Cawley v. Celeste (In re Athens/Alpha Gas Corp.)

• Decision Date: 09 May 2013
• Docket Number: No. 12–1555.,12–1555.
• Citation: 715 F.3d 230
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: In re ATHENS/ALPHA GAS CORPORATION, a Texas Corporation, Debtor. Thomas P. Cawley, Appellant, v. Frank Celeste; Robert M. Hallmark & Associates, Inc.; Missouri Breaks, LLC; William R. Austin; Phoenix Energy; Bobby Lankford; Erskine Williams, Appellees.

715 F.3d 230

In re ATHENS/ALPHA GAS CORPORATION, a Texas Corporation, Debtor.

Thomas P. Cawley, Appellant,

v.Frank Celeste; Robert M. Hallmark & Associates, Inc.; Missouri Breaks, LLC; William R. Austin; Phoenix Energy; Bobby Lankford; Erskine Williams, Appellees.

No. 12–1555.

United States Court of Appeals,

Eighth Circuit.

Submitted: Oct. 18, 2012.

Filed: May 9, 2013.

Robert S. Rau, argued, Minot, ND, for appellant.

Jon R. Brakke, argued, Caren W. Stanley on the brief, Fargo, ND, for appellee.

Before RILEY, Chief Judge, COLLOTON and GRUENDER, Circuit Judges.

COLLOTON, Circuit Judge.

Thomas Cawley, a creditor of Athens/Alpha Gas Corporation, appeals a decision of the Bankruptcy Appellate Panel affirming the bankruptcy court's denial of his motion to determine claims. Following the bankruptcy court's confirmation of the debtor corporation's reorganization plan in 2005, Cawley litigated his claims in North Dakota state court. The Supreme Court of North Dakota held that Cawley's claims were barred under the doctrine of res judicata. The bankruptcy court granted Cawley's subsequent motion to reopen the case, but it agreed with the state court that Cawley's claims were precluded and denied his motion to determine claims. The BAP affirmed the bankruptcy court on a different ground, reasoning that the bankruptcy court lacked subject-matter jurisdiction to consider Cawley's motion under what has come to be known as the Rooker–Feldman doctrine. Because we must accord the state court's judgment preclusive effect under 28 U.S.C. § 1738, we affirm the decision of the bankruptcy court on this alternative ground.

I.

Between 1998 and 2002, Cawley made a series of loans to Athens/Alpha Gas Corporation(“Athens/Alpha”). When Athens/Alpha filed a petition for relief under Chapter 11 in 2002, it listed Cawley as a creditor with a secured claim of $26,000. Cawley claims that his loans were secured by a five-percent working interest in one of Athens/Alpha's wells, and that he elected to purchase that interest in 2002 when Athens/Alpha failed to repay him. But Cawley did not record an interest in the well or file a proof of claim with the bankruptcy court before that court confirmed the reorganization plan for Athens/Alpha.

A group of Athens/Alpha creditors (“the Interest Holders”) objected to Cawley's classification as a secured creditor and to his application for administrative expenses based on his alleged interest in the well. Cawley did not respond, and the bankruptcy court resolved Cawley's claims in an order dated March 15, 2005: “Any secured claim asserted by Tom Cawley is disallowed in its entirety. The claim of Tom Cawley shall be allowed only as an unsecured claim, subject to this Court's disposition of [Cawley's] application for administrative expense claim.” Before this order, the Interest Holders had filed a reorganization plan that did not account for Cawley's alleged interest in the well. The plan provided for the formation of a successor to Athens/Alpha called “Missouri Breaks,” and transferred Athens/Alpha's interest in the well to Missouri Breaks “free and clear of all liens, claims, encumbrances, charges, and interests.” See11 U.S.C. § 1141(c). Cawley did not object to the plan, and the bankruptcy court confirmed it on May 5, 2005.

On June 20, 2006, nearly a year after the bankruptcy court had confirmed the reorganization plan, Cawley filed a motion to determine his administrative expense claim, so that his unsecured claim could be paid. The parties then reached an agreement to litigate Cawley's interest in the well in North Dakota state court. The Interest Holders commenced an action to quiet title in the well in state district court, and Cawley withdrew his motion in the bankruptcy court. While the quiet title action was pending, the bankruptcy court issued a final decree closing the Athens/Alpha bankruptcy estate.

The Interest Holders argued in the state district court that Cawley's claimed interest in the well was “without basis” and that he “should be determined to have no right, title, or interest of any nature.” Compl. at 5, Missouri Breaks, LLC v. Burns, No. 2006–C–104 (N.D.Dist.Ct. Sept. 30, 2008). Cawley filed an answer and counterclaim reiterating his interest and asserting that the Interest Holders' representations in their agreement with Cawley to litigate ownership of the well in state court barred them from objecting to his claim on the basis of res judicata. Def.'s Answer & Countercl. at 3, id. The court granted the Interest Holders' motion for summary judgment, concluding that “Cawley's claims could have, and should have, been brought during the bankruptcy proceeding,” so they were barred by res judicata under North Dakota law. Missouri Breaks, LLC v. Burns, No. 2006–C–104, slip op. at 14 (N.D.Dist.Ct. Sept. 30, 2008).

The Supreme Court of North Dakota conducted its own res judicata analysis and affirmed. Missouri Breaks, LLC v. Burns, 791 N.W.2d 33, 38–40 (N.D.2010). Cawley argued that the litigation agreement between the parties limited the scope of the state court's jurisdiction over the matter. The agreement, he said, provided only for the parties to litigate ownership of the well and did not allow for arguments about res judicata. Appellant's Br. at 5–7, Missouri Breaks, LLC v. Burns, 791 N.W.2d 33 (N.D.2010) (No. 20100124). He also argued that matters related to 11 U.S.C. § 544 and other sections of the Bankruptcy Code were outside the subject-matter jurisdiction of the state court because such issues are within the exclusive jurisdiction of the bankruptcy court. Id. at 9–11. The North Dakota court disagreed on both points, noting that “[r]es judicata has been part of North Dakota law for well over a century, and state and federal courts have concurrent jurisdiction in proceedings related to a bankruptcy case.” Missouri Breaks, 791 N.W.2d at 43 (citation omitted). Therefore, said the state court, “Cawley could not have reasonably expected that the parties could litigate his claims as if the Athens/Alpha bankruptcy proceedings had never occurred.” Id.

After having no success in the North Dakota courts, Cawley moved to reopen the bankruptcy case and to determine his claims in the bankruptcy court. The court granted Cawley's motion to reopen and denied his motion to determine claims. The court noted that the confirmed reorganization plan “did not include Cawley as a working interest owner” in the well, and that Cawley did not appeal the order confirming the plan. The court agreed with the North Dakota courts that Cawley's claims were barred and denied his motion in all respects. Cawley appealed the bankruptcy court's order to the BAP, which affirmed on a different basis. The BAP concluded that the federal bankruptcy court lacked subject-matter jurisdiction under the Rooker–Feldman doctrine because “Cawley cannot prevail on his motion unless the state courts were wrong.” The BAP also determined that Cawley's appeal was not frivolous, and denied the Interest Holders' motion for sanctions against him.

Cawley appeals the BAP's ruling, contending that the Rooker–Feldman doctrine does not apply. He argues further that the doctrine of res judicata does not prevent consideration of his claims, because the North Dakota courts lacked subject-matter jurisdiction over property of the bankruptcy estate. The Interest Holders responded to the appeals and moved for sanctions against Cawley, pursuant to Federal Rule of Appellate Procedure 38.

II.

Cawley first contends that the BAP erred in concluding that the Rooker–Feldman doctrine bars his claims. In the two decisions for which the doctrine is named, Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983), the Court established the narrow proposition that with the exception of habeas corpus proceedings, the inferior federal courts lack subject-matter jurisdiction over “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.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). This conclusion follows from 28 U.S.C. § 1257, which grants to the Supreme Court exclusive jurisdiction over appeals from state-court judgments.

We are mindful that the Supreme Court in Exxon Mobil observed that the lower courts sometimes have applied the Rooker–Feldman doctrine too broadly, “superseding the ordinary application of preclusion law pursuant to 28 U.S.C. § 1738.” Id. at 283, 125 S.Ct. 1517. At the same time, however, the scope of the Rooker–Feldman doctrine, even as narrowly described in Exxon Mobil, is sometimes fuzzy on the margins. How may a court of appeals proceed if a Rooker–Feldman issue is difficult, but a plaintiff's claim is straightforwardly barred by preclusion law under § 1738 if the federal court has jurisdiction? We have noted before an apparent conflict in authority about whether federal courts must address Rooker–Feldman at the threshold, although many of the decisions on the question are unpublished and include little explanation. See Edwards v. City of Jonesboro, 645 F.3d 1014, 1017–18 (8th Cir.2011) (collecting authority).

Federal courts generally must address Article III subject-matter jurisdiction before reaching a non-jurisdictional question such as res judicata. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 93–97, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). This rule prevents courts from resolving “generalized grievances” and venturing into “vast, uncharted realms of judicial opinion giving.” Id. at 97 n. 2, 118 S.Ct. 1003 (internal quotation marks omitted). But Rooker–Feldman is a rule of statutory jurisdiction, not Article III, so Steel Co. does not directly apply.

Steel Co....