Isaacs v. DBI-ASG Coinvestor Fund, III, LLC (In Re Isaacs) , 895 F.3d 904 ( 2018 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 18a0145p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
IN RE: LINDA S. ISAACS, ┐
Debtor. │
___________________________________________ │
LINDA S. ISAACS, │
│
Plaintiff-Appellant, > No. 17-5815
│
│
v. │
│
DBI-ASG COINVESTOR FUND, III, LLC, │
Defendant-Appellee. │
┘
Appeal from the Bankruptcy Appellate Panel of the Sixth Circuit.
No. 16-8041—Guy R. Humphrey, C. Kathryn Preston, and Tracey N. Wise,
Bankruptcy Appellate Panel Judges.
United States Bankruptcy Court for the Western District of Kentucky at Paducah.
Nos. 5:14-ap-5021; 5:14-bk-50679—Alan C. Stout, Judge.
Argued: January 24, 2018
Decided and Filed: July 18, 2018
Before: BATCHELDER, GILMAN, and ROGERS, Circuit Judges.
_________________
COUNSEL
ARGUED: Marcus H. Herbert, MARCUS HERBERT LAW, Paducah, Kentucky, for
Appellant. John R. Tarter, REISENFELD & ASSOCIATES, LLC, LPA, Cincinnati, Ohio, for
Appellee. ON BRIEF: Marcus H. Herbert, MARCUS HERBERT LAW, Paducah, Kentucky,
for Appellant. John R. Tarter, Gregory A. Stout, REISENFELD & ASSOCIATES, LLC, LPA,
Cincinnati, Ohio, for Appellee. Tara Twomey, NATIONAL CONSUMER BANKRUPTCY
RIGHTS CENTER, San Jose, California, for Amicus Curiae.
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 2
_________________
OPINION
_________________
ROGERS, Circuit Judge. Debtor Linda Isaacs filed for Chapter 13 bankruptcy and
brought an adversary action seeking to invalidate a mortgage lien on her home, and to stop the
sale of the home pursuant to a Kentucky state-court foreclosure judgment. The adversary
complaint sought to avoid the mortgage—as unperfected because the mortgage was never validly
recorded—under the strong-arm provision of the bankruptcy code. After an initial summary
judgment motion was denied, debtor presented what she terms an “alternate argument” for relief,
set forth in a “renewed” summary judgment motion, to the effect that the Kentucky state court
which entered the foreclosure judgment erred in finding that the mortgage lien ever attached in
the first place. This argument was based on nonstandard language in the mortgage contract
apparently requiring that the mortgage be recorded in order for its lien to attach at all. The
bankruptcy court ruled for debtor on this alternate theory. The Bankruptcy Appellate Panel
reversed, however, holding that the bankruptcy court lacked jurisdiction under the Rooker-
Feldman doctrine, which generally keeps appeals from state-court decisions out of the lower
federal courts. Although we do not adopt all of the BAP majority’s reasoning, the BAP was
correct in overturning the bankruptcy court’s judgment because ruling on the “alternate
argument” indeed amounted to a federal court’s ruling on an appeal from a state-court judgment,
contrary to Rooker-Feldman. However, the debtor’s primary underlying claim, seeking
avoidance of the mortgage lien under the strong-arm provision based on the lien’s lack of
perfection, sought relief independent of the validity of the state-court judgment, and thus does
not implicate Rooker-Feldman. A remand is accordingly appropriate to permit the court(s)
below to rule on that claim in the first instance.
I.
On February 5, 2003, Linda Isaacs and her husband took out a home-equity loan, secured
by a mortgage on their home in Princeton, Kentucky. The original mortgagee, GMAC Mortgage
Corporation, did not immediately record the mortgage. On March 19, 2004, while the mortgage
remained unrecorded, the Isaacs filed for Chapter 7 bankruptcy. GMAC finally recorded the
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 3
mortgage on June 23, even though by this point the automatic stay from the bankruptcy was in
effect, see 11 U.S.C. § 362, and GMAC had not obtained an order modifying or lifting the stay.
Apparently, however, neither the Isaacs nor the Chapter 7 trustee realized that the mortgage had
not been recorded before the bankruptcy began. The trustee therefore did not seek to avoid the
mortgage, and the mortgage was listed as a secured claim on Schedule D of the bankruptcy
petition. During the bankruptcy, the Isaacs reaffirmed several loan agreements, including an
earlier mortgage on their property (also held by GMAC), but they did not reaffirm the mortgage
at issue here. On July 12, 2004, the bankruptcy court entered a discharge order. On August 27,
the trustee reported that there were no assets to administer, and the Chapter 7 case closed on
August 30, 2004.
A decade later, the new owner of the mortgage, RoundPoint Mortgage Servicing
Corporation, sought to foreclose on the Isaacs’s home in Kentucky state court. On August 22,
2014, the Lyon County circuit court found that the Isaacs owed $101,958.82 on a promissory
note secured by the mortgage, entered a default in rem judgment of foreclosure, and ordered a
foreclosure sale. The foreclosure sale was scheduled for September 30, 2014, but, one day
before the sale, Linda Isaacs filed a voluntary Chapter 13 petition in the U.S. Bankruptcy Court
for the Western District of Kentucky.
Isaacs then filed an adversary complaint within the Chapter 13 case, seeking to avoid the
mortgage through the so-called “strong-arm” power conferred by 11 U.S.C. § 544(a). Section
544(a)’s strong-arm power permits the bankruptcy trustee to “avoid transfers of property that
would be avoidable by certain hypothetical parties.” Simon v. Chase Manhattan Bank (In re
Zaptocky), 250 F.3d 1020, 1023 (6th Cir. 2001). Here, Isaacs specifically sought to use
§ 544(a)(1) and (a)(3). Under § 544(a)(1), the trustee can step into the shoes of a hypothetical
creditor who “at the time of the commencement of the [bankruptcy] case, . . . obtains . . . a
judicial lien” on the debtor’s property in question. Section 544(a)(3) permits the trustee to
assume the status of a hypothetical “bona fide purchaser of real property . . . from the debtor . . . ,
that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the
commencement of the [bankruptcy] case.” Section 544(a) then allows the trustee to avoid any
lien that is inferior to the interest held by either of those hypothetical parties, as determined by
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the relevant state law governing priorities. Sovereign Bank v. Hepner (In re Roser), 613 F.3d
1240, 1243 (10th Cir. 2010). In this case, Isaacs’s adversary complaint sought to use the strong-
arm power to avoid the mortgage on the ground that it was never properly perfected. (Arguably,
the mortgage was unperfected because it was recorded in violation of the automatic stay, and
actions taken to perfect a lien are “invalid” if they violate the automatic stay. See Easley v.
Pettibone Mich. Corp., 990 F.2d 905, 909 (6th Cir. 1993)). Thus, Isaacs’s adversary complaint
argued, the unperfected mortgage would lose under state priority law to either of the hypothetical
parties contemplated by § 544(a)(1) and (a)(3), and it could therefore be avoided under the
strong-arm power. That adversary complaint is the subject of this appeal.
By this point, the mortgage had been acquired by its present owner, appellee DBI-ASG
Coinvestor Fund (“DBI”). The parties filed cross-motions for summary judgment in the
bankruptcy court, which were initially denied. In a Renewed Motion for Summary Judgment,
Isaacs presented an “alternate argument,” distinct from her claim under the strong-arm power:
she now argued that the mortgage lien had never attached in the first place, and thus that DBI
had no valid lien to enforce. In support of this new argument, Isaacs noted that the mortgage
agreement contained conflicting language about when its lien would attach to the collateral. In a
section entitled “Description of Security,” the mortgage agreement provided: “By signing this
Mortgage, we hereby mortgage, grant and convey [the collateral].” This sentence might be
understood to mean that the mortgage lien attached once the Isaacs signed the mortgage. But in
another section entitled “Priority of Advances,” the mortgage agreement stated: “The lien of this
Mortgage will attach on the date this mortgage is recorded.” Based on this latter provision,
Isaacs now argued that the mortgage’s lien did not attach until it was recorded. Thus, she
claimed, it did not attach before the Chapter 7 petition was filed (because at that time the
mortgage had yet to be recorded), and so the mortgage debt was unsecured at the start of the
Chapter 7 bankruptcy. Moreover, because actions to perfect a lien are “without legal force or
effect” when taken in violation of the automatic stay, Easley, 990 F.2d at 909, Isaacs contended
that the eventual recording in violation of the automatic stay was invalid and accordingly
ineffective to attach the lien. Therefore, the mortgage remained unattached and the debt
remained unsecured throughout the Chapter 7 case, and the unsecured debt was discharged when
the bankruptcy court issued its discharge order on July 12, 2004.
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 5
In response, DBI argued that the correct interpretation of the mortgage agreement was
that the lien attached when the Isaacs signed it. Thus, the lien attached before the Chapter 7
bankruptcy began, meaning that it passed through the bankruptcy intact because, as the Supreme
Court has held, “a creditor’s right to foreclose on [a] mortgage survives or passes through [a]
bankruptcy.” See Johnson v. Home State Bank, 501 U.S. 78, 83 (1991). DBI also contended that
the bankruptcy court lacked subject-matter jurisdiction under the Rooker-Feldman doctrine
(which generally prohibits the lower federal courts from engaging in appellate review of state-
court judgments), because Isaacs was effectively asking the bankruptcy court to sit as an
appellate court over the state court’s final foreclosure judgment.
The bankruptcy court granted summary judgment in favor of Isaacs, concluding that the
mortgage agreement unambiguously provided that its lien did not attach until it was recorded.
Thus, in the bankruptcy court’s view, the lien did not attach before the Chapter 7 petition was
filed, and the debt was unsecured during the prior bankruptcy proceedings and discharged by the
discharge order.
The bankruptcy court also rejected DBI’s Rooker-Feldman argument, basing its analysis
on our decision in Hamilton v. Herr (In re Hamilton), 540 F.3d 367 (6th Cir. 2008). In
Hamilton, a husband and wife each signed a promissory note. Id. at 369. They later divorced,
after which the husband’s father paid off the note on their behalf. Id. The husband’s father then
sued the now-ex-wife in state court to recover the money that he had used to pay the note. Id.At this point, the ex-husband filed for Chapter 7 bankruptcy and obtained a discharge. Id. at
369–70. The ex-wife then filed a third-party complaint against her ex-husband in the state-court
proceeding, seeking to hold the ex-husband personally liable for indemnification in the event that
she was held liable to his father. Id. at 370. The state court held the ex-wife liable to the father,
and in turn held the ex-husband personally liable for indemnification to his ex-wife. Id. The ex-
husband then filed a complaint in bankruptcy court, protesting that his liability on the promissory
note had been discharged in the bankruptcy case, and that the state-court judgment therefore
violated the discharge order. Id. at 370–71.
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 6
The case was appealed to this court, and we established a rule to accommodate the
sometimes-conflicting demands of Rooker-Feldman and 11 U.S.C. § 524(a), the provision
governing the effect of bankruptcy discharge orders. Section 524(a) provides:
A discharge in a case under this title—
(1) voids any judgment at any time obtained, to the extent that such judgment
is a determination of the personal liability of the debtor with respect to a
[discharged debt]; [and]
(2) operates as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect, recover or offset
any [discharged] debt as a personal liability of the debtor . . . .
The purpose of § 524(a) is to ensure that when a bankruptcy court enters an order discharging a
debtor’s outstanding debts, the debtor will be automatically protected against future attempts to
collect on the discharged debts. See Hamilton, 540 F.3d at 372–73. This goal may, at times,
conflict with the Rooker-Feldman doctrine. If a creditor goes to state court after a discharge to
try to hold a debtor personally liable for a debt, the state court will have to determine whether the
debt in question was included in the discharge order (in which case § 524(a) prohibits the
creditor from collecting on it), or whether the debt was not discharged (in which case the state-
court suit may proceed). If the state court determines that the debt was not discharged, the
debtor may disagree and seek relief from this determination in bankruptcy court; the question
then arises whether the bankruptcy court is effectively engaging in appellate review of the state
court’s decision in violation of Rooker-Feldman.
In Hamilton, we resolved this tension by establishing a rule that state courts may interpret
discharge orders, but only if they do so correctly. Otherwise, they violate § 524(a) by modifying
the discharge order. In other words, “state courts are allowed to construe the discharge in
bankruptcy, but what they are not allowed to do is construe the discharge incorrectly, because an
incorrect application of the discharge order would be equivalent to a modification of the
discharge order.” Hamilton, 540 F.3d at 375. When a state court interprets the discharge order
incorrectly, its judgment is void ab initio and therefore poses no Rooker-Feldman bar to
subsequent review in the lower federal courts. Id. at 376. Hamilton thus recognized a narrow
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 7
exception to Rooker-Feldman, under which a federal bankruptcy court may determine whether a
state-court decision correctly interpreted a prior bankruptcy discharge order.
Returning to the present case, the bankruptcy court applied the rule from Hamilton and
determined that the Kentucky state court, in entering its foreclosure judgment, had incorrectly
concluded that the mortgage debt was not included in the 2004 discharge order. Therefore, the
bankruptcy court held, the state court’s judgment modified the prior discharge order, was void ab
initio, and could be effectively overruled without violating Rooker-Feldman.
Because the bankruptcy court ruled in Isaacs’s favor on her alternate claim that the lien
never attached, it did not reach her original claim that the lien was never perfected and so could
be avoided using the § 544(a) strong-arm power.
DBI appealed to the Bankruptcy Appellate Panel (“BAP”), and the BAP reversed. Isaacs
v. DBI-ASG Coinvestor Fund III, LLC (In re Isaacs), 569 B.R. 135 (B.A.P. 6th Cir. 2017). The
BAP also concluded that the mortgage agreement was unambiguous, but in the opposite way—
that is, that the mortgage unambiguously provided that its lien attached when the parties signed
it, not when it was recorded. Id. at 147–48. Thus, according to the BAP, the lien attached before
the Isaacs filed their Chapter 7 petition and, because “a valid lien survives and rides through
bankruptcy,” id. at 145, the lien continued to exist after the Chapter 7 case closed, such that the
state court could permissibly enter a foreclosure judgment ten years later. The state court’s
judgment was not void ab initio under Hamilton because it correctly construed the discharge
order, and therefore, the BAP held, Rooker-Feldman deprived the bankruptcy court of subject-
matter jurisdiction to review the state court’s foreclosure judgment. The BAP also expressed
doubts as to whether an in rem judgment, such as the state-court foreclosure judgment here, will
ever modify a discharge order within the meaning of Hamilton. However, the BAP declined to
answer this question definitively, and instead decided the case on the ground that the mortgage
unambiguously provided for attachment upon signing, and so the lien attached before the
bankruptcy began. See id. at 144–45.
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 8
Like the bankruptcy court, the BAP did not address Isaacs’s original claim that the
unperfected mortgage could be avoided under the § 544(a) strong-arm power, even though Isaacs
raised it in her brief before the BAP.
Judge Wise concurred in the BAP’s judgment but not in its reasoning. See id. at 151–53
(Wise, J., concurring in the judgment). She reasoned that, because valid liens are not affected by
a discharge order, see Johnson, 501 U.S. at 83, the state court’s determination that the mortgage
lien was valid and its entry of an in rem foreclosure judgment necessarily could not have
implicated the discharge order, and thus did not require an analysis under Hamilton at all. She
therefore reasoned that the majority had engaged in a merits analysis without subject-matter
jurisdiction, Isaacs, 569 B.R. at 151 (Wise, J., concurring in the judgment), and concluded:
The majority’s reasoning suggests the bankruptcy courts can serve as an appellate
court over every foreclosure action under the rationale that an otherwise
permissible in rem action may violate the discharge injunction if the lien is
deemed invalid. Under this reasoning, the Hamilton exception swallows the
Rooker-Feldman rule.
Id. at 152.
Isaacs now appeals.
II.
To determine whether the Rooker-Feldman doctrine bars this action, we must distinguish
between Isaacs’s two different claims. One seeks to avoid the mortgage on the ground that its
lien never attached, that DBI therefore lacks an enforceable mortgage altogether, and that the
Kentucky court wrongly enforced it. The other claim seeks to use the trustee’s § 544(a) strong-
arm power to avoid the mortgage on the ground that it was never perfected, regardless of
whether the Kentucky court properly acted when it did. For the reasons that follow, Rooker-
Feldman bars the first claim but not the second.
The Rooker-Feldman doctrine is properly applied on a claim-by-claim basis, even though
it is jurisdictional in nature. The doctrine—which takes its name from Rooker v. Fidelity Trust
Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 9
(1983)—generally provides that lower federal courts may not engage in appellate review of
state-court decisions. See Hall v. Callahan, 727 F.3d 450, 453 (6th Cir. 2013). It recognizes that
Congress, in providing for federal review of state-court judgments in the U.S. Supreme Court,
see 28 U.S.C. § 1257, chose not to permit appellate review of state-court decisions by the inferior
federal courts. See Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291–92
(2005); Verizon Md. Inc. v. Pub. Serv. Comm’n of Md., 535 U.S. 635, 644 n.3 (2002); Rooker,
263 U.S. at 416. Although jurisdictional in nature, it is nonetheless clear that the jurisdictional
limit is properly applied on a claim-by-claim basis. See, e.g., Hall, 727 F.3d at 453–57;
McCormick v. Braverman, 451 F.3d 382, 392–96 (6th Cir. 2006).
A.
Isaacs’s alternate claim—that DBI lacks an enforceable mortgage because its lien never
attached—is barred by Rooker-Feldman because it requires federal appellate review of the state
court’s foreclosure judgment. We determine whether Rooker-Feldman applies by looking to the
injury alleged in the plaintiff’s federal complaint. Berry v. Schmitt, 688 F.3d 290, 299 (6th Cir.
2012). “If the source of the injury is the state court decision, then the Rooker-Feldman doctrine
would prevent the district court from asserting jurisdiction. If there is some other source of
injury . . . then the plaintiff asserts an independent claim” that is not subject to the Rooker-
Feldman bar. Id. (alteration in original) (quoting McCormick, 451 F.3d at 393).
The source of the plaintiff’s injury may in turn be determined by examining the request
for relief. Id. Here, the claim upheld by the bankruptcy court, set out for the first time in the
Renewed Motion for Summary Judgment, seeks “a declaration that the . . . mortgage is
unenforceable and that the order foreclosing said mortgage, entered by the Lyon County
Kentucky Circuit Court in Case No. 14-CI-0047 be declared to be unenforceable due to the fact
that the underlying mortgage is void.” This request for relief effectively asks the bankruptcy
court to vacate the state-court judgment, and thus it clearly identifies the state-court judgment as
the source of Isaacs’s injury. Indeed, for Isaacs to prevail on this claim, the bankruptcy court
would need to reach a conclusion precisely opposite from the state court on the issue of whether
the mortgage lien attached, and then declare the state court’s foreclosure judgment invalid. This
closely resembles federal appellate review of the state court’s judgment. The claim “invit[es]
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district court review and rejection” of a state-court judgment, see Exxon Mobil, 544 U.S. at 284,
and for this reason falls within Rooker-Feldman’s bar. Isaacs’s recourse on this claim was to the
Kentucky state appellate courts, not the federal bankruptcy court.
Isaacs asserts that this claim is not barred by Rooker-Feldman because it falls within the
Hamilton exception for state-court judgments that modify bankruptcy discharge orders, but this
argument fails because Hamilton does not apply here. The rule of Hamilton was created to
reconcile Rooker-Feldman with the protection for debtors provided by 11 U.S.C. § 524(a). See
Hamilton, 540 F.3d at 373 (noting the tension between “the Rooker-Feldman doctrine’s aim to
preserve state-court authority, and 11 U.S.C. § 524(a)’s aim to preserve the bankruptcy court’s
authority”). Section 524(a), however, has a limited scope; it only protects debtors from being
held personally liable for discharged debts. To this end, § 524(a) voids judgments only to the
extent that they are “a determination of the personal liability of the debtor,” and only enjoins
attempts to collect discharged debts “as a personal liability of the debtor.” Section 524(a) does
not, by contrast, prohibit a creditor from foreclosing on a valid lien that existed before the
bankruptcy. See Johnson, 501 U.S. at 83 (citing, inter alia, 11 U.S.C. § 522(c)(2)); see also
Long v. Bullard, 117 U.S. 617 (1886). Hamilton’s holding that a state court violates § 524(a)
when it modifies a discharge order must be understood in light of § 524(a)’s limited reach.
When a creditor forecloses on a lien, the debtor’s personal liability is not at stake, and therefore
§ 524(a) does not come into the picture. Accordingly, a state court’s determination that a pre-
bankruptcy lien is valid will not, in the usual case, affect the debtor’s personal liability, and so
will not modify the discharge order within the meaning of Hamilton.
That is precisely what happened here. DBI’s predecessor, RoundPoint, sought to enforce
a lien on the Isaacs’s property. The state court determined that the lien was valid and entered an
in rem judgment of foreclosure. This judgment in no way affected the Isaacs’s personal liability
on the underlying mortgage debt. Accordingly, the state court’s judgment did not violate
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 11
§ 524(a).1 Hamilton does not provide an exception to the general operation of Rooker-Feldman
on these facts.
Isaacs also argues that Rooker-Feldman does not apply to this claim because Congress
has expressly endowed the lower federal courts with subject-matter jurisdiction over “all cases
under title 11 and all core proceedings arising under title 11, or arising in a case under title 11,”
28 U.S.C. § 157(b)(1), and, she contends, this claim falls within that grant of jurisdiction.
Although it may be true that Isaacs’s alternate ground does come under this grant of jurisdiction,
that is not the end of the matter. “Rooker and Feldman exhibit the limited circumstances in
which [the Supreme Court’s] appellate jurisdiction over state-court judgments, 28 U.S.C. § 1257,
precludes a [lower federal court] from exercising subject-matter jurisdiction in an action it would
otherwise be empowered to adjudicate under a congressional grant of authority . . . .” Exxon
Mobil, 544 U.S. at 291. In other words, the question is not merely whether Congress has
conferred jurisdiction at all, but whether it has conferred appellate jurisdiction to the lower
federal courts over such a claim. Rooker-Feldman rests on the notion that § 1257 generally
indicates a congressional determination not to give the lower federal courts appellate jurisdiction
to review state-court judgments. Thus, the issue here is not only whether the bankruptcy courts
would generally have subject-matter jurisdiction over Isaacs’s claim, but also whether this
particular exercise of that jurisdiction amounts to appellate review of a state-court judgment. For
the reasons discussed above, this claim requires appellate review of the state court’s decision,
and so is barred by Rooker-Feldman, the general grant of jurisdiction in 28 U.S.C. § 157(b)
notwithstanding.
B.
Issacs’s original claim, however, is not precluded by Rooker-Feldman. This claim
alleges that she is entitled to avoid the mortgage using the § 544(a) strong-arm power because
the mortgage was never perfected. Although Isaacs raised this claim before both the bankruptcy
court and the BAP, neither ruled on it. Rooker-Feldman does not apply to this claim because it
does not require federal appellate review of the state court’s judgment.
1Because this is so regardless of how the mortgage agreement is interpreted, we do not address or resolve
the proper construction of the mortgage with respect to whether its lien attached.
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 12
As discussed previously, when a lien is unperfected, the strong-arm power may allow the
bankruptcy trustee to avoid it by stepping into the shoes of a hypothetical judicial lien creditor,
see 11 U.S.C. § 544(a)(1), or those of a hypothetical bona fide purchaser, see id. § 544(a)(3).
Isaacs’s original claim asserts that DBI’s mortgage was never validly perfected because it was
recorded in violation of the automatic stay, and actions taken in violation of the automatic stay
are “invalid” and “without legal force or effect.” See Easley, 990 F.2d at 909. Therefore, Isaacs
says, she may avoid the unperfected mortgage under either § 544(a)(1) or (a)(3).
This claim is not barred by Rooker-Feldman because it does not invite the bankruptcy
court to review the state court’s handiwork. Although it is true that Isaacs’s initial adversary
complaint generally asks for relief from the state-court judgment, this particular claim does not
call for “appellate review” of that judgment because the bankruptcy court could hold for Isaacs
on this claim without finding any error in the state court’s judgment whatsoever. The state-court
foreclosure judgment determined only that the mortgage debt “is secured by a certain mortgage,”
which “constitutes a valid second mortgage upon the real estate.” It made no findings with
regard to perfection, nor were any necessary to its judgment. Thus, in entering its foreclosure
judgment, the state court determined only whether the lien attached; the issue of perfection was
irrelevant. This makes sense because, in Kentucky, a mortgage in general need not be perfected
to be valid as between mortgagor and mortgagee. Johnson v. Williams (In re Williams),
490 B.R. 236, 239 (Bankr. W.D. Ky. 2013). Instead, “[t]he failure to record the mortgage only
affects the priority of [creditors’] claims against the property.” Id. The state court thus had
occasion only to determine the validity of the mortgage as between debtor and creditor. There
was no reason for it to make a finding as to whether the mortgage was perfected.
This means that the bankruptcy court could accept the state court’s judgment as
completely correct when entered, yet still rule for Isaacs on the ground that the lien was never
perfected. No Rooker-Feldman problem is presented, then, because the bankruptcy court need
not review the state court’s judgment at all. The Supreme Court has emphasized that Rooker-
Feldman is “a narrow doctrine, confined to ‘cases brought by state-court losers complaining of
injuries caused by state-court judgments rendered before the district court proceedings
commenced and inviting district court review and rejection of those judgments.’” Lance v.
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Dennis, 546 U.S. 459, 464 (2006) (per curiam) (quoting Exxon Mobil, 544 U.S. at 284); see also
Skinner v. Switzer, 562 U.S. 521, 531–32 (2011). As we have explained,
[a]ppellate review—the type of judicial action barred by Rooker-Feldman—
consists of a review of the proceedings already conducted by the “lower” tribunal
to determine whether it reached its result in accordance with law. When, in
contrast, the second court tries a matter anew and reaches a conclusion contrary to
a judgment by the first court, without concerning itself with the bona fides of the
prior judgment (which may or may not have been a lawful judgment under the
evidence and argument presented to the first court), it is not conducting appellate
review, regardless of whether compliance with the second judgment would make
it impossible to comply with the first judgment. In this latter situation the conflict
between the two judgments is to be resolved under preclusion doctrine, not
Rooker-Feldman.
Coles v. Granville, 448 F.3d 853, 858–59 (6th Cir. 2006) (emphasis added) (quoting Bolden v.
City of Topeka, 441 F.3d 1129, 1143 (10th Cir. 2006)). Here, Isaacs’s claim that she can avoid
the lien because it was never perfected falls into the latter category: to rule in Isaacs’s favor, the
bankruptcy court would not even have to disagree with—let alone engage in “appellate review”
of—the state court’s judgment. The bankruptcy court could assume the validity of the state-
court judgment, and yet still determine that Isaacs is entitled to relief under federal bankruptcy
law based on matters that were irrelevant to the state-court proceedings. Under these
circumstances, it can hardly be said that Isaacs’s injury is “caused by” the state court’s judgment.
Rooker-Feldman therefore does not apply to this claim.
C.
DBI also contends that Isaacs lacks derivative standing to pursue a strong-arm claim
under § 544(a). Because § 544(a) speaks only of the trustee’s right to avoid certain transfers and
obligations, a debtor like Isaacs must obtain derivative standing to exercise this right. A careful
reading of DBI’s brief shows that it makes only two narrow arguments on this point. First, DBI
argues that any § 544(a) claim belonged to the trustee from the prior Chapter 7 bankruptcy, and
Isaacs therefore was required to reopen the Chapter 7 bankruptcy to obtain derivative standing
from the trustee in that case. Second, DBI contends that Isaacs had to seek derivative standing
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 14
before she filed her adversary complaint, and so her attempt to obtain derivative standing seven
months afterward was too late. Neither argument is persuasive.2
DBI’s first contention is that Isaacs’s § 544(a) claim still belongs to the trustee in the
prior Chapter 7 case, and so Isaacs had to reopen that case to properly obtain derivative standing.
This argument is based on 11 U.S.C. § 541, under which a debtor’s property becomes part of the
bankruptcy estate once she files a bankruptcy petition. DBI contends that, per § 541, Isaacs’s
§ 544(a) claim became part of the prior bankruptcy estate, and therefore belongs to the old
Chapter 7 trustee rather than the trustee in this Chapter 13 case. This argument is unavailing.
First, DBI cites no authority in support of its contention other than the plain text of § 541. But
the filing of the Chapter 13 petition in this case created another bankruptcy estate under § 541,
and DBI offers no suggestion why Isaacs’s claims would not have been included in this new
estate too. Moreover, DBI’s argument is inconsistent with the text of § 544(a), which expressly
grants the trustee avoidance rights “as of the commencement of the case.” This language
indicates that § 544(a) rights are granted anew each time the debtor files for bankruptcy, and so
the Chapter 13 trustee (and by extension Isaacs) now has a § 544(a) claim separate from any the
former Chapter 7 trustee may have had.
Second, DBI notes that the bankruptcy court granted Isaacs’s oral motion for derivative
standing on May 27, 2015, more than seven months after Isaacs filed her adversary complaint. 3
DBI urges this court to adopt a rigid rule that a plaintiff must obtain derivative standing before
filing an adversary complaint, and that Isaacs therefore lacks derivative standing because she did
not seek it until after filing her adversary complaint. This argument fails, however, because such
2Allother objections that DBI might have raised to Isaacs’s derivative standing but did not include in its
brief—such as the question of whether derivative standing is generally available to a Chapter 13 debtor bringing a
§ 544(a) avoidance action—are forfeited, and so we do not address them here. See Fed. R. App. P. 28(a)(8), (b);
Thaddeus-X v. Blatter, 175 F.3d 378, 403 n.18 (6th Cir. 1999).
An objection to derivative standing can be forfeited because it does not go to the bankruptcy court’s
subject-matter jurisdiction. The question is not whether the controversy is of a form on which the judicial power
may act, but rather whether Congress, in enacting § 544(a), intended to allow debtors to wield the strong-arm power.
Because limits on derivative standing are not jurisdictional, the existence of derivative standing does not go to the
bankruptcy court’s subject-matter jurisdiction. See Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct.
1377, 1387 n.4 (2014).
3The trustee did not object to Isaacs’s motion.
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 15
a bright-line rule would be inconsistent with the equitable nature of derivative standing. As we
have previously recognized, “the ability to confer derivative standing . . . is a straightforward
application of bankruptcy courts’ equitable powers,” among which is the power “to craft flexible
remedies in situations where the [Bankruptcy] Code’s causes of action fail to achieve their
intended purpose.” Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re
Trailer Source, Inc.), 555 F.3d 231, 242 (6th Cir. 2009) (ellipsis in original) (quoting Official
Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery,
330 F.3d 548, 567, 568 (3d Cir. 2003)). A bright-line rule that bankruptcy courts may never
authorize derivative standing after a debtor has filed an adversary complaint would frustrate this
flexible equitable power. Moreover, such a rule would deviate from the practice of the
“[n]umerous federal courts [that] have allowed retroactive grants of derivative standing under
appropriate circumstances.” Official Comm. of Unsecured Creditors of Nat’l Forge Co. v. Clark
(In re Nat’l Forge Co.), 326 B.R. 532, 545–46 (W.D. Pa. 2005) (collecting cases); see also PW
Enters. v. N.D. Racing Comm’n (In re Racing Servs., Inc.), 540 F.3d 892, 903–04 (8th Cir.
2008).
Accordingly, DBI’s challenges to the bankruptcy court’s grant of derivative standing fail.
D.
Other issues regarding Isaacs’s strong-arm avoidance claim should be decided in the first
instance in the court or courts below. Neither the bankruptcy court nor the BAP passed on that
claim, and the parties have not focused on its merits in their briefing before this court. We
express no view as to its proper resolution.4
4DBI’s brief suggests that a notice of lis pendens might have been filed by DBI’s predecessor RoundPoint
in the course of initiating foreclosure proceedings. The parties have not focused on this issue in the present appeal,
but on remand it may be necessary to determine the effect, if any, that a notice of lis pendens would have on Isaacs’s
ability to use the strong-arm power. See generally Naja, LLC v. Jack’s Co. (In re Dynamis Grp., LLC), 441 B.R.
841, 847 (Bankr. W.D. Ky. 2011). We express no view on this question.
No. 17-5815 Isaacs v. DBI-ASG Coinvestor Fund, III, LLC Page 16
E.
Amici curiae argue (among other things) that Isaacs may avoid the mortgage as a
preferential transfer under 11 U.S.C. § 547. However, this argument was not included in Isaacs’s
opening brief before this court, so it is forfeited. See Marks v. Newcourt Credit Grp., Inc.,
342 F.3d 444, 462 (6th Cir. 2003). “While an amicus may offer assistance in resolving issues
properly before a court, it may not raise additional issues or arguments not raised by the parties.
To the extent that the amicus raises issues or make[s] arguments that exceed those properly
raised by the parties, we may not consider such issues.” Cellnet Commc’ns, Inc. v. FCC,
149 F.3d 429, 443 (6th Cir. 1998) (internal citations omitted).
III.
The judgment of the BAP is vacated in part and the case is remanded for further
proceedings consistent with this opinion.