In re Salem, Bankruptcy No. 00-30037 (CGM).

• Decision Date: 05 March 2003
• Docket Number: Bankruptcy No. 00-30037 (CGM).,No. 02 CIV.8040 (WCC).,02 CIV.8040 (WCC).
• Citation: 290 B.R. 479
• Parties: In re Maurice J. SALEM a/k/a Maurice J. Neshewat, Debtor. Michael J. Neshewat, Plaintiff-Appellee, v. Maurice J. Salem, a/k/a Maurice J. Neshewat, Defendant-Appellant.
• Court: U.S. District Court — Southern District of New York

290 B.R. 479

In re Maurice J. SALEM a/k/a Maurice J. Neshewat, Debtor.

Michael J. Neshewat, Plaintiff-Appellee, v. Maurice J. Salem, a/k/a Maurice J. Neshewat, Defendant-Appellant.

Bankruptcy No. 00-30037 (CGM).

No. 02 CIV.8040 (WCC).

United States District Court, S.D. New York.

March 5, 2003.

COPYRIGHT MATERIAL OMITTED

Betancourt, Van Hemmen & Greco (John Greco, Esq., Virginia A. Harper, Esq., of counsel), New York City, for Plaintiff-Appellee.

Maurice J. Salem, Wappingers Falls, NY, pro se.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

Defendant-Appellant Maurice J. Salem, appearing pro se, appeals to this Court pursuant to 28 U.S.C. § 158(a)(1) from an order of the Bankruptcy Court (Hon. Cecelia G. Morris, U.S.B.J.) dated August 8, 2002 (the "8/8/02 Order"), which ruled appellee Michael Neshewat's claim against Salem to be nondischargeable pursuant to 11 U.S.C. § 523(a)(6). In addition, Salem appeals the Bankruptcy Court's denial of his motion for summary judgment, arguing that Neshewat's claim was barred by res judicata, collateral estoppel and lack of subject matter jurisdiction in the state court. Further, Salem contends that in ruling that the debt was nondischargeable, the Bankruptcy Court erred because it relied on a state court default judgment and because the requirement of "willful and malicious injury" was not met. We conclude that the Rooker/Feldman doctrine prevents this Court from reversing or modifying a state court judgment and that the Bankruptcy Court properly relied on the state court judgment, and in doing so, properly found that the "willful and malicious injury" standard was met, and therefore affirm the 8/8/02 Order.

BACKGROUND¹

This law suit is one of many between brothers Salem and Neshewat. In 1996, Neshewat filed in New York State Court an action against Salem for malicious prosecution, abuse of process, defamation, libel and slander. A default judgment was entered against Salem. After a damages inquest, the state court awarded damages in the amount of $166,884.86. Salem filed for bankruptcy in 2000 and later that year Neshewat commenced an adversary proceeding in the Bankruptcy Court seeking a determination that the judgment against Salem was a nondischargeable debt. The Bankruptcy Court conducted a trial and found that Neshewat had proven by a preponderance of the evidence that Salem caused willful and malicious injury to him, and therefore concluded that the debt was nondischargeable. This appeal, over which this Court has jurisdiction pursuant to 28 U.S.C. § 158, followed.

DISCUSSION

I. Standard of Review

On appeal, a bankruptcy court's conclusions of law are reviewed de novo. FED. R. BANKR. 8013; Federal Deposit Ins. Corp. v. Hirsch (In re Colonial Realty Co.), 980 F.2d 125, 130 (2d Cir.1992); Peters v. Hennenhoeffer (In re Peters), 133 B.R. 291, 294 (S.D.N.Y.1991), aff'd, 964 F.2d 166 (2d Cir.1992) (per curiam). However, FED. R. BANKR. 8013 provides that, "Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses." See also Gulf States Exploration Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384, 1388 (2d Cir.1990); Shugrue v. Air Line Pilots Ass'n Int'l (In re Ionosphere Clubs, Inc.), 922 F.2d 984, 988 (2d Cir.1990).

II. Denial of Salem's Cross Motion for Summary Judgment

During the bankruptcy proceeding, Salem cross moved for summary judgment, arguing that res judicata should have barred the state court default judgment because the same claim was previously dismissed on the merits. (Appellant Br. at 12, Ex. R-164.) In addition, Salem argued that Neshewat's state court claim was barred by collateral estoppel because the transactions and occurrences that gave rise to the New York State court action were litigated in a Michigan federal district court. (Id. at 13, Ex. R-165) Both parties' motions for summary judgment were denied.

The issue before this Court is whether the Bankruptcy Court properly denied summary judgment. We conclude that it did. The validity and enforceability of the state court judgment was not an issue for the Bankruptcy Court to decide. In re Krautheimer, 210 B.R. 37, 52 (Bankr.S.D.N.Y.1997). Whether the state court judgment was right or wrong as a matter of fact or law, the judgment should have been and was accorded full faith and credit by the Bankruptcy Court. Id. The issue before the Bankruptcy Court was not whether the state court decision was correct, but whether the state court judgment was dischargeable under § 523(a)(6). Id.

Under the Rooker-Feldman doctrine, "lower federal courts lack subject matter jurisdiction over a case if the exercise of jurisdiction over that case would result in the reversal or modification of a state court judgment." Hachamovitch v. DeBuono, 159 F.3d 687, 693 (2d Cir.1998) (reviewing 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)); Sundwall v. Leuba, No. Civ. A. 300 CV 1309, 2001 WL 58834, at *6 (D.Conn. Jan.23, 2001); Bell v. New York, No. 99 Civ. 5809, 2000 WL 1273637, at *3, 2000 LEXIS 12854, at *10 (S.D.N.Y. Sep. 6, 2000). The Rooker/Feldman doctrine is a form of abstention that applies to both district courts and bankruptcy courts. In re Best Payphones, Inc., No. 01-15472, 2002 WL 31767796, at *6 (Bankr.S.D.N.Y. Dec.11, 2002). Moreover, "even where a state court judgment is not being appealed directly, `the District Court is in essence being called upon to review the state court decision' where `claims presented to a ... District Court are inextricably intertwined with the state court's determination.'" Bell, 2000 WL 1273637, at *3, 2000 LEXIS 12854, at *10 (citing Feldman, 460 U.S. at 462, 103 S.Ct. 1303).

Inextricably intertwined "means, at a minimum, that where a federal plaintiff had an opportunity to litigate a claim in a state proceeding (as either plaintiff or defendant in that proceeding), subsequent litigation of the claim will be barred under the Rooker-Feldman doctrine if it would be barred under the principles of preclusion." Moccio v. New York State Office of Court Admin., 95 F.3d 195, 199-200 (2d Cir.1996). In sum, "a federal claim is `inextricably intertwined' with a state court judgment `if the federal claim succeeds only to the extent that the state court wrongly decided the issues before it.'" Bell, 2000 WL 1273637, at *4, 2000 LEXIS 12854, at * 12 (citations omitted).

Salem appealed the state court judgment to the Appellate Division Second Department, which dismissed the appeal. (Appellant Br., Ex. R-184.) He then applied for leave to appeal to the New York State Court of Appeals, which was denied. (Id.) Salem then effectively asked the Bankruptcy Court in his motion for summary judgment to reverse the state court decision, which is "precisely the sort of action that Rooker-Feldman is designed to prohibit." Sundwall, 2001 WL 58834, at *7. Salem's motion for summary judgment is "inextricably intertwined" with the state court judgment as granting the motion would effectively reverse the state court judgment. Neither the Bankruptcy Court nor this District Court has jurisdiction to declare invalid the state court's judgment.

III. State Court Jurisdiction

In his Memo of Law presented to this Court, Salem argued that the state court judgment is void because the court that entered it lacked subject matter jurisdiction. Salem argues that Justice Bernhard vacated a default judgment against Salem and denied Neshewat's repeated motions to reargue. (Appellant Br. at 17.) He further contends that when Justice Bernhard retired, the case was assigned to Justice Pagones, who subsequently granted Neshewat's motion to reargue and reinstated the default judgment. (Id.; Bankr.Tr. at 7.) Salem argues that Justice Pagones did not have subject matter jurisdiction to "reverse" Justice Bernhard's vacation of the default judgment.

Some courts have held that an exception to the Rooker/Feldman doctrine exists where the state court judgment is void ab initio. In re James, 940 F.2d 46, 52 (3rd Cir.1991); In re Gruntz, 202 F.3d 1074, 1082 (9th Cir.2000). However, these cases only recognized state court judgments as void ab initio in bankruptcy cases where state court actions violated the automatic stay. Schmitt v. Schmitt, 165 F.Supp.2d 789, 796 (N.D.Ill.2001); Drewicz v. Dachis, No. 01 C.1928, 2002 WL 849810 at *3 (N.D.Ill. May 2, 2002). The In re James court did in fact indicate that a state court judgment could be void ab initio based on a lack of personal or subject matter jurisdiction, but only in dicta. 940 F.2d at 51. On the contrary, other courts have held that no exception to the Rooker/Feldman doctrine exists when there is a challenge to the state court's personal jurisdiction or subject matter jurisdiction. Schmitt, 165 F.Supp.2d at 796-97; Lubben v. Selective Serv. Sys. Local Bd. No. 27, 453 F.2d 645, 649 (1st Cir.1972). The Schmitt court held that state courts are "perfectly well qualified" to determine whether service of process was constitutional and added that it would be inappropriate for a federal court to "second-guess" that determination. 165 F.Supp.2d at 797. Similarly, the Lubben court stated that the concept of a void judgment should be narrowly construed and went on to explain that "[a] court has the power to determine its own jurisdiction, and an error in that determination will not render the judgment void. Only in the rare instance of a clear usurpation of power will a judgment be rendered void." 453 F.2d at 649. Further, a Southern District case, and in fact the only case in the Second Circuit that addresses this issue, stated that the results of a state court judgment cannot be reconsidered by a federal court where the state court would not vacate the judgment as for fraud...