609 F. App'x 677
2d Cir.2015Background
- Plaintiffs Howard and David Mercer are residual beneficiaries of a testamentary trust under their father Norman J. Mercer’s will (d. 2007).
- Defendants Bank of New York Mellon, N.A. and Martin D. Newman are two of the three trustees of the Trust; Carol Mercer is the lifetime beneficiary and the third trustee.
- Plaintiffs allege improper distributions from the Trust to Carol Mercer, asserting fiduciary, contract, and loyalty breaches by the trustees.
- The district court dismissed the complaint for lack of subject-matter jurisdiction under the probate exception to federal diversity jurisdiction, citing ongoing Surrogate’s Court proceedings in New York.
- New York Surrogate’s Court issued letters testamentary and trusteeship in 2009, with further petitions, hearings, and orders concerning removal and distributions prior to the federal suit.
- The Second Circuit affirms the district court, concluding the probate exception governs and the Surrogate’s Court’s supervisory control over the Trust precludes federal jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the probate exception bar federal jurisdiction here? | Mercer contends the claims are federal and not within probate custody. | BNY Mellon/Newman argue the claims seek control of probate assets and are barred. | Yes; the probate exception bars jurisdiction. |
| Did Surrogate’s Court supervisory control predate and defeat federal jurisdiction? | Surrogate’s Court did not have supervisory control at filing. | Surrogate’s Court already supervised administration. | Yes; exercise of supervisory control existed pre-filing and precludes jurisdiction. |
| Are plaintiffs’ remedies confined to in rem/administration relief that requires state proceedings? | Plaintiffs seek restoration of corpus from improper distributions. | Relief is effectively administration of the Trust under state court oversight. | Yes; relief cannot be granted in federal court, supporting dismissal. |
Key Cases Cited
- Lefkowitz v. Bank of N.Y., 528 F.3d 102 (2d Cir. 2007) (probate exception and in rem principles in federal jurisdiction)
- Marshall v. Marshall, 547 U.S. 293 (Supreme Court 2006) (probate exception does not bar all federal adjudication, but limits in-custody matters)
- Princess Lida of Thurn & taxis v. Thompson, 305 U.S. 456 (1939) (in rem principles and jurisdiction over trust/property matters)
- Beach v. Rome Trust Co., 269 F.2d 367 (2d Cir. 1959) (application of probate exception to trust administration)
- Penn General Casualty Co. v. Pennsylvania ex rel. Schnader, 294 U.S. 189 (1935) (reiteration of custody of a res principle in in rem proceedings)
- Waterman v. Canal-La. Bank & Trust Co., 215 U.S. 33 (1909) (in rem jurisdiction and custody of property principle)
- Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567 (2004) (statements about timing of facts for probate analysis)