So when can you litigate inheritance disputes in federal court? According to the U.S. Supreme Court’s 2006 decision in Marshall v. Marshall the answer is anytime federal diversity jurisdiction would otherwise apply and the jurisdictional “probate exception” does NOT apply, i.e., a federal judge is NOT being asked to:  probate a will,  administer a decedent’s estate, or  interfere with property already in the custody of a probate court. The non-interference directive is 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.
Marshall was a game changer
Marshall dramatically narrowed the jurisdictional probate-exception bar, opening the doors to “federalized” trust-and-estates litigation to an extent previously unimagined. It’ll be years before the lower courts work through the specific contours of Marshall’s general conclusions on a case-by-case basis; until then every case is significant, including the two Florida cases discussed below.
Case Study No. 1
The Kaplan case demonstrates just how narrow the probate exception is in a post-Marshall world. The plaintiff sued his uncle in federal court for allegedly breaching his fiduciary duties as personal representative (PR) of an estate being probated in Florida. Most probate lawyers would laugh if you suggested this tactic to them. Why? Because the only way you become a PR is if a state probate judge appoints you to that position. So you’d think suing a PR for improperly exercising the authority granted to him by a state probate judge is something you can only do in a state probate court . . . and you’d be wrong. Both the trial court and the 11th Cir. concluded suing a PR for breach of fiduciary duty does NOT = administering a decedent’s estate. So the probate exception does NOT apply:
Consistent with the holding in Marshall that a federal court is obliged to exercise its jurisdiction to consider matters that do not annul a will, invalidate the administration of an estate, or interfere with property in the custody of the probate court, id. at 311–12, 126 S.Ct. at 1748, the district court ruled that Alexander’s action was not in the nature of a probate proceeding and that it had jurisdiction to entertain Kaplan’s in personam claims against his uncle.
But just because a federal court isn’t jurisdictionally barred from adjudicating a claim doesn’t mean your case is going to get decided by a federal judge. Under the right circumstances a federal judge can always stay its case in favor of a parallel state-court proceeding. Which is exactly what happened in this case based on the Colorado River doctrine, which was summarized by the 11th Cir. in Moorer v. Demopolis Waterworks and Sewer Bd., 374 F.3d 994, 996 (11th Cir.2004) as follows:
The Colorado River doctrine of “exceptional circumstances” authorizes a federal “district court to dismiss or stay an action when there is an ongoing parallel action in state court.” LaDuke v. Burlington Northern Railroad Co., 879 F.2d 1556, 1558 (7th Cir.1989). The principles of this doctrine “rest on considerations of ‘[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation’.” Colorado River, 424 U.S. at 817, 96 S.Ct. 1236 (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183, 72 S.Ct. 219, 96 L.Ed. 200 (1952)). Although federal courts have a “virtually unflagging obligation … to exercise the jurisdiction given them” they may defer to a parallel state proceeding under “limited” and “exceptional” circumstances. Id. at 817-818, 96 S.Ct. 1236. Among the factors the district court should consider in determining whether such exceptional circumstances exist are:
(1) the order in which the courts assumed jurisdiction over property; (2) the relative inconvenience of the fora; (3) the order in which jurisdiction was obtained and the relative progress of the two actions; (4) the desire to avoid piecemeal litigation; (5) whether federal law provides the rule of decision; and (6) whether the state court will adequately protect the rights of all parties.
TranSouth Financial, 149 F.3d at 1294-5 (summarizing Moses H. Cone Memorial Hospital v. Mercury Constr. Co., 460 U.S. 1, 16-26, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). The decision whether to dismiss “does not rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction.” Moses H. Cone, 460 U.S. at 16, 103 S.Ct. 927. The weight of each factor varies on a case-by-case basis, depending on the particularities of that case. Id. One factor alone can be the sole motivating reason for the abstention. Id. (noting that the desire to avoid piecemeal adjudication was the driving force behind the dismissal in Colorado River).
Probate exception v. Abstention doctrine
Now that the probate exception has been whittled down to near meaninglessness, where you litigate an inheritance dispute that’s pending in parallel federal and state court actions is likely going to turn not on issues of jurisdiction, but instead on whether the federal case should be stayed under the Colorado River doctrine. That’s what happened here. In order to avoid wasteful piecemeal litigation in two courts, the federal judge stayed his case in favor of the ongoing probate proceeding. Here’s why:
Alexander argues that the decision to stay his federal action conflicts with Marshall v. Marshall, 547 U.S. 293, 126 S.Ct. 1735, 164 L.Ed.2d 480 (2006), but we disagree. . . . The district court did not abdicate its obligation to exercise its jurisdiction. See Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246.
The district court did not abuse its discretion by staying the federal action. The nature of the probate proceedings reveals that parallel federal and state litigation would result in deleterious piecemeal litigation. See Moorer, 374 F.3d at 996; Ambrosia Coal and Const. Co. v. Pages Morales, 368 F.3d 1320, 1333 (11th Cir.2004). Alexander has an opportunity to object to the decisions that Leon has made in distributing the estate, see Fla. Prob. R. 5.150, 5.345, 5.400, and the resolution of those objections will dispose of or substantially limit Alexander’s claims that Leon breached his fiduciary duties to the estate, see Fla. Stat. §§ 733.609(1), 733.901(1)-(2). For example, Alexander complains that Leon acted tortuously by settling a wrongful death survivor’s claim for a low amount, but the probate court has approved the settlement and, in so doing, “relieved [Leon] of liability or responsibility for the compromise,” see Fla. Stat. § 733.708. And the record supports the finding of the district court that a parallel federal action would be wasteful. Alexander already has attempted to excuse his violation of the discovery deadline in the federal action as necessary to accommodate the ongoing probate proceedings.
Case Study No. 2
But don’t expect all your inheritance disputes to end up back in state court, especially if the case revolves around a trust. Trusts are often at the center of inheritance disputes, which means they’re usually litigated within the context of a probate proceeding. But trusts are NOT probate assets. So by definition litigating a trust case does NOT = administering a decedent’s estate. For example, if your inheritance dispute revolves around the proper interpretation of a trust, that’s not a probate proceeding, so there’s no reason why your declaratory-judgment action can’t be litigated in federal court (assuming you otherwise have diversity jurisdiction). That’s what happened in this case.
So when should a federal court NOT stay an inheritance dispute?
In this case parallel litigation is pending in three courts. There’s a probate proceeding pending in Sarasota County, Florida, a trust declaratory-judgment action pending in a Florida federal court (Tampa), and a competing declaratory-judgment action pending in a Missouri probate court. The Florida PR was the plaintiff in the Florida federal suit. The defendants in that case were in Missouri. Not surprisingly, the Missouri defendants would rather litigate the case on their home turf, so they tried to get the Florida federal case either [a] dismissed on jurisdictional grounds or [b] stayed under the Colorado River doctrine in favor of their Missouri lawsuit . . . and struck out on both arguments.
So does a trust declaratory-judgment action fall under what’s left of the probate exception to federal court jurisdiction? Not even close. Here’s why:
In Rudman v. Rudman, 2009 WL 857541 (N.D.Tex.2009), the federal district court retained jurisdiction of a state court action removed from a probate court. There, the action, much like the action here, sought a declaratory judgment regarding whether an individual was a beneficiary of a trust and an accounting of the trust. The Rudman court relied on Marshall v. Marshall, 547 U.S. 293, 126 S.Ct. 1735, 164 L.Ed.2d 480 (2006), and held that the action did not fall within the probate exception. Consequently, as long as the action does not challenge the validity of the will or trust, or the validity of the probate proceeding, then the probate exception does not apply to curtail the federal court’s jurisdiction to adjudicate a claim between parties. Nothing in the case at bar precludes this Court’s jurisdiction in the nature of the probate exception to federal jurisdiction.
OK, so by now it’s pretty clear a probate-exception argument isn’t going to get you very far in most trust cases. So how about asking for a stay under the Colorado River doctrine? It worked in the Kaplan case. This is actually the more interesting part of the case because the court goes into a good amount of detail in its explanation for why it’s NOT staying the federal suit. This kind of detail is gold for working litigators.
The circumstances of this case fail to satisfy even the first factor of Colorado River, because this Court obtained jurisdiction of the declaratory judgment action first. See Ambrosia Coal & Constr. Co. v. Pages Morales, 368 F.3d 1320, 1331 (11th Cir.2004) (cataloguing six factors to determine Colorado River abstention).
Moreover, as discussed above, this action does not impede the administration of the probate case pending in Sarasota County, Florida. The balancing of the other Colorado River factors in this case “heavily weigh[ ] in favor of the exercise of jurisdiction.” Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16, 103 S.Ct. 927, 937, 74 L.Ed.2d 765 (1983). The Middle District is more convenient for the Plaintiff, who has resided the last thirteen or so years here with his now deceased father, and evidence establishing “familial ties” is likely to be found in Florida. Piecemeal litigation is avoided by following the first-filed rule, and this action was filed first. See, e.g., National Union Fire Ins. Co. of Pittsburgh, Pa. v. Beta Constr., LLC, 2010 WL 3789042 (M.D.Fla.2010).
That Missouri law will be applied does not necessarily favor abstention where there are no complex questions of state law. See Noonan South, Inc. v. County of Volusia, 841 F.2d 380 (11th Cir.1988). Finally, both forums are adequate to protect the parties’ rights and therefore does not tip the balance in favor of abstention.
Lesson learned? Think “first-filed rule”
Assuming your case otherwise qualifies for federal diversity jurisdiction and you don’t fall within the very narrow confines of the post-Marshall probate-exception rule, the odds of your case getting litigate in federal court will turn exclusively on the six factors needed to determine Colorado River abstention. Most of those factors depend on facts you can’t control as counsel. But there is one important factor you absolutely can control: where the first lawsuit is filed. He who strikes first gets priority. If you want your trust action to get litigated in state court, file there first. If you want your trust action to get litigated in federal court, file there first. The “first-filed rule” isn’t outcome determinative, but all else being equal it’s probably going to tip the scales decisively one way or the other.