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A Victory for the Rule of Law
Posted By Robert Alt On May 6, 2010 @ 6:00 pm In Legal | Comments Disabled
Do you remember Anna Nicole Smith? The Playboy model died from a drug overdose back in 2007, but the litigation over her late husband J. Howard Marshall’s estate lived on. After forum shopping for a friendly venue and multiple appeals that went all the way to the United States Supreme Court (where Anna Nicole’s appearance at oral arguments was widely covered by the press), recent decisions from the federal appeals court in California hearing the case suggest that it is finally coming to a close: her husband’s estate plan, which did not include the millions of dollars which she sought, will be honored. This is a good outcome not only for the proper recipients of Marshall’s estate, but for the rule of law, and, as I argued previously here , for Americans who wish to have some assurance that their estate plans are honored as they intend them.
Recapping the case briefly, in an attempt to gain more than the millions in cash and gifts that she had received during his life, Anna Nicole challenged her wealthy husband’s estate plan, claiming that he had made a verbal promise of half of his fortune—a claim which was flatly contradicted by his very detailed, written estate plan. The jury in Texas probate court didn’t buy this self-serving story, so she shopped for a more receptive court in California, and she found one in a federal bankruptcy court. On what was already the second appeal, the Ninth Circuit dismissed the millions awarded by the court based upon a federal jurisdictional rule, but the Supreme Court in 2006 reversed, saying that the federal court could consider the merits of the case.
In March of this year, the Ninth Circuit finally did decide the merits. It found that the decision of the Texas probate court, which was charged with determining the validity of J. Howard Marshall’s estate plan, must have preclusive effect over the bankruptcy court’s decision. This is to say that in resolving the conflicting decisions between the courts—the Texas court saying that she was entitled to nothing, and the bankruptcy court saying that she was entitled to millions—the Texas probate decision is the one that must be enforced.
Key to understanding this decision is knowing that bankruptcy courts are not organized under Article III of the Constitution, which covers the judiciary. This is because Congress, in establishing bankruptcy courts, did not apply the requirements of Article III judges to bankruptcy judges, namely 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, and they 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, with one of the major limitations being that they can only hear and finally determine “core proceedings” arising under the bankruptcy code. The Ninth Circuit found that the Anna Nicole’s claims were not core to the bankruptcy case, and 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 [a/k/a Anna Nicole] . . . .”
But the case did not end there. Howard K. Stern, executor of Anna Nicole’s estate, appealed once more to the Ninth Circuit, asking for a larger panel to hear the case en banc. Yesterday, the Ninth Circuit denied that request. With that, the only appeal that remains is for Stern to once again file a petition to the United States Supreme Court. While there is little doubt that such a petition will be filed, there is also little doubt that the Supreme Court will deny the claim. The Ninth Circuit’s decision correctly interpreted the direct statutory and implicit constitutional limitations that apply to bankruptcy courts. In so doing, it also gave proper deference to the state court proceeding.
In addition to being right on the law, it has the salutary benefit of being good policy. The decision helps to foreclose the kind of forum shopping that permitted J. Howard Marshall’s estate to be challenged for years on the basis of little more than allegations of pillow talk. This provides a key benefit to estate planning—finality—and helps to assure that Americans will be able to structure their wills and estates with the certainty that their assets will be distributed according to their desires, not to whomever runs to the most favorable courts.
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URL to article: http://blog.heritage.org/2010/05/06/a-victory-for-the-rule-of-law/
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 here: http://www.heritage.org/Research/Commentary/2009/12/Two-Front-War-on-Estates
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