Will Anna Nicole's Estate Win Her Case?--

At Gerry Beyer's excellent Trusts & Estates blog, he paraphrases the views of (former Visiting Professor) Horace Cooper as put forward in a press release on the Anna Nicole Smith case:

Horace Cooper, writer and legal commentator, will be discussing the legal myths in the Anna Nicole Smith case on Tuesday, June 12 at 1:00 p.m. EDT. He will explain why Dannielynn may not be the million-dollar baby that so many have made her out to be. Cooper feels the real tragedy is that Dannielynn is more likely to be saddled with substantial legal debt if Larry Birkhead and Howard K. Stern decide to proceed with Smith's claims. Cooper will be featured in Smith's much hyped E! True Hollywood Story on Monday, June 11 at 8:00 p.m. EDT.

Few remember that the trial of record was not Anna Nicole Smith's much hyped Supreme Court appearance, but rather a five-month jury trial in the Texas Probate Court in 2001 finding that J. Howard Marshall's son Pierce was the legal heir. Furthermore, the jury found that there was no evidence to indicate that the will was interfered with and the case affirmed that Marshall had no intention of making Smith his heir.

Tuesday, June 19 will mark the first hearing in Anna Nicole Smith's probate trial, and after the courts declare official custody this Friday, June 8, both Stern and Birkhead will begin their legal posturing to move full speed ahead with their pursuit of J. Howard Marshall's estate. Behind the high profile, celebrity nature of the case is an example of audacious and alarming forum shopping and serious questions about state and federal jurisdiction.

I have read such discouraging remarks about Anna Nicole's suit, but IMO they seem to be at least partly beside the point. I have trouble understanding why Cooper thinks that the Texas case is "the trial of record" on the issue of her suit: tortious interference with a lifetime gift to Anna Nicole. If Cooper were right, it seems likely that Anna Nicole Smith would have lost her case in the US Supreme Court. As I seem to recall from a quick reading of the opinion some months ago, the U.S. Supreme Court held that the Texas probate case did not bar Anna Nicole's case in federal bankruptcy court under the probate exception (because her federal counterclaim did not interfere with the probate of J. Howard's estate in Texas).

Perhaps I'm missing something, but Smith's federal judgment for $88 million was NOT in a Texas probate court and did NOT purport to find her an "heir" of the estate. Her claim was based on Pierce's allegedly tortious (and fraudulent) prevention of J. Howard's attempts to give Anna Nicole a LIFETIME GIFT by setting up a trust for her.

I have no idea whether Anna Nicole's estate will win in the end, but I don't see how her case is as obviously weak as Cooper claims or that what he mentions as legal impediments are impediments at all. As her federal claims were not as an heir to Howard's estate (but rather as the victim of tortious interference with her being a beneficiary of a lifetime gift), her claims appear to be not prevented by the Texas probate case.

Of course, Anna Nicole's estate might still lose. A federal court might not find the evidence persuasive (though the lower courts did). Or the US Court of Appeals might hold that there is no action for tortious interference with an inter vivos trust under Texas law (though the lower court held there was, but with very little support for its holding). My knowledge of federal procedure and bankruptcy is limited enough that there might be other significant hurdles for Anna's estate. But without a detailed knowledge of the case, I would think that her estate's chance of winning would be somewhere between 25% and 75%--i.e., it could go either way.

Here is another view that seems to assume that the Texas case does not bar the federal action and that Anna's estate has a plausible claim.

But not being an expert on federal procedure, I might be missing something.

If there are any experts out there who know why some commentators have been so pessimistic about Anna Nicole's case, perhaps they could enlighten us in the comments below.

DiverDan (mail):
Two points from a casual observer of the Anna Nicole Smith Case - First, in her own Bankruptcy Case, she claimed that her tort claim against J. Howard Marshall was "property of the estate" (i.e., her Bankruptcy Estate) under Section 541 of the Bankruptcy Code, but Bankruptcy Law does not create property rights, it merely recognizes whatever rights are created under applicable state law. So the question which must be answered is whether, under whatever state law is relevant, a cause of action for interference with expectancy of a gift is even a colorable action. If Texas is the right place to look (and it certainly seems to be, since that was always Marshall's residence, and the location where all operative events took place), then the answer is very clearly no - one has no legally cognizable interest in an "expectancy", whether of a gift or an inheritance, since the donor of the gift, just as the testator of a will, has the absolute power and right to change his mind right up until the point where the gift is complete by the passage of title or the will becomes operative by the death of the testator. It's no surprise that Anna Nicole Smith chose to press her claim in the Bankruptcy Court in California - this claim had no hope in hell in a Texas state court. Second, while the Supreme Court ruled in Smith's favor, it did so on a very narrow jurisdictional issue - whether there was a "probate exception" to Bankruptcy jurisdiction. It held that there was no such exception. It did NOT make any broad ruling that Bankruptcy Court's could always exercise jurisdiction over these types of cases. What is truly surprising to me is that J. Howard Marshall's counsel did not strenuously object from the beginning to the Bankruptcy Court's jurisdiction on two more obvious grounds - that this was a "non-core matter" since it was a plain vanilla state law tort claim that could have been brought in state court absent a bankruptcy, cf. Marathon, 458 U.S. 50 (1982), and thus the Bankruptcy Court could not make any final ruling over Marshall's Objection, and second, that the Bankruptcy Judge, as a non-Article III judge, could not make any ruling not subject to de novo review by an Article III tribunal, cf. Crowell v. Benson, 285 U.S. 22, 51 (1932), and U.S. v. Radditz, 447 U.S. 667 (1980). Of course, the Supreme Court never addressed those issues, since they were not presented by Marshall's counsel in the lower federal courts.
6.13.2007 10:58am
How does Dannielynn get "saddled with substantial legal debt"? Surely the reason we have rules against minors making contracts is that you don't want to turn 18 and suddenly find out that you're now liable for all kinds of debt incurred in your name. Are lawyers really taking her case with the expectation that they have the right to get paid off someday when she turns 18?
6.13.2007 11:07am
DiverDan (mail):
OOPS - mea culpa - I just looked back at the case and Marshall's counsel DID raise the issue of the claim being "non-core", and won that issue in the District Court, which apparently reviewed the case de novo (does anyone know of there was a whole new trial, or just a new set of eyes looking at a transcript from the Bankruptcy Court?). Apparently, that issue never went to the 9th Circuit.
6.13.2007 11:14am
Kevin! (mail):
My (basic) understanding of the issue is that when J. Howard entered a claim against Anna Nicole in Bankruptcy Court, that gave BC jurisdiction over AN's counterclaim. Then the DC found it non-core and did a de novo review under 28 USC 157c1 and Rule 9033.
6.13.2007 11:43am
Houston Lawyer:
From what I understand, Marshall injected himself into Anna Nichole's bankruptcy suit. I believe he attempted to prevent certain of her debts from being discharged in bankruptcy. As a result, Anna counterclaimed and we have ended up here.

What I don't understand is who gets to determine what Texas law is in this case, since the Texas courts are not involved. Since the Texas courts have determined that she is not one of Howard's heirs, her claim boils down to that she should have been but for Marshall's meddling. This does seem to be an end run on the Texas ruling.
6.13.2007 11:45am
DiverDan (mail):
Well, since the Federal Courts have jurisdiction, but must decide a state law issue, I assume they are subject to the Erie doctrine, just as they are in Diversity cases. Thus, the District Court in California (assuming remand from the 9th Circuit) is required to make an Erie Guess as to how Texas courts would rule. If the 9th Circuit has the state law question before it (I don't know precisely what issues it has) it could certify the Question to the Texas Supreme Court. That is unlikely, since there is really no split of authority in Texas on that issue, and plenty of consistent authority that no such claim is legally cognizable.
6.13.2007 12:08pm
Eli Rabett (www):
Cripes, what do we get next a post on Paris Hilton's habeas rights?
6.13.2007 12:11pm
DiverDan (mail):
Certainly, but Paris has no basis for a Habeas Writ until she first exhaust her state appellate rights. Come on, Eli, can't you see that this Board is frequented by those to whom the PROCESS is important? I don't give a rat's *ss about Anna Nicole's private life, but give me a good juicy lawsuit with fascinating issues of federal jurisdiction, forum shopping, and federal-state comity, and I'm intrigued.
6.13.2007 12:45pm
Robert King (mail):
Cooper seems on point to me. I think the reason he believes the Texas proceeding to be the "trial of record" is that the tortious interference claim and substantive issues were determined in J. Howard Marshall's probate and was the first forum to do so. Preclusion and comity come in to play after that.

The preclusion issue (and the other appellate issues for that matter) had no bearing on the SCOTUS decision. Why would they? They were not part of the question presented. The SCOTUS held that the filing of an in personam claim in the Federal District court, which had concurrent jurisdiction with the Texas probate court, did not constitute interference per se, hence no probate exception.

What you may be missing is that the $88MM Federal judgment was based on the same issues determined in the Texas probate proceeding. There are many appellate issues that remain on remand and all seem to present varying level of impediment. The original 9th Cir opinion in the case seems instructive as to what the panel may be thinking on the remaining issues. According to the first 9th Cir opinion, tortious interference is a compulsory counterclaim in Texas probate, so it seems the Texas judgment is a serious impediment.

It is impossible to predict what the 9th Circuit will decide but I would not put the probability of Anna's success as high as 75%. The lower courts are conflicted on the evidence. The Texas court and jury did not find the evidence persuasive. The Texas law issues seems pretty problematic for Anna's estate as well. I think the probability is somewhere between 0%-40%.

I agree with all of your points.
6.13.2007 1:27pm
Claim preclusion could come into play, but did Marshall Jr. raise it as an affirmative defense in the Bankruptcy Court.

If not, then it's too late now.
6.13.2007 1:39pm
Robert King (mail):
I think so. The SCOTUS decision mentions that preclusion is one of the issues that need to be determined on remand to the 9th.

From what I remember, it was raised in the District Court. Since the Texas judgment came out between the Bankruptcy and District Court opinions, then it could not be raised in the Bankrutpcy Court and would not be proper to do so. The District Court determined, as Dan points out, that the matter was non-core and vacated the B'cy judgment.
6.13.2007 2:02pm
From a practical perspective, with $88m on the line, with Pierce Marshall and Anna both deceased and Anna's estate represented by a child, why would they not settle?

Wouldn't Anna's estate be happy with some $40-50m number and would Pierce Marshall's estate be happy to wash their hands of this?
6.13.2007 2:52pm
Robert King (mail):
Interesting question but it seems not to be in the cards. I did read that a mediation occured back in December sometime. Obviously, a meeting of the minds did not take place, for whatever reason.
6.13.2007 3:26pm
Tracy W (mail):
I also don't follow this. How can Dannielynn wind up with legal debt? She hasn't hired any lawyers. How can a baby be responsible for her mother's actions?

And how can someone pass on debts by inheritance? If I really dislike someone and know I am dying of a terminal illness, can I make that person my residual heir, then run up massive legal bills in the knowledge that when I die the debts will pass on to my heir and force them into bankruptcy?

This doesn't sound right.
6.13.2007 6:28pm
Hubbel R (mail):
I found this link -- and this definitely looks like forum shopping. It's amazing that this case has gotten as far as it has."
6.13.2007 6:40pm
DavidS (mail):
I am a bankruptcy lawyer who has followed the case. One of the issues on appeal to the Ninth Circuit is whether Anna Nicole Smith's claim for tortious interference was "core" or "non-core" to the bankruptcy case.

The distinction is critical, because the bankruptcy court issued its decision in favor of Anna Nicole before the Texas probate court issued its decision against Anna Nicole, and the probate court issued its decision before the district court issued its decision in favor of Anna Nicole. If the bankruptcy court had "core" jurisdiction, its decision was a final judgment and the judgment and findings of fact would have a preclusive effect because it was the first final judgment. On the other hand, if the bankruptcy court only had "non-core" jurisdiction, its decision was not final until confirmed by the district court, and therefore the probate court's decision would be the first final judgment and it would have preclusive effect.

The applicable statute says any counterclaim to a proof of claim is a core proceeding, but the district court held that the statute could not be read literally and that the counterclaim was non-core. Notwithstanding the finding of non-core, the district court then held for various reasons that the Texas probate decision should not be given preclusive effect with respect to the specific claims being litigated in the district court.

On appeal, Anna Nicole is arguing the district court erred in holding that the counterclaim was non-core, and Pierce Marshall is arguing that the district court erred in holding that the probate decision should not be accorded preclusive effect.
6.13.2007 9:09pm
Ella (www):
Danielynn won't incur debts. The estate will. If the estate isn't large enough to cover all the attorneys' fees and costs, the attorneys' will have to write off anything in excess of the available funds in the estate. An adult (Larry Birkhead?) could agree to pay any deficiency as a means of keeping the attorneys on the case, but that adult's agreement couldn't bind Danielynn after she turns 18, unless she ratifies the agreement.

And if this case drags out that long, it will be time to write a 21st century Bleak House.
6.13.2007 9:17pm
DiverDan (mail):
The whole issue of "core" vs. "non-core", and whether that means the Bankruptcy Court can issue a final ruling, binding as a matter of res judicata and subject to review only on traditional appellate standards (i.e., factual issue are reviewed only on a "clearly erroneous" basis) has been one of my pet issues for years. It is my position that a Bankruptcy Judge, as a non-Article III tribunal, can only exercise final jurisdiction, even in "core" matters, with the consent of the parties; anything else violates Article III and the long line of cases, from Crowell v. Benson and U.S. v. Radditz forward, which state that a non-Article III tribunal can only exercise jurisdiction in such a way that the Article III judge retains "all of the essential attributes of judicial power." Now I have been told by several prominent Bankruptcy Practitioners (including one of the senior partners at Weil, Gotshal) that this argument has been resolved by the Marathon case, and that matters within a Bankruptcy Court's "core" jurisdiction do not implicate the judicial power -- sorry, but I just cannot buy that a Bankruptcy Court entering a final judgment or order, enforceable by execution, with violations punishable by contempt, and binding upon the parties as a matter of res judicata, does not involve the exercise of judicial power. Marathon said no such thing, and Rehnquist expressly opined that if a Bankruptcy Court's finding was only reviewable under traditional standards of review by the District Court, the Bankruptcy Judge was by no means acting as just an "adjunct" to the Article III Court. And frankly, regardless of how Congress has defined "core" matters under 28 U.S.C. 157(b), the claim asserted by Anna Nicole Smith, as a straightforward state law tort claim which she could have brought in the absence of any bankruptcy, falls directly within the rule set down in Marathon, and Congress had no authority to delegate jurisdiction over that claim to a non-Article III tribunal over the objection of one of the litigants.
6.13.2007 9:46pm
DiverDan (mail):
One point of clarification - the fact that Anna Nicole's claims against Pierce Marshall were brought as a counterclaim in connection with the objection to the claim that Pierce Marshall filed in Anna Nicole's Bankruptcy does make a difference, but only a small one - that made the counterclaim a "core" matter, but ONLY to the extent necessary to extinguish Pierce Marshall's claim - once that claim against the bankruptcy estate was fully disallowed (or withdrawn), the Bankruptcy Court had no "core" jurisdiction to award affirmative recovery from Marshall.
6.13.2007 9:54pm
Robert King (mail):
Some really great discussion here.

Even more questions would arise if the matter was found to be core. The B'cy decision seems to have as many grounds for appeal as the District Court opinion.

One issue not discussed yet is the specific treatment of personal injury torts in the core/non-core analysis. My understanding has always been that personal injury tort claims are not core. In Texas (but not all states), defamation is a personal injury tort. Texas law was applied, so it would seem that even Pierce Marshall's defamation claim would also be considered non-core on that basis.

Also interesting is whether Anna's claim is considered "arising in/under" the B'cy proceeding or is merely "related to". This distinction becomes very important in the core/non-core analysis. David and Dan both have interesting points on this. My view is more along Dan's line of reasoning. It would be interesting to read an analysis of Sec. 157 in its entirety. It would also be interesting to see how the case might be in viewed in light of not only Marathon but Granfinanciera as well.
6.14.2007 12:21pm