Bankruptcy Experts Discuss Supreme Court's Ruling in Stern v. Marshall

Friday, June 24, 2011

The Supreme Court ruled on Thursday, June 23, 5-4 against the estate of Anna Nicole Smith, saying that a bankruptcy judge's decision giving millions to Smith from the estate of oil tycoon J. Howard Marshall was decided incorrectly because those judges do not have the constitutional right to enter a final judgment on a state law counterclaim to a proof of claim.

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Prof. Richard Lieb is a professor of law at St. John's Law School and was a founding member of law firm Kronish Lieb Weiner & Hellman LLP, which merged with Cooley Godward LLP in 2006. Prof. Lieb filed a brief for the petitioner.

Prof. Todd J. Zywicki is George Mason University Foundation Professor of Law at George Mason University School of Law and Senior Scholar of the Mercatus Center at George Mason University. Prof. Zywicki signed on to a brief for the respondent.

Hon. Kevin J. Carey is Chief U.S. Bankruptcy Judge for the District of Delaware in Wilmington and serves as the bankruptcy judge representative on the Third Circuit Judicial Council. He previously served as a U.S. Bankruptcy Judge for the Eastern District of Pennsylvania.


Former ABI Resident Scholar Prof. Jean Braucher of the University of Arizona School of Law is the moderator for the teleconference.

Striking down a part of a 1984 law designed to satisfy an earlier Supreme Court decision limiting bankruptcy judges’ powers, the Supreme Court today ruled in the case of Stern v. Marshall by a 5-4 vote that bankruptcy judges who do not have life tenure and other guarantees of independence under Article III cannot decide in a final way a debtors' claim that is based on state law. The late Anna Nicole Smith (whose real name is Vickie Lynn Marshall) had pursued millions of dollars from the estate of her late tycoon husband, J. Howard Marshall II, and had won $47 million in an adversary proceeding against Howard’s son Pierce in a California bankruptcy court in 2000. Subsequently a Probate court in Texas returned a verdict for Pierce, finding that Howard had not agreed to make a gift to Vickie. After a first trip to the Supreme Court on jurisdictional grounds in 2006 and a remand to the Ninth Circuit, the case now returned to consider whether Congress’ grant of authority to bankruptcy courts to decide certain counterclaims not necessary to determine a proof of claim, is constitutional.
The Supreme Court’s decision found that Congress had violated Article III—the part of the Constitution that controls judicial powers—in giving bankruptcy courts final authority in Sect. 157(b)(2)(C) to decide this kind of claim. That claim, the Court’s decision made clear, is one that is based solely on state law, whose resolution is not central to the creditor’s proof of claim. Because of the requirements of Article III, it is beyond the reach of a bankruptcy judge.
A panel of experts, including individuals who filed amicus briefs in the case, will discuss the effect of the Supreme Court’s ruling and take questions from the media.