Rabalais v. Leon (In re Rabalais)

Summarized by Geoffrey Miller , Dentons US LLP
13 years 3 months ago

Citation:

Rabalais v. Leon (In re Rabalais), No. 12-20255 (5th Cir. Nov. 19, 2012) [Not for Publication]

Tag(s):

Ruling:

Affirming the District Court, the Fifth Circuit held that it lacked authority under the Rooker-Feldman doctrine to review a Debtor’s argument that a California state court improperly characterized his business as a Ponzi scheme.

Procedural context:

The District Court affirmed the Bankruptcy Court. Rabalais appealed the grant of summary judgment, not alleging that the Bankruptcy Court or District Court erred in law or fact, but that the California court improperly determined that his business was a Ponzi scheme.

Facts:

Debtor, Christopher Rabalais, operated AllSportsMarket, a website where investors could buy and sell shares in the performance of athletes and sports teams. Seth Leon, an investor on the site, attempted to withdraw his funds and discovered that most of his money was gone. Leon sued Rabalais in California state court alleging fraud, deceit, and other claims. Following a trial, of which Rabalais did not appear, the California court found there was ample evidence of a Ponzi scheme and entered a default judgment against Rabalais. Rabalais did not appeal and later filed a petition under chapter 7 of the Bankruptcy Code listing the California state judgment in Schedule F. Following an adversary proceeding to determine the dischargeability of Rabalais’s debt, the Bankruptcy Court granted summary judgment against Rabalais holding that that the debt was not dischargeable because it was obtained by false pretenses, false representations, and actual fraud under 11 U.S.C. § 532(a)(2) and that collateral estoppel required it to grant summary judgment because Rabalais’s fraud was actually litigated and decided in the California court. Moreover, the Bankruptcy Court found that the Rooker-Feldman doctrine prevented it from hearing Rabalais’s numerous objections to the California proceedings.

Judge(s):

Per Curiam (Smith, Prado, and Higginson)

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