Gina Lee v. James Anasti

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1772
In Re: GINA ANASTI LEE,
Debtor.
----------------------
GINA ANASTI LEE, on behalf of the bankruptcy estate,
Plaintiff - Appellant,
v.
JAMES ANASTI,
Defendant – Appellee,
and
WILLIAM K. STEPHENSON, JR.,
Trustee.
No. 10-1774
In Re: GINA ANASTI LEE,
Debtor.
----------------------
GINA ANASTI LEE, on behalf of the bankruptcy estate,
Plaintiff - Appellant,
v.
JAMES ANASTI,
Defendant – Appellee,
and
WILLIAM K. STEPHENSON, JR.,
Trustee.
Appeals from the United States District Court for the District of
South Carolina, at Columbia. Joseph F. Anderson, Jr., District
Judge. (3:10-cv-00626-JFA; 3:10-cv-00196-JFA)
Submitted: October 17, 2011 Decided: January 6, 2012
Before SHEDD and DUNCAN, Circuit Judges, and William L. OSTEEN,
Jr., United States District Judge for the Middle District of
North Carolina, sitting by designation.
Affirmed in part; dismissed in part by unpublished per curiam
opinion.
Tony R. Megna, Columbia, South Carolina, for Appellant. Steven
B. Licata, LAW OFFICE OF STEVEN B. LICATA, PC, Columbia, South
Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Gina Anasti Lee (“Lee”) appeals the orders of the district
court affirming two separate orders issued by the United States
Bankruptcy Court for the District of South Carolina. Both
orders arise from the same bankruptcy case, In re Lee, Ch. 13
Case No. 09-02854 (Bankr. D.S.C. filed Apr. 16, 2009), but were
addressed by the district court in two separate appeals from the
bankruptcy court: (1) In re Lee, No. 3:10CV00196, 2010 U.S.
Dist. LEXIS 44693 (D.S.C. May 6, 2010) (hereinafter “196 Case”)
and (2) In re Lee, No. 3:10CV00626, 432 B.R. 212 (D.S.C. 2010)
(hereinafter “626 Case”). In the 196 Case, Lee appeals the
district court’s order affirming the bankruptcy court’s decision
to grant appellee, James Anasti (“Anasti”), relief from the stay
imposed by 11 U.S.C. § 362. In the 626 Case, Lee appeals the
district court’s order affirming the bankruptcy court’s
dismissal of Lee’s adversary complaint in which Anasti was named
as a defendant. These two related appeals have been
consolidated before this court. For the reasons set forth
below, we affirm the grant of relief from the stay, affirm the
dismissal of Lee’s avoidance action, and dismiss the remainder
of the appeal.
3
I.
This appeal arises from what originally began as a real
property dispute in South Carolina state court between a sister
(Lee) and brother (Anasti) over real property located at 2325
Two Notch Road in Columbia, South Carolina (“the Property”). In
1978, the then-owner of the Property, Laura Corvi, deeded the
Property to Anasti and the parties’ father, Albert Anasti, as
tenants in common with right of survivorship. J.A. 56.
Although James Anasti held an interest in the Property by
virtue of his right of survivorship, Albert Anasti devised the
Property to Lee in his will. J.A. 62. Albert Anasti died in
1995, and, subsequently, a South Carolina probate court found
Lee to have inherited the Property in accordance with Albert
Anasti’s will. Id.In 2000, Lee sold the Property to Lance Wilson and Willis
Goodwin 1 “by way of ‘owner financing.’” J.A. 57. A title
dispute then arose between Lee and the purchasers; Anasti was
not a party to that action. Following this dispute, and as a
result of a related condemnation proceeding (see J.A. 55),
Anasti filed a state court action in 2007 to quiet title to the
Property. See Anasti v. Wilson, 2007-CP-40-0576 (S.C. Ct.
1
Wilson and Goodwin were named as defendants in the state
court litigation, but are not parties to the adversary
proceeding in bankruptcy court described hereinafter.
4
Common Pleas Oct. 26, 2007) (the “state court action”) (order
granting partial summary judgment) (J.A. 55); J.A. 182. In this
state court action, Anasti asserted his interest to the Property
through the original deed from Corvasi, while Lee claimed to
have acquired superior title to the Property through adverse
possession under color of title. J.A. 56, 59. The state trial
court granted summary judgment in favor of Anasti on October 26,
2007, finding that Lee had not acquired title through adverse
possession and that the Property is “the exclusive real property
of [Anasti].” J.A. 64.
In January 2008, Lee appealed the trial court’s decision to
the South Carolina Court of Appeals, which remanded the case to
the trial court for a determination of whether Lee’s appeal was
timely filed. See Anasti v. Wilson, 2011 S.C. App. Unpub. LEXIS
204, at *1 (S.C. Ct. App. Apr. 28, 2011). The state trial court
conducted an evidentiary hearing and thereafter held that Lee’s
appeal was not timely filed. Id. Before the South Carolina
Court of Appeals issued its final ruling, however, Lee filed for
bankruptcy under Chapter 7. J.A. 190-91. After initially
dismissing and then reinstating the appeal, the South Carolina
Court of Appeals “issued an order holding the appeal in abeyance
pending a final decision in the bankruptcy proceedings.” J.A.
191.
5
On June 22, 2009, the Chapter 7 trustee filed a “Report of
No Distribution” in which she found that no property was
available for distribution from the estate. J.A. 90. Lee then
converted the bankruptcy case to Chapter 13. J.A. 45-46.
Thereafter, Anasti moved the bankruptcy court pursuant to 11
U.S.C. § 362(d)(1) to lift the automatic stay to permit the
state appeals process to continue. J.A. 48. Concurrently, Lee
filed an adversary proceeding under 11 U.S.C. §§ 1303 and 1306,
seeking to recover the Property. See Compl., Lee v. Anasti, No.
09-02854 (Bankr. D.S.C. Aug. 20, 2009) (J.A. 111). The claims
set forth in Lee’s adversary complaint were similar to those
asserted in the state court action; both cases were grounded in
theories of adverse possession or related claims. See generally
Order Granting Partial Summ. J. (J.A. 55-64); Compl., Lee v.
Anasti, No. 09-02854 (Bankr. D.S.C. Aug. 20, 2009) (J.A. 124-
28). Specifically, in her adversary complaint, Lee requested
that the bankruptcy court declare that she held title to the
Property based on claims of adverse possession, laches,
estoppel, and staleness. J.A. 124-28. The complaint also
included an avoidance action brought pursuant to 11 U.S.C. §
544(a). J.A. 129.
After Anasti filed his motion seeking relief from the stay
and Lee filed her adversary complaint, the bankruptcy court
6
issued the two separate orders that are the subject of this
appeal. The first order granted Anasti’s motion for relief from
the stay (J.A. 196); that order was appealed to the district
court in the 196 case. The second order dismissed Lee’s
adversary complaint (J.A. 228); that order was appealed to the
district court in the 626 case. 2 The district court affirmed
both of the bankruptcy court’s orders. J.A. 185, 217.
After the stay was lifted, the state court appeals process
continued, and on April 28, 2011, the South Carolina Court of
Appeals dismissed Lee’s appeal as untimely. Anasti v. Wilson,
2011 S.C. App. Unpub. LEXIS 204, at *2 (S.C. Ct. App. Apr. 28,
2011). The Supreme Court of South Carolina then denied Lee’s
petition for writ of certiorari. Anasti v. Wilson, 2011 S.C.
LEXIS 338, at *1 (S.C. Oct. 5, 2011). The state court
litigation concluded while this appeal was pending; both parties
acknowledged in supplemental pleadings the final order of the
Supreme Court of South Carolina denying certiorari. See Supp.
Br. of Appellant at 2; Supp. Br. of Appellee at 1.
In this appeal, Lee argues that the district court erred in
affirming both the bankruptcy court’s decision to grant relief
from the stay and its decision to dismiss her adversary
2
The bankruptcy court also denied Lee’s motion to amend her
complaint in the adversary proceeding without prejudice to her
right to renew the motion upon conclusion of the state court
proceedings. J.A. 228 n.4.
7
complaint. We first address the issue of whether the district
court erred in affirming the bankruptcy court’s decision to
grant relief from the stay.
II.
We have jurisdiction to hear this appeal pursuant to 28
U.S.C. § 158(d), which “allows us to review ‘final decisions’ by
the district court when it acts in its bankruptcy appellate
capacity.” Safety-Kleen, Inc. v. Wyche, 274 F.3d 846, 864 n.4
(4th Cir. 2001). An order granting or denying relief from the
automatic stay is final and appealable. See id. at 864 (“[T]he
denial of relief from the automatic stay is a final, appealable
order.”); Nat’l Envtl. Waste Corp. v. City of Riverside (In re
Nat’l Envtl. Waste Corp.), 129 F.3d 1052, 1054 (9th Cir. 1997)
(“Orders granting or denying relief from the automatic stay are
deemed to be final orders.”); In re Sonnax Indus., 907 F.2d
1280, 1283 (2d Cir. 1990) (“All seem to agree that orders
lifting the automatic stay are final.”).
a.
“We review the judgment of a district court sitting in
review of a bankruptcy court de novo, applying the same
standards of review that were applied in the district court.”
Logan v. JKV Real Estate Servs. (In re Bogdan), 414 F.3d 507,
8
510 (4th Cir. 2005) (citing Devan v. Phoenix Am. Life Ins. Co.
(In re Merry-Go-Round Enters.), 400 F.3d 219, 224 (4th Cir.
2005)). “Specifically, ‘we review the bankruptcy court's factual
findings for clear error, while we review questions of law de
novo.’” Id. (quoting Loudoun Leasing Dev. Co. v. Ford Motor
Credit Co. (In re K & L Lakeland, Inc.), 128 F. 3d 203, 206 (4th
Cir. 1997)).
In this case, the district court, employing the same
reasoning as the bankruptcy court below, found that the
automatic stay was properly lifted under 11 U.S.C. § 362(d)(1).
“A decision to lift the automatic stay under section 362 of the
Code is within the discretion of the bankruptcy judge and this
decision may be overturned on appeal only for abuse of
discretion.” In re Robbins, 964 F.2d 342, 345 (4th Cir. 1992).
11 U.S.C. § 362(d)(1) provides that a court shall grant
relief from the stay “for cause, including the lack of adequate
protection of an interest in property of such party in
interest.” Because the statute does not define cause, “courts
must determine when discretionary relief is appropriate on a
case-by-case basis.” In re Robbins, 964 F.2d at 345.
The court must balance potential prejudice to the
bankruptcy debtor's estate against the hardships that
will be incurred by the person seeking relief from the
automatic stay if relief is denied . . . . The
factors that courts consider in deciding whether to
lift the automatic stay include (1) whether the issues
in the pending litigation involve only state law, so
9
the expertise of the bankruptcy court is unnecessary;
(2) whether modifying the stay will promote judicial
economy and whether there would be greater
interference with the bankruptcy case if the stay were
not lifted because matters would have to be litigated
in bankruptcy court; and (3) whether the estate can be
protected properly by a requirement that creditors
seek enforcement of any judgment through the
bankruptcy court.
Id. (citation omitted).
In its order granting Anasti relief from the stay, the
bankruptcy court identified the standards set forth in Robbins
and concluded that cause to grant relief existed under 11 U.S.C.
§ 362(d)(1). J.A. 192-94. With regard to the first and second
factors set forth in Robbins, the bankruptcy court found that
“[t]he determination of title to the Property and the nature and
extent of [Lee’s] interest is an issue of state law that has
already been litigated in and addressed by the lower state
court.” J.A. 195. The court also found that the third factor
had been met, noting that Anasti did “not seek authority to
pursue any action or liability against [Lee] beyond a
determination of title to the Property in the state court
proceedings.” Id. The court found that allowing the state
court proceedings to continue would avoid “unnecessary
duplication of efforts” and that the debtor would not be
prejudiced by the court’s refusal to relitigate the issue. Id.10
In affirming the bankruptcy court’s order granting relief
from the stay, the district court also applied Robbins and held
that “the bankruptcy court rightly deferred to the courts of
South Carolina in abstaining, on grounds of comity . . . .
South Carolina courts possess particular expertise in
interpreting South Carolina property law.” J.A. 184. The court
additionally noted that, because the quiet title action involved
only the application of state law, the bankruptcy court’s
expertise would not be utilized. Id. The court concluded that
allowing Lee “to pursue identical litigation in the bankruptcy
court would be highly duplicative.” Id.b.
Lee does not challenge the facts found by the bankruptcy
court. The findings of fact that both the bankruptcy court and
district court relied upon accurately reflect the procedural and
substantive history of the state court litigation and the
bankruptcy proceedings. Instead, Lee’s objections are directed
to the lower court’s application of 11 U.S.C. § 362(d) and
Robbins to Anasti’s motion seeking relief from the stay.
Bearing in mind that “Congress . . . has granted broad
discretion to bankruptcy courts to lift the automatic stay to
permit enforcement of rights against property of the estate”
Claughton v. Mixson, 33 F.3d 4, 5 (4th Cir. 1994), we find that
11
the bankruptcy court did not abuse its discretion in granting
Anasti=s motion to lift the stay pursuant to 11 U.S.C. §
362(d)(1). Each of the Robbins factors supports the bankruptcy
court’s exercise of discretion.
The first factor identified in Robbins, “whether the issues
in the pending litigation involve only state law, so the
expertise of the bankruptcy court is unnecessary,” clearly
supports the decision to lift the stay. The state court
litigation involved only issues of state real property law,
rendering the expertise of the bankruptcy court unnecessary.
Notably, real property law is an area in which federal courts
are especially deferential to state courts. See Dayton & M. R.
Co. v. Comm’r, 112 F.2d 627, 630 (4th Cir. 1940) (noting that
even prior to Erie R. Co. v. Tompkins, it was “well settled that
we were bound by state decisions as to rights of property and
other matters of local law”); Warburton v. White, 176 U.S. 484,
496 (1900).
The second factor identified by Robbins, “whether modifying
the stay will promote judicial economy and whether there would
be greater interference with the bankruptcy case if the stay
were not lifted because matters would have to be litigated in
bankruptcy court,” also supports lifting the stay. The state
court litigation had been ongoing for over two years and was
12
near finality in the South Carolina Court of Appeals when Lee
filed for bankruptcy under Chapter 7. Lifting the stay thus
promoted judicial economy; the bankruptcy court’s order
permitted the conclusion of an adjudication of real property
issues in the South Carolina courts in lieu of relitigation of
those same issues in bankruptcy court.
With respect to the third Robbins factor, Lee was afforded
adequate protection in the bankruptcy proceeding because of her
ability to seek subsequent relief if she were to succeed on
appeal in state court. J.A. 195. In summary, all three factors
identified by Robbins heavily weigh in favor of lifting the
stay.
Lee argues that in granting Anasti’s motion to lift the
stay, both the bankruptcy court and the district court
improperly failed to consider that the bankruptcy estate was not
a party to the state court proceeding. Lee contends that
lifting the stay deprived the bankruptcy estate of due process
because the estate has not been provided an opportunity to be
heard on the issue of ownership of the Property. See
Appellant’s Br. at 43-45. Specifically, Lee argues, “If
Appellee prevails in the state-court appeal, he has free and
clear title - and the bankruptcy estate (as opposed to the
individual Debtor) never has the opportunity to present its
13
claims to the property, and is never heard by any court.” Id.
at 45 (emphasis in original).
Lee’s arguments in this regard are not persuasive, as Lee
misinterprets her position in relation to the bankruptcy estate
and the Property. Any interest of the bankruptcy estate in the
Property is derived from Lee’s right in the Property. The
bankruptcy estate’s claim is not greater than Lee’s claim. Cf.
Old Republic Nat’l Title Ins. Co. v. Tyler (In re Dameron), 155
F.3d 718, 721 (4th Cir. 1998) (noting that a trustee may “take
no greater rights [in property] than the debtor himself had”)
(internal quotation marks omitted). Furthermore,
[p]roperty interests are created and defined by state
law. Unless some federal interest requires a
different result, there is no reason why such
interests should be analyzed differently simply
because an interested party is involved in a
bankruptcy proceeding. Uniform treatment of property
interests by both state and federal courts within a
State serves to reduce uncertainty, to discourage
forum shopping, and to prevent a party from receiving
a windfall merely by reason of the happenstance of
bankruptcy.
Butner v. United States, 440 U.S. 48, 55 (1979).
Lee does not offer any facts that suggest the bankruptcy
estate held a better, or different, claim to the Property than
Lee held. Nor does Lee point to any additional facts she would
have presented in the bankruptcy court had the stay remained in
effect. Instead, Lee contends that the order lifting the stay
14
deprived the bankruptcy estate of any opportunity to be heard as
to any claim it might have to the Property. The claims of Lee
and the bankruptcy estate, however, are the same for the purpose
of determining the parties’ respective rights to the Property,
and “there is no reason why such interests should be analyzed
differently simply because an interested party is involved in a
bankruptcy proceeding.” Butner, 440 U.S. at 55. Because Lee’s
interest in the Property is analyzed under the same standard
whether the bankruptcy estate is a party in interest or not,
Lee’s arguments fail to demonstrate why the bankruptcy estate’s
interest, or its rights in the Property, are not effectively
advanced by Lee individually, or more pointedly, why the
bankruptcy estate should be required to relitigate those claims
already asserted and litigated by Lee.
Regardless, even if due process did require that the estate
be given an opportunity to state a claim to the Property, the
estate has chosen not to do so after notice and an opportunity
to be heard. The Chapter 7 trustee filed a Report of No
Distribution stating that no property was available for
distribution from the estate. J.A. 182-83. Additionally, the
Chapter 13 trustee did not oppose modification of the stay to
allow the state court appeals process to continue. J.A. 191.
15
Finally, the fact that the bankruptcy estate chooses not to
participate in, or pursue, Lee’s claim to the Property in the
pending state court action does not pose a barrier to future
enforcement of a final state court judgment as to all those in
privity with Lee. A judgment in a prior case may properly act
as a bar to relitigation in a later proceeding. See, e.g.,
First Union Commer. Corp. v. Nelson, Mullins, Riley, &
Scarborough (In re Varat Enters.), 81 F.3d 1310, 1314-17 (4th
Cir. 1996).
Accordingly, we find that the bankruptcy court and the
district court properly considered and applied the relevant
factors under Robbins and provided a reasoned basis for finding
that each factor had been met. The bankruptcy court did not
abuse its discretion in granting Anasti relief from the stay
pursuant to 11 U.S.C. § 362(d)(1). We therefore affirm the
district court’s order affirming the bankruptcy court’s decision
to grant relief from the stay.
III.
We now turn to Lee’s appeal of the district court’s order
affirming the bankruptcy court’s dismissal of the adversary
proceeding. Lee’s adversary complaint contains four causes of
action. The first cause of action is a state-law adverse
16
possession claim (J.A. 124-27); the second cause of action
asserts the state-law doctrines of laches, estoppel, and
staleness (J.A. 127-28); the third cause of action requests that
the court issue an order demanding the sale of the Property for
the benefit of the estate 3 (J.A. 129); and the fourth cause of
action is an avoidance action under 11 U.S.C. § 544(a) (J.A.
129-30). The bankruptcy court dismissed the avoidance action
brought pursuant to 11 U.S.C. § 544(a) for lack of standing and
dismissed the other state-law claims based on comity and
judicial economy. J.A. 226-27. We will first address the §
544(a) avoidance action before turning to the state-law claims.
a.
The dismissal of an adversary proceeding is a final
appealable order under 28 U.S.C. § 158(d). See In re Moody, 825
F.2d 81, 85 (5th Cir. 1987) (“[I]t is generally held that a
separate adversary proceeding within the framework of the
overall bankruptcy case is an appropriate ‘judicial unit’ for
determining finality.”). We thus have jurisdiction to review
the dismissal of Lee’s avoidance action.
“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim
3
Because Lee may only succeed on this claim if she succeeds on
at least one of the other claims, this cause of action must be
dismissed if the first, second, and fourth claims are all
dismissed.
17
to relief that is plausible on its face.’” Ashcroft v. Iqbal,
129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim is facially
plausible if the plaintiff provides enough factual content to
enable the court to reasonably infer that the defendant is
liable for the misconduct alleged. Id. A court may consider
collateral estoppel at the motion to dismiss stage of
litigation. See, e.g., Aliff v. Joy Mfg. Co., 914 F.2d 39, 44
(4th Cir. 1990) (affirming a district court’s use of collateral
estoppel in granting a motion to dismiss); see also Blue Tree
Hotels v. Starwood Hotels & Resorts, 369 F.3d 212, 217 (2d Cir.
2004) (stating that courts “may also look to public records,
including complaints filed in state court, in deciding a motion
to dismiss”).
Lee’s fourth cause of action was brought pursuant to 11
U.S.C. § 544(a). The complaint alleges that the state court
judgment in favor of Anasti was rendered unenforceable by the
automatic stay provisions of 11 U.S.C. § 362(a). J.A. 129. The
complaint also asserts in conclusory fashion that “Section
544(a) creates a legal fiction of a transfer from the debtor to
a bona fide purchaser on the date of filing, thereby clothing
the trustee in whatever legal rights a bona fide purchaser would
18
possess.” J.A. 130 (quoting In re Houston, 409 B.R. 799, 807
(Bankr. D.S.C. 2009)).
In dismissing Lee’s fourth cause of action, the bankruptcy
court held that a Chapter 13 debtor lacks standing to pursue an
avoidance action under 11 U.S.C. § 544(a). J.A. 226-27. Because
the state court judgment has become final, however, collateral
estoppel applies and Lee is now bound by that judgment. 4 We
therefore affirm the bankruptcy court’s dismissal of Lee’s
avoidance action on the basis of collateral estoppel.
After the bankruptcy court dismissed Lee’s adversary
complaint, and during the pendency of this appeal, the South
Carolina Court of Appeals dismissed Lee’s state court appeal and
the Supreme Court of South Carolina denied her writ of
certiorari. The parties filed these judgments and have addressed
their effect on this court in supplemental briefs. See Supp. Br.
of Appellant at 2-3; Supp. Br. of Appellee at 1-2. We find that
the state court judgment in favor of Anasti is now final and
binding on Lee pursuant to 28 U.S.C. § 1738.
4
Neither the bankruptcy court nor the district court had the
benefit of the final state court judgment and therefore neither
addressed this issue. However, because we “can affirm on any
basis fairly supported by the record,” Eisenberg v. Wachovia
Bank, N.A., 301 F.3d 220, 222 (4th Cir. 2002), we can affirm the
bankruptcy court’s dismissal of Lee’s avoidance action based on
the final state court judgment.
19
“The Full Faith and Credit Act, 28 U.S.C. § 1738, requires
federal courts . . . to give state judicial proceedings ‘the same
full faith and credit . . . as they have by law or usage in the
courts of such State . . . from which they are taken.’” Parsons
Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 519 (1986)
(quoting 28 U.S.C. § 1738). In determining the preclusive effect
of a state court judgment under the Act, federal courts must look
to the law of the state in which the judgment was entered. Id.
at 523; see Heckert v. Dotson (In re Heckert), 272 F.3d 253, 257
(4th Cir. 2001) (“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.”); Empire Funding Corp. v. Armor, No. 99-1529, 2000 U.S.
App. LEXIS 26405, at *5-9 (4th Cir. Oct. 20, 2000) (applying this
principle in the context of a bankruptcy proceeding filed after
the entry of a final state court judgment).
The Supreme Court of South Carolina has stated the following
with regard to collateral estoppel:
[W]hen an issue has been actually litigated and
determined by a valid and final judgment, the
determination is conclusive in a subsequent action
whether on the same or a different claim. The doctrine
may not be invoked unless the precluded party has had a
full and fair opportunity to litigate the issue in the
first action.
20
Zurcher v. Bilton, 379 S.C. 132, 135, 666 S.E.2d 224, 226 (S.C.
2008) (citations omitted).
All of the requirements under South Carolina law for the
application of collateral estoppel are met in this case. The
ownership of the Property was actually litigated and determined
in the quiet title action. The state trial court granted partial
summary judgment in favor of Anasti and held that the Property is
“Confirmed and Ordered as belonging solely to [Anasti].” J.A.
64. The judgment is final, and Lee has exhausted all of her
state court appeals. See Supp. Br. of Appellee at 3-6. Finally,
Lee had a full and fair opportunity to litigate the issue in the
state trial court and did so.
Lee argues that the bankruptcy estate will be prejudiced if
not given its own full and fair opportunity to assert Lee’s right
to the Property. 5 As discussed above, however, any interest of
the bankruptcy estate in the Property is derivative of Lee’s
interest. See In re Dameron, 155 F.3d at 721. Neither the
estate nor Lee has argued that the estate’s potential interest in
the Property was not adequately represented by Lee in the state
court action. The trustee would therefore be in privity with Lee
5
We note that both the Chapter 7 and the Chapter 13 trustees
had the opportunity to assert claims to the Property and have
chosen not to do so.
21
for the purpose of determining the collateral estoppel effect of
the state court judgment. See Richburg v. Baughman, 290 S.C.
431, 434, 351 S.E.2d 164, 166 (1986) (“One in privity is one
whose legal interests were litigated in the former proceeding.”).
All of the requirements established by the South Carolina
courts for the application of collateral estoppel have thus been
met. Accordingly, pursuant to 28 U.S.C. § 1738, this court must
grant full faith and credit to the final state court judgment. 6
We turn now to the effect that final judgment has on this
appeal. The South Carolina trial court held the Property “to be
the exclusive real property of [Anasti]” and granted Anasti title
to the Property. J.A. 64. The court’s findings of fact
supporting this judgment explain why the avoidance action must be
dismissed. The court stated:
It is undisputed that in 1978 Laura Corvi deeded the
Two Notch real property to Albert Anasti and his son
James Anasti as tenants in common with a right of
survivorship. . . . Future interest created by
tenancy in common with right of survivorship vest on
the death of the other party. Smith v. Cutler, 366
S.C. 546, 623 S.E.2d 644. Upon the death of Albert
Anasti the property passed immediately to his son,
6
Further, in affirming the bankruptcy court’s order granting
relief from the stay, we recognized the state court to be an
appropriate forum for the resolution of Lee’s state-law claims.
It would be incongruous for us to now hold that the state court
judgment, which reached finality because relief from the stay was
granted, is not binding on Lee and, resultingly, the bankruptcy
estate.
22
Plaintiff Anasti, as tenant in common with right of
survivorship. Albert Anasti’s act of leaving the
property to his daughter did not destroy the tenancy
in common with right of survivorship. See Id.(“Future interests created by a tenancy in common with
a right of survivorship are indestructible, i.e. not
subject to defeat by the unilateral act of one
cotenant”). Therefore, I find the Two Notch Road
property was not part of the probate estate of Albert
Anasti, but property of Plaintiff Anasti, when the
probate court made its ruling. J.A. 62.
The court went on to hold that “the probate court wrongfully
distributed property that did not belong to a decedent, and the
probate court’s ruling is void for lack of subject matter
jurisdiction.” Id. at 63. Thus, under the state court ruling,
Anasti’s sole ownership of the Property vested at the time of
Albert Anasti’s death in 1995.
Lee’s fourth cause of action was brought pursuant to 11
U.S.C. § 544(a), which provides that: “The trustee shall have . .
. the rights and powers of, or may avoid any transfer of property
of the debtor . . . that is voidable by . . . (3) a bona fide
purchaser of real property, other than fixtures, from the debtor,
against whom applicable law permits such transfer to be
perfected.” U.S.C. § 544(a). “Under section 544(a)(3) the
trustee has the right and power, as of the date of the
commencement of the case, to avoid any lien or transfer avoidable
by a hypothetical bona fide purchaser of real property of the
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debtor.” Anderson v. Conine (In re Robertson), 203 F.3d 855, 864
(5th Cir. 2000). We have previously noted that § 544 “confers on
the trustee no ‘greater rights than those accorded by the
applicable [state] law.’” Havee v. Belk, 775 F.2d 1209, 1219
(4th Cir. 1985) (citation omitted); see Anderson, 203 F.3d at 864(“A hypothetical bona fide purchaser under section 544(a)(3) is a
purchaser who under state law could have conducted a title
search, paid value for the property and perfected his interest as
a legal title holder as of the date of the commencement of the
case.”).
Lee’s claim pursuant to § 544(a) is therefore subject to
dismissal because there was no transfer of the Property to Anasti
that Lee could seek to avoid. Instead, the state trial court
entered a judgment recognizing Anasti as the record owner and
finding that the probate court’s ruling in favor of Lee was void.
J.A. 63-64. Furthermore, the estate did not accede to any claim
to the Property as a hypothetical bona fide purchaser on the date
of the bankruptcy filing because, under state law as determined
by the South Carolina courts, Lee held no interest in the
Property on the date of filing. Id. at 62-64; see In re Houston,
409 B.R. 799, 807 (Bankr. D.S.C. 2009) (“Trustee acquired
whatever interest the Debtor possessed on the date of filing.”);
24
In re Granada, Inc., 92 B.R. 501, 504 (Bankr. D. Utah 1988)
(“[T]he debtor’s interest in the property (or lack thereof) may
well limit the bona fide purchaser’s ‘rights and powers.’”).
Lee’s avoidance action thus fails to state a claim upon which
relief can be granted and must be dismissed.
b.
In dismissing the first, second, and third causes of action
in Lee’s complaint (the “state law claims”) the bankruptcy court
noted that it had “previously found in its [order granting relief
from the stay] that these issues should be conclusively
determined by the state appellate court and should not be
relitigated via this adversary proceeding.” J.A. 227. The court
cited “judicial economy” as a justification for its decision and
dismissed the complaint without prejudice, stating that “should
the state court find that [Lee] has an interest in the Property,
the automatic stay shall apply and the parties may return to this
[c]ourt.” Id.In affirming the bankruptcy court’s order, the district
court stated that the bankruptcy court’s dismissal of the state-
law claims “appear[ed] to be based on 28 U.S.C. § 1334, which
allows a district court to abstain from hearing state-law claims
related to bankruptcy cases in the interest of justice, in the
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interest of comity, or out of respect for state law.” J.A. 216.
The district court upheld the bankruptcy court and dismissed the
case “[b]ecause state law predominates, the state-court action
has proceeded to the court of appeals, and the timing of the
bankruptcy action gives rise to an inference of forum shopping.”
J.A. 216-17. Although the district court did not specify which
subsection of § 1334 it applied, neither party disputes that it
applied § 1334(c)(1), which states: “[N]othing in this section
prevents a district court in the interest of justice, or in the
interest of comity with State courts or respect for State law,
from abstaining from hearing a particular proceeding arising
under title 11 or arising in or related to a case under title
11.”
We agree with the district court’s finding that the
bankruptcy court applied 28 U.S.C. § 1334(c). Furthermore, the
district court’s reference to the predominance of state-law, the
presence of a related proceeding in state court, and the
inference of forum shopping clearly invokes 28 U.S.C. §
1334(c)(1) and the factors courts have utilized in applying it.
See, e.g., New Eng. Power & Marine, Inc. v. Town of Tyngsborough
(In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 69
(1st Cir. 2002) (noting that, in applying § 1334(c)(1), courts
26
consider “the extent to which state law issues predominate over
bankruptcy issues; the presence of a related proceeding commenced
in state court or other nonbankruptcy court; and the likelihood
that the commencement of the proceeding in bankruptcy court
involves forum shopping by one of the parties”) (internal
quotation marks omitted). The ability of this court to review a
district court’s abstention decision made pursuant to 28 U.S.C. §
1334(c)(1) is limited by 28 U.S.C. § 1334(d), which provides:
Any decision to abstain or not to abstain made under
subsection (c) (other than a decision not to abstain in
a proceeding described in subsection (c)(2)) is not
reviewable by appeal or otherwise by the court of
appeals under section 158(d), 1291, or 1292 of this
title . . . or by the Supreme Court of the United
States under section 1254 of this title . . . .
28 U.S.C. § 1334(d).
“[T]he current version of section 1334(d) permits appellate
review only of refusals of mandatory abstention.” United States
(IRS) v. Paolo (In re Paolo), 619 F.3d 100, 103 n.3 (1st Cir.
2010); see also Baker v. Simpson, 613 F.3d 346, 352 (2d Cir.
2010) (“[D]ecisions on permissive abstention, which lie within
the discretion of the bankruptcy court, are not subject to review
by the court of appeals. We therefore lack jurisdiction to
decide whether the district court's decision on permissive
abstention was correct.”); Geruschat v. Ernst Young LLP (In re
Seven Fields Dev. Corp.), 505 F.3d 237, 249 (3d Cir. 2007)
27
(“[A]ppeals of decisions involving permissive abstention, whether
or not the court abstains, are barred.”).
“We therefore lack jurisdiction to decide whether the
district court’s decision on permissive abstention was correct,”
Baker, 613 F.3d at 352, and dismiss Lee’s appeal to the extent it
asks us to review the district court’s decision to affirm the
bankruptcy court’s dismissal of the state-law claims based upon
18 U.S.C. § 1334(c). Accordingly, we affirm the dismissal of
Lee’s avoidance action brought pursuant to § 544(a), and we
dismiss Lee’s appeal of the district court’s order affirming the
bankruptcy court’s dismissal of the state-law claims based on
abstention under 28 U.S.C. § 1334(c)(1).
Conclusion
For the foregoing reasons, we affirm the district court’s
order affirming the bankruptcy court’s order granting relief
from the stay, we affirm the district court’s order affirming
the bankruptcy court’s dismissal of Lee’s avoidance action, and
we dismiss the appeal of the district court’s order affirming
the bankruptcy court’s decision to abstain from hearing the
state-law claims.
AFFIRMED IN PART;
DISMISSED IN PART
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