636 F.3d 467
8th Cir.2011Background
- Skyline Woods Country Club filed Chapter 11; debtor-in-possession sought sale of assets, including golf course, under §363 with a Sales Order that conveyed property free and clear of liens and interests.
- Liberty affiliate purchased the golf course; Nebraska Supreme Court later held that implied restrictive covenants requiring maintenance as a golf course ran with the land and survived the §363 sale.
- Residents sued Liberty in state court to enforce these covenants; Liberty moved to enforce the Sales Order or reopen bankruptcy but initially did not prevail, then defended on the merits in state court.
- Nebraska courts awarded summary judgment to homeowners; Liberty defaulted on its secured loan; bank recorded an election to sell; homeowners pursued subordination of bank’s deed of trust to homeowners’ lien.
- Bank and Liberty moved to reopen bankruptcy to void Nebraska judgment; bankruptcy court denied; BAP affirmed; this court reviews for abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Nebraska's judgment is entitled to full faith and credit in a reopened bankruptcy. | Liberty argues state judgment should be collateral attacked. | Bank argues to preempt state forum; state judgment preclusive under 28 U.S.C. § 1738. | Yes; Nebraska judgment entitled to full faith and credit. |
| Whether the bankruptcy court had exclusive or concurrent jurisdiction over preclusion in this context. | Bank/Liberty contend exclusive bankruptcy jurisdiction. | Homeowners argue concurrent jurisdiction with state courts. | Jurisdiction is concurrent; state courts may determine preclusion. |
| Whether § 363(m) affects the preclusion analysis or the ability to reopen to contest the Nebraska judgment. | § 363(m) limits review of sale and could constrain revisiting judgments. | § 363(m) does not expand bankruptcy court jurisdiction for collateral attack. | § 363(m) does not defeat full-faith-and-credit preclusion; state judgment remains entitled to credit. |
| Whether reopening the bankruptcy case to pursue relief would be futile given available state-court forum. | Reopening could allow federal handling of issues already resolved by Nebraska. | Alternative state forum provides the same preclusive effect with possibly greater immediacy. | Reopening was not an abuse of discretion; alternative forum and preclusion concerns made it futile. |
Key Cases Cited
- Durfee v. Duke, 375 U.S. 106 (1963) (full faith and credit defers to jurisdictional finality with exceptions)
- Kalb v. Feuerstein, 308 U.S. 433 (1940) (preemption-exception to finality; state proceedings void ab initio when necessary)
- In re Middlesex Power Equip. & Marine, Inc., 292 F.3d 61 (1st Cir. 2002) (concurrent jurisdiction; in rem vs.personal elements; duties of § 1334)
- Apex Oil Co., Inc., 406 F.3d 538 (8th Cir. 2005) (concurrent jurisdiction; interpret discharge orders)
- Knutson v. City of Fargo, 600 F.3d 992 (8th Cir. 2010) (preclusion effect determined by state-law grounds under Knutson)
- Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721 (8th Cir. 2004) (preclusive effect of sale orders under 11 U.S.C. § 363)
- English v. Louisiana State Bd. of Med. Exam'rs, 375 U.S. 411 (1964) (petitioners' choice to litigate federal claims in state court; abstention context)
- Redmond v. Fifth Third Bank, 624 F.3d 793 (7th Cir. 2010) (futility in light of state-forum availability and preclusion defenses)