S-Tek 1, LLC, 625 B.R. 519

Background

Debtor S-Tek 1, LLC purchased substantial assets from Surv-Tek in 2018, executed a promissory note (~$1.55M) and a non‑compete that would terminate S‑Tek’s ability to perform surveying in New Mexico upon an uncured default.
By October–November 2020 S‑Tek was in arrears; the state court ordered S‑Tek to cure by 5:00 p.m. on November 2, 2020 and, if not cured, to immediately cease competing and relinquish use of Surv‑Tek trade names and related property.
S‑Tek failed to cure, Surv‑Tek elected to operate in New Mexico, and S‑Tek continued performing work and employed ~15 people.
S‑Tek filed a voluntary Chapter 11 (Subchapter V) petition on December 2, 2020 and moved for emergency interim authority to use cash collateral to fund payroll and ordinary operations pending a final hearing.
Surv‑Tek objected, arguing Rooker‑Feldman bars the bankruptcy court from authorizing use of cash collateral because doing so would permit S‑Tek to operate in violation of the state court order.
The Bankruptcy Court held a preliminary evidentiary hearing and granted interim emergency use of cash collateral (through the final hearing) finding the automatic stay blocks enforcement of the state court order and that adequate protection would be provided for the interim period.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Applicability of Rooker‑Feldman	S‑Tek argued state‑court enforcement should not prevent relief in bankruptcy and later removal changes posture	Surv‑Tek argued Rooker‑Feldman bars federal review because relief would undermine the state court judgment	Court: Rooker‑Feldman does not bar ruling on cash‑collateral motion; authorizing relief does not modify the state judgment and automatic stay prevents enforcement
Effect of automatic stay on state court order	S‑Tek: bankruptcy stay prevents enforcement and permits continued operation pending resolution	Surv‑Tek: state order forbids operation regardless; bankruptcy court should not enable violation	Court: §362(a)(2) automatic stay prevents enforcement of the prepetition state order against the debtor/property of the estate
Use of cash collateral and adequate protection	S‑Tek: needs cash collateral to avoid immediate and irreparable harm (payroll, operations); proposes replacement lien/other protections	Surv‑Tek: S‑Tek must continue debt service; S‑Tek’s proposed protections are insufficient	Court: Interim use permitted only as necessary to avoid immediate harm; replacement lien and separate order provide adequate protection for the interim period; final adequacy to be decided at final hearing
Payment of wages (insiders vs non‑insiders; pre‑petition wages)	S‑Tek: must pay payroll (including principals) to preserve business and retain staff	Surv‑Tek: principals are enjoined by state order and indebted to S‑Tek; should not be paid; prepetition wages not priority	Court: Authorizes cash collateral to pay post‑petition wages to principals and all employees; allows payment of non‑insider pre‑petition wages earned within two weeks before petition to prevent harm; prepetition claims for insiders left for later resolution

Key Cases Cited

Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (Rooker‑Feldman bars federal court review of state court judgments)
In re Miller, 666 F.3d 1255 (10th Cir. 2012) (application of Rooker‑Feldman in bankruptcy context)
Mayotte v. U.S. Bank Nat’l Ass’n, 880 F.3d 1169 (10th Cir. 2018) (federal action seeking to modify state judgment is prohibited by Rooker‑Feldman)
In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) (bankruptcy powers can affect state court judgments; Rooker‑Feldman limited in bankruptcy proceedings)
In re Scrivner, 535 F.3d 1258 (10th Cir. 2008) (bankruptcy court may not use §105 to override more specific Bankruptcy Code provisions)
Martin v. U.S. Commodity Credit Corp. (In re Martin), 761 F.2d 472 (8th Cir. 1985) (court must value creditor’s interest and determine adequate protection when authorizing use of cash collateral)