Judges: Easterbrook
Filed: Mar. 02, 2015
Latest Update: Mar. 02, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 14---1959 MIR S. IQBAL, Plaintiff---Appellant, v. TEJASKUMAR M. PATEL, WARREN JOHNSON, and S---MART PETROLEUM, INC., Defendants---Appellees. _ Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 2:12 CV 56 — James T. Moody, Judge. _ ARGUED FEBRUARY 24, 2015 — DECIDED MARCH 2, 2015 _ Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges. EASTERBROOK, Circuit Judge. Through
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 14---1959 MIR S. IQBAL, Plaintiff---Appellant, v. TEJASKUMAR M. PATEL, WARREN JOHNSON, and S---MART PETROLEUM, INC., Defendants---Appellees. _ Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. 2:12 CV 56 — James T. Moody, Judge. _ ARGUED FEBRUARY 24, 2015 — DECIDED MARCH 2, 2015 _ Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges. EASTERBROOK, Circuit Judge. Through a..
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-‐‑1959
MIR S. IQBAL,
Plaintiff-‐‑Appellant,
v.
TEJASKUMAR M. PATEL, WARREN JOHNSON, and S-‐‑MART
PETROLEUM, INC.,
Defendants-‐‑Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Indiana, Hammond Division.
No. 2:12 CV 56 — James T. Moody, Judge.
____________________
ARGUED FEBRUARY 24, 2015 — DECIDED MARCH 2, 2015
____________________
Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges.
EASTERBROOK, Circuit Judge. Through a closely held cor-‐‑
poration, Mir Iqbal bought a gasoline service station. (He al-‐‑
so guaranteed its debts, so we need not mention the corpora-‐‑
tion again.) Iqbal contracted with S-‐‑Mart Petroleum for gaso-‐‑
line. Iqbal then hired Tejaskumar Patel to conduct the busi-‐‑
ness, ceding operational control to him. He chose Patel on
the recommendation of Warren Johnson, S-‐‑Mart’s president.
2 No. 14-‐‑1959
Patel ran the business but did not pay for the gasoline, lead-‐‑
ing S-‐‑Mart to sue on the contract in an Indiana court. The
court entered a judgment of more than $65,000 against Iqbal
as guarantor. He did not pay, and a settlement was reached.
Iqbal gave S-‐‑Mart a note, secured by a mortgage on the
business premises. When he still did not pay, a state court
entered a second judgment against him, and the property
was sold in a foreclosure auction.
Iqbal alleges in this federal suit that Patel and Johnson
acted in cahoots to defraud him out of his business. The
complaint accuses the defendants of racketeering and seeks
treble damages under 18 U.S.C. §1964, part of the Racketeer
Influenced and Corrupt Organizations Act (RICO). The dis-‐‑
trict court dismissed the complaint for want of jurisdiction,
however, ruling that it is barred by the Rooker-‐‑Feldman doc-‐‑
trine because it challenges the state court’s judgments. 2014
U.S. Dist. LEXIS 45385 (N.D. Ind. Mar. 27, 2014).
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and Dis-‐‑
trict of Columbia Court of Appeals v. Feldman, 460 U.S. 462
(1983), after which the doctrine is named, hold that the Su-‐‑
preme Court of the United States is the sole federal tribunal
authorized to review the judgments of state courts in civil
litigation. See also, e.g., Exxon Mobil Corp. v. Saudi Basic In-‐‑
dustries Corp., 544 U.S. 280 (2005); Lance v. Dennis, 546 U.S.
459 (2006). Iqbal invited trouble by asking the district court
to undo the foreclosure.
When the judge directed the parties to address whether
that would be possible, consistent with the Rooker-‐‑Feldman
doctrine, Iqbal contended that it does not apply to fraud (ei-‐‑
ther fraud out of court or fraud during litigation). As the dis-‐‑
trict court rightly replied, Kelley v. Med-‐‑1 Solutions, LLC, 548
No. 14-‐‑1959 3
F.3d 600 (7th Cir. 2008), and other decisions in this circuit
foreclose such an argument. The Rooker-‐‑Feldman doctrine is
concerned not with why a state court’s judgment might be
mistaken (fraud is one such reason; there are many others)
but with which federal court is authorized to intervene. See
Harold v. Steel, 773 F.3d 884, 886 (7th Cir. 2014). The reason a
litigant gives for contesting the state court’s decision cannot
endow a federal district court with authority; that’s what it
means to say that the Rooker-‐‑Feldman doctrine is jurisdiction-‐‑
al. So although we recognize that other circuits disagree on
this issue, or at least that language in their precedential deci-‐‑
sions is in tension—compare Reusser v. Wachovia Bank, N.A.,
525 F.3d 855, 859 (9th Cir. 2008), with Fielder v. Credit Ac-‐‑
ceptance Corp., 188 F.3d 1031 (8th Cir. 1999)—we shall stick
with Kelley.
Iqbal maintains, however, that we abandoned Kelley in
Johnson v. Pushpin Holdings, LLC, 748 F.3d 769 (7th Cir. 2014),
without so much as citing it. That’s not how precedent
works. In this circuit it takes a circulation to the full court
under Circuit Rule 40(e) for one panel to overrule another.
But the panel in Johnson did not disagree with Kelley. It made
a different point, which we now quote:
The [Rooker-‐‑Feldman doctrine] does not bar a federal suit that
seeks damages for a fraud that resulted in a judgment adverse to
the plaintiff. Such a suit does not seek to disturb the judgment of
the state court, but to obtain damages for the unlawful conduct
that misled the court into issuing the judgment. It’s true that the
plaintiff is also asking that the default judgments be vacated, and
that is relief that would violate the Rooker-‐‑Feldman rule; but that
claim can be rejected without affecting the damages claim.
Johnson, 748 F.3d at 773 (citations omitted). Like the district
judge in our case, Johnson concludes that fraud (no matter
4 No. 14-‐‑1959
how described) does not permit a federal district court to set
aside a state court’s judgment in a civil suit.
What Johnson adds—what the defendants in this suit
have failed to appreciate—is that federal courts retain juris-‐‑
diction to award damages for fraud that imposes extra-‐‑
judicial injury. The Supreme Court drew that very line in
Exxon Mobil:
Nor does [the doctrine] stop a district court from exercising sub-‐‑
ject-‐‑matter jurisdiction simply because a party attempts to liti-‐‑
gate in federal court a matter previously litigated in state court.
If a federal plaintiff “present[s] 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.” GASH Assocs. v. Rosemont, 995 F. 2d
726, 728 (7th Cir. 1993); accord Noel v. Hall, 341 F. 3d 1148, 1163–
1164 (9th Cir. 2003).
544 U.S. at 293. In other words, if a plaintiff contends that
out-‐‑of-‐‑court events have caused injury that the state judici-‐‑
ary failed to detect and repair, then a district court has juris-‐‑
diction—but only to the extent of dealing with that injury.
As we wrote in Johnson, the federal court cannot set aside the
state court’s judgment.
Iqbal alleges that the defendants conducted a racketeer-‐‑
ing enterprise that predates the state court’s judgments. He
cannot have those judgments annulled but can contend that
he was injured, out of court, by being “set up” by Patel and
Johnson so that they could take over his business and reap
the profits he anticipated. The district court believed that
any pre-‐‑litigation fraud is “intertwined” with the state court
judgments and therefore forecloses federal litigation, but
Exxon Mobil shows that the Rooker-‐‑Feldman doctrine asks
No. 14-‐‑1959 5
what injury the plaintiff asks the federal court to redress, not
whether the injury is “intertwined” with something else. See
544 U.S. at 291; see also Richardson v. Koch Law Firm, P.C., 768
F.3d 732, 734 (7th Cir. 2014) (deprecating any inquiry into
what is intertwined with what).
Because Iqbal seeks damages for activity that (he alleges)
predates the state litigation and caused injury independently
of it, the Rooker-‐‑Feldman doctrine does not block this suit. It
must be reinstated.
Logically the district court’s next inquiry is whether the
doctrine of claim preclusion (res judicata) applies. (Exxon
Mobil observes, 544 U.S. 293, that preclusion differs from the
Rooker-‐‑Feldman doctrine and comes to the fore once the fed-‐‑
eral court concludes that it has subject-‐‑matter jurisdiction.)
At least two decisions by intermediate appellate courts in
Indiana hold that fraud causing nonpayment is a compulso-‐‑
ry counterclaim in a debt-‐‑collection suit. Ratcliff v. Citizens
Bank, 768 N.E.2d 964, 967–69 (Ind. App. 2002); Broadhurst v.
Moenning, 633 N.E.2d 326, 331–32 (Ind. App. 1994). Cf. Fox v.
Maulding, 112 F.3d 453 (10th Cir. 1997) (similar conclusion
under Oklahoma law). State law determines the rules of pre-‐‑
clusion, see 28 U.S.C. §1738, so the district court will need to
decide whether the Supreme Court of Indiana is likely to
agree with these decisions, and if so whether there is any ex-‐‑
ception to the rules of preclusion. The court also will need to
consider whether Patel and Johnson receive the benefits of
any compulsory-‐‑counterclaim requirement, given that S-‐‑
Mart Petroleum was the sole plaintiff in the state actions.
The judgment is reversed, and the case is remanded for
further proceedings consistent with this opinion.
