The U.S. Supreme Court is expected to issue its decision in Stern v. Marshall (No. 10-179, argued Jan. 18), in June. This decision could dramatically change the way parties litigate in bankruptcy courts and the part that a bankruptcy may play in a litigation strategy. In simple terms, the issue to be decided by the Supreme Court is whether a compulsory counterclaim by a debtor is a core or noncore issue. If it is determined that all compulsory counterclaims are core issues, then a bankruptcy court’s decision as to the compulsory counterclaim is a final decision; however, if a compulsory counterclaim is a noncore issue, a bankruptcy court’s decision regarding that counterclaim does not become final until it is affirmed by a district court.
First, some background. The series of disputes in and relating to Stern v. Marshall reflect a jurisdictional battle between a Texas state probate court and a U.S. bankruptcy court and which of the two courts’ judgments is final. When the husband of Vickie Marshall — who was better known as model Anna Nicole Smith — died, he allegedly attempted to leave her a good portion of his fortune through an inter vivos trust — an interest purportedly worth hundreds of millions of dollars. Upon his death, a probate proceeding was commenced in Texas state court. Smith’s stepson, Pierce Marshall, allegedly interfered with Smith’s receipt of her inheritance.
