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Bankruptcy Judge Asked to Step Aside by Law Firms
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A group of 16 prominent law firms that are being sued as part of the Heller Ehrman/Anna Nicole Smith bankruptcy case have asked that the suit be heard not be a bankruptcy judge but instead by a federal district judge. This motion regarding the dead Playmate’s bankruptcy case was made in a consolidated motion filed on Sept. 28 asking to move the adversary proceedings to the federal district court in San Francisco. The motion is based on a 2008 supreme court decision. Firms who filed the motion include: Arnold & Porter; Goodwin Procter; Hogan Lovells; Orrick Herrington & Sutcliffe; Proskauer Rose; and Wilmer Cutler Pickering Hale & Dorr. The motion was actually filed by Arnold & Porter.

The judge, however would like to keep the case. U.S. Bankruptcy Judge Dennis Montali also filed papers Sept. 28. He asserted that the high court’s decision regarding the bankruptcy of Ms. Smith, who died in 2007, should not prevent him from hearing claims from the now defunct law firm.

  
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Heller Ehrman which was at its peak in 2005 was a firm with more than 700 lawyers, filed a number of claims in 2010. These claims regard the millions in fees earned by former Heller attorneys when they left the firm during its implosion. Heller feels as though it is entitled to those fees earned while their associates were with their new firms.

The dispute over the right to hear the case is based on the U.S. Supreme Court decision Stern v. Marshall. The Stern v. Marshall case involved a dispute between the estate of Vickie Lynn Hogan ( the given name of Anna Nicole Smith) and the son of her deceased husband, magnate J. Howard Marshall. In the Stern decision, the high court decided to limit the authority that a bankruptcy judge has in deciding adversary proceedings that are related to a bankruptcy case.

The firms asking the bankruptcy judge to step down assert that the Stern ruling means that the matter of the fees should be heard in a district court and not in a bankruptcy court. The matter will come down to how broadly the Stern v. Marshall decision is interpreted.

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As to the benefits of a successful motion these firms know that if the proceedings are moved to a federal district court they have a greater chance of success. The rulings of federal district court judges tend to be more informed by state laws then those of bankruptcy court judges, which could be beneficial to the firms position. In the case of a loss a case heard in federal district court is much simpler to appeal than a bankruptcy court case.

Heller Ehrman is expected to file its response within days, though the response is likely to side with the bankruptcy court judge in this case. The case in question is Heller Ehrman v. Arnold & Porter, 11-CV-04848, U.S. Court for the Northern District of California.





 

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