In the case of Philipsborn Irrevocable Insurance Trust v. Avon Capital (United States District Court for the Northern District of Illinois, Eastern Division), 2013 U.S. Dist. LEXIS 163912, the Court made some interesting observations when the subject of “Jurisdiction” came up concerning whether or not the Trust was a Legal Entity. We will be quoting extensively from the record, but not too extensively that you won’t read the entire case for yourselves. It is only eight pages, but it is VERY interesting reading for anyone who stands put on a Trust NOT being a legal entity.
BACKGROUND OF THE CASE
“The case was filed originally as a contract dispute between Palintiff Thomas D. Philipsborn Irrevocable Trust (‘the Trust’) and Defendant Avon Capital, LLC.” A third party Defendant Financial Life Service (FLS) “challenged the courts jurisdiction that the Trust is not a legal entity, and thus has no capacity to sue or be sued.” And so the Trustee sought to join the suit as the Plaintiff. “FLS, however, asserts that because the Trust in incapable of bringing suit, the Court did not have subject-matter jurisdiction when it issued its prior rulings. If that is the case, this Court would be required to vacate those rulings.”
The Court Analyzes the Jurisdiction
“As part of the ‘irreducible constitutional minimum of standing,’ the Plaintiff must have suffered an injury-in-fact which is concrete and particularized (cites excluded). The injury requirement is satisfied only if the party seeking review is itself among the injured. (cites excluded) The party invoking federal jurisdiction bears the burden of establishing standing. (cite excluded) FLS’s Motion raises two questions: (1) whether a trust is capable of suffering an injury sufficient to meet the requirements of Article III, and (2) whether the Trust suffered an injury that wouldsustain this Court’s jurisdiction over the prior motions. The Court is not aware of any case that has analyzed whether a trust recognized under state law – a mere collection of property – has the capacity to suffer in injury-in-fact. When a case is brought inadvertently by a trust instead of the trustee, the usual practice is for the court to dismiss the case and allow an amended pleading to reflect that the trustee has joined the suit, thereby resolving any standing issues before anything substantial happens in the case. (cites not included) In this case however, this issue was not raised until after the parties had litigated for more than two years and the Court had issued several rulings. The standing issue calls those rulings into question.
“To analyze a trust’s capacity to suffer an injury, this Court must first address underlying principles of trust law. The word ‘trust’ can carry different meanings in different situations, but it refers generally to ‘a fiduciary relationship in which one person holds a property interest, subject to an equitable obligation to keep or use that interest for the benefit of another.” Bogert’s Trusts and Estates, Ch. 1, sec. 1; see also, Restatement (Third) of Trusts, section 2. A trust relationship requires trust property, or res. Sometimes the words ‘trust’ or ‘trust estate’ refer specifically to the property, and sometimes ‘trust’ can refer to the set of relationships between property, trustees, and beneficiaries. (cites excluded)
“As a general principle, ‘a trust is not a juristic person and the trustee is the only party entitled to bring suit’ on behalf of the trust. (cite excluded) For example, courts have explained that ‘historically, a trust estate was not a juridical entity, hence the observation that a suit by strangers to the trust must be brought against the trustees thereof individually and not against the fictional entity. (cites excluded) Federal courts follow this doctrine by holding that lawsuits must be brought in the name of the trustee, administrator, or executor because trusts are not the ‘real party in interest.’ (cites excluded) But just because a trust is not a juridical entity – and thus not the real party in interest – does not mean that a trust is not an entity at all, and that it is incapable of suffering an injury. The Federal Rules of Civil Procedure do not answer whether Article III permits a federal court to hear a suit brought by a trust.
“The Supreme Court has explained that even though a trust is ‘an abstraction,’ it is ‘sometimes dealt with as though it had a separate existence.‘ (Greenough v. Tax Assessors of City of Newport, 331 U.S. 486, 493, 67 S. Ct. 1400, 91 L. Ed. 1621 (1947). When it comes to taxes, a trust is a separate entity because ‘Congress has seen fit so to deal with the trust.’ (Id. at 493-94). Trusts can lose money or have losses attributed to them for tax purposes – the sorts of injuries that one would go to federal court to correct, if necessary. See, Anderson v. Wilson, 289 U.S. 20, 26-27 (1933)
“Trusts are treated similarly in the ERISA context. ERISA provides that ‘an employee benefit plan may sue and be sued under this subchapter as an entity.” 29 U.S.C. section 1132(d)(1). Like an ERISA benefit plan with its beneficiaries, administrators, and benefit providers, a trust involves a set of obligations between other entities: the trustees, property, and beneficiaries… At least in the tax and ERISA contexts, trusts (or similar entities) can maintain suits in federal court, which means they must be capable of suffering injuries and establishing standing. This Court sees no reason why Article III would require the Court to distinguish state law trusts. Thus, a trust recognized by state law can suffer an injury-in-fact.“
My Little Comment
Although I do not know how to do legal research on par with an Ordinary Attorney, I am combing through more cases, mainly federal, along this line. I have read enough of these to know that someone needs to do a little more intensive and extensive and exhaustive studying. I have honestly tried to study these cases more intensively myself,…but I just get a headache. So instead, I just read them to see what they say. I know it sounds simple, but when one is “already defeated,” why try harder?