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Bernstein, v. Stiller

United States District Court, Third Circuit

June 27, 2013




Presently before the Court are Respondents’ Joint Motion to Dismiss (ECF No. 3) and Petitioners’ Cross-Motion For Remand (ECF No. 5). For the following reasons, Respondents’ Joint Motion to Dismiss will be granted and Petitioners’ Cross-Motion For Remand will be denied.


Babette F. Austrian, the mother of Petitioners Jill Bernstein and Toni Amber, died in Pennsylvania on May 9, 2000, leaving a portion of her estate in two separate trusts, one granted to each Petitioner. (Resps.’ Mot. 3-4, ECF No.)[1] At the time of her death, the vast majority of Ms. Austrian’s assets were held in Maryland. (Resps.’ Mot. 4-5.) Ms. Austrian’s will was probated in Maryland and the trust assets were transferred to accounts created and held in that state. (Id. at 5-6.) Separate “Exempt” and “Non-Exempt” trusts were later formed from each of the originating trusts, [2] with Ms. Austrian’s husband, Dr. Robert C. Austrian, and Respondents Shale Stiller and Ann Rosewater serving as Trustees. (Resps.’ Mot. 4.) After the death of Dr. Austrian on March 25, 2007, Respondent Bertram Snyder succeeded him as Trustee. (Id. at 4 n.5.)[3]

On or around December 16, 2008, Petitioners commenced a civil action, in separate petitions, against Respondents in the Court of Common Pleas of Philadelphia County (Orphans’ Court Division). (Compl. ¶ 1.) Each petition seeks an accounting of the trusts and the removal of the Trustees under Pennsylvania law. (Id. at ¶¶ 1-2.) The petitions were docketed as a single case. (Id.)

Respondents filed a Joint Notice of Removal on January 28, 2009, pursuant to 28 U.S.C. §§ 1441 and 1332, and the action was removed to this Court. (Id. at ¶ 3.) On February 24, 2009, Respondents filed a Joint Motion to Dismiss, asserting that there are insufficient contacts with the forum state to support personal jurisdiction. (Resps.’ Mot. 7-15 (citing Int’l Shoe v. Washington, 326 U.S. 310 (1945)).) In addition to their arguments regarding personal jurisdiction, Respondents asserted that this Court lacks subject-matter jurisdiction under Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456, 467-68 (1939), which holds that if two courts are attempting to exercise in rem or quasi in rem jurisdiction, the first court to do so will hold exclusive jurisdiction over the assets in controversy. (Resps.’ Mot. 16-18.) In a Cross-Motion for Remand, Petitioners agree that the Court lacks subject-matter jurisdiction under the Princess Lida exception, but stress that the only proper remedy is remand. (Pets.’ Cross-Mot. 1, ECF No. 5.) Petitioners also argue that the Court has personal jurisdiction because the trusts in question were declared “resident trusts” on the 2006 Pennsylvania Fiduciary Income Tax Returns filed by Respondents’ counsel. (Id. at 8.)

In a reply brief filed on April 14, 2009, Respondents withdraw their arguments contesting the Court’s subject-matter jurisdiction, arguing that their initial approach to subject-matter jurisdiction was incorrect. (Resps.’ Reply 24-25, ECF No. 7.)[4] Respondents cite Maryland state statutes and caselaw that suggest that the Princess Lida exception does not apply because the Maryland Orphan’s Court was not authorized to exercise in rem jurisdiction over the trust. (Resps.’ Reply 25-26 (citing Md. Code Ann. Est. & Trusts § 14-101 and Nicols v. Nicols’ Estate, 31 A.2d 326, 327 (Md. 1943)).) Respondents contend that the Court has diversity jurisdiction under 28 U.S.C. § 1332 and they continue to assert that there are insufficient contacts to support the Court’s exercise of personal jurisdiction. (Id. at. 3.) Respondents maintain that the term “resident trust” is a Pennsylvania tax classification that carries no jurisdictional significance. (Id. at 8-9.) They ask the Court to dismiss the instant case for lack of personal jurisdiction before addressing the question of subject-matter jurisdiction. (Id. at 2 (citing Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 578 (1999)).)


A. Personal Jurisdiction Should be Addressed First

Petitioners argue that we may “address threshold issues other than subject matter jurisdiction only if a compelling reason exists to do so.” (Pets.’ Resp. 7, ECF No. 8.) Petitioners cite no authority for the proposition that the Court’s discretion is restricted to only “compelling” circumstances. Petitioners instead rely on Ruhrgas, in which the Supreme Court observed that courts will “customarily” address subject matter jurisdiction first. 526 U.S. at 578. Petitioners also cite Sinochem International Co. Ltd. v. Malaysia International Shipping Corp., 549 U.S. 422, 435 (2007), which the Supreme Court called a “textbook case for immediate forum non conveniens dismissal, ” as an example of the “compelling circumstances” that permit a court to address threshold issues before reaching the question of subject-matter jurisdiction. (Pets.’ Resp. 7.)

Petitioners’ suggestion that we are so constrained directly contradicts the Supreme Court cases cited by Petitioners. The Court in Ruhrgas explicitly held that “there is no unyielding jurisdictional hierarchy” that requires district courts to determine subject-matter jurisdiction before addressing other jurisdictional issues. Ruhrgas, 526 U.S. at 575; see also Sinochem, 549 U.S. at 431 (“Ruhrgas held that there is no mandatory ‘sequencing of jurisdictional issues.’ In appropriate circumstances . . . a court may dismiss for lack of personal jurisdiction without first establishing subject-matter jurisdiction.”) (quoting Ruhrgas, 526 U.S. at 578, 584). The Third Circuit has likewise recognized that district courts have broad discretion in choosing the order in which they will address jurisdictional questions. See In re Hechinger Inv. Co. of Del., 335 F.3d 243, 250-51 (3d Cir. 2003) (“[In Ruhrgas], the Court held that federal courts are not generally obligated to address ‘jurisdictional issues’ in any particular order.”); see also Lehigh Coal & Navigation Co. v. Geko-Mayo, GmbH, 56 F.Supp. 2d. 559, 562 (E.D. Pa. 1999) (exercising discretion and addressing personal jurisdiction first). Judicial economy, however, is one factor that district courts may consider in deciding between jurisdictional inquiries. Where “a district court has before it a straightforward personal jurisdiction issue presenting no complex question of state law, and the alleged defect in subject-matter jurisdiction raises a difficult and novel question, the court does not abuse its discretion by turning directly to personal jurisdiction.” Ruhrgas, 526 U.S. at 588; see also Sinochem, 549 U.S. at 435-36 (upholding a district court’s decision to first dismiss on grounds of forum non conveniens where discovery for personal jurisdiction would have unduly burdened petitioners). District courts in this Circuit have taken such matters into consideration when choosing which jurisdictional issue should be first addressed. See Machulsky v. Hall, 210 F.Supp.2d 531, 537 (D.N.J. 2002) (addressing personal jurisdiction first because “deciding the issue of subject matter jurisdiction . . . requires an analysis of the application of federal RICO laws against multiple, geographically diverse defendants”); Morris v. Brandeis Univ., No. 99-2642, 1999 U.S. Dist. LEXIS 15767, at *3-4 (E.D. Pa. Oct. 8, 1999) (“[T]he Court will ordinarily rule on the motion to remand where the motion to remand is straightforward and the motion to dismiss for lack of personal jurisdiction will require an inquiry into state law.”).

Petitioners assert that personal jurisdiction exists in the instant case because the trusts were reported as “resident” on Pennsylvania state tax returns. (Pets.’ Resp. 11.) Aside from this assertion, there are no difficult questions of law that make an analysis of personal jurisdiction particularly burdensome. By contrast, the determination of subject-matter jurisdiction requires an analysis involving novel and potentially complex questions of state law.

Subject-matter jurisdiction here centers on whether the creation and continued administration of the trusts in the state courts of Maryland deprive this Court of subject-matter jurisdiction pursuant to the Princess Lida exception. In Princess Lida, the petitioners filed suit in federal court, seeking an accounting of a trust and the removal of the respondent trustee. 305 U.S. at 459. The Supreme Court determined that the district court could not exercise subject-matter jurisdiction over the case because the respondent trustee had previously commenced an account of the trust in the state court:

[I]f the two suits are in rem, or quasi in rem, so that the court, or its officer, has possession or must have control of the property which is the subject of the litigation in order to proceed with the cause and grant the relief sought the ...

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