Lee Graham Shopping Center LLC v. Estate of Diane Z. Kirsch (Lawyers Weekly No. 001-027-15, 14 pp.) (Shedd, J.) No. 13-2348, Feb. 2, 2015; USDC at Alexandria, Va. (O’Grady, J.) 4th Cir.
Holding: A woman could not transfer her interest in a family partnership that owned a Falls Church shopping center to a trust for her long-term companion upon her death; the 4th Circuit says the probate exception to federal jurisdiction does not bar its consideration of this case and upholds interpretation of the Partnership Agreement to forbid transfer of the interest to a non-family member.
After Marshall v. Marshall, 547 U.S. 293 (2006), the probate exception to federal jurisdiction is limited to two categories of cases: those that require the court to probate or annul a will or to administer a decedent’s estate; and those that require the court to dispose of property in the custody of a state probate court. The parameters of the probate exception cannot be read so broadly as to include this case.
This case requires us to interpret the terms of the Partnership Agreement and the Kirsch and Cullen Trusts, not the terms of Kirsch’s will. The declaratory judgment requested in this case will not order a distribution of property out of the assets of Kirsch’s estate, although it may affect future distributions. The interest at issue is currently held by the Cullen Trust and thus is not property in the custody of the Maryland probate court. The case was properly before the district court under diversity jurisdiction
Cullen argues the transfer is permissible because the introductory clause of Section 6.02 of the Partnership Agreement creates a default rule that all limited partnership interests are freely assignable. The Partnership, on the other hand, argues the transfer is prohibited because Sections 6.02(a) and 6.02(e) provide the exclusive mechanisms by which an interest may be transferred. We believe the Partnership’s reading of the Agreement is correct.
The central question is whether the Agreement permits gift transfers to non-family members. Although far from a model of clarity, the Agreement permits only one reasonable interpretation on this point. Construing the provisions governing “Assignment of Limited Partner’s Interest,” “Limitations on Assignment” and “Family Transfers,” the Agreement extends favorable treatment to family members in two ways: a purchase offer transfer to a family recipient of the type authorized in 6.02(a) is not subject to 6.02(a)’s right of first refusal provisions, and a non-purchase offer transfer to a family recipient is permitted.
The clear reading of Section 6.02 as a whole is that interests may only be assigned pursuant to the terms of either 6.02(a) or 6.02(e). The inference is that a transfer may take place only under the purchase offer process outlined in 6.02(a) or as a family transfer pursuant to 6.02(e).
Section 6.02(a) protects family ownership by providing that, before an outsider can purchase a Partnership Interest, a right of first refusal must be given first to the Partnership and then to existing partners. The effect of this provision is thus to enable the families who own the Partnership to retain ownership if they so desire. The exception to the right of first refusal is not needed because only family members are eligible to obtain partnership interests under 6.02(e).
Because we find the Agreement unambiguously prohibits gift transfers to non-family members, there is no need to remand for discovery on the meaning of the Agreement.
Judgment for the Partnership affirmed.