Opinion
CASE NO. 6:02-CV-517
May 21, 2003
Eric Miller Albritton, Longview, TX, For Plaintiffs.
Robert William Buchholz, Dallas, TX, For Defendants.
MEMORANDUM OPINION AND ORDER
Page Waggener (the "Debtor") appeals an Order and Judgment of the United States Bankruptcy Court for the Eastern District of Texas overruling his objection to proof of claim No. 1 filed by Kacy Nickell Waggener and to proof of claim No. 2 filed by Derenda Waggener (collectively the "Creditors"), and allowing the Creditors' claims. Applying the Rooker-Feldman doctrine, the bankruptcy court refused to disallow the Creditors' claims, which were based on a state court judgment, because to do so would have the effect of reversing the valid and enforceable judgment. For the foregoing reasons, this Court AFFIRMS IN PART and REVERSES IN PART and REMANDS for further consideration.
The issue on appeal is whether the bankruptcy court erred in holding that the Rooker-Feldman doctrine precludes the Debtor's objections to the Creditors' claims. After due consideration, the Court agrees with the ruling of the bankruptcy court and finds that the Rooker-Feldman doctrine precludes the Debtor's objections to the Creditors' claims. However, the Court remands this case to the bankruptcy court for a determination of whether the Creditors are the owners of the full amount of the punitive damages as set forth in their proof of claims.
BACKGROUND
On July 26, 2000, the Debtor filed a voluntary petition for individual consumer bankruptcy pursuant to Chapter 7 of the Bankruptcy Code. The Creditors each filed proofs of claim in the amount of $2,090,950.96 on September 6, 2000. Both claims are based on an Oregon state court judgment entered against Debtor on September 25, 1996, in the Multnomah County Circuit Court awarding Creditors each $1,000,000 in non-economic damages and $500,000 in punitive damages, plus post-judgment interest at 9%. It is undisputed that the Debtor never appeared in the Oregon proceeding.
On July 27, 1997, the Creditors filed a Notice of Filing Foreign Judgment in the 44th Judicial District Court of Dallas County, Texas. The Debtor appeared by filing a Motion to Transfer Venue, and, later, an Answer invoking a general denial pursuant to Tex.R.Civ.P. 92. The Debtor then filed his petition in bankruptcy on July 26, 2000. On November 28, 2001, Debtor filed objections to the two proofs of claim filed by the Creditors on various theories.
After a hearing on the objections, the bankruptcy court entered a combined memorandum of decision and two orders denying the objections to the two proofs of claim on September 10, 2002. In this appeal, the Debtor argues that the Oregon judgment is void because (1) Or. Rev.Stat. (O.R.S.) § 18.485 precludes an award of non-economic damages and (2) O.R.S. § 18.566 precludes damages over $500,000. The Debtor also argues that the bankruptcy court misconstrued his argument that the judgment creditors own only 40% of the punitive damages award pursuant to O.R.S. § 18.540. The Court will address each of these arguments in turn.
STANDARD OF REVIEW
This Court has jurisdiction over this appeal under § 158 of Title 28 and it:
may affirm, modify or reverse a bankruptcy court's judgment, order or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
Bankr. R. 8013. Accordingly, the Court reviews the bankruptcy court's conclusion of law de novo, findings of fact for clear error, and mixed questions of law and fact de novo. In re Universal Seismic Associates, Inc., 288 F.3d 205, 207 (5th Cir. 2002).
DISCUSSION
The bankruptcy court denied the Debtor's objection the Creditors' proof of claims on the basis that it was prevented from reversing or vacating the Oregon state court judgment under the Rooker-Feldman doctrine. The Rooker-Feldman doctrine provides that "federal district courts, as courts of original jurisdiction, lack appellate jurisdiction to review, modify, or nullify final orders of state courts." Liedtke v. State Bar of Texas, 18 F.3d 315, 317 (5th Cir. 1994) (citations omitted). In essence, the Rooker-Feldman doctrine provides that "a party losing in state court is barred from seeking what in substance would be appellate review of the state judgment in a United States [trial] court." Johnson v. De Grandy, 512 U.S. 997, 1005-06 (1994). Jurisdiction to review valid state court judgments lies exclusively with the state courts and, ultimately, the United States Supreme Court. Id; see also Carbonell v. Louisiana Dept. of Health Human Resources, 772 F.2d 185, 188-89 (5th Cir. 1985). When issues raised in a federal court are "inextricably intertwined" with a state judgment and the court is "in essence being called upon to review the state-court decision," the court lacks subject matter jurisdiction to conduct such a review. See e.g., United States v. Shepherd, 23 F.3d 923, 924 (5th Cir. 1994).
The doctrine derives its name from two Supreme Court cases, Rooker v. Fidelity Trust Co., 263 U.S. 413, 415 (1923), holding that the jurisdiction of the federal district courts is strictly original, and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 476 482, (1983), holding that federal district courts do not have the authority to review final state court judgments.
Two elements are required for application of the Rooker-Feldman doctrine. First, the plaintiff must have been a party to a final judgment in a state court judicial proceeding. Second, the plaintiff's federal complaint must seek appellate review of the state judgment in a United States trial court. See, e.g., In re Lease Oil Antitrust Litig. (No. II), 16 F. Supp.2d 744 (S.D.Tex. 1998). The bankruptcy court properly determined that these two traditional prerequisites for the application of the Rooker-Feldman doctrine were satisfied. The Debtor does not dispute this; however, the Debtor argues that an exception to the Rooker-Feldman doctrine is applicable in this case.
The Fifth Circuit has recognized an exception to the Rooker-Feldman doctrine and refused to allow the Rooker-Feldman doctrine "to bar an action in federal court when the same action would be allowed in the state court of the rendering state." Davis v. Bayless, 70 F.3d 367, 376 (5th Cir. 1995). The Fifth Circuit has "decline[d] to apply Rooker-Feldman in a way that would require a federal court to give greater deference to a state court judgment than a court of the state in which the judgment was rendered would give it." Gauthier v. Continental Driving Servs., Inc., 831 F.2d 559, 561 (5th Cir. 1987) (noting that the Rooker-Feldman doctrine is "very close if not identical to the more familiar principle that a federal court must give full faith and credit to a state court judgment"). In particular, in the context of the Rooker-Feldman doctrine, "jurisdictional defects render a judgment void, and . . . void judgments are subject to collateral attack [in a federal court]." In re Reitnauer., 152 F.3d 341, 344 n. 12 (5th Cir. 1998). The Debtor argues that the Oregon judgment is void because (1) O.R.S. § 18.485 precludes an award of non-economic damages and (2) O.R.S. § 18.566 precludes damages over $500,000.
The statute provides, in relevant part, that:
(1) Except as otherwise provided in this section, in any civil action arising out of bodily injury, death or property damage, including claims for emotional injury or distress, loss of care, comfort, companionship and society, and loss of consortium, the liability of each defendant for damages awarded to plaintiff shall be several only and shall not be joint.
(2) In any action described in subsection (1) of this section, the court shall determine the award of damages to each claimant in accordance with the percentages of fault determined by the trier of fact under ORS 18.480 and shall enter judgment against each party determined to be liable. The court shall enter a judgment in favor of the plaintiff against any third party defendant who is found to be liable in any degree, even if the plaintiff did not make a direct claim against the third party defendant. The several liability of each defendant and third party defendant shall be set out separately in the judgment, based on the percentages of fault determined by the trier of fact under ORS 18.480. The court shall calculate and state in the judgment a monetary amount reflecting the share of the obligation of each person specified in ORS 18.470(2). Each person's share of the obligation shall be equal to the total amount of the damages found by the trier of fact, with no reduction for amounts paid in settlement of the claim or by way of contribution, multiplied by the percentage of fault determined for the person by the trier of fact under ORS 18.480.
Or. Rev. Stat. § 18.485 (2001).
Although the Debtor's argument is unclear, he seems to be arguing that in the Oregon state court complaint, Plaintiffs were seeking relief from four defendants and, thus, O.R.S. § 18.485 is applicable which provides that non-economic damages may not be jointly awarded but are severally awarded pursuant to a finding of percentage of fault. Three of the four defendants were dismissed and, accordingly, the Debtor was the only remaining Defendant. By dismissing the remaining Defendants, the obligation of the fact-finder to resolve the percentage of fault question under O.R.S. § 18.485 became a nullity. Thus, the Debtor argues that relief granted by the Oregon court against him solely was different in kind from what had been prayed for in the complaint and he should have been given notice or an opportunity to be heard regarding this relief. In essence, the Debtor argues that the Oregon judgment violates Oregon Rule of Civil Procedure 67(c)(1), which provides, "[a] judgment by default shall not be different in kind or exceed in amount that prayed for in the demand for judgment . . ." and, therefore, is void because it granted relief that was not requested in the original complaint.
The bankruptcy court correctly determined that because the Oregon proceeding dismissed or adjudicated every claim presented and determined the rights and liabilities of each party, the "Judgment of Dismissal" entered against Greg Shipley, along with the dismissal of defendants Sandy Union High School District #2 and the City of Sandy Department of Police, and the entry of default judgment against the Debtor, collectively constituted a final judgment.
Oregon law distinguishes between "void" judgments and "voidable" judgments. In Ketcham v. Selles, 748 P.2d 67 (Or. 1987), the Oregon Supreme Court stated:
The distinction between void and voidable "is often related to the distinction between `direct' and `collateral' attack, in that it is said that a `void' judgment is subject only to direct attack. . . ." [W]e think that the appropriate distinction for present purposes is between a `procedural error' and a `jurisdictional' defect: "The former is submerged in the judgment and ordinarily beyond remedy after the judgment has become final and the time to appeal expired; the latter in some situations can be a basis for future avoidance of the judgment."Id. at 71 (citations omitted).
The Debtor relies on Cooley v. Fredinburg, 927 P.2d 124 (Or. 1996), in which the appellant Fredinburg collaterally attacked an earlier state court judgment, arguing that the order was void because it granted relief that was not requested in the original complaint and that the court lacked personal jurisdiction over him to grant any relief that the original complaint did not request. Id. at 417-18. The Oregon Supreme Court held that if an order provides relief that is different in kind from what had been prayed for in the complaint and if the defendant has not been given reasonable notice or an opportunity to be heard regarding the relief, the order is "void" and "a nullity." Id. at 418.
The Debtor's argument is misplaced. The Multnomah County Circuit Court specifically found that the "defendant Page Waggener [the Debtor] was duly served on October 17, 1995, with Summons and plaintiffs' [Creditors'] Complaint." Thus, the Debtor was aware that the Creditors prayed for $1,000,000 each in non-economic damages and $2,000,000 each in punitive damages for each of the three causes of action asserted against him in their complaint. The default judgment awarded the Creditors $1,000,000 each in non-economic damages and $500,000 each in punitive damages. Thus, the fact that three defendants were dismissed did not render the default judgment different in kind nor did such an event cause the judgment to exceed the amount that was prayed for in the complaint.
The bankruptcy court determined that evidence established that personal service was made upon the Debtor by delivery of a true copy of both the Summons and the Complaint. Although the "Affidavit and Return of Service, provided by the process server, failed to state that a true copy of the Complaint was served upon the Debtor, the bankruptcy court determined that this was merely a clerical error. The Debtor did not testify that he failed to receive a copy of the Complaint nor did he make any such argument in his attempt to prevent domestication of the Oregon judgment in Texas.
ii. O.R.S. § 18.560
The Debtor contends that a non-economic judgment for more than $500,000 exceeds the jurisdiction of an Oregon trial court in a case to which O.R.S. § 18.560 applies and, thus, is void. The Debtor fails to cite any cases supporting this proposition. The Court finds that the bankruptcy court correctly determined that, even if the statutory cap is applicable, an erroneous failure of the Oregon trial court to apply the cap properly, or at all, does not render its judgment void. As the Oregon Supreme Court in Cooper v. Cooper, 257 P.2d 536, 538 (Or. 1976) stated:
If the court in rendering the judgment stays within the powers conferred upon it by law and does not transcend the jurisdiction it has acquired in the particular case, its decision, however erroneous, is at most voidable and not for that reason subject to challenge in an independent proceeding. The decision may be palpably wrong its deductions from the facts or its conclusion upon the legal points presented but these matters for direct relief, available on appeal and reasons perhaps for reversal; they cannot be pleaded against the record collaterally, for to say that a court is divested of its jurisdiction to decide matters properly brought before it by deciding them erroneously, is to deny it the very power it is called upon to exercise.Id. at 538 (quoting 1 Freeman on Judgments § 357, at 743-44 (5th ed. 1925) (emphasis added).
Accordingly, the bankruptcy court's determination that it could not permit the Oregon judgment to be attacked collaterally in this proceeding because of an alleged error regarding the applicability of O.R.S. § 18.560 is affirmed.
iii. O.R.S. § 18.540
Oregon state law requires that any award of punitive damages be allocated between the prevailing party and the Criminal Injuries Compensation Account for the State of Oregon. Under O.R.S. § 18.540, the prevailing party is entitled to 40% of the punitive damage award and the State of Oregon is entitled to 60% of the punitive damage award. Thus, the Debtor argues that the judgment creditors are not the owners of the claim in the amount set out in the proof of claims. The Debtor argues that there is no provision under the Bankruptcy Code for the judgment creditors to assert and recover a claim against the Debtor's bankruptcy estate on behalf of the State of Oregon. The bankruptcy court did not address this argument. Accordingly, this Court remands this issue to the bankruptcy court for further proceedings.
The bankruptcy court correctly held that failure to include the State of Oregon as a party entitled to a portion of a punitive damage award under O.R.S. § 18.540 is not fatal to the finality of the judgment and, thus, not void for lack of jurisdiction. However, the Debtor is arguing that the creditors are not entitled to full amount of the punitive damages as asserted in their proof of claims.
CONCLUSION
For the reasons articulated above, the Court finds that bankruptcy court's judgment is AFFIRMED IN PART and REVERSED IN PART and REMANDED for further consideration.