Dotson v. Heckert ( 2001 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: RANSFORD CRAIG HECKERT, 
Debtor.
RANSFORD CRAIG HECKERT, a/k/a
R.C. Heck Heckert,  No. 98-2825
Plaintiff-Appellant,
v.
HAROLD L. DOTSON,
Defendant-Appellee.

Appeal from the United States District Court
for the Southern District of West Virginia, at Parkersburg.
Joseph Robert Goodwin, District Judge.
(CA-98-242-6, BK-87-40033, AP-87-0107)
Argued: September 23, 1999
Decided: November 16, 2001
Before WIDENER and MICHAEL, Circuit Judges, and
Frank J. MAGILL, Senior Circuit Judge of the
United States Court of Appeals for the Eighth Circuit,
sitting by designation.
Vacated and remanded with instructions by published opinion. Judge
Widener wrote the opinion, in which Judge Michael and Senior Judge
Magill joined.
2 IN RE: HECKERT
COUNSEL
ARGUED: Thomas J. Gillooly, Charleston, West Virginia, for
Appellant. William Berkley Richardson, Jr., Parkersburg, West Vir-
ginia, for Appellee.
OPINION
WIDENER, Circuit Judge:
Plaintiff, Ransford Craig Heckert, appeals the district court’s order
affirming the bankruptcy court’s entry of a judgment order with
respect to a nondischargeable debt that a state court had already
reduced to judgment. Heckert filed a motion to vacate the bankruptcy
court’s order under Fed. R. Civ. P. 60(b)(4) based on lack of jurisdic-
tion. The bankruptcy court denied his motion, and the district court
affirmed that decision on appeal, Heckert v. Dotson (In re Heckert),
226 B.R. 558 (S.D. W. Va. 1998). We vacate the district court’s judg-
ment and leave in effect the state court judgment and the holding of
the bankruptcy court that the state judgment debt was not discharge-
able. We vacate and remand for proceedings consistent with this opin-
ion.
I.
In 1983, defendant, Harold L. Dotson, obtained a jury verdict in the
Circuit Court of Wood County, West Virginia for $7000 against Hec-
kert in a suit for wrongful discharge from employment. West Virginia
has a ten-year statute of limitations on the execution of judgments. W.
Va. Code §§ 38-3-18, -19 (1923). Heckert filed a Chapter 7 bank-
ruptcy petition in 1987. Dotson brought an adversary proceeding in
the bankruptcy case and obtained an order on March 8, 1988 declar-
ing that the $7000 state judgment was nondischargeable.1 But, in the
March 8, 1988 order of the bankruptcy court it also entered its own
judgment in Dotson’s favor for $7000 plus both accrued interest at the
1
The bankruptcy court’s determination that the state court judgment
was not dischargeable is not an issue in this appeal.
IN RE: HECKERT 3
West Virginia rate of 10% per annum until June 15, 1997, the date
of filing of the petition and interest accruing "at the federal rate" com-
mencing June 15, 1987.
Dotson made his first efforts to collect the bankruptcy court judg-
ment in November 1996 and obtained a writ of execution on the bank-
ruptcy court judgment in November 1996. The time allowed for
executing on the West Virginia judgment under West Virginia law
had expired in 1993 under W. Va. Code §§ 38-3-18. In connection
with the collection attempt, the bankruptcy court reopened the 1987
adversary proceeding on July 14, 1997. Heckert then filed a motion
to vacate the 1988 bankruptcy court judgment under Fed. R. Civ. P.
60(b)(4), claiming the judgment was void for lack of jurisdiction
because the bankruptcy court entered a judgment on an already exist-
ing state court judgment, which was beyond the scope of the bank-
ruptcy court’s powers in the proceeding to determine dischargeability
of the state court judgment. He also moved to quash the execution
issued on the judgment of the bankruptcy court. The bankruptcy court
denied the motions to vacate the judgment and quash the execution
on December 17, 1997. Heckert appealed that decision to the District
Court for the Southern District of West Virginia. The district court
affirmed the bankruptcy court’s determination on November 12, 1998
finding that the bankruptcy court, "to the extent that bankruptcy
courts have jurisdiction to enter money judgment orders following
adversary proceedings," had jurisdiction to enter a judgment in the
dischargeability proceeding concerning a debt already reduced to
judgment in a state court. It held that "such jurisdiction is not depen-
dent on the absence of an underlying state court award." Heckert, 226
B.R. at 559. Heckert now appeals the district court’s judgment.
II.
First, we find that, contrary to Dotson’s arguments, this appeal is
not a collateral attack on an original determination of subject matter
jurisdiction that is barred by Chicot County Drainage District v. Bax-
ter State Bank, 308 U.S. 371 (1940), for this case is not a collateral
attack. The bankruptcy court reopened the adversary proceeding by
order on July 14, 1997. This appeal flows directly from review of a
motion and decision made in the reopened case, not from any collat-
eral attack.
4 IN RE: HECKERT
Dotson also appears to argue that Heckert’s motion to set aside the
judgment of the bankruptcy court involved in this case was time
barred. Heckert filed his motion to set aside the said judgment eight
years after the judgment at issue here was entered by the bankruptcy
court. Heckert, however, filed the motion under Fed. R. Civ. P.
60(b)(4), which is not subject to the reasonable time limitations
imposed in the other provisions of Rule 60(b). See, e.g., Meadows v.
Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987), cert. denied,
484 U.S. 976 (1987) (citing 11 Charles Alan Wright & Arthur R. Mil-
ler, Federal Practice and Procedure § 2862, Rule 60 (1973)). There-
fore, the judgment may be challenged under Rule 60(b)(4).
III.
Heckert argues that this judgment is void under Rule 60(b)(4)
because the bankruptcy court had no authority, and thus no jurisdic-
tion, to enter a judgment on a nondischargeable debt that a state court
had already reduced to judgment. Certainly, in a proper case, bank-
ruptcy courts have the power to issue judgments, see 28 U.S.C.
§ 157(b)(1), which grants authority to the bankruptcy judges to "enter
appropriate orders and judgments" in title 11 cases, and see also 11
U.S.C. § 105(a), which grants power to bankruptcy courts to "issue
any order, process, or judgment that is necessary or appropriate to
carry out the provisions of this title." Entry of such judgments has
been allowed where there is an unliquidated claim that a party seeks
to have determined in an adversarial dischargeability proceeding. See
Cowen v. Kennedy, 108 F.3d 1015, 1018 (8th Cir. 1997) (allowing
bankruptcy court to adjudicate issues of liability and damages in addi-
tion to determining dischargeability of debt where there was no prior
state court judgement fixing liability); Longo v. McLaren, 3 F.3d 958,
966 (6th Cir. 1993) (same); N.I.S. Corp. v. Hallahan, 936 F.2d 1496,
1508 (7th Cir. 1991) (same). However, when a prior state court judg-
ment is the debt at issue, we are of opinion that the bankruptcy court,
in an adversary proceeding to determine whether the debt is dis-
chargeable, cannot issue its own judgment on the debt to replace the
state court judgment previously obtained. All the bankruptcy court is
called upon, or authorized to do, is to determine whether or not the
state judgment is dischargeable.
IN RE: HECKERT 5
First, the bankruptcy court’s entry of its own money judgment to
replace the state court judgment is barred by res judicata. A federal
court, as a matter of full faith and credit, under 28 U.S.C. § 1738,
must give a state court judgment the same preclusive effect "as the
courts of such State" would give. See 28 U.S.C. § 1738.2 The
Supreme Court and our cases have made clear that a federal court
must "refer to the preclusion law of the State in which the judgment
was rendered." Marese v. American Academy of Orthopaedic
Surgeons, 470 U.S. 373, 380 (1985). The policy of full faith and
credit is so strong that federal courts must give prior state judgments
res judicata effect even where the original case involved some exclu-
sively federal causes. See Matsushita Electric Industrial Co. v.
Epstein, 516 U.S. 367, 373 (1996) (applying res judicata to Delaware
Chancery Court’s approval of settlement releasing all state and fed-
eral claims).
Only in the most rare case, however, may federal courts refuse to
give full faith and credit to a state court judgment, and then only if
"a later statute contains an express or implied partial repeal" of
§ 1738. Kremer v. Chemical Contr. Corp., 456 U.S. 461, 468 (1982);
In re Genesys Data Technologies, Inc., 204 F.3d 124, 128 (4th Cir.
2000). There is neither express nor implied partial repeal in this case
worked by the bankruptcy code nor its related statutes.
Two of our recent cases are instructive in this regard. See In re
Genesys Data Technologies, 204 F.3d 124 at 127-129 (examining
application of full faith and credit to bankruptcy allowance proceed-
ings); In re Ansari, 113 F.3d 17 at 19-20 (4th Cir. 1997) (applying
Virginia collateral estoppel rules in bankruptcy dischargeability pro-
ceeding). In In re Genesys, we examined the effect of an Hawai’i state
court default judgment on a later involuntary bankruptcy allowance
proceeding. In accordance with the Supreme Court’s Marese decision,
we examined whether the bankruptcy code contained an implied par-
2
28 U.S.C. § 1738 provides in pertinent part as follows:
Such acts, records and judicial proceedings or copies thereof,
. . . shall have the same full faith and credit in every court within
the United States and its Territories and Possessions as they have
by law on usage in the court of such State, Territory or Posses-
sions from which they are taken.
6 IN RE: HECKERT
tial repeal of § 1738. We explained that, although certain claims of
fraud otherwise barred by res judicata can be brought by claimant to
defend against a claim of dischargeability, "when a bankruptcy court
is considering the validity of a claim upon which debt is based, no
new special bankruptcy defense is involved and so res judicata applies
as it ordinarily would." 204 F.3d at 128. Thus, we held that if the
Hawai’i state court would give the default judgment preclusive effect,
then the federal court must give it that same effect. 204 F.3d at 130.
However, there remained a question of whether the judgment was
void under Hawai’i Rule of Civil Procedure 54(b) on the ground that
the award may have been "different in kind from or exceed[ing] in
amount that prayed for in the demand for judgment." 204 F.3d at 132
(alteration in original). As this was a question of first impression in
Hawai’i, we certified the question to the Supreme Court of Hawai’i.
204 F.3d at 133. The Hawai’i court decided that the judgment would
not be void under Hawai’i law, in Meindl v. Genesys Pacific Techs.
(In re Genesys Data Techs., Inc.), 18 P.3d 895, 897-98 (Hawai’i
2001), and accordingly, we held the judgment to be entitled to res
judicata effect in the bankruptcy case through the operation of § 1738,
the full faith and credit statute. See In re Genesys Data Technologies,
Inc., 245 F.3d 312, 314. Similarly, In re Ansari held a Virginia state
court’s entry of a default judgment to be entitled to full faith and
credit. In re Ansari, 113 F.3d at 19-20. There, the Virginia court
entered the default judgment as a discovery sanction for dilatory tac-
tics impeding an accounting for breach of fiduciary duty. 113 F.3d at
18. We gave full faith and credit to Virginia rules of collateral estop-
pel to bar a judgment debtor from re-litigating issues of fiduciary
capacity and defalcation. 113 F.3d at 20-22.
Although these two cases did not involve the entry of a second
money judgment, we believe they are directly apposite here and we
especially note both gave effect to state court judgments in bank-
ruptcy. Res judicata is applied to prevent the re-litigation of claims,
and thus prevent the unsettling of a prior judgment, whether by
increasing or decreasing the award or by reversing the result. In the
instant case, the bankruptcy and district courts allowed re-litigation of
the underlying wrongful termination claim contrary to West Virginia
preclusion rules and § 1738 by awarding a federal money judgment.
Under West Virginia preclusion law, "a judgment on the merits in a
prior suit bars a second suit involving the same parties or their privies
IN RE: HECKERT 7
based on the same cause of action." Blake v. Charleston Area Medical
Center, 498 S.E.2d 41, 48 (W. Va. 1997) (citations omitted). In any
case there first must be a claim for which a money judgment is appro-
priate. Here, there was no question before the bankruptcy court other
than that of the dischargeability of the debt; therefore, the court could
not have entered a money judgment unless it resurrected the original
wrongful termination cause of action which had merged into the West
Virginia judgment. There is no doubt that a West Virginia court
would decline to hear the wrongful termination claim where a prior
West Virginia court had rendered a valid judgment after full and fair
litigation on the merits. Thus, the bankruptcy court and the district
court erred by failing to give res judicata effect to the prior West Vir-
ginia judgment.
Furthermore, we do not think that it matters whether the bank-
ruptcy court’s judgment reverses the judgment of the state court or
whether the bankruptcy court determines that the original judgment
should be changed or diminished in some respect. In the case at hand,
the bankruptcy and district courts not only changed the interest rate,
they changed the initial statute of limitations on collection of the state
judgment from 1993 until 1998. See 28 U.S.C. § 1962 (federal judg-
ment acts as lien on property in state where rendered and in same
manner as if rendered by court of that State) and § 1963 (giving bank-
ruptcy court judgments same effect as district court judgment when
properly registered); Fed. R. Civ. P. 69(a) (execution of federal judg-
ment had in accordance with State law). In either circumstance, the
court has not given the same effect to the judgment as the rendering
court would have given it as required by § 1738. To hold otherwise
would be to allow the bankruptcy courts, and the lower federal courts
through the bankruptcy review process, to sit as adjunct courts of
appeal for the state courts. Clearly, this is an untenable proposition in
a dual system where each court system possesses equal dignity. For
these reasons, we agree with our sister circuits and several bankruptcy
courts that the amount of a state court judgment should not be altered
in a bankruptcy dischargeability action. See, e.g., Matter of Bulic, 997
F.2d 299, 304 (7th Cir. 1993) (finding that full faith and credit
required court to accept state court’s determination of debt amount);
In re Comer, 723 F.2d 737, 740 (9th Cir. 1984) (Res judicata bars
bankruptcy court from determining extent of claim, not dischargea-
bility); Tower Oak, Inc. v. Selmonosky (In re Selmonosky), 204 B.R.
8 IN RE: HECKERT
820, 827 (Bankr. N.D. Ga. 1996); Sullivan v. Clayton (In re Clayton),
195 B.R. 342, 346 (Bankr. E.D. Pa. 1996) ("[W]e also believe that,
generally, a bankruptcy court should not enhance any aspect of the
non bankruptcy court’s liquidation process, as in the case of the impo-
sition of interest.").
In the instant case, the bankruptcy court determined that Heckert’s
debt should earn federal rather than state interest rates. This action,
of course, had the effect of changing the amount of the debt owed by
Heckert. The bankruptcy court also substituted its judgment entered
in 1988 for the judgment of the state court which had been entered
in 1983. By so doing, it extended the initial deadline for execution on
the judgment from 1993 until 1998. See W. Va. Code §§ 38-3-18; 28
U.S.C. §§ 1962, 1963; Fed. R. Civ. P. 69(a). By their actions the
bankruptcy and district courts changed both the amount and the initial
effective collection deadline of the judgment owed by Heckert. Thus,
those courts failed to accord the state judgment the full faith and
credit required by § 1738.
The only issue in the bankruptcy court in the case at hand was
whether the West Virginia judgment was dischargeable. Once the
court decided that question, it had completed its duties because all the
other issues sometimes left to the bankruptcy court to determine, such
as the amount of, and interest on, a nondischargeable debt, had
already been decided by the state court, which was binding in bank-
ruptcy. Gertsch v. Johnson & Johnson Finance Corp. (In re Gertsch),
237 B.R. 160, 172 (B.A.P. 9th Cir. 1999).
In sum, the authority granted the bankruptcy court under 28 U.S.C.
§ 157(b)(1) and 11 U.S.C. § 105(a) to enter orders, and the authority
granted by 28 U.S.C. § 1334(b), 11 U.S.C. § 523(a) and Bankruptcy
Rule 4007 to determine the dischargeability of a debt does not either
explicitly or implicitly amend the provisions of 28 U.S.C. § 1738,
which requires the courts of the United States to give full faith and
credit to the judgments of state courts. By altering the amount of the
judgment in this case by changing the interest rate and changing the
initial effective execution date on the judgment of the state court by
substituting its own judgment, the bankruptcy and district courts did
exactly what § 1738 forbids. Even conceding that the bankruptcy
court had the abstract authority to enter orders in a proper case, it had
IN RE: HECKERT 9
no authority to enter an order in violation of § 1738, the full faith and
credit statute. Its action to that extent, therefore, is void and is vacated
under Rule 60(b)(4).
Accordingly, the judgment of the district court is vacated and the
case is remanded to the district court for further remand to the bank-
ruptcy court, which will enter its order, amending the orders appealed
from in this case so as to leave in effect only the state judgment which
was entered in 1983, but holding that same state judgment to have
been nondischargeable.
VACATED AND REMANDED WITH INSTRUCTIONS3
3
In view of our decision we need not address Heckert’s other conten-
tions.