In Glassie v. Doucette, No. 21-1761 (1st Cir. Dec. 5, 2022), the First Circuit reverses dismissal of a civil action on federal subject-matter jurisdiction grounds, holding that the so-called probate exception did not apply even though the case may require the district court to award damages for the loss in value of a decedent estate.

Two sets of children from different marriages of the decadent (Donelson Glassie, described in the opinion as a “successful … hotelier”) faced off in state probate court over their father’s will. Plaintiff Georgia Glassie then filed this federal action charging that defendant half-siblings “Doucette, Taft, and Thomas are liable to her under the federal Racketeer Influenced and Corrupt Organizations (“RICO”) laws, 18 U.S.C. § 1962.”

In support of her claim, plaintiff alleged that “defendants formed an enterprise that engaged in a pattern of fraudulent interstate communications in negotiating and obtaining bank loans …. Georgia alleges that using Doucette’s power as executor, the enterprise fraudulently took out a loan on behalf of Mid-Manhattan that was guaranteed by the estate and which was used to collect interest payments from the estate.” This transaction allegedly had the effect of transferring value from the remainder of the estate to entities controlled by the half-siblings. Plaintiff Georgia also alleged supplemental state-law claims of breach of fiduciary duty, breach of contract, negligence, fraud, and conspiracy. “As relief, Georgia seeks monetary damages against Doucette, Thomas, and Taft, all in their personal capacities, plus attorneys’ fees in connection with the RICO claim under 18 U.S.C. § 1964(c).”

The district court entirely dismissed the action “as barred by the probate exception to federal court jurisdiction. The court reasoned that determining the harm Georgia suffered from the defendants’ wrongful acts would require an accounting of the estate, and that granting her relief on some of her claims would require replacing the executor.”

The First Circuit reverses. It holds, first, that abstention was not warranted under Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976). While both the probate and the federal actions challenge the executor’s conduct and disbursement of estate funds, “some duplication” between state and federal actions “alone is not enough to justify a stay.” The panel holds that “there is substantial doubt that the state-court actions will resolve all of Georgia’s federal claims.” The probate action would not adjudicate RICO liability. It was also not “dispose of [plaintiff’s] claim that some or all of the defendants breached duties owed to her as managers of Historic Inns, since that corporate governance dispute is based on her status as a member of the LLC rather than as a beneficiary of the estate.

The panel then turns to application of the probate exception. The Supreme Court substantially sharpened the scope of the exception in Marshall v. Marshall, 547 U.S. 293 (2006), holding that it is limited to actions adjudicating “[1] the probate or annulment of a will and [2] the administration of a decedent’s estate; it also [3] precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court.”

The panel holds that the present case, though it concerned assets of the estate, did not trench on these three categories of cases.

“[W]e do not agree that any potential need to value estate assets in order to calculate damages necessarily requires an accounting, much less estate administration. It is true that calculating damages in this civil action could well involve the jury’s consideration of how much damage Georgia suffered as a result of defendants’ alleged misconduct that lowered the value of her eventual inheritance. And that calculation of damages might include considering whether and to what extent the value of the estate residuum decreased. But such a calculation is hardly a probate accounting …. The most that can be said is that calculating damages in this civil action may intertwine with some determinations made in performing an accounting.”

The panel cautioned that to draw every dispute about the value of estate assets within the probate exception “would lead to an expansive understanding of the exception that runs against Marshall‘s cautionary explanation.” Significantly, here, the federal action would not act against the estate or affect its administration. This is purely a damages action. “Georgia seeks only in personam damages to be paid by the defendants … More generally, determining whether Georgia suffered damages due to any defendant’s acts is not a matter in which a probate court has unique expertise.”

“[Defendant executor] Doucette argues that the federal court will need to review various documents and plans before the probate court, but we do not see how simply reviewing documents regarding the estate constitutes administration of the estate. Taft argues that Georgia’s suit seeks to effectively undo specific actions taken by Doucette in administering the estate, but Georgia asks for no relief that would reverse or otherwise affect any of the transactions she discusses in her complaint. We conclude that Georgia’s lawsuit does not seek administration of Donelson’s estate, and cannot be barred by the probate exception on that basis.”

“Defendants alternatively rest on the fact that among the breaches of duty alleged by Georgia are breaches by Doucette as executor. Some federal courts have concluded that the probate exception bars claims, including breach of fiduciary duty claims, based on the executor’s actions regarding the estate.” Despite that some courts have accepted this rationale to dismiss federal actions under the probate exception, the First Circuit rejects this theory. “[T]he probate exception does not bar claims for breach of fiduciary duty against an executor simply because the underlying conduct involves estate assets.” The panel notes that it might make a difference if the action sought “to reach or distribute property within the custody of a state probate court” or “the restoration of money previously distributed to a testamentary trust.”

Defendants complained of the interference that the federal action might have on the progress of the state probate action, because of numerous common factual and legal issues, “[b]ut this type of ‘interference’ is present whenever overlapping lawsuits are filed …. As the record now stands, we see in this overlap only a need for coordination between related lawsuits, such as arises in all sorts of contexts that have nothing to do with probate proceedings.” The panel recommends use of tools such as certification of questions of state law to state high courts, coordination of discovery, and federal deference to the state court’s construction of state law.”

In sum, while “[o]ne could argue as a policy matter that Georgia’s claims would be best left to the state courts …. the lines of federal jurisdiction are not so drawn. The probate exception, as the Supreme Court admonished in Marshall, is a narrow one, and federal courts must take care not to enlarge its boundaries by declining to take jurisdiction over claims such as those brought in this action.”