The Ninth Circuit Bankruptcy Appellate Panel (BAP) recently published a decision that is the first substantive application of the Rooker-Feldman doctrine by the bankruptcy courts of the Ninth Circuit. In re Audre Inc., 97 Daily Journal D.A.R. 57 (Jan. 5, 1998). The judges on the panel used the case to clarify this often confusing doctrine, which, of late, has increasingly been utilized by bankruptcy attorneys. The purpose of this article is to explain the Rooker-Feldman doctrine in order to show how it can be a powerful weapon in the arsenal of any bankruptcy court litigator.

The Rooker-Feldman doctrine, established by two U.S. Supreme Court decisions handed down 60 years apart, provides that a federal district court lacks the jurisdiction to hear a collateral attack on a state court judgment or to review final determinations of state court decisions. Instead, the proper court in which to obtain such review is the U.S. Supreme Court. See Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983).

The federal district courts may exercise only original jurisdiction; they may not exercise appellate jurisdiction over state court decisions.¹ Dubinka v. Judges of Superior Court of State of Cal. for County of Los Angeles, 23 F.3d 218, 221 (9th Cir. 1994). On this basis, the Ninth Circuit has held that, under the Rooker-Feldman doctrine, the federal district court, as a court of original jurisdiction, has no authority to review the final determinations of a state court in judicial proceedings. Worldwide Church of God v. McNair, 805 F. 2d 888, 890 (9th Cir. 1986). If the relief requested in federal court requires a determination that the state court decision is wrong or if it would void the state court ruling, then the issues are "inextricably intertwined" and the district court has no jurisdiction to hear the suit. Charchenko, 47 F.3d at 983. A challenge for lack of subject matter jurisdiction under Rooker-Feldman may be raised at any time, by any party to the proceeding, or sua sponte by the court. Ritter v. Ross, 922 F.2d 750, 752 (7th Cir. 1993), cert. denied, 510 U.S. 1046 (1994).

Similar to res judicata or collateral estoppel, the Rooker-Feldman doctrine is concerned with finality and in ensuring that once a claim has been adjudicated in the state system, a disappointed litigant shall not also have access to the entire federal court system. Even more significant, the Rooker-Feldman doctrine is broader than res judicata and collateral estoppel in that it does not depend on a final judgment on the merits. Charchenko v. City of Stillwater, 47 F.3d 981, 983, n.1 (8th Cir. 1995). In fact, where the Rooker-Feldman doctrine applies, federal courts have no power to address other affirmative defenses, including res judicata and collateral estoppel. Gash Associates v. Village of Rosemont, Illinois, 995 F.2d 726, 728-9 (7th Cir. 1993). The applicability of the Rooker-Feldman doctrine must therefore be decided before considering res judicata and collateral estoppel issues.

Part of the justification for the Rooker-Feldman doctrine’s broad reach is respect for state courts. Underlying the Rooker-Feldman doctrine is a concern with federalism and comity. These concerns are not necessarily present within the concepts of res judicata and collateral estoppel. Res judicata and collateral estoppel are founded on the Full Faith and Credit statute, 28 U.S.C. §1738, which requires federal courts to give state court judgments the same effect that the rendering state would. The Rooker-Feldman doctrine, by contrast, is based upon 28 U.S.C. §1257 and the separate principal that only the U.S. Supreme Court has appellate jurisdiction over the civil judgments of state courts.

Two confusing aspects of the Rooker-Feldman doctrine that were settled by the Audre decision were whether the doctrine applies to judgments that are not from the highest state court and whether the doctrine applies to a judgment on appeal in the state court system.

With regard to the first issue, the confusion developed due to the holding in Resolution Trust Corp. v. Bayside Developers, 43 F.3d 1230 (9th Cir. 1994). In footnote five to that opinion, the court stated that the Rooker-Feldman doctrine applied only to final state court judgments "rendered by the highest court of a state in which a decision could be had." Resolution Trust, 43 F.3d at 1237, n.5. Many litigants, including the appellant in Audre, have taken this quote out of context and attempted to utilize it to thwart the application of the Rooker-Feldman doctrine to a state trial court level decision.

The Audre panel clarified this confusion and placed the quote into its proper precedential perspective. The panel correctly explained that Congress granted a specific exception to the Resolution Trust Corp. to remove a state court case to federal court subject to the strict limitation that there be a final unappealable judgment entered before its appointment. Audre, 97 Daily Journal D.A.R. at 61. The BAP found support in the Ninth Circuit holding that the Rooker-Feldman doctrine "applies even when the state court judgment is not made by the highest state court." Dubinka, 23 F.3d at 221. The BAP concluded that "if the Rooker-Feldman doctrine solely barred federal review of judgments that had been fully appealed through the state court system, it would foster a rivalry between federal and state courts by creating incentives for disappointed state court participants to forum-shop and choose the federal courts instead of appealing their cases to the states’ appellate courts." Audre, 97 Daily Journal D.A.R. at 61.

The second issue, whether the Rooker-Feldman doctrine applies to a judgment on appeal within the state system, is particularly confusing given the law of California, which denies res judicata effect to a state court judgment pending on appeal.² Consistent with the prevailing Ninth Circuit law, the BAP held that the Rooker-Feldman doctrine applies to judgments from any state court, including California, regardless of whether the judgment is on appeal. Audre, 97 Daily Journal D.A.R. at 61; see, also, Worldwide Church, 805 F.2d at 893. By holding that the Rooker-Feldman doctrine applies even when the state court judgment is not made by the highest state court, the Ninth Circuit brought its law in harmony with that of the Second and Fifth Circuits. Worldwide Church, 805 F.2d at 893; Dubinka, 23 F.3d at 331.

The BAP reasoned that if a federal bankruptcy court were to intervene in a state court judgment, it could only do so if the state proceedings were void ab initio; a void judgment being one which from its inception was a complete nullity and without legal effect. Audre, 97 Daily Journal D.A.R. at 61. In the interest of finality, the BAP held that the concept of void judgments was to be narrowly construed. Id.

To best understand how a bankruptcy court practitioner can utilize the Rooker-Feldman doctrine, one must look to examples from recent cases. In Keenan, the chapter 11 debtor requested estimation of a judgment creditor’s claim that arose from a pre-petition state court judgment against him. Keenan, 201 B.R. at 263. The Keenan court found that the claim was neither contingent nor unliquidated. Id. at 266. It concluded that "by enactment of §502(c) [of the Bankruptcy Code], the Congress did not intend to authorize bankruptcy courts to, de facto, conduct an appellate review of a state court judgment, review of which would otherwise violate 28 U.S.C. §1257 and the Rooker-Feldman doctrine." Id. at 267.

In Beardslee, a couple divorced, and the ex-husband was awarded the marital residence and was assigned a number of the joint unsecured debts for payment. In re Beardslee, 209 B.R. 1004 (Bankr. D. Kan. 1997). The ex-husband filed a chapter 7 case, exempted the residence and received a discharge. The ex-wife then obtained a state court judgment ordering the debtor to sell the residence and pay the unsecured debts from the proceeds. The ex-husband appealed, claiming that the ruling was tantamount to collecting a discharged debt as a personal liability, and lost.

While pursuing the appeal, the ex-husband brought an adversary proceeding in the bankruptcy court for contempt and to enjoin the ex-wife from collecting the debt. The bankruptcy court found that if the ex-wife had violated the discharge injunction, to permanently enjoin her at this stage would, in effect, nullify the state court judgment in violation of the Rooker-Feldman doctrine. Beardslee, 209 B.R. at 1012.

In Morrow, after the debtor filed a chapter 7 case, the Commissioner of the California Department of Savings and Loan issued a cease and desist order to prevent him from serving as the chairman of the board of a bank. In re Morrow, 189 B.R. 793 (Bankr. C.D. Cal. 1995). The debtor commenced an adversary proceeding against the commissioner and others seeking, among other things, declaratory and injunctive relief and damages for violation of the bankruptcy code’s anti-discrimination provision.

The Morrow court found that the automatic stay was not implicated by the commissioner’s actions and, thus, the cease and desist order and the state court judgment were not rendered void, but that the judgment lacked res judicata or collateral estoppel effect. However, under the Rooker-Feldman doctrine, the bankruptcy court concluded that it lacked the subject matter jurisdiction to consider the debtor’s claims as doing so would constitute an impermissible appellate review of the state court judgment by a federal trial court. Id. at 810-11.

Conclusion

The Rooker-Feldman doctrine can be confusing, but if properly understood and applied, it can be an important weapon in the arsenal of a bankruptcy court practitioner. A creditor’s attorney should utilize the doctrine as a shield for his/her client’s interests in the defense of objections to a claim, in attempts to estimate a claim at a low amount, and in an attempt to determine that the debt underlying a claim has been discharged. The doctrine also can be used as a sword by an attorney in his/her attempt to enforce a state court judgement in his/her client’s favor and in efforts to seek an injunction. Regardless of one’s defensive or offensive intentions for utilizing the doctrine, given the increasing frequency with which it is being raised in bank-uptcy proceedings, it is in one’s interest to understand its implications.

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Footnotes

¹A collateral attack, with respect to a judicial proceeding, is any attempt to avoid, defeat, evade or deny the force and effect of it in some incidental proceeding other than a direct appeal.Return to text.

²Under state law, California state court judgments are not final until the period during which an aggrieved party may file an appeal has expired, or, in the cases of appeal, the judgment has been affirmed and the case remitted. People v. Mitchell Bros. Santa Ana Theater, 161 Cal. Rptr. 562 (1980). Return to text.