Gray v. Nussbeck (In re Gray)
Gray v. Nussbeck (In re Gray)
Opinion of the Court
Section 524 of the Bankruptcy Code is the backbone of an honest but unfortunate debtor’s fresh start.
Here, the Court is asked to conclude that full faith and credit, issue preclusion, and the Rooker-Feldman doctrine deprive this Court of jurisdiction over Debtor’s claims that Defendant violated § 524 by taking an. in personam judgment in state court that included discharged debt. The Court declines to do so.
I. BACKGROUND
Plaintiff/Debtor Sheldon Gray filed a voluntary petition for Chapter 7 relief on August 17, 2012. Defendant Ronald Nuss-beck was scheduled as an unsecured creditor in the case and received notice of the same in December 2012.
Thereafter, this Court’s record is silent as to any interactions between Debtor and Defendant until February 11, 2015, when Debtor, acting pro se, commenced this adversary proceeding against Defendant. The entirety of Debtor’s allegations in his Complaint against Defendant are brief. Debtor writes:
[Defendant] took me to Jackson County Court for debt include in the Bankrupt*873 cy of $10,000 personal loan, $14,187.52 BOK, and $18,954.01 real estate taxes on 6430 troost ave, Kansas city mo 64131, and won a judgments in December 2014. Complaints pursuant to Fed. R. Bankr. P. 4004(a) or 4007(c), motions under Fed. R. Bankr. P. 1017(e). '
After being served, Defendant filed his Motion to Dismiss Debtor’s Complaint. Defendant argues the Complaint should be stricken because it was not filed by Debt- or’s counsel of record in Debtor’s main bankruptcy case. Defendant also argues the Complaint fails to state a claim for relief. Finally, Defendant argues this Court does not have jurisdiction over the Complaint as a matter of “full faith and credit, issue preclusion and the Rooker-Feldman doctrine,”
Courts construe a pro se litigant’s pleadings liberally and apply a less stringent standard than that which is applicable to attorneys.
The majority of the state court record was not available for the Court’s review at the. status conference, so Defendant agreed to and did submit additional exhibits to shed light on the state court proceedings. The Court later gave the parties notice of its intent to take judicial notice of the pleadings and other documents filed in the state court case.
Review of the state court pleadings shows that debt incurred by Debtor pre-bankruptcy was a significant portion of the amounts Defendant sought to recover. That is, Defendant sought through his state court law suit to recover at least a portion of $10,000 in debt that arose on or around February of 2010.
Notably, the pleadings suggest Debtor cooperated with Defendant in forming the “Agreement” and “Settlement of Debt.” Regardless of whether Debtor cooperated with Defendant in forming the Agreement and Settlement of Debt, Debtor rightfully raised his bankruptcy as an affirmative defense in the state court litigation, arguing Defendant was seeking to collect a discharged debt.
The state court’s judgment against Debtor initially appears puzzling. But, a deeper review of the state court pleadings may explain, at least in part, the state court’s rejection of Debtor’s bankruptcy defense. For example, Defendant makes several statements to the state court that Debtor committed fraud against this Court, including false representation to this Court of (i) the ownership and value of certain property and (ii) the balance of Debtor’s debt to Defendant, thereby depriving Defendant of notice of Debtor’s bankruptcy case.
After losing in state court, Debtor commenced this adversary proceeding. Defendant now seeks the dismissal of Debtor’s complaint, arguing this Court does not have jurisdiction over Debtor’s Complaint and that, even if this Court does have jurisdiction, Debtor cannot proceed pro se and fails to state a claim for which relief may be granted.
II. JURISDICTION
Federal courts have limited jurisdiction and, as such, “are duty bound to examine facts and law in every lawsuit before them to ensure that they possess subject matter jurisdiction.”
Debtor, albeit, briefly, alleges Defendant violated the discharge injunction by proceeding to judgment on a discharged debt in state court. Defendant argues full faith and credit, issue preclusion, and the Rook-er-Feldman doctrine deprive this Court of jurisdiction over Debtor’s claim;
a. Rooker-Feldman Doctrine
The Rooker-Feldman doctrine “is a jurisdictional prohibition on lower federal courts exercising appellate jurisdiction over state-court judgments.”
Here, Debtor lost in state court and is complaining to this Court about the resulting injury, but he does so in a bankruptcy case that was filed and discharged before the state court litigation was initiated. Defendant, through his state court action, sought to enforce an agreement that § 524(c) explicitly rendered unenforceable because it was not filed with this Court.
In confronting this issue, this Court is mindful of the Supreme Court’s warning that “lower courts have at times extended Rooker-Feldman far beyond the contours of the Rooker and Feldman cases, overriding Congress’ conferral of federal-court jurisdiction concurrent with jurisdiction exercised by state courts, and superseding the ordinary application of preclusion law pursuant to 28 U.S.C. § 1738.”
On the other hand, Rooker did not .speak to void state court decisions other than to observe the difference between wrong versus void. The "Supreme Court clarified in United Student Aid Funds Inc. v. Espinosa that “[a] void judgment is a legal nullity.”
In the Tenth Circuit it is long established that a judgment in a case against a debtor taken while the automatic stay of § 362(a) is in place is void, without effect, and, hence, subject to collateral attack.
Section 524(a) is meant to operate automatically, with no need for the debtor to assert the discharge to render the judgment void. A bankruptcy court can find that a postpetition state court judgment is void despite the full faith and credit normally given to state court judgments.40
Moreover, it makes no sense to suggest a bankruptcy court cannot use § 524’s clear and unambiguous language to void a state court judgment on a debtor’s personal liability for discharged debt. The alternative means the honest but unsophisticated debtor may lose the benefit of the discharge to an unscrupulous creditor who proceeds in violation of § 524 to judgment on a debt, because it knows as much as 90 percent of collection suits will not be defended and end in default judgment.
Even though the discharge injunction is created by statute, it is well established that the enforcement of the discharge injunction through its contempt authority requires a bankruptcy court to exercise its equity jurisdiction through § 105(a).
To conclude otherwise would be to permit the state court to act as a court of appeal to this Court’s discharge order, because the state court in effect modified or voided this Court’s order and application of a federal statute. It is uniquely within the domain of Congress to establish uniform laws on the subject of
In light of the foregoing, this Court concludes that the state court judgment violates the discharge injunction, is void and a legal nullity beyond the reach of Defendant’s Rooker-Feldman argument and is subject to collateral attack.
b. Issue Preclusion and Full Faith and Credit
Under the full faith and credit statute, 28 U.S.C. § 1738, a federal court must give to a state court judgment the same preclusive effect it has under state law unless there exists an express or implied exception to the statute.
Although here the state court had concurrent jurisdiction under 28 U.S.C. § 1334(b) to address whether a particular debt was excepted from discharge under §§ 523 and 727(b), Congress through § 524 deprived the state court—in clear and unambiguous terms—of the ability to misconstrue or modify the discharge itself by making such conclusions void and without legal effect.
Section 524 renders an improper judgment void; it effectively “loses its teeth if a creditor can avoid [§ 524’s] effect with the post-bankruptcy invocation of legal process and obtain a judgment that [§ 524] clearly prohibits due to a debtor’s default or failure to defend competently, completely, or at all in reliance on the discharge.”
After reviewing the state court pleadings, there is no question the state court judgment included discharged debt and, as a consequence, is.a void legal nullity.
III. ANALYSIS
In addition to Defendant’s jurisdictional argument for dismissing Debtor’s complaint, Defendant argues Debtor’s complaint should be dismissed (i) because the Debtor is proceeding pro se and (ii) for failure to state a claim. Individuals may proceed pro se. Having concluded the Court has jurisdiction over Debtor’s Complaint, the Court now determines whether the Complaint sets forth a claim for which relief can be granted.
a. Legal Standard for Assessing a Motion to Dismiss
A motion to dismiss for failure to state a claim is governed by Federal Rule of Civil Procedure 12(b)(6), which is made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7012. The requirements for a legally sufficient claim stem from Fed. R. Civ. P. 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief.”
The plausibility standard does not require a showing of probability that a defendant has acted unlawfully, but requires more than “a sheer possibility.”
Finally, the Court’s obligation to construe a pro se litigant’s pleadings liberally is not without limits. Pro se parties must, ultimately, follow the same rules of procedure governing other litigants.
b. Legal Sufficiency of Debtor’s Claim
Section 524(a)(1) voids past and future in personam judgments on discharged debts at any time obtained, and § 524(a)(2) provides that a discharge:
operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt [discharged under § 727] as a personal liability of the debtor, whether or not discharge of such debt is waived
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Bankruptcy courts have the power to hold creditors who violate the discharge injunction in contempt under § 105(a).
IV. CONCLUSION
Debtor’s Complaint sets forth a plausible claim upon which relief may be granted. While the burden typically rests squarely on the Debtor to show by clear and convincing evidence the Defendant (1) had actual or constructive knowledge of the discharged debt and (2) intended the actions which were taken in violation of the injunction,
IT IS ORDERED that Defendant’s Motion to Dismiss is DENIED;
IT IS FURTHER ORDERED that, in light of the foregoing, Defendant must show cause in a written filing within thirty (30) days why judgment as to liability should not be entered against Defendant and a trial on damáges scheduled.
IT IS SO ORDERED.
. 11 U.S.C. § 524. All future statutory references are to the Bankruptcy Code (Code), as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 11 U.S.C. §§ 101-1532, unless otherwise specifically noted.
. § 524(a)(2).
. § 524(a)(1); see also 4 Collier on Bankruptcy ¶ 524.02[1], at 524-19 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2016) ("Section 524(a)(1) clearly pertains to judgments obtained both before and after the discharge order, in that it refers to 'any judgment at any time obtained.’ ”),
. § 524(c).
. § 524(c).
. Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193, 1200 (9th Cir. 2008) (italics in original), aff'd, 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010).
. Case no. 12-22251, Doc. 37-38.
. Case no. 12-22251, Doc. 37. .
. Case no. 12-22251, Doc. 46.
. Case no. 12-22251, Doc. 66-68.
. Doc. 13, at 2.
. Whitney v. New Mexico, 113 F.3d 1170, 1173 (10th Cir. 1997).
. Doc. 33.
. The documents on which the Court takes Judicial Notice are filed separately at Doc. 36. When considering a motion to dismiss, "[t]he court may take judicial notice of its own files and records, matters of public record, as well as the passage of time,” Logan v. United States, 272 F.Supp.2d 1182, 1184 n.1 (D. Kan. 2003).
. Doc. 36, Petition ¶ 8, Nussbeck v. Gray, Case no. 1316-CV27930 (Circuit Court of Jackson Cty., MO, Nov. 1, 2013).
. See In re King, 744 F.3d 565, 567 (8th Cir. 2014) ("An agreement seeking to reaffirm pre-discharge debt and incorporate it into a new post-discharge debt is only enforceable if numerous requirements are met, including receipt of a bankruptcy court’s express approval of the agreement”) (citing 11 U.S.C. § 524(c)).
. Case no. 12-22251, Doc. 46.
. Doc. 36, Petition ¶ 25, 28, Nussbeck v. Gray, Case no. 1316-CV27930 (Circuit Court of Jackson Cty., MO, Nov. 1, 2013).
. Doc. 36, Answer ¶ 69-71, Nussbeck v. Gray, Case no. 1316-CV27930 (Circuit Court of Jackson Cty., MO, Feb. 3, 2014).
. Doc. 36, Motion for Judgment on the Pleadings and Motion for New Trial, Nussbeck v. Gray, Case no. 1316-CV27930 (Circuit Court of Jackson Cty., MO, September 29, 2014, and December 12, 2014).
. Doc. 36, Judgment and Order Denying Motion for New Trial, Nussbeck v. Gray, Case no. 1316-CV27930 (Circuit Court of Jackson Cty., MO, Nov. 1, 2013).
. See Doc. 36, Petition ¶ 15-22, Nussbeck v. Gray, Case no. 1316-CV27930 (Circuit Court of Jackson Cty., MO, Nov. 1, 2013).
. The Wilderness Soc’y v. Kane Cty., Utah, 632 F.3d 1162, 1179 n.3 (10th Cir. 2011) (Gorsuch, J., concurring).
. Campbell v. City of Spencer, 682 F.3d 1278, 1281 (10th Cir. 2012).
. Bolden v. City of Topeka, Kansas, 441 F.3d 1129, 1139 (10th Cir. 2006).
. In re Miller, 666 F.3d 1255, 1261 (10th Cir. 2012).
. Kline v. Deutsche Bank Nat’l Trust Co. (In re Kline), 472 B.R. 98 (10th Cir. BAP 2012) aff’d, 514 Fed.Appx. 810 (10th Cir. 2013).
. See King, 744 F.3d at 567 (citing § 524(c)); see also SMS Financial JDC, LP v. Cope, 685 Fed.Appx. 648 (10th Cir. 2017) ("Reaffirmation agreements entered into without compli-anee with the requirements of § 524(c) have generally been described as 'void and unenforceable,’ rather than merely voidable”).
. See 4 Collier on Bankruptcy ¶ 524.02[1], at 524-20 n.7 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2016) (Contrasting cases).
. Lance v. Dennis, 546 U.S. 459, 464, 126 S.Ct. 1198, 163 L.Ed.2d 1059 (2006) (citing Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 283, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005) (internal quotations omitted)).
. Rooker v. Fid. Trust Co., 263 U.S. 413, 415, 44 S.Ct. 149, 68 L.Ed. 362 (1923) ("If the 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.”).
. Rooker, 263 U.S. at 416, 44 S.Ct. 149.
. 559 U.S. 260, 270, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010).
. Id.
. Ellis v. Consol. Diesel Elec. Corp., 894 F.2d 371, 372-73 (10th Cir. 1990) (citing Kalb v. Feuerstein, 308 U.S. 433, 438, 60 S.Ct. 343, 84 L.Ed. 370 (1940) (“[T]he action of the ... Court was not merely erroneous but was beyond its power, void, and subject to collateral attack.”); Meyer v. Rowen, 181 F.2d 715, 716 (10th Cir. 1950); In re Sambo’s Restaurants, Inc., 754 F.2d 811, 816 (9th Cir. 1985); Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11th Cir. 1982); 2 Collier on Bankruptcy § 362.11 (15th ed. 1989)).
. Ellis, 894 F.2d at 372-373.
. Id. See also In re Gruntz, 202 F.3d 1074, 1083 (9th Cir. 2000) (even if state courts have concurrent jurisdiction, the federal courts, by virtue of the power vested in them by Congress, have the final authority to determine the scope and applicability of the automatic stay; "[a] bankruptcy court simply does not conduct an improper appellate review of a state court when it enforces an automatic stay that issues from its own federal statutory authority”); Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 384 (6th Cir. 2001) (when party seeks to commence or to continue proceedings in one court against debtor or his property, non-bankruptcy court properly responds to the filing by determining whether automatic stay applies but “[i]f the non-bankruptcy court's initial jurisdictional determination is erroneous, parties run the risk that the entire action later will be declared void ab initio”); Raymark Indus., Inc. v. Lai, 973 F.2d 1125, 1132 (3d Cir. 1992) (bankruptcy court had the power to vacate the decision of state court dismissing appeal because actions taken in violation of the automatic stay are void ab initio).
. § 524(a) (emphasis added).
. In re Skinner, 917 F.2d 444, 447 (10th Cir. 1990) (citing Roberts v. United States (In re Roberts), 906 F.2d 1440, 1442 (10th Cir. 1990); Miller v. Commissioner, 836 F.2d 1274, 1280-85 (10th Cir. 1988)).
. 4 Collier on Bankruptcy ¶ 524.02, at 524-20 (Alan N[, Resnick & Henry J. Sommer eds. 16th ed, 2016) (footnote omitted).
. See, e.g., Consent Order, Portfolio Recovery Assocs., LLC, CFPB No. 2015-CFPB-0023 (Sept. 8, 2015), at ¶28, http://files. consumerflnance.gov/iy201509 cfpb consent-order-portfolio-recovery-associates-llc.pdf.
. Paul v. Iglehard (In re Paul), 534 F.3d 1303, 1306-07 (10th Cir. 2008); see also WD Equip., LLC v. Cowen (In re Cowen), 849 F.3d 943, 950 (10th Cir. 2017) (citing Scrivner v. Mashburn (In re Scrivner), 535 F.3d 1258, 1263 (10th Cir. 2008)).
. Scrivner, 535 F.3d at 1263 (internal quotations omitted).
. Cf. Driskell v. Thompson, 971 F.Supp.2d 1050, 1065 (D. Colo. 2013) (‘‘[T]hese claims arose prior to the ... proceeding and ‘are not an attack on the [state court] judgment or [state court] proceedings... but rather claims that could have been brought regardless of what occurred at the state-court level.”) (brackets in original) (citing Amerson v. Chase Home Finance LLC, No. 11-cv-01041-WJM-MEH, 2012 WL 1686168, *10 (D. Colo. May 7, 2012)).
. It is not lost on this Court that Plaintiff knowingly may have participated in activities barred by § 524. Such participation, if proven at trial, would figure into any sanctions awarded. But, Defendant’s conduct violated § 524 regardless of Plaintiff’s involvement.
. U.S. Const., art. I, § 9.
. This Court is aware a Tenth Circuit panel, in an unpublished decision, concluded the Rooker-Feldman doctrine bars a complaint under § 524 seeking declaratory relief nullifying a state court’s orders. Flanders v. Lawrence (In re Flanders), 657 Fed.Appx. 808, 816 (10th Cir. 2016). However, unpublished decisions are not binding or favored for citation and do not supplant the binding effect of prior published decisions. See United States v. Austin, 426 F.3d 1266, 1274 (10th Cir. 2005) (“[U]npublished orders are not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estop-pel, and we have generally determined that citation to unpublished opinions is not favored.”). Here, the Tenth Circuit’s decision in Ellis v. Consol. Diesel Elec. Corp. is binding. 894 F.2d 371, 372-73 (10th Cir. 1990). In that case, the Tenth Circuit concluded that actions taken in violation of the automatic stay are void, without legal effect, and subject to collateral attack. Id. at 372-73. Judgments taken in violation of § 524 are not any less void. To give such judgments legal effect would be to reject the Tenth Circuit's conclusions concerning the effect of a void action, which this Court cannot do in reliance on unpublished authority. Regardless, the facts in Flanders, which involved the collision of bankruptcy, divorce and federal criminal law, are so dissimilar to this case that it provides little instruction here.
. Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380-81, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985).
. Id. at 386, 105 S.Ct. 1327.
. See Meadows v. Hagler (In re Meadows), 428 B.R. 894, 910 (Bankr. N.D. Ga. 2010) (citing § 524(a)).
. Id. at 909.
. “[A] federal court must give to a state-court judgment the samé preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.” Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984). Under Missouri law, a void judgment may be attacked collaterally. Worley v. Worley, 19 S.W.3d 127, 130 (Mo. 2000) (en banc); see also Berry v. Chitwood, 362 S.W.2d 515, 517 (Mo. 1962) (a void judgment is not res judicata); Pauli v. Spicer, 445 S.W.3d 667, 677 (Mo. Ct. App. 2014).
. Here, the Court finds the entire state court judgment is void, as opposed to only the judgment on that portion of debt that was not properly reaffirmed, because the Court cannot determine with specificity what portion of the judgment arises from debt that was discharged versus not discharged.
. Paul, 534 F.3d at 1306-07 ("Under 11 U.S.C. § 105(a), bankruptcy cdurts have the equitable power to enforce and remedy violations of substantive provisions of the Bankruptcy Code, including in particular the discharge injunction in § 524(a)(2).”).
. Rule 8 is made applicable to adversary proceedings via Federal Rule of Bankruptcy Procedure 7008(a).
. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
. Id. at 570, 127 S.Ct. 1955.
. Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (italics in original).
. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
. Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).
. Kay v. Bemis, 500 F.3d 1214, 1218 (10th Cir. 2007) (citing Garrett v. Selby, Connor, Maddux & Janer, 425 F.3d 836, 840 (10th Cir. 2005)).
. Paul, 534 F.3d at 1306-07.
. See Nelson v. Colvin, Civ. Action No. 13-1199-JWL, 2014 WL 4794393, at *4 (D. Kan. Sept. 25, 2014).
. Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991).
. See generally Reliance Ins. Co. v. Mast Const. Co., 159 F.3d 1311, 1315 (10th Cir. 1998) (to prevail in a civil contempt proceeding, plaintiff must prove elements by clear
Reference
- Full Case Name
- IN RE: Sheldon A. GRAY and Karla Latonya Houston-Gray, Debtors. Sheldon A. Gray v. Ronald Nussbeck
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- 5 cases
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