FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

TODD A. FREALY, Attorney,

Chapter 7 Trustee of Estate of

Rick Reynolds,

Appellant,

v.

RICK H. REYNOLDS; JOHN M.

CARMACK, Co-Trustee of the

Reynolds Family Trust and CoTrustee of The Reynolds Family

Trust - Survivor’s Trust, as

amended; JOHN MORRIS, CoTrustee of the Reynolds Family

Trust and Co-Trustee of The

Reynolds Family Trust -

Survivor’s Trust, as amended,

Appellees.

No. 12-60068

BAP No.

11-1433

ORDER

CERTIFYING A

QUESTION TO

THE CALIFORNIA

SUPREME COURT

Filed March 9, 2015

Before: Alex Kozinski and Susan P. Graber, Circuit

Judges, and Charles R. Breyer, Senior District Judge.*

Per Curiam Order

* The Honorable Charles R. Breyer, Senior District Judge for the U.S.

District Court for the Northern District of California, sitting by

designation.
2 FREALY V. REYNOLDS

SUMMARY**

Bankruptcy

The panel certified to the California Supreme Court the

following question:

Does section 15306.5 of the California

Probate Code impose an absolute cap of 25

percent on a bankruptcy estate’s access to a

beneficiary’s interest in a spendthrift trust that

consists entirely of payments from principal,

or may the bankruptcy estate reach more than

25 percent under other sections of the Probate

Code?

COUNSEL

Jesse S. Finlayson (argued), Finlayson Toffer Roosevelt &

Lilly LLP, Irvine, California, for Appellant.

David W. Meadows (argued), Law Offices of David W.

Meadows, Los Angeles, California, for Appellees.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
FREALY V. REYNOLDS 3

ORDER

PER CURIAM:

This appeal requires us to determine the extent to which

a bankruptcy estate may reach a beneficiary’s interest in a

spendthrift trust under the California Probate Code. The

beneficiary claims that California Probate Code section

15306.5 caps the bankruptcy estate’s access at 25 percent of

his trust interest, which consists entirely of payments from

principal. The bankruptcy trustee, on the other hand, seeks to

reach more than 25 percent of the beneficiary’s interest under

Probate Code sections 15301(b) and 15307, which it reads as

not subject to the section 15306.5 cap.

We find no controlling precedent in the decisions of the

California Supreme Court or Courts of Appeal. See Cal. R.

Ct. 8.548(a)(2) (permitting certification where there is “no

controlling precedent” from the state court); Sullivan v.

Oracle Corp., 557 F.3d 979, 983 (9th Cir. 2009) (order)

(looking to decisions of California appellate courts). Nor has

our court considered the interplay between section 15306.5

and other Probate Code sections governing creditors’ access

to spendthrift trusts. We held in Neuton v. Danning (In re

Neuton), 922 F.2d 1379, 1383 (9th Cir. 1990), that section

15306.5 allows a bankruptcy estate to reach 25 percent of a

spendthrift trust. But, unlike in the present case, the

beneficiary in Neuton had argued that all of his interest in the

spendthrift trust was protected from the bankruptcy estate,

while the bankruptcy estate claimed only 25 percent under

section 15306.5. Id. We therefore had no occasion to

examine whether a bankruptcy estate could access more than

25 percent under other Probate Code sections.
4 FREALY V. REYNOLDS

A substantial sum of money hangs in the balance, as the

beneficiary stands to lose—and the bankruptcy estate stands

to gain—the entirety of his trust interest. Their fate, and the

fates of future beneficiaries and their creditors, hinges on the

interpretation of opaque sections of the Probate Code. 

Because the resolution of this appeal could transform the

terrain of California trust law, we respectfully request that the

California Supreme Court exercise its discretion to accept and

decide the certified question below.

I. Question Certified

Pursuant to Rule 8.548 of the California Rules of Court,

we request that the California Supreme Court answer the

following question:

Does section 15306.5 of the California

Probate Code impose an absolute cap of 25

percent on a bankruptcy estate’s access to a

beneficiary’s interest in a spendthrift trust that

consists entirely of payments from principal,

or may the bankruptcy estate reach more than

25 percent under other sections of the Probate

Code?

We understand that the Court may reformulate our question,

and we agree to accept and follow the Court’s decision.

II. Background

A. Applicable California Statutes

The California Probate Code recognizes the validity of

spendthrift provisions that restrict transfer of a beneficiary’s
FREALY V. REYNOLDS 5

interest in income and principal, so long as that interest hasn’t

yet been paid to the beneficiary. See Cal. Prob. Code

§§ 15300, 15301(a). Section 15301(a) permits the restraint

against transfer of trust principal, subject to certain

exceptions set forth in sections 15301(b) and 15304–07:

Except as provided in subdivision (b) and in

Sections 15304 to 15307, inclusive, if the trust

instrument provides that a beneficiary’s

interest in principal is not subject to voluntary

or involuntary transfer, the beneficiary’s

interest in principal may not be transferred

and is not subject to enforcement of a money

judgment until paid to the beneficiary.

Cal. Prob. Code § 15301(a).

One of these exceptions, section 15306.5(a), allows

general creditors to satisfy money judgments out of payments

to which the beneficiary is entitled. The section provides:

Notwithstanding a restraint on transfer of the

beneficiary’s interest in the trust under

Section 15300 or 15301, and subject to the

limitations of this section, upon a judgment

creditor’s petition under Section 709.010 of

the Code of Civil Procedure, the court may

make an order directing the trustee to satisfy

all or part of the judgment out of the payments

to which the beneficiary is entitled under the

trust instrument or that the trustee, in the

exercise of the trustee’s discretion, has

determined or determines in the future to pay

to the beneficiary.
6 FREALY V. REYNOLDS

Cal. Prob. Code § 15306.5(a). Creditors, upon petition to the

court, may thus reach payments to which the beneficiary is

entitled subject to “the limitations of this section.” Id.

One of the limitations states as follows:

An order under this section may not require

that the trustee pay in satisfaction of the

judgment an amount exceeding 25 percent of

the payment that otherwise would be made to,

or for the benefit of, the beneficiary.

Cal. Prob. Code § 15306.5(b). Along the same lines, section

15306.5(f) specifies that “the aggregate of all orders for

satisfaction of money judgments against the beneficiary’s

interest in the trust may not exceed 25 percent of the payment

that otherwise would be made to, or for the benefit of, the

beneficiary.” Cal. Prob. Code § 15306.5(f). Section

15306.5(c) further restricts creditors’ access, stating that “[a]n

order under this section may not require that the trustee pay

in satisfaction of the judgment any amount that the court

determines is necessary for the support of the beneficiary and

all the persons the beneficiary is required to support.” Cal.

Prob. Code § 15306.5(c).

Section 15301(b) contains another exception to the

general rule against transfer of a spendthrift trust

beneficiary’s interest in principal:

After an amount of principal has become due

and payable to the beneficiary under the trust

instrument, upon petition to the court under

Section 709.010 of the Code of Civil

Procedure by a judgment creditor, the court
FREALY V. REYNOLDS 7

may make an order directing the trustee to

satisfy the money judgment out of that

principal amount.

Cal. Prob. Code § 15301(b).

And section 15307, titled “Income in excess of amount

for education and support; application to creditors’ claim,”

states:

Notwithstanding a restraint on transfer of a

beneficiary’s interest in the trust under

Section 15300 or 15301, any amount to which

the beneficiary is entitled under the trust

instrument or that the trustee, in the exercise

of the trustee’s discretion, has determined to

pay to the beneficiary in excess of the amount

that is or will be necessary for the education

and support of the beneficiary may be applied

to the satisfaction of a money judgment

against the beneficiary. Upon the judgment

creditor’s petition under Section 709.010 of

the Code of Civil Procedure, the court may

make an order directing the trustee to satisfy

all or part of the judgment out of the

beneficiary’s interest in the trust.

Cal. Prob. Code § 15307.

Unlike sections 15306.5, 15301(b) and 15307, which

apply to general creditors, the remaining exceptions pertain

to either preferred creditors or the unique situation in which

the settlor of the trust is also a beneficiary. See Cal. Prob.

Code § 15304 (invalidating the restraint against transfer
8 FREALY V. REYNOLDS

where the beneficiary is also the settlor); id. § 15305 (court

may order the trust to satisfy a money judgment for support

of the beneficiary’s spouse, former spouse or minor child); id.

§ 15305.5 (same, where there is a judgment against the

beneficiary awarding restitution for the commission of a

felony); id. § 15306 (same, where the beneficiary is liable for

reimbursement to the state of California for public support

furnished to him or his spouse or minor child).

B. Facts Of Our Case

Appellee Rick Reynolds is a beneficiary of the Reynolds

Family Trust, which contains the following spendthrift

provision: “No interest in the income or principal of any trust

created under this instrument shall be voluntarily or

involuntarily anticipated, assigned, encumbered, or subjected

to [a] creditor’s claim or legal process before actual receipt

by the beneficiary.” The trust is composed of three subtrusts—the Bypass Trust, the Marital Trust and the Survivor’s

Trust. Thirty days after his father’s death in 2009, Reynolds

became entitled to $250,000 from the Bypass Trust, $100,000

a year for ten years from the Survivor’s Trust and one-third

of the residue of the Survivor’s Trust thereafter. All, or

substantially all, of these distributions will be made from trust

principal, as the trust assets are not expected to generate

income.

The day after his father died, Reynolds filed a voluntary

Chapter 7 bankruptcy petition. The trust trustee subsequently

filed an adversary proceeding asking the bankruptcy court to

determine what interest, if any, the bankruptcy estate has. 

Reynolds filed a motion for partial summary judgment,

arguing that section 15306.5 limits the bankruptcy estate to

25 percent of his interest in the spendthrift trust. The
FREALY V. REYNOLDS 9

bankruptcy trustee countered that the estate is entitled to more

than 25 percent because section 15301(b) gives creditors

unrestricted access to distributions of principal “due and

payable,” and all of Reynolds’s distributions from the trust

were expected to be made from principal. Alternatively, the

bankruptcy trustee argued that section 15307 allows the

bankruptcy estate to reach any amount of Reynolds’s trust

interest not deemed necessary for his education and support. 

The bankruptcy trustee viewed sections 15306.5, 15301(b)

and 15307 as independent routes that a creditor could use in

gaining access to a beneficiary’s trust interest.

The bankruptcy court ruled in favor of Reynolds and held

that section 15306.5 establishes an “absolute maximum cap

on what is recoverable by a judgment creditor at 25 percent.” 

Although it acknowledged that “[t]here may be an exception

to [the 25 percent cap] under 15301(b),” the court “cho[]se

not to follow that interpretation.” The bankruptcy court also

rejected the argument that its reading rendered section 15307

superfluous, explaining that, under section 15307, “[a creditor

doesn’t] even necessarily get all of [the 25 percent] if [the

trust trustee] can show that [that amount] is necessary for

support.”

A divided Ninth Circuit Bankruptcy Appellate Panel

affirmed the bankruptcy court, though the majority took a

different approach. The BAP read section 15301(b) as

merely setting forth the procedure that a creditor must follow

to satisfy a claim from the principal of a spendthrift trust once

such principal is payable but not yet distributed to the

beneficiary. It refused to read section 15301(b) as allowing

a creditor to reach the entirety of principal due and payable,

reasoning that doing so would “effectively eviscerate[] the

spendthrift protection recognized by 15301(a).” It also
10 FREALY V. REYNOLDS

pointed to the exceptions contained in sections 15304–07 as

reflecting a “policy recognition that certain creditors should

have greater rights to a beneficiary’s interest in order to

satisfy their claims,” and noted that it would run counter to

this policy to read section 15301(b) as allowing any creditor

to similarly satisfy claims from trust principal.

In considering section 15307, the BAP reasoned that, if

sections 15307 and 15306.5 were separate avenues for

collection, “15306.5 would make no sense: Why would a

judgment creditor ever choose to satisfy its claim under

15306.5, which is limited not just by the 25% cap on the

beneficiary’s interest but by the needs of the debtor and his

or her dependents, when 15307 is only limited by the debtor’s

own educational and support needs?” The BAP concluded

that section 15307 doesn’t apply to this case because the more

plausible reading, and the one most aligned with the

legislative intent, is that it only limits a creditor’s access to

income, and not principal.

The dissent, by contrast, “d[id] not believe the California

legislature intended that a debtor, without exception, should

have access to potentially large distributions of cash from a

trust not needed for his support or education in preference to

the legitimate claims of his creditors.” It viewed sections

15301(b) and 15307 as playing a “critical role in protecting

creditors’ rights” by allowing “creditors, in some cases, to

reach some, or perhaps even all, . . . distributions” for which

beneficiaries have “no legitimate need.”

III. Explanation of Certification

The bankruptcy judge in this case was correct in

observing that “[t]he Probate Code of the state of California
FREALY V. REYNOLDS 11

is anything other than crystal clear.” It’s no surprise that both

the bankruptcy court and the BAP struggled to make sense of

the statutory scheme, with little to rely on but their own

conceptions of the proper balance between the rights of a

spendthrift trust beneficiary and those of his creditors.

As reflected in the assorted theories advanced by the

debtor, the bankruptcy trustee, the bankruptcy court and the

BAP majority and dissent, there is no obvious way to

harmonize section 15306.5 with sections 15301(b) and

15307. Below, we identify aspects of these sections that have

proved challenging for us to decipher, and for which we seek

authoritative guidance.

1. Recall that section 15301(a) permits the restraint

against transfer of trust principal, subject to exceptions

“provided in subdivision (b) and in Sections 15304 to 15307.” 

Cal. Prob. Code § 15301(b). Section 15306.5 is one of these

exceptions, but it’s not clear from its text whether the 25

percent cap on a creditor’s access to “payment[s] that

otherwise would be made to, or for the benefit of, the

beneficiary” also applies to orders under other sections of the

Probate Code. Cal. Prob. Code § 15306.5(b).

Section 15306.5(b) suggests, for example, that the 25

percent cap is limited to orders issued under section 15306.5,

as it states that “[a]n order under this section may not require

that the trustee pay in satisfaction of the judgment an amount

exceeding 25 percent of the payment that otherwise would be

made to, or for the benefit of, the beneficiary.” Cal. Prob.

Code § 15306.5(b) (emphasis added). But the “under this

section” phrasing is missing from subsection (f), which

provides that “the aggregate of all orders for satisfaction of

money judgments against the beneficiary’s interest in the
12 FREALY V. REYNOLDS

trust may not exceed 25 percent of the payment that otherwise

would be made to, or for the benefit of, the beneficiary.” Cal.

Prob. Code § 15306.5(f). Nor do the Law Revision

Commission’s comments elaborate when explaining that

“[s]ubdivision (f) limits the aggregate amount of the

beneficiary’s interest in one trust that is subject to

enforcement where several creditors have obtained orders.” 

Cal. Prob. Code § 15306.5 Law Revision Commission

comments.

2. A broader ambiguity exists with respect to section

15301(b). Its plain wording does not specify a limit on the

amount of principal “due and payable” that a creditor may

reach. It simply states that, “[a]fter an amount of principal

has become due and payable to the beneficiary . . . , the court

may make an order directing the trustee to satisfy the money

judgment out of that principal amount.” Cal. Prob. Code

§ 15301(b) (emphasis added). Reading section 15301(b)

literally, without any limitations on creditors’ access, raises

a host of difficult questions.

At the outset, section 15301(b) specifies that creditors

may access those principal amounts held within the trust only

after they become “due and payable” to the beneficiary. Cal.

Prob. Code § 15301(b). But nowhere in the Probate Code is

there a definition of “due and payable.” One interpretation

of “due and payable” is that it encompasses all disbursements

of principal owed to the beneficiary, regardless of the timing

of disbursement. Section 15301(b) would therefore give

creditors immediate access to all of a beneficiary’s trust

principal. Another theory is that an amount becomes “due

and payable” at the time the beneficiary is owed a

disbursement—that is, when the only remaining step is for the

trust to write a check or otherwise effect the transfer of funds
FREALY V. REYNOLDS 13

to the beneficiary. So construed, in Reynolds’s case, where

he is entitled to annual payments of principal continuing over

the next decade, a creditor would be unable to use section

15301(b) to reach the totality of his trust interest at one time;

instead, the creditor would have to wait until certain amounts

were ready for disbursement to petition the court for access.

Under any definition of “due and payable,” a literal

reading of section 15301(b) could give a judgment creditor

access to all trust principal, notwithstanding the limitations

set forth in section 15306.5 or section 15307. And perhaps

that makes sense—after all, it is, in essence, what already

happens: a spendthrift provision protects the beneficiary’s

income and principal interests only so “long as the income or

principal is properly held” in the trust. Chatard v. Oveross,

101 Cal. Rptr. 3d 883, 889 (Ct. App. 2009). After the amount

is paid to the beneficiary, creditors may reach it. Kelly v.

Kelly, 79 P.2d 1059, 1063 (Cal. 1938); see also Cal. Prob.

Code §§ 15300, 15301(a).

That reading, when viewed in light of the absence of a

similar provision in section 15300, also renders the Probate

Code’s treatment of principal different from that of income:

distributions of income are protected by the spendthrift

provision until they reach the beneficiary, while distributions

of principal become fair game as soon as they are “due and

payable.” And that distinction also may make sense—

distributions of principal, for example, are more likely to be

associated with the winding-down of a trust, as the

beneficiary transitions to self-sufficiency. Distributions of

income, by contrast, are intended to keep the beneficiary

going from year to year and therefore may be designed to

ensure that the beneficiary’s most immediate needs are met.
14 FREALY V. REYNOLDS

When considered in context, however, reading section

15301(b) as an independent means of accessing all principal

as it becomes due and payable creates some puzzling

consequences. For example, what purpose would section

15306.5 serve? On one hand, section 15306.5 uses the allencompassing word “payments,” so it could also be read as

applying to principal due and payable. See Cal. Prob. Code

§ 15306.5(a), (b), (f). Why, then, would the California

legislature craft a 25 percent cap and emphasize that it applies

in the aggregate, if creditors could bypass this protection by

using section 15301(b) to access the entirety of principal due

and payable? It’s also unclear, under that reading, why the

legislature would specify that creditors may not access

amounts “necessary for the support of the beneficiary and all

the persons the beneficiary is required to support,” see Cal.

Prob. Code § 15306.5(c), if creditors could turn to section

15301(b) to potentially drain the entirety of a beneficiary’s

trust interest, when that interest consists of principal due and

payable. On the other hand, section 15306.5 refers to all

payments, current and future, of principal and income. Thus,

perhaps section 15306.5 exists not as a cap on payments of

principal otherwise accessible through section 15301(b), but

instead as a limit on a creditor’s ability to obtain a standing,

general percentage share of the beneficiary’s trust payments,

current and future.

Similarly, if section 15301(b) permits general creditors to

access all principal due and payable, what becomes of the

exceptions in sections 15304–07 giving access to preferred

creditors? Could the bankruptcy trustee or any unsecured

creditor deplete the entirety of the trust interest when it

consists of principal due and payable, leaving none for the

preferred creditors contemplated in sections 15305, 15305.5

and 15306? Section 15301(b) states that “[a]fter an amount
FREALY V. REYNOLDS 15

of principal has become due and payable . . . , upon petition

to the court . . . , the court may make an order directing the

trustee to satisfy the money judgment out of that principal

amount.” Cal. Prob. Code § 15301(b) (emphasis added). By

contrast, sections 15305, 15305.5 and 15306 don’t contain

any language requiring preferred creditors to wait until a

certain time to petition the court for an order. Thus, if the

sequence in which a court order is issued determines the

timing of payments—an assumption lacking clear support

from the Probate Code—preferred creditors may retain

priority over a section 15301(b) creditor in accessing

principal due and payable.

3. The final ambiguity arises under section 15307, which

can be read as applying either to both income and principal,

or only to income. Its title, “Income in excess of amount for

education and support; application to creditors’ claim,”

suggests the latter. The legislative history also supports this

interpretation. See, e.g., Cal. Prob. Code § 15307 Law

Revision Commission comments (explaining that “[s]ection

15307 permits an ordinary creditor to reach income under

limited circumstances” and further discussing “the creditor’s

attempt to reach the excess income under this section”). In

addition, California Civil Code section 859, which was

repealed and replaced by California Probate Code section

15307, exclusively governed income. See United Cal. Bank

v. Lawrence (In re Estate of Lawrence), 72 Cal. Rptr. 851,

854–55 (Ct. App. 1968). However, the text of section 15307

does not mention income and instead refers generally to “any

amount to which the beneficiary is entitled.” Cal. Prob. Code

§ 15307. Also, the first sentence begins, “Notwithstanding a

restraint on transfer of a beneficiary’s interest in the trust

under Section 15300 [governing income] or 15301
16 FREALY V. REYNOLDS

[governing principal],” which supports applying section

15307 to both income and principal. Id.

If section 15307 pertains only to income, then it has no

application in this case. But if it extends to principal, many

of the same questions raised above arise. Section 15307, like

section 15301(b), does not explicitly refer to section 15306.5

or any of the other exceptions listed in section 15301(a), and

it could be read literally to give a creditor access to the

entirety of a beneficiary’s trust interest so long as none of it

is deemed necessary for his education and support. What

purpose, then, would sections 15301(b) and 15306.5 serve?

Section 15307 would be duplicative of a creditor’s right to

petition for distributions of principal under section 15301(b). 

And, depending on the meaning of section 15306.5 (which

remains unclear), section 15307 could directly conflict

with—and create an end-run around—the 25 percent cap set

forth in section 15306.5. Is the Probate Code meant to

function as a menu from which creditors may select the

sections they want to invoke in order to reach the maximum

amount of a beneficiary’s interest in a spendthrift trust? And,

if so, what would remain of the protections afforded to the

beneficiary?

The answers to these questions have significant

ramifications, not just for the immediate parties, but for the

administration of all spendthrift trusts in California. As it

currently stands, the Probate Code is subject to two vastly

different readings: one giving creditors unfettered access to

a beneficiary’s interest in the trust, and another restricting

creditors’ access to 25 percent. We are reluctant to decide

which reading prevails without the authoritative guidance of

the California Supreme Court. We therefore ask the Court to
FREALY V. REYNOLDS 17

exercise its discretion and decide the appropriate degree to

which creditors may access spendthrift trusts.

IV. Administrative Information

The names and addresses of counsel for the parties are as

follows:

Counsel for Appellant Todd A. Frealy:

Jesse Sequoia Finlayson

Matthew E. Lilly

Finlayson Toffer Roosevelt & Lilly LLP

15615 Alton Parkway

Irvine, CA 92618

Counsel for Appellees Rick H. Reynolds, John M.

Carmack and John Morris:

David Meadows, Attorney

Law Offices of David W. Meadows

1801 Century Park East

Los Angeles, CA 90067

Joseph A. Eisenberg

Thomas M. Geher

Jeffer Mangels Butler & Marmaro LLP

1900 Avenue of the Stars

Los Angeles, CA 90067

Frealy should be deemed the petitioner if the California

Supreme Court accepts this request. Cal. R. Ct. 8.548(b)(1).
18 FREALY V. REYNOLDS

The Clerk of this court shall submit copies of all relevant

briefs and an original and ten copies of this Order to the

California Supreme Court with a certificate of service on the

parties. See Cal. R. Ct. 8.548(c), (d). All further proceedings

before us are stayed pending receipt of the California

Supreme Court’s decision. The parties shall notify the Clerk

of this court within one week after the California Supreme

Court accepts or declines this request, and again within one

week after it renders its decision.

IT IS SO ORDERED.