Larry is the settlor of a revocable Trust. Larry personally guarantees a loan for hundreds of millions of dollars, and signs the guarantee individually and as trustee of his revocable trust. Debtor defaults. Creditor sues Larry and his Trust on the guarantee.
Litigation results in a decision that says Larry’s personal liability is capped at $50 million, which he pays. The creditor then sues Larry’s Trust for the remaining amount (now $750 million). Larry says, if my debt is satisfied, you can’t go after assets in my revocable trust, because we are essentially one in the same.
The Federal District Court disagrees and holds that Larry’s Trust remains on the hook. Larry appeals to the 6th Circuit Court of Appeals. The 6th Circuit affirms. The opinion is short and written with a LOT of attitude. They suggest that Larry’s argument is totally without merit. Do they protest too much?
Granted, I don’t read many Federal cases, nor did I read the preceding several cases that have been decided by this Court with respect to these parties, but this opinion is clearly more dismissive than it needs to be. I’m not saying the 6th Circuit decided this incorrectly. I just wonder: Why the attitude? And, maybe the answer to that question would come with an answer to this question: How is it that this issue wasn’t addressed when the $50 million dollar obligation was satisfied?
Seems to me that if I were writing a release (or issuing an opinion) that excused a debtor from further exposure on a $750 million obligation, I might clarify in that release (or court order) that this does not preclude the creditor from collecting against the assets in that guarantor’s revocable trust. It seems that this did not occur.
There’s enough money here that the Larry may want to ask the US Supreme Court to look at the issue. It seems unlikely that they would take the case, and, to my thinking, just as well. The less Federal courts have to do with probate law, the better for all of us, I think.