United States Supreme Court Case Involving Anna Nicole Smith Highlights Exceptions to Federal Court Jurisdiction

Posted in Business & Corporate, Litigation

 

UPDATE – FEBRUARY 25, 2010

I recently spoke with public relations firm representing the Estate of E. Pierce Marshall, Elaine T. Marshall, E. Pierce Marshall, Jr. and Preston Marshall who expressed a difference of opinion regarding the facts and procedural history of the Marshall litigation and asked me to provide this information to our readers.  I have added their comments below in italics.

A 2006 Supreme Court Case (Opinion) arising from a story most laypeople learned from supermarket tabloids reaffirms an age old exception to the jurisdiction of the Federal Courts. As many people know, deceased model and celebrity personality Anna Nicole Smith (then aged 26) married billionaire Oil Industry magnate J. Howard Marshall when Marshall was 89 years of age.  Famously, the marriage lasted fourteen months, until Marshall’s death, leading many to comment that Marshall must have died a happy man.

Following Marshall’s passing, Smith (who’s real name was Vicky Lynn Marshall)

Here correct name is: Vickie. Nobody commented J. Howard Marshall II was happy about his relationship with Vickie when he died. Testimony in the Houston probate trial from people who knew J. Howard was that he said the marriage was a mistake and that he was not happy.

became embroiled in a protracted dispute over the estate of her late husband with the deceased billionaire’s son and her own adult step-son, E. Pierce Marshall.  While Smith’s unrelated Bankruptcy proceedings were pending in Bankruptcy Court in California, Pierce Marshall asserted a claim against Smith, seeking to have the Bankruptcy Court declare that a claim which he intended to bring against Smith for defamation could not be discharged in Bankruptcy. 

Before the Bankruptcy Court, Pierce Marshall claimed that Smith had defamed him shortly after the elder Marshall’s death by making statements through her lawyers accusing Pierce Marshall of engaging in forgery, fraud, and overreaching in order to deprive Smith of certain testamentary gifts which her husband had made for her benefit.  In response, Smith pleaded the affirmative defense of truth – asserting that Pierce Marshall’s claims should fail because the content of her lawyers’ statements were true, and filing a counterclaim for tortuous interference with a testamentary gift that she had expected from the elder Marshall. 

Pierce Marshall had already won an $8 million libel verdict against her attorney in Texas state court, concerning the same facts and statements. He was seeking to preserve his future claims against Vicki during the bankruptcy process.              

The Bankruptcy Court granted summary judgment in favor of Smith on the issue of his claim for defamation, and after a trial on the merits, entered judgment in favor of Smith and against Pierce Marshall, finding that he had in fact conspired to falsify documents, and alter and destroy a trust instrument which the late J. Howard Marshall had directed his lawyers to prepare for the benefit of his wife, Anna Nicole Smith.

The Bankruptcy Court never held a trial on the issues. Instead the court arbitrarily ruled that the defendant was guilty of discovery abuse. The Bankruptcy Courts damage award was based solely on that issue. All this was taking place while the Marshall estate and all the issues Vicki raised were being heard during a 5 and ½ month long jury trial in a Texas Probate Court. Pierce Marshall prevailed in that case. The Texas Court specifically ruled that it had considered every issue before the Federal Courts.

Pierce Marshall then sought District Court review of the Bankruptcy Court’s findings, after which the District Court adopted the Bankruptcy Court’s findings and entered an award of compensatory damages in the amount of $44.3 million, and following a finding of “overwhelming” evidence of Pierce Marshall’s “willfulness, maliciousness, and fraud,” the District Court awarded an equal amount of punitive damages. 

The District Court vacated the Bankruptcy Court’s decision and discovery sanctions and held a de novo review. It agreed with Pierce Marshall’s attorneys that the Bankruptcy Court overstepped its authority when it took the case as the matter was not a core bankruptcy proceeding. In addition, the District Court did not adopt any of the Bankruptcy Court’s findings. Instead it held a brief de novo review before it issued its decision, after failing to allow Pierce Marshall’s to present a single witness.

Predictably, Pierce Marshall appealed the District Court’s judgment to the Ninth Circuit Court of Appeals, seeking to have the District Court’s judgment vacated, asserting that the Bankruptcy Court and District Court lacked the authority to adjudicate Smith’s counterclaims citing the “probate exception” to the general jurisdiction of the Federal Courts.  The Ninth Circuit reversed the District Court’s judgment, and Smith appealed to the United States Supreme Court.

The Ninth Circuit vacated and remanded the District Court opinion with instructions.

The United States Supreme Court reversed the Ninth Circuit, finding that the “probate exception” did not apply to Smith’s counterclaims, and therefore that the Bankruptcy Court and District Court did have jurisdiction over Smith’s claims.

The United States Supreme Court only held that the Federal District Court had jurisdiction over claims such and Vickie’s and expressly held that the core-non-core bankruptcy jurisdiction issue was a matter left to be decided by the Ninth Circuit on remand. 

            Did the ruling include the Bankruptcy Court or just the District Court????

In a majority opinion penned by Justice Ginsburg, the Supreme Court clarified the Court’s prior holdings establishing a probate exception to Federal Jurisdiction.  The Court first noted that, although nothing in the text of the Constitution compels the exception to jurisdiction, such an exception was recognized by the English Courts of Chancery – which is the correlative jurisdiction granted to the Federal Courts in the First Session of the First United States Congress under the Judiciary Act of 1789.  The Court then explained that the probate exception did not preclude all claims related to or arising from a decedent’s estate, as the Ninth Circuit had erroneously concluded, but that claims for the annulment or probate of a will or the administration of a decedent’s estate should properly remain in the State Courts. 

The Supreme Court never ruled on the merits of Vicki’s claims. The issue of whether those same issues had already been decided, in Pierce Marshall’s favor, by the Texas Probate Court is one of the many appellate issues still before the 9th U.S. Circuit Court of Appeals.