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In re Bateman

United States District Court, D. Massachusetts

September 10, 2019





         The Town of Sebago, Maine (“Sebago”) moved to dismiss a bankruptcy trustee's complaint alleging that Sebago benefited from a fraudulent transfer of real property. Sebago's Mot. Dismiss Verified Compl. Avoid & Recover Fraudulent Transfer & Inj. Relief Incorporated Mem. Law. (“Mot. Dismiss”), ECF No. 18. Sebago contended that the Court lacks subject matter jurisdiction because Sebago received the real property through a state court judgment, which it asserts that a federal court cannot review. Id. at 2. Sebago also pressed that, were the Court to exercise jurisdiction, the statute of limitations and the bankruptcy debtors' release barred the complaint against it. Id. Finally, Sebago suggested that the complaint does not include enough factual material to support fraudulent transfer claims. Id. at 2-3.

         The Court DENIED the motion to dismiss, ECF No. 30. Federal district courts lack jurisdiction when state court losers attempt to question the state court's decision in a later federal action, but here the bankruptcy trustee acts on behalf of creditors, who were not parties to the state court suit. See Lance v. Dennis, 546 U.S. 459, 466 & n.2 (2006) (per curiam). Upon exercising jurisdiction, the Court concluded that the complaint states timely, unreleased, and plausible claims for relief.


         A. Procedural History[1]

         Thomas R. and Katherine E. Bateman (collectively, the “Batemans”) filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Massachusetts (the “Bankruptcy Court”) on April 5, 2017. Pet., In re Bateman, Ch. 7 No. 17-11217-FJB (Bankr. D. Mass.) (“In re Bateman”), ECF No. 1. Pursuant to the United States Trustee and the Batemans' stipulation, the Bankruptcy Court converted the case into a Chapter 7 proceeding on February 5, 2018, Proceeding Mem./Order, In re Bateman, ECF No. 134, and appointed Joseph G. Butler (“Butler”) as Chapter 7 Trustee the next day, Certificate of Appointment, In re Bateman, ECF No. 135.

         On January 2, 2019, Butler filed a verified adversary complaint against the Batemans' son, their daughter-in-law, and Sebago. Bankr. R. 7-91, Verified Adversary Compl. Avoid & Recover Fraudulent Transfer & Inj. Relief (“Compl.”), ECF No. 14.[2] The complaint alleges that the Batemans fraudulently transferred their Sebago vacation home to the Town of Sebago, which then fraudulently transferred the vacation home (the “Property”) to their son and daughter-in-law. Compl. 1. On March 1, 2019, Sebago moved to dismiss the complaint in the Bankruptcy Court. Mot. Dismiss 1. Butler opposed Sebago's motion on March 22, 2019. Bankr. R. 271-302, Pl.'s Opp'n Sebago's Mot. Dismiss Verified Compl. Avoid & Recover Fraudulent Transfer & Inj. Relief (“Opp'n”), ECF No. 14.

         The Court granted the Batemans' son and daughter-in-law's motion to withdraw the reference on March 25, 2019. ECF Nos. 8, 21. After withdrawal of the reference, Sebago and Butler further briefed the motion to dismiss in this Court. Sebago's Reply Trustee's Opp'n Mot. Dismiss Verified Compl. (“Reply”), ECF No. 19; Pl.'s Sur-Reply (“Surreply”), ECF No. 17. The Court heard argument on the motion to dismiss on July 8, 2019, took the matter under advisement, and allowed Butler to file a supplemental memorandum. See Electronic Clerk's Notes, ECF No. 26; Pl.'s Post-Hr'g Mem. Re Additional Authorities (“Suppl. Mem.”), ECF No. 24.

         The Court issued an order on September 4, 2019 denying the motion to dismiss, ECF No. 30. This memorandum of decision explains that order.

         B. Facts Alleged[3]

         The Batemans acquired the Property, located on Sebago Lake, in 1980. Compl. ¶¶ 7, 13. In 2011, 2012, and 2013, Sebago recorded tax lien certificates amounting to about $56, 000 against the Property in the local registry of deeds. Compl. ¶¶ 9-11. Though the Batemans held a joint tenancy in the Property, the tax lien certificates lacked Katherine E. Bateman's name on them. Compl. ¶¶ 7, 9-11. In February 2015, Sebago instituted suit against the Batemans to cure or confirm its rights to the Property in Cumberland County, Maine Superior Court (the “Superior Court”). Compl. ¶ 12. Although the Batemans initially answered Sebago's complaint by raising purported “defects” in the tax lien certificates, they did not oppose Sebago's motion for summary judgment. Compl. ¶¶ 13-14.

         After the Superior Court granted summary judgment placing title in Sebago, the Batemans moved to reconsider on the ground that they had not received notice of Sebago's motion. Compl. ¶¶ 15-16. The Superior Court denied the Batemans' motion on June 15, 2015, and Sebago recorded the Superior Court's order in the registry of deeds on July 23, 2015. Compl. ¶¶ 17-19.

         In late August 2015, Sebago's Board of Selectmen agreed to “explore [a] possible negotiated resolution in the dispute as related to the recently tax acquired [Property].” Compl. ¶ 20. About a week later, Sebago's Board of Selectmen voted to allow the Batemans' son and daughter-in-law (Sebago's codefendants in this suit) to purchase the Property for $300, 000 even though Sebago had previously assessed the Property at $1, 358, 610. Compl. ¶¶ 21-22. Sebago reassessed the Property at $1, 140, 696 after completing the sale. Compl. ¶ 26.

         The Batemans declared bankruptcy on April 5, 2017. Compl. ¶ 28. Their initial bankruptcy filings did not report that they had transferred their interest in the Property to their son and daughter-in-law via Sebago. Compl. ¶ 29. Yet at their creditors' meeting, Thomas R. Bateman disclosed that he recorded a quitclaim deed of the Property to his son in the registry of deeds “[b]ecause, uh, negotiated with my son for him to purchase it back from the town.” Compl. ¶ 52. Thomas R. Bateman also revealed at the meeting that an appraiser valued the Property at $1, 800, 000 in 2015. Compl. ¶ 53. After the creditors' meeting, the Batemans amended their bankruptcy filings to include the transfer of the Property. Compl. ¶ 30.


         This Court has subject matter jurisdiction to entertain this action. Sebago submits that this Court lacks subject matter jurisdiction because Butler's action amounts to an appeal of a prior state court judgment. Mot. Dismiss 6-10. The parties focus their dispute on whether a win for Butler would undo or interfere with the state court decision. See Mot. Dismiss 6-10; Opp'n 7-10; see also Tyler v. Supreme Judicial Court of Mass., 914 F.3d 47, 51 (1st Cir. 2019) (observing that the Rooker-Feldman doctrine bars jurisdiction even when plaintiff presents different arguments to federal court than raised in state court (quoting Klimowicz v. Deutsche Bank Nat'l Tr. Co., 907 F.3d 61, 66 (1st Cir. 2018))).

         Although the parties overlooked the issue in their briefs, Butler argued at the hearing that he is neither formally nor functionally a state court loser. See Suppl. Mem. 1 (citing Ingalls v. Erlewine (In re Erlewine), 349 F.3d 205 (5th Cir. 2003)); Lance, 546 U.S. at 466 & n.2. The Court agrees with Butler. As bankruptcy trustee, Butler brings this fraudulent transfer suit on behalf of the Batemans' creditors, not the Batemans. See 11 U.S.C. § 544(b); see also 3 Collier on Bankruptcy ¶ 323.03; 5 Collier on Bankruptcy ¶ 548.02(1)(b). Ergo, this Court has authority to rule on Butler's claims.

         A. Legal Framework

         Section 1257 of chapter 28 of the United States Code to vest federal appellate jurisdiction over state court judgments exclusively in the Supreme Court. See District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983); Rooker v. Fidelity Tr. Co., 263 U.S. 413, 415-16 (1923). As a consequence, federal district courts lack jurisdiction to “consider cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005).

         Although this doctrine, which the Supreme Court refers to as “Rooker-Feldman, ” appears similar to claim and issue preclusion, the Supreme Court has emphasized that it “is not simply preclusion by another name” and “applies only in ‘limited circumstances.'” Lance, 546 U.S. at 466 (quoting Exxon, 544 U.S. at 291). In Lance, the Supreme Court held that state privity rules do not apply in the Rooker-Feldman context but did not reach “whether there are any circumstances, however limited, in which Rooker-Feldman may be applied against a party not named in an earlier state proceeding.” Id. at 466 & n.2. The Supreme Court speculated that Rooker-Feldman might apply “where an estate takes a de facto appeal in a district court of an earlier state decision involving the decedent.” Id.; see also Goldsmith v. Massad (In re Fiorillo), 494 B.R. 119, 142 (Bankr. D. Mass. 2013) (Hoffman, Bankr. J.) (ruling that whether Rooker-Feldman forbids jurisdiction over bankruptcy trustee's claim depends on whose behalf that the trustee sues). Still, the Court has not found __ and Sebago does not identify __ an instance in which either the Supreme Court or the First Circuit have used Rooker-Feldman to dismiss the claims of a nonparty to a state court suit.

         Rooker-Feldman extends further than preclusion in at least one respect as it prohibits federal district court jurisdiction regardless of the “issues actually litigated in the prior state-court proceedings and the issues proffered in the subsequent federal suit.” Tyler, 914 F.3d at 51 (quoting Klimowicz, 907 F.3d at 66). Conversely, if the plaintiff raised the “same or related question” in the state court suit, a federal district court has jurisdiction over his later case if it involves an independent claim. See Skinner v.Switzer, 562 U.S. 521, 532 (2011) (quoting Exxon, 544 U.S. at 292-93). A claim is independent, however, only when a favorable ruling on it will ...

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