The Probate Exception to Federal Jurisdiction
The Supreme Court's Marshall v. Marshall (Anna Nicole Smith Case) Decision Clarifies the Scope of Federal Jurisdiction Over Probate Matters
On May 1, 2006, the United States Supreme Court clarified the probate exception to federal jurisdiction which limits estate conflicts to state jurisdiction. Justice Ginsburg, writing for the Court in Marshall v. Marshall (the Anna Nicole Smith case), shattered the Ninth Circuit Court of Appeals' broadly constructed form of the exception.
Federal courts will not oversee the administration of an estate.
"It is most true that this Court will not take jurisdiction, if it should not: but it is equally true, that it must take jurisdiction, if it should . . . We have no more right to decline the exercise of jurisdiction which is given, than to usurp that which is not given." Cohens v. Virginia, 6 Wheat. 264, 404 (1821).
No account of a Supreme Court case is complete without a procedural history because so much is usually tied up in that alone. The cases bounced from the probate court in Harris County, Texas and to both the United States District Court and Bankruptcy Court for the Central District of California. The Ninth Circuit aptly characterizes the case's history at the opening of the discussion section of its opinion, and agrees that a recount is required.
"The route followed by the parties to this appeal on their epic journey is a tortured one indeed. To facilitate an understanding of the voluminous record before us and to recognize the conflicting judgments which have been entered to date, we detail the history of the prior proceedings in state and federal courts." Marshall v. Marshall, 392 F.3d 1118, (9th Cir. 2004).
The first case brought was filed in the Texas court and it pertained solely to the probate of the will of J. Howard Marshall II (Howard) and the administration of his estate. With that case underway, Vickie Lynn Marshall (Vickie) otherwise known as the famous playboy bunny Anna Nicole Smith, now the widow of Howard, filed for bankruptcy in the bankruptcy court. E. Pierce Marshall (Pierce) filed a notice of claim against Vickie for defamation, and Vickie counterclaimed for tortuous interference with her expected inheritance from Howard. The claim and counterclaim together turned that aspect of the bankruptcy proceedings into an adversarial affair that the bankruptcy court considered "core proceedings" under 28 U.S.C. §157, meaning the court found it had the authority to issue a final judgment as opposed to proposed findings of fact and conclusions of law. The bankruptcy court dismissed Pierce's claim and granted Vickie's. Vickie thus withdrew her claims in the Texas court.
Of course, the Texas court proceedings were ongoing, and they resulted in a jury verdict favorable to Pierce on all fronts, most importantly that Howard's final estate plan was valid in all its various parts despite Vickie's challenges to its legitimacy. The Texas court also asserted for itself exclusive and dominant jurisdiction over all the issues raised by both parties.
With all that said and done, Pierce took the bankruptcy ruling up on appeal to the federal district court arguing preclusion and the probate exception. The district court did overturn the bankruptcy court's determination that the proceedings were "core," and consequently the district court treated the bankruptcy court's record as one consisting of proposed findings of fact and conclusions of law and took a fresh look at the case de novo. Regardless, the district court adopted in large part the bankruptcy court determinations and again ruled in favor of Vickie, though for only a fifth of what the bankruptcy court awarded her. Curiously, the district court, operating under the Erie principle, ruled that the Texas Supreme Court would recognize, though it had not yet done so, the tort of interference with an expected inheritance.
Pierce appealed to the Ninth Circuit and Vickie cross appealed the district court's "non-core" decision in an attempt to reinstate the $474 million judgment she earned on her counterclaim in bankruptcy court. The Ninth Circuit ruled that the district court and bankruptcy proceedings were subject to the probate exception under a broad interpretation of precedent and grant of authority to the state courts on their own jurisdiction determinations. The Ninth Circuit vacated the district court opinion and remanded with instructions.
The Probate Exception, Now
Though it is tempting to recount the entire historical record underpinning the precedents that led us here, it is neither here nor there at this point, as the Supreme Court reined in, yet again, the entire probate exception doctrine (statutory, judicial, and otherwise) by keeping close to the camp it set up in a few cases of similar pedigree and giving strict interpretation to block quotes that were heavily relied on by the Ninth Circuit. The Supreme Court said as much itself.
[T]he Court's most recent and pathmarking pronouncement on the probate exception, stated that "the equity jurisdiction conferred by the Judiciary Act of 1789 . . . which is that of the English Court of Chancery in 1789, did not extend to probate matters . . . [W]e have no occasion to join the historical debate over the scope of English chancery jurisdiction in 1789, for Vickie Marshall's claim falls far outside the bounds of the probate exception . . . We therefore need not consider in this case whether there exists any uncodified probate exception to federal bankruptcy jurisdiction under (28 U.S.C. §1334).
The Ninth Circuit went wrong in two major ways by finding that this case fell within the probate exception. First, it gave too much weight to Texas' own grant of exclusive and dominant jurisdiction over the matter. Second, it too broadly interpreted the probate exception by extending it to all things that might literally, however slightly or in whatever way, "interfere" with probate proceedings. The Supreme Court clarified both points in its reversing opinion by denying Texas the power to limit federal jurisdiction where it may otherwise properly lie and interpreting much more narrowly the precedential language currently governing the probate exception.
Markham v. Allen, 326 U.S. 490 (1946), was most on point here, but the Supreme Court also gave attention to Ankenbrandt v. Richards, 504 U.S. 689 (1992) to demonstrate the similarity between the "domestic relations" and "probate" exceptions, namely that "(b)oth are judicially created doctrines stemming in large measure from misty understandings of English legal history."
As in this case, where federal jurisdiction was based on a federal statute, namely 28 U.S.C. §1334, the federal bankruptcy jurisdiction, Markham also involved the probate exception at work against a federal statutory grant of jurisdiction, namely 28 U.S.C. §1345, which grants federal jurisdiction over actions brought by officers of the United States. The Supreme Court made two pronouncements in that case that formed the basis of its opinion here, and Justice Ginsburg quoted those passages in her opinion to clarify any outstanding discrepancy.
"It is true that a federal court has no jurisdiction to probate a will or administer an estate . . . . But it has been established by a long series of decisions of this Court that federal courts of equity have 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." 326 U.S. at 494.
"While a federal court may not exercise its jurisdiction to disturb or affect the possession of property in the custody of a state court, . . . it may exercise its 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." 326 U.S. at 494.
At this point, Justice Ginsburg dug into her analysis. She stated that,
"We comprehend the ‘interference' language in Markham as 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 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 . . . . As the Court of Appeals correctly observed, Vickie's claim does not ‘involve the administration of an estate, the probate of a will, or any other purely probate matter' . . . . Provoked by Pierce's claim in the bankruptcy proceedings, Vickie's claim . . . alleges a widely recognized tort."
"What this amounts to in sum is that the probate oversight process and the final dispensation of estate assets will take place under the authority of state probate courts, but that any claim that may otherwise properly lie within the federal jurisdiction will still there properly lie, regardless of its connection to an ongoing probate process or that it may affect the right to estate assets under administration in a state probate court. The state probate courts will be obliged to heed orders entered by federal courts regarding claims and rights to property under their administration during the process of final dispensation, which lies exclusive in the domain of the state probate courts if one should be in the possession of a res and in the process of ordering its dispensation. Accordingly, the Ninth Circuit was wrong to say both that
the trust executed by (Howard) constituted the centerpiece of his estate plan. By declaring that the trust was invalid, the bankruptcy and district courts directly interfered with the Texas probate court's administration of the decedent's estate."
The probate exception to federal court jurisdiction is invoked because the state probate court must have exclusive in rem jurisdiction over all claims either against or on behalf of the decedent's estate. Marshall, 547 U.S. 293, 311.
The Irrelevance of Self-Proclaimed Exclusivity
As for the relevance of Texas' pronouncement of its own dominant and exclusive jurisdiction over this matter, Justice Ginsburg made short work of such unfounded audacity by "rejecting that determination." Though the Court determined that Texas courts had recognized the tort Vickie sued on, and that under the Erie principle the federal courts were to apply Texas' rendition, the Court further quoted that it has long recognized that "a State cannot create a transitory cause of action and at the same time destroy the right to sue on that transitory cause of action in any court having jurisdiction." (quoting Tennessee Coal, Iron & R. Co., v. George, 233 U.S. 354, 360 (1914)). Putting the final word on the record, Justice Ginsburg quotes from McClellan v. Carland, 217 U.S. 268, 281 (1910), jurisdiction of the federal courts "having existed from the beginning of the Federal government, (can) not be impaired by subsequent state legislation creating courts of probate." Any reliance on Durfee v. Duke, 375 U.S. 106 (1963), was misplaced because that case governed only the finality of a court's determination of its own jurisdiction, not its own determination of another court's jurisdiction. Again, the Ninth Circuit was wrong to broadly state that "[a] state court's holding regarding its jurisdiction over probate matters is binding on federal courts and is immune from collateral attack under the doctrine of res judicata," as that remark would apply only to its own jurisdiction.
The only issues left open on remand are whether the proceedings in bankruptcy court were indeed "core" and whether Pierce's arguments pertaining to preclusion had any measure of validity. Of course, this leaves an estimation of a final judgment wide open. But at least we know that the federal courts can safely make those determinations because they will not concern the actual administration or dispensation of an estate.