In re Mullarkey

• Citation: 536 F.3d 215
• Decision Date: 31 July 2008
• Docket Number: No. 05-4081.,No. 05-4651.,05-4081.,05-4651.
• Parties: In re Richard John MULLARKEY, Debtor Richard Mullarkey, Appellant v. Leslie Tamboer; Leonard Tamboer; John McKenna; David Gherlone; Steven Kartzman Richard Mullarkey, Appellant v. Leonard Tamboer; Leslie Tamboer; John McKenna; David Gherlone.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

536 F.3d 215

In re Richard John MULLARKEY, Debtor

Richard Mullarkey, Appellant v. Leslie Tamboer; Leonard Tamboer; John McKenna; David Gherlone; Steven Kartzman

Richard Mullarkey, Appellant v. Leonard Tamboer; Leslie Tamboer; John McKenna; David Gherlone.

No. 05-4081.

No. 05-4651.

United States Court of Appeals, Third Circuit.

Argued February 13, 2008.

Filed: July 31, 2008.

Christian G. Vergonis (Argued), Jones Day, Washington, DC, for Appellant.

Kathleen B. Riordan (Argued), Hack, Piro, O'Day, Merklinger, Wallace & McKenna, Florham Park, NJ, Gina M. Longarzo, Esq., Madison, NJ, for Appellee.

Steven Kartzman, Sparta, NJ, Pro Se.

Before: SLOVITER and SMITH, Circuit Judges, and DIAMOND, District Judge.^*

OPINION

SMITH, Circuit Judge.

Richard Mullarkey and the Tamboers each owned an undivided one-half interest in a parcel of property known as "The Princeton Estates," or 86 Branchville Road, Hampton Township, New Jersey. The Tamboers agreed to pay Mullarkey's original bank mortgage and, in turn, held a mortgage on his share of the property. The mortgage was dated June 2, 1990, and was recorded on February 28, 1991. Mullarkey ultimately defaulted on his mortgage obligations. On July 2, 1997, the Tamboers initiated a foreclosure action in New Jersey state court. Mullarkey did not appear and the state court entered a default judgment of foreclosure on March 25, 1999, and scheduled a Sheriff's Sale. On June 4, 1999, Mullarkey filed a Chapter 13 bankruptcy petition, which triggered the automatic stay provision of the Bankruptcy Code and stayed the Sheriff's Sale.

On April 17, 2000, the Tamboers filed a motion seeking relief from the automatic stay based on Mullarkey's continued failure to make payments pursuant to the terms of the mortgage. The Bankruptcy Court granted Mullarkey additional time to obtain approval for subdivision of the property to enable him to sell his interest. The approvals were not obtained¹ and approximately a year later, on March 13, 2001, the Bankruptcy Court entered an order granting the Tamboers relief from the automatic stay. Mullarkey appealed this decision to the District Court and requested that the District Court stay implementation of the Stay Relief Order pending the outcome of the appeal. The Court denied the stay request. Mullarkey also sought to stay the Sheriff's Sale in state court, which was also denied. In addition, he made an application to the Bankruptcy Court for an order vacating the order vacating stay, which was also denied.

The Tamboers purchased the property at the Sheriff's Sale on July 6, 2001. Following the Sheriff's Sale, Mullarkey's bankruptcy case remained open while he completed the sale of an unrelated property and made the payments called for by his reorganization plan. His reorganization plan was confirmed on April 11, 2001.

On December 2, 2003, Mullarkey filed a pro se Complaint against the Tamboers in the United States District Court for the District of New Jersey.² The essence of Mullarkey's allegations is that the Tamboers committed fraud on the Bankruptcy Court and that their actions constituted "several acts of racketeering" in violation of the federal Racketeer Influenced and Corrupt Organizations (RICO) statute. The District Court ultimately determined that the "matter over which the Plaintiff complains is related to the Bankruptcy Proceeding" and referred the matter to bankruptcy.³

After the Complaint was referred to the Bankruptcy Court, Mullarkey filed four motions. The Court denied each motion in an order dated January 12, 2005. The motions were for: 1) a discretionary change of venue to the district court; 2) joinder of Steven Kartzman (Mullarkey's former attorney) as a necessary party; 3) "a reference to a prosecuting authority"; and 4) a motion to reconsider the order dismissing Defendant Gherlone. On January 21, 2005, Mullarkey appealed the denial of these four motions. However, he incorrectly filed his appeal with the Bankruptcy Court. The appeal was eventually transferred to the District Court and assigned civil docket number 05-2010. It appears, however, that only two of the four orders were ever recorded on the District Court docket. At all events, the District Court affirmed the Bankruptcy Court's denial of Mullarkey's motions on August 2, 2005. Both parties seem to agree, however, that the District Court never actually reviewed the Bankruptcy Court's order denying the motions because the order refers to the "April 11, 2005 Order of the Bankruptcy Court dismissing Mullarkey's Fraud Complaint." On August 15, 2005, Mullarkey filed a motion for reconsideration of the District Court's order. He did not argue that the District Court did not consider the orders from which he appealed; rather, he claimed that the District Court "overlooked the fact that the [Bankruptcy Judge's] order dismissing the case was not on the merits." He argued that the District Court erred by failing to consider the merits of his claim. On August 23, 2005, the District Court denied the motion for reconsideration as untimely filed and without merit. Mullarkey timely appealed to this Court from the denial of his motion for reconsideration.

In the meantime, the Tamboers moved to dismiss Mullarkey's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), which by virtue of Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, is made applicable to bankruptcy proceedings. The Bankruptcy Court granted their motion to dismiss in an order and opinion dated April 11, 2005.⁴ The Bankruptcy Court concluded 1) that the Complaint's allegations of fraud were raised in prior proceedings and therefore were barred by the doctrines of res judicata and collateral estoppel (or alternatively, the entire controversy doctrine), and 2) that Mullarkey did not have standing to bring criminal charges and so, to the extent his Complaint can be read to include criminal charges, he lacked standing to bring them.

Mullarkey appealed the Bankruptcy Court's order granting the motion to dismiss. The District Court affirmed the Bankruptcy Court's order in a one-page order dated August 26, 2005, and denied Mullarkey's motion for reconsideration on October 4, 2005. Mullarkey timely appealed to this Court from the denial of his motion for reconsideration.

I.

In this appeal, Mullarkey argues that bankruptcy jurisdiction did not exist over his Complaint, and that even if there was bankruptcy jurisdiction, the District Court erred in treating the matter as a core proceeding—allowing the Bankruptcy Court to enter a final judgment pursuant to 28 U.S.C. § 157 and applying a deferential standard of review in lieu of the required de novo review. Mullarkey further argues that his Complaint should not have been dismissed on preclusion grounds, and that he may seek a civil remedy for the Defendants' violation of the federal RICO statute, 18 U.S.C. § 1964.

The District Court had jurisdiction to review the Bankruptcy Court's order under 28 U.S.C. § 158. We have jurisdiction under 28 U.S.C. §§ 158(d) and 1291. Our review of the District Court's ruling in its capacity as an appellate court is plenary, and we review the bankruptcy judge's legal determinations de novo, In re O'Lexa, 476 F.3d 177, 178 (3d Cir.2007). We review "its factual findings for clear error and its exercise of discretion for abuse thereof." In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir.2005). The first question we must resolve is whether the Bankruptcy Court had subject matter jurisdiction and the final adjudicative authority to resolve the state-law claims alleged in Mullarkey's Complaint.

II.

As with all courts, courts in bankruptcy must satisfy themselves of subject matter jurisdiction. A bankruptcy court has subject matter jurisdiction over "all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title." 28 U.S.C. § 157(b)(1).⁵ Therefore, a bankruptcy court must make an initial determination that the claims before it fall within the purview of section 157 of Title 28. Once this determination has been made, § 157 invests two levels of authority in a bankruptcy judge depending upon which of the two categories a case or proceeding falls into. In re Seven Fields Dev. Corp., 505 F.3d 237, 254 (3d Cir.2007) (citing 28 U.S.C. § 157). The two categories are (1) "all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11," 28 U.S.C. § 157(b)(1) (collectively known as "core proceedings"), and (2) "a proceeding that is not a core proceeding but that is otherwise related to a case under title 11," 28 U.S.C. § 157(c)(1) ("non-core proceedings"). Id. (citations omitted). While it is clear that a bankruptcy court has jurisdiction over all proceedings "related to" a bankruptcy case, the core/non-core distinction is relevant to the scope of the bankruptcy court's powers upon referral: in core proceedings, the bankruptcy judge may issue final orders and judgments. See 28 U.S.C. § 157(b)(1). In non-core proceedings, the bankruptcy court's powers are more circumscribed: it must submit "proposed findings of fact and conclusions of law" to the district court, which enters an order only after conducting de novo review.⁶ See 28 U.S.C. § 157(c)(1).

Thus, the core/non-core distinction is a critical one with respect to a bankruptcy court's adjudicative authority. To this end, § 157(b)(3) states that:

The bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11. A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law.

28 U.S.C. §...