In Re: Robert Wilson

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
6-16-1997
In Re: Robert Wilson
Precedential or Non-Precedential:
Docket 96-5433
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Recommended Citation
"In Re: Robert Wilson" (1997). 1997 Decisions. Paper 132.
http://digitalcommons.law.villanova.edu/thirdcircuit_1997/132
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Filed June 16, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-5433
IN RE: ROBERT FRANK-LEONARD WILSON,
Debtor
LISA BALDINO;
Appellant
v.
ROBERT FRANK-LEONARD WILSON;
BUNCE D. ATKINSON,
Trustee
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 96-cv-01831)
District Judge: Hon. Anne E. Thompson, Chief Judge
Submitted under Third Circuit LAR 34.1(a)
April 28, 1997
Before: SLOVITER, Chief Judge, NYGAARD and
ALDISERT, Circuit Judges.
(Filed June 16, 1997)
Lisa Baldino
100 Calef Avenue
Narragansett, RI 02882
Appellant, Pro Se
OPINION OF THE COURT
ALDISERT, Circuit Judge.
This appeal by Lisa Baldino from the district court's
affirmance of a bankruptcy court order requires us to
decide whether the bankruptcy court abused its discretion
in denying Baldino's motion for relief from the automatic
stay in proceedings against the Debtor, Robert Frank-
Leonard Wilson. Baldino sought relief from the stay in order
to proceed with a pending appeal in a state court action
against Wilson. The bankruptcy court denied the request,
reasoning that the state court appeal should not proceed
until the bankruptcy court determined whether any
judgment Baldino might receive would be dischargeable.
The district court agreed and affirmed. We find two distinct
grounds for reversing the district court: (1) the bankruptcy
court relied on an erroneous legal premise in exercising its
discretion to deny relief from the stay and (2) the
bankruptcy court's order effectively prevents Baldino from
challenging the state court judgment in any forum.
Accordingly, we will reverse and remand to the district
court for entry of an order directing the bankruptcy court
to lift the automatic stay for the limited purpose of allowing
Baldino's appeal.
The district court had jurisdiction under 28 U.S.C.
§ 158(a). This court has jurisdiction under 28 U.S.C.
§ 1291. In bankruptcy cases, the district court sits as an
appellate court and, therefore, we exercise plenary review
over the district court judgment. Brown v. Pennsylvania
State Employees Credit Union, 851 F.2d 81, 84 (3d Cir.
1988). We review a decision to deny the automatic stay for
abuse of discretion. See Claughton v. Mixson, 33 F.3d 4, 5
(4th Cir. 1994); Holtkamp v. Littlefield (Matter of Holtkamp),
669 F.2d 505, 507 (7th Cir. 1982).
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On July 27, 1989, Wilson signed and swore to a criminal
complaint charging Baldino with criminal trespass and
harassment. Wilson's complaint was subsequently
dismissed. Four years later, on July 20, 1993, Baldino filed
a civil complaint against Wilson in the Superior Court of
New Jersey. Baldino asserted a claim of malicious
prosecution against Wilson based on the 1989 criminal
complaint.
On February 3, 1995 the state court granted Wilson's
motion for summary judgment. The court found that
Baldino had not made out a prima facie case of malicious
prosecution because she failed to show that Wilson acted
without probable cause. Baldino appealed. The parties filed
briefs on appeal and argument was scheduled for February
6, 1996. On September 7, 1995, Wilson filed a petition for
relief under Chapter 7 of the Bankruptcy Code, thereby
automatically staying the appeal.
Baldino filed a pro se motion for relief from the automatic
stay, seeking permission to complete her appeal. The
bankruptcy court denied Baldino's request, reasoning:
Why would I grant stay relief before the
dischargeability of the debt has been determined? . . .
You could be completely successful in the State Court
and not be successful on the nondischargeability
determination. . . . [S]imply because you prevail in the
State Court does not necessarily mean that you will
prevail in a non-dischargeability action . . . there's no
need to determine the extent and validity of claims
unless there's going to be a distribution or unless the
debt has been determined to be dischargeable.
The district court adopted the reasoning of the bankruptcy
court and affirmed the order denying Baldino's request for
relief from the stay.
I.
The bankruptcy court's reasoning rests on the premise
that even if Baldino prevailed in the state court malicious
prosecution action, her judgment against Wilson would not
necessarily be nondischargeable in the bankruptcy
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proceeding. This premise is incorrect as a matter of law.
See Langanella v. Braen (In re Braen), 900 F.2d 621 (3d Cir.
1990).
In Braen, as in the present case, the debtor was sued in
New Jersey state court for malicious prosecution. The state
court action in Braen went to trial and a jury entered a
verdict against the debtor. The verdict included afinding
that the debtor "was activated by a malicious motive in
prosecuting the criminal complaint," a finding which is a
necessary element for a claim of malicious prosecution. Id.
at 623. Before the successful plaintiff in the malicious
prosecution action could collect on the judgment, the
debtor filed a Chapter 11 bankruptcy petition. The plaintiff
asked the bankruptcy court to declare the state court
judgment nondischargeable under 11 U.S.C. § 523(a)(6),
which provides that a creditor can avoid the discharge of a
debt incurred "for willful and malicious injury by the debtor
. . . ." The bankruptcy court held that the debt was
nondischargeable. The court gave preclusive effect to the
New Jersey court's finding that the debtor acted
maliciously. On appeal we stated: "The bankruptcy court
did not err in holding that issue preclusion barred[the
debtor] from relitigating whether [the plaintiff 's] judgment
was a debt incurred ``for willful and malicious injury by the
debtor.' " Id. at 630.
We see no reason why the reasoning of Braen should not
apply to the present case, even though Appellant Baldino
was unsuccessful at trial in the state court. To prevail in
state court, of necessity, Baldino would have to prove that
Wilson acted maliciously. If she is ultimately successful and
eventually obtains a judgment, it would be
nondischargeable under § 523(a)(6) as a debt incurred by
the debtor's willful and malicious conduct. We therefore
conclude that the bankruptcy court abused its discretion
by relying on an erroneous legal premise, to wit, in
declaring "[Baldino] could be completely successful in the
State Court and not be successful on the
nondischargeability determination". See Stuebben v. Gioioso
(In re Gioioso), 979 F.2d 956, 959 (3d Cir. 1992)
(bankruptcy court abuses its discretion when its ruling is
founded on an error of law).
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II.
Moreover, an additional and independent reason
supports our concern over the bankruptcy court's refusal to
lift the stay. The Bankruptcy Code provides that the
bankruptcy court shall grant relief from the automatic stay
"for cause." 11 U.S.C. § 362(d)(1). Section 362(d)(1) does not
define "cause," leaving courts to consider what constitutes
cause based on the totality of the circumstances in each
particular case. Trident Assocs. v. Metropolitan Life Ins. Co.
(In re Trident Assocs.), 52 F.3d 127 (6th Cir. 1995). We
believe "cause" exists under the circumstances of this case.
If the bankruptcy proceeding continues without
modification of the stay, issue preclusion will prevent
Baldino from challenging the effect of the state court
judgment in the bankruptcy court. It is settled law that
issue preclusion applies to bankruptcy proceedings.
Graham v. Internal Revenue Service (In re Graham), 973
F.2d 1089 (3d Cir. 1992). As our discussion of Braen makes
clear, issue preclusion applies even where the previous
adjudication occurred in state court. Braen, 900 F.2d at
624-630; see also First Nat'l Bank v. Brown (In re Brown),
951 F.2d 564 (3d Cir. 1991). If Baldino raises her claim for
malicious prosecution in bankruptcy court, the state
court's determination that Baldino did not show lack of
probable cause will preclude her from relitigating this issue.
Although Baldino's appeal is pending in state court, the
state trial court's resolution of this issue is"final" for
preclusion purposes. See Gregory Mktg. Corp. v. Wakefern
Food Corp., 207 N.J.Super. 607, 504 A.2d 828, 836 (1985)
(New Jersey law recognizes a judgment as "final" for
preclusion purposes even though it is pending on appeal);
Allen v. McCurry, 449 U.S. 90, 96 (1980) (federal courts
afford state court judgments the same preclusive effect that
would exist in the rendering state).
The bankruptcy court is also prohibited from reviewing
the state court's judgment by the Rooker-Feldman doctrine,
which prohibits lower federal courts from sitting as effective
courts of appeal for state court judgments. See , e.g., D.C.
Court of Appeals v. Feldman, 460 U.S. 462, 476 (1983)
(citing Rooker v. Fidelity Trust Co., 263 U.S. 403 (1923));
Besing v. Hawthorne (In re Besing), 981 F.2d 1488, 1496
5
(5th Cir. 1993) ("The Bankruptcy Code was not intended to
give litigants a second chance to challenge a state court
judgment nor did it intend for the Bankruptcy Court to
serve as an appellate court [for state court proceedings]")
(quoting In re G & R Mfg. Co., 91 B.R. 994 (Bankr. M.D.Fla.
1988)).
As demonstrated, Baldino cannot relitigate the adverse
trial court judgment in bankruptcy court. If she is denied
relief from the automatic stay, she will have no opportunity
to challenge the adverse judgment before the bankruptcy
proceedings are complete. If Baldino is not afforded an
opportunity to pursue her appeal in state court, she will
have no forum to litigate her cause. Accordingly, we believe
it is necessary to lift the stay to permit prosecution of her
appeal to the state appellate courts.
Our approach is consistent with that taken by other
courts. See, e.g., Metz v. Poughkeepsie Sav. Bank (In re
Metz), 165 B.R. 769, 771 (Bankr. E.D.N.Y. 1994) (evaluating
the totality of the circumstances and granting stay relief to
allow appeal of state court judgment); Matter of Highway
Truck Drivers and Helpers Local Union 107, 98 B.R. 698,
705 (E.D. Pa. 1989) (affirming bankruptcy court's grant of
stay relief on the grounds that state court appeal was
debtor's "only vehicle to attack the adverse judgment"),
rev'd on other grounds, In re Highway Truck Drivers &
Helpers Local 107, 888 F.2d 293 (3d Cir. 1989).
Moreover, our decision is supported by the legislative
history of § 362(d)(1), which states in pertinent part:
[I]t will often be more appropriate to permit proceedings
to continue in their place of origin, when no great
prejudice to the bankruptcy estate would result, in
order to leave the parties to their chosen forum and to
relieve the bankruptcy court from many duties that
may be handled elsewhere.
S.Rep. No. 95-989 at 50 (1978), reprinted in 1978
U.S.C.C.A.N 5787, 5836. We perceive no great prejudice to
the bankruptcy estate in granting relief from the stay. Such
relief will expedite the resolution of Baldino's claim by
eliminating it if Wilson prevails on appeal, or by rendering
it final and nondischargeable if Baldino ultimately prevails.
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Moreover, Baldino's claim can be resolved more quickly in
state court on appeal than in the bankruptcy proceedings,
as the parties have already filed briefs on appeal.
We have considered all of the arguments advanced by the
parties and conclude that no further discussion is
necessary.
Accordingly, the judgment of the district court will be
reversed and remanded for entry of an order directing the
bankruptcy court to grant Baldino's request for relief from
the stay for the limited purpose of allowing her appeal to
proceed in the New Jersey courts.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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