Chapman v. Currie Motors, Inc.

Decision Date12 January 1996
Docket NumberNo. 94-1945,94-1945
Citation65 F.3d 78
PartiesBankr. L. Rep. P 76,618 Lamar CHAPMAN, III, Plaintiff-Appellant, v. CURRIE MOTORS, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Steven Bernstein (submitted), Berger & Associates, Lincolnwood, IL and Burton Berger, Dordek, Rosenburg & Associates, Lincolnwood, IL, for appellee.

Lamar Chapman, III, Matteson, IL, pro se.

Before POSNER, Chief Judge, and PELL and CUDAHY, Circuit Judges.

POSNER, Chief Judge.

The question presented by this appeal, a new question in this circuit, is whether and in what circumstances a federal district court may or must relinquish jurisdiction over an adversary proceeding based solely on state law when the underlying bankruptcy proceeding is dismissed.

Lamar Chapman, the debtor in a bankruptcy proceeding under Chapter 13 of the Bankruptcy Code (a counterpart, for small debtors, see 11 U.S.C. Sec. 109(e), of Chapter 11 of the Code, the reorganization chapter), filed, in his capacity as debtor in possession, an adversary proceeding against one of his creditors, Currie Motors. He claimed that Currie owed him some $200,000. In support of this claim, Chapman (unrepresented by counsel), presented a judgment that a state court had issued in Chapman's favor against the creditor. The judgment is captioned a "default and conditional judgment," which, Currie contends, under state law is not enforceable without further actions, such as service of process on the defendant, that Chapman had failed to take.

We cannot find any reference in Illinois statutes or cases, or anywhere else for that matter, to the term "default and conditional judgment." The term "conditional judgment" is found in the Illinois statutes dealing with garnishment, 735 ILCS 5/12-706, 5/12-807; but garnishment, of course, is a procedure for collecting a judgment out of money owed the judgment debtor by a third party, not a procedure for collecting the judgment from the debtor himself. Nevertheless Chapman purported to bring his suit against Currie--the alleged debtor--as a garnishment proceeding, and somehow managed to obtain, apparently without notice to Currie, and thus "by default," a "conditional judgment": so "default and conditional judgment." That judgment was unenforceable, since Chapman was not a judgment creditor and hence was not entitled to bring a garnishment proceeding against anyone, let alone the alleged debtor. Not surprisingly, the bankruptcy judge dismissed Chapman's claim, which had been based exclusively upon the "default and conditional judgment."

Chapman appealed the dismissal to the district judge, 28 U.S.C. Sec. 158(a)(1), and in the oral argument of the appeal claimed that he had obtained a final judgment in state court, not merely the "default and conditional judgment." The district judge remanded the case with directions that the bankruptcy judge add that judgment to the record. The bankruptcy judge did so, and the case returned to the district judge. The judgment, it turned out, far from being a final judgment in Chapman's favor, was a dismissal of the "default and conditional judgment" (presumably because the court discovered that Chapman was not a judgment creditor) and thus demolished his claim, which had no other basis than the "default and conditional judgment." Meanwhile, Chapman's Chapter 13 proceeding had been dismissed, apparently because he had failed to keep up the monthly payments proposed in his plan, although this is unclear.

Rather than dismiss the adversary proceeding on the merits, the district judge relinquished jurisdiction over the adversary proceeding, thus sending the parties back to the state courts, where Chapman had appealed from the judgment vacating his default and conditional judgment. We do not know the status of that appeal. His appeal to our court is from the district judge's action in dismissing the adversary proceeding on jurisdictional grounds.

This is one of the all too frequent cases in which a person who does not have the benefit of legal counsel wastes the time of several courts for several years (Chapman filed the adversary proceeding in 1992) with legally frivolous, and mostly incomprehensible, filings. And worse: there is a strong flavor of fraud on the court (possibly of bankruptcy fraud as well) in Chapman's representation that he had a final state-court judgment in his favor, when in fact that judgment was a judgment dismissing his frivolous garnishment proceeding. The case should have been ended with his appeal to the district judge. We cannot think of any reason why the judge thought it necessary or appropriate to bounce the case back to the bankruptcy judge merely because at the oral argument of the appeal to him Chapman had alleged the existence of a judgment in his favor that was not in the record. Either the gap in the record should have been ignored, because it was Chapman's responsibility as appellant to submit the pertinent portions of the record to the district judge on appeal, or the judge should simply have told Chapman to submit the judgment to him. The judge should not have delayed the proceedings for a remand, during which the issues became complicated by the dismissal of the underlying bankruptcy action. Litigation is not a quadrille, and needless formalities should be avoided.

That is water under the bridge. The question before us is the proper disposition of an adversary proceeding that is not yet concluded when the bankruptcy proceeding out of which it arose ends. The bankruptcy jurisdiction of the federal courts extends to "all civil proceedings arising under [the Bankruptcy Code], or arising in or related to cases under [the Code]." 28 U.S.C. Sec. 1334(b). The adversary proceeding brought by Chapman against one of the creditors in the bankruptcy proceeding was "related to" the bankruptcy proceeding, Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 161 (7th Cir.1994), itself, of course, a case arising under the Bankruptcy Code, so federal jurisdiction over the adversary proceeding when initiated was secure. Ordinarily, when a case is within federal jurisdiction when filed, it remains there even if subsequent events eliminate the original basis for federal jurisdiction. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 293, 58 S.Ct. 586, 592, 82 L.Ed. 845 (1938); Pratt Central Park Limited Partnership v. Dames & Moore, Inc., 60 F.3d 350, 351 (7th Cir.1995). So if the parties were of diverse citizenship when the case was filed, the fact that a subsequent change of residence by one or both of them makes them citizens of the same state, or that nondiverse parties are added, does not affect the district court's jurisdiction. Freeport-McMoRan Inc. v. K N Energy, Inc., 498 U.S. 426, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991) (per curiam). Otherwise a litigant who didn't like the way his case was going could, even on the eve of judgment, engineer its dismissal, allowing him to start over in a different court. Exactly the same danger would be created if the debtor in an adversary proceeding could bounce the proceeding out of federal court by procuring the dismissal of the underlying bankruptcy proceeding, which Chapman in effect did by defaulting on...

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