Ms. Smith was Playboy model and television performer that died from an overdose of prescription drugs in 2007.
She had been married to Texas oil tycoon J. Howard Marshall II, who preceded her in death in 1995. Marshall married Smith 14 months before he died, when she was 26 years old and he was 89 years old.
Within weeks of his death, Smith’s heirs and Marshall’s son, E. Pierce Marshall, filed lawsuits claiming part of the late oil baron’s $1.6 billion estate. Smith’s heirs consist primarily of a common law husband and her children.
Smith was not mentioned in Marshall’s will but she claimed rights to his estate based on their marriage.
The court battle that followed for more than a decade prompted a U.S. Supreme Court decision with the ruling going against Smith’s heirs. The $89 million they claimed would instead go to the family of Marshall’s deceased son.
The court’s 5-to-4 decision also set a precedent by determining that state probate court decisions take priority over bankruptcy court rulings.
For their second plea to the Supreme Court, Smith’s heirs say the Supreme Court’s ruling should not result in Smith losing out on her husband’s estate. Instead, Texas courts should decide who gets the money.
Smith had filed for bankruptcy in 1996 after a former employee won an $850,000 judgment against her for sexual harassment.
The bankruptcy court then became involved in the ongoing dispute over the estate of Smith’s husband to ensure her debts were paid.
Smith claimed her late husband orally promised her half of his estate if she married him.
A Los Angeles bankruptcy judge decided in September 2000 that Smith was due $449.7 million from her husband’s estate.
Nine months later, a probate judge in Houston ruled that Smith was not entitled to any money from her husband’s estate. He also ordered Smith to pay more than $1 million in legal fees to Marshall’s son.
The conflict between the Texas probate court and California bankruptcy court judgments brought the case into federal court and, eventually, the Supreme Court.
In ruling against Smith’s estate, the Supreme Court said a bankruptcy court cannot make a decision that is reserved to state probate courts.
Bankruptcy courts typically rule on federal regulatory issues but are not the final authority on state statutes, the court said.
A bankruptcy court may not decide “a common law cause of action, when the action neither derives from nor depends on any agency regulatory regime,” said the Supreme Court’s majority ruling, which was written by Chief Justice John Roberts.
The ruling also sent the case back to a lower court to revise its decision based on the Supreme Court’s reasoning.
Smith’s attorneys appealed. Their petition says federal courts should stay out of the case until the state court appeal is decided.
In other words, Smith’s heirs would have one last chance to win part of Marshall’s estate if the Supreme Court agrees Texas can make the final decision.
Justice Stephen G. Breyer dissented, saying the bankruptcy court’s decision should be adequate rather than bouncing the case between different courts.
“A constitutionally required game of jurisdictional Ping-Pong between courts would lead to inefficiency, increased cost, delay and needless additional suffering among those faced with bankruptcy,” Breyer wrote.
The Supreme Court case is Stern v.Marshall, No. 10-179.
Phillip Lemmons, Esq.
The Legacy Lawyers