Estate and Trust Litigation in Federal Court

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Mark E. Swirbalus, Esq., Day Pitney LLP

To say that federal courthouse doors have been swung wide open for estate and trust disputes may be an overstatement, but we might be seeing the beginning of a trend. Given the heavy case loads and budget cuts affecting the probate courts, litigating estate and trust disputes in federal court could be an attractive option under the right circumstances, particularly in light of recent decisions discussing the so-called “probate exception” to federal subject matter jurisdiction.

The Probate Exception

In Jimenez v. Rodriguez-Pagan, 597 F.3d 18 (1st Cir. D.P.R. 2010), the First Circuit provided a helpful primer on the probate exception. Borrowing from the Supreme Court’s decision in Markham v. Allen, 326 U.S. 490 (1946), the First Circuit explained that “[t]he probate exception is a judge-made doctrine stemming from the original conferral of federal equity jurisdiction in the Judiciary Act of 1789[,]” and that “[t]he ambit of that jurisdiction, coterminous with that exercised by the framers’ contemporaries in the English courts of chancery, ‘did not extend to probate matters.’” In Markham, the Supreme Court had held that federal courts have no authority to “interfere with the probate proceedings or assume general jurisdiction of the probate or control of the property in the custody of the state court.”

Application of the probate exception proved difficult in the wake of Markham, because the standard that federal courts cannot “interfere” with probate proceedings did not lend itself to an easy definition.

In Marshall v. Marshall, 547 U.S. 293 (2006) (the Anna Nicole Smith case), the Supreme Court revisited the issue and provided some clarity, explaining that the “interference” language is essentially a reiteration of the general principle that when one court is exercising in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res. Thus, the probate exception applies only where a federal court is being asked to engage in “purely” probate matters such as the probate or annulment of a will and the administration of an estate, or the disposal of property that is already in the custody of a probate court. The probate exception does not, however, bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction. Simply stated, the Supreme Court made clear in Marshall that the scope of the probate exception is “distinctly limited.”

Recent Application in Massachusetts

Two recent decisions by the United States District Court for the District of Massachusetts help to illustrate the “distinctly limited” nature of the probate exception.

In Dumas v. Snow, Civil Action No. 10-10187-GAO, 2010 U.S. Dist. LEXIS 86292 (D. Mass. Aug. 23, 2010), the plaintiff sought a declaration that she has a current income interest and a contingent remainder interest in a testamentary trust, and she also brought a claim for breach of fiduciary duty against the successor trustee, alleging that the trustee had failed to recognize her interest and to make proper distributions to her under the trust.

The defendants moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the plaintiff’s claims fell within the probate exception, or alternatively that the Court should exercise its discretion to abstain from adjudicating claims which it deems to be uniquely probate matters. The Court rejected both arguments and denied the motion to dismiss.

Regarding the probate exception, the Court explained that a federal court “may exercise its jurisdiction to adjudicate rights” in property in possession of a state probate court “where the final judgment does not undertake to interfere with the state court’s possession save to the extent that the state court is bound by the judgment to recognize the right adjudicated by the federal court.” Here, the plaintiff’s claim for a declaration regarding her interest in the trust would not interfere with any property in the possession of a probate court. Moreover, her claim for breach of fiduciary duty against the trustee would not interfere with a probate court’s administration of the estate. The decedent’s estate had already been settled in the Barnstable Probate and Family Court.

Based on the same reasoning, the Court held that there was no cause to abstain because there was no pending probate court action in which the same or similar issues were being presented. The Court noted that the defendants failed to cite any case in which a federal court abstained from exercising jurisdiction because a state court action might be filed.

In Harhay v. Starkey, Civil Action No. 08-CV-30229-MAP, 2010 U.S. Dist. LEXIS 45473 (D. Mass. May 10, 2010), the Court grappled with a family dispute that was described in Shakespearian terms. The decision begins memorably with the following prologue: “In Act I, Scene 2, of Shakespeare’s play, Hamlet describes his relationship with his stepfather as ‘little more than kin and less than kind.’ This litigation exemplifies the degree of venom, and utter confusion, that can arise from disputes among family members. It also provides an example of how judicial processes can be abused when family rancor threatens to demand more than its fair share of the court’s time.”

The plaintiffs alleged that the defendants, as executrix and counsel for the estates of their mother and two aunts, swindled them of their family inheritance by misappropriating assets during the mother’s lifetime with an allegedly forged power of attorney. The plaintiffs brought claims against the defendants for conversion, fraud, negligence and breach of fiduciary duty.

The defendants moved to dismiss the claims under the probate exception, arguing that the claims were based on the plaintiffs’ alleged interests as beneficiaries or heirs of three estates, and that this lawsuit followed apparently pending actions by the probate court. The Court held that the probate exception did not apply, however, because it cannot be used to dismiss tort claims merely because the issues intertwined with claims proceeding in probate court. All of the claims brought by the plaintiffs in federal court sounded in tort and sought damages against the defendants themselves, rather than against any of the estates. As the Court noted, these claims would not even be cognizable in probate court, which does not have jurisdiction to hear tort claims or award damages.

The Take-Away from these Decisions

The lesson learned from these decisions may be that federal court ought to be considered as a viable forum for certain estate and trust disputes. Despite the Court’s disdain for what it described as the “family rancor” in the Harhay case, the Court nevertheless may be sending a message that family disputes – hopefully with less rancor – are welcome in the John Joseph Moakley U.S. Courthouse.