In re Ferren, 98-6076EA.

• Decision Date: 02 December 1998
• Docket Number: No. 98-6076EA.,98-6076EA.
• Citation: 227 BR 279
• Parties: In re C. Dean FERREN; Sue S. Ferren, Debtors. C. Dean FERREN, Plaintiff-Appellant, v. SEARCY WINNELSON COMPANY; McPherson Electric Company, Inc.; Strother-Wilbourn Land Title Company; North Little Rock Winnelson Company; Charles Hicks, d/b/a Budget Print; Searcy Physical Therapy Clinic; McClain Heating and Air; Ken Dick & Associates, Inc., Defendants-Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Eighth Circuit

227 B.R. 279 (1998)

In re C. Dean FERREN; Sue S. Ferren, Debtors.

C. Dean FERREN, Plaintiff-Appellant, v. SEARCY WINNELSON COMPANY; McPherson Electric Company, Inc.; Strother-Wilbourn Land Title Company; North Little Rock Winnelson Company; Charles Hicks, d/b/a Budget Print; Searcy Physical Therapy Clinic; McClain Heating and Air; Ken Dick & Associates, Inc., Defendants-Appellees.

No. 98-6076EA.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted November 17, 1998.

Decided December 2, 1998.

Stephen Bennett, Sherwood, AR, for appellant.

Steven B. Jordan, Searcy, AR, for Strother-Wilbourn Land Title Co.

Brian Keith Cole, Searcy, AR, for McLain Heating and Air.

J.R. Buzbee, Little Rock, AR, for McPherson Electric, Incorporated.

Before KOGER, Chief Judge, WILLIAM A. HILL, and DREHER, Bankruptcy Judges.

HILL, Bankruptcy Judge.

This is an appeal from the Order of the bankruptcy court¹ dismissing the Adversary Complaint of the debtor, C. Dean Ferren ("Ferren") under the law of preclusion. We affirm the bankruptcy court on the basis of the Rooker-Feldman doctrine, finding pursuant thereto that the bankruptcy court lacked subject matter jurisdiction to hear the action.

I. BACKGROUND

The facts upon which this matter turns are brief and uncomplicated. On March 26, 1991, Ferren and his then-wife, Susan S. Ferren, ("debtors") filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. In their Chapter 13 plan, the debtors listed First Security Bank of Searcy ("FSB") as a first lienholder of nonexempt property located at 910-12 East Race Street, Searcy, Arkansas ("property"). In addition to holding a first and second mortgage on the property, FSB held recorded judicial liens thereon aggregating more than $167,000.00. A number of other creditors — now the appellees herein — also held judicial liens against the property, including McPherson Electric Company, Inc. ("McPherson"); Strother-Wilbourn Land Title Company, Inc. ("Strother"); and McClain Heating and Air ("McClain").² Aside from McClain, none of the other judicial lienholders filed proofs of claim in the matter.

The debtors scheduled the majority of the judgment debts as being unsecured. Beyond a provision stating that the unsecured creditors would receive pro rata payments from the debtors' earnings with interest at the rate of eleven percent, their plan did not specifically treat the claims or liens. On May 5, 1991, the plan was confirmed without objection. On May 15, 1995, the debtors received their discharge in bankruptcy.

Subsequently, FSB commenced an action seeking to foreclose upon the property in the Chancery Court of White County, Arkansas ("Chancery Court"), Case No. E-96-1077-First. On April 16, 1997, the Chancery Court entered a Decree of Foreclosure against the property. Ferren then bought the property at its foreclosure sale.

The judicial lienholders then moved in Chancery Court for the distribution of the sale proceeds in satisfaction of their liens. A hearing was held on the matter, with Ferren resisting such dispersal by arguing that his discharge in bankruptcy extinguished the liens and thus precluded disbursement of the sale proceeds to the lienholders. On December 8, 1997, the Chancery Court entered an Amended Order of Disbursal, distributing the sale proceeds to these creditors.³

In response to the disposition of the matter in the Chancery Court, Ferren filed a motion on December 15, 1997, to reopen his bankruptcy case in order to file an adversary proceeding, which motion was granted on January 26, 1998. At no point did he appeal the December 8, 1997 order of the Chancery Court.

On February 3, 1998, Ferren commenced an adversary proceeding in the bankruptcy court, seeking both the turnover of the distributed sale proceeds from the lienholders, as well as a permanent injunction enforcing his discharge in bankruptcy against them. After answering Ferren's Complaint, Defendants McPherson, Strother, and McClain moved for its dismissal in March 1998. Subsequently, Ferren moved for summary judgment against the defendants on April 17, 1998.

On August 27, 1998, the bankruptcy court granted McPherson's Motion and dismissed Ferren's action upon the law of preclusion.⁴ As the court stated in its Order of Dismissal:

The doctrines of res judicata and/or collateral estoppel exist to preclude relitigation of Ferren\'s causes of action; Debtor has already presented his defenses and has lost. Indeed, that is precisely the purpose of the doctrines — to prevent relitigation of issues and cases. Debtor may not relitigate the issues in this forum simply because he disagrees with the decision of another forum. In the instant case, the Chancery Court of White County was presented with the issue of whether judgment lien creditors were entitled to a disbursement of proceeds from the sale of property despite the debtor\'s discharge in bankruptcy. The chancery court issued a final ruling on that issue by entering an Amended Order of Disbursal awarding payment to the lienholders. That order was not appealed. The issue presented in this adversary proceeding is identical: the debtor seeks turnover of the proceeds from the lienholders on the basis that the debtor received a discharge in bankruptcy.

The issue having been litigated and concluded in the state court proceedings, the debtor may not raise the issue in another forum, the bankruptcy court. Even if the debtor believes that the chancery court erred, or, even if the chancery court, in fact, erred in disbursing the sale proceeds to the judgment lien creditors, the state court judgment is entitled to full faith and credit in this court. Debtor\'s remedy for any error in the chancery court was to appeal that decision, not file a proceeding in this court to alter the state court decision. Thus, Debtor may not collaterally attack the decision of the state court by petitioning this court to make an alternate decision.

Ferren v. Searcy Winnelson Co. (In re Ferren), Case No. 91-40707S, AP No. 98-4014, at *4-5 (Bankr.E.D.Ark. Aug. 27, 1998).

For reversal, Ferren's arguments are, in part, similarly premised upon res judicata. However, Ferren contends that the doctrine applies to prevent the appellees from collaterally attacking the confirmation of his Chapter 13 plan or his discharge in bankruptcy in a subsequent state court proceeding, to wit, that in the Chancery Court. The appellees resist his assertion, arguing instead for an affirmance of the Order of the bankruptcy court on all points.

II. DISCUSSION

1.

Lack of subject matter jurisdiction is insusceptible to waiver, and may be raised at any time during the course of an action by a party thereto, or by the Court sua sponte. See Magee v. Exxon Corp., 135 F.3d 599, 601 (8th Cir.1998); Berger Levee Dist. v. United States, 128 F.3d 679, 680 (8th Cir.1997); Bueford v. Resolution Trust Corp., 991 F.2d 481, 485 (8th Cir.1993); Fed. R. Bankr.P. 7012(b); Fed.R.Civ.P. 12(h)(3).⁵ Although none of the parties to the instant matter have raised the issue, the Court has an independent obligation to conduct this jurisdictional inquiry. See Lewis v. United States, 992 F.2d 767, 771 (8th Cir.1993); Crockett v. Lineberger, 205 B.R. 580, 581 n. 3 (8th Cir. BAP 1997). Having done so, we conclude that subject matter jurisdiction is indeed lacking in the instant matter. Further, under the well-settled principle that we may affirm the judgment below on any basis supported by the record, whether or not raised therein, see McGowan v. Ries (In re McGowan), 226 B.R. 13, 18 (8th Cir. BAP 1998); Hatcher v. U.S. Trustee (In re Hatcher), 218 B.R. 441, 446 (8th Cir. BAP 1998), we affirm the bankruptcy court's dismissal of Ferren's action on the basis of the Rooker-Feldman doctrine, rather than on that of preclusion.

2.

Initially, we note that preclusion, upon which the bankruptcy court relied, and the Rooker-Feldman doctrine⁶ "are closely related legal concepts." Goetzman v. Agribank, FCB (In re Goetzman), 91 F.3d 1173, 1177 (8th Cir.), cert. denied, ___ U.S. ___, 117 S.Ct. 612, 136 L.Ed.2d 537 (1996); see Charchenko v. City of Stillwater, 47 F.3d 981, 983 n. 1 (8th Cir.1995).⁷ The Rooker-Feldman doctrine "derives from the prohibition on federal appellate review of state court proceedings." Bechtold v. City of Rosemount, 104 F.3d 1062, 1065 (8th Cir.1997); see Hatcher v. U.S. Trustee (In re Hatcher), 218 B.R. 441, 447 (8th Cir. BAP 1998) (quoting same). Under the doctrine, lower federal courts lack subject matter jurisdiction over challenges to determinations made by state courts in judicial proceedings. See Snider v. City of Excelsior Springs, 154 F.3d 809, 811 (8th Cir.1998); Neal v. Wilson, 112 F.3d 351, 356 (8th Cir.1997). Instead, review of state court decisions lies exclusively in the United States Supreme Court. See First Commercial Trust Co. v. Colt's Mfg. Co., 77 F.3d 1081, 1083 (8th Cir.1996); Postma v. First Fed. Sav. & Loan, 74 F.3d 160, 162 (8th Cir.1996).

Impermissible appellate review occurs in the lower federal courts whenever they entertain claims which are inextricably intertwined with those addressed in the state court. Snider, 154 F.3d at 811; In re Goetzman, 91 F.3d at 1177. Claims are inextricably intertwined "if the relief requested in the federal action would effectively reverse the state court decision or void its ruling." Bechtold, 104 F.3d at 1065; Charchenko, 47 F.3d at 983. Thus, in other words, the Rooker-Feldman doctrine precludes a federal action "if the federal challenge succeeds only to the extent that the state court wrongly decided the issues before it." Keene Corp. v. Cass, 908 F.2d 293, 296 (8th Cir.1990) (quoting Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 25, 107 S.Ct. 1519, 1533, 95 L.Ed.2d 1 (1987) (Marshall, J., concurring)); Postma, 74 F.3d at 162 (quoting same).

3.

In deciding whether the Rooker-Feldman doctrine bars Ferren's adversary proceeding, we must "determine what the state court...