12.3 State Court Judgments

• Library: Bankruptcy Practice in Virginia (Virginia CLE) (2017 Ed.)

12.3 STATE COURT JUDGMENTS

12.301 The Rooker-Feldman Doctrine. The Rooker-Feldman doctrine prevents federal courts, other than the United States Supreme Court, from sitting in appellate review of a state court decision except in habeas corpus cases. ⁶³

The Rooker-Feldman doctrine arises from two United States Supreme Court cases, Rooker v. Fidelity Trust Co. ⁶⁴ and District of Columbia Court of Appeals v. Feldman. ⁶⁵ The doctrine is one of subject matter jurisdiction arising from the facts that only the United States Supreme Court may review decisions from the highest court of a state ⁶⁶ and that United States district courts are only granted original jurisdiction over certain matters. ⁶⁷ The doctrine also serves to protect the dignity of state courts and the enforceability of their judgments. As it concerns the subject matter jurisdiction of federal courts, the parties cannot waive Rooker-Feldman issues, and the court may raise the issue sua sponte.

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In Exxon Mobil Corp. v. Saudi Basic Industries Corp., ⁶⁸ the United States Supreme Court noted that the Rooker-Feldman doctrine is not triggered simply by the entry of a state court judgment, and neither Rooker nor Feldman supports the notion that properly invoked concurrent jurisdiction vanishes if a state court reaches judgment on the same or a related question while the case is sub judice in a federal court. The Court further noted that Rooker-Feldman is confined to state court losers complaining of injuries caused by state court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.

In Lance v. Dennis, ⁶⁹ the Supreme Court further emphasized the narrowness of the Rooker-Feldman doctrine and noted that it did not bar actions by nonparties to an earlier state court judgment simply because, for purposes of preclusion law, they could be considered in privity with the losing party.

The Rooker-Feldman doctrine applies even when a state court decision is not subject to direct review by the federal court. ⁷⁰ "The label attached to the federal court action will rarely, if ever, be important, since a party that is seeking in federal court to readjudicate an issue decided in state court is unlikely to say so." ⁷¹ Rooker-Feldman applies "not only to issues actually decided by a state court but also to those that are inextricably intertwined with questions ruled upon by a state court," ⁷² and "issues that could have been raised in the state court proceeding." ⁷³

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In Davani v. Virginia Department of Transportation, ⁷⁴ the Fourth Circuit Court of Appeals reversed a district court dismissal of a federal action filed by an employee of VDOT after a Virginia circuit court dismissed the appeal of his termination by VDOT. The Fourth Circuit noted that the Rooker-Feldman doctrine applies only when the loser in state court files a federal action seeking redress for an injury caused by the state court's decision itself. In Davani, the employee alleged that VDOT discriminated against him in violation of state and federal law, not that the circuit court decision caused him injury. The Fourth Circuit also rejected VDOT's claim that the federal action was "inextricably intertwined" with the circuit court proceedings.

The Rooker-Feldman doctrine applies in bankruptcy court. ⁷⁵ However, considering the United States Supreme Court's decision in Exxon Mobil, the doctrine should be applied narrowly to avoid divesting a bankruptcy court of jurisdiction. The doctrine did not prevent a debtor from arguing that a state court default judgment against him was dischargeable. ⁷⁶ Likewise, the doctrine did not prevent a bankruptcy court from considering the consequences of an appeal of state court litigation on the feasibility of a Chapter 11 plan of reorganization. ⁷⁷ Rooker-Feldman also does not prevent a bankruptcy court from deciding whether an obligation arising out of a divorce settlement is in the nature of alimony, maintenance, or support. ⁷⁸ An action to set aside a tax forfeiture of the debtor's residence was not required to be dismissed under Rooker-Feldman, ⁷⁹ and the doctrine did not require the dismissal of an action in the bankruptcy court to set aside a settlement agreement approved by a state court. ⁸⁰

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The Rooker-Feldman doctrine applies regardless of whether the state court decision was correct. ⁸¹ It applies even when the state court judgment is nonfinal. ⁸²

Bankruptcy courts before Exxon Mobil applied the Rooker-Feldman doctrine in the following instances:

1.	Decisions regarding the applicability of the automatic stay; 83
2.	Objections to and allowance of claims; 84
3.	Determination of exemptions; 85
4.	Dischargeability; 86
5.	Eligibility; 87 and
6.	Avoidance of lien. 88

However, these decisions should be carefully scrutinized in light of Exxon Mobil Corp. v. Saudi Basic Industries Corp. ⁸⁹

Federal courts have held that an exception to the Rooker-Feldman doctrine applies in the following instances. Exceptions vary from circuit to circuit, so particular caution is urged.

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1.	When the state court judgment was procured through fraud or the like; 90
2.	When the party bringing the suit in federal court was not a party to the state court action; 91
3.	Where the party bringing the federal action had no reasonable opportunity to raise the federal claim in state court; 92 and
4.	Where the state court lacked subject matter jurisdiction over the claim as its orders would be void ab initio. 93

Courts are split on whether a bankruptcy court can review the decision of a state court on the violation of the automatic stay. ⁹⁴

Non-dischargeability actions are not subject to the Rooker-Feldman doctrine. ⁹⁵

12.302 Collateral Estoppel and Res Judicata. Collateral estoppel (issue preclusion) and res judicata (claim preclusion) are traditional doctrines that apply to bar the relitigation of issues previously decided. These doctrines evolved to promote finality in litigation and to conserve judicial resources. ⁹⁶

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When considering a state court judgment, federal courts are required to apply the same preclusive effect to that judgment as it would be given in the state's own courts. ⁹⁷ Therefore, a federal court must apply the collateral estoppel and res judicata law of the state that rendered the judgment under consideration. ⁹⁸ If the judgment was rendered by a federal court, federal law applies. ⁹⁹

The precise contours of the doctrines of collateral estoppel and res judicata vary from state to state. In Virginia, collateral estoppel applies when:

(1) the parties to the prior and subsequent proceedings, or their privies, [are] the same, (2) the factual issue sought to be litigated actually . . . [has] been litigated in the prior action, (3) the factual issue [has] been essential to the judgment in the prior proceeding, and (4) the prior action [has] resulted in a judgment that is valid, final, and against the party against whom the doctrine is sought to be applied. In addition to these elements, there also must be "mutuality," i.e., a litigant cannot invoke collateral estoppel unless he would have been bound had the litigation of the issue in the prior action reached the opposite result. ¹⁰⁰

In Lewis v. Long, ¹⁰¹ the district court agreed with the bankruptcy court that the state court proceedings (statutory rape) against the debtor were not entitled to preclusive effect under the doctrine of collateral estoppel as to whether the debtor's debt arose from a willful and malicious injury.

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