United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
REBECCA R. PALLMEYER United States District Judge
Flynn was one of several investors in the Emerald Casino, a
business formed to operate a land-based casino in Illinois.
The casino plan ran into regulatory difficulty, however, and
the Illinois Gaming Board stripped Emerald of its license to
operate. Emerald filed bankruptcy and Frances Gecker, the
bankruptcy trustee (hereinafter “the Trustee”),
sued Flynn and others, alleging that their conduct led to the
loss of the license. In September 2014, this court found
Kevin Flynn and others liable, and after settlement efforts
failed, the court entered judgment earlier this year.
Flynn died during the pendency of the action. The Trustee now
seeks to execute on the substantial judgment she won against
him. To that end, the Trustee has issued citations to
discover assets in the hands of Kevin Flynn's widow,
Susan Flynn-in Susan's personal capacity, in her capacity
as executor of her late husband's estate, and in her
capacity as trustee of a trust formed by her husband before
his death. Susan Flynn and the estate itself have moved to
quash these citations. For the reasons explained here, the
court denies the motions and lifts the stay it imposed on the
citation proceedings. As further explained, however, the
Trustee's victory on this motion may be a Pyrrhic one, as
the court concludes that the Illinois probate court has
exclusive jurisdiction to distribute any assets found to be
part of Kevin Flynn's estate.
case began as an adversary proceeding in 2008 arising from
the bankruptcy of the Emerald Casino. The facts and
procedural history are long and complicated, detailed in full
in the court's September 30, 2014 opinion. In re
Emerald Casino, Inc., 530 B.R. 44 (N.D. Ill. 2014).
Kevin Flynn, one of several defendants, died on August 12,
2013, and his estate was substituted as Defendant in the
still-pending case against him. (Mem. in Supp. of the Estate
of Kevin F. Flynn's Mot. to Dismiss Suppl. Proceedings
for Lack of Jurisdiction [hereinafter “Estate
Br.”] , at 2.) After settlement efforts with
certain other defendants concluded, the court entered
judgment in the amount of $45, 333, 333.33 against
Kevin's estate and in favor of Plaintiff Francis Gecker
as Chapter 7 trustee for the bankruptcy estate of the casino.
(J. Order, Jan. 12, 2016 .) The Trustee now seeks to
enforce that judgment.
Kevin was a wealthy businessman in
his lifetime, but his estate is reportedly all but worthless.
The Trustee believes that some of Kevin's assets may now
be in the hands of other persons or institutions subject to
citation proceedings. (Trustee's Combined Obj. to Estate
of Kevin F. Flynn's & Susan Flynn's Mots. to
Dismiss Suppl. Proceedings [hereinafter “Trustee
Br.”] , at 2-3.) Accordingly, she has issued
citations to eighteen individuals and institutions to
discover assets, including to Susan individually [473-10], in
her capacity as executor of Kevin's estate [473-2], and
in her capacity as the trustee of a trust [473-4].
trust in question, referred to by the parties as the
Appointive Trust, was funded (at least in part) at Kevin's
death by the operation of his will and several other trust
instruments. (See Mem. of Susan Flynn, Joining Mot.
to Dismiss Suppl. Proceedings for Lack of Jurisdiction
[hereinafter “Susan's Br.”] [483-1], at 2-3.)
The funding stream begins with the Kevin F. Flynn June, 1992
Non-Exempt Trust (the “1992 Trust”), which
Kevin's father created in 1992, naming Kevin as the
beneficiary. (Id. at 2.) The 1992 Trust contains
what is known as a “spendthrift” provision, which
generally shields trust assets from claims of a
beneficiary's creditors. (Trust Agrmnt. ¶ 8, Ex. C to
Estate Br. [483-5].) It also contains an appointment
provision that allowed Kevin, by his will, to direct the
trust assets to the benefit of any person or entity other
than his estate or his creditors. (Id. at ¶
will, Kevin exercised that power of appointment in favor of
another trust, the Kevin F. Flynn 1995 Trust (the “1995
Trust”). (Will of Kevin F. Flynn, Ex. D to Estate Br.
[483-6], at 2.) Kevin was the trustee of the 1995 trust,
which was presumably created in 1995 but is governed now by
an amended trust instrument executed by Kevin in 2010.
(Restatement of the Kevin F. Flynn 1995 Trust, Ex. E to
Estate Br. [hereinafter “1995 Trust Restmnt.”]
[483-7].) The 1995 Trust, under the 2010 amended trust
instrument, anticipates the transfer of 1992 Trust assets in
the event of Kevin's death. (Id. at ¶ 5.)
The 2010 trust instrument requires the trustee of the 1995
Trust to transfer any property received from the 1992 Trust
to yet another trust-the Appointive Trust (id. at
¶ 5)-to be created in the event of Kevin's death
under terms laid out in the 2010 trust instrument.
(Id. at ¶ 12.) Susan contends that the
Appointive Trust is also subject to a spendthrift provision
(Susan's Br. 4 (citing 1995 Trust Restmnt. at ¶
20)), but the provision does not specifically appear in the
terms governing the Appointive Trust (1995 Trust Restmnt. at
¶ 12), and its applicability to the Appointive Trust may
be in dispute. The court does not resolve at this stage
whether the term applies to the Appointive Trust, or whether
the Appointive Trust may regardless be a spendthrift trust by
operation of Illinois law, see 735 ILCS 5/2-1403.
Estate and Susan have jointly requested that all of the
citations be dismissed pursuant to Federal Rule of Civil
Procedure 12(b)(1) because the probate exception deprives the
court of jurisdiction. (Estate Br. 1-2; Susan's Br. 1.)
As more fully explained below, the court concludes that its
jurisdiction to enforce its own judgments extends to the
discovery of assets to add to the estate, but the probate
exception will likely prevent it from awarding any discovered
assets to any particular creditor, including the Trustee.
The Probate Exception Does Not Bar Citations
court generally has broad power to execute its judgments.
Star Ins. Co. v. Risk Mktg. Grp., 561 F.3d 656, 662
(7th Cir. 2009). Unless a federal statute governs the
particular circumstances, collection proceedings in federal
court are governed by state law. Fed R. Civ. P. 69(b). Under
Illinois law, the court may “inquire as to whether
third parties hold assets of the judgment debtor.”
Dexia Credit Local v. Rogan, 629 F.3d 612, 624 (7th
Cir. 2010). Ordinarily, the court may also order a third
party to turn over assets to the creditor if those assets do,
in fact, belong to the judgment debtor. Id.
(collecting Illinois cases).
and the Estate argue that the probate exception to federal
jurisdiction limits this court's power in this case. The
probate exception arises from a limitation on the equity
jurisdiction conferred on federal courts by the Judiciary Act
of 1789. Marshall v. Marshall, 547 U.S. 293, 308
(2006). Specifically, the Judiciary Act authorized federal
courts to exercise only the jurisdiction enjoyed by the
contemporary English Court of Chancery, which did not extend
to probate matters. Id. In an older case endeavoring
to clarify the exception, the Supreme Court explained that
federal courts have no jurisdiction to probate a will, to
administer an estate, or to “disturb or affect the
possession of property in the custody of a state
court.” Markham v. Allen, 326 U.S. 490, 494
(1946). Federal courts could, however, hear cases by
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 or control of the property in the
custody of the state court.” Id. (quoting
Waterman v. Canal-La. Bank & Tr. Co., 215 U.S.
33, 43 (1909)). After Markham, some circuits
expansively read the exception to prohibit claims that might
“interfere with” probate proceedings generally,
regardless of whether those claims actually interfered with
property in custody of the state court. Marshall,
547 U.S. at 311.
Marshall v. Marshall, the Court reigned in expansive
interpretations of the probate exception. Vickie Lynn
Marshall (known to the world as Anna Nicole Smith) sued the
son of her deceased husband in federal court, alleging that
the son had tortiously interfered with a testamentary gift to
her. Id. at 300-01. Vickie Marshall initiated the
suit while her husband's estate was still pending in the
state probate court. Id. The district court entered
judgment in her favor, but the Ninth Circuit vacated the
judgment, holding that the tortious interference claim raised
“questions which would ordinarily be decided by a
probate court, ” and therefore interfered with the
probate proceeding in violation of the probate exception.
Id. at 304.
Supreme Court overturned that decision, concluding that the
probate exception did not defeat federal jurisdiction over
the tortious interference claim. Id. at 305.
Clarifying the Markham holding, the Court explained
that the probate exception does not proscribe generalized
“interference with” state court proceedings;
instead, the exception deprives a federal court of
jurisdiction only where federal jurisdiction would
“disturb or affect the possession of property in the
custody of the state court.” Id. at 311-12.
Because Vickie Marshall's claim sought a judgment against
the son, and did not specifically seek property in the
custody of the state court, the exception did not apply.
Id. at 312.
decided since Marshall suggest that claims that
would add assets to an estate, but do not
reallocate those assets among claimants or
creditors, do not disturb a state probate court's
possession of property. In Gustafson v. ZumBrunnen,
the representative of an estate brought a suit in federal
court against several holders of a joint bank account
containing $50, 000 which the representative claimed belonged
to the estate. 546 F.3d 398, 400 (7th Cir. 2008). The
district court dismissed the case for lack of complete
diversity between the parties, and the Seventh Circuit
affirmed, but paused to note that the case was not barred by
the probate exception. Id . at 400-01. Although the
suit was “ultimately based on the will, ” the
court observed, it would “just add assets to the
decedent's estate; it would not reallocate the
estate's assets among contending claimants or otherwise
interfere with the probate court's control over and
administration of the estate.” Id. at 400. The
First Circuit reached the same conclusion in Jimenez v.
Rodriguez-Pagan, 597 F.3d 18, 24 (1st Cir. 2010). In
Jimenez, the representative of an estate sued in
federal court to recover a 20% share of profits on the sale
of a building which the decedent had an option to purchase.
Id. at 22. On appeal from dismissal for lack of
diversity jurisdiction, the First Circuit held that the claim
did not interfere with property in ...