In Re: Heckert v. Dotson

• Decision Date: 23 September 1999
• Docket Number: No. 98-2825,98-2825
• Citation: 272 F.3d 253
• Parties: (4th Cir. 2001) In Re: RANSFORD CRAIG HECKERT, Debtor. RANSFORD CRAIG HECKERT, a/k/a R.C. Heck Heckert, Plaintiff-Appellant, v. HAROLD L. DOTSON, Defendant-Appellee. Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 253

272 F.3d 253 (4th Cir. 2001)

In Re: RANSFORD CRAIG HECKERT, Debtor.

RANSFORD CRAIG HECKERT, a/k/a R.C. Heck Heckert, Plaintiff-Appellant, v. HAROLD L. DOTSON, Defendant-Appellee.

No. 98-2825

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: September 23, 1999

Decided: November 16, 2001

Appeal from the United States District Court for the Southern District of West Virginia, at Parkersburg. Joseph Robert Goodwin, District Judge.

(CA-98-242-6, BK-87-40033, AP-87-0107)

[Copyrighted Material Omitted] COUNSEL ARGUED: Thomas J. Gillooly, Charleston, West Virginia, for Appellant. William Berkley Richardson, Jr., Parkersburg, West Virginia, for Appellee.

Before WIDENER and MICHAEL, Circuit Judges, and Frank J. MAGILL, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, sitting by designation.

Vacated and remanded with instructions by published opinion. Judge Widener wrote the opinion, in which Judge Michael and Senior Judge Magill joined.

OPINION

WIDENER, Circuit Judge:

Plaintiff, Ransford Craig Heckert, appeals the district court's order affirming the bankruptcy court's entry of a judgment order with respect to a nondischargeable debt that a state court had already reduced to judgment. Heckert filed a motion to vacate the bankruptcy court's order under Fed. R. Civ. P. 60(b)(4) based on lack of jurisdiction. The bankruptcy court denied his motion, and the district court affirmed that decision on appeal, Heckert v. Dotson (In re Heckert), 226 B.R. 558 (S.D. W. Va. 1998). We vacate the district court's judgment and leave in effect the state court judgment and the holding of the bankruptcy court that the state judgment debt was not dischargeable. We vacate and remand for proceedings consistent with this opinion.

I.

In 1983, defendant, Harold L. Dotson, obtained a jury verdict in the Circuit Court of Wood County, West Virginia for $7000 against Heckert in a suit for wrongful discharge from employment. West Virginia has a ten-year statute of limitations on the execution of judgments. W. Va. Code SS 38-3-18, -19 (1923). Heckert filed a Chapter 7 bankruptcy petition in 1987. Dotson brought an adversary proceeding in the bankruptcy case and obtained an order on March 8, 1988 declaring that the $7000 state judgment was nondischargeable.¹ But, in the March 8, 1988 order of the bankruptcy court it also entered its own judgment in Dotson's favor for $7000 plus both accrued interest at the West Virginia rate of 10% per annum until June 15, 1997, the date of filing of the petition and interest accruing "at the federal rate" commencing June 15, 1987.

Dotson made his first efforts to collect the bankruptcy court judgment in November 1996 and obtained a writ of execution on the bankruptcy court judgment in November 1996. The time allowed for executing on the West Virginia judgment under West Virginia law had expired in 1993 under W. Va. Code SS 38-3-18. In connection with the collection attempt, the bankruptcy court reopened the 1987 adversary proceeding on July 14, 1997. Heckert then filed a motion to vacate the 1988 bankruptcy court judgment under Fed. R. Civ. P. 60(b)(4), claiming the judgment was void for lack of jurisdiction because the bankruptcy court entered a judgment on an already existing state court judgment, which was beyond the scope of the bankruptcy court's powers in the proceeding to determine dischargeability of the state court judgment. He also moved to quash the execution issued on the judgment of the bankruptcy court. The bankruptcy court denied the motions to vacate the judgment and quash the execution on December 17, 1997. Heckert appealed that decision to the District Court for the Southern District of West Virginia. The district court affirmed the bankruptcy court's determination on November 12, 1998 finding that the bankruptcy court, "to the extent that bankruptcy courts have jurisdiction to enter money judgment orders following adversary proceedings," had jurisdiction to enter a judgment in the dischargeability proceeding concerning a debt already reduced to judgment in a state court. It held that "such jurisdiction is not dependent on the absence of an underlying state court award." Heckert, 226 B.R. at 559. Heckert now appeals the district court's judgment.

II.

First, we find that, contrary to Dotson's arguments, this appeal is not a collateral attack on an original determination of subject matter jurisdiction that is barred by Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371 (1940), for this case is not a collateral attack. The bankruptcy court reopened the adversary proceeding by order on July 14, 1997. This appeal flows directly from review of a motion and decision made in the reopened case, not from any collateral attack.

Dotson also appears to argue that Heckert's motion to set aside the judgment of the bankruptcy court involved in this case was time barred. Heckert filed his motion to set aside the said judgment eight years after the judgment at issue here was entered by the bankruptcy court. Heckert, however, filed the motion under Fed. R. Civ. P. 60(b)(4), which is not subject to the reasonable time limitations imposed in the other provisions of Rule 60(b). See, e.g., Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987), cert. denied, 484 U.S. 976 (1987) (citing 11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure S 2862, Rule 60 (1973)). Therefore, the judgment may be challenged under Rule 60(b)(4).

III.

Heckert argues that this judgment is void under Rule 60(b)(4) because the bankruptcy court had no authority, and thus no jurisdiction, to enter a judgment on a nondischargeable debt that a state court had already reduced to judgment. Certainly, in a proper case, bankruptcy courts have the power to issue judgments, see 28 U.S.C. S 157(b)(1), which grants authority to the bankruptcy judges to "enter appropriate orders and judgments" in title 11 cases, and see also 11 U.S.C. S 105(a), which grants power to bankruptcy courts to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Entry of such judgments has been allowed where there is an unliquidated claim that a party seeks to have determined in an adversarial dischargeability proceeding. See Cowen v. Kennedy, 108 F.3d 1015, 1018 (8th Cir. 1997) (allowing bankruptcy court to adjudicate issues of liability and damages in addition to determining dischargeability of debt where there was no prior state court judgement fixing liability); Longo v. McLaren, 3 F.3d 958, 966 (6th Cir. 1993) (same); N.I.S. Corp. v. Hallahan, 936 F.2d 1496, 1508 (7th Cir. 1991) (same). However, when a prior state court judgment is the debt at issue, we are of opinion that the bankruptcy court, in an adversary proceeding to determine whether the debt is dischargeable, cannot issue its own judgment on the debt to replace the state court judgment previously obtained. All the bankruptcy court is called upon, or authorized to do, is to determine whether or not the state judgment is dischargeable.

First, the bankruptcy court's entry of its own money judgment to replace the state court judgment is barred by res judicata. A federal court, as a matter of full faith and credit, under 28 U.S.C. S 1738, must give a state court judgment the same preclusive effect "as the courts of such State" would give. See 28 U.S.C. S 1738.² The Supreme Court and our cases have made clear that a federal court must "refer to the preclusion law of the State in which the judgment was rendered." Marese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985). The policy of full faith and credit is so strong that federal courts must give prior state judgments res judicata effect even where the original case involved some exclusively federal causes. See Matsushita Electric Industrial Co. v. Epstein, 516 U.S. 367, 373 (1996) (applying res judicata to Delaware Chancery Court's approval of settlement releasing all state and federal claims).

Only in the most rare case, however, may federal courts refuse to give full faith and credit to a state court judgment, and then only if "a later statute contains an express or implied partial repeal" of S 1738. Kremer v. Chemical Contr. Corp. 456 U.S. 461, 468 (1982); In re Genesys Data Technologies, Inc., 204 F.3d 124, 128 (4th Cir. 2000). There is neither express nor implied partial repeal in this case worked by the bankruptcy code nor its related statutes.

Two of our recent cases are instructive in this regard. See In re Genesys Data Technologies, 204 F.3d 124 at 127-129 (examining application of full faith and credit to bankruptcy allowance proceedings); In re Ansari, 113 F.3d 17 at 19-20 (4th Cir. 1997) (applying Virginia collateral estoppel rules in bankruptcy dischargeability proceeding). In In re Genesys, we examined the effect of an Hawai'i state court default judgment on a later involuntary bankruptcy allowance proceeding. In accordance with the Supreme Court's Marese decision, we examined whether the bankruptcy code contained an implied partial repeal of S 1738. We explained that, although certain claims of fraud otherwise barred by res judicata can be brought by claimant to defend against a claim of dischargeability, "when a bankruptcy court is considering the validity of a claim upon which debt is based, no new special bankruptcy defense is involved and so res judicata applies as it ordinarily would." 204 F.3d at 128. Thus, we held that if the Hawai'i state court would give the default judgment preclusive effect, then the federal court must give it that same effect. 204 F.3d at 130. However, there remained a question of whether the judgment was void under Hawai'i Rule of Civil Procedure 54(b) on the ground that the award may have been "different in kind from or exceed[ing] in amount that prayed for in the demand for judgment." 204 F.3d at 132 (alteration in...