This week, the Court addresses the application of the probate exception to federal-court jurisdiction.
The Court holds that the probate-exception bar to federal-court jurisdiction does not apply when a breach-of-contract plaintiff seeks both damages from a decedent’s Estate and an appraisal to calculate the amount of those damages.
The panel: Judges Watford, Friedland, and Bennett, with Judge Bennett writing the opinion.
Key highlight: “[T]he question is not whether we would somehow be duplicating the function of the probate court, or deciding a question the probate court will (or might) need to decide. And as the Supreme Court has also told us, the question is not whether we would be interfering with the probate court. If the district court would neither be probating or annulling a will (it wouldn’t be here), or administering a decedent’s estate (and again, it wouldn’t be here), the only question is whether it would be assuming in rem jurisdiction over property that is in the custody of the probate court, including by endeavoring to dispose of such property.” (Quotation marks, citations, and alterations omitted.)
Background: Frank Bond “hated paying income taxes.” So he hired Roger Silk for various financial services, including tax- and estate-planning services. Their professional relationship lasted for more than two decades. During that period, Bond and Silk entered three separate contracts under which part of Silk’s compensation was to be based on savings realized by Bond’s Estate. These fees would be payable upon Bond’s death.
After Bond died in 2020, Silk filed a claim in Maryland probate court against Bond’s Estate for the fees he was owed under the contracts. The Estate disallowed the claim, and Silk then sued in federal court. Silk sought breach-of-contract damages from the Estate and an accounting sufficient to calculate the fees owed to him. The district court held the suit was barred by the probate exception to federal-court jurisdiction. The court reasoned that because Silk’s claim could not be resolved without determining the value of the Estate, the court would be required to take control of the appraisal process—thus effectively administering Bond’s Estate, a right reserved for the probate court. The court also concluded that ordering an appraisal would interfere with the probate court’s authority and improperly dispose of Estate assets.
Result: The Ninth Circuit reversed.
First, the court held that the probate-exception bar to federal-court jurisdiction did not apply. That bar applies only when the federal courts would be called on 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.” Goncalves v. Rady Children’s Hosp. San Diego, 865 F.3d 1237, 1252 (9th Cir. 2017). The Court concluded that none of those three situations applied.
First, no party contended Silk was seeking to annul or probate Bond’s will.
Second, Silk’s suit did not require the federal courts to administer Bond’s Estate. “[V]aluing an estate to calculate contract damages,” the Court explained, “is not administering an estate.” And while appraisal is a component of estate administration, the “regulation of appraisals as part of the probate process has no legal bearing on whether a federal district court may order an appraisal as part of a contract action.” In the context of Silk’s suit, appraisal of Bond’s Estate was “a matter of contract interpretation, purely incidental to the task of the probate court.” In short, a federal court does not administer an Estate merely by “duplicating the function of the probate court, or deciding a question the probate court will (or might) need to decide.”
Third, Silk’s suit did not require the federal courts to assume in rem jurisdiction over, or dispose of, property in the custody of the probate court. “Actions for breach of contract are in personam claims because they are, by their nature, claims between discrete entities and not between individuals and the world at large.” And the “limited accounting” required by the contracts between Silk and Bond did not “transform” the action into an in rem action—“particularly when the accounting is contemplated by the very contracts Silk is trying to enforce.” If Silk prevailed and obtained a judgment against the Estate, he would still need to present that judgment in probate court to receive payment from the assets under that court’s control. Similarly, neither ordering an appraisal nor entering a money judgment against the Estate would “dispose” of the Estate’s assets.
Finally, the Court held it could exercise personal jurisdiction over the Estate, because it could have exercised such jurisdiction over Bond. To determine personal jurisdiction, the Court applies “a three-part test, derived from the Due Process Clause, that examines the defendant’s purposeful conduct towards the forum, the relation between his conduct and the cause of action asserted against him, and the reasonableness of the exercise of jurisdiction.” S.E.C. v. Ross, 504 F.3d 1130, 1138 (9th Cir. 2007). Although Bond was a citizen of Maryland and did not travel to California to do business with Silk, Bond “established purposeful contact with California via his contacts with Silk” and “created a multi-year business relationship ‘that envisioned continuing and wide-reaching contacts’ with Silk in California.” Moreover, Silk’s suit arose from those California contacts, and exercising jurisdiction over the Estate would be reasonable.