Patti v. Fred Ehrlich, Pc

• Decision Date: 08 January 2003
• Docket Number: Civ. A. No. 01-5362.
• Citation: 304 B.R. 182
• Parties: George L. PATTI (Debtor), Plaintiff, v. FRED EHRLICH, PC, et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

304 B.R. 182

George L. PATTI (Debtor), Plaintiff, v. FRED EHRLICH, PC, et al., Defendants.

Civ. A. No. 01-5362.

United States District Court, E.D. Pennsylvania.

January 8, 2003.

COPYRIGHT MATERIAL OMITTED

Jeffry B. Herman, Media, PA, for Appellant.

MEMORANDUM AND ORDER

TUCKER, District Judge.

Presently before this Court is a bankruptcy appeal filed by Appellant/Defendant Fred Ehrlich (Doc. 3), a brief in opposition filed by Respondent/Co-Debtor Linda Camerota (Doc. 4), and a reply brief submitted by Appellant Ehrlich (Doc. 5). For the reasons set forth below, the Court denies the appeal and affirms the bankruptcy court's order of September 14, 2001.

I. BACKGROUND

A. Facts

On March 31, 1994, Linder Camerota, the co-debtor, retained Appellant, an attorney, to represent her in her divorce. In June 1994, Mrs. Camerota became seriously ill and decided she could no manage the divorce case against her husband. Her brother, George L. Patti, the debtor, took over management of the divorce action and assumed responsibility for paying Appellant. Appellant refused to continue representing Mrs. Camerota until he was paid for the services he had already provided. In response to this demand, Mr. Patti paid Appellant $2,000 and entered into a Stipulation of Settlement (the "Stipulation") with Appellant. The Stipulation provided that Mr. Patti would become a co-obligor with Mrs. Camerota for the outstanding legal fees owed to Appellant totaling $21,745.78. Both Mr. Patti and Mrs. Camerota signed the Stipulation.

Some time in 1995, Appellant filed suit in the Supreme Court of New York, a trial court, to recover his legal fees, naming both Mrs. Camerota and Mr. Patti as defendants.¹ The New York trial court denied cross-motions for summary judgment, and Appellant appealed the decision to the state's intermediate appellate court. While the appeal was pending, Mr. Patti filed for bankruptcy on June 17, 1998. No evidence was presented to show that state courts were notified that Mr. Patti had filed for bankruptcy protection, although Appellant was aware of the filing himself.

On June 16, 2000, Appellant's suit against Mr. Patti was discontinued. Approximately one month later, the state appeals court modified the trial court's ruling and granted summary judgment for Appellant against Mrs. Camerota and the remaining defendants. Ehrlich v. Tullo, 274 A.D.2d 303, 710 N.Y.S.2d 572 (N.Y.App.Div.2000). On remand, the trial court entered final judgment in favor of Appellant on October 13, 2000. These events took place while Mr. Patti's bankruptcy petition was still pending.

On April 24, 2001, the bankruptcy court dismissed Mr. Patti's case on motion of the Chapter 13 Trustee. Appellant then transferred the New York judgments to New Jersey, after which the Chapter 13 Trustee moved to vacate the dismissal. In response, Appellant filed a Motion for Determination of the Applicability of the Automatic Stay or, alternatively, Relief from the Co-Debtor Stay. On June 7, 2001, apparently after Appellant had filed the aforementioned motion, Mrs. Camerota filed a motion to vacate the New York judgments and for sanctions against Appellant. On June 13, 2001, Mr. Patti's bankruptcy was reinstated, and five days later, on June 18, 2001, the bankruptcy court granted Appellant's motion for relief.

B. Bankruptcy Court's Ruling

The bankruptcy court denied Mrs. Camerota's motion for sanctions and to vacate the New York and New Jersey judgments. The bankruptcy court found that the New York judgments were void ab initio as the judgments were rendered after the bankruptcy petition was filed, in violation of the automatic co-debtor stay in effect pursuant to 11 U.S.C. § 1301(a). In re Patti, 2001 WL 1188218, at *7, 2001 Bankr.LEXIS 1267 at *22-23. The bankruptcy court concluded it would be superfluous to vacate what was already void. Regarding the co-debtor stay, the bankruptcy court found that Mrs. Camerota fell under its protection since she was liable for the legal fees owed Appellant, as was Mr. Patti, the debtor. By virtue of Mr. Patti filing his bankruptcy petition, both he and Mrs. Camerota, a co-debtor, were protected from any judgments rendered by a non-bankruptcy court thereafter.

As to Appellant, the bankruptcy court concluded that he had willfully violated the co-debtor stay issued by the court when he continued to prosecute his claims in the state courts. Id., 2001 WL 1188218 at *7, 2001 Bankr.LEXIS 1267 at *23. The court reasoned that since Appellant knew that Mr. Patti had filed a petition for bankruptcy protection, he was under an obligation to inform the New York courts of Mr. Patti's filing and the co-debtor stay. In fact, the court concluded Appellant had an affirmative duty to seek vacation of the New York judgments. By failing to take either action, the court found Appellant had violated the co-debtor stay and he was adjudged to be in civil contempt.

II. DISCUSSION

A. Jurisdiction and Standard of Review

Appellate jurisdiction in this matter is established pursuant to 28 U.S.C. § 158(a)(1) and Federal Rules of Bankruptcy Procedure 8001. In reviewing an appeal from a bankruptcy court, district courts apply "a clearly erroneous standard to findings of fact, while applying a de novo standard of review to questions of law." Berkery v. Commissioner, 192 B.R. 835, 837 (E.D.Pa.1996) (citing Universal Minerals Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir.1981)) (add'l citation omitted).

B. Rooker-Feldman Doctrine

The issue before this Court is whether the bankruptcy court lacked subject matter jurisdiction to issue its order finding the Appellant in civil contempt for violating the co-debtor stay, in violation of the Rooker-Feldman doctrine. As a general rule, lower federal courts are without power to sit in direct review of state court decisions. District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 483, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). "The Rooker/Feldman doctrine [,]... 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... Feldman, [supra,]... expresses the principle that `federal trial courts have only original subject matter, and not appellate, jurisdiction [and]... may not entertain appellate review of a state court judgment.'" In re Singleton, 230 B.R. 533, 536 (6th Cir. BAP 1999) (citation omitted). Moreover, if an issue presented to a federal court is "inextricably intertwined" with the state court's decision, and in ruling on the issue, the district court is in essence being called upon to review the state court decision, the district court is similarly without jurisdiction to consider the matter. Feldman, 460 U.S. at 483, 103 S.Ct. 1303. A claim is inextricably intertwined with a state court decision if the relief requested from the federal court would effectively reverse the state court or void its ruling. In re Siskin, 258 B.R. 554, 564 (Bankr.E.D.N.Y.2001) (citing In re Hatcher, 218 B.R. 441, 447 (8th Cir. BAP 1998), aff'd, 175 F.3d 1024 (8th Cir.1999)). However, where a state court does not actually litigate a claim, federal courts may retain subject matter jurisdiction. Parkview Assoc. Partnership v. City of Lebanon, 225 F.3d 321, 325-26 (3d Cir.2000).

This principle was applied in Goetzman v. Agribank, 91 F.3d 1173 (8th Cir.1996), a case where the appellant-debtor motioned the bankruptcy court to determine the amount of the mortgage he owed to a creditor, Agribank. The Eighth Circuit held that the bankruptcy court was prohibited by the Rooker-Feldman doctrine from adjudicating the motion since the state trial court had already determined how much Agribank was owed by the appellant-debtor. Id. at 1177. Any decision by the bankruptcy court on the question of the appellant-debtor's mortgage liability would have effectively reversed or voided the state court's decision. Id. See also In re Giberson, 260 B.R. 78, 83 (Bankr.D.N.J.2001) (Rooker-Feldman doctrine prohibited bankruptcy court from adjudicating ownership of property where the issue was actually litigated and finally decided in by a state court adjudicating a divorce action).

In the present case, the issues before the bankruptcy court differed from those at issue before the New York courts. The bankruptcy judge decided whether the nature of the debt owed by Mr. Patti to Appellant was "consumer debt" and subject to the automatic stay as to Mr. Patti and any co-debtors (here, Mrs. Camerota), and whether Appellant violated the stay during the relevant time period. The state courts addressed whether Mrs. Camerota was liable to Appellant for outstanding legal fees. The bankruptcy court did not decide this latter question, and was not therefore precluded by the Rooker-Feldman doctrine from considering whether Appellant violated the co-debtor stay by continuing to prosecute his lawsuit in the state courts once it determined the legal fees were consumer debt.

As to the applicability of the co-debtor stay, the New York appellate and trial courts did not entered final decisions until July and October of 2000, respectively, over two years after the co-debtor stay went into effect in June 1998. As noted above, by operation of law, any litigation against Mrs. Camerota regarding the outstanding legal fees was prohibited once the stay took effect. A "stay is `automatic'... triggered upon filing of a bankruptcy petition regardless of whether the other parties to the stayed proceeding are aware that a petition has been filed." Constitution Bank v. Tubbs, 68 F.3d 685, 691 (3d Cir.1995) (emphasis added). Thus, the bankruptcy court correctly found that the Rooker-Feldman doctrine did not apply and that any subsequent decisions issued by the New York courts were void ab initio.² See id. at 692 n. 6 (3d Cir.1995) ("judicial actions and proceedings against the debtor [or co-debtor] are void ab initio absent relief from the stay.").

C. Bankruptcy Court's Contempt...