Trust Updates Archive

20050808BSA Opening the Door to More Trust Challenges In Federal Court

(May 1, 2006--Chicago, IL)--By reining in the Ninth Circuit's overly "broad" interpretation of the probate exceptionin Marshall v. Marshall, the U.S. Supreme Court is opening the door to more federal court challenges in disputes involving trusts and estates.
The question in Marshall was: does the probate exception preclude federal courts from interfering with existing probate proceedings? The Ninth Circuit concluded it did. The Supreme Court unanimously disagreed finding that what the exception applies to is much narrower.
"The probate exception reserves to state probate courts the probate or annulment of a will and the administration of a decedent's estate," writes Justice Ruth Bader Ginsburg in the opinion issued today. "It also precludes federal courts from disposing of property that is in the custody of state probate courts."
The Court ruled that anything outside of that narrow confine is fair game for federal courts.
"The probate exception," Ginsburg writes "does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction."
While the Court's decision has significant impact for beneficiaries and for trustees, it is receiving substantially more mainstream attention than it otherwise would due to the background and buxomness of one of the parties: Vickie Lynn Marshall, better known as Anne Nicole Smith.
For beneficiaries and trustees it means that the doors, some might say flood gates, are now open to pursuing litigation in federal courts. This is good news for everyone, according to Dominic Campisi, partner in the San Francisco law firm of Evans Latham & Campisi.
"The beneficiary seeking experienced, bright federal judges or the bank seeking to avoid a probate judge with a bias against corporate fiduciaries" now has access to the federal courts, he says.
In Marshall, the widow initiated legal action against her stepson alleging that he interfered with her statutory right to support from her husband. Mrs. Marshall was 26 when she married the 89-year-old Texas billionaire J. Howard Marshal; he died some 14 months later. Before a Texas probate court ruled on Mrs. Marshall's claims, she filed for bankruptcy protection in California. The bankruptcy court awarded her some $475 million. This was eventually reduced by a federal district court to $88.6 million--half actual damages, half punitive damages. While the district court rejected the stepson's probate-exception argument, it found that the bankruptcy court exceeded its jurisdiction--that Mrs. Marshall's claim was not a "core bankruptcy proceeding."
After the Texas court ruled in favor of the stepson, he appealed the district court decision to the the Ninth Circuit which dismissed the case finding that federal courts have no jurisdiction because of the probate exception. The Ninth Circuit found the allegation of interference--which is a tort--was nothing more than a "thinly veiled will contest."
For Mrs. Marshall, the Supreme Court ruling means the Ninth Circuit can now review whether her claim was "core." It also means that the Ninth Circuit can hear her stepson's counterclaims and issues regarding preclusion.
Though the Supreme Court decision was unanimous, Justice John Paul Stevens issued a separate opinion arguing that the probate exception should be done away altogether, but given "a decent burial."
Marshall v. Marshall, No. 04-1544 (U.S. Supreme Court, decided May 1, 2006).

No statement in this issue is offered as or should be
construed as legal opinion or advice
.

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