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You are here: Home / Supreme Court / Beyond the Train Wreck: Anna Nicole Smith’s Legacy in Bankruptcy Law

Beyond the Train Wreck: Anna Nicole Smith’s Legacy in Bankruptcy Law

July 6, 2011 by Andy Toth-Fejel

Train Wreck, Anna Nicole Smith’s half-sister’s “no holds-barred biography” about Anna Nicole, was published the year after her death. Two weeks ago, and more than five years after her death, the U.S. Supreme Court published its own controversial opinion. Some legal observers believe this opinion is itself a train wreck.

The case dealt with one of the most basic issues in bankruptcy law: how much power does the bankruptcy court have? The Supreme Court’s view: not so much.

In yet another 5-4 decision, the Court first determined that the bankruptcy court had accurately followed the statute laid out by Congress when the bankruptcy court rejected a Texas Probate Court’s decision against Anna Nicole Smith and ruled instead in her favor. BUT the Supreme Court then determined that this statute was unconstitutional.  It gave too much power to the bankruptcy court over other courts.

As recited by the Supreme Court, the case involved a lawsuit filed against Ms. Smith in her bankruptcy case by her deceased husband’s heir, E. Pierce Marshall. In his complaint he alleged that she

had defamed him by inducing her lawyers to tell members of the press that he had engaged in fraud to gain control of his father’s assets.  . . .  . The complaint sought a declaration that Pierce’s defamation claim was not dischargeable in the bankruptcy proceedings. [Ms. Smith) responded . . . by . . . filing a counterclaim for tortious interference with the gift she expected from [her husband] J. Howard.   . . .  . [She] alleged that Pierce had wrongfully prevented J. Howard from taking the legal steps necessary to provide her with half his property.

The Supreme Court decided that:

Article III of the Constitution provides that the judicial power of the United States may be vested only in courts whose judges enjoy the protections set forth in that Article. We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act of1984. The Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor’s proof of claim.

The big question: what difference does this make? The majority opinion said, not so much:

We do not think the removal of counterclaims such as [Smith’s] from core bankruptcy jurisdiction meaningfully changes the division of labor [among different courts] in the current statute; we agree . . .  that the question presented here is a “narrow” one.

The dissenting opinion strongly disagreed, saying that if disputes that are now mostly arising in bankruptcy court and are being dealt with fairly and efficiently there instead must be heard by federal district courts or state courts, the additional burden on bankruptcy debtors will be severe:

[U]nder the majority’s holding, the federal district judge, not the bankruptcy judge, would have to hear and resolve the counterclaim. Why is that a problem? . . .  . Because under these circumstances, a constitutionally required game of jurisdictional ping-pong between courts would lead to inefficiency, increased cost, delay, and needless additional suffering among those faced with bankruptcy.

It is ironic in that the marathon legal efforts of a former stripper turned almost multi-millionaire heiress results in a Supreme Court opinion that may make it that much harder for the already oppressed to find justice.

 

 

Filed Under: Supreme Court

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