Making a Federal Case Out of Trustee Termination

In an action seeking a trustee’s termination, a federal court holds that the trustee’s claim to future compensation may be sufficient to confer subject matter jurisdiction.  (Fromm v. Duffy, No. 19-1121, 19-1124, 2020 WL 109056 (D.D.C. Jan. 9, 2020)).

Trustee Refuses Requests to Resign

Attorney James P. Duffy, III drafted the governing instrument of a family trust, which appointed Duffy as an independent trustee.  An investment management firm was tasked with investing and managing the trust’s assets.  Since at least 2010, Duffy had charged the trust annual fees exceeding $24,000 per year.  In 2014, Duffy was disbarred for reasons unrelated to trust’s administration.  After the trust’s investment manager learned of Duffy’s disbarment, the investment manager and the trust beneficiaries requested that Duffy resign. When Duffy failed to resign, the beneficiaries filed suit in the Superior Court of the District of Columbia, seeking his termination.  

Removal to Federal Court

Representing himself, Duffy removed the case to the U.S. District Court for the District of Columbia.  In doing so, Duffy asserted that because the value of the trusts’ assets exceeded $75,000, the beneficiaries’ claims satisfied the amount in controversy requirement for federal diversity jurisdiction.

The beneficiaries sought remand to the D.C. court. They argued that because the trust’s assets weren’t at issue, their value didn’t satisfy the amount in controversy requirement, and moreover, as a non-attorney, Duffy wasn’t qualified to represent the trust in federal court.  In response, Duffy averred that he expected to receive $24,000 in annual trustee compensation indefinitely and argued that the plaintiffs’ claims met the amount in controversy requirement for that alternative reason.  Duffy also contended that he should be permitted to represent himself, because the allegations in the complaint were personal in nature. 

Case Remanded

The federal remanded the case to the D.C. court. It agreed with the beneficiaries that because the trust’s assets weren’t at issue, the valuation of the trust corpus wasn’t a proper measure of the amount in controversy. It agreed with Duffy, however, that his claim to an indefinite future entitlement to a $24,000 trustee fee met the jurisdictional requirement.  Nevertheless, the federal court held that Duffy couldn’t represent himself in federal court because he was sued in his capacity as trustee, not in his personal capacity.  The federal court therefore held that Duffy’s notice of removal wasn’t properly filed, warranting remand.

Proceed with Caution (and Counsel)

This case demonstrates that a trustee facing a state court petition for his termination may be able to remove the case to federal court if the action jeopardizes future compensation that exceeds the jurisdictional amount.  Notably, a state court defendant who desires to remove a case to federal court must do so within 30 days of receiving a copy of the complaint.  A trustee who’s sued by a beneficiary therefore should consult with experienced trust litigation counsel promptly to determine whether proceeding in federal court is possible and, if so, advisable.  The advice of knowledgeable counsel is even more imperative for a non-attorney trustee defendant, who, as this case emphasizes, may not properly remove a case to federal court on his own behalf.