1997 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-16-1997

In Re: Robert Wilson

Precedential or Non-Precedential:

Docket 96-5433

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Recommended Citation

"In Re: Robert Wilson" (1997). 1997 Decisions. Paper 132.

http://digitalcommons.law.villanova.edu/thirdcircuit_1997/132
Filed 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 discretion 

in denying Baldino's motion for relief from the automatic 

stay in proceedings against the Debtor, Robert FrankLeonard Wilson. Baldino sought relief from the stay in order 

to proceed with a pending appeal in a state court action 

against Wilson. The bankruptcy court denied the request, 

reasoning that the state court appeal should not proceed 

until the bankruptcy court determined whether any 

judgment Baldino might receive would be dischargeable. 

The district court agreed and affirmed. We find two distinct 

grounds for reversing the district court: (1) the bankruptcy 

court relied on an erroneous legal premise in exercising its 

discretion to deny relief from the stay and (2) the

bankruptcy court's order effectively prevents Baldino from 

challenging the state court judgment in any forum. 

Accordingly, we will reverse and remand to the district 

court for entry of an order directing the bankruptcy 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 sits as an 

appellate court and, therefore, we exercise plenary review 

over the district court judgment. Brown v. Pennsylvania

State Employees Credit Union, 851 F.2d 81, 84 (3d Cir. 

1988). We review a decision to deny the automatic stay 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). 

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On July 27, 1989, Wilson signed and swore to a criminal 

complaint charging Baldino with criminal trespass and 

harassment. Wilson's complaint was subsequently 

dismissed. Four years later, on July 20, 1993, Baldino filed 

a civil complaint against Wilson in the Superior Court of 

New Jersey. Baldino asserted a claim of malicious 

prosecution against Wilson based on the 1989 criminal 

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 malicious 

prosecution because she failed to show that Wilson acted 

without probable cause. Baldino appealed. The parties filed 

briefs on appeal and argument was scheduled for February 

6, 1996. On September 7, 1995, Wilson filed a petition for 

relief under Chapter 7 of the Bankruptcy Code, thereby 

automatically staying the appeal. 

Baldino filed a pro se motion for relief from the automatic 

stay, seeking permission to complete her appeal. The 

bankruptcy court denied Baldino's request, reasoning: 

Why would I grant stay relief before the 

dischargeability of the debt has been determined? . . . 

You could be completely successful in the State Court 

and not be successful on the nondischargeability 

determination. . . . [S]imply because you prevail in the 

State Court does not necessarily mean that you will

prevail in a non-dischargeability action . . . there'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 bankruptcy 

court and affirmed the order denying Baldino's request for 

relief from the stay. 

I. 

The bankruptcy court's reasoning rests on the premise 

that even if Baldino prevailed in the state court malicious 

prosecution action, her judgment against Wilson would not 

necessarily be nondischargeable in the bankruptcy 

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proceeding. This premise is incorrect as a matter of 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. The state 

court action in Braen went to trial and a jury entered a 

verdict against the debtor. The verdict included afinding 

that the debtor "was activated by a malicious motive in 

prosecuting the criminal complaint," a finding which is a 

necessary element for a claim of malicious prosecution. Id.

at 623. Before the successful plaintiff in the malicious 

prosecution action could collect on the judgment, the 

debtor filed a Chapter 11 bankruptcy petition. The plaintiff 

asked the bankruptcy court to declare the state court 

judgment nondischargeable under 11 U.S.C. § 523(a)(6), 

which provides that a creditor can avoid the discharge of a 

debt incurred "for willful and malicious injury by the debtor 

. . . ." The bankruptcy court held that the debt was 

nondischargeable. The court gave preclusive effect to the 

New Jersey court's finding that the debtor acted 

maliciously. On appeal we stated: "The bankruptcy court 

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 injury 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 Baldino 

was unsuccessful at trial in the state court. To prevail in 

state court, of necessity, Baldino would have to prove that 

Wilson acted maliciously. If she is ultimately successful and 

eventually obtains a judgment, it would be 

nondischargeable under § 523(a)(6) as a debt incurred by 

the debtor's willful and malicious conduct. We therefore 

conclude that the bankruptcy court abused its discretion 

by relying on an erroneous legal premise, to wit, in 

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 ruling is 

founded on an error of law). 

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II. 

Moreover, an additional and independent reason 

supports our concern over the bankruptcy court's refusal to 

lift the stay. The Bankruptcy Code provides that the 

bankruptcy court shall grant relief from the automatic stay 

"for cause." 11 U.S.C. § 362(d)(1). Section 362(d)(1) does not 

define "cause," leaving courts to consider what constitutes 

cause based on the totality of the circumstances in each 

particular case. Trident Assocs. v. Metropolitan Life Ins. Co.

(In re Trident Assocs.), 52 F.3d 127 (6th Cir. 1995). We 

believe "cause" exists under the circumstances of this case. 

If the bankruptcy proceeding continues without 

modification of the stay, issue preclusion will prevent 

Baldino from challenging the effect of the state court 

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 Braen makes 

clear, issue preclusion applies even where the previous 

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 state 

court's determination that Baldino did not show lack 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"final" for 

preclusion purposes. See Gregory Mktg. Corp. v. Wakefern

Food Corp., 207 N.J.Super. 607, 504 A.2d 828, 836 (1985) 

(New Jersey law recognizes a judgment as "final" for 

preclusion purposes even though it is pending on appeal); 

Allen v. McCurry, 449 U.S. 90, 96 (1980) (federal courts 

afford state court judgments the same preclusive effect that 

would exist in the rendering state). 

The bankruptcy court is also prohibited from reviewing 

the state court's judgment by the Rooker-Feldman doctrine, 

which prohibits lower federal courts from sitting as 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 

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(5th Cir. 1993) ("The Bankruptcy Code was not intended 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 proceedings]") 

(quoting In re G & R Mfg. Co., 91 B.R. 994 (Bankr. M.D.Fla. 

1988)). 

As demonstrated, Baldino cannot relitigate the adverse 

trial court judgment in bankruptcy court. If she is denied 

relief from the automatic stay, she will have no opportunity 

to challenge the adverse judgment before the bankruptcy 

proceedings are complete. If Baldino is not afforded an 

opportunity to pursue her appeal in state court, she will 

have no forum to litigate her cause. Accordingly, we believe 

it is necessary to lift the stay to permit prosecution 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) (evaluating 

the totality of the circumstances and granting stay relief to 

allow appeal of state court judgment); Matter of Highway

Truck Drivers and Helpers Local Union 107, 98 B.R. 698, 

705 (E.D. Pa. 1989) (affirming bankruptcy court's grant of 

stay relief on the grounds that state court appeal was 

debtor's "only vehicle to attack the adverse judgment"), 

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 legislative 

history of § 362(d)(1), which states in pertinent part: 

[I]t will often be more appropriate to permit proceedings 

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 and 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 prejudice to 

the bankruptcy estate in granting relief from the stay. Such 

relief will expedite the resolution of Baldino's claim by 

eliminating it if Wilson prevails on appeal, or by rendering 

it final and nondischargeable if Baldino ultimately prevails. 

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Moreover, Baldino's claim can be resolved more quickly in 

state court on appeal than in the bankruptcy proceedings, 

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 will be 

reversed and remanded for entry of an order directing the 

bankruptcy court to grant Baldino's request for relief from 

the stay for the limited purpose of allowing her appeal to 

proceed in the New Jersey courts. 

A True Copy: 

Teste: 

Clerk of the United States Court of Appeals

for the Third Circuit

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