Yates v. District of Columbia (In Re Yates)

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1148
In Re: MELVIN STANLEY YATES, II,
Debtor.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
MELVIN STANLEY YATES, II,
Plaintiff ! Appellant,
v.
THE DISTRICT OF COLUMBIA,
Defendant ! Appellee.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Roger W. Titus, District Judge. (8:06-
cv-03199-RWT; BK-03-13176; AP-06-01305)
Argued: February 1, 2008 Decided: April 21, 2008
Before MICHAEL and SHEDD, Circuit Judges, and Liam O’GRADY, United
States District Judge for the Eastern District of Virginia, sitting
by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Charles Elliot Wagner, Washington, D.C., for Appellant.
James Creighton McKay, Jr., OFFICE OF THE ATTORNEY GENERAL FOR THE
DISTRICT OF COLUMBIA, Washington, D.C., for Appellee. ON BRIEF:
Linda Singer, Attorney General for the District of Columbia, Todd
S. Kim, Solicitor General, Edward E. Schwab, Deputy Solicitor
General, OFFICE OF THE ATTORNEY GENERAL FOR THE DISTRICT OF
COLUMBIA, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
This appeal arises from an adversary proceeding in
bankruptcy court. In that proceeding Melvin Yates sought to enjoin
the District of Columbia (the D.C. government or District) from
enforcing one aspect of a permanent injunction it obtained in D.C.
Superior Court. The portion of the injunction at issue prohibits
Yates from operating a moving and storage business in the District
without first obtaining a $75,000 surety bond for the protection of
Yates’s future customers. The bond obligation was imposed on Yates
as a result of a jury finding that he had violated the D.C.
Consumer Protection and Procedures Act while previously operating
his business. Yates argues that a bankruptcy discharge he received
in 2003 bars the D.C. government from enforcing the surety bond
obligation. The bankruptcy court rejected Yates’s position, and
the district court affirmed. Because we agree that Yates’s
discharge does not bar the D.C. government from enforcing the
surety bond obligation, we affirm.1
I.
Beginning sometime prior to 2001 Yates operated a
household goods moving and storage business, M.Y. Enterprises, Inc.
(MYE), in the District. In June 2001 the D.C. government brought
1
After oral argument in this case Yates filed a motion to
strike a Rule 28(j) letter submitted by the D.C. government. In
light of our disposition of the case, we deny this motion as moot.
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a series of misdemeanor criminal charges against Yates related to
his operation of the business. Yates pled guilty to several of
these charges in October 2001, for which he received jail time and
was ordered to pay $4,195 in restitution and $250 in costs.
In February 2002 the District filed a civil action in
D.C. Superior Court against Yates and MYE based on the company’s
alleged violations of the D.C. Consumer Protection and Procedures
Act. On February 26, 2002, the Superior Court issued a preliminary
injunction that, among other things, enjoined Yates and MYE from
future violations of the Act and required them to obtain a $100,000
surety bond for the benefit of any consumer harmed by their
misconduct while “engaged in the business of transporting, moving,
warehousing, or storing goods.” J.A. 87-88. MYE filed for
bankruptcy in March 2002 and stopped operating shortly thereafter.
A year later, on March 19, 2003, Yates filed for
bankruptcy in the Bankruptcy Court for the District of Maryland,
which granted his discharge in June 2003. The D.C. government then
filed an adversary proceeding seeking a determination that certain
debts owed by Yates were non-dischargeable under 11 U.S.C.
§ 523(a)(2), which excepts from discharge debts obtained by fraud,
and § 523 (a)(7), which excepts from discharge penalties and fines
owed to a governmental unit. Yates, in turn, sought to enjoin the
D.C. government from continuing its prosecution of the Superior
Court civil action and from enforcing the surety bond obligation
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imposed in that action. In October 2003 the bankruptcy court
entered a preliminary injunction that barred the D.C. government
from conditioning any license or employment opportunity
of Mr. Yates based upon his payment or nonpayment or on
the posting of the aforementioned surety bond for the
benefit of any consumer injured, as defined in the
[Superior Court’s] Preliminary Injunction, to the extent
such payment, nonpayment, or bond requirement relates to
any claims arising prior to March 19, 2003, which have
been discharged by the discharge order entered herein
unless and until any and all of such claims are
determined herein to be nondischargeable.
J.A. 103 (emphasis added). The bankruptcy court’s injunction
further stated that the D.C. government was not “enjoined from
continuing to prosecute” the civil action in Superior Court or from
“enforcing the [Superior Court’s] Preliminary Injunction . . . as
it relate[s] to the posting of a surety bond for the benefit of any
consumer injured . . . in regard to a claim against the debtor that
has arisen, or may arise, subsequent to March 19, 2003.” J.A. 103-
104.
In March 2004 the D.C. government entered a stipulation
with Yates under which it agreed to dismiss with prejudice its
claim in the bankruptcy proceeding that Yates’s debts were non-
dischargeable under the fraud exception, § 523(a)(2). The
stipulation also provided that the government would dismiss without
prejudice its claim under the government penalties exception,
§ 523(a)(7).
Yates then filed a motion in limine in the D.C. Superior
Court civil action arguing that the dismissal of the § 523(a)(2)
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claims in the bankruptcy court precluded the D.C. government from
introducing any evidence of fraud in the Superior Court action.
The Superior Court denied this motion in May 2004. J.A. 124-25.
Next, in a July 2004 order the bankruptcy court denied
Yates’s request to permanently enjoin the Superior Court action and
instead allowed that action to go forward subject to the terms of
the October 2003 preliminary injunction. The bankruptcy court also
stated that whether the relief sought in the civil action was non-
dischargeable could be determined after any such relief was
actually awarded.
Yates then moved in the bankruptcy court for an
injunction barring the introduction of fraud evidence in the D.C.
Superior Court action. The bankruptcy court denied the motion,
reasoning that the dismissal of the § 523(a)(2) claims did not
constitute a determination that no fraud existed, but instead only
precluded the D.C. government from arguing that any debt owed by
Yates was non-dischargeable under § 523(a)(2). Both the district
court and Fourth Circuit affirmed. Yates v. District of Columbia,
139 Fed. Appx. 584 (4th Cir. 2005) (unpublished).
The D.C. Superior Court held a trial in the civil action
in November 2004. At trial the D.C. government introduced evidence
to show that Yates had engaged in fraudulent activity while
operating MYE. This evidence stemmed from incidents that occurred
prior to Yates’s bankruptcy discharge in 2003, and some of the
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incidents occurred in Virginia and Maryland rather than in the
District. The jury found that on numerous occasions Yates and his
company violated the D.C. Consumer Protection and Procedures Act
through misrepresentations of material fact. In December 2004 the
court awarded the D.C. government a $7,000 civil penalty as well as
three forms of equitable relief, which applied against Yates and
any moving company under his management or control. First, the
court enjoined Yates from engaging in an enumerated set of
deceptive business practices, such as making misleading statements
to consumers. Second, the court required Yates to make affirmative
disclosures to future customers through a prescribed form, which
was to be signed by the customers and returned to the D.C. Attorney
General. Third, the court required that Yates either refrain from
managing or controlling a company in the moving business or obtain,
prior to engaging in such business, a $75,000 surety bond. The
order stated that the terms of the surety bond must allow execution
by either the D.C. government or any injured consumer upon proof
that Yates, after the date of the judgment, made material
misrepresentations to consumers.
In January 2006 the D.C. Superior Court held Yates in
contempt for violating the December 2004 injunction. The court
found that Yates was managing and controlling WorldWide Moving and
Storage, Inc., a company engaged in the moving business. The court
further found that Yates and WorldWide had neither made the
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affirmative disclosures nor obtained the surety bond required by
the injunction.
Yates then filed this adversary proceeding alleging that
his bankruptcy discharge barred the D.C. government from enforcing
the $75,000 surety bond obligation imposed by the D.C. Superior
Court. The bankruptcy court rejected all of the arguments Yates
advanced in support of his position, and the district court
affirmed. Yates now appeals.
II.
Yates’s primary contention on appeal is that 11 U.S.C.
§ 524(a) barred the Superior Court from imposing the $75,000 surety
bond obligation in November 2004. That statute bars any entity
from seeking to collect a debt that has previously been discharged
in bankruptcy. 11 U.S.C. § 524(a). According to Yates, the
$100,000 bond obligation imposed in February 2002 qualifies as a
“debt” within the meaning of the Bankruptcy Code and, thus, was
discharged when his bankruptcy discharge was granted in June 2003.
In Yates’s view, the $75,000 bond obligation imposed in November
2004 violates § 524(a) because it is tantamount to a reimposition
of the (discharged) $100,000 bond obligation imposed in February
2002.
This argument lacks merit. As an initial matter, we are
not certain that the initial surety bond obligation qualifies as a
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“debt” within the meaning of the Bankruptcy Code, given that Yates
is not required to secure the bond if he refrains from engaging in
the moving business. See 11 U.S.C. § 101(12) (defining “debt”);
see also FCC v. NextWave Personal Communications, Inc., 537 U.S.
293, 302-04 (2003) (interpreting definition of “debt”). But we
need not answer that difficult question here because the surety
bond obligation imposed by the December 2004 permanent injunction
differs in important ways from the obligation imposed by the
preliminary injunction. That fact alone is a sufficient reason to
reject Yates’s argument that the D.C. Government has run afoul of
§ 524(a) by impermissibly seeking to reimpose a discharged debt.
The key difference between the two surety bond
obligations is that the November 2004 obligation is narrowly
focused on protecting consumers from future misconduct, whereas the
February 2002 obligation is broader in that it seeks to provide
compensation for past injuries as well. The Superior Court’s
November 2004 injunction makes clear that an injured party (or the
D.C. government) may execute on the bond based on proof that Yates
engaged in business misconduct “after the effective date of [the
court’s] Order.” J.A. 183. The February 2002 bond obligation had
no such restriction and was structured in a way that allowed for
compensation to past victims of Yates’s misconduct. In fact, the
bankruptcy court has previously recognized the retrospective aspect
of the February 2002 surety bond obligation when, in October 2003,
9
it enjoined the Superior Court from enforcing the bond obligation
with respect to payment for claims arising prior to the date of
Yates’s discharge.
This key distinction demonstrates that the November 2004
surety bond obligation is not simply a reimposition of the prior
February 2002 obligation. In other words, even if we assume the
February 2002 obligation was a debt that was discharged in Yates’s
bankruptcy, § 524(a) barred the D.C. government only from
reimposing a similar obligation geared to compensating victims of
Yates’s past misconduct. We see no warrant for interpreting
§ 524(a) in a way that prohibits the D.C. government from seeking
to impose a prospective surety bond obligation designed as
protection for future consumers.
Yates repeatedly invokes the bankruptcy code’s “fresh
start” policy to support the argument that his discharge should
prevent the D.C. government from enforcing the surety bond
obligation against him. See Marrama v. Citizens Bank of Mass., 127
S. Ct. 1105, 1107 (2007) (“The principal purpose of the Bankruptcy
Code is to grant a ‘fresh start’ to the ‘honest but unfortunate
debtor.’” (quoting Grogan v. Garner, 498 U.S. 279, 286, 287
(1991))). But the “fresh start” policy does not imply that a
discharge in bankruptcy allows a debtor to be excused from all
consequences of his past misconduct. Indeed, the bankruptcy code’s
“fresh start” principle is limited by the concept that “discharge
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in bankruptcy is not intended to be a haven for wrongdoers.” U.S.
Dept. of Hous. & Urban Dev. v. Cost Control Mktg. & Sales Mgmt. of
Va., Inc., 64 F.3d 920, 927 (4th Cir. 1995). Yates’s pre-
bankruptcy misconduct in operating his business landed him in
serious trouble and resulted in both civil and criminal judgments
against him. Had the D.C. government sought the more drastic
remedy of permanently enjoining Yates from operating a moving
business within its borders, the bankruptcy code surely would have
provided Yates no solace. Likewise, nothing in the bankruptcy code
bars the D.C. government from imposing the lesser sanction at issue
in this case.2
III.
Yates next argues that the D.C. Superior Court erred in
the civil action by allowing two of Yates’s former customers to
testify regarding moves that occurred outside of the District.
Yates argues that these extra-jurisdictional transactions can not
be relevant in determining whether Yates violated the D.C. Consumer
Protection and Procedures Act and that basing a penalty on the
admission of such evidence would violate the federal constitution.
2
Yates also argues that imposition of the surety bond
obligation violates the Ex Post Facto Clause of the Constitution
and other provisions of federal law. We decline to address these
issues, which may be properly addressed in the D.C. court
proceedings. See Yates v. District of Columbia, 445 F.3d 422 (D.C.
Cir. 2006) (holding that Younger abstention barred federal court
consideration of similar arguments made by Yates).
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The D.C. Superior Court ruled that the testimony was admissible,
and Yates has appealed to the D.C. Court of Appeals. See Yates v.
District of Columbia, Nos. 05-CV-29 & 06-CV-96 (D.C. argued April
12, 2007).
We conclude that our consideration of Yates’s arguments,
which were first raised in the federal courts after the D.C.
Superior Court denied his motion to exclude the extra-
jurisdictional evidence, is foreclosed by the Rooker-Feldman
doctrine. That doctrine generally prohibits a party who loses on
an issue in state court from later seeking what in substance would
be appellate review in the federal courts. See Exxon Mobil Corp.
v. Saudi Basic Industries Corp., 544 U.S. 280 (2005). Yates
argues that there is an exception to the doctrine that allows a
federal bankruptcy court to enjoin a state court action that would
violate the § 524(a) statutory injunction prohibiting actions to
seek payment for a discharged debt. See In re Gruntz, 202 F.3d
1074, 1084 (9th Cir. 2000) (“Rooker-Feldman does not allow a state
court to interfere with the core administrative functions of an
operative bankruptcy.”). Even assuming that such an exception
exists, it does not apply here. As we concluded in part II, the
D.C. government did not violate § 524(a) by seeking (and obtaining)
a permanent injunction that imposed a prospective surety bond
obligation on Yates. Therefore, we lack jurisdiction to review the
merits of the D.C. Superior Court’s evidentiary ruling.
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IV.
Finally, Yates renews his argument that the bankruptcy
court should have barred the D.C. Superior Court from admitting any
evidence of fraud in the civil action against him. This argument
is based on the theory that the D.C. government’s dismissal with
prejudice of its § 523(a)(2) claims in the bankruptcy court
precludes the government from arguing that Yates engaged in any
fraudulent activities. Yates is barred from relitigating this
issue, which our court has previously decided. See Yates v.
District of Columbia, 139 Fed. Appx. 584 (4th Cir. 2005)
(unpublished).
* * *
For the reasons stated above, the judgment of the
district court is
AFFIRMED.
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