At this year’s Heckerling conference in Florida one of the speakers asked a conference room of (I’d guess) over a thousand trusts-and-estates attorneys/CPAs from across the country how many of them had clients affected by the Madoff scandal: easily 9 out of 10 raised their hands. The breadth and scope of this scandal is truly amazing.

As you might expect there was a good deal of discussion regarding what trustees and other fiduciaries (our clients) need to be thinking about if they’re unlucky enough to be administering trusts or estates that invested with Madoff. Here are a few of the highlights:

[1.]  For those trustees and other fiduciary investors who cashed out before the fraud was detected . . . you’re not out of the woods yet. Think "claw back".

As reported in an excellent on-line piece by the law firm K&L Gates entitled The Madoff Dissolution: A Consideration of the Bayou Precedent and Possible Next Steps, in Ponzi-scheme cases such as Madoff’s courts have regularly held that each individual redemption payment made to an investor who cashed out before the scheme is discovered is presumptively a fraudulent transfer. Based on this fraudulent-transfer theory courts can compel investors to pay back funds received from the Ponzi scheme unless they can affirmatively show that they received the funds in good faith and for value.

Citing to a similar case, the Bayou matter, presided over by the very same NY judge presiding over the Madoff case, the linked-to K&L Gate piece gave us a glimpse of what Madoff investors can look forward to:

In 2006, Bayou’s court-appointed receiver brought over 130 fraudulent transfer adversary proceedings against Bayou investors that had redeemed fictitious profit and principal within two years of Bayou’s bankruptcy filing. Later in 2008, the Bayou receiver brought New York state law claims against persons redeeming up to six years before the bankruptcy filing. In a series of rulings, the court held that redemption payments from a Ponzi scheme presumptively satisfied the “actual fraud” prong of the fraudulent transfer standard and that the “good faith” affirmative defense requires an objective test of whether a reasonable and prudent investor should have been on inquiry notice of the fraud, and, if on inquiry notice, the redeemer was diligent in its investigation.[11] In addition, the court ruled as a matter of law that redemption payments received by investors in excess of their original principal based on artificially inflated results, or so-called “fictitious profits,” were required to be refunded to the estate, regardless of the redeemer’s good faith.[12] Moreover, the court held that a redeeming investor cannot utilize the good faith affirmative defense unless it can show it conducted a diligent investigation of each potential problem or red flag.[13]

As a result of these rulings, all of the investors in the Bayou matter who redeemed their investments within the six-year clawback period were ordered to return fictitious profits and may be required to pay pre-judgment interest on those profits. Over 90 redeemers have settled with the estate for the return of false profits and a portion of their principal. In addition, the court has ordered several dozen investors to refund all of their principal. The court upheld the good faith defenses of a small number of redeemers, and ordered trial of a handful more cases. To date, the Bayou receiver has recovered through settlement and legal rulings approximately $68 million, with an anticipated litigation recovery for creditors of the Bayou estate, net of expenses, of between 15 and 20 cents per dollar.

For those of you looking to drill down into this issue a good starting place would be the two Bayou opinions cited in the K&L Gates piece: In re Bayou Group, LLC, 362 B.R. 624 (Bankr. S.D.N.Y. 2007) and In re Bayou Group, LLC, 396 B.R. 810, *__ (Bankr. S.D.N.Y. 2008).

[2.]  What tax issues should you be thinking about?

From an income-tax perspective, the consensus seems to be that Madoff investors need to focus on (1) entitlement to a theft loss deduction under IRC § 165 and (2) the ability to file amended returns seeking refunds for taxes paid on phantom income reported from the Madoff firm. These issues are summarized nicely in an on-line piece published by the Gibbons law firm entitled Federal Income Tax Treatment of Investment Losses From L’Affaire Madoff.

Warning: make sure your clients don’t forfeit claiming a refund for taxes paid on 2005 phantom income. Here’s how this point was summarized in an on-line piece published by the Gibbons law firm:

For most taxpayers, the current open years are 2005, 2006, and 2007. A taxpayer will need to file an amended return for 2005 by April 15, 2009 if the taxpayer filed the 2005 return on or before April 15, 2006. If a taxpayer obtained an extension for filing until October 15, 2006, the taxpayer will have three years from the date of filing in 2006 to file the amended return.

By filing an amended return, the taxpayer implicitly reduces its adjusted basis by the amount of the reduction in reported income. This reduction will also reduce the overall amount of the theft loss deduction.

For a comprehensive list of on-line sources addressing the tax fallout from the Madoff case go to More Tax Planning for Madoff Victims on the Tax Prof Blog.

Win, lose or draw, I think all sides can agree that finality on the estate-tax front would be a welcomed development. And the wait may be coming to an end. The WSJ reported today in Obama Plans to Keep Estate Tax that the new administration has concluded "that if they don’t act now, it will be politically harder to go ahead with their plan to resurrect the estate tax once it has disappeared [in 2010]."  Stay tuned for an announcement "within weeks":

The Senate Finance Committee will move within weeks on legislation to reverse that law, and Mr. Obama is expected to detail his estate-tax preservation proposal in his budget next month, congressional tax writers said.

So what can we expect? Here’s what the WSJ is predicting:

Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million — $7 million for couples — from any taxation. The value of estates above that would be taxed at 45%. If the tax were returned to Clinton-era levels, it would exclude $1 million from taxation with the rest taxed at 55%.

Portability

Nothing surprising here, but expect "portability" of the estate-tax marital deduction to also be part of the plan. I predict this change in the law will ultimately end up having the most profound impact on your average estate planner’s day-to-day practice. "AB" trusts, long the center of most estate plans for married couples, may soon become a thing of the past. As reported by the WSJ in October of 2008 in On Death and Taxes … and the Candidates, both candidates were including portability as part of their estate-tax reform proposals:

Both candidates agree the exemption amount should be easily portable. "Families should not be required to undertake complex and unnecessary financial planning or be penalized for failing to take advantage of sophisticated financial strategies," says Jason Furman, economic policy director for the Obama campaign. The Democrats’ nominee "believes we should eliminate the estate tax for 99.7% of families — and this is part of his plan to accomplish that goal," says Mr. Furman.

.  .  .  .  .

Under current law this year, a married couple could leave a total of $4 million to their children without federal estate tax. "But because the exemptions aren’t portable, quite a bit of planning is necessary to achieve this result," says John M. Olivieri, a tax partner at the law firm of White & Case LLP in New York City.

Suppose a husband and wife each has $2 million. The husband dies and leaves everything to his wife. Although there’s no federal estate tax because of the marital exemption, the wife now has a $4 million estate but only a $2 million exemption, Mr. Olivieri says. Consequently, if she dies this year and leaves her $4 million to her children, "her estate will be hit with a federal estate tax of about $900,000," based on this year’s rate structure, Mr. Olivieri says. "A similar problem arises if the entire $4 million is owned by the husband and the wife dies first."

To avoid the problem, "many married couples expend considerable time, effort, and money to avoid wasting their combined federal exemptions," says Mr. Olivieri. "But if the exemptions were portable, none of this would be necessary." However, even if the exemption does become portable for federal estate-tax purposes, Mr. Olivieri points out that many people may need to take special estate-planning steps anyway because of state-tax issues.

 

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Sandra O’Neill v. Scher, — So.2d —-, 2008 WL 5352183 (Fla. 3d DCA Dec 24, 2008)

In the linked-to opinion the parties executed a settlement agreement supposedly putting an end to their litigation involving contested probate claims. The settlement agreement contained the following release language:

3. Sandra O’Neill hereby releases any present and/or future interest which she may have in and to the following:

a. The Estate of Benjamin Scher opened in Miami-Dade County, Florida, under case number 06-0057 CP (04);

b. The Benjamin Scher Revocable Inter Vivos Trust dated 8/30/01, as amended and restated on 8/11/04, and/or any successor trust created through said trust, including but not limited to Marital Trust, Credit Shelter Trust, and Trust for the Benefit of Cassandra O’Neill;

c. Benjamin Scher Irrevocable Trust dated 9/1/99;

d. Any interest claim or expectancy of an inheritance from or against the Estate of Sophie Scher, including but not limited to any testamentary documents executed by Sophie Scher.

e. The Sophie Scher Revocable Inter Vivos Trust dated 8/30/01, as amended and re-stated on 8/9/05.

f. Any interest claim or expectancy of an inheritance from or against the Estate of Richard Scher, including but not limited to any testamentary documents executed by Richard Scher.

4. It is understood that this agreement is a memorial of the terms of the within settlement. However, the parties hereby agree to execute formal releases in accordance with the terms set forth herein.

Almost immediately after executing their settlement agreement the parties were back in court. One of the issues in dispute was whether the text quoted above should be limited to its own terms or read broadly to encompass a universal general release.  The probate judge sided with the general-release argument and ended up getting reversed on appeal for the following reasons:

We reverse .  .  .  that portion of the trial court’s order instructing O’Neill to execute the “general release” forwarded to her by Scher’s counsel. As counsel for Scher conceded at oral argument, the release that the trial court ordered O’Neill to execute is overly broad and does not accurately reflect the release of interests and/or claims to which O’Neill agreed in the settlement agreement. Indeed, O’Neill only agreed in paragraph 3 of the Memorandum of Settlement to release six specific present and/or future interests. The general release, on the other hand, contains broad provisions releasing O’Neill’s present and/or future claims for matters, persons, and entities not listed or considered in the settlement agreement.FN2 On remand, the parties shall draft a release concerning only those six specific claims contained in paragraph 3 of the Memorandum of Settlement, and shall release no other present and/or future claims.

FN2. We also note that the general release, which the trial court ordered O’Neill to execute, disposed of the interests of O’Neill’s “heirs, executors, and administrators.” Paragraph 3 of the Memorandum of Settlement, however, contains no such language and, on remand, the release presented to O’Neill for execution shall contain no such language.

Lesson learned:

First, if your client bargained for a general release, then write it into the deal or attach it to your contract as a stand-alone exhibit. As I’ve written before, you don’t want to rely on a court to fill this gap for you [click here].  Second, if you’re dealing with an especially litigious antagonist, you’ll be sorry if you leave any room for future attacks. Click here for an example of a settlement agreement that worked precisely because all future avenues of attack were anticipated and explicitly cut off by the express terms of the parties’ settlement agreement.

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Hunt v. Hooper, — So.2d —-, 2008 WL 5191505 (Fla. 2d DCA Dec 12, 2008)

As I’ve written before, Florida is the largest recipient of state-to-state migration in the U.S. [click here]. This fact has all sorts of implications for trusts-and-estates matters. For example, figuring out where to litigate a trust dispute can be a lot harder than you’d suspect. Do you sue where the trust was executed? where the settlor died? where the settlor resided when he signed the trust agreement? where the trustee is located? where the beneficiaries are located? where the trust assets are located? Based on the particular facts of a case, reasonable minds could disagree on which, if any, of these traditional bases for jurisdiction/ venue should control.

Rather than having to figure this out on a case-by-case basis Florida’s trust code provides a tie-breaker: F.S. 736.0205. Under this statute the trustee’s residence usually controls: if you’re suing the trustee, you have to sue him in his home state.  Sounds simple enough, but figuring out how this statute works in real life has generated a good amount of work for Florida’s appellate courts [click here, here].

In the linked-to case the issue was whether F.S. 736.0205 applies where the trustee resides in a foreign country (Canada). The trial court said yes, but the 2d DCA said no:

Under the plain language of section 737.203[FN1], “the court shall not entertain proceedings under s. 737.201 for a trust registered, or having its principal place of administration, in another state.” (Emphasis added.) There is no indication in the statute that it intends its reach to be broader than its plain language suggests, and we have found no cases applying section 737.203 to trusts whose principal place of administration is a foreign country. Furthermore, we have serious concerns regarding the ability of the courts in many foreign countries to apply Florida law in construing a dispute like the one in this case.

[FN1.] The text of section 737.203, which was repealed and renumbered effective July 1, 2007, see ch.2006-217, §§ 2, 48, 49, Laws of Fla., now appears in section 736.0205, Florida Statutes (2007).

Regardless of the statutory-construction point addressed above, based on the facts of this case it clearly should be litigated in Canada. I think the 2d DCA realized this point and went out of its way to signal alternate arguments for getting this case moved to a Canadian court:

Facts:

.  .  .  [T]he Trustee was domiciled in Canada, the Father and the Trustee were married in Canada and maintained their primary residence there, the Trustee did not conduct any business in Florida, all trust administration occurred in Canada, the trust property was located in Canada, and none of the beneficiaries were located in Florida.

Law:

Because we conclude that section 737.203 is inapplicable to this case, we reverse the trial court’s order dismissing the Children’s action against the Trustee. We note that the Trustee raised a jurisdictional argument in her motion to dismiss that the court did not rule upon. The Trustee should not be prohibited from pursuing this argument on remand. We also note that the Trustee is not precluded from raising any objections to venue upon traditional forum non conveniens grounds on remand.

Lesson learned:

If you’re working on a motion to dismiss where the facts clearly point towards litigation outside of Florida, the arguments you want to make sure you nail are:

  • The trust is a foreign trust administered in another state. F.S. 736.0205
  • The Florida court lacks in personam jurisdiction over the trustee.
  • The Florida court lacks in rem jurisdiction over the trust’s property.
  • A Florida venue is improper based on traditional forum non conveniens grounds.

Hernandez v. Gil, — So.2d —-, 2008 WL 5156623 (Fla. 3d DCA Dec 10, 2008) [Attorney Interview]

You know you’re having a bad day when the 3d DCA writes an opinion for no other reason than to lecture you on your ethical duties.

Although the arguments raised by the appellant below and here are meritless and would ordinarily prompt a per curiam affirmance, the role and actions of Hernandez’s counsel warrant attention.

Ouch! The 3d DCA goes on to admonish Hernandez’s counsel for going along with her client’s “continued direct disobedience of unstayed court orders.” And to make matters worse, the 3d DCA ordered Hernandez’s counsel to pay the other side’s legal fees.

Just Say No!

What this case is really about is not ethics, it’s about saying “NO” to certain clients. The longer I practice law the more convinced I become that deciding which cases NOT to take is probably the single most important decision I make as a lawyer. The linked-to opinion is a prime example of how bad things can get when you take on the wrong case.

After writing about this case the last time it was appealed [click here], I was asked by a lawyer considering whether he should step in as Hernandez’s new lawyer what I thought about the matter. My answer: “Run, don’t walk, away from this guy.” Well, it turns out the 3d DCA has similar advice for the next probate litigator sizing up a particularly difficult client:

We believe that this opinion and the monetary sanctions that will follow provide an adequate lesson on when to decline representation .  .  .   “Just say no” applies to some clients and matters, just as to drugs.

I couldn’t have said it better myself.

Appellate Briefs:

When I first wrote about this case in 2006 [click here], I saw it as a prime example of public relations as litigation tool. (Check out the litigants’ dueling websites: here, here). Well, fast forward two years, the Princeton suit settled on the eve of trial. Here’s an excerpt from a New York Times piece entitled Princeton Settles Money Battle Over Gift reporting on the terms of the deal:

In 1961, when the A.&P. grocery heirs Charles and Marie Robertson gave Princeton a $35 million gift endowment, they directed that the money should be used to educate graduate students for careers in government.

But in a lawsuit filed in 2002, the Robertsons’ descendants claimed that Princeton was misusing the gift, which peaked at more than $900 million in June, spending it on training students for a broader range of careers. The endowment provides most of the financing for graduate programs at the Woodrow Wilson School of Public and International Affairs.

The case was to go to trial in January.

Under the settlement, Princeton will pay $40 million in legal fees, and, starting in 2012, another $50 million, plus interest, to a new foundation that will support education for government service. Princeton will be able to use the remainder of the money for the Wilson school, as it chooses.

Based on these settlement figures, my sense is that Princeton settled not because it was afraid of losing at trial ($90 million is a lot of money, but it’s a relatively small % of the total endowment fund), but because it wanted to finally kill this case and turn off the bad-publicity machine.

As trusts-and-estates lawyers, why should we care about all this? Because advising clients with respect to charitable giving is often a big part of our practice. And sometimes those charitable gifts go sideways on our clients. If the parties end up in litigation, understanding the unique dynamics at play in these situations can make all the difference in the world.

I previously wrote about this case from the perspective of how conflicts of interests can kill you as an estate planner if (a) you’re not aware of the issues and (b) you fail to take appropriate precautions [click here]. As a follow up to that post, it seems that the estate planner at the center of this particular drama dodged the bullet (for now). Here’s an excerpt from Jury rejects $17M legal malpractice claim against Orrick, written by National Law Journal staff reporter Pamela A. MacLean. 

San Francisco jury rejected a $17 million legal malpractice claim against Orrick Herrington & Sutcliffe in an eight-year-old dispute claiming breach of fiduciary duty by retired trusts and estates partner William Hoisington.

"It is not often that a law firm takes a malpractice claim to trial," said Wendy Thurm, one of the Keker & Van Nest attorneys representing Orrick. "Orrick’s case was strong, and we’re happy Bill Hoisington’s character and reputation have been preserved."

The verdict on Tuesday came following a six-week trial and two days of deliberation in Benesch v. Tandler, No. 317187 (San Francisco Co., Calif., Super. Ct.). Hoisington spent more than 30 years as a trusts and estates attorney in the San Francisco office of Orrick prior to his retirement.

An 86-year-old multimillionaire businesswoman, Fritzi Benesch, filed the suit in 2000, claiming she had been misled into relinquishing control of her clothing company, Fritzi California, to her daughter and son-in-law, Valli and Robert Tandler. Both Tandlers are lawyers and worked in the family business.

Valli worked for the former Brobeck, Phleger & Harrison firm for two years before joining the family clothing and real estate businesses. Robert worked as general counsel for Fritzi California.

In 2002, the trial court dismissed the parties from the suit on summary judgment, but the case was reinstated on appeal in 2005. The Tandlers mediated a settlement with Benesch, but Benesch abruptly backed out of the deal and the Tandlers have an appeal pending to enforce the agreement, according to Thurm.  

Lesson learned:

When you read the excerpt, note that even though the Orrick lawyer "won" this trial, the stress and financial drain of this litigation has been going on for years (and it’s not over yet).  The next time you consider whether or not to take on an estate-planning matter that may involve a tricky conflicts issue ask yourself "is it really worth it?"

Babcock v. Estate of Babcock, — So.2d —-, 2008 WL 4863088 (Fla. 4th DCA Nov 12, 2008)

Any probate lawyer worth his or her salt will tell you that reading a person’s will is often just the tip of the iceberg. You don’t really know how to administer an estate unless you take the decedent’s will and run it through Florida’s probate code to see what comes out the other end. The results can be surprising.

The linked-to opinion is a good example of how radically altered a will’s legal effect can be once it’s administered under our probate code. All of the following probate-code rules played a part in this case:

  • If you get divorced and forget to revise your will, don’t worry, your ex is automatically cut out of your will under F.S.732.507(2).
  • If you get married and forget to revise your will to provide for your new spouse, don’t worry, he or she is automatically written into your will as a "pretermitted spouse" under F.S. 732.301.
  • If you die and leave your spouse nothing but your household effects and a bunch of bills, don’t worry, he or she gets to keep this stuff as "exempt property" under F.S. 732.402. However, if you specifically bequest all of this stuff to someone else, then your surviving spouse is out of luck.

Here’s an excerpt from the linked-to opinion that manages to weave all of these concepts into three short paragraphs:

Bradford Babcock died leaving a will which provided in Article IV the following bequest:

I devise to my wife, TARA L. BABCOCK, all of my clothing, jewelry, household goods, personal effects, automobiles and all other tangible personal property not otherwise specifically devised herein or pursuant to the written statement or list described in Article Third of this my Last Will and Testament. If my said wife shall not survive me, I devise all of the aforesaid property to my son, BRAXTON D. BABCOCK, if he shall be living at the time of my death.

At the time of his death, he was divorced from Tara and married to Tawn Babcock, from whom he was separated. Because of the divorce, those provisions affecting Tara became void. § 732.507(2), Fla. Stat. Thus, the will would be construed as a bequest to Braxton of the property contained in Article IV. Tawn was not mentioned in the will and constituted a pretermitted spouse. § 732.301, Fla. Stat.

Tawn filed a motion to determine exempt property pursuant to section 732.402(6), Florida Statutes, which provides that the surviving spouse has the right to a share of the “exempt property,” of the estate, which includes certain “[h]ousehold furniture,” “furnishings,” “appliances,” and “automobiles.” § 732.402(1), (2), Fla. Stat. However, “[p]roperty specifically or demonstratively devised by the decedent’s will to any devisee shall not be included in exempt property.” § 732.402(5), Fla. Stat.

So what’s a specific bequest?

As a first step all anyone had to do in this case was read the probate code, but once they ran up against the specific-bequest exception to the exempt-property statute, they got sucked into Florida’s common law. Here’s how the 4th DCA summarized the law on this point and how it should be applied to the specific facts of this case.

“A specific legacy is a gift by will of property which is particularly designated and which is to be satisfied only by the receipt of the particular property described.” In re Estate of Udell, 482 So.2d 458, 460 (Fla. 4th DCA 1986). See also Park Lake Presbyterian Church v. Henry’s Estate, 106 So.2d 215, 217 (Fla. 2d DCA 1958) (“[A] specific legacy is a gift of a particular thing or of a specified part of the testator’s estate so described as to be capable of distinguishment from all others of the same kind.”). On the other hand, “[a] general legacy or devise is one which does not direct the delivery of any particular property; is not limited to any particular asset; and may be satisfied out of the general assets belonging to the estate of testator and not otherwise disposed of in the will.” In re Estate of Udell, 482 So.2d at 460. See also Park Lake, 106 So.2d at 217.

Applying the above definitions to this case, the clothing, jewelry, and automobiles mentioned in the will are clearly specific bequests because they are particularly designated and can be satisfied only by receipt of the particular property. Stated differently, they are specific things or a specific part of the testator’s estate. They are not general bequests because they cannot be satisfied out of the general assets of the testator’s estate. The bequest in the instant case is similar to that in In re Estate of Gilbert, 585 So.2d 970, 972 (Fla. 2d DCA 1991), where the Second District found that a bequest of “all of her jewelry, clothing, and feminine personalty … was a specific bequest of identifiable property.”

 

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In probate proceedings your standing to participate in any aspect of the administration of the estate depends on whether or not you’re an “interested person” of the estate, as that term is defined by F.S. 731.201(23). So I see motion practice in probate aimed at cutting a party out of a contested proceeding based on the party not being an interested person of the estate as analogous to a motion to dismiss for lack of standing in general civil litigation.

Case Study

Klingensmith v. Ferd and Gladys Alpert Jewish Family of Palm Beach County, Inc., — So.2d —-, 2008 WL 4922917 (Fla. 4th DCA Nov 19, 2008)

The denial of a motion to dismiss for lack of standing is NOT an appealable order. It’s not a final order, and it’s not listed as an appealable non-final order in Rule 9.130(a). See Supal v. Pelot, 469 So.2d 949 (Fla. 5th DCA 1985) (recognizing that an order denying a motion to dismiss based on a lack of standing is not an appealable nonfinal order). So I wasn’t surprised when the 4th DCA held that a denial of a motion to strike a petition for administration based on the petitioner NOT being an interested person of the estate is NOT a final order and is therefore NOT an appealable order. Here’s how the 4th DCA explained its ruling:

In its initial brief, Klingensmith relies on Florida Rule of Appellate Procedure 9.110(a)(2) and its committee note as authorization for this appeal. “Florida Rule of Appellate Procedure 9.110(a)(2) authorizes appellate review ‘of orders entered in probate … matters that finally determine a right or obligation of an interested person as defined in the Florida Probate Code.’ “ Dempsey v. Dempsey, 899 So.2d 1272, 1273 (Fla. 2d DCA 2005) (omission in original). The committee note states: “An order of the circuit court that determines a right, an obligation, or the standing of an interested person as defined in the Florida Probate Code may be appealed before the administration of the probate or guardianship is complete and the fiduciary is discharged.” Rule 9.110(a)(2), Fla. R.App. P. cmt. Klingensmith suggests that the court’s finding that AJFCS had standing to “file” the petition is in essence a finding that AJFCS is an interested person under the probate code. We disagree.

Significantly, the committee note explains that the 1996 amendment to the rule “does not abrogate prior case law holding that a party’s right of appeal arises when there is a termination of judicial labor on the issue involved as to that party.” Walters v. Edwards, 700 So.2d 434, 435 n. 1 (Fla. 4th DCA 1997). In fact, the amendment “has been viewed as strengthening the requirement of finality.” Delgado v. Estate of Garriga, 870 So.2d 912, 918 (Fla. 3d DCA 2004).

Here, the trial court did not finally determine whether AJFCS was an interested person and therefore able to petition for administration. Rather, the trial court found only that AJFCS had standing to “file” a petition for administration. The order on appeal does not therefore put an end to all judicial labor on the issue of whether AJFCS is an interested person under the Probate Code. It is not final and we are without jurisdiction.

Barash v. Kates, — F.Supp.2d —-, 2008 WL 4922787 (S.D.Fla. Jun 25, 2008)

Serial litigation by vexatious litigants in trusts-and-estates proceedings and how courts go about dealing with them has been a frequent topic on this blog [click here, here, here]. The take-away from these cases is: [1] if your client is on the receiving end of lawsuit, after lawsuit, after lawsuit by an abusive litigant, counsel patience: courts will bend over backwards to accommodate litigants whose conduct is far outside the bounds of acceptable behavior for very long periods of time prior to taking action to stop future abuses; and [2] you don’t have to put up with this garbage forever, there is a tipping point, and once you’ve reached it, courts do have the authority to tailor appropriate protective measures.

The linked-to case is helpful because it delivers on three fronts:

  • it provides yet another concrete example of how bad things have to get before a court will step in and take action against an abusive litigant continuously filing new lawsuits against your client [i.e., these facts help you manage your client’s expectations];
  • it summarizes the law you’ll need to cite if you’re ever confronted with a vexatious litigant whose making your life and the life of your client miserable; and
  • it gives you an example of the type of protective order you’ll want entered to stop the madness.

The Facts:

You’ll have to read the opinion for all the details, but note that the plaintiff whose conduct is the subject of the linked-to order had been litigating against the defendants over inheritance issues for over seven years (since 2001) in both state and federal courts in Florida, Colorado and New York. Again, the point to take away here is that you’ll probably have to put up with years of abuse before a court will enter a protective order against future vexatious litigation (that doesn’t mean you can’t ask for sanctions as soon as the other side goes crazy on you).

The Law:

Here’s how Judge Hopkins summarized the law in the 11th circuit regarding a court’s inherent authority to curb future abuses by vexatious litigants:

The 11th Circuit has long recognized the court’s ability to protect itself from abusive litigants. See Procup v. Strickland, 792 F.2d 1069, 1071-1074 (11th Cir.1986) (en banc) (affirming in part order of district court enjoining pro se litigant from filing any cases unless represented by counsel). See also United States v. Hintz, 229 Fed. App’x 860, 861 (11th Cir.2007) (citing Procup, 792 F.2d at 1073-1074). The Court has also stated that district courts have the authority to impose “serious restrictions” on a litigant’s ability to bring matters to court without an attorney. See Procup, 792 F.2d at 1070. “Federal courts have both the inherent power and the constitutional obligation to protect their jurisdiction from conduct which impairs their ability to carry out Article III functions.” Martin-Trigona v. Shaw, 986 F.2d 1384, 1386-1387 (11th Cir.1993) (quoting Procup, 792 F.2d 1069)). As a result, “considerable discretion is necessarily reposed in the district court” to draft orders enjoining abusive litigation tactics. See Martin-Trigona, 986 F.2d at 1387 ( citing Procup, 792 F.2d at 1074). See also May v. Hatter, No. 00-4115-Civ-Moore, 2001 WL 579782, *4 (S.D.Fla. May 15, 2001) (quoting Martin-Trigona, 986 F.2d at 1387) (citing Procup, 792 F.2d at 1074). Such orders may be appropriate to protect both the courts and its staff, as well as the rights of all litigants in the federal system. See Procup, 792 F.2d at 1071-1072 (noting that the claims of all other litigants suffer when a single litigant files “upwards of a lawsuit a day,” and that every lawsuit filed, no matter how frivolous or repetitious, requires the investment of court time, whether the pleadings are reviewed by a law clerk, staff attorney, magistrate, or judge).

Courts can be creative in fashioning appropriate injunctions against abusive litigation tactics. See Procup, 792 F.2d at 1072-1073. See also Hintz, 229 Fed. App’x at 861 (citing Procup, 792 F.2d at 1073-1074). For example, courts have entered orders which (1) enjoin “prisoner litigants from relitigating specific claims or claims arising from the same set of factual circumstances;” (2) require “litigants to accompany all future pleadings with affidavits certifying that the claims being raised are novel, subject to contempt for false swearing;” and, (3) direct “the litigant to seek leave of court before filing pleadings in any new or pending lawsuit.” Procup, 792 F.2d at 1072-1073) (citations omitted; other examples of court orders omitted). See also Hintz, 229 Fed. App’x at 861 (noting that the court has approved order limiting further pleadings without order of the court, after the complaint has been filed); Martin-Trigona, 986 F.2d at 1387 (noting that the Eleventh Circuit “has upheld pre-filing screening restrictions on litigious plaintiffs.”) (citing Copeland v. Green, 949 F.2d 390 (11th Cir.1991); Cofield v. Alabama Public Serv. Comm., 936 F.2d 512, 517-18 (11th Cir.1991)).

Moreover, courts may enjoin not only the abusive litigant, but also those working in concert with them, or at the behest of the litigant. See Martin-Trigona, 986 F.2d at 1287-1389 (affirming order of district court which applied equally to Martin-Trigona and “persons or entities acting at his behest, at his direction or instigation, or in concert with him.”) The only limitation on the court’s discretion to enjoin abusive litigation is that courts are not permitted to completely bar all access to the courts. See Procup, 792 F.2d at 1074. Should an injunction be entered, abusive litigants may be sanctioned for violating the injunction. See Martin-Trigona, 986 F.2d at 1389 (affirming order dismissing lawsuit filed by the mother of Martin-Trigona, because the mother acted in concert with her son to violate previous court order); May, 2001 WL 579782 at *5 (dismissing lawsuit with prejudice after abusive litigant violated injunction three times) (citing World Thrust Films, Inc. v. Int’l Family Enter., Inc., 41 F.3d 1454, 1456 (11th Cir.1995)).

The Remedy:

Here’s the remedy granted by Judge Hopkins. Note that this type of remedy is typical: it doesn’t close the courtroom doors to the abusive litigant, but it does make the litigant jump through a series of hoops prior to granting him future access to the court system. If you read the case you’ll also note that this remedy is being granted in addition to personal sanctions being entered against the abusive litigant.

1.) Philip Barash is ORDERED to cease filing any further pleadings unless Ordered by this Court, or unless prior approval is obtained by this Court.

2.) In order to obtain court approval to file any pleading, Philip Barash is ORDERED to abide by the following procedure. Failure to follow such procedure may result in the dismissal, striking, or denial of the Motion or offending pleading, or other sanctions.

First, Barash shall file with the Court a “Motion for Court Approval to File Pleading,” wherein he shall (a) state that he seeks the Court’s approval to file a particular pleading; (b) explain the legal purpose or basis of the pleading; and, (3) describe the nature of the pleading with specificity.

Second, Barash shall attach as a clearly labeled exhibit to the “Motion for Court Approval to File Pleading” the pleading he seeks to file.

Third, the filing of any “Motion for Court Approval to File Pleading” shall also comply with all aspects of the Federal Rules of Civil Procedure, as well as the Local Rules for the Southern District of Florida (including service on Defendant, the submission of motions only to the Clerk of Court, and no direct correspondence to Chambers).

3.) This Order shall apply to Barash and anyone working in concert with him, at his direction, or at his behest, including, but not limited to his wife Sandra, or any other family members, friends, associates, or acquaintances.

4.) IT IS FURTHER ORDERED THAT Defendant Kates need not respond to any of Barash’s filings which may be filed subsequent to this Order, unless Ordered by this Court.

5.) Any violations of this Order may result in sanctions.