BARBIERO v. KAUFMAN et al
Filing
28
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE MARY A. MCLAUGHLIN ON 7/30/2013. 7/31/2013 ENTERED AND COPIES MAILED AND E-MAILED.(sg, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ANTHONY V. BARBIERO
:
:
:
:
:
v.
GERALD S. KAUFMAN, et al.
CIVIL ACTION
NO. 12-6869
MEMORANDUM
McLaughlin, J.
July 30, 2013
This action centers on a dispute over a particular
Philadelphia office building held in trust for several hundred
beneficiaries.
One of those beneficiaries, Anthony Barbiero,
filed a petition in the Orphans’ Court Division of the
Philadelphia County Court of Common Pleas, seeking removal of the
current trustee, Gerald S. Kaufman Corporation (“Kaufman Corp.”),
and its assignee, Gerald S. Kaufman, and their replacement by a
successor trustee ad litem.
Kaufman and Kaufman Corp. thereafter
removed Barbiero’s suit to this Court.
Barbiero has filed a
motion to remand under 28 U.S.C. § 1447(c), arguing that this
Court lacks subject matter jurisdiction to adjudicate the
controversy.
The respondents have filed a motion to dismiss.
Prior to the initiation of Barbiero’s suit, Kaufman and
Kaufman Corp. filed a lawsuit in Illinois state court to reform
the operative trust agreement, which remains pending.
In their
suit, Kaufman and his company named Barbiero as one of the
defendants representing the entire class of trust beneficiaries.
This Court held oral argument on the parties’ motions
to remand and to dismiss on July 11, 2013.
deny Barbiero’s motion to remand.
The Court will now
In view of the first-filed and
continuing Illinois court proceeding, it will, however, dismiss
this case for lack of subject matter jurisdiction pursuant to the
Princess Lida doctrine.
I.
Background
The facts herein discussed are those necessary to
determine whether this Court has subject matter jurisdiction,
which is predicated on the parties’ citizenship and the nature of
the claims at issue, and to describe the relevant procedural
background.
Facts are drawn from the assertions in Barbiero’s
petition filed in the Court of Common Pleas, the exhibits
attached thereto, matters of public record, and other filings by
the parties.
The only pleading allegations accepted as true for
purposes of this motion are those in the petition concerning the
structure of the trust at the heart of this litigation and the
parties’ relationships to that trust and its corpus, about which
all parties appear to agree.
A.
Structure of the Trust
This lawsuit involves the Terminal Commerce Building
located at 401 N. Broad Street in Philadelphia (“Property”),
which is presently held in trust for over 600 tenant-in-common
-2-
beneficiaries.
The trust was created pursuant to a trust
agreement executed in 1959.
Under the 1959 trust agreement, five
individuals, referred to as “Nominees,” purchased and agreed to
hold title to and manage the Property as trustees.
Pet. ¶¶ 6,
10-12; PX A (9/1/59 Trust Agmt.) ¶ 1.1
The trust agreement provides that, aside from a 99-year
leasehold estate granted to the Terminal Commerce Building of
Philadelphia, Inc., “[t]he Nominees shall not sell or agree to
sell, mortgage, encumber or transfer the real property . . . ,
except upon the written direction of all of the Tenants-InCommon.”
Pet. ¶ 12; PX A ¶ 4.
On May 2, 1983, the Nominees entered into a new nominee
agreement with respondent Gerald S. Kaufman, the son of one of
the original Nominees.
Through that agreement, the original
Nominees conveyed to Kaufman all of their powers and authority
under the trust agreement.
Kaufman became the sole Nominee–i.e.,
trustee–holding title to and managing the Property on behalf of
the tenants in common.
In 1999, Kaufman deeded title to the
Property to his corporation, respondent Kaufman Corp.
Since that
time, Kaufman Corp. has been the Nominee for the tenants in
common, and Kaufman has been the company’s assignee.
Pet. ¶¶ 18,
20-21.
1
“PX” refers to the exhibits submitted by Barbiero in
conjunction with his petition.
-3-
B.
Illinois Reformation Action
On August 9, 2012, Kaufman and Kaufman Corp. filed a
suit in Illinois state court against three of the tenants in
common: Nanette Appel-Bloom, Alan S. Jacobs, and Anthony
Barbiero, the petitioner in this suit (“Illinois Action”).
The
Illinois Action was filed as a defendant class action lawsuit, in
which the three defendants were named as representatives of all
of the tenants in common.
PX B (Compl., Kaufman v. Appel-Bloom,
No. 12-CH-30537 (Ill. Cir. Ct., Cook Cnty.)).
In their lawsuit, Kaufman and his corporation seek
reformation of the trust agreement.
They argue that the
provision requiring unanimous consent among the tenants in common
before the Property may be mortgaged or sold has become
unworkable given the sheer number of beneficiaries.
They claim
that the more than 600 beneficiaries are spread among numerous
states and several foreign countries, and that at least 45 of
them cannot be located.
Moreover, according to the Illinois
Action complaint, 511 tenants in common holding approximately 90%
of the beneficial interests in the Property have already approved
granting the Nominee power to mortgage or sell the Property
without unanimous consent.
Kaufman alleges that only four
beneficiaries, including Barbiero, have expressed any opposition
to reforming the trust agreement in this manner.
27.
-4-
Id. ¶¶ 2-3, 22-
Kaufman requests that the Illinois court exercise its
reformatory authority to strike the unanimous consent provision
from the trust agreement and replace it with a provision that
reads as follows: “The Trustees (referred to above as Nominees),
. . . may borrow money, sell, mortgage, encumber, assign rents
of, and grant liens upon, the property that is the subject of
this Agreement, in the exercise of reasonable prudence and
judgment.”
Kaufman further requests an order permitting Kaufman
Corp. and him to deviate from the 1959 trust agreement and engage
in any of those enumerated activities without written direction
or approval of any of the tenants in common.
Id., Prayer (d)-(e)
(quotation marks omitted).
Kaufman contends that the proposed reformation would
permit Kaufman Corp. to obtain a new loan and mortgage on the
Property.
Id. ¶ 29.
On May 30, 2013, upon Barbiero’s motion, the Illinois
court dismissed him as a defendant for lack of personal
jurisdiction.
The court determined that Barbiero has an interest
in a trust administered in the state of Illinois, which satisfies
the requirement for assertion of jurisdiction under Illinois’
long-arm statute.
Nevertheless, the Illinois court found that
actually exercising jurisdiction over Barbiero would offend due
-5-
process because he lacked minimum contacts with the state.2
Kaufman v. Appel-Bloom, No. 12-CH-30537 (Ill. Cir. Ct., Cook
Cnty. May 30, 2013).
The Illinois Action otherwise remains
pending.
C.
Barbiero Action
The suit presently before this Court was instituted by
Barbiero in the Philadelphia County Court of Common Pleas on
November 14, 2012.
Barbiero and his wife jointly hold a 0.0549%
ownership interest in the Property as tenants in common.
Relying
on Pennsylvania law, Barbiero seeks to remove Kaufman Corp. as
trustee and Kaufman as its assignee, and asks that a successor
trustee ad litem be installed in their place.
Pet. ¶¶ 5, 66-87.
Barbiero alleges that Kaufman and Kaufman Corp. have
breached their duties to (a) administer the trust in good faith
in accordance with the trust’s provisions and purposes and in the
interests of the beneficiaries; (b) be free from conflicts of
interest; (c) act impartially in investing, managing, and
distributing trust property; (d) administer the trust as would a
prudent person; and (e) take reasonable steps to take control of
and protect the trust property.
In support of his contentions,
2
According to the parties, the Illinois court has granted a
motion by Kaufman and Kaufman Corp. for an interlocutory appeal
of that order dismissing Barbiero. 7/3/13 Letter from B. Robins
at 1 n.1; 7/11/13 Hr’g Tr. at 5-6.
-6-
Barbiero asserts that Kaufman violated the terms of the trust
agreement when he transferred title to the Property to Kaufman
Corp. without the unanimous consent of all tenant-in-common
beneficiaries and that Kaufman and Kaufman Corp. violated the
same provision of the agreement by issuing a mortgage on the
Property to Aries Capital Incorporated (“Aries”), again without
the beneficiaries’ unanimous consent.
Barbiero also claims that
Kaufman has a financial interest in the company that ultimately
succeeded Aries as mortgagee on the aforementioned mortgage,
which creates a conflict of interest given his duties and
obligations as a trust fiduciary.
Furthermore, Barbiero contends
that Kaufman continues to mismanage the trust, risking
foreclosure on the Property.
Id. ¶¶ 46, 59, 70-75, 77-78.
On November 16, 2012, the Orphans’ Court issued an
order to show cause why Kaufman Corp. and Kaufman should not be
removed as trustees and why a successor trustee ad litem should
not be appointed to administer the affairs of the Property.
12/13/12 Mattioli Decl., Ex. A (Decree, In Re: Tenants in Common
of 401 N. Broad St., No. 123520 (Pa. Ct. Com. Pl., Phila. Cnty.
Nov. 16, 2012)) (Docket No. 3).
Rather than submit a response,
the respondents removed the case to federal court on December 7,
2012.
They contend that federal jurisdiction is supplied by
diversity among the three named parties or the Class Action
Fairness Act (“CAFA”) because Barbiero’s suit is, in effect, a
-7-
class action brought on behalf of all of the tenant-in-common
beneficiaries.
II.
12/7/12 Notice of Removal (Docket No. 1).
Analysis
Barbiero has moved to remand this action back to the
Pennsylvania Orphans’ Court on several grounds.
First, Barbiero
disputes the bases for subject matter jurisdiction asserted by
the respondents in their notice of removal; he contends that this
Court lacks subject matter jurisdiction under either traditional
diversity principles or CAFA.
Second, Barbiero asserts that, as
between this Court and the Orphans’ Court, the Princess Lida
doctrine confers exclusive subject matter jurisdiction in this
trustee removal suit on the Orphans’ Court.
Finally, Barbiero
argues that, even if removal was jurisdictionally proper, this
Court should use its inherent abstention power to remand the case
to the Court of Common Pleas.
The Court finds that there is complete diversity among
the parties, creating a basis for subject matter jurisdiction.
It also concludes that remand is not warranted by the Princess
Lida rule or principles of abstention.
The Court finds that the
Princess Lida rule does, however, require it to defer to the
prior exclusive jurisdiction over the trust and its property
asserted by the Illinois court.
For that reason, it will dismiss
this suit without prejudice.
-8-
A.
Diversity Jurisdiction
Invocation of a federal court’s diversity jurisdiction
under 28 U.S.C. § 1332 requires complete diversity of citizenship
between plaintiffs and defendants.
Strawbridge v. Curtiss, 7
U.S. (3 Cranch) 267 (1806); Mala v. Crown Bay Marina, Inc., 704
F.3d 239, 247 (3d Cir. 2013).
With respect to individuals, their
citizenship is governed by the state of their domicile.
Swiger
v. Allegheny Energy, Inc., 540 F.3d 179, 182 (3d Cir. 2008).
Domicile, unlike residency, is measured by physical presence
within a jurisdiction “coupled with a subjective intention to
remain there indefinitely.”
340, 344 (3d Cir. 2011).
Washington v. Hovensa LLC, 652 F.3d
Allegations pertaining solely to a
litigant’s residency are insufficient to establish a court’s
diversity jurisdiction.
McNair v. Synapse Grp., Inc., 672 F.3d
213, 219 n.4 (3d Cir. 2012); see also Krasnov v. Dinan, 465 F.2d
1298, 1300 (3d Cir. 1972).
In his motion to remand, Barbiero asserted that the
respondents had failed to demonstrate the existence of diversity
jurisdiction, as their notice of removal averred that he and
Kaufman were residents of different states, but did not set forth
their states of domicile.
See 12/7/12 Notice of Removal ¶ 3.
Barbiero concedes, and the Court agrees, that the respondents
have now clarified that Barbiero and Kaufman are domiciliaries,
and not just residents, of New York and Illinois, respectively,
-9-
thereby establishing complete diversity among the named parties.3
See 12/26/12 Kaufman Decl. ¶¶ 2-4 (Docket No. 5-1).
At oral argument, Barbiero raised a new jurisdictional
objection.
He argues that the trust managed by the respondents
is itself a party to this litigation and, regardless of whether
considered to be a petitioner or respondent, its inclusion
destroys diversity because it has beneficiaries who share
citizenship with Barbiero and with Kaufman.
See Emerald
Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 205
(3d Cir. 2007) (holding that a trust’s citizenship is determined
by that of its trustee and all of its beneficiaries).
Barbiero bases his argument on the fact that the relief
he seeks is not just for his own benefit, but for the benefit of
the trust and all of its beneficiaries.
He relies on analogy to
corporate law, arguing that this is much like a shareholder
derivative suit.
In such an action, the corporation is a real
party in interest and has traditionally been included as an
3
The other respondent, Kaufman Corp., is a citizen of
Delaware, its state of incorporation, and Illinois, where it has
its principal place of business. Pet. ¶ 3. It does not share
Barbiero’s New York citizenship. The parties are also in
agreement that the $75,000 amount-in-controversy requirement has
been met, and the Court sees no reason to dispute their
assessment. The Property has been valued at no less than $5
million. See 12/7/12 Notice of Removal ¶¶ 2, 4. Even
considering only Barbiero’s 0.0549% interest in the Property,
which is allegedly endangered by the respondents’ mismanagement,
his share is also valued at well over $75,000. It does not
appear “to a legal certainty” that Barbiero risks an injury that
falls below the jurisdictional threshold. Frederico v. Home
Depot, 507 F.3d 188, 195 (3d Cir. 2007) (citation omitted).
-10-
indispensable party, with its citizenship considered for
diversity purposes.
See Ross v. Bernhard, 396 U.S. 531, 538
(1970); HB Gen. Corp. v. Manchester Partners, L.P., 95 F.3d 1185,
1196 (3d Cir. 1996); 7C Charles A. Wright, et al., Federal
Practice & Procedure § 1822 (3d ed. 2007).
As the respondents point out, however, Pennsylvania law
on shareholder standing differs markedly from Pennsylvania trust
law.
Under Pennsylvania law, “an action to redress injuries to
the corporation cannot be maintained by an individual
shareholder, but must be brought as a derivative action in the
name of the corporation.”
Official Comm. of Unsecured Creditors
v. R.F. Lafferty & Co., Inc., 267 F.3d 340, 348 (3d Cir. 2001)
(superseded on other grounds) (quotation marks and citations
omitted).
As a consequence, the corporation is included as a
party.
The statute under which Barbiero commenced this
proceeding, on the other hand, does not incorporate any such
derivative standing principle.
That statute permits a single
beneficiary to petition for removal of a trustee, and nowhere
says that the action must be brought on behalf of the trust.
Pa. Cons. Stat. Ann. § 7766(a).
20
Indeed, Pennsylvania law
requires a court to hold an evidentiary hearing as to the
trustee’s fitness upon the removal petition of “any party in
interest” and even permits a court to remove a trustee on its own
-11-
initiative.
Id. §§ 3183, 7766(a), 7766(d) (emphasis added).
It
is true that the standard for removing a trustee requires
consideration of “the interests of the beneficiaries” and removal
cannot be “inconsistent with a material purpose of the trust.”
Id. § 7766(b).
That does not mean, however, that the trust is
the true party in interest or an indispensable party.
Nor does
it mean that a beneficiary seeking trustee removal lacks standing
to sue in his own right.
The Court concludes that the trust is not a separate
party to this proceeding, and subject matter jurisdiction exists
based on complete diversity among the three named parties.
The
Court need not, therefore, reach the respondents’ alternative
claim that jurisdiction may be exercised under CAFA.
B.
The Princess Lida Rule
The Court now turns to Barbiero’s argument in favor of
remand based on the application of the Princess Lida doctrine.
1.
General Precepts of Princess Lida
It has long been a binding principle in federal and
state courts that “the court first assuming jurisdiction over
property may exercise that jurisdiction to the exclusion of other
courts.”
Colo. River Water Conservation Dist. v. United States,
424 U.S. 800, 818 (1976); see also Princess Lida of Thurn & Taxis
-12-
v. Thompson, 305 U.S. 456, 466 (1939); United States v. Bank of
N.Y. & Trust Co., 296 U.S. 463, 477 (1936).
That principle was expressed in terms most applicable
to the present controversy in the Supreme Court’s 1939 decision
in Princess Lida of Thurn & Taxis v. Thompson.
In that case,
trustees of a fund in which Lida and her sons were beneficiaries
brought an accounting action in the Pennsylvania Court of Common
Pleas.
One day later, Lida and one of her sons filed suit in
U.S. district court, seeking restoration of the trust corpus and
removal of the trustees based on allegations of their
mismanagement.
305 U.S. at 458-60.
The Supreme Court held that both actions were quasi in
rem, involving the exercise of judicial authority over the same
trust property, and, because the Court of Common Pleas asserted
jurisdiction first, the district court lacked jurisdiction to
hear the later-filed suit.
Id. at 465-68.
The Supreme Court
noted that it was not necessary for the first court to actually
seize the property to preclude other courts from adjudicating
subsequently filed suits regarding the same res.
The principle
of exclusive jurisdiction applied with equal force “where suits
are brought to marshal assets, administer trusts, or liquidate
estates, and in suits of a similar nature where, to give effect
to its jurisdiction, the court must control the property.”
at 466.
Id.
In order for the first court to control the property
-13-
without interference and grant the relief requested, “the
jurisdiction of the [second] court must yield.”
Id. at 466.
Such a doctrine, according to the Supreme Court, was “necessary
to the harmonious cooperation of federal and state tribunals.”
Id.
The Court of Appeals for the Third Circuit has held
that the Princess Lida principle, also known as the prior
exclusive jurisdiction doctrine, applies where (1) both the first
and second litigations are in rem or quasi in rem, and (2) “the
relief sought requires that the second court exercise control
over the property in dispute and such property is already under
the control of the first court.”
Dailey v. Nat’l Hockey League,
987 F.2d 172, 176 (3d Cir. 1993).
For purposes of the first
stage of analysis, the relevant inquiry is whether the
proceedings at issue are in rem or quasi in rem within the
meaning of the Princess Lida decision, itself.
See id. at 177;
Shaw v. First Interstate Bank of Wis., N.A., 695 F. Supp. 995,
999 (W.D. Wis. 1988).
In this circuit, Princess Lida establishes a
“mechanical rule” regarding subject matter jurisdiction.
987 F.2d at 175-76 (quotation marks omitted).
Dailey,
Indeed, Dailey
expressly read the Supreme Court’s decision in Princess Lida as
setting forth a “doctrine in terms of subject matter
-14-
jurisdiction.”4
Id. at 175.
Where the rule applies, a district
court presiding over the second-filed case lacks subject matter
jurisdiction to hear the proceeding before it and must defer to
the court entertaining the suit that was brought first.
Id. at
176.
2.
Princess Lida and Remand
Barbiero argues that the rule of Princess Lida requires
this Court to remand the instant action to the Philadelphia
County Court of Common Pleas.
He contends that the Orphans’
Court effectively asserted exclusive jurisdiction over the
Property, the corpus of the trust at issue in this case, when it
directed the respondents to file an answer to the petition and to
show cause why they should not be removed as trustees and be
replaced by a successor trustee ad litem.
The Court finds this argument unconvincing.
It is
clear from the reasoning of Princess Lida that its governing
4
Courts of appeals in other circuits have framed the
Princess Lida rule as an application of prudential abstention,
albeit abstention that does not appear to be discretionary. See
Sexton v. NDEX West, LLC, 713 F.3d 533, 536 n.5 (9th Cir. 2013)
(finding that the prior exclusive jurisdiction doctrine is not a
rule of subject matter jurisdiction, but rather, “a prudential
(although mandatory) common law rule of judicial abstention”);
Carvel v. Thomas & Agnes Carvel Found., 188 F.3d 83, 86 (2d Cir.
1999) (describing the Princess Lida rule as a “rule of comity or
abstention, rather than one of subject matter jurisdiction”);
Crawford v. Courtney, 451 F.2d 489, 492 (4th Cir. 1971)
(referring to “compulsory Princess Lida-type abstention”).
-15-
principle was designed to prevent two courts from asserting
overlapping and potentially conflicting authority over a single
piece of property.
The Princess Lida doctrine has no application
where there is only one suit removed from state to federal court,
as opposed to two parallel proceedings separately filed in those
fora.
Here, the proceedings in Pennsylvania and federal court
form a single case, brought in the former and removed to the
latter.
Indeed, a properly filed notice of removal places “sole
jurisdiction” in the federal court, stripping the state court of
jurisdiction.
2002).
In re Diet Drugs, 282 F.3d 220, 231 n.6 (3d Cir.
No federal-state disharmony will result from transferring
adjudication of matters pertaining to the Property from the
Orphans’ Court to this Court, and the Princess Lida rule cannot
be used to remand this action.5
5
Other district courts considering the issue have split
over whether the prior exclusive jurisdiction principle presents
cause for remand. Compare Jones v. Home Mortg. Direct Lenders,
No. 12-289, 2012 WL 6645612, at *2 (D. Nev. Dec. 20, 2012);
Brinkman v. Bank of Am., N.A., No. 11-3240, 2012 WL 3582928, at
*16 (D. Minn. Aug. 17, 2012); Gogert v. Reg’l Tr. Servs., Inc.,
No. 11-1578, 2012 WL 289205, at *2-3 (W.D. Wash. Jan. 31, 2012);
Barr v. Hagan, 322 F. Supp. 2d 1280, 1282 (M.D. Ala. 2004); Am.
Lung Ass’n of N.H. v. Am. Lung Ass’n, No. 02-108, 2002 WL
1728255, at *3 (D.N.H. July 25, 2002) (all finding that Princess
Lida does not apply to a single case removed from state to
federal court); with Mellon Bank, N.A. v. Poling, No. 04-1461,
2004 WL 1535799, at *4 (E.D. Pa. June 10, 2004); Glenmede Trust
Co. v. Dow Chem. Co., 384 F. Supp. 423, 432-34 (E.D. Pa. 1974)
(both remanding a removed quasi in rem suit, finding that,
pursuant to Princess Lida, it should remain in the Orphans’ Court
where it was originally filed). It bears noting that, in
Glenmede, the court’s application of the Princess Lida doctrine
was not central to its disposition of the case. The Glenmede
-16-
C.
Abstention
As a final argument in favor of remand, Barbiero
appeals to the Court’s powers of abstention.
He argues that,
even if this Court has jurisdiction to adjudicate the present
suit, it should decline to do so and should instead remand the
action back to the Orphans’ Court, given its expertise in the
area of trusts and estates.
Notwithstanding the Orphans’ Court’s
greater familiarity with Pennsylvania trust law, the Court does
not find remand warranted on the facts presented.
Federal courts have a “virtually unflagging obligation
. . . to exercise the jurisdiction given them.”
U.S. at 817.
Colo. River, 424
Once federal jurisdiction is properly invoked,
abstention is appropriate only in limited circumstances.
See Hi
Tech Trans, LLC v. New Jersey, 382 F.3d 295, 303 (3d Cir. 2004)
(identifying the accepted bases for abstention, drawn from
Supreme Court precedent).
Barbiero does not even attempt to demonstrate how this
suit falls into one of the recognized categories of abstention.
Moreover, he does not articulate and the Court fails to perceive
how the exercise of federal jurisdiction will impede judicial
economy or comity interests, which underlie several branches of
abstention doctrine, vis-a-vis the Pennsylvania courts.
court looked to that rule as an additional reason for remand only
after determining that it otherwise lacked subject matter
jurisdiction. 384 F. Supp. at 433-34.
-17-
Chiropractic Am. v. Lavecchia, 180 F.3d 99, 103 (3d Cir. 1999).
Significantly, there is no concurrently pending suit regarding
this trust in Pennsylvania court.
Nor, as far as this Court can
tell, does the petition raise novel or unsettled issues of
Pennsylvania law that a state tribunal could more effectively
resolve.
See Ryan v. First Pa. Banking & Trust Co., 519 F.2d
572, 575 (3d Cir. 1975).
Federal review of Pennsylvania’s well-
established laws regarding trustees’ fiduciary duties also does
not risk disruption to a comprehensive scheme or interference
with the articulation of a “coherent public policy” in the
Commonwealth.
Chiropractic Am., 180 F.3d at 105 (citing New
Orleans Pub. Serv., Inc. v. Council of New Orleans, 491 U.S. 350,
361 (1989)).
The fact that the Orphans’ Court may have more
experience analyzing these issues is not, standing alone,
sufficient cause for abstention.
The Third Circuit precedent on which Barbiero relies
does not counsel in favor of a different result.
In Reichman v.
Pittsburgh National Bank, cited by Barbiero, the Third Circuit
affirmed the district court’s decision to dismiss on abstention
grounds a suit against a trustee for a surcharge and an
accounting of trust assets in favor of an accounting action also
pending in the Orphans’ Court.
1972).
465 F.2d 16, 17-18 (3d Cir.
Although recognizing the Orphans’ Court’s “special
ability . . . to decide [such] issues in view of its exclusive
-18-
state jurisdiction over trusts and estates,” the Court of Appeals
also cited efficiency interests as a justification for
abstention.
The court expressly relied on the fact that there
was a “substantial identity” of issues raised in the federal and
Orphans’ Court proceedings in determining that abstention had
been proper.
The procedural posture of this case is
substantially different.
Here, there is no separate Orphans’
Court suit with which this Court may interfere or where the
claims in this suit may be consolidated.
Whatever the
possibility for abstention based on the Orphan Courts’ expertise
where parallel proceedings exist, the absence of any concurrent
suit counsels strongly against abstention.6
Furthermore, if any court has established a familiarity
with the claims at issue in this case, it is this Court.
As both
sides acknowledge, Barbiero’s claims duplicate in large measure
the causes of action in the Appel suit over which this Court
previously presided.
The Court did not engage in a full merits
analysis of the Appel Action claims, instead granting judgment in
favor of Kaufman, Kaufman Corp., and other defendants in that
suit on the basis of the statute of limitations and laches.
6
Similarly, in Mellon Bank, an Eastern District of
Pennsylvania case, the court cited the Orphans’ Court’s
specialized expertise in trust law as a reason for remand, but
only after finding that its own subject matter jurisdiction was
doubtful. 2004 WL 1535799, at *4-5. Moreover, in that case,
unlike the one at bar, the Orphans’ Court had previously asserted
jurisdiction over the trust property in separate proceedings,
conducting the initial trust accounting. Id. at *5.
-19-
Nevertheless, the Court’s oversight of the Appel Action over
several years provides it with a background pertinent to the
legal and factual issues now at play.
Finally, the Court is guided by recent Supreme Court
precedent limiting the circumstances under which federal courts
should cede jurisdiction over state law claims because they fall
within the traditional province of state courts.
In Marshall v.
Marshall, the Supreme Court chided the lower federal courts for
too liberally construing the carve-outs to federal diversity
jurisdiction for domestic relations and probate matters.
U.S. 293, 299 (2006).
547
The Court found that each exception
operated to preclude jurisdiction in only a narrow range of
cases.
Id. at 307, 311-12.
Notably, neither exception applies
to pure issues of state trust law.
See, e.g., Curtis v.
Brunsting, 704 F.3d 406, 410 (5th Cir. 2013); Evans v. Pearson
Enters., Inc., 434 F.3d 839, 847-49 (6th Cir. 2006).
The
Marshall Court’s reasoning, based on the admonition that federal
courts “‘have no more right to decline the exercise of
jurisdiction which is given, than to usurp that which is not
given,’” is, therefore, all the more forcefully felt in trust
administration cases, where jurisdiction is concededly proper.
Marshall, 547 U.S. at 298-99 (quoting Cohens v. Virginia, 19 U.S.
(6 Wheat.) 264, 404 (1821)).
In short, Marshall makes clear that federal courts have
-20-
exceedingly limited warrant to simply yield jurisdiction on
matters of state law.
For that reason, the Court expresses great
wariness of abstaining in this trustee removal suit merely
because such claims are generally brought in the Orphans’ Court.
Under these circumstances, the Court finds that remand
based on abstention is not merited.
D.
Princess Lida and Dismissal
Although the Court finds that remand is not required
under the rationale of Princess Lida, it concludes that the prior
exclusive jurisdiction rule does require it to dismiss this
action in favor of the Illinois Action, which was filed some
three months before this case.
As a preliminary matter, Barbiero argues that the Court
should not defer to the Illinois court because his motion
exclusively seeks remand to the Court of Common Pleas.
The
respondents also have not formally moved for dismissal on
Princess Lida grounds, although they raised the possibility of
dismissal on that basis in their opposition to Barbiero’s motion
to remand.
In opposing the remand motion, the respondents
maintained that, if the Court determined this suit to be an in
rem or quasi in rem action, then it should similarly find the
Illinois Action to be in rem or quasi in rem and dismiss this
-21-
case in favor of the earlier-filed suit in Illinois.7
Notwithstanding the scope of the parties’ formal
motions, the Court has the power to dismiss this suit sua sponte.
The Third Circuit has characterized the principle behind Princess
Lida as one that governs federal courts’ subject matter
jurisdiction.
Dailey, 987 F.2d at 175-76.
Subject matter
jurisdiction is non-waivable, and courts always have an
obligation to satisfy themselves that such jurisdiction exists.
Nesbit v. Gears Unlimited, Inc., 347 F.3d 72, 76-77 (3d Cir.
2003) (citing Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle,
429 U.S. 274, 278 (1977)).
“A necessary corollary is that the
court can raise sua sponte subject-matter jurisdiction concerns.”
Id.; see also Fed. R. Civ. P. 12(h)(3).
In addition, each side
has already presented legal briefs and oral argument as to
7
At oral argument, the respondents altered their position.
Counsel for the respondents clarified that they viewed neither
this suit nor the Illinois Action as in rem or quasi in rem,
although counsel conceded that he was somewhat unfamiliar with
the distinction between those concepts. Proceeding under the
assumption that both aforementioned actions were in rem or quasi
in rem, though, respondents’ counsel argued that this Court was
the first to assert jurisdiction over the trust when it
adjudicated the Appel Action and should retain jurisdiction on
that basis. Contrary to counsel’s contention, this Court’s
jurisdiction does not trump that of the Illinois state court
under Princess Lida. By any measure, the Appel Action concluded
before commencement of the Illinois Action, and this Court did
not continue to exercise jurisdiction over the trust once the
Appel Action ended. Thus, when the Illinois Action began, this
Court did not still have jurisdiction over the trust. In terms
of the priority of jurisdiction, the Illinois court comes before
this Court.
-22-
whether dismissal based on the Princess Lida rule is appropriate.
Moving to the first step of the Princess Lida analysis,
the Court must determine if both the Illinois Action and this
litigation qualify as in rem or quasi in rem suits.
For purposes
of this doctrine, the Supreme Court has stated that actions to
“administer trusts” are considered to be quasi in rem.
Princess
Lida, 305 U.S. at 466.
Of course, not every action that somehow relates to or
implicates a trust qualifies as a quasi in rem administration
action.
The primary distinction in this area of the law is
weeding out claims that seek only to adjudicate an individual’s
right to trust property or tort suits against a trustee in his or
her individual capacity.
See Dailey, 987 F.2d at 176.
Such
suits are in personam and do not trigger application of the
Princess Lida principle.
See, e.g., Princess Lida, 305 U.S. at
466-67 (noting that a party’s suit to establish a property
interest in trust assets is an in personam question that does not
involve exclusive jurisdiction concerns); Marshall v. Lauriault,
372 F.3d 175, 180-81 (3d Cir. 2004) (finding that a determination
of rights in a trust among the parties does not concern in rem
claims requiring jurisdiction over a trust corpus); Al-Abood ex
rel. Al-Abood v. El-Shamari, 217 F.3d 225, 229, 232 (4th Cir.
2000) (finding a suit seeking only money damages for tort and
RICO claims to fall beyond the scope of Princess Lida); Sw. Bank
-23-
& Trust Co. v. Metcalf State Bank, 525 F.2d 140, 142-43 (10th
Cir. 1975) (determining that a suit seeking money damages from a
trustee for breach of duties under trust instruments was in
personsam).
Judged against this backdrop, both the present suit and
the Illinois Action qualify as property-based claims under the
Princess Lida standard.
Neither involves claims for money
damages or a determination of individual property rights.
Instead, each is intimately connected to issues of actual trust
administration.
The forms of relief sought in the suit presently before
this Court, removal of the trustee and installment of a
judicially appointed successor, are similar to those at issue in
Princess Lida itself.
In Princess Lida, the second-filed federal
action involved, among other things, a request for removal of the
trustee.
The Supreme Court found that the claims before the
district court related “solely . . . to administration” of the
trust and were properly denominated as quasi in rem.
466-67.
305 U.S. at
The Pennsylvania Supreme Court, whose decision was
affirmed in Princess Lida, similarly described actions to remove
and appoint trustees as forms of trust administration and
management that fall within the class of claims governed by the
prior exclusive jurisdiction principle.
Thompson v. Fitzgerald,
198 A. 58, 65-66 (Pa. 1938); see also Singer v. Dong Sup Cha, 550
-24-
A.2d 791, 792 (Pa. Super. Ct. 1988).
Other courts have subsequently found that “a suit that
concerns or determines the ownership, control and administration
of a trust and the powers, duties and liabilities of the trustees
is either in rem or quasi in rem.”
Cassity v. Pitts, 995 F.2d
1009, 1012 (10th Cir. 1993); see also Jage v. Trust Co. of Okla.,
No. 06-249, 2009 WL 3241659, at *5 (N.D. Okla. Sept. 30, 2009)
(noting that actions affecting the identity of trustees are quasi
in rem); Silberman v. Worden, No. 87-8368, 1988 WL 96537, at *3
(N.D. Ill. Sept. 15, 1988) (same).
Moreover, pursuant to Pennsylvania law, this Court is
not limited to granting relief in the form of removing the
present trustees and may order interim, alternative, or
additional forms of relief.
For instance, the Court may require
the respondents to file an account or restore trust property.
Pa. Cons. Stat. Ann. §§ 7766(c), 7781(b).
20
Such forms of relief
are also quasi in rem for purposes of Princess Lida.
Princess
Lida, 305 U.S. at 463-67; Dailey, 987 F.2d at 175, 177.
The respondents have not offered and the Court has not
found any cases discussing whether actions to reform a trust
agreement under Illinois law, such as the Illinois Action, are
classified as in rem or quasi in rem.
Nevertheless, the Court
concludes that the Illinois state court suit comes within the
ambit of Princess Lida, as well.
The litigation in Illinois
-25-
clearly centers on administration of the trust, and, more
specifically, administration of trust property, as well as
defining the powers of the Property’s trustee.
Indeed, the main
objectives of Kaufman and Kaufman Corp. in bringing the
reformation action is to change a provision in the trust’s
governing document regarding how the trustee may confer rights to
the Property and to give Kaufman Corp. the authority to grant
third parties mortgages and other ownership interests in the
Terminal Commerce Building without prior approval of the
beneficiaries.
Cf. Dailey, 987 F.2d at 176-77 (determining that
an action involving interpretation of a pension plan and
application of its terms to a trust is brought quasi in rem);
Cassity, 995 F.2d at 1012 (classifying suits over the
“powers[ and] duties . . . of the trustee” as in rem or quasi in
rem).
Next, the Court must determine whether the relief
sought in this suit requires it to exercise control over property
already under the jurisdiction of the Illinois court.8
987 F.2d at 176.
Dailey,
Essentially, this inquiry seems to require the
8
At one point in the Dailey opinion, the Third Circuit
refers to this part of the Princess Lida analysis as asking
whether the claims in the two suits are “essentially the same.”
987 F.2d at 177. That appears to be a bit of a misnomer. The
relevant question, as stated earlier in that opinion and
reflected in the Dailey court’s analysis, is whether the second
court is being asked to exercise control over a piece of property
already under the first court’s jurisdiction. Id. at 176-77.
-26-
Court to assess whether its assertion of jurisdiction would cause
the sort of inter-jurisdictional disharmony over property-based
claims that the prior exclusive jurisdiction doctrine seeks to
avoid.
That standard is met here.
Even though, as Barbiero
points out, the relief requested in the two cases is different, a
disposition of this case could well interfere with the
proceedings in the Illinois Action.
In that litigation, Kaufman
Corp. and Kaufman, relying on their powers as trustee and
assignee, seek to reform the terms of the trust.
Quite plainly,
if this Court were to remove them from their positions, as
Barbiero requests, it would greatly impede the trust
administration proceedings of the Illinois Action and call into
question the justiciability of that suit.
The fact that Barbiero was dismissed from that action
for lack of personal jurisdiction does not require a different
outcome.
That is not simply because the order dismissing him as
a defendant is currently on interlocutory appeal, placing his
status in the Illinois Action in limbo.
It is because the
Princess Lida rule is concerned with courts’ jurisdiction over a
particular trust or piece of property.
Barbiero’s dismissal from
the Illinois Action, even if affirmed, does not end that suit.
There remain two other named defendants representing an entire
class of beneficiaries in that case, and the Court has no reason
-27-
to believe that the Illinois court has dismissed or will
similarly dismiss them.
The Illinois court, therefore, continues
to exercise jurisdiction over the trust property to the exclusion
of this Court.
Accordingly, the Court must cede jurisdiction to
the previously filed and ongoing Illinois Action, and will
dismiss Barbiero’s suit.
III. Conclusion
For the foregoing reasons, the Court will deny
Barbiero’s motion to remand this suit to the Pennsylvania Court
of Common Pleas and will instead dismiss this action.9
An
appropriate order shall issue separately.
9
Because the respondents have not specifically requested
dismissal based on the mandatory rule propounded in Princess
Lida, the Court does not, strictly speaking, grant their motion
to dismiss.
-28-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?