The Anna Nicole Smith Case: Bankruptcy Courts Lack Constitutional Authority On Compulsory Counterclaims

The Anna Nicole Smith Case: Bankruptcy Courts Lack Constitutional Authority On Compulsory Counterclaims

WASHINGTON, D.C. - (Mealey's) A divided U.S. Supreme Court on June 23 affirmed a Ninth Circuit U.S. Court of Appeals ruling that a bankruptcy court lacks the constitutional authority to enter final judgment on compulsory counterclaims to proofs of claim in bankruptcy proceedings (Howard K. Stern, Executor of the Estate of Vickie Lynn Marshall v. Elaine T. Marshall, Executrix of the Estate of E. Pierce Marshall, No. 10-179, Chapter 11, U.S. Sup.).

The court divided 5-4, with Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Anthony M. Kennedy, Clarence Thomas and Samuel A. Alito Jr. in the majority. 

The majority held that E. Pierce Marshall's proof of claim in the Chapter 11 bankruptcy proceeding of Vickie Lynn Marshall, who had been married to Pierce Marshall's deceased father, did not give the U.S. Bankruptcy Court for the Central District of California jurisdiction to adjudicate Vickie Marshall's counterclaim that Pierce Marshall had defamed her.  Vickie Marshall was known publicly as Anna Nicole Smith; she married J. Howard Marshall about a year before his death. 

Although 28 U.S. Code Section 157 allowed the Bankruptcy Court to enter final judgment on Vickie Marshall's counterclaim, Article III of the U.S. Constitution did not, the majority said. 

Vickie Marshall had alleged that Pierce Marshall was liable for tortious interference because he suppressed or destroyed the trust document and stripped his father, J. Howard Marshall II, of his assets before J. Howard Marshall died. 

The majority held that Pierce Marshall's defamation claim does not affect the nature of Vickie Marshall's tortious interference counterclaim. 

Justice Stephen G. Breyer wrote a dissent that was joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan.  Justice Breyer wrote that the Bankruptcy Court adjudicated the claim properly and followed statutory procedures applicable to "core" bankruptcy proceedings under 28 U.S. Code Section 157(b). 

Justice Breyer wrote that the delegation of adjudicatory authority in the case is constitutional and that such a grant of authority to a bankruptcy court does not violate any separation of powers issues related to Article III of the U.S. Constitution. 

[Editor's Note:  Full coverage will be in the July 6 issue of the LexisNexis Bankruptcy Report.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #80-110706-021Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.] 

For more information, call editor James Cordrey at 215-988-7724, or email him at james.cordrey@lexisnexis.com.

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