One of the strangest things about the legal world is how odd-ball cases can take on a life of their own and generate rulings that greatly affect us all. This can even happen where the original litigants are all long dead. Such is the case with the matter named Stern v. Marshall, but which most of us recognize as the "Anna Nicole Smith tried to get more money from her dead husband" case.
Normally, one would think that whether Ms. Smith (legally named Vicki Lynn Marshall, whose estate is represented by her long-time lawyer and sometime lover Howard K. Stern) or her dead husband's dead son gets a half-billion dollars makes no difference to any of us. And normally you'd be right. However, as the U.S. Supreme Court gets ready to hear arguments on the matter, the convoluted manner in which this case unfolded could have major consequences for everyone.
The ultimate issue is whether non-bankruptcy issues can be finally decided by a bankruptcy court. In order to understand that issue, some background is necessary.
Anna Nicole originally filed suit in a Texas probate court when she learned that her husband's carefully-crafted estate plan would provide her almost none of the estimated $1 billion estate. She claimed that her doting husband (a former Yale law professor who made it big in oil) had made oral promises to her and directed his attorney to redraft the estate plan to take care of her. Anna Nicole blamed the ultimate beneficiary of the estate plan, her husband's youngest son E. Pierce Marshall, for quashing her husband's plan, eventually suing him for tortious interference with an inter vivos gift.
That Texas case was slowly moving along when, seemingly out of nowhere, Ms. Smith was sued by her housekeeper in California for sexual harassment, obtaining a default judgment to the tune of $850,000. That judgment resulted in Anna Nicole filing for bankruptcy in California, where she brought the same claim against Pierce Marshall that was pending in Texas. After some preliminary legal wrangling (including the court sanctioning Marshall for discovery abuses by preventing him presenting evidence at trial), the bankruptcy court ruled that the case was a "core matter" on which it could pass final judgment, and that Anna Nicole was entitled to approximately $500 million. Shortly thereafter, upon the conclusion of a full trial, the Texas Probate Court decided against Ms. Smith on the very same claim, and found that she was entitled to nothing.
And therein lies the problem that the Supreme Court must decide and that could affect us all -- do bankruptcy courts have the power to make final rulings on state law claims? The answer to that problem could fundamentally change the legal landscape. The reason why is because, should the Supreme Court find that bankruptcy courts do have that power, then a whole new level of forum-shopping will emerge.
Prior to the bankruptcy decision in Anna Nicole's favor, the rules as to what sorts of cases could be decided by such courts (i.e. "core proceedings") was pretty well-settled. As law professors G. Marcus Cole and Todd J. Zywicki have noted, if the rights being decided by the court arise from the bankruptcy code, then they are a "core proceeding" and if they arise from outside the code then they are a non-core matter. (See "Anna Nicole Smith Goes Shopping: The New Forum Shopping Problem In Bankruptcy", Geo. Mason Univ. Law and Economics Research Paper Series, 09-29: "Thus, a matter that could have been brought in a state court is necessarily a non-core proceeding ... The test, then, ... is whether a the case could have been brought in the absence of a bankruptcy proceeding.") The bankruptcy court in Stern v. Marshall took a very broad view of what constitutes a core matter. Although that court was overruled by the appellate courts, if the Supreme Court decides that it was correct in its determination, then suddenly bankruptcy courts become rivals to state and federal courts when litigants go out in search of a friendly forum. Such a consequence is fraught with problems.
Most importantly, an expansive definition of what constitutes "core proceedings" could lead directly to litigants running to bankruptcy courts deemed sympathetic to their cause in order to avoid the results of a state court matter heading in the wrong direction. As a result, we could end up with federal court decisions that trump state court rulings on issues of law that are entirely matters of civil law (as opposed to bankruptcy). When those federal rulings are diametrically opposed to the state court ones, then you also have issues of federalism come into play, which issues are amplified when the federal court sits in an entirely different state, as happened in Stern v. Marshall. Other issues include the potential for litigants to be denied "the rights of individuals to a fair and fully heard case," as expressed by some civil rights organizations. Overall, the consequences of inconsistent rulings and battling federal and state judiciaries could seriously undermine the effectiveness and efficiency of our legal system.
That would not be good for anyone.
As it stands now, the division between what cases belong in which courts is fairly clear and well-defined. The Ninth Circuit ruling in Stern v. Marshall stayed faithful to that division in limiting the scope of "core proceedings." The Supreme Court would do well to affirm that decision and leave Anna Nicole's legacy to the tabloids instead of the legal journals.