I am currently doing a brief for my argumentation class and am briefing the case Hustler Magazine v. Falwell. Why is it that Justice Kennedy did not vote? That would interfere with the process and could possibly create a tie. How is this allowed?
Supreme Court justices routinely recuse themselves when they have a conflict of interest or some pecuniary interest hanging on the outcome. One famous example was Associate Justice Rehnquist's decision to not vote in the case US v. Nixon where Richard Nixon was compelled by subpoena to hand over the White House tapes to Special Prosecutor Leon Jaworski. In that case Associate Justice Rehnquist recused himself because he had previously served in the Justice Department under Nixon and had been Nixon's appointee to the SCOTUS. Likewise, there have been some recent cases involving the White House in which Elena Kagan recused herself because she had been President Obama's Solicitor General.
To answer the second part of your question: in case of a tie vote, whichever side has the Chief Justice on its side gets to write the opinion for the Court. If the Chief Justice does not vote and there is a tie, then whichever side has the most senior voting judge wins.