The Lawletter Vol 36 No 4

Tim Snider, Senior Attorney, National Legal Research Group

The Supreme Court recently rendered a decision that may rival the impact of Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), which had declared aspects of the then newly enacted Bankruptcy Code unconstitutional.  In Stern v. Marshall, 131 S. Ct. 2594 (2011), the notorious Anna Nicole Smith ("Vickie") had married tycoon J. Howard Marshall II, Pierce Marshall's father, approximately one year before the former's death.  Shortly before J. Howard died, Vickie had filed a suit against Pierce in Texas state court, asserting that J. Howard had meant to provide for Vickie through a trust and that Pierce had tortiously interfered with that gift.  After J. Howard died, Vickie filed for bankruptcy in federal court.  Pierce filed a proof of claim in that proceeding, asserting that he should be able to recover damages from Vickie's bankruptcy estate because Vickie had defamed him by inducing her lawyers to tell the press that he had engaged in fraud in controlling his father's assets.  Vickie responded by filing a counterclaim for tortious interference with the gift she had expected from J. Howard.

The bankruptcy court granted Vickie's motion for summary judgment on the defamation claim and eventually awarded her hundreds of millions of dollars in damages on her counterclaim.  Pierce objected that the bankruptcy court lacked jurisdiction to enter a final judgment on that counterclaim because it was not a "core proceeding" as defined by 28 U.S.C. § 157(b)(2)(C).  As set forth in § 157(a), Congress has divided bankruptcy proceedings into three categories:  those that "aris[e] under title 11"; those that "aris[e] in" a Title 11 case; and those that are "related to a case under title 11."  District courts may refer all such proceedings to the bankruptcy judges of their district, 28 U.S.C. § 157(a), and bankruptcy courts may enter final judgments in "all core proceedings arising under title 11, or arising in a case under title 11," id. § 157(b)(1).  In noncore proceedings, by contrast, a bankruptcy judge may only "submit proposed findings of fact and conclusions of law to the district court."  Id. § 157(c)(1).  Section 157(b)(2) lists 16 categories of core proceedings, including "counterclaims by the estate against persons filing claims against the estate."  Id. § 157(b)(2)(C).

The bankruptcy court held that the counterclaim was a core proceeding, but the district court reversed, concluding that to hold all counterclaims to be core proceedings would be unconstitutional under Northern Pipeline.  The court of appeals vacated the district court's judgment, concluding that because the subject matter of the counterclaim was not so closely related to the underlying core proceeding, the bankruptcy court should not have entertained it but instead should have given the Texas state court judgment preclusive effect.  The Supreme Court affirmed, but on different grounds.  The Chief Justice, writing for a 5-4 majority, concluded that while § 157(b)(2)(C) permitted the bankruptcy court to entertain the counterclaim, Article III of the Constitution does not.

May 25, 2010

Charlene Hicks, Senior Attorney, National Legal Research Group

Most ordinary citizens who enter into written contracts with the federal Government take for granted the fact that such agreements are valid and enforceable.  Horn v. United States, No. 07-655 C, 2011 WL 1663598 (Fed. Cl. May 3, 2011), however, sounds a resounding warning against such blithe assumptions.

Jullie Horn is a dental hygienist who entered into a written contract with the U.S. Federal Bureau of Prisons (the "BoP") in 2005 to provide dental hygiene services at an Illinois federal prison.  The contract stated that Horn would provide a maximum of 1,560 one-hour dental hygiene sessions over the term of the agreement, at the unit price of $32 per session.  Horn was awarded the contract for the fixed price of $49,920.

In accordance with Federal Acquisition Regulations ("FAR") 52.216-21, the contract specifically designated itself as a requirements contract and stated that the "quantities of supplies or services specified in the Schedule are estimates only."  2011 WL 1663598, at *1.  The agreement further provided that if the Government's requirements did not result in orders equivalent to the maximum number of sessions in the Schedule, "that fact shall not constitute the basis for an equitable price adjustment."  Id.