Christine L. Bailey v. Derek Macfarland, in his capacity as successor-in-interest to Michael MacFarland

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CHRISTINE L. BAILEY,
Plaintiff-Appellant,
v.
DEREK MACFARLAND, in his
capacity as successor-in-interest to
Michael MacFarland; THE PUBLIC
GROUP, LLC,
Defendants-Appellees.
No. 19-17143
D.C. No.
2:15-cv-01725-
TLN-DB
OPINION
Appeal from the United States District Court
for the Eastern District of California
Troy L. Nunley, District Judge, Presiding
Argued and Submitted April 15, 2021
San Francisco, California
Filed July 28, 2021
Before: William A. Fletcher, Johnnie B. Rawlinson, and
Bridget S. Bade, Circuit Judges.
Opinion by Judge W. Fletcher

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BAILEY V. MACFARLAND 2
SUMMARY*
Diversity Jurisdiction/Domestic Relations Exception
The panel affirmed the district court’s dismissal, for lack
of subject matter jurisdiction, of plaintiff’s diversity suit
against the Public Group and Derek MacFarland, in his
capacity as successor-in-interest to Michael MacFarland,
plaintiff’s late husband.
Plaintiff divorced Michael MacFarland in family court.
This case concerns a dispute over assets allegedly owned by
the couple during their marriage. Plaintiff specifically
alleged collusion between Michael MacFarland and the
Public Group, founded by MacFarland’s son, Derek, to
prevent plaintiff from being compensated for the couple’s
investment in the company.
The panel held that because plaintiff was seeking
modification of her divorce decree, the domestic relations
exception to diversity jurisdiction applied. The panel
determined that plaintiff wanted the federal court to
determine whether certain assets were acquired and held by
MacFarland during the marriage and then decide what share
of them should have been apportioned to plaintiff upon the
parties’ separation. Plaintiff’s requested remedy thus put this
case at the core of the domestic relations exception. The
eight claims plaintiff raised against the Public Group also fell
within the exception. Plaintiff’s allegations against the Public
Group turned on MacFarland’s purported role as a major
* This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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BAILEY V. MACFARLAND 3
owner and agent of Public Group. A plaintiff may not evade
the domestic relations exception simply by filing her diversity
case against a corporate entity associated with her ex-spouse.
COUNSEL
Carole M. Pope (argued), Law Office of Carole M. Pope,
Reno, Nevada, for Plaintiff-Appellant.
Thomas S. Knox (argued) and David P.E. Burkett, Knox
Lemmon & Anapolsky LLP, Gold River, California, for
Defendants-Appellees.
OPINION
W. FLETCHER, Circuit Judge:
Christine L. Bailey appeals the dismissal of her diversity
suit against Derek MacFarland, the son of her former
husband, and the Public Group, a Utah-based LLC, for lack
of subject matter jurisdiction. The district court held that her
claims fall within the domestic relations exception to federal
diversity jurisdiction. We affirm.
I. Factual and Procedural Background
Christine Bailey and Michael MacFarland
(“MacFarland”) were married in Hawaii in 1994. They
divorced in 2012 in the family court of the Third Circuit of
Hawaii. This case concerns a dispute over assets allegedly
owned by the couple during their marriage. The narrative

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BAILEY V. MACFARLAND 4
recounted below is largely based on allegations in Bailey’s
complaint which, for present purposes, we assume to be true.
The Public Group is a Utah Limited Liability Company
founded by MacFarland’s son, Derek MacFarland.
According to the complaint, in 2004, Bailey and MacFarland
loaned $100,000 to the Public Group. Bailey and
MacFarland also invested approximately $3 million in the
company at about the same time. As of 2005, the couple
jointly held a 24% ownership interest in the company. As of
2008, they held a 10% ownership interest. Shortly before the
divorce, MacFarland told Bailey that the Public Group was
“doing well” and had a then-current value of over
$20 million.
In late 2011, Bailey and MacFarland signed an
Agreement in Contemplation of Divorce. Bailey had
“confirmation” that their marital property included an interest
in the Public Group, so she insisted on a clause in the
Agreement dividing that interest. In Paragraph 10 of the
Agreement, the couple agreed to “split equally any income or
distributions made to either of the parties associated with
their prior business dealings including from the Public Group,
and the two subsidiaries: Public Surplus and Public Purchase
and their predecessors or successors as they may occur.”
However, according to the complaint, MacFarland stated that
he viewed Paragraph 10 as “meaningless,” based on his
contention that he had no ownership interest in the Public
Group.
The couple’s divorce decree incorporated the Agreement
in Contemplation of Divorce. Inter alia, the Agreement
provided: “The Family Court shall have continuing

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BAILEY V. MACFARLAND 5
jurisdiction over the parties and their property to enforce and
implement the provisions of this Agreement.”
In 2013, after the divorce decree had been entered, the
Public Group’s general counsel wrote a letter to Bailey’s
counsel stating that MacFarland had held an ownership
interest in the company in 2008 and in “intermittent prior
years,” but not in 2009 or subsequent years. In early 2015,
MacFarland filed a declaration in family court stating that he
had no ownership in the Public Group and no right to
distributions from the company. He stated that he had loaned
$100,000 to Derek MacFarland but that this sum had been
fully repaid by 2009. He also claimed that he had never had
“any actual ownership interest in The Public Group in
exchange for loaning Derek the money or any other reason”
and had “no percentage interest in The Public Group’s profit,
loss or capital.”
On August 13, 2015, Bailey filed a diversity suit in the
Eastern District of California, naming MacFarland and the
Public Group as defendants. At the time of filing, Bailey was
a citizen of Hawaii. MacFarland was a citizen of California.
The Public Group was a citizen of Utah because all its
members were citizens of Utah.
In her Second Amended Complaint, Bailey alleged
collusion between MacFarland and the Public Group to
prevent Bailey from being compensated for the couple’s
$3 million investment in the company. She alleged a breach
of contract claim and a claim for breach of the covenant of
good faith and fair dealing against MacFarland. She also
alleged eight claims against the Public Group: fraud,
constructive fraud, breach of fiduciary duty, conspiracy,
fraudulent transfer of assets without consideration, attorney’s

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BAILEY V. MACFARLAND 6
fees, accounting, and unjust enrichment. The Public Group
moved to dismiss, arguing that the district court lacked
subject matter jurisdiction under the domestic relations
exception to diversity jurisdiction.
On September 24, 2019, the district court dismissed
Bailey’s complaint without leave to amend, citing the
domestic relations exception. The court held that Bailey’s
allegations of fraud and conspiracy were “inextricably
intertwined with the parties’ divorce proceeding” and that she
sought “enforcement of and possibly alteration of her divorce
decree.” In the alternative, the court held that, even if it had
jurisdiction over the matter, it should abstain because the
state court was in a better position to adjudicate the dispute.
Bailey timely appealed to this court.
On a limited remand to address the fact that MacFarland
had died in August 2018, the district court substituted his son
Derek MacFarland as his successor-in-interest.
II. Discussion
We review de novo a district court’s dismissal of a
complaint for lack of subject matter jurisdiction. K2 Am.
Corp. v. Roland Oil & Gas, LLC, 653 F.3d 1024, 1027 (9th
Cir. 2011).
In the mid-nineteenth century, the Supreme Court
announced an exception to diversity jurisdiction for cases
implicating domestic relations. See Barber v. Barber, 62 U.S.
582, 591–97 (1858). For over a century, the rationale and
precise scope of the exception were unclear.

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BAILEY V. MACFARLAND 7
In Ankenbrandt v. Richards, 504 U.S. 689 (1992), the
Supreme Court reaffirmed the exception based on long-
standing Congressional acquiescence. Carol Ankenbrandt
had brought a tort action against her former husband, a citizen
of another state, alleging that he and his new partner had
sexually and physically abused his and Carol’s children. Id.
at 691. The district court had dismissed the case, citing the
domestic relations exception, and the court of appeals had
affirmed. The Court reversed, holding that the exception
divests the federal court of diversity jurisdiction only in
“cases involving the issuance of a divorce, alimony, or child
custody decree.” Id. at 704. It explained that cases involving
these decrees “not infrequently involve[] retention of
jurisdiction by the court and deployment of social workers to
monitor compliance.” Id. at 703–04. The Court wrote, “state
courts are more eminently suited to work of this type than are
federal courts, which lack the close association with state and
local government organizations dedicated to handling issues
that arise out of conflicts over divorce, alimony, and child
custody decrees.” Id. at 704. Because Ankenbrandt did not
seek issuance of a decree, the exception did not apply, and the
federal courts had diversity jurisdiction. Id.
A decade later, the Supreme Court emphasized that the
exception “covers only ‘a narrow range of domestic relations
issues.’” Marshall v. Marshall, 547 U.S. 293, 307 (2006)
(quoting Ankenbrandt, 504 U.S. at 701). Rather than
applying broadly to cases implicating “the subject of
domestic relations,” the exception applies only to cases
implicating “particular status-related functions that fall within
state power and competence.” 13E Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 3609.1
(3d ed. & Supp. 2020). The exception preserves jurisdiction
for cases within the competency of federal courts while, at the

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BAILEY V. MACFARLAND 8
same time, preventing a party from making an end-run around
a state-court status determination. See, e.g., McLaughlin v.
Cotner, 193 F.3d 410, 414 (6th Cir. 1999).
We have held that the domestic relations exception does
not apply in federal question cases. See Atwood v. Fort Peck
Tribal Court Assiniboine, 513 F.3d 943, 947 (9th Cir. 2008).
But we have not otherwise had occasion to discuss the
exception’s proper scope after Ankenbrandt. We do so today.
Under Ankenbrandt, we ask whether the plaintiff seeks an
issuance or modification of a divorce, alimony, or child-
custody decree. While Ankenbrandt discussed the “issuance”
of a decree, we agree with the lower courts that have
unanimously concluded that the Court’s reasoning—and its
emphasis on state court retention of jurisdiction—necessarily
means the exception also applies to the modification of an
existing decree. See, e.g., Matusow v. Trans-County Title
Agency, LLC, 545 F.3d 241, 246 (3d Cir. 2008)
(“[M]odification of a divorce decree is analogous to the
issuance of a divorce decree.”).
A plaintiff may not evade the exception through artful
pleading. We “look to the reality of what is going on” to
ensure that the plaintiff is not “cloak[ing]” a prayer for relief
on the decree “in the trappings of another type of claim.”
Irish v. Irish, 842 F.3d 736, 742 (1st Cir. 2016) (quotations
and citations omitted). A suit concerning modification of a
decree cannot be “disguise[d]” as a mere “claim for damages
based on a breach of contract.” McLaughlin, 193 F.3d at 413.
For example, in Chevalier v. Estate of Barnhart, 803 F.3d
789, 798 (6th Cir. 2015), the Sixth Circuit held that the
domestic relations exception did not apply because the

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BAILEY V. MACFARLAND 9
plaintiff was asking for “repayment for past-due loans and a
legal interest” in a property, rather than the issuance or
alteration of a divorce decree. Indeed, in Chevalier, no
divorce decree had even issued. Further, in Matusow,
545 F.3d at 245–46, the Third Circuit held that the exception
did not apply to a quiet title claim brought against a third
party, with respect to property subject to a divorce decree,
because the plaintiff sought neither to alter, nor to contest the
validity of, her divorce decree.
Particularly instructive is Irish, in which the First Circuit
held that the exception applied. Dawn Irish sued her former
husband, Craig, alleging that, in an early draft of her divorce
decree, she was to receive 20% of his interest in a company.
842 F.3d at 738. Craig had persuaded Dawn that his interest
in the company was 120 equity shares, so she agreed to
provide in the decree that she would receive 24 shares—20%
of his shares. Id. When the company was acquired two years
after the divorce, Craig received a $21.6 million pay-out in
addition to his equity share, which Dawn alleged was part of
a “pre-divorce ‘side deal’” he had reached with his company.
Id. at 738–39. The First Circuit reasoned that Dawn was
essentially asking the federal court to modify the decree:
Dawn does not seek to compel a payment
actually due under her agreement. And she
claims she does not seek rescission, even
though the basis of her charge is also a defect
at contract formation. Disjointedly, she
alleges she was induced to enter a deal for
which she would not have bargained, but
styles her requested remedy as the benefit of
what she bargained for. Yet, since the
agreement is silent as to the proper division of

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BAILEY V. MACFARLAND 10
the assets at issue, rather than effectuate the
parties’ manifest intent, the federal court is
asked to decide upon an equitable distribution
of marital property in the first instance.
. . . Specifically, though her complaint is
drafted to sound in contract law . . . , Dawn’s
suit calls upon the federal court to determine
whether certain assets were acquired and held
by Craig during the marriage and then to
decide what share of them should have been
apportioned to Dawn upon the parties’
separation.
Id. at 743.
For similar reasons, the domestic relations exception
applies in this case. Under her divorce decree, Bailey claims
half of the equity that she contends the couple owned in the
Public Group. Bailey insists in her brief that “[s]he is not
requesting . . . that her Contract with Mr. MacFarland be
altered.” That may be true, but Bailey is seeking a
modification of the divorce decree under which, as it now
stands, she receives nothing from the couple’s investment in
the Public Group. She claims that MacFarland made their
investment in the Public Group “disappear” and thereby
fraudulently concealed assets that belonged to both of them.
She wants the federal court to “determine whether certain
assets were acquired and held by [MacFarland] during the
marriage and then decide what share of them should have
been apportioned to [Bailey] upon the parties’ separation.”
Irish, 842 F.3d at 743. Bailey’s requested remedy thus puts
this case at the core of the domestic relations exception.

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BAILEY V. MACFARLAND 11
The eight claims Bailey raises against the Public Group
also fall within the exception. Bailey’s allegations against the
Public Group turn on MacFarland’s purported role as a
“major owner and agent of Public Group.” A plaintiff may
not evade the domestic relations exception simply by filing
her diversity case against a corporate entity associated with
her ex-spouse.
Because Bailey seeks modification of her divorce decree,
the domestic relations exception applies. State court is the
appropriate forum for interpreting the decree to determine
whether MacFarland is in breach. State court is also the
appropriate forum for determining whether the decree should
be modified on the ground that, at the time of the divorce,
MacFarland fraudulently misrepresented the couple’s
ownership stake in the Public Group.
Heeding the Supreme Court’s admonition in Ankenbrandt
and Marshall that the domestic relations exception is narrow,
we decline to adopt the broad version of the exception
embraced by some of our sister circuits. In Friedlander v.
Friedlander, 149 F.3d 739, 740 (7th Cir. 1998), the Seventh
Circuit held that the exception divests jurisdiction not only
from cases implicating “distinctive forms of relief” such as
the decrees in Ankenbrandt, but also from a “penumbra” of
cases implicating “ancillary proceedings . . . that state law
would require be litigated as a tail to the original domestic
relations proceeding.” In Wallace v. Wallace, 736 F.3d 764,
767 (8th Cir. 2013), the Eighth Circuit held, even more
expansively, that the domestic relations exception divested
jurisdiction over a state-law identity theft claim between ex-
spouses because the claim would require considering the
same underlying conduct that had been considered by the
divorce court. Because the judgment might order one ex-

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BAILEY V. MACFARLAND 12
spouse to pay assets to the other on the basis of the same
conduct, the Eighth Circuit held that the case was
“inextricably intertwined” with the state proceeding. Id.
(quoting Kahn v. Kahn, 21 F.3d 859, 861–62 (8th Cir. 1994)).
Conclusion
The domestic relations exception squarely forecloses
diversity jurisdiction over Bailey’s claims against
MacFarland and the Public Group. The district court
correctly dismissed all claims.
AFFIRMED.

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