Marjorie E. Gibson v. Thomas Kreischer, et al
Filed Nonprecedential Disposition PER CURIAM. AFFIRMED. Joel M. Flaum, Circuit Judge; Ilana Diamond Rovner, Circuit Judge and Ann Claire Williams, Circuit Judge. [6834069-1]  [16-3121]
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted April 13, 2017*
Decided April 14, 2017
JOEL M. FLAUM, Circuit Judge
ILANA DIAMOND ROVNER, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
IN RE: MARJORIE E. GIBSON,
TOM and VICKY KRIESCHER,
Appeal from the United States District
Court for the Western District of
Barbara B. Crabb,
O R D E R
Marjorie Gibson, a Chapter 7 debtor, appeals the district court’s order upholding
the bankruptcy court’s ruling that certain of her debts are non‐dischargeable under 11
U.S.C. § 523(a)(4). The bankruptcy court granted summary judgment with respect to her
creditors’ claim that state‐court damages in the amount of $200,487 were
* We have agreed to decide the case without oral argument because the issues
have been authoritatively decided. See FED. R. APP. P. 34(a)(2)(B).
non‐dischargeable because they represented embezzled revenue from the company
Gibson co‐owned with her creditors, Tom and Vicky Kriescher. We affirm.
This bankruptcy case arose from a lawsuit the Krieschers brought against Gibson
in Minnesota state court for fraud “while acting in a fiduciary capacity.” The Krieschers
and Gibson were co‐owners of a Minnesota corporation called Marjac, Inc., which
contracted with Federal Express to deliver packages in the Twin Cities area. The
Krieschers sued Gibson for allegedly misusing route revenue, misrepresenting her
assets, and refusing to honor a buyout agreement. The case went to trial in Minnesota
state court, and on the third day Gibson failed to appear in court. The Krieschers moved
for a default judgment, which the court then granted and awarded them $364,540.25 in
Gibson, represented by counsel, subsequently sought bankruptcy protection in
the Western District of Wisconsin. Soon thereafter, the Krieschers initiated an adversary
proceeding in bankruptcy court, seeking to have their judgment against Gibson
declared non‐dischargeable under § 523(a)(4), which applies to debts incurred as a
result of “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or
larceny.” The bankruptcy court concluded that $200,487 of the total state‐court damages
award was non‐dischargeable because the state court’s judgment contained findings
sufficient to prove the elements for both embezzlement and defalcation while acting in
a fiduciary capacity. The bankruptcy court also determined that, despite the state court
finding her liable in a default judgment, Gibson had a full and fair opportunity to be
heard under Minnesota law, and therefore the state court’s judgment could be given
Gibson, still counseled, appealed the bankruptcy court’s determination to the
district court. She argued that the state‐court’s factual findings did not establish that she
had acted with the fraudulent and purposeful state of mind necessary to establish the
elements of embezzlement and defalcation under § 523(a)(4). Alternatively, she argued
that it would be “fundamentally unfair” to give preclusive effect to the state‐court’s
judgment. She points, in support, to one instance in which the state judge gave an
“improper and unusual” instruction to the Krieschers’ counsel to draft the contents of a
proposed default judgment that would prevent Gibson from discharging the
Krieschers’ claims in bankruptcy.
The district court upheld the bankruptcy court’s judgment. Judge Crabb agreed
with the bankruptcy court’s conclusion that the state court’s judgment included the
necessary findings to prove embezzlement under § 523(a)(4). But she parted ways with
the bankruptcy court when she concluded that the standard for fraudulent intent was
no less restrictive under Minnesota law than the standard imposed by § 523(a)(4). Judge
Crabb went on to conclude that Gibson had failed to show that she was treated unfairly
by the state court. Gibson did not show that she was unfairly prejudiced by the state
judge’s instruction, Judge Crabb explained, and in any event Gibson did not deny that
the Krieschers were entitled to a default judgment for her retention of earnings that
belonged to them.
On appeal, Gibson—now proceeding pro se—makes no challenge to the
determination that the state court’s judgment adequately substantiated the findings
necessary to prove embezzlement under § 523(a)(4). Her argument on appeal is difficult
to follow, but she seems to argue that it was “fundamentally unfair” for the bankruptcy
court to give preclusive effect to the state‐court judgment. To the extent that Gibson
now asks this court to revisit the validity of the state‐court’s judgment on grounds of
procedural error, such a challenge is barred by the Rooker‐Feldman doctrine. Exxon Mobil
Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005); see D.C. Ct. of Appeals v.
Feldman, 460 U.S. 462, 486 (1983); Rooker v. Fid. Tr. Co., 263 U.S. 413, 415–416 (1923).
Gibson also asserts on appeal that she “never embezzled any money” and that
the Krieschers didn’t satisfy their burden of proof to show that she had fraudulent
intent. But this argument is merely another attempt to relitigate the Minnesota
judgment and therefore also is barred by Rooker‐Feldman.
We have reviewed the record and affirm for substantially the reasons stated by
the district court.
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