I had put the following notes toward a definitive Anna Nicole Smith biopic on a friend’s Facebook page, but this seemed of great enough interest that it should be shared with the world at large. Now I know what you’re thinking, wasn’t there already a 2013 Lifetime TV movie called Anna Nicole, with Agnes Bruckner as Anna Nicole Smith, Martin Landau as J. Howard Marshall, Adam Goldberg as Howard K. Stern, and Cary Elwes as E. Pierce Marshall? (Trailer here.) Hollywood Life called it “crazy, wild fun” and a “roller coaster ride of drugs, alcohol, and tragedy”; other reviews were mixed.
Myself, I haven’t seen that movie. But I bet that it gives short shrift to the most important aspect of her story: the contributions that she, her late husband, and her stepson made to the law of federal jurisdiction involving probate courts and bankruptcy tribunals, in the form of the Marshall v. Marshall (2006) case (which I observed as a clerk) and the Stern v. Marshall (2011) case (which I teach in my Administrative Law class). This alternate biopic treatment has the advantage of being exclusively focused on the jurisdictional aspects.
If anyone “in the biz” is reading this, know that this alternate telling is sure to be a blockbuster. I’ve written this to be (at least a little bit) comprehensible to the layman. I would be happy to play the Supreme Court. Here goes, slightly edited from the original version.
* * *
Anna Nicole Smith, née Vickie Lynn Hogan, engages in an over-two-year-long courtship with octogenarian oil tycoon J. Howard Marshall, culminating in a 13-month-long marriage, which in turn culminates in Howard’s death at age 90. (Here, the filmmaker makes a clever nod to Howards End.) This can all take place in the first five minutes, maybe a pre-title sequence.
Howard lived and died in Texas, so his will goes to the Texas courts. Howard died in August 1995, so the Texas proceedings started within days after that. When someone dies with a will, the validity of the will has to be established in a special court; this “proving” of the will is called “probate” and takes place in specialized state courts called “probate courts”.
Turns out none of Howard’s money went to Vickie — all of it went to his son Pierce! In the Texas probate court, Vickie argues that the will is invalid (and thus that Howard died intestate) because Pierce secured its execution by fraud and undue influence on Howard. Pierce, for his part, seeks a declaration that the will is valid. Vickie alleges that Pierce tortiously interfered with her expectation of a gift, based on Howard’s oral promises to give her gifts during his life and after his death.
Vickie must have run up a lot of bills, maybe in expectation of inheriting, so when she got nothing, she found herself insolvent. In January 1996, now living in L.A., she declares bankruptcy. The Bankruptcy Code is a federal body of law, and bankruptcy cases are litigated in specialized federal tribunals called Bankruptcy Courts. But note that these aren’t the same as regular courts. Federal judges have judicial independence guaranteed by Article III of the Constitution: they have tenure protection (they serve “during good behavior”, basically meaning they serve for life unless they do something really egregious, like get convicted of some crime) and salary protection (their salary can’t be decreased during their tenure). Bankruptcy judges aren’t Article III judges, so they don’t have these protections.
In a bankruptcy proceeding, presumably you’ve determined that your liabilities are greater than your assets, so all your creditors can’t get fully paid. So everyone who says you owe them money gets in line, and they all get some percentage of what you owe them. (Simplifying: if you owe a total of $400 to various people and you only have $100, then everyone gets 1/4 of what you owe them, i.e. 25 cents on the dollar.)
Who (among others) steps forward, claiming that Vickie owes them money? None other than Pierce. Shortly after Howard’s death, Vickie and her lawyers had told members of the press that Howard had engaged in forgery, fraud, and overreaching to gain control of his father’s assets. So, in the bankruptcy proceeding, Pierce puts in a claim against Vickie for defamation.
Vickie has a defense to Pierce’s claim: truth. (In the U.S., truth is a defense to defamation. It’s not slander if it’s true.) Not only does she assert that defense, she also counterclaims against Pierce, raising the same claim tortious interference with the expectation of a gift that she had raised in the Texas probate proceeding.
The wheels of justice grind slowly: the bankruptcy court doesn’t get around to holding a trial on the counterclaim until the fall of 1999. Vickie argues that Pierce prevented Howard from transferring money to her by effectively imprisoning him, by surrounding him with hired guards to prevent her from contacting him, by lying to him, and by transferring Howard’s property against his wishes. About ten months later, the bankruptcy court reaches its decision: Vickie wins! Pierce is liable for tortiously interfering with her expectation of a gift both during Howard’s life and after Howard’s death. Pierce owes her $449,754,134, plus $25 million in punitive damages against Pierce.
Remember, Romeo and Juliet also looked like it was going to be a comedy in Act III.
Meanwhile, the litigation over the validity of Howard’s will is continuing in the Texas probate court, where apparently the wheels of justice grind even more slowly. Shortly after the bankruptcy court’s judgment in Vickie’s favor, Vickie withdraws her own challenge to the validity of the will and her tortious interference claim in the Texas court. But Pierce’s declaratory judgment action seeking to establish that the will is valid is still around, and Vickie is still a defendant in that action, so they’re still litigating the validity of the will.
The jury trial in the Texas probate court goes on for five months. In March 2001, the jury unanimously decides that the will is valid, that Howard wasn’t the victim of fraud or undue influence, that Howard didn’t intend to give Vickie a gift or bequest — in short, that Vickie isn’t entitled to anything. The Texas probate court enters its judgment on this verdict in December 2001. The Texas court also asserts that it has exclusive jurisdiction of any claims arising out of Howard’s will and that therefore any contrary decisions from other courts are invalid.
Now generally, in our federal system, it’s quite possible that two different courts have jurisdiction over the same claim. I could sue you in federal court, but you could seek a declaratory judgment that you’re not liable to me in state court. The federal government and state government are independent sovereigns, so if both courts have jurisdiction, both can proceed to judgment. But because state governments and the federal government give each other’s judgments Full Faith and Credit, the first court to render judgment has preclusive effect on all later courts.
Of course, this is assuming that both courts really do have jurisdiction. Generally one court can’t just announce that it has exclusive jurisdiction, so we probably don’t need to pay too much attention to the Texas court’s assertion to that effect. (Or do we?) But there are legitimate reasons why some court might lack jurisdiction. Bottom line: if the bankruptcy court’s judgment was valid, it came first, and Vickie wins. But if it was invalid, then all that’s left is the Texas court’s judgment, so Vickie loses.
Two courts enter: one court leaves. Who shall prevail?
Even in the bankruptcy court, Pierce had moved to dismiss on the ground that the bankruptcy court had no jurisdiction, because all claims related to the will, including Vickie’s tortious interference claim, had to be heard in the Texas probate proceeding. The bankruptcy court ruled against Pierce for a number of reasons: (1) he didn’t raise this argument at the right time in the proceedings, so he waived it; (2) anyway, he voluntarily submitted himself to bankruptcy court jurisdiction; (3) anyway, Vickie’s counterclaim didn’t interfere with the probate proceeding or imply the invalidity of the will.
Later — in 2001, even before the Texas probate proceeding had concluded — Pierce went to federal district court to get the bankruptcy judgment reviewed.
(There are three levels of federal courts: the lowest level (trial court) is called “district court”, the intermediate level (appellate court) is called “circuit court” (e.g. “the Ninth Circuit” is the circuit court that hears appeals from district courts in the western U.S.), and of course the highest level is the U.S. Supreme Court. These are all “real” judges, i.e. Article III judges, with constitutional tenure and salary protections. You can get review of a bankruptcy court determination in the district court, which is what Pierce did.)
The federal district court disagreed with a number of the bankruptcy court’s holdings. For instance, it rejected the bankruptcy court’s contention that Pierce had waived his jurisdictional argument. But, in response to Pierce’s argument that federal courts have no jurisdiction over probate proceedings — the so-called “probate exception” to jurisdiction — the court agreed with the bankruptcy court that the exception didn’t apply. As the bankruptcy court held, Vickie’s claim didn’t interfere with the proceedings or imply the invalidity of the will; and moreover, even under Texas law, probate courts don’t have exclusive jurisdiction to hear counterclaims like Vickie’s tortious interference claim.
So the district court decided that the bankruptcy court did indeed have jurisdiction. But… then the district court decided that the bankruptcy court didn’t have the power, under the Bankruptcy Code, to issue a final judgment on Vickie’s counterclaim. You see, bankruptcy courts can issue final judgments on the bankruptcy case itself: in terms of the example I gave above, where you have $100 but owe $400, the Bankruptcy Code gives the bankruptcy court the power to issue final judgments on all those creditors’ claims, where it can rule that the creditors each get 1/4 of what you owe them. But Vickie’s tortious interference counterclaim against Pierce wasn’t part of the bankruptcy case itself; it was a separate action, of the sort that regular courts usually hear. And the Bankruptcy Code allows bankruptcy courts to issue final judgments in such actions only if they’re “core proceedings” arising in a bankruptcy case. (Here, the filmmaker can make a clever nod to The Core.)
Now what’s a “core proceeding”?, you may ask. The Bankruptcy Code defines various “core” actions. They include matters concerning the administration of the bankruptcy estate, allowance or disallowance of claims against the estate, yada yada yada… and one of the “core” categories is “counterclaims by the estate against persons filing claims against the estate”. So Vickie’s counterclaim clearly looks like a core proceeding. But the district court held that this wasn’t enough: the core proceeding had to arise in a bankruptcy case, otherwise (so some past Supreme Court case seemed to say) it might be unconstitutional to assign its resolution to bankruptcy judges, who, after all, don’t have the guarantees of judicial independence provided by Article III of the Constitution. And this counterclaim of Vickie’s was just a tort claim arising under state law and had no connection to bankruptcy law.
So, the district court held, the bankruptcy court’s determination on Vickie’s counterclaim wasn’t a final judgment that was directly enforceable: instead, it just had the status of a recommendation to the district court, and the district court had to decide the whole issue de novo. The district court ended up basically agreeing with the bankruptcy court, but only awarded $88,585,534, rather than the nearly $450 million that the bankruptcy court had awarded.
But now we’re already in March 2002, a few months after the Texas probate court has ruled. And the Texas jury found there was no tortious interference. So why didn’t the federal district court (rather than awarding her $88 million) just say Vickie loses because her tortious interference claim is precluded? They said that actually her claim wasn’t precluded because Vickie didn’t litigate it in the Texas probate proceeding. (Indeed, maybe that’s why she voluntarily dismissed that claim in the Texas proceeding after she won in bankruptcy court!)
I’m not sure that’s right, because they did litigate the issue as part of litigating the overall validity of the will, and the Texas court did make findings that were directly contrary to the district court’s findings. But the district court took a different view.
So if the district court is right and the Texas judgment isn’t preclusive, there’s a possibility that Vickie may still win $88 million, depending on how you resolve the contradiction between the federal judgment and the state judgment. (If the district court is wrong and the Texas judgment is preclusive, then she wins zero. But if the district court is wrong and the tortious interference action in the bankruptcy court was a valid “core proceeding”, then she wins $449 million.)
Neither party is happy with the district court judgment. Vickie’s unhappy because who wouldn’t prefer $449 million to $88 million? Plus, it’s clearly better for the bankruptcy court judgment to be the final judgment, because then it precedes the Texas judgment and so Vickie clearly wins. Whereas if the bankruptcy court judgment is non-final, then the district court judgment is from after the Texas judgment, so Vickie may lose if the Texas judgment is preclusive. As for Pierce, he’s unhappy because his position was that Vickie should lose outright because the Texas judgment is preclusive. So both parties appeal the district court judgment to the Ninth Circuit (the federal appellate court that handles appeals from district courts in L.A., which is where Vickie filed for bankruptcy).
The Ninth Circuit reverses the district court. The case is argued in October 2003 and decided over 14 months later, in December 2004. The Ninth Circuit agrees with Pierce’s theory that the federal courts entirely lack jurisdiction over Vickie’s tortious interference counterclaim, because this counterclaim falls within the “probate exception” to federal jurisdiction. In the Ninth Circuit’s view, a claim falls within the probate exception if it raises “questions which would ordinarily be decided by a probate court in determining the validity of the decedent’s estate planning instrument,” whether those questions involve “fraud, undue influence[, or] tortious interference with the testator’s intent.”
Also, it mattered to the Ninth Circuit that Texas probate courts were the exclusive forums for hearing probate matters in Texas: “Where a state has relegated jurisdiction over probate matters to a special court and [the] state’s trial courts of general jurisdiction do not have jurisdiction to hear probate matters, then federal courts also lack jurisdiction over probate matters.”
So, under the Ninth Circuit’s view, the district court’s judgment goes away, and so does the bankruptcy court’s judgment on Vickie’s counterclaim. (There was thus no need to decide whether the bankruptcy court was capable of issuing a final judgment on the matter, much less whether the district court was right about Pierce’s alleged bad behavior.) Vickie is back to having zero.
Vickie, who now has nothing, appeals to the U.S. Supreme Court. The Supreme Court doesn’t have to hear the case if it doesn’t want to: almost all its business is discretionary. It only accepts about 1% of the petitions for review that it gets every year: about 80 cases out of about 8000. But this case has an irresistible je ne sais quoi about it. In September 2005, the Supreme Court agrees to hear the case. Oral arguments in Marshall v. Marshall, i.e. Vickie against Pierce, are held in February 2006. I’m there! Vickie is sitting right in the room with me! The opinion is handed down in May 2006. It’s unanimous.
Justice Ruth Bader Ginsburg writes the opinion. She’s a big expert on civil procedure and jurisdiction. Federal courts have strictly defined jurisdiction. They’re strictly prohibited from hearing cases where they lack jurisdiction. But by the same token, they shouldn’t decline to exercise jurisdiction where they have it. This rule isn’t quite as strict, but it does mean that if there’s some probate exception to federal jurisdiction, it should be interpreted narrowly.
In fact, the probate exception doesn’t come from the Constitution or from any congressional statute; it was made up by judges in some old cases based on some possibly wrong reading of legal history. The Supreme Court doesn’t need to figure out the precise contours of the probate exception to federal jurisdiction — if there even is such an animal — because this case clearly falls outside the exception.
Vickie’s claim doesn’t involve the administration of an estate or the probate of a will. It’s just an allegation of a tort: interference with the expectation of a gift, in this case by means of fraud and undue influence. Vickie isn’t trying (in this counterclaim) to invalidate the will or exercise control over Howard’s estate.
Moreover, whatever Texas courts believe about the exclusivity of probate courts (this is the second argument that moved the Ninth Circuit), it can’t affect whether federal courts have jurisdiction.
So, Vickie is back in business. The bankruptcy court and district court had jurisdiction to entertain her tortious interference counterclaim. There’s still the question of whether the bankruptcy court had the power to issue a final judgment — and, if not, and if the district court’s final judgment is the relevant one, whether that should be precluded by the earlier Texas probate court’s judgment. So it’s not clear what, if anything, Vickie will get in the end. But she has a chance again.
Seven weeks after the Supreme Court hands down its judgment, Pierce dies at age 67, of a brief but aggressive infection. His widow is the fourth richest woman in the United States, with a net worth of over $12 billion.
The wheels of justice, have I mentioned, grind slowly. Howard died in 1995; the bankruptcy court’s judgment was in 2000; the Texas court’s judgment was in 2001; the district court’s judgment was in 2002; the Ninth Circuit’s judgment was in 2004; the Supreme Court’s judgment was in 2006. And nothing is resolved yet: now the case goes back down to the Ninth Circuit for a resolution of the other issues with the district court’s ruling, like whether the bankruptcy court had the power to issue a final judgment and, if not, whether the district court should have considered the Texas judgment preclusive — which makes all the difference between a preclusive $449 million and a possibly precluded $88 million (i.e., possible zero). By the time we’re arguing the case in the Ninth Circuit, it’s June 2009, and the Ninth Circuit doesn’t decide the case until March 2010.
Why more delay than usual? Well, maybe it’s Ninth Circuit backlogs. Maybe it’s more than that. I mentioned that Pierce died in June 2006 at age 67. His case is taken over by his widow Elaine, who is the executrix of his will. Executrix! Pierce’s beloved stepmother Vickie dies in February 2007 at age 39, of an overdose of prescription drugs. By the time she was my age, she had been dead for a year. A mere five months earlier, her 20-year-old son had died while visiting her in the Bahamas. Two and a half weeks after that, she had tied the knot with her boyfriend and longtime personal attorney, improbably named Howard Stern, in an informal commitment ceremony aboard a catamaran. Stern takes over Vickie’s litigation as her executor.
Now that we’re familiar with the legal issues involved, we can breeze through the Ninth Circuit’s decision. First, the Ninth Circuit decided that Vickie’s counterclaim was a non-core proceeding, so the bankruptcy court lacked authority, under the Bankruptcy Code, to issue a final decision. So the district court was right to treat the bankruptcy court’s decision as a recommendation and proceed to reexamine the issues de novo.
However, the Ninth Circuit also decided that the Texas court’s determination — which came after the bankruptcy ruling but before the district court’s ruling — was entitled to preclusive effect. So the district court had no choice but to accept the Texas court’s decision that Howard’s will was valid, that he wasn’t the victim of fraud or undue influence, and that he didn’t intend to leave anything to Vickie. If only the district court had ruled a few months earlier! If only the wheels of federal justice had ground a wee bit faster! If!
For Vickie, who isn’t around to enjoy it anyway, it is the difference between $88 million and zero.
Howard Stern will ask the Supreme Court to review the case. The Supreme Court will, in fact, take the case, for the second time. The Supreme Court will disagree fairly fundamentally with the Ninth Circuit. But it will make no difference.
Stern petitions the Supreme Court to review the Ninth Circuit’s second decision. The Supreme Court grants review of the March 2010 decision in September 2010, hears the case in January 2011, and decides it in June 2011. By judicial standards, this last bit almost counts as breakneck speed. It’s been just two months shy of 16 years since Howard Marshall’s death.
The decision is 5-4, written by Chief Justice John Roberts. He writes, quoting Charles Dickens’s Bleak House: “This ‘suit has, in course of time, become so complicated, that . . . no two . . . lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause: innumerable young people have married into it;’ and, sadly, the original parties ‘have died out of it.’ A ‘long procession of [judges] has come in and gone out’ during that time, and still the suit ‘drags its weary length before the Court.’”
Roberts disagrees with the Ninth Circuit on whether the case was a “core proceeding”: the Ninth Circuit said it wasn’t, but Roberts says that a textual reading of the Bankruptcy Code reveals that it is.
Normally, this would be good news. If Vickie’s counterclaim was a core proceeding, then the Bankruptcy Code gives the bankruptcy court the power to issue final judgments. If that’s so, then the bankruptcy court’s judgment precedes the Texas judgment… so the bankruptcy court’s judgment should be preclusive. Vickie should have her original $449 million.
But alas. Roberts continues that, even though the Bankruptcy Code purports to give bankruptcy courts that sort of power, it’s unconstitutional. Why? Because recall that bankruptcy judges aren’t like Article III judges. They don’t have the tenure and salary protections guaranteed to judges by Article III of the Constitution. And therefore, their ability to wield federal judicial power is limited.
When can you have non-Article-III judges, deciding cases (as they do, for instance, in administrative tribunals)? History gives us three exceptions where non-Article-III judges can decide cases: (1) territorial courts, as in the District of Columbia or Guam; (2) courts martial; and (3) cases involving “public rights”, for instance where people litigate against the government or where people’s rights stem from a federal regulatory scheme. Bankruptcy courts generally fit into category (3) because the Bankruptcy Code is a comprehensive scheme of federal law. But Vickie’s counterclaim didn’t stem from bankruptcy law: it was just a private tort case arising under state law. Therefore, it was unconstitutional for the bankruptcy court to take jurisdiction over it. I teach this case now in my Administrative Law class.
What the first Supreme Court case had granted, the second Supreme Court took away. In Marshall v. Marshall, the Supreme Court ruled that the “probate exception” to federal jurisdiction didn’t apply here because Vickie’s counterclaim didn’t interfere with the probate case; so that jurisdictional argument against the bankruptcy case failed. But in Stern v. Marshall, the Supreme Court ruled that the bankruptcy court lacked jurisdiction after all: not because of the ongoing Texas probate case, but because the counterclaim was a state-law private-rights case that — if litigated in federal court — has to be litigated before real judges that have Article III’s constitutional guarantees of judicial independence.
The first theory would have knocked out the bankruptcy case and the district court case (and a federal case at any other level) alike. The second theory is more modest and only knocks out the bankruptcy court’s power to issue a final judgment; the district court’s ability to hear the case is unimpaired. But given that the Texas court beat the district court to deciding the issue, and given that the Ninth Circuit held that the Texas court’s judgment was preclusive, the district court’s jurisdiction is of no help to Vickie.
Fade to an empty catamaran on a Caribbean dock. The End. Based on a true story.