth the
essential and determining facts upon which its conclusions rest aids not only a district
court’s process of adjudication, but also this Court’s appellate review. In re Marriage of
Lawrence, 2005 MT 125, ¶ 15, 327 Mont. 209, 112 P.3d 1036. Rule 52(a) is met when
the District Court orally states it findings of fact and conclusions of law on the record.
M. R. Civ. P. 52(a) (2009). Where the record does not contain sufficient findings of fact
to support the underlying decision, this Court cannot conduct a meaningful review on
appeal and must remand the matter to the district court to make additional findings. In re
Marriage of Banka, 2009 MT 33, ¶¶ 9-10, 349 Mont. 193, 201 P.3d 830.
1
All references herein to M. R. Civ. P. 52 are to the 2009 version, which was in effect during the
time period relevant to this case.
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¶14 We agree with Jack that the District Court’s written order does not contain specific
findings of fact or conclusions of law. However, our review of the record leaves us
convinced that the District Court’s oral findings of fact and conclusions of law are
sufficient to satisfy the requirements of Rule 52(a) and to afford this Court the
opportunity to conduct a meaningful review. Accordingly, we turn our discussion to
Issue Two.
¶15 Issue Two: Did the District Court err in ordering that Jack’s share of the
Marjorie Q. Ward Revocable Trust be reduced by the amount he owed his stepsister,
when that debt was previously discharged in bankruptcy proceedings?
¶16 In construing the terms of a trust, the trustor’s intent is the controlling
consideration. In re Estate of Bolinger, 284 Mont. 114, 120-21, 943 P.2d 981, 985
(1997). Both parties agree the Trust is clear: Ms. Ward intended both of her sons to
share the Trust residue equally; however, if Jack owed money to Joan at the time of Ms.
Ward’s death, then Jack’s share would be reduced by that amount. This dispute, then,
centers upon whether Jack owed Joan money at the time of Ms. Ward’s death.
¶17 Jack argues he did not owe Joan any money at the time of Ms. Ward’s death
because any debt he owed to Joan was discharged in bankruptcy four years before Ms.
Ward passed away. Jack relies upon a portion of the bankruptcy code, 11 U.S.C.
§ 524(a)(2) (2006), which provides in relevant part:
(a) A discharge in a case under this title [11 USCS §§ 101 et seq.] —
. . .
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(2) operates as an injunction against the commencement or continuation of
an action, the employment of process, or an act, to collect, recover or offset
any such debt as a personal liability of the debtor, whether or not discharge
of such debt is waived.
Jack claims the bankruptcy statute is clear that his debt to Joan is discharged and, thus, if
no liability exists under the bankruptcy code, there can be no amount owing under the
Trust. Jack further argues 11 U.S.C. § 524(a)(2) prohibits Joan from pursuing any effort
to collect on the debt and, similarly, enjoins the Trustee’s efforts to distribute Trust
residue to Joan.
¶18 The District Court ordered that Joan be paid the money Jack owed her on the basis
that Ms. Ward’s intent controlled over any bankruptcy provision. We agree. The
injunction provided for by 11 U.S.C. § 524(a)(2) does not prevent a trustor from
distributing trust property as he or she deems appropriate. See In re Estate of Watson,
965 P.2d 409, 412 (Okla. Civ. App. 1998) (“A testator is free to fashion bequests based
upon previous gifts or loans[] and is free to reduce bequests in the amount of such loans,
whether they are enforceable[] or unenforceable via discharge in bankruptcy or barred by
limitations.”). Thus, a court “may determine the indebtedness of a distributee and order
a deduction of the debt from his [or her] share even though an action to recover the debt
might be barred by a discharge in bankruptcy.” Estate of Watson, 965 P.2d at 412.
¶19 Previously, in Estate of Firebaugh, this Court similarly affirmed that a devisee’s
debt may be appropriately offset against his or her share of the estate, despite a prior
discharge of the debt in bankruptcy. In re Estate of Firebaugh, 271 Mont. 418, 422, 897
P.2d 1088, 1091 (1995). There, Kenneth Firebaugh was indebted to his mother Winifred.
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Kenneth filed for bankruptcy and received a discharge of his debt. However, Winifred’s
will provided that Kenneth’s debt, if it exceeded the amount of her other son’s debt,
should be offset in order to treat her sons equally. Estate of Firebaugh, 271 Mont. at
419-20, 897 P.2d at 1089-90. On appeal, Kenneth argued his share should not be offset
by any debt because his debt was previously discharged in bankruptcy. Estate of
Firebaugh, 271 Mont. at 421, 897 P.2d at 1090. This Court concluded Kenneth’s share
should be offset by debts he owed his mother because to ignore the debt would thwart
Winifred’s clear intent, as reflected in her will, that her sons be treated equally. Estate of
Firebaugh, 271 Mont. at 421-22, 897 P.2d at 1090.
¶20 Further, to accept Jack’s interpretation of the word “owes” would defy this Court’s
rules of interpretation and would improperly impose a technical, legal definition upon the
Trust terms, contradicting the clear intent expressed by Ms. Ward. It is well accepted that
this Court looks to the language of the trust and interprets the “[w]ords used in the
instrument . . . in their ordinary and grammatical sense unless a clear intention to use
them in another sense can be ascertained.” Estate of Bolinger, 284 Mont. at 121, 943
P.2d at 985 (internal quotations omitted). Jack’s interpretation of the word “owes”
violates this principle, as it defies the word’s ordinary and grammatical use, improperly
injects technical bankruptcy principles, and defeats Ms. Ward’s intent that Joan be paid.
¶21 The District Court did not err in reducing Jack’s share pursuant to Ms. Ward’s
instructions contained in the Trust. The plain language of the Trust controls, and the
bankruptcy provisions upon which Jack relies are inapplicable.
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CONCLUSION
¶22 For the foregoing reasons, we affirm.
/S/ MICHAEL E WHEAT
We Concur:
/S/ PATRICIA COTTER
/S/ BRIAN MORRIS
/S/ JIM RICE
Justice James C. Nelson, dissenting.
¶23 For the same reasons I did in In re Estate of Firebaugh, 271 Mont. 418, 423-24,
897 P.2d 1088, 1091-92 (1995) (Nelson & Gray, JJ., specially concurring and dissenting),
I dissent from the Court’s Opinion in the case at bar.
¶24 In pertinent part, Marjorie Ward’s trust provides:
Before any distribution is made to my son, JACK, however, my Trustee is
directed to first reduce JACK’s share by any amounts he owes to my
stepdaughter JOAN, at the time of my death. [Emphasis added.]
The simple truth is that, “at the time of [Ms. Ward’s] death,” Jack did not owe “any
amounts” of money to Joan. The very debt that Ms. Ward was referring to in the trust
document had been fully discharged in United States Bankruptcy Court pursuant to
11 U.S.C. § 524(a)(2) (2006), which is set out in full at ¶ 17 of the Opinion. Jack did not
owe that debt to Joan at the time Ms. Ward died.
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¶25 Pursuant to the plain and unambiguous language of the Trust quoted above, it is
irrefutable that because Jack did not owe Joan any money at the time of Ms. Ward’s
death, her trustee was—and in my view is—without any legal authority to deduct the
amount of the discharged, and thus nonexistent, debt from Jack’s share of the trust before
distributing Jack’s entitlement to him. What the trustee is doing blatantly violates federal
bankruptcy laws inasmuch as the trustee is refusing to honor the discharge order.
¶26 If, after Jack’s discharge in bankruptcy, Ms. Ward had determined to give Joan out
of her estate a sum of money equal to what Jack had owed her stepdaughter prior to the
discharge, then this would be a different case. But that did not happen here. Ms. Ward
did not change the language of the Trust. And it is undisputed that, at the time of
Ms. Ward’s death, and by virtue of the order of the United States Bankruptcy Court, “any
amounts [JACK] owes to my stepdaughter JOAN” simply did not exist. Jack had no
legal obligation whatsoever to repay Joan the money he had borrowed from her. His debt
to her had been discharged in bankruptcy. He did not “owe” Joan anything.
¶27 When interpreting a trust, Montana courts “must look to the language of the trust
agreement itself to ascertain [the trustor’s] intent.” Cate-Schweyen v. Cate, 2000 MT
345, ¶ 21, 303 Mont. 232, 15 P.3d 467 (citing In re Estate of Bolinger, 284 Mont. 114,
120-22, 943 P.2d 981, 985 (1997)). Here, Ms. Ward’s intent was clear: If, at the time of
my death, Jack owes Joan the money he had borrowed from her, then the trustee is to
offset Jack’s debt against his share of the trust, with the offset paid to Joan. If Ms. Ward
had wanted to give Joan a post-discharge gift, she could have. For that matter, Ms. Ward
could have given Joan a pre-discharge gift equal to the amount of money Jack owed his
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stepsister. The fact of the matter is, however, that Ms. Ward did neither. And the Court’s
present attempt to achieve what it considers to be a more equitable result not only
replaces Ms. Ward’s stated intent with its own, but, worse, reads out of Ms. Ward’s trust
the plain language she used and replaces that language with words of the Court’s own
choosing. It is neither this Court’s job nor its prerogative to rewrite the unambiguous
language of trusts and wills, even if the terms of the trust or will might seem inequitable
to one of the parties. Cf. In re Estate of Lucile B. Snyder, 2009 MT 291, 352 Mont. 264,
217 P.3d 1027.
¶28 As Jack correctly argues, 11 U.S.C. § 524(a)(2) operates as an injunction against
the commencement or continuation of any attempt to recover or offset the debt he at one
time owed to Joan. This means that judgment creditors—here, the trustee on behalf of
Joan—are prohibited “from taking any action against debtors to collect the discharged
debts.” In re Clowney, 19 B.R. 349, 353 (Bankr. M.D.N.C. 1982) (holding that the
plaintiff’s liability to the defendant was absolved as a result of the bankruptcy order and
the defendants were barred from collecting debts from property of the plaintiffs). The
granting of a discharge releases the debtor from personal liability on the discharged debt.
See Assocs. Fin. Servs. Corp. v. Cowen, 29 B.R. 888, 895 (Bankr. S.D. Ohio 1983) (“[A]
discharged debt which was not properly reaffirmed is not cognizable as ‘debt’ in a
subsequent proceeding without either a novation of the prior obligation or the creation of
an entirely new debt.”). Thus, 11 U.S.C. § 524(a)(2) effectively and legally bars the
trustee from paying over trust money, to which Jack is legally entitled, to another—
Joan—who is not legally entitled to receive it.
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¶29 The bankruptcy discharge is designed to provide broad comprehensive relief to the
debtor and to assure the debtor a “fresh start.” Clowney, 19 B.R. at 353; accord In re
Holzapfel, 2011 MT 257, ¶ 11, 362 Mont. 251, 262 P.3d 1114 (Wheat & Nelson, JJ.,
dissenting) (“People who are forced to file for bankruptcy are entitled to a fresh start.”).
“This fresh start provides the debtor with a ‘new opportunity in life and clear field for
future effort, unhampered by the pressure and discouragement of preexisting debt.’ ”
Clowney, 19 B.R. at 353 (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S. Ct.
695, 699 (1934)). This “fresh start” is assured. Clowney, 19 B.R. at 353.
¶30 Finally, it is not clear what authority the Court relies on for the proposition that it
need not give full faith and credit to the discharge order entered by the United States
Bankruptcy Court and may instead do by way of “equity” what federal bankruptcy laws
specifically prohibit. Indeed, were I the trustee in this matter, I would not be in a big
hurry to pay more than a quarter of a million dollars to Joan, without first having the
federal court put its own imprimatur on this Court’s decision.
¶31 I dissent.
/S/ JAMES C. NELSON
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