The opinion of the court was delivered by: M. James Lorenz United States District Court Judge
ORDER (1) DENYING ESTATE'S MOTION FOR JUDGMENT ON
THE PLEADINGS OR, IN THE
ALTERNATIVE, TO STAY; AND (2) GRANTING IN PART AND DENYING IN PART
TRUST'S MOTION FOR INJUNCTION AND RELATED
COUNTERCLAIMS AND CROSSCLAIMS.
Plaintiffs Casey Gerry Schenk, Francavilla, Blatt & Penfield LLP and Bixby, Cowan & Gerry JV are a joint venture formed by certain plaintiffs' attorneys in the Exxon Valdez litigation. In this interpleader action they request the court to determine how to distribute the late Robert Cowan's share of the funds they earned in the litigation ("Mr. Cowan's Share" and "Joint Venture Funds," respectively). Three Defendants claim the right to Mr. Cowan's Share of the Joint Venture Funds -- Estate of Robert Cowan ("Estate"), Robert Cowan's sister Suzanne Dimeff, and Robert Cowan's late mother's trust, the Oletta L. Cowan Trust ("Trust"). Since Mr. Cowan's death in 2003, these claimants have been involved in probate litigation in the Superior Court for the State of Alaska ("Probate Action"), which involves, among other things, their respective rights to Mr. Cowan's portion of the Exxon Valdez attorney's fees and costs. The issue whether Mr. Cowan's Share of the Joint Venture Funds is the same as his share of the Exxon Valdez attorney's fees is disputed.
On April 19, 2010 Plaintiffs filed a complaint in interpleader in this court. Pursuant to 28 U.S.C. Section 2361, they also requested an injunction precluding Defendants from engaging in other proceedings related to Mr. Cowan's Share of the Joint Venture Funds and an order discharging them from further liability regarding the distribution of Mr. Cowan's Share. They deposited over $1.9 million in the court registry, representing what they believe is Mr. Cowan's Share. The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. Section 1335.
On June 1, 2010 the Estate filed a counterclaim against Plaintiffs and a cross-claim against the Trust and Ms. Dimeff. Although the counterclaim and cross-claim do not clearly set forth the causes of action or expressly state against whom the causes of action are asserted, it appears the Estate is claiming that the Trust and Ms. Dimeff breached a 2005 settlement agreement made in the Probate Action, which allegedly provided that any attorney's fees Mr. Cowan earned in the Exxon Valdez litigation be handled as an asset of the Estate, and distributed according to Mr. Cowan's will and trust. As to Plaintiffs, it appears the Estate is claiming that the joint venture wrongfully failed to pay Mr. Cowan's Share of the Joint Venture Funds directly to the Estate "despite being made aware of the 2005 settlement agreement." (Answer to Compl. for Interpleader and Declaratory Relief, filed 6/1/10, at 22.)
On July 15, 2010 the Trust filed a counterclaim against Plaintiffs and a cross-claim against in the Estate. The Trust argues that pursuant to the adjudication in an Alaska federal action, the Estate is not entitled to Mr. Cowan's portion of the attorney's fees earned in the Exxon Valdez litigation, and that, according to the joint venture agreement, it is also not entitled to his portion of joint venture profits. The Trust asserts claims for breach of the joint venture agreement and breach of fiduciary duty against Plaintiffs. Against the Estate, it asserts a claim for intentional interference with Plaintiffs' performance of the joint venture agreement.
Ms. Dimeff has not answered the complaint or the Estate's cross-claim asserted against her and has not filed any counterclaims or crossclaims. It is undisputed that on May 5, 2010, pursuant to the Estate's motion, the Alaska probate court enjoined Ms. Dimeff from participating in other proceedings, including this interpleader action ("Cease and Desist Order").
The Trust filed a motion seeking to enjoin the Estate and the Alaska probate court from, among other things, "any actions which would undermine the jurisdiction of this court, including those preventing Defendant Suzanne Dimeff . . . from answering the complaint and cross complaint, filed by [the Estate], and from filing affirmative claims Defendant Dimeff has against any parties to this action, including the [Estate] and Interpleader Plaintiffs." (Mem. of P.&A. in Supp. of Mot. of Def. the Oleta L. Cowan Trust for Inj. ("Trust Mot.") at 1.) The Estate opposed Ms. Dimeff's motion and cross-moved for judgment on the pleadings or, in the alternative, for stay of this action. Plaintiffs filed a brief in support of the Trust's motion and in opposition to the Estate's motion.*fn1 For the reasons which follow, the Estate motion for judgment on the pleadings or, in the alternative, stay of this action is DENIED. The Trust's motion for injunction is GRANTED IN PART AND DENIED IN PART.
In its motion for judgment on the pleadings, the Estate argues that the interpleader action should be dismissed because the court lacks jurisdiction pursuant to the probate exception to federal jurisdiction or that the court should abstain from exercising federal jurisdiction pursuant Younger v. Harris, 401 U.S. 37 (1971). In the alternative, the Estate requests a stay under Younger. It also argues that this action should be dismissed and funds paid over to the Estate because all issues regarding the distribution of Mr. Cowan's Share of the Joint Venture Funds have already been adjudicated in the Probate Action.
The probate exception is a longstanding limitation on federal jurisdiction otherwise properly exercised. Marshall v. Marshall, 547 U.S. 293, 299 (2006). It is a judicially created doctrine not compelled by the text of the Constitution or federal statute. Id.
[T]he probate exception reserves to state probate courts the probate or annulment of a will and the administration of a decedent's estate; it also precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court. But it does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction. . at 311-12.
Although this interpleader action involves property which may become a part of the probate estate in the Probate Action, it does not itself involve the probate of a will or administration of the estate. See Franklin Life Ins. Co. v. Sandusky, 435 F.2d 1038, 1042 (9th Cir. 1970) (effect of a codicil purporting to change beneficiaries of a life insurance policy properly within federal jurisdiction, citing Markham v. Allen, 326 U.S. 490, 494 (1946)). Furthermore, this action does not seek to dispose of any property in custody of the Alaska probate court. The property involved in this action has been deposited into the registry of this court. The probate exception therefore does not require this court to decline exercising federal jurisdiction under 28 U.S.C. Section 1335.
Like the probate exception, Younger abstention is a jurisprudential doctrine. See San Jose Silicon Valley Chamber of Commerce Political Action Com. v. San Jose, 546 F.3d 1087, 1091 (9th Cir. 2008). It is "rooted in overlapping principles of equity, comity, and federalism." Id. Under Younger, a federal court must abstain from exercising federal jurisdiction if four requirements are met:
(1) a state-initiated proceeding is ongoing; (2) the proceeding implicates important state interests; (3) the federal plaintiff is not barred from litigating federal constitutional issues in the state proceeding; and (4) the federal court action would enjoin the proceeding or have the practical effect of doing so, i.e., would interfere with the state proceeding in a way that Younger disapproves. . at 1092. "[T]he limited circumstances in which abstention by federal courts is appropriate remain the exception rather than the rule." Id. (internal quotation marks and citations omitted).
The Estate, in arguing that the court should dismiss or stay this action under Younger abstention, did not address the issue whether this interpleader action would enjoin, or have the practical effect of enjoining, the Probate Action. It would not. Plaintiffs do not seek to enjoin the Probate Action but seek a discharge from further liability regarding the distribution of Mr. Cowan's Share of the Joint Venture Funds. To the extent this court needs to decide how to distribute the funds among the three Defendants, the preclusive effect of the doctrine of res judicata applies to the extent the Alaska probate court has already adjudicated issues and claims presented herein. Therefore, in addition to not directly enjoining the Probate Action, the relief sought in this action also would not have the practical effect of enjoining it. See id. at 1096 n.4.
The Estate also did not address the issue whether Plaintiffs would be barred from litigating their claims in the Probate Action. This factor requires that the plaintiff have a "full and fair opportunity to litigate" in state court. Ohio Civil Rights Comm'n v. Dayton Christian Sch., Inc., 477 U.S. 619, 627 (1986). It is undisputed that Plaintiffs have not been made parties to the Probate Action. During the many years of negotiation and bitter litigation, the Alaska probate court has adjudicated many important issues, some of them to judgment; however, Plaintiffs did not have the opportunity to present their issues. Plaintiffs therefore cannot be said to have a full and fair opportunity to litigate their issues in the Probate Action. The Estate's argument that the court should decline to exercise federal jurisdiction based on Younger abstention, permanently or temporarily, is therefore rejected.
Next, the Estate argues that the Alaska probate court has already decided the rights to Mr. Cowan's Share of the Joint Venture Funds in its September 30, 2010 partial judgment and that this action should be dismissed based on the doctrine of res judicata. "Through the Full Faith and Credit Act, 28 U.S.C. § 1738, 'Congress has specifically required all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgment emerged would do so.'" In re Marshall (Marshall v. Stern), 600 F.3d 1037, 1061 (9th Cir. 2010), quoting Allen v. McCurry, 449 U.S. 90, 96 (1980). Federal courts apply the law ...