Melanie M. Starnes, Plaintiff-appellee, v. Premier Trust Services, Inc., an Illinois Corporation,defendant-cross Claim Plaintiff-appellee, v. Gary C. Starnes, Defendant-cross Claim Defendant-appellant, 52 F.3d 328 (7th Cir. 1995)

ORDER

This diversity case requires us to determine whether Gary C. Starnes (Gary) retains any beneficial interest in a land trust. This appeal is the culmination of a nine-year saga with many twists and turns, the necessary portions of which we shall now recite:

Plaintiff-Appellee Melanie M. Starnes (Melanie) is Gary's former wife; Gary and Melanie divorced in 1989. In 1986, Gary placed their Oregon, IL property in a land trust (the trust). The current trustee is Premier Trust Services, Inc. (Premier Trust). Under the terms of the trust, Melanie is listed as the sole (100%) beneficiary. Gary, however, signed the trust agreement as a co-beneficiary, see R. 80, Deposition Exhibit 41 (Trust Agreement), and Melanie agrees that Gary was to be the beneficiary in the event of Melanie's death. R. 80, Melanie Starnes Deposition at 108. In addition, Gary states that he believes he retained a beneficial interest in the trust because of the Starnes' relationship as "man and wife." R. 58, Exhibit C (Gary Starnes Deposition) at 59.

When the couple divorced in 1989, the Kane County (IL) Circuit Court adopted the Starnes' marital separation agreement, which called for the sale of the trust property. The agreement stated that one-third of the proceeds from the sale would belong to Melanie and two-thirds would belong to Gary. R. 74, Exhibit B (Judgment for Dissolution of Marriage). Melanie contends that the entirety of Gary's two-thirds share would then be paid to her as child support; Gary argues that only a portion of his share would be paid to Melanie. The property, however, was never sold.

In 1991, a $110,000 mortgage was taken on the Oregon, IL property. The mortgage is held by Mount Morris Savings and Loan Association (Mount Morris). The mortgage agreement bears the signatures of Gary Starnes, Melanie Starnes, and a representative of Premier Trust. Melanie alleges that she never signed the mortgage agreement nor did she authorize or ratify the mortgage. Gary states that he signed Melanie's name on the agreement with her knowledge and consent. The mortgage payments are currently in arrears, and Mount Morris is threatening to foreclose on the mortgage.

In 1992, claiming that Gary had breached his duty under the divorce agreement to sell the property and pay child support, Melanie brought a motion to compel in Kane County Circuit Court. The court granted her motion and ordered Gary to convey his interest in the Oregon, IL property to Melanie. Gary then executed a quitclaim deed, giving all his interest in the property to Melanie. Neither the deed, the court order, nor the motion to compel mention the existence of the trust.

In 1993, Melanie, now a resident of Utah, brought this suit against Premier Trust and Mount Morris, both Illinois corporations. She seeks a declaration that she has no obligation to Mount Morris under the mortgage.¹  In addition, Melanie claims that Premier Trust breached its fiduciary duty as trustee by mortgaging the property without her consent. Premier Trust now wishes to resign as trustee. Under the terms of the trust, it may do so if Melanie appoints a successor trustee. Melanie has not named a successor, and the Trust Agreement provides that, in this situation, Premier Trust may resign by "convey [ing] the trust property to the beneficiaries in accordance with their respective interests." R. 80, Deposition Exhibit 41 (Trust Agreement). Premier Trust filed a counterclaim, naming Melanie and Gary as defendants and seeking a declaration from the court of who has what rights under the trust. Premier Trust, Mount Morris, and Melanie have since negotiated a settlement agreement. The settlement, however, is contingent on a declaration by the court that Gary has no beneficial interest in the trust. The district court issued a summary judgment order stating that Gary has no such interest and certified the judgment as final and immediately appealable under Fed. R. Civ. P. 54(b). Gary appeals.² 

A federal court sitting in diversity must apply the choice of law rules of the jurisdiction in which it sits. Widley v. Springs, Nos. 94-1453 & 94-1454, slip. op. at 10 (7th Cir. January 20, 1995); see also Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021 (1941). This suit was brought in the Northern District of Illinois. Illinois generally follows a "most significant contacts" approach to choice of law questions. Widley, slip. op. at 11-12; cf. Ingersoll v. Klein, 262 N.E.2d 593, 596 (Ill.1970). In this case, the trust was executed in Illinois, the trust property is in Illinois, the divorce was finalized in an Illinois court, the mortgage is held by an Illinois corporation, defendant and trustee Premier Trust is an Illinois corporation, and the Starneses formerly resided in Illinois, although Melanie is now in Utah and Gary is now in Pennsylvania. The state with the most significant contacts is Illinois, so Illinois substantive law should apply.³ 

Melanie argues that Gary retains no interest in the trust because the trust agreement lists her as the sole, 100 percent beneficiary. Gary, however, signed the trust agreement as a co-beneficiary, and at her deposition, Melanie stated that Gary retained an interest in the event of Melanie's death. R. 80, Melanie Starnes Deposition at 108. In addition, Gary argues that the trust was marital property and that he retained an interest as Melanie's husband. See R. 58, Exhibit C (Gary Starnes Deposition) at 59.⁴  The divorce agreement appears to support Gary's view that the trust was marital property, as Melanie was to receive only one-third of the income from the sale of the trust property. A disputed amount of Gary's two-thirds share would be paid to Melanie as child support, but whether the entire two-thirds would go to Melanie is not clear from the record or from the plain language of the divorce agreement.⁵  Thus, under the terms of the trust agreement and the divorce agreement, a genuine issue of material fact exists as to whether Gary retains any beneficial interest in the trust.

Next, Melanie and Premier Trust argue that even if Gary once held a beneficial interest in the trust, his quitclaim deed conveyed that interest to Melanie in 1992.⁶  While this argument seems persuasive, and the intent of the quitclaim deed and the Kane County court order requiring the conveyance may well have been to transfer Gary's beneficial interest in the trust to Melanie, the quitclaim deed did not accomplish this result. In Illinois, a quitclaim deed is an accepted method of transferring real estate or real property. 765 ILCS 5/10. A beneficial interest in an Illinois land trust, however, is not a real property interest; it is a personal property interest. IMM Acceptance Corp. v. First Nat'l Bank and Trust Co. of Evanston, 499 N.E.2d 1012, 1015 (Ill.App.1986) ("while the common law trust creates a split between the legal title in the trustee and the equitable title in the beneficiary, the Illinois land trust places both the legal and equitable title in the trustee.... [T]he beneficiary's interest in the trust is said to be personal property."), appeal denied, 505 N.E.2d 353 (Ill.1987).⁷  Thus, an Illinois appellate court has held that a beneficial interest in a land trust may not be transferred by quitclaim deed. In re Estate of Crooks, 638 N.E.2d 729, 734 (Ill.App.1994). In addition, a quitclaim deed will not constitute an express or equitable assignment of the beneficial interest in a land trust if the deed merely describes the property and does not refer to the trust. Id. at 734-35. Gary's 1992 quitclaim deed describes the Oregon, IL property, but it does not refer to the trust. Thus, under Crooks, we may not construe the deed as an assignment of Gary's beneficial interest in the trust to Melanie.

The 1992 Kane County Circuit Court order directed Gary to convey his interest in the property to Melanie.⁸  The order does not mention the existence of the trust, and if we must interpret the order narrowly (as Crooks requires us to construe quitclaim deeds), we may not construe the order to constitute an assignment of Gary's beneficial interest in the trust to Melanie. The order, however, unlike a quitclaim deed, is not a specialized form of transfer that applies only to real property. Rather, the Kane County Circuit Court sought to enforce the divorce agreement, which provided that the Oregon, IL property would be sold and that Gary would pay child support to Melanie out of his share of the proceeds. Because the property had not been sold, Gary had not paid child support to Melanie. The Kane County court obviously intended to transfer Gary's interest in the property to Melanie, whether a personal or real property interest, so she could use the proceeds as child support.

The instant case is an equitable action: Melanie and Premier Trust seek a declaration that Gary retains no beneficial interest in the trust. "The recognition, execution and control of a trust or equitable interest is a matter exclusively within the jurisdiction of equity." County of Cook v. Barrett, 344 N.E.2d 540, 549 (Ill.App.1975); see also People ex rel. Daley for Use of Cook County v. Warren Motors, Inc., 483 N.E.2d 427, 431 (Ill.App.1985), aff'd, 500 N.E.2d 22 (Ill.1986). Under Illinois law, "equity considers that as done which ought to be done." Cesena v. DuPage County, 582 N.E.2d 177, 180 (Ill.1991), cert. denied, 112 S. Ct. 1953 (1992); Just Pants v. Wagner, 617 N.E.2d 246, 249 (Ill.App.1993). As noted above, the Kane County court intended to transfer Gary's interest in the trust to Melanie. By ordering Gary to convey to Melanie his interest in the real property rather than the land trust, the court may not have used the proper form. In an equitable action, however, Illinois law requires us to look past the form to the substance of the Kane County court order. Cf. Kassuba v. Realty Income Trust, 562 F.2d 511, 513 (7th Cir. 1977); Reese v. Melahn, 292 N.E.2d 375, 379 (Ill.1973); Just Pants, 617 N.E.2d at 253; In re Custody of Mayes, 409 N.E.2d 12, 15 (Ill.App.1980). We have no doubt that the court intended to transfer Gary's beneficial interest in the trust as well as whatever real property interest he may have retained in the Oregon, IL property to Melanie. Thus, equity demands that we construe the Kane County court order as an assignment of any beneficial interest in the trust that Gary may have possessed to Melanie. Gary retains no beneficial interest in the trust. Accordingly, the judgment of the district court is

AFFIRMED.