The Supreme Court takes exception to the "probate exception" Mrs. Smith goes to Washington.

The U.S. Supreme Court issued two notable opinions in 2006 affecting federal jurisdiction.

Wachovia v. Schmidt, 126 S. Ct. 941 (2006), was decided on January 17, 2006. The Supreme Court held, for purposes of federal diversity jurisdiction, that a federally chartered national bank is a citizen only of the state which houses its main office, and is not a citizen in every state in which it maintains a branch office. As a result, there will be more instances in which a national bank can sue or be sued in, or can remove a case to, federal court based on diversity jurisdiction. This article does not further discuss Wachovia.

Marshall v. Marshall, 126 S. Ct. 1735 (2006), was decided on May 1, 2006, and is referred to by some as the "Anna Nicole Smith case." Marshall addresses the "probate exception" to federal jurisdiction.

This article summarizes probate jurisdiction in Florida state courts, then summarizes the probate exception to federal jurisdiction both before and after Marshall.

Probate Administration in Florida State Courts

* Subject Matter Jurisdiction--Subject matter jurisdiction is the power of a court to adjudicate the class of proceedings to which a particular proceeding belongs. (1) Court proceedings taken without subject matter jurisdiction are void. (2)

Exclusive original jurisdiction to administer the estates of decedents is vested by the Florida Constitution in the circuit courts. More precisely, the circuit courts have exclusive original jurisdiction "of proceedings relating to the settlement of the estate of decedents and minors, the granting of letters testamentary, guardianship, involuntary hospitalization, the determination of incompetency, and other jurisdiction usually pertaining to courts of probate." (3)

* In rem Proceedings--"Probate proceedings are in rem proceedings." (4) This was true under the former probate code and in the absence of a statute on point. (5) An "in rem" proceeding is one directed against property and against anyone claiming an interest in the property. (6) "In personam" jurisdiction is invoked against a person, as distinguished from being invoked against a thing.

If a court has jurisdiction over property, and if persons who may have an interest are given reasonable notice complying with due process requirements, the court may decide the rights of persons to that property. (7) In a proceeding to admit a will to probate, the subject or "rem" is the will.8 In most other probate proceedings, the "rem" is the estate being administered. (9)

The purposes of administering a decedent's estate are to collect the assets of the decedent, pay claims against the estate, and distribute the remaining assets to those entitled to receive them. (10) The administration of a decedent's estate can, thus, be a genuine in rem proceeding.

Some proceedings that affect the administration of a decedent's estate are not in rem, but are in personam. These types of proceedings do not affect the in rem nature of the administration proceeding.

Federal Jurisdiction and the "Probate Exception"

* The U.S. Supreme Court's Analysis Leading up to Marshall--Over the course of more than a century, the Supreme Court has developed a doctrine now commonly referred to as the "probate exception" to federal jurisdiction. Prior to its decision in Marshall, the Supreme Court's last statement of the doctrine is found in Markham v. Allen, 326 U.S. 490, 494 (1946):

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. [citations omitted].

[W]hile 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. [Citations omitted.]

The Supreme Court in Marshall analyzes these two passages in order to reconcile them and to restate the probate exception. The Court notes that lower federal courts have puzzled over the meaning of the phrase "interfere with the probate proceedings" found in the first passage, leading some federal courts to block federal jurisdiction over a range of matters well beyond probate of a will or administration of a decedent's estate. Choosing "redundancy" over "incoherence," the Marshall opinion concludes that the "interference" language in the first passage is essentially a reiteration of the language in the second passage, without independent significance, and 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." (11) The Marshall opinion then restates the probate exception to federal jurisdiction as follows:

[T]he 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. (12)

* Is the Probate Exception Limited to Diversity Jurisdiction?--Federal jurisdiction is typically based on either 1) diversity of citizenship, or 2) a federal question. Does the "probate exception" apply only in diversity cases, or does it also apply in federal question cases?

According to the 11th Circuit in Glickstein v. Sun Bank/Miami, 922 F.2d 666 (11th Cir. 1991), the probate exception applies only to statutory diversity jurisdiction, not to federal question jurisdiction. "We note that the probate exception is an exception to diversity jurisdiction and has no application to ... federal RICO claims." (13) Similarly, in Goerg v. Parungao, 844 F.2d 1562 (11th Cir. 1988), the 11th Circuit reassured that the probate exception "has no bearing on federal question jurisdiction, the jurisdiction invoked in bankruptcy cases." (14)

The Ninth Circuit's opinion, In re Marshall, 392 F.3d 1118, 1131 (9th Cir. 2004), specifically disagreed with Goerg, holding that the probate exception also applies in federal question cases, specifically in bankruptcy cases. However, the Supreme Court in Marshall never needed to address the issue of "whether there exists any uncodified probate exception to federal bankruptcy jurisdiction under [28 U.S.C.] [section]1334" because the nature of the claim fell "far outside the bounds of the probate exception." (15) Goerg and Glickstein still appear to be controlling in the federal district courts in Florida.

Before we address the current status of the "probate exception" as it affects Florida practitioners, we set forth the genesis of the Supreme Court's Marshall opinion.

* The Genesis of Marshall v. Marshall--Vickie Lynn Marshall (a/k/a Anna Nicole Smith, then 26) married J. Howard Marshall II (then 89), who died just over one year later, without providing for Vickie in his will. Vickie alleged that J. Howard intended to provide for her financial security. J. Howard's son, E. Pierce Marshall, disagreed. Pierce was the ultimate beneficiary of J. Howard's estate plan, which consisted of a living trust and a pourover will.

On the 10-year trip from J. Howard's death to the U.S. Supreme Court's opinion, Vickie appeared in four other courts: Probate Court in Harris County, Texas; U.S. Bankruptcy Court for the Central District of California; U.S. District Court for the Central District of California; and the U.S. Court of Appeals for the Ninth Circuit.

Texas Probate Court--Three days following the death of J. Howard, Vickie filed a petition to establish that J. Howard died intestate. Pierce opposed this petition and asked the court to determine that his father's last will and 1982 trust, as amended, were valid. Vickie, in turn, contested the validity of both the will and trust, and subsequently alleged that Pierce, his attorneys, and others tortiously interfered with her expectancy.

Federal Bankruptcy Court--With the probate proceedings pending in Texas, Vickie filed a voluntary Chapter 11 bankruptcy petition in California. Pierce filed a claim against Vickie's bankruptcy estate, seeking a declaration to bar the discharge of any potential causes of action against Vickie for defamation and attorneys' fees that might be awarded by any court in the future. Vickie filed counterclaims against Pierce, including a counterclaim for tortious interference with her expectancy.

Pierce moved to dismiss Vickie's claims for lack of subject matter jurisdiction, alleging that the Texas probate court had exclusive jurisdiction, and expressly invoking the probate exception to federal court jurisdiction. The bankruptcy court denied Pierce's motion. Proceeding, then, to the merits of Vickie's claims, the bankruptcy court found that Vickie had an expectancy of a gift based on J. Howard's promises to her and his instructions to his attorneys to prepare a "catch-all" trust, and that Pierce tortiously interfered. Ultimately, the bankruptcy court entered a final judgment against Pierce in the amount of $474,754,134.

Back to Texas--Litigation continued in the Texas probate court during the bankruptcy proceedings. Seven days after the entry of the final judgment against Pierce in the bankruptcy court, Vickie took a nonsuit regarding all her claims in Texas against the estate and against Pierce. However, this did not extract Vickie from the Texas proceedings, since she was a defendant in Pierce's action to determine the validity of the last will and the trust. Pierce proceeded to trial. A jury in the Texas probate court returned a unanimous verdict in his favor.

Federal District Court--Pierce had appealed the bankruptcy judgment to the district court. After the Texas probate court entered its judgment in his favor, Pierce moved in the district court to dismiss Vickie's claim against him, asserting claim and issue preclusion based on the Texas proceeding, and asserting the probate exception to federal jurisdiction. Among other things, the district court affirmed the determination by the bankruptcy court that federal jurisdiction was proper over Vickie and her several claims.

On March 7, 2002, the district court entered a final judgment against Pierce, determining that J. Howard intended to give Vickie a gift in the form of a newly created trust, to take effect after the death of J. Howard. The district court entered judgment in favor of Vickie, but decreased the award to $88,585,534.66, plus costs of suit.

Federal Ninth Circuit Court--Pierce appealed the decision of the district court to the U.S. Court of Appeals for the Ninth Circuit. In relevant part, the Ninth Circuit held that the claims of Vickie were in substance a thinly veiled will contest coming within the exclusive jurisdiction of the Texas probate court, and that the bankruptcy court lacked jurisdiction under the probate exception to federal jurisdiction.

U.S. Supreme Court--Vickie petitioned the Supreme Court for a writ of certiorari. The Supreme Court reversed the judgment of the Ninth Circuit as being an unwarranted expansion of the probate exception, and explained the proper scope of the exception in Marshall, with the following, essentially black letter law: [T]he 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. (16)

The Court reasoned that Vickie's claim did not "involve the administration of an estate, the probate of a will, or any other purely probate matter." (17) It involved instead the widely recognized tort known as tortious interference. The Court continued by noting that Vickie sought an in personam judgment against Pierce, not the probate or annulment of a will, and that Vickie did not seek to reach a res within the custody of a state court. The Court concluded that Vickie's claim fell "far outside the bounds of the probate exception described in Markham." (18) The Court concluded that because the probate exception is a "narrow exception," Vickie was not barred from the federal courts under the probate exception doctrine.

For Vickie and Pierce, (19) litigation continues because the Supreme Court remanded for further proceedings to address whether Vickie's claim was "core" (in bankruptcy terms), and to consider Pierce's arguments concerning claim and issue preclusion. What does all this mean for practitioners in Florida?

* Opinions of the Fifth and 11th Circuits--Federal appeals in Florida are currently heard by the U.S. Court of Appeals for the 11th Circuit. Prior to October 1, 1981, when the 11th Circuit Court was created, federal appeals in Florida were to the Fifth Circuit. Fifth Circuit decisions rendered before October 1, 1981, are controlling precedent in the 11th Circuit. (20)

Opinions dealing with the probate exception, enunciated by the Fifth and 11th circuits prior to the Supreme Court's Marshall opinion, continue to be good law. Perhaps this is because the 11th Circuit, by its own admission, has narrowly construed the probate exception. (21) Unlike some other lower federal courts, the Fifth and 11th circuits apparently were not "puzzled" over the meaning of the phrase "interference with the probate proceedings."

Opinions of the Fifth and 11th circuits are consistent with the pronouncement of the restated probate exception doctrine found in Marshall. Regarding suits to establish claims of creditors, devisees, heirs, and others against a decedent's estate, the Fifth Circuit enunciated the proper standard some 25 years ago: The federal court is limited to declaring the validity of the asserted claim. The claimant can then assert the federal judgment as res judicata in the probate court. (22)

The reasoning of the Fifth and 11th circuits on the probate exception can be illustrated by the following passages:

* A party may obtain a federal judgment that the party has a valid claim against an estate for a specific amount of money. However, the federal court may not order payment of the money, because that would be an assumption of control over property under probate.23

* A party may seek interpretation of a will in federal court. As a more specific example, a devisee may obtain a declaratory judgment that a probated will entitles the devisee to a specific percentage of the net estate. However, the federal court may not find that the devisee's specific percentage of the net estate is worth a specific dollar amount, because it is the province of the probate court to determine the dollar amount of the net estate after liquidating assets and paying claims. (24)

* A party may bring an action in federal court for breach of an agreement to make a will. (25)

* A party may bring an action in federal court against a former personal representative for civil theft, RICO violation, breach of fiduciary, conversion, and tortious interference. (26)

In a scenario not likely to happen in today's legal world, a federal court might have jurisdiction over estate assets in the absence of a state probate proceeding. If an estate is without a representative, if it is in danger of being lost, and if the petitioners appear interested in the estate as beneficiaries, the federal court may protect the estate property through receivership or injunction. In such an instance, there is no interference with the state probate court and the federal court will yield to the state court when probate administration is commenced. (27)

Last Words for the Florida Practitioner

In Florida, the administration of an estate and the probate of a will must take place in a state circuit court, to the exclusion of the federal courts. Beyond these instances, whether a particular action falls within the "probate exception" to federal jurisdiction may depend on subtle distinctions. As one judge stated in a pre-Marshall opinion, "[t]he probate exception is one of the most mysterious and esoteric branches of the law of federal jurisdiction." (28)

While the Supreme Court has made it less mysterious and esoteric by choosing "redundancy" over "incoherence," the reader still needs to research the precise circumstances at hand if a proceeding in federal court is contemplated.

(1) Hollywood v. Clark, 153 Fla. 501, 15 So. 2d 175 (1943).

(2) Roberts v. Seaboard Surety Co., 158 Fla. 686, 29 So. 2d 743 (1947).

(3) Fla. Const. art. V, [section]20(c)(3). See also Fla. stat. [section]26.012(2)(b).

(4) Fla. stat. [section]731.1015.

(5) In re Estate of Williamson, 95 So. 2d 244 (Fla. 1957), 65 A.L.R. 2d 1195.

(6) State ex rel. South Brevard Drainage Dist. v. Smith, 126 Fla. 72, 170 So. 440 (1936).

(7) Royalty v. Florida Nat. Bank of Jacksonville, 127 Fla. 618, 173 So. 689 (1937).

(8) Torrey v. Bruner, 60 Fla. 365, 53 So.337 (1910).

(9) Pitts v. Pitts, 120 Fla. 363, 162 So.708 (1935).

(10) Williams v. Howard Cole & Co., 159 Fla. 151, 31 So. 2d 914 (1947), adhered to 38 So. 2d 224.

(11) Marshall v. Marshall, 126 S. Ct. 1735, 1748 (2006).

(12) Id.

(13) Glickstein v. SunBank/Miami, 922 F.2d 666, 672, n. 13 (11th Cir. 1991).

(14) Goerg v. Parungao, 844 F.2d 1562, 1565 (11th Cir. 1988).

(15) Marshall, 126 S. Ct. at 1746.

(16) Id. at 1748.

(17) Id.

(18) Id. at 1746.

(19) Actually, the participation of Pierce concluded prematurely because he died unexpectedly in June 2006.

(20) Bonner v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981).

(21) Michigan Tech Fund v. Century Nat. Bank of Broward, 680 F.2d 736 (11th Cir. 1982).

(22) Turton v. Turton, 644 F.2d 344 (5th Cir. 1981).

(23) Id. at 347.

(24) Id.

(25) Michigan, 680 F.2d at 739.

(26) Glickstein, 922 F.2d at 673.

(27) Strickland v. Peters, 120 F.2d 53 (5th Cir. 1941).

(28) Dragan v. Miller, 679 F.2d 712, 713 (7th Cir. 1982) cert. denied, 459 U.S. 1017.

James A. Herb and Jay L. Kauffman practice probate, trust, and guardianship litigation in Boca Raton in the firm of Herb & Kauffman, P.A. They are co-authors of the chapters on "Rights of the Surviving Family" and on "Appellate Practice in Probate" in Litigation Under FLorida Probate Code (Fla. Bar 6th ed. 2006). They are also co-authors of the chapter on "Jurisdiction" in PraCtiCe Under FLorida Probate Code (Fla. Bar 4th ed. 2005).

This column is submitted on behalf of the Real Property, Probate and Trust Law Section, Rohan Kelley, chair, and Richard R. Gans and William P. Sklar, editors.