## Facts

- J. Howard Marshall II died in 1995, leaving nearly all assets to his son E. Pierce Marshall and excluding his wife and other son, J. Howard Marshall III (Howard).
- Howard unsuccessfully contested the will in Texas probate court and later suffered a multimillion-dollar Texas fraud judgment in favor of Pierce.
- After the Texas litigation, Howard and Ilene Marshall filed a Chapter 11 case in the Central District of California.
- The bankruptcy case was assigned to Judge Samuel Bufford, who had presided over related prior bankruptcy proceedings involving members of the same family dispute.
- Elaine T. Marshall, acting in fiduciary capacities for trusts associated with Pierce, moved for reassignment or recusal of Judge Bufford, opposed plan confirmation, and moved to dismiss the Chapter 11 case.
- The bankruptcy court denied reassignment and recusal, denied dismissal, and confirmed the Chapter 11 plan; the district court affirmed.
- Elaine appealed, challenging case assignment, recusal, constitutionality of Chapter 11 for allegedly solvent debtors, alleged bad faith, and confirmation requirements (including best interests of creditors).

## Issues

1. Whether assigning the Chapter 11 case to a particular bankruptcy judge (rather than by random assignment) was improper under applicable court administration and related-case practices.
2. Whether the bankruptcy judge was required to recuse for actual or apparent bias based on prior rulings, sanctions, and alleged public comments.
3. Whether Chapter 11 relief is unconstitutional as applied to allegedly solvent debtors because insolvency is purportedly required by the Bankruptcy Clause.
4. Whether the petition and plan were filed or proposed in bad faith, principally to address the Texas fraud judgment and avoid a supersedeas bond.
5. Whether the confirmed plan satisfied confirmation requirements, including the “best interests of creditors” test as applied to treatment of the Texas judgment.

## Decision

- The Ninth Circuit affirmed the district court’s judgment, leaving in place the bankruptcy court’s orders.
- The assignment to Judge Bufford was upheld as a permissible administrative case-management decision given overlapping factual disputes and efficiency considerations.
- Recusal was not required because the record did not show disqualifying bias or an appearance of partiality meeting the governing standard.
- The constitutional challenge failed; insolvency is not a constitutional prerequisite to Chapter 11 eligibility or relief.
- The bankruptcy filing and plan were not found to be in bad faith merely because they addressed a large adverse judgment.
- The confirmation order was affirmed, including findings that the plan satisfied the best-interests test and other applicable confirmation standards.

## Legal Principles

- Bankruptcy courts have substantial discretion in related-case administration; nonrandom assignment may be permissible when authorized by local practice and justified by efficiency and overlapping factual issues.
- Recusal under 28 U.S.C. § 455 requires more than prior adverse rulings; disqualification generally demands a showing of “deep-seated favoritism or antagonism” or a comparable basis that would cause a reasonable question of impartiality.
- The Bankruptcy Clause and Chapter 11 do not impose insolvency as a constitutional or statutory condition; Congress may permit reorganization before insolvency.
- A Chapter 11 filing motivated in significant part by the need to manage a major adverse judgment is not, standing alone, bad faith if the case serves a legitimate reorganization purpose and is not an abuse of process.
- For confirmation, the “best interests of creditors” requirement is satisfied where the record supports that creditors would not receive more in a hypothetical Chapter 7 liquidation than under the proposed plan.

## Conclusion

The Ninth Circuit affirmed orders refusing reassignment and recusal, rejecting an insolvency-based constitutional attack on Chapter 11, and confirming a Chapter 11 plan, holding that related-case assignment for efficiency was permissible, bias was not shown, and the filing and plan satisfied good-faith and creditor-protection confirmation standards.


Marshall v. Marshall (In re Marshall), 721 F.3d 1032 (9th Cir. 2013)