### IN THE UNI TED STAT ES COURT OFAPPEALS FOR THE FIF TH CIRCU IT

No. 12-20164

CANDACE LOUISE CURTIS, Plaintiff-Appellant

v. ANITA KAY BRUNSTING; DOES 1-100; AMY RUTH BRUNSTING, Defendants-Appellees

Appeal from the United States District Court for the Southern District of Texas

Before HIGGINBOTHAM, SMITH, and ELROD, Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge: This appeal concerns the scope of the probate exception to federal subjectmatter jurisdiction in the wake of the Supreme Court’s decision in Marshall v. Marshall

. The Plaintiff c ontends that, under Marshall , her claims for breach

1 of fiduciary duty against the co-trustees of an inter vivos trust do not implicate the probate exception. We agree. U n i te d S ta te s C o u rt o f A p p ea l s F i ft h C i rc u i t 

### F I L E D Janu ary9, 201 3 Lyle W . Cayce Clerk

547 U .S

. 293 (200 6). 1 Case: 12-20164 Document: 00512106036 Page: 1 Date Filed: 01/09/2013No. 12-20164 I. In 1996, Elmer H. and Ne lva E. Brunsting, Texas residents, established the Brunsting Family Living Trust (“the Trust”) for the benefit of their offspring. At the time of its creation, the Trust was funded with various assets. Both the will of Mr. Brunst i n g a n d t he will of Mrs. Brunsting (collectively “the Brunstings’ Wills”) ap p ear to include pour-over provisions, providing that all property in each estate is d evised and bequeathed to the Trust. Elmer H. 2 Brunsting passed away on April 1, 2009, and Nelva E. Brunsting passed away

on November 11, 2011. The current dispute arises out of the administration of the Trust. Candace Curtis, Anita Brunsting, and Amy Brunsting are siblings. In February 2012, Candace Curtis (“Curtis”) filed a complaint in federal district court against Anita Brunsting and Amy Brunsting (co l l e ctively “the Defendants”) based on diversity jurisdiction. In that complaint, she alleged that Anita and Amy, acting as co-trustees of the Trust, had breached their fiduciary duties to Curtis, a beneficiary of the Trust. Specifically, she alleged that Anita and Amy had misappropriated Trust property, failed to provide her documents related to administration of the Trust, and failed to provide a n a c c u r ate and timely accounting. The complaint alleged c laims for breach of fiduciary duty, extrinsic fraud, constructive fraud, and intentional infliction of emotional distress. Curtis sought compensatory damages, punitive damages, a temporary restraining order against “wasting the e s t at e , ” a n d a n in j u nc ti o n c o m p e llin g both

an accounting of Trust property and assets as well as production of documents and accounting records. On March 1, 2012, the district court denied Curtis’s application f o r a temporary restraining order and injunction because the Defendants had not

The signe d cop ies of the Bruns tings ’ Wills are not inc lude d in the rec ord , but Curt is 2 pr ovide d unsi gned cop ies , wh ich we ass ume mat ch the signe d vers ions that have been adm itt ed to pr obat e. 2 Case: 12-20164 Document: 00512106036 Page: 2 Date Filed: 01/09/2013No. 12-20164

been served with process. In the order, t h e di s t r ict court judged noted that it “app e ars that the court lacks subject matter jurisdiction over the claim(s) asserted

. ” On March 6, 2012, in response to the lis pendens Curtis had filed related to property in Texas and Iowa, Anita and Amy filed an emergency motion to remove the lis p e n d e n s . T he motion noted that it was subject to the Defendants’ contention that the federal district court lacked subject matter ju r i s d i c t ion under the probate exception to federal court jurisdiction, an issue that the Defendants said would be raised i n a separate Rule 12(b) motion to dismiss. On March 8, 2012, following a telephone conference with the parties, the district court judge entered a sua sponte order dismissing the case for lack of subject matter jurisdiction. In doing so, he conclu ded that the case falls within the probate exce p tion to federal diversity jurisdiction. This appeal followed.

II. This Court reviews de novo a district court’s dismissal for lack of subjectmatter jurisdiction. 3

III. Although a federal cou rt “has no jurisdiction to probate a will or administer an estate,” in Markham v. Allen , the Supreme Court recognized that 4 the probate exc e p t i o n d o es not bar a federal court from exercising jurisdiction over all claims related to such a proceeding: [F]ederal courts of e quity have jurisdiction to entertain suits ‘in favor of creditors, legatees and heris’ and other claimants against a decedent’s estate ‘to establish their claims’ so long a s the federal cou rt does not interfere with the probate proceedings or assume

Borde n v . Al ls tate Ins. Co. , 589 F.3d168 , 170 (5t h Cir

. 2009)

. 3
Ma rkha m v. A llen , 326 U. S. 490 , 494 (194 6). 4 3 Case: 12-20164 Document: 00512106036 Page: 3 Date Filed: 01/09/2013No. 12-20164

general jurisdiction over the probate or control of the property in the custody of the state court. Similarly wh i l e a f

ederal court may not exercise its jurisdiction to disturb or affect the possession of property in the custody of a state court, it may exercise its jurisdiction to adjudicate rights in su c h property where the final judgment does not undertake to interfere with the state cour t ’ s p o s s ession save to the extent that the state court is bound by the judgment to recognize the right adjudicated by the federal court. 5 Sixty years later, in Marshall v. Marshall , the Supre m e C o urt expressed concern with lower courts’ int e rp r e tation of Markham , noting that “[l]ower federal courts have puzzled over the meaning of the words ‘to int e r f e r e w i th the probate proceedings,’ and some have read those words to block federal jurisdiction over
a range of matters well beyond probate of a will or administration of a decedent’s estate.” Thus, the Supreme Court clarified the “distinctly limited scope” of the

6 probate exception, explaining: 7 [W]e comprehend the ‘ i nterference’ language in Markham as essentially a r e i t eration of the guiding principle that, when one court is exercising in rem jurisdiction over a res , a second court will not assume in rem jurisdiction over the same res . Thus, the probate exception reserves to state probate courts the probate or annulment of a will and the adm i nistration of a decedent’s estate; it also precludes federal cour t s from endeavoring to dispose of property that is in the custody of a state pro b a t e court. But it does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction. 8
The Marshall Court concluded that the federal district court had subject-matter jurisdiction, and the probate exception did not apply, reasoning: “[The claimant]

Id. (inte rnal cit atio ns om itt ed)

. 5
547 U .S

. at 311. 6
Id. at310

. 7
Id. at311 –12. 8
4 Case: 12-20164 Document: 00512106036 Page: 4 Date Filed: 01/09/2013No. 12-20164

seeks an in personam judgment against [the Defendant], not the prob a t e or
a n n ulment of a will. Nor does she seek to reach a res in custody o f a s t a t e court.” After Marshall , the probate exception only bars a federal district court

9 from (1) probating or annulling a will or (2) “seek[ing] to reach a res in custody of a state court” by “endeavoring to dispose of [such] property.” 1 0 As we see it, to determine whether the probate exception d e p rives a federal court of jurisdiction, Marshall requires a two-step inquiry into (1) whether the property in dispute is estate property within the custody of the probate court and (2) whether the plaintiff’s claims would requi r e t h e f ederal court to assume in rem ju r i s di c t i o n over that property. If the answer to both inquiries is yes, then the probate exception precludes the federal district court from exercising diversity jurisdiction. Here, we find the case outside the scope of the probate exception under the first step of the inquiry because the Trust is not property within the custody of the probate court. As a threshold matter, the probate exception only applies if th e d i s pute

concerns property within the custody of a state court. The federal court cannot exercise in rem jurisdiction over a res in the custody o f a n o t h e r c ourt. Both of the Brunstings’ Wills were admitted to probate after the district court dismissed the case, and p rob at e p ro ceedings are ongoing. However, nothing suggests that 1 1 the Texas probate court currently has custody or in rem jurisdiction over the Trust. It likely does not. Assets place d in an inter vivos trust generally avoid probate, since such assets are owned by the trust, n o t t h e decedent, and

Id. at312 (inte rnal cit atio ns om itt ed)

. 9
Id. at312 –13. 1 0
At the tim e the dis tri ct cour t dis mis se d the cas e, no pr obat e pr oce edi ngs h a d b een 1 1 i n i t i a t e d

. As suc h, ther e wa s no pos sib ilit y that the cas e fel l wi thin the pr obat e excep tio n. Never thel es s, we mus t cons ide r wh ethe r, upon rem and, the fed eral dis tri ct cour t wo uld have subject -m att er juris dic tio n no w thatp roba te pr oce edi ngs are ongoing. 5 Case: 12-20164 Document: 00512106036 Page: 5 Date Filed: 01/09/2013No. 12-20164

therefore are not part of the decedent’s estate. In other words, because the 1 2 assets in a living or inter vivos trust ar e n o t p r o perty of the estate at the time of the decedent’s death, having been transferre d t o the trust years before, the trust is not in the custody of the probate court and as such the probate exception is inapplicable to disputes concerning a d ministration of the trust. The record also indicates that there would be no probate of t h i s T r u st’s assets upon the death of the surviving spouse. Finding no evidence that this Trust is subject 1 3 to the ongoing probate proceedings, we conclude that the case falls outside the
scope of the probate exception. The district court below erred in dismissing the case for lack of subject-matter jurisdiction.

IV. For th e r e a s o n s s e t f

o rth ab ove, we REVERSE the district court’s dismissal of the case and R EMAND for further proceedings. REVERSED AND REMANDED.

See 3 T E X

. P R

A C

. G UID E W ILL S , T RU ST S , AND E ST

. P L AN

. § 10:83 (“Any pro per ty held 1 2 in a revoc able living tru st is not cons ide red a pr obat e ass et

. . . .” ); 2 E ST

. TAX & P ERS

. F IN

. P L AN

. § 19:1 5 (“Avoida nce of pr obat e per haps is the mo st publ icize d advant age of the revoc able living tru st .” ’) ; 18 E ST

. P L AN

. 98 (“Ass ets in a living tru st a r e n o t s u bj e ct to pr obat e adm inis tra tio n . . . . ”)

.

Any ass ets “p oure d over” fr om the dec ede nts ’ es tat es into the Trus t wo uld have to go 1 3 thr ough pr obat e, but that doe s not change the fac t that the Trus t pr ope rt y o v e r wh ich the De fen dant s have been act ing as Trus t e e s w o u l d not be subject to pr obat e, having been tra nsf err ed to the Trus t prior to the par ents ’ dea ths

. 6 Case: 12-20164 Document: 00512106036 Page: 6 Date Filed: 01/09/2013