Kleeberg et al v. Eber et al
MEMORANDUM AND OPINION re: 48 MOTION to Dismiss for Lack of Jurisdiction . filed by Elliot W. Gumaer, Jr. The Court has considered all of movants' contentions, including that with respect to the sufficiency of the complaint as to punitive damages, and concluded that they lack merit.Accordingly, the motions to dismiss [DI 38, DI 48] are denied in all respects. (Signed by Judge Lewis A. Kaplan on 7/6/2017) (js)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
DANIEL KLEEBERG, et al.,
LESTER EBER, et al..
Brian C. Brook
Kari L. Parks
CLINTON BROOK & PEED
Attorneys for Plaintiffs
William G. Bauer
WOODS OVIATT GILMAN LLP
Attorneys for Defendant The Canandaigua Naitonal Bank and
Robert B. Calihan
CALIHAN LAW PLLC
Attorneys for Defendant Elliot W. Gumaer
LEWIS A. KAPLAN, District Judge.
This family dispute involves claims by the beneficiaries of a collective two-thirds
interest in a testamentary trust under the will of a long-deceased ancestor that they were done out
of their just desserts by misconduct of the co-trustees, most notably their uncle, the testator’s sole
surviving son. The plaintiffs assert, among others, claims of breach of fiduciary duty and fraudulent
concealment based largely on their uncle’s alleged self-dealing by which he is said to have
appropriated to himself and his daughter the entire ownership of what has become of the family
business over the decades. The matter is before the Court on the motions of The Canandaigua
National Bank and Trust Company (“CNB”), a successor co-trustee of the trust, and one of its two
other co-trustees, Elliot W. Gumaer, to dismiss the action or for other relief.1
The Probate Exception to Diversity Jurisdiction
Days after the commencement of this action, CNB filed a petition in the New York
Surrogate’s Court, Monroe County, for an order judicially settling its account, approving its
resignation as co-trustee, and discharging it from any liability as successor co-trustee of the
testamentary trust. It and Mr. Gumaer now seek dismissal – although complete diversity of
citizenship exists and the requisite jurisdictional amount is claimed – based on the contention that
this Court lacks subject matter jurisdiction by virtue of the so-called probate exception to diversity
jurisdiction. The argument fails for at least two reasons.
To begin with, the Supreme Court in Marshall v. Marshall2 sharply curtailed the
probate exception. It held that3
“the probate exception reserves to state probate courts the probate or annulment of
Defendant Gumaer has joined in the motion. DI 48.
547 U.S. 293 (2006).
Id. at 311-12.
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.”
Our Circuit has followed this principle.4
CNB’s Surrogate’s Court petition does not seek to probate or annul a will. That court
has not taken custody of any property. And while plaintiffs’ tort claims seek to impose in personam
liability on movants and their co-trustees, the adjudication of such claims – despite the fact that they
are based on the actions of a co-trustee of a testamentary trust – would not trench improperly on
powers of the Surrogate’s Court with respect to “the administration of a decedent’s estate.” We
need look no farther that the Second Circuit’s decision in Lefkowitz for proof.
The Lefkowitz plaintiff sued The Bank of New York, executor of her parents’ estates.
In relevant part, she brought “in personam claims for breach of fiduciary duty (Count IV), aiding
and abetting breach of fiduciary duty (Count V), fraudulent misrepresentation (Count VII), and
fraudulent concealment (Count VIII).”5 For each, she sought “damages from Defendants personally
rather than assets or distributions from either estate.”6 The district court dismissed those claims
under the probate exception. But the Circuit reversed, stating:7
“While the issues involved in [these] claims undoubtedly intertwine with the
litigation proceeding in the probate courts, in addressing the claims, the federal court
will not be asserting control of any res in the custody of a state court. A federal
Lefkowitz v. Bank of New York, 528 F.3d 102, 106 (2d Cir. 2007).
Id. at 107.
Id. at 107-08.
Id. at 108 (footnote, citations, alterations, and internal quotation marks omitted).
court properly exercises its jurisdiction to adjudicate rights in property in the custody
of a state court 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. The probate
exception can no longer be used to dismiss widely recognized torts such as breach
of fiduciary duty or fraudulent misrepresentation merely because the issues
intertwine with claims proceeding in state court. Accordingly, these claims may not
be dismissed under the probate exception.”
So too here. And this Court does not rest on this point alone.
It is significant that the Surrogate’s Court action was commenced after this one, as
that is an independently fatal flaw in CNB’s argument. As the Supreme Court wrote not very long
“It has long been the case that the jurisdiction of the court depends upon the state of
things at the time of the action brought. This time-of-filing rule is hornbook law
(quite literally) taught to first-year law students in any basic course on federal civil
procedure. It measures all challenges to subject-matter jurisdiction premised upon
diversity of citizenship against the state of facts that existed at the time of filing.”
In this case, Mr. Gumaer has been one of the co-trustees since the testator’s death
decades ago. CNB succeeded a predecessor as a co-trustee in 2007. So far as the record discloses,
CNB never sought judicial settlement of its account after that date, even on an interim basis.9 Yet
five days after the commencement of this action, CNB petitioned the Surrogate’s Court for
settlement of its account for the period August 27, 2007 through December 27, 2016. Thus, even
if this action now would be intertwined with or somehow “interfere” with the Surrogate’s Court
proceeding that CNB brought in reaction to the filing of this case, that was not the case at the time
this action was filed, which was the determinative temporal point with respect to the existence of
Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 570-71 (2004) (footnote, citation,
and internal quotation marks omitted).
See DI 38-2, at ECF pp. 90-92.
This point is well illustrated by Chevalier v. Estate of Barnhart.10 That was a
diversity case in which the plaintiff asserted, among other claims, one for foreclosure on real estate,
which “require[d] that the federal court assume quasi in rem jurisdiction of the property at issue.”11
The defendant, who owned the real estate, subsequently died and a state probate court appointed an
administrator. But the Sixth Circuit held12
“that the probate exception does not divest a federal court of subject-matter
jurisdiction unless a probate court is already exercising in rem jurisdiction over the
property at the time that the plaintiff files her complaint in federal court.
Accordingly, the probate exception does not divest the federal courts of
subject-matter jurisdiction to adjudicate Chevalier's foreclosure action because, at
the time she filed the federal complaint, the property that she seeks to foreclose was
not ‘in the custody of a state probate court.’ Once jurisdiction vested in the federal
courts, Barnhart's subsequent death and the admission of her estate to state probate
court did not divest the federal court of subject-matter jurisdiction.”
Accordingly, the probate exception does not oust this Court of subject matter
Colorado River Abstention
CNB next argues that this Court should abstain in favor of the Surrogate’s Court
803 F.3d 789 (6th Cir. 2015).
Id. at 802.
Id. at 804 (quoting Marshall, 547 U.S. at 311).
It is not clear whether CNB will attempt to proceed in the Surrogate’s Court in light of this
ruling or, should it do so, whether the Surrogate would permit such proceedings prior to
resolution of this case or whether plaintiffs or other defendants here would seek relief from
this Court. This Court therefore does not now address the possibility that litigation, if
unimpeded, might proceed in both courts.
proceeding under Colorado River Water Conservation District v. United States14 and Moses H. Cone
Memorial Hospital v. Mercury Construction Corp.15 It contends that the Court should do so because
plaintiffs would have an opportunity in Monroe County to raise all of the claims they assert here.16
In essence, the argument is what might be called Probate Exception Lite. The argument is
unpersuasive on principles previously stated by this Court:17
“Colorado River . . . made clear that federal courts have a virtually unflagging
obligation to exercise the jurisdiction given them. The Colorado River Court,
indeed, wrote that the circumstances permitting dismissal of a federal case in
deference to a concurrent state proceeding ‘are considerably more limited than the
circumstances appropriate for abstention’ on other grounds, characterizing them as
‘exceptional.’ While eschewing any hard and fast rule, Colorado River and Moses
H. Cone together indicate that four principal factors inform the exercise of a district
court's discretion in determining whether to defer in such a situation: (1) whether the
state court has assumed jurisdiction over property, (2) the relative convenience of the
fora, (3) the desirability of avoiding piecemeal litigation, and (4) the order in which
jurisdiction was obtained. Moses H. Cone indicated that the federal or state source
of the rule of decision also is relevant. In any event, however, ‘[o]nly the clearest
of justifications will warrant dismissal’ of the federal action.”
Most of these factors cut against dismissal or abstention here. In this case, the state
court has not assumed jurisdiction over property. Litigation in this Court would be more convenient
424 U.S. 800 (1976).
460 U.S. 1 (1983).
Plaintiffs dispute this, arguing that they would be unable raise several of their claims in the
Surrogate’s Court. See DI 44, at 10-11. They maintain that the two actions therefore are
not “parallel,” a prerequisite for Colorado River abstention. See id. at 10 (citing Dittmer
v. Cty. of Suffolk, 146 F.3d 113, 118 (2d Cir. 1998)). Even assuming that this prerequisite
is met – a doubtful proposition on this record – the Court would not exercise its discretion
to abstain in this case for the reasons set forth below.
Prudential Securs. Inc. v. Arain, 930 F. Supp. 151, 157-58 (S.D.N.Y. 1996) (quoting
Colorado River, 424 U.S. at 818 and Moses H. Cone, 460 U.S. at 16) (emphasis in Moses
than in the Monroe County Surrogate’s Court in Rochester, New York, for all of the parties save
Lester Eber and CNB.18 This Court obtained jurisdiction before the filing of the Surrogate’s Court
proceeding. While the avoidance of piecemeal litigation of course is an end to be desired, that fact
sheds no light on whether this Court rather than the Surrogate’s Court should be the one to “stand
down.” The fact that New York law will supply the rule of decision, while pertinent, merits little
weight, as federal courts in New York apply New York law all the time.
There is no clear justification for this Court to decline to exercise its “virtually
unflagging obligation . . . to exercise the jurisdiction given” it.
The Court has considered all of movants’ contentions, including that with respect to
the sufficiency of the complaint as to punitive damages, and concluded that they lack merit.
Accordingly, the motions to dismiss [DI 38, DI 48] are denied in all respects.
July 6, 2017
According to CNB’s Surrogate’s Court petition, plaintiffs live in Florida, New Jersey and
Colorado. Although plaintiffs asserted in their complaint that Mr. Gumaer resides in New
York, DI 1, at 4 ¶ 12, CNB’s Surrogate’s Court petition lists for Mr. Gumaer a Georgia
address, DI 38-2, at ECF pp. 91-92 ¶ 18(a). Air travel to New York City is more convenient
than to Rochester for all of those resident outside the New York City. New York City
obviously is more convenient for the plaintiff resident in nearby New Jersey.
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