OPINION and ORDER Dismissing 1 Bankruptcy Appeal and Order Regarding Various Motions. Signed by District Judge Denise Page Hood. (LSau)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
DIANA KAYE GENTRY,
Case No. 15-14402
Hon. Denise Page Hood
TONIE RAE BANFIELD, TONI BANFIELD (Trustee)
and TONI RAE BANFIELD (Co-Trustee),
(Bankruptcy Case No. 09-36472)
(Adv. Proc. No. 15-03038)
DIANA KAYE GENTRY and
DALE F. SCHALLER,
OPINION AND ORDER DISMISSING BANKRUPTCY APPEAL
ORDER REGARDING VARIOUS MOTIONS
On December 21, 2015, Appellants Toni Banfield, individually and Toni
Banfield, Co-Trustee (“Appellants Banfields”), filed a Notice of Appeal from the
Bankruptcy Court’s Opinion (not Order) signed November 30, 2015. (Doc. No. 1)
The Notice of Appeal was amended on January 28, 2016 by Appellants Banfields.
(Doc. No. 9, Pg ID 867-68) The Bankruptcy Court directed the counsel for plaintiffs
in the Adversary Proceeding, Case No. 15-3038, to prepare an order consistent with
the Bankruptcy Court’s opinion. (Doc. No. 1, Pg ID 13) On January 22, 2016, the
Bankruptcy Court entered an “Order Entering Relief as Stated in the Opinion of the
Court dated November 30, 2015,” which Appellants Banfields identified as the “Order
Appealed From.” (Doc. No. 7, Pg ID 45 and Pg ID 774-75)
Prior to the January 22, 2016 Bankruptcy Order, on December 7, 2015,
Appellants Banfields filed with the Bankruptcy Court a Motion under Fed. R. Civ. P.
54(b) to Vacate the Bankruptcy Court’s November 30, 2015 Opinion for “Fraud on
the Court.” (Doc. No. 7, Pg ID 45 and 425-34). On December 8, 2015, Appellants
Banfields also filed with the Bankruptcy Court a Motion for Sanctions. (Doc. No. 7,
Pg ID 45 and 435-38)
On January 29, 2016, Appellee/Intervenor Schaller filed a Motion for
Clarification of January 22, 2016 Order Entering Relief As Stated in the Opinion of
the Bankruptcy Court dated November 30, 2015. (Doc. No. 9, Pg ID 851-53)
On March 10, 2016, the Bankruptcy Court entered three orders: an Order
Denying Appellants Banfields’ Motion under Fed. R. Civ. P. 54(b) to Vacate
Bankruptcy Court’s November 30, 2015 Opinion for “Fraud on the Court;” an Order
Denying Appellants Banfields’ Motion for Sanctions; and, an Order granting
Appellee/Intervenor Schaller’s Motion for Clarification as to Bankruptcy Court’s
January 22, 2016 Order regarding the November 30, 2015 Opinion. (Doc. No. 9, Pg
Appellants Banfields filed a brief on appeal on March 1, 2016. (Doc. No. 8)
Appellee Gentry indicated she was proceeding pro se on appeal and is unable to
adequately file an appeal brief. (Doc. No. 17) Appellee/Intervenor Schaller filed an
appellee brief on April 29, 2016. (Doc. No. 33) Appellants Banfields seek to strike
Appellee/Intervenor Schaller’s brief asserting the brief is filed by a non-party and is
improper. (Doc. No. 35)
The following motions have also been filed: Amended Motion to Fix March
10, 2016 as Effective Date of Appeal by Appellee Schaller (Doc. No. 12, 3/15/16);
Motion to Vacate Illegal Post-Appeal Orders Entered by Bankruptcy Court (Bankr.
Orders Nos. 151, 152, 153) Without Subject Matter Jurisdiction filed by Appellants
Banfield (Doc. No. 9, 3/10/16); Two Emergency Motions to Stay Remand Order filed
by Bankruptcy Court Pending Decision on Appeal filed by Appellants Banfield (Doc.
No. 27, 4/20/16; Doc. No. 28, 4/22/16); Motion to Strike Appellee’s Brief by NonParty/Non-Appellee Schaller filed by Appellants Banfield (Doc. No. 35, 4/30/16); and
Motion for Sanctions filed by Appellants Banfield (Doc. No. 38, 5/3/16).
Facts Related to the Bankruptcy Court Opinion/Order on Appeal
In its November 30, 2015 Opinion, the Bankruptcy Court issued the following
findings of facts:
Debtor Diana Gentry, Plaintiffs John Banfield, James Banfield
and Nancy Day, and Defendant Toni Banfield are siblings; Rayola O.
Banfield is their mother. Rayola Banfield created a revocable trust on
November 10, 1987, for the benefit of her children and amended that
trust at least six times. On December 17, 1987, she created an irrevocable
Diana Gentry filed a petition seeking Chapter 7 relief on
December 3, 2009. Her first meeting of creditors was held on February
1, 2010. The Trustee filed a final report on December 3, 2013, and a final
account certification on April 3, 2014.
Rayola Banfield died on July 2, 2012, about 2 1/2 years after the
Debtor’s bankruptcy petition. Thereafter, two files were opened in the
Probate Court for Livingston County, Michigan: 13-14446 (irrevocable
trust) and 13-14447 (revocable trust). Proceedings were held in the
Livingston County Probate Court. Originally, the Defendant was the
Trustee, but the Plaintiffs filed a Petition for Accounting and Removal of
Trustee, and by an Order dated January 19, 2014, the Livingston County
Probate Court temporarily suspended all then existing trustees and
appointed Dale Schaller as Temporary Independent Trustee. On March
4, 2014, the Livingston County Probate Court entered a Consent Order
amending the January 19, 2014, Order by appointing Mr. Schaller as
Successor Trustee. By way of a petition dated February 26, 2015, and
filed on March 5, 2015, with the Livingston County Probate Court, the
Plaintiffs seek damages against the Defendant, including a surcharge
against her interests in the trusts. On March 23, 2015, Defendant filed a
Notice of Removal Pursuant to 28 U.S.C. § 1452, amended that Notice
on March 24, 2015, and filed a Motion to Dismiss the Livingston
County Probate Court Matter and Enforce the Automatic Stay (“Stay
Motion”). That same day, Diana Gentry filed an Objection to the Notice
of Removal, as amended, and a request to abstain, as well as a
Motion for Sanctions against Defendant’s counsel, Mr. Tindall. On
March 26, 2015, the Defendant filed a Declaration of Compliance and
a Request for Clarification of the Order entered by this Court on March
25, 2015. In particular, Defendant stated:
The February 27, 2015 Petition/THIRD “proceeding”, was
filed by a single (1) Petition. It was incorrectly filed, under
the Case Nos. of the earlier “proceeding(s)”, as neither trust
is subject to “continued supervisory proceedings”. MCR
5.501(B). This is the Petition/”proceeding” removed, i.e.,
the “removed action”. See, Exhibit 2 [stamped copy from
state court]. To the knowledge of the undersigned, the
ONLY “pleading” filed in this THIRD “proceeding” is the
Petition, already attached to the NOTICE OF REMOVAL,
and the only party(s) to this “proceeding”/claim are the
Petitioners and Respondent whose counsel have been
On March 30, 2015, Mr. Schaller, through counsel, appeared. That
same day, Diana Gentry responded to Defendant’s Stay Motion. The next
day, Mr. Schaller filed an Affidavit regarding the Stay Motion, which
Defendant moved to strike on April 2, 2015. In the meantime, First
National Bank in Howell filed an appearance, and has generally joined
Mr. Schaller, the Debtor, and the Plaintiffs in various requests for relief.
On April 7, 2015, Mr. Schaller filed a Motion to Dismiss the
Removed Action or for Remand or Abstention and a few days later filed
an Objection to the Stay Motion. Diana Gentry and First National Bank
joined this Motion. In turn, the Defendant has moved to strike Mr.
Schaller’s pleadings or responded to those pleadings. Thereafter, the
Defendant has labeled Mr. Schaller an interloper with no standing in this
proceeding. In response, Mr. Schaller has requested the right to
intervene, which Defendant opposes. A hearing was held on May 26,
2015, at which time the Court requested documents, which the parties
In the middle of all of this, the Livingston County Probate Court
administratively closed its entire file.
On July 30, 2015, Mr. Schaller filed a Motion for Clarification of
the Scope of Removed Actions and requested the following relief:
(a) Enter an order clarifying the extent to which the
Removal Notices removed the Probate Cases and in which
the Court the administration of the Trusts, including
approval of the sale of the Property, should proceed;
(b) If the Removal Notices only removed the
discrete issue of whether Debtor’s interests in the Trusts
are property of the estate, enter the proposed Order
Granting Motion for Clarification of the Scope of Removed
Action (which would also retain jurisdiction to determine
the award of sanctions for conduct in this Court), attached as
The Defendant responded with her own request for relief:
Respondents respectfully request this Court
immediately issue its Order:
DECLARING Debtor Gentry’s interests in
BOTH trusts to assets of the Bankrupt Estate;
DECLARING ALL orders and proceedings
conducted in or issued by the Livingston
County Probate Court legally invalid and
ORDERING DALE SHALLER to
immediately return the operation, control and
assets of BOTH trusts to TONI RAE
BANFIELD, and, restore both thrust [sic] and
their assets and properties to the condition
existing immediately BEFORE
commencement of the proceedings in
Livingston County Probate Court;
ORDERING DAL(sic) SHALLER to
immediately account fully for all assets,
funds, properties and actions taken by him,
illegally, as alleged trustee of both Trusts;
ORDERING all assets, funds and moneys paid
to any person, entity or law firm(s) clawed
back and returned to the respective trusts by
each and every person or entity that received
INJOIN(sic) DALE SHALLER, his agents,
attorneys, employees and anyone claiming to
act in his name or on his behalf, or, in the
name of either trust with his authorization,
including realtors, listing services, banks,
brokerage companies, and, any other such
person or entity, from taking further action
without the express written authorization of
TONI RAE BANFIELD;
GRANT such further and additional relief, on
an expedited basis, as may be necessary or
helpful to return BOTH trusts to their status
quo before the illegal removal of TONI RAE
BANFIELD, as Trustee.
This is consistent with the Defendant’s Stay Motion, which
requested the following relief:
Now comes TONI RAE BANFIELD, individually and
in her capacity as Sole Trustee and Co-Trustee (hereinafter
“Banfield”) of the Rayolla O. Banfield Irrevocable
Insurance Trust and the Rayolla O. Banfield Revocable
Living Trust (hereinafter “Trusts”) . . .
Banfield seeks enforcement of the automatic stay in
the form of an order of this Court finding that the
Petition and all proceedings conducted below in the
Livingston County Probate Court are subject to the
automatic stay, and may not proceed. (A copy of the
most recent Petition is attached to DE 1.)
Banfield also seeks entry of appropriate relief
against Debtor, her Co-petitioners, Dale Shaller,
John K. Harris Esq., and the law firm of HARRIS &
LITERSKI, under 11 USC 362(k) for actual
damages, punitive damages, and, actual attorney’s
fees expended or incurred by Banfield.
Finding that the Petition and all state court
proceedings were filed and conducted in
violation of the automatic stay;
Declaring all proceedings, orders and actions
taken by the Livingston County Probate Court,
and by anyone as a consequence thereof,
legally invalid and void.
Ordering the status quo in place prior to the
conduct of any state court proceedings
Awarding actual and punitive damages,
including actual costs and attorney’s fees
incurred, against Debtor, Day, any other
Petitioners, Harris and their law Firm,
HARRIS & LITERSKI, incurred by the
Banfield, as a result of the conduct of the state
court proceedings and this proceeding; and
Granting Banfield such further and additional
relief as the Court deems just and appropriate.
The Court heard arguments regarding these matters on May 26,
2015, and September 30, 2015.
(Doc. No. 1, Pg ID 4-8)
The Bankruptcy Court remanded the matter to the Livingston County Probate
Court, finding that the probate court is better able to respond to lawsuits involving
questions of state law, in particular, probate law. The Bankruptcy Court found that the
probate court has exclusive legal and equitable jurisdiction regarding matters of a trust,
such as the Trusts in this case. (Doc. No. 1, Pg ID 11-12) The Bankruptcy Court
entered an Order remanding the matter back to the Livingston County Probate Court
and lifting the Automatic Stay to allow the probate court to decide issues regarding the
Trusts and Trust Assets. (Doc. No. 7, Pg ID 774)
In three separate orders filed on March 10, 2016, the Bankruptcy Court ruled on
various motions filed by the parties. As to Appellants Banfields’ Motion for Sanctions,
the Court denied the motion finding that Appellee/Intervenor Schaller was a proper
party in interest with the right to address matters in the Adversary Proceeding and had
standing to file papers, argue at hearings and to participate in appeals from orders
entered in the Adversary Proceeding. (Doc. No. 9, Pg ID 845-46) The Bankruptcy
Court also denied Appellants Banfields’ Motion to Vacate the November 30, 2015
Opinion, finding there was no fraud on the Court and that Appellee/Intervenor Schaller
had standing to oppose the motion and in any appeal from this order. (Doc. No. 9, Pg
ID 847-48) The Bankruptcy Court’s Order granting Appellee/Intervenor Schaller’s
Motion for Clarification found that “[t]he Order Entering Relief as Stated in the
Opinion of the Court dated November 30, 2015 (Docket 142) did not determine either
Respondents’ FRCP 54(b) Combined Motion and Brief to Vacate Decision dated
November 30, 2015, Dt. 93, for Fraud on the Court (Docket 104) or the Motion for
Sanctions Pursuant to Fed. R. Bankr. 9011 (Docket 106).”
The Court addresses below the merits of the appeal and the related motions filed
by the parties, addressing initially the appropriate time the Notice of Appeal became
effective and whether Appellee/Intervenor Schaller is a proper party in this appeal.
BANKRUPTCY APPEAL/TIME TO FILE NOTICE OF APPEAL
The time from which the appeal period in this matter began to run is an issue
because the Bankruptcy Court filed various orders after the Order appealed from was
filed. Under 28 U.S.C. § 158(a)(1), district courts have jurisdiction over appeals from
“final judgments, orders, and decrees” of bankruptcy courts. “For purposes of appeal,
an order is final if it ends the litigation on the merits and leaves nothing for the court
to do but execute the judgment.” In re Janna W. Cundiff, 227 B.R. 476, 477 (6th Cir.
BAP 1998); Catlin v. United States, 324 U.S. 229, 233 (1945). An order on an
objection to a debtor’s claim of exemption is a final order for purposes of appeal.
Wicheff v. Baumgart (In re Wicheff), 215 B.R. 839, 840 (6th Cir. BAP 1998).
The Rules of Appellate Procedures provide that in a civil case, the notice appeal
must be filed within 30 days after entry of the judgment or order appealed from. Fed.
R. App. P. Rule 4(a)(1)(A). “A notice of appeal filed after the court announces a
decision or order–but before the entry of the judgment or order–is treated as filed on
the date of and after the entry.” Fed. R. App. P. Rule 4(a)(2). If a party timely files
any post-judgment/order motions under the Federal Rules of Civil Procedure, “the time
to file an appeal runs for all parties from the entry of the order disposing of the last of
remaining motion,” such as motions to amend or make additional factual findings
under Rule 52(b), whether or not granting the motion would alter the judgment, or to
alter or amend the judgment under Rule 59. Fed. R. App. P. Rule 4(a)(4)(A). “If a
party files a notice of appeal after the court announces or enters a judgment–but before
it disposes of any motion listed in Rule 4(a)(4)(A)–the notice becomes effective to
appeal a judgment or order, in whole or in part, when the order disposing of the last
such remaining motion is entered.” Fed. R. App. P. Rule 4(a)(4)(B)(i).
As noted above, the Bankruptcy Court issued its Opinion on various matters
below on November 30, 2015. Appellants Banfields filed their first Notice of Appeal
on December 21, 2015. The Bankruptcy Court entered its “Order Entering Relief as
Stated in the Opinion of the Court dated November 30, 2015” on January 22, 2016.
The Appellants Banfields amended their Notice of Appeal on January 28, 2016.
Prior to the January 22, 2016 Bankruptcy Order, on December 7, 2015,
Appellants Banfields filed with the Bankruptcy Court a Motion under Fed. R. Civ. P.
54(b) to Vacate the Bankruptcy Court’s November 30, 2015 Opinion for “Fraud on the
Court.” Although Appellants Banfields cite to Rule 54(b), it appears they were seeking
relief under Rule 59(e) to alter the findings of the Bankruptcy Court, specifically to
vacate the findings, based on alleged fraud on the court, or perhaps Rule 60(b)(3)
which seeks relief from a final judgment or order based on fraud. The cited Rule 54(b)
by Appellants Banfields applies to judgment on multiple claims. Because the
Bankruptcy Court did not issue its Order as to the Appellants Banfields’ motion to
vacate the findings until March 10, 2016, the Amended Notice of Appeal became
effective when that order was entered on March 10, 2016. Fed. R. App. P. Rule
4(a)(4)(B)(i). The Appellee/Intervenor’s Motion to Fix March 10, 2016 as the effective
date of the appeal (Doc. No. 12) is granted.
APPELLEE/INTERVENOR SCHALLER’S STANDING
The Appellants Banfields argue that Appellee/Intervenor Schaller has no
standing before this Court or the Bankruptcy Court below. Appellee/Intervenor
Schaller asserts he is a proper party as ruled by the Bankruptcy Court.
The Sixth Circuit has explained that “[s]tanding is a jurisdictional requirement
and we are under a continuing obligation to verify our jurisdiction over a particular
case.” Harker v. Troutman (In re Troutman Enters., Inc.), 286 F.3d 359, 364 (6th Cir.
2002). “In order to have standing to appeal a bankruptcy court order, an appellant must
have been ‘directly and adversely affected pecuriarily by the order.’” Id. (citations
omitted). A party “may only appeal a bankruptcy order when it diminishes their
property, increases their burdens or impairs their rights.” Id. A litigant’s standing is
often denied as to any claim that asserts only third-party rights. Id. at 365.
Appellee/Intervenor Schaller is the Successor Trustee of the Irrevocable Trust
which was before the Livingston County Probate Court. The Appellant individual
Banfield and Appellant former Trustee Banfield of the Irrevocable Trust removed the
Trust matters to the Bankruptcy Court. The Debtor Diana Gentry, a sister of the
Appellant individual Banfield, objected to the removal of the Trust matters. The
Bankruptcy Court found that Appellee/Intervenor Schaller had standing below.
Because the underlying issue on appeal is whether the Trust matters should be
before the Bankruptcy Court, Appellee/Intervenor Schaller, as the Successor Trustee
of the Irrevocable Trust at issue, clearly has standing before the Bankruptcy Court and
on appeal. As the Successor Trustee, Appellee/Intervenor Schaller’s interest in the
Irrevocable Trust is “directly and adversely affected” by any order entered by the
Bankruptcy Court or this Court, as it relates to which court the Trust issues (and
distribution of such assets) should be determined and ruled upon.
Banfields, individually as a beneficiary of the Irrevocable Trust and as the former
Trustee of the Irrevocable Trust, may not agree, but as the current Successor Trustee,
and as the person who currently has that power as to the Irrevocable Trust, Schaller’s
interest in the Irrevocable Trust matters is not those of a tangential“third-party.” Any
order issued by this Court would necessarily affect the Irrevocable Trust. During the
time before the Bankruptcy Court, the Successor Trustee was Appellee/Intervenor
The Court finds the Bankruptcy Court did not err in finding that
Appellee/Intervenor Schaller had standing before the Bankruptcy Court. Appellants
Banfields’ Motion to Strike Brief of Appellee (Doc. No. 35) is denied.
MERITS OF APPEAL
Standard of Review
Findings of fact are reviewed under the clearly erroneous standard. Fed. R.
Bankr. P. 8013; Fed. R. Civ. P. 52(a). “If the bankruptcy court’s factual findings are
silent or ambiguous as to an outcome determinative factual question, the [reviewing
court] may not engage in its own factfinding but, instead, must remand the case to the
bankruptcy court for the necessary factual determination.” Helfrich v. Thompson (In
re Thompson), 262 B.R. 407, 408 (6th Cir. BAP 2001). A bankruptcy court’s
conclusions of law are reviewed de novo. Adell v. John Richards Homes Bldg. Co. (In
re John Richards Homes Bldg. Co.), 439 F.3d 248, 254 (6th Cir. 2006); In re Downs,
103 F.3d 472, 476-77 (6th Cir. 1996).
Jurisdiction/11 U.S.C. § 541
The Bankruptcy Court found that Debtor Gentry’s interest in the various trusts
is not a property of the bankruptcy estate under 11 U.S.C. § 541 where the property of
the estate includes interest a debtor acquires within 180 days from the petition date.
Debtor Gentry’s mother died in July 2012, about 2 1/2 years after Gentry filed her
Appellants Banfields argue that the Bankruptcy Court’s finding that Debtor
Gentry’s interests in the Trusts were not a property of the bankruptcy estate was in
error in that the bankruptcy courts have exclusive jurisdiction over the property of the
estate. Appellee/Intervenor Schaller responds that Debtor Gentry’s interests in the
Trusts are not property of her bankruptcy estate, nor is Appellants Banfields’ interests
in the Trusts.
Interest by a debtor as a result of a bequest, devise or inheritance is defined as
property of the estate under 11 U.S.C. § 541(a)(2)(5): “Any interest in the property
that would have been property of the estate is such interest had been an interest of the
debtor acquires or becomes entitled to acquire within 180 days after such date–(A) by
bequest, devise, or inheritance.” Debtor Gentry’s and Appellant Banfield’s mother
died on July 3, 2012. Debtor Gentry filed her bankruptcy petition under chapter 7 on
December 3, 2009. The Trusts at issue are not property of the Estate. The Bankruptcy
Court’s findings of fact and conclusions of law were not in error.
Appellants Banfields argue that the bankruptcy court has exclusive jurisdiction
over Debtor Gentry’s interest in the property of Gentry’s bankruptcy estate.
Appellee/Intervenor Schaller argues that the “probate exception” applies in this case
and the Bankruptcy Court does not have jurisdiction over the Adversary Proceeding.
Federal jurisdiction based on 28 U.S.C. § 1334 provides that federal district
courts have jurisdiction in bankruptcy cases and related proceedings. The Supreme
Court has recognized a “probate exception,” like the domestic relations exception, to
otherwise proper federal jurisdiction in bankruptcy matters under § 1334. Markham
v. Allen, 326 US 490, 494 (1946). In the United States Supreme Court case, Marshall
v. Marshall, 547 U.S. 293 (2006), the Supreme Court held that determinations
regarding the trust res under the custody of a state probate court is applicable to the
probate exception to federal jurisdiction. M.C.L. § 700.1302 provides that the
Michigan probate courts have exclusive legal and equitable jurisdiction regarding
matters of a trust. The Marshall Court stated in reiterating its previous rulings 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.” 547 U.S. at 311.
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.” Id. at 311-12. A
suit to annul a will is a supplemental proceeding for probate of the will, and therefore
is not cognizable in federal court. Id. at 312. Federal courts do not have jurisdiction
over a claim seeking to reach a res in the custody of a state court. Id.
However, the probate exception “does not bar federal courts from adjudicating
matters outside those confines and otherwise within federal jurisdiction.” Id. (italics
added). In Marshall, the Supreme Court held that federal courts had jurisdiction over
a tortious interference claim against an individual party involved in the probate action
and that the state probate court did not have exclusive jurisdiction over the tort claim
where the claimant seeks only an in personam judgment, not the probate or annulment
of a will. Id. at 314.
In the bankruptcy below, the Adversary Proceeding at issue is Appellants
Banfields’ (not Debtor Gentry’s or the Bankruptcy Trustee’s) removal from the
Livingston County Probate Court a “Petition to Surcharge Toni Banfield” filed by
certain beneficiaries of the Trusts, including Debtor Gentry. The Petition alleges the
following counts against Appellants Banfields: Breach of Trusts under M.C.L. §
700.7801 (Counts I and IV); Failure to Provide Accountings as Required by the Trust
(Counts II and V); Failure to Turn Over Trust Assets (Counts III and VI).
The Failure to Provide Accountings and the Failure to Turn Over Trust Assets
Counts clearly involve the res of the two Trusts and are supplemental to the
administration of the Trusts. The probate exception applies to these four counts.
As to the Breach of Trust claim under M.C.L. § 700.7801, the statute provides,
“[u]pon acceptance of a trusteeship, the trustee shall administer the trust in good faith,
expeditiously, in accordance with its terms and purposes, for the benefit of the trust
beneficiaries, and in accordance with this article.” M.C.L. § 700.7801. The Michigan
Supreme Court has held that one must look to the trust instrument to determine the
powers and duties of trustees and the settlor’s intent regarding the purpose of the trust’s
creation and its operation. Matter of Estate of Butterfield, 418 Mich. 241 (1983). The
Michigan probate courts under Michigan law have exclusive legal and equitable
jurisdiction to determine the matters relating to the settlement of the estate of a
deceased person including proceedings concerning the validity, internal affairs,
settlement of trusts, rights involving the trusts, trustees and beneficiaries of the trusts,
appointment or removal of a trustee. M.C.L. § 700.21.
The Court finds that under Michigan law, the probate courts have exclusive
jurisdiction to determine whether the trustee breached the trust instrument and whether
the trustee must be removed or account to the beneficiaries of the two Trusts. The
Breach of Trust claims by the beneficiaries are not tort claims outside the realm of the
Trust instruments which are before the probate court. The beneficiaries’ claims against
Banfield in the petition filed before the probate court do not allege tort claims against
Banfield, only that Banfield breached the two Trusts at issue, which necessarily means
interpreting the language of the two Trusts. Michigan law provides that the probate
court has exclusive jurisdiction over the settlement of the trusts and the rights involving
the trusts, trustees and the beneficiaries.
The instant petition filed before the
Livingston County Probate Court does not involve the same facts as the Marshall case.
In the Marshall case, the debtor/widow in her chapter 11 bankruptcy case
brought an adversary proceeding against her stepson for tortious interference with her
expectancy of inheritance or gift from her deceased husband. The deceased husband’s
estate was being administered by a state probate court. The stepson argued before the
bankruptcy court that it did not have subject matter jurisdiction over the tortious
interference claim since the state probate court had exclusive jurisdiction over the
decedent’s estate. The Supreme Court reiterated that federal courts did not have
jurisdiction over probate matters where the res was in the custody of a state probate
court, known as the “probate exception.” Marshall, 547 U.S. at 308. However, the
Supreme Court held that as to the debtor/widow’s tort claim of tortious interference
against her stepson, federal courts had subject matter jurisdiction over that claim under
the bankruptcy court’s jurisdiction under 28 U.S.C. § 1334 of matters relating to the
bankruptcy estate since the debtor/widow did not seek to reach the res of the probate
estate. The debtor/widow only alleged a tort claim against her stepson, individually or
in personam. The debtor/widow did not seek to invalidate any matters before the
probate court or seek to receive any of the res in the custody of the state probate court;
she only filed a claim against her stepson for tortious interference of her expectations
of gifts from her husband.
In this case, any claims against Appellants Banfields as to how the Trusts were
handled must be viewed in light of the language of the Trusts. Any administrative
issues against Appellants Banfields are supplemental issues regarding the
administration of the Trusts. Should there be a finding against Appellants Banfields,
including a “surcharge,” such “damages” may or may not come from the res of the
Trusts. Such “surcharge” or “damages” may also then be returned or paid to the res
of the Trusts, as opposed to the individual beneficiaries. The res of the Trusts is clearly
at issue, which means the “probate exception” applies in this matter. The beneficiaries
of the Trusts do not allege that Appellants Banfields, outside the role of Trustee of the
Trusts, interfered against the beneficiaries from receiving the res from the Trusts. The
beneficiaries allege that the Appellants Banfields, in the role of the Trustee of the
Trusts, breached the requirements under the Trusts and have failed to properly
administer the Trusts. The Court finds that any allegations and claims by the
beneficiaries of the Trusts, including Debtor Gentry, against Appellants Banfields, in
the role of Trustee of the Trusts, cannot be properly before the federal courts since the
federal court would necessarily invade the state probate court’s authority to internally
administer the Trusts.
The “probate exception” applies to the federal court’s jurisdiction in this
instance. The Bankruptcy Court did not err in concluding that the “probate exception”
applied to the Adversary Proceeding removed by Appellants Banfields from the
Livingston Probate Court. Since the Bankruptcy Court did not so err, the orders
entered lifting the automatic stay and remanding the matter back to the Livingston
Probate Court were not entered in error.
Appellants Banfield’s appeal of the
Bankruptcy Court’s Order must be dismissed and the Bankruptcy Court’s orders are
In light of the above, Appellants Banfields’ Motion to Vacate Post-Appeal
Orders Issued by the Bankruptcy Court (Doc. No. 9) is denied since the Bankruptcy
Court did not have jurisdiction over the Adversary Proceeding and the orders
remanding the matter to the Probate Court were properly entered.
The two Emergency Motions to Stay Remand Order Pending Decision on
Appeal (Doc. Nos. 27, 28) are also denied in light of the Court’s decision above finding
the remand was proper.
As to the Motion to Strike Brief of Appellee and Amended Motion for
Sanctions (Doc. Nos. 35, 38), the motions are denied since Appellants Banfields seek
sanctions against Appellee/Intervenor Schaller and the firm representing Schaller for
“falsely” representing he is a party in this case. The Court ruled above that Schaller
is a proper party in the bankruptcy proceedings and in this appeal.
In light of the ruling above, the Court also dismisses the related removed action
filed by the Appellants Banfields from the Livingston County Probate Court, which
matter was remanded back to the Livingston County Probate Court by the Bankruptcy
Court in its orders and which matter is at issue in this appeal. See, Case No. 16-11512,
Schaller v. Banfield.
For the reasons set forth above,
IT IS ORDERED that the Motion to Vacate the Post-Appeal Orders Entered by
the Bankruptcy Court (Doc. No. 9) is DENIED.
IT IS FURTHER ORDERED that the Amended Motion to Fix March 10, 2016
as Effective Date of Appeal (Doc. No. 12) is GRANTED.
IT IS FURTHER ORDERED that the Emergency Motions to Stay of Remand
Order Pending Decision on Appeal (Doc. Nos. 27 and 28) are DENIED.
IT IS FURTHER ORDERED that the Motion to Strike Brief of Appellee (Doc.
No. 35) is DENIED.
IT IS FURTHER ORDERED that the Amended Motion for Sanctions (Doc. No.
38) is DENIED.
IT IS FURTHER ORDERED that the Bankruptcy Court’s Orders are
AFFIRMED and this Bankruptcy Appeal is DENIED and DISMISSED.
IT IS FURTHER ORDERED that this action is designated as CLOSED on the
S/Denise Page Hood
Denise Page Hood
Chief Judge, United States District Court
Dated: July 29, 2016
I hereby certify that a copy of the foregoing document was served upon counsel of
record on July 29, 2016, by electronic and/or ordinary mail.
S/LaShawn R. Saulsberry
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