IN RE: JOHN FLISS, Debtor-Appellee, v. GENERATION CAPITAL I, LLC, Appellant.
No. 22-1424
United States Court of Appeals For the Seventh Circuit
Argued December 7, 2022 — Decided November 27, 2023
Before FLAUM, KIRSCH, and JACKSON-AKIWUMI, Circuit Judges.
This appeal asks us to decide whether the bankruptcy court violated the Rooker-Feldman doctrine by disallowing Generation Capital I‘s claim, or alternatively, whether the prior state court litigation precluded Fliss from objecting to Generation Capital I‘s claim in bankruptcy court. We hold that the bankruptcy court had subject matter jurisdiction to consider the claim objection—the Rooker-Feldman doctrine posed no obstacle—and that Fliss was not otherwise barred from objecting to the claim. We therefore affirm.
I
More than ten years ago, John Fliss, Larry Wojciak, and Mark Barr went into business together. They took out a $200,000 secured loan from a bank as working capital for their two jointly owned companies. Each man personally guaranteed the loan, and a trust established in Sherry Wojciak‘s name (Larry‘s spouse), was the fourth guarantor. When the businesses failed and the borrowers defaulted on the loan, the bank sought to recoup its losses in state court. In May 2011, the state court issued a consent judgment in the amount of $208,639.95 against Fliss, Barr, Wojciak, their companies, and Sherry Wojciak‘s trust, and held the four guarantors jointly and severally liable.
What happened next was either a stroke of ingenuity or scheming, depending on who you ask: Wojciak negotiated a
Larry Wojciak‘s initial moves were as follows: on February 24, 2012, he entered into a sale and assignment agreement with the bank, through Generation Capital I, to purchase the promissory note and judgment debt for $240,000. Two days later, he also entered into a settlement agreement with the bank under which he (and Sherry‘s trust) agreed to pay $240,000 to settle the judgment debt and have the loan documents assigned to Generation Capital pursuant to the sale and assignment agreement. The next day, on February 27, Larry Wojciak had Generation Capital II wire $240,000 to the bank. See Generation Cap. I, LLC v. Fliss (In re Fliss), 586 B.R. 21, 23–24 (N.D. Ill. 2018). This transaction completed the first part of Wojciak‘s plan.
Wojciak then kicked off the second part of his plan: stepping into the bank‘s shoes in the state court proceedings. On May 8, 2012, the state court entered an order substituting Generation Capital I for the bank as the plaintiff. Wojciak next moved to enforce the judgment, through Generation Capital I, against Fliss and Barr by commencing a supplemental proceeding and seeking turnover of property in satisfaction of the
In August 2015, Fliss filed a voluntary
The bankruptcy court disallowed Generation Capital I‘s claim in its entirety and approved the
II
We review the bankruptcy court‘s factual findings for clear error and the legal conclusions of both the bankruptcy court and the district court de novo. In re Kempff, 847 F.3d 444, 448 (7th Cir. 2017). Our review of the district court‘s application of the Rooker-Feldman doctrine is de novo. Andrade v. City of Hammond, 9 F.4th 947, 949 (7th Cir. 2021).
Generation Capital I advances two arguments on appeal. First, it asserts that, under the Rooker-Feldman doctrine, the bankruptcy court lacked subject matter jurisdiction to consider the claim objection filed by Fliss. Alternatively, Generation Capital I argues that the doctrines of res judicata and collateral estoppel bar the claim objection. We consider the Rooker-Feldman issue first because it is jurisdictional.
The Rooker-Feldman doctrine is a creature of two Supreme Court decisions, Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). It “is a principle of jurisdiction that precludes the lower federal courts from applying appellate review to state court decisions.” Epps v. Creditnet, Inc., 320 F.3d 756, 759 (7th Cir. 2003). “An action in federal court that alleges an injury ‘inextricably intertwined’ with a state court decision, such that success in the federal court would require overturning the state court decision, is barred by the Rooker–Feldman doctrine.” Id.
Second, the state court never decided (nor could it) the key issue facing the bankruptcy court in Fliss‘s and Wojciak‘s dispute: whether Generation Capital I‘s bankruptcy claim should be allowed or disallowed under federal bankruptcy law. “The Rooker–Feldman doctrine asks: is the federal plaintiff seeking to set aside a state judgment, or does he present some independent claim,2 albeit one that denies a legal conclusion that a state court has reached in a case to which he was a party? . . . [I]f the latter, then there is jurisdiction.” GASH Assocs. v. Village of Rosemont, 995 F.2d 726, 728 (7th Cir. 1993). The state court judgment and the bankruptcy court‘s disallowance of Generation Capital I‘s claim simply “are not two sides of the same coin.” Remer v. Burlington Area Sch. Dist., 205 F.3d 990, 997 (7th Cir. 2000);
Generation Capital I argues that we can glean Fliss‘s intent to attack the state court judgment because Fliss wrote in his briefs before our court, the district court, and the bankruptcy court that the state court “got it wrong.” But those statements alone do not make Rooker-Feldman applicable. Zurich Am. Ins. Co., 326 F.3d at 823–24 (“A mere assertion that a [lower federal] court, in considering a claim that is independent of the state court judgment, might negate a legal conclusion that the state court reached is insufficient to trigger application of Rooker–Feldman.“); Long v. Shorebank Dev. Corp., 182 F.3d 548, 555–56 (7th Cir. 1999) (“[T]he fact that the plaintiff‘s pursuit of his federal claims could ultimately show that the state court judgment was erroneous [does] not automatically render Rooker–Feldman applicable.“).
We next turn to Generation Capital I‘s argument that the claim objection filed by Fliss is barred by the doctrines of res judicata and collateral estoppel. While different in scope, both doctrines function to preclude a party from relitigating issues decided in a prior adjudication. The party asserting res judicata and collateral estoppel as an affirmative defense must show that a final judgment on the merits was entered in the prior proceedings. Rein v. David A. Noyes & Co., 665 N.E.2d 1199, 1204 (Ill. 1996) (res judicata); Am. Fam. Mut. Ins. Co. v. Savickas, 739 N.E.2d 445, 451 (Ill. 2000) (collateral estoppel).3 Generation Capital I argues that the state court entered two orders that satisfy the final judgment requirement: the consent judgment entered in 2011 and the determination order entered in 2015. Neither order has the effect Generation Capital I would like to assign it.
Take the consent judgment first. We agree with the district court that it was a final judgment, but it ultimately has limited preclusive effect. The district court based its conclusion, at least in part, on the bankruptcy court‘s finding that a judgment obtained by confession has a limited preclusive effect because it is not “actually litigated.” Indeed, Illinois courts are generally “reluctant to give preclusive effect to consent judgments.” Ekkert v. City of Lake Forest, 588 N.E.2d 482, 486 (Ill. App. Ct. 1992). We must, however, add a critical observation to the analysis: consent judgments are treated differently under res judicata and collateral estoppel doctrines, and neither the district court nor the bankruptcy court acknowledged this distinction.
A consent judgment is not entitled to collateral estoppel effect because the doctrine of collateral estoppel relies on “actual” litigation of issues in the prior proceeding, Savickas, 739 N.E.2d at 451, while a consent judgment is “an administrative act of the court recording an agreement of the parties, rather than a judicial determination of the rights of the parties and the issues involved,” Arnett v. Env‘t Sci. & Eng‘g, Inc., 657 N.E.2d 668, 673 (Ill. App. Ct. 1995). See also Meyer v. Rigdon, 36 F.3d 1375, 1379 (7th Cir. 1994) (“[A] default judgment is normally not given preclusive effect under the collateral estoppel doctrine because no issue has been ‘actually litigated.‘“); Klingman v. Levinson, 831 F.2d 1292, 1296 (7th Cir. 1987) (consent judgments not given preclusive effect unless parties clearly indicate that intent).
The question of whether res judicata applies to the consent judgment is more complicated. There is an unresolved split in Illinois appellate courts as to whether dismissal pursuant to a settlement agreement amounts to a final judgment on the merits for res judicata purposes. Jackson v. Callan Publ‘g, Inc., 826 N.E.2d 413, 427–28 (Ill. App. Ct. 2005); see also Urban v. J.P. Morgan Chase & Co., 2022 IL App (1st) 211389-U, ¶ 24. Under a “modern view,” Illinois courts “generally recognize[] that a valid consent judgment is entitled to a res judicata effect, so as to preclude relitigation of the same claim or cause of action as was covered by such judgment.” Jackson, 826 N.E.2d at 428. The district court affirmed the bankruptcy court‘s conclusion that the consent judgment is a final judgment, and Fliss does not contest that finding on appeal. We therefore proceed with the assumption that the consent judgment has preclusive effect pursuant to the res judicata doctrine and focus our analysis on the extent of the preclusion here.
The consent judgment is brief—it simply states the amount owed to the bank by each of the four guarantors and the companies jointly owned by Fliss, Barr, and Wojciak. The district court affirmed the bankruptcy court‘s finding that the consent judgment “has limited preclusive effect—only as to the existence of the debt and its amount.” We agree because a consent judgment “is conclusive with respect to the matters
The state court‘s determination order is the last obstacle Generation Capital I raises to thwart Fliss‘s claim objection—unsuccessfully so, though for different reasons. To explain, we begin with an overview of a relevant procedural mechanism used by judgment creditors in Illinois—initiation of supplemental proceedings to recover on the judgment, also known as Section 2–1402 proceedings.
Does this make the determination order a final order? We think not.
Second, but no less evident: there was no final judgment in the supplemental proceeding when the determination order was entered. To the contrary, the supplemental proceeding had pending turnover motions filed by Generation Capital I that could be decided only after the determination order was entered.
Finally, because Generation Capital I‘s turnover motions had not been decided, it was not “in a position to collect against the judgment debtor or a third party.” Inland Com. Prop. Mgmt., Inc., 31 N.E.3d at 800; see also Chi. Police Sergeants’ Ass‘n, Policemen‘s Benevolent & Protective Ass‘n, Unit 156A v. Pallohusky, 86 N.E.3d 1123, 1128 (Ill. App. Ct. 2017) (a turnover order was final under
Thus, neither the consent judgment nor the determination order was a final judgment that, under the doctrines of res judicata and collateral estoppel, precluded Fliss from objecting
In closing, we note a key gap in the record and Generation Capital I‘s preclusion arguments: the state court entered a turnover order in the supplemental proceedings in July 2015. This order put Generation Capital I in a position to collect the judgment against Fliss‘s real property. Had the order been included in the record and relied on for arguments, it would indeed qualify as a final judgment under Illinois Supreme Court rules. But Generation Capital I never presented this order—before our court, the district court, or the bankruptcy court. Arguments not raised in the district court are waived on appeal, Brown v. Auto. Components Holdings, LLC, 622 F.3d 685, 691 (7th Cir. 2010), and “raising an issue in general terms is not sufficient to preserve specific arguments that were not previously presented,” Puffer v. Allstate Ins. Co., 675 F.3d 709, 718 (7th Cir. 2012). Moreover, it was Generation Capital I‘s burden to demonstrate that the affirmative defenses of res judicata and collateral estoppel apply, Oshana v. FCL Builders, Inc., 994 N.E.2d 77, 82 (Ill. App. Ct. 2013) (res judicata); Pederson v. Village of Hoffman Ests., 8 N.E.3d 1083, 1095 (Ill. App. Ct. 2014) (collateral estoppel), just as it was Generation Capital I‘s responsibility “to allege facts and indicate their relevance under the correct legal standard,” Econ. Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718, 721 (7th Cir. 2008) (internal quotations omitted).
Generation Capital I had numerous opportunities to present the state turnover order and argue its finality in this case. But at every stage of litigation, it steadfastly relied on other orders to convince us, the district court, and the bankruptcy court that it had obtained a final judgment in state court. Even
Having found that Generation Capital I failed to demonstrate the existence of a final judgment as required by both res judicata and collateral estoppel, we do not address the parties’ arguments about the other elements of these doctrines. Similarly, we do not reach Generation Capital I‘s argument about the bankruptcy court‘s disallowance of its claim as a discovery sanction.
III
Rooker-Feldman is an important principle that preserves appellate review of state court decisions exclusively for the Supreme Court. It does not bar federal bankruptcy courts from deciding issues of federal bankruptcy law. To hold otherwise would expand the doctrine far beyond its reach. Accordingly, Rooker-Feldman was not an obstacle when Fliss objected to Generation Capital I‘s claim, and neither were the doctrines of res judicata and collateral estoppel.
AFFIRMED.