Lawyer says Stern unlikely to undermine bankruptcy courts
WASHINGTON, Sept 16 (Reuters) - A lawyer on the winning side of the U.S. Supreme Court battle over an inheritance involving ex-Playboy model Anna Nicole Smith tried to temper fears that the ruling will undermine the jurisdiction of bankruptcy courts.
Speaking at the American Bankruptcy Institute's Views from the Bench conference on Friday, Craig Goldblatt, one of the lawyers for the estate of Smith's late husband, said he does not think the decision should stop bankruptcy courts from ruling on asset sales by bankrupt companies.
It should, however, remove disputes over fraudulent conveyances -- a staple of bankruptcy litigation -- from the bankruptcy court's jurisdiction, said Goldblatt, of law firm WilmerHale.
The case, Stern v. Marshall, pitted the late Smith against the estate of her deceased former husband J. Howard Marshall. The bankrupt Smith sought $300 million from Marshall's son, which she claimed had been promised to her before her husband's death.
The Supreme Court denied the bid in June in a 5-4 decision led by Chief Justice John Roberts, who authored the opinion. The majority said the bankruptcy court lacked authority to decide a state law claim brought by a bankruptcy debtor against a creditor.
The ruling has touched off swarms of removal requests from bankruptcy litigants looking to test the limits of the ruling. It also made some judges nervous about whether they will have any right to decide state law issues.
"It causes judges to doubt their reason for being," said Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York at Friday's conference.
But Goldblatt said a "straightforward" two-pronged analysis should solve most of the uncertainty: issues are out of the bankruptcy court's hands if they arise directly from state law claims, or if the claimants are entitled to a jury trial under the 7th Amendment, he said.
That would preserve the bankruptcy court's right to rule on asset sales, a form of restructuring becoming increasingly more common under Chapter 11, Goldblatt said. But fraudulent conveyance disputes, which carry the right to a jury trial, would move to federal district court, he said.
Panelist judges earlier in the day expressed frustration at the ruling, but Goldblatt said it shows that bankruptcy lawyers have been fundamentally "wrong" about the jurisdiction of their courts.
"One lesson is that we bankruptcy lawyers should perhaps spend less time in conferences like this one, just talking to each other, and more time talking to our colleagues in other disciplines," Goldblatt said.
Most judges at Friday's conference predicted that appellate courts will read the ruling narrowly enough to salvage much of their authority. But that won't stop litigants from trying to use Stern to gain leverage, said Judge James Peck, who presides over Lehman Brothers' Chapter 11 in Manhattan.
"I think Stern has been weaponized ... on the theory that that which is not nailed down gets picked up," Peck said. "This is an argument that gets thrown at me in settings that I am confident that (Supreme Court Chief) Justice (John) Roberts never contemplated and would be horrified if he knew about."http://newsandinsight.thomsonreuters.com/...ermine_bankruptcy_courts/