In re Singleton, BAP No. 98-8033.

• Decision Date: 04 March 1999
• Docket Number: BAP No. 98-8033.
• Parties: In re Joe SINGLETON, Jr., Debtor. Joe Singleton, Jr., Plaintiff-Appellant, v. Fifth Third Bank of Western Ohio; L C Charters Incorporated; Gary Haines; and George W. Ledford, Defendants-Appellees.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit

230 B.R. 533 (1999)

In re Joe SINGLETON, Jr., Debtor Joe Singleton, Jr., Plaintiff-Appellant, v. Fifth Third Bank of Western Ohio; L C Charters Incorporated; Gary Haines; and George W. Ledford, Defendants-Appellees.

BAP No. 98-8033.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued September 2, 1998.

Decided March 4, 1999.

COPYRIGHT MATERIAL OMITTED

Brian Petroziello, Petroziello & Stout, Trotwood, Ohio, argued and on brief, for Appellant.

Alan J. Statman, Reisenfeldt & Statman, Cincinnati, Ohio, argued and on brief, for Appellee.

Before: BAXTER, LUNDIN, and RHODES, Bankruptcy Appellate Panel Judges.

OPINION

In a state court proceeding, the Debtor argued, as a defense, that his personal Chapter 13 bankruptcy stayed the sale of property owned by the Debtor's corporation. The state court determined that the automatic stay did not prevent sale of the business property. The Debtor did not appeal the state court decision but instead filed a complaint in the bankruptcy court for violation of the automatic stay. The bankruptcy court dismissed the Debtor's complaint for failure to state a claim, and the Debtor appealed. The Panel finds that the bankruptcy court lacked subject matter jurisdiction over the Debtor's complaint. Accordingly, dismissal was appropriate, and we AFFIRM on the alternative ground of lack of subject matter jurisdiction.

I. ISSUE ON APPEAL

The dispositive issue on appeal is whether the Rooker/Feldman doctrine deprived the bankruptcy court of subject matter jurisdiction to consider the Debtor's complaint.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to review final orders of the bankruptcy court for the Southern District of Ohio pursuant to 28 U.S.C. § 158(c)(1). An order dismissing a complaint is a final order. See Joelson v. United States, 86 F.3d 1413 (6th Cir.1996).

Jurisdictional determinations are reviewed de novo. See, e.g., Greater Detroit Resource Recovery Auth. v. EPA, 916 F.2d 317 (6th Cir.1990). The bankruptcy court's factual findings that are the basis of a jurisdictional determination will not be disturbed unless clearly erroneous. See Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 326 (6th Cir.1990).

III. FACTS

On December 24, 1994, Fifth Third Bank obtained a state court judgment against Joe Singleton, Jr. (the "Debtor"), Porta-Wash, Inc., Automatic Brush Equipment, Inc., and Lois Singleton, the Debtor's spouse. Fifth Third's claims were founded on a note. The obligor on the note was Porta-Wash, and the note was secured by commercial property owned by Porta-Wash. The Debtor is president and sole shareholder of Porta-Wash. The Debtor and Lois Singleton guaranteed the Porta-Wash note. The state court judgment ordered Fifth Third's collateral sold. A sale of the property was scheduled for April 14, 1995.

The Debtor filed an individual Chapter 13 case on April 12, 1995. Porta-Wash did not file bankruptcy. Also on April 12, the Debtor filed a "Notice of Bankruptcy" in the Common Pleas Court of Montgomery County, Ohio, the court that ordered the sale of the Porta-Wash property. The Debtor's notice requested affirmative relief: "Defendant further requests that all proceedings be stayed, including any sale of real estate ordered by the Court, until such other and further orders of the United States Bankruptcy Court."

Fifth Third opposed the Debtor's request for a stay. Fifth Third asserted in the state court that the sale of Porta-Wash's property was not stayed by § 362 of the Bankruptcy Code because Porta-Wash's property was not property of the Debtor or of the Debtor's bankruptcy estate. Likewise, the codebtor stay in § 1301 of the Code was not applicable because the property was security for a commercial debt and the codebtor (Porta-Wash) was a corporation. Fifth Third represented that it would not seek a deficiency against the Debtor.

On April 14, 1995, the Court of Common Pleas denied the Debtor's request to stay the sale of Porta-Wash's property. The state court found that Porta-Wash owned the property, that the underlying debt was not a consumer debt under 11 U.S.C. § 101(8), and that Porta-Wash was not an individual. The state court concluded the sale was not stayed by § 362(a) or § 1301. This order was not appealed. The foreclosure sale proceeded and Defendant, L.C. Charters, Inc., purchased the property.

On April 18, 1995, the Debtor filed an adversary proceeding in the bankruptcy court against Fifth Third, L.C. Charters, Gary Haines (the Sheriff of Montgomery County, Ohio), and George Ledford (the Chapter 13 trustee). The Debtor asserted that Fifth Third's opposition to a stay in the Common Pleas Court was a violation of the automatic stay. The Debtor also argued that the April 14th Order of the Common Pleas Court was entered in violation of the stay.

Fifth Third and Haines filed motions to dismiss the Debtor's complaint for failure to state a claim. The bankruptcy court granted the motions. The Debtor timely appealed.

IV. DISCUSSION

"Federal courts have a continuing obligation to inquire into the basis of subject-matter jurisdiction to satisfy themselves that jurisdiction to entertain an action exists." Campanella v. Commerce Exch. Bank, 137 F.3d 885, 890 (6th Cir.1998) (citing Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351, 1361 (6th Cir.1995), cert. denied, 516 U.S. 1140, 116 S.Ct. 973, 133 L.Ed.2d 893 (1996); United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1325 (6th Cir.1993)). This responsibility extends to inquiry into the jurisdiction of the trial court. See Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986) (citing Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338 (1934)). "This duty applies irrespective of the parties' failure to raise a jurisdictional challenge on their own, and if jurisdiction is lacking, dismissal is mandatory." Campanella, 137 F.3d at 890 (citing FED.R.CIV.P. 12(h)(3)). See also Norris v. Schotten, 146 F.3d 314, 324 n. 5 (6th Cir.) ("Subject matter jurisdiction is an issue that must be raised sua sponte by a federal court where appropriate and can be raised at any time."), cert. denied, ___ U.S. ___, 119 S.Ct. 348, 142 L.Ed.2d 287 (1998) (citation omitted). Consistent with this duty, the Panel's review begins and ends with the question whether the Rooker/Feldman doctrine barred litigation of this action in the bankruptcy court.

The Rooker/Feldman doctrine is derived from two Supreme Court cases decided sixty years apart, 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). The doctrine expresses the principle that "federal trial courts have only original subject matter, and not appellate, jurisdiction and . . . may not entertain appellate review of or collateral attack on a state court judgment." In re Johnson, 210 B.R. 1004, 1006 (Bankr. W.D.Tenn.1997). Rooker/Feldman is a limitation on subject matter jurisdiction in federal courts. See Blanton v. United States, 94 F.3d 227, 233-34 (6th Cir.1996) ("Lower federal courts have no jurisdiction directly to review final decisions of the courts of a state or similar jurisdiction in judicial proceedings.") (citing Feldman, 460 U.S. at 476, 103 S.Ct. 1303; Atlantic Coast Line R.R. v. Brotherhood of Locomotive Eng'rs, 398 U.S. 281, 296, 90 S.Ct. 1739, 1747-48, 26 L.Ed.2d 234 (1970)). The doctrine complements the statutory jurisdictional scheme of the federal courts, including 28 U.S.C. § 1257, that limits federal review of state court proceedings to the United States Supreme Court. See also 28 U.S.C. § 1331 (federal district courts are courts of original jurisdiction); 28 U.S.C. § 1343 ("The district courts shall have original jurisdiction of any civil action authorized by law to be commenced by any person. . . . ").

"The `Rooker-Feldman' Doctrine bars a lower federal court from conducting a virtual `review' of a state court judgment for errors in construing federal law or constitutional claims `inextricably linked' with the state court judgment." Morrow v. Torrance Bank (In re Morrow), 189 B.R. 793, 808-09 (Bankr.C.D.Cal.1995) (footnotes omitted). The state and federal claims need not be identical for the doctrine to apply. "In order to determine whether a claim is `inextricably intertwined' with a state court claim, the federal court must analyze whether the relief requested in the federal action would effectively reverse the state court decision or void its ruling." Bechtold v. City of Rosemount, 104 F.3d 1062, 1065 (8th Cir.1997). See also Hatcher v. United States Trustee (In re Hatcher), 218 B.R. 441 (8th Cir. BAP 1998); Johnson, 210 B.R. at 1006. In other words, "`the federal claim is inextricably intertwined with the state-court judgment if the federal claim succeeds only to the extent that the state court wrongly decided the issues before it.'" Goetzman v. Agribank, FCB (In re Goetzman), 91 F.3d 1173, 1177 (8th Cir.) (quoting Keene Corp. v. Cass, 908 F.2d 293, 296 (8th Cir.1990)), cert. denied, 519 U.S. 1042, 117 S.Ct. 612, 136 L.Ed.2d 537 (1996).

The Rooker/Feldman doctrine is related to but different from preclusion principles. The Sixth Circuit stated that the "doctrine is a combination of the abstention and res judicata doctrines. . . ." United States v. Owens, 54 F.3d 271, 274 (6th Cir.), cert. dismissed, 516 U.S. 983, 116 S.Ct. 492, 133 L.Ed.2d 418 (1995). The Eighth Circuit views Rooker/Feldman as broader than issue or claim preclusion because it does not depend on a final judgment on the merits of an issue. See Goetzman, 91 F.3d at 1178 (citations omitted); Charchenko v. City of Stillwater, 47 F.3d 981, 983 n. 1 (8th Cir.1995) (noting that aside from this distinction the doctrines are extremely similar). The Second Circuit observed, "Of course, the Rooker-Feld...