Arnold v. KJD Real Estate, LLC

Citation752 F.3d 700
Decision Date20 May 2014
Docket NumberNos. 12–1715,12–1894.,s. 12–1715
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
PartiesDan K. ARNOLD, Plaintiff–Appellant, v. KJD REAL ESTATE, LLC, Defendant–Appellee, Cross–Appellant, v. Geissler Roofing Co., Inc., and D & D Property Management, Inc., Defendants–Appellees, Cross–Appellees.

OPINION TEXT STARTS HERE

Michael Gross, Attorney, St. Louis, MO, for PlaintiffAppellant.

Robb E. Hellwig, Attorney, Stone, Leyton & Gershman, St. Louis, MO, for DefendantAppellee, Cross–Appellant.

P. Michael Read, Attorney, Law Office of P. Michael Read, Robert J. Sprague, Attorney, Sprague & Urban, Belleville, IL, for DefendantsAppellees, Cross–Appellees.

Before WOOD, Chief Judge, and FLAUM and SYKES, Circuit Judges.

WOOD, Chief Judge.

The RookerFeldman doctrine rests on the fact that only the Supreme Court of the United States has appellate jurisdiction over state court decisions (and its authority extends only to federal questions, see 28 U.S.C. § 1257). In this case, a state court ordered Dan Arnold to deliver certain corporate stock to Geissler Roofing and D & D Property Management (collectively, the Corporate) pursuant to an earlier alleged settlement agreement. The state court did not know that Arnold had already sold the stock to a third, KJD Real Estate (KJD). Arnold filed an interpleader action in the district court under Federal Rule of Civil Procedure 22 in which he asked the court to decide to whom he should transfer the stock. The district court dismissed the interpleader action under the RookerFeldman doctrine and ordered Arnold to compensate KJD in cash. We conclude that this was mistaken: the interpleader action does not attack the state court judgment itself, and so further proceedings are necessary.

I

Arnold was a former officer of both Corporate Defendants, and he held a significantamount of stock in each (38% of Geissler's shares and 50% of D & D's). In 1999, Arnold sued the Corporate Defendants in Illinois state court on claims of shareholder oppression. That action remained pending for seven years. In November 2006, the parties allegedly agreed to settle the case. They never executed any settlement documents, however, and none of the defendants has ever paid Arnold any of the $207,500 that the purported agreement would have required. Nonetheless, relying on the alleged settlement agreement, the Corporate Defendants moved to dismiss the state case. While that motion was pending, Arnold moved for a voluntary dismissal. The court granted Arnold's motion and dismissed with prejudice without deciding whether the case had been settled.

About a month later, Arnold agreed to sell his stock in the Corporate Defendants to KJD for $290,000. KJD advanced $100,000 to Arnold as required by the written stock purchase agreement, and Arnold represented that he had good title to the stock and could transfer it. After the stock-purchase agreement was finalized, KJD notified the Corporate Defendants that it had purchased the stock and wished to inspect the corporate books. The Corporate Defendants did not respond to KJD's request.

Instead, they moved to vacate the dismissal of Arnold's original suit in state court, reiterating their view that the case had been settled. Pursuant to that alleged settlement, they contended, Arnold already had transferred his stock to the two corporations. Taking a belt-and-suspenders approach, the Corporate Defendants also filed a second action against Arnold in Illinois state court before a different judge. Although Arnold was properly served, he did not appear, and so the second state court issued a default judgment ordering Arnold to execute the settlement papers and comply with that agreement. The Appellate Court of Illinois affirmed that judgment. KJD was never joined as a party in the second state court action despite the Corporate Defendants' knowledge of KJD's interest in the stock.

Meanwhile, back in the first state court proceeding, all the parties here, including KJD, appeared in response to the Corporate Defendants' motion to vacate the dismissal of Arnold's shareholder suit. Without informing the court or Arnold's counsel of the default judgment then in existence, the Corporate Defendants requested a continuance on the motion to vacate. At a later hearing, the Corporate Defendants informed the court of the default judgment, which by that time had become final under Illinois law. The court stayed further proceedings; to our knowledge, that action remains pending.

After the Appellate Court's decision was issued, Arnold filed this Rule 22 interpleader action, naming both the Corporate Defendants and KJD as defendants. Arnold's complaint specifically stated that he “makes no claim to continued ownership of the Geissler and D & D stock and stands willing to transfer the stock to whichever Interpleader Defendant the Court determines has the superior right to the stock.” Arnold asked to be “fully and finally released from any and all liability to the Interpleader Defendants once he delivered the stock to whichever defendant the court specified. KJD asserted a cross-claim against the Corporate Defendants for a declaratory judgment that it owned the stock. It also asserted, in the alternative, a counterclaim against Arnold for rescission of the stock-purchase agreement and return of the $100,000 advance KJD paid under that agreement.

Invoking the RookerFeldman doctrine, the district court dismissed Arnold's interpleaderaction and KJD's cross-claim on the ground that “the injury complained of by both Arnold and KJD clearly is the state court's order directing Arnold to execute the settlement agreement with [the Corporate Defendants] under the terms of which Arnold is required to tender back to [the Corporate Defendants] his shares in the companies in return for consideration in the amount of $207,500.” The district court granted KJD's counterclaim against Arnold and ordered Arnold to return the $100,000 advance payment. Both Arnold and KJD have appealed to this court.

II

We begin with a brief word about the district court's jurisdiction in this matter, wholly apart from the RookerFeldman issue that lies at the center of this case. As we have noted, Arnold relied on Rule 22 for his interpleader action. Rule 22 provides that [p]ersons with claims that may expose a plaintiff to double or multiple liability may be joined as defendants and required to interplead.” FED. R. CIV. P. 22(a)(1). Unlike statutory interpleader actions under 28 U.S.C. § 1335, [i]nterpleader actions under Rule 22 ... must be based upon the general jurisdiction statutes applicable to civil actions in the federal courts.” 7 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1710 (3d ed. 1998 & Supp.2010); see also Comm'l Nat'l Bank of Chi. v. Demos, 18 F.3d 485, 488 (7th Cir.1994) (Rule 22[a] provides a procedural framework for interpleader actions, but it does not confer subject-matter jurisdiction on federal courts.”). A plaintiff such as Arnold, who is relying on the general diversity statute, 28 U.S.C. § 1332, must demonstrate complete diversity between the plaintiff-stakeholder and the claimant-defendants. An interpleader plaintiff need not show that each competing claimant has a winning claim; a reasonable fear of double liability is enough. Aaron v. Mahl, 550 F.3d 659, 663 (7th Cir.2008).

In this case, the contest between the defendant-claimants, both of which are citizens of Illinois, involves only a question of Illinois law. Nevertheless, diversity jurisdiction is proper because complete diversity is assessed by looking at the plaintiff-stakeholder and the defendant-claimants. Arnold, a Florida citizen, is diverse from all parties claiming an interest in the stock, and Arnold's complaint asks the court to relieve him of potential double liability to these claimants. As our account of the facts already has shown, the amount in controversy exceeds $75,000. Jurisdiction is therefore proper under 28 U.S.C. § 1332(a).

III

We turn, then, to the heart of the case: the RookerFeldman doctrine. As we noted at the outset, this doctrine reflects a limitation on the subject-matter jurisdiction of lower federal courts. Long v. Shorebank Dev. Corp., 182 F.3d 548, 555 (7th Cir.1999). We review de novo the question whether, as the district court thought, RookerFeldman applies here. Brokaw v. Weaver, 305 F.3d 660, 664 (7th Cir.2002).

The RookerFeldman doctrine derives from two Supreme Court cases in which plaintiffs “litigated and lost in state court ... [then] essentially invited federal courts of first instance to review and reverse [the] unfavorable state court judgments.” Exxon Mobil Corp. v. Saudi Basic Inds. Corp., 544 U.S. 280, 283, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005), discussing Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923) and D.C. Ct. of App. v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). Because Congress empowered only the Supreme Court to exercise appellate authority to reverse and modify state court judgments, see 28 U.S.C. § 1257, such suits were declared “out of bounds, i.e., properly dismissed for want of subject-matter jurisdiction.” Saudi Basic Inds., 544 U.S. at 283–84, 125 S.Ct. 1517. The doctrine is narrowly confined to cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Id. at 284, 125 S.Ct. 1517.

Like the due process claim in Long, 182 F.3d at 555–56, cases requiring dismissal under RookerFeldman involve plaintiffs who are “attacking the judgment itself” or the procedures used in obtaining that judgment. GASH Assocs. v. Village of Rosemont, Ill., 995 F.2d 726, 728 (7th Cir.1993). In GASH, for example, the plaintiff alleged that the Village of Rosemont committed an unconstitutional taking by maneuvering to...

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