Peloro v. U.S.

• Decision Date: 29 May 2007
• Docket Number: No. 04-4334.,04-4334.
• Citation: 488 F.3d 163
• Court: U.S. Court of Appeals — Third Circuit
• Parties: Filomena PELORO, aka Filomena Delomo v. UNITED STATES of America; Federal Bureau of Investigation; Richard W. Hill; R.H. Research, Inc. Filomena Peloro, Appellant.

488 F.3d 163

Filomena PELORO, aka Filomena Delomo v. UNITED STATES of America; Federal Bureau of Investigation; Richard W. Hill; R.H. Research, Inc Filomena Peloro, Appellant.

No. 04-4334.

United States Court of Appeals, Third Circuit.

Submitted under Third Circuit LAR 34.1(a) March 28, 2006.

Filed: May 29, 2007.

Frank Agostino, Esq., Calo Agostino, P.C., Hackensack, NJ, Counsel for Appellant.

Peter G. O'Malley, Esq., Office of the United States Attorney, Newark, NJ, Counsel for Appellees United States of America and Federal Bureau of Investigation.

Hayden Smith, Jr., Esq., McCarter & English, LLP, Newark, NJ, Counsel for Appellees Richard W. Hill and R.H. Research, Inc.

Before: McKEE and VAN ANTWERPEN, Circuit Judges, and POLLAK,^* District Judge.

OPINION OF THE COURT

POLLAK, District Judge.

The controversy now before this court presents aspects of litigation that has, over the past decade, engaged both the United States Bankruptcy Court for New Jersey and, in two different law suits, the United States District Court for New Jersey. The current appeal by Filomena Peloro¹ seeks review of the District Court's decision in the second of the two suits brought before that court. In that suit, filed on September 12, 2003, Ms. Peloro sought to recover certain securities in accounts that had been maintained by First Interregional Equity Corporation ("FIEC"), a registered securities brokerage firm which was the subject of liquidation proceedings initiated in 1997 by the Securities and Exchange Commission ("SEC"), pursuant to the Securities Investor Protection Act ("SIPA"), 15 U.S.C. § 78aaa, et seq.

Ms. Peloro's 2003 suit alleged that the United States and the Federal Bureau of Investigation ("federal defendants") had improperly seized and retained custody of several securities. She also alleged that Richard W. Hill ("Trustee"), the Trustee in the FIEC liquidation proceedings, and R.H. Research, Inc. ("R.H.") had, in contravention of state law, converted the securities. Ms. Peloro sought return of the securities and associated relief.

The District Court (1) granted the federal defendants' motion to dismiss for failure to state a claim upon which relief could be granted and (2) granted summary judgment in favor of the Trustee and R.H. on the basis of claim and issue preclusion. It is from these rulings that Ms. Peloro appeals.

To put this appeal in understandable context, we begin by outlining the underlying facts and next we describe the somewhat tortuous course of the litigation. We then turn to an analysis of the issues posed by the appeal.

I.

Filomena Peloro maintained both an individual account and a joint account in her name and the name of her father, Donato Peloro, who is now deceased, at FIEC. On or about October 8, 1996, Ms. Peloro mailed four securities to her sales representative at FIEC's Millburn, New Jersey, office.

In March 1997, the SEC commenced an action against FIEC in the United States District Court for the District of New Jersey, alleging FIEC's participation in a fraudulent scheme and seeking protection for FIEC's customers under SIPA. As part of the government's investigation, the FBI seized the four securities Ms. Peloro had mailed to FIEC's Millburn branch. The securities were contained in a single envelope and had not been allocated to any FIEC customer account when the FBI seized them.

The four securities are described in the record as follows: (1) Ashland GA URFA 8% due 8/1/2010, registered to Donato Peloro & Filomena Peloro for $20,000 ("customer name security"); (2) Ashland Cty Ohio 7.5% due 8/1/2001, registered to bearer for $10,000 ("Ashland"); (3) Brevard Cty 8.375% due 3/1/2012, registered to bearer for $15,000 ("Brevard"); (4) Coleman Hsg Dev 8% due 11/1/2006, registered to bearer for $10,000 ("Coleman").² The first of these is a "customer name security" under SIPA—a security that is held for a customer's account on the date that the SIPA action is filed, is registered in the customer's name, and is only negotiable by the customer. See 15 U.S.C. § 78lll(3). The other three are "bearer bonds" or "certificated securities" which are negotiable by any bearer.

On March 10, 1997, in response to a filing by the Securities Investor Protection Corporation ("SIPC")³, the District Court decreed that FIEC's customers were in need of protection under SIPA, see 15 U.S.C. § 78eee(b)(1)-(2), appointed Richard W. Hill, Esq. as Trustee for the liquidation of FIEC's business, see id. § 78eee(b)(3), and removed the case to the United States Bankruptcy Court for the District of New Jersey. See id. § 78eee(b)(4) ("Upon the issuance of a protective decree and appointment of a trustee, . . . the court shall forthwith order the removal of the entire liquidation proceeding to the court of the United States in the same judicial district having jurisdiction over cases under Title 11."); see also In re First Interreg'l Equity Corp., 290 B.R. 265, 268 (Bankr.D.N.J.2003) (recounting procedural history of FIEC's case).

After removal to the Bankruptcy Court, the Trustee published notice of the liquidation of FIEC's business on May 19, 1997 and mailed the appropriate notice and claim forms in accordance with 15 U.S.C. § 78fff-2(a)(1). The May 19 liquidation notice advised that, in accordance with 15 U.S.C. § 78fff-2(a)(3) and a May 9 order of the Bankruptcy Court, no claims would be allowed unless filed within six months of the date of the notice—that is, no later than November 19, 1997, the so-called "bar date." The customer claim form specified that a separate claim form should be filed for each account.

The parties agree that Ms. Peloro received actual notice with respect to her individual account. On July 2, 1997, she filed a timely customer claim for her individual account; the Trustee valued the individual account at $993,774.95 and satisfied it in full. However, Ms. Peloro did not receive actual notice of the liquidation or the bar date in regard to her joint account, because that account was empty at the time the notice and claim forms were sent. See D. Ct. Op.⁴ 5, App. 7a ("[B]ecause there were no positions or activity in Ms. Peloro's Joint Account, the Joint Account did not satisfy the criteria for being mailed a claim package."); cf. 15 U.S.C. § 78fff-2(a)(1).

As noted above, none of the four disputed securities had been deposited into either of Ms. Peloro's accounts prior to the institution of the SIPA liquidation proceedings. On or about July 24, 1997—more than two months after the notice and claim forms had been mailed to FIEC's customers—the FBI returned Ms. Peloro's seized securities to the Trustee by forwarding them to R.H., a firm which the Trustee had retained to assist with the liquidation of FIEC. All four securities—the three bearer bonds and the one customer name security—were then allocated by appellees R.H. and the Trustee to Ms. Peloro's joint account because all were contained in the same envelope and the customer name security was registered jointly to Ms. Peloro and her father, Donato Peloro.⁵ Ms. Peloro was advised by the Trustee—by letter dated November 10, 1997—to file any outstanding claims by the November 19th bar date. (The letter did not, however, refer specifically to the joint account. See App. 230a-232a.) Peloro did not submit any claims for the four securities, or for her joint account more generally, before the bar date. She contends that, as an elderly woman without technical training, she did not know anything about the location or disposition of the securities until July 1999.

On July 21, 1999, as required by 15 U.S.C. § 78fff-2(c)(2), Ms. Peloro's customer name security was returned to her. Ms. Peloro claims that it was on receipt of the accompanying letter that she realized for the first time that the Trustee or the FBI was in possession of the remaining securities (i.e., the three bearer bonds). By letter dated October 25, 1999—almost two years after the bar date—Ms. Peloro filed an informal proof of claim for "two bonds totalling $20,000, face value." The Trustee assumed this referred to the Ashland and Coleman securities (two of the certificated securities, with a face value totaling $20,000, see supra text at note 2).⁶

On February 8, 2000, the Trustee issued a notice informing Ms. Peloro that the two securities—the Ashland and Coleman securities—had been deposited into her joint account, but that her claim for these bonds was disallowed as untimely. Ms. Peloro never received correspondence regarding the third bearer bond, but states that she learned in June 2003 that it had also been deposited in her joint account.

II.

Subsequent to her discovery of the location of her securities and the Trustee's rejection of her claim for those securities as untimely, Ms. Peloro engaged in litigation in two fora, seeking the return of her securities. First, she appeared in the ongoing SIPA liquidation proceedings in the Bankruptcy Court, seeking to have the Trustee's decision denying her claim overturned. Second, she filed an independent lawsuit in the District Court, seeking to establish her ownership interest in the securities and to have the securities returned.

A. Litigation over the bearer bonds in the Bankruptcy Court

On June 17, 2003, the Trustee filed a motion asking the Bankruptcy Court to affirm his rejection of Ms. Peloro's claim for the Ashland and Coleman securities as untimely. Ms. Peloro filed an objection to the Trustee's motion.

Following a hearing on October 28, 2003, the Bankruptcy Court affirmed the Trustee's disposition of Ms. Peloro's claim in an order dated December 10, 2003. In its companion oral opinion, the Bankruptcy Court found that the Ashland and Coleman bonds at issue were "customer property" held by FIEC for Ms. Peloro's account. The court noted that "customer property," as defined by SIPA, includes not only securities actually allocated to customer accounts, but any "cash and securities . . . at any time received,...