Ashton v. Josephine Bay Paul and C. Michael Paul Foundation, Inc.
| Decision Date | 16 November 1990 |
| Docket Number | No. 414,D,414 |
| Citation | 918 F.2d 1065 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | Robert W. ASHTON, Leonard Steel, and Chemical Bank, as Executors of the Estate of Raymonde I. Paul, Deceased, Plaintiffs-Appellees, v. The JOSEPHINE BAY PAUL AND C. MICHAEL PAUL FOUNDATION, INC.; Howard N. Miller, as Second Successor Personal Representative of the Estate of C. Michael Paul, Deceased; Commissioner of the Internal Revenue Service; State Tax Commission of the State of New York; Wilderstein & Co., Inc.; America-Israel Cultural Foundation, Inc.; and The Metropolitan Museum of Art, Defendants, Commissioner of the Internal Revenue Service, Defendant-Appellee, The Josephine Bay Paul and C. Michael Paul Foundation, Inc.; Howard N. Miller, as Second Successor Personal Representative of the Estate of C. Michael Paul, Deceased, Defendants-Appellants. In the Matter of the Application of Robert W. ASHTON, Leonard Steel, and Chemical Bank, as Executors of the Estate of Raymonde I. Paul, Deceased, for the Judicial Determination of the Validity and Enforceability of Claims to the Assets of the Interpleaded Assets of the Estate of Raymonde I. Paul, Deceased, of Claimants The Josephine Bay Paul and C. Michael Paul Foundation, Inc.; Howard N. Miller, as Second Successor Personal Representative of the Estate of C. Michael Paul, Deceased; Commissioner of the Internal Revenue Service; State Tax Commission of the State of New York; Wilderstein & Co., Inc.; America-Israel Cultural Foundation, Inc.; and The Metropolitan Museum of Art. In the Matter of the Application of Robert W. ASHTON, Leonard Steel and Chemical Bank, as Executors of the Estate of Raymonde I. Paul, Deceased, to Discover Property Withheld. In the Matter of the Application of Robert W. ASHTON, Leonard Steel and Chemical Bank, as Executors of the Estate of Raymonde I. Paul, Deceased, For Advice and Direction as to the Sale of Property. ocket 90-6199. |
Elliot Silverman, New York City (William F. Dowling, Gold & Wachtel, New York City, of counsel), for defendant-appellant Howard N. Miller, as Second Successor Personal Representative of the Estate of C. Michael Paul, Deceased.
Josephine Lea Iselin, New York City (Daniel L. Kurtz, Mark A. Sirota, Felicia A. Rosenfeld, Lankenau & Bickford, New York City, of counsel), for defendants-appellants The Josephine Bay Paul and C. Michael Paul Foundation, Inc.
Lisa A. Jonas, Asst. U.S. Atty. (Otto G. Obermaier, U.S. Atty., S.D.N.Y., Nancy Kilson, Asst. U.S. Atty., New York City, of counsel), for defendant-appellee.
Carlton R. Asher, Jr., New York City (Jeffery H. Sheetz, Gaston & Snow, New York City, of counsel), for plaintiffs-appellees.
Before WINTER and MINER, Circuit Judges, and LASKER, District Judge. *
Appellants, two of seven defendants in this federal interpleader action, appeal from Judge Sprizzo's order enjoining them from proceeding with an estate accounting in a Florida probate court. We conclude that the statutory standards for interpleader jurisdiction under 28 U.S.C. Sec. 1335 have been met and that the so-called "probate exception" to federal jurisdiction does not require abstention. We therefore affirm the injunction as within the discretion of the district court.
In 1980, C. Michael Paul ("C.M. Paul"), a resident of Palm Beach County, Florida, died, leaving an estate valued at more than $50 million. His sister, Raymonde I. Paul ("R.I. Paul") petitioned to have her brother's will admitted to probate in Florida and served thereafter as sole Personal Representative of the estate until her own death in 1985.
Under her brother's will, R.I. Paul received specific bequests of property, a legacy of $400,000, and rights to income for life from various other assets. The residuary legatee was an eleemosynary entity known as the Josephine Bay Paul and C. Michael Paul Foundation, Inc. ("the Foundation"). R.I. Paul never formally accounted for her administration of her brother's estate. Nor did the Foundation--whose executive director was at one time Robert W. Ashton ("Ashton"), personal attorney to R.I. Paul--seek such an accounting. After R.I. Paul's death, however, the Foundation retained new counsel to pursue its rights and requested an accounting.
Plaintiffs-appellees Leonard Steel ("Steel") and Chemical Bank were appointed successor fiduciaries of the C.M. Paul Estate by the probate court of Palm Beach County, Florida. In March 1987, they filed the first accounting for R.I. Paul's administration of her brother's estate. In April 1989, Chemical Bank, which also served as a fiduciary for the R.I. Paul Estate, which is being probated in New York, was removed by the Florida probate court from its position as fiduciary for the C.M. Paul Estate because of a conflict of interest in the two roles. Steel, who wore the same two hats, resigned as a fiduciary for the C.M. Paul Estate at the hearing on the motion to remove him. Appellant Howard Miller was appointed to replace them.
In June 1989, Chemical Bank and Steel filed an accounting for their administration of the C.M. Paul Estate. Both the 1987 and 1989 accountings are currently the subject of various objections and surcharge claims in the probate court in Florida. In addition, the Foundation and Miller have petitioned the Florida probate court for an order compelling the return of various C.M. Paul Estate assets that R.I. Paul allegedly commingled with her personal property and bequests. In August 1989, Steel and Chemical Bank removed the accounting proceeding from the probate court to the United States District Court for the Southern District of Florida. The district court remanded the case to the probate court on the ground that "the probate exception precludes federal jurisdiction in this case."
Shortly thereafter, the executors of the R.I. Paul Estate--Ashton, Steel and Chemical Bank ("the R.I. Paul executors")--commenced this interpleader action in the New York Surrogate's Court, naming inter alia the Internal Revenue Service ("IRS") as a defendant. The IRS, which claims a lien upon the gross R.I. Paul Estate under 26 U.S.C. Sec. 6324, removed the action to the United States District Court for the Southern District of New York, whereupon the R.I. Paul executors amended their complaint to assert federal statutory interpleader jurisdiction under 28 U.S.C. Sec. 1335 and Rule 22 of the Federal Rules of Civil Procedure.
The interpleaded assets consist primarily of cash and cash equivalents located in On the same day that the R.I. Paul executors filed their amended complaint, they moved to enjoin the accounting proceeding in probate court in Florida. The Foundation and Miller simultaneously moved to dismiss for want of jurisdiction. The district court denied the motion to dismiss and enjoined all defendants, including the Foundation and Miller, from "instituting or prosecuting any proceeding or asserting any claim in any state or federal court against the assets of the [R.I. Paul Estate] ..." (Amended Order, July 18, 1990). The Foundation and Miller appeal from the injunction.
New York, as well as il and gas properties located for the most part in Texas and New Mexico. Initially, the property was secured by a $9 million bond, an amount since increased to $10 million.
Appellants challenge both the statutory and prudential bases for the district court's exercise of federal interpleader jurisdiction. They argue that the statutory standards for such jurisdiction have not been met and that, even if statutory authority exists, the district court should have stayed its hand because of the probate exception to federal jurisdiction. We disagree.
Under 28 U.S.C. Sec. 1335, 1 a district court has jurisdiction over a civil action involving adverse claims to money or property worth $500 or more so long as at least two of the adverse claimants are of diverse citizenship and "are claiming or may claim to be entitled to such money or property." 2 In aid of such jurisdiction, the district court has authority under 28 U.S.C. Sec. 2361 3 to enjoin other state or federal proceedings affecting the interpleaded property. The statutory scheme provides stakeholders a method by which they can deposit a stake subject to adverse claims with the court so that ownership can be adjudicated and the stakeholder can avoid being subjected to inconsistent judgments in different fora.
Judge Sprizzo concluded that the instant action is a paradigmatic interpleader action. In colloquy with counsel, he stated:
The Court: ... No one is disputing that there is a fund in Florida over which the Florida court properly has jurisdiction. That is not the fund we are arguing about here. We are arguing about assets which they claim to be part of the New York estate which you say are properly part of the Florida estate because they stole the assets from the Florida estate. But until you prove they did there is no constructive trust on those assets in Florida yet.
Ms. Iselin: By approaching it in that manner, your Honor, I would respectfully submit that the requirement for an account in a state would become meaningless. They held the assets or their predecessor as a fiduciary, and she never accounted.
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