Marshall v. Marshall (In re Marshall)

When billionaire J. Howard Marshall, II (J. Howard) died, he left nearly all his assets to his son, E. Pierce Marshall (Pierce) (creditor). J. Howard’s wife, Anna Nicole Smith, and his other son, J. Howard Marshall, III (Howard), each unsuccessfully challenged J. Howard’s will in Texas probate court. Pierce successfully asserted a fraud counterclaim in Howard’s will challenge and was awarded $12 million. The probate judge suggested that Howard and his wife (the Marshalls) (debtors) move their assets to Texas to satisfy the fraud judgment. A few days later, the Marshalls filed for Chapter 11 bankruptcy. The Marshalls included the fraud judgment as a scheduled liability in their initial bankruptcy reorganization plan. However, the plan did not include any other unsecured creditors because the Marshalls had paid off roughly $89,000 in unsecured debts the day before they filed their bankruptcy petition. Pierce moved to dismiss the bankruptcy action, but the bankruptcy court denied Pierce’s motion. The bankruptcy court found, among other things, that the Marshalls likely could not afford to pay for an $18 million supersedeas bond that would have stayed enforcement of the judgment while the probate case was on appeal. The bankruptcy court also determined that the Marshalls’ reorganization plan qualified for confirmation. The district court affirmed. Pierce’s widow appealed, asserting that the Marshalls had filed for bankruptcy in bad faith to avoid paying the judgment or paying for a supersedeas bond.