Court Opinion

ID: 15361
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:44:21+00
Date Added: 2024-06-11T08:50:02.457023
License: Public Domain

UNITED STATES COURT OF APPEALS
                      For the Fifth Circuit

                          No. 98-10373

                In the Matter of: GENE REITNAUER,

                                                             Debtor,
                ---------------------------------

                         GENE REITNAUER,

                                                           Appellee.

                                versus

              TEXAS EXOTIC FELINE FOUNDATION, INC.

                                                          Appellant.

          Appeal from the United States District Court
               for the Northern District of Texas

                         August 18, 1998
Before POLITZ, Chief Judge, WISDOM, and WIENER, Circuit Judges.

WISDOM, Senior Circuit Judge:

                 I. Introduction and Background

     Appellant Texas Exotic Feline Foundation, Inc.(“TEFF”), a

non-profit organization in Wise County, Texas, provides a

sanctuary for abandoned, abused, or neglected exotic felines,

such as lions, tigers, and leopards.     Appellee Gene Reitnauer

founded TEFF and functioned as an officer and director of the
organization from 1988 to 1997.   Before this litigation, the real

property upon which TEFF is located consisted of approximately 24

acres in the foundation’s name, and approximately 7.5 acres in

Reitnauer’s name.    Reitnauer’s principal residence of 20 years is

located on the property.

     In November 1996, the Texas Attorney General filed a suit

against Reitnauer in which he alleged that Reitnauer breached her

fiduciary duties to TEFF and engaged in various practices that

were violative of the Texas Deceptive Trade Practices Act.1     In

the first phase of a bifurcated trial,2 the jury found that

Reitnauer committed fraud, breached her fiduciary duties,

improperly converted TEFF assets for her own use, and was

unjustly enriched.   It awarded the plaintiffs $460,000 in

compensatory damages.   Prior to the commencement of the second

phase, however, Reitnauer filed a voluntary Chapter 7 bankruptcy

petition under Title 11 of the United States Code, thus causing

an automatic stay to be imposed upon the state court

proceedings.3   Three days later, TEFF successfully moved the

     1
       Tex. Bus. & Comm. Code § 17.41, et seq.       The Attorney
General originally named TEFF as a defendant in the action. After
TEFF filed a cross-action against Reitnauer, however, the trial
court realigned the parties, leaving Reitnauer as the sole
defendant.
     2
       The jury considered liability and compensatory damages in
phase one, and exemplary damages and attorney fees in phase two.
     3
       See 11 U.S.C. § 362. Section 362 provides that the filing
of a voluntary petition in bankruptcy operates as a stay of the
commencement or continuation of a judicial proceeding against the

                                  2
bankruptcy court to partially lift the automatic stay so that the

second half of the trial could be completed.4   In the second

phase of the trial, the jury awarded $540,000 and $1,000,000 in

exemplary damages to TEFF and the Attorney General, respectively.

The trial court’s post-verdict judgment divested Reitnauer of all

proprietary interests she previously enjoyed on the 7.5 acres

titled in her name, including her homestead right, of which

Reitnauer argued she could not be dispossessed under Texas law.5

The judgment also permanently enjoined Reitnauer from entering

the property beyond a 30-day grace period.   Again, TEFF

successfully moved the bankruptcy court to lift the automatic

stay, thus clearing the way for the state court judgment to be

recorded and enforced.   Reitnauer appealed to the district

court, which reversed the bankruptcy court on the ground that its

decision to lift the automatic stay was an abuse of discretion.

TEFF now appeals from this final judgment.   Finding its arguments

debtor that was or could have been commenced before the
commencement of the Title 11 action. Commonwealth Oil Refining
Co., Inc. v. United States Environmental Protection Agency, 805
F.2d 1175, 1182 (5th Cir. 1986).
     4
       11 U.S.C. § 362(d) authorizes a bankruptcy court to lift an
automatic stay for “cause.” Because § 362 does not offer guidance
as to what constitutes “cause,” reviewing courts must determine
whether cause existed on a case-by-case basis.     See Robbins v.
Robbins, 964 F.2d 342, 345 (4th Cir. 1992).
     5
      The court, after determining that Reitnauer was not entitled
to the protections afforded by the homestead exemption, imposed a
constructive trust upon the property for the benefit of TEFF, thus
awarding TEFF title and interest to the property, together with
title and interest to the fixtures and improvements thereon.

                                3
persuasive, we reverse the judgment of the district court and

reinstate the order of the bankruptcy court.

                          II. Discussion

     The underlying facts of this appeal belie its true nature.

Indeed, it is far more concerned with matters of federalism than

with the nuts and bolts of bankruptcy law.   TEFF’s principal

contention is that the district court exceeded the bounds of its

subject matter jurisdiction by collaterally attacking the state

court judgment entered against Reitnauer.6   Even though the

district court possessed the authority to determine whether the

bankruptcy court abused its discretion in lifting the automatic

stay, TEFF argues, it did not possess the authority to render its

determination by reviewing the substance of the state court

decision.   TEFF calls our attention to the Rooker-Feldman

doctrine,7 which provides that lower federal courts lack

jurisdictional authority to sit in appellate review of state

court decisions.8   In a nutshell, the doctrine holds that

     6
       TEFF raises a question of law that we review de novo.    See
Narey v. Dean, 32 F.3d 1521, 1524 (11th Cir. 1994).
     7
       The doctrine derives its name from two Supreme Court cases,
Rooker v. Fidelity Trust Co., 263 U.S. 413, 415 (1923), holding
that the jurisdiction of the federal district courts is strictly
original, and District of Columbia Court of Appeals v. Feldman, 460
U.S. 462, 476 & 482 (1983), holding that federal district courts do
not have the authority to review final state court judgments.
     8
       See United States v. Shepherd, 23 F.3d 923, 924 (5th Cir.
1994).   See also 28 U.S.C. § 1257, which provides that federal
appellate jurisdiction over state court decisions is vested in the

                                 4
inferior federal courts do not have the power to modify or

reverse state court judgments.9

     Our task is to determine whether the district court violated

the Rooker-Feldman doctrine by impermissibly exercising de facto

appellate jurisdiction over the state court judgment entered

against Reitnauer.   In order to do so, we must review carefully

the district court record.

     The district court assigned to itself the duty of

ascertaining “whether the bankruptcy court should have allowed

the recording and enforcement of a judgment effectively taking

away [Reitnauer’s] claim to her homestead without determining

whether that judgment was proper.”10   In reaching its conclusion

that the bankruptcy court abused its discretion by lifting the

automatic stay, the district court assailed the legitimacy of the

state court judgment against Reitnauer:

     The state court’s judgment shows on its face that it is an
     attempt by the state court to deprive [Reitnauer] of her
     constitutional homestead rights under circumstances that are
     not allowed by Texas law. The judgment shows that the state

United States Supreme Court. It should be noted that Congress has
carved out limited exceptions to the Rooker-Feldman doctrine.
Under 28 U.S.C. § 2241, for example, federal district courts are
authorized to entertain state prisoners’ habeas corpus petitions.
Garry v. Geils, 82 F.3d 1362, 1365 n.4 (7th Cir. 1996).
     9
       See Rooker at 415-16 and Garry at 1365. See also Hale v.
Harney, 786 F.2d 688, 691 (5th Cir. 1986), holding that “judicial
errors committed in state courts are for correction in the state
court systems.”
     10
       The district court raised this precise issue sua sponte.
Neither party briefed the issue before the district court.

                                  5
     court decreed that [Reitnauer] lost her homestead rights in
     the property .... by reason of wrongful commingling and
     other wrongful conduct. Texas law does not recognize that
     homestead rights can be lost or otherwise adversely affected
     for those reasons. The bankruptcy court’s .... order has
     the effect of approving and aiding the enforcement of the
     improper actions taken in the state court’s judgment
     relative to [Reitnauer’s] homestead.

The district court, therefore, made apparent its displeasure with

the manner in which the state court interpreted and applied state

law; such displeasure formed the basis for its reversal of the

bankruptcy court’s order.   Accordingly, we conclude that the

district court violated the letter of the Rooker-Feldman doctrine

by sitting in appellate review of the state court judgment

entered against Reitnauer.11   The parties contested, and the

state court adjudicated, the homestead issue in a Texas court of

competent jurisdiction.12   While that adjudication was

immediately appealable to the Texas Court of Appeals, it was not

appealable, immediately or otherwise, to the federal courts.

     The district court having failed to conduct an appropriate

     11
        See Baldino v. Wilson, 116 F.3d 87, 90 (3d Cir. 1997),
applying the Rooker-Feldman doctrine in the context of a bankruptcy
matter.
     12
        The district court attempted to justify its collateral
attack on the state court judgment by maintaining that the state
court lacked jurisdiction to determine that Reitnauer was not
entitled to the protection of the homestead exemption. It is true
that (1) jurisdictional defects render a judgment void, and (2)
void judgments are subject to collateral attack.     We conclude,
however, that the state court proceeding did not suffer from any
jurisdictional defect.    We have stated that under Texas law,
“courts of general jurisdiction do have jurisdiction to determine
whether property is a homestead.” In re Camp, 59 F.3d 548, 552
(5th Cir. 1995).

                                 6
review of the bankruptcy court’s order, it is left to us to

decide whether the bankruptcy court abused its discretion in

lifting the automatic stay.13    We have little difficulty

concluding that it did not.     Reitnauer failed to respond to

TEFF’s second motion to vacate the automatic stay, which resulted

in TEFF’s allegations being deemed admitted.14    For purposes of

the bankruptcy court’s review, therefore, Reitnauer admitted to

having filed her Chapter 7 petition in bad faith.     Accordingly,

it was not an abuse of discretion for the bankruptcy court to

have found cause to lift the automatic stay.15

                         III. Conclusion

     For the foregoing reasons, the judgment of the district

court is REVERSED, and the order of the bankruptcy court is

REINSTATED.

     13
       See In re Chunn, 106 F.3d 1239, 1242 (5th Cir. 1997) and
Baldino at 89.
     14
       See Rule 4001(b) of the Local Bankruptcy Rules of the United
States Bankruptcy Court for the Northern District of Texas.
     15
        A debtor’s lack of good faith in filing a bankruptcy
petition may be an appropriate ground for lifting the automatic
stay. In re Little Creek Development Co., 779 F.2d 1068, 1072 (5th
Cir. 1986).   See also Laguna Associates Limited Partnership v.
Aetna Casualty and Surety Co., 30 F.3d 734, 737 (6th Cir. 1994).

                                   7