Maine Bankruptcy and Debt Relief Blog

Supreme Court Restricts Bankruptcy Court Authority

Posted on 07/24/2011 at 08:30 pm by Molleur Law Offices
Viewed 706 times

On June 23, 2011, the Supreme Court decided Stern v. Marshall.  Vicki Marshall, otherwise known as Anna Nicole Smith, married a billionaire; after her husband died, his son Pierce Marshall sued Vicki in probate court asserting that she had tortious interfered with his inheritance.  Vicki filed bankruptcy, and Pierce filed a complaint against her in the Bankruptcy Court claiming defamation and asserting that his claim was non-dischargeable.  Vicki asserted a counterclaim against Pierce in the Bankruptcy Court and was awarded $425,000,000.  Prior to the Bankruptcy Court ruling on the counterclaim, the probate court ruled in favor of Pierce.  Pierce appealed the adverse Bankruptcy Court decision, and claimed that the probate court judgmetn in his favor should prevail because the Bankruptcy court did not have the right to rule on the Vicki counterclaim.

The Supreme Court agreed with Pierce, and concluded that the Bankruptcy Court may have been given the statutory authority to rule on Vicki's counterclaim, but that the statute was unconstitutional.  In essence, the Supreme Court held that the nature of the counterclaim was a claim that was traditionally determined by a court of law, rather than a court of limited equity powers, such as a bankruptcy court.  Some types of affirmative claims that arise in a bankruptcy case which can result in a judgment for money damages are traditional legal claims that were only decided by courts of general jurisdiction, such as a Federal District Court.

This recent Supreme Court decision will limit the Bankruptcy Court's ability to determine counterclaims or affirmative claims for damages.  This limitation could cause defendants to those claims to require some other court (state courts or the Federal District Court) to decide those claims.  The effective result of this decision is to enable defendants to better control the place for the disputes to be heard, and perhaps result in more advantageous resolution of the disputes for those defendants.