Bankruptcy Law Civil Litigation Estate Planning Legal Topics

No Inheritance for Anna Nicole Smith: Ninth Circuit Was Right (Again) for the Wrong Reason

Update: In a reversal of fortune, the district court has awarded sanctions for discovery abuse in favor of Anna Nicole Smith’s estate and her daughter Dannielynn against the estate of her stepson, Pierce Marshall, and his attorney. In a sweeping decision (Marshall v Hilliard (In re Marshall) (CD Cal May 29, 2013, SACV-01-0097 DOC)), the court found that Marshall and his attorney had practiced a fraud on the court and made a mockery of the justice system by withholding or destroying documents, among other abuses. Smith’s estate now stands to collect much of the earlier damage award thrown out by the Ninth Circuit.

It isn’t often that a court is reversed twice by the U.S. Supreme Court in the same case and still had the right result. But in effect, that’s what happened to the Ninth Circuit in the Anna Nicole Smith case.

Remember the legal drama involving former Playboy playmate Anna Nicole Smith and much older billionaire husband? Here’s the story in a nutshell: Anna Nicole’s oil tycoon husband died leaving her nothing in his will and trust; she accused her stepson of backdating and forging the documents; she filed for bankruptcy, and her stepson sued her for defamation in bankruptcy court; she filed a counterclaim for tortious interference with an expected gift; the bankruptcy court awarded her $474 million, but the district court later reduced the award to $88 million; and while all of this was happening, the Texas probate court decided that the will was valid and not the product of fraud or undue influence.

(Anna Nicole has since died in 2007, survived by an infant daughter Dannielynn, and her stepson died in 2006, incidentally.)

First, the Ninth Circuit decided that the district court could not issue the judgment under the “probate exception” to federal jurisdiction.

Wrong! The probate exception simply reserves to state courts the probate and annulment of wills. Marshall v Marshall (2006) 547 US 293, 164 L Ed 2d 480, 126 S Ct 1735.

Then the Ninth Circuit decided that the bankruptcy court did not have authority to enter final judgment because the counterclaim was not a “core” proceeding. (The later district court judgment was precluded by the factual findings and relevant legal conclusions in the state court decision.)

Wrong again, apparently.

Under 28 USC §157(b)(2)(C), a compulsory counterclaim is by definition a core proceeding. That means the bankruptcy court had statutory authority to enter final judgment on the tortious interference claim. But, the bankruptcy court did lack the constitutional authority to do so, because the entry of final judgment on a state common law cause of action is an exercise of the judicial power, and the judicial power of the United States can be exercised only by Article III judges with life tenure. Stern v Marshall (June 23, 2011, No. 10–179) 2011 US Lexis 4791.

Technically, the latest decision is an affirmance because the Ninth Circuit was ultimately right in throwing out the district court judgment. In fact, the Ninth Circuit was right all along: No inheritance for Anna Nicole Smith, or her estate.

For an indepth discussion of jurisdiction and venue in estate litigation, go to CEB’s California Trust and Probate Litigation, chap 9. Also check out CEB’s California Decedent Estate Practice, chap 5.

© The Regents of the University of California, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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