A long time ago, in a legal landscape far, far away, a husband and wife named Michael and Denyse Anderson created a Cook Islands Trust. The Andersons (with the help of their inexperienced counsel) made every mistake in the book. But what makes the Andersons special is that in the late 1990’s they went to jail for contempt of court, and in doing so, gave asset protection naysayers the oft-quoted “Anderson Case.” FTC v. Affordable Media, 179 F.3d 1228, 1239 (9th Cir.1999). Full Text. [For more on the Anderson Case, read our newsletter here.]
For the past two decades, those same naysayers jump at any case where a debtor is held in contempt and happens to have a trust, with the overt statement or implication that asset protection planning results in contempt. The most recent case drawing such attention comes to us from California in the form of Marciano. In re Marciano 2013 WL 180057 (C.D.Cal., Jan 17, 2013). Full Text.
The basic facts of the case are straight-forward: Marciano formed a trust. Sometime later, a judgment was entered against Marciano. Marciano entered bankruptcy proceedings. The bankruptcy trustee attempted to take possession of Marciano’s assets.
From that point forward, Mr. Marciano’s antics can be described as anything but straight-forward. Marciano became a permanent resident of Montreal. He filed blank schedules of assets with the court, failed to appear at three scheduled examinations, and provided false excuses for his lack of attendance.
On September 14, 2011, the bankruptcy trustee obtained a warrant to seize Marciano’s assets in Montreal. A collection of expensive watches, stock certificates, documents evidencing Marciano’s ownership of various entities, and a rare gemstone valued at $16mil were all seized. The Quebec court subsequently invalidated the seizures, and the property was returned to Marciano.
Marciano then filed schedules with the court which did not include the previously seized assets. When he was forced to account for the missing inventory, Marciano claimed that none of the property belonged to him or the revoked Georges Marciano Trust, but he merely had possession of those assets. Marciano would not state who the current owners were. The bankruptcy trustee provided documentary evidence proving Marciano’s ownership as of certain dates which contradicted Marciano’s claims of transfer. The Court, finding Marciano to lack credibility, ordered Marciano to turn over the property. When Marciano refused, the Court found him in contempt and issued a warrant for his arrest.
Marciano disputed the order of contempt, claiming an “impossibility defense”, and here we see the link to the Andersons.
In Affordable Media (the “Anderson Case”), the Andersons were ordered by the court to repatriate assets held by an offshore trust. The Andersons alleged that because it was impossible for them to repatriate the assets, it was impossible for them to comply with the order which gave rise to the contempt charge. When claiming impossibility, the burden is placed on the party held in contempt to prove that compliance is impossible. Id. at 1239. The Court disregarded their claim because their “inability to comply with the district court’s repatriation order is the intended result of their own conduct.” Id. at 1239. The Anderson’s did previously have control over the assets, as co-trustees. They maintained that control until a “springing” provision in the trust automatically removed them because of the issuance of a restraining order by the Court. In short, the Andersons could not claim impossibility because the impossibility was self-created post-litigation.
Returning to Mr. Marciano, and his claims of “impossibility” we can now make certain determinations. Post-litigation, Mr. Marciano claimed he made transfers of his property. If his claims are to be believed, this “impossibility” was self-created and proximate to the proceeding seeking to recover his property (as reflected in the documentary evidence showing his ownership as of certain dates).
The Court ruled in the bankruptcy trustee’s favor, holding Marciano in contempt, and rightly so. The old excuse of ‘it’s not mine, I am holding it for a friend’ doesn’t work in kindergarten, and should be suspect as an acceptable defense.
It is important to note that Mr. Marciano’s trust never played a part in this case. Had Mr. Marciano engaged competent counsel to advise him on how to properly protect his assets long before the initial cause of action arose, the outcome would likely have been different. But unfortunately for the asset protection naysayers out there, the Marciano case is not an example of a settlor being incarcerated for settling a trust. That story cannot exist when properly structured asset protection plans are in place.