This complex case involved many issues of consumer law and the law of judgments. It defies simple explanation. Essentially, we successfully argued that certain pre-bankruptcy decisions of the Minnesota State Courts were issue-preclusive, or "collateral estoppel," with respect to proceedings in the subsequent involuntary bankruptcy case which we initiated.
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In this case, our bankruptcy client was a beneficiary of a trust created by her parents. She was also a trustee of the trust, as was her brother. We asserted that her beneficial interest in the trust was not property of her bankruptcy estate pursuant to Bankruptcy Code Section 541(c)(2), which generally provides that spendthrift trust interests do not become property of the bankruptcy estate. Our client's bankruptcy trustee argued that since our client, the banrkuptcy debtor, was both the beneficial owner and a trustee of the trust, she could not claim the protection of the spendthrift clause. We argued that since the law of Florida, like that of the common law and the law of most states, required multiple trustees to act in concert, the presence of a co-trustee preserved the independent nature of the beneficial interest and the efficacy of the spendthrift clause. The Bankruptcy Court agreed with our position. The bankruptcy trustee did not appeal, and our client succeeded to her property rights under the trust.
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