Neely v. Johnson (In Re Knezek)

Case: 09-20556 Document: 00511048785 Page: 1 Date Filed: 03/11/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 11, 2010
No. 09-20556 Charles R. Fulbruge III
Summary Calendar Clerk
In the Matter of: MARY ANN KNEZEK,
Debtor
CINDY NEELY,
Appellant,
v.
TRAVIS JOHNSON, Appellee, Defendant in Trial Court,
Appellee.
CONSOLIDATED with
No. 09-20574
In the Matter of: MARY ANN KNEZEK,
Debtor
CINDY NEELY,
Appellant,
v.
W. STEVE SMITH,
Appellee.
Appeals from the United States District Court
for the Southern District of Texas
USDC No. H-09-1075
Case: 09-20556 Document: 00511048785 Page: 2 Date Filed: 03/11/2010
No. 09-20556
Before GARZA, CLEMENT, and OWEN, Circuit Judges.
PER CURIAM:*
In this bankruptcy adversary proceeding, Cindy Neely contests two
separate judgments entered by the Bankruptcy Court of the Southern District
of Texas. The district court affirmed, and these judgments have been
consolidated for the purposes of the present review. Neely appeals the
judgments, arguing that the Bankruptcy Court erred in authorizing the sale of
certain property pursuant to 11 U.S.C. § 363(h) and allowing an earmarking of
the funds for the Trustee of Neely’s husband’s bankruptcy estate. We affirm.
I
Cindy Neely and Mary Ann Knezek together entered an agreement in 2003
to purchase property located in Rosenberg, Texas. Shortly thereafter, Mrs.
Neely’s husband, George Neely, a Houston attorney, filed for bankruptcy.
Subsequently, Knezek and Cindy Neely became embroiled in a lawsuit regarding
ownership of the Rosenberg property. The Texas state trial court entered a
judgment awarding a 50% undivided interest in the property each to Cindy
Neely and Knezek. In 2006, Knezek filed an adversary proceeding within the
main case of her own bankruptcy. Knezek sought authority to sell the
Rosenberg property and named Cindy Neely as a defendant. Cindy Neely, in her
capacity as co-owner, opposed this request. Neely argued that Knezek failed to
satisfy the elements of 11 U.S.C. § 363(h), a federal bankruptcy statute
authorizing the sale of a co-owner’s interest in property provided certain
conditions are met.
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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No. 09-20556
During the pendency of Knezek’s sales adversary proceeding, the
Commission for Lawyer Discipline (CFLD) initiated a proceeding within the
main case of George Neely’s bankruptcy, seeking to bar George Neely’s discharge
of debts. Cindy Neely was not named as a party and did not intervene. But she
was deposed, and subsequently subpoenaed, for the trial held on the CFLD’s
adversary proceeding against her husband. This proceeding resulted in a series
of findings that George Neely had concealed property with the intent to hinder,
delay, or defraud his creditors in violation of 11 U.S.C. § 727(a)(2)(A) and (B).
As a result of these findings, the bankruptcy court ordered that any interest of
George and Cindy Neely in the Rosenberg property belonged with George Neely’s
bankruptcy estate and was not exempt on the date of his bankruptcy.
Following this order, the Trustee for George Neely’s bankruptcy estate
sought an amendment of the judgment in Knezek’s adversary proceeding against
Cindy Neely. Specifically, the Trustee requested an amendment identifying him
as a party for whom the sale proceeds of the Rosenberg property would be
earmarked. The bankruptcy court granted the Trustee’s request. Cindy Neely
appealed this judgment to the district court, which dismissed on the grounds
that Mrs. Neely was bound by the findings in the CFLD adversary proceeding
against her husband. This district court held that Cindy Neely’s interests had
been adequately represented at the CFLD proceeding, and her failure to appeal
the bankruptcy court’s judgment in her husband’s ancillary proceeding rendered
the district court powerless to grant any of her requested relief. The district
court dismissed her petition with prejudice, and this appeal followed.
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II
“We apply the same standard of review as the district court, reviewing the
bankruptcy court’s findings of fact for clear error and conclusions of law de
novo.” 1
III
On appeal, Cindy Neely argues that the Bankruptcy Court erred by
allowing the sale of the Rosenberg property and ordering her share of the
proceeds to be awarded to the Trustee overseeing her husband’s bankruptcy
estate. Specifically, Neely argues that an earlier proceeding in state court,
which held that she owned a 50% undivided interest in the Rosenberg property,
precluded the bankruptcy court from earmarking any portion of the proceeds
from its sale for the Trustee. Neely further asserts that the order allowing the
sale was itself in error, because Knezek failed to satisfy the requirements of 11
U.S.C. § 363(h). We address each argument in turn.
A
Mrs. Neely argues that because a state court had awarded her a 50%
undivided interest in the Rosenberg property that the bankruptcy court was
barred under Rooker-Feldman doctrine from awarding any portion of the sales
proceeds to the Trustee overseeing her husband’s bankruptcy estate.2 Neely
misinterprets both the scope and legal effect of the state court’s ruling.
The Rooker-Feldman doctrine bars a losing party in state court “from
seeking what in substance would be appellate review of the state judgment in
a United States district court, based on the losing party’s claim that the state
1
In re Duncan, 562 F.3d 688, 694 (5th Cir. 2009) (quoting Hickman v. Texas (In re
Hickman), 260 F.3d 400, 401 (5th Cir.2001)).
2
See Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of
Appeals v. Feldman, 460 U.S. 462 (1983).
4
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judgment itself violates the loser’s federal rights.” 3 The doctrine is jurisdictional
in nature: federal district courts lack the requisite appellate authority to
“reverse or modify” a state-court judgment, because their jurisdiction under 28
U.S.C. § 1257 is “strictly original.” 4 But the doctrine has no application to a
federal suit brought by a nonparty to the state suit,5 nor does it preclude a party
from litigating an independent claim, even one that denies a legal conclusion
previously reached by a state court.6
“When there is parallel state and federal litigation, Rooker-Feldman is not
triggered simply by the entry of judgment in state court.” 7 The Supreme Court
has repeatedly held that “the pendency of an action in the state court is no bar
to proceedings concerning the same matter in the Federal court having
jurisdiction.” 8 Comity or abstention doctrines may, in various circumstances,
permit or require the federal court to stay or dismiss the federal action in favor
of the state-court litigation, but the Rooker-Feldman doctrine does not support
the notion that properly invoked concurrent jurisdiction vanishes if a state court
reaches judgment on the same or related question while the case remains sub
3
Johnson v. De Grandy, 512 U.S. 997, 1005-06 (1994).
4
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 287 (2005) (quoting
Rooker, 263 U.S. at 415-16) (explaining that if the state-court decision was wrong “that did not
make the judgment void, but merely left it open to reversal or modification in an appropriate
and timely appellate proceeding”).
5
Johnson, 512 U.S. at 1005-06.
6
Exxon Mobile, 544 U.S. at 293 (holding that if a federal plaintiff presents some
independent claim, albeit one that denies a legal conclusion that a state court has reached in
a case to which he was a party, then there is jurisdiction and state law determines whether
the defendant prevails under principles of preclusion).
7
Id. at 292.
8
Id. (quoting McClellan v. Carland, 217 U.S. 268, 282 (1910)).
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judice in a federal court.9 The federal litigation of which Mrs. Neely
complains—her husband’s bankruptcy proceedings—predate the state court
action upon which she relies. Thus, Neely’s argument that the state court
judgment somehow deprived the bankruptcy court of jurisdiction under the
Rooker-Feldman doctrine is without merit.
Disposition of a federal action, once the state court adjudication is
complete, is governed by preclusion law.10 The Full Faith and Credit Act, 28
U.S.C. § 1738, requires a federal court to “give the same preclusive effect to a
state-court judgment as another court of that State would give.” 11 Preclusion,
however, is not a jurisdictional matter. “In parallel litigation, a federal court
may be bound to recognize the claim- and issue-preclusive effects of a state-court
judgment, but federal jurisdiction over an action does not terminate
automatically on the entry of judgment in the state court.” 12 In this regard, res
judicata is an affirmative defense which if not pled is considered waived.13
Although both the bankruptcy court and the district court invited Mrs.
Neely to submit briefing as to whether res judicata would apply to the state
court judgment, Neely failed to provide the state court pleadings or make any
substantial argument regarding the state court judgement’s preclusive effect.
The bankruptcy court made clear that the separate or community property
interest in the Rosenberg property was at issue. In response, Neely’s only
argument was that, because she was not a party to the CFLD adversary
9
Id.10
Id. at 293.
11
Id. (quoting Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 523 (1986)).
12
Id.13
See Mozingo v. Correct Mfg. Corp., 752 F.2d 168, 172 (5th Cir.1985) (“[R]es judicata,
and hence collateral estoppel, is an affirmative defense which if not pled is considered
waived.”); FED . RULE CIV . PROC . 8(c) (listing res judicata as an affirmative defense).
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proceeding against her husband, she could not be bound by it. The district court
properly rejected this argument, and any res judicata argument to the contrary
has been waived.
The law is clear that a nonparty may be bound when her interests are
“adequately represented by someone with the same interests who is a party.”14
The Fifth Circuit has emphasized that this principle is reinforced when the
nonparty shares counsel with a party to the underlying judgment.15 Cindy Neely
was represented during deposition in the CFLD proceeding by the same attorney
representing her husband; this same attorney entered an appearance on Cindy
Neely’s behalf on both days of the trial. Mrs. Neely had every reason to know
that, because the proceeding involved allegations as to the community property
of her marriage, her rights could be affected by the outcome.
“This case surely is not the paradigm situation in which Rooker-Feldman
precludes a federal district court from proceeding.” 16 The Trustee overseeing Mr.
Neely’s bankruptcy estate plainly has not repaired to federal court seeking to
undo a state court judgment against him. Rather, it appears the Trustee
properly moved for an amended judgment on the basis of the bankruptcy court’s
finding that the Rosenberg property was not purchased with Cindy Neely’s
separate funds and was property of the bankruptcy estate. Rooker-Feldman did
not prevent the bankruptcy court from exercising jurisdiction when Knezek filed
the state court action, and it did not emerge to vanquish jurisdiction after Cindy
Neely prevailed in the Texas courts.
14
Richards v. Jefferson County, Ala., 517 U.S. 793, 798 (1996).
15
1488, Inc. v. Philsec Inv. Corp., 939 F.2d 1281, 1290 (5th Cir. 1991).
16
Exxon Mobile, 544 U.S. at 293 (internal citations and quotations omitted).
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B
Neely next argues that the bankruptcy court committed error by allowing
the sale of the Rosenberg property because Knezek failed to satisfy the
requirements of 11 U.S.C. § 363(h). This section of the federal bankruptcy
statute authorizes sale of a co-owner’s property interest providing (1) partition
in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate’s undivided interest in such property would realize
significantly less for the estate than sale of such property free of the interests of
such co-owners; (3) the benefit to the estate of a sale of such property free of the
interests of co-owners outweighs the detriment, if any, to such co-owners; and
(4) such property is not used in the production, transmission, or distribution, for
sale, of electric energy or of natural or synthetic gas for heat, light, or power.17
At trial, Knezek’s expert witness testified that a partition in kind of the
Rosenberg property would be impracticable, would realize significantly less
value for her estate than a sale free of the interests of a co-owner, and was not
used in the production of power. Neely failed either to rebut the expert’s
testimony or provide any substantial evidence to the contrary.
On appeal, Neely argues that Knezek failed to satisfy her burden of proof
under 11 U.S.C. § 363(h). To the extent that Neely raises such an issue, she has
failed to provide any citations to the record or case law. Accordingly, this issue
is waived as inadequately briefed.18 Further, Neely’s claim that Knezek has no
ownership interest in the property was never raised at trial. “It is well
established that we do not consider arguments or claims not presented to the
17
11 U.S.C. §363(h).
18
See, e.g., Adams v. Unione Mediterranea Di Sicurta, 364 F.3d 646, 653 (5th Cir. 2004)
(“Issues not raised or inadequately briefed on appeal are waived.”).
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bankruptcy court.”19 We nevertheless note in passing that our review of the
record, Neely’s arguments, and the bankruptcy court’s well-reasoned opinion,
convinces us that if we were to address the burden of proof issue we would likely
agree with the bankruptcy court’s determination.
* * *
For the foregoing reasons, we AFFIRM the district court’s judgment.
19
Gilchrist v. Westcott (In Matter of Gilchrist), 891 F.2d 559, 561 (5th Cir.1990) (citing
Moody v. Empire Life Ins. Co. (In re Moody), 849 F.2d 902, 905 (5th Cir. 1988)).
9