Does the probate exception-which ostensibly gives state courts jurisdiction over all probate cases-apply where the probate issue is part of a bankruptcy proceeding and involves a trust instead of a will.
When billionaire oil tycoon J. Howard Marshall II died, he was survived by his wife of one year, Vickie Lynn Marshall-better known as Anna Nicole Smith. Mr. Marshall's son from a previous marriage, E. Pierce Marshall, became the executor of the elder Marshall's estate and the principal beneficiary of an inter vivos trust, neither of which included Mrs. Marshall. Nevertheless, a legal battle between Mrs. Marshall and E. Pierce over exactly what Mr. Marshall intended for his wife has taken place since Mr. Marshall's death. The case has bounced from a probate court in Texas, to a federal bankruptcy court in California, and now to the Supreme Court of the United States. The issue now before the Court concerns the relationship between federal and state powers, as related to the "probate exception" to federal jurisdiction-namely, when can federal courts, including bankruptcy courts, decide cases involving traditionally state-directed claims in inheritance. The Supreme Court's decision in this case will affect the rights not only of state and federal judicial systems, but also the multitude of individuals throughout the nation planning, managing, and litigating their rights in estates, finances, and the future livelihoods of themselves and their loved ones.
Questions as Framed for the Court by the Parties
1. What is the scope of the probate exception to federal jurisdiction?
2. Did Congress intend the probate exception to apply where a federal court is not asked to probate a will, administer an estate, or otherwise assume control of property in the custody of a state probate court?
3. Did Congress intend the probate exception to apply to cases arising under the Constitution, laws, or treaties of the United States (28 U.S.C. ? 1331), including the Bankruptcy Code (28 U.S.C. ? 1334), or is it limited to cases in which jurisdiction is based on diversity of citizenship?
4. Did Congress intend the probate exception to apply to cases arising out of trusts, or is it limited to cases involving wills?
Vickie Lynn Marshall (known to most of the world as Anna Nicole Smith) married eighty-nine-year-old billionaire oil tycoon J. Howard Marshall II in 1994, shortly before his death. During their fourteen-month marriage, Mr. Marshall provided his wife with numerous cash and personal property gifts worth several million dollars, but for lack of time, desire, or otherwise, never formally provided for her in the disbursement of his estate. Mr. Marshall did leave behind several versions of his final will, along with an inter vivos trust that named one of his sons, E. Pierce Marshall, as beneficiary. Mr. Marshall did not include Mrs. Marshall in either of these instruments, although he had apparently discussed with his lawyers on several occasions the potential of creating a "catch-all" trust to provide for Vickie in the event of his death. Mrs. Marshall claims that Mr. Marshall promised to give her half of his estate if she would marry him.
Upon Mr. Marshall's death in 1995, E. Pierce, now the executor of Mr. Marshall's estate, refused to provide Mrs. Marshall with any proceeds of the will or trust. Mrs. Marshall sued E. Pierce in Texas probate court, claiming E. Pierce had altered or destroyed a trust that Mr. Marshall prepared for her and alleging tortious interference with her statutory right to support from her husband. E. Pierce denies this, and filed Mr. Marshall's will for probate and a counterclaim seeking a declaratory judgment that the last will and trust are valid instruments.
As the probate case proceeded in Texas, Mrs. Marshall filed for bankruptcy in federal court in California. E. Pierce joined the bankruptcy proceedings, claiming that Mrs. Marshall's claims against E. Pierce defamed him publicly. Mrs. Marshall counterclaimed, again alleging that E. Pierce tortiously interfered with a trust that Mr. Marshall intended to set up for her. E. Pierce invoked the "probate exception" to federal court jurisdiction, claiming that the bankruptcy court could not rule on an issue primarily concerning state probate matters. The federal bankruptcy court denied the exception and granted jurisdiction over Mrs. Marshall's counterclaim. The bankruptcy court found in Mrs. Marshall's favor and held that Pierce had prevented Mr. Howard from creating a trust for his wife. The court awarded Mrs. Marshall over $470 million in compensatory and punitive damages.
Mrs. Marshall, banking on the federal court decision, dropped her claims in the Texas probate court, but doing so did not dismiss her as a defendant from E. Pierce's counterclaim. The probate court then found for E. Pierce and against Mrs. Marshall, deciding to ignore the prior holding from the federal bankruptcy court. Meanwhile, E. Pierce appealed the bankruptcy court's decision to federal district court, which affirmed Mrs. Marshall's victory but reduced her damages tenfold-to $44 million. Both parties then appealed the district court's decision to the Court of Appeals for the Ninth Circuit, with Mrs. Marshall disputing the reduced damages and E. Pierce disputing the entire holding. The Ninth Circuit reversed the district court's holding and ruled that the probate exception should apply because the matter was indeed primarily probate in nature. Mrs. Marshall, appealed the Ninth Circuit's decision to the U.S. Supreme Court, which granted certiorari to decide the scope and applicability of the said "probate exception."
The legal issues that the Supreme Court must clarify in this case may not be as tabloid-worthy as those normally surrounding petitioner, a former Playboy Playmate-of-the-Year (not to mention alleged gold-digger, reality television star, and spokeswoman for Trimspa)-but they are undoubtedly just as controversial.
I. Scope of the Probate Exception to Federal Jurisdiction
The overarching legal question that the Supreme Court will address is the scope of the "probate exception" to federal jurisdiction. Federal jurisdiction refers to the power of a federal court, as opposed to a state court, to hear and decide a case. See U.S. Const. art. III, § 2. In 1946, the Supreme Court explained the probate exception as follows: federal courts do not have jurisdiction over a claim that involves probate matters if federal adjudication of the claim would "interfere with the probate proceedings or assume general jurisdiction of the probate or control of the property in the custody of the state court." Markham v. Allen, 326 U.S. 490, 494 (1946).
The Court's seminal decision in Markham will likely control here because it was the last time that the Court reviewed a case involving the probate exception. See Petition for Writ of Certiorari at 10. Mrs. Marshall (a.k.a. Anna Nicole Smith) believes that the Markham court recognized broad federal jurisdiction over probate-related suits and, therefore, the probate exception is extremely narrow. See Petitioner's Reply Brief at 8-9. In contrast, E. Pierce believes that the probate exception is a broad and sweeping bar to federal interference of an exclusive state province. See Respondent's Brief in Opposition at 15-16.
At issue here is how the Court will draw the line between federal and state court jurisdiction with regard to probate matters. Generally, whenever federal courts have concurrent jurisdiction with state courts, the rule is that "the pendency of an action in the state court is no bar to proceedings concerning the same matter in the federal court having jurisdiction." Brief for Petitioner at 41 (quoting McClellan v. Carland, 217 U.S. 268, 282 (1910)). But the probate exception may exist precisely to avoid concurrent federal-state jurisdiction over probate-related matters. Indeed, the probate exception derives from the principle that states are the ultimate authority for making wills, so state courts-not federal courts-are the appropriate forum for will and probate administration. See Amicus Brief of Law Professors Supporting Respondent at 3, 9. Moreover, federal adjudication of a claim involving probate matters may constitute an impermissible interference of probate courts' core functions. See Brief for Respondent at 31.
In determining the scope of the probate exception to federal jurisdiction, the Court may examine the origins of federal jurisdiction vis-?-vis the probate exception. Indeed, federal jurisdiction is a power that the Constitution and Congress conferred upon the federal courts. See U.S. Const. Art. III § 2; 28 U.S.C. § 1331; see also Brief for the United States as Amicus Curiae Supporting Petitioner at 9. The probate exception, on the other hand, is judicially-created, and its scope turns in part on a state's probate laws. See Id. at 13. If it appears unlikely that the Court will allow a judicially-created exception to truncate the availability of the constitutionally- and statutorily-created federal forum, then it may be even more unlikely that the Court will allow state law to shape the federal courts' jurisdiction over probate-related matters, given that doing so may conflict with the Supremacy Clause. See Brief for Petitioner at 44-46.
But the Court may allow just that. Arguably, congressional acquiescence has integrated the probate exception into federal jurisdictional statutes. See Brief of States as Amici Curiae in Support of Respondent at 15-18. Because Congress has "with full cognizance" tolerated the long-standing probate limitation on federal jurisdiction, showing no intent to disturb it, the Court may find that Congress has accepted the probate exception as a valid limitation on federal jurisdiction, and that states have not unconstitutionally usurped federal jurisdiction through their probate legislation. See Id. at 18; Brief for Respondent at 24.
Policy reasons may also guide the Court's decision in determining the scope of the probate exception. For instance, resolution of probate-related matters in a single state forum promotes judicial economy and provides the certainty and finality that are critical to effective estate planning. See Brief of States as Amici Curiae in Support of Respondent at 20-21, 24. Furthermore, perhaps federal courts should leave probate matters to the state probate courts because probate judges are experts in the area. See Id. at 22; Brief of Amicus Curiae National College of Probate Judges in Support of Respondent at 16-17. The Court will have to weigh these factors against the importance of having a federal forum available to litigants seeking a fair trial "free from local interests or prejudice." See Brief for the United States as Amicus Curiae Supporting Petitioner at 26 (citing Arizona v. Manypenny, 451 U.S. 232, 242 (1981)).
II. Applicability of the Probate Exception to Federal Question Cases, Including Bankruptcy
The Court may also answer the question of whether the "probate exception" applies to federal question cases, as opposed to only diversity cases. In order to exercise federal jurisdiction, a federal court must have subject matter jurisdiction, which arises either from diversity or from the existence of a valid federal question. See U.S. Const. art. III, § 2; 28 U.S.C. § 1332; 28 U.S.C. § 1331. Diversity exists when the dispute is between citizens of different states. See 28 U.S.C. § 1332. A federal question exists in cases that involve or question federal law. See id.; 28 U.S.C. § 1331.
The problem with applying the probate exception to federal question cases is that doing so allows the state courts, not federal courts, to decide questions involving federal law. As the Court has previously held, "[o]nly Congress may determine a lower federal court's subject-matter jurisdiction." Brief for Petitioner at 28-29 (citation omitted). If the Court is unwilling to overlook this limitation, it will narrow the probate exception to diversity cases. On the other hand, the Court may find that the exception applies in federal question cases because state courts are courts of general jurisdiction, having full power to decide questions of federal law. See Brief of Amicus Curiae National College of Probate Judges in Support of Respondent at 28.
A more specific issue that the Court may decide is whether the probate exception applies to bankruptcy cases. The Court's decision will turn on its interpretation of congressional intent-that is, whether Congress intended to allow a probate exception to federal bankruptcy jurisdiction. To determine congressional intent, the Court will probably first look to the plain text of the bankruptcy jurisdictional statute, which grants to federal bankruptcy courts exclusive jurisdiction over all cases "under" the Bankruptcy Code (Title 11 of the U.S. Code), and nonexclusive jurisdiction of all civil proceedings "arising under" or "arising in or related to" cases under the Bankruptcy Code. See 28 U.S.C. § 1334. Thus, the Court will either broadly read as written the pervasive scope of the bankruptcy jurisdictional statute, or narrow it by finding an implicit exception in the realm of probate. See Brief in Support of Petitioner for Amici Curiae Professors at 7.
Arguably, section 1334's plain language shows that Congress intended to provide federal courts with complete jurisdiction over all bankruptcy-related claims, and that for the Court to imply a probate exception would directly contravene Congress's intent to invest federal courts with broad jurisdiction to determine bankruptcy-related claims. See Brief for Petitioner at 31. Furthermore, the Court has recognized that one legislative purpose in creating the bankruptcy statute was to "deal efficiently and expeditiously with all matters connected with the bankruptcy estate." Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995). Another purpose is to "deriv[e] as much value as possible from the debtor's estate." Toibb v. Radloff, 501 U.S. 157, 164-65 (1991). Thus, the Court, by canceling a portion of the bankruptcy jurisdiction via the probate exception, may not only invade the province of Congress, it may also interfere with Congress's goal to bring all debtor's property into the estate for the benefit of creditors. See Brief in Support of Petitioner for Amici Curiae Professors at 23-24.
Alternately, Congress may not have intended for the federal bankruptcy jurisdiction to hold in probate matters. See Brief for Respondent at 44. When Congress enacted the bankruptcy jurisdiction statute in 1978, courts had already firmly established the limitations on federal jurisdiction over state probate matters, but Congress did not indicate anywhere in the text of the bankruptcy jurisdiction statute that it intended to change the longstanding probate exception. See Id. at 45; Amicus Brief of Law Professors Supporting Respondent at 16. Indeed, the Court has previously recognized that it is appropriate to apply the probate exception to the bankruptcy court's assertion of federal jurisdiction. See Harris v. Zion Savings Bank & Trust Co., 317 U.S. 447 (1943). In Harris, the Court explained that "inconsistencies and difficulties" would arise if bankruptcy were pursued in conflict with the probate court's direction, concluding that "[t]he probate court, not the bankruptcy court, is the appropriate forum for weighing the respective benefits or detriments to those who share in the equity of the decedent's estate." Id. at 450, 452. Again, nothing in section 1332 indicates that Congress silently intended to abrogate the principles that the Court set forth in Harris. See Amicus Brief of Law Professors Supporting Respondent at 23.
III. Applicability of the Probate Exception to Trusts
Another question the Court may answer is whether Congress intended the probate exception to apply to cases arising out of trusts and not only to cases involving wills. In 1918, the Court established the principle that federal courts lack jurisdiction "to probate a will." Sutton v. English, 246 U.S. 199, 205 (1918). The Court may thus construe the probate exception as strictly applying to matters of pure probate, with no basis for extending it to encompass trusts. See Brief for the United States as Amicus Curiae Supporting Petitioner at 18. Conversely, the Court may consider trusts merely as substitutes to wills, and so the probate exception should apply equally to both instruments. See Brief of Amicus Curiae National College of Probate Judges in Support of Respondent at 22.
IV. Applicability of the Probate Exception Where a Federal Court Is Not Asked to Decide Probate Matters
Finally, the Court may decide not to reach any of these issues at all if it holds initially that the dispute at bar does not concern probate. Indeed, Mrs. Marshall's claim against E. Piece is one of tortious interference with an intended inter vivos gift-it does not ask the federal court to probate a will, administer an estate, or otherwise assume control of property in the custody of a state probate court. See Brief for Petitioner at 13-14, 25. Thus, the Court may find that her claim has no effect on the administration or distribution of Mr. Marshall's probate estate because it is against E. Pierce individually and not against Mr. Marshall's estate. See Id. at 25. But according to the Ninth Circuit, although Mrs. Marshall "styles her action as a tort action, it is clear that the exercise of federal jurisdiction would and, in this case, did interfere with the Texas probate court proceedings." Marshall v. Marshall, 392 F.3d 1118, 1134 (9th Cir. 2004). In other words, the Court may find that Mrs. Marshall is using her tort claim merely as a disguise for a second chance to litigate her probate claim against the estate of her late husband. See Id. at 1135. If so, the Court will consider applicable all the probate exception issues discussed above.
As surprising as it may seem that Anna Nicole Smith would find herself before the U.S. Supreme Court, this case will actually answer several important questions regarding the relationship between federal and state courts in probate proceedings. Mrs. Marshall's (Anna's) claim is that her federal bankruptcy proceeding and its resulting $470 million award are completely separate from the state arena of probate, the process of validating the will and distribution of its accompanying estate. See Petitioner's Reply Brief at 5.
To support her proposition, Mrs. Marshall proposes that the "probate exception" that E. Pierce relies on is limited in scope. She claims it applies only if (1) a federal court "interferes" with a state probate court; (2) the basis for jurisdiction is diversity of citizenship (i.e., where a federal court hears cases between parties of different states, as opposed to subject matter jurisdiction, where a federal court hears cases regarding federal or constitutional law); or (3) the case regards a will (whereas Mrs. Marshall's case involves a trust). See Petitioner's Reply Brief at 8-9.
In order to defeat Mrs. Marshall's claim, E. Pierce responds that the probate exception is a broad and sweeping bar to federal interference of an exclusive state province. See Respondent's Brief in Opposition at 15-16. E. Pierce claims that Mrs. Marshall's bankruptcy proceeding was in reality a thinly-veiled probate case, and that under Texas law, probate matters are only to be tried in state court. Id. E. Pierce also characterizes broadly the definition of "interference" by a federal district court in state probate proceedings, in order to find that Mrs. Marshall's bankruptcy holding was not valid in light of the pending state probate case. See id. at 26-27.
The Supreme Court's decision here should clarify these matters, and guide the state and the federal courts regarding their proper roles in inheritance disputes. Most directly affected will be those individuals who find themselves engaged in such unfortunate but common disputes. A broad reading of the probate exception will deprive parties with similar claims of the federal forum; these parties would suddenly find themselves locked into the single venue of state probate court with respect to all of their claims. On the other hand, a narrow interpretation of the probate exception interpretation would prevent this, but would also add to an estate's uncertainty, as it could find itself hailed into a federal court on a largely unrelated matter, potentially resulting in an unrelated judgment that nevertheless dispossess the estate of a large portion of its proceeds. While a strong probate exception can mean less ambiguity with regards to where and how complicated inheritance matters are settled, the fact that estate cases tend to be complex and involve many different areas of law may necessitate a wider range of courts with the power to preside over such varied matters.
Also among the parties embroiled in estate proceedings are any creditors to an indebted estate. The federal bankruptcy courts exist in part to settle debtor matters, and as such applying a broad interpretation of the probate exception would deprive legitimate creditors of an avenue to settle their claims against a debtor estate. See Brief in Support of Petitioner for Amici Curiae Professors at 22.
The federal and state governments also find themselves affected by the Supreme Court's pending decision. The United States, in particular, often engages itself in probate matters, especially where bankruptcy, debt, or tax liability are implicated. See Brief for the United States as Amicus Curiae Supporting Petitioner at 1. Probate matters are also brought against the United States, of which it traditionally removes to federal district court. See Id. at 2. As such, the United States has a strong interest in protecting its interest as a party in these cases, and not finding itself locked into a particular state's court system in probate matters. Similarly, the United States has an interest in maintaining a say when a probate matter includes issues such as bankruptcy, which is in the exclusive domain of the federal courts. See Id. at 3-4.
While the Supreme Court has chosen to answer a relatively narrow range of questions regarding the applicability of the probate exception, the commonality of tax, bankruptcy, and credit issues makes it likely that the Court's decision will resolve a large fraction of disputes and complex matters surrounding probate cases.
Under the probate exception to federal court jurisdiction, federal courts may not interfere with probate proceedings in state courts because the laws governing probate matters are exclusive to each state. Here, the Supreme Court faces the challenge of defining the scope of the probate exception, and consequently, the allocation of power between state and federal courts. At stake are not only the interests of the litigants in this case, but also the United States, the fifty states, and perhaps any future litigation that directly or indirectly involves probate matters.