In re Erlewine
| Decision Date | 23 October 2003 |
| Docket Number | No. 02-51324.,02-51324. |
| Parties | In The Matter Of: Margaret Anne Erlewine Debtor. Ronald E Ingalls, Trustee, Appellant v. Mark Erlewine, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Kevin Evont Bowens, C. Daniel Roberts (argued), C. Daniel Roberts & Associates, Austin, TX, for Appellant.
Joseph David Martinee (argued), Martinee, Winn & Vickers, Austin, TX, for Appellee.
Before KING, Chief Judge, and HIGGINBOTHAM and BARKSDALE, Circuit Judges.
A trustee in bankruptcy brought an adversary action under 11 U.S.C. § 548 to recover assets from the bankrupt debtor's former husband, to whom the debtor had transferred property pursuant to a divorce decree. The bankruptcy court granted summary judgment in the former husband's favor, the district court affirmed, and the trustee now appeals to this court. For the following reasons, we AFFIRM.
This case arises out of the bankruptcy of Margaret Anne Erlewine ("the Debtor"). The Debtor married Mark Erlewine ("Erlewine") in 1986, and in the course of the marriage the couple acquired certain commercial real property. In November 1998, Erlewine filed a petition for divorce in Texas state court. The proceeding was contested, and the court held several days of trial. On June 4, 1999, the divorce court entered a final decree of divorce, which granted Erlewine custody of the couple's minor child as well as ownership of more than fifty percent of the couple's community assets. The court justified the disproportionate division of property on several grounds, most prominently that: (1) the Debtor caused a significant amount of community funds to be spent on drug treatment, (2) the Debtor used community funds to purchase large and unnecessary quantities of prescription drugs, and (3) the Debtor's unreasonable position in the divorce litigation caused Erlewine to incur unusually high attorneys' fees. The court awarded the couple's commercial real property to Erlewine, and in this action he claims that it is his business homestead and is necessary for the support of the minor child.
Less than a year after the divorce decree, the Debtor filed for Chapter 7 bankruptcy. The trustee of her bankruptcy estate ("the Trustee") then filed an adversary proceeding against Erlewine to recover community property transferred to Erlewine under the divorce decree. The Trustee sought to avoid the transfer under § 548 of the Bankruptcy Code, which provides, in relevant part:
(a)(1) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily —
...
(B)(i) received less than a reasonably equivalent value in exchange for such transfer....
The Trustee filed two motions for partial summary judgment in the bankruptcy court. The first motion sought a ruling on whether the divorce decree effected a "transfer" of an interest in property within the meaning of § 548, and the second motion asked for summary judgment on the question of whether the Debtor received, in the statute's language, "less than a reasonably equivalent value in exchange for such transfer." The bankruptcy court granted the first motion but denied the second. The Trustee then filed a motion to reconsider the denial of his second motion for partial summary judgment, and Erlewine filed his own motion for summary judgment on the issue of reasonably equivalent value.
After a consolidated hearing on both pending motions, the bankruptcy court denied the Trustee's motion to reconsider and granted Erlewine's motion for summary judgment on the issue of reasonably equivalent value. The bankruptcy court ruled that the Debtor received reasonably equivalent value as a matter of law, despite the fact that the divorce court had divided the couple's property on a basis explicitly described as "disproportionate." In reaching its conclusion, the bankruptcy judge relied on our decision in Besing v. Hawthorne (In re Besing), 981 F.2d 1488 (5th Cir.1993), which he read broadly as prohibiting bankruptcy courts from "looking behind" state adjudications in § 548 avoidance actions.
The Trustee appealed the bankruptcy court's ruling on Erlewine's motion for summary judgment to the district court, which affirmed without opinion. The Trustee now appeals to this court.1
We review de novo the bankruptcy court's grant of summary judgment. See Williams v. Int'l Bhd. of Elec. Workers, Local 520 (In re Williams), 298 F.3d 458, 461 (5th Cir.2002). Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); BANKR. R. 7056 ().
As to the particular issue of whether a debtor has received reasonably equivalent value under § 548, we have recognized that the question of reasonable equivalence is usually a question of fact, or is at least fact-intensive. See Tex. Truck Ins. Agency v. Cure (In re Dunham), 110 F.3d 286, 288-89 (5th Cir.1997); Besing, 981 F.2d at 1494-95. Certain transactions, however, can give the debtor reasonably equivalent value as a matter of law. See Besing, 981 F.2d at 1496. In the case before us, the bankruptcy court found that the Debtor received reasonably equivalent value as a matter of law. Like other legal conclusions of the bankruptcy courts, this conclusion is reviewed de novo. See Bradley v. Pac. Southwest Bank, FSB (In re Bradley), 960 F.2d 502, 507 (5th Cir.1992).
The bankruptcy court held that the state court's division of the Erlewines' marital property could not be set aside under 11 U.S.C. § 548(a)(1)(B) as a transfer for less than reasonably equivalent value. While this decision was based largely on an interpretation of our decision in Besing, Erlewine also offers two other grounds on which he might prevail: (1) the Trustee's action is barred by the Rooker-Feldman doctrine, and (2) res judicata and collateral estoppel preclude the Trustee from relitigating the property division.
Although we believe that the Trustee's claim fails for other reasons, we begin by briefly assessing Erlewine's Rooker-Feldman argument, since it implicates our jurisdiction. The doctrine, named after two Supreme Court cases,2 holds that the inferior federal courts lack jurisdiction to exercise appellate review over state court decisions. See Reitnauer v. Tex. Exotic Feline Found., Inc. (In re Reitnauer), 152 F.3d 341, 343 (5th Cir.1998) (describing the doctrine). Plainly, the Trustee's avoidance action does not seek appellate review of the state divorce proceeding in a literal sense. Nonetheless, the doctrine is potentially applicable whenever the state and federal proceedings would be "inextricably intertwined." See Davis v. Bayless, 70 F.3d 367, 375-76 (5th Cir.1995).
While courts have often had difficulty deciding whether a state adjudication and a later federal action are so intertwined that the latter would amount to a review of the former,3 the answer in this case is relatively clear. Even if it could be said that the Trustee's avoidance action seeks "review" of the state divorce decree — which seems doubtful, given that the two proceedings address rather different issues — our cases have indicated that the Rooker-Feldman bar generally should not extend to state decisions that would not be given preclusive effect under doctrines of res judicata and collateral estoppel. See Am. Airlines, Inc. v. Dep't of Transp., 202 F.3d 788, 801 & n. 9 (5th Cir.2000). In this particular case, as explained below, the divorce decree is not entitled to preclusive effect because the Trustee was not a party to the state court divorce proceedings, nor was he in privity with any party. For the same reason, the Rooker-Feldman doctrine is inapplicable. See Johnson v. De Grandy, 512 U.S. 997, 1006 (1994) ().4
The Trustee's challenge to the divorce decree is not barred by the traditional preclusion doctrines of res judicata or collateral estoppel. The federal full faith and credit statute requires us to give state court judgments the same preclusive effect that they would enjoy in the courts of the rendering state. See 28 U.S.C. § 1738 (2000); Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985). Under Texas law, the preclusion doctrines of res judicata and collateral estoppel apply only against a litigant who was a party to, or who is in privity with a party to, the original suit. See Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 652 (Tex. 1996); Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 819 (Tex. 1984).5 The Trustee was not a party to the divorce action. Nor can the Trustee be considered the Debtor's privy, for two parties are said to be in privity when they share an "identity of interests in the basic legal right that is the subject of litigation." Amstadt, 919 S.W.2d at 653. The interests of the Debtor in the divorce proceeding and of the Trustee in the instant case are, however, quite distinct. As we observed in Coleman v. Alcock, another case involving a bankruptcy trustee's attempt to avoid a transfer,
[W]e are of the view that the Trustee is not bound, either on res judicata or judicial collateral estoppel, by the prior state court proceedings. The Trustee is, of course, a successor of the Bankrupt for many purposes. But he is much more both in the extraordinary rights with which the Bankruptcy Act invests him, and as a general representative of the creditors.
272 F.2d 618, 621-22 (5th Cir.1959) (emphasis added).6 As the interests of the Debtor's...
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