This week, the New York Opera and the Brooklyn Academy of Music are featuring the U.S. premier of Anna Nicole, an Opera based on the “tumultuous life of Anna Nicole Smith – stripper, playmate, and formidable tabloid queen.”[1] However, Anna Nicole Smith was also a formidably litigious client. In fact, she made it to the Supreme Court twice; her repeat performance took place in the 2010 hallmark case, Stern v. Marshall.[2]  The decision in Stern centered on what types of bankruptcy related claims an Article I federal Bankruptcy Court could adjudicate, as opposed to an Article III court. This year, Stern v. Marshall returns this year’s Supreme Court term for review in the case Exec. Benefits Ins. Agency (EBIA) v. Arkinson.[3]

Stern evolved from a bankruptcy proceeding brought in the U.S. Bankruptcy Court for the Central District of California by Anna Nicole Smith, legally known as Vickie Lynn Marshall, to recovery assets from her husband’s estate.[4]  Anna Nicole married multi-millionaire, J. Howard Marshall II about a year before his death, but was not included in his will.[5] Shortly after his death, Anna Nicole filed for bankruptcy in a federal Bankruptcy Court to extract money from her debtors. In an attempt to block Anna Nicole from obtaining assets from his father’s will, Pierce Marshall, filed a complaint in that bankruptcy proceeding alleging defamation against Anna Nicole.[6] Anna Nicole then filed a compulsory counterclaim against Pierce for tortious interference with a gift she expected to receive in J. Howard’s will.[7] After a bench trial, the Bankruptcy Court issued an order of summary judgment on Pierce’s defamation claim, and in 2000 issued judgment in favor of Anna Nicole on her counterclaim of tortious interference.[8] She was awarded $400 million in compensatory and $25 in punitive damages.[9]

However, Pierce wasn’t done fighting. He instead argued post-trial that the Bankruptcy Court lacked jurisdiction to hear the tortious interference counterclaim.[10] He claimed that Bankruptcy Court could not offer final judgment on the tortious interference claim because it was a “core proceeding” defined by § 157 but did not arise under Title 11 of the Bankruptcy Code because it was a state common law claim too far removed from the bankruptcy proceedings.[11] Therefore, only an Article III District Court could adjudicate the counterclaim based on a “proposed finding” from the Bankruptcy Court.[12] Pierce took this genius litigation move and turned a bankruptcy case into a separation of powers question by challenging Congress’ authority to vest jurisdiction over a controversy in a non-Article III Court.

28 U.S.C. § 1334(a) provides federal district courts with exclusive jurisdiction over Title 11 bankruptcy proceedings. However, when Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984 (“1984 Act”),[13] it allowed federal bankruptcy judges to hear three categories of bankruptcy proceedings: “core” proceedings that arise under Title 11; “core” proceedings that arise in a Title 11 case; and “non-core” proceedings that are merely “related to a case under title 11.”[14] § 157(b)(2) lists actions that Congress deemed “core,” including “counterclaims by the estate against persons filing claims against the estate.”[15] “Core” proceedings allow Bankruptcy Judges to make final adjudications under their Article I powers. However, Bankruptcy Judges cannot make final adjudications in “non-core” proceedings, but can only provide an Article III court with “proposed findings [of fact] and conclusions [of law]” to be reviewed de novo.[16] Pierce’s argument posited to the Supreme Court was that the tortious interference counterclaim is statutorily defined as “core” based on § 157(b)(2), but does not “arise under” a Title 11 Bankruptcy proceeding. [17] Therefore, the Bankruptcy Court’s final judgment would have been void for lack of jurisdiction.

When Stern resurfaced at the Supreme Court on the jurisdictional issue, the Justices saw a bankruptcy case spiraling out of control and constitutionally questionable. First, the Court found § 157 to be lacking in guidance from Congress because it failed to distinguish between “core” proceedings arising under Title 11 and “core” proceedings that don’t arise under Title 11. Yet instead of reaching the constitutional question directly on the bankruptcy law issue, the Court determined that Pierce had consented to the jurisdiction of the Bankruptcy Court when he filed the defamation suit in that court. Therefore, the Court upheld the Bankruptcy Court judgment in favor of Anna Nicole.[18]

Instead of stopping there, the Court decided to continue to find § 157(b)(2)(C) unconstitutional.[19] Simply put, the Article I Bankruptcy Court “in this case exercised the ‘judicial Power of the United States’ in purporting to resolve and enter final judgment on a state common law claim.”[20] Yet, Article III of the Constitution vests the judicial power in the federal court system, and the separation of powers prohibits Congressional intrusion into the Judicial Branch. [21] Therefore, the Supreme Court in Stern created a chasm between the statutory 1984 Act that provides Bankruptcy Court jurisdiction for “core proceedings” and the Court’s declaration that Bankruptcy Court jurisdiction is unconstitutional over state common law claims not arising under Title 11.

Now, the spirit of Stern returns to the Supreme Court with different parties in EBIA v. Arkinson.[22] The Ninth Circuit decided to take the Court to task by ruling it unconstitutional to allow a non-Article III bankruptcy judge to “enter final judgment in a fraudulent conveyance action against a nonclaimant to the bankruptcy estate.”[23] Relying on Stern, the Ninth Circuit held that a state common law claim of fraudulent conveyance does not fall within the equitable jurisdiction of the bankruptcy court merely because it may have some relationship to a bankruptcy case.[24] The court similarly declared that like Pierce, the appellant in this case waived their right to an Article III court.[25]  However, in EBIA, the Ninth Circuit found that the appellant implicitly consented to Bankruptcy Court by failing to timely object.[26] Thus, the question presented on certiorari to the Supreme Court is whether under Stern a litigant can implicitly consent to Bankruptcy Court when the 1984 Act provides no notice that Bankruptcy Court jurisdiction is not constitutionally required.[27]

The jurisdictional battle over bankruptcy proceedings make up a bulk of the major Supreme Court jurisprudence on the ability for Congress to delegate judicial power to non-Article III tribunals.[28] While the Court had been taking a progressively functionalist approach over the latter half of the twentieth century, Stern represents a shift to a formalist reading of Article III. This raises the question of whether the current Court will take a similarly textual reading of the 1984 Act in EBIA and possibly strike down part of the 1984 Act as unconstitutional.

Chief Justice Roberts likened Stern v. Marshall to the fictional case of Jarvis v. Jarvis from Charles Dickenson’s novel, Bleak House.[29]  A suit that is so complicated that no one knows the original issues, has passed through family generations, been adjudicated by numerous judges, with the original parties no longer alive.[30] Alternatively, it could be said that the courts, like the tabloids, simply cannot get enough of Anna Nicole Smith.

The AUBLR is looking forward to hearing the arguments in EIBA in the upcoming Supreme Court term.

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Business and Marketing Editor, Diane Ghrist