21 A 00237, 20 B 17355
Frank J. Kokoszka, chapter 7 trustee (the “Trustee”) for the bankruptcy estate of James Samatas (the “Debtor”), filed an adversary complaint against the Debtor, the James Samatas Discretionary Trust (the “Trust”), and the Debtor and Craig Labus, in their capacities as co-trustees of the Trust (together, the “Defendants”). In his complaint, the Trustee sought a determination that the assets of the Trust are property of the bankruptcy estate, as well as avoidance and recovery of certain personal property that the Debtor had transferred to the Trust. The Defendants argued that the Trust was a spendthrift instrument and that, accordingly, its assets are beyond the reach of the Debtor’s creditors pursuant to section 541(c)(2) of the Bankruptcy Code. After conducting a four-day trial and taking the matter under advisement, the Court examined whether the Trust was a spendthrift trust by examining the three factors of the Seventh Circuit’s Perkins test. In particular, the Court found that both the language of the document and the actual conduct of the Debtor and other relevant parties can and should be considered in determining whether the Debtor exercised “exclusive and effective dominion and control” over the Trust corpus, thus invalidating the spendthrift protections provided under the Trust. Based on the language of the Trust itself, the Defendants’ own interpretations of the terms thereof, the actions of the Debtor, and the uninvolved and hands-off role played by the co-trustee Labus, the Court found that the Debtor executed sufficient dominion and control over the Trust to nullify the spendthrift trust provision. Accordingly, the Court held that the Trust assets constitute property of the Debtor’s bankruptcy estate. The Court also found that the Debtor transferred a substantial amount of personal property to the Trust with the intent to hinder, delay, and defraud his creditors. Therefore, the Court found that the Trustee could avoid and recover the value of the transferred property pursuant to section 544(b) of the Bankruptcy Code and section 5(a) of the Illinois Uniform Fraudulent Transfer Act.