Reitnauer v. TX Exotic Feline Fdn ( 1998 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 98-10373
In the Matter of: GENE REITNAUER,
Debtor,
---------------------------------
GENE REITNAUER,
Appellee.
versus
TEXAS EXOTIC FELINE FOUNDATION, INC.
Appellant.
Appeal from the United States District Court
for the Northern District of Texas
August 18, 1998
Before POLITZ, Chief Judge, WISDOM, and WIENER, Circuit Judges.
WISDOM, Senior Circuit Judge:
I. Introduction and Background
Appellant Texas Exotic Feline Foundation, Inc.(“TEFF”), a
non-profit organization in Wise County, Texas, provides a
sanctuary for abandoned, abused, or neglected exotic felines,
such as lions, tigers, and leopards. Appellee Gene Reitnauer
founded TEFF and functioned as an officer and director of the
organization from 1988 to 1997. Before this litigation, the real
property upon which TEFF is located consisted of approximately 24
acres in the foundation’s name, and approximately 7.5 acres in
Reitnauer’s name. Reitnauer’s principal residence of 20 years is
located on the property.
In November 1996, the Texas Attorney General filed a suit
against Reitnauer in which he alleged that Reitnauer breached her
fiduciary duties to TEFF and engaged in various practices that
were violative of the Texas Deceptive Trade Practices Act.1 In
the first phase of a bifurcated trial,2 the jury found that
Reitnauer committed fraud, breached her fiduciary duties,
improperly converted TEFF assets for her own use, and was
unjustly enriched. It awarded the plaintiffs $460,000 in
compensatory damages. Prior to the commencement of the second
phase, however, Reitnauer filed a voluntary Chapter 7 bankruptcy
petition under Title 11 of the United States Code, thus causing
an automatic stay to be imposed upon the state court
proceedings.3 Three days later, TEFF successfully moved the
1
Tex. Bus. & Comm. Code § 17.41, et seq. The Attorney
General originally named TEFF as a defendant in the action. After
TEFF filed a cross-action against Reitnauer, however, the trial
court realigned the parties, leaving Reitnauer as the sole
defendant.
2
The jury considered liability and compensatory damages in
phase one, and exemplary damages and attorney fees in phase two.
3
See 11 U.S.C. § 362. Section 362 provides that the filing
of a voluntary petition in bankruptcy operates as a stay of the
commencement or continuation of a judicial proceeding against the
2
bankruptcy court to partially lift the automatic stay so that the
second half of the trial could be completed.4 In the second
phase of the trial, the jury awarded $540,000 and $1,000,000 in
exemplary damages to TEFF and the Attorney General, respectively.
The trial court’s post-verdict judgment divested Reitnauer of all
proprietary interests she previously enjoyed on the 7.5 acres
titled in her name, including her homestead right, of which
Reitnauer argued she could not be dispossessed under Texas law.5
The judgment also permanently enjoined Reitnauer from entering
the property beyond a 30-day grace period. Again, TEFF
successfully moved the bankruptcy court to lift the automatic
stay, thus clearing the way for the state court judgment to be
recorded and enforced. Reitnauer appealed to the district
court, which reversed the bankruptcy court on the ground that its
decision to lift the automatic stay was an abuse of discretion.
TEFF now appeals from this final judgment. Finding its arguments
debtor that was or could have been commenced before the
commencement of the Title 11 action. Commonwealth Oil Refining
Co., Inc. v. United States Environmental Protection Agency, 805
F.2d 1175, 1182 (5th Cir. 1986).
4
11 U.S.C. § 362(d) authorizes a bankruptcy court to lift an
automatic stay for “cause.” Because § 362 does not offer guidance
as to what constitutes “cause,” reviewing courts must determine
whether cause existed on a case-by-case basis. See Robbins v.
Robbins, 964 F.2d 342, 345 (4th Cir. 1992).
5
The court, after determining that Reitnauer was not entitled
to the protections afforded by the homestead exemption, imposed a
constructive trust upon the property for the benefit of TEFF, thus
awarding TEFF title and interest to the property, together with
title and interest to the fixtures and improvements thereon.
3
persuasive, we reverse the judgment of the district court and
reinstate the order of the bankruptcy court.
II. Discussion
The underlying facts of this appeal belie its true nature.
Indeed, it is far more concerned with matters of federalism than
with the nuts and bolts of bankruptcy law. TEFF’s principal
contention is that the district court exceeded the bounds of its
subject matter jurisdiction by collaterally attacking the state
court judgment entered against Reitnauer.6 Even though the
district court possessed the authority to determine whether the
bankruptcy court abused its discretion in lifting the automatic
stay, TEFF argues, it did not possess the authority to render its
determination by reviewing the substance of the state court
decision. TEFF calls our attention to the Rooker-Feldman
doctrine,7 which provides that lower federal courts lack
jurisdictional authority to sit in appellate review of state
court decisions.8 In a nutshell, the doctrine holds that
6
TEFF raises a question of law that we review de novo. See
Narey v. Dean, 32 F.3d 1521, 1524 (11th Cir. 1994).
7
The doctrine derives its name from two Supreme Court cases,
Rooker v. Fidelity Trust Co., 263 U.S. 413, 415 (1923), holding
that the jurisdiction of the federal district courts is strictly
original, and District of Columbia Court of Appeals v. Feldman, 460
U.S. 462, 476 & 482 (1983), holding that federal district courts do
not have the authority to review final state court judgments.
8
See United States v. Shepherd, 23 F.3d 923, 924 (5th Cir.
1994). See also 28 U.S.C. § 1257, which provides that federal
appellate jurisdiction over state court decisions is vested in the
4
inferior federal courts do not have the power to modify or
reverse state court judgments.9
Our task is to determine whether the district court violated
the Rooker-Feldman doctrine by impermissibly exercising de facto
appellate jurisdiction over the state court judgment entered
against Reitnauer. In order to do so, we must review carefully
the district court record.
The district court assigned to itself the duty of
ascertaining “whether the bankruptcy court should have allowed
the recording and enforcement of a judgment effectively taking
away [Reitnauer’s] claim to her homestead without determining
whether that judgment was proper.”10 In reaching its conclusion
that the bankruptcy court abused its discretion by lifting the
automatic stay, the district court assailed the legitimacy of the
state court judgment against Reitnauer:
The state court’s judgment shows on its face that it is an
attempt by the state court to deprive [Reitnauer] of her
constitutional homestead rights under circumstances that are
not allowed by Texas law. The judgment shows that the state
United States Supreme Court. It should be noted that Congress has
carved out limited exceptions to the Rooker-Feldman doctrine.
Under 28 U.S.C. § 2241, for example, federal district courts are
authorized to entertain state prisoners’ habeas corpus petitions.
Garry v. Geils, 82 F.3d 1362, 1365 n.4 (7th Cir. 1996).
9
See Rooker at 415-16 and Garry at 1365. See also Hale v.
Harney, 786 F.2d 688, 691 (5th Cir. 1986), holding that “judicial
errors committed in state courts are for correction in the state
court systems.”
10
The district court raised this precise issue sua sponte.
Neither party briefed the issue before the district court.
5
court decreed that [Reitnauer] lost her homestead rights in
the property .... by reason of wrongful commingling and
other wrongful conduct. Texas law does not recognize that
homestead rights can be lost or otherwise adversely affected
for those reasons. The bankruptcy court’s .... order has
the effect of approving and aiding the enforcement of the
improper actions taken in the state court’s judgment
relative to [Reitnauer’s] homestead.
The district court, therefore, made apparent its displeasure with
the manner in which the state court interpreted and applied state
law; such displeasure formed the basis for its reversal of the
bankruptcy court’s order. Accordingly, we conclude that the
district court violated the letter of the Rooker-Feldman doctrine
by sitting in appellate review of the state court judgment
entered against Reitnauer.11 The parties contested, and the
state court adjudicated, the homestead issue in a Texas court of
competent jurisdiction.12 While that adjudication was
immediately appealable to the Texas Court of Appeals, it was not
appealable, immediately or otherwise, to the federal courts.
The district court having failed to conduct an appropriate
11
See Baldino v. Wilson, 116 F.3d 87, 90 (3d Cir. 1997),
applying the Rooker-Feldman doctrine in the context of a bankruptcy
matter.
12
The district court attempted to justify its collateral
attack on the state court judgment by maintaining that the state
court lacked jurisdiction to determine that Reitnauer was not
entitled to the protection of the homestead exemption. It is true
that (1) jurisdictional defects render a judgment void, and (2)
void judgments are subject to collateral attack. We conclude,
however, that the state court proceeding did not suffer from any
jurisdictional defect. We have stated that under Texas law,
“courts of general jurisdiction do have jurisdiction to determine
whether property is a homestead.” In re Camp, 59 F.3d 548, 552
(5th Cir. 1995).
6
review of the bankruptcy court’s order, it is left to us to
decide whether the bankruptcy court abused its discretion in
lifting the automatic stay.13 We have little difficulty
concluding that it did not. Reitnauer failed to respond to
TEFF’s second motion to vacate the automatic stay, which resulted
in TEFF’s allegations being deemed admitted.14 For purposes of
the bankruptcy court’s review, therefore, Reitnauer admitted to
having filed her Chapter 7 petition in bad faith. Accordingly,
it was not an abuse of discretion for the bankruptcy court to
have found cause to lift the automatic stay.15
III. Conclusion
For the foregoing reasons, the judgment of the district
court is REVERSED, and the order of the bankruptcy court is
REINSTATED.
13
See In re Chunn, 106 F.3d 1239, 1242 (5th Cir. 1997) and
Baldino at 89.
14
See Rule 4001(b) of the Local Bankruptcy Rules of the United
States Bankruptcy Court for the Northern District of Texas.
15
A debtor’s lack of good faith in filing a bankruptcy
petition may be an appropriate ground for lifting the automatic
stay. In re Little Creek Development Co., 779 F.2d 1068, 1072 (5th
Cir. 1986). See also Laguna Associates Limited Partnership v.
Aetna Casualty and Surety Co., 30 F.3d 734, 737 (6th Cir. 1994).
7