BARBARA WORTLEY, RICHARD I. CLARK, LIBERTY ASSOCIATES, LC, LIBERTY PROPERTIES AT TRAFFORD, LLC, ADVANCED VEHICLE SYSTEMS, LLC v. MICHAEL R. BAKST, GEORGE STEVEN FENDER
Nos. 15-11923 & 15-90007
United States Court of Appeals for the Eleventh Circuit
January 5, 2017
D.C. Docket No. 11-01999-AJC. [PUBLISH].
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
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
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
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 (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
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 (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
In full,
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
(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.
Regardless of whether they are “final” or “interlocutory,” our appellate jurisdiction under
III
The basic tenets of bankruptcy court jurisdiction are straightforward. Bankruptcy courts may hear two types of
relatively simple jurisdictional principles become a bit more complicated when applied to the unusual allegations here.
A
The bankruptcy jurisdiction of the district courts extends to “all civil proceedings arising under [T]itle 11 [of the U.S. Code], or arising in or related to cases under [T]itle 11.”
marks omitted). If the parties in a non-core proceeding do not consent to the bankruptcy court‘s exercise of final adjudicatory authority, the bankruptcy court must prepare proposed findings of fact and/or conclusions of law for the district court to review de novo. See
Core proceedings are narrow in scope, and include only those cases that implicate the property of the bankruptcy estate and either invoke substantive rights created by federal bankruptcy law or that exist exclusively in the bankruptcy context. See Cont‘l Nat‘l Bank v. Sanchez (In re Toledo), 170 F.3d 1340, 1347–48 (11th Cir. 1999). But related non-core proceedings can be quite broad, encompassing matters that “could conceivably have an effect on the estate being administered in bankruptcy” even if they are not proceedings “against the debtor or against the debtor‘s property.” Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir. 1990) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984), overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 124–25 (1995)). “An action is related to bankruptcy if the outcome could alter the debtor‘s
and administration of the bankrupt estate.” Id. (citation and internal quotation marks omitted).
The Wortley parties contend that the bankruptcy court lacked the authority to dismiss their state-law claims. First, they argue that their action is not a “core proceeding” because it does not invoke substantive rights created by federal bankruptcy law and could exist outside of bankruptcy. According to the Wortley parties, their complaint merely asserts stand-alone tort claims under state law and does not allege violations of federal bankruptcy law. See Br. of Appellants at 27. Second, they contend that the action is not a related “non-core proceeding” because it was brought against Mr. Bakst and Mr. Fender in their individual capacities for conduct that occurred outside the scope of Mr. Bakst‘s official representation of the trustee, and because a favorable judgment would not affect Trafford‘s bankruptcy estate or its administration (in other words, it would not affect the amount of funds available for distribution or the way that money is allocated to Trafford‘s creditors). That is because a judgment in favor of the Wortley parties would require Mr. Bakst and Mr. Fender to pay damages out of their own pockets, and not with bankruptcy estate resources. See Reply Br. of Appellants at 3–4.
Mr. Bakst and Mr. Fender respond that this matter would have no existence outside of the Trafford bankruptcy proceedings. The complaint filed by the Wortley parties, they note, alleges a conspiracy the purpose of which was to
influence the outcome of the adversary proceedings in the bankruptcy court and to reward Mr. Bakst for his alleged assistance to Mr. Fender and Judge Olson through substantial and unjustified attorneys’ fees for work purportedly done on behalf of Trafford‘s bankruptcy estate. Mr. Bakst and Mr. Fender reason that, if the alleged conspiracy actually existed, then the judgments against the Wortley parties in the Trafford adversary cases and the attorneys’ fees awarded to the trustee would have to be vacated, which would definitely—and not just conceivably—affect the administration of the bankruptcy estate. See Br. of Appellees at 25.
B
Core proceedings, as noted, are those that “involve[ ] a right created by the federal bankruptcy law” or that “would arise only in bankruptcy,” such as “the filing of a proof of claim or an objection to the discharge of a particular debt.” In re Toledo, 170 F.3d at 1348 (quoting Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987)). In determining whether an action constitutes a core proceeding, the question is “whether [it] stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process.” In re Fisher Island Invs., Inc., 778 F.3d 1172, 1190 (11th Cir. 2015) (quoting Stern, 564 U.S. at 499). If so, bankruptcy courts have full and final adjudicatory authority.
This case does not fit the bill. Although the action filed by the Wortley parties stems from a bankruptcy in a literal sense (because the alleged scheme
purportedly took place during the Trafford bankruptcy proceedings), it is not the sort of case that would arise only in bankruptcy because the corruption or improper conduct of a judge can occur in any type of legal proceeding. Cf., e.g., United States v. Shenberg, 89 F.3d 1461, 1465–68 (11th Cir. 1996) (detailing extensive judicial corruption in the Eleventh Judicial Circuit of Florida). This case also does not involve any rights created by federal bankruptcy
C
Having concluded that the action filed by the Wortley parties is not a core proceeding under
Trafford‘s bankruptcy proceedings, such that jurisdiction was proper under
At oral argument, counsel for the Wortley parties asserted that, for an action to be considered even a non-core proceeding, a case must have a “legal” effect on the estate, meaning a res judicata (claim preclusion) or collateral estoppel (issue preclusion) effect. But the “conceivable effect” test under Lemco Gypsum is much broader than that. The non-core category encompasses cases that “could conceivably have an effect on the estate being administered in bankruptcy” and includes any action “which in any way impacts upon the handling and administration of the bankrupt estate.” Id. (emphasis added).
In their complaint, the Wortley parties allege that corruption affected the handling and result of the Trafford adversary cases. The allegations challenge the legitimacy of the bankruptcy court proceedings, and a favorable outcome for the Wortley parties in their tort suit would call into question (or at least conceivably call into question) Judge Olson‘s rulings, orders, and judgments in the Trafford
adversary cases. To conclude that this case is related to the Trafford bankruptcy proceedings, we need not resolve what preclusive effect (if any) a parallel tort judgment would have. It is conceivable, and therefore sufficient, that a judgment in favor of the Wortley parties on their tort claims would affect Judge Cristol‘s rulings on the still-pending post-judgment motions in the Trafford adversary cases. Those motions involve (and are based on) many of the same allegations pled in this action, and the outcome of those motions could possibly affect the handling and administration of the Trafford bankruptcy estate. We therefore conclude that the Wortley parties’ tort action against Mr. Bakst and Mr. Fender is a non-core proceeding related to the Trafford bankruptcy case.
IV
In a related non-core proceeding like this one, a bankruptcy court cannot enter a final order without the parties’ consent. See Wellness Int‘l Network, 135 S. Ct. at 1940 (describing how, under
Orders that should have been submitted as reports containing proposed findings of fact and/or conclusions of law ordinarily do not present a problem for appellate review because bankruptcy court orders are usually first appealed to the district court. See
Appellate jurisdiction under
Though this is an issue of first impression for us, the Seventh Circuit has already addressed whether circuit courts have jurisdiction under
not been initially reviewed by the district court. In the underlying proceedings of In re Ortiz, 665 F.3d 906, 910 (7th Cir. 2011), the bankruptcy court dismissed certain claims, and the parties moved for and received certification for a direct appeal under
A plain reading of the words “judgment, order, or decree” in
2002); 2 Shorter Oxford English Dictionary 2016 (5th ed. 2002). Proposed findings of fact and/or conclusions of law are a creature of
We agree with the Seventh Circuit that
V
The bankruptcy court had authority to entertain the action filed by the Wortley parties pursuant to its “related to” non-core jurisdiction. It did not, however, have statutory authority—absent consent—to enter a dismissal order in this non-core proceeding. The bankruptcy court should have submitted a report
with proposed conclusions of law recommending dismissal of the complaint to the district court. Because the case should have gone there first, we transfer the unauthorized order to the district court for review as a report with proposed conclusions of law under
BANKRUPTCY COURT‘S ORDER MODIFIED AND TRANSFERRED TO THE DISTRICT COURT.