Kleeberg v. Eber
1:16-cv-09517
S.D.N.Y.Jul 6, 2017Background
- Beneficiaries (plaintiffs) owning two-thirds of a testamentary trust sue co-trustees alleging breach of fiduciary duty and fraudulent concealment based on uncle/co-trustee’s alleged self-dealing that transferred family business value to him and his daughter.
- Defendants moving to dismiss: The Canandaigua National Bank and Trust Company (CNB), successor co-trustee, and co-trustee Elliot W. Gumaer (joined by Gumaer).
- Shortly after this federal suit was filed, CNB petitioned the Monroe County Surrogate’s Court to settle its account, approve its resignation, and be discharged as co-trustee.
- Defendants argue federal court lacks subject-matter jurisdiction under the probate exception and alternatively that the court should abstain under Colorado River in deference to the state surrogate proceeding.
- District Court evaluates the probate-exception scope post-Marshall, relevant Second Circuit precedent (Lefkowitz), and timing-of-filing principles, then analyzes Colorado River abstention factors.
- Court denies motions to dismiss in full, holding federal jurisdiction exists and abstention is unwarranted; also rejects defendants’ challenge to punitive-damages pleading.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the probate exception deprives federal court of jurisdiction | Claims are in personam torts seeking money damages from defendants, not to probate the will or control estate property | Probate exception requires dismissal because claims arise from trustee conduct related to testamentary trust administration | Court: Probate exception does not bar adjudication of in personam tort claims; federal jurisdiction proper (post-Marshall and Lefkowitz) |
| Effect of the surrogate petition filed after federal complaint (time-of-filing) | Federal action vested jurisdiction when filed; later state petition cannot divest it | State surrogate petition (filed days later) creates overlapping proceedings and supports dismissal | Court: Time-of-filing rule controls; surrogate had not taken custody at filing, so federal jurisdiction remains (citing Grupo Dataflux and Chevalier) |
| Whether Colorado River abstention/comity requires dismissal in favor of surrogate court | Plaintiffs note federal forum is appropriate and surrogate court has not assumed property jurisdiction; parallelism and convenience weigh for federal court | Defendants argue state court can resolve the same claims and federal court should defer under Colorado River/Moses H. Cone | Court: Abstention inappropriate—state court hasn’t assumed jurisdiction over property, federal forum is at least as convenient, federal action filed first, and only exceptional circumstances would justify dismissal |
| Sufficiency of punitive-damages claim | Plaintiffs contend allegations support punitive damages based on alleged self-dealing and fraud | Defendants argue punitive damages not sufficiently pleaded | Court: Motion on punitive-damages pleadings denied; allegations sufficiently pled at this stage |
Key Cases Cited
- Marshall v. Marshall, 547 U.S. 293 (clarifies and narrows the probate exception)
- Lefkowitz v. Bank of New York, 528 F.3d 102 (2d Cir. — federal courts may adjudicate in personam tort claims against estate fiduciaries despite overlapping probate matters)
- Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567 (time-of-filing rule for diversity jurisdiction)
- Chevalier v. Estate of Barnhart, 803 F.3d 789 (6th Cir. — probate exception measured at time complaint filed; later probate proceedings don’t divest jurisdiction)
- Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (exceptional circumstances allow federal dismissal in favor of concurrent state proceedings)
- Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (factors guiding Colorado River abstention analysis)