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Anna Nicole Smith Wins at the Supreme Court: She's Closer to Collecting From Her Late Husband's Estate, But Many Hurdles Still Remain

Tuesday, May. 16, 2006

Six years ago, I wrote a column for this site about the long-running battle between Anna Nicole Smith and her former stepson over her late husband's estate. I concluded: "If one were to place a bet, the best money would still be on settlement. That is how these cases usually end, particularly when there is enough money in the kitty to make every interested party wealthy beyond imaginations. . . . [T]he anger and desire for revenge that typically motivate the parties usually are, at some point, outweighed by the high costs of litigation--only the lawyers profit by continuing the fight."

So much for predictions. The acrimonious dispute between Smith, whose real name is Vickie Lynn Marshall, and E. Pierce Marshall (Pierce) not only did not settle, it made it all the way to the U.S. Supreme Court. And even though the Court issued a unanimous ruling in the case -- Marshall v. Marshall -- its decision only cleared the way for further litigation.

Attorneys' fees, by this time, must be exorbitant. Yet, even after the May 1 ruling, both parties have indignantly told reporters that there will be no settlement.

Nevertheless, at the risk of being twice burned, I still predict a settlement in the near future. In this column, I'll explain why.

The Facts Spurring Eleven Years of Litigation

Twelve years ago, when Anna Nicole - a Playboy model and former topless dancer -- was 26, she married J. Howard Marshall II, an 89-year-old billionaire who'd struck it rich in Texas oil. They were married for fourteen months - at the end of which J. Howard died.

J. Howard's will left his young wife nothing (other than the gifts and cash he had already given her). Most of his fortune, instead, was put into an irrevocable trust for the benefit of Pierce upon J. Howard's death.

However, Anna Nicole alleges that J. Howard had promised that he would leave half of his fortune to her - and that he would have done so, but for the misdeeds of his son Pierce -- which she alleges included forgery, fraud, and false imprisonment.

Anna Nicole's claim is called tortious interference with an expectancy (specifically, the share she expected to receive from J. Howard's estate.) This claim is recognized in many states; its purpose is to remedy wrongdoing with respect to inheritance, when that wrongdoing cannot be fixed within the confines of a will contest.

The facts are straightforward and the scenario is (stereo)typical - family strife arising out of a rich parent's remarriage to an age-inappropriate new wife. (Anna Nicole was J. Howard's third wife; his previous two had each lasted 30 years.)

But the case's procedural posture is what makes the case unusual - and of interest to the Supreme Court.

Dueling Lawsuits: One in Texas State Court, One in Federal Bankruptcy Court in California

While J. Howard's estate was being administered in Texas probate court, Anna Nicole - still frozen out and without any share of the estate -- filed for personal bankruptcy in federal court in California.

Pierce made a claim on her assets in bankruptcy court. He alleged that she had defamed him by telling members of the press that he had defrauded her out of the promised share of his father's estate. And he wanted to make sure that if he obtained a judgment of money damages against her for this alleged defamation, that he would be able to recover the money despite her bankruptcy.

In retrospect, this was clearly a tactical error on Pierce's part - for his decision to file this claim opened a new door for Anna Nicole: This claim enabled her to assert "truth" as a defense - in other words, that he did in fact defraud her out of her late husband's money - and file a counterclaim, alleging that his actions tortiously interfered with J. Howard's estate plan, to her detriment. (Without Pierce's claim, the bankruptcy court could not have entertained her claim.)

Pierce's strategic mistake was costly. The bankruptcy court, after fact-finding, found in favor of Anna Nicole, and awarded her nearly 500 million dollars. Though the federal district court later reduced this sum to $88 million, that's still an $88 million judgment against Pierce that wouldn't have existed had he not chosen to make a claim on Anna Nicole's bankruptcy-court assets.

Meanwhile, the validity of J. Howard's will and trust were the subject of essentially the same dispute between the same parties in another court: a probate court in Houston. Only there, the final outcome was the opposite of the one the bankruptcy court reached: A jury declared both instruments (the will and the trust) valid, leaving Anna Nicole disinherited. (Anna Nicole had withdrawn her challenges to the will after the bankruptcy court entered judgment.)

With two directly conflicting judgments on the table, and $88 million at stake, it was necessary for a court to decide which judgment prevailed.

The Question for the Supreme Court: Did the "Probate Exception" Apply?

Which court's ruling is binding? The federal bankruptcy court's award of $88 million, or the probate court's award of zero? Even after the May 1 Supreme Court decision, we still don't know the answer to that question -- but the Supreme Court has, at least, given the green light for the next round of fighting.

Pierce argues that the federal bankruptcy court never had jurisdiction to consider Anna Nicole's claim of tortious interference in the first place, and thus that its $88 million judgment is void. He relies on the so-called "probate exception" to federal court jurisdiction. Accordingly, the Supreme Court's decision is devoted to consideration of the validity and scope of this exception.

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. (Federal courts have jurisdiction not only over cases involving questions of federal law, but also state-law questions when the parties are citizens of different states and when the amount in controversy is sufficiently high - as was the case here.)

What is the scope of the probate exception? Justice Ginsburg's majority opinion in Marshall shed some light on the subject - although she also noted that we have only "misty understandings of English legal history" relating to the exception. (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.)

In light of the mistiness, Justice Ginsburg's cautious opinion in Marshall merely concluded that whatever the scope of the probate exception might be, that exception does not encompass Anna Nicole's tort claim.

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 jurisdiction over a particular piece of property; disposes of property already in the custody of a probate court; or otherwise directly interferes with the work of a probate court. None of these circumstances existed in Anna Nicole's case.

The Case's Larger Meaning: The Court Strongly Disfavors Exceptions to Federal Jurisdiction

The Court's view of exceptions to federal court jurisdiction - including, but not limited to, the probate exception -- is clearly dim. The opinion begins not with a reference to the dispute between Anna Nicole and Pierce, but instead with an oft-repeated quote from an 1821 case, Cohens v. Virginia: "It is most true that this Court will not take jurisdiction if it should not: but it is equally true, that it must take jurisdiction if it should. . . . We have no more right to decline the exercise of jurisdiction which is given, than to usurp that which is not given."

The idea that federal court jurisdiction is a judicial imperative, rather than an opportunity, is a longstanding one. And although federal judges certainly encounter cases where they might like to abstain from exercising jurisdiction, their ability to do so has been circumscribed by a set of relatively unflinching doctrines. Abstention doctrines have often met the wrath of Court veteran Justice John Paul Stevens, in particular; Stevens wrote separately in Marshall to urge that, rather than acknowledge the probate exception, the Court ought instead to "provide the creature with a decent burial."

But the majority opinion did not put the probate exception to rest. It simply held it inapplicable in this case, and thus upheld the original assertion of jurisdiction by the federal bankruptcy court over the tortious interference claim.

The claim, the Court held, does not "involve the administration of an estate, the probate of a will, or any purely probate matter," and there is no sound policy reason to apply the exception broadly enough to encompass it. State courts possess "no special proficiency" in handling a matter that courts of general jurisdiction routinely hear.

What Happens Now? The Two Issues That Will Determine the Ultimate Winner

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 - the U.S. Court of Appeals for the Ninth Circuit -- for "proceedings consistent with this opinion."

On remand, two issues will determine whether Anna Nicole sees any money from her late husband's estate:

First, the court must determine whether the federal bankruptcy court that first ruled in her favor had jurisdiction to issue a final judgment on her claim of tortious interference in particular.

This issue may sound confusing: Didn't the Supreme Court already say that the federal bankruptcy court did have jurisdiction - and had to exercise it? No, not exactly.

The Supreme Court said two things: It said that federal courts must exercise jurisdiction if - and to the extent that -- they have it. And it said that it rejected the argument that the bankruptcy court lacked jurisdiction because of the probate exception. But, it did not rule on the argument that the federal bankruptcy court lacked the authority to issue a final judgment on her state law tort claim.

So does the federal bankruptcy court have jurisdiction over the tortuous interference claim, or not? The answer will turn on whether the court views Anna Nicole's state law tort claim as a "core" or "non-core" proceeding with respect to her filing for bankruptcy. If it's a "core" claim, the bankruptcy court had the authority to issue a final judgment. But, if it's a "non-core" claim, she's in trouble - for the bankruptcy court had the authority only to enter "proposed" findings, rather than a final judgment, with respect to non-core claims. (The district court took this view and thus undertook a completely independent review of the claim before affirming and lowering the damages award.) Which court issued the "final" ruling is important to the question of timing, and timing may be everything.)

The second issue the Ninth Circuit will tackle on remand is the determination of which ruling is binding - the jury verdict from the will contest proceeding in Texas state court, or the ruling of the federal court?

The relevant legal principle here is "issue preclusion" - the doctrine that parties are precluded from relitigating the same issues in multiple or successive courts to try to get a different result than they originally received. Based on preclusion principles, the first judgment will likely be given effect over the second.

Only one ruling can be given effect and which one will survive is the $88 million dollar question. With so much at stake - and no clear winner on remand -- the parties are foolish to continue this fight.

If spite and revenge could be set aside, surely they could find an agreeable amount for which to settle. But since spite and revenge have fueled the litigation for over a decade, they may continue to do so - even though massive attorneys' fees may make victory Pyrrhic even for the winning side.

Joanna Grossman, a FindLaw columnist, is a professor of law at Hofstra University. 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.

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