The Legacy of Anna Nicole Smith’s Bankruptcy

Each year, the United States Supreme Court generally considers one or more cases involving bankruptcy.  This year in the Bellingham case, the Supreme Court interpreted its second decision involving the bankruptcy case of Anna Nicole Smith a/k/a Vickie Lynn Marshall.  In Bellingham, decided on June 9, 2014, the Supreme Court coined the term “Stern claim,” named after the executor of Anna Nicole’s estate, Howard K. Stern (not the shock jock).  A Stern claim is a claim that is specifically listed as a “core” proceeding in the bankruptcy jurisdictional statute, but the bankruptcy court lacks constitutional authority to finally adjudicate the claim.  The Stern claim in Anna Nicole’s bankruptcy was her counterclaim against her deceased husband’s son, E. Pierce Marshall, for tortious interference with her expected inheritance from her husband (Pierce’s father), J. Howard Marshall, a man believed to have been one of the richest men in Texas.

The Stern claim in Bellingham was a state law fraudulent conveyance claim against a non-creditor.  In Bellingham, the Supreme Court held that when the Constitution does not permit a bankruptcy court to enter a final judgment on a bankruptcy-related claim (now known as a Stern claim), the bankruptcy jurisdictional statute permits the bankruptcy court to issue proposed findings of fact and conclusion of law to be reviewed de novo by the federal district court.  De novo is a Latin expression meaning “from the beginning” where the reviewing court conducts a fresh review of the entire case.  In Bellingham, the bankruptcy court entered a final summary judgment on the claim and the district court affirmed under a de novo review standard, and the Supreme Court affirmed even though the bankruptcy court had not issued proposed findings of fact and conclusions of law because the district court had in fact conducted a de novo review of the bankruptcy court’s decision.  Admittedly, this is pretty esoteric stuff.

What’s more remarkable about the Supreme Court’s decision in Bellingham is what the Court did not decide.  First, the Court assumed without deciding whether the fraudulent conveyance claim in Bellingham was a Stern claim.  Second, the Court did not address whether the non-creditor defendant had consented to the bankruptcy court’s adjudication of a Stern claim and whether the Constitution permits a bankruptcy court, with the consent of the parties, to enter a final judgment on a Stern claim.  The latter question was specifically reserved “for another day.”

So, the legacy of Anna Nicole will live on in bankruptcy courts across the country in the context of this esoteric jurisdictional issue.  For years to come, bankruptcy courts will enter proposed findings of fact and conclusions of law in proceedings now known as Stern claims.