Wards Corner/I-275 Research Center LLC v. Crane et al

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Case 1:05-ap-01101 Doc25 Filed 07/09/05 Entered 07/11/05 13:18:25 Desc Main
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This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southem District of Ohio.

IT SS SO ORDERED.

di

Dated: J uly 09, 2005 IWvincent Aug, Jr.
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT
WESTERN DIVISION
In re Case No. 04-17551
Newell and Margaret Crane Chapter 7 (Judge Aug)
Debtor
Wards Corner/I-275 Research Center LLC, Adv. No. 05-1101
Plaintiff
Vv.
Newell and Margaret Crane, et al.
Defendants

ORDER RE: MOTION TO DISMISS

This matter is before the Court on Debtor-Defendants Newell and Margaret
Crane’s and Defendant Marcia Fertig’s motion to dismiss the adversary proceeding
(Doc. 23) and Plaintiff Wards Corner/I-275 Research Center LLC (“Wards
Corner”) response (Doc. 24). The Chapter 7 Trustee did not file a response to the
motion to dismiss.

The Debtors contend that this Court lacks subject matter jurisdiction

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pursuant to the Rooker-Feldman doctrine. Wards Corner contends that the Rooker-
Feldman doctrine is not applicable because no state court judgment was entered.

The following facts are not at issue. Marcia Fertig is 83 years old. She had
a joint and survivirship checking account with her husband until his death in
September 2003. Only Mrs. Fertig made deposits into or withdrawals out of the
account. Deposits included proceeds from the sale of Mrs. Fertig’s residence and
transfers from other joint accounts held with her husband before his death. After
her husband’s death, Mrs. Fertig added the name of her son, Newell Crane, to the
account.

Also in November 2003, Wards Corner obtained a confession of judgment
against Crane for $113,075. In May 2004, Wards Corner effected a garnishment
on the checking account. The balance in the account at that time was
approximately $147,000. A state court action ensued, and on August 11, 2004, a
Magistrate’s Decision was entered concluding that the funds in the account
belonged to Mrs. Fertig only and were not subject to the garnishment to satisfy
Wards Corner’s judgment against Crane. Wards Corner filed an objection to the
Magistrate’s Decision. On September 21, 2004, the Cranes filed their Chapter 7
petition. On February 4, 2005, an Entry Staying Proceeding was entered in the
state court action. Acknowledging the pending objection to the Magistrate’s
Decision, Judge John Andrew West noted that “it is presently unclear as to whether
or not the Provident Account is subject to the garnishment proceedings against Mr.
Crane.” The Entry concludes “therefore, pursuant to 11 U.S.C. §362(a), the above
captioned matter is hereby STAYED pending the resolution of the Defendants’
bankruptcy case.”

On May 13, 2005, Wards Corner initiated the instant adversary proceeding.
Count One of the complaint seeks a determination of the validity, priority, and
extent of Wards Corner’s asserted lien on the garnished funds. Count Two of the
complaint requests a declaratory judgment as to Wards Corner’s rights in and
entitlement to the garnished funds. The motion to dismiss followed.

The Rooker-Feldman doctrine prohibits lower federal courts from exercising
appellate jurisdiction over decisions and/or proceedings of state courts, including
claims that are “inextricably intertwined” with issues decided in state court.
Gilbert v. Ferry, 401 F.3d 411, 416 (6th Cir. 2005). A federal claim is inextricably
intertwined with a state court judgment when the federal claim can succeed only to
the extent that the state court decision was wrongly decided. /d. In other words,

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the federal court must analyze whether the relief requested in the federal action
would effectively reverse the state court decision. Jn re Singleton, 230 B.R. 533,
536-37 (B.A.P. 6th Cir. 1999). The doctrine has the practical effect of preventing
an “end-run” of a state court decision in federal court. Gilbert, 401 F.3d at 417.
See also Hood v. Keller, 341 F.3d 593, 597 (6th Cir. 2003)(purpose of doctrine is
to prevent the losing party in state court from seeking what would be an appellate
review by the federal court of the state court decision).

The issue pending in state court and in the instant adversary proceeding are
identical: is the garnishment valid? The Magistrate ruled that it was not. For
Wards Corner, the “losing” party’, to prevail in this adversary proceeding, this
federal court would have to “reverse” the Magistrate’s Decision. This is exactly
what the Rooker-Feldman doctrine is intended to prevent.

Wards Comer main contention is that the Rooker-Feldman doctrine does not
apply because no state court judgment was entered. To the contrary, the
Magistrate’s Decision was a judgment, albeit an interlocutory judgment. See
Bennett v. Estate of Hollabaugh, 2003 WL 22077745 (Ohio App. 10th Dist. Sept.
9, 2003). The Rooker-Feldman doctrine applies to interlocutory judgments.
Gilbert, 401 F.3d at 417 n. 5.

Wards Corner also contends that because the Cranes initiated the federal
action and that Mrs. Fertig paid the Cranes’ bankruptcy attorney’s fees, that this
Court has jurisdiction over the garnishment issue. This contention is meritless. The
law, not the parties, determines jurisdiction. Furthermore, while the Cranes filed
the main bankruptcy case, it was Wards Corner who filed the instant adversary
proceeding.

Wards Comer also grossly misrepresents the Entry Staying Proceeding by
alleging that “Judge West felt the issue was best decided at the federal level.” We
doubt that Judge West “felt” anything about the issue. And Judge West clearly
expressed no opinion about which court would be “better.”

The Supreme Court has recently clarified that proper concurrent jurisdiction
between state and federal courts may exist and that jurisdiction of the federal court

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Despite Judge West’s acknowledgment in the Entry Staying Proceedings that the
outcome of the garnishment issue was still unclear, for all practical purposes, Wards Corner was
the “losing” party in state court.

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does not “vanish” because the state court decision has been reached. Rather, if the
Rooker-Feldman doctrine is properly invoked, disposition of the federal action,
once the state court action is complete, would be governed by preclusion
principles. Exxon-Mobil Corp. v. Saudi Basic Industries Corp., 125 S.Ct. 1517,
1526-27 (2005). The Supreme Court has also acknowledged that, in the context of
the Rooker-Feldman doctrine, principles of comity or abstention may permit the
federal court to stay the federal action in favor of the state court action. Jd. at
1527.

Discretionary abstention is authorized by 28 U.S.C. §1334(c)(1). It is the
exception and not the rule. See In re United Security & Communications, Inc., 93
B.R. 945, 961 (Bankr. S.D. Ohio 1988)(Cole, J.). There are numerous factors to be
considered is determining discretionary abstention, id. at 960-61 (citing In re
Republic Readers’s Serv. Bureau, Inc., 81 B.R. 422, 429 (Bankr, S.D, Tex. 1987)),
the primary determinant being whether the case presents unsettled issues of state
law. Id. at 960. The extensive briefs filed by the parties in state court raise issues
of state garnishment law, state probate law, and state banking law. |

Accordingly, we conclude that the Rooker-Feldman doctrine applies and we
therefore hold this matter in ABEYANCE to allow the state court to render a final

decision on the garnishment issue.

The automatic stay is hereby LIFTED to the extent necessary to allow the
state court action to move forward.

In view of the above, and because discretionary abstention applies to both
core and non-core issues, it is not necessary to address the balance of the
contentions in either the motion to dismiss or the response.

IT IS SO ORDERED,

Distribution list:

Debtors

James Frooman, Esq.
Beth Buchanan, Esq.
Thomas Geygan ,Trustee
U.S. Trustee

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