UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 05-1337
In Re: DAVID V. BARSH, SR.,
Debtor.
---------------------------
DAVID V. BARSH, SR.,
Plaintiff - Appellee,
versus
STATE OF MARYLAND CENTRAL COLLECTION UNIT,
Defendant - Appellant,
and
BUD STEPHEN TAYMAN,
Trustee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Richard D. Bennett, District Judge. (CA-
04-3997-1-RDB; BK-03-50819-JS; AP-03-5360-JS)
Argued: May 22, 2006 Decided: August 29, 2006
Before NIEMEYER, SHEDD, and DUNCAN, Circuit Judges.
Reversed by unpublished per curiam opinion.
ARGUED: Michael Scott Friedman, Assistant Attorney General, OFFICE
OF THE ATTORNEY GENERAL OF MARYLAND, Baltimore, Maryland, for
Appellant. Joshua B. Carpenter, GEORGETOWN UNIVERSITY LAW CENTER,
Appellate Litigation Program, Washington, D.C., for Appellee. ON
BRIEF: J. Joseph Curran, Jr., Attorney General of Maryland,
Baltimore, Maryland, for Appellant. Steven H. Goldblatt, Director,
David Arkush, Supervising Attorney, Daniel Staroselsky, GEORGETOWN
UNIVERSITY LAW CENTER, Appellate Litigation Program, Washington,
D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM:
The State of Maryland Central Collection Unit (“CCU”) appeals
the judgment of the district court affirming an order of the
bankruptcy court. The bankruptcy court held that CCU’s judgment
for attorney’s fees and court costs against David Barsh was
dischargeable in connection with Barsh’s bankruptcy. We reverse
because a prior state-court judgment precludes federal adjudication
of the debt’s dischargeability.
I.
In March 2002, CCU obtained a judgment from the District Court
of Wicomico County, Maryland, for $7,795.77 against Barsh for
unpaid fines levied for his failure to maintain insurance on his
automobiles. In connection with that judgment, the state court
awarded CCU $1,307.96 in attorney’s fees and $54.00 in court costs.
Barsh subsequently petitioned for bankruptcy in the United States
Bankruptcy Court for the District of Maryland, an action that
automatically stayed most collection action against him until the
final resolution of his petition. See 11 U.S.C. § 362 (2000).
Pursuant to 11 U.S.C. § 727 (2000), on May 26, 2003, the bankruptcy
court granted Barsh a discharge of his debts, with the exception of
those debts that were exempted from discharge under 11 U.S.C. § 523
(2000).
3
In August 2003, CCU requested, and the District Court of
Wicomico County issued, a writ of garnishment to satisfy Barsh’s
debt for the fines, attorney’s fees, and court costs. Under
Maryland law, a judgment creditor may obtain a writ of garnishment
by “filing in the same action in which the judgment was obtained a
request” containing information about the underlying action, the
debt, the judgment debtor, and the garnishee to whom the writ is
directed. Md. Rule 2-646(b). When the request contains the proper
information, “the clerk shall issue a writ of garnishment directed
to the garnishee.” Id. Both the garnishee and the judgment debtor
may assert defenses to garnishment by filing objections with the
issuing court. Md. Rule 2-646(e).
Barsh responded to the writ of garnishment by filing a number
of pro se motions in the state court and in the federal bankruptcy
court. On August 12, 2003, Barsh filed a “Suggestion of
Bankruptcy” with the state court, claiming that his federal
bankruptcy petition remained “open” and that a bankruptcy court
order prevented CCU from collecting on the debt. (Appellee’s Mot.
to Supplement Ex. A.) On August 18, 2003, Barsh filed in state
court a “Motion to Stop Wage Garnishment,” in which he reiterated
his claim that his bankruptcy petition had not yet been adjudicated
and asked the court to stop the garnishment because CCU had not
provided any documentation that the bankruptcy court’s automatic
stay had been lifted or that his debt had not been discharged.
4
(Appellee’s Mot. to Supplement Ex. B.) On August 22, 2003, Barsh
filed in the bankruptcy court a “Motion for Determination of
Dischargeability of Debt and Automatic Stay” and sent a copy of
that motion to the state court. (Appellee’s Mot. to Supplement Ex.
D.) In that filing, he again claimed that his bankruptcy petition
was still “open,” that CCU had been “listed as a debt” in that
petition, and that his debt to CCU had been discharged.
(Appellee’s Mot. to Supplement Ex. D.) On September 5, 2003, Barsh
filed in state court an “Emergency Response to Motion in Response
to Removal of Stay,” in which he again complained that his
bankruptcy was still “open” and that CCU had not provided any
documentation that the automatic stay had been lifted or that his
debt had not been discharged in bankruptcy. (Appellee’s Mot. to
Supplement Ex. E.) Barsh claimed that CCU had proceeded with
garnishment simply “assuming that [his] debt with [CCU] was not
discharged.” (Appellee’s Mot. to Supplement Ex. E.) He argued
that CCU was incorrect to conclude that his debt was not discharged
and again asked the state court to halt the garnishment of his
wages. Finally, on September 10, 2003, Barsh filed an adversary
complaint in the bankruptcy court seeking a determination that his
debt to CCU had been discharged in his bankruptcy.
The state court denied Barsh’s Suggestion of Bankruptcy as
moot on September 24, 2003, reasoning that his debt was not
dischargeable because it qualified under § 523(a)(7) as a penalty
5
“payable to and for the benefit of a governmental unit.” The court
stated as follows:
This Court determines that the Defendant, David Barsh, is
not entitled to stay these proceedings and the resulting
wage attachment by the Plaintiff because on the face of
the U.S. Bankruptcy Code, 11 U.S.C. Section 523(a)(7),
the debt is for a judgment for penalties due a
governmental unit plus statutory collection fees
therefor, which penalty does not appear to be a tax
penalty excepted in Section 523(a)(7)(A) or (B).
The court finds the Suggestion of Bankruptcy to be moot
. . . .
In the event the Defendant is successful in his adversary
proceeding against the Plaintiff in the U.S. Bankruptcy
Court, the Defendant should then file herein another
Suggestion of Bankruptcy together with a certified copy
of the Order signed by the U.S. Bankruptcy Court.
State of Md. Cent. Collection Unit v. Barsh, No. 0203-05814-2001,
slip op. at 2 (Md. Dist. Ct. Wicomico County Sept. 24, 2003).
On January 20, 2004, the bankruptcy court dismissed Barsh’s
adversary complaint, finding that the debt was a penalty that was
not dischargeable under § 523(a)(7). Barsh later filed a motion to
reconsider that dismissal. On December 3, 2004, the bankruptcy
court modified its original order and entered partial summary
judgment in favor of Barsh, finding that the $1,307.96 in
attorney’s fees and the $54.00 in court costs were dischargeable
because they were not penalties within the meaning of § 523(a)(7).
The bankruptcy court maintained its earlier ruling that the
$7,795.77 of motor vehicle fines were penalties under § 523(a)(7)
and thus not dischargeable.
6
CCU appealed to the U.S. district court, which affirmed the
bankruptcy court’s determination that the attorney’s fees and court
costs were dischargeable. CCU now brings this appeal. After oral
argument, Barsh filed a motion under Fed. R. App. P. 10(e) and 4th
Cir. R. 10(e) to supplement the record on appeal with copies of his
state-court filings. We grant the motion to supplement and, for
the following reasons, reverse the judgment of the district court.
II.
We have jurisdiction to review the district court’s decision
in this matter pursuant to 28 U.S.C. § 1291 (2000). CCU argues
that the bankruptcy court and the district court contravened the
principles of preclusion by deciding the dischargeability of
Barsh’s debt after the state court had already refused to stay
garnishment of Barsh’s wages based on its consideration of that
same issue. In the alternative, it argues that the debt for
attorney’s fees and court costs is not dischargeable because it is
related to a nondischargeable debt. We first conclude that CCU has
not waived its preclusion defense. We then address the merits of
that defense and conclude that Barsh is precluded from litigating
the dischargeability of his debt in this, his second, forum.
7
A.
Before the bankruptcy court and the district court, CCU
maintained that, because the state court had already decided that
Barsh’s debt was not dischargeable, the Rooker-Feldman doctrine
divested the lower federal courts of jurisdiction to readjudicate
that issue. The Rooker-Feldman doctrine arose from two cases,
Rooker v. Fid. Trust Co., 263 U.S. 413 (1923), and D.C. Court of
Appeals v. Feldman, 460 U.S. 462 (1983), in which the Supreme Court
held that the lower federal courts lack jurisdiction to adjudicate
claims for injuries arising from the decisions of state courts.
See Rooker, 263 U.S. at 416 (holding that the federal district
courts lack jurisdiction to declare a state-court judgment invalid,
even if that judgment is patently wrong); Feldman, 460 U.S. at 482
(holding that the federal district courts lack jurisdiction to
exercise appellate authority over state-court judgments). This
circuit interpreted Rooker and Feldman to remove lower federal
court jurisdiction to adjudicate any issue that required them to
“sit[] in direct review of state court decisions” on issues that
had been either “actually decided by a state court” or on issues
that were “inextricably intertwined with a state court decision
[such that] success on the federal claim depends upon a
determination that the state court wrongly decided the issues
before it.” Barefoot v. City of Wilmington, 306 F.3d 113, 120 (4th
Cir. 2002) (internal quotation marks omitted), abrogation
8
recognized by Davani v. Va. Dep’t of Transp., 434 F.3d 712, 718-19
(4th Cir. 2006). Our interpretation of the Rooker-Feldman doctrine
thus overlapped significantly with the doctrine of claim
preclusion, which prohibits judicial reexamination of claims once
they have been finally decided by a court of competent
jurisdiction.
After the district court proceedings but before briefing in
this appeal, however, the Supreme Court cabined its view of the
Rooker-Feldman doctrine. The Court held that the Rooker-Feldman
doctrine’s jurisdictional limitation on the lower federal courts is
confined to . . . 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. . . . [The Rooker-Feldman doctrine does not]
stop a district court from exercising subject-matter
jurisdiction simply because a party attempts to litigate
in federal court a matter previously litigated in state
court. If a federal plaintiff presents some independent
claim, albeit one that denies a legal conclusion that a
state court has reached in a case to which he was a
party, then there is jurisdiction and state law
determines whether the defendant prevails under
principles of preclusion.
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284,
293 (2005) (internal quotation marks omitted).
CCU accordingly altered the nomenclature of its argument
before this court. It argued below that, because the state court
had decided the debt’s dischargeability, the Rooker-Feldman
doctrine removed federal jurisdiction to review that question
again. CCU now claims that, because the state court decided the
9
debt’s dischargeability, the principles of preclusion bar
relitigation of that question in federal court. Unlike the Rooker-
Feldman doctrine, the doctrines of preclusion are not
jurisdictional in nature. See, e.g., Exxon, 544 U.S. at 293.
Thus, with the exception of the jurisdictional element, CCU’s
substantive argument--that the federal courts may not decide this
issue because the state court already has--remains unchanged.
Though we conclude that CCU raised the substance of its
preclusion arguments below under the rubric of its arguments
concerning the Rooker-Feldman doctrine, we also note that the
courts of appeals have, out of concern for the finality of
judgments and the preservation of scarce judicial resources,
considered preclusion defenses for the first time on appeal. See
18 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice and Procedure § 4405 n.10 (2d ed. 2002) (citing
Bechtold v. City of Rosemount, 104 F.3d 1062, 1068-69 (8th Cir.
1997) (raising preclusion defense sua sponte); United States v.
Real Prop. Located in El Dorado City, 59 F.3d 974, 979 n.3 (9th
Cir. 1995) (same); United Home Rentals, Inc. v. Tex. Real Estate
Comm’n, 716 F.2d 324, 330-31 (5th Cir. 1983) (same)). We therefore
conclude both that the Rooker-Feldman doctrine does not preclude
our jurisdiction in this case and that CCU has not waived its
preclusion argument.
10
B.
To determine the preclusive effect, if any, of the state
court’s decision to allow Barsh’s wage garnishment to proceed, we
apply the Maryland law of preclusion, giving the decision the same
effect “as [it has] by law or usage in the [Maryland] courts.” 28
U.S.C. § 1738 (2000); see also Sunrise Corp. of Myrtle Beach v.
City of Myrtle Beach, 420 F.3d 322, 327 (4th Cir. 2005).
Under Maryland law, the rules of claim preclusion, also called
res judicata, are triggered when matters related to earlier
litigation are raised in subsequent litigation. Claim preclusion
applies when the subsequent litigation is based upon the same claim
or cause of action as a claim or cause of action from the earlier
litigation. It operates to bar later judicial consideration of all
matters based upon that same claim, without regard to whether or to
what extent those matters may have been raised in the earlier
litigation.1 See Colandrea v. Wilde Lake Cmty. Ass’n, 761 A.2d
899, 908 (Md. 2000). Claim preclusion is “based upon the judicial
policy that the losing litigant deserves no rematch after a defeat
fairly suffered, in adversarial proceedings.” Id. at 909. In
short, “[t]o avoid the vagaries of [claim preclusion] . . . a party
1
By contrast, issue preclusion, also called collateral
estoppel, applies when the subsequent litigation is based upon a
claim or cause of action different from the one upon which the
earlier litigation was based. It operates to bar reconsideration
of only those issues “actually litigated in the previous action.”
See Colandrea v. Wilde Lake Cmty. Ass’n, 761 A.2d 899, 908 (Md.
2000).
11
must assert all the legal theories he wishes to in his initial
action, because failure to do so does not deprive the ensuing
judgment of its effect as res judicata.” Id. at 910 (emphasis
omitted).
For the doctrine of claim preclusion to bar the consideration
of matters that were actually litigated or could have been
litigated in the earlier proceedings, Maryland law requires that
(1) the parties to the subsequent litigation be the same or in
privity with the parties to the earlier litigation, (2) the
subsequent litigation “present the same cause of action or claim”
as the earlier litigation, and (3) “a court of competent
jurisdiction” have rendered a “valid final judgment on the merits”
in the earlier litigation. FWB Bank v. Richman, 731 A.2d 916, 927
(Md. 1999).2
2
Some recent decisions from the Maryland Court of Appeals do
not mention the validity of the judgment as part of the third
element of claim preclusion. See, e.g., Anne Arundel County Bd. of
Educ. v. Norville, 887 A.2d 1029, 1037 (Md. 2005); Blades v. Woods,
659 A.2d 872, 873 (Md. 1995). Other decisions from that court
include validity as a required element of the doctrine. See, e.g.,
FWB Bank, 731 A.2d at 927; Cassidy v. Bd. of Educ., 557 A.2d 227,
230 (Md. 1989). Further, the Maryland Court of Appeals’ recent in-
depth discussion of the doctrine described the elements of claim
preclusion twice; one of those explanations included validity and
one did not. Colandrea, 761 A.2d at 908 (“As we pointed out in
deLeon v. Slear, [616 A.2d 380, 385 (Md. 1992)], the traditional
principle of res judicata has three elements . . . (3) in the first
suit, there must have been a valid final judgment on the merits by
a court of competent jurisdiction.” (emphasis omitted)); id. at 910
(“Under Maryland law, the requirements of res judicata or claim
preclusion are: . . . 3) that there was a final judgment on the
merits.” (emphasis omitted)). We assume for the purposes of this
appeal that Maryland’s law of claim preclusion requires a valid
12
1.
The first element of the Maryland law of claim preclusion
requires identity or privity of the parties to each proceeding.
Id. at 927. This element is clearly satisfied in this case. The
garnishment proceeding in state court was “a form of attachment and
method of execution,” Med. Mut. Liab. Ins. Soc. of Md. v. Davis,
883 A.2d 158, 161-62 (Md. 2005) (citations omitted), of CCU’s money
judgment against Barsh. Once the writ was issued and Barsh’s
employer affirmed that it held wages belonging to Barsh, Barsh
filed his motions objecting to the garnishment. The proceedings to
adjudicate those objections therefore involved both CCU and Barsh.
2.
The second element of the Maryland law of claim preclusion
requires identity of the claims in each proceeding. FWB Bank, 731
A.2d at 927. To determine whether a claim in subsequent litigation
is identical to the claim upon which earlier litigation was based,
Maryland courts apply a “transactional” analysis in which they
examine the facts supporting the claims underlying both actions;
under this transactional approach, two claims based on the same
transaction are the same claim. Colandrea, 761 A.2d at 908.
“‘When a valid and final judgment rendered in an action
judgment in the earlier litigation. Because we conclude that the
state court’s decision was indeed valid, however, this assumption
does not affect the outcome in this case.
13
extinguishes [a party’s] claim . . . the claim extinguished
includes all rights of [that party] to remedies against [the party
to whom the claim is directed] with respect to all or any part of
the transaction, or series of connected transactions, out of which
the action arose.’”3 Id. (quoting Restatement (Second) of
Judgments § 24 (1982)). To discern whether two sets of facts form
part of the same transaction, Maryland courts take a “pragmatic
approach,” considering “‘whether the facts are related in time,
space, origin or motivation[;] whether they form a convenient trial
unit[;] and whether their treatment as a unit conforms to the
parties’ expectations or business understanding or usage.’” Id. at
909 (quoting Restatement (Second) of Judgments § 24(2) (1982)).
We do not face here the difficulties usually attendant to
determining whether the facts supporting two claims arise from the
same transaction. In the garnishment proceeding, Barsh asked the
3
The Court of Appeals of Maryland has cautioned that its
transactional approach to claim preclusion “‘is justified only when
the parties have ample procedural means for fully developing the
entire transaction in the one action.’” Kent County Bd. of Educ.
v. Bilbrough, 525 A.2d 232, 238 (Md. 1987) (quoting Restatement
(Second) of Judgments § 24 (1982)). Once a court issues a writ of
garnishment, Maryland’s wage garnishment statute allows the debtor
to “file a motion at any time asserting a defense or objection.”
Md. Rule 2-646(e). Maryland’s wage garnishment procedure therefore
gave Barsh ample opportunity to raise the dischargeability of the
debt when he protested the garnishment of his wages. Furthermore,
Barsh did, in fact, raise that issue in his filings with the
Wicomico County District Court on August 18, 2003, and September 5,
2003. We therefore conclude that the courts of Maryland would not
decline to apply the transactional approach to determine whether
the garnishment judgment precludes Barsh’s claim in this case.
14
court to stop his wage garnishment in part because the debt to CCU
had been discharged in his bankruptcy. In this action, Barsh asks
the federal courts to declare the debt as discharged and to enjoin
any further collection action. Both actions requested judicial
determinations that the characteristics of the debt do not render
it a nondischargeable “penalty” under § 523(a)(7). Each action
thus relies not only on facts that are part of the same
transaction, but on a perfectly identical set of facts. The
identical origin and nature of the facts giving rise to each action
therefore require us to conclude that the two actions are based on
the same transaction. Furthermore, the legal theories and requests
for relief based on that transaction are identical in both
proceedings. Barsh asked both the state and the federal courts to
declare his debt as discharged and to take action to prohibit
collection action upon it. We are, therefore, hard-pressed to
contemplate two more identical claims.
3.
The third element of the Maryland law of claim preclusion
requires that the precluding court have entered a valid, final
judgment on the merits. FWB Bank, 731 A.2d at 927. We first
consider whether the state court’s judgment was final, then whether
it was valid, and, finally, whether it was on the merits.
15
Under Maryland law, a judgment is final if it “determine[s]
and conclude[s] the rights of the parties involved or den[ies] a
party the means to prosecute or defend his or her rights and
interests in the subject matter of the proceeding.” In re Billy
W., 874 A.2d 423, 431 (Md. 2005) (internal quotation marks
omitted). The state court here decided the issue before it--
whether Barsh’s debt was discharged in his bankruptcy--and, based
upon that decision, denied Barsh his asserted right to avoid
garnishment to collect the debt. Though the state court did not
address how the § 523(a)(7) analysis might produce a different
result for the debt for attorney’s fees and court costs, as
distinct from the debt for the fine, both debts were clearly part
of the garnishment that Barsh had challenged and thus part of the
state court’s ruling that garnishment could continue. Once the
state court entered the order denying Barsh’s motion to stay the
garnishment, Barsh had no further means to defend his rights in
that proceeding. If Barsh believed that the state court did not
adequately or correctly address the theories upon which relief was
sought or explain why it had rejected those theories, the
appropriate avenue was appeal, not raising the same issues in a
collateral action in federal court.
Maryland law recognizes the final nature of judgments entered
in garnishment proceedings. For example, the statute outlining the
procedure that garnishees must follow when they hold property in
16
accounts in the name of two or more persons, at least one of whom
is not a judgment debtor, directs garnishees to hold property until
the court issues a release or a “final judgment in the garnishment
proceeding.” Md. Code. Ann., Cts. & Jud. Proc. § 11-603(c)(2)
(West, Westlaw through 2006 Reg. Sess. & 2006 First Spec. Sess.).
Furthermore, though Maryland law generally does not allow appeal of
nonfinal orders, Md. Code. Ann., Cts. & Jud. Proc. § 12-301 (West,
Westlaw through 2006 Reg. Sess. & 2006 First Spec. Sess.), the
Maryland Court of Appeals took jurisdiction of an appeal, without
any comment concerning an interlocutory posture, after the lower
court had entered judgment allowing a garnishment to proceed over
the garnishee’s objections. See Grey v. Allstate Ins. Co., 769
A.2d 891, 894 (Md. 2001). We therefore conclude that the state
court judgment in the garnishment proceeding had no special
characteristic under Maryland law that would render it
interlocutory and thus unlike other final judgments that
conclusively determine the rights of the parties.
The state court’s judgment was also valid. Maryland law
authorizes courts of that state to enter orders of garnishment to
satisfy judgments entered in those courts. Md. Rule 2-646(b). The
judgment debtor may file objections to the garnishment. Md. Rule
2-646(e). As part of his effort to halt the garnishment of his
wages, Barsh raised the issue of the debt’s dischargeability. In
order to determine that the garnishment could proceed, the state
17
court decided that Barsh’s debt was not dischargeable in bankruptcy
because it was a penalty for the benefit of a governmental unit.
Federal bankruptcy law does not prohibit state-court adjudication
of issues related to bankruptcy cases. See 28 U.S.C. § 1334(b)
(2000) (granting the federal district courts “original but not
exclusive jurisdiction” of actions arising under federal bankruptcy
laws); see also In re Toussaint, 259 B.R. 96, 101 (E.D.N.C. 2000)
(“If the defendant chooses to plead the bankruptcy discharge as an
affirmative defense, not removing the action to bankruptcy court,
then jurisdiction over the matter rests with the state court and
does not attach to the federal court. A state court acquires
jurisdiction over the issue of dischargeability when the debtor
raises the bankruptcy discharge defense.” (citation omitted)
(internal quotation marks omitted)). We therefore conclude that
the state court’s judgment validly decided that Barsh’s debt had
not been discharged in his bankruptcy.
Finally, the state court’s judgment was on the merits. The
state court concluded that Barsh’s Suggestion of Bankruptcy was
moot, apparently because the bankruptcy court’s automatic stay had
already been lifted. It also concluded, however, that Barsh’s debt
was not dischargeable, and therefore remained a collectable debt,
because it was a penalty within the meaning of § 523(a)(7). That
the state court denied one of Barsh’s defenses to garnishment as
18
moot has no bearing on the court’s conclusions concerning the other
defense.
In conclusion, Barsh’s claim that his debt had been discharged
in bankruptcy was litigated in the state court. By litigating the
claim there, Barsh is precluded from doing so again in this forum.
III.
For the foregoing reasons, we conclude that the Wicomico
County District Court’s decision to allow the garnishment of
Barsh’s wages to proceed precludes further consideration of the
debt’s dischargeability in this court and remand to the district
court for further proceedings consistent with this opinion. On
remand, the Wicomico County District Court’s conclusion that the
debt is not dischargeable should be treated as res judicata. The
judgment of the district court is
REVERSED.
19