In re Sasson
In this appeal, we are presented with the question of whether a bankruptcy court has subject matter jurisdiction to enter a money judgment in a nondischargeability adversary proceeding where the underlying debt has been reduced to judgment in state court. We conclude that it may and affirm the decision of the Ninth Circuit Bankruptcy Appellate Panel (“BAP“).
I
In 1988, Sokoloff, as trustee of Camelot Medical Group, Inc., Profit Sharing Plan, obtained a judgment against Sasson on a cross-complaint for breach of a promissory note. A California Superior Court entered judgment against Sasson for $120,000, plus accrued interest and statutory costs.
Before Sokoloff could enforce the judgment, Sasson filed a motion for reconsideration and obtained a stay of enforcement pending determination of the motion for reconsideration. The stay was granted subject to the condition that Sasson “not dissipate any assets except in the normal course of business.” While the stay was in place and without informing the court of his actions, Sasson dissipated the majority of his assets through dissolution proceedings with his wife, purchase of a new property, creation of encumbrance on that property and ultimately by payment to other creditors. The court denied Sasson‘s motion for reconsideration, and Sokoloff recorded an abstract of judgment. At that point, however, the judgment was uncollectible.
Subsequently, Sasson filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code,
Sokoloff continued to pursue collection remedies in bankruptcy court. Sokoloff filed a notice of the judgment lien and recorded an abstract of judgment. Sokoloff then obtained a Writ of Execution to the United States Marshal and instructed the Marshal to levy on Sasson‘s wages. Sasson filed a claim of exemption, which the court granted in part.
In 2001, Sokoloff renewed the 1991 Judgment. The bankruptcy court issued an Abstract of Judgment for $239,160.42 on July 9, 2001, which was then recorded. Subsequently, the bankruptcy court granted Sasson‘s ex-parte motion to reopen his Chapter 7 proceedings for sixty days. Sasson then filed a motion pursuant to
We review both the bankruptcy court‘s and the BAP‘s interpretation of the Bankruptcy Code de novo. Debbie Reynolds Hotel & Casino, Inc. v. Calstar Corp. (In re Debbie Reynolds Hotel & Casino, Inc.), 255 F.3d 1061, 1065 (9th Cir.2001). We review a ruling on a motion to set aside a judgment as void de novo “because the question of the validity of a judgment is a legal one.” Export Group v. Reef Indus., 54 F.3d 1466, 1469 (9th Cir.1995). We review the scope of the exercise of equitable power de novo, Graves v. Myrvang (In re Myrvang), 232 F.3d 1116, 1124 (9th Cir.2000), and the exercise of equitable power for an abuse of discretion, id. at 1121.
II
The bankruptcy court had jurisdiction to enter a money judgment in the adversary proceeding. We have long held that “the Bankruptcy Court has jurisdiction to enter a monetary judgment on a disputed state law claim in the course of making a determination that a debt is nondischargeable.” Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015, 1016 (9th Cir.1997).
A
Our holding in Kennedy was firmly grounded. Under the original 1898 Bankruptcy Act, Pub.L.No. 55-171, 30 Stat. 544 (repealed 1978) (as amended through date of repeal) (“1898 Bankruptcy Act“), bankruptcy courts were considered to have equitable jurisdiction to issue orders in aid of a nondischargeability determination. Local Loan Co. v. Hunt, 292 U.S. 234, 240, 54 S.Ct. 695, 78 L.Ed. 1230 (1934); see also Pepper v. Litton, 308 U.S. 295, 304, 60 S.Ct. 238, 84 L.Ed. 281 (1939) (“[F]or many purposes courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity.” (internal quotation marks omitted)).
In 1970, Congress codified the power of bankruptcy courts, in the exercise of their power to declare debts nondischargeable, to “determine the remaining issues, render judgment, and make all orders necessary for the enforcement thereof.” 1898 Bankruptcy Act § 17(c)(3). When Congress enacted the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (“Bankruptcy Code” or “Code“), Congress removed specific jurisdictional language in favor of a general broad jurisdictional grant. However, in doing so, it clearly intended to incorporate the specific pre-Code jurisdiction of the bankruptcy courts.2 In addition, the Bankruptcy Code specifically provides that:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclue the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
In addition to continuation of the bankruptcy court‘s pre-Code jurisdiction and the specific grant of new powers, the Bankruptcy Code provided for the exercise of “original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.”
Even the discharge of a debtor does not automatically deprive the federal courts of jurisdiction over a claim “related to” the bankruptcy. See Kieslich v. United States (In re Kieslich), 258 F.3d 968, 971 (9th Cir.2001). Indeed, we have held that a bankruptcy court‘s “related to” jurisdiction includes post-confirmation jurisdiction over state court actions such as breach of contract, breach of convenant of good faith and fair dealing, and fraud when those claims have a “close nexus” to the bankruptcy proceeding. In re Pegasus Gold Corp., 394 F.3d at 1194; see also Celotex Corp. v. Edwards, 514 U.S. 300, 309, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). We have also held that bankruptcy courts have post-discharge jurisdiction to enjoin collection actions, even if those actions occur in another country. Hong Kong & Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991, 996 (9th Cir.1998).
In addition, bankruptcy courts retain their traditional equitable powers under the Bankruptcy Code. Johnson v. Home State Bank, 501 U.S. 78, 88, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (per curiam) (“[T]he bankruptcy court retains its broad equitable power to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Code.“) (quotation marks omitted). As the Supreme Court has instructed, when a creditor files a claim in bankruptcy, “the creditor triggers the process of `allowance and disallowance of claims,’ thereby subjecting himself to the bankruptcy court‘s equitable power.” Langenkamp v. Culp, 498 U.S. 42, 44, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (quoting Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 58-59, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989)). The bankruptcy court‘s equitable power is not unfettered; it must be exercised to carry out the provisions of the Bankruptcy Code. Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1174 (9th Cir.2003). However, we have recognized that “a bankruptcy court is a court of equity and should invoke equitable principles and doctrines, refusing to do so only where their application would be `inconsistent’ with the Bankruptcy Code.” Beaty v. Selinger (In re Beaty), 306 F.3d 914, 922 (9th Cir.2002) (citing In re Myrvang, 232 F.3d at 1124).
“Bankruptcy Courts have exclusive jurisdiction over nondischargeability actions brought pursuant to
“If it is acknowledged as beyond question that a complaint to determine dischargeability of a debt is exclusively within the equitable jurisdiction of the bankruptcy court, then it must follow that the bankruptcy court may also render a money judgment in an amount certain without the assistance of a jury. This is true not merely because equitable jurisdiction attaches to the entire cause of action but more importantly because it is impossible to separate the determination of dischargeability function from the function of fixing the amount of the nondischargeable debt.”
Kennedy, 108 F.3d at 1017-18 (quoting Snyder v. Devitt (In re Devitt), 126 B.R. 212, 215 (Bankr.D.Md.1991)). Our sister circuits have reached similar conclusions. Porges v. Gruntal & Co. (In re Porges), 44 F.3d 159, 165 (2d Cir.1995); Longo v. McLaren (In re McLaren), 3 F.3d 958, 965-66 (6th Cir.1993); N.I.S. Corp. v. Hallahan (In re Hallahan), 936 F.2d 1496, 1507-08 (7th Cir.1991). Given the text and history of the Bankruptcy Code and the bankruptcy court‘s inherent equitable powers, it is clear, as we held in Kennedy, that bankruptcy courts have jurisdiction and power to enter money judgments in adjudicating nondischargeability adversary proceedings.
B
Sasson attempts to distinguish Kennedy from this case because Kennedy involved an unliquidated claim. Kennedy made no such distinction, and there is no principled jurisdictional distinction to be drawn. There is nothing in the text of the Bankruptcy Code or its history that contains a jurisdictional exception for debts that have been liquidated to judgment. To hold otherwise would be to deprive the bankruptcy court of its exclusive jurisdiction over bankruptcy discharge pursuant to
The debtor invoked bankruptcy court subject matter and in personam jurisdiction by filing a voluntary petition in bankruptcy. With the commencement of the case, the bankruptcy court acquired exclusive in rem jurisdiction over all the debtor‘s legal or equitable interests in property wherever located and by whomever held.
The fact that a debt has been previously liquidated to judgment does not deprive the bankruptcy court of jurisdiction, nor of any of its statutory and equitable power. It may, as we shall discuss in Part II.D, have an effect on the form of relief that the bankruptcy court grants in nondischargeability proceedings. However, it does not alter the Kennedy jurisdictional analysis. The existence of a state court judgment does not deprive the bankruptcy court of the statutory power to enter a new judgment of nondischargeability.
C
Sasson argues that the Rooker-Feldman doctrine3 alters this jurisdictional analysis. However, the Rooker-Feldman doctrine did not deprive the bankruptcy court of jurisdiction to enter the money judgment in the nondischargeability adversary proceeding. The Rooker-Feldman doctrine is based on the statutory proposition that federal district courts are courts of original, not appellate, jurisdiction. See
Application of the Rooker-Feldman doctrine in bankruptcy is limited by the separate jurisdictional statutes that govern federal bankruptcy law. Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1079 (9th Cir.2000) (en banc). The Rooker-Feldman doctrine has little or no application to bankruptcy proceedings that invoke substantive rights under the Bankruptcy Code or that, by their nature, could arise only in the context of a federal bankruptcy case. Id. at 1081. In the exercise of federal bankruptcy power, bankruptcy courts may avoid state judgments in core bankruptcy proceedings, see, e.g.,
The Rooker-Feldman doctrine has no application here. Sasson is not seeking to have the bankruptcy court review the merits of the state court judgment; rather, he is attempting to prevent the bankruptcy court from giving effect to the state court judgment. Likewise, the creditor is not seeking modification of the state court judgment; it is attempting to save the judgment from bankruptcy discharge.
In entering judgment, the bankruptcy court was exercising its exclusive statutory power to determine whether a debt is dischargeable in a bankruptcy case. See
D
Sasson also argues that the bankruptcy court lacked jurisdiction to enter a money judgment by operation of the full faith and credit statute,
In short, “[f]inal judgments in state courts are not necessarily preclusive in United States bankruptcy courts.” Gruntz, 202 F.3d at 1079. Thus, we must reject Sasson‘s argument that the doctrines of full faith and credit, res judicata, and collateral estoppel deprive the bankruptcy court of the jurisdiction to enter a money judgment in a discharge order involving liquidated debts.
This does not, of course, mean that the preclusion doctrines do not have any bearing on federal bankruptcy discharge proceedings. The Supreme Court has stated that “collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to § 523(a).” Grogan, 498 U.S. at 284 n. 11, 111 S.Ct. 654. Further, we have held that “[t]he full faith and credit requirement of § 1738 compels a bankruptcy court in a § 523(a)(2)(A) nondischargeability proceeding to give collateral estoppel effect to a prior state court judgment.” Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 801 (9th Cir.1995) (per curiam).4
In the bankruptcy discharge context, this means that “[i]f, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of [§ 523], then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court.” Brown, 442 U.S. at 139 n. 10, 99 S.Ct. 2205. The classic example of the proper use of issue preclusion in discharge proceeding is when the amount of the debt has been determined by the state court and reduced to judgment. In that event, if there are no new issues, the bankruptcy court should ordinarily decline to allow the parties to relitigate the debt amount and should give the state court judgment as to the amount of preclusive effect. Comer v. Comer (In re Comer), 723 F.2d 737, 740 (9th Cir.1984). For the same reason, we have held that if the issue of fraud had been litigated in state court, the state court judgment would preclude relitigation of the same issue by the bankruptcy court in discharge proceedings. Nourbakhsh, 67 F.3d at 801. Thus, the doctrines of preclusion play an important part in dischargeability proceedings by preventing the relitigation of factual and legal issues already determined by other courts.
However, a preexisting judgment does not have preclusive effect on the bankruptcy court‘s determination of dischargeability. The Supreme Court firmly rejected such an idea in Brown, specifically holding that “the bankruptcy court is not confined to a review of the judgment and record in the prior state-court proceedings when considering the dischargeability of respondent‘s debt.” Brown, 442 U.S. at 138-39, 99 S.Ct. 2205. We explained this analytical distinction in Comer:
Res judicata should not be applied to bar a claim by a party in bankruptcy proceedings, nor should a bankruptcy judge rely solely on state court judgments when determining the nature of a debt for purposes of dischargeability, if doing so would prohibit the bankruptcy court from exercising its exclusive jurisdiction to determine dischargeability.
As we explained in Comer, determination of the amount of the debt by the state court did not impact the dischargeability decision:
In the present case, applying res judicata to bar the bankruptcy court from looking behind the default judgment to determine the actual amount of the obligation would not preclude the exercise of the bankruptcy court‘s exclusive jurisdiction to determine the nature of the subject debt for purposes of dischargeability.
Id. In Comer, because the state court judgment involved the ”extent of [the debtor‘s] obligation ..., not the nature of that debt,” it was not relevant to the bankruptcy court‘s exercise of its power to determine the dischargeability of a debt; therefore, we concluded that the bankruptcy court properly gave preclusive effect to the prior judgment. Id.
In this case, the parties were not relitigating the merits of the state court judgment in the nondischargeability proceeding. The adversary proceeding was based on Sasson‘s “willful and malicious” post-judgment conduct, not on the contractual breach that formed the basis of the state court judgment. Thus, the parties were litigating a different claim in the nondischargeability proceeding in bankruptcy, which was not precluded by the state court contract claim judgment. Id. Indeed, the creditor was not seeking to upend the state court judgment; rather, he simply was attempting to enforce it by defending against the discharge of the debt in bankruptcy. The bankruptcy court did not re-determine the amount of the state court debt; the court relied upon the state court determination. Thus, the various preclusion doctrines did not operate to prevent the bankruptcy court from entering a judgment of nondischargeability in this case. See Diamond, 285 F.3d at 829. The bankruptcy court‘s actions throughout the adversary proceedings were entirely consistent with the law of issue preclusion as we have applied it to bankruptcy discharge.
The only remaining question, then, is whether the various doctrines of issue preclusion prevented the bankruptcy court from enforcing its dischargeability determination by including a money judgment in its resolution of the adversary proceeding. They clearly do not. As the Supreme Court has held, affording full faith and credit to a judgment does not require a court to “adopt the practices of [the jurisdiction that granted the judgment] regarding the time, manner, and mechanisms for enforcing judgments.” Baker ex rel. Thomas v. General Motors Corp., 522 U.S. 222, 235, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998). As the Supreme Court explained, “[e]nforcement measures do not travel with the sister state judgment as preclusive effects do; such measures remain subject to the evenhanded control of forum law.” Id. (citing McElmoyle ex rel. Bailey v. Cohen, 13 Pet. 312, 325, 10 L.Ed. 177 (1839) (holding that judgment may be enforced only as “laws [of enforcing forum] may permit“) and Restatement (Second) of Conflict of Laws § 99 (1969) (“The local law of the forum determines the methods by which a judgment of another state is enforced.“)).
In sum, none of the doctrines of issue preclusion dictate how a bankruptcy court may choose to enforce its determination of nondischargeability. That is a question reserved to the bankruptcy courts in the exercise of their broad equitable powers in bankruptcy. In so doing, as we have discussed, bankruptcy courts are authorized by statute to issue “any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”
The bankruptcy court here, therefore, had the authority to enter a money judgment in conjunction with its nondischargeability order. “It does not follow, however, that the court was bound to exercise its authority. And it probably would not and should not have done so except under unusual circumstances such as here exist.” Hunt, 292 U.S. at 241, 54 S.Ct. 695. The existence of a prior judgment may introduce some prudential concerns, such as comity, that a bankruptcy court should take into consideration in fashioning relief. See Smith v. Lachter (In re Smith), 242 B.R. 694 (B.A.P. 9th Cir.1999) (noting that the filing of a new money judgment is not necessary when there is an existing effective state court judgment); Gertsch v. Johnson & Johnson Fin. Corp. (In re Gertsch), 237 B.R. 160 (B.A.P. 9th Cir.1999) (discussing the potential confusion and complication caused by the entry of multiple judgments).5 Although important considerations, these prudential concerns do not affect the jurisdiction and the power of the bankruptcy court to enter a new money judgment as part of declaring a debt nondischargeable.6 Rather, these prudential issues are best committed to the judgment of the bankruptcy court, subject to review for abuse of discretion. In re Myrvang, 232 F.3d at 1121. In examining prudential considerations, we must also remember that “[t]he Supreme Court found that the overriding purpose of § 523 is to protect victims of fraud.” Muegler v. Bening, 413 F.3d 980, 983 (9th Cir.2005) (citing Cohen v. de la Cruz, 523 U.S. 213, 222-23, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998)). Thus, a bankruptcy court does not act outside the purposes of the Bankruptcy Code by providing victims of fraud an additional means of enforcing a nondischargeability judgment in an appropriate case.
Applying these principles to the case at hand, we conclude that the bankruptcy court acted well within its discretion in entering the new money judgment. Several circumstances rendered the bankruptcy court‘s entry of a new money judgment necessary and appropriate. The creditor obtained a state court judgment, which proved uncollectible at the time. When the creditor commenced further collection proceedings, the debtor filed bankruptcy. Based on the debtor‘s post-state judgment behavior, the bankruptcy court concluded that the debt was nondischargeable because the debtor had engaged in fraud. The court entered a money judgment as part of the judgment of nondischargeability. The debtor did not object, but waited until the creditor had allowed the state court judgment to lapse in favor of the discharge judgment. When the discharge judgment was renewed, the debtor then sought to prevent the bankruptcy court from issuing an enforcement order that would give effect to the prior state judgment, arguing that the lapsed state court judgment precluded it. However, as the BAP found, the debtor had engaged in “wilful and malicious behavior” in rendering the initial state court judgment uncollectible. The debtor in this case is clearly attempting to manipulate both the federal and state court systems to avoid paying the debt, which the bankruptcy court has found nondischargeable. Given the history of the case, the bankruptcy court‘s action in entering a new money judgment and renewing the judgment was entirely proper.
Sasson would turn the law of preclusion on its head by having us hold that the existence of a lapsed underlying state court judgment precludes enforcement of that judgment in federal court. He would have us hold that we can only uphold a creditor‘s right to full faith and credit of a state court judgment by denying the creditor the right to enforce the judgment. In this context, the doctrines of full faith and credit, collateral estoppel, and res judicata do not apply to prevent a bankruptcy court from entering a money judgment when ruling on the dischargeability of the underlying debt in the exercise of its equitable power.
III
For all of these reasons, we conclude that the court did not err in declining to award relief pursuant to Rule 60(b)(4). Under
Given that the bankruptcy court acted well within its jurisdiction and authority in entering the money judgment in the first instance, the judgment was not void. The court was entirely correct in declining to grant relief under Rule 60(b).
AFFIRMED.
Notes
Cal-Micro, Inc. v. Cantrell, (In re Cantrell), 329 F.3d 1119, 1123 (9th Cir.2003) (quoting Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.2001)).Under California law, collateral estoppel only applies if certain threshold requirements are met: `First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.’