     Case: 12-20164        Document: 00512106036   Page: 1   Date Filed: 01/09/2013




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                    FILED
                                                                   January 9, 2013
                                    No. 12-20164
                                                                   Lyle W. Cayce
                                                                        Clerk
CANDACE LOUISE CURTIS,

                                             Plaintiff-Appellant

v.

ANITA KAY BRUNSTING; DOES 1-100; AMY RUTH BRUNSTING,

                                             Defendants-Appellees



                    Appeal from the United States District Court
                         for the Southern District of Texas



Before HIGGINBOTHAM, SMITH, and ELROD, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
      This appeal concerns the scope of the probate exception to federal subject-
matter jurisdiction in the wake of the Supreme Court’s decision in Marshall v.
Marshall.1 The Plaintiff contends that, under Marshall, her claims for breach
of fiduciary duty against the co-trustees of an inter vivos trust do not implicate
the probate exception. We agree.




      1
          547 U.S. 293 (2006).
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                                      No. 12-20164

                                             I.
       In 1996, Elmer H. and Nelva E. Brunsting, Texas residents, established
the Brunsting Family Living Trust (“the Trust”) for the benefit of their offspring.
At the time of its creation, the Trust was funded with various assets. Both the
will of Mr. Brunsting and the will of Mrs. Brunsting (collectively “the
Brunstings’ Wills”) appear to include pour-over provisions, providing that all
property in each estate is devised and bequeathed to the Trust.2 Elmer H.
Brunsting passed away on April 1, 2009, and Nelva E. Brunsting passed away
on November 11, 2011. The current dispute arises out of the administration of
the Trust.
       Candace Curtis, Anita Brunsting, and Amy Brunsting are siblings. In
February 2012, Candace Curtis (“Curtis”) filed a complaint in federal district
court against Anita Brunsting and Amy Brunsting (collectively “the
Defendants”) based on diversity jurisdiction. In that complaint, she alleged that
Anita and Amy, acting as co-trustees of the Trust, had breached their fiduciary
duties to Curtis, a beneficiary of the Trust. Specifically, she alleged that Anita
and Amy had misappropriated Trust property, failed to provide her documents
related to administration of the Trust, and failed to provide an accurate and
timely accounting. The complaint alleged claims for breach of fiduciary duty,
extrinsic fraud, constructive fraud, and intentional infliction of emotional
distress. Curtis sought compensatory damages, punitive damages, a temporary
restraining order against “wasting the estate,” and an injunction compelling both
an accounting of Trust property and assets as well as production of documents
and accounting records.
       On March 1, 2012, the district court denied Curtis’s application for a
temporary restraining order and injunction because the Defendants had not


       2
        The signed copies of the Brunstings’ Wills are not included in the record, but Curtis
provided unsigned copies, which we assume match the signed versions that have been
admitted to probate.

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been served with process. In the order, the district court judged noted that it
“appears that the court lacks subject matter jurisdiction over the claim(s)
asserted.” On March 6, 2012, in response to the lis pendens Curtis had filed
related to property in Texas and Iowa, Anita and Amy filed an emergency motion
to remove the lis pendens.            The motion noted that it was subject to the
Defendants’ contention that the federal district court lacked subject matter
jurisdiction under the probate exception to federal court jurisdiction, an issue
that the Defendants said would be raised in a separate Rule 12(b) motion to
dismiss. On March 8, 2012, following a telephone conference with the parties,
the district court judge entered a sua sponte order dismissing the case for lack
of subject matter jurisdiction. In doing so, he concluded that the case falls
within the probate exception to federal diversity jurisdiction. This appeal
followed.


                                               II.
      This Court reviews de novo a district court’s dismissal for lack of subject-
matter jurisdiction.3


                                              III.
      Although a federal court “has no jurisdiction to probate a will or
administer an estate,”4 in Markham v. Allen, the Supreme Court recognized that
the probate exception does not bar a federal court from exercising jurisdiction
over all claims related to such a proceeding:
      [F]ederal courts of equity have jurisdiction to entertain suits ‘in
      favor of creditors, legatees and heris’ and other claimants against a
      decedent’s estate ‘to establish their claims’ so long as the federal
      court does not interfere with the probate proceedings or assume


      3
          Borden v. Allstate Ins. Co., 589 F.3d 168, 170 (5th Cir. 2009).
      4
          Markham v. Allen, 326 U.S. 490, 494 (1946).

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      general jurisdiction over the probate or control of the property in the
      custody of the state court.

      Similarly while a federal court may not exercise its jurisdiction to
      disturb or affect the possession of property in the custody of a state
      court, it may exercise its jurisdiction to adjudicate rights in such
      property 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.5

Sixty years later, in Marshall v. Marshall, the Supreme Court expressed concern
with lower courts’ interpretation of Markham, noting that “[l]ower federal courts
have puzzled over the meaning of the words ‘to interfere with the probate
proceedings,’ and some have read those words to block federal jurisdiction over
a range of matters well beyond probate of a will or administration of a decedent’s
estate.”6 Thus, the Supreme Court clarified the “distinctly limited scope” of the
probate exception,7 explaining:
      [W]e comprehend the ‘interference’ language in Markham as
      essentially a reiteration of the guiding principle 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. Thus, the 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.8

The Marshall Court concluded that the federal district court had subject-matter
jurisdiction, and the probate exception did not apply, reasoning: “[The claimant]


      5
          Id. (internal citations omitted).
      6
          547 U.S. at 311.
      7
          Id. at 310.
      8
          Id. at 311–12.

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seeks an in personam judgment against [the Defendant], not the probate or
annulment of a will. Nor does she seek to reach a res in custody of a state
court.”9 After Marshall, the probate exception only bars a federal district court
from (1) probating or annulling a will or (2) “seek[ing] to reach a res in custody
of a state court” by “endeavoring to dispose of [such] property.”10
       As we see it, to determine whether the probate exception deprives a
federal court of jurisdiction, Marshall requires a two-step inquiry into (1)
whether the property in dispute is estate property within the custody of the
probate court and (2) whether the plaintiff’s claims would require the federal
court to assume in rem jurisdiction over that property. If the answer to both
inquiries is yes, then the probate exception precludes the federal district court
from exercising diversity jurisdiction. Here, we find the case outside the scope
of the probate exception under the first step of the inquiry because the Trust is
not property within the custody of the probate court.
       As a threshold matter, the probate exception only applies if the dispute
concerns property within the custody of a state court. The federal court cannot
exercise in rem jurisdiction over a res in the custody of another court. Both of
the Brunstings’ Wills were admitted to probate after the district court dismissed
the case, and probate proceedings are ongoing.11 However, nothing suggests that
the Texas probate court currently has custody or in rem jurisdiction over the
Trust. It likely does not. Assets placed in an inter vivos trust generally avoid
probate, since such assets are owned by the trust, not the decedent, and




       9
           Id. at 312 (internal citations omitted).
       10
            Id. at 312–13.
       11
          At the time the district court dismissed the case, no probate proceedings had been
initiated. As such, there was no possibility that the case fell within the probate exception.
Nevertheless, we must consider whether, upon remand, the federal district court would have
subject-matter jurisdiction now that probate proceedings are ongoing.

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                                       No. 12-20164

therefore are not part of the decedent’s estate.12 In other words, because the
assets in a living or inter vivos trust are not property of the estate at the time
of the decedent’s death, having been transferred to the trust years before, the
trust is not in the custody of the probate court and as such the probate exception
is inapplicable to disputes concerning administration of the trust. The record
also indicates that there would be no probate of this Trust’s assets upon the
death of the surviving spouse.13 Finding no evidence that this Trust is subject
to the ongoing probate proceedings, we conclude that the case falls outside the
scope of the probate exception. The district court below erred in dismissing the
case for lack of subject-matter jurisdiction.


                                              IV.
       For the reasons set forth above, we REVERSE the district court’s dismissal
of the case and REMAND for further proceedings.                         REVERSED AND
REMANDED.




       12
         See 3 TEX. PRAC. GUIDE WILLS, TRUSTS, AND EST. PLAN. § 10:83 (“Any property held
in a revocable living trust is not considered a probate asset . . . .”); 2 EST. TAX & PERS. FIN.
PLAN. § 19:15 (“Avoidance of probate perhaps is the most publicized advantage of the revocable
living trust.”’); 18 EST. PLAN. 98 (“Assets in a living trust are not subject to probate
administration . . . .”).
       13
         Any assets “poured over” from the decedents’ estates into the Trust would have to go
through probate, but that does not change the fact that the Trust property over which the
Defendants have been acting as Trustees would not be subject to probate, having been
transferred to the Trust prior to the parents’ deaths.

                                               6
