In re: Emma Noemi Hobbs
AZ-15-1397-LJuF
| 9th Cir. BAP | Oct 13, 2016Background
- In 2008 Arizona sued Emma Hobbs and others under the Arizona Consumer Fraud Act; the state court entered a judgment (Aug. 24, 2010) awarding $70,000 in civil penalties and restitution, naming Hobbs among the defendants.
- Arizona’s summary judgment motions defined “Defendants” as seven parties (not including Hobbs) and characterized Hobbs only as a defendant for community-property purposes; the motions requested $10,000 per defendant (total $70,000).
- The entered Judgment, however, awarded $70,000 in civil penalties without explaining allocation among defendants and expressly included Hobbs as liable.
- Hobbs filed Chapter 7 in 2013; Arizona filed an amended proof of claim including the $70,000 in penalties and designated those penalties as nondischargeable under 11 U.S.C. § 523(a)(7).
- Hobbs objected, arguing the penalties were dischargeable because Arizona didn’t timely file an adversary complaint and because the Judgment did not properly impose personal liability on her; the bankruptcy court overruled the objection, concluding the penalties were nondischargeable as fines/penalties.
- Hobbs moved for reconsideration under Civil Rule 60(b); the bankruptcy court denied relief. On appeal the BAP affirmed, holding the bankruptcy court properly refused to "look behind" the state-court Judgment under Rooker–Feldman and gave the Judgment full faith and credit.
Issues
| Issue | Hobbs' Argument | Arizona's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court abused its discretion in denying Hobbs’ Rule 60(b) motion to reconsider denial of her claim objection | Hobbs: Judgment didn’t impose personal liability on her; counsel was negligent; Judgment should not be given preclusive effect | Arizona: Judgment is final and facially imposes penalties; penalties are nondischargeable under § 523(a)(7) | No abuse of discretion; denial affirmed |
| Whether the bankruptcy court could review the state-court record or the correctness of the Judgment | Hobbs: Bankruptcy court should examine state record to determine who was liable | Arizona: Full faith and credit and Rooker–Feldman bar collateral attack on state-court decision | Rooker–Feldman and § 1738 preclude federal court from re-litigating or reversing state-court judgment; bankruptcy court limited to characterizing the nature of the judgment debt |
| Whether issue preclusion required the bankruptcy court to relitigate liability | Hobbs: issue preclusion not satisfied; bankruptcy court must assess underlying findings | Arizona: No relitigation required; court only needed to determine if judgment represented a governmental fine/penalty under § 523(a)(7) | Court did not apply issue preclusion to find liability; it only examined judgment’s nature for nondischargeability and therefore did not need to relitigate facts |
| Whether the Judgment’s inconsistencies (motions vs. judgment language) allowed federal relief | Hobbs: inconsistencies show mistake or false debt warranting relief | Arizona: Judgment facially imposes penalties; any state-court errors must be fixed in state court | Errors in state-court proceedings cannot be corrected by federal court; debtor must seek state remedies; federal courts lack jurisdiction to alter judgment |
Key Cases Cited
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (Rooker–Feldman is confined to cases where federal relief would amount to appellate review of a state-court judgment)
- Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) (establishes that federal district courts lack authority to review state-court judgments)
- District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983) (limits federal court review of state judicial proceedings)
- Grogan v. Garner, 498 U.S. 279 (1991) (dischargeability is a federal question; effect of state-court judgment governed by preclusion principles)
- Robi v. Five Platters, Inc., 838 F.2d 318 (9th Cir. 1988) (federal courts must give full faith and credit to state-court judgments)
- Maraziti v. Thorpe, 52 F.3d 252 (9th Cir. 1995) (appeal from denial of Rule 60 motion filed more than 14 days after underlying order reviews only denial, not merits of underlying judgment)