United States v. Grant Case Analysis

In United States v. Grant, No. 00-08986-CIV (S.D. Fla. May 27, 2008), the Southern District of Florida would not hold Arline Grant, the settlor’s widow, in contempt of a federal repatriation order, because she had established that she could not comply. She had written to both trustees and tried to replace them, and the Bermuda and Jersey trustees refused to release the assets.

The impossibility defense protected only what stayed offshore. Money the trustees sent out, principal and income alike, was within the court’s reach. In 2013 the same court held Arline Grant in contempt after $506,630 reached her children’s accounts, and its injunction gave the government every future distribution until the court vacated both orders that December on the parties’ joint motion.

The $36 Million Tax Judgment Behind the Case

Raymond Grant’s tax problem began in 1977, when he and several other businessmen formed limited partnerships built around coal mining, real estate, and plastics recycling equipment to claim tax credits and deductions. The U.S. Tax Court found in 1992 that the partnerships did not qualify, and the IRS assessed deficiencies. In 1994 the Grants signed an installment agreement and paid $3,000 a month against the debt.

A new IRS agent ended the agreement by telephone in December 1999, and the Justice Department sued the Grants the following year. The Grants let the case go to default, then had the default set aside, and on March 31, 2003 the court entered summary judgment against Raymond and Arline for $36,280,939.43. Raymond died while collection was pending, and Arline was substituted as his personal representative in 2005.

Two Trusts Funded Two Decades Before the Judgment

Raymond Grant established the two irrevocable trusts in 1983 and 1984, one with its situs in Bermuda, the other in Jersey. They predated the tax assessments by nearly a decade and the judgment by two decades, and the Grants disclosed both trusts and the transfers to the IRS when they signed the 1994 installment agreement. The government never pleaded a fraudulent transfer claim, and when Arline Grant argued that a trust funded before any assessment was therefore beyond repatriation, the magistrate judge held that the question did not matter.

The deeds named family members as beneficiaries and let the trustees distribute principal to Arline Grant on her own written statement of what she needed, with no independent verification. The Bermuda deed set the standard at her health, comfort, maintenance, and living expenses. The Jersey deed also let her withdraw up to ten percent of the trust estate each year.

She could discharge either trustee and appoint a replacement anywhere in the world, in what the Bermuda deed called her sole and unreviewable discretion. The court later found that she had enough power to bring the trust corpus home, and that finding is what gave the government its opening.

The 2005 Repatriation Order

In December 2005, District Judge Adalberto Jordan ordered Arline Grant to appoint a United States trustee for the Bermuda and Jersey trusts or otherwise repatriate the assets, ECF No. 117 (S.D. Fla. Dec. 22, 2005). He adopted the recommendation of Magistrate Judge Theodore Klein, ECF No. 114 (S.D. Fla. Sept. 2, 2005). The recommendation rested on 26 U.S.C. § 7402(a), which lets a district court enter whatever orders federal tax collection requires, and on the tax lien that reached any property either Grant owned.

The magistrate judge also found that the trustees could act on Arline Grant’s unsupported written statement of need, and that a trustee who refused could be replaced, so the trust money was hers to direct in practice. He cited In re Lawrence and said the court need not go as far as that decision had, because nothing in these deeds limited her power to act.

An offshore trust does not stop a U.S. court from entering orders against the settlor personally, and turnover and repatriation orders are the standard creditor response to an offshore structure. The order in this case followed that pattern exactly: the court could not touch the trustees, so it directed its command at the one person within its jurisdiction.

In January 2006, less than a month after the order issued, Arline Grant wrote to both trustees. She asked the Bank of Bermuda to transfer the entire trust fund to her, and asked the Jersey trustee how a repatriation would be done. She also wrote to United States financial institutions, asking them to take over as trustee. Every request was refused.

Why the Court Refused to Hold Arline Grant in Contempt

Civil contempt requires a present ability to comply with the court’s order. The trustees in Bermuda and Jersey had rejected Arline’s instructions, taking the position that returning the assets would breach their duties to the other beneficiaries and that her attempted removals were not effective under the trust terms. Whatever her powers looked like on paper, she had no mechanism to force the trustees’ hands.

Judge Jordan denied the motion on May 27, 2008. Arline Grant had "sufficiently established that she is not able to repatriate the offshore funds," he wrote, and her failure was "not for a lack of effort," even though more than two years had passed with no money returned. He was reluctant to fault her for the trustees’ refusals.

The denial did not dissolve the repatriation order. Arline remained under a standing command to keep pressing the trustees, and the government remained free to renew its motion if her circumstances changed. Winning the contempt fight removed the threat of jail while the underlying order stayed in force, which is what set up the next phase of the case.

The ruling shows what a working impossibility defense is built from. Arline’s requests to the trustees were written, repeated, and documented over years. Her efforts went beyond letters, extending to formal attempts to replace the trustees. And the refusal was genuinely independent: the trustees were foreign fiduciaries protecting other beneficiaries. A court asked to excuse noncompliance looks for exactly that record.

The 2013 Contempt Order and Injunction: Money Leaving the Trusts Became the Reachable Point

Money leaving the trusts gave the government its only foothold. A renewed motion in January 2012 identified more than $221,000 in trust principal that her children’s accounts had received since the 2008 ruling. The court ordered her that June to show cause, and she moved to discharge that order. The court’s later findings totaled $506,630 moved to the children since the 2005 order, at least $355,556 of it principal. Nothing had been paid toward the judgment.

On March 22, 2013, the court denied that motion and held Arline Grant in contempt, finding she had clearly violated the repatriation order, ECF No. 169 (S.D. Fla. Mar. 22, 2013). She did not argue this time that she could not comply. Her defense was that the order was ambiguous, because it told her to repatriate the assets without telling her to hand anything to the government.

The court answered that the recommendation it had adopted said the money was to pay down the tax liability, so sending it to her children instead defied the order. Her failure to tell the government or the court that she could now move money "brazenly flouts the authority of the Court," the judge wrote. She was held in contempt of both the repatriation order and the June 2012 show cause order.

The following month the court entered a permanent injunction under 26 U.S.C. § 7402(a), ECF No. 170 (S.D. Fla. Apr. 22, 2013), finding that she had engaged in a scheme to avoid collection. She had to turn over the trust money she and her children still held, hand over all future distributions, and ask the trustees each quarter to send the trusts’ available income to the United States. Neither she nor her children could take any further benefit from the trusts without surrendering it.

Arline Grant appealed the injunction to the Eleventh Circuit in May 2013. She never filed a brief, and the court of appeals dismissed the appeal for want of prosecution on November 19, 2013. Sixteen days later the parties moved jointly to vacate the contempt order and the injunction, and the district court granted that motion on December 6 and purged the contempt.

The contempt finding lasted eight months and never led to jail. The orders in the case bound Arline personally, and the trustees in Bermuda and Jersey never surrendered the trust assets.

How Grant Differs from the Cases Where Settlors Went to Jail

Trustee independence is the line separating the Grant case from the offshore trust cases that ended in incarceration. Stephan Lawrence spent more than six years in custody. He funded his trust sixty-six days before a $20.4 million arbitration award, and the court in In re Lawrence found he had kept the power to replace trustees and beneficiaries. The settlors in FTC v. Affordable Media were their own co-trustees and trust protectors. Both courts treated the claimed impossibility as self-created.

The Grant trusts sat on the other side of that line. They were two decades old when the judgment arrived. Arline held no protector role and no path around the trustees’ discretion, and her compliance efforts were documented rather than theatrical. The same test decided the contempt finding in SEC v. Bilzerian, where the court rejected the settlor’s impossibility defense.

Arline’s trustee-removal power was strong enough on paper to justify the repatriation order. In 2013 the court found she had used that control, routing trust money to her children while the judgment went unpaid. Paper powers expose a settlor to court orders. Only actual control exposes a settlor to contempt. The contempt analysis in offshore trust cases turns on that difference between holding a power and being able to use it.

What Two Decades of Enforcement Actually Recovered

The government recovered only what the trustees had paid out. The trusts themselves stayed in Bermuda and Jersey through the 2003 judgment, the 2005 repatriation order, the 2008 contempt denial, and the 2013 contempt order and injunction. The turnover order reached only what had left the trusts: the $506,630 in principal and income that had moved through the children’s accounts. Against a $36 million judgment, the trusts held.

Two decades of federal pressure produced a split result. The trust corpus stayed in Bermuda and Jersey, where a domestic trustee would have had to surrender it in 2003. Arline Grant spent those years under federal collection orders, including eight months in contempt, and while the injunction stood every dollar the trustees released belonged to the government. The court noted she was eighty-four, ill, and living on the exempt portion of her Social Security benefits.

The creditor here was the IRS, which litigates for decades and does not settle the way private plaintiffs do; most creditors facing an independent offshore trustee give up or settle years earlier. The Grants’ trusts also predated the assessments by nearly a decade. An offshore trust funded after a tax assessment invites the fraudulent transfer claim the Grants never faced, and asset protection against the IRS fails for reasons unrelated to trustee independence.

What the Case Shows About Modern Trust Design

Offshore trust drafting today reflects both halves of what happened to the Grants. Ordinary trustee independence carried the trusts, with no help from a modern asset protection statute. Bermuda and Jersey trust law in the 1980s had none of the protective provisions the Cook Islands later enacted. Trustee selection is what controls contempt exposure.

In Campbell v. Commissioner (U.S. Tax Ct. 2019), the Tax Court held that the IRS abused its discretion in treating a settlor’s Nevis trust as an asset he controlled. The IRS rested that theory on his appointment of the trust protector and on one investment, which the trustee had directed in its sole discretion.

Arline’s unrestricted power to remove and replace trustees is what gave the government its opening, so duress provisions in current Cook Islands deeds suspend exactly those powers when a court order is the reason they are being exercised. The 2013 injunction is the standing lesson on distributions: once litigation begins, money leaving the trust for accounts a U.S. court can see becomes collectible. Routing it through family members invites a contempt finding and an injunction that reaches the family too.

Across Cook Islands trust litigation, creditors win orders against the settlor and still cannot reach the trustee. Every such order has bound the settlor or a beneficiary; no decision on record has directed a foreign trustee to turn the trust’s assets over to a creditor. Thirteen years of litigation in Grant did not change that, and neither did the offshore trust cases decided since.