Opinion
Civil Action No. 4:22-CV-782-RWS Bankruptcy Case No. 20-40708
2023-08-07
John GILANI, Debtor-Appellant, v. WYNN LAS VEGAS, LLC, Trustee-Appellee.
Eric Arthur Liepins, Eric Liepins PC, Dallas, TX, for Debtor-Appellant. Lindsey M. Johnson, Paul J. Goodwine, Looper Goodwine P.C., New Orleans, LA, for Trustee-Appellee.
Eric Arthur Liepins, Eric Liepins PC, Dallas, TX, for Debtor-Appellant. Lindsey M. Johnson, Paul J. Goodwine, Looper Goodwine P.C., New Orleans, LA, for Trustee-Appellee. ORDER ROBERT W. SCHROEDER III, UNITED STATES DISTRICT JUDGE
Before the Court is Debtor-Appellant John Gilani's appeal from the bankruptcy court's June 23, 2022 order denying Gilani's motion to enforce. Docket No. 9; see also Gilani v. Wynn Las Vegas, LLC (In re Gilani), Case. No. 11-40708, Docket No. 38 (Bankr. E.D. Tex. June 23, 2022). Trustee-Appellee Wynn Las Vegas, LLC ("Wynn") has responded. Docket No. 11. The Court heard argument on August 3, 2023. Docket No. 13. Having reviewed the bankruptcy court's order, the record, and the parties' submissions, the Court finds that the bankruptcy court's order should be AFFIRMED.
The bankruptcy court entered its order denying Gilani's motion to reconsider on August 30, 2022. In re Gilani, Case. No. 11-40708, Docket No. 58 (Bankr. E.D. Tex. Aug. 30, 2022).
I. RELEVANT BACKGROUND
In 2008, Gilani incurred gambling debts with Wynn. Docket No. 6 ("Bankruptcy Record") at 331. Prior to Gilani filing for bankruptcy in 2011, these gambling debts were the subject of two state court actions brought in Nevada—one civil breach of contract action brought by Wynn in 2008, Wynn Las Vegas v. Gilani, Case No. 08-A577716 (8th Jud. Dist. Ct.—Clark Cnty., Dec. 12, 2008), and one criminal action brought by the State of Nevada in 2009, State of Nev. v. Gilani, Case No. 09-C260300 (8th Jud. Dist. Ct.—Clark Cnty., Dec. 9, 2009). See Bankruptcy Record at 330-31; see also Docket Nos. 9 at 8-9, 11 at 8-10. In August 2020, in the state criminal action, the Clark County Court awarded Wynn and others restitution. Bankruptcy Record at 123.
This Court generally references page numbers of docket entries by citing the CM/ECF brand centered at the top of the page. Unfortunately, due to the filing of previously branded CM/ECF entries, the CM/ECF page numbers are not legible. In this order, the Court will refer to the Bankruptcy Record by the page numbers assigned to each page at the bottom-right corner.
This criminal judgment followed Gilani's guilty plea to drawing and passing 30 checks, totaling $735,000, without sufficient funds with the intent to defraud. Bankruptcy Record at 132.
In January 2022, Wynn filed a petition in state court seeking entry of a judgment to enforce Gilani's guilty plea and the state court's restitution order under Nevada Revised Statute § 176.275. Id. at 137-41. In February 2022, over Gilani's opposition, the state court granted Wynn's petition and authorized Wynn to enforce the judgment of conviction, "in which Gilani was ordered to pay $218,123.83 [to Wynn] . . . as criminal restitution" in relation to several felonies arising from Gilani's default on $250,000 worth of casino markers. Id. at 153-55. In that order, the state court cited 11 U.S.C. § 523(a)(7), as well as Kelly v. Robinson, 479 U.S. 36, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), for support. Id.
In March 2022, shortly after the state court authorized Wynn to enforce the judgment of conviction to collect restitution, Gilani moved to reopen the bankruptcy case for the limited purpose of seeking a permanent injunction to keep Wynn from making any further attempt to collect restitution. Bankruptcy Record at 65-69. The bankruptcy court granted Gilani's motion to reopen the case. Id. at 70. In Gilani's subsequently filed motion to enforce, he suggests that Wynn, a creditor in the bankruptcy case, is attempting to collect the same debt that was discharged by the bankruptcy court. Id. at 71-72 (citing the state civil proceeding). Wynn responded that it sought "only to enforce the restitution obligations that [Gilani] was ordered post-discharge to pay in connection with a Nevada criminal matter and consistent with a state court order authorizing Wynn's actions." See, e.g., id. at 78.
Ultimately, the bankruptcy court denied Gilani's motion—citing its oral ruling from the June 22, 2023 hearing for support. Id. at 186, 325-80. During that hearing, the bankruptcy court explained:
[While Gilani] never particularly discussed it, although Wynn did raise the issue in their pleading, [the issue here] is that this issue was addressed to the State Court and decided by the State Court. [As such, the bankruptcy court] is prohibited from [overturning the
State Court's ruling]. The . . . State Court got it wrong on the timing issue, because [ ] it is a pre-petition obligation that could be subject to discharge, [but Wynn's] 523(a)(7) argument [is persuasive].Id. at 376-78.
[T]he analysis of the State Court may be wrong on timing, while the judgment was issued post-petition, it is nevertheless relates [sic] to a pre-petition obligation that could be discharged. But—and . . . there's a better than even chance that it would not—that it could be discharged under 527(a)(7) as the Jackson court recognizes.
[U]nfortunately the State Court decided that issue first . . . . And because they made that decision, [the bankruptcy court] cannot change that. [Gilani needs to seek relief in state court].
So for that reason, the motion is denied. And again . . . there's [sic] arguments on both sides of that issue. It's not 100 percent clear. [The bankruptcy court could, under different circumstances,] be persuaded otherwise that it was, in fact, discharged. Okay? But the problem is [the bankruptcy court] cannot make that decision.
[T]he [bankruptcy court's] ruling is that the State Court made that decision and [the bankruptcy court] cannot sit as an Appellate Court to alter that decision. The challenge has to occur in the state court, within the state court system. So there we are. [This ruling] is without prejudice to your ability to assert these issues later if and when the State Court changes there mind or sets [its ruling] aside. But [the bankruptcy court] cannot be the one that sets aside a State Court judgment.
Following the Court's oral ruling, Gilani sought reconsideration—presenting Rooker-Feldman doctrine-based legal arguments for the first time. Bankruptcy Record at 187-93. The bankruptcy court denied this motion—citing its oral ruling from the August 23, 2022 hearing for support. Id. at 319. At the hearing, after confirming that the state court found the discharge did not apply, the bankruptcy court ruled that the Rooker-Feldman doctrine applies in this case and that the "appropriate thing here is to appeal" in state court, as the bankruptcy court directed in its ruling on the motion to enforce. Docket No. 8 at 8:8-9:10.
See infra, Section II.B.
Rather than appealing in the appropriate state court, Gilani filed the instant appeal—asking this Court to find that the "Bankruptcy Court committed reversible error in not determining that the State Court Judgment was void." Docket No. 9 at 16-17; see also Bankruptcy Record at 320 - 24.
II. LEGAL STANDARD AND ANALYSIS
A district court has jurisdiction to hear appeals from "final judgments, orders, and decrees" of a bankruptcy court. 28 U.S.C. § 158(a)(1). A district court reviews the bankruptcy court's findings of fact for clear error and conclusions of law de novo. Matter of Evergreen Helicopters Int'l Inc., 50 F.4th 547, 554 (5th Cir. 2022) (citing In re Tex. Com. Energy, 607 F.3d 153, 158 (5th Cir. 2010)). A finding is " 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." In re Renaissance Hosp. Grand Prairie Inc., 713 F.3d 285, 293 (5th Cir. 2013) (quoting Anderson v. Bessemer City, N.C., 470 U.S. 564, 575, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)).
In a bankruptcy appeal, "a district court cannot consider issues that were not initially presented to the bankruptcy court." Ferrell v. Countryman, 398 B.R. 857, 863 (E.D. Tex. 2009) (citations omitted). More specifically, a district court cannot "allow a party to raise an issue for the first time on appeal merely because a party believes that he might prevail if given the opportunity to try a case again on a different theory." Id. (citing Forbush v. J.C. Penney Co., 98 F.3d 817, 822 (5th Cir. 1996)).
Gilani's brief presents three issues for the Court's consideration on appeal: (1) whether the bankruptcy court committed reversible error in denying Gilani's motion to enforce the discharge injunction by holding that the state court's judgment was not void as being in violation of the discharge injunction; (2) whether the bankruptcy court committed reversible error in denying Gilani's motion to enforce the discharge injunction in holding that the Rooker-Feldman doctrine prohibited review of a non-final state court judgment; and (3) whether the bankruptcy court committed reversible error in denying Gilani's motion to enforce the discharge injunction in holding that the state court's determination under 11 U.S.C. § 523(a)(7) was binding on the bankruptcy court. Docket No. 9 at 7. The Court addresses each of Gilani's issue on appeal below.
A. The bankruptcy court did not commit reversible error in denying Gilani's motion to enforce the discharge injunction.
Gilani argues that it is undisputed that Gilani "only owed one debt" to Wynn and that this one debt was discharged through the bankruptcy proceeding. Docket No. 9 at 16. Gilani takes the position that the state court's ruling was void under 11 U.S.C. § 524(a)(1). Id. at 16-17. Gilani points to the bankruptcy court's ruling that it disagreed with the state court's analysis of the "timing issue" because it believed that the debt was "a pre-petition obligation that could be subject to discharge" to support his position that the bankruptcy court erred in refusing to determine that the state court's judgment was void. Id. In response, Wynn argues that the state court judgment—a restitution award from a state criminal proceeding—is not void and is excepted from discharge under 11 U.S.C. § 523(a)(7). Docket No. 11 at 15.
A bankruptcy discharge "voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor . . . ." 11 U.S.C. § 524. In Kelly, however, the Supreme Court held that 11 U.S.C. § 523(a)(7) "preserves from discharge any condition a state court imposes as part of a criminal sentence." Kelly, 479 U.S. at 50, 107 S.Ct. 353 (emphasis added).
Section 523(a)(7) provides that a "discharge . . . of this title does not discharge an individual debtor from any debt . . . to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a government unit, and is not compensation for actual pecuniary loss . . . ." 11 U.S.C. § 523(a)(7). As the Supreme Court explained, restitution is "for the benefit of society as a whole" and serves to rehabilitate the offender. Kelly, 479 U.S. at 51-52, 107 S.Ct. 353 (also noting that "[u]nlike traditional fines, restitution is forwarded to the victim"). In the specific context unique to restitution awards, the amount imposed does "not turn on the victim's injury, but on the penal goals of the State." Id. In other words, states must protect their citizens and restitution is a rehabilitation tool that furthers this important state interest. Id. Applying the same reasoning here, awards granted under Nevada Revised Statute § 176.275—a state statute that requires defendants in criminal actions to pay restitution—may be within the scope of Section 523(a)(7). See id. at 52, 107 S.Ct. 353 (explaining that Section 523(a)(7) allows for the exception of "a criminal judgment that takes the form of restitution").
In this case, the bankruptcy court declined to rule on the state court's judgment. The bankruptcy court explained it could not sit as an appellate court over the state court's decision. Bankruptcy Record at 376-78. Like the bankruptcy court, this Court lacks jurisdiction to review the state court's judgment. Under the Rooker-Feldman doctrine (discussed in more detail below), federal courts cannot assert jurisdiction to review or nullify state courts' final orders. Weekly v. Morrow, 204 F.3d 613, 615 (5th Cir. 2000). It does not matter if this Court agrees or disagrees with the state court's order, because even if the state court erred "the judgment is not void [and must] be reviewed and corrected by the appropriate state appellate court." Id. (citation omitted). "Thereafter, [the proper] recourse at the federal level is limited solely to an application for a writ of certiorari to the United States Supreme Court." Id. (citation omitted).
Thus, the Court finds that the bankruptcy court did not err in denying Gilani's motion to enforce the discharge injunction under Gilani's theory that the state court's judgment was void in view of the bankruptcy court's the discharge injunction.
B. The Rooker-Feldman doctrine prohibits review of the state court's judgment.
Gilani argues that the bankruptcy court erred when it determined that it was bound by the Rooker-Feldman doctrine. Docket No. 9 at 17. Gilani explains that the Rooker-Feldman doctrine does not apply because the Nevada court's judgment ordering him to pay restitution is void. Id. at 18. Gilani argues—for the first time—that, under Nevada Rule of Appellant Procedure 4, that Gilani had 30 days to appeal the state court's judgment. Id. at 18. Gilani argues that by reopening the bankruptcy proceeding he extended the appeal period in the state court proceeding pursuant to 11 U.S.C. § 108(c). Id. He explains that, "[b]ecause the time to appeal the [s]tate [c]ourt judgment had not run, the [b]ankruptcy [c]ourt erred in concluding that it was bound by the [s]tate [c]ourt [j]udgment." Id. at 19. In contrast, Wynn argues that Gilani forfeited his right to appeal on Rooker-Feldman grounds because he failed to raise these untimely arguments until after the bankruptcy court raised the issue in its ruling denying the motion to enforce. Docket No. 11 at 30-32.
The Rooker-Feldman doctrine is a legal doctrine that strips district and bankruptcy courts of their subject matter jurisdiction over actions that may be considered appeals or reconsiderations of state court judgments. See Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923); D.C. Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983). As the Fifth Circuit has explained, when the Rooker-Feldman doctrine is "[r]educed to its essence, [it] holds inferior federal courts do not have the power to modify or reverse state court judgments except when authorized by Congress." Burciaga v. Deutsche Bank Nat'l Tr. Co., 871 F.3d 380, 384 (5th Cir. 2017) (citations and internal quotes omitted). The Rooker-Feldman doctrine permits federal courts to dismiss claims for lack of subject matter jurisdiction where: (1) the federal court appellee lost in state court; (2) the appellee complains of injuries that a state court judgment caused; (3) the appellee has invited the federal district court to review and reject the state court judgment; and (4) the state court rendered its judgment before the plaintiff commenced the proceedings in federal district court. See Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 292-93, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005); see also Burciaga, 871 F.3d at 384 (citations omitted).
Here, Gilani failed to preserve his right to appeal the bankruptcy court's finding that the Rooker-Feldman doctrine applies. Gilani does not dispute that he lost in state court, that he complains that the state court's restitution award caused him injury, or that he is asking the federal judiciary to review and reject the state court's restitution award. See Docket No. 9 at 17-19. Rather, Gilani argues—for the first time—that the state court's judgment was not final when he moved to reopen his case. See id.; see also Bankruptcy Record. The Court cannot consider issues that were not presented to the bankruptcy court. Ferrell, 398 B.R. at 863 (citations omitted). And Gilani should not be allowed to raise a new argument before this Court merely because he believes that he might prevail if given the opportunity to try his case on a different theory. Id. (citing Forbush, 98 F.3d at 822). As such, the Court cannot consider this argument.
In Gilani's motion for reconsideration, he raised the Rooker-Feldman doctrine for the first time. Bankruptcy Record at 187-93. That briefing does not present Gilani's present argument that the state court's judgment was not final.
The Court notes, however, that Gilani's argument—if timely presented—would not be persuasive. Wynn was awarded restitution in state court pursuant to Nevada Revised Statute § 176.275. Bankruptcy Record at 153-55. The state court determined that the criminal restitution imposed by the state's statute fell within the purview of 11 U.S.C. § 523(a)(7). Gilani did not seek to appeal the state court's ruling in state court—rather, he moved to reopen the bankruptcy proceeding. As the bankruptcy court has already explained, courts in this district lack subject matter jurisdiction and Gilani must appeal to the appropriate state court. Bankruptcy Record 377-78; Weekly, 204 F.3d at 615 ("If a state court errs the judgment is not void, it is to be reviewed and corrected by the appropriate state appellate court."). Further, Gilani has failed to provide the Court with adequate analysis or support to prove that the state court's judgment—awarding criminal restitution—was not final for the purposes of the Rooker-Feldman doctrine. See Miller v. Dunn, 35 F.4th 1007 (5th Cir. 2022).
The Court therefore finds that the bankruptcy court did not err in denying Gilani's motion to enforce based on its finding that it was prohibited from reviewing the state court's judgment under the Rooker-Feldman doctrine.
C. The bankruptcy court did not err in holding the state court's determination under 11 U.S.C. § 523(a)(7) is binding on the bankruptcy court.
Gilani argues that the bankruptcy court was not barred from determining the debt at issue in this appeal was discharged. Docket No. 9 at 19. Gilani takes the position that the restitution ordered by the Nevada court is not within the exception of 11 U.S.C. § 523(a)(7), because the restitution is not "payable to or for the benefit of a government unit." Id. Citing non-binding authority, Gilani urges the Court to interpret Section 523(a)(7) as not creating an exception for criminal restitution awards that are not paid directly to the government. Id. at 20 (citations omitted).
But here, just as above, Gilani presents a new issue on appeal. See generally Bankruptcy Record. Thus, he failed to preserve his right to appeal on this issue. Ferrell, 398 B.R. at 863 (citing Forbush, 98 F.3d at 822). As such, the Court cannot consider this argument.
Even if Gilani's argument was timely presented, the Court would not find it persuasive. The parties did not present any case law addressing Section 523(a)(7) in the context of a restitution award under Nevada Revised Statute § 176.275. The Court is not aware of any case that is directly on point. The Court notes, however, the Supreme Court has deemed criminal restitution awards to be protected from discharge regardless of the qualifying language of Section 523(a)(7). See Kelly, 479 U.S. at 52, 107 S.Ct. 353; see also In re Jackson, No. 10-41231, 2012 WL 6091401 (Bankr. E.D. Tex. Dec. 7, 2012) (applying Kelly in a case involving Texas criminal law).
Accordingly, the Court finds the bankruptcy court did not err in denying Gilani's motion to enforce because the state court's Section 523(a)(7) determination was binding upon it.
III. CONCLUSION
Based on the foregoing analyses and having applied the appropriate standard of review, the Court AFFIRMS the holdings of the bankruptcy court.