In Re: Peter Martin ( 2004 )

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
4-20-2004
In Re: Peter Martin
Precedential or Non-Precedential: Non-Precedential
Docket No. 03-3111
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Recommended Citation
"In Re: Peter Martin " (2004). 2004 Decisions. Paper 802.
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 03-3111
___________
IN RE: PETER MARTIN,
Debtor
ELISSA ENAX, formerly known as ELISSA MARTIN; ERIK MARTIN;
LIEBOWITZ, LIEBOWITZ & STERN, ESQUIRES
v.
PETER MARTIN
ROBERT B. WASSERMAN,
Trustee
Elissa Enax, Erik Martin and Liebowitz, Liebowitz & Stern, Esqs.,
Appellants
___________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. No. 02-cv-04471)
District Judge: Honorable Dickinson R. Debevoise
___________
Submitted Under Third Circuit LAR 34.1(a)
March 12, 2004
BEFORE: SLOVITER, NYGAARD, Circuit Judges.
and SHADUR,* District Judge.
* Honorable Milton I. Shadur, Senior District Judge for the United States District
Court for the Northern District of Illinois, sitting by designation.
(Filed April 20, 2004)
___________
OPINION OF THE COURT
___________
SHADUR, District Judge.
Elissa Enax (formerly Elissa Martin) (“Elissa”), Erik Martin (“Erik”)
and the law firm of Liebowitz, Liebowitz & Stern (“Liebowitz Firm”) want Peter Martin
(“Peter”) to pay them for pre-petition claims that they argue should not have been
discharged in Peter's Chapter 7 bankruptcy. 1 After the Bankruptcy Court ruled that
Elissa, Erik, and Liebowitz Firm were barred under claim preclusion principles from
challenging the discharge of their claims, the District Court affirmed that ruling on
appeal. After reviewing the parties' submissions, we agree with the courts below and also
affirm.
Although we write primarily for the parties, a fairly extended outline of the
factual background is needed to focus the issues before us. After Elissa and Peter were
divorced in 1997, on January 9, 1998 the state divorce court entered a $70,000 judgment
against Peter for Elissa's attorneys' fees. It stated in the course of that judgment:
This award of counsel fees is in the nature of alimony and shall not be
dischargeable in bankruptcy.
1
We refer to the individual parties by their first names because Erik and Peter still
share the last name Martin, though Elissa no longer does.
2
In April 1998 Peter filed for bankruptcy and listed the attorneys' fees as well as a
$12,500 indebtedness to Erik (also at issue in this appeal) as unsecured claims to be
discharged in bankruptcy. On July 6, 1998 Elissa and Erik filed an adversary complaint
in the Bankruptcy Court, seeking a determination that their claims were not dischargeable
under 11 U.S.C. §523(a)(2) and (5). But they failed to conduct discovery or otherwise
advance their claim, so in March 1999 Peter moved to dismiss the adversary proceeding.
On April 20, 1999, upon receiving a stipulation of dismissal by all parties involved, the
Bankruptcy Court granted Peter's motion and dismissed the adversary proceeding with
prejudice.
After their federal complaint was dismissed, Elissa and Erik went back to state
court to file a malpractice action against the attorney who had represented them in the
adversary proceeding, but the state court dismissed that action. In doing so the state court
ruled that Elissa and Erik had suffered no harm because, in its view, the award for
attorneys' fees was not dischargeable despite the Bankruptcy Court's order to the contrary.
Elissa and Erik did not take an appeal from that dismissal. Instead they sought and
obtained a writ of execution, based on the state court decision and the ruling in the earlier
divorce proceeding, to collect on the $70,000 judgment. On May 20, 2002 Peter
responded by moving to reopen his bankruptcy case and to hold Elissa, Erik and
Liebowitz Firm in contempt for violating the discharge injunction. In return Elissa, Erik
and Liebowitz Firm filed their own motion, asking the Bankruptcy Court (1) to vacate the
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judgment that had discharged their claims and (2) to rule that their claims were not in fact
dischargeable.
As mentioned at the outset of ths opinion, the Bankruptcy Court ruled in Peter's
favor and against Elissa, Erik and Liebowitz Firm, although it chose not to impose any
sanctions for their failure to comply with the discharge injunction. That was followed by
the District Court's affirmance and this timely appeal.
We review the District Court's legal determination of dischargeability de novo (In
re Kiwi Int'l Air Lines, Inc., 344 F.3d 311, 316 (3d Cir. 2003)) and its refusal to vacate
the discharge for abuse of discretion (In re Staffer, 306 F.3d 967, 971 (9th Cir. 2002); cf.
Brown v. Philadelphia Housing Auth., 350 F.3d 338, 342 (3d Cir. 2003), a comparable
holding as to Fed. R. Civ. P. 60(b) denials in a nonbankruptcy context). Under those
standards we conclude that the District Court correctly applied the doctrine of claim
preclusion2 to bar Elissa, Erik and Liebowitz Firm from relitigating the dischargeability of
their claims (In re Continental Airlines, Inc., 279 F.3d 226, 232 (3d Cir. 2002);
Restatement (Second) of Judgments §17 (1982)). Despite their efforts to obfuscate the
issue on this appeal, it is plain to see that Elissa, Erik and Liebowitz Firm had the
untrammeled ability to challenge the dischargeability of their claims in the adversary
proceeding that they themselves had initiated. Instead they failed to conduct discovery
2
We employ that term in preference to the older and less precise “res judicata”
(Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 77 n.1 (1989)).
4
and eventually consented to a dismissal with prejudice. As for their current arguments
(1) that the state court's pre-petition determination could and should have been given
preclusive effect and (2) that Peter somehow mischaracterized the claims in his
bankruptcy schedule, Elissa, Erik and Liebowitz Firm had the full opportunity to make
and advance those arguments in their own adversary proceeding. Their failure to pursue
their claim then prevents them from asserting it now.3
In part the District Court examined and rejected the further contention that the
Rooker-Feldman doctrine (D.C. Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983);
Rooker v. Fidelity Trust Co., 263 U.S. 413, 416 (1923)) stripped the Bankruptcy Court of
jurisdiction to decide the dischargeability issue. It ruled that the state court determination
was invalid because the state court lacked authority to make a dischargeability
determination before a bankruptcy petition was filed and that in any event the lack of
subject matter jurisdiction would not justify vacating the dischargeability determination at
such a late date. Although we agree that Rooker-Feldman did not bar the Bankruptcy
Court from considering the adversary complaint, we arrive at that conclusion in a way
that does not require us to get into the other issues discussed by the District Court.
Rooker-Feldman principles prohibit any federal court other than the Supreme
3
Elissa, Erik and Liebowitz Firm also claim that the state court malpractice
action should somehow control this case, but of course the decision there could have no
binding effect on Peter because he was not a party to that lawsuit (Allen v. McCurry, 449
U.S. 90, 94–96 (1980)).
5
Court from reviewing a state court decision directly (Gulla v. N. Strabane Township, 146
F.3d 168, 171 (3d Cir. 1998)). But that doctrine comes into play only where a party seeks
relief that challenges the state court decision directly. FOCUS v. Allegheny County
Court of Common Pleas, 75 F.3d 834, 840 (3d Cir. 1996)) puts it this way:
When a plaintiff seeks to litigate a claim in a federal court, the existence of a state
court judgment in another case bars the federal proceeding under Rooker-Feldman
only when entertaining the federal court claim would be equivalent of an appellate
review of that order. For that reason, Rooker-Feldman applies only when in order
to grant the federal plaintiff the relief sought, the federal court must determine that
the state court judgment was erroneously entered or must take action that would
render that judgment ineffectual.
Of course the Elissa-Erik-Liebowitz Firm adversary complaint did not seek to
overturn the state court judgment or call into question any part of its ruling. Quite to the
contrary, they sought to use the state court judgment to obtain a nondischargeability order
based on their perception of issue or claim preclusion principles. Nothing in their
adversary complaint suggested that the Bankruptcy Court would have to review and
overturn the state court judgment to grant the relief that Elissa, Erik and Liebowitz Firm
sought. So Rooker-Feldman obviously would not apply in that sense.
Instead any potential application of Rooker-Feldman principles must be examined
in terms of Peter's position in the parties' multi-forum battles: For him to have prevailed
on the merits in the Elissa-Erik-Liebowitz Firm adversary proceeding, he would have had
to urge rejection of the divorce court's statement of nondischargeability. And that
contention would have implicated Rooker-Feldman concerns. But that area of possible
6
tension need not be resolved for either or both of two reasons:
1. Because the divorce court spoke before any bankruptcy case had been
filed, it may have been without power to opine as to dischargeability vel non.4
2. Effectiveness or lack of effectiveness of the divorce court declaration
was directly at issue in the bankruptcy court adversary proceeding. And that
creates the prospect that the with-prejudice dismissal of that proceeding precludes
a second attempt to cover the same ground.
In this instance the ensuing analysis demonstrates the conclusiveness of that second
reason, so that we need not address the first.
Because it is plain that the Bankruptcy Court had jurisdiction to entertain their
adversary complaint, Elissa, Erik and Liebowitz Firm are forced to argue that the
Bankruptcy Court should have vacated the discharge, or at least should not have given the
adversary proceeding preclusive effect, because their attorney was acting without
authority in stipulating to its dismissal. They are of course correct in asserting that an
attorney cannot dismiss a case without the client's consent (Assocs. Discount Corp. v.
Goldman, 524 F.2d 1051, 1053 (3d Cir. 1975)). But that argument comes too late, as well
4
Every reported decision that has considered the question whether a decision as
to dischargeability of a debt may be made before a bankruptcy case has been filed has
answered that question “no.” But because none of those decisions was rendered at the
appellate level (so that they are nonprecedential by definition) and because resolution of
that issue is unnecessary to our decision, we eschew further consideration of those
holdings.
7
as being inadequately tendered.
Not only do Elissa, Erik and Liebowitz Firm ignore the strict one-year limitation
period for revoking discharge set by 11 U.S.C. §727(e) (and implemented by Fed. R.
Bankr. P. (“Rule”) 9024), but they also fail to present any evidence at all to support their
contention. Rather than focusing on what Rule 9024 requires, they discuss the New
Jersey Rules of Court, which of course have no bearing on the Bankruptcy Court. In
short, with no proof before it, and without any attempt having been made to satisfy the
requirements of Rule 9024, the Bankruptcy Court surely did not abuse its discretion by
denying the motion to vacate the discharge. Indeed, the Bankruptcy Court would have
committed reversible error had it granted the motion.
Conclusion
We find that the Bankruptcy Court (and hence the District Court) correctly held
that Elissa, Erik and Liebowitz Firm were barred from relitigating the issue of
dischargeability of their claims before the Bankruptcy Court under the doctrine of claim
preclusion. We also hold that neither the Bankruptcy Court nor the District Court
committed an abuse of discretion when each refused to vacate the discharge order. We
therefore affirm.
8