Law School Case Brief
Stern v. Marshall - 564 U.S. 462, 131 S. Ct. 2594 (2011)
Bankruptcy judges may hear and enter final judgments in all core proceedings arising under Title 11 of the U.S. Code, or arising in a case under Title 11. 28 U.S.C.S. § 157(b)(1). Core proceedings include, but are not limited to 16 different types of matters, including counterclaims by a bankruptcy debtor's estate against persons filing claims against the estate. § 157(b)(2)(C). Parties may appeal final judgments of a bankruptcy court in core proceedings to the district court, which reviews them under traditional appellate standards. 28 U.S.C.S. § 158(a); Fed. R. Bankr. P. 8013.
Petitioner bankruptcy debtor Vickie Lynn Marshall (Smith), aka as Anna Nicole Smith, married J. Howard Marshall II, creditor E. Pierce Marshall's (Pierce) father, approximately a year before J. Howard's death. Shortly before J. Howard died, Smith filed a suit against Pierce in Texas state court, asserting that J. Howard meant to provide for Smith through a trust, and Pierce tortiously interfered with that gift. After J. Howard died, Smith filed for bankruptcy in federal court. Pierce filed a proof of claim in that proceeding, asserting that he should be able to recover damages from Smith's bankruptcy estate because Smith had defamed him by inducing her lawyers to tell the press that Pierce had engaged in fraud in controlling his father's assets. Smith responded by filing a counterclaim for tortious interference with the gift she expected from Pierce's father. The Bankruptcy Court granted summary judgment on the defamation claim and eventually awarded Smith $88 million in damages on her counterclaim. Pierce objected that the Bankruptcy Court lacked jurisdiction to enter a final judgment on that counterclaim because it was not a “core proceeding” as defined by 28 U.S.C. § 157(b)(2)(C). The Ninth Circuit Court of Appeals held that the bankruptcy court lacked jurisdiction to review the matters decided by a Texas state probate court. After denying the request for review, lawyers for the executor of the estate of Smith, Howard K. Stern, sought certiorari review.
Did the bankruptcy court have jurisdiction to enter a judgment on a counterclaim for tortious interference?
The U.S. Supreme Court held that, although the bankruptcy court had the statutory authority to enter judgment on the core counterclaim, it lacked the constitutional authority to do so under U.S. Const. art. III. While § 157 purported to extend bankruptcy jurisdiction to any counterclaim by a debtor, the bankruptcy court was not established under U.S. Const. art. III and was not subject to the constitutional assurances of independence that would allow adjudication of the debtor's state common law claim. Further, resolving the Pierce's claim would not necessarily resolve Smith's counterclaim, which was otherwise unrelated to the claim-allowance process. Also, Smith's claim did not involve public rights to allow the congressional extension of bankruptcy jurisdiction, since her claim flowed from state law rather than the federal bankruptcy scheme.
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