In re Marshall
| Decision Date | 18 March 2009 |
| Docket Number | USBC No. LA02-30769-SB.,No. SA CV03-1354 DOC.,BAP No. CC-03-01460 CACD.,SA CV03-1354 DOC. |
| Citation | 403 B.R. 668 |
| Parties | In re J Howard MARSHALL, III, an Ilene O. Marshall, Debtors. Elaine T. Marshall, Appellant, v. J. Howard Marshall, III, and Ilene O. Marshall, Appellees. |
| Court | U.S. District Court — Central District of California |
Andrew J. Gallo, Julia Frost-Davies, Rheba Rutkowski, Bingham McCutchen LLP, Boston, MA, Aron Phillip Rofer, Todd E. Gordinier, Bingham McCutchen, Costa Mesa, CA, G. Eric Brunstad, Jr., Dechert LLP, Hartford, CT, Jeffrey W. Chambers, Ware Jackson Lee Chambers, Houston, TX, Matthew A. Lesnick, Bingham McCutchen, Los Angeles, CA, Robert A. Brundage, Bingham McCutchen LLP, San Francisco, CA, for Appellant.
Anne E. Wells, Fuller Wells PC, Santa Monica, CA, David L. Neale, Levene Neale Bender Rankin & Brill, Los Angeles, CA, for Debtors/Appellees.
Appellant Elaine T. Marshall ("Elaine"), 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 the Bettye B. Marshall Living Trust Indenture Dated October 30, 1990, appeals from Orders of the Bankruptcy Court, United States Bankruptcy Judge Samuel Bufford ("Judge Bufford" or the "Bankruptcy Court") Denying the Trusts' Motions for Reassignment or Recusal, Confirming the Debtors' First Amended Chapter 11 Plan, and Denying the Trusts' Motion to Dismiss. After considering the parties' Opening Briefs, and the appellant's Reply Brief, as well as the parties' oral argument, and for the following reasons the Court hereby AFFIRMS the Bankruptcy Court's Order Denying the Trusts' Motion for Reassignment or Recusal, AFFIRMS the Bankruptcy Court's Order Confirming the Debtors' First Amended Chapter 11 Plan, and AFFIRMS The Bankruptcy Court's Order Denying the Trust's Motion to Dismiss.
Texas tycoon J. Howard Marshall II ("J.Howard") died August 4, 1995. He was survived by his two sons, E. Pierce Marshall ("Pierce") and J. Howard Marshall III ("Howard"), and wife Vickie Lynn Marshall ("Vickie"). Pierce, as Trustee of a number of trusts created during J. Howard's lifetime, was a creditor in the present bankruptcy case. He is succeeded by Elaine, his successor Trustee and the appellant in the current proceeding. The debtors in this matter are Howard and his wife Ilene 0. Marshall ("Ilene"). They are appellees in the current proceeding.
When he died, J. Howard left an estate plan which included Pierce, but not Howard or Vickie. Both Howard and Vickie challenged the estate plan in the Texas Probate Court (the "Probate Case"). Howard claimed that J. Howard orally promised that his assets would be distributed equally to Howard and Pierce when J. Howard repurchased voting shares of Koch Industries from Howard. Pierce claimed, and a jury found, that Howard sold the shares of Koch Industries to J. Howard with the undisclosed intention to later claim that his father promised, as consideration for this sale, to treat Pierce and Howard equally. The jury further found that Howard had committed fraud with malice. The Probate Court entered judgment on August 15, 2001, and amended judgments on October 15, 2001 and December 7, 2001 (the "Texas Fraud Judgment"). The judgment became final on February 11, 2001. The Texas Fraud Judgment is now worth more than $12 million.
Howard timely appealed in the Texas courts. On January 31, 2002, he filed a Motion to Stay Execution of the Judgment, or Alternatively, to Lower the Amount of Security for Supersedeas. At this time, he claimed his net worth to be $22,413,220 and stated that he was unable to obtain a bond necessary to appeal. Elaine claims that the parties reached an agreement concerning a stay and the amount of the bond, but that Howard reneged, being unable to obtain financing for the agreed bond.
In any case, Pierce moved to enforce the Probate Court's judgment. On July 18, 2002, the Probate Court asked Howard to consider voluntarily moving assets to Texas to satisfy the judgment. The Court set another hearing on July 25, 2002, to determine whether to order Howard to do so. Instead, Howard filed for bankruptcy on July 23, 2002, and filed notice of this bankruptcy in the Probate Court the following day.
The Texas Probate Court also entered a judgment against Vickie. Vickie claimed that Pierce had wrongfully interfered with her expectancy of a gift from J. Howard. The Probate Court rejected this claim, and awarded Pierce $541,000 in fees and costs against Vickie.
Vickie filed for bankruptcy in the Central District of California, (the "Vickie Lynn Case") and her case was assigned to Judge Bufford. Vickie again claimed that Pierce had interfered with her expectancy of a gift from J. Howard. Pierce sought a determination that his claim against Vickie was not subject to discharge in bankruptcy. Judge Bufford rejected Pierce's claim and ultimately awarded Vickie just shy of $475 million.
During the course of the Vickie Lynn Case, Judge Bufford became convinced that Pierce was engaged in discovery abuses. Specifically, he found that Pierce destroyed certain documents, failed to respond to discovery requests, failed to produce a privilege log and documents in camera, and failed to produce some documents in the possession of J. Howard's lawyers, Edwin K Hunter and Jeff Townsend. As a sanction for this purported misconduct, Judge Bufford award $5,000 to Vickie in connection with a 1997 motion to compel. Judge Bufford issued other sanctions orders throughout the bankruptcy proceeding.
In September 1998 Pierce sought to withdraw the bankruptcy reference in the Vickie Lynn Case. District Judge Keller withdrew the reference in October 1998. In early 1999, Judge Bufford submitted a "secret memorandum" to "assist [Judge Keller] in his review of the matter." On February 1, 1999, Judge Keller stayed the sanctions order. The following day Judge Bufford declared the stay invalid and issued a sanctions order deeming certain facts adverse to Pierce to be established. On March 9, 1999, Judge Keller vacated this order for lack of evidence. After confirming receipt of the "secret memorandum," Judge Keller vacated his order withdrawing the case. On May 20, 1999, Judge Bufford again issued a sanctions order deeming Vickie's allegations established.
Judge Bufford then conducted a five-day hearing on Vickie's claims. On the first day of this hearing, he responded on the record to questions by a reporter, indicated that the case was related to the Probate Case, and discussed how members of the press should obtain public records or contact the Court. Press reports concerning the case noted that Vickie had an "advantage" going towards trial because of Judge Bufford's negative impression of Pierce.
As the hearing progressed, Judge Bufford relied heavily on his sanctions order. He refused to permit evidence contrary to the facts established in the sanction. Ultimately, he found in Vickie's favor on her claim and awarded Vickie $449,754,134 in actual damages. First, he based this decision on a "widow's election" theory that was not raised by Vickie. On October 6, 2000, he revised this opinion, abandoning the "widow's election" theory and holding that the decision was justified based on the presumed facts adverse to Pierce. On November 21, 2000, he assessed $25,000,000 in punitive damages. He entered a final judgment for Vickie on December 29, 2000.
Pierce appealed to this Court, which ultimately reduced the actual damages to $44,300,000 but increased the punitive damages to the same amount based on Pierce's "willfulness, maliciousness, and fraud." Pierce appealed this decision to the Ninth Circuit, which held, inter alia, that this Court lacked jurisdiction. Vickie appealed to the Supreme Court and prevailed on this issue. The Supreme Court then remanded to the Ninth Circuit, where the case remains.
On July 23, 2002, Howard and Ilene filed their voluntary petition under chapter 11 of the Bankruptcy Code. Howard and Ilene filed an addendum under Local Bankruptcy Rule 1015-2. Although the cases were admittedly not "related" under the definition used by the Local Rules, the addendum suggested that this case involved many of the same parties as the Vickie Lynn case. Based on this addendum, the clerk assigned this case to Judge Bufford.
On October 7, 2002, Pierce filed a motion for reassignment or recusal. This motion was denied at an October 29, 2002 hearing. Judge Bufford then issued an Order to Show Cause why the motion should not be denied and heard argument on January 23, 2003. He again denied the Recusal Motion on March 11, 2003. He denied the Motion a final time on March 27, 2003.
On August 6, 2002, Howard and Ilene filed their first bankruptcy schedules listing their assets at $8,391,904. In this initial schedule, Howard and Ilene listed their stock portfolio as having an unknown value, although Pierce claimed that it was worth more than $5,000,000. Howard and Ilene filed an amended schedule on September 4, 2002. This amended schedule showed their assets being worth just over $13 million.
Pierce raised a number of irregularities with the amended schedule as well. First, in the amended schedule, Howard and Ilene valued their stock portfolio "as of July 16, 2002," a date when the portfolio was trading at an abnormally low price. According to Pierce, the $4,746,407.38 valuation took into account stocks the debtors did not own and failed to take into account stocks they did own. Principally, on July 15, 2002, Howard and Ilene held 24,000 shares of Immunex Corporation stock. The next day AmGen, Inc. purchased Immunex....
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