United States Court of Appeals 

For the Seventh Circuit

Chicago, Illinois 60604

Submitted April 13, 2017*

Decided April 14, 2017

Before

    JOEL M. FLAUM, Circuit Judge

    ILANA DIAMOND ROVNER, Circuit Judge

    ANN CLAIRE WILLIAMS, Circuit Judge

   

No. 16‐3121

IN RE: MARJORIE E. GIBSON,

Defendant‐Appellant,

v.

TOM and VICKY KRIESCHER,

Plaintiffs‐Appellees.

Appeal from the United States District

Court for the Western District of

Wisconsin.

No. 15‐cv‐783‐bbc

Barbara B. Crabb,

Judge.

O R D E R

Marjorie Gibson, a Chapter 7 debtor, appeals the district court’s order upholding

the bankruptcy court’s ruling that certain of her debts are non‐dischargeable under 11

U.S.C. § 523(a)(4). The bankruptcy court granted summary judgment with respect to her

creditors’ claim that state‐court damages in the amount of $200,487 were

                                                 

* We have agreed to decide the case without oral argument because the issues

have been authoritatively decided. See FED. R. APP. P. 34(a)(2)(B).

NONPRECEDENTIAL DISPOSITION

To be cited only in accordance with Fed. R. App. P. 32.1
No. 16‐3121    Page 2

non‐dischargeable because they represented embezzled revenue from the company

Gibson co‐owned with her creditors, Tom and Vicky Kriescher. We affirm.

This bankruptcy case arose from a lawsuit the Krieschers brought against Gibson

in Minnesota state court for fraud “while acting in a fiduciary capacity.” The Krieschers

and Gibson were co‐owners of a Minnesota corporation called Marjac, Inc., which

contracted with Federal Express to deliver packages in the Twin Cities area. The

Krieschers sued Gibson for allegedly misusing route revenue, misrepresenting her

assets, and refusing to honor a buyout agreement. The case went to trial in Minnesota

state court, and on the third day Gibson failed to appear in court. The Krieschers moved

for a default judgment, which the court then granted and awarded them $364,540.25 in

damages.   

Gibson, represented by counsel, subsequently sought bankruptcy protection in

the Western District of Wisconsin. Soon thereafter, the Krieschers initiated an adversary

proceeding in bankruptcy court, seeking to have their judgment against Gibson

declared non‐dischargeable under § 523(a)(4), which applies to debts incurred as a

result of “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or

larceny.” The bankruptcy court concluded that $200,487 of the total state‐court damages

award was non‐dischargeable because the state court’s judgment contained findings

sufficient to prove the elements for both embezzlement and defalcation while acting in

a fiduciary capacity. The bankruptcy court also determined that, despite the state court

finding her liable in a default judgment, Gibson had a full and fair opportunity to be

heard under Minnesota law, and therefore the state court’s judgment could be given

preclusive effect.   

Gibson, still counseled, appealed the bankruptcy court’s determination to the

district court. She argued that the state‐court’s factual findings did not establish that she

had acted with the fraudulent and purposeful state of mind necessary to establish the

elements of embezzlement and defalcation under § 523(a)(4). Alternatively, she argued

that it would be “fundamentally unfair” to give preclusive effect to the state‐court’s

judgment. She points, in support, to one instance in which the state judge gave an

“improper and unusual” instruction to the Krieschers’ counsel to draft the contents of a

proposed default judgment that would prevent Gibson from discharging the

Krieschers’ claims in bankruptcy.   

The district court upheld the bankruptcy court’s judgment. Judge Crabb agreed

with the bankruptcy court’s conclusion that the state court’s judgment included the

necessary findings to prove embezzlement under § 523(a)(4). But she parted ways with
No. 16‐3121    Page 3

the bankruptcy court when she concluded that the standard for fraudulent intent was

no less restrictive under Minnesota law than the standard imposed by § 523(a)(4). Judge

Crabb went on to conclude that Gibson had failed to show that she was treated unfairly

by the state court. Gibson did not show that she was unfairly prejudiced by the state

judge’s instruction, Judge Crabb explained, and in any event Gibson did not deny that

the Krieschers were entitled to a default judgment for her retention of earnings that

belonged to them.

On appeal, Gibson—now proceeding pro se—makes no challenge to the

determination that the state court’s judgment adequately substantiated the findings

necessary to prove embezzlement under § 523(a)(4). Her argument on appeal is difficult

to follow, but she seems to argue that it was “fundamentally unfair” for the bankruptcy

court to give preclusive effect to the state‐court judgment. To the extent that Gibson

now asks this court to revisit the validity of the state‐court’s judgment on grounds of

procedural error, such a challenge is barred by the Rooker‐Feldman doctrine. Exxon Mobil

Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005); see D.C. Ct. of Appeals v.

Feldman, 460 U.S. 462, 486 (1983); Rooker v. Fid. Tr. Co., 263 U.S. 413, 415–416 (1923).   

Gibson also asserts on appeal that she “never embezzled any money” and that

the Krieschers didn’t satisfy their burden of proof to show that she had fraudulent

intent. But this argument is merely another attempt to relitigate the Minnesota

judgment and therefore also is barred by Rooker‐Feldman.

We have reviewed the record and affirm for substantially the reasons stated by

the district court.

AFFIRMED.