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invoke the probate exception to diversity jurisdiction in fiduciary litigation cases, in McCavey v. McCavey-Barnett (unpublished), a federal appellate court affirmed a Georgia district court’s decision to not hear a trust dispute based on the domestic relations exception to diversity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

The probate exception to federal jurisdiction provides that a federal court may not probate a will, administer an estate, or entertain an action that would interfere with pending probate proceedings in state court or with the control of property in the custody of the state court.

After the U.S. Supreme Court’s decision in Marshall v. Marshall, federal courts have generally applied this test to determine whether a case fits within the probate exception: whether a plaintiff seeks an in personam judgment against a defendant, as opposed to the probate or annulment of a will or other relief seeking to reach a res in the custody of a state court, and whether sound policy considerations, specifically, the special proficiency of state courts with respect to the issues presented by a case, militate in favor of extending the probate exception to

Pursuing fiduciary litigation cases in federal court can be tricky.  Not only does a plaintiff have to contend with the possibility of jurisdiction destroying defendants, but a plaintiff also has to deal with the ‘probate exception’ to federal jurisdiction.

In Downey v. Keltz, the United States District Court for the Northern District of Illinois did a succinct job of explaining that a petition for an accounting does not implicate the ‘probate exception’ and likely does not require that all trust beneficiaries be parties to the litigation.  A petition to remove a trustee, however, likely would invoke the ‘probate exception’ and would require all trust beneficiaries to be parties to that litigation.

Let’s take a look at how the Court got there.