Wortley v. Bakst

Citation844 F.3d 1313
Decision Date05 January 2017
Docket NumberNos. 15-11923 & 15-90007,s. 15-11923 & 15-90007
Parties Barbara Wortley, Richard I. Clark, Liberty Associates, LC, Liberty Properties at Trafford, LLC, Advanced Vehicle Systems, LLC, Plaintiffs-Appellants, v. Michael R. Bakst, George Steven Fender, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)

Douglas C. Broeker, Sweetapple Broeker & Varkas, PL, Miami, FL, for Plaintiffs-Appellants Barbara Wortley, Liberty Properties at Trafford, LLC, and Advanced Vehicle Systems, LLC.

Douglas C. Broeker, Sweetapple Broeker & Varkas, PL, Miami, FL, Robert A. Sweetapple, Sweetapple Broeker & Varkas, PA, Boca Raton, FL, for Plaintiffs-Appellants Richard I. Clark and Liberty Associates, LC.

Paul Steven Singerman, Berger Singerman, LLP, Miami, FL, Paul A. Avron, Berger Singerman, LLP, Boca Raton, FL, Rilyn A. Carnahan, Greenspoon Marder, PA, West Palm Beach, FL, for Defendants-Appellees.

Before MARCUS, JORDAN, and WALKER,* Circuit Judges.

JORDAN, Circuit Judge:

Trafford Distributing Center provided warehousing and fulfillment services in Pennsylvania before it became insolvent in 2008. Trafford's president and sole shareholder, Barbara Wortley, filed a Chapter 7 petition for bankruptcy on Trafford's behalf in the Southern District of Florida, and the case was assigned to Bankruptcy Judge John Olson.

Judge Olson appointed a trustee, who in turn hired attorney Michael Bakst to pursue three adversary cases on behalf of the Trafford bankruptcy estate against Mrs. Wortley and other related individuals and entities (whom we refer to as "the Wortley parties"). In August of 2009, while Mr. Bakst was litigating the Trafford adversary cases, his law firm, Ruden McClosky, hired Judge Olson's fiancé, Steven Fender, to join its bankruptcy group. In connection with his new job, Mr. Fender relocated from Orlando to South Florida, where Judge Olson lived and worked. Five months later, the Trafford adversary cases were tried together at a bench trial before Judge Olson. The proceedings ended badly for the Wortley parties—Judge Olson ordered them to pay over $2.5 million to Trafford's bankruptcy estate.

In April of 2011, the Wortley parties sued Mr. Bakst and Mr. Fender in state court, alleging that Mr. Bakst, the head of Ruden McClosky's bankruptcy group, hired Mr. Fender as part of a scheme to improperly influence Judge Olson and secure favorable rulings for the trustee in the Trafford bankruptcy proceedings. The state court action was removed to federal bankruptcy court, where it was dismissed by Bankruptcy Judge A. Jay Cristol on four independent grounds. Judge Cristol certified his decision for direct appeal to this Court, and we accepted the appeal. See 28 U.S.C. § 158(d)(2)(A).

As we explain, we do not have appellate jurisdiction to consider the merits of the Wortley parties' appeal. The bankruptcy court had only "related to" jurisdiction over the claims asserted against Mr. Bakst and Mr. Fender by the Wortley parties, and as a result it did not have authority to enter a final order of dismissal. We must therefore construe the bankruptcy court's dismissal order as a report with proposed conclusions of law, a document which, in and of itself, carries no adjudicative authority. And that creates the jurisdictional problem because § 158(d)(2)(A), under which this appeal was certified, only allows us to consider "judgment[s], order[s], or decree[s]"—rulings which have adjudicative consequences—of the bankruptcy court.

I

In August of 2010, after learning that Mr. Fender had been hired by Ruden McClosky, the Wortley parties moved for Judge Olson's recusal on two grounds. First, they argued that the situation created the appearance of impropriety under 28 U.S.C. § 455(a). Second, they claimed that Judge Olson was disqualified from presiding over the Trafford bankruptcy proceedings under 28 U.S.C. § 455(b) because Mr. Fender had an actual interest in the outcome. Judge Olson denied the recusal motion, concluding that § 455(a) did not apply and that recusal was not mandated under § 455(b). The Wortley parties submitted a second motion for Judge Olson's recusal in September of 2010, and then filed an appeal of the denial of their first recusal motion in the district court. In October of 2010, the district court held a status conference, during which it expressed concern over a potential appearance of impropriety and suggested that the proper course of action would be for Judge Olson to recuse himself. A few days later, Judge Olson recused himself sua sponte, and the case was assigned to Judge Cristol.

The Wortley parties then asked Judge Cristol to vacate Judge Olson's prior rulings and orders and moved for sanctions against Mr. Bakst and the bankruptcy trustee. Judge Cristol denied the motion to vacate, reasoning that any remedy should be sought on appeal. The Wortley parties moved for reconsideration, but that motion and the motion for sanctions remain pending before Judge Cristol.

In the meantime, as noted, the Wortley parties filed this separate action against Mr. Bakst and Mr. Fender in state court. They alleged that, after learning from Judge Olson that he hoped Mr. Fender would secure employment in South Florida so the two could live together, Ruden McClosky hired Mr. Fender to work for the firm's bankruptcy group in exchange for favorable rulings from Judge Olson in the Trafford adversary cases, including a substantial and unjustified award of attorneys' fees. Based on these allegations, the complaint asserted two state-law claims: Count I alleged a conspiracy to obstruct the due operation of law and deprive the plaintiffs of their right to a fair trial; and Count II alleged the fraudulent corruption of the judicial process. The Wortley parties sought compensatory damages, including the attorneys' fees and costs associated with litigating Judge Olson's alleged bias in federal court.1

Mr. Bakst and Mr. Fender removed the state court action to the bankruptcy court, and then moved to dismiss the complaint. Judge Cristol granted the motion to dismiss on four independent grounds: (1) the complaint had been filed in state court without leave of the bankruptcy court in violation of the doctrine established in Barton v. Barbour , 104 U.S. 126, 14 Otto 126, 26 L.Ed. 672 (1881) ; (2) Mr. Bakst and Mr. Fender were entitled to quasi-judicial immunity; (3) Mr. Bakst and Mr. Fender were immune from suit under Florida's litigation privilege; and (4) the complaint failed to state a claim on which relief could be granted.

Judge Cristol granted the Wortley parties' request to certify a direct appeal of the dismissal order, and we accepted the appeal under § 158(d)(2)(A). Our review of the dismissal of the complaint is plenary. See, e.g., In re Failla , 838 F.3d 1170, 1174 (11th Cir. 2016) (explaining that bankruptcy court's legal conclusions are reviewed de novo ).

II

Before we can reach the merits of the appeal, we must address our jurisdiction even though the parties have not questioned it. See United States v. Ruiz , 536 U.S. 622, 628, 122 S.Ct. 2450, 153 L.Ed.2d 586 (2002) ("[A] federal court always has jurisdiction to determine its own jurisdiction."); Rinaldo v. Corbett , 256 F.3d 1276, 1278 (11th Cir. 2001) (reviewing appellate jurisdiction sua sponte ). Our appellate jurisdiction derives from § 158(d)(2)(A), so we begin with its text. See generally Huff v. United States , 192 F.2d 911, 913 (5th Cir. 1951) (explaining that appellate jurisdiction "is purely statutory").

In full, § 158(d)(2)(A) reads as follows:

The appropriate court of appeals shall have jurisdiction of appeals described in the first sentence of subsection (a) if the bankruptcy court, the district court, or the bankruptcy appellate panel involved, acting on its own motion or on the request of a party to the judgment, order, or decree described in such first sentence, or all the appellants and appellees (if any) acting jointly, certify that—
(i) the judgment, order, or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance;
(ii) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or
(iii) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken;
and if the court of appeals authorizes the direct appeal of the judgment, order, or decree.

The "first sentence of subsection (a)" of § 158 grants jurisdiction to the district courts to hear bankruptcy appeals:

(1) from final judgments, orders, and decrees;
(2) from interlocutory orders and decrees issued under section 1121(d) of [T]itle 11 increasing or reducing the time periods referred to in section 1121 of such [T]itle; and
(3) with leave of the court, from other interlocutory orders and decrees;
and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this [T]itle.

§ 158(a). And so, § 158(d)(2)(A) gives us jurisdiction to hear certified, direct appeals from "final judgments, orders, and decrees," as well as certain "interlocutory orders and decrees."

Regardless of whether they are "final" or "interlocutory," our appellate jurisdiction under § 158(d)(2)(A) is limited to judgments, orders, and decrees. We must therefore determine whether the bankruptcy court had the authority to enter the order of dismissal that it certified for direct appeal. The answer to that question depends on whether the action filed by the Wortley parties constituted a core proceeding under bankruptcy law. If the bankruptcy court could not issue a final order of dismissal, we must then address whether that lack of authority affects our appellate jurisdiction.

III

The basic tenets of bankruptcy court jurisdiction are straightforward. Bankruptcy courts may...

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