Anna Nicole Smith Case Offers Court Opportunity To Limit Forum-Shopping in Bankruptcy Cases

After years of legal wrangling, the U.S. Supreme Court has once again decided to take up the case of Stern v. Marshall, a case that has spanned across the U.S. appellate system for more than 15 years. On Jan. 18, the high court will hear oral arguments from both parties on matters of bankruptcy jurisdiction. Attorneys representing the estate of the late Playboy model and reality TV star Anna Nicole Smith filed an appeal with the Supreme Court as a last-ditch effort to gain access to her late husband’s estate. Smith’s legal team, lead by the estate’s executor, Howard K. Stern, seeks to reverse a March 2010 decision of the U.S. Court of Appeals for the Ninth Circuit, which found that Smith’s estate is not entitled to any of J. Howard Marshall II’s assets.

Although it is clear this case has been litigated far beyond its legal merits, I believe this writ of certiorari provides a unique opportunity for the high court to clarify an important statutory limitation regarding the authority of bankruptcy courts. The key underlying facts for this appeal are actually simple: When Marshall passed away in Texas in 1995, the case went into Texas probate court, which eventually held that Smith was not entitled to anything from Marshall’s estate. Soon after the probate trial began but before it concluded, Smith drummed up a federal bankruptcy filing in California, in which she was originally awarded $474 million of Marshall’s estate (later reduced to $88 million) based on a state law counterclaim that she raised to a request by Marshall’s son that a claim he made against her defamation suit be declared nondischargeable. The bankruptcy decision was appealed to the federal district court that oversees it, which eventually agreed with the bankruptcy court’s conclusion, but only after the probate court decision was a final judgment. This past spring, the Ninth Circuit correctly ruled that the counterclaim filed by Smith against Marshall’s son was only tangentially related to her bankruptcy case and was not considered a “core” proceeding in Smith’s bankruptcy filing. As a result, the bankruptcy court’s ruling was only a recommendation to the district court and not a final judgment on the matter. Thus, even though the bankruptcy court’s decision was entered before the Texas probate court finished its work, for legal purposes what really mattered was the district court’s opinion, which was entered after the probate court finished its work. Thus, the probate decision controlled and Smith received nothing from Marshall’s estate. By acknowledging the probate court’s authority over this particular issue, the Ninth Circuit respected the constitutional restraints aimed at preventing abuse of the judicial system and the congressional intent to limit bankruptcy court authority over noncore matters that arise outside the U.S. Bankruptcy Code.