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Toni 1 Trust v. Wacker

Supreme Court of Alaska

March 2, 2018

TONI 1 TRUST, by its Trustee DONALD TANGWALL, Appellant,
BARBARA WACKER, individually and jointly and severally, WILLIAM WACKER, individually and jointly and severally, and LARRY D. COMPTON, Bankruptcy Trustee, individually and jointly and severally, Appellees.

         Appeal from the Superior Court of the State of Alaska, Fourth Judicial District, Fairbanks, Superior Court No. 4FA-15-01603 CI Michael A. MacDonald, Judge.

          S. Jason Crawford, Layton, Utah, for Appellant.

          Erik LeRoy, Erik LeRoy P.C., Anchorage, for Appellees

          Wacker. Cabot Christianson, Law Offices of Cabot Christianson, P.C., Anchorage, for Appellee Compton.

          Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.


          BOLGER, Justice.


         After a Montana state court issued a series of judgments against Donald Tangwall and his family, the family members transferred two pieces of property to the "Toni 1 Trust, " a trust allegedly created under Alaska law. A Montana state court and an Alaska bankruptcy court found that the transfers were made to avoid the judgments and were therefore fraudulent. Tangwall, the trustee of the Trust, then filed this suit, arguing that Alaska state courts have exclusive jurisdiction over such fraudulent transfer actions under AS 34.40.110(k). But we conclude that this statute cannot unilaterally deprive other state and federal courts of jurisdiction. We therefore affirm the superior court's judgment dismissing Tangwall's complaint.


         In 2007 Donald Tangwall sued William and Barbara Wacker in Montana state court. The Wackers counterclaimed against Tangwall; his wife, Barbara Tangwall; his mother-in-law, Margaret "Toni" Bertran; and several trusts and businesses owned or run by the family. In the ensuing years, several default judgments were entered against Tangwall and his family.

         In 2010, before the last of these judgments was issued, Bertran and Barbara Tangwall transferred parcels of real property to an Alaska trust called the "Toni 1 Trust" (the Trust).[1] The Wackers filed a fraudulent transfer action under Montana law in Montana state court, alleging that the transfers were made to avoid the judgments. Default judgments in the fraudulent transfer action were entered against Barbara Tangwall, the Toni 1 Trust, and Bertran.

         After the fraudulent transfer judgments were issued, the Wackers purchased Barbara Tangwall's interest in one of the parcels at a sheriffs sale, as part satisfaction of their judgment against Tangwall and family. But before they could purchase the remaining half interest, Bertran filed for Chapter 7 bankruptcy in Alaska. Her interest in the trust property was therefore subject to the jurisdiction of a federal bankruptcy court.

         In December 2012, Donald Tangwall, as trustee of the Trust, filed a complaint in the bankruptcy court against the Wackers and bankruptcy trustee Larry Compton. Among other things, Tangwall alleged that service on the Trust in the Montana fraudulent transfer action was defective, rendering the judgment against the Trust void. Rather than litigate whether service in Montana was proper, Compton elected to bring a fraudulent transfer claim against Tangwall under the federal bankruptcy fraudulent transfer statute. A default judgment in Compton's action was entered against Tangwall. His appeals from this judgment were dismissed.

         Tangwall next sought relief in Alaska state court, where he filed the complaint that led to this appeal. The crux of his argument was that AS 34.40.110 grants Alaska courts exclusive jurisdiction over any fraudulent transfer actions against the Trust.[2] Specifically, he argued that the Trust contains a provision restricting the transfer of the beneficiary's interest, and that AS 34.40.110(k) grants Alaska courts "exclusive jurisdiction over an action brought under a cause of action or claim for relief that is based on a transfer of property to a trust" containing such transfer restrictions. On this basis, Tangwall sought a declaratory judgment stating that all judgments against the Trust from other jurisdictions are void and that no future actions can be maintained against the Trust because the statute of limitations has run.[3]

         The superior court dismissed the complaint, and Tangwall appeals. Most of Tangwall's arguments on appeal are supported by little or no citation to relevant legal authority and are therefore waived.[4] However, he has preserved his argument that the state and federal judgments against the Trust are void for lack of subject matter jurisdiction under AS 34.40.110(k). While reviewing this appeal, we requested supplemental briefing on the question whether state or federal courts are required to follow a statute that purports to retain exclusive jurisdiction over a fraudulent conveyance action.[5]


         We review an order granting a motion to dismiss for a failure to state a claim de novo.[6] We presume all factual allegations in the complaint to be true, and draw all reasonable inferences in favor of the non-moving party.[7]

         A. Alaska Statute 34.40.110(k) Purports To Grant Alaska Courts Exclusive Jurisdiction Over Fraudulent Transfer Actions Against The Trust.

         Alaska Statute 34.40.110 governs Alaska trusts containing a "transfer restriction" - a provision stating that trust property may not be transferred before payment or delivery of the property to the beneficiary of the trust.[8] The statute provides that these restrictions, which allow for the creation of so-called "self-settled spendthrift trusts, "[9] are generally enforceable.[10] However, subsection (b)(1) creates a limited cause of action for fraudulent transfers: a creditor of the settlor of the trust can reach trust property if the creditor can prove that the settlor's transfer of property to the trust "was made with the intent to defraud that creditor."[11]

         Alaska Statute 34.40.110(k) enumerates two additional limits on fraudulent transfer claims. First, an action "may not be brought... for an attachment or other provisional remedy against property of a trust subject to this section or to avoid a transfer of property to a trust that is the subject of this section unless the action is brought under (b)(1) of this section."[12] In other words, the (b)(1) fraudulent transfer cause of action is the exclusive means by which a litigant can prevent a transfer of or reach property in an Alaska self-settled spendthrift trust. Second, the statute provides that Alaska courts have "exclusive jurisdiction over an action brought under a cause of action or claim for relief that is based on a transfer of property to a [self-settled spendthrift] trust" - a class that obviously includes fraudulent transfer actions.[13] This second limit, Tangwall claims, deprived the bankruptcy court and the Montana court of jurisdiction.

         Tangwall's argument is not frivolous. He is correct that a judgment is void if the court that entered the judgment lacked subject matter jurisdiction over the case.[14]Furthermore, AS 34.40.110(k) purports to grant Alaska courts exclusive jurisdiction over fraudulent transfer claims against Alaska self-settled spendthrift trusts. And having reviewed the legislative history of AS 34.40.110(k), we have no doubt the Alaska legislature's purpose in enacting that statute was to prevent other state and federal courts from exercising subject matter jurisdiction over fraudulent transfer actions against such trusts.[15] The question, however, is whether AS 34.40.110(k) can achieve that intended result. We conclude that it cannot.

         B. Alaska Statute 34.40.110(k) Cannot Limit The Scope Of Other States' Jurisdiction.

         More than 100 years ago, the United States Supreme Court held that

[e]ach state may, subject to the restrictions of the Federal Constitution, determine the limits of the jurisdiction of its courts, the character of the controversies which shall be heard in them, and, specifically, how far it will, having jurisdiction of the parties, entertain in its courts transitory actions where the cause of action has arisen outside its borders.[16]

         And just a few years later, the Court held that states are not constitutionally compelled to acquiesce to sister states' attempts to circumscribe their jurisdiction over such actions.[17]

         This latter rule arose from a case much like the one before us now. An employee sued his employer in a Georgia court, relying on an Alabama statutory cause of action; his employer countered that Alabama state courts retained exclusive jurisdiction over the suit under the Alabama Code, and that the Full Faith and Credit Clause compelled Georgia courts to respect Alabama's assertion of exclusive jurisdiction.[18] The Supreme Court found that "Full Faith and Credit" does not require states to go quite so far. Instead, "jurisdiction is to be determined by the law of the court's creation, and cannot be defeated by the extraterritorial operation of a statute of another state, even though it created the right of action."[19]

         Alaska Statute 34.40.110(k) crosses the limit recognized by Tennessee Coal: it purports to grant Alaska courts exclusive jurisdiction over a type of transitory action against Alaska trusts.[20] We acknowledge that the analogy is imperfect; the Montana court's judgment against Tangwall was based not on a fraudulent transfer cause of action created by an Alaska statute, but rather on a cause of action arising under Montana law relating to an Alaska trust.[21] Nevertheless, Tennessee Coal controls. The Tennessee Coal court held that the Full Faith and Credit Clause does not compel states to follow another state's statute claiming exclusive jurisdiction over suits based on a cause of action "even though [the other state] created the right of action."[22] The clear implication is that the constitutional argument rejected in Tennessee Coal would be even less compelling were a state to assert exclusive jurisdiction over suits based on a cause of action it did not create.

         In seeking to void the Montana court's judgment for lack of jurisdiction, Tangwall effectively argues that AS 34.40. 110(k) can deprive Montana courts of jurisdiction over cases arising under Montana law. This is simply a more extreme interpretation of the "full faith and credit" principle than the interpretation considered and rejected in Tennessee Coal.[23]

         We acknowledge that the Alaska legislature's attempt to grant Alaska courts exclusive jurisdiction over a class of claims in some circumstances is hardly unique.[24] And we acknowledge that several of our sister states have concluded that similar statutes do, in fact, restrict their jurisdiction.[25] However, those courts have relied on reasoning that is not applicable to AS 34.40.110(k). First, "[s]ome state courts have applied state-law distinctions between local and transitory actions to make discretionary decisions whether to stay or dismiss an action in favor of another forum."[26]Tennessee Coal established that "a state cannot create a transitory cause of action and at the same time destroy the right to sue on that transitory cause of action in any court having jurisdiction"[27] - which suggests that states are not barred from asserting exclusive jurisdiction when the cause of action ...

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