The billionaire Texas oil tycoon was briefly married to Smith when he died in 1995 and she fought his son and other family members for a large cut of his estate up until her death in 2007.
A California bankruptcy court judge awarded the late Playmate $475 million from Marshall's estate, but now Chief Justice John Roberts has decided that ruling was a mistake.
In his ruling on Thursday (23Jun11), he wrote, "We conclude that, although the Bankruptcy Court had the statutory authority to enter judgment on the counterclaim, it lacked the constitutional authority to do so."
Marshall left his estate to his son, E. Pierce Marshall, and nothing to Smith. Upon her husband's death, she filed a petition for bankruptcy in California and was initially awarded $425 million (GBP256.6 million) in total damages.
Pierce Marshall challenged the ruling.
The battle over the estate has continued even though Pierce Marshall died in 2006 and Smith a year later.
Smith's lawyer Kent Richard tells ABC News that today's ruling means his client's estate no longer has the right to the millions awarded by the bankruptcy court, but he reveals there are continuing separate proceedings ongoing in other courts.
He says, "There are ongoing appeals. Because of the complexity of the case there are other aspects to the case in other courts that will continue to be finalised."