Conrad v. Fisher

Background

Connie Conrad, as trustee of the Lacy H. McDearmon Revocable Trust, sued Joseph Fisher and Eyal Wallenberg. The amended complaint asserted claims for conversion, unjust enrichment, and a declaratory judgment. Conrad alleged that the Trust owned the proceeds from the sale of a cooperative apartment and that Fisher and Wallenberg wrongfully claimed or retained those proceeds.

McDearmon’s 2013 will left the apartment to Fisher and Wallenberg. His 2015 will did not name them and instead left his real estate and personal property to his nephew. In 2016, McDearmon created the Trust and a related will, neither of which named Fisher or Wallenberg as beneficiaries. The apartment was formally transferred to the Trust in 2018. After McDearmon died, competing proceedings concerning the wills, the Trust, and the apartment began in New York County Surrogate’s Court.

The parties later agreed to sell the apartment while placing the net proceeds in escrow. The apartment sold for net proceeds of $2,114,299.02. The written stipulation provided that the proceeds would remain in escrow while the parties resolved their disputes, including entitlement to the proceeds, in court. The money remained in escrow after Conrad demanded that it be released to the Trust.

Defendants’ Motion

Fisher and Wallenberg moved to dismiss under Federal Rules of Civil Procedure 12(b)(1), for lack of subject-matter jurisdiction, and 12(b)(6), for failure to state a claim. They argued that Conrad lacked Article III standing and alternatively asked the federal court to abstain under the Colorado River doctrine because related proceedings were pending in Surrogate’s Court.

Standing and Jurisdiction

The court concluded that Conrad had adequately alleged an injury that was concrete, traceable to Fisher and Wallenberg’s competing claim to the proceeds, and capable of being redressed by a favorable decision. The court therefore held that Conrad had standing and that it had subject-matter jurisdiction over the claims.

Colorado River Abstention

The court then considered whether to refrain from deciding the case under the Colorado River doctrine. That doctrine permits a federal court, in exceptional circumstances, to defer to a parallel state-court proceeding. The court found that the Surrogate’s Court proceedings and the federal action were parallel because they involved the same underlying events and could determine the validity of the competing wills, the Trust, and the parties’ rights to the apartment proceeds.

The court found that several factors favored abstention. The Surrogate’s Court was already addressing issues that could determine whether Fisher and Wallenberg had any claim to the proceeds. Deferring to that court would reduce duplicative litigation and the risk of inconsistent decisions. The disputes involved New York law rather than federal law, and the Surrogate’s Court had procedures adequate to address the parties’ rights. The convenience factor was neutral because the two courthouses were nearby.

The court also construed the parties’ stipulation as referring to the pending Surrogate’s Court proceedings, even though the stipulation itself had not been filed there. The court reasoned that deciding the Trust’s validity and Conrad’s right to the proceeds before the will issues were resolved could interfere with the Surrogate’s Court’s proceedings and create inconsistent rulings.

Disposition

The court held that abstention was proper and that a stay, rather than dismissal, was the appropriate remedy at that time. It granted the defendants’ motion to the extent that the federal action would be stayed pending resolution of matters in Surrogate’s Court. The court reserved the right to revisit whether the proper remedy should be dismissal or a stay at any time after June 30, 2025. It did not decide the merits of the conversion, unjust-enrichment, or declaratory-judgment claims.