{"id":53464,"date":"2016-09-30T11:27:00","date_gmt":"2016-09-30T16:27:00","guid":{"rendered":"https:\/\/ability-fl-prod.internetbrands.com\/ability-legal\/supreme\/legal-commentary\/the-end-of-the-battle-over-anna-nicole-smiths-late-husbands-estate-why-her-young-daughter-likely-wont-receive-any-of-j-howard-marshalls-money.html"},"modified":"2016-09-30T11:27:00","modified_gmt":"2016-09-30T16:27:00","slug":"the-end-of-the-battle-over-anna-nicole-smiths-late-husbands-estate-why-her-young-daughter-likely-wont-receive-any-of-j-howard-marshalls-money","status":"publish","type":"supreme","link":"https:\/\/supreme.findlaw.com\/legal-commentary\/the-end-of-the-battle-over-anna-nicole-smiths-late-husbands-estate-why-her-young-daughter-likely-wont-receive-any-of-j-howard-marshalls-money.html","title":{"rendered":"The End of the Battle Over Anna Nicole Smith’s Late Husband’s Estate: Why Her Young Daughter Likely Won’t Receive Any of J. Howard Marshall’s Money"},"content":{"rendered":"\n
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\"Joanna<\/a><\/td>\n

The End of the Battle Over Anna Nicole Smith’s Late Husband’s Estate: Why Her Young Daughter Likely Won’t Receive Any of J. Howard Marshall’s Money<\/h1><\/td>\n <\/tr>\n

By JOANNA L. GROSSMAN<\/h2>
\n <\/a><\/td>\n <\/tr>\n

Tuesday, March 30, 2010<\/td>\n <\/tr>\n <\/table>

<\/h1><\/td>\n <\/tr>\n <\/table>\n\n

For fifteen years, a court battle has been fought over the gigantic estate of J. Howard Marshall II.\u00a0 On one side was Anna Nicole Smith (legally named Vickie Lynn Marshall) \u2014a Playboy <\/em>model, Guess<\/em> jeans spokesperson, and topless dancer.\u00a0 On the other side was J. Howard’s son and Anna Nicole’s former stepson, E. Pierce Marshall.\u00a0\u00a0 <\/p> \n\n

The litigation \u2013 which lasted more than ten times as long as Anna Nicole’s and J. Howard’s marriage — played out in a Texas probate court, in a federal bankruptcy court in California and even, at one juncture, in the United States Supreme Court.<\/p>\n\n

During the litigation, both Anna Nicole and Pierce died, leaving their heirs to fight their battle.\u00a0 In 2007, Anna Nicole was found dead at age 39 in a Florida hotel room.\u00a0 She left behind an infant daughter who, after a high-stakes paternity contest, is now being raised by her biological father, photographer Larry Birkhead.\u00a0 (I discussed the legal issues that arose in the wake of her death in previous columns here<\/a> and here<\/a>.)\u00a0 Pierce died at age 67, just a month after the Supreme Court ruled unanimously<\/a> that Anna Nicole’s claim against him could proceed in federal court.<\/p>\n

The bitter end to the litigation seems, however, finally to have arrived, as the U.S. Court of Appeals for the Ninth Circuit has just ruled<\/a> that Anna Nicole’s estate is entitled to nothing from J. Howard’s estate.\u00a0 Given that the U.S. Supreme Court has already had a say in the case, it seems unlikely that it would delve into these proceedings again.\u00a0 Thus, this ruling is likely the end of the line.<\/p>\n\n

In this column, I’ll summarize and explain the long-running battle over J. Howard’s oil and gas fortune, including the recent ruling, which turns on a technical issue of bankruptcy law but has huge financial consequences.\u00a0 <\/p>\n

The Marriage that Started it All <\/strong><\/p>\n

Sixteen years ago, when Anna Nicole was 26, she married J. Howard Marshall II, an 89-year-old billionaire who’d struck it rich in Texas oil.\u00a0\u00a0 According to one court’s description of their courtship, their paths crossed at a strip club in Houston over lunch \u2013 he was too sickly to go out at night, and she stripped during the daytime shift because she “was big-boned, and in the fashion trends of the late 1980’s and early 1990’s, her figure relegated her to the “B” team.”\u00a0 But, as the court observed, “this apparent disadvantage would soon work in her favor.”\u00a0 They were married for fourteen months \u2013 at the end of which J. Howard died.\u00a0 <\/p>\n

J. Howard’s will left his young wife nothing (other than the gifts and cash he had already given her during their marriage, which were worth an estimated $6 million).\u00a0 Most of his fortune, instead, was put into an irrevocable trust for the benefit of Pierce, to be triggered upon J. Howard’s death.<\/p>\n

However, Anna Nicole alleged that J. Howard had promised that he would leave half of his fortune to her \u2013 and she alleged that he would have kept that promise, but for the misdeeds of his son Pierce, which she alleged included forgery, fraud, and false imprisonment.\u00a0 <\/p>\n

Anna Nicole’s claim against Pierce is called “tortious interference with an expectancy” (with the “expectancy” being the share she expected to receive from J. Howard’s estate).\u00a0 This claim is recognized in many states; its purpose is to remedy wrongdoing with respect to an inheritance, when that wrongdoing cannot be fixed within the confines of a will contest.<\/p>\n

The facts are straightforward and the scenario is (stereo)typical:\u00a0 Family strife arose out of a rich parent’s remarriage to an age-inappropriate new wife.\u00a0 (Anna Nicole was J. Howard’s third wife; his previous two had each<\/u> lasted 30 years.)\u00a0 <\/p>\n

But the litigation was far from straightforward.\u00a0 Anna Nicole’s central claim \u2013 her claim that Pierce had wrongfully prevented J. Howard from providing for her from his estate \u2013 was simultaneously litigated in two different courts.\u00a0 And those two courts ultimately reached opposite conclusions about the validity of J. Howard’s estate-planning instruments and Pierce’s role in their execution. <\/p>\n

The recent opinion breaks the tie, in favor of Pierce.\u00a0 It holds that the Texas probate court’s ruling against Anna Nicole takes precedence over the later ruling in her favor by a federal bankruptcy court in California.\u00a0 <\/p>\n

Pierce’s wife \u2013 who has been litigating his side of the court battle \u2013 thus has prevailed over Anna Nicole’s estate, the sole heir to which is her three-year-old daughter, Dannielynn. <\/p>\n

Dueling Lawsuits: One in Texas State Court, One in Federal Bankruptcy Court in California<\/strong><\/p>\n

Here’s how the two dueling lawsuits arose in the first place:<\/p>\n

In 1995, before J. Howard died, Anna Nicole filed suit against Pierce in Texas probate court, alleging that he was wrongfully interfering with her statutory support.\u00a0 After he died, she added a series of claims, including the allegation that Pierce had tortiously interfered with the expectation of an inheritance that she had based on her husband’s oral promises of lifetime and testamentary gifts.\u00a0 <\/p>\n

In 1996, in a seemingly unrelated legal action, Anna Nicole filed for personal bankruptcy in federal court in California.\u00a0 (Her financial stability was threatened by, among other things, a lawsuit that one of her employees had filed against her claiming sexual harassment.)\u00a0 <\/p>\n

Ultimately, however, the two courts ended up ruling on the same issue: whether Pierce was liable for wrongful interference with her expected inheritance from her late husband.\u00a0 <\/p>\n

A tactical error by Pierce led to these dueling proceedings: He made a claim on Anna Nicole’s<\/u> assets in bankruptcy court, and his claim was related to the fight over J. Howard’s estate.\u00a0 In particular, Pierce alleged that Anna Nicole had defamed him by telling members of the press that he had defrauded her out of her promised share of J. Howard’s estate.\u00a0 And Pierce wanted to make sure that if he obtained a judgment of money damages against Anna Nicole for this alleged defamation, that he would be able to recover that money despite her bankruptcy.\u00a0 <\/p>\n

Why was asserting the defamation claim a tactical error?\u00a0 Because, by inserting himself into Anna Nicole’s bankruptcy proceeding, Pierce opened the way for Anna Nicole to raise the claim over J. Howard’s estate.\u00a0\u00a0 More specifically, Anna Nicole asserted truth as a defense to Pierce’s charge of defamation.\u00a0 In other words, she claimed that Pierce really had<\/u> defrauded her out of her share of J. Howard’s estate, and thus she claimed that she had done nothing wrong by saying as much.\u00a0 She also counterclaimed, within the bankruptcy proceeding, for Pierce’s tortious interference for her share of the estate.\u00a0 And, in October 2000, the bankruptcy court found in favor of Anna Nicole on that counterclaim, awarding her, initially, nearly $500 million.\u00a0 <\/p>\n

In 2001, however, a jury in the Texas proceeding reached the opposite conclusion on essentially the same factual questions \u2013 finding that Anna Nicole was not entitled to a penny.\u00a0 The Texas probate court entered a final judgment based on the jury’s verdict in December 2001.<\/p>\n

Meanwhile, Pierce had appealed the bankruptcy court’s judgment to the federal district court.\u00a0 That court agreed that the bankruptcy court had jurisdiction to consider Anna Nicole’s tortious interference claim as part and parcel of the bankruptcy proceeding.\u00a0 It also affirmed the finding of tortious interference \u2013 thus upholding the verdict in her favor.\u00a0 Based on a different calculation of damages, however, it reduced the award to $88 million.\u00a0 <\/p>\n

This federal district court judgment was entered in March 2002 \u2013 a few months after the Texas court’s judgment became final.<\/p>\n

The Question for the U.S. Supreme Court in Marshall v. Marshall<\/em>:\u00a0 Did the “Probate Exception” Apply?<\/strong><\/p>\n

Pierce appealed the federal district court’s ruling, arguing that the federal bankruptcy court never had had jurisdiction to consider Anna Nicole’s claim of tortious interference in the first place, and thus that its $88 million judgment was void.\u00a0 <\/p>\n

In so arguing, Pierce relied on the so-called “probate exception” to federal court jurisdiction.\u00a0 This question \u2013 whether the probate exception applied to this claim — ultimately made its way to the U.S. Supreme Court.\u00a0\u00a0 And, in a 2006 opinion, the Supreme Court unanimously ruled for Anna Nicole on the question of jurisdiction.<\/p>\n

It is well-known that federal courts have jurisdiction over cases involving questions of federal law.\u00a0 It is a bit less well-known, however, that federal courts can also hear and resolve state-law questions when there is “diversity” \u2013 that is, when the parties are citizens of different states — and when the amount in controversy is sufficiently high.\u00a0 Anna Nicole’s claim against Pierce was premised on diversity jurisdiction. But, over the course of two centuries, the Supreme Court has recognized a “probate exception” (as well as a “domestic relations exception”) to the exercise of federal diversity jurisdiction.\u00a0 Thus, the Court considered the validity and scope of the probate exception when it heard the Anna Nicole\/Pierce case.<\/p>\n

Justice Ginsburg’s majority opinion in Marshall<\/em> shed some light on the subject \u2013 although she also noted that we have only “misty understandings of English legal history” relating to the probate exception.\u00a0 (English legal history is relevant here because federal court jurisdiction was originally defined in the Judiciary Act of 1789, which derived its basic principles from English law.)\u00a0 <\/p>\n

In light of the mistiness, Justice Ginsburg’s cautious opinion in Marshall<\/em> merely concluded that whatever the scope of the probate exception might be, that exception did not<\/u> encompass Anna Nicole’s tortious interference claim.\u00a0 <\/p>\n

Rather, the exception, Ginsburg explained, is limited to cases where the bankruptcy court probates or annuls a will or other testamentary instrument; assumes in rem<\/em> jurisdiction over a particular piece of property; disposes of property already in the custody of a probate court; or otherwise directly<\/u> interferes with the work of a probate court.\u00a0 None of these circumstances existed in Anna Nicole’s case, Ginsburg reasoned, and so the exception cannot apply. <\/p>\n

The claim, the Court held, did not “involve the administration of an estate, the probate of a will, or any purely probate matter,” and the Court found no sound policy reason to apply the exception broadly enough to encompass the claim.\u00a0 State courts possess “no special proficiency” in handling a matter that courts of general jurisdiction routinely hear, the Court reasoned.\u00a0 <\/p>\n

The Court’s decision, then, was a win for Anna Nicole.\u00a0 But the Supreme Court’s technical disposition of the case was to send the case back (in legal terms, “remand” it) to the federal appeals court \u2013 the U.S. Court of Appeals for the Ninth Circuit — for “proceedings consistent with this opinion.”\u00a0\u00a0 <\/p>\n

And that brings us to the ruling by the U.S. Court of Appeals for the Ninth Circuit that was just recently issued, and that all but ensures that Anna Nicole’s heir, Dannielynn, will not see any of the money from J. Howard’s estate.<\/p>\n

The Ninth Circuit’s Recent Ruling in Marshall v. Stern<\/em>: The Key Questions<\/strong><\/p>\n

After the Supreme Court’s ruling, the case was remanded back to the U.S. Court of Appeals for the Ninth Circuit to decide which of the two other relevant rulings \u2013 the 2001 judgment from the Texas Probate Court against Anna Nicole or the 2000 ruling from federal bankruptcy court in her favor \u2013 would take precedence.\u00a0 (Mysteriously, the Ninth Circuit took almost four years to make this decision.)\u00a0 <\/p>\n

The answer to the “Which ruling?” question turned on whether the federal bankruptcy court that first ruled in her favor had jurisdiction to issue a final<\/u> judgment on her claim of tortious interference, or only to make tentative<\/u> findings that then became final in 2002.\u00a0 <\/p>\n

The question for the Ninth Circuit, then, was not<\/u> whether the federal bankruptcy court had possessed proper jurisdiction when it ruled. (The Supreme Court already had said “Yes” when faced with that question.)\u00a0\u00a0 <\/p>\n

Instead, the question was whether the bankruptcy court’s ruling was considered final upon issuance, or only upon later approval by the federal district court that was sitting above the bankruptcy court.\u00a0 <\/p>\n

Bankruptcy courts have jurisdiction to issue final<\/u> rulings on “core” proceedings with respect to a bankruptcy filing.\u00a0 On so-called “non-core” proceedings, in contrast, their rulings are only tentative; they are subject to review and approval by a federal district court.\u00a0 (This distinction is the product of a 1984 bankruptcy law that tried to rein in the jurisdiction of bankruptcy courts so as to avoid the constitutional problem that might arise if their jurisdiction was truly co-extensive with the jurisdiction of the federal district courts.)\u00a0 <\/p>\n

The core\/non-core distinction is crucial in Anna Nicole’s case because of timing: the bankruptcy court’s ruling was issued before the final judgment in the Texas proceeding, but the district court’s affirmance of the bankruptcy court’s ruling came afterwards.\u00a0 <\/p>\n

Another rule that is crucial is that the first final judgment trumps any later judgment that resolves the same issues between the same parties.\u00a0\u00a0 (This legal principle is called “issue preclusion,” and it prevents parties from relitigating the same issues in multiple or successive court proceedings in order to try to reverse results they don’t like.) <\/p>\n

Why the Ninth Circuit Found that Anna Nicole’s Counterclaim Was Not a “Core Proceeding” in the Bankruptcy Case<\/strong><\/p>\n

The Ninth Circuit concluded that the Anna Nicole’s counterclaim for tortious interference was not a “core proceeding.”\u00a0 That conclusion meant, in turn, that the bankruptcy court’s findings were only tentative \u2013 to become final only later when approved by the district court.\u00a0\u00a0 It was based on this logic that Anna Nicole’s side \u2013 and, since Anna Nicole had died, her heir Dannielynn \u2013 lost the case. <\/p>\n

In deeming Anna Nicole’s counterclaim “non-core,” the Ninth Circuit reasoned as follows:\u00a0 In the bankruptcy case, Pierce had sued Anna Nicole for defamation.\u00a0 Once that defamation claim was raised, Anna Nicole’s claim of Pierce’s tortious interference with her inheritance (also raised as a defense) was a “compulsory” counterclaim.\u00a0 (A “compulsory” counterclaim is logically related to the claim and does not require additional parties to be added to the litigation.\u00a0 A party must raise such a claim, or forfeit it.)\u00a0 However, Anna Nicole’s tortious interference claim was not closely-enough related to Pierce’s defamation claim to be considered a “core proceeding” in bankruptcy.\u00a0 <\/p>\n

Pierce’s estate had argued that if a claim can be brought independently in state court, then it does not qualify as a core proceeding; Anna Nicole’s estate had argued that all compulsory counterclaims qualify as core proceedings for purposes of bankruptcy-court jurisdiction.\u00a0 However, the Ninth Circuit rejected both extremes, ruling instead that “some, but not all, compulsory counterclaims” brought under state law qualify.\u00a0 <\/p>\n

The question, according to the Ninth Circuit, is whether a “counterclaim is so closely related to the proof of claim that the resolution of the counterclaim is necessary to resolve the allowance or disallowance of the claim itself.”\u00a0 <\/p>\n

In this case, the Ninth Circuit found that Anna Nicole’s tortious interference counterclaim was not closely related enough to Pierce’s claim of defamation to meet this standard.\u00a0 Although both claims revolved loosely around the allegation that Pierce had interfered with his father’s desired estate plan, the defamation claim could be resolved — in the court’s view — without also resolving the tortious interference claim, which involved a broader set of facts spanning a longer range of time.\u00a0 <\/p>\n

Why the Ruling Regarding Anna Nicole’s Tortious Interference Claim Means that Dannielynn Will Not Recover from J. Howard’s Estate <\/strong><\/p>\n

By ruling that the tortious interference claim was not a “core proceeding,” the Ninth Circuit effectively held that the bankruptcy court’s judgment in favor of Anna Nicole, entered in 2000, constituted only “proposed findings and conclusions of law” rather than a final judgment.\u00a0 Only in 2002, when the district court agreed with those findings, did they become embodied in a “final” judgment entitled to preclusive effect vis-\u00e0-vis competing rulings.<\/p>\n

Yet in 2001, the Texas probate court had issued its own final judgment \u2013 which it clearly had the jurisdiction to enter.\u00a0 That ruling, based on the jury’s verdict, held that J. Howard’s estate-planning instruments were valid and were untainted by any wrongdoing by Pierce.\u00a0 The court concluded that Anna Nicole, therefore, was entitled to nothing from her late husband’s estate.\u00a0 <\/p>\n

Having resolved the issue of timing, the Ninth Circuit applied the basic rules of issue preclusion to hold that the federal district court, ruling after<\/u> the issuance of a final judgment of the Texas probate court, should have given the prior Texas judgment “preclusive effect”.\u00a0 Under the Full Faith and Credit Act of 1738, federal courts are required to give such effect to state-court judgments “whenever the courts of the State from which the judgment emerged would do so.”\u00a0 Under Texas law, issue preclusion (also known as “collateral estoppel”) is warranted whenever (1) the facts sought to be litigated in the second action have been fully and fairly litigated in the first; (2) the litigated facts were essential to the judgment in the first action; and (3) the parties were adversaries in the first action.<\/p>\n

Applying this test for issue preclusion, the Ninth Circuit concluded that all prongs of the test were met, and thus the Texas findings held sway:\u00a0 To prevail on her tortious interference claim in the federal court proceeding, Anna Nicole had to prove, among other things, that, but for Pierce’s interference, J. Howard would have made a substantial gift to her.\u00a0 But proving that fact is impossible if the federal court is bound to defer to the Texas court’s finding that J. Howard “did not intend to give and did not give a gift or bequest [to Anna Nicole] from the Estate of [J. Howard] . . . either prior to or upon his death.”\u00a0 Moreover, the Ninth Circuit concluded that other factual determinations made by the Texas court would also preclude a finding in Anna Nicole’s favor by the federal court.<\/p>\nThus, for complicated and technical reasons, Anna Nicole’s award of $88 million was vacated.\u00a0 Sadly, the real loser here is Anna Nicole’s daughter and sole surviving heir, Dannielynn.\u00a0 This was her last hope for an inheritance, since her mother seems to have frittered away all her other assets during a fast-paced, and unexpectedly short life.\n

\n

\n<\/a>Joanna Grossman, a FindLaw columnist, is a professor of law and John DeWitt Gregory Research Scholar at Hofstra University. She is the coeditor of Gender Equality: Dimensions of Women’s Equal Citizenship<\/i> (Cambridge University Press 2009), an interdisciplinary collection that explores the gaps between formal commitments to gender equality and the reality of women’s lives. Her columns on family law, trusts and estates, and discrimination, including sex discrimination and sexual harassment, may be found in the archive of her columns on this site<\/a><\/em>.<\/p>\n \n\n\n\n\n \n<\/div>\n

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