In the American legal system, when there are hundreds of millions of dollars at stake, and both sides ready to fight to the death, litigation can drag out for many years. In Anna Nicole Smith’s extreme case, it dragged on for 16 years, and finally got resolved in the United States Supreme Court a few weeks ago, more than four years AFTER her death. She fought to the death and way beyond.
After all that, the deciding Supreme Court opinion was 100% about bankruptcy–the power of the federal bankruptcy courts over state courts.
It came down to a fight between a Texas probate court and a California bankruptcy court. The Texas court had ruled in favor of the heirs of Anna Nicole Smith’s deceased husband, J. Howard Marshall II, shutting Anna Nicole out of any inheritance. The bankruptcy court in California had ruled in favor of Anna Nicole, at one point awarding her $474 million, later reduced to $89 million. (Apparently this was still enough to keep fighting about!) The Supreme Court decided in favor of the Texas court and against the bankruptcy court. Anna Nicole’s heirs lost and get nothing. Her long-deceased husband’s heirs get his whole estate. About $1.6 billion.
But in the long run, the real losers might well be the bankruptcy courts, and the people who file bankruptcy. At least those relatively few of them who end up in litigation in the midst of their bankruptcies.
That’s because in its 5-to-4 split decision, the Supreme Court decided that the bankruptcy court had accurately followed the statute which effectively gave it power over the state probate court, BUT that statute was unconstitutional—it gave the bankruptcy court more power than the Constitution allowed.
In doing so the Supreme Court upset a very careful balancing act that Congress had created and the courts have been following for several decades. Simply put, some cases that would have been resolved in bankruptcy court, now no longer will be. Why this matters for some of our clients is that bankruptcy court is usually the most efficient—meaning least expensive—place to resolve legal disputes with their creditors. It can take two or three times as much attorney time—so, that much more in attorney fees—if we need to jump out of bankruptcy court into state court or federal district court. If our clients have a strong argument—a “counterclaim”—why they don’t owe a debt, it may well become much harder to raise that argument, and so in practical terms, raising that counterclaim may just not be worth it. When justice is just too expensive, justice is denied.
But the Supreme Court, at least the narrow majority that decided this case, doesn’t think it needs to think in practical terms. It paid no attention to this argument by the dissenting justices:
[U]nder the majority’s holding, the federal district judge, not the bankruptcy judge, would have to hear and resolve the counterclaim. Why is that a problem? . . . . Because under these circumstances, a constitutionally required game of jurisdictional ping-pong between courts would lead to inefficiency, increased cost, delay, and needless additional suffering among those faced with bankruptcy.
Think what you will about the sad story of Anna Nicole Smith. It is maddening that her epic legal battle for a share of her deceased husband’s estate slapped down by the highest court in the land deciding to make it that much harder for the already oppressed to find justice.
