Friday, June 02, 2006

Supreme Court Rules in Favor of Federal Jurisdiction in Anna Nicole Smith Case; Few Prurient Details in Opinion

In a victory for advocates of expansive federal jurisdiction, the Supreme Court ruled on May 1 that the probate exception to federal jurisdiction did not preclude the Bankruptcy Court in California from considering counterclaims brought by Vickie Lynn Marshall a/k/a Anna Nicole Smith in response to a dischargeability action.

The tabloids and talk radio have made a big deal about the salacious aspects of this case (you know, stripper marries old guy, old guy dies, stripper doesn't get the money, stripper sues and gets half a billion dollars). However, it is really a study in federalism involving a shootout between the Bankruptcy Court for the Central District of California and a Texas Probate Court.

Lower Court Proceedings

When J. Howard Marshall (Dead Husband) died in 1995, his bereaved widow, Vickie Lynn a/k/a Anna Nicole (Bereaved Widow) did not receive an inheritance or the large gift that Dead Husband had promised during his lifetime. This lack of funding, along with a default judgment for same-sex sexual harassment, caused Bereaved Widow to file bankruptcy. See In re Marshall, 253 B.R. 550 (Bankr. C.D. Cal. 2000). Before filing bankruptcy, Bereaved Widow said some unkind things about Dead Husband's son, E. Pierce (Angry Son). Angry Son objected to dischargeability of his claims against Bereaved Widow claiming willful and malicious injury. Bereaved Widow counterclaimed asserting that Angry Son had tortiously interfered with a gift that Dead Husband had intended to make to Bereaved Widow. The Bankruptcy Court granted a take-nothing summary judgment on the dischargeability claim. It then conducted a trial on the counterclaim, where it ruledled in favor of Bereaved Widow (although its ruling was largely based upon discovery abuse). Angry Son then sought to vacate the judgment on the ground that the Bankruptcy Court lacked subject matter jurisdiction and also filed suit in Texas Probate Court. On appeal, the U.S. District Court concluded that this was a non-core proceeding but that the Bankruptcy Court was right. The District Court entered an original judgment against Angry Son. The District Court opinion contains a fascinating discussion of the relations between the parties. In re Marshall, 275 B.R. 5 (C.D. Cal. 2002). Among other things, we learn that because Bereaved Widow was large-boned, she did not qualify to work the night shift at the strip club. However, her relegation to the "B Team" allowed her to meet Dead Husband, so that it all worked out.

Meanwhile, back in Texas, the Texas Probate Court entered judgment that Bereaved Widow was entitled to nothing and that it had exclusive jurisdiction to settle the dispute since it related to a dead guy. To complicate things, the Probate Court made its ruling one month before the District Court entered its judgment. Thus, there were two competing judgments, one federal and one state each reaching opposite results. The Ninth Circuit reversed the District Court holding that the probate exception to federal jurisdiction precluded the Bankruptcy Court and District Court from exercizing federal jurisdiction. That set the stage for the Supreme Court, which reversed the Ninth Circuit.

The Supreme Court Opinion

The Supreme Court held that neither the "domestic relations" exception nor the "probate" exception are mandated by the Constitution or federal law and pointed out out its own efforts to "rein in" these exceptions. Because this case did not seek to invalidate a will or otherwise interfere with the administration of the probate estate, it did not fall within the probate exception to federal jurisdiction. Additionally, the Supreme Court held that the federal courts were not bound by the decision of the Texas Probate Court that it had exclusive jurisdiction to consider the tortious interference claims. Federal courts get to decide their own jurisction; state courts cannot claim exlusive jurisdiction over something that would otherwise fall within federal jurisdiction.

After all this, it looked pretty good for Bereaved Widow. However, in the last section of the opinion, the Supreme Court pointed out that the state court was arguably the first one to enter a final judgment. It remanded to the Ninth Circuit to determine (1) whether Bereaved Widow's claims were core proceedings and (2) whether res judicata or collateral estoppel applied. If Bereaved Widow had core claims, then the Bankruptcy Court's judgment was first in time. If they were non-core, then the Probate Court judgment was first in time (since there wouldn't be a final federal judgment until the District Court ruled). The core proceeding issue could go either way. If the Ninth Circuit finds that Bereaved Widow's claims were non-core, will the federal court give res judicata or collateral estoppel effect to the state court ruling?

Forum Shopping

While the Supreme Court ruled based on the narrow issue of jurisdiction, there is a much larger issue of forum shopping. Even before Dead Husband died, Bereaved Widow had filed suit against Angry Son in probate court accusing him of intefering with the support she was to receive. After his death, she filed suit to invalidate his will and determine that he died intestate. According to the Ninth Circuit, Bereaved Widow then filed bankruptcy in California "claiming" to be a resident of California. In re Marshall, 392 F.3d 1118 (9th Cir. 2004). After she received a favorable judgment from the Bankruptcy Court, she nonsuited her claims in the Probate Court despite being warned by the Probate Court that she would not be able to refile them. Shortly after that, Angry Son filed an amended counterclaim against Bereaved Widow in Probate Court seeking a determination of her rights against the estate. The Probate Court then conducted a five month trial in which all the parties participated. In fact, Bereaved Widow's counsel told that the court that she was seeking to litigate tortious interference with a gift, the same issue that had already been decided in bankruptcy court. The jury ruled in favor of Angry Son and against Bereaved Widow. The Probate Court found that Bereaved Widow had waived her claims when she filed the nonsuit. It also awarded $541,000 in attorney's fees against her. So who is guilty of forum shopping here? You have both parties participating in proceedings brought in both forums. The probate case was first in time. The bankruptcy case was first to trial. Depending on the resolution of the core proceeding issue, either court could be first to judgment. It is somewhat astonishing that the parties and the courts allowed both proceedings to continue and reach conflicting results. It certainly looks like the parties are setting themselves up for Round Two in the Supreme Court.

Final Thoughts

There are two lessons here. (1) Don't file a dischargeability claim against someone who has a half a billion dollar counterclaim against you. (2) The Supreme Court will usually reverse the Ninth Circuit.

The full opinion can be found at

Post-script: This post was revised on June 7 in response to the helpful comment received from Cato Younger below.


Cato Younger said...


You have most of the story correct here except your understanding of the Texas proceedings and the reason for bankruptcy. Bereaved Widow filed for b'cy due to a default judgement against her for same-sex sexual harrassment. Bereaved Widow also filed in the the Texas probate court in February of 1995 (~7mos prior to old guy's death and 1yr. prior to b'cy).

The Texas probate litigation was filed first in time. Your assertion that it was filed to thwart the Federal process is exactly opposite the facts. Bereaved Widow filed in Federal court to thwart the Texas proceeding. Seems fair that she should lose to me.

Steve Sather said...

Thanks for the clarification. Those details were not apparent from the Supreme Court opinion. I went back and read through the opinons from the lower courts and re-wrote the posting. The forum shopping issue is not as clear as it originally appeared to me.