Marshall v. Marshall

• Decision Date: 28 June 2013
• Docket Number: No. 09–55573.,09–55573.
• Citation: 721 F.3d 1032
• Parties: In the Matter of J. Howard MARSHALL, III and Ilene O. Marshall, Debtors, Elaine T. Marshall, as Successor Trustee of the Bettye B. Marshall Living Trust, Trustee of the J. Howard Marshall, II Marital Trust Number Two, and Trustee of the E. Pierce Marshall Family Trust Created Under Bettye B. Marshall Living Trust Indenture Dated October 30, 1990, Appellant, v. J. Howard Marshall, III and Ilene O. Marshall, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

721 F.3d 1032

In the Matter of J. Howard MARSHALL, III and Ilene O. Marshall, Debtors,Elaine T. Marshall, as Successor Trustee of the Bettye B. Marshall Living Trust, Trustee of the J. Howard Marshall, II Marital Trust Number Two, and Trustee of the E. Pierce Marshall Family Trust Created Under Bettye B. Marshall Living Trust Indenture Dated October 30, 1990, Appellant,

v.J. Howard Marshall, III and Ilene O. Marshall, Appellees.

No. 09–55573.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 11, 2012.

Filed June 28, 2013.

G. Eric Brunstad, Jr. (argued), Matthew Joseph Delude, and Collin O'Connor Udell, Dechert LLP, Hartford, CT; Jeffrey W. Chambers, Ware, Snow, Fogel & Jackson, LLP, Houston, TX, for Appellant.

David L. Neale (argued) and Michelle Sharoni Grimberg, Levene, Neale, Bender, Yoo & Brill LLP, Los Angeles, CA, for Appellees.

Appeal from the United States District Court for the Central District of California, David O. Carter, District Judge, Presiding. D.C. No. 8:03–cv–01354–DOC.

Before: DAVID M. EBEL,^*KIM McLANE WARDLAW, and JACQUELINE H. NGUYEN, Circuit Judges.

OPINION

NGUYEN, Circuit Judge:

This case marks the third time we have been asked to intervene in the infamous feud over the estate of the late Texas oil magnate and billionaire J. Howard Marshall, II (“J. Howard”). J. Howard died in 1995, leaving nearly all his assets to his son, E. Pierce Marshall (“Pierce”), but excluding his young wife, Vickie Lynn Marshall, also known as Anna Nicole Smith (“Vickie”), and his other son, J. Howard Marshall, III (“Howard”), from receiving any part of his fortune. The ensuing controversy, pitting wife against son and brothers against each other, has defied resolution for nearly two decades, and has survived almost all of its original players.

After J. Howard died, Vickie and Howard each unsuccessfully challenged his will in Texas probate court. In addition to losing the will contest, Howard suffered a multimillion dollar judgment after Pierce successfully counterclaimed against him on the basis of fraud. Following this loss, Howard and his wife, Ilene, filed for Chapter 11 bankruptcy in the Central District of California. Their case was assigned to United States Bankruptcy Judge Samuel Bufford, who had previously presided over Vickie's Chapter 11 bankruptcy case. ¹

Pierce moved for random reassignment or recusal of Judge Bufford, objected to Howard and Ilene's proposed Chapter 11 Plan, and moved to dismiss the bankruptcy action. Judge Bufford published three separate opinions: (1) denying Pierce's motion for reassignment or recusal; (2) confirming the Plan and denying Pierce's motion to dismiss with respect to his constitutional arguments; and (3) confirming the Plan and denying Pierce's motion to dismiss with respect to his statutory arguments. Pierce appealed to the district court, which affirmed the bankruptcy court's decisions in all respects on March 18, 2009.

Appellant Elaine T. Marshall (“Elaine”),² Pierce's widow, now appeals the district court's decision, contending that the district court erred in affirming the bankruptcy court's orders because: (1) there was no basis for non-random assignment of the case to Judge Bufford, and alternatively, Judge Bufford should have recused himself on account of apparent bias; (2) Howard and Ilene's Chapter 11 petition and proposed Plan were unconstitutional; and (3) Howard and Ilene's Chapter 11 petition and proposed Plan were filed in bad faith. We have jurisdiction pursuant to 28 U.S.C. § 158(d), and we affirm.

Background

I.The Vickie Lynn Marshall Case

In the Texas probate court, Vickie claimed that she was entitled to a portion of J. Howard's estate, and that Pierce had tortiously interfered with her expectancy of a gift from her husband. While the probate case was pending, she filed for bankruptcy in California, and the matter was assigned to Judge Bufford. Pierce filed a proof of claim, arguing that he held a defamation claim against Vickie that was not subject to her bankruptcy discharge. Vickie counterclaimed, contending, as she had in probate court, that Pierce tortiously interfered with her expectancy of a gift from J. Howard. Judge Bufford dismissed Pierce's proof of claim against Vickie, and proceeded to consider Vickie's counterclaim against Pierce. Over the course of the bankruptcy proceedings, Judge Bufford determined that Pierce had engaged in various discovery abuses and issued both monetary and non-monetary sanctions against him.³

In September 1998, Pierce moved to withdraw the case from bankruptcy court. District Judge William D. Keller withdrew the bankruptcy reference in part ⁴ in October 1998, after which Judge Bufford stated his intent to submit a memorandum to “assist [Judge Keller] in his review of the matter.” On February 1, 1999, Judge Keller stayed Judge Bufford's prior sanctions orders. The next day, Judge Bufford declared the stay invalid and issued terminating sanctions against Pierce on Vickie's tortious interference counterclaim as a result of Pierce's purported discovery abuses. On March 9, 1999, Judge Keller vacated and remanded Judge Bufford's initial sanctions order, citing a lack of evidence. Then, after acknowledging receipt of Judge Bufford's memorandum, Judge Keller vacated his order withdrawing the bankruptcy reference.⁵ On May 20, 1999, Judge Bufford entered a final sanctions order, once again deeming many of Vickie's allegations established as a sanction against Pierce.

Judge Bufford then held a five-day hearing on Vickie's counterclaim. On the first day, Judge Bufford conducted an unusual press conference of sorts on the record, where he responded to reporters' questions, noted that the case was related to the Texas probate litigation, and explained the procedures by which reporters could obtain public records or court filings. Approximately eleven months later, Judge Bufford entered judgment in Vickie's favor and against Pierce in the amount of $449,000,000, with an additional punitive damages award of $25,000,000. See Marshall v. Marshall ( In re Marshall ), 257 B.R. 35, 39, 40 (Bankr.C.D.Cal.2000).⁶ Judge Bufford acknowledged that the damages were “mainly based” on facts that were presumed to be true by virtue of his final sanctions order.⁷

Several months later, the Texas probate court rendered judgment in favor of Pierce in the probate case, ordering Vickie to pay Pierce's attorneys' fees in the amount of $541,000. The Probate Court later modified its order to specify that the fee award arose solely out of conduct that occurred after Vickie's bankruptcy discharge. However, Judge Bufford overturned the probate court's fee award, finding that it violated Vickie's bankruptcy discharge and was barred by judicial estoppel. The district court affirmed Judge Bufford's decision, but we reversed and remanded, finding that the attorneys' fees award did not violate Vickie's bankruptcy discharge, as it was based solely on conduct that occurred after the discharge. Marshall v. Marshall ( In re Marshall ), 119 Fed.Appx. 136 (9th Cir.2004).

II.The J. Howard Marshall III Case

Howard also challenged J. Howard's estate plan, arguing that, inter alia, Pierce had exerted undue influence over their father for years, the estate plan had been formulated under duress, and the will was invalid and unenforceable. In his capacity as trustee of the Trusts, Pierce filed a fraud counterclaim against Howard.⁸ After a lengthy trial, the jury found in favor of Pierce, and the probate court entered a Second Modified Final Judgment against Howard (“the Fraud Judgment”) on December 7, 2001. At the time Howard and Ilene filed their bankruptcy petition, the Fraud Judgment exceeded twelve million dollars.⁹

Howard filed an appeal in the Texas courts, and on January 31, 2002, moved to stay execution of the Fraud Judgment, or in the alternative, to lower the amount of security for a supersedeas bond. As part of that motion, Howard submitted a sworn affidavit attesting to a total net worth of $22,413,220. Elaine contends that the parties engaged in numerous efforts to negotiate a potential settlement, which eventually resulted in an agreement to stay enforcement in return for a $10.4 million bond, but that Howard ultimately reneged on the agreement when he was unable to finance the bond. Pierce moved to enforce the Fraud Judgment, and at a July 18, 2002, hearing, the probate court suggested that Howard voluntarily move assetsto Texas to satisfy the judgment. The probate court scheduled another hearing for July 25, 2002 to consider whether it would order Howard to transfer assets to Texas.

On July 23, 2002, Howard and Ilene (collectively, “the Debtors”) filed a Chapter 11 bankruptcy petition in the Central District of California. In connection with the petition, they filed a Statement of Related Cases and an addendum noting that Vickie's bankruptcy case involved a similar factual background and many of the same principal parties as their case. The Clerk assigned Howard and Ilene's case to Judge Bufford.

III.

E. Pierce Marshall's Motion for Recusal and Reassignment

Several months later, Pierce moved for random reassignment of the case, or alternatively, recusal of Judge Bufford, pursuant to 28 U.S.C. § 455(a) and the Due Process Clause. Judge Bufford denied Pierce's motion at an October 29, 2002 hearing. He subsequently issued an Order to Show Cause (“OSC”) why the motion should not be denied on the basis of standing because Pierce had not filed a proof of claim in Howard and Ilene's case. After a hearing on the OSC, Judge Bufford issued a March 27, 2003 amended written opinion in which he assumed that Pierce had standing (because the time for filing a proof of claim had not elapsed) and again denied the recusal motion. Pierce never filed a proof of claim in the Debtors' bankruptcy case.¹⁰

IV.Pierce's Objection to the Chapter 11 Plan and Motion to Dismiss

The Debtors' initial plan of reorganization listed total assets of...