Demetri Mihalios
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
The Rooker-Feldman doctrine prevents “cases brought by state-court losers complaining of injuries caused by state-court judgments”[1] from being heard again in federal district court. In Cogan v. Trabucco, the United States Court of Appeals for the Ninth Circuit held that malicious prosecution actions within the context of bankruptcy proceedings are preempted by federal law, “subject to collateral attack in federal courts,” and do not fall within the scope of cases that Rooker-Feldman bars from being brought in federal court.[2]
The events leading up to Cogan began in September 2012 in Arizona when Dr. Arnaldo Trabucco (“Trabucco”) performed kidney surgery on Gerald Scharf (“Scharf”), who died a few days later.[3] Two months later, facing a variety of both legal and financial issues unrelated to Scharf’s death, Trabucco filed a voluntary petition for relief under chapter 7 of title 11, United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada.[4]In the meantime, Scharf’s family members (the “Scharf Family”) were convinced that Scharf’s death was the result of foul play, and filed a malpractice action against Trabucco in Arizona state court.[5] After learning of the malpractice suit, Jeffrey A. Cogan (“Cogan”), the attorney representing several creditors in Trabucco’s bankruptcy case, took over the Scharf Family’s representation in the malpractice action.[6] Fearing that Trabucco would receive a discharge of any potential judgment rendered in the malpractice action, Cogan commenced an adversary proceeding on behalf of the Scharf Family under Bankruptcy Code sections 523(a)(2)(A) and 532(a)(6).[7] Bankruptcy Code sections 523(a)(2)(A) and 523(a)(6) except from discharge in bankruptcy certain debts for money obtained by false representations and willful and malicious injury by the debtor.[8] The complaint filed by Cogan on behalf of the Scharf Family alleged that Trabucco not only committed willful and malicious injury against Scharf, but also made fraudulent statements to the Scharf Family before and after the surgery.[9] These allegations were used to persuade the bankruptcy court that under section 523(a)(2)(A) Trabucco’s prepetition malpractice liability was nondischargeable.[10]
The Scharf Family stipulated with Trabucco to dismiss their adversary proceeding against him, as well as any further claims of intentional or malicious conduct, with prejudice.[11] Following the dismissal of the dischargeability action, Trabucco commenced an action in Arizona state court alleging, among other claims, that by filing the complaint in bankruptcy court, Cogan and the Scharf Family had engaged in malicious prosecution.[12] The state trial court granted partial summary judgment for Trabucco on his malicious prosecution and abuse of process claims against Cogan and the Scharf Family, and in a subsequent jury trial limited to the issue of damages, awarded Trabucco eight million dollars ($8,000,000.00) in damages against Cogan (the “Judgment”).[13] Cogan appealed the Judgment to the Arizona Court of Appeals, which affirmed the malicious prosecution finding, reversed the abuse of process finding, vacated the damages award, and remanded for a new trial on the issue of malicious prosecution damages.[14] Trabucco then filed a petition for review in the Arizona Supreme Court, and Cogan moved to dismiss, asserting for the first time that state courts lacked subject matter jurisdiction because the action involved conduct that occurred during a federal bankruptcy proceeding.[15]After the Arizona Supreme Court denied both Trabucco’s petition for review and Cogan’s motion to dismiss, Cogan filed suit in federal court in Nevada to collaterally challenge the Judgment for lack of subject matter jurisdiction.[16]
Prior to the district court’s hearing on Trabucco’s motion to dismiss Cogan’s federal complaint, the parties reached a settlement in the Arizona malicious prosecution action.[17] The state court settlement agreement provided that if the Judgment survived the collateral challenge in federal court, then Trabucco would not directly enforce the Judgment, but Cogan would be contractually obligated to pay the amount to Trabucco regardless.[18] On November 18, 2022, the federal district court in Nevada dismissed Cogan’s collateral challenge of the Arizona Supreme Court’s decision and held that the federal law suit was barred by the Rooker-Feldman doctrine.[19] Additionally, the district court held that Cogan’s motion for summary judgment was moot because of the parties’ settlement agreement.[20] Cogan appealed the district court’s dismissal of his complaint and the Ninth Circuit reviewed.[21]
The Ninth Circuit considered “whether the district court correctly dismissed [the] case under the Rooker-Feldman doctrine.”[22] The Ninth Circuit explained that the doctrine’s rationale rests on the assertion that “only the Supreme Court, and not a district court, may exercise what is effectively appellate review over a state civil court judgment.”[23]Relying on precedent, the Ninth Circuit held that the doctrine did not apply to cases where litigants obtained their state court judgments through misconduct.[24] The Ninth Circuit concluded that federal courts have exclusive jurisdiction over bankruptcy proceedings.[25] Therefore, state court judgments relating to a bankruptcy proceeding are subject to collateral attack in federal court and are not protected by the Rooker-Feldman doctrine.[26]
Additionally, the Ninth Circuit held that malicious prosecution actions uniquely interfere with the bankruptcy process due to the risk of later state court litigation.[27] Because of this unique interference, malicious prosecution actions arising out of bankruptcy proceedings “f[a]ll within the narrow class of cases in which the preemptive force of federal law is so strong that ‘any claim purportedly based on that preempted state law is considered, from its inception, a federal claim, and therefore arises under federal law.’”[28] Additionally, the Ninth Circuit quoted its decision in MSR Exploration v. Meridian Oil, to note that Congress has provided other remedies to address misconduct in bankruptcy proceedings, none of which Trabucco invoked before commencing the state malicious prosecution action.[29] Further, the Ninth Circuit held that the malicious prosecution action arose from contentions that Cogan made in seeking a determination of nondischargeability from the bankruptcy court, and stated that the claim “should have been brought in the bankruptcy court itself.”[30] The Ninth Circuit concluded that due to federal preemption, the Arizona state courts lacked subject matter jurisdiction to render a judgment in Trabucco’s malicious prosecution action, and, therefore, the district court erred in dismissing the complaint as barred by the Rooker-Feldman doctrine.[31]
In the concurring opinion, the Ninth Circuit notes that other Circuits—specifically the Third and Seventh Circuits—disagree with the argument that federal law preempts state-law tort claims brought within the context of a federal bankruptcy proceeding.[32] This split among Circuits may lead to inconsistent application of bankruptcy law and may warrant the Supreme Court’s intervention on the issue.
[1] Cogan v. Trabucco, No. 22-16948, 2024 U.S. App. LEXIS 21101, at *20 (9th Cir. Aug. 21, 2024) (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005)).
[2] Id. at *29.
[3] See id. at *4–5.
[4] See id. at *4.
[5] See id.
[6] See id.
[7] See id. at *4–5.
[8] See id.
[9] See id. at *5.
[10] See id.
[11] See id.
[12] See id. at *6 (“alleging that the filing of the adversary complaint constituted malicious prosecution, abuse of process, and intentional infliction of emotional distress”).
[13] See id. at *7.
[14] See id.
[15] See id. at *7–8.
[16] See id. at *8.
[17] See id.
[18] See id. at *10.
[19] See id. at *10–11.
[20] See id.
[21] See id. at *11.
[22] Id. at *20.
[23] Id. at *21.
[24] See id. at *22 (applying the doctrine only to “suits alleging errors by the state courts in rendering judgment, as opposed to misconduct by litigants in obtaining such a judgment”).
[25] See id. at *29.
[26] See id. at *26–27 (quoting MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996)) (The “unique, historical, and even constitutional need for uniformity in the administration of the bankruptcy laws” confirms that “Congress wished to leave the regulation of parties before the bankruptcy court in the hands of the federal courts alone.”); (quoting Gonzales v. Parks, 830 F.2d 1033, 1036 (9th Cir. 1987)) (“[S]tate court judgment entered in a case that falls within the federal courts’ exclusive jurisdiction is subject to collateral attack in the federal courts.”).
[27] See id. at *27.
[28] See id. at *28 (quoting Gonzales, 830 F.2d at 912).
[29] See id.; see also MSR Exploration, 74 F.3d at 915 (“Of course, Congress did provide a number of remedies designed to preclude the misuse of the bankruptcy process. See, e.g., Fed. Bankr. R. 9011 (frivolous and harassing filings); 11 U.S.C. § 105(a) (authority to prevent abuse of process); 11 U.S.C. § 303(i)(2) (bad faith filing of involuntary petitions); 11 U.S.C. 362(h) (willful violation of stays); 11 U.S.C. § 707(b) (dismissal for substantial abuse); 11 U.S.C. § 930 (dismissal under Chapter 9);11 U.S.C. § 1112 (dismissal under Chapter 11).”).
[30] Cogan, 2024 U.S. App. LEXIS 21101, at *29.
[31] See id. at *29–32.
[32] See id. at *37–38 (citing Rosenberg v. DVI Receivables XVII, LLC, 835 F.3d 414, 421 (3d Cir. 2016); (citing Nelson v. Welch (In re Repository Techs., Inc.), 601 F.3d 710 (7th Cir. 2010)) (“The Third Circuit expressly disagreed with our holding . . . that state-law tort claims brought against petitioning creditors in state court are preempted,” and “similarly, the Seventh Circuit held that certain state-law tort claims . . . are not completely preempted by the federal bankruptcy code.”).
