Without a lot of fanfare, the Supreme Court this week resolved an important bankruptcy court question left in the wake of the historic Anna Nicole Smith estate case from 2011, while it left a second big question unresolved.
The case of Executive Benefits Insurance Agency v. Arkison, which was decided on Monday, involved a definition of the ruling in Stern v. Marshall (2011). The Stern case blocked the late Anna Nicole Smith’s heirs from collecting on a tortious interference claim.
The issue in the Arkison case was if bankruptcy courts could decide matters outside of their constitutional authority without violating Article III of the Constitution. In Arkison, the Supreme Court considered a bankruptcy court’s power to rule against a non-creditor in a case involving the fraudulent transfer of financial assets.
Writing for a unanimous Supreme Court, Justice Clarence Thomas said bankruptcy judges can make certain decisions like those made in the Arkison case, but Article III judges have the power to review those decisions and issue the final judgement.
In the original case, Smith (whose married name was Vickie Lynn Marshall), sued in Texas probate court over the will of her 89-year-old husband, J. Howard Marshall II. In 2006, the U.S. Supreme Court decided that a federal district court should hear Smith’s case.
The case eventually wound up in a federal bankruptcy court, but another federal appeals court said in 2010 that the bankruptcy court’s decision was beyond the powers of non-Article III court, and Smith’s estate lost an $88 million judgment.
The Supreme Court affirmed that decision in 2011 in the Stern case by a 5-4 vote, saying that Congress couldn’t empower a bankruptcy court to rule on a core proceeding involving private state law rights.
The Arkison case was watched by bankruptcy and legal scholars because it closed an apparent procedural gap left in the Stern decision’s wake.
The new decision allows bankruptcy courts to handle what are now called “Stern cases,” with the understanding that an Article III court will review the decisions and issue final judgments. The Court didn’t decide if bankruptcy courts could reach their own final decisions in these cases, without some Article III court involvement.
And the Court also left open a bigger question that could lead the Arkison decision back for further review: Can a bankruptcy court issue a final judgment if both sides involved in litigation allow it to do so?
So at least theoretically, the Anna Nicole Smith case hasn’t seen its final act yet in the legal system.
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