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In re Zurn

May 15, 2002


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 C 4356--John W. Darrah, Judge.

Before Easterbrook, Ripple, and Diane P. Wood, Circuit Judges.

The opinion of the court was delivered by: Easterbrook, Circuit Judge.

Argued February 11, 2002

"Only a belief that bankruptcy is forever could produce a case such as this." That sentiment, which opens the opinion in Pettibone Corp. v. Easley, 935 F.2d 120, 121 (7th Cir. 1991), is equally applicable to this long-running dispute.

Aldo Botti and his former client, Mary Anne Zurn, have spent the last decade debating the quality of legal work Botti provided to Zurn during divorce litigation, and torts that Zurn believes Botti to have committed during the course of his representation. Zurn's suit in Illinois was met by a request for sanctions; Botti also argued in acountersuit that Zurn still owed money for legal fees. When the dust settled in the state's trial court, Botti emerged with a judgment of about $180,000. To avoid paying, Zurn filed a federal bankruptcy proceeding. It soon became clear that the bankruptcy court would not allow Zurn to retain the stakes without accruing interest during an appeal in state court, nor would the bankruptcy court take over the appellate function and decide the matter itself. After the bankruptcy court formally decided to abstain from any role in the ongoing state litigation, Zurn filed a plan promising full payment to all creditors, including Botti. She paid the sums he claimed as a creditor, her plan was approved, and the federal proceedings were dismissed in April 1996.

Meanwhile the litigation continued in Illinois. In March 1998 the state's appellate court reversed the judgments to the extent that they had required Zurn to pay Botti. With respect to Zurn's claims against Botti, the appellate court decided three in Botti's favor but held that Zurn's claim for battery had been dismissed improperly. At this point Botti should have returned the money Zurn had paid to satisfy the judgments. Buzz Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373, 381-82, 483 N.E.2d 1271, 1275 (1985). See also Richardson v. Penfold, 900 F.2d 116, 118 (7th Cir. 1990); Palmer v. Chicago, 806 F.2d 1316, 1319 (7th Cir. 1986). Yet he did not do so, though it is hard to see how he could be entitled to keep the money after the reversal. The appellate decision left each side with unresolved legal claims against the other, but neither took timely steps to resume the litigation in the trial court. Illinois requires a litigant that wants to continue the proceedings after an appeal to act within a reasonable period after the appellate mandate (which issued in November 1998). See Ill. S. Ct. R. 369(c); Illinois v. Eidel, 319 Ill. App. 496, 745 N.E.2d 736 (2d Dist. 2001). Botti has never attempted to reinstate his suit seeking legal fees. Apparently Botti believes that, because he holds the money paid under the reversed judgment, it is no longer necessary to establish a legal entitlement to these funds.

For her part, Zurn allowed 13 months to pass and then moved to reopen, not the state litigation, but the bankruptcy proceeding. She asked the bankruptcy judge to order Botti to return the money that had been paid under the plan. A few weeks later (in January 2000) she tried to reinstate the litigation in the state's trial court. Both the bankruptcy judge and the state judge said no. The state judge concluded that Zurn's request was untimely, and after initially granting some of the relief Zurn had requested the bankruptcy judge changed his mind. The details of events in the bankruptcy court do not matter. Ultimately, Bankruptcy Judge Wedoff concluded that Zurn had not supplied adequate cause to reopen the proceedings under 11 U.S.C. sec.350(b), that it was not possible to "enforce the plan" (as Zurn had requested in a separate motion) because the plan had been carried out to the letter, and that state rather than federal tribunals offer the right forums for final resolution of the disputes between Zurn and Botti.

Zurn did not appeal within the state system, but she did ask a district judge to review the bankruptcy judge's decision. The district judge agreed with the bankruptcy judge's bottom line but gave different reasons. He concluded, first, that reopening is barred by the Rooker-Feldman doctrine, see Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983), and, second, that Zurn has no remaining state remedies and thus is not entitled to restitution. Bankruptcy courts implement entitlements under state law, see Butner v. United States, 440 U.S. 48 (1979), and if as a matter of Illinois law Zurn has lost her right to restitution then there is no claim to vindicate in bankruptcy. Dismayed by this turn of events--the bankruptcy judge sent her claim to state court, while the district judge wiped it out--Zurn has appealed to us.

The district court characterized its decision as one affirming the bankruptcy judge's decision to abstain rather than interfere with state litigation. If that is the right understanding, then 28 U.S.C. sec.1334(d) blocks appellate review. But the district judge's use of language was imprecise. The bankruptcy judge discussed abstention (particularly the consequences of the 1995 decision to abstain), but his judgment in these proceedings was not one of abstention.Instead the bankruptcy judge denied Zurn's motion to enforce the plan, a decision that is not abstention of any flavor. Indeed, it would have been possible to abstain in 2000 only after first reopening the bankruptcy. Judge Wedoff rescinded his initial act of reopening; the district court affirmed. That is incompatible with abstention. Moreover, by the time this dispute returned to the district judge, all proceedings in state court were over. There was nothing to abstain in favor of--nor was there any pending bankruptcy case that would proceed while the state courts handled the matters from which the federal court had abstained. The questions on the table in 2000 concerned the consequences of decisions the state courts already had rendered. Because the federal court was not asked in 2000 to interfere with or take over a pending state suit in order to value a claim in bankruptcy, it also could not "abstain" within the meaning of sec.1334(c). What the court actually did was decline to reopen a bankruptcy proceeding under sec.350(b) and hold that the plan did not need "enforcement" because no one had departed from its provisions. Because that decision ended the litigation in the district court, we have jurisdiction under 28 U.S.C. sec.158(d).

Neither of the district judge's substantive reasons is correct. The Rooker-Feldman doctrine instantiates the principle that only the Supreme Court of the United States may modify a judgment entered by a state court in civil litiga tion. Zurn did not ask the federal court to review or alter the state courts' decisions; she argued, instead, that the appellate decision has a particular legal consequence (that Botti must make restitution). That may be right or wrong, but deciding whether it is right does not transgress Rooker-Feldman. Federal law does not undercut efforts to enforce state judgments. Nor was it right to say that Zurn's delay in attempting to reinstate her suit obliterated her opportunity to obtain restitution. Illinois entertains independent actions for restitution, when a judgment that has been satisfied later is reversed. See Liberty Mutual Insurance Co. v. Zambole, 141 Ill. App. 3d 803, 491 N.E.2d 132 (2d Dist. 1986). Whether such an independent suit would be appropriate in light of other circumstances that are not in the record (such as whether Zurn has made a timely demand of Botti for restitution) is something on which we offer no comment. It is enough to say that Zurn retains at least a potential for restitution under state law.

Although neither of the district judge's reasons is convincing, its judgment nonetheless is correct, for the reason given by the bankruptcy judge. Zurn's bankruptcy ended in 1996. The plan of reorganization has been fully implemented; there is nothing to "enforce" and no reason to reopen and alter the plan. Zurn's belief that anyone who has been a debtor in bankruptcy has eternal access to federal court for all disputes related in some way to the debts handled in the bankruptcy proceeding is incompatible not only with Pettibone but with many other cases, none of which Zurn discusses. E.g., Maytag Corp. v. Navistar International Transportation Corp., 219 F.3d 587, 590 (7th Cir. 2000); In re Xonics, Inc., 813 F.2d 127, 130-32 (7th Cir. 1987); In re Chicago, Rock Island & Pacific R.R., 794 F.2d 1182, 1186-87 (7th Cir. 1986). Suppose that a Chapter 13 plan called for a debtor to pay in full for a car, and thus retain title, and that after the confirmation of the plan a warranty dispute occurred. Would the bankruptcy judge be called on to determine whether the car's transmission had been repaired to the debtor's satisfaction? Certainly not; the federal role ended with the decision that the car would be paid for and retained rather than abandoned. Other disputes concerning the car belong to state tribunals. So too with leaseholds, we held in Chicago, Rock Island & Pacific. Zurn conceded at oral argument that disputes of this kind could not be brought back to federal court but argues that her dispute differs because the state litigation was ongoing at the time of the federal bankruptcy. But that was equally true in Pettibone, where the bankruptcy court abstained and left resolution of the parties' dispute to state tribunals. After the bankruptcy ended, the parties could not agree on the effect in the state cases of the automatic stay in bankruptcy; even though this dispute (unlike the Zurn-Botti imbroglio) was related to federal law, we held in Pettibone that jurisdiction once relinquished stays relinquished. When a bankruptcy court abstains and permits state courts to handle pending litigation, the parties must thereafter look to the state courts to handle their complete dispute and may not drag selected issues back to the bankruptcy forum years later.

Section 350(b) allows a district judge to reopen a bankruptcy proceeding, but use of that power is reserved for matters such as the correction of errors (see In re Shondel, 950 F.2d 1301 (7th Cir. 1991)), amendments necessitated by unanticipated events that frustrate a plan's implementation, and the need to enforce the plan and discharge (see In re Bianucci, 4 F.3d 526 (7th Cir. 1993)). Reversal of a civil judgment that created a claim against the estate does not warrant reopening; reversal affects the amount of a given claim, not the plan's provisions for satisfying claims. Zurn's plan promised payment in full; and if events mean that "in full" is less than the debtor anticipated, still this does not call the plan itself into question. It just provides an occasion for the use of whatever remedies Zurn has under state law.

It is unfortunate that Botti's obduracy has prolonged this dispute. Lawyers should comply with their legal duties--including the duty to make restitution identified in Buzz Barton & Associates--rather than compel former clients to resort to still more litigation to vindicate their rights. Behavior such as Botti's brings the legal profession into disrepute. See also Dale M. v. Board of Education, 282 F.3d 984 (7th Cir. 2002). ...

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