Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-05997/USCOURTS-caed-1_04-cv-05997-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1335 Interpleader Action

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

AMERICO FINANCIAL LIFE AND CASE NO. CV-F-04-5997 LJO

ANNUITY INS. CO., 

ORDERONCROSSDEFENDANT KELLY’S

Plaintiff, SECOND MOTION TO DISMISS, OR IN THE

ALTERNATIVE, FOR SUMMARY

vs. JUDGMENT (Doc. 44)

THOMAS KELLY, et al,

Defendants.

 /

AND RELATED CROSS -ACTION

__________________________________/

Cross defendant Thomas Kelly (“Kelly”) moves to dismiss the “counter-claims” of cross

complainants Carla Lucas, Carlene Lucas, Diane Seifuddin, Arlene Beale (collectively “crosscomplainants”), or in the alternative for summary or partial summary judgment. On September 30,

2005, cross-complainants filed an opposition. On October 19, 2005, Thomas Kelly filed a reply.

Thereafter, on October 21, 2005, cross-complainants filed a supplemental brief and requested a stay of

this entire action. Following a review of the supplemental brief, the Court requested that Thomas Kelly

supplement his briefing. On October 26, 2005, Kelly filed a supplemental brief. Having considered the

moving, opposition, reply and supplemental papers, as well as the Court’s file, the Court issues the

following order.

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Case 1:04-cv-05997-LJO Document 81 Filed 10/28/05 Page 1 of 6
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Overview

This case is an interpleader action filed by Americo Financial Life and Annuity Ins. arising from

the proceeds of an Annuity issued to Virginia Kelly. Virginia Kelly is identified as the joint owner of

the Annuity, with defendant, Thomas Kelly (Thomas) as the other joint owner and sole beneficiary. The

net value of the Annuity, as of July 15, 2004, is $292,857.00. Americo has been discharged from the

case.

The cross-complainants Clara Lucas, Carlene Lucas, Diane Seifuddin, and Arlene Beale filed

a “counter-claim” challenging Kelly’s self dealing with the Annuity and an inter vivos trust created by

Virginia which became irrevocable on her death. 

Kelly’s Prior Motion

In the prior motion by Kelly against Carla Lucas, Pauline Lucas, Arlene Beale, and Dianne

Siefuddin, this Court granted Kelly’s motion to dismiss the cross complainants’ claims in their

Amended Counter Claim which challenge cross-complainants’ right to recover under Virginia Kelly’s

trust or Virginia Kelly’s will. On January 13, 2005, this Court held that it did not have jurisdiction to

resolve the issues of the trust, under the probate exception to federal jurisdiction. This Court also denied

the motion for summary judgment on the Annuity based upon Rule 56(f): “Given that the motion for

summary judgment has been brought within a short time of the filing of the action, the Court will grant

the cross complainants request to deny the motion and permit discovery.”

The Current Motion

In Thomas Kelly’s motion, he argues that dismissal or summary judgment is appropriate in that

there is no issue of fact. He is the co-owner of the Annuity and sole beneficiary.

Intertwined Trust and Contract Issues

The cross-complainants allege, in part, that Thomas Kelly fraudulently and by undue influence

became a joint owner of decedent’s Annuity through Atlas Annuities. Prior to this time, crosscomplainants were the beneficiary to Atlas Annuity.” (Amended Counter claim, Doc. 26, para.11.) The

counter claim also alleges that the taking, secreting and misappropriation of decedent’s money and

property by Thomas Kelly was for Thomas Kelly’s benefit. (Amended Counter claim, Doc. 26, para.14.)

The cross-complainants’ challenge to the Annuity has evolved during the course of this litigation.

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Initially, they claimed they were the beneficiaries of the Annuity. Through discovery, evidence

apparently was uncovered. Currently, they claim, and present evidence, that the funds which were used

to purchase the Annuity should have been part of Virginia Kelly’s Living Trust and as such, the crosscomplainants would have received a portion of the Annuity.

Their argument intertwines trust and contract issues. As to the trust issues, this Court previously

ruled in Thomas Kelly’s motion for summary judgment that the Court was without jurisdiction to resolve

the trust, due to the probate exception to federal jurisdiction.

Where federal court jurisdiction otherwise exists (based on diversity of citizenship or a 'federal

question'), federal courts may not exercise jurisdiction to probate a decedent's will, administer a

decedent's estate or entertain any action that would interfere with pending state court probate

proceedings. Markham v. Allen, 326 US 490, 494, 66 S.Ct. 296, 298 (1946). The “probate exception”

to federal jurisdiction, however, is narrowly construed. Federal courts may exercise their jurisdiction

to adjudicate claims against a decedent's estate 'so long as the federal court does not interfere with the

probate proceedings or assume general jurisdiction of the probate or control of the property in the

custody of the state court.' Markham v. Allen, supra, 326 U.S at 494, 66 S.Ct. at 298. 'The judicially

created exemption ... is not an absolute rule, but rather the question is whether the court in its discretion

should abstain ... The court should abstain only when hearing the claim would require the court to delve

into the parties' domestic affairs.' Rash v. Rash, 173 F.3d 1376, 1380 (11th Cir. 1999) (emphasis added).

In addition to the above, the Court relied upon In re Marshall, 392 F.3d 1118 (9th Cir. 2004).

In Marshall, the Ninth Circuit stated: “The reach of the probate exception encompasses not only direct

challenges to a will or trust, but also questions which would ordinarily be decided by a probate court in

determining the validity of the decedent's estate planning instrument. Such questions include fraud,

undue influence.” The United State Supreme Court has granted certiorari in In re Marshall. Marshall

v. Marshall, --- S.Ct. ----, 2005 WL 1198459 (2005). The grant of certiorari in the Marshall case creates

uncertainty in the scope of the probate exception to federal jurisdiction.

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 The parties dispute whether the Virginia Kelly Trust dated 07-19-97 is an “irrevocable” trust and whether the

Virginia Kelly Living Trust, dated March 21, 2003 revoked and restated, in full, the 1997 trust. The 1997 trust has not been

provided to this Court, and in any event, decisions on the trust are not within this Court’s jurisdiction.

2

 Atlas is purportedly a sister company of World Savings. (Moses Hall Decl.)

3

 The Court does not imply that, in fact, improper dealing occurred. The Court is solely concerned with (1) does

it have jurisdiction to resolve the issues, and (2) if it has jurisdiction, are there issues of fact precluding summary adjudication.

4

The cross complainants challenge the estate planning device chosen by Virginia - - her trust.1

They allege that there was undue influence upon a testator and tortious interference with the testator’s

intent. They have presented issues of fact, which this Court does not have jurisdiction to resolve, as to

whether the funds used to purchase the Annuity were part of or should have been part of the trust.

Cross- complainants present copies of checks which were drawn on the Bank of America account and

placed in an Atlas Strategic Income Account (Exh. F to Moses Hall Decl.) and funds drawn from Atlas

Certificates of Deposit and converted to an Atlas Annuity. (Exh. H to Moses Hall Decl.) These funds

were then used to purchase the Americo Annuity. (Exh. G and Exh. E to Moses Hall Decl.) 

The Virginia Kelly Living Trust lists these “source” assets as trust assets. (Exh. 6 to Moses Hall

Decl.) Schedule A to the Virginia Kelly Living Trust lists the trust assets as Virginia’s residence, a

checking account at Wells Fargo, certificates of deposit at World Savings,2 and certificates of deposit

at Atlas (account numbers are not listed). Thus, it could reasonably be inferred that the funds were

intended to be part of the Living Trust.

Thomas Kelly was not the trustee of the Virginia Kelly Living Trust at the time the Annuity was

purchased. He, however, held a general durable power of attorney on Virginia’s behalf dated March 21,

2003, and the transfer of the funds and purchase of the Annuity occurred thereafter. There are

allegations of improper self dealing in the trust assets.3 Resolution of the issues would require this Court

to delve into “the parties' domestic affairs.” Rash v. Rash, 173 F.3d at 1380. 

The cross-complainants filed a petition on October 17, 2005 is the State of California Superior

Court to resolve the issue of the trust. (Doc. 76, Request for Judicial Notice, Exh. A.)

Thomas Kelly argues that this Court can adjudicate the issue of the Annuity, because it is a

contractual issue which is not in dispute. He argues it is not disputed that he is the sole beneficiary of

the Annuity. He points out that the cross-complainants concede they are not beneficiaries or owners of

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the Annuity.

The Court cannot reach this issue because of the intertwined trust and contract issues. The trust

issues are pending in state court proceedings. Whether the state court determines the merits of the trust

or determines the challenge to the trust has been waived, is entirely within the jurisdiction of the probate

proceeding.

Stay of the Action

Thomas Kelly argues that the Court cannot stay the interpleader action “because there is no

authority for the court, once a summary adjudication and dismissal is entered, to maintain any pending

action in reference to Mr. Kelly’s right as a contracting party to the annuity.” (Doc. 80, Kelly

Supplement Memorandum p.4:3-6.)

Here, the Court has not entered summary adjudication and dismissal. The Court, rather, is

determining whether it has jurisdiction to resolve intertwining issues of trust and contract law.

Moreover, this Court possesses the inherent power to control its own docket and calendar.

Mediterranean Enters., Inc. v. Sangyong Corp., 708 F.2d 1458, 1465 (9th Cir.1983) (citations omitted).

A trial court may, with propriety, find it is efficient for its own docket and the fairest course for the

parties to enter a stay of an action before it, pending resolution of independent proceedings which bear

upon the case. This rule does not require that the issues in such proceedings are necessarily controlling

of the action before the court. Id. (quoting Leyva v. Certified Grocers, 593 F.2d 857, 863-64 (9th

Cir.1979)).

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Conclusion

For the foregoing reasons, the Court issues the following order:

1. This action is STAYED pending resolution of the state court proceeding.

2. The pretrial conference of November 3, 2005 and the trial of January 23, 2006 are

VACATED.

3. This Court SETS a status conference for February 23, 2006 at 8:30 a.m. in Department

6. The parties may appear by arranging a one-line conference call and telephoning the

Court at 559-498-7322.

IT IS SO ORDERED.

Dated: October 27, 2005 /s/ Lawrence J. O'Neill 

b9ed48 UNITED STATES MAGISTRATE JUDGE

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