North Dakota Supreme Court hears dispute over whether trustee misconduct can encumber a successor beneficiary's share

BISMARCK, N.D. — Attorneys told the North Dakota Supreme Court on Tuesday that the central question in Holty v. Rigby is whether a trust share that passed to a successor beneficiary after a trustee's death may be burdened to satisfy claims for that trustee's prior misconduct.

At oral argument, Chief Justice John Jensen said the case would be taken under advisement. "This case will be taken under advisement as all cases are," Jensen said, closing the morning session.

The dispute stems from a family mineral trust created by Kermit and Ardela Holty. The trust originally divided receipts into four equal shares. Nathan Holty served as a trustee and, according to the district court findings cited at argument, misappropriated funds from both the trust and separate personal accounts of Ardela Holty. Nathan Holty died, and his 1/4 trust share succeeded to a named successor beneficiary, Tia Rigby.

Attorney Malcolm Pippen, representing Rigby, argued the district court erred by treating Rigby's successor interest as if it were Nathan Holty's personal asset. "How can she be singled out to the exclusion of the others?" Pippen asked the court, arguing Rigby "had no involvement" in her father's misconduct and therefore should not be made to bear his liabilities.

Responding, attorney Kevin Chapman, who represented the other side, urged the court to uphold the district court's remedies and pointed to precedent allowing a trustee's share to be charged or offset to compensate victims of a breach. "The trustees have the authority and the duty to make sure that each share has been treated equally," Chapman told the court, arguing trustees may equalize distributions and, in some circumstances, impose equitable remedies against a successor interest.

The parties debated whether North Dakota authority and the trust document permit trustees to equalize distributions after a beneficiary's death and whether equitable liens or offsets may attach to a successor beneficiary's share when a trustee breached duties and obtained unequal receipts. Chapman cited prior cases and North Dakota Century Code provisions that, he said, support equitable remedies against a trust share to make injured beneficiaries whole. Pippen countered that the trust language and basic trust principles do not make a successor beneficiary personally liable for a predecessor trustee's misdeeds.

Justices questioned both sides about how the trust defines succession and what remedies remain when a trustee is deceased. Justice Daniel Crothers pressed whether the district court's language—that Rigby "is a beneficiary under terms of the trust, which flow from her father, Nathan"—accurately reflected the trust's provision that a deceased beneficiary's share "shall go to his or her issue." Other justices probed whether remedies should come from an estate action against the deceased trustee or from adjustment within the ongoing trust.

Attorneys also flagged factual and remedial details in the lower-court record. Chapman told the court the district court found evidence of approximately $375,000 taken from Ardela Holty's separate bank accounts and that the district court treated some trust receipts as subject to equitable relief. Pippen emphasized that Rigby was adjudicated not personally liable for her father's misappropriations and reiterated his objection to using her successor interest as a source to satisfy those claims.

The court did not rule at argument. Chief Justice Jensen said the court would take the matter under advisement and reconvene later in the day. A written opinion will be issued at a later date and posted on the Supreme Court's website.