U.S. v. Pelullo

• Decision Date: 25 May 1999
• Docket Number: No. 96-1398,96-1398
• Citation: 178 F.3d 196
• Parties: Bankr. L. Rep. P 77,936 UNITED STATES of America v. Leonard A. PELULLO, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

178 F.3d 196

Bankr. L. Rep. P 77,936

UNITED STATES of America v. Leonard A. PELULLO, Appellant.

No. 96-1398.

United States Court of Appeals Third Circuit.

Argued Jan. 28, 1999.

Filed May 25, 1999.

Richard A. Ripley (Argued), Howrey & Simon, Washington, D.C., Allen B. Dubroff, Frank & Rosen, Philadelphia, PA, for Appellant.

Frank A. Labor, III (Argued), Office of United States Attorney, Philadelphia, PA, for Appellee.

Before: BECKER, Chief Judge, SCIRICA and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

In an effort to meet this nation's changing economic and social developments, Congress occasionally enacts legislative enactments that are in tension with each other. This appeal presents such a situation and a legal issue with highly important consequences. The genesis for the appeal is the defendant's conviction for a violation of the federal wire fraud statute, one count of racketeering in violation of 18 U.S.C. § 1962, and a special forfeiture verdict. Based upon the jury's conviction of the defendant, Leonard A. Pelullo, and its special forfeiture verdict, the District Court entered a criminal forfeiture order under 18 U.S.C. § 1963 of the defendant's personal residence as part of his sentence.

Following the imposition of sentence, the Government initiated an ancillary proceeding in the District Court to adjudicate third party interests in the forfeited property. The District Court authorized the United States Marshal Service (Marshal Service), inter alia, to dispose of the defendant's forfeited residence immediately at a judicial public sale. After unsuccessful efforts to stay the sale, the defendant filed a Chapter 11 petition in the United States Bankruptcy Court for the Eastern District of Pennsylvania, and anticipated that this would invoke the automatic stay provision of the Bankruptcy Code pursuant to 11 U.S.C. § 362. Despite actual notice of the Chapter 11 filing prior to the scheduled hour for the sale, the Government proceeded with the public auction of the property and consummated the sale. Subsequently, the Government obtained an ex parte temporary protective order, later made permanent, barring the defendant from pursuing the Chapter 11 bankruptcy with respect to any asset forfeited to the United States. The defendant timely appealed. We affirm.

I.

In January 1995, a jury convicted Pelullo of forty-six counts of wire fraud in violation of 18 U.S.C. § 1341 and one count of racketeering in violation of 18 U.S.C. § 1962. The appeals from the criminal conviction and from the District Court's permanent protective order were heard by this panel contemporaneously. We affirmed the criminal conviction on March 18, 1999. United States v. Pelullo, --- F.3d ---- (3d Cir.1999). The jury's special verdict under 18 U.S.C. § 1963(a) forfeited Pelullo's interest in racketeering proceeds of $1.3 million and a Montana ranch that the jury found Pelullo had acquired with racketeering proceeds.

In conjunction with sentencing the defendant to a term of confinement in prison on September 14, 1995, the District Court ordered the forfeiture of Pelullo's interest in $1.3 million of racketeering proceeds and the Montana ranch. At the same time, the Court ordered a forfeiture of Pelullo's interest in his residence on Brickell Avenue in Miami, Florida as a substitute asset for the Montana ranch under 18 U.S.C. § 1963(m). The following day, the Government commenced an ancillary forfeiture proceeding to adjudicate third party interests in the forfeiture assets under 18 U.S.C. § 1963(l). Three days later, because Pelullo had not made any mortgage payments due on the Miami property since his indictment in February 1991, a Dade County, Florida, circuit court entered a mortgage foreclosure judgment against the property and Pelullo. The foreclosure judgment amounted to approximately $3 million, with accrued interest at 8% per annum. The Government, in an effort to forestall depletion of the net equity of the property through the accrual of additional interest and taxes, applied for and obtained an order to sell publicly the Miami property before completion of the ancillary forfeiture and the entry of a final order.

On October 11, 1995, the District Court authorized the Marshal Service to sell the property by interlocutory sale. None of the parties who had asserted an interest in the asset, despite notice, opposed the interlocutory sale, which the Marshal Service scheduled for November 17, 1995. However, on November 8, 1995, Pelullo appealed to this court to stay the sale; we denied the stay.

On November 17, 1995, just prior to the scheduled sale, Pelullo filed a Chapter 11 petition in the United States Bankruptcy Court for the Eastern District of Pennsylvania and served notice thereof upon the Marshal Service by facsimile immediately prior to the scheduled hour for sale. Despite notice of the filing of the petition and of the automatic stay provision of the Bankruptcy Code, ¹ the Government proceeded with the public sale on advice of the United States Attorney's office that the automatic stay provision of the Bankruptcy Code did not apply to this criminal forfeiture proceeding. The mortgage holder purchased the property for a sum less than the outstanding mortgage balance.

Pelullo, asserting that the Miami property was an asset of his debtor's estate and that the sale violated the automatic stay of the Bankruptcy Code, thereupon filed a motion for contempt against the Marshal Service in the bankruptcy court. The Government requested that the motion be denied and simultaneously applied to the District Court for a protective order under 18 U.S.C. § 1963(e). The District Court entered a protective order barring Pelullo and his counsel from pursuing his bankruptcy case with respect to any asset ordered forfeited to the Government. On April 25, 1996, the District Court made the temporary protective order permanent. Pelullo timely appealed to this court. Title to the Miami residence has been transferred by a Marshal's deed to a Florida corporation designated by the former mortgage holder; the principals of the corporation are also principals of the mortgage holder.

II.

The crucial question on appeal is whether Pelullo's filing of the bankruptcy petition effectively divested the District Court of jurisdiction over the forfeited assets and transferred jurisdiction over them to the bankruptcy court subject to the automatic stay, thus immobilizing the Government's enforcement of the criminal forfeiture sentence imposed by the District Court. Pelullo states the issue in these terms: whether the District Court erred in granting a protective order prohibiting him from including his residence as an asset in his pending Chapter 11 case because that asset was listed as a substitute in the order of forfeiture dated September 11, 1995 and "in failing to recognize pursuant to Sections 362(a)(1) and 362(b)(5) of the Bankruptcy Code that sale of appellant's residence was automatically stayed by the filing of the Chapter 11 petition."

A.

A threshold question, however, that confronts us is one raised by the Government. It contends that we lack appellate jurisdiction because the order appealed from is not a final order under 28 U.S.C. § 1291 or the collateral order doctrine. Moreover, the Government asserts that the order is not appealable as an interlocutory injunction. It further notes that appellant's reliance upon 28 U.S.C. § 1334 for appellate jurisdiction is erroneous. That section, it argues, confers subject matter jurisdiction over bankruptcy cases upon the District Court but does not create jurisdiction in courts of appeals.

Under 28 U.S.C. § 1291, our jurisdiction is limited, with certain exceptions, to "appeals from all final decisions of the District Courts of the United States." As the Government aptly argues, the protective order at issue here, however, is an interlocutory order of the District Court.

Our scope of review of questions relating to jurisdiction is plenary. Caplan v. Fellheimer Eichen Braverman & Kaskey, 68 F.3d 828, 834 (3d Cir.1995). This court's decision in United States v. Nicolet, Inc., 857 F.2d 202 (3d Cir.1988), in which we were faced with a similar jurisdictional question, is instructive. In Nicolet, the Government initiated proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) against defendant Nicolet to recover funds expended to clean-up an environmental site that had once been owned by Nicolet. Id. at 203. At some point during the District Court proceedings, Nicolet filed a Chapter 11 petition for reorganization in the bankruptcy court. Id. Initially, the District Court stayed the proceedings pursuant to Section 362 but, later, vacated the stay and permitted the Government to pursue collection. Id. Nicolet appealed the vacation of the stay to this court. Id.

On appeal, we observed that Nicolet had appealed an interlocutory order that effectively served to lift the automatic stay of the Chapter 11 proceedings as to the government. Id. at 204. Although the stay of a civil action generally is interlocutory and not appealable, in bankruptcy cases, lifting the automatic stay and a denial of relief from the stay are appealable. Id. at 203. We further noted that if a motion to lift the stay had been brought in the bankruptcy court and had been granted by that court, this court's appellate jurisdiction to review that order would have been a certainty, as it would have been squarely within the grant of authority under 28 U.S.C. § 158(d). Id. ² However, because Nicolet appealed from a District Court order that involved a bankruptcy case but not an order of the bankruptcy court itself, we concluded that 28 U.S.C. § 1291, not 28 U.S.C. § 158(d), was available as a predicate for jurisdiction. Id. at 204.

We reasoned that the order at issue was so "inextricably intertwined with a pending bankruptcy proceeding," the more liberal...