In re Marshall, Bankruptcy No. LA 96-12510-SB.

• Decision Date: 26 February 2002
• Docket Number: Adversary No. LA 96-01838-SB.,Bankruptcy No. LA 96-12510-SB.
• Parties: In re Vickie Lynn MARSHALL, Debtor. E. Pierce Marshall, Plaintiff, v. Vickie Lynn Marshall, Defendant, and related counterclaim.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California

273 B.R. 822

In re Vickie Lynn MARSHALL, Debtor.

E. Pierce Marshall, Plaintiff, v. Vickie Lynn Marshall, Defendant, and related counterclaim.

Bankruptcy No. LA 96-12510-SB.

Adversary No. LA 96-01838-SB.

United States Bankruptcy Court, C.D. California.

February 26, 2002.

COPYRIGHT MATERIAL OMITTED

Joel B. Weinberg, Biegenzahn Weinberg, Woodland Hills, CA, for debtor.

First Amended Opinion on Application of Bankruptcy Discharge

SAMUEL L. BUFFORD, Bankruptcy Judge.

I. Introduction

This proceeding on remand from the district court concerns the applicability of the debtor's discharge under a chapter 11¹ plan to post-discharge attorneys' fees awarded in a related Texas probate case. The court finds that the attorneys' fees and costs awarded by the Texas court have been discharged because they are rooted in pre-discharge (and indeed prepetition) events, even though the fees and costs were incurred after the debtor's discharge was granted. In addition, the court finds that judicial estoppel prohibits the claim for costs and attorneys' fees. In consequence, the attorneys' fees and costs are discharged.

II. Facts

A. Background

Debtor Vickie Lynn Marshall (Vickie)² is the surviving widow of J. Howard Marshall II (J. Howard), who died on August 4, 1995. J. Howard married Vickie (also known as Anna Nicole Smith) on June 27, 1994 after two and a half years of courtship. At the time of their marriage, Vickie was 26 years old and J. Howard was 89 years old.

Vickie is a figure of some notoriety because of her career as a model and actress.³ J. Howard was also a figure of some notoriety in his own right and was said to be either the richest or second-richest man in Texas at the time of his death. The exact amount of his wealth at the time of his death is disputed, but estimates put it at as high as $2 billion.

It is undisputed that J. Howard lavished great sums of money on Vickie during their courtship and marriage. Nonetheless, he did not explicitly provide for Vickie in his will. According to Vickie, however, J. Howard had promised her that she would receive substantial wealth and be taken care of after his death. Pierce Marshall (Pierce), J. Howard's adult son from a former marriage, contests whether J. Howard ever made such a promise.

The magnitude of the sums of money involved in J. Howard's estate has sparked intensely contested litigation on several fronts. On January 25, 1996, a few months after J. Howard's death, Vickie filed her chapter 11 bankruptcy in this court.⁴

In an adversary proceeding responding to a claim filed by Pierce,⁵ Vickie contended that Pierce tortiously interfered with her expected inter vivos gift from her late husband.⁶ Vickie's counterclaims against Pierce went to trial in this court in the fall of 1999. On October 6, 2000 this court issued an Amended Memorandum of Decision Following Trial ("Amended Decision"), Marshall v. Marshall (In re Marshall), 253 B.R. 550 (Bankr.C.D.Cal.2000). Based in large part on facts found against Pierce as sanctions for his discovery abuses, the court concluded that Pierce tortiously interfered with Vickie's expectations of an inter vivos gift and awarded $449,754,134 in compensatory damages. Subsequently, this court also awarded $25 million in punitive damages and issued a judgment.

Pierce appealed the bankruptcy court's judgment to the district court. On June 19, 2001 that court entered an Amended Order Regarding Subject Matter Jurisdiction, Marshall v. Marshall (In re Marshall), 264 B.R. 609 (C.D.Cal.2001), in which it reversed on constitutional grounds this court's ruling that the adversary proceeding was a core matter pursuant to 28 U.S.C. § 157(c)(1) (West 2001). De novo review of this court's findings in the adversary proceeding is pending in the district court.

B. The Discharge Order

On March 25, 1999 this court entered its discharge order,⁷ effective March 8, 1999 (the date of the entry of the order confirming Vickie's plan of reorganization), which stated:

Debtor is hereby discharged from all claims that arose before the date of this Order ... whether or not: (a) a proof of claim was filed ... or (c) the holder of the claim has accepted the plan.

The order further stated:

Any judgment ... hereafter obtained in any court other than this court is null and void as a determination of the personal liability of the debtor with respect to any debts discharged under 11 U.S.C. 1141.... All creditors whose debts are discharged by this order and all creditors whose judgments are declared null and void by this order are enjoined from instituting or continuing any action or employing any process or engaging in any act to collect such debts as personal liabilities of the debtor.

Article IX of the plan of reorganization specifically reserved the jurisdiction of this court "to protect the assets of ... the Reorganized Debtor from creditor actions which the Plan and Order of Confirmation disallow or affect...."

C. The Texas Litigation

J. Howard's estate remains in probate in Texas ("the Texas litigation").⁸ While the adversary proceeding in this court was pending, Vickie filed a backup claim on January 23, 1998 in the Texas litigation.

Vickie dismissed her claims in the Texas litigation a few days after this court issued judgment in her favor. Nonetheless, Pierce thereafter amended his operative pleadings in that case on February 9, 2001 to pursue additional claims against Vickie.

The Texas litigation was tried to a jury from September 18, 2000 to February 19, 2001. The judge in that trial submitted 87 questions to the jury. The only question involving Vickie was Question 66, which stated: "Do you find that Vickie Lynn Marshall did not have an agreement with J. Howard Marshall, II, that he would give her one-half of all of his property?" The jury found that there was no such contract, and Vickie has never contended that there was.⁹

Judgment after a jury trial was entered in the Texas litigation on August 15, 2001. The Texas probate court awarded Pierce $541,000 against Vickie in fees and expenses. In addition, that court awarded court costs and interest, the amount of which apparently remain undetermined. The fees awarded to Pierce were based entirely on Pierce's legal expenses for the trial of the Texas litigation, which took place after the discharge was entered in this chapter 11 case.

After oral argument on the motion before this court, Pierce went back to the Texas probate court on October 25, 2001 and obtained a modification of that court's judgment which states in part, "the Court finds that all decrees pertaining to [Vickie] as ordered herein do not arise from any conduct that occurred on or before March 8, 1999."¹⁰

D. Contempt Proceedings in this Court

On several occasions Vickie has brought motions requesting that this court find Pierce in contempt of the discharge order for pursuing claims against her in the Texas litigation. Vickie brought her first emergency contempt application in response to Pierce's February 9, 2001 amendments in the Texas litigation, and the court set a hearing on February 14, 2001. After the hearing this court issued a written order that required Pierce to remove all pre-discharge claims against Vickie in the Texas litigation, and reserved decision on the remainder of the contentions. In a subsequent hearing on March 7, 2001, this court orally ordered Pierce's counsel not to proceed in the Texas probate court on Question 66.

Pursuant to a further contempt application, on March 16, 2001 this court issued a further order to show cause that was set for hearing on March 21, 2001. The court's order on that hearing, issued on April 20, 2001, enjoined Pierce from:

pursuing or seeking, directly or indirectly, any award, judgment or determination of any claims or allegations previously determined or that could have been determined by this Court in its Prior Decisions and Judgment, including without limitation pursuing Question No 66 in the Texas action....

The court further ordered that Pierce immediately dismiss any claims seeking any such relief.

After further contempt proceedings on May 15, 2001, this court issued an order dated May 16, 2001 that permitted Pierce to proceed with the contract issue in the Texas trial on two grounds: Vickie had never contended that she had a contract with her husband to receive part of his property, and Pierce promised and represented to this court that he would use any judgment of the Texas court solely for setoff purposes.

The district court has reversed this court's orders of February 14, 2001 and April 20, 2001 and remanded them for reconsideration in light of this court's May 16, 2001 order and in light of the district court's vacating this court's judgment in the adversary proceeding. The district court further stated that this court should consider whether it was procedurally proper to issue an injunction in the adversary proceeding, where the injunction was solely based on Vickie's discharge.

III. Contentions of the Parties

Pierce argues that the attorneys' fees and costs awarded against Vickie in the Texas litigation arose entirely after the discharge was granted in this case, and that in consequence they are not affected by the discharge. Vickie argues that the claim that formed the basis for these fees arose prepetition, and that any liability on her part arising therefrom was discharged by the chapter 11 discharge.

IV. Analysis

The Congressional grant of bankruptcy jurisdiction includes the power to determine the scope of the discharge that Vickie received in this case. The parties do not contest that this is a core proceeding.

A. Scope of the Discharge Injunction

The filing of a bankruptcy case immediately imposes an automatic stay on virtually all creditor collection activities against the debtor. See § 362. This automatic stay does not last indefinitely: it terminates when a discharge is granted or denied. See § 362(c)(2)(C).¹¹ In this case the discharge was...