In re Hamilton
| Decision Date | 26 August 2008 |
| Docket Number | No. 07-6269.,07-6269. |
| Citation | 540 F.3d 367 |
| Parties | In re James Stewart HAMILTON, d/b/a H & H Auto Sales, Debtor. James Stewart Hamilton, Plaintiff-Appellee, v. Alicia Hamilton Herr, Thomas W. Goodman, Jr. and Lawrence R. Webster, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Before: MOORE and GRIFFIN, Circuit Judges; SARGUS, District Judge.*
This case requires us to determine whether 11 U.S.C. § 524(a) makes a state-court judgment void ab initio when entered against a debtor whose dischargeable debts had been discharged, or whether the Rooker-Feldman doctrine compels federal courts to respect the state-court judgment. We conclude that § 524(a) prevails and state court judgments that modify a discharge order are void ab initio.
Defendant-Appellant Alicia Hamilton Herr ("Herr") appeals a district-court order reversing the bankruptcy court's dismissal of Plaintiff-Appellee James Stewart Hamilton's (the "Debtor's") complaint seeking to enjoin Herr from enforcing a Kentucky judgment lien against the Debtor. Specifically, the Debtor argued that the bankruptcy court's 1998 discharge order precluded the Pike Circuit Court of Kentucky from holding that the Debtor must indemnify Herr for payments made on a promissory note that Herr and the Debtor jointly obtained in 1990. The bankruptcy court concluded that the Rooker-Feldman doctrine barred the bankruptcy court from enjoining the Pike Circuit Court's judgment, and the district court reversed. For the reasons discussed below, we VACATE the district court's judgment and REMAND to the district court so that court may remand to the bankruptcy court for further proceedings consistent with this opinion.
The focus of this case concerns the unresolved obligations of Herr and the Debtor in relation to a loan they obtained during their marriage. On December 11, 1990, Herr and the Debtor signed a promissory note in the principal amount of $14,500 ("the Note") in order to obtain funding for Herr's vending-machine business. The Debtor and his father, James J. Hamilton ("Hamilton"), secured the Note with a certificate of deposit in the amount of $110,500.03.
On June 16, 1992, the Debtor and Herr's divorce became final. Their divorce decree did not address the status of the Note. It appears that the Kentucky divorce court was under the impression that the Debtor had paid off the Note with proceeds from the sale of his Mercedes. See Joint Appendix ("J.A.") at 28 (Divorce Decree ¶ 13) ("That 1984 Mercedes was purchased for $41,000.00 and sold for approximately $25,000.00, those proceeds being used to pay off approximately $14,000.00 in debts owed by the vending company, with the remaining going to the Respondent [i.e., the Debtor here]."). In fact, it appears that the Mercedes-sale proceeds (if any) were not used to pay off the Note; instead, Hamilton paid off the Note himself.
Regardless of what actually happened to the Note, on March 10, 1995, Hamilton sued Herr to recover the money Hamilton allegedly used to pay off the Note. While Hamilton's suit against Herr was pending, on July 19, 1996, the Debtor filed for relief under Chapter 7 in the United States Bankruptcy Court for the Eastern District of Kentucky. The Debtor's bankruptcy-court filings did not mention the Note but did list Herr as a creditor in the amount of $44,000.00. Despite Herr's attempts to get the bankruptcy court to hold that the Debtor's debt to her was non-dischargeable, the bankruptcy court declared the debt dischargeable.
On March 27, 1998, the bankruptcy court discharged all of the Debtor's "dischargeable debts," and stated that:
Any judgment heretofore or hereafter obtained in any court other than this court is null and void as a determination of the personal liability of the debtor with respect to any of the following:
(a) debts dischargeable under 11 U.S.C. § 523;
(b) unless heretofore or hereafter determined by order of this court to be nondischargeable, debts alleged to be excepted from discharge under clauses (2), (4), (6) and (15) of 11 U.S.C. § 523(a);
(c) debts determined by this court to be discharged.
J.A. at 51 (Discharge of Debtor ¶ 2) (emphasis added). This order enjoined "[a]ll creditors whose debts are discharged by this order and all creditors whose judgments are declared null and void by [the paragraph] above ... from instituting or continuing any action or employing any process or engaging in any act to collect such debts as personal liabilities of the above-named debtor." J.A. at 51 (Discharge of Debtor ¶ 3).
On August 18, 1998, in Hamilton's state-court suit against Herr, Herr filed a third-party complaint seeking indemnification from the Debtor on the Note. In response to the third-party complaint, the Debtor filed a pro se answer that made no reference to his discharge in bankruptcy. Both Hamilton and Herr moved for summary judgment on their respective complaints. On November 27, 2001, the state court ordered Herr to pay Hamilton's estate $14,771.74 plus interest and ordered the Debtor to indemnify Herr "for any amounts paid by her to the Estate of James J. Hamilton." J.A. at 73 (Nov. 27, 2001, Judgment at 2). On May 9, 2003, the Kentucky Court of Appeals affirmed the judgment. In response to the Debtor's argument that his bankruptcy discharge barred Herr's indemnification claim, the Kentucky Court of Appeals held that discharge in bankruptcy was an affirmative defense that the Debtor had failed to raise. The Kentucky Court of Appeals went on to say that the Debtor's "failure to affirmatively plead discharge in bankruptcy as a defense amounts to a waiver of the defense." J.A. at 147 (May 9, 2003, Op. at 7).
On January 14, 2005, Herr filed a Motion for Entry of Judgment in Kentucky state court. On March 4, 2005, the state court declared that Herr could not collect indemnification from the Debtor because of the Debtor's bankruptcy discharge. However, just one month later, the same court reversed itself in a supplemental judgment holding that the Kentucky Court of Appeals's prior decision stipulated the effect of the Debtor's discharge in bankruptcy: because the Debtor "had not asserted bankruptcy as an affirmative defense[,] that defense is no longer available to him." J.A. at 85-86 (Supp. J. at 1-2). The state court entered judgment in favor of Herr in the amount of $38,329.70 and interest.
On October 3, 2005, the Debtor filed a complaint in the bankruptcy court seeking to "temporarily and permanently enjoin[]" Herr and her attorneys1 "from taking any further actions to attempt to collect on any judgments or debts allegedly owing from [the Debtor] to the Defendant Herr, and [seeking] ... all attorney's fees and costs incurred in prosecuting this action." J.A. at 15 (Bankr.Compl. ¶ 42). In response, Herr asked the district court to apply the Rooker-Feldman doctrine and abstain because "the Bankruptcy Court lacks jurisdiction to collaterally attack the decision because the only way it could do so would be to, in effect, sit as an appellate court over the state trial court." J.A. at 133 (Mem. in Supp. of Mot. for Abstention at 11). On February 2, 2006, the bankruptcy court concluded that "[i]t is clear that the injury alleged by the [Debtor] herein resulted from the state court Judgment and thus Rooker-Feldman directs that the lower Federal Courts lack jurisdiction," and the bankruptcy court dismissed the Debtor's complaint. J.A. at 180 (Feb. 2, 2006, Bankr.Ct.Mem.Op). The Debtor appealed to the United States District Court for the Eastern District of Kentucky. The district court reversed the bankruptcy court's application of the Rooker-Feldman doctrine, holding that the state-court judgment was a modification of the discharge order, something that 11 U.S.C. § 524(a) barred state courts from doing. Herr filed a timely notice of appeal.
When reviewing an order of a bankruptcy court on appeal from a decision of a district court, we review the bankruptcy court's order directly and give no deference to the district court's decision. We review the bankruptcy court's findings of fact under the clearly erroneous standard, asking only whether we are left with a definite and firm conviction that a mistake has been committed. We review conclusions of law made by the bankruptcy court de novo.
Chase Manhattan Mortgage Corp. v. Shapiro (In re Lee), 530 F.3d 458, 463 (6th Cir.2008) (citing Rogan v. Bank One, Nat'l Ass'n (In re Cook), 457 F.3d 561, 565 (6th Cir.2006)).
The Rooker-Feldman doctrine emerged out of two cases, 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). "In both cases, the losing party in state court filed suit in federal court after the state proceedings ended, complaining of an injury caused by the state-court judgment and seeking review and rejection of that judgment." Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005). In effect, the plaintiffs in Rooker and Feldman sought to "appeal" their state cases to a federal district court.
After various circuits adopted differing interpretations of the Rooker-Feldman doctrine, the Supreme Court recently took the opportunity to clarify the doctrine's limited scope:
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