A California federal appeals court has ruled an investment advisor's federal suit to collect a $3 million fee from the estate of a client may proceed because, contrary to the estate's administrators, the suit does not improperly give the federal courts power over a state probate court.
The April 10 decision was penned by Circuit Judge Mark Bennett, with agreement from Circuit Judges Paul Watford and Michelle Friedland, of the U.S. Ninth Circuit Court of Appeals. The decision favored Roger Silk in his action against Baron Bond and Howard B. Miller, representatives of the estate of Frank Bond.
Silk oversaw tax and estate planning for Frank Bond, who was from 1988 to 2013 on the board of directors of the Cato Institute. The Institute is a libertarian think tank in Washington, D.C. Bond founded the health club chain U.S. Health in 1959, selling it in 1988.
After Bond died in July 2020, Silk lodged a $3.1 million claim against Baron Bond — Frank Bond's son — and Miller for an incentive fee to which Frank Bond had agreed was to be paid upon his death.
The claim was first filed in Baltimore County Court in Maryland, where the elder Bond had lived. After the Maryland court disallowed his claim, Silk refiled the suit in U.S. District Court for the Central District of California. Silk lives in Nevada, but lived in California during the time he handled Bond's tax matters, according to court papers.
District Judge Otis Wright II dismissed Silk's action on grounds that to permit the action to go forward, a federal judge would be required to determine the worth of Bond's estate. Wright said such an accounting would amount to a federal judge taking control of the probate proceedings, which belongs to the Maryland court.
Circuit Judge Bennett reversed Wright's finding.
"Valuing an estate to calculate contract damages is not administering an estate. For purposes of Silk’s breach of contract action, an appraisal of the Estate’s value is a matter of contract interpretation, purely incidental to the task of the probate court in administering the estate," Bennett said.
Bennett pointed out Silk is complaining his contracts with the late Bond have been breached and the estate owes him money, but Silk does not challenge the probate court's jurisdiction over the estate.
"If Silk were to prevail in federal court, he would 'need to present, in a probate court, any judgment obtained, if he desired payment from the assets under' that court’s control," Bennett said, quoting from the 1936 U.S. Supreme Court ruling in Pufahl v. Estate of Parks.
In Bennett's view, the probate court might have to satisfy a federal court order or judgment favoring Silk, but that does not mean the federal court is usurping the probate court's authority.
The estate representatives contended California federal court was the wrong venue for the case, because none of the parties live or work there. However, Bennett determined there was a strong enough tie to the state from the "years long business relationship" between Silk and Bond, while Silk was based in California.
Silk has been represented by Paul Fattaruso, Adina Levine and Jason Cyrulnik, of Cyrulnik Fattaruso, of New York City and by Sara Colon and Ethan Brown, of Brown, Neri, Smith & Khan, of Los Angeles.
The estate representatives have been defended by Jeffrey Nusinov, of Nusinov and Smith, of Baltimore and by Gary Nye and Joseph Gjonola, of Roxborough, Pomerance, Nye & Adreani, of Woodland Hills, Calif.