Anna Nicole Smith goes back to court

Robert Alt Contributor
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Next week, the Supreme Court will hear oral arguments for the second time in the late Anna Nicole Smith’s lawsuit against her husband’s estate. A tribute to forum shopping and litigation run amok, the original parties to the suit including Anna Nicole Smith have all died, but nearly 16 years later, the lawsuit lives on. While the case continues to capture headlines because of the deceased centerfold at the center of the controversy, it deserves more serious attention for what it could mean for estate planning and the rule of law.

This beleaguered case began in 1995, months before J. Howard Marshall II, Anna Nicole’s wealthy octogenarian husband, died. Anna Nicole went to Texas probate court to challenge his estate plan and continued this challenge after his death. Her husband had a detailed estate plan—something that shouldn’t be surprising, given that he taught estate law at Yale Law School earlier in his life. But Anna Nicole argued that his detailed planning was all for not. According to Smith, he had verbally promised her half of everything, and she argued that this alleged pillow talk should prevail despite what he actually committed to in writing. The Texas probate court conducted an extensive trial, hearing testimony from over 40 witnesses including Anna Nicole, who herself testified for nearly six days.

When all the evidence was weighed, the jury did not buy Anna Nicole’s self-serving story. Not only did the court uphold the estate plan, but the jury specifically found that J. Howard Marshall II did not intend to give Anna Nicole any further gifts or bequests either during his life or after his death beyond the millions of dollars of gifts he had already given her.

That should have been the end of the case, but it was only the beginning. Before the Texas court entered its judgment, Anna Nicole filed for bankruptcy in California based upon a judgment entered against her in a sexual harassment suit brought by her housekeeper. In that bankruptcy case, she raised claims against her deceased husband’s son, Pierce, contending that he had interfered with the gift that she expected; Anna Nicole based this argument on the same verbal promises that the Texas jury did not buy. However, this time around in the bankruptcy court, she found a receptive ear; the court awarded her $475 million. You see, boys and girls, sometimes forum shopping pays, and pays big. Since then, the monetary judgment was substantially reduced, and the case has ping-ponged through the federal courts. In fact, it’s made it once before up to the Supreme Court on a technical question of federal jurisdiction, and now it goes again before that court raising serious questions about the authority of bankruptcy courts.

To understand what is at stake in this case beyond the inequity of awarding forum shopping, it is necessary to know a bit about bankruptcy courts. In establishing bankruptcy courts, Congress did not apply the requirements of Article III judges to bankruptcy judges. Thus, bankruptcy judges do not serve during good behavior (popularly referred to as a lifetime appointment) as is required by Article III, but serve 14-year terms. Additionally, bankruptcy judges can be removed by the judicial council for grounds other than impeachment. Based on this constitutional distinction and statutory restrictions, bankruptcy judges do not exercise the same broad authority as Article III judges. One of their major limitations is that they can only issue final decisions in “core proceedings” arising in bankruptcy cases or under the bankruptcy code. In the 1978 revisions to the bankruptcy code, Senator Heflin prophetically warned that it was necessary to cabin the jurisdiction of bankruptcy courts, or “[f]orum shopping may develop as a race that makes the Kentucky Derby seem slow[.]”

The question before the Supreme Court then is whether the bankruptcy court had the authority to issue a final judgment in this case. The Ninth Circuit Court of Appeals found that the bankruptcy court “exceeded its statutory grant of power and the constitutional limitations on that power when it purported to enter a final judgment in favor of Vicki Lynn Marshall [Anna Nicole] . . .” Should the Supreme Court adopt the position of the well-reasoned Ninth Circuit decision, this would give controlling effect to the decision of the Texas probate court, which implemented J. Howard Marshall’s estate plan.

The Supreme Court has taken the case presumptively to clarify the issue of when bankruptcy statutes and the Constitution permit bankruptcy courts to make final rulings on counterclaims that debtors like Anna Nicole Smith make that are dubiously or at best ancillary related to the bankruptcy case itself. In addition to the serious constitutional concerns about broadening the jurisdiction of bankruptcy courts over non-bankruptcy matters, Anna Nicole’s litigation itself should give the Court pause. From the beginning, Anna Nicole’s claim was designed to forum shop and to manipulate the legal system—to bring a claim into federal court that was already being addressed by a state court of competent jurisdiction. Were her estate to win, it would bring uncertainty and added expense to estate planning, and promote forum shopping—all bad results. The Ninth Circuit opinion is well-reasoned, right on the law, and has the salutary effect of being good policy. Law and policy would be well-served if the Supreme Court affirmed, and finally put an end to this lengthy exercise in forum shopping and avarice.

Robert Alt is a Senior Legal Fellow and Deputy Director of the Center for Legal and Judicial Studies at The Heritage Foundation. Alt has written and lectured extensively on issues of constitutional law, with particular emphasis on civil rights law, election law, separation of powers, antiterrorism law, and the law of war. He also has extensive first-hand experience in scrutinizing the legal implications of the War on Terror after spending five months in Iraq in 2004. During this time, he observed and wrote about the shift to the Transitional Administrative Law and the transfer of governmental control.