Background Early American courts and state legislatures followed the British tradition and deemed it violative of public policy to permit a person the use and enjoyment of his property while at the same time not allowing creditors to reach the property. This began to change in 1984 when Cook Islands, a small Polynesian island chain with free association to New Zealand passed the International Trust Act, which broke from centuries old law and began to allow for people to be a beneficiary of a trust they settled and also have protection from creditors (known as "self-settled spendthrift trusts"). The Foreign Asset Protection Trust (FAPT) was born. Wealthy people from across the globe settled Cook Islands FAPTS in droves, and other offshore jurisdictions followed Cook Islands and passed their own FAPT laws. Only five years later, Alaska, not wanting to miss out on a tremendous business opportunity passed its own trust act that also permits self-settled spendthrift trusts, known as Domestic Asset Protection Trusts (DAPT). Other states have since followed suit. When properly settled by a resident of a DAPT state, the DAPT may be an effective asset protection vehicle. However, an Oregon resident (or other non-DAPT jurisdiction resident) likely will not benefit from settling a DAPT. A DAPT is meant to operate as follows: A non-DAPT jurisdiction settlor settles a DAPT and then sends assets to a trustee in the DAPT's jurisdiction. The DAPT contains a choice-of-law provision that states the DAPT must be interpreted according to the DAPT jurisdiction's law (which jurisdiction permits the use of self-settled spendthrift trusts). Furthermore, the corporate trustees that administer DAPTs carefully prevent themselves from having "minimum contacts" with non-DAPT jurisdictions, so in the event a non-DAPT jurisdiction settlor is sued by a creditor in a non-DAPT jurisdiction, that jurisdiction will not have personal jurisdiction over the corporate trustee, thus protecting the assets held by the trustee. However, a careful analysis of state and federal law shows that this logic is flawed, and that a DAPT likely will provide no asset protection to a non-DAPT state resident. CHOICE-OF-LAW PROVISION IS OFFENSIVE TO PUBLIC POLICY Every DAPT contains a provision stating the trust must be interpreted according to the DAPT jurisdiction's law. However, each state has laws directing how to handle a "conflict of laws" should a DAPT jurisdiction's laws conflict with a non-DAPT jurisdiction's laws. Oregon has adopted the Uniform Trust Code's version: "The meaning and effect of the terms of the trust are determined by . . . [t]he law of the state, country or other jurisdiction designated in the terms of the trust unless the designation of the law of that state, country, or other jurisdiction is contrary to a strong public policy of the state, country or other jurisdiction having the most significant relationship to the matter at issue." Although no Oregon court of review has defined what "contrary to a strong public policy of the state . . . having the most significant relationship to the matter at issue" means, every other court in the U.S. that has addressed this issue in a trust context has held that a foreign trust will be interpreted according the laws of the state in which the settlor is domiciled. For example, in In Re Brooks, Brooks settled two FAPTs, and each FAPT contained a choice of law provision designating that the local law of the respective country should be used when interpreting the trust. In Re Brooks, 217 B.R. 98, 101 (1998). The court (Bankruptcy court district of Connecticut) first looked to Connecticut law to determine what jurisdiction's law should be used to interpret the trust. "Connecticut courts generally 'respect the expressed will of the settlor as to the controlling law . . . [t]here are, however exceptions. Connecticut courts have held that ' . . . the legality of the trust of personalty [is determined] by the law of the settlor's domicile . . . [m]oreover, Connecticut will not '. . . enforce the law of another jurisdiction nor the rights arising thereunder, which . . . contravene [Connecticut] public policy." Id. at 101-102. The Bankruptcy Court found that interpreting the trust under foreign law was contrary to Connecticut public policy and the Court chose to interpret the instrument under Connecticut law. Likewise, the court held that because Connecticut law did not recognize self-settled spendthrift trusts, the trust assets belonged to Brooks' creditors. Id. Other courts have used similar logic to ignore the choice of law provision in FAPTs. See eg. In Re Portnoy, 201 B.R. 685, 696-701 (1996) (where Bankruptcy court applied NY law instead of Jersey Law); Lawrence v. Goldberg, 279 F.3d 1294, 1297 (11th cir. 2002) (the Court used Florida law instead of law of the Republic of Mauritius). An Oregon court faced with the issue of whether it should follow the DAPT's choice-of-law provision and use the DAPT's jurisdiction law to interpret the DAPT, or use Oregon law to interpret the DAPT will likely use the same logic that the above mentioned courts used, and find it contrary to public policy to interpret according to the DAPT's jurisdiction law. WANT OF PERSONAL JURISDICTION OVER THE DAPT TRUSTEE DOES NOT PREVENT NON-DAPT JURISDICTION FROM ORDERING TRUSTEE TO TURN OVER TRUST ASSETS All state courts must give full faith and credit to judgments rendered by the courts of sister states. U.S. Const. art. IV, ? 1. "[R]ecords and judicial proceedings 'shall have such faith and credit given to them in every court within the United States, as they have by law or usage in the courts of the State from whence the said records are or shall be taken.'" Fauntleroy v. Lum, 210 US 230, 237 (1908), citing Tilt v. Kelsey, 207 U.S. 43, 57 (1907). A state court cannot challenge the order of a sister state court as to mistake of law, but can only attack it for want of jurisdiction. Id. What this means for the Oregon resident whom settled a DAPT is that a creditor could obtain a judgment in Oregon stating the assets that the DAPT's trustee holds belong to the settlor, and then take the judgment to the DAPT state, and the DAPT state court must enforce the judgment. The DAPT state court must take the necessary steps to turn the assets over to the creditor. It may be argued that the DAPT trustee is an indispensable party, and as such, because the trustee maintains no minimum contacts with Oregon, an Oregon court has no jurisdiction over the trustee. Oregon Rules of Civil Procedure (ORCP) 29 provides a two-step test to be used in determining whether a party must be joined to a court proceeding. ORCP 29A The first step in the analysis begins with ORCP 29A Persons to be joined if feasible: "[a] person . . . shall be joined as a party in the action if . . . in that person's absence complete relief cannot be accorded among those already parties." ORCP 29A. Steelman-Duff, Inc. v. DOT/Oregon State Highway Div., 323 Or.220 (1996) is a leading case on the interpretation of ORCP 29A. Here, the State awarded a construction contract to J.C. Compton Company (JCC). Steelman-Duff, Inc. (SDI) sued the State and JCC for what SDI thought was an unlawful prospective contract award. The Court upheld the contract award and then JCC sought attorney fees. The dispute turned on whether JCC was a necessary party. JCC argued that it was a necessary party because it had a significant financial stake in the outcome of the action. Id. at 229. The court held that JCC was not a necessary party because the State had not yet awarded the contract and an "interest in the indirect effects of the outcome of the litigation is not the same as an interest in the controversy itself." Id. at 229-230. Is a trustee a necessary party under ORCP 29A? The trust arrangement is a concept where the trust property is conceptually split in two, with the trustee holding "legal title," and the beneficiary holding "equitable title." The trustee is bound to handle the property as the settlor dictates. Because the beneficiary is the only party entitled to use and enjoy the trust property, the beneficiary's interest in the trust property is arguably much greater than the trustee's. In a situation where a third party creditor is suing the settlor, the trustee, like JCC, has no interest in the controversy itself, but only the indirect effects of the outcome of the litigation. As holding only the legal title, the trustee may have a minor financial interest in the outcome of the action (trustee fees), but is otherwise not involved in the controversy. A trustee is likely not a necessary party under ORCP 29A, but assuming a court finds it is a necessary party, the analysis continues in ORCP 29B. ORCP 29B If complete relief cannot be accomplished in the absence of a party, then ORCP 29B is used to determine whether the case should proceed or be dismissed. "If a person as described . . . [in] this rule cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable. The factors to be considered by the court include . . . to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties . . . whether a judgment rendered in the person's absence will be adequate . . . [and] whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder." ORCP 29B. The Oregon Appellate Court scrutinized ORCP 29B in Steers v. Rescue 3, Inc., 146 Or. App. 746 (1997). "The decision whether to dismiss (i.e., the decision whether the person missing is 'indispensable') must be based on factors varying with the different cases . . . [t]he proper approach to an ORCP 29 B determination is first to determine whether the action could properly continue without the absent person. Only if it could not should the court deem the person indispensable." Id. at 751. Under ORCP 29B, an action against a DAPT settlor could go on without the trustee because: (1) the plaintiff may not have an adequate legal remedy if the action is dismissed for non-joinder of the trustee; and (2) the trustee is not prejudiced by a judgment if it is not joined because it has no beneficial interest in the trust property, but only in the outcome. Because the action could continue without joining the trustee, the trustee is not an indispensable party. The Federal District Court for the District of Nevada came to this conclusion, but in a slightly different setting in Henry v. Rizzolo, 2011 BL 190776, 5 (D.Nev., July 21, 2011). Here, the defendants' trust was an FAPT, and the Court was interpreting Federal Rule of Civil Procedure 19 (FRCP 19) (which is the rule that ORCP 29 is modeled after), but the issue is the same: whether a trustee is an indispensable party. The Court held that a "trustee is not indispensable . . . [the settlor-beneficiaries] interest in this action are such that they undoubtedly will make all of the absent trustees' arguments, as they have equal if not greater interest in protecting the trust corpus than the trustees." Id. at 5. ORCP 29 is modeled after and nearly identical to FRCP 19. If a DAPT trustee contends that it is an indispensable party, the court would provide similar analysis of ORCP 29 that the Henry court did of FRCP 19, and likely hold that the trustees is not an indispensable party. CONCLUSION A DAPT probably is not a good asset protection option for an Oregon resident because a creditor of the Oregon resident can obtain a judgment in Oregon and likely have it enforced in the DAPT jurisdiction.