Texas’ ultimate estate dispute was back this week at the U.S. Supreme Court. The almost 16-year-old case, now called Stern v. Marshall, is the continued effort of Howard K. Stern, the Anna Nicole Smith estate executor, to extract assets from the estate of J. Howard Marshall II, the Texas billionaire to whom Smith was married for 14 months. While legal and casual observers often view Smith’s effort to use an unsubstantiated oral claim of entitlement as a money grab that violates Marshall’s carefully prepared and properly executed estate plan, years of litigation have made this case about much more. In addition to being “about money,” this case will likely produce landmark decisions involving not only inheritance rights, but also determine potential handling for other civil and states’ rights matters. Americans who believe this “celebrity” case has nothing to do with them are wrong. The use of legal gamesmanship to assault a legitimate estate plan as orchestrated by Smith and her legal team violates American property rights and could impact Americans of all economic, social and political straits on a number of fronts.
Robert Alt, a Senior Legal Fellow and Deputy Director at the Heritage Foundation’s Center for Legal and Judicial Studies, recently shared perspective on the case explaining “you don’t have to have the size estate that J. Howard Marshall had in order to be concerned about people abusing the process – gaming the system – in order to try and reach results that the settlor of the particular estate wouldn’t have wanted.” While the public often focuses on case facts such as Smith’s star-quality and the salacious details of the then-young Playboy Playmate’s appearance of trying to game the system in order to get access her dead husband’s millions above and beyond what was spelled out in his estate plan, Alt says the Supreme Court will be looking at the technical question of what bankruptcy courts, both statutorily and Constitutionally, are permitted to do in these types of cases and that “huge implications” exist for this and other cases.
A 2000-2001 Texas probate court trial spanned seven months with a jury finding neither Smith nor her claim to Marshall’s estate credible. Prior to that trial’s conclusion, Smith’s legal team initiated a California bankruptcy proceeding inserting the pending probate court action as an element of the new case and a source of potential assets. Per Alt, the dual proceedings became a “race to judgment,” at least by the bankruptcy court, to be the court having first issued a final and considered controlling judgment. And of course, the bankruptcy court found in Smith’s favor.
Ultimately, whichever court – the probate or bankruptcy – is deemed as using proper authority in first issuing a ruling over the Marshall estate will be the controlling entity with its decision theoretically prevailing. Alt explained though that if the Supreme Court were to find the bankruptcy court as having authority to enter such a ruling, the case goes back to a court of appeals for a determination on other ancillary issues that would potentially impact if the probate court decision is enforced. Such a development would also open the door for forum shopping (a practice seeking legal cases to be heard in the court thought most likely to provide a favorable judgment) in other type cases. Though bankruptcy courts do not have the same Constitutionally-mandated authority as other federal and state courts, including probate, Alt says a favorable Supreme Court ruling could position bankruptcy courts to more easily reach out and address issues that may be properly being decided by probate courts in other states.
The material elements of Smith’s bankruptcy counterclaim were argued in the probate court. She raised the second (bankruptcy) claim upon foreseeing a lack of success in Texas. In looking for “another bite of the apple” and finding a bankruptcy judge reportedly viewed by some as star-struck, a new litigation front was established. “We don’t have federal courts and bankruptcy courts so that people can try to game the system and go to a more favorable jurisdiction,” Alt said. “If the Supreme Court were to find Smith-type counterclaims were appropriate to bankruptcy courts, other forum shopping efforts won’t be issued just to probate. It would only be limited by the imagination of the particular litigants.”
If the Smith estate were to prevail, it is unclear as to the financial stake that might awarded. And whose interests is the Smith estate’s continued pursuit of this case ultimately, truly serving? With 16 years of litigation, whatever money the estate could wrongfully get is being bled away by the lawyers. Trips to the Supreme Court don’t come cheaply! While it’s not known that this litigation could trickle down as a financial liability to Smith’s daughter Dannielynn, Alt says it certainly is not clear that this playing of the “litigation lottery” will work down to Dannielynn’s benefit in any substantial way.
What kind of legal gamesmanship are we going to permit when it comes to estate planning? What kind of forum shopping is going to be allowed? Permissiveness in these areas stands to undermine an individual’s ability to determine their final asset distribution and heirs or other designated beneficiaries’ rights of inheritance.
The ultimate importance of this case, Alt says, centers on the most important feature of estate planning: certainty. You’re making plans, committing wishes to writing to see that your wishes are carried out upon death. J. Howard Marshall II taught estate law at Yale Law School. Not only was he sophisticated about the issue, but he retained some of Texas’ finest lawyers to assemble his estate plan. If Marshall can’t have counted on his estate plan being honored, it doesn’t bode well for the rest of us.
A ruling could be rendered as early as April, but certainly prior to June when the Supreme Court session ends. Meanwhile, Stern v. Marshall stands as an example that estate planning only adds predictability if competent courts (and judges) uphold the rule of law and our court system takes a stand against the use of legal gamesmanship designed to subvert intended bequests. Without these measures, “proper estate planning” is meaningless and the property of all Americans is at risk.