Michael R. Pilkington v. Karen A. Pilkington
2017 Ind. App. LEXIS 95
| Ind. Ct. App. | 2017Background
- Flannan Pilkington died in 2006 leaving a testamentary trust holding his interests in five LLCs; wife Karen was life beneficiary/trustee and remainder beneficiaries were her stepsons Michael and Patrick.
- The trust contained a spendthrift clause prohibiting creditors from invading the trust to satisfy debts of the wife or residual beneficiaries.
- Michael filed Chapter 7 in 2009; the bankruptcy trustee sold Michael’s interest in the LLCs to Karen at auction via broad quitclaim deeds (describing “any interest [Michael] may have”).
- In 2015 Michael sued Karen in Delaware Circuit Court alleging breach of fiduciary duty as trustee and seeking an accounting, removal as trustee, restoration of trust assets, and damages; he asserted his remainder beneficiary interest remained despite the bankruptcy sale.
- Karen moved to dismiss for lack of subject matter jurisdiction, arguing Michael’s claim depended on a bankruptcy-court determination that his interest was extinguished and thus was exclusively or primarily a federal bankruptcy matter; the trial court dismissed with prejudice, finding Michael’s suit improperly attacked prior proceedings and he could have intervened earlier.
- The Court of Appeals reversed, holding the state trial court has jurisdiction to decide whether Michael’s beneficiary/remainder interest survived the bankruptcy and remanded for further proceedings on that threshold question.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the state court has subject-matter jurisdiction to adjudicate Michael’s trustee-breach and related claims because resolution requires determining if his remainder beneficiary interest survived bankruptcy | Michael: his remainder interest was protected by the trust’s spendthrift clause and could not be sold by the bankruptcy trustee; his claims are state-law trust claims not within exclusive bankruptcy jurisdiction | Karen: the bankruptcy sale and court orders divested Michael of any interest; only the bankruptcy court can decide what was sold and thus the state court lacks jurisdiction | Court: state (circuit) court has jurisdiction to decide whether Michael’s beneficiary interest survived the bankruptcy; reversed dismissal and remanded for determination of that threshold issue |
Key Cases Cited
- Cochran v. Rodenbarger, 736 N.E.2d 1279 (Ind. Ct. App. 2000) (inadmissible materials not considered on appeal)
- Santiago v. Kilmer, 605 N.E.2d 237 (Ind. Ct. App. 1992) (definition of subject-matter jurisdiction inquiry)
- Harp v. Ind. Dep’t of Highways, 585 N.E.2d 652 (Ind. Ct. App. 1992) (scope of authority inquiry for jurisdiction)
- Mishler v. Cnty. of Elkhart, 544 N.E.2d 149 (Ind. 1989) (presumption that courts of general jurisdiction have subject-matter jurisdiction)
- GKN Co. v. Magness, 744 N.E.2d 397 (Ind. 2001) (standard for reviewing dismissal for lack of subject-matter jurisdiction when resolving facts on paper)
- Matter of Wood, 825 F.2d 90 (5th Cir. 1987) (bankruptcy courts have exclusive jurisdiction only over the bankruptcy petition itself)
- Matter of Brady, Texas, Mun. Gas Corp., 936 F.2d 212 (5th Cir. 1991) (state courts have concurrent jurisdiction over matters "arising in" or "related to" bankruptcy unless Congress provides otherwise)
- In re Estate of Odenreider, 837 N.W.2d 756 (Neb. 2013) (probate court properly determined what interest was sold at prior bankruptcy auction)
- Marshall v. Marshall, 547 U.S. 293 (2006) (clarifying limits of the probate exception to federal jurisdiction)
- Dunn v. Menassen, 913 S.W.2d 621 (Tex. App. 1995) (state court retained jurisdiction over claim after related bankruptcy concluded)
- Fuqua v. Graber, 158 S.W.3d 635 (Tex. App. 2005) (state malicious-prosecution claim not preempted by prior bankruptcy where claim accrued after discharge)
- Gonzales v. Parks, 830 F.2d 1033 (9th Cir. 1987) (federal courts, not state courts, generally determine incentives and penalties related to bankruptcy)