6/24/11 Update:  Here’s my blog post providing an early analysis of the US Supreme Court’s final 5-4 decision in favor of Pierce’s estate, entitled US Supreme Court’s Bombshell Opinion in Stern v. Marshall Draws the Line Against Incremental Erosion of Article III Judicial Power.

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6/23/11 Update:  5-4 decision delivered affirming 9th Circuit’s ruling and handing Pierce Marshall’s estate a complete and final victory.  Justice Roberts with an extremely well written opinion; Justice Breyer dissenting. Opinion here.  Pre-opinion writeup here.

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And so, it appears, 19 years of hell for the remaining surviving heirs of J. Howard Marshall II come near an end.  Here’s the chronology:

  • First, in October 1991, the so-called "courtship" between J. Howard and Anna begins.
  • In April 1995, Anna sues J. Howard’s son and guardian, Pierce, in Texas Probate Court (amended several times after J. Howard’s death) for, among other things, tortious interference with her expectation of support during the marriage and after his death and for fraud and undue influence in connection with J. Howard’s estate planning.
  • In August 1995, J. Howard dies, leaving her nothing.
  • In January 1996, Anna files bankruptcy. 
  • In May 1996, Pierce brings a non-dischargeability adversary for defamation.
  • In June 1996, Pierce files a corresponding proof of claim in Anna’s bankruptcy case. 
  • In June 1996, Anna counterclaims in bankruptcy, asserting the same claims she made in probate court.
  • In October 2000, the bankruptcy court rules against Pierce on the defamation claims and, in December 2000, it enters a $475 million judgment in favor of Anna on the counterclaims.  Marshall v. Marshall, 253 B.R. 550 (Bankr. C.D. Cal. 2001).
  • In January 2001, Pierce appeals. 
  • In January 2001, Anna nonsuits her claims against J. Howard’s estate and Pierce individually in probate court.
  • In February 2001, Pierce files an amended counterclaim against Anna in probate court for declaratory relief to determine her rights to the estate and property of J. Howard and a complaint for a declaratory judgment against Anna and J. Howard’s estate that J. Howard’s Living Trust reflected his intentions and were valid.
  • In March 2001, after a five month jury trial in the Texas Probate Court, the jury unanimously finds that the Living Trust and will were valid and had not been forged or altered, that J. Howard wasn’t the victim of fraud or undue influence, that J. Howard had the requisite mental capacity at all relevant times, and that J. Howard had no agreement with Anna to give her 1/2 of all his property.
  • In December 2001, the probate court enters final judgment in favor of Pierce on all claims, holding that Pierce was entitled to his inheritance, free from all claims by Anna or Pierce’s older brother.
  • After the jury verdict in probate court, Pierce moved to dismiss Anna’s claims against him in district court on the appeal of the bankruptcy court ruling on grounds of claim and issue preclusion, but the district court denied this motion in December 2001.  Marshall v. Marshall, 271 B.R. 858 (C.D. Cal. 2001).
  • In March 2002, the district court entered judgment in favor of Anna, finding that "J. Howard always intended to give [Anna] … half of his ‘new community’" (i.e., the appreciation of his estate during their marriage) and that Pierce "backdated documents, altered documents, destroyed documents, suborned falsified notary statements, presented documents to [J. Howard] under false pretenses, and committed perjury,” in order to deny any distributions to Anna from J. Howard’s estate.  In re Marshall, 275 B.R. 5 (C.D. Cal. 2002).
  • In 2004, the 9th Circuit vacated the judgment against Pierce on the basis that the so-called probate exception to federal subject matter jurisdiction precluded consideration of the case.  Marshall v. Marshall (In re Marshall), 392 F.3d 1118 (9th Cir. 2004).
  • In 2005, the US Supreme Court granted Anna’s petition for certiorari, as I discussed here, here, here, and here.
  • On May 1, 2006, as discussed here, here, here, and here, the US Supreme Court reversed the 9th Circuit’s decision, concluding that the probate exception did not apply to Anna’s in personam counterclaims against Pierce.  The 9th Circuit only considered the issue of federal subject-matter jurisdiction.  The Supreme Court remanded for consideration of whether Anna’s claims were "core" and whether Anna’s claims were barred under principles of claim and issue preclusion based on the earlier judgment entered in the Texas Probate Court.  Marshall v. Marshall, 547 U.S. 293 (2006).
  • Finally, and that’s the purpose of this post, the 9th Circuit concludes on March 19, 2010, that Anna’s counterclaim is not a core proceeding but, at most, "related to" her bankruptcy case.  As a result, the earlier judgment entered in her favor by the bankruptcy court was not final at the time that the Texas Probate Court entered its judgment in favor of Pierce, and so the Texas Probate Court judgment was the earliest final judgment that precludes all of Anna’s claims.  Marshall v. Stern (In re Marshall), No. 02-56002, 2010 WL 986781 (9th Cir. Mar 19, 2010) (NO. 02-56002) (pdf).

The 9th Circuit’s opinion is certainly worth reading for many reasons.  First, it provides an excellent review of "the evolution of the current bankruptcy regime in order to appreciate the important distinctions between ‘arising under,’ ‘arising in,’ and ‘related to’ proceedings and how the notion of ‘core’ proceedings came to exist."  (Idat p. 4508).  The case also is interesting in its analysis of how "counterclaims by the estate against persons filing claims against the estate"―that by statute (28 U.S.C. § 157(b)(2)(C)) are defined as "core"―can still be narrowly construed as non-core "in order to avoid potential constitutional problems arising from having Article I judges issue final orders in cases requiring an Article III judge."  (Idat p. 4521).  Even compulsory counterclaims may not be "core" proceedings, the Court held, writing:

There is no logical inconsistency to our holding that Vickie Lynn Marshall’s counterclaim is compulsory but not “core.”   The test for compulsory counterclaims is generous and designed to promote judicial efficiency by avoiding multiplicity of lawsuits.  See Albright v. Gates, 362 F.2d 928, 929 (9th Cir. 1966).  On the other hand, the standard delineating what is a core proceeding is much narrower because it is designed to comply with the constitutional limitations on the bankruptcy court’s jurisdiction as set forth in Marathon.

Our review of the evolution of the Bankruptcy Code, the Supreme Court’s opinions in Katchen and Marathon, as well as our own jurisprudence cautioning against creating constitutional problems through an overly broad construction of what is a “core proceeding,”  Piombo Corp. v. Castlerock Props. (In re Castlerock Props.), 781 F.2d 159, 162 (9th Cir. 1986), leads us to agree with the amici curie professors that “a counterclaim under § 157(b)(2)(C) is properly a ‘core’ proceeding ‘arising in a case under’ the [Bankruptcy] Code only if the 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.”  Professors’ Amicus Br. at 11.  Such a construction of § 157(b)(2)(C) takes into account the whole of the statute, avoids rendering any terms superfluous, follows Katchen, and comports with the principles of Marathon and Congress’ desire to revise the Bankruptcy Code in a manner consistent with the Constitution….

In conclusion, although a compulsory counterclaim based on a state law cause of action can, under certain circumstances, be a core proceeding arising in a case under the Bankruptcy Code and be within the constitutional and statutory delegation of authority to bankruptcy judges to enter final orders, this is not such a case.  (Idat p. 4523-27).

Once the Court determined that Anna’s counterclaims weren’t core, then the judgment entered by the bankruptcy court in favor of Anna wasn’t final at the time the Texas Probate Court issued its judgment in favor of Pierce.  The Court compared and analyzed the matters decided in the Texas Probate Court and the bankruptcy court and held:

All of the elements of issue preclusion have been met in this case. The district court erred when it did not afford preclusive effect to the relevant determinations by the Texas probate court. Had it done so, it would have concluded that various legal and factual issues necessary to establish Vickie Lynn Marshall’s tortious interference claim had already been decided against her by the Texas probate court, such that Pierce Marshall was entitled to judgment as a matter of law.   (Idat p. 4528-34).

The one hour oral argument is certainly worth a listen too.  Eric Brunstad argued for Pierce’s estate (brief here) and Kent Richland argued for Anna’s estate (brief here).  Here’s the amicus brief of the "Professors," prepared by the rising SCOTUS bankruptcy star, Wilmer Hale’s Craig Goldblatt.

Anna’s estate’s lawyers promise to seek full review by the 9th Circuit en banc and, if they lose there, another petition to the US Supreme Court.  In that regard, it’s worth considering the exchange at oral argument that I discussed here between Justice Ginsburg and the lawyers for Anna, which suggests that the Anna’s estate’s lawyers have a significant uphill battle ahead of them.  It sure would be nice, however, if the Supreme Court would grant certiorari and take this opportunity to revisit Marathon and the jurisdictional boundaries of the bankruptcy court.

I also solicit your comments on what each side might have done differently to better advance their position.  For example, it’s hard to see what benefit Pierce got by submitting himself to the jurisdiction of the bankruptcy court via an adversary and proof of claim filing.  From Anna’s perspective, you have to wonder whether she should have sought to invoke the automatic stay to enjoin the Texas probate proceeding pending the outcome of the bankruptcy proceedings on dischargeability, etc., though it’s not clear the bankruptcy court had the power to do so.  She also could have sought to withdraw the reference of the matter early on so that the case would have been heard initially by the district court.

Thanks for reading!

© Steve Jakubowski 2010