Opinion ID: 2917527
Heading Depth: 3
Heading Rank: 1

Heading: The “Perfected Lien” Claim

Text: Because the district court has “broad equitable power in this area,” we review the court’s decision approving the distribution plan deferentially, for abuse of discretion. Wealth Mgmt., 628 F.3d at 332. Goodman argues that the judge erred in rejecting his claim to preferential treatment based on his “perfected lien” against the settlement proceeds in the Dachmans’ medical-malpractice case. He boasts that he “found the medical malpractice case about nine months before Mr. Duff did, and perfected a security interest in it long before Mr. Duff was even aware that the case existed.” As legal support for this argument, Goodman relies largely on the Full Faith and Credit Act, which requires federal courts to give the judicial acts of the states “the same full faith and credit … as they have by law or usage in the courts of such State, Territory or Possession from which they are taken.” 28 U.S.C. § 1738. Goodman contends that the district court violated the Act by failing to recognize and accord priority to his state-court lien. 14 No. 13-3837 The first obvious problem with Goodman’s argument is that the Full Faith and Credit Act does not apply when the claim or issue before a federal court was never actually decided in state court. Applying the Full Faith and Credit Act requires “tak[ing] up the question: What matters did the [state-court judgment] legitimately conclude?” Baker by Thomas v. Gen. Motors Corp., 522 U.S. 222, 237 (1998). Here, there is no state-court judgment addressing the relative priority of Goodman’s claim to the Buyer settlement proceeds as against the receiver’s. The state court’s order spreading the lien of record meant only that Goodman should have priority over the plaintiffs in the case—that is, the Dachmans. The state court never considered, much less decided, whether Goodman or the receiver would have priority. How could it? Goodman never informed the state judge of the receivership, nor did he give the receiver notice of the state proceedings. The district judge therefore had no need to address the validity of Goodman’s lien when deciding that the Buyer proceeds belonged to the receivership estate; it was sufficient that the receiver had a superior claim. And the receiver’s claim was properly prioritized over Goodman’s later “perfected lien.” Receivers can displace even prior security interests in receivership property in some circumstances. See, e.g., Gaskill v. Gordon, 27 F.3d 248, 251 (7th Cir. 1994) (prioritizing a receiver’s lien for fees over a preexisting mortgage where the mortgagee acquiesced in the receivership). A receivership court can certainly use its equitable powers to give the receiver’s judgment priority over a state-court lien obtained by a claimant subsequent to that judgment. No. 13-3837 15 In any event, because Goodman obtained the lien in violation of the district court’s order, the judge could simply disregard the lien. This is the second glaring problem with Goodman’s argument. In her September 2011 order, the judge lifted the stay for a narrowly limited purpose. Good- man was permitted to obtain a state-court judgment and perhaps garnish the defendants’ wages, subject to objections by the receiver. Because Goodman’s motion to lift the stay did not request permission to pursue any collection actions beyond this, the federal stay remained in effect with respect to other potential sources of recovery, including the proceeds of the Buyer case. And the September 2011 order partially lifting the stay was specifically conditioned on the receiver’s right to object to Goodman’s efforts in state court; under no reading of that order was Goodman authorized to perfect a lien against the Buyer proceeds without giving the receiver notice and an opportunity to object. The Full Faith and Credit Act directs courts to apply the “law or usage in the courts” of the rendering state in analyzing the preclusive effect of state-court judgments. 28 U.S.C. § 1738; see also Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985); Czarniecki v. City of Chicago, 633 F.3d 545, 548 n.3 (7th Cir. 2011). Illinois courts do not enforce liens obtained in violation of a federal stay. See, e.g., Cohen v. Salata, 709 N.E.2d 668, 672 (Ill. App. Ct. 1999) (vacating a lower-court order after deciding that a bankruptcy automatic stay order had deprived the state court of subject-matter jurisdiction over the claim in the first place). Goodman does not argue otherwise; instead he maintains that he never violated the stay in obtaining or perfecting the lien. For the reasons we’ve already explained, that claim cannot be taken seriously. 16 No. 13-3837 Goodman also altogether ignores the fact that the malpractice case itself was from beginning to end conducted by the Dachmans in violation of the federal stay. We could easily affirm on this basis too. A state-court action that violates a federal stay order is voidable in federal court, if not void ab initio. See Middle Tenn. News Co. v. Charnel of Cincinnati, Inc., 250 F.3d 1077, 1082 n.6 (7th Cir. 2001) (acknowledging debate between circuits over whether actions taken in violation of a bankruptcy automatic stay order “are void or merely voidable”); accord Kimbrell v. Brown, 651 F.3d 752, 755 (7th Cir. 2011). Irrespective of Goodman’s own violation of the stay order, the Dachmans’ violation of the stay brought the proceeds of that action properly within the discretion of the receivership court. Because Goodman has given us no nonfrivolous argument to support his claim that the district court erred in disregarding his “perfected lien,” we will not disturb the court’s reasonable inclusion of the entire Buyer settlement in the receivership estate without regard to the lien.