Reality television fans are familiar with the trappings of the celebrity lifestyle: jet-setting from home to home, enjoying luxury retail, and traveling in private planes and yachts, all while posting it on social media. Even if a client is not living the “White Lotus” lifestyle, assets spread across jurisdictions—especially expensive or movable assets—can lead to thorny jurisdictional disputes. Often, a trustee owning or managing those assets can end up involved in litigation far from home.
Sometimes the causes are obvious and expected: A trust or estate may have expensive property scattered in several jurisdictions, or it may own a business that operates in multiple states. But sometimes trusts can be surprised by litigation in an unanticipated jurisdiction. If you receive a lawsuit out of the blue from an unfamiliar place, what should you do?
First and foremost, do not ignore it. Avoiding the problem will not make it go away—it will likely make it more difficult and expensive to resolve later.
Figure out why you are receiving this document. Even if a trust does not have a presence in a particular state, lawsuits elsewhere can ensnare them, sometimes by complete surprise. For example, a beneficiary of a trust may have moved from one state to another—or even less predictably, a former spouse of a beneficiary may have moved to another state and then filed for divorce in the new state and asserted a claim against the beneficiary’s assets. Or an asset owned by a trust has another owner located in a foreign jurisdiction who dies, embroiling the trust that owns the company in an estate dispute. Sometimes, even assets themselves can move from jurisdiction to jurisdiction—such as yachts or planes—and can trigger jurisdiction over those assets wherever they are located. The variations are endless but often share a common pattern: People elsewhere are fighting over money that is held by the trust, so the trust gets dragged into the fight, regardless of where it occurs. Commonly, the parties fighting will try to either initiate or move litigation to their preferred jurisdiction, so litigation may happen in multiple jurisdictions at once.
Once you figure out the connection to the foreign jurisdiction, a trustee and its counsel (including local counsel in the foreign jurisdiction) will need to weigh a number of strategic considerations. Most commonly, you will want to identify the significant differences in the laws that apply in your jurisdiction compared with the foreign jurisdiction. These differences can be essential—, a claim in one state might be barred by a statute of limitations in your state. In addition, a trust often has a significant interest in predictability and stability, both in terms of its governing law and its exposure to different jurisdictions. And while judicial decisions in one state often receive full faith and credit in any other state as a matter of comity, invoking another state’s jurisdiction can expose the trust to continued jurisdiction of that state in other instances. Finally, the trustee should consult with a tax professional to determine if any potential adverse tax consequences exist.
After considering the strategic advantages and disadvantages of the foreign jurisdiction, if the trustee concludes it should challenge the exercise of jurisdiction over it, several options exist to address the issue. Of course, private negotiations can also resolve issues, depending on the dispute and the willingness of the other parties to negotiate or accept a compromise. If that is not possible, the trust will likely need to take some action in court to protect itself. One option is to bring a motion in the foreign jurisdiction to settle the governing law that applies to the dispute. where a choice of law clause exists but not a sufficient basis to challenge the jurisdiction of the foreign court.[1]
In some instances, a trust can affirmatively petition in its home state for instructions or guidance. For example, in South Dakota a trustee can bring a petition asking a court to resolve a question relevant to the administration of the trust. As a result, a trustee can petition a South Dakota court to confirm the application of South Dakota law to the trust or to confirm the exercise of jurisdiction in South Dakota. Such confirmations will not necessarily prevent a court in another state from simultaneously exercising jurisdiction over the trust, it can remove uncertainty in many situations.
Another option is to move to dismiss the foreign action for lack of personal jurisdiction over the trust or move to transfer the action to a more proper venue. These motions are fact-intensive but can result in either the outright dismissal of the trust from the action or a transfer of the action to the trust’s home state.
Cross-jurisdictional litigation is often complex, and each case has its own strategic, legal, and factual considerations. Early intervention is important. If you suspect that you may wind up in cross-jurisdictional litigation, or you receive a summons or complaint, contact one of our experienced litigation attorneys.
[1] Jurisdiction refers to a court’s power to hear a dispute in the first place. The governing law is the set of rules that the court applies when hearing the dispute. Courts in one state, or federal courts, often apply the laws of other states when hearing a case.
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