497 B.R. 495
Bankr. D.S.C.2013Background
- Infinity Business Group, Inc. (Debtor) removed its officers Wade and Bradshaw Cordell and John Blevins from the board in August 2009; the Cordell Group sued certain directors in South Carolina and the Sturgill Group filed suit in Kentucky on behalf of the Debtor.
- The Kentucky court entered an ex parte TRO preventing the Cordell Group from accessing or transferring Debtor assets.
- On September 2, 2009, the parties executed a broad settlement (2009 Settlement Agreement) containing a release of claims against the Cordell Group, which the Lexington County Court later incorporated into a consent order (State Court Judgment).
- The Chapter 7 Trustee (Anderson) later filed a Rule 60(b) motion in state court to set aside the settlement; the Lexington Court denied that motion.
- The Trustee then commenced this adversary proceeding seeking to avoid transfers made pursuant to the 2009 Settlement Agreement as fraudulent transfers and preferences under the Bankruptcy Code and South Carolina law, naming the Cordells and affiliated entities as defendants.
- Defendants moved to dismiss, arguing the Rooker–Feldman doctrine divests the bankruptcy court of jurisdiction because the Trustee effectively seeks federal review of the state court judgment and its denial of Rule 60(b) relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Rooker–Feldman bar the Trustee's adversary claims? | Trustee: Claims (fraudulent-transfer and preference avoidance) are independent federal statutory claims under §§544, 547, 548 and do not seek review of the state-court rulings. | Defendants: Trustee is asking federal court to overturn or nullify the state-court-approved settlement and the 60(b) denial; thus federal jurisdiction is barred. | Court: Rooker–Feldman does not apply; claims are independent avoidance actions. |
| Do Trustee's claims allege injuries caused by state-court judgments? | Trustee: Injury arises from the transfers (settlement consideration and release), not from the state court orders. | Defendants: The state court approved the settlement so any injury flows from that approval. | Court: Injury is from the transfers themselves, not the state judgments; Rooker–Feldman inapplicable. |
| Is the Trustee asking the court to review and reject the state judgments? | Trustee: No—seeks to avoid transfers under federal law, not to invalidate state-court factfinding or discretion. | Defendants: Trustee previously sought Rule 60(b) relief in state court and cannot now re-litigate the matter in federal court. | Court: Trustee does not invite appellate review of the state judgments; possible conflicts are for preclusion law, not Rooker–Feldman. |
| Can the release be avoided under bankruptcy law despite state-court approval? | Trustee: Yes; bankruptcy avoidance statutes specifically allow a federal court to set aside transfers (including releases) even if approved by state court. | Defendants: State-court approval and release bar the claims. | Court: Bankruptcy avoidance law can render the release avoidable; state-court approval is not equivalent to a §548 determination. |
Key Cases Cited
- Rooker v. Fidelity Trust Co., 263 U.S. 413 (federal courts lack appellate jurisdiction over state court decisions)
- District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (federal district courts cannot review state court judicial proceedings)
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (Rooker–Feldman is a narrow doctrine; independent federal claims are permitted)
- Davani v. Virginia Dep’t of Transp., 434 F.3d 712 (4th Cir.) (Rooker–Feldman applies only where plaintiff seeks redress for injury caused by the state-court decision itself)
- Bolden v. City of Topeka, 441 F.3d 1129 (10th Cir.) (distinguishes appellate review from adjudication of independent claims that may contradict prior state-court judgments)
- Gash Assocs. v. Village of Rosemont, Ill., 995 F.2d 726 (7th Cir.) (Rooker–Feldman and preclusion are distinct doctrines)
- In re Xonics Photochemical, Inc., 841 F.2d 198 (7th Cir.) (state-court contract consideration is not the same as "reasonably equivalent value" under §548)