Richard Mullarkey v. Leonard Tamboer ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
7-31-2008
Richard Mullarkey v. Leonard Tamboer
Precedential or Non-Precedential: Precedential
Docket No. 05-4081
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2008
Recommended Citation
"Richard Mullarkey v. Leonard Tamboer" (2008). 2008 Decisions. Paper 743.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/743
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2008 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Case No: 05-4081
IN RE: RICHARD JOHN MULLARKEY,
Debtor
RICHARD MULLARKEY,
Appellant
v.
LESLIE TAMBOER; LEONARD TAMBOER; JOHN
MCKENNA;
DAVID GHERLONE; STEVEN KARTZMAN
Case No: 05-4651
RICHARD MULLARKEY,
Appellant
v.
LEONARD TAMBOER; LESLIE TAMBOER;
JOHN MCKENNA; DAVID GHERLONE
On appeal from the United States District Court
for the District of New Jersey
District Court Nos. 05-CV-2594, 05-CV-2010
District Judge: The Honorable Faith S. Hochberg
Argued February 13, 2008
Before: SLOVITER and SMITH, Circuit Judges,
and DIAMOND, District Judge *
(Filed: July 31, 2008)
Christian G. Vergonis (ARGUED)
Jones Day
51 Louisiana Avenue, N.W.
Washington, DC 20001-0000
Counsel for Appellant
Kathleen B. Riordan (ARGUED)
Hack, Piro, O'Day, Merklinger, Wallace & McKenna
30 Columbia Turnpike
P.O. Box 941
Florham Park, NJ 07932-0000
*
The Honorable Gustave Diamond, Senior District Judge for
the United States District Court in the Western District of
Pennsylvania, sitting by designation.
2
Gina M. Longarzo, Esq.
244 Green Village Road
Madison, NJ 07940
Counsel for Appellee
Steven Kartzman
1 Professional Quadrangle
Sparta, NJ 07871-2310
Pro Se
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
3
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 obtained 1 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
1
Mullarkey contends that he was unable to obtain municipal
approval for subdivision of the property because the Tamboers
would not give him the engineering maps, approvals and other
necessary documentation.
4
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
2
On December 3, 2003, the District Court issued an order
instructing Mullarkey to “submit a clear and concise statement
of the basis for federal subject matter jurisdiction.” On
December 19, 2003, Mullarkey responded by setting forth ten
“facts” that form the basis for his pro se Complaint. As such,
when we refer to Mullarkey’s Complaint throughout this
opinion, it is to these “facts” that we are referring.
3
Mullarkey also filed the same Complaint in the Bankruptcy
Court on January 30, 2004 against the Tamboers. On April 8,
2004, Mullarkey filed an Amended Complaint adding John
McKenna and David Gherlone to the case. Mullarkey asserted
5
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
that both of these individuals withheld evidence from the
Bankruptcy Court as to the criminal intent of the Tamboers
regarding the sale of the property. Adversary proceedings were
dismissed as to David Gherlone on October 18, 2004.
6
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
4
Although the Defendants filed the motion pursuant to
Federal Rule of Civil Procedure 12(b)(6), the Bankruptcy Court
treated the motion as one for summary judgment. The Court
noted that if the moving party introduces matters outside of the
pleadings, the motion is treated as one for summary judgment
under Federal Rule of Civil Procedure 56, made applicable to
bankruptcy proceedings under Federal Rules of Bankruptcy
Procedure 7056. The Bankruptcy Court’s opinion suggests that
it looked at “numerous submissions made by [Mullarkey] in
prior proceedings before this Court and other courts.”
7
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
8
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
5
Section 1334(b) of Title 28 states that “the district courts
shall have original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to
cases under title 11.” Section 157(a) of the same Title states that
“Each district court may provide that any or all cases under title
11 and any or all proceedings arising under title 11 or arising in
or related to a case under title 11 shall be referred to the
9
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).
bankruptcy judges for the district.”
6
A bankruptcy court may, however, issue final orders and
judgments in non-core proceedings if both parties consent. 28
10
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. § 157(b)(3). As the Bankruptcy Court in the instant
case failed to make any such determination before granting a
dispositive motion and entering final judgment, we must decide
whether this statutory provision requires a bankruptcy court to
explicitly determine, as a jurisdictional prerequisite, if a
proceeding is core. The Fourth Circuit in In re Johnson, 960
F.2d 396, 400 (4th Cir. 1992), pointed out that:
[s]ome courts hold that failure of the bankruptcy
court to make a § 157(b)(3) finding deprives the
bankruptcy court of jurisdiction; and the failure of
the parties to request the finding does not waive
their right to later object that the finding was a
necessary predicate to jurisdiction. In re Wefco,
U.S.C. § 157(c)(2).
11
97 B.R. 749, 750–51 (E.D.N.Y. 1989) (failure to
determine whether matter is core or non-core is
not harmless error); In re Marill Alarm Systems
Inc., 81 B.R. 119, 122 (S.D.Fla. 1987), aff’d sub
nom. Marill Alarm Sys. v. Equity Funding, 861
F.2d 725 (11th Cir. 1988) (not precedential) (if
bankruptcy judge enters final judgment without
making determination under § 157(b)(3) it must
be invalidated; failure of parties to move for
determination does not waive error); In re Nell, 71
B.R. 305, 310 (D.Utah 1987) (same). Other courts
hold that a party’s failure to request a 157(b)(3)
finding waives any objection to the lack of such
finding. In re Rath Packing Co., 75 B.R. 137, 138
(N.D.Iowa 1987), aff’d sub nom. Rath Packing
Co. v. United Food, 860 F.2d 1086 (8th
Cir.1988), cited in 1 Collier on Bankruptcy (MB)
¶ 3.01 at 3-52 (15th ed. 1989); Rainey v.
International Harvester Credit Corp., 59 B.R.
987, 989–90 (N.D.Ill.1986).
The Fourth Circuit was persuaded by the latter view, concluding
that the lack of a jurisdictional finding under § 157(b)(3) does
not, in itself, deprive a bankruptcy court of jurisdiction. In re
Johnson, 960 F.2d at 400 n.2.
We agree with the view adopted by the Fourth Circuit
and hold that the Bankruptcy Court was not deprived of
jurisdiction over Mullarkey’s Complaint for failure to make the
determination under § 157(b)(3). We are persuaded that this is
12
the correct approach because § 157(b)(3) only requires that a
bankruptcy judge determine whether a proceeding is core or
non-core. Such a determination does not affect the bankruptcy
court’s power to hear the case. Rather, it affects the form of the
bankruptcy court’s disposition, i.e., whether it is final and
appealable to the district court, or a report and recommendation
to be reviewed by the district court. In addition, the text of
§ 157(b)(3) suggests that a party may waive the right to this
determination by failing to make a timely motion. See, e.g., In
re Sheridan, 362 F.3d 96, 100 (1st Cir. 2004) (“[T]he
protections afforded by the Northern Pipeline core/non-core
distinction may be waived or forfeited, either by (i) consenting
to the bankruptcy court’s treatment of an otherwise non-core
proceeding as core, or (ii) failing to raise or pursue the issue
adequately on appeal.”); In re Johnson, 960 F.2d at 400 (“By
failing to object to the lack of a jurisdictional determination
under 28 U.S.C. § 157(b)(3), and acquiescing to the jurisdiction
of the bankruptcy court to enter dispositive orders . . . Canal and
RED waived any requirement the bankruptcy court had to make
a determination of its jurisdiction under 28 U.S.C.
§ 157(b)(3).”). Fairly interpreted, the purpose of § 157(b)(3) is
to assure that a bankruptcy court acts with the appropriate
adjudicative authority in considering claims in bankruptcy.
While parties may acquiesce in a bankruptcy court’s entry of a
dispositive order within its subject matter jurisdiction, subject
matter jurisdiction may neither be waived nor forfeited by the
parties. Thus, we are satisfied that § 157(b)(3) is not
jurisdictional.
13
The next step in our analysis requires us to determine
whether the Bankruptcy Court had subject matter jurisdiction
over Mullarkey’s Complaint, and if so, whether the claims
contained within it constitute core or non-core proceedings.
This determination will also reveal the Bankruptcy Court’s
adjudicative authority and the District Court’s standard of
review. As our opinion in In re Seven Fields illustrates, we
could proceed by engaging in a two-step analysis in which we
first inquire whether there is federal jurisdiction over
Mullarkey’s proceeding by asking whether the case is “related
to” the bankruptcy, because “related to” is the broadest category
of cases over which federal bankruptcy jurisdiction is exercised.
See 505 F.3d at 260. Pursuant to that approach, we would then
determine whether the matter is core—allowing for the
Bankruptcy Court to issue the final order that it did in this
case—or a non-core matter, in which the Bankruptcy Court was
only permitted to make recommendations to the District Court.
See id. However, if we conclude that the case “arises in” the
bankruptcy proceeding, then by definition the Bankruptcy Court
has both subject matter jurisdiction and the authority to enter
final orders. See id. at 257. Accordingly, we would not need to
follow the two-step approach. We pursue this latter course.
In order to determine whether Mullarkey’s claims fall
within the Bankruptcy Court’s core jurisdiction by “arising in”
the bankruptcy, we must examine the allegations in Mullarkey’s
Complaint. In Halper v. Halper, we adopted a claim-by-claim
approach to determine the extent of a bankruptcy court’s
14
jurisdiction. 164 F.3d 830, 839 (3d Cir. 1999) (citing In re N.
Parent, Inc., 221 B.R. 609, 626 (Bankr.D.Mass. 1998) (“[E]ach
of Debtor’s fourteen causes of action will have to be separately
analyzed to determine whether it falls within the bankruptcy
court’s core jurisdiction.”)). In the case at bar, the Complaint
was filed pro se. Like many pro se pleadings, it is not a model
of clarity. We think, however, that it is fair to characterize
Mullarkey’s submissions to the Court as follows:
1. That the Defendants knowingly and fraudulently
concealed from the trustee $375,000 belonging to
his estate.
2. That the Defendants knowingly and fraudulently
made a false certification to the bankruptcy court
under penalty of perjury.
3. That the Defendants presented a false claim of
$182,000 to the bankruptcy court.
4. That the Defendants attempted to obtain property
title in a fraudulent manner.
5. That the Defendants committed the crime of
solicitation of conspiracy.
6. That these acts occurred over the course of
several years and caused economic injury.
7. That the Defendants were involved in a
15
conspiracy.
8. That the Defendants fraudulently foreclosed on
the property with a bogus lien.
9. That the Defendants concealed the sale of the
property from the bankruptcy court/trustee
through false statements.
10. That the Defendants have violated the RICO
statute.
We are satisfied that these allegations state, at least, a
claim for fraud with regard to an asset of the bankruptcy estate,
as the alleged fraud occurred during the bankruptcy process
itself. The allegations of fraud presented in paragraphs one
through four and nine are predicated on conduct that occurred
during the bankruptcy process.7 As such, the alleged fraud
7
As to the remaining portion of Mullarkey’s Complaint,
those matters are subsumed in ¶¶ 1–3 and ¶ 9, or are otherwise
too vague. Nor do we believe they would be the basis for any
additional monetary award for Mullarkey. The allegations do
not appear to be sufficient to state a civil claim for violations of
the federal RICO statute, whether it be for mail fraud, wire fraud
or bankruptcy fraud. See 18 U.S.C. § 1964. Furthermore, while
Mullarkey asserted in his opening brief that he could seek a civil
remedy for the Tamboers’ violation of the federal RICO statute,
he failed to present any argument in support. Thus, we deem
this claim to be waived. Laborers’ Intern. Union of N. Am.,
16
“implicated the integrity of the entire bankruptcy process” and
was “inseparable from the bankruptcy context.” See In Re Seven
Fields, 505 F.3d at 260–61. If we accept Mullarkey’s
allegations as true, the Bankruptcy Court granted relief from the
automatic stay as a result of the conduct of the Defendants,
thereby allowing the Defendants to proceed with the foreclosure
and sale of Mullarkey’s share of the property. If, but for the
Defendants’ conduct, the disposition of the property would have
been otherwise and would have resulted in additional funds for
the bankruptcy estate, it appears that the conduct of the
Defendants implicated the integrity of the bankruptcy process.
Thus, the allegations of misconduct here are similar in nature to
the misconduct which our Court was concerned with in In Re
Seven Fields and which we concluded fell within the bankruptcy
court’s core jurisdiction.
In In re Seven Fields, the bankruptcy court exercised
jurisdiction over a complaint alleging state law claims of
professional negligence, fraud and deceit, and negligent
AFL-CIO v. Foster Wheeler Energy Corp., 26 F.3d 375, 398 (3d
Cir. 1994) (citation omitted) (“An issue is waived unless a party
raises it in its opening brief, and for those purposes ‘a passing
reference to an issue . . . will not suffice to bring that issue
before this court.’”); United States v. Pelullo, 399 F.3d 197, 222
(3d Cir. 2005) (“It is well settled that an appellant’s failure to
identify or argue an issue in his opening brief constitutes waiver
of that issue on appeal.”).
17
misrepresentation against the accounting firm of Ernst & Young.
505 F.3d at 239. The complaint alleged that “as a result of the
work that Ernst & Young performed during the bankruptcy
proceedings and its representations to the bankruptcy court, the
bankruptcy court deemed the Debtors to be insolvent.” Id. at
261. The complaint further alleged that these representations of
insolvency were “a significant factor in bringing about the
court’s confirmation of the plan.” Id. Essentially, the parties
were led to believe that they were in serious debt and, because
of that, the parties sold their assets at below market value,
suffering losses on their investments and failing to realize a
return of the full amount of their investments. Id. at 241. In
concluding that “aris[ing] in” jurisdiction was present, our Court
noted that the claims arose pre-confirmation inasmuch as the
conduct on which the parties predicated the claims occurred
during the bankruptcy process. Id. at 260. Second, we noted
that the alleged malpractice “implicated the integrity of the
entire bankruptcy process” and was “inseparable from the
bankruptcy context.” Id. at 260–61.
While our In Re Seven Fields holding involved
allegations of professional malpractice, the same concern for
misconduct that directly affects the bankruptcy estate exists in
the present case. Indeed, our Court stated that “few issues are
as important in the bankruptcy process as the bankruptcy court’s
conclusion as to the solvency of a debtor. The solvency analysis
is the cornerstone of the distribution plan. Here, both the
integrity of the bankruptcy process and the solvency of the
18
Debtors have been drawn into question.” Id. Presumably, in our
case, Mullarkey’s interest in the property at issue would have
had an effect on the bankruptcy court’s evaluation of his
solvency had he been able to realize the value of that interest
through sale of the property.
Based on the foregoing, we conclude that the Bankruptcy
Court had subject matter jurisdiction over the Complaint filed by
Mullarkey. Because the matters were core, the Court properly
exercised final adjudicative authority over the matter, and the
District Court did not err in applying a deferential standard of
review.
III.
The Bankruptcy Court erred, however, with respect to the
merits. On April 11, 2005, the Bankruptcy Court filed an order
granting the Defendant’s Motion to Dismiss Mullarkey’s
Complaint. The Bankruptcy Court held that Mullarkey’s claims
were precluded by the doctrines of res judicata, collateral
estoppel, and alternatively, the entire controversy doctrine,
because “[a]ll of [his] arguments have been repeatedly rejected
by this Court, by the district court on appeal and on subsequent
motions for reconsideration, as well as by the state court.”
Based on the record before us, we are compelled to disagree.
A.
19
As part of its analysis of the res judicata and collateral
estoppel doctrines, the Bankruptcy Court noted that there is no
dispute as to party identity. It also found “that the claims and
issues involving [Mullarkey] and the Defendants . . . are
identical to those previously raised and litigated not only in this
Court, but in the district and state courts as well.” That Court
stated that the language in Mullarkey’s present Complaint is
similar to submissions he made in prior proceedings before the
Bankruptcy Court and other courts. Finally, the Bankruptcy
Court asserted that all of Mullarkey’s claims were considered
and rejected in “its initial determination granting the Tamboers
relief from the automatic stay in March 2001, as well as in the
Debtor’s motion for a stay of the Stay Relief Order.”
The doctrine of res judicata bars not only claims that
were brought in a previous action, but also claims that could
have been brought. Post v. Hartford Ins. Co., 501 F.3d 154, 169
(3d Cir. 2007). It “protect[s] litigants from the burden of
relitigating an identical issue with the same party or his privy
and . . . promot[es] judicial economy by preventing needless
litigation.” Id. (quoting Parklane Hosiery Co. v. Shore, 439
U.S. 322, 327 (1979)). Both New Jersey and federal law apply
res judicata or claim preclusion when three circumstances are
present: “(1) a final judgment on the merits in a prior suit
involving (2) the same parties or their privies and (3) a
subsequent suit based on the same cause of action.” Id. (quoting
Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 963 (3d Cir.
1991)).
20
In addition, New Jersey courts bar the relitigation of
finally determined issues through the doctrine of collateral
estoppel. Collateral estoppel “bars relitigation of any issue
which was actually determined in a prior action, generally
between the same parties, involving a different claim or cause
of action.” Tarus v. Borough of Pine Hill, 916 A.2d 1036, 1050
(N.J. 2007) (quotations omitted). A party asserting collateral
estoppel must show that
(1) the issue to be precluded is identical to the
issue decided in the prior proceeding; (2) the issue
was actually litigated in the prior proceeding; (3)
the court in the prior proceeding issued a final
judgment on the merits; (4) the determination of
the issue was essential to the prior judgment; and
(5) the party against whom the doctrine is asserted
was a party to or in privity with a party to the
earlier proceeding.
Twp. of Middletown v. Simon, 937 A.2d 949, 954 (N.J. 2008).
The application of the collateral estoppel doctrine is not
automatic, and should not be applied “if there are sufficient
countervailing interests.” Velasquez v. Franz, 589 A.2d 143,
153 (N.J. 1991) (quoting In re Coruzzi, 95 N.J. 557, 568
(1984)). Importantly, this doctrine precludes relitigation only of
questions “distinctly put in issue” and “directly determined”
adversely to the party against which the estoppel is asserted.
N.J.-Phila. Presbytery of the Bible Presbyterian Church v. N.J.
State Bd. of Higher Educ., 654 F.2d 868, 876 (3d Cir. 1981)
21
(quoting City of Plainfield v. Public Serv. Gas and Elec., 412
A.2d 759, 765–66 (N.J. 1980)). “Moreover, under the New
Jersey rule, if the judgment is based on one or more of several
grounds, but does not expressly rely on any of them, none is
conclusively established, since a subsequent court cannot tell
what issue or issues were in fact fully adjudicated.” Id. (citing
Ettin v. Ava Truck Leasing, Inc., 251 A.2d 278, 287 (N.J.
1969)).
The Bankruptcy Court’s reliance on its stay proceedings
to support preclusion, either by res judicata or collateral
estoppel, was error. The prior bankruptcy orders respecting the
motion to stay were not final judgments, and by their nature
cannot have preclusive effect on the instant action. The hearing
on a motion for relief from stay is meant to be a summary
proceeding, and the statute requires prompt action by the
bankruptcy court. 11 U.S.C. § 362(e).8 Section § 362(e)
8
Section 362(e) reads:
(1) Thirty days after a request under subsection
(d) of this section for relief from the stay of any
act against property of the estate under subsection
(a) of this section, such stay is terminated with
respect to the party in interest making such
request, unless the court, after notice and a
hearing, orders such stay continued in effect
pending the conclusion of, or as a result of, a final
hearing and determination under subsection (d) of
22
this section. A hearing under this subsection may
be a preliminary hearing, or may be consolidated
with the final hearing under subsection (d) of this
section. The court shall order such stay continued
in effect pending the conclusion of the final
hearing under subsection (d) of this section if
there is a reasonable likelihood that the party
opposing relief from such stay will prevail at the
conclusion of such final hearing. If the hearing
under this subsection is a preliminary hearing,
then such final hearing shall be concluded not
later than thirty days after the conclusion of such
preliminary hearing, unless the 30-day period is
extended with the consent of the parties in interest
or for a specific time which the court finds is
required by compelling circumstances.
(2) Notwithstanding paragraph (1), in a case
under chapter 7, 11, or 13 in which the debtor is
an individual, the stay under subsection (a) shall
terminate on the date that is 60 days after a
request is made by a party in interest under
subsection (d), unless--
(A) a final decision is rendered by the court
during the 60-day period beginning on the date of
the request; or
(B) such 60-day period is extended--
(i) by agreement of all parties in interest; or
(ii) by the court for such specific period of time as
the court finds is required for good cause, as
23
provides that a bankruptcy court must hold a preliminary hearing
on a motion to lift the stay within thirty days from the date the
motion is filed, or the stay will be considered lifted. Id. In
addition, relief from a stay is obtained by a simple motion,
Fed.R.Bankr.P. 4001, and it is a “contested matter,” rather than
an adversary proceeding. Grella v. Salem Five Cent Sav. Bank,
42 F.3d 26, 33 (1st Cir. 1994) (citing Fed.R.Bankr.P. 9014;
Advisory Committee Note to Fed.R.Bankr.P. 7001 (“[R]equests
for relief from the automatic stay do not commence an adversary
proceeding.”)).
The First Circuit in Grella recognized that a hearing on
a motion for relief from stay is a “summary proceeding of
limited effect,” and that
[t]he limited grounds set forth in the statutory
language, read in the context of the overall
scheme of § 362, and combined with the
preliminary, summary nature of the relief from
stay proceedings, have led most courts to find that
such hearings do not involve a full adjudication
on the merits of claims, defenses, or
counterclaims, but simply a determination as to
whether a creditor has a colorable claim to
property of the estate.
described in findings made by the court.
11 U.S.C. § 362.
24
42 F.3d at 32–33.9 The Court concluded that “[t]he statutory
and procedural schemes, the legislative history, and the case law
all direct that the hearing on a motion to lift the stay is not a
proceeding for determining the merits of the underlying
substantive claims, defenses, or counterclaims.” Id. at 33. As
the Seventh Circuit also pointed out, at issue in a § 362 hearing
is only whether there is a colorable claim of a lien on property
of the estate. In re Vitreous Steel Prod. Co., 911 F.2d 1223,
1234 (7th Cir. 1990). As such, it held that the determination of
the § 362 motion was not a bar to the prosecution of the
adversary complaint before it. Id. at 1234. It explained that
9
The First Circuit cited as substantial authority for this
proposition: Estate Construction Co. v. Miller & Smith Holding
Co., Inc., 14 F.3d 213, 219 (4th Cir. 1994) (hearings to lift the
stay are summary in character, and counterclaims are not
precluded later if not raised at this stage); In re Vitreous Steel
Prod. Co., 911 F.2d 1223, 1232 (7th Cir. 1990) (questions of the
validity of liens are not at issue in a § 362 hearing, but only
whether there is a colorable claim on property); In re Johnson,
756 F.2d 738, 740 (9th Cir. 1985), cert. denied, 474 U.S. 828
(1985) (relief from stay hearings are limited in scope to
adequacy of protection, equity, and necessity to an effective
reorganization, and validity of underlying claims is not
litigated); Nat’l Westminster Bank, U.S.A. v. Ross, 130 B.R. 656,
658 (Bankr. S.D.N.Y.), aff’d, 962 F.2d 1 (2d Cir. 1991)
(decision to lift stay does not involve determination of
counterclaims, and thus those claims are not precluded later).
25
Collateral estoppel is not a bar because the only issues
necessarily decided at the § 362 hearing were whether
the Bank had a colorable claim of a lien and whether the
amount of that lien exceeded the value of the property.
It was not necessary to reach questions of . . . collu[sion]
with the Bank, or questions of preferential transfers
under § 547, or questions of fraudulent conveyances
under § 548, or questions of commercial reasonableness
of the sale under state law. Indeed, none of these issues
could properly have been raised, and therefore the § 362
hearing was not res judicata as to those issues.
Id.
Here, the initial bankruptcy order vacating the automatic
stay, dated March 13, 2001, is brief and does not suggest the
basis upon which the court granted relief from the stay.10 There
10
The documents filed by Mullarkey’s attorney opposing the
Motion to Vacate do not explicitly contain any allegations of
fraudulent conduct. The documents do detail two attempts by
Mullarkey to sell his property. The documents indicate that he
secured a willing buyer on April 11, 2000, for $480,000, of
which $240,000 would go to Mullarkey. His Chapter 13 plan
provided for payment of his share of his debt from the sale
proceeds, and he planned to amend his plan to provide for the
treatment of the Defendants as secured creditors. The $240,000
sum was $43,000 more than the amount claimed to be due to the
Defendants. The submissions to the Bankruptcy Court also
contended that the Defendants failed to produce certain
26
is nothing in the record to suggest that any allegations of fraud
had been made up to this point. It would certainly be reasonable
to infer that the bankruptcy judge vacated the stay because of
Mullarkey’s continued failure to make his regular monthly
mortgage payments outside of his Chapter 13 plan, as well as his
failure to sell his interest in the property. In light of the record
on appeal, and the summary nature of stay proceedings in
general, we conclude that the Bankruptcy Court’s initial grant of
relief does not have preclusive effect on Mullarkey’s
Complaint.11
documents and preliminary subdivision could not be obtained
without them. Mullarkey alleges that the Defendants could have
reapplied for subdivision approval when it lapsed, but failed to
do so. As a result, Mullarkey could not obtain the documents he
needed to sell the land until November 5, 2000, and at that time
he reapplied for subdivision. It appears during the course of this
that Mullarkey lost his initial buyer. Also before the Bankruptcy
Court was the contention that Mullarkey had another buyer on
March 6, 2001, for $329,000, of which he would have been
entitled to half. This amount would have been less than what
the Defendants claimed that he owed them.
11
On May 29, 2001, Mullarkey, then proceeding pro se,
moved the Bankruptcy Court to vacate the previous order
vacating stay. In an order as brief as the first, and with similar
lack of explanation, his motion was denied on June 19, 2001.
The docketing record on appeal indicates that after the
Bankruptcy Court initially vacated the stay, Mullarkey sent the
27
The Bankruptcy Court also indicated that the New Jersey
state court foreclosure proceedings have preclusive effect over
the instant Complaint. We are at a loss to determine how to
afford these proceedings preclusive effect. The record on
appeal provides us no indication as to whether there was a
merits determination during the New Jersey state court’s
foreclosure proceeding. The Defendants initiated a foreclosure
action in state court and a judgment of foreclosure was entered
on March 25, 1999 when Mullarkey failed to appear and a
Sheriff’s Sale was scheduled for May 10, 1999. The Sheriff’s
Court a letter detailing a scheme by the Defendants. Mullarkey
essentially argued that the Defendants had devised a plan to
intentionally deny him his share of partnership assets, and were
effectuating that plan by making misrepresentations to the
bankruptcy court in order to have the stay lifted so they could
proceed with an outside contract to sell the property. The record
gives no indication that these allegations were litigated,
considered and rejected by the Bankruptcy Court. If they were
rejected by the Court, there is no indication that they were
essential to its judgment. Indeed, it is possible that the orders
were based on one or more of several grounds, but neither order
expressly relies on any of them, none is conclusively
established, and, as such, we fail to see how this Court can tell
for purposes of claim or issue preclusion what issue or issues
were in fact fully adjudicated. Thus, this order does not have
preclusive effect over the instant Complaint for the same
reasons the Bankruptcy Court’s initial order does not have
preclusive effect.
28
Sale did not take place as scheduled and it subsequently was
stayed when Mullarkey filed a Chapter 13 bankruptcy petition.
After the Bankruptcy Court vacated the stay on March 13, 2001,
Mullarkey also sought to stay the Sheriff’s Sale in state court.
The state court denied Mullarkey’s request after a hearing, and
the property was sold on or about July 6, 2002, to the Tamboers.
The record, by way of the Bankruptcy Court’s order
dismissing Mullarkey’s Complaint, does indicate that Mullarkey
submitted a certification to the state court in support of his
motion to stay the Sheriff’s Sale, and that in it he specifically
alleged that the Defendants fraudulently stated that the mortgage
was due, that the Defendants fraudulently concealed the contract
of sale for the property from him and the Bankruptcy Court, and
that the Defendants fraudulently stole the property. The text of
the order fails to enlighten us, however, because it establishes
only that Mullarkey attempted to raise his allegations of fraud.
Nothing in the record suggests that the state court actually
considered these allegations, let alone passed on them in
denying the motion. Under New Jersey law, if the judgment of
a court is based on one or more of several grounds, but does not
expressly rely on any of them, none is conclusively established,
in that another court subsequently reviewing that judgment
cannot tell what issue or issues were fully adjudicated. Ettin,
251 A.2d at 287 (citation omitted).
Because this is the only information in the record that
addresses what occurred in the New Jersey state court, we are
29
hesitant to conclude that either the Bankruptcy proceedings or
the New Jersey state court proceedings bar consideration of
Mullarkey’s Complaint.
B.
The Bankruptcy Court alternatively relied on the New
Jersey entire controversy doctrine to bar consideration of
Mullarkey’s Complaint. This doctrine
requires that a person assert in one action all
related claims against a particular adversary or be
precluded from bringing a second action based on
the omitted claims against that party. This reflects
New Jersey’s view that the “entire controversy,
rather than its constituent causes of action, is the
unit of litigation. A plaintiff must seek complete
vindication of the wrong he charged.”
Melikian v. Corradetti, 791 F.2d 274, 279 (3d Cir. 1986)
(citations omitted). Under the entire controversy doctrine, a
party cannot withhold part of a controversy for later litigation
even when the withheld component is a separate and
independently cognizable cause of action. Paramount Aviation
Corp. v. Agusta, 178 F.3d 132, 137 (3d Cir. 1999). The doctrine
has three purposes: (1) complete and final disposition of cases
through avoidance of piecemeal decisions; (2) fairness to parties
to an action and to others with a material interest in it; and (3)
efficiency and avoidance of waste and delay. Id. (citing
30
DiTrolio v. Antiles, 662 A.2d 494, 502 (N.J. 1995)). As an
equitable doctrine, its application is flexible, with a case-by-case
appreciation for fairness to the parties. Id. The entire
controversy doctrine does not apply to bar component claims
that are unknown, unarisen, or unaccrued at the time of the
original action. Mystic Isle Dev. Corp. v. Perskie & Nehmad,
662 A.2d 523, 530 (N.J. 1995) (citations omitted).
As is reflected by our determination that Mullarkey’s
claim is a core matter, we find that it relates to conduct that was
intrinsic to both the bankruptcy and foreclosure proceedings
(which were occurring simultaneously). As Mullarkey
characterizes it, “the prior proceeding itself [was] the alleged
vehicle of the defendant’s misconduct.” In such an instance, it
seems illogical and unfair to hold the prior proceeding
preclusive of subsequent claims relating to that misconduct.
See, e.g., K-Land Corp. No. 28 v. Landis Sewerage Auth., 800
A.2d 861, 868 (N.J. 2002) (“The entire controversy doctrine [is]
an equitable preclusionary doctrine whose purposes are to
encourage comprehensive and conclusive litigation
determinations, to avoid fragmentation of litigation, and to
promote party fairness and judicial economy and efficiency . . .
.”).
Leisure Technology v. Klingbeil Holding Co., 349 A.2d
96 (N.J. Super. 1975), reiterates the importance of the entire
controversy doctrine and confirms that it is applicable to
foreclosure proceedings. However, it illustrates that the entire
31
controversy doctrine has a narrower application to foreclosure
proceedings, extending only to “germane” counterclaims.1
Leisure Tech., 137 A.2d at 98–99. “The use of the word
‘germane’ in the language of the rule undoubtedly was intended
to limit counterclaims in foreclosure actions to claims arising
out of the mortgage transaction which is the subject matter of
the foreclosure action.” Id. In Leisure Technology, the trial
judge had granted the plaintiff’s motion to strike the defendant’s
first affirmative defense of fraudulent conduct on the part of the
plaintiff. Id. at 97. Specifically, the defendant alleged that the
plaintiff had breached the underlying agreement in relation to
which the mortgage had been executed, thereby causing the
defendant to be unable to make his mortgage payments. Id. In
1
New Jersey Rule of Court 4:7-1 provides, in relevant part:
“Except as otherwise provided by R. 4:64-5 (foreclosure
actions) and R. 4:67-4 (summary actions), a pleading may state
as a counterclaim any claim against the opposing party whether
or not arising out of the transaction or occurrence that is the
subject matter of the opposing party's claim.” In turn, R. 4:64-5,
provides in part, “Unless the court otherwise orders on notice
and for good cause shown, claims for foreclosure of mortgages
shall not be joined with non-germane claims against the
mortgagor or other persons liable on the debt. Only germane
counterclaims and cross-claims may be pleaded in foreclosure
actions without leave of court. Non-germane claims shall
include, but not be limited to, claims on the instrument of
obligation evidencing the mortgage debt, assumption
agreements and guarantees.”
32
addition, the judge also granted the plaintiff’s motion to sever
the defendant’s counterclaim and transfer it to the Law Division.
Id. On appeal, the superior court concluded that the trial judge
took too narrow a view of the scope of permissible Chancery
litigation. Id. at 98. The court noted that, “here the thrust of the
counterclaim is the assertion that plaintiff had breached the
underlying agreement in relation to which the mortgage was
executed and interfered with defendants’ rights under that
agreement. In the usually understood sense of the word, these
claims were germane to the foreclosure action.” Id. at 99.
Because counterclaims in foreclosure proceedings must
be “germane,” and because germane claims are those “arising
out of the mortgage transaction which is the subject matter of
the foreclosure action,” we are satisfied that the claims
Mullarkey asserted then, and now, are not germane to the
foreclosure proceeding. Indeed, Mullarkey does not contend
that the Defendant’s actions caused the default of his mortgage
obligations. Rather, his claims are based on the actions and
representations of the Tamboers during the bankruptcy
proceedings.
Ultimately, given the nature of the case and the fact that
Mullarkey proceeded pro se during much of it, it is difficult for
us to discern what specific claims he is now alleging as
compared to which claims he did and did not raise previously.
More importantly, it is unclear if Mullarkey could have raised
the present claims in foreclosure, i.e., whether they had accrued
33
at that time or were even justiciable. Because the entire
controversy doctrine is an equitable principle under which the
Court may exercise its judicial discretion based on the particular
circumstances inherent in a given case, Mystic Isle Dev. Corp.,
662 A.2d at 529–30, we decline to apply the doctrine in this
case. Indeed, the New Jersey courts in applying the entire
controversy doctrine have displayed a heightened concern for
pro se litigants, particularly in summary or non-traditional
proceedings. See, e.g., Cafferata v. Peyser, 597 A.2d 1101,
1104 (N.J.Super.A.D. 1991) (“It would obviously be
counterproductive in the extreme were a preclusionary rule
enforced in such a way as to penalize, without any concomitant
benefit to the parties or to the system, a pro se litigant’s
participation in the small claims mediation process or other
expedited processing mechanism. Such enforcement would
convert the entire controversy doctrine from an equitable device
into a trap for the unsuspecting. That is not its function.”).
IV.
Finally, both parties agree that the District Court
reviewed the wrong Bankruptcy order when it rejected
Mullarkey’s appeal of the Bankruptcy Court’s four interlocutory
orders.1 Mullarkey initially appealed the orders to the
1
The motions sought: 1) a discretionary change in venue to
the district court; 2) joinder of Steven Kartzman (Mullarkey’s
former attorney) as a necessary party; 3) “a reference to a
34
Bankruptcy Court, and they were eventually transferred to the
District Court where they were given civil action number 05-
2010. On appeal, in an order bearing the same civil action
number, the District Court referred to the appeal as “from an
April 11, 2005 Order of the Bankruptcy Court dismissing a
Complaint filed by Richard Mullarkey.” Accordingly, on
remand the District Court should consider the merits of
Mullarkey’s appeal of the Bankruptcy Court’s denial of his four
motions.
V.
Because the record before us counsels a conclusion
that the Bankruptcy erred on the merits with respect to its
holding that Mullarkey’s claims are barred by various
preclusion doctrines, we will reverse and remand to the
District Court to consider the merits of Mullarkey’s claims, as
well as his appeal of the Bankruptcy Court’s denial of his four
motions.
prosecuting authority”; and 4) reconsideration of the order
dismissing one of the defendants to his complaint.
35