McClafferty v. DeWine (In re McClafferty)

Decision Date14 April 2017
Docket NumberCase No. 15–51397,Adversary Proceeding No. 16–5017
Citation571 B.R. 267
Parties IN RE Brett Matthew MCCLAFFERTY, Debtors. Brett Matthew McClafferty, Plaintiff, v. Michael DeWine, Ohio Attorney General, et al., Defendants.
CourtU.S. Bankruptcy Court — Northern District of Ohio

Brett McClafferty, pro se

Alison L. Archer, Trish D. Lazich, Ohio Attorney General's Office, Cleveland, OH, Jordan Berman, Columbus, OH, for Defendants


ALAN M. KOSCHIK, U.S. Bankruptcy Judge

Now before the Court is the motion ("Motion") to dismiss the complaint ("Complaint") of Debtor–Plaintiff Brett Matthew McClafferty ("Debtor" or "Plaintiff") filed by Defendants Michael DeWine and Rebecca Schlag, each in their capacities as Attorney General and Assistant Attorney General for the State of Ohio, respectively ("Defendants" or the "AG") on the alternative bases of lack of subject matter jurisdiction pursuant to the RookerFeldman doctrine, or failure to state a claim, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, incorporated into this adversary proceeding by Rule 7012 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth herein, the Motion will be granted.


This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334 and General Order No. 2012–7 entered by the United States District Court for the Northern District of Ohio on April 4, 2012. The question of this Court's jurisdiction over this adversary proceeding is central to the pending Motion. Venue is proper pursuant to 28 U.S.C. § 1409(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O).


Because this matter is before the Court on a Rule 12 motion filed prior to a responsive pleading from the Defendants, the factual record is thin.

The AG filed a complaint against the Debtor and Mac Contracting, Inc., an Ohio corporation wholly owned by the Debtor, in the Summit County Court of Common Pleas on May 15, 2015, and amended that complaint on May 21, 2015. The AG filed the docket of that state court action, Summit C.P. Case No. CV–2015–05–2806, as an exhibit to the instant Motion in this Court. (Motion Ex. 1.) The AG did not obtain service of the complaint in that action on either defendant therein until considerably later, owing in part due to failures of certified mail service and in part due to the bankruptcy stay. The complaint was not an exhibit to the Motion.

The Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on June 8, 2015. On June 12, 2015, he filed a suggestion of stay in the state court action. On June 30, 2015, the state court stayed the proceedings and transferred the state court action to its inactive docket.

The AG did not seek relief from the automatic stay in this Court pursuant to 11 U.S.C. § 362(d). Instead, on July 15, 2015, the AG filed a motion for reconsideration of the state court's June 30, 2015 decision to stay that proceeding. A copy of that motion for reconsideration is attached to the Motion. (Motion Ex. 2.) In the motion for reconsideration presented to the state court, the AG argued that (a) the stay did not apply to Mac Contracting because Mac Contracting was a separate entity from the Debtor and had not filed for bankruptcy itself, and (b) the action against the Debtor was not stayed because the Bankruptcy Code provides that the filing of a bankruptcy case does not stay actions by governmental units to enforce the police and regulatory powers of such governmental units. Neither the Debtor nor Mac Contracting filed a response. On July 31, 2015, the state court granted the AG's motion and returned that case to the active docket. It is not clear from the state court docket whether the state court entered a written opinion supporting this decision. However, if such a written exposition exists, it was not filed with this Court in support of the Motion.

On September 14, 2015, the AG moved for default judgment, and the state court ultimately entered a default judgment on December 10, 2015. The AG has not submitted a copy of the default judgment to the Court in support of the Motion, if indeed such an order exists in addition to the text reflected in the state court docket. A motion to vacate that default judgment was filed on December 18, 2015; it is unclear whether this motion was made by Mac Contracting or by both the Debtor and Mac Contracting. The state court denied the motion to vacate on February 22, 2016.

The Debtor commenced this adversary proceeding on March 1, 2016. The Debtor's complaint alleges that the continuation of case CV–2015–05–2806 against him in the state court violated the automatic stay of the Bankruptcy Code, that "Defendants sought monetary damages, penalties, fines, and other monies," and "the default judgment [in the state court proceeding], although not yet determined, is expected to exceed one hundred thousand dollars ($100,000.00)." (Complaint at 2.)

On March 31, 2016, the AG filed the instant Motion in lieu of an answer. The AG argues that this Court lacks jurisdiction to overturn the ruling of the state court that the automatic stay did not apply to the state court case, based on the RookerFeldman doctrine. The AG argues further—in the alternative, though the AG does not expressly characterize it as such—that the legal reasoning of the state court was correct and that the automatic stay does not apply to the state court case, because that action was an exercise of the police and regulatory powers of the State of Ohio through its attorney general to enforce its consumer protection laws. The AG describes the complaint as "seeking, inter alia , a permanent injunction ordering [the Debtor and Mac Contracting] to cease their unfair and deceptive practices against Ohio consumers." (Motion at 2.)

The Debtor filed his response to the Motion on April 19, 2016 (Docket No. 6) (the "Response"). The Debtor argues that "the state case in question was a civil case in which the Ohio Attorney General was acting as de facto counsel for a number of homeowners in a de facto class action lawsuit, alleging violations of the Consumer Sales Protection Act [sic],1 " and sought "monetary damages, punitive damages, and penalties." (Response at 4.) The Debtor argues that on that basis that the state court action is not an exercise of the police and regulatory power that would be excepted from the stay.

The AG filed his reply in support of the Motion on May 20, 2016 (Docket No. 11) (the "Reply"). In its reply, the AG highlights the distinction between modifying the automatic stay and determining that the stay is inapplicable, arguing again that non-bankruptcy courts may do the latter and that such decisions, if made by a state court, are not subject to bankruptcy court review pursuant to the RookerFeldman doctrine. The AG's reply also reiterated, on the merits, that the stay did not apply because the state court action was brought pursuant to the police and regulatory powers of the State of Ohio, and on that basis, the complaint should be dismissed for failure to state a claim. The Court then took the matter under advisement.

A. Standard for Motions to Dismiss Under Civil Rules 12(b)(6) and 12(b)(1)

To survive a Rule 12(b)(6) motion, "a complaint must contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.E.2d. 868 (2009) (quoting Bell Atl. Corp v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). "If the plaintiffs do not nudge their claims across the line from conceivable to plausible, their complaint must be dismissed." In re City of Detroit, Mich. , 841 F.3d 684, 699 (6th Cir. 2016) (quoting Lutz v. Chesapeake Appalachia, L.L.C. , 717 F.3d 459, 464 (6th Cir. 2013). "On the other hand, when considering a Rule 12(b)(6) motion to dismiss, the trial court must ‘construe the complaint in the light most favorable to the plaintiff and accept all factual allegations as true.’ " Adkisson v. Jacobs Engineering Grp., Inc. , 790 F.3d 641, 647 (6th Cir. 2015) (quoting Laborers' Local 265 Pension Fund v. iShares Trust , 769 F.3d 399, 403 (6th Cir. 2014) ).

Rule 12(b)(1) motions challenging the subject-matter jurisdiction of a federal court generally come in two varieties: a facial attack or a factual attack. Gentek Bldg. Prods., Inc. v. Sherwin–Williams Co. , 491 F.3d 320, 330 (6th Cir. 2007) (citing Ohio Nat'l Life Ins. Co. v. U.S. , 922 F.2d 320, 325 (6th Cir. 1990) ). A facial attack on the subject-matter jurisdiction alleged in the complaint questions merely the sufficiency of the pleading. When reviewing a facial attack, a district court takes the allegations in the complaint as true, which is a similar safeguard to the one employed in adjudicating Rule 12(b)(6) motions to dismiss. Id. However, when there is a factual attack on the subject-matter jurisdiction alleged in the complaint, no presumptive truthfulness applies to the allegations. When a factual attack, also known as a "speaking motion," raises a factual controversy, the district court must weigh the conflicting evidence to arrive at the factual predicate that subject-matter jurisdiction does or does not exist. Id. In its review, the district court has wide discretion to allow affidavits, documents, and even a limited evidentiary hearing to resolve jurisdictional facts. Id.

B. The RookerFeldman Doctrine Does Not Preclude the Bankruptcy Court's Review of the Applicability of the Bankruptcy Code's Automatic Stay Notwithstanding the Concurrent Jurisdiction of Nonbankruptcy Courts to Consider the Same Issue.

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