Opinion
Cause No. IP02-219-C H/K
July 15, 2002
ENTRY ON DEFENDANT'S MOTION TO DISMISS
Plaintiff Brion M. Storm has sued defendant Robert Z. Storm for interfering with his inheritance expectancy by using undue influence upon the late Evelyn F. Storm, plaintiff's grandmother and defendant's mother, to persuade her to amend her revocable inter vivos trust. The amendment effectively removed plaintiff Brion as a beneficiary and made defendant Robert the sole beneficiary of the trust after Evelyn's death. Plaintiff Brion brought this suit invoking this court's diversity jurisdiction: the parties are citizens of different states and the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332.
Pursuant to Fed.R.Civ.P. 12(b)(1), defendant has moved to dismiss all asserted claims from the federal court for lack of subject matter jurisdiction.
Defendant contends that the "probate exception" to diversity jurisdiction applies in this case. See generally Markham v. Allen, 326 U.S. 490 (1946). The court grants defendant's motion to dismiss. This case does not present a "core" probate proceeding involving an attempt to probate a will or to administer an estate, but the dispute is so closely related to a probate proceeding as to fall within the probate exception. The case involves a trust used as a will substitute, and a challenge to the validity of the instrument (based on charges of undue influence) that is essentially a substitute for a will contest. Also, the dispute would be heard by a state court with specialized probate jurisdiction. Under the Seventh Circuit's "practical" approach to the probate exception, this case is subject to the probate exception and must be dismissed for lack of subject matter jurisdiction.
Dismissal Standard
When ruling on defendant's motion to dismiss for lack of federal subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1), the court looks first to the plaintiff's claim of jurisdiction. The party seeking a federal forum bears the burden of establishing jurisdiction. NLFC, Inc. v. Devcom Mid-America, Inc., 45 F.3d 231, 237 (7th Cir. 1995). If uncontested, the court may accept as true the plaintiff's good faith allegations of the jurisdictional facts and may draw reasonable inferences in favor of the plaintiff. Rexford Rand Corp. v. Ancel, 58 F.3d 1215, 1218 (7th Cir. 1995); Capitol Leasing Co. v. F.D.I.C., 999 F.2d 188, 191 (7th Cir. 1993).
The court also may inquire beyond the allegations of the complaint. If a federal court doubts its jurisdiction, it can and must voice its concerns sua sponte, and can require evidence on jurisdictional issues. Karazanos v. Madison Two Associates, 147 F.3d 624, 626 (7th Cir. 1998). Also, where one party challenges the other's assertion of federal jurisdiction, the court may look beyond the jurisdictional allegations in the pleadings and may consider any evidence that has been submitted to determine whether subject matter jurisdiction in fact exists. United Transportation Union v. Gateway Western Railway Co., 78 F.3d 1208, 1210 (7th Cir. 1996); Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir. 1979). In both circumstances, the party invoking federal jurisdiction must support the jurisdictional allegations with "competent proof," i.e., proof to a reasonable probability that jurisdiction exists. NLFC, Inc., 45 F.3d at 237; Rexford Rand Corp., 58 F.3d at 1218.
Background
The facts of the case are taken from plaintiff Brion Storm's complaint and the affidavits of defendant Robert Storm and attorney Diane Hubbard Kennedy, which were submitted in support of defendant's motion to dismiss. Brion is a citizen of the state of Illinois. Robert, his father, is a citizen of Indiana. On November 25, 1999, Evelyn Storm, the mother of Robert and grandmother of Brion, suffered a serious stroke. In December 1999, Robert moved his mother from Illinois to Indianapolis, Indiana.
Plaintiff has not disputed those affidavits for purposes of the jurisdictional motion, though the court assumes that he disputes those portions relating to the merits of his claims.
On October 16, 1993, Evelyn had executed a Revocable Trust Agreement creating the Evelyn F. Storm Trust. She transferred significant property into this trust. The trust was amended in 1995, 1996, 1998, and 1999. Throughout these revisions, the trust provided that plaintiff Brion would receive one-half of the residue of Evelyn's estate upon her death. On January 18, 2000, about six weeks after Robert moved her to Indianapolis, Evelyn executed a new will and a new trust named the Evelyn F. Storm Amended and Restated Trust. This new Trust did not include Brion as a beneficiary. The new will named Robert as the executor. On October 31, 2000, Evelyn executed a new will and an amendment to the Trust. The trust amendment made Robert the sole beneficiary of the Trust. Evelyn died on March 14, 2001.
Plaintiff's assertion that Evelyn Storm's will has not been admitted to probate (Pl. Br. at 2) is uncontested by defendant. The court has no further information on the future disposition of Evelyn's will or estate.
Discussion
Plaintiff Brion Storm alleges that the changes in Evelyn's trust to his disadvantage were the result of undue influence by Robert over Evelyn, a charge that Robert denies. Brion seeks damages from his father Robert for the alleged tort of interference with inheritance expectancy. This cause of action is recognized in Indiana law, but if a will contest is available as a means for providing an adequate remedy, the issue must be presented in a will contest. Minton v. Sackett, 671 N.E.2d 160, 162-63 (Ind.App. 1996).
Now before the court is the question whether the court has jurisdiction to hear this case, or whether the "probate exception" to federal diversity jurisdiction applies to bar jurisdiction in this case. The probate exception is a judicial creation that is thoroughly entrenched in the law of diversity jurisdiction. In Markham v. Allen, the Supreme Court wrote that "a federal court has no jurisdiction to probate a will or administer an estate." 326 U.S. 490, 494 (1946).
It is something of a truism that the precise scope of the exception has not been drawn sharply. See, e.g., Loyd v. Loyd, 731 F.2d 393, 397 (7th Cir. 1984) (finding that district court did not abuse discretion by exercising jurisdiction over claim of fraud in transfer of real estate related to decedent's estate: "In candor, if the district court had found originally that the probate exception was applicable, we doubt we would have faulted him. We simply do not think the exception is a hard and fast jurisdictional rule."). In general, the federal courts tend to construe narrowly this judicially-created exception to the statutory grant of diversity jurisdiction. See Georges v. Glick, 856 F.2d 971, 973 (7th Cir. 1988) (probate exception did not apply to claim for attorney malpractice in preparing inter vivos trust related to estate).
The easy cases are "pure" probate matters, such as the actual probate of a will and the administration of an estate. But the probate exception also extends to all suits "ancillary" to the probate of a will, the Seventh Circuit has said, while noting also that the definition of "ancillary is "not well established." Id. at 973; see also Peter Nicolas, Fighting the Probate Mafia: A Dissection of the Probate Exception to Federal Court Jurisdiction, 74 S. Cal. L. Rev. 1479 (2001). Regarding the probate exception, Professors Wright and Miller have written that "a federal court's decision whether to take jurisdiction often depends on subtle distinctions in the types of questions involved in different disputes." 13B Wright Miller, Federal Practice and Procedure § 3610 at 484 (2d ed. 1984).
In Rice v. Rice Foundation, 610 F.2d 471, 475-76 (7th Cir. 1979), the Seventh Circuit identified two approaches that federal circuits had taken to determine whether the probate exception applies in a particular case: the "nature of the claim" test and the "route" test. However, the court in Rice declined to choose either approach. Id. at 476. The Seventh Circuit later adopted a third "practical" approach. Georges, 856 F.2d at 973; Dragan v. Miller, 679 F.2d 712 (7th Cir. 1982); Seay v. Dodge, No. 95 C 3643, 1995 WL 557361, at *3 (N.D. Ill. Sept. 18, 1995). Under the "practical" approach, the court considers whether the suit "is `ancillary' to probate in the practical sense that allowing it to be maintained in federal court would impair the policies served by the probate exception." Dragan, 679 F.2d at 715.
One policy rationale of the probate exception is that state courts often may have more expertise than federal courts to decide probate-related matters arising under state law. Georges, 856 F.2d at 973-74; Dragan, 679 F.2d at 715-16. In a state that creates a "specialized cadre of judges to administer its probate jurisdiction," the relative expertise of the state judges in probate matters can support a broader application of the probate exception than in a state where authority in probate matters is exercised by courts of general jurisdiction. Dragan, 679 F.2d at 715. A second policy rationale is that judicial economy is advanced by concurrently resolving, in a single forum, all matters regarding the transfer of a person's property at death. Georges, 856 F.2d at 973-74; Dragan, 679 F.2d at 714. If a probate proceeding begins in state court, "the interest in judicial economy argues for keeping it there until it is concluded." Dragan, 679 F.2d at 714. A third policy rationale is to avoid unnecessary "interference" with state probate proceedings. Georges, 856 F.2d at 974; Rice, 610 F.2d at 475.
Plaintiff Brion Storm has framed his case as a claim for tortious interference with his inheritance expectancy. Defendant Robert counters that Brion's claim is essentially a challenge to "testamentary intent on the basis of undue influence," so that the dispute is properly a probate matter belonging in the Probate Division of the Marion Superior Court. Def. Br. at 1.
To determine whether this action should be treated as ancillary to a probate matter, so as to bar federal jurisdiction, the court must look to the substance and effect of Brion's claim rather than the labels attached by the parties — mere labels should not alter the result. See Dragan, 679 F.2d at 716.
In Dragan, the court characterized the plaintiff's claim of interference with inheritance expectancy as an attempt to circumvent probate law by "calling a will contest an action in tort." Dragan, 679 F.2d at 717. The plaintiffs in Dragan sought a declaration that a will was invalid so that property would be distributed for their benefit under the intestacy statute. Despite the form of the action, alleging a tort and seeking damages, the Seventh Circuit found that the action amounted in substance to a will contest subject to the probate exception. Id. at 716-17.
If Brion were alleging that Robert had committed a tort by undue influence on Evelyn to modify her earlier will, rather than the trust, the Seventh Circuit's decision in Dragan and the Indiana appellate decision in Minton would certainly require dismissal under the probate exception. Minton requires such a claim to be presented as a will contest when that procedure is available. 671 N.E.2d at 162-63. Dragan instructs the district courts that labeling a claim a tort claim rather than a will contest does not avoid application of the probate exception. 679 F.2d at 717.
This case is more difficult, however, because the critical document in Evelyn's estate planning was not her will(s) but her inter vivos trust, with specific provisions for disposition of the trust property upon her death. The issue is whether a challenge to the validity of Evelyn's trust amendments falls within the probate exception. The trust was plainly a "will substitute" drafted to work together with the will itself. In Georges, the Seventh Circuit declined to adopt a per se rule in either direction in such cases involving trusts as will substitutes:
The plaintiffs argue that the probation exception is inapplicable here because this action relates to the execution of an inter vivos trust, not to a will. We reject such a per se rule. The inter vivos trust is clearly a will substitute. However, the fact that this case does involve a will substitute does not automatically render the probate exception applicable. Cf. Dragan v. Miller, 679 F.2d 712, 715 (7th Cir.), cert denied, 459 U.S. 1017 (1982).856 F.2d at 974 n. 2.
The parties have not cited any cases squarely on point. Brion points out that several district courts have held that the probate exception did not apply to claims concerning trusts, though most are readily distinguishable. For example, in Schonland v. Schonland, No. 397CV558(AHN), 1997 WL 695517, at *2 (D. Conn. Oct. 23, 1997), the court held that the probate exception did not apply to an action brought by the trust grantor herself to remove a trustee. The case did not present any issue of testamentary intent or the disposition of property after a grantor's death. In Weingarten v. Warren, 753 F. Supp. 491, 494-95 (S.D.N.Y. 1990), the court held that the probate exception did not apply to an action by trust beneficiaries against a trustee and attorney for alleged breaches of fiduciary duties and an accounting. The Weingarten court stated broadly "The probate exception to diversity jurisdiction does not apply to trusts," id., citing Barnes v. Brandrup, 506 F. Supp. 396, 399 (S.D.N.Y. 1981), but both cases decided considerably narrower questions, presented by claims different from those presented here. In Barnes, the court held that the probate exception did not apply to a beneficiary's suit against a trustee for breach of fiduciary duty and mismanagement, and it was clear that a state probate court would not have been able to exercise jurisdiction over the entire case. See id. at 402.
In Lancaster v. Merchant's Nat'l Bank of Fort Smith, 752 F. Supp. 886, 888 (W.D.Ark. 1990), the district court exercised jurisdiction over two heirs' challenge to the validity of trusts established under a couple's wills. The district court held that the charitable trusts violated the Rule Against Perpetuities, but the Eighth Circuit reversed on the merits. 961 F.2d 713 (8th Cir. 1992). Among the cited trust cases, Lancaster seems to be most similar to this one case — challenging the validity of a trust used to implement testamentary intent after death — but the Lancaster court appears to have adopted a view of the probate exception considerably narrower than the Seventh Circuit's approach in Georges and Dragan.
Applying the practical approach of the Seventh Circuit, the strongest factors weighing against federal jurisdiction in this case are (a) the close parallels between Brion's claim and a will contest, and (b) the fact that the subject matter of this case would fall within the jurisdiction of the Probate Division of the Marion Superior Court, which has considerable expertise in such matters.
Evelyn's trust is, in the language of Georges, a will substitute, and Brion's allegations of undue influence present precisely the sorts of issues that would arise in a will contest. As a practical matter, this case is indistinguishable from a will contest that would plainly be subject to the probate exception. The exercise of diversity jurisdiction would involve the federal courts in the same factual and legal issues, and Evelyn's will and trust were closely intertwined to give effect to her testamentary intent after her death. The federal courts certainly would not have jurisdiction to hear a will contest. The court sees no reason why the result should be different for such a challenge to a trust amendment modifying the settlor's provisions for distribution of property after her death.
In Turja v. Turja, 118 F.3d 1006 (4th Cir. 1997), the Fourth Circuit affirmed dismissal of a claim that was in substance a will contest. The district court in the case had exercised jurisdiction, however, over the plaintiffs' challenge to a closely related trust agreement, and had voided the trust documents based on undue influence. The defendant who lost on the trust issue did not pursue a cross-appeal challenging the district court's exercise of jurisdiction over the challenge to the trust, and the Fourth Circuit did not address the issue. There does not appear to be a published decision from the district court addressing the jurisdictional issue. The jurisdictional resolution in Turja — giving the state courts jurisdiction over the will claims and the federal courts jurisdiction over the trust claims — seems inconsistent with the Seventh Circuit's practical approach to the probate exception and its desire to promote judicial economy.
A major factor in the Seventh Circuit's "practical" approach pertains to whether the state courts of Marion County, Indiana have a specialized expertise to decide this case that the federal court lacks. In the state courts, Brion's claim would be heard by the Probate Division of the Marion Superior Court, which has both general and specialized jurisdiction. See Ind. Code §§ 33-5.1-2-4 and -2-9.
The Superior Court is a court of general jurisdiction, including probate matters, Ind. Code § 33-5.1-2-4(2), but Indiana statutes plainly establish a specialized jurisdiction for the Superior Court's Probate Division. The legislature instructed the Marion Superior Court to adopt rules of the court dividing the work of the court among divisions, including a Probate Division. Ind. Code § 33-5.1-2-9(c).
Indiana statutes give the Probate Division jurisdiction over issues of trusts, as well as wills. Ind. Code § 30-4-6-1 ("Jurisdiction in this state for all matters arising under this article [Trust Code] shall be with the court exercising probate jurisdiction."). That probate jurisdiction includes the power to rescind or reform a trust. Ind. Code § 30-4-3-25. Thus, Indiana law would assign Brion's claims to the Probate Division of the Marion Superior Court. Such specialized jurisdiction weighs in favor of applying the probate exception to this case. Also, there is no apparent reason why he could not obtain complete relief in an action in that court.
This case can be contrasted with several Seventh Circuit cases allowing diversity jurisdiction in trust and will cases, for those cases did not present matters so closely related to will contests. In Loyd v. Loyd, 731 F.2d 393 (7th Cir. 1984), the Seventh Circuit affirmed the exercise of diversity jurisdiction over suit against estate administrator for fraud in relation to a sale of real estate, though the court indicated it also would have affirmed a dismissal for lack of jurisdiction.
In Georges v. Glick, supra, 856 F.2d 971, the Seventh Circuit reversed a dismissal of a suit by heirs against an attorney who prepared and modified a trust document. The heirs alleged malpractice, breach of contract and fiduciary duty, and interference with trust inheritance, but they did not challenge in that action the validity of the trust instrument, as Brion challenges the validity of Evelyn's trust amendments. The action in Georges also could not have been brought in a probate court because none would have had jurisdiction over the defendants.
The case of Hamilton v. Nielsen, 678 F.2d 709 (7th Cir. 1982), involved a will rather than a trust, and the court allowed diversity jurisdiction over will beneficiaries' claims against the estate's executors for negligent investment decisions.
Brion Storm's action is different from all of these: an adequate remedy is or was available in the state courts through an action in probate court to invalidate or reform the latest version of Evelyn Storm's trust. The availability of such an action before a court with both general and specialized jurisdiction in such matters, and its close parallel to a will contest, weigh heavily in favor of applying the probate exception here, just as it applied in Dragan to bar jurisdiction over a claim for tortious interference with an inheritance expectancy. See 679 F.2d at 717.
By considering whether state courts would assign a dispute to a court with specialized jurisdiction, the practical approach to the probate exception can produce results that vary from state to state, and even from county to county. (Not all Indiana counties have specialized probate courts, for example.) Cf. Waterman v. Canal-Louisiana Bank Trust Co., 215 U.S. 33, 43-46 (1909) (addressing relationship between scope of probate exception and varying state laws, especially those purporting to grant probate courts exclusive jurisdiction to adjudicate claims against a decedent's estate).
On the other side of the scales, however, the additional factors in the Seventh Circuit's "practical" approach would not be furthered by applying the probate exception in this case. Unlike in the cases of Dragan and Minton, no will has been submitted to probate. Therefore, the rationale of judicial economy — that all disputes related to the probate of the will and administration of the estate be brought together before the same judge — would not be violated by exercising jurisdiction here. See Dragan, 679 F.2d at 714. The next factor in the Seventh Circuit's practical approach is whether the suit would unnecessarily interfere with probate court proceedings. At this time there is no reason to expect this action, if it proceeded in federal court, to interfere with ongoing state probate proceedings. There are no ongoing probate proceedings, since no will has been submitted to probate in state court.
Nevertheless, state court is where this action belongs. This case is a tort substitute for a "will contest" in which the relevant instrument is not a will but a trust that is itself a substitute for a will. Under these circumstances, Brion's claims are ancillary to the specialized jurisdiction of the Probate Division of the Marion Superior Court. Cf. Hamilton, 678 F.2d at 710 (stating that when cases can be brought in a state court of general jurisdiction rather than in courts with specialized probate jurisdiction, retention of federal jurisdiction will not interfere with a state policy of channeling all probate-related matters to specialized courts).
Accordingly, this action is dismissed for lack of subject matter jurisdiction. Final judgment shall be entered accordingly.