Why Federal Jurisdiction Matters: the Impact of Marshall v. Marshall on Probate Court Litigation

• Publication year: 2009

WHY FEDERAL JURISDICTION MATTERS: THE IMPACT OF MARSHALL V. MARSHALL ON PROBATE COURT LITIGATION

By Daryl M. Crone^*

I. INTRODUCTION

Unbeknownst to many practitioners, actions typically litigated in state probate court are potentially subject to federal court jurisdiction. As the U.S. Supreme Court clarified in 2006, the so-called "probate exception" to federal court jurisdiction extends only to the core, traditional province of the probate court, e.g., probating a will. Beyond that, the ordinary bases for asserting federal court jurisdiction apply to probate-related matters, so long as the assertion of federal jurisdiction does not unduly disturb a previous assertion by the probate court of jurisdiction over the subject property.

This is true even when proceedings originate in the probate court. A defendant facing an adversary action in probate court—such as a petition under section 850 of the Probate Code seeking the return of alleged estate property—is entitled to remove the action to federal court provided that other jurisdictional prerequisites are satisfied. Practitioners should be aware of this possibility, and that trust and estate disputes may sometimes be brought or end up in a federal forum.

II. HISTORY OF THE PROBATE EXCEPTION

The so-called "probate exception" to federal court jurisdiction derives from limits to the equity jurisdiction conferred by the Judiciary Act of 1789. That Act was intended to confer jurisdiction to the same extent as that exercised by the English Court of Chancery,¹ which lacked jurisdiction over probate matters.²

In Markham v. Allen, the U.S. Supreme Court attempted to clarify the extent to which federal courts may exercise jurisdiction over matters relating to probate.³ Markham concerned the "Alien Property Custodian," a federal government official appointed to marshal, safeguard and account for property belonging to enemies of the State. During the Second World War, a California resident bequeathed her entire estate to German legatees. Her heirs-at-law intervened in the probate case, claiming that the German legatees were ineligible to receive their inheritance under California law.⁴ The Alien Property Custodian subsequently issued an order vesting title to the property in himself. The Custodian then brought suit in federal court to obtain a judgment that the vesting order entitled him to the net proceeds of the entire estate.

In its decision in Markham, the Supreme Court reaffirmed that a federal court lacks jurisdiction over core probate matters such as probating a will. However, federal courts do retain "jurisdiction to entertain suits 'in favor of creditors, legatees and heirs' and other claimants against a decedent's estate 'to establish their claims' so long as the federal court does not interfere with the probate proceedings or assume general jurisdiction of the probate or control of the property in the custody of the state court."⁵ Thus, Markham directed federal courts to exercise "jurisdiction to adjudicate rights in such property 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."⁶

The confusing admonition that federal courts should exercise jurisdiction over property disputes except where it might "interfere with" ongoing probate proceedings led many courts to abstain from hearing matters far beyond the core jurisdiction of the probate court.⁷ The U.S. Supreme Court revisited the subject in 2006, in Marshall v. Marshall, which clarified that the probate exception to subject matter jurisdiction is "narrow," and that it should not be used as an excuse to decline to exercise jurisdiction over actions merely because they involve a "probate related matter."⁸

Marshall arose from the probate of oil magnate J. Howard Marshall's will in Texas state court. His widow, Vickie Lynn Marshall (professionally known as Anna Nicole Smith), filed for bankruptcy under Chapter 11 of the Bankruptcy Code shortly after his death. One of his sons, E. Pierce Marshall, subsequently filed a claim in the bankruptcy proceeding alleging that Vickie had defamed him. Vickie then counterclaimed against Pierce for tortious interference with the inheritance she had expected from her deceased husband. The bankruptcy court found in Vickie's favor, but the Ninth Circuit Court of Appeals reversed, holding that the "probate exception" to federal court jurisdiction barred the bankruptcy court from adjudicating the dispute.

The Marshall court reversed the Ninth Circuit and reinstated the bankruptcy court's assertion of jurisdiction over Vickie's counterclaim, despite the fact that she could have brought the claim in Texas state court. In doing so, the Supreme Court reiterated that "the probate exception reserves to state probate courts the probate or annulment of a will and the administration of a decedent's estate; it also precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court. But it does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction."⁹ This significantly reined in the boundaries of the probate exception, limiting its application much closer to the core functions of the probate court. Quoting Chief Justice John Marshall, the Supreme Court noted that while "'[i]t is most true that this Court will not take jurisdiction if it should not . . . it is equally true, that it must take jurisdiction, if it should. . . . We have no more right to decline the exercise of juris-

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diction which is given, than to usurp that which is not given.'"¹⁰

III. THE PROBATE EXCEPTION FOLLOWING MARSHALL

Notwithstanding Marshall, federal courts remain loathe to assume jurisdiction over actions concerning core probate court functions, or in which the probate court already has issued orders concerning the subject property. For example, the Second Circuit affirmed the dismissal of claims brought by a plaintiff complaining of maladministration of an estate, and which threatened to interfere with probate court orders concerning the distribution of estate assets.¹¹

Similarly, several recent cases brought in California federal courts have reinforced the notion that the core jurisdiction of the probate court remains sacrosanct. In Williams v. Moffat, the plaintiff alleged that the superior court judge overseeing the probate of her father's estate, as well as others, had deprived her of an expected inheritance.¹² Among other things, she sought to unwind the state court's orders regarding the administration of her father's estate and the distribution of its assets. But, given that the probate court already had issued orders regarding the estate's assets, the federal court refused the plaintiff's request that it intervene and overturn them.¹³

Likewise, in Morin v. Blevins, the plaintiff asked the federal court to interpret a trust instrument so that it could declare that the plaintiff's proposed accounting claim did not constitute a contest under a no-contest clause in the trust.¹⁴ The Morin court dismissed the action because "[c]onstruction of trust instruments and the power to compel an accounting lie at the heart of the probate court's jurisdiction over the administration of trusts and constitute a portion of the core of the court's authority to administer trusts."¹⁵ Indeed, federal courts ought to remain wary of treading on the probate court's "core" responsibilities to interpret a trust or will instrument, as reaffirmed by Marshall.

IV. FEDERAL JURISDICTION OF PROBATE LITIGATION

The liberalization of...