The opinion of the court was delivered by: SOFAER
This is a diversity action brought by A. Victor Barnes, the sole beneficiary and distributee of both an inter vivos and a testamentary trust established by his father, against Douglas W. Brandrup, a successor trustee of the trusts; Griggs Baldwin & Baldwin, a law firm in which defendant Brandrup is a partner; and the executors of the estate of Donald R. Baldwin, a late partner of the defendant law firm.
Plain tiff alleges numerous counts of breach of fiduciary duty and mismanagement of the trusts, seeking, inter alia, damages, an accounting, and reimbursement of various fees, commissions, and compensation received by the defendants. Defendants have moved to dismiss for lack of subject matter jurisdiction, and in the alternative for an order abstaining from exercising jurisdiction during the pendency of proceedings in the Connecticut Probate Court. The motion is denied.
Plaintiff's father, A. Victor Barnes, Sr., a Connecticut domiciliary, established an inter vivos trust in 1935. It provided that income from the trust property be paid to his wife (plaintiff's mother) during her lifetime, and that upon her death the corpus be paid to plaintiff. Plaintiff's father died in 1944. By his will, executed that year, plaintiff's father established a testamentary trust, which provided that the income of the trust property be shared by plaintiff and his mother during her lifetime, and that upon her death the corpus be paid to plaintiff. Plaintiff's father's estate was settled, and a final account allowed, in the Connecticut Probate Court (District of New Canaan) on July 20, 1949.
Defendant Brandrup was appointed successor trustee for both trusts in 1974. Plaintiff and his mother were the other trustees of the testamentary trust, and plaintiff's mother was the other trustee of the inter vivos trust. Accounts for the testamentary trust were filed with the Probate Court for each year from 1954 through 1975 and duly settled; no proceedings were thereafter held concerning that trust between 1975 and the commencement of this action. An account for the inter vivos trust was filed in 1973 and approved by the probate court; no accounts for the inter vivos trust were filed between 1973 and the commencement of this action.
In 1978, plaintiff's mother died. Plaintiff commenced this action on November 7, 1979. On November 15, 1979, defendant Brandrup filed a final account for the inter vivos trust in the Connecticut Probate Court for the District of New Canaan, and on December 6, 1979, he filed a final account for the testamentary trust.
In a letter dated December 6, 1979, New Canaan Probate Judge Penfield C. Mead stated that the allegations at issue in the federal action "are serious and frankly are not the sort that should be litigated in this (Probate) Court." He noted two options: "One is for this Court to defer to the federal proceeding and continue both accounts until the federal proceeding has been terminated .... The other choice is for this Court to enter a peremptory decision on both accounts and let the aggrieved party take its appeal to the Superior Court ...." He scheduled a hearing for January 9 "at which time I will decide which of the two proceedings to follow and if it is the second, I will at that time allow both accounts." On January 2, 1980, Judge Mead adjourned the hearings "until reclaimed by any interested party"; he allowed neither account, apparently choosing the former of the two options he identified.
I. Subject Matter Jurisdiction
These facts present the recurrent problem of defining the limits of a federal court's diversity jurisdiction over matters that are, at least in part, subject to the jurisdiction of a state's probate court. See generally Vestal & Foster, Implied Limitations on the Diversity Jurisdiction of Federal Courts, 41 Minn.L.Rev. 1, 13-23 (1956); Note, Federal Court Probate Proceedings, 45 Ind.L.J. 387 (1970). Historically, the jurisdiction of state courts over strict probate proceedings has been exclusive. The equity power conferred on federal courts by the Judiciary Act of 1789 and subsequent enactments included only that power held by the English Chancery Court in 1789; because the probate of wills and the grant of letters of administration were functions performed in England by the ecclesiastical courts, federal courts lack the power to probate or administer a will. Markham v. Allen, 326 U.S. 490, 66 S. Ct. 296, 90 L. Ed. 256 (1946); P. Bator, P. Mishkin, D. Shapiro & H. Wechsler, Hart and Wechsler's The Federal Courts and the Federal System 1186-89 (2d ed. 1973).
This action, however, involves a probate court's jurisdiction over trusts, not wills; plaintiff's father's estate was settled over thirty years ago. The historical limitation on the exercise of diversity jurisdiction is therefore inapplicable. Controversies concerning trusts were not in 1789 part of the exclusive jurisdiction of the ecclesiastical courts. And "it was early established that as to controversies that were not then (in 1789) regarded as probate matters federal jurisdiction could not be ousted by the mere internal arrangement of the state courts...." Beach v. Rome Trust Co., 269 F.2d 367, 373 (2d Cir. 1959).
Nevertheless, a federal court's power to adjudicate cases in which its diversity jurisdiction overlaps the jurisdiction of a state probate court may be limited by other principles of equity. Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 59 S. Ct. 275, 83 L. Ed. 285 (1939), established that in some circumstances a federal court lacks jurisdiction to adjudicate the merits of a case even though the requisites of diversity jurisdiction have been met.
Princess Lida was an application by beneficiaries of an inter vivos trust to have the Supreme Court reverse a determination by Pennsylvania courts that they had exclusive jurisdiction over claims of trustee mismanagement. The trustees had filed a partial accounting in Pennsylvania's Court of Common Pleas on July 7, 1930. Two of the beneficiaries commenced an action on the next day in the United States District Court for the Western District of Pennsylvania, charging the trustees with mismanagement, asking that they be made to account and to repay losses, and praying for their removal. The Court of Common Pleas thereafter enjoined the beneficiaries from proceeding in federal court, and that decision was affirmed by the Pennsylvania Supreme Court.
The question before the United States Supreme Court on review was "whether the exercise of jurisdiction by a state court over the administration of a trust deprives a federal court of jurisdiction of a later suit involving the same subject matter." 305 U.S. at 457, 59 S. Ct. at 277. To answer that question, the Court concentrated on the Pennsylvania Law defining the Common Pleas Court's jurisdiction over trusts. The Supreme Court found that, under Pennsylvania law, the filing of the account in the Common Pleas Court invoked that court's exclusive jurisdiction over the administration of the trust and that proceedings pursuant to that jurisdiction were quasi in rem. The Court therefore applied the settled principle of equity that when "two suits are in rem, or quasi in rem, so that the court, or its officer, has possession or must have control of the property which is the subject of the litigation in order to proceed with the cause and grant the relief sought the jurisdiction of the one court must yield to that of the other.... The doctrine is necessary to the harmonious cooperation of federal and state tribunals." Id. at 466, 59 S. Ct. at 280 (footnotes omitted). The prior filing of the state action had vested the state court with jurisdiction over a quasi in rem proceeding; because that court "could not effectively exercise the jurisdiction vested in it, without a substantial measure of control of the trust funds," id. at 467, 59 S. Ct. at 281, jurisdiction of the Pennsylvania court was deemed exclusive and its injunction against the federal proceeding was upheld.
The present suit must be classified as quasi in rem, and it is therefore subject to the rule of Princess Lida.
Both the federal and the state proceedings involve the management of trusts, and both seek forms of relief essentially identical to those sought by the trustees and beneficiaries in the Princess Lida litigation. Given that only one court may act, which court should it be?
The Court in Princess Lida relied upon three factors in concluding that the state court's jurisdiction was exclusive. The first factor was timing: the trustees' state court action for an accounting was filed prior to the federal suit brought by the beneficiaries for mismanagement. The accountings and other proceedings that had occurred in state court in prior years had not conferred continuing jurisdiction on the state courts, for each prior matter had been adjudicated and the trust res had revested in the trustees. Nevertheless, the Supreme Court repeatedly emphasized that the July 7, 1930 petition for an accounting was filed one day prior to the federal action. The other two factors involved the effectiveness and exclusivity of the state proceeding: the state court in which the first-filed action was commenced was vested by state law with the power to adjudicate all the claims presented effectively and exclusively. The Supreme Court analyzed in detail the applicable Pennsylvania law, which clearly vested adequate and exclusive powers in the Court of Common Pleas to adjudicate all claims and to render all relief requested.
That the state court regarded its own jurisdiction as exclusive was also apparent from its having enjoined the beneficiaries from continuing with their federal suit.
The present case differs from Princess Lida with respect to each of the three relevant factors. Here, the federal action was the first filed; the Connecticut Probate Court lacks the power to adjudicate all the claims effectively; and that ...