Exactly where a court’s jurisdiction begins and ends is a question that has long irked our judicial system. One muddle is the extent to which federal courts, as opposed to state courts, can decide disputes involving a decedent’s estate.
The probate exception to federal jurisdiction reserves to state courts the probate or annulment of a will and the administration of a decedent’s estate. The exception also precludes federal courts from disposing of property in a state probate court’s custody. While outwardly straightforward, the exception continues to perplex judges.
The U.S. Ninth Circuit Court of Appeals took up the probate exception in Silk v. Bond, 65 F.4th 445 (9th Cir. 2023), a case involving a wealth advisor who sought to collect his fee. Spoiler alert: the probate exception may be narrower than you think.
An Advisor Seeking Fees Goes Federal
Roger Silk, a non-lawyer, provided Frank Bond with tax and estate planning services for over two decades. Bond had approximately $40 million in liquid assets at the time he retained Silk, resources he amassed by launching a health and fitness business, U.S. Health, Inc., which he later sold to Bally’s Health & Fitness.
Bond purportedly hated paying income taxes and asked Silk to shield his assets from the taxing authorities. To align their interests, Bond contractually agreed to compensate Silk through “incentive fees,” which were based on savings that Bond’s estate realized and, as structured, were only recoverable after Bond’s death.
When Bond died in July 2020, Silk came to collect. He filed a $3.1 million claim against Bond’s estate in a Maryland probate court for the “incentive fees.” The estate disallowed the claim.
Rather than pursue his claim in Maryland probate court, Silk—a former California resident—sued the representatives of Bond’s estate in the United States District Court for the Central District of California. Silk claimed breach of contract, unjust enrichment, and promissory estoppel. He also asked for an accounting to calculate the “incentive fees.”
The district court dismissed Silk’s lawsuit for lack of subject matter jurisdiction on the basis that the probate exception barred it. The court reasoned that Silk’s requested relief invaded the Maryland probate court’s turf because it required that the estate’s value be determined and the appraisal process controlled. The district court also concluded that ordering an appraisal would subject the estate to the cost of an appraisal, which would entail the disposal of estate assets.
Ninth Circuit Underscores Narrow Boundaries of the Probate Exception
The Ninth Circuit Court of Appeals reversed, holding that the federal court did have subject matter jurisdiction over Silk’s lawsuit. It had been down this path before.
In 2004, the Ninth Circuit dismissed a lawsuit under the probate exception that involved tortious interference claims arising out of a death. In Marshall v. Marshall, 547 U.S. 293 (2006), the United States Supreme Court reversed, stressing the narrowness of the probate exception.
Roughly a decade later, in Goncalves v. Rady Children’s Hosp. San Diego, 865 F.3d 1237 (9th Cir. 2017), the Ninth Circuit attempted to nail down the contours of the probate exception, limiting it to cases where federal courts were asked to: (1) probate or annul a will; (2) administer a decedent’s estate; or (3) assume in rem jurisdiction over property that is in the custody of the probate court.
In Silk, the Ninth Circuit embraced Marshall, explaining how none of Goncalves’ categories applied to Silk’s lawsuit. Silk did not ask that Bond’s will be probated or annulled. Nor was the administration of Bond’s estate required. The Ninth Circuit reasoned that valuing an estate is not administering it, and that a federal court may order an appraisal as part of a contract action.
Silk’s suit did not require in rem jurisdiction over property in the Maryland probate court’s custody because the rights claimed were purely contractual. This was an in personam action, and Silk’s request for an accounting did not change that analysis. Were Silk to win at trial, he would receive a money judgment, which he would have to then present to the Maryland probate court. And the Ninth Circuit, too, rejected the assertion that ordering an appraisal would constitute the “disposal” of estate assets.
In short, the Ninth Circuit treated Silk’s lawsuit for what it was: a contract dispute. The narrow probate exception does not divest the federal courts of diversity jurisdiction to adjudicate “routine” contract claims between residents of different states.
Making Sense of Blurred Jurisdictional Lines
Silk v. Bond encourages California litigators to consider federal court as an optional forum even when the dispute involves a decedent’s estate. The probate exception may be inapplicable.
More broadly, and as discussed in a prior post, decisions about where to file suit are to be carefully considered. Jurisdictional battles can be time-consuming. In this case, it led to nearly three years of prolonged litigation. Even courts can disagree with one another in their struggle to pin down their jurisdictional limits, which can often seem like a moving target.