Commercial Litigation and Arbitration

Uncertain Application of Rooker-Feldman to State Court Judgments Still on Appeal in State Court System — Circuit Split

TC Healthcare I, LLC v. Dupuis (In re Haven Eldercare, LLC), 2012 U.S. Dist. LEXIS 3190 (D. Conn. Jan. 10, 2012):

Ms. Dupuis was employed by a nursing home operator, Haven Eldercare LLC ("Haven"), which filed for Chapter 11 bankruptcy protection in 2007. Before the bankruptcy, Ms. Dupuis and Haven entered into a tuition reimbursement contract, under which Haven agreed to pay for Ms. Dupuis's nursing classes. In July 2008, the Bankruptcy Court authorized the sale of certain of Haven's assets, and TC Healthcare became the licensed operator of the facility at which Ms. Dupuis, even now, continues to work. After TC Healthcare refused to reimburse Ms. Dupuis for her tuition expenses, she filed an action in Vermont's Small Claims Court seeking the $4,939.36 she felt she was owed.

At the small claims proceeding held on December 16, 2010, Ms. Dupuis represented herself — as she does in this Court as well. A lawyer for TC Healthcare appeared, but failed to offer admissible evidence to show that the Bankruptcy Court's Order of Sale shielded TC Healthcare from obligations incurred by Haven. As a result, the Small Claims Court awarded Ms. Dupuis damages, interest, and costs totaling $4,944.51. The Vermont Superior Court affirmed the Small Claims Court judgment, and Vermont's Supreme Court subsequently declined to hear the case.

While the state proceedings were still ongoing — but after the Small Claims Court's judgment had been issued — TC Healthcare filed a Motion in Bankruptcy Court seeking enforcement of the Bankruptcy Court's 2008 Order of Sale and a ruling stating that TC Healthcare had no liability to Ms. Dupuis. See Motion for Enforcement, In re Haven Eldercare, LLC, No. 07-32720 (ASD) (Bankr. D. Conn. Mar. 22, 2011), ECF No. 1566. After a hearing, the Bankruptcy Court determined that "the Rooker-Feldman Doctrine operates to preclude the relief requested as a collateral attack on a state court decision." ***

TC Healthcare now *** asks this Court to reverse the Bankruptcy Court's Order, to hold that the Rooker-Feldman doctrine does not apply in this case, and to declare that TC Healthcare did not assume Haven's obligations to Ms. Dupuis. ***

The Rooker-Feldman doctrine deprives federal district courts of jurisdiction over "cases brought by 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." Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S. Ct. 1517, 161 L. Ed. 2d 454 (2005). The Second Circuit has listed four requirements for Rooker-Feldman to apply:

First, the federal-court plaintiff must have lost in state court. Second, the plaintiff must complain of injuries caused by a state court judgment. Third, the plaintiff must invite district court review and rejection of that judgment. Fourth, the state-court judgment must have been rendered before the district court proceedings commenced — i.e., Rooker-Feldman has no application to federal-court suits proceeding in parallel with ongoing state-court litigation.

Hoblock v. Albany Cnty. Bd. of Elections, 422 F.3d 77, 85 (2d Cir. 2005) (quotation marks and alterations omitted).

The central question presented in this case is one that the Second Circuit has not yet confronted: whether the Rooker-Feldman doctrine prohibits a state court loser from filing a federal challenge to a state court decision while the state case is still being appealed. As Judge Bianco of the Eastern District of New York has detailed, other circuit courts, as well as district courts within this Circuit, are split on the question. See Caldwell v. Gutman, Mintz, Baker & Sonnenfeldt, P.C., 701 F. Supp. 2d 340, 346-48 (E.D.N.Y. 2010) (collecting and comparing cases). Some courts lean on the Supreme Court's statement in Exxon Mobil that Rooker and Feldman both concerned suits "filed . . . in federal court after the state proceedings ended." Exxon Mobil, 544 U.S. at 291 (emphasis added); see Nicholson v. Shafe, 558 F.3d 1266, 1275-76 (11th Cir. 2009); Federación de Maestros de P.R. v. Junta de Relaciones del Trabajo de P.R., 410 F.3d 17, 24 (1st Cir. 2005). Others focus on Exxon Mobil's seemingly broader proscription of lower federal courts giving appellate review to "state-court judgments." Exxon Mobil, 544 U.S. at 283, 284; see Caldwell, 701 F. Supp. 2d at 348 ("Regardless of the status of any state court appeals, the litigant is still seeking federal review of a state-court judgment. This is what Rooker-Feldman prohibits." (citation omitted)); MacPherson v. State St. Bank & Trust Co., 452 F. Supp. 2d 133, 137 (E.D.N.Y. 2006) ("Rooker-Feldman establishes the clear principle that federal district courts lack jurisdiction over suits that are, in substance, appeals from state-court judgments."). ***

The Second Circuit's four-part test does not resolve this conflict. In fact, its fourth requirement — "the state-court judgment must have been rendered before the district court proceedings commenced — i.e., Rooker-Feldman has no application to federal-court suits proceeding in parallel with ongoing state-court litigation" — invites both interpretations. Hoblock, 422 F.3d at 85 (quotation marks omitted). In the present case, a state-court judgment was rendered before the federal motion was filed, but, given TC Healthcare's state-court appeals, federal and state suits were also initially "proceeding in parallel." The Second Circuit's test thus provides both sides equal comfort.

The Bankruptcy Court's opinion did not acknowledge the fray into which it was entering, or explain why it was siding with one side rather than another. This Court is saved from taking sides only because the case can be resolved much more easily on another, alternate ground: res judicata.

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