Bankruptcy Plan OK’d for Anna Nicole’s Stepson

(CN) - The 9th Circuit on Friday approved the bankruptcy plan of J. Howard Marshall III, a feuding son of the late Texas billionaire who married Anna Nicole Smith late in life.

J. Howard Marshall III's brother, E. Pierce Marshall, had challenged the Chapter 11 proceedings before his death in 2006. He claimed that they represented an attempt to dodge payment of a $10 million fraud judgment related the brothers' long battle over their father's estate.

Both J. Howard Marshall III and his now-late stepmother, referred to in court papers by her legal name Vickie Lynn Marshall, challenged the will of J. Howard Marshall II after the oilman's death at age 90 in 1995.

Marshall had married Smith, a model and Playboy Playmate, about a year before he died. The probate actions and Smith's related bankruptcy case ended in 2011 with the Supreme Court's ruling against Smith, who had died of a prescription drug overdose in 2007.

In 2001, E. Pierce Marshall won a $10 million counterclaim judgement against his brother for fraud based on the latter's alleged scheme to inherit part of his father's estate despite being disinherited in 1980. Thereafter, J. Howard Marshall III and his wife filed for bankruptcy in California. Their case was assigned to U.S. Bankruptcy Judge Samuel Bufford, the same judge who had very publicly presided over Smith's bankruptcy and who had, during the case, slapped E. Pierce Marshall with heavy sanctions for various alleged discovery violations.

Before his death, E. Pierce Marshall set out to fight his brother's bankruptcy, arguing that Bufford should recuse himself and that the allegedly unconstitutional bankruptcy was merely a ruse to avoid the fraud judgment.

Bufford ruled against E. Pierce Marshall, as did the District Court on appeal in 2009, with Pierce's wife Elaine now at the helm. The 9th Circuit unanimously affirmed Friday.

Elaine Marshall argued that Judge Bufford had shown "partiality" toward Smith in the previous case, and that his impartiality in the present case could not be trusted because of his "issuance of severe discovery sanctions and 'critical' statements against Pierce and Pierce's attorney throughout the proceedings indicated prejudice against Pierce, and that his communications with the press and the district court evinced an uncommon interest in the case."

But the judge's imposition of sanctions in a previous case is not enough to disqualify him from the present action, the panel found.

"The record does not indicate that Judge Bufford's findings of sanctionable discovery abuse were erroneous," Judge Jacqueline Nguyen wrote for the court.

The appeals court also rejected Elaine Marshall's claims that the bankruptcy plan is unconstitutional in various ways, and that it had been designed in bad faith as a way to avoid the judgment.

"The only reason consummation of the debtors' plan would frustrate Elaine's attempt to collect on the Texas Fraud Judgment was because Pierce never filed a proof of claim," Nguyen wrote for the Pasadena-based panel. "Significantly, the debtors initially included the Fraud Judgment in their Plan, and amended to provide for discharge of the judgment only after Pierce failed to file a proof of claim. We find no reason to conclude that the debtors knew Pierce would not file a proof of claim and we see nothing that prevented him from doing so."

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