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HOME FED. BANK v. GUSSIN

January 9, 1992

HOME FEDERAL BANK FOR SAVINGS, Plaintiff,
v.
PAUL GUSSIN, et al., Defendants. PAUL GUSSIN, Third party plaintiff, vs. CALUMET NATIONAL BANK, as Executor of Estate of Donald G. Levine, Third party defendant.


MORAN


The opinion of the court was delivered by: JAMES B. MORAN

Calumet National Bank (Calumet), a third party defendant in this action, moves to dismiss Paul Gussin's (Gussin) third party complaint for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. Alternatively, Calumet requests that we exercise our discretion and decline jurisdiction. For the following reasons, Gussin's third party complaint is stayed and Calumet's motion to dismiss continued.

 BACKGROUND

 Donald Levine, a resident of Munster, Indiana, died on November 9, 1989. His estate was opened for probate on November 21, 1989, in the Lake County Superior Court of Indiana, Probate Division, with Calumet being named executor. On April 27, 1990, Gussin filed a complaint in Probate Court against the estate, on behalf of himself and the 139-41 North Wabash Ltd. Partnership (Partnership). Gussin and Levine were the sole members of the partnership. This claim arose out of a promissory note and guaranty agreement in the amount of $ 2,500,000, executed by the partnership in favor of Home Federal Bank For Savings (Home Federal), the plaintiff in this litigation, for the financing of partnership assets. Gussin seeks indemnification from the estate, pursuant to the partnership agreement, in the event of a default on the promissory note and guaranty agreement.

 Meanwhile, Home Federal commenced these federal proceedings against Gussin, et al., on the partnership indebtedness, thereby prompting Gussin to file his third party indemnification claim (which is identical to his probate complaint) against the estate. It is this claim that led to Calumet's motion to dismiss.

 DISCUSSION

 Calumet contends that Gussin's third party action represents an in rem proceeding in which the Indiana Probate Court, by virtue of Gussin's state claim, has prior exclusive jurisdiction. In support of its position Calumet cites Section 29-1-7-2 of the Indiana Probate Code, which provides:

 The probate of a will and the administration of the estate shall be considered one proceeding for the purposes of jurisdiction, and said entire proceeding and the administration of a decedent's estate is a proceeding in rem.

 This provision has been interpreted to mean that collateral proceedings such as will contests, creditors' claims and actions to possess real estate are also part of the original in rem action and may be tried by the probate court. See Krick v. Farmers & Merchants Bank of Boswell, 151 Ind. App. 7, 279 N.E.2d 254, 258-59 (1972). Calumet extrapolates that because the Indiana court characterizes Gussin's state claim as in rem his federal claim must likewise be label led in rem, thus invoking the well-settled principle that "the court first assuming jurisdiction over the property may maintain and exercise that jurisdiction to the exclusion of the other." Penn General Cas. Co. v. Pennsylvania, 294 U.S. 189, 195, 79 L. Ed. 850, 55 S. Ct. 386 (1935).

 While the doctrine of prior exclusive jurisdiction is alive and well, it is not appropriate in this case. This is because, in the true sense, Gussin's claim for indemnification is not in rem where control over Levine's estate is needed to give effect to jurisdiction. Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456, 466, 83 L. Ed. 285, 59 S. Ct. 275 (1939) *fn1" Instead, Gussin, as a third party creditor, merely seeks to have his rights in the estate adjudicated. This rule was expressed as follows:

 [A] federal court has no jurisdiction to probate a will or administer an estate. . . . But . . . federal courts of equity have jurisdiction to entertain suits "in favor of creditors, legatees and heirs" and other claimants against a decedent's estate "to establish their claims" so long as the federal court does not interfere with the probate proceedings or assume general jurisdiction of the probate. . . .

 Markham v. Allen, 326 U.S. 490, 494, 90 L. Ed. 256, 66 S. Ct. 296 (1946) (citations omitted) (quoting Waterman v. Canal-Louisiana Bank Co., 215 U.S. 33, 43, 54 L. Ed. 80, 30 S. Ct. 10 (1909)). This rule operates "notwithstanding the statutes of the State[s] [that] undertake to give to state probate courts exclusive jurisdiction over all matters concerning the settlement of accounts of executors and administrators in the distribution of estates." Waterman, 215 U.S. at 44.

 A second and more popular approach examines the route the plaintiff's claim would take in the state system. As set ...


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