Term: 2010
Docket: 10-179
Howard K. Stern, Executor Of The Estate Of Vicki Lynn Marshall, Petitioner, v. Elaine T. Marshall, Executrix Of The Estate Of E. Pierce Marshall
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10-179 STERN V. MARSHALL DECISION BELOW: 600 F.3d 1037 QUESTION PRESENTED: In the 1984 Bankruptcy Act, Congress divided bankruptcy court jurisdiction into "core" proceedings, in which bankruptcy judges can enter final orders, and "non-core" proceedings that are subject to district court de novo review. See 28 U.S.C. §157(b). Congress expressly identified certain core proceedings, including "counterclaims by the estate against persons filing claims against the estate." §157 (b)(2)(C). Despite Article III challenges, lower courts across the country have uniformly held for decades that bankruptcy courts can enter final orders on debtors' compulsory counterclaims to proofs of claim.¹ Until now. The Ninth Circuit opinion here holds that under Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (Marathon) and Katchen v. Landy, 382 U.S. 323 (1966), core jurisdiction constitutionally exists under §157(b)(2)(C) only for compulsory counterclaims entirely encompassed within the allowance or disallowance of the creditor's claim against the estate and that raise no issue beyond that claim. Even though here the debtor's compulsory counterclaim constituted an affirmative defense to the proof of claim and, if decided first, would have defeated it entirely, the Court held the counterclaim was non-core because the debtor had to prove additional elements to prevail on it. Accordingly, the questions presented are: 1. Whether the Ninth Circuit opinion, which renders §157(b)(2)(C) surplusage in light of §157(b)(2)(B), contravenes Congress' intent in enacting §157(b)(2)(C). 2. Whether Congress may, under Articles I and III, constitutionally authorize core jurisdiction over debtors' compulsory counterclaims to proofs of claim. 3. Whether the Ninth Circuit misapplied Marathon and Katchen and contravened this Court's post-Marathon precedent, creating a circuit split in the process, by holding that Congress cannot constitutionally authorize non-Article III bankruptcy judges to enter final judgment on all compulsory counterclaims to proofs of claim. 4. Where, as here, a creditor dismisses a state court claim against a debtor, files a proof of that claim in the bankruptcy and litigates the claim against the estate in LOWER COURT CASE NUMBER: 02-56002, 02-56067 LIMITED TO QUESTIONS 1,2, AND 3 CERT. GRANTED 9/28/2010 that forum, has the creditor consented to core jurisdiction over the debtor's compulsory counterclaim that encompasses an affirmative defense? ¹ A debtor's compulsory counterclaim to a proof of claim is any counterclaim that, at the time of pleading, arises out of the same transaction or occurrence as the creditor's claim against the estate and is not already pending in another action. Fed. R. Bankr. P. 7013; Fed. R. Civ. P. 13(a). ^
The case of Howard K. Stern, Executor of the Estate of Vicki Lynn Marshall (also known as Anna Nicole Smith), Petitioner v. Elaine T. Marshall, Executrix of the Estate of E. Pierce Marshall revolved around a dispute over inheritance from billionaire J. Howard Marshall's estate after his death in 1995. His son, E.Pierce Marshal and widow Vicki Lynn were at odds about who was entitled to inherit his wealth; with Vicki claiming that her husband intended to leave her more than half a billion dollars while Pierce argued she was only entitled to what was stated in the will - nothing. In 2010, this complex legal battle reached the Supreme Court for a second time where it examined whether or not federal courts had jurisdiction over state probate matters under certain circumstances; specifically when there are parallel proceedings taking place in both federal and state court systems regarding same issue. Ultimately, The Supreme Court ruled against Stern (representing Anna Nicole Smith's estate) stating that bankruptcy courts lack constitutional authority to make final decisions on issues outside traditional bankruptcy law which must be decided by an Article III judge i.e., district court judges appointed for life tenure.
In the dissenting opinion for Howard K. Stern, Executor of The Estate of Vicki Lynn Marshall v. Elaine T. Marshall, Executrix of The Estate of E. Pierce Marshall (2010), Chief Justice Roberts disagreed with the majority's interpretation that bankruptcy courts lack constitutional authority to issue final judgments on state law counterclaims related to a creditor’s proof claim against a debtor’s estate in federal bankruptcy proceedings. He argued that historical practice and precedent supported giving such power to non-Article III judges like those in bankruptcy courts when they are acting as adjuncts to Article III courts, which he believed was the case here given their role within federal judicial system structure and function under Bankruptcy Act provisions allowing them broad jurisdiction over all matters arising from or related to cases before them including compulsory counterclaims by estates against creditors’ claims.
