U.S. Supreme Court Curtails Probate Exception To Federal Jurisdiction

As reported in January 2005, the Ninth Circuit held in In re Marshall, 392 F.3d 1118 (9th Cir. Dec. 30, 2004), that the probate exception to federal jurisdiction applied in Bankruptcy Court. However, the Supreme Court has now reversed that decision as extending the probate exception too broadly.

The Ninth Circuit read the probate exception to exclude from federal jurisdiction “not only direct challenges to a will or trust, but also questions which would ordinarily be decided by a probate court in determining the validity of the decedent’s estate planning instrument.” The court also held that a State’s vesting of exclusive jurisdiction over probate matters in a special court (in this case the Texas Probate Court) strips federal courts of jurisdiction to entertain any “probate related matter,” including claims respecting “tax liability, debt, gift, [or] tort.”

However, the Supreme Court found that this broad reading lacked any basis in statute or Supreme Court precedent. Marshall v. Marshall, No. 04-1544 (U.S. May 1, 2006).

Clarifying its juris­prudence in this area, the Court said the probate exception only reserves to state probate courts the probate or annulment of a will and the administration of a decedent’s estate, and precludes federal courts from disposing of property that is in the custody of a state probate court. The probate exception does not bar federal courts from adjudicating matters outside those confines that otherwise are within federal jurisdiction.

State Prior Pending Action Statute Unavailable In Federal Cases

The State of Illinois enacted a statute that allows a defendant to move to dismiss if another action involving the same parties was filed first and is pending elsewhere. In AXA Corporate Solutions v. Underwriters Reinsurance Corp., No. 02-3795, 2003 WL 22359249 (7th Cir. Oct. 17, 2003), the district court applied that statute in a diversity case where the same parties were pursuing litigation in Texas state court, and dismissed the federal case.

However, clarifying a matter over which its district courts have split, the Seventh Circuit held that Illinois' statute is not available in federal court. Instead, federal courts rely on federally-developed abstention doctrines, such as the Colorado River doctrine, to determine whether it is appropriate to reject jurisdiction over matters filed before it. Here, the Seventh Circuit concluded that Colorado River abstention, which the U.S. Supreme Court cautions must be used only in "exceptional circumstances," would not be appropriate, and it reinstated the case.

Eleventh Circuit Adopts “Revenue Rule” Abstention Doctrine

The Eleventh Circuit recently considered a group of consolidated cases in which the countries of Honduras, Ecuador and Belize alleged that American tobacco companies violated RICO by engaging in tax avoidance schemes. In Republic of Honduras v. Philip Morris Companies, Inc., 341 F.3d 1253 (11th Cir. Aug. 14, 2003), the court affirmed the district court’s decision to abstain under the “revenue rule,” which prevents the courts of one sovereign from enforcing or adjudicating tax claims from another sovereign. Observing that the doctrine has a long history, the appellate court adopted it as law of the circuit and held that plaintiffs could not avoid the rule by invoking the RICO statute.