Summary
In 2007, Donald Tangwall filed a lawsuit against the Wackers in a Montana state court, prompting them to counter-sue him, as well as his wife and mother-in-law, Toni Bertran. In 2010, the Wackers emerged victorious and were awarded judgments against both Tangwall and Bertran. Just before the ruling, Bertran established the Toni 1 Trust, which was a Domestic Asset Protection Trust based in Alaska. Bertran then filed for bankruptcy in Alaska, hoping to designate Alaska as the jurisdiction and prevent the Montana sheriff from seizing any of the trust's property located in Montana.
The bankruptcy court deemed this transfer to be a clear instance of fraudulent transfer. However, the court faced an intriguing issue regarding the Alaska DAPT Statute, specifically Alaska § 34.40.110(k), which states that a court in Alaska has sole jurisdiction over any claim for relief or cause of action related to the transfer of property to a trust governed by this section.
Critical Details and Longer Analysis
Alaska Statute vs. Federal and State Law
Essentially, the Alaska statute attempted to exercise exclusive control over determining whether transfers to the trust were fraudulent, despite the well-established notion that Federal law supersedes State law under the Supremacy Clause of the U.S. Constitution. Moreover, under the Full Faith and Credit Clause of Article IV Section I of the Constitution, the states are required to respect the legal proceedings of other states, making Alaska's attempt at jurisdiction quite ambitious.
Facts of the Case
The facts of the case were clear. The actions taken by Tangwall and Bertran were, once again, taken after proceedings and before a legal judgment. “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). The Wackers filed a fraudulent transfer action under Montana law in a 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.” This is the hallmark of failed asset protection—doing things after a suit.
In 1908, 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." This means that Alaska DAPT law cannot unilaterally restrict the rights of other states.
Court Ruling
The outcome of the bankruptcy trial was not surprising. The court carefully examined the Alaska statute and concluded that the legislature had unambiguously intended to have complete control over the determination of transfers. However, the court ultimately ruled that Alaska did not have the authority to deprive another state of its right to make determinations regarding property located in that state. This decision was entirely predictable, given the Full Faith and Credit Clause and the Supremacy Clause, and was in line with what was anticipated.
Tangwall spent well over 5 years in the courts and filed multiple suits, counter-suits, and appeals. He lost them all. This is not only a failure in asset protection but a failure in assisting a client with the emotional turmoil, which was in part caused by poor planning and poor stewardship.
What We Would Have Done to Prevent This
The fullness of the client’s case is difficult to examine, as the unraveling began through their own litigious goals against the Wacker family. Had this not occurred, or had another remedy been found (perhaps with wiser strategic counsel), the process may have never begun and the asset protection case would have never come to pass.
That being said, supposing the chain of events couldn’t have been stopped, prior to the client engaging in an offensive legal action, they should have had a proper plan in place in case the worst was to happen. In this case, the worst did happen.
Our efforts would have focused on both a legitimate offshore asset protection plan, and working to bulwark the investments, assets, and revenue-generating activities of the client to provide greater security through multiple avenues of strength. It is clear that the continuation of legal battles and appeals is the result of a position of not only poor legal advice, but general weakness.
