Stern v. Marshall

Background

This dispute involved Vickie Lynn Marshall (the celebrity known as Anna Nicole Smith) and Pierce Marshall over part of J. Howard Marshall II’s fortune. Vickie sued in Texas probate court claiming she was entitled to half the property; she later filed for bankruptcy in California. Pierce filed a defamation claim in the bankruptcy case, and Vickie responded with a state-law counterclaim for tortious interference with an expected gift. The Bankruptcy Court tried the matters and entered large judgments for Vickie, but lower courts disagreed about whether the Bankruptcy Court could enter a final judgment on her state-law counterclaim.

Reasoning

The Court addressed two questions: whether the bankruptcy statute, 28 U.S.C. §157(b), allows bankruptcy judges to enter final judgments on such counterclaims, and whether Article III of the Constitution permits it. The majority said the statute does permit final judgment on a “core” counterclaim. But the Constitution requires that the federal judicial power be exercised by judges with life tenure and protected pay. Because this counterclaim was a state-law suit not resolved merely by ruling on the creditor’s proof of claim, the Court concluded that non-Article-III bankruptcy judges lacked constitutional authority to enter the final judgment.

Real world impact

The decision means some state-law counterclaims raised in bankruptcy cannot be finally decided by bankruptcy judges and must be decided by Article III district judges. The Court described the question as narrow, but it explicitly invalidated the bankruptcy court’s final judgment here and affirmed the court of appeals’ ruling. The opinion notes possible practical effects, while the dissent warns of increased delay and cost.

Dissents or concurrances

Justice Scalia joined the opinion but emphasized historical practice as decisive. Justice Breyer (joined by three Justices) dissented, arguing the statute should be upheld under a pragmatic test (consent, supervision, and bankruptcy needs).