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. e du/thir dc ir c uit_1997/132Filed June 16, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-5433

IN RE: ROBERT FRANK-LEONARD WILSON,
Debtor

LISA BALDINO; Appellant

v.

ROBERT FRANK-LEONARD WILSON;

BUNCE D. ATKINSON,

Trustee

On Appeal from the United States District Court for the District of New Jersey (D.C. Civil No. 96-cv-01831) District Judge: Hon. Anne E. Thompson, Chief Judge

Submitted under Third Circuit LAR 34.1(a) April 28, 1997

Before: SLOVITER, Chief Judge , NYGAARD and ALDISERT, Circuit Judges

.

(Filed June 16, 1997)Lisa Baldino

100 Calef Avenue Narragansett, RI 02882 Appellant, Pro Se

OPINION OF THE COURT

ALDISERT, Circuit Judge

.

This appeal by Lisa Baldino from the district court 's affirmance of a bankruptcy court order requires us to decide whether the bankruptcy court abused its disc retion in denying Baldino's motion for relief from the aut omatic stay in proceedings against the Debtor, Robert Fran kLeonard Wilson. Baldino sought relief from the stay in order to proceed with a pending appeal in a state court a ction against Wilson. The bankruptcy court denied the req uest, reasoning that the state court appeal should not pr oceed until the bankruptcy court determined whether any judgment Baldino might receive would be dischargeab le. The district court agreed and affirmed. We find two distinct grounds for reversing the district court: (1) the b ankruptcy court relied on an erroneous legal premise in exerc ising its discretion to deny relief from the stay and (2) the bankruptcy court's order effectively prevents Baldi no from challenging the state court judgment in any forum. Accordingly, we will reverse and remand to the dist rict court for entry of an order directing the bankruptc y court to lift the automatic stay for the limited purpose of allowing Baldino's appeal.

The district court had jurisdiction under 28 U.S.C. § 158(a). This court has jurisdiction under 28 U.S. C. § 1291. In bankruptcy cases, the district court sit s as an appellate court and, therefore, we exercise plenary review over the district court judgment. Brown v. Pennsylv ania State Employees Credit Union , 851 F.2d 81, 84 (3d Cir. 1988). We review a decision to deny the automatic s tay for abuse of discretion. See Claughton v. Mixson , 33 F.3d 4, 5 (4th Cir. 1994); Holtkamp v. Littlefield (Matter of Holtkamp)

, 669 F.2d 505, 507 (7th Cir. 1982).

2On July 27, 1989, Wilson signed and swore to a crim inal complaint charging Baldino with criminal trespass a nd harassment. Wilson's complaint was subsequently dismissed. Four years later, on July 20, 1993, Bald ino filed a civil complaint against Wilson in the Superior Co urt of New Jersey. Baldino asserted a claim of malicious prosecution against Wilson based on the 1989 crimin al complaint.

On February 3, 1995 the state court granted Wilson' s motion for summary judgment. The court found that Baldino had not made out a prima facie case of mali cious prosecution because she failed to show that Wilson acted without probable cause. Baldino appealed. The parti es filed briefs on appeal and argument was scheduled for Feb ruary 6, 1996. On September 7, 1995, Wilson filed a petit ion for relief under Chapter 7 of the Bankruptcy Code, ther eby automatically staying the appeal.

Baldino filed a pro se motion for relief from the a utomatic stay, seeking permission to complete her appeal. Th e bankruptcy court denied Baldino's request, reasonin g:

Why would I grant stay relief before the dischargeability of the debt has been determined? .

. . You could be completely successful in the State Cou rt and not be successful on the nondischargeability determination. . . . [S]imply because you prevail i n the State Court does not necessarily mean that you will prevail in a non-dischargeability action . . . ther e's no need to determine the extent and validity of claims unless there's going to be a distribution or unless the debt has been determined to be dischargeable.

The district court adopted the reasoning of the ban kruptcy court and affirmed the order denying Baldino's requ est for relief from the stay.

I.

The bankruptcy court's reasoning rests on the premi se that even if Baldino prevailed in the state court m alicious prosecution action, her judgment against Wilson wou ld not necessarily be nondischargeable in the bankruptcy

3proceeding. This premise is incorrect as a matter o f law.

See Langanella v. Braen (In re Braen) , 900 F.2d 621 (3d Cir. 1990).

In Braen , as in the present case, the debtor was sued in New Jersey state court for malicious prosecution. T he state
court action in Braen went to trial and a jury entered a verdict against the debtor. The verdict included af inding that the debtor "was activated by a malicious motiv e in prosecuting the criminal complaint," a finding whic h is a necessary element for a claim of malicious prosecut ion. Id. at 623. Before the successful plaintiff in the mali cious prosecution action could collect on the judgment, t he debtor filed a Chapter 11 bankruptcy petition. The plaintiff asked the bankruptcy court to declare the state cou rt judgment nondischargeable under 11 U.S.C. § 523(a)( 6), which provides that a creditor can avoid the discha rge of a debt incurred "for willful and malicious injury by the debtor . . . ." The bankruptcy court held that the debt wa s nondischargeable. The court gave preclusive effect to the New Jersey court's finding that the debtor acted maliciously. On appeal we stated: "The bankruptcy c ourt did not err in holding that issue preclusion barred [the debtor] from relitigating whether [the plaintiff 's ] judgment was a debt incurred `for willful and malicious inju ry by the
debtor.' " Id. at 630.

We see no reason why the reasoning of Braen should not apply to the present case, even though Appellant Ba ldino was unsuccessful at trial in the state court. To pr evail in state court, of necessity, Baldino would have to pr ove that Wilson acted maliciously. If she is ultimately succ essful and eventually obtains a judgment, it would be nondischargeable under § 523(a)(6) as a debt incurr ed by
the debtor's willful and malicious conduct. We ther efore conclude that the bankruptcy court abused its discr etion by relying on an erroneous legal premise, to wit, i n declaring "[Baldino] could be completely successful in the
State Court and not be successful on the nondischargeability determination". See Stuebben v. Gioioso (In re Gioioso) , 979 F.2d 956, 959 (3d Cir. 1992) (bankruptcy court abuses its discretion when its ru ling is founded on an error of law).

4II.

Moreover, an additional and independent reason supports our concern over the bankruptcy court's re fusal to lift the stay. The Bankruptcy Code provides that th e bankruptcy court shall grant relief from the automa tic stay "for cause." 11 U.S.C. § 362(d)(1). Section 362(d)( 1) does not define "cause," leaving courts to consider what con stitutes cause based on the totality of the circumstances in each particular case. Trident Assocs. v. Metropolitan Li fe Ins. Co. (In re Trident Assocs.) , 52 F.3d 127 (6th Cir. 1995). We
believe "cause" exists under the circumstances of t his case.

If the bankruptcy proceeding continues without modification of the stay, issue preclusion will pre vent Baldino from challenging the effect of the state co urt judgment in the bankruptcy court. It is settled law that issue preclusion applies to bankruptcy proceedings. Graham v. Internal Revenue Service (In re Graham) , 973 F.2d 1089 (3d Cir. 1992). As our discussion of Brae n makes clear, issue preclusion applies even where the prev ious adjudication occurred in state court. Braen , 900 F.2d at 624-630; see also First Nat'l Bank v. Brown (In re Brown)

, 951 F.2d 564 (3d Cir. 1991). If Baldino raises her claim for malicious prosecution in bankruptcy court, the stat e court's determination that Baldino did not show lac k of probable cause will preclude her from relitigating this issue. Although Baldino's appeal is pending in state court , the
state trial court's resolution of this issue is"fin al" for preclusion purposes. See Gregory Mktg. Corp. v. Wak efern Food Corp. , 207 N.J.Super. 607, 504 A.2d 828, 836 (1985) (New Jersey law recognizes a judgment as "final" fo r preclusion purposes even though it is pending on ap peal); Allen v. McCurry , 449 U.S. 90, 96 (1980) (federal courts afford state court judgments the same preclusive ef fect that would exist in the rendering state).

The bankruptcy court is also prohibited from review ing the state court's judgment by the Rooker-Feldman doctrine, which prohibits lower federal courts from sitting a s effective courts of appeal for state court judgments. See , e.g. , D.C. Court of Appeals v. Feldman , 460 U.S. 462, 476 (1983) (citing Rooker v. Fidelity Trust Co. , 263 U.S. 403 (1923)); Besing v. Hawthorne (In re Besing) , 981 F.2d 1488, 1496

5(5th Cir. 1993) ("The Bankruptcy Code was not inten ded to

give litigants a second chance to challenge a state court judgment nor did it intend for the Bankruptcy Court to serve as an appellate court [for state court procee dings]") (quoting In re G & R Mfg. Co. , 91 B.R. 994 (Bankr. M.D.Fla. 1988)).

As demonstrated, Baldino cannot relitigate the adve rse trial court judgment in bankruptcy court. If she is denied relief from the automatic stay, she will have no op portunity to challenge the adverse judgment before the bankru ptcy proceedings are complete. If Baldino is not afforde d an opportunity to pursue her appeal in state court, sh e will have no forum to litigate her cause. Accordingly, w e believe it is necessary to lift the stay to permit prosecut ion of her appeal to the state appellate courts.

Our approach is consistent with that taken by other
courts. See , e.g. , Metz v. Poughkeepsie Sav. Bank (In re Metz) , 165 B.R. 769, 771 (Bankr. E.D.N.Y. 1994) (evaluat ing the totality of the circumstances and granting stay relief to allow appeal of state court judgment); Matter of Hi ghway Truck Drivers and Helpers Local Union 107 , 98 B.R. 698, 705 (E.D. Pa. 1989) (affirming bankruptcy court's g rant of stay relief on the grounds that state court appeal was debtor's "only vehicle to attack the adverse judgme nt"), rev'd on other grounds , In re Highway Truck Drivers & Helpers Local 107 , 888 F.2d 293 (3d Cir. 1989).

Moreover, our decision is supported by the legislat ive history of § 362(d)(1), which states in pertinent p art:

[I]t will often be more appropriate to permit proce edings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum an d to relieve the bankruptcy court from many duties that may be handled elsewhere.

S.Rep. No. 95-989 at 50 (1978), reprinted in 1978 U.S.C.C.A.N 5787, 5836. We perceive no great prejud ice to the bankruptcy estate in granting relief from the s tay. Such relief will expedite the resolution of Baldino's cl aim by eliminating it if Wilson prevails on appeal, or by rendering it final and nondischargeable if Baldino ultimately prevails.

6Moreover, Baldino's claim can be resolved more quic kly in

state court on appeal than in the bankruptcy procee dings, as the parties have already filed briefs on appeal.

We have considered all of the arguments advanced by the parties and conclude that no further discussion is

necessary.

Accordingly, the judgment of the district court wil l be reversed and remanded for entry of an order directi ng the bankruptcy court to grant Baldino's request for rel ief from the stay for the limited purpose of allowing her ap peal to proceed in the New Jersey courts.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

7