Premiere Issue of Fiduciary Litigation Update

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Anna Nicole Smith is on her way to the U.S. Supreme Court. The former stripper, playmate of the year, reality TV star, and alleged gold digger, now has the role of impoverished widow and unlikely Supreme Court litigant. Anna has promised to attend what will surely be one of the court's most-watched cases of the year. And the media circus generated by the bleached blonde's presence surely will prove the truth of Chief Justice Roberts' remark at his recent Supreme Court confirmation hearings: "Nobody ever went to a ball game to see the umpire." No matter how controversial Roberts and the possible replacement for Justice Sandra Day O'Connor might be, all eyes will be on the litigants when the U.S. Supreme Court hears the tabloid-headline case of Marshall v. Marshall on Feb. 28.

Legally speaking though, the point of this case is to determine the scope of the "probate exception" to federal jurisdiction. What sorts of probate-related cases may federal courts hear? Litigants often prefer to bring suit or defend in federal court because case assignment procedures result in the same judge having the case from start to finish rather than having a new judge for the trial. Some attorneys believe the quality of jurors is better in the federal venue and many attorneys subscribe to the theory that the least desirable venue is the defendant's hometown. Thus, having a choice of a state or federal forum is important.

The facts of the case tell a story as old as the hills: It's 1994, and J. Howard Marshall, an 89-year-old Texas oil billionaire with a penchant for strippers, meets and marries 26-year-old self-described bombshell and 1993 Playboy Playmate of the Year, Vickey Lynn in Houston. It's her second marriage and his third. She continues her career in movies and television and becomes known internationally as Anna Nicole Smith.

Howard's son from a prior marriage, E. Pierce Marshall, worries that Anna Nicole has designs on his dad's estate -- worth about $1.6 billion. A few weeks after the marriage, Howard makes his 1982 trust holding his fortune irrevocable, thereby leaving nothing to his new wife -- except the approximately $6 million in gifts she's already received from him.

In April of 1995, shortly before Howard's death, Anna Nicole sues Pierce in Texas Probate Court, claiming fraud and undue influence in the 1994 trust amendment that froze her out. Howard dies. When Pierce's lawyer refuses to provide her with copies of the will and trust, Anna Nicole seeks a declaration that her husband died intestate and amends her claim against Pierce (and now his attorneys) claiming tortious interference with an expectation of gifts stemming from an oral promise. It turns out that Howard had created a separate trust for Anna, but Pierce had suppressed or destroyed the trust instrument. According to court papers, Anna Nicole claims that the trust document contained a formula that would determine how much the estate should give to her: half of the appreciation on Howard's assets from the day of their marriage to the day he died.

In January of 1996, while this mess is pending in Texas, Anna files for Chapter 11 bankruptcy in California. The Texas and California actions proceed simultaneously. Pierce intervenes in California asking the court to bar discharge of any counterclaims he has pending in Texas against Anna Nicole for defamation and attorneys' fees. She counterclaims for tortious interference with the alleged gift and trust, along with eight other alleged transgressions -- ranging from false imprisonment of the senior Marshall to interference with her right as surviving spouse.

Okay, those are the basic facts. Now let's cut to the legal chase:
In Texas, Anna Nicole withdraws her complaint, but must stay on as defamation defendant. The five-month jury trial is a media frenzy. Anna is a bad witness and the jury awards the son $540,000 in attorneys' fees.

In California, Pierce moves to dismiss the tortious interference and other claims against him based on the probate exception to federal jurisdiction. The federal bankruptcy court denies his motion and eventually sanctions him for massive discovery abuse related to the separate trust created for Anna. As a sanction, the court finds all facts in favor of Anna Nicole and in December of 2000 awards $475 million to her to be paid by Pierce. That sum was based on the formula allegedly contained in the trust document.

The bankruptcy court also held that the Texas award of attorneys' fees was void as contrary to the discharge in bankruptcy. In March of 2002, the U.S. District Court upheld a lower court's finding of "overwhelming" evidence of Pierce's "willfulness, maliciousness, and fraud." Still, the district court reduced Anna's award to just under $89 million.
The U.S. Court of Appeals for the Ninth Circuit hears Pierce's appeal and agrees with him that the federal courts lack subject matter jurisdiction due to the probate exception, and therefore don't have the authority to decide the case. All awards were thus vacated, leaving Anna Nicole with zip.

The U.S. Supreme Court unanimously agrees to hear the matter.
The last time our highest court reviewed a case involving the probate exception to federal jurisdiction was 60 years ago in Markham v. Allen. The issue, as according to the Ninth Circuit, is the "evil to be avoided is federal interference with state probate proceedings."

Various rationales have been advanced by federal courts over the years for keeping their noses out of probate cases, including:

  • probate proceedings are in rem (dealing with property rights only), therefore, federal courts should not interfere with state court control of the property;
  • the authority to make a will is derived from the states, so the states should pass on a will's validity; and
  • state probate courts are better equipped to deal with such issues.

But federal courts have applied this doctrine unevenly, making results unpredictable and often irreconcilable with one another.

At issue before the high court this time will be these questions:

  1. What is the scope of the probate exception to federal jurisdiction? Did Congress intend the probate exception to apply when a federal court is not asked to probate a will, administer an estate, or otherwise assume control of property in the custody of a state probate court?
  2. Did Congress intend the probate exception to apply to cases arising under the Constitution, laws, or treaties of the United States (28 U.S. Code Section 1331), including the Bankruptcy Code (28 U.S.C. Section 1334), or is it limited to cases in which jurisdiction is based on diversity of citizenship?
  3. Did Congress intend the probate exception to apply to cases arising out of trusts, or is it limited to cases involving wills?

Anna Nicole's side already has fully briefed the case. She's even managed to win the support of another Texas oilman: President George W. Bush. His top lawyer, U.S. Solicitor General Paul Clement, filed an amicus brief supporting her position. The brief argues that the federal courts should protect their jurisdiction.

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