Gerschel v. Bank of America , N.A.

Background

Marianne Gerschel sued Bank of America, N.A. concerning three trusts for which she served or currently serves as trustee. The issues involving two trusts had already been resolved, leaving a dispute about the 1950 Trust. Gerschel sought to have Bank of America removed as trustee, or to have its resignation accepted, so that she would remain the sole trustee.

Patrick Gerschel, Mark Giannone, Alexander Gerschel, Andre Gerschel, and Philippe Gerschel intervened as defendants. They were identified as remaindermen in the 1950 Trust. They also filed a petition in New York County Surrogate’s Court concerning all three trusts. As to the 1950 Trust, they sought, among other things, an accounting from Marianne Gerschel, orders concerning her status as trustee, appointment of a temporary fiduciary, and an order preventing a change in the trusts’ situs from New York.

The intervenor-defendants asked the federal court to abstain under the Colorado River doctrine, which permits a federal court in exceptional circumstances to pause or dismiss a federal case because a parallel state-court proceeding exists. Alternatively, they asked for a stay pending resolution of the Surrogate’s Court proceeding.

Analysis

The court first determined that the federal and state proceedings were parallel. Both involved substantially the same parties, and the two proceedings addressed the central dispute over whether Bank of America could be removed or resign as trustee without an uninterested corporate trustee being identified as its replacement. The state proceeding was broader because it concerned multiple trusts, but the court found that it necessarily would address the central issue concerning the 1950 Trust.

The court then applied the six Colorado River factors. It found that the first two factors—whether either court had control over specific property and whether the federal forum was inconvenient—did not apply and weighed against abstention. The third factor, avoiding duplicative or conflicting litigation, also weighed against abstention because the court found that rules concerning the effect of prior judgments could prevent inconsistent outcomes. The court also noted that the intervenor-defendants had filed the state proceeding after the federal case began.

The fourth factor, the order and progress of the proceedings, weighed slightly against abstention. Although no merits motions or discovery had occurred in the federal case, it had advanced more than the Surrogate’s Court proceeding, which the court understood had not progressed after the intervenor-defendants were asked to refile their petition as three separate petitions.

The fifth factor weighed only slightly in favor of abstention because the case raised New York-law issues. The court stated that those issues were not novel or particularly complex. The sixth factor weighed in favor of abstention because the court believed the Surrogate’s Court could fairly protect Marianne Gerschel’s substantive rights and resolve the parties’ disputes.

Ruling

The court concluded that the balance of the factors did not present the exceptional circumstances required for Colorado River abstention. It denied the intervenor-defendants’ motion for abstention and denied their alternative request for a stay. The Clerk of Court was directed to terminate the motion at ECF No. 48, and the court stated that it would schedule a conference about the next stage of the litigation.

The opinion also states that the specific federal “probate exception” does not apply to the trust disputes in this case.