After he received his Chapter 7 discharge, the debtor, certain business entities in which he had an interest, and other defendants were sued in state court by the State of Colorado, alleging violations of the Colorado Consumer Protection Act (“CCPA”) and the Colorado Fair Debt Collection Practices Act (“CFDCPA”). After a bench trial, the state court found in favor of the State, imposed civil penalties on the defendants, and awarded the State attorney’s fees and costs. In a post-trial motion, the debtor moved to amend the findings and conclusions and accompanying judgment to bar the State’s recovery of attorney’s fees and costs against him personally, based upon his bankruptcy discharge. The state court declined to address his argument, finding that the debtor presented no evidence of his bankruptcy during trial, and determined the amount of the fees judgment.
The debtor appealed the fees judgment to the Colorado Court of Appeals, arguing that although the bankruptcy discharge did not preclude the award of civil penalties issued in the underlying judgment, it did preclude the fees judgment against the debtor personally. The State argued that the fees judgment was non-dischargeable under 11 U.S.C. § 523(a)(7), as a debt for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, that is not compensation for actual pecuniary loss. Assuming that the debtor properly preserved the consideration of the effect of his bankruptcy discharge on the fees judgment during trial, the Court of Appeals reached the merits of the debtor’s argument, affirmed the state court in a 19-page opinion, and explicitly found that the fees judgment was non-dischargeable under 11 U.S.C. § 523(a)(7). The Court of Appeals relied on In re Jensen, 395 B.R. 472 (Bankr. D. Colo. 2008), to conclude that the fees judgment awarded under the CFDCPA and the CCPA was sufficiently penal to constitute a fine, penalty, or forfeiture under 11 U.S.C. § 523(a)(7). The debtor declined to seek rehearing or appeal the fees judgment to the Colorado Supreme Court, and the Court of Appeal’s order became final.
Thereafter, the debtor filed an adversary proceeding, seeking a determination that the fees judgment was dischargeable under 11 U.S.C. § 523(a)(7). The State moved to dismiss, arguing that the Rooker-Feldman Doctrine barred the debtor’s request for a determination of the dischargeability of the fees judgment by the bankruptcy court. The debtor responded, asserting that a dischargeability determination under 11 U.S.C. § 523 is an “independent claim” for relief that arises exclusively under the Bankruptcy Code, such that the Rooker-Feldman Doctrine was not implicated.
After hearing oral argument and receiving post-hearing briefs, the Court found in favor of the State and dismissed the adversary proceeding with prejudice. The Court noted that state courts have concurrent jurisdiction over most claims to determine the dischargeability of particular debts, including claims under 11 U.S.C. § 523(a)(7). The Court found that, because the Court of Appeals considered the debtor’s arguments, reached the merits, and concluded in an exercise of its concurrent jurisdiction that the fees judgment was non-dischargeable under 11 U.S.C. § 523(a)(7), the Rooker-Feldman Doctrine deprived it of subject matter jurisdiction to review the Court of Appeals’ non-dischargeability determination.