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Kleeberg v. Eber

United States District Court, S.D. New York

July 6, 2017

DANIEL KLEEBERG, et al., Plaintiffs,
v.
LESTER EBER, et al. Defendants

          Brian C. Brook Kari L. Parks Clinton Brook & Peed Attorneys for Plaintiffs.

          William G. Bauer Woods Oviatt Gilman LLP Attorneys for Defendant The Canandaigua Naitonal Bank and Trust Company

          Robert B. Calihan Calihan Law PLLC Attorneys for Defendant Elliot W. Gumaer

          MEMORANDUM OPINION

          Lewis A. Kaplan United Slates District Judge.

         This family dispute involves claims by the beneficiaries of a collective two-thirds interest in a testamentary trust under the will of a long-deceased ancestor that they were done out 2 of their just desserts by misconduct of the co-trustees, most notably their uncle, the testator's sole surviving son. The plaintiffs assert, among others, claims of breach of fiduciary duty and fraudulent concealment based largely on their uncle's alleged self-dealing by which he is said to have appropriated to himself and his daughter the entire ownership of what has become of the family business over the decades. The matter is before the Court on the motions of The Canandaigua National Bank and Trust Company (“CNB”), a successor co-trustee of the trust, and one of its two other co-trustees, Elliot W. Gumaer, to dismiss the action or for other relief.[1]

         The Probate Exception to Diversity Jurisdiction

         Days after the commencement of this action, CNB filed a petition in the New York Surrogate's Court, Monroe County, for an order judicially settling its account, approving its resignation as co-trustee, and discharging it from any liability as successor co-trustee of the testamentary trust. It and Mr. Gumaer now seek dismissal - although complete diversity of citizenship exists and the requisite jurisdictional amount is claimed - based on the contention that this Court lacks subject matter jurisdiction by virtue of the so-called probate exception to diversity jurisdiction. The argument fails for at least two reasons.

         To begin with, the Supreme Court in Marshall v. Marshall[2] sharply curtailed the probate exception. It held that[3]

“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.”

         Our Circuit has followed this principle.[4]

         CNB's Surrogate's Court petition does not seek to probate or annul a will. That court has not taken custody of any property. And while plaintiffs' tort claims seek to impose in personam liability on movants and their co-trustees, the adjudication of such claims - despite the fact that they are based on the actions of a co-trustee of a testamentary trust - would not trench improperly on powers of the Surrogate's Court with respect to “the administration of a decedent's estate.” We need look no farther that the Second Circuit's decision in Lefkowitz for proof.

         The Lefkowitz plaintiff sued The Bank of New York, executor of her parents' estates. In relevant part, she brought “in personam claims for breach of fiduciary duty (Count IV), aiding and abetting breach of fiduciary duty (Count V), fraudulent misrepresentation (Count VII), and fraudulent concealment (Count VIII).”[5] For each, she sought “damages from Defendants personally rather than assets or distributions from either estate.”[6] The district court dismissed those claims under the probate exception. But the Circuit reversed, stating:[7]

“While the issues involved in [these] claims undoubtedly intertwine with the litigation proceeding in the probate courts, in addressing the claims, the federal court will not be asserting control of any res in the custody of a state court. A federal court properly exercises its jurisdiction to adjudicate rights in property in the custody of a state court 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. The probate exception can no longer be used to dismiss widely recognized torts such as breach of fiduciary duty or fraudulent ...

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