- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 22-1424 (7th Circuit, Nov 27,2023) Published
- Tag(s):
-
- Ruling:
- 1) Under the Rooker-Feldman doctrine, a state-court judgment creditor is not guaranteed an allowed claim for the state-court judgment once the debtor files for bankruptcy relief. The state court was not tasked with determining whether the claim could be disallowed under federal bankruptcy law, and bankruptcy courts have the right to decide issues of federal bankruptcy law. 2) An Illinois consent judgment limits the application of res judicata and collateral estoppel because, while the judgment creditor's claim may be fixed, the other issues in the proceeding were not "actually litigated."
- Procedural context:
- The debtor objected to the judgment creditor's claim. The bankruptcy court upheld the objection and ruled that the claim was disallowed in full. The judgment debtor appealed to the U.S. district court, which affirmed the bankruptcy court. The judgment creditor appealed to the United States Court of Appeals for the Seventh Circuit.
- Facts:
- John Fliss, Larry Wojciak, and Mark Barr went into business together more than ten years ago. They obtained a $200,000 loan for working capital for their two jointly-owned companies. Each man guaranteed the loan. The business, however, failed; and the bank sued the borrower and the guarantors in state court. The parties entered a consent judgment, with the guarantors agreeing to joint and several liability.
Wojciak, though his company Generation Capital I, LLC ("GCI"), bought the judgment from the bank for $240,000; and sought to enforce the judgment against the other business owners, Fliss and Barr. GCI was substituted in the state court proceedings as the plaintiff/judgment creditor. GCI began supplemental proceedings to enforce the judgment against Fliss and Barr. Fliss and Barr, in the primary litigation, asked the court to determine that the debt was extinguished when GCI purchased the judgment from the bank.
The state court disagreed with Fliss and Barr, and ruled that the debt had not been extinguished because the settlement agreement had not been executed.
In July 2015, the state court ordered Fliss to turn over property to GCI. In August 2015, Fliss filed a chapter 13 petition. Wojciak had GCI file a proof of claim in Fliss's bankruptcy case for $359,967.69. Fliss objected to the claim.
The bankruptcy court disallowed GCI's claim, holding that Wojciak used GCI as his alter ego. Wojciak thus was both the judgment creditor and a judgment debtor, thereby extinguishing the debt. The bankruptcy court further concluded that none of the estoppel/preclusion doctrines, including the Rooker-Feldman doctrine, did not bar the bankruptcy court from disallowing GCI's claim.
- Judge(s):
- FLAUM, KIRSCH, and JACKSON-AKIWUMI
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!
