Antitrust Law Daily Wrap Up, RICO—7th Cir.: RICO claim not barred by the Rooker-Feldman doctrine, (Mar 4, 2015)

By Dan Selcke, J.D.

A gasoline service station owner’s RICO claim brought in federal court was not barred by the Rooker-Feldman doctrine, since the claim was asking for redress of an injury caused independently of related state court judgments. Judgment in favor of the defendants was reversed, and the case was remanded for further proceedings (Iqbal v. Patel, March 2, 2015, Easterbrook, F.).

Mir Iqbal, the plaintiff, bought a gasoline service station. He contracted with S-Mark Petroleum to supply the station with gasoline, and hired Tejaskumar Patel to run it. Patel had been recommended by defendant Warren Johnson, S-Mart’s president. Patel did not pay S-Mart for the gasoline it supplied, so the company sued Iqbal for breach of contract in an Indiana court. Because Iqbal had guaranteed the debts of the service station, that court entered a $65,000 judgment against him. He did not pay, but gave S-Mart a note secured by a mortgage on the station. When he still did not pay, another Indiana state court entered a second judgment against him and the station was sold in a foreclosure auction.

Iqbal sued Patel, Johnson, and S-Mart in federal court, alleging that they had acted in cahoots to defraud him out of his business in violation of the Racketeer Influence and Corrupt Organizations Act (RICO). The federal district court dismissed the case for want of jurisdiction, holding that it was barred by the Rooker-Feldman doctrine.

Rooker-Feldman doctrine. The Rooker-Feldman doctrine was established by Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). It maintains that the U.S. Supreme Court is the only federal tribunal authorized to review the decisions of state courts in civil litigation. According to the lower federal court, Iqbal had asked it to review the decisions of the state courts that had entered judgments against him, something that was clearly a violation of the Rooker-Feldman doctrine.

Iqbal tried to get around this conclusion by arguing that the Rooker-Feldman doctrine did not apply to cases for fraud, like this one. He was mistaken. The doctrine was only concerned with which federal court was authorized to review the decisions of a state court. The reason why a litigant might be contesting the decision of a state court did not matter. Here, the doctrine precluded the lower federal court from reviewing the decisions of the Indiana state courts, no matter the reason why Iqbal disagreed with them.

Independent injury. Next, Iqbal argued that the Seventh Circuit had abandoned this rule in Johnson v. Pushpin Holdings, LLC, 748 F.3d 769 (7th Cir. 2014) without so much as citing it. To quote Judge Easterbrook, "That’s not how precedent works." In the 7th Circuit, it takes a circulation to the full court under Circuit Rule 40(e) for one panel to overrule another. In any case, the panel in Johnson did not disagree with Kelley. Instead, it only held that, "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." Johnson, 748 F.3d at 773.

Under Johnson, the lower federal court still had no power to overturn the decisions of the Indiana state courts, but it could have awarded Iqbal damages for injuries he suffered as a result of the allegedly fraudulent behavior that inspired him to file suit in the first place. The fact that this fraudulent behavior was "intertwined," as the lower federal court put it, with the state court judgments did not matter. The Rooker-Feldman doctrine was concerned with what injury a plaintiff asked a federal court to redress, not whether the injury was "intertwined" with something else. Because Iqbal sought damages for injuries he alleged were caused by behavior that had nothing to do with the state judgments, the Rooker-Feldman doctrine did not block his suit.

Reverse and remand. The appellate court reversed the decision of the district court, and remanded the case to the lower federal court for further proceedings. Even though Iqbal’s claim was not barred by the Rooker-Feldman doctrine, it might still be barred under res judicata, which is what the lower federal court should consider next.

The case number is: 2:12 CV 56.

Attorneys: Maurice J. Salem (Salem Law Office) for Mir S. Iqbal. Michael T. Doyle (Doyle & Malinzak, PC), and Anthony S. Ridolfo, Jr. (Hackman, Hulett & Cracraft, LLP) for Tejaskumar M. Patel. Andrew P. Feterick (Ryan Moore & Cook) for Warren Johnson, and S-Mart Petroleum, Inc.

Companies: S-Mart Petroleum, Inc.

Cases: RICO IllinoisNews IndianaNews WisconsinNews