Los Angeles Daily Journal, November 28, 2007
San Francisco Daily Journal, November 28, 2007

Anna Nicole Smith’s life was a tabloid’s dream. Even though she passed away almost one year ago, her saga lives on in the media through battles ranging from paternity disputes to prescription drug abuse to disputed legal fees. As the 9th Circuit gets ready to take up her case again, her true legacy comes to light — undermining both federalism and America’s legal system.

Some history must be provided in order to understand the whole story. Smith, legally Vickie Lynn Marshall, attracted the fancy of oil tycoon J. Howard Marshall when he visited her strip club in Texas. They married in 1994 and he died the following year — initiating a torrent of litigation.

Although Marshall showered Smith with gifts while he was alive, he made neither a bequest nor a trust to provide for her after his death. So Smith sued, claiming that Marshall promised her half of his estate. Smith’s case came under Texas probate law. The jury sorted through the conflicting factual claims and ruled for E. Pierce Marshall, Marshall’s son and beneficiary.

That should have ended the matter.

However, when Smith’s legal team realized they were losing the Texas probate case, they looked for a more favorable venue to hear her claim. While the Texas probate case was ongoing, Smith filed for bankruptcy in federal court in California.

It was a dubious filing, but her alleged financial straits allowed her to effectively sue Pierce Marshall again for “her inheritance,” only this time in a completely different jurisdiction and court.

The Texas jury trial ran 95 days. The jurors denied her claim.

“He said, she said” cases are notoriously difficult to judge, which is why we employ juries. A jury made up of people with contrasting experiences provides the best filter through which to decide such a dispute.

But Smith turned out to have a trump card — the bankruptcy case. The bankruptcy judge in California decided to accept all of Smith’s allegations in response to a dispute over pre-trial discovery and he awarded Smith $475 million.

Although Smith succeeded on her fourth time at bat, the 9th Circuit Court of Appeals in San Francisco reversed the bankruptcy judge. Under the probate exception, federal courts are supposed to defer to state courts in this area, which meant the Texas probate court decision controlled.

The case made its way to the U.S. Supreme Court, which reversed the reversal, instructing the appellate judges to use a narrower definition of probate exception. Currently, the case is pending before the 9th Circuit, where the panel can take it up any day. Smith may still lose, but the litigation grinds on.

And it grinds on despite both litigants having passed away.

The system desperately needs reform. The ambiguity in laws allows litigants to game the system by allowing them to venue-shop for a favorable outcome. Problems inevitably arise when federal courts try to interpret state law.

The federalist system prizes state sovereignty. Even where federal courts have jurisdiction over a state matter, such as in a case of diversity (when litigants reside in different states), the issue must be decided based on state law. State law is best interpreted by state judges, who are entrusted with the duty of enforcing it every day.

Certainty serves everyone. Litigants need only fight a case once. Taxpayers need only pay judges to hear a case once. Those affected by the result need only suffer through the uncertainty caused by a case once.

Finality is particularly important for our economic system to operate efficiently. If you are unsure that a court fight is over, you will not be able to plan for the future, whether the issue is a negligence lawsuit or a contract dispute.

Certainty is particularly important for inheritance law. People need clear rules to plan their estates. Recipients need to know when they can safely spend their money. Foundations need to know which contributions they can count. Moreover, endless litigation can cost more than the bequest is worth, except in cases with the largest prizes.

Smith’s claim, however, was for one of those large prizes, so she was willing to do as much — and spend as much — as necessary to win a favorable verdict. Smith is a tragic figure. The media attention accorded her tortured life demonstrates the emptiness of America’s celebrity-driven culture. But the continuing litigation over her inheritance claim is more serious. It reflects federal bankruptcy overreach that must be remedied. As long as bankruptcy remains a place to remedy any inconvenient problem, the rest of us will remain hostages to those trying to game the system.

Lawrence J. McQuillan is director of business and economic studies at the Pacific Research Institute, a free-market think tank headquartered in San Francisco, and the author of the study “Jackpot Justice: The True Cost of America’s Tort System.”