Appeal from the United States District Court for the Southern District of Illinois. No. S-CIV-76-0110 - J. Waldo Ackerman, Judge.
Before Cummings and Sprecher, Circuit Judges, and East, Senior District Judge.*fn*
The plaintiff, a California resident and income beneficiary of a spendthrift trust, brought an action in federal court against the Illinois trustee seeking dissolution of the trust. Under Rule 19 of the Federal Rules of Civil Procedure, the district court required the joinder of the potential remaindermen of the trust, both residents of California, as defendants. As a result, the action had to be dismissed for lack of diversity jurisdiction. The plaintiff appeals, arguing that the remaindermen were not properly joined as indispensable parties or that in the alternative they should have been realigned as plaintiffs to preserve federal jurisdiction.
In May 1959, plaintiff's aunt and uncle, the Augspurgers, executed separate but identical wills. Under the terms of the 1959 will, the plaintiff would have inherited a fee simple interest in various estate property at the death of her aunt and uncle (with enjoyment postponed until the expiration of her mother's life estate). In 1960 the plaintiff filed for bankruptcy. The same year, the Augspurgers executed a codicil to their 1959 will to provide that any interest passing to the plaintiff, or her brother, be held in individual trusts by the Peoples Bank of Bloomington.
The testamentary trust established in the codicil is typical of a "spendthrift" trust. The terms of the codicil vest the trustee with "absolute and complete discretion as to the payment . . . of . . . income or principal" to the plaintiff "for support during (her) lifetime . . . or as long as said . . . trust shall continue." The codicil also directs that "there shall be no way by which said nephew or niece may pledge, alienate, mortgage, encumber or assign any of the income receivable therefrom. . . ." The codicil also vests the trust with the "power to appoint said trust at any time" to the beneficiary, thereby terminating the trust. If the power of appointment was not exercised during the beneficiary's lifetime, the trust property was to pass to the "descendants of such . . . niece per stirpes." The plaintiff now has two "descendants," Eric Hansen and Kirsten Farley.
The plaintiff's uncle died in 1961, and her aunt in 1968. Since that time, plaintiff has made repeated demands on the defendant trustee to exercise the appointment power to distribute the property to her and terminate the trust. The trustee has refused.
Plaintiff brought this action under 28 U.S.C. § 2201 seeking a declaration that the trustee has abused the powers of trust by refusing to appoint the corpus of the trust to her. Jurisdiction was premised on diversity, 28 U.S.C. § 1332. The plaintiff is a citizen of California and the trustee a citizen of Illinois. The defendant moved to require the joinder of the plaintiff's children, the individuals who stand to inherit the corpus of the trust should the power of appointment not be exercised in the plaintiff's lifetime. The children, also residents of California, filed affidavits indicating their opposition to the termination of the trust in favor of their mother. The district court required the joinder of Eric Hansen and Kirsten Farley as defendants and then dismissed the action for lack of diversity.
It is undisputed that if Eric and Kirsten were properly joined as defendants the action must be dismissed for lack of subject matter jurisdiction. The plaintiff argues, however, that the joinder of her children was not required by Rule 19 of the Federal Rules of Civil Procedure. We are convinced that the district court properly exercised its discretion under Rule 19 to dismiss the action.
Rule 19 establishes a two-step inquiry for determining when it is proper to dismiss an action for inability to obtain jurisdiction over an individual with an interest in the litigation.*fn1 Rule 19(a) establishes the threshold prerequisites for joinder. If subject-matter jurisdiction would not be destroyed, the relevant portions of Rule 19(a) would require the joinder of Eric Hansen and Kirsten Farley only if they "(claim) an interest relating to the subject of the action" and are "so situated that the disposition of the action in (their) absence may . . . as a practical matter impair or impede (their) ability to protect that interest. . . ." Since an adjudication that the trust should be terminated would extinguish the children's right to receive the corpus of the trust on the death of their mother, the children clearly have an interest in continuing the trust the "subject of the action." A judgment in favor of termination would not only impair their ability to protect that interest, but might actually operate to terminate their interest. See Croslow v. Croslow, 38 Ill.App.3d 373, 347 N.E.2d 800 (1976). Therefore the children would be required to be joined, if feasible, under 19(a). Tankersley v. Albright, 514 F.2d 956 (7th Cir. 1975).
Rule 19(b), however, provides that when such a person cannot be joined, the action should only be dismissed if the court determines it cannot in "equity and good conscience" proceed without the absent persons. The rule enumerates considerations appropriate to this determination. The Supreme Court in Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 88 S. Ct. 733, 19 L. Ed. 2d 936 (1968), interpreted those considerations as requiring a balancing of four interests: the plaintiff's interest in the availability of a forum; the defendant's interest in avoiding multiple or inconsistent adjudication; the nonparties' interest in preventing prejudice to their claims; and the public's interest in efficient dispute settlement. The rule also mandates that the court consider the possibility of shaping relief to protect the interests of absent persons as an alternative to dismissing the action.
When a district court is directed by the rules to make a judgment based on "equity and good conscience" the appellate court should, of course, only review, and not displace that judgment. The facts of this case suggest that the district court properly applied the Rule 19(b) considerations.
It is clear that care must be taken to ascertain whether the plaintiff could obtain jurisdiction over the trustee and her children in another court. See Provident Tradesmens, 390 U.S. at 102, 88 S. Ct. 733, 19 L. Ed. 2d 936 ; Prescription Plan Service Corp. v. Franco, 552 F.2d 493, 497 (2d Cir. 1977); The Advisory Committee on the Federal Rules of Civil Procedure, Note on the 1966 Revision of Rule 19, Reprinted in 3A Moore's Federal Practice P 19.01(5.-4) at 19-16 (2d ed. 1978). Although the Illinois courts have apparently not decided whether In personam jurisdiction can be obtained over nonresident beneficiaries of an Illinois trust in an action seeking dissolution, other authorities suggest that such jurisdiction would be proper.*fn2 In Tankersley v. Albright, 374 F. Supp. 530 (N.D.Ill.1973), the district court found that it had personal jurisdiction over nonresident beneficiaries in a diversity action brought by the trustees of an Illinois trust. The court relied primarily on the presence of the trust assets in the state.*fn3 See also Gurley v. Lindsley, 459 F.2d 268, 277 (5th Cir. 1972). On appeal this court remanded the case for consideration of whether the ...