Kiser et al v. Olsen

Filing 17

REPORT AND RECOMMENDATION that 8 MOTION to Remand to State Court be denied - Objections due within fourteen (14) days. Signed by Magistrate Judge Terence P Kemp on 2/6/2015. (agm1)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Kristin Kiser, et al.,

:

Plaintiffs,

:

v.

:

Case No. 2:14-cv-2313

:

JUDGE GREGORY L. FROST
Magistrate Judge Kemp

Kurt Olsen,
Defendant.

:
REPORT AND RECOMMENDATION
I.

Introduction

This case involves a trust created in 2000.

Plaintiffs

claim that after the trust was created, the grantor, Ann L.
Olsen, bought a farm in Athens County, Ohio, which she
transferred into the trust and which was then managed in part by
Plaintiff William Kiser.

Ms. Olsen (the mother of both Plaintiff

Kristin Kiser and Defendant Kurt Olsen) allegedly represented
that Kristin Kiser would end up with the farm and that Kurt Olsen
would get other trust assets as compensation.

However,

Plaintiffs assert that Kurt, who is a co-trustee of the trust
(along with Kristin), has refused to go along with that
understanding and has attempted to force a sale of the farm or to
claim an interest in it.

Plaintiffs seek, among other things,

declaration of a constructive trust for their benefit regarding
the farm property.
The case was originally filed in the Court of Common Pleas
of Athens County, Ohio, Probate Division.

Kurt Olsen removed it

on grounds of diversity of citizenship, see 28 U.S.C. §§1332(a),
1441(a).

Plaintiffs then moved to remand, contending that

although the parties are from different states and the amount in
controversy satisfies the jurisdictional requirement, the
“probate exception” to diversity jurisdiction prevents the Court

from hearing the case.

The motion has been referred to the

Magistrate Judge for a report and recommendation and it is fully
briefed.

For the following reasons, it will be recommended that

the motion to remand be denied.
II.

The Probate Exception

The diversity statute, 28 U.S.C. §1332, makes no mention,
positively or negatively, of probate matters.

As the Supreme

Court has observed, however,
It is true that a federal court has no jurisdiction to
probate a will or administer an estate, the reason
being that the equity jurisdiction conferred by the
Judiciary Act of 1789, 1 Stat. 73, and §24(1) of the
Judicial Code, which is that of the English Court of
Chancery in 1789, did not extend to probate matters.
Markham v. Allen, 326 U.S. 490, 494 (1946).

Clear as that

statement may seem, there has been much litigation over what
constitutes a “probate matter,” not to mention significant
academic debate over the exception itself.

See, e.g.,

“Symposium: The Role of Federal Law in Private Wealth Transfer:
In Search of the Probate Exception,” 67 Vand.L.Rev. 1533, 1534
(Nov. 2014)(“Among the enigmas of federal jurisdiction, the
probate exception surely ranks with the most arcane”); John F.
Winkler, “The Probate Jurisdiction of the Federal Courts,” 14
Prob. L.J. 77, 78 (1997)(“The existence of a ‘probate exception'
to federal jurisdiction is a myth of federal law.

Actions to

obtain decedents' property or damages in lieu of such property
should not be subject to any special principles of federal
jurisdiction”).
Markham itself attempted to draw a line between gardenvariety suits which happened to be brought by people having some
connection with a probate matter - creditors, heirs, legatees,
and other claimants against an estate - and suits which asked a
federal court to “interfere with the probate proceedings or
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assume general jurisdiction of the probate or control of the
property in the custody of the state court.”

Id.

According to

the Court, only the latter fall outside the grant of diversity
jurisdiction in §1332(a).

That delineation has been of limited

assistance in separating out true “probate matters” from
litigation which merely bumps up against, but does not improperly
intrude into, the administration of decedents’ estates.

More

recently, the Supreme Court had an opportunity to comment on and
clarify the doctrine in Marshall v. Marshall, 547 U.S. 293
(2006), and the Court will examine that case in some detail.
Connoisseurs of popular culture are already familiar with
the basic facts of Marshall v. Marshall.

The case involved the

marriage of Vickie Lynn Marshall, also known as Anna Nicole
Smith, to a wealthy but elderly gentleman, J. Howard Marshall,
who died a little over a year after the wedding.

Mr. Marshall’s

will left his widow nothing, but she claimed that he had intended
to create a trust containing significant assets to provide for
her.

She and the beneficiary of J. Howard Marshall’s estate, E.

Pierce Marshall (the elder Mr. Marshall’s son), sued and
countersued.

One of Ms. Marshall’s claims was that Pierce

Marshall had tortiously interfered with her expectancy of a gift
by imprisoning his father and transferring assets against his
father’s wishes.

That claim was asserted in bankruptcy court

(Ms. Marshall had filed for bankruptcy protection) while probate
proceedings were ongoing in a Texas state court, and was
litigated to conclusion, producing a substantial verdict in Ms.
Marshall’s favor.

On appeal, Pierce Marshall argued

(successfully) to the Court of Appeals for the Ninth Circuit that
the probate exception deprived the bankruptcy court (and the
district court, which adopted the bankruptcy court’s decision) of
jurisdiction over Ms. Marshall’s claims.
The Supreme Court reversed.

After noting that Markham had

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used “enigmatic words” (those quoted above) in its description of
the probate exception, especially concerning actions which might
“interfere” with the administration of an estate, the Supreme
Court attempted a more precise definition, stated this way:
[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.
Marshall, 547 U.S. at 311-12.

Because the claims asserted by Ms.

Marshall did not involve the administration of an estate or the
probate or annulment of a will, and because she had not asked the
federal courts to assume in rem jurisdiction over any property
already being administered by the state probate court, the
probate exception did not apply.

The Court expressly criticized

what it viewed as the Court of Appeals’ “sweeping extension of
the probate exception,” implying that the exception is a narrow
one to be narrowly construed.

Id. at 299.

(Justice Stevens, in

a brief concurring opinion, said he did not believe in either the
existence or utility of a “probate exception,” expressing his
views with this statement: “I would provide the creature with a
decent burial....”

Id. at 318 (Stevens, J., concurring)).

The Court of Appeals for this circuit has not had many
occasions to discuss the probate exception since Marshall was
handed down.

It declined to apply the exception in Nahabedian v.

OneWest Band, FSB, 556 Fed. Appx. 389 (6th Cir. Jan. 29, 2014),
rejecting a claim that certain foreclosed property was being
administered in a state court probate proceeding; there, the
decedent had, by operation of Michigan law, lost his title to and
interest in the property before the probate matter was opened.
In contrast, in Wisecarver v. Moore, 489 F.3d 747 (6th Cir.
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2007), the court applied the probate exception, finding that a
federal court had no power grant relief in the form of an order
enjoining parties from disposing of assets they had received from
a decedent’s estate, divesting those same parties of their
interest in that property and vesting it in parties who claimed
to be the proper beneficiaries of the estate, and declaring a
probated will to be invalid.

“Granting this relief,” the court

said, “is precisely what the probate exception prohibits because
it would require the district court to dispose of property in a
manner inconsistent with the state probate court's distribution
of the assets.”

Wisecarver, 489 F.3d at 751.

This Court has

applied the exception in a case where a plaintiff sought to annul
a will and to be awarded damages equal to the proceeds which the
defendants received from the estate.

Webb v. Howerton, 2013 WL

2096650 (S.D. Ohio May 14, 2013), adopted and affirmed 2013 WL
3279714 (S.D. Ohio June 27, 2013).
III.

Discussion

Plaintiffs make the following case for the application of
the probate exception.

The relief they seek is a declaration

that they are the owners (or at least the constructive owners) of
farm property located on Haw Road near New Marshfield, Ohio.
Taking as true the allegations in the complaint, title to the
property was vested in the Ann L. Olsen Trust by deed from Ann L.
Olsen, and title still resides there.

It appears to be

Plaintiffs’ theory that, because of the statements made by Ann L.
Olsen during her lifetime upon which the Plaintiffs allegedly
relied, the Trust should now deed the farm property to them, and
Kurt Olsen should not be allowed, as a co-trustee, to exercise
any power over the disposition of that property (other than,
perhaps, to sign the deed).

The trust document, however, appears

to provide that an equal distribution of the trust assets would
be made to Kristin and Kurt upon Ann’s death.
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Plaintiffs

describe that language as a “testamentary provision” and contend
that because their complaint asks a court to invalidate that
provision, it is a probate matter.
In response, Kurt disputes the basic premises of this
argument.

First, he notes that the trust is an inter vivos

trust, and that even though it survived the death of the grantor,
it cannot property be viewed as a testamentary trust.
would defeat application of the probate exception.

That alone

Additionally,

Kurt points out that the trust property is not currently in the
custody of the state probate court, so the concern about
interfering with the in rem jurisdiction of another court is not
present here.

In their reply, Plaintiffs point to a split of

authority on the question of whether inter vivos trusts which
have a testamentary aspect - that is, they provide for the
distribution of property after the death of the grantor - are
covered by the probate exception.

They argue that if the

exception does not preclude litigation over the validity of this
type of instrument, federal courts will become embroiled in
disputes about the disposition of a decedent’s property any time
that occurs pursuant to a trust rather than a will, and that the
purpose behind the probate exception militates against that
outcome.

Since they do not argue that a state court is

exercising in rem jurisdiction over the trust property, the case
comes down to this: would a decision on the Plaintiffs’ claim be
tantamount to the annulment of a will, even though the property
in question never vested in Ann L. Olsen’s estate (and Plaintiffs
concede that she had made a will which was admitted to probate).
For the following reasons, the Court hold that it would not.
It is true that, pre-Marshall, the Sixth Circuit Court of
Appeals had referred approvingly to the concept that the probate
exception applied to “trusts that act as will substitutes ....”
See Evans v. Pearson Enterprises, Inc., 434 F.3d 839, 849 (6th
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cir. 2006)(a case in which the court declined to find the probate
exception applicable because the trust at issue was not a will
substitute).

However, it is not at all clear that it would do

the same today.

That application of the probate exception was

not universal, and, as one court has said, “[a] close reading of
Marshall arguably suggests that the Supreme Court has swept aside
this split of authority by providing a sharper and clearer
definition of the exception and its boundaries.”
Hines, 943 F.Supp.2d 634, 637-38 (E.D. Va. 2013).

Oliver v.
Oliver

recognized that some courts had applied the probate exception to
inter vivos trusts even after Marshall was decided, but
criticized them as not “adequately address[ing] the import of
Marshall.”

Id. at 638 n.11.

Oliver

cited with approval the

decision in Curtis v. Brunsting, 704 F.3d 406 (5th Cir. 2013),
which, recognizing that the thrust of Marshall was to confine the
probate exception to actual probate matters, held the exception
inapplicable to a case involving trust property which never
became part of a decedent’s estate, and thus never fell within
the custody of a probate court.
Some courts have argued, however, that refusing to apply the
exception to inter vivos trusts which are the functional
equivalent of wills is inconsistent with various policies
underlying the exception, including relegating such matters to
courts with special expertise.

For example, in Storm v. Storm,

328 F.3d 941, 947 (7th Cir. 2003), the court said that “[g]iven
the growth in recent years of various ‘will substitutes,’ we are
loath to throw open the doors of the federal courts to disputes
over testamentary intent simply because a decedent chose to use a
will substitute rather than a traditional will to dispose of his
or her estate.”

But that case was implicitly criticized by

Marshall as being an improper expansion of the scope of the
probate exception.

Marshall, supra, at 311.
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Plaintiffs cite Chabot v. Chabot, 2011 WL 5520927 (D. Idaho
Nov. 14, 2011), as an example of a post-Marshall case applying
the probate exception to an inter vivos trust.

That trust, like

the one in this case, contained provisions directing the
distribution of the trust property upon the death of the
settlors.

Chabot concluded that “Marshall implicitly held that

the probate exception analysis applies to trusts that act as will
substitutes,” a holding which, in its view, “makes sense, given
that Americans increasingly use trusts to transfer their wealth
rather than wills.”

Id. at *4.

As support, the Chabot court

noted that Marshall did not directly address this issue and that
the result was a sensible one because “[w]hatever the origins of
the probate exception, it is ultimately practical.”
least one other court has followed Chabot.

Id.

At

Vaughn v. Montague,

924 F.Supp.2d 1256, (W.D. Wash. Feb. 14, 2013).
For several reasons, this Court is not persuaded by Chabot’s
resolution of the issue.

If practicality were the touchstone of

jurisdictional analyses, factors such as the relative workloads
of the state and federal courts might come into play - but the
Supreme Court has expressly held that those considerations do not
impact jurisdiction.

See Thermtron Products v. Hermansdorfer,

423 U.S. 336 (1976).

Chabot also mentions, but does not

adequately account for, the Marshall court’s express intent to
narrow the scope of the probate exception.

Marshall seemed

particularly concerned with the possibility that, by exercising
diversity jurisdiction over a matter related to a decedent’s
estate which was already in probate, the federal court would be
interfering with property already subject to the jurisdiction of
another court.

The administration or execution of the terms of

an inter vivos trust does not create that problem because the
trust property is not being administered or distributed through
proceedings in a state probate court; as Curtis v. Brunsting
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correctly recognized, the property never was, nor could it ever
become, part of the decedent’s estate.
Finally, Plaintiffs have made no showing that the underlying
premise of the probate exception described in Marshall - namely,
that it exists because it was understood in 1789 that suits in
law and equity did not encompass proceedings committed
exclusively to the ecclesiastical courts of England - applies to
inter vivos trusts.

Were disputes among beneficiaries of such a

trust, even one which includes testamentary language, solely for
the ecclesiastical courts to decide?

Perhaps if there were some

evidence in this record to that effect, the result might be
different, although, given Marshall’s focus on the two analytical
concerns which define the exception - lack of federal court
jurisdiction to admit a will to probate and administer an estate,
and the prevention of interference with property already being
administered by a probate court - that seems unlikely.

But there

is no such evidence here.
One final factor suggests that even if the probate exception
had some application to inter vivos trusts, it should not apply
here.

Apparently, based on the parties’ filings, there is also

an estate for Ann Olsen.

Consequently, is hard to argue that the

trust at issue here is a real “will substitute.”

Had Ms. Olsen

wanted to commit all of her property to her estate, she had the
ability and capacity to do so.

As the Oliver v. Hines court

observed, “the argument that a trust is the functional equivalent
of a will for jurisdictional purposes loses considerable force
where, as here, the decedent had a successfully probated will in
addition to an inter vivos trust.”
n.17.

Oliver, 943 F.Supp.2d at 639

For all of these reasons, the Court concludes that the

probate exception does not apply, and that it is proper for the
Court to exercise jurisdiction over this case.

That validates

the removal and requires denial of the motion to remand.
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IV. Recommended Order
For the reasons set forth above, it is recommended that
Plaintiffs’ motion (Doc. 8) to remand be denied.
V.

Procedure on Objections

If any party objects to this Report and Recommendation,
that party may, within fourteen (14) days of the date of this
Report, file and serve on all parties written objections to those
specific proposed findings or recommendations to which objection
is made, together with supporting authority for the objection(s).
A judge of this Court shall make a de novo determination of those
portions

of the report or specified proposed findings or

recommendations to which objection is made.

Upon proper

objections, a judge of this Court may accept, reject, or modify,
in whole or in part, the findings or recommendations made herein,
may receive further evidence or may recommit this matter to the
magistrate judge with instructions.

28 U.S.C. §636(b)(1).

The parties are specifically advised that failure to
object to the Report and Recommendation will result in a
waiver of the right to have the district judge review the
Report and Recommendation de novo, and also operates as a
waiver of the right to appeal the decision of the District
Court adopting the Report and Recommendation.

See Thomas v.

Arn, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d
947 (6th Cir. 1981).
/s/ Terence P. Kemp
United States Magistrate Judge

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