Opinion
No. C 02-5126 SI
September 5, 2003
ORDER GRANTING PLAINTIFF'S MOTION FOR REMAND AND DENYING PLAINTIFF'S REQUEST FOR FEES AND COSTS
Now before the Court is plaintiff's motion to remand and request for fees and costs associated with bringing this motion. The Court finds this motion suitable for disposition without oral argument pursuant to Northern District Local Rule 7-1(b).
Having carefully considered the arguments of the parties in the papers submitted, the Court GRANTS plaintiff's motion to remand this action to San Francisco Superior Court's Probate Department, and DENIES plaintiff's motion for fees and costs, for the reasons set forth below.
BACKGROUND
On September 20, 2002, Plaintiff-Petitioner Wells Fargo Bank N.A. ("Petitioner") filed a complaint in the Probate Department of the Superior Court of the State of California for the County of San Francisco against Respondent-Defendant Gerd Stern ("Respondent"). The complaint challenged the distribution of assets from decedent Jared Scott's trust, of which both petitioner and respondent are co-trustees.
Petitioner's complaint in probate court seeks the following relief: to remove respondent as co-trustee; to suspend respondent's powers as co-trustee; to compel respondent to surrender trust property; to compel an accounting of all property respondent received from the trust; to compel redress for breach of trust; to ascertain beneficiaries; to determine to whom property should be delivered upon final termination of the trust; and to pass upon the acts of petitioner with respect to its duties any beneficiaries of the trust. The complaint also seeks compensatory damages for unjust enrichment and conversion, and indemnification.
On October 16, 2002, the Honorable Dorothy McMath held an ex parte hearing at which she issued an order from the bench suspending respondent's powers as co-trustee, and prohibiting respondent from withdrawing any assets which were then in the custody of Merrill Lynch, and which were traceable to the trust.
On October 22, 2002, respondent filed a notice of removal to this Court pursuant to 28 U.S.C. § 1332, 1441 and 1446, based on diversity jurisdiction. Petitioner is a corporation incorporated under the laws of California. Respondent is a citizen of New Jersey. Respondent alleged that the amount in controversy exceeds the $75,000 minimum required for this Court to exercise diversity jurisdiction.
On November 20, 2002, petitioner filed a motion to remand.
LEGAL STANDARD
A. Removal and remand
The removal statute, 28 U.S.C. § 1441 (a), provides in relevant part that "any civil action brought in a state court of which district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants to the district court of the United States for the district and division embracing a place where such action is pending." Federal law expressly provides that a district court shall remand any action in which subject matter jurisdiction is lacking. 28 U.S.C. § 1447(c). Courts must strictly construe the removal statute against removal jurisdiction. See Boggs v. Lewis. 863 F.2d 662, 663 (9th Cir 1988). Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance. Gaus v. Miles, 980 F.2d 564, 566 (9th Cir 1992). The burden of establishing grounds for federal jurisdiction rests on the removing party. Emrich v. Touche Ross Co., 846 F.2d 1190, 1195 (9th Cir. 1988).
B. The probate exception
The probate exception is long settled. A federal court's equity jurisdiction does not include the authority to decide cases which would require it to, "interfere with the probate proceedings or assume general jurisdiction-of the probate or control of the property in the custody of the state court." Markham v. Allen, 326 U.S. 490, 494, 66 S.Ct. 296, 298 (1946); see also. Sutton v. English. 246 U.S. 199, 205, 38 S.Ct. 254, 256 (1918). The effect of exercising in rem jurisdiction over probate matters would be to "interfere with the performance of the probate court's functions and with its control over the property." Lamberg v. Callahan. 455 F.2d 1213, 1216 (2d Cir. 1972) (citing Sutton, 246 U.S. at 205).
On the other hand, the probate exception does not prevent a federal court from exercising in personam jurisdiction over, for example, the executor of a will so long as the federal court does not interfere with the probate proceedings of the state court. See Waterman v. Canal-Louisiana Bank and Trust Co., 215 U.S. 33, 43-44, 30 S.Ct. 10, 12 (1909); Cf. Markham 326 U.S. at 495.
DISCUSSION
This Court must determine whether the probate exception to federal diversity jurisdiction applies to the trust issues presently being litigated. Assuming, arguendo, that both the diversity requirement and the $75,000 case in controversy requirement are met, if the probate exception applies, this court would be precluded from exercising jurisdiction over this action, necessitating its remand to state court.
Neither the Supreme Court nor the Ninth Circuit Court of Appeals has decided the specific issue here: whether the probate exception applies to litigation over distribution of the assets of a trust once held by a decedent who died intestate. The best way to determine this question is to consider whether exercising federal jurisdiction in such a case would interfere with the probate proceedings of the state court, since that is precisely what the probate exception is intended to prevent.
To decide whether interference with the probate court would occur, the Second Circuit Court of Appeals prescribed a simple test which is consistent with the federal judiciary's traditional deference to state probate courts:
The standard for determining whether federal jurisdiction may be exercised is whether under state law the dispute would be cognizable only by the probate court. If so, the parties will be relegated to that court; but where the suit merely seeks to enforce a claim inter partes, enforceable in a state court of general jurisdiction, federal diversity jurisdiction will be assumed.Lamberg, 455 F.2d at 1216. See also Mosser v. Pollin. 294 F.3d 335, 341 (2d Cir. 2002) (suggesting use of this standard as a practical factor in determining whether assumption of diversity jurisdiction is akin to assuming general jurisdiction of the probate"). Other circuits have also used this test. See Bedo v. McGuire. 767 F.2d 305, 306-07 (6th Cir. 1985); Rienhardt v. Kelly, 164 F.3d 1296, 1300 (10th Cir. 1999); Sianis v. Jensen. 294 F.3d 994, 998-99 (applying the same test, and finding that a Nebraska district court did have jurisdiction over a trust action, where state law did not give the probate court exclusive jurisdiction over the trust).
Under this standard, the probate exception applies in the present action. Petitioner's complaint was properly filed with the probate court pursuant to California Probate Code § 17200, found in Part 5 of that code. Section 17000(a) of the Probate Code provides that, "[t]he superior court having jurisdiction over the trust pursuant to this part has exclusive jurisdiction of proceedings concerning the internal affairs of trusts."
Thus, under California law, the dispute between petitioner and respondent is cognizable only in probate court. Those claims filed by petitioner which extend beyond an adjudication of claims to the property (e.g. compensatory damages for unjust enrichment and conversion) are ancillary to the primary claims related directly to the trust and the proper distribution of its assets and thus should be adjudicated as part of the same action.
The state court came to the same conclusion at the ex parte hearing when Commissioner McMath said, "I think this clearly does fall within the definition of an internal affair of the trust, and this does belong within the probate court jurisdiction." Transcript of Oct. 16 Hearing, p. 9:5-8. The state court's finding on this issue is given significant deference by this Court.
Other Circuit Courts of Appeals that have considered the issue of the probate exception's applicability to trusts have fashioned slightly different tests,, all of which give similar deference to state law regarding probate matters, and to state probate courts. See, e.g. Dragon v. Miller. 679 F.2d 712, 714-15 (7th Cir. 1982) (applying a practical test which considers legal certainty, judicial economy and the relative expertise required to adjudicate the matter); Storm v. Storm. 328 F.3d 941, 947-48 (7th Cir. 2003).
The Second Circuit's Lamberg test is an appropriate means of determining the probate exception's applicability in this action. Accordingly, as explained above, this Court finds that the probate exception applies and remands this action to the probate court. However, given that there is no Ninth Circuit case law on this point, this Court also finds that it would be unwarranted to order payment of attorneys fees or costs to plaintiff.
CONCLUSION
For the foregoing reasons this Court GRANTS plaintiff Wells Fargo Bank, N.A.'s motion to remand; REMANDS this action to the San Francisco Superior Court where it was filed; and DENIES plaintiffs's request for attorney fees, costs, and expenses.
[Docket #5 (Motion to Remand)]
IT IS SO ORDERED.