Much as been written about the U.S. Supreme Court’s decision two weeks ago in the "Anna Nicole Smith" case. The press has almost universally focused, however, on the tabloid-style sensationalism of the saga, including courtroom fashion statements, with little discussion of the legal principles. Because they are at least mildly interesting, and because we believe our readers are intelligent, we undertake to explain the legal issues settled by Marshall v. Marshall, the May 1, 2006, opinion of the nation’s high court.

After J. Howard Marshall’s death on August 4, 1995, a probate proceeding in Texas state courts turned into a major legal battle between one of Mr. Marshall’s sons, E. Pierce Marshall, and his widow, Vickie Lynn Marshall (better known by her stage name of Anna Nicole Smith). The fight was bitter, expensive and protracted, and mostly focused on whether, as Mrs. Marshall insisted, Mr. Marshall had intended to provide a significant inheritance for her. According to the widow, the younger Mr. Marshall had sequestered his father, prevented him from making changes to his estate plan and lied to him about the couple’s relationship.

In January, 1996, Mrs. Marshall filed a bankruptcy proceeding in California, alleging that (among other things) the costs of maintaining the legal battle had drained her assets. Pierce Marshall then filed a claim against her bankruptcy estate, insisting that she had defamed him in the course of the Texas probate case. Mrs. Marshall responded that everything she had said was true and then counterclaimed, alleging that Pierce Marshall had intentionally interfered with her expected inheritance.

Though most litigation in this country takes place in state courts, federal courts do have jurisdiction over most types of civil battles, either if the parties are from different states or if the proceedings are related to a bankruptcy case. There are two major exceptions to that rule—the so-called "domestic relations" and "probate" exceptions. Because of the former, federal courts will not act to set or review spousal maintenance, or to decide child custody cases. The latter prevents federal courts from deciding will contests. Both arise historically from the difference between courts of law and chancery courts (one of the English courts of equity). The two courts were merged in England and Wales in 1873, but the distinction remains in a number of arcane principles—including the jurisdiction of United States federal courts.

Pierce Marshall argued that what Mrs. Marshall was attempting to accomplish was effectively to move a probate proceeding from Texas state courts into the bankruptcy court, but the bankruptcy judge was not impressed with that argument. After a trial the bankruptcy judge largely agreed with Mrs. Marshall, and awarded her damages of more than $449 million. In addition, the judge awarded her another $25 million in punitive damages for Pierce Marshall’s misbehavior in those proceedings.

Meanwhile, Mrs. Marshall had objected to the probate of her husband’s will and trust in the Texas proceedings. Once she received a favorable ruling from the bankruptcy court, she dismissed her objections. The probate court then entered a finding that the will and trust were valid, and that she had been effectively disinherited.

Back in federal court in California, Pierce Marshall appealed the adverse ruling from the bankruptcy court to the District Court, the primary trial court on the federal level. That court first had to determine whether the bankruptcy court case was a "core proceeding." If so, the $474 million judgment would stand; if not, the District Court could make its own decision on damages. The District Judge ruled that the holding was not a "core proceeding," and that the judgment was therefore only a "proposed" judgment. Reconsidering the evidence, the District Judge entered a new judgment in favor of Mrs. Marshall, this time for just under $44.3 million, and an equal amount in punitive damages because of what the Judge found to be overwhelming evidence of Pierce Marshall’s "willfulness, maliciousness, and fraud."

The next stop was at the Ninth Circuit Court of Appeals, the federal appellate court overseeing California bankruptcy and District courts. The Court of Appeals agreed with Pierce Marshall that the entire proceeding should have been dismissed because it dealt with a probate matter—although Mrs. Marshall was not directly challenging her late husband’s will and trust, the intentional interference claim amounted to almost the same thing. The federal courts should have refused to consider the matter, ruled the appellate court, and therefore the judgment should be reversed.

That was the case heard last year by the United States Supreme Court. In a unanimous ruling, the nation’s high court reversed the Court of Appeals decision. The "probate exception," ruled the Justices, may not even exist—but if it does, it does not prevent federal courts from deciding cases alleging intentional interference with an expected inheritance. Such an action is not exactly like a will contest. The federal courts should not act when doing so would "interfere with the probate proceedings," but in the Marshall family dispute none of the federal court proceedings involved the administration of Mr. Marshall’s estate, the probate of his will or any other "purely probate matter."

That does not end the controversy, however. Still undecided is whether the District Judge was right when he decided that he should review the judgment itself, and lowering the total due to Mrs. Marshall from $474 million to $88.5 million.

Timeline:

June 27, 94—J. Howard and Vickie Lynn Marshall married after two-year courtship

August 4, 1995—J. Howard Marshall dies

January, 1996—Vickie Lynn Marshall files bankruptcy proceeding

October, 2000—Bankruptcy Court enters $474 million judgment

March, 2002—District Court lowers judgment to $88.5 million

December, 2004—Ninth Circuit voids judgment

May 1, 2006—U.S. Supreme Court rules that federal courts have jurisdiction

Would you like to subscribe to Elder Law Issues? Simply provide your e-mail address and name below, and click "Subscribe". At the same time, you may choose to also subscribe to The Voice, the newsletter of the Special Needs Alliance.

Privacy note: We do not ever use your e-mail address or name for any purpose other than to send out our subscription-based newsletter. You can rest assured that we will not sell, trade or share this information with any other person or entity. We have no ancillary or associated companies or entities to which we could provide your e-mail address, either.

© 1993-2009 Fleming & Curti, P.L.C.
330 N. Granada Avenue, Tucson, Arizona 85701
520-622-0400 /  FAX: 520-203-0240