October 29, 2015
Authored by: Luke Lantta
There may be good strategic reasons to get a trust litigation case into federal court, especially if you’re the trustee. But, just because you meet the diversity jurisdiction requirements to get the case into federal court doesn’t mean the federal court will hear the case. The court may still find that an exception to otherwise perfectly good diversity jurisdiction exists. While we more regularly see federal courts invoke the probate exception to diversity jurisdiction in fiduciary litigation cases, in McCavey v. McCavey-Barnett (unpublished), a federal appellate court affirmed a Georgia district court’s decision to not hear a trust dispute based on the domestic relations exception to diversity jurisdiction.
The case that the federal court declined to hear involved allegations concerning an inter vivos family trust. A husband and wife deeded a house to a trust of which they were co-trustees. They transferred that property to a successor trust of which they were still co-trustees, but for which their four children were beneficiaries. The couple later divorced, and the wife sought the house. In the divorce action, the husband was ordered by the state court judge to sign a deed transferring title of the house to the wife. The husband initially refused, but, after being jailed in contempt, he relented and signed the house over to the wife.
The husband later brought Georgia law claims of breach of fiduciary duty and breach of trust against his ex-wife in federal district court in connection with the transfer of the house from the trust to the ex-wife. The district court dismissed the case after deciding that the domestic relations exception to diversity jurisdiction applied. The domestic relations exception is a narrowly construed exception to diversity jurisdiction in which a federal district court should abstain from cases in which (1) there is a strong state interest in domestic relations; (2) the state courts can competently settle the family dispute; (3) the state continues to supervise the decrees; and (4) federal dockets are congested. The district court found this exception applied because any relief in the court would necessarily require the district court to review the propriety of the Georgia superior court’s division of property in the divorce decree.
Creative framing of a claim will not overcome this exception. The husband had insisted that the case only concerned trust and contract law so that review of the divorce decree is unnecessary, but the court still refused. Even when a plaintiff couches the claims in other terms – such as breach of fiduciary duty or breach of trust claims – if a federal court has to review or modify a state court divorce decree, it will abstain from hearing the case.