Opinion
Case No. 04-17551, Adv. No. 05-1101.
July 9, 2005
ORDER RE: MOTION TO DISMISS
This matter is before the Court on Debtor-Defendants Newell and Margaret Crane's and Defendant Marcia Fertig's motion to dismiss the adversary proceeding (Doc. 23) and Plaintiff Wards Corner/I-275 Research Center LLC ("Wards Corner") response (Doc. 24). The Chapter 7 Trustee did not file a response to the motion to dismiss.
The Debtors contend that this Court lacks subject matter jurisdiction pursuant to the Rooker-Feldman doctrine. Wards Corner contends that the Rooker-Feldman doctrine is not applicable because no state court judgment was entered.
The following facts are not at issue. Marcia Fertig is 83 years old. She had a joint and survivirship checking account with her husband until his death in September 2003. Only Mrs. Fertig made deposits into or withdrawals out of the account. Deposits included proceeds from the sale of Mrs. Fertig's residence and transfers from other joint accounts held with her husband before his death. After her husband's death, Mrs. Fertig added the name of her son, Newell Crane, to the account.
Also in November 2003, Wards Corner obtained a confession of judgment against Crane for $113,075. In May 2004, Wards Corner effected a garnishment on the checking account. The balance in the account at that time was approximately $147,000. A state court action ensued, and on August 11, 2004, a Magistrate's Decision was entered concluding that the funds in the account belonged to Mrs. Fertig only and were not subject to the garnishment to satisfy Wards Corner's judgment against Crane. Wards Corner filed an objection to the Magistrate's Decision. On September 21, 2004, the Cranes filed their Chapter 7 petition. On February 4, 2005, an Entry Staying Proceeding was entered in the state court action. Acknowledging the pending objection to the Magistrate's Decision, Judge John Andrew West noted that "it is presently unclear as to whether or not the Provident Account is subject to the garnishment proceedings against Mr. Crane." The Entry concludes "therefore, pursuant to 11 U.S.C. § 362(a), the above captioned matter is hereby STAYED pending the resolution of the Defendants' bankruptcy case."
On May 13, 2005, Wards Corner initiated the instant adversary proceeding. Count One of the complaint seeks a determination of the validity, priority, and extent of Wards Corner's asserted lien on the garnished funds. Count Two of the complaint requests a declaratory judgment as to Wards Corner's rights in and entitlement to the garnished funds. The motion to dismiss followed.
The Rooker-Feldman doctrine prohibits lower federal courts from exercising appellate jurisdiction over decisions and/or proceedings of state courts, including claims that are "inextricably intertwined" with issues decided in state court. Gilbert v. Ferry, 401 F.3d 411, 416 (6th Cir. 2005). A federal claim is inextricably intertwined with a state court judgment when the federal claim can succeed only to the extent that the state court decision was wrongly decided. Id. In other words, the federal court must analyze whether the relief requested in the federal action would effectively reverse the state court decision. In re Singleton, 230 B.R. 533, 536-37 (B.A.P. 6th Cir. 1999). The doctrine has the practical effect of preventing an "end-run" of a state court decision in federal court. Gilbert, 401 F.3d at 417. See also Hood v. Keller, 341 F.3d 593, 597 (6th Cir. 2003) (purpose of doctrine is to prevent the losing party in state court from seeking what would be an appellate review by the federal court of the state court decision).
The issue pending in state court and in the instant adversary proceeding are identical: is the garnishment valid? The Magistrate ruled that it was not. For Wards Corner, the "losing" party, to prevail in this adversary proceeding, this federal court would have to "reverse" the Magistrate's Decision. This is exactly what the Rooker-Feldman doctrine is intended to prevent.
Despite Judge West's acknowledgment in the Entry Staying Proceedings that the outcome of the garnishment issue was still unclear, for all practical purposes, Wards Corner was the "losing" party in state court.
Wards Corner main contention is that the Rooker-Feldman doctrine does not apply because no state court judgment was entered. To the contrary, the Magistrate's Decision was a judgment, albeit an interlocutory judgment. See Bennett v. Estate of Hollabaugh, 2003 WL 22077745 (Ohio App. 10th Dist. Sept. 9, 2003). The Rooker-Feldman doctrine applies to interlocutory judgments. Gilbert, 401 F.3d at 417 n. 5.
Wards Corner also contends that because the Cranes initiated the federal action and that Mrs. Fertig paid the Cranes' bankruptcy attorney's fees, that this Court has jurisdiction over the garnishment issue. This contention is meritless. The law, not the parties, determines jurisdiction. Furthermore, while the Cranes filed the main bankruptcy case, it was Wards Corner who filed the instant adversary proceeding.
Wards Corner also grossly misrepresents the Entry Staying Proceeding by alleging that "Judge West felt the issue was best decided at the federal level." We doubt that Judge West "felt" anything about the issue. And Judge West clearly expressed no opinion about which court would be "better."
The Supreme Court has recently clarified that proper concurrent jurisdiction between state and federal courts may exist and that jurisdiction of the federal court does not "vanish" because the state court decision has been reached. Rather, if the Rooker-Feldman doctrine is properly invoked, disposition of the federal action, once the state court action is complete, would be governed by preclusion principles. Exxon-Mobil Corp. v. Saudi Basic Industries Corp., 125 S.Ct. 1517, 1526-27 (2005). The Supreme Court has also acknowledged that, in the context of the Rooker-Feldman doctrine, principles of comity or abstention may permit the federal court to stay the federal action in favor of the state court action. Id. at 1527.
Discretionary abstention is authorized by 28 U.S.C. § 1334(c)(1). It is the exception and not the rule. See In re United Security Communications, Inc., 93 B.R. 945, 961 (Bankr. S.D. Ohio 1988) (Cole, J.). There are numerous factors to be considered is determining discretionary abstention, id. at 960-61 (citing In re Republic Readers's Serv. Bureau, Inc., 81 B.R. 422, 429 (Bankr. S.D. Tex. 1987)), the primary determinant being whether the case presents unsettled issues of state law. Id. at 960. The extensive briefs filed by the parties in state court raise issues of state garnishment law, state probate law, and state banking law.
Accordingly, we conclude that the Rooker-Feldman doctrine applies and we therefore hold this matter in ABEYANCE to allow the state court to render a final decision on the garnishment issue.
The automatic stay is hereby LIFTED to the extent necessary to allow the state court action to move forward.
In view of the above, and because discretionary abstention applies to both core and non-core issues, it is not necessary to address the balance of the contentions in either the motion to dismiss or the response.
IT IS SO ORDERED.