### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ Nos. 12

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- 1894

D AN K. A RNOLD , Plaintiff

- Appellant , v. KJD R EAL E STATE , LLC , Defendant

- Appellee, Cross

- Appellant ,

v.
G EISSLER R OOFING C O ., I NC ., and D & D P ROPERTY M ANAGEMENT , I NC

. Defenda n ts

- Appellees, Cross

- Appellees.

____________________ Appeal s from the United States District Court for the Southern District of Illinois

. No. 10

- 913

- GPM

— G. Patrick Murphy , Judge

.

____________________
A RGUED D ECEMBER 11, 2013

— D ECIDED M AY 20, 2014

____________________

Before W OOD , Chief Judge, and F LAUM and S YKES , Circuit Judges

. W OOD , C hief Judge

. The Rooker

- Feldman doctrine rests on the fact that only the Supreme Court of the United States has2 Nos. 12

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appellate jurisdiction over state court decisions (and its a uthority extends only to federal questions, see 28 U.S.C. § 1257). In this case, a state court ordered Dan Arnold to d eliver certain corporate stock to Geissler Roofing and D&D Property Management (collectively, the Corporate Defen dants) pursuant to an earlier alleged settlement agreement. The state court did not know that Arnold had already sold the stock to a third party, KJD Real Estate (KJD). Arnold filed an interpleader action in the district court under Federal Rule of Civil Procedure 22 in which he asked the court to d ecide to whom he should transfer the stock. The district court dismissed the interpleader action under the Rooker

- Feldman do ctrine and ordered Ar nold to compensate KJD in cash

. We conclude that this was mistaken: the interpleader action does not attack the state court judgment itself, and so further pr oceedings are necessary.
I
Arnold was a former officer of both Corporate Def en dants , and he held a significant amount of stock in each (38% of Geissler’s shares and 50% of D&D’s). In 1999, Arnold sued the Corporate Defendants in Illinois state court on claims of shareholder oppression. That action remained pending for seven years. In November 2006, the parties allegedl y agreed to settle the case. T hey never executed any settlement doc uments, however, and none of the defendants has ever paid Arnold any of the $207,500 that the purported agreement would have required. Nonetheless, re lying on the alleged settlement agreement, t he Corporate Defendants moved to dismiss the state case. While th at motion was pending , A rnold moved for a voluntary dismissal. The court grantedN o s. 12

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Arnold’s motion and dismissed with prejudice without d eciding whet her the case had been settled. About a month later, Arnold agreed to sell his stock in the Corporate Defendants to KJD for $290,000 . KJD a dvanced $100,000 to Arnold as required by the written stock purchase agreement, and Arnold represented that he had goo d title to the stock and could transfer it. After the stock

purchase agreement was finalized, KJD notified the Corp orate Defendants that it had purchased the stock and wished to inspect the corporate books. The Corporate Defendants did not respond to KJD’s request. Instead, they moved to vacate the dismissal of Arnold’s original suit in state court, reiterating their view that the case had been settled. Pursuant to that alleged settlement, they contended, Arnold already had transferred his stock to the
two corporations. Taking a belt

- and

- suspenders approach, the Corporate Defendants also filed a second action against Arnold in Illinois state court before a different judge. Al though Arnold was properly served, he did not appear, and

so the second state court issued a default judgment ordering Arnold to execute the settlement papers and comply with that agreement. The Appellate Court of Illinois af firmed that judgment. KJD was never joined as a party in th e second
state court action despite the Corporate Defend ants’ knowledge of KJD’s interest in the stock. Meanwhile, back in the first state court proceeding , all the parties here, including KJD, appeared in response to the Corporate Defendants’ motion to vacate the dismissal of A rnold’s shareholder suit

. Without informing the court or A rnold’s counsel of the default judgment then in existence, the Corporate Defendants requested a continuance on the m o-4 Nos. 12

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tion to vacate

. At a later hearing, the Corporate Defendants informed the court of the default judgment , wh ich by that time had become final under Illinois law . The court stayed further proceedings ; to our knowledge, that action remains pending. After the Appellate Court’s decision was issued, Arnold filed this Rule 22 interpleader ac tion , naming both the Co rpo rate Defenda nts and KJD as defend ants

. Arnold’s co mplaint specifically stated that he “makes no claim to conti nued ownership of the Geissler and D&D stock and stands willing to transfer the stock to whichever Interpleader D efendant the Court determines has the superior right to the stock.” Arnold asked to be “fully and finally released from any and all liability to the Interpleader Defendants” once he delivered the stock to whichever defendant the court spec ified. KJD asserted a cross

- claim against the Corp orate D efendants for a declaratory judgment that it owned the stock

. I t also a sserted , in the alternative, a counterclaim against A rnold for rescission of the stock

- purchase agreement and r eturn of the $100,000 advance KJD paid under that agreement.
Invoki ng the Rooker

- Feldman doctrine, the district court dismissed Arnold’s interpleader action and KJD’s cross

- claim on the ground that “the injury complained of by both Arnold and KJD clearly is the state court’s order directing Arnold to execute the settlemen t agreement with [the Corporate D efendants] under the terms of which Arnold is required to tender back to [the Corporate Defendants] his shares in the companies in return for consideration in the amount of $207,500.” The district court granted KJD’s counte rclaim against Arnold and ordered Arnold to return the $100,000N o s. 12

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advance payment. Both Arnold and KJD have appealed to this court.
II We begin with a brief word about the district court’s j urisdiction in this matter, wholly apart from the Rooker

Feldman iss ue that lies at the center of this case. As we have noted, Arnold relied on Rule 22 for his interpleader action. Rule 22 provides that “[p]ersons with claims that may e xpose a plaintiff to double or multiple liability may be joined as defendants and requir ed to interplead.” F ED

. R. C IV

. P. 22(a) (1) . Unlike statutory interpleader actions under 2 8 U.S.C. § 1335, “[i]nterpleader actions under Rule 22 ... must be based upon the general jurisdiction statutes applicable to civi l actions in the federal courts. ” 7 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, F EDERAL P RACTICE AND P ROCEDURE § 1710 (3d ed. 1998 & Supp. 2010); see also Comm’l Nat’l Bank of Chi. v. Demos , 18 F.3d 485, 488 (7th Cir. 1994) ( “ Rule 22 [a] provides a procedural framework for i nte rpleader actions, but it does not confer subject

- matter j urisdiction on federal courts. ”). A plaintiff such as Arnold, who is relying on the gener al diversity statute , 28 U.S.C. § 1332 , must demonstrate complete diversity between the plaintiff

- stakeholder and the claimant

- defendants. An inte rpleader plaintiff need not show that each competing clai mant has a winning claim; a reasonable fear of double liability is enough. Aaron v. Mahl , 550 F.3d 659, 663 (7th Cir. 2008)

. In this case, the contest between the defendant

- claimants, both of which are citizens of Illinois, involves only a que stion of Illi nois law . Nevertheless, diversity jurisdiction is proper because complete diversity is assessed by looking at the plaintiff

- stakeholder and the defendant

- claimants

. A r-6 Nos. 12

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nold, a Florida citizen, is diverse from all parties claiming an interest in the stock , and Arnold’s complaint asks the court to relieve him of potential double liability to these claimants. As our account of the facts already has shown , the amount in controversy exceeds $75,000. Jurisdiction is therefore proper under 28 U.S.C. § 1332(a).
III We turn, then, to the h ea r t of the case: the Rooker

- Feldman doctrine. As we noted at the outset, this doctrine reflects a limitation on the subject

- matter jurisdiction of lower federal
courts. Long v. Shorebank Dev. Corp. , 182 F.3d 548, 555 (7th Cir. 1999). We review de novo the question whether , as the district court thought, Rooker

- Feldman applie s here

. Brokaw v. Weaver , 305 F.3d 660, 664 (7th Cir. 2002).
The Rooker

- Feldman doctrine derives from two Supreme Court cases in which plaintiffs “litigated and lost in state court ... [then] essentially invited federal courts of first i nstance to review and reverse [the] unfavorable state court judgments.” Exxon Mobil Corp. v. Saudi Basic Inds. Corp. , 544 U.S. 280, 283 (2005) , discussing Rooker v. Fidelity Trust Co. , 263 U.S. 413 (1923) and D.C . Ct. of App. v. Feldman , 460 U.S. 462 (1983). Because Congress empowered only the Supreme Court to exercise appellate author ity to reverse and modify
state court judgments, see 28 U.S.C. § 1257, such suits were declared “out of bounds, i.e. , properly dismissed for want of subject

- matter jurisdiction.” Saudi Basic Inds. , 544 U. S. at 283

– 84. The doctrine is narrowly confined to “ cases brought by
state

- court losers complain ing of injuries caused by state

court judgments rendered before the district court procee dings commenced and inviting district court review and reje ction of tho se judgments.” Id . at 284.N o s. 12

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Like the due process claim in Long , 182 F.3d at 555

– 56, cases requiring dismissal under Rooker

- Feldman involve plaintiffs who are “attacking the judgment itself” or the pr ocedures used in obtaining that judgment. GASH Assocs. v. Village of Rosemont, Ill. , 995 F.2d 726, 728 (7th Cir. 1993). In GASH , for example, the plaintiff alleged that the Village of Rosemont committed an unconstitutional taking by mane uvering to purchase plaintiff’s property for a depressed price at a foreclos ure sale. Id . at 727. A state court had confirmed the sale over plaintiff’s “vigorous objection.” Id . Because plaintiff’s “injury came from the judgment confirming the sale” rather than “an injury out of court,” Rooker

- Feldman barred the suit. Id . at 729

. Similarly, in Leaf v. Supreme Court of Wisconsin , the plaintiff sued the state high court for suspen ding her law license, alleging both that the suspension and the ethics rule on which it was based were unconstitutional. 979 F.2d 589 , 594 (7th Cir. 1992). Leaf’s claims were attacks on the propriet y of the judgment and therefore barred by Rooker

Feldman

. Id . at 598

– 600

. Rooker

- Feldman thus comes into play only when the fe deral court assesses the propriety of a state court judgment. “If a federal plaintiff pr esents some independent claim, alb eit one that denies a legal conclusion that a state court has reached,” then Rooker

- Feldman does not bar the court’s juri sdiction. Saudi Basic Inds. , 544 U.S. at 293 , citing GASH , 995 F.2d at 728. In so ruling, the Court d isapproved some more expansive applications of the doctrine that had developed in the lower courts. With that message in mind, we have no trouble concluding that Rooker

- Feldman does not bar Arnold’s suit. Indeed, Arnold’s interpleader action pr oceeds on the8 Nos. 12

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premise that the state court’s adjudication of the rights between himself and the Corporate Defendants was a valid and binding judgment. But it was a judgment that bound only him; KJD was no t a party to the suit. See Kamilewicz v. Bank of Bos ton , 100 F.3d 1348, 1351 (7th Cir. 1996) (Easterbrook, J., dissenting from denial of rehearing en banc ) (“[T]he Rooker

- Feldman doctrine does not affect suits by or against persons who were not parties to the initial case.”) ; see also Downs v. Westphal , 87 F.3d 202, 203 (7th Cir. 1996) (Rovner, J., concurring)

. It is on e thing to resolve whether a person has a binding contract or an interest in an item such as corporate stock; it is quite another to resolve the question whether A’s property right is superior to B’s, or vice versa. Arnold’s interpleader action raises the second question, which was never before the state court. In the course of deciding that priority issue, Arnold asks the court to relieve him of his exposure to double liability from his confli cting obligations related to the stock. Although Arnold ’s injury is

u ndoubtedly related to the state court judgment, his suit does not “attack [] the judgment itself.” See GASH , 995 F.3d at 728. It does not, we clarify , unless the nature of the relief that the state court ordered makes a difference. The Corporate Defendants argued

— and the district court agreed

— that the state court ordered specific performance with respect to A rnold’s delivery of the stock. That was precisely what the Corporate Defendants ha d requested. T he state trial court’s defa ult judgment ordered Arnold to execute all settlement documents that he had received. Only in denying Arnold’s motion to vacate the default judgment did the court add that Arnold was “ordered to execute settlement d ocuments and comply with the terms of the settlement agreement.” Order,N o s. 12

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No. 07

- CH

- 1044 (St. Clair Co. Cir. Ct., Dec. 15, 2008) (emph asis added).
We conclude that this detail does not change our Rooker

Feldman analysis. Arnold’s interpleader action merely c o mpels the Corporate Defendants and KJD to litigat e ownership of the stock among themselves

. Each one has an asserted b asis for a claim of right to the stock, one contractual and one based on the state court judgment. If the federal court d ecides that KJD’s claim to the stock is superior to that of the Corporate Defend ants , the court may skip the formalistic step of Arnold ’s transferring the stock to the Corporate D efendants (pursuant to the state court’s specific

- performance decree) only to have the Co rporate Defendants immediately transfer the stock to KJD (pursuant to the interpleader court’s order)

. Because all concerned parties are participating in the interpleader action, the court may order a direct tran sfer from Arnold to whichever party prevails

. See State Farm Fire & Cas. Co. v. Tashire , 386 U.S. 523, 533 (1967) (discussing the ways in which “[c]onsiderations of judicial administr ation” inform interpleader procedures).
IV Although the state court judgment does not foreclose A rnold’s federal suit , it may preclude some of the relief Arnold seeks. Courts often confuse Rooker

- Feldman cases with cases in volving ordinary claim or issue preclusion. See Saudi Basic Ind s. , 544 U.S. at 283 (criticizing lower courts for “superse ding the ordinary application of preclusion law” in favor of Rooker

- Feldman ). “In contrast to the Rooker

- Feldman doctrine

... res judicata constitutes an affirmative defense and is d ependent upon the Full Faith and Credit statute, 28 U.S.C. § 1738, which requires federal courts to give a state court10 Nos. 12

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judgment the same preclusive effect it would have in state court.” Long , 182 F.3d at 560.
Arnold ’s goal in this litigation is to obtain a declaratory judgment that he is not liable to whichever claimant loses in the interpleader dispute. This potentially sweeps more broadly than a request to decide only which party is entitled to the stock. We already have explained why , i f the district court on remand determines that KJD has the superior claim to the stock, it can order Arnold to transfer the stock to KJD. Such a ruling would not disturb the state court’s judgment, nor would it fail to give that judg ment full faith and cre dit, because the question of liability implicates more than the disposition of the shares. The state court’s judgment might entitle the Corporate Defendants to some other remedy against Arnold

. If the interpleader court conclude s that the Corporate Defenda nts have the superior claim to the stock, then it could either stop there or proceed to decide the rela ted question whether Ar nold remains liable to KJD in some way. It would be premature for us to rule on those questions at this stage, since anything we m ight say would be based on speculation about the outcome of the interpleader dispute

. In addition, as we now point out, the interpleader court might wish to abstain on some or all of these issues.

V
The Corporate Defendants have argued that even if Roo ker

- Feldman does not bar the suit, abstention is appropriate under the doctrine of Brillhart v. Excess Ins. Co. of Amer. , 316 U.S. 491 (1942) and Wilton v. Seven Falls Co. , 515 U.S. 277 (1995). Wilton

- Brillhart abstention applies when ”a federal court [is cal led up on] to proceed in a declaratory judgment suit where another suit is pending in state court presentingN o s. 12

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the same issues, not governed by federal law, between the same parties.” Brillhart , 316 U.S. at 495. In such a case , “the question for [the] district court ... is ‘whether the questions in controversy between the parties to the federal suit ... can better be settled in the proceeding pending in the state court.’” Wilton , 515 U.S. at 282 , quoting Brillhart

. A concern for comity underlies this doctr ine . As the Court put it in Wi lton, “where another suit involving the same parties and pr esenting opportunity for ventilation of the same state law i ssues is pending in state court, a district court might be i ndulging in gratuitous interference if it permi tted the federal declaratory action to proceed.” Id . at 283 (quotation omitted).
Wilton

- Brillhart abstention is possible because of t he fe deral court’s “unique and substantial discretion in deciding whether to declare the rights of litigants.” Id . at 286; see also 28 U.S.C. § 2201(a) (providing that the court “ may declare the rights and other legal relations of any interested party see king such declaration”) (emphasis added). The Declaratory Judgment Act is “an enabling Act, which confers a discretion upon the courts rather than an absolute right upon the lit igant.” Id. at 287 , quoting Pub. Serv. Comm’n of Utah v. Wycoff Co. , 344 U.S. 237, 241 (1952)

. “ [T] he propriety of declaratory relief in a particular case will depend upon a circumspect sense of its fitn ess informed by the teachings and experience concerning the functions and extent of federal judicial po wer.” Wycoff , 344 U.S. at 243. In contrast to most other action s, “there is nothing automatic or obligatory about the assum ption of jurisdiction by a fed eral court to hear a declaratory judgment action.” Wilton , 515 U.S. at 288 (quotation omi tted).12 Nos. 12

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Several factors guide the court’s discretion, including “the scope of the pending state court proceeding” and “whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding.” Brillhart , 316 U.S. at 495

. This is an inherently discretionary call for the district court,

“ because facts bearing on the usefulness of the declaratory judgment remedy, and the fitness of the case for re solution, are peculiarly within [its] grasp.” Wilton , 515 U.S. at 289; see also Miller v. Fenton , 474 U.S. 104, 114 (1985)

. Although the district court briefly addressed the issue b efore, Wilton

- Brillhart abstention should be re considered on remand

. The u nderlying dispute concerns a matter of Illinois law entirely between Illinois parties. That dispute is curren tly pending in the stayed state court lawsuit, which involves all the interested parties

. This is a question that the district court should address anew

. VI
Rooker

- Feldman does not bar Arnold’s interpleader action. We VACATE the district court’s judgment dismissing on that basis and REMAND for further proceedings consistent with this opinion.