Peloro v. FBI ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
5-29-2007
Peloro v. FBI
Precedential or Non-Precedential: Precedential
Docket No. 04-4334
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
No. 04-4334
__________
FILOMENA PELORO,
aka FILOMENA DELOMO
v.
UNITED STATES OF AMERICA; FEDERAL BUREAU OF
INVESTIGATION;
RICHARD W. HILL; R.H. RESEARCH, INC.
Filomena Peloro,
Appellant
__________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 03-cv-04322)
District Judge: Honorable Dickinson R. Debevoise
Submitted under Third Circuit LAR 34.1(a)
March 28, 2006
______
Before: McKEE and VAN ANTWERPEN, Circuit Judges,
and POLLAK,* District Judge.
______
(Filed : May 29, 2007)
______
Frank Agostino, Esq.
Calo Agostino, P.C.
14 Washington Place
Hackensack, New Jersey 07601
Counsel for Appellant
Peter G. O’Malley, Esq.
Office of the United States Attorney
970 Broad Street
Newark, New Jersey 07102
Counsel for Appellees United States of America and Federal
Bureau of Investigation
Hayden Smith, Jr., Esq.
McCarter & English, LLP
100 Mulberry Street
Newark, New Jersey 07102
*
Honorable Louis H. Pollak, District Judge for
the United States District Court of the Eastern
District of Pennsylvania, sitting by designation.
2
Counsel for Appellees Richard W. Hill and R.H. Research,
Inc.
______
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
1
Ms. Peloro is also referred to in the record as
Filomena Peloro del Olmo or Filomena P. del
Olmo. For consistency, we refer to her
throughout as “Peloro” or “Ms. Peloro.”
3
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
4
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
5
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
2
Since the Ashland GA URFA 8% “customer
name security” was ultimately returned to Ms.
Peloro, see text infra, the disposition of that
security was not at issue in her claims before the
District Court, nor is it in issue on this appeal.
6
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
3
“The Securities Investor Protection Corp.
(SIPC) was established by Congress as a
nonprofit membership corporation for the
purpose, inter alia, of providing financial relief to
the customers of failing broker-dealers with
whom they had left cash or securities on deposit.”
Sec. Investor Prot. Corp. v. Barbour, 421 U.S.
412, 413 (1975).
7
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
8
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).
4
Citations herein to the District Court Opinion
(“D. Ct. Op.”) refer to the October 14, 2004
District Court opinion in Ms. Peloro’s 2003
lawsuit.
9
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
5
Ms. Peloro maintains that at no point did she
authorize the deposit of any of the certificated
securities, which were bearer instruments, into
any of her FIEC accounts, and that R.H.
“negotiated the Certificated Securities and
10
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
allocated them to the Joint Account” without
authorization and without notifying her.
Appellant’s Br. 5. The Trustee and R.H. “admit
that R.H., without notifying Ms. Peloro, allocated
. . . the Certificated Securities to the joint account
and caused them to be negotiated.” Answer of
Defs. Trustee & R.H. to Am. Compl. ¶ 28, App.
43a.
11
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
6
Ms. Peloro did not object to or contest this
assumption. Thus, as the District Court noted, the
remaining certificated security—the Brevard
Security, with a face value of $15,000—was not
put in issue before the Bankruptcy Court.
12
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
13
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, acquired, or held . . . for the
securities account of a customer.” Bankr. Ct. Op. 14, App. 391a
(quoting 15 U.S.C. § 78lll(4)). Finding that the Ashland and
Coleman securities were “sent to FIEC by Ms. Peloro and
received and held there for her account, although not allocated
to the joint account until a later date in time,” the court held that
14
they “were properly customer property under SIPA.” Bankr. Ct.
Op. 15, App. 392a.
The Bankruptcy Court observed that this finding was
critical, since securities properly designated as customer
property were subject to SIPA’s mandatory and absolute bar
date. Because Ms. Peloro did not file a claim as to the joint
account on or before the bar date of November 19, 1997, the
court found that her claim for the Ashland and Coleman
securities was untimely. The court further held that it lacked
equitable authority to allow a late-filed claim, and that Peloro’s
claim for the joint account could not be considered an
amendment to her timely-filed individual account claim.
Finally, noting that Ms. Peloro had asked the Bankruptcy
Court to “preserve her rights to pursue her claims on the joint
account [in her then-pending District Court action],” Bankr. Ct.
Op. 20, App. 397a, the Bankruptcy Court concluded:
15
As to issues of preservation of her claims, the
Court notes that for purposes of this decision the
limited issue before the Court is whether or not to
affirm the SIPA Trustee’s determination of claim
and the objections filed thereto. By this decision
the Court has determined to affirm the Trustee’s
determination.
As to Ms. Peloro’s request regarding the
District Court action, that request is not properly
before this court. The court declines to assert
jurisdiction over claims that are before another
court of competent jurisdiction.
Bankr. Ct. Op. 19–20, App. 397a–398a. While the Bankruptcy
Court did not “assert jurisdiction” over the unlawful conversion
claims presented in the District Court action (or conduct the
evidentiary proceeding Ms. Peloro had requested), it did address
the status of the securities in question—finding them to be
customer property subject to SIPA—as a predicate to affirming
the Trustee’s determination that Ms. Peloro’s claim was
untimely. See discussion supra. Ms. Peloro did not appeal the
Bankruptcy Court’s determination.
16
B. Litigation over the bearer bonds in District Court
As noted above, while her objection to the Trustee’s
disposition of her claim was pending in the SIPA-based FIEC
liquidation proceedings in Bankruptcy Court, Ms. Peloro also
commenced an action in the District Court. After the
Bankruptcy Court affirmed the Trustee’s determination that Ms.
Peloro’s claim was untimely, Ms. Peloro continued to press her
District Court claim seeking return of the certificated securities
(the Ashland, Brevard and Coleman bonds) and other relief. As
amended October 17, 2003, her District Court complaint named
the Trustee, R.H., and also the United States and the FBI as
defendants. As to the federal defendants, Ms. Peloro sought the
return of the securities seized by the FBI (a) on a state-law
theory of unlawful conversion7 and (b) pursuant to Federal Rule
7
On appeal, Ms. Peloro does not challenge the
dismissal of her conversion claim against the
federal defendants. See Appellant’s Br. 1 n.1.
17
of Criminal Procedure 41(g), which states that one “aggrieved
by an unlawful search and seizure . . . or by the deprivation of
property may move for the property’s return.” Fed. R. Crim. P.
41(g). Ms. Peloro also asserted a state-law claim for unlawful
conversion against the Trustee and R.H., based on their
allegedly unauthorized transfer of her personal property (the
certificated securities) into the bankruptcy estate of FIEC, which
action allegedly deprived her of the ability to bring a timely
SIPA claim for the certificated securities.
On October 14, 2004, the District Court dismissed Ms.
Peloro’s complaint with prejudice. As to the non-federal
defendants, the court granted summary judgment on the grounds
that, based on the prior proceedings in the Bankruptcy Court,
both claim preclusion and issue preclusion barred Ms. Peloro’s
conversion claim against the Trustee, while non-mutual issue
preclusion barred her claim against R.H. As to the federal
18
defendants, the court granted a 12(b)(6) motion to dismiss for
failure to state a claim, concluding that no relief could be
granted because the federal defendants could not return the
securities which they no longer possessed, and sovereign
immunity barred any award of money damages against the
federal defendants.
Ms. Peloro filed a timely appeal of the District Court’s
October 14, 2004 final order.
III.
SIPA vests “exclusive jurisdiction” over “any suit against
the [SIPA] trustee with respect to a liquidation proceeding” in
the federal court in which the SIPC filed its application for a
protective decree—in this case, the New Jersey District Court.
15 U.S.C. § 78eee(b)(2)(A). However, the Trustee and R.H.,
contended in the District Court that the court lacked subject
matter jurisdiction over Ms. Peloro’s claim against the Trustee;
19
instead, they argued, the “exclusive jurisdiction” conferred by
§ 78eee(b)(2)(A) was transferred to the New Jersey Bankruptcy
Court by virtue of the District Court’s order removing the SIPA
liquidation proceedings to the Bankruptcy Court. Although
appellees do not press this argument on appeal, “every federal
appellate court has a special obligation to satisfy itself not only
of its own jurisdiction, but also that of the [district] court[] in a
cause under review, even though the parties are prepared to
concede it.” Bender v. Williamsport Area Sch. Dist., 475 U.S.
534, 541 (1986) (internal quotation marks omitted). We need
not linger over the issue, however, as we are persuaded by the
District Court’s thorough jurisdictional analysis. See D. Ct. Op.
10, App. 12a (concluding that, “[b]y referring the [SIPA] matter
to a bankruptcy court, the district court does not divest itself of
jurisdiction,” but rather confers “concurrent jurisdiction” on the
bankruptcy court); see also Trefny v. Bear Stearns Sec. Corp.,
20
243 B.R. 300, 324 (S.D. Tex. 1999) (“Because Congress could
not have intended to extend a bankruptcy court’s jurisdictional
reach beyond permissible bounds, Congress did not intend the
exclusive jurisdiction provision in 78eee(b) to preclude the
litigation of every case involving the SIPA in a forum other than
a bankruptcy court.”).8
As to the federal defendants, the District Court had
subject matter jurisdiction because Ms. Peloro’s claims were
filed in part under Rule 41(g) of the Federal Rules of Criminal
8
Although the District Court did not explicitly
analyze the question of jurisdiction over Peloro’s
claims against R.H., we find that the District
Court had jurisdiction over those claims as well,
either: (1) under 15 U.S.C. § 78eee(b)(2)(A), as a
suit against the Trustee (because R.H. was, for
jurisdictional purposes, identified with the
Trustee); (2) under the District Court’s “related
to” jurisdiction pursuant to 28 U.S.C. § 1334(b),
as incorporated in SIPA by 15 U.S.C.
§ 78eee(b)(2)(A)(iii); or (3) under the District
Court’s supplemental jurisdiction pursuant to 28
U.S.C. § 1367.
21
Procedure. “Such an action is treated as a civil proceeding for
equitable relief,” United States v. Bein, 214 F.3d 408, 411 (3d
Cir. 2000), and the district court has jurisdiction over the action
under 28 U.S.C. § 1331. See also United States v. Martinson,
809 F.2d 1364, 1366–1367 (9th Cir. 1987) (“A district court has
jurisdiction to entertain [Rule 41(g)] motions to return property
seized by the government [even] when there are no criminal
proceedings pending against the movant.”).9
This court has jurisdiction over Ms. Peloro’s appeal
pursuant to 28 U.S.C. § 1291. “On appeal, our review of the
district court’s grant of summary judgment in favor of the
Appellees on the ground of issue preclusion is plenary.” Dici v.
9
“As a result of . . . 2002 amendments, the
previous Fed. R. Crim. P. 41(e) now appears with
minor stylistic changes as Rule 41(g). For
consistency, we will refer only to [Rule] 41(g)
even though . . . most of the relevant case law
refers to the previous rule.” United States v.
Albinson, 356 F.3d 278, 279 n.1 (3d Cir. 2004).
22
Pennsylvania, 91 F.3d 542, 547 (3d Cir. 1996). A district
court’s exercise of its equitable jurisdiction in a motion for
return of property under Rule 41(g) is reviewed for abuse of
discretion, United States v. Chambers, 192 F.3d 374, 376 (3d
Cir. 1999), while our review of a district court’s granting of a
12(b)(6) motion to dismiss is plenary. Brown v. Card Serv. Ctr.,
464 F.3d 450, 452 (3d Cir. 2006).
IV.
Ms. Peloro raises two claims on appeal. First, she
challenges the District Court’s grant of summary judgment in
favor of the Trustee and R.H. Second, she challenges the
District Court’s dismissal of her amended complaint as to the
federal defendants. For the reasons stated below, we will affirm
the District Court’s rulings.
23
A.
We begin with Ms. Peloro’s challenge to the District
Court’s grant of summary judgment in favor of R.H. and the
Trustee on the state-law unlawful conversion claim. Ms.
Peloro’s amended complaint alleges that
[t]he unauthorized deposit of [her] securities into
an account without notice to plaintiff and without
authorization from the plaintiff which action
resulted in plaintiff being unable to bring a timely
SIPA claim for return of the Certificated
Securities constituted an unlawful conversion of
[her] property into property of the bankruptcy
estate,
Am. Compl. ¶ 45, and that, “[a]s a result of the continued
deprivation of plaintiff’s property by defendants,” she has
suffered damages. Am. Compl. ¶ 46.
The District Court held that the findings of the
Bankruptcy Court in the prior proceeding precluded a District
Court finding in Ms. Peloro’s favor, and hence granted the
motion of the Trustee and R.H. for summary judgment. The
District Court based its holding on both claim and issue
preclusion. We find that issue preclusion suffices to bar Ms.
Peloro’s claim for unlawful conversion. We do not, therefore,
24
address questions of claim preclusion.
(i)
Summary judgment is required where the pleadings and
evidence in the record “show that there is no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c). However,
in considering such a motion, the court must neither resolve
factual disputes nor make judgments of credibility; instead, all
“[i]nferences should be drawn in the light most favorable to the
non-moving party.” Big Apple BMW, Inc. v. BMW of N. Am.,
Inc., 974 F.2d 1358, 1362 (3d Cir. 1992).
(ii)
Under New Jersey law, “[c]onversion is essentially the
wrongful exercise of dominion and control over the property of
another in a manner inconsistent with the other person’s rights
in that property.” McAdam v. Dean Witter Reynolds, Inc., 896
F.2d 750, 771 (3d Cir. 1990) (citing Mueller v. Tech. Devices
Corp., 84 A.2d 620, 623 (N.J. 1951)). Therefore, “one of the
essential elements of the tort of conversion [is] ownership of
25
goods or chattels.” Boccone v. Eichen Levinson, LLP, No. 04-
3871, 2006 U.S. Dist. LEXIS 94475, at *20, 2007 WL 77328,
at *7 (D.N.J. Dec. 26, 2006).
The District Court found that if the certificated securities
were “properly customer property under SIPA,” Bankr. Ct. Op.
15, App. 392a, then, as a matter of law, they could not have
been the property of Ms. Peloro at the time that the alleged
conversion took place.10 The court reasoned that:
Here, Ms. Peloro asserts an unlawful conversion
claim, which, under New Jersey law, is defined as
an unauthorized assumption and exercise of the
right of ownership over goods or personal chattels
belonging to another, to the alteration of their
condition or the exclusion of an owner’s rights.
Proving that property has been converted
therefore requires, inter alia, resolution of the
issue which party has the right to possess the
property.
D. Ct. Op. 13–14, App. 15a–16a. Based on this analysis, the
10
R.H. and the Trustee did not come into
possession of the certificated securities until “on
or about July 24, 1997,” D. Ct. Op. 6, App. 8a,
well after qualifying assets held by FIEC had
become customer property—which occurred
either at the filing of the complaint by the SEC
against FIEC on March 6, 1997 or at the
commencement of liquidation proceedings on
March 10, 1997.
26
District Court concluded that the prior adjudication by the
Bankruptcy Court required a finding against Ms. Peloro on the
issue of which party had the “right to possess the property”:
The issue before the Bankruptcy Court was
whether the Bearer Bonds in issue constituted
“customer property,” and the Bankruptcy Court
held that they were indeed “customer property,”
which means that the Bankruptcy Court
determined that they were not the property of Ms.
Peloro. . . . Because the Bankruptcy Court has
already resolved this issue against Ms. Peloro,
Ms. Peloro is precluded from rearguing that she
has the right to possess the Bearer Bonds.
D. Ct. Op. 14, App. 16a.
We agree with the District Court’s analysis. The
essential question is whether the certificated securities were—by
operation of law under SIPA—already “customer property” at
the point at which the Trustee and/or R.H. allocated them to the
joint account. If the securities were “properly customer
property” at the time they were received by R.H. and the
Trustee, then the securities were part of the FIEC bankruptcy
estate’s customer property fund and were not Ms. Peloro’s
personal property, with the result that the actions of R.H. and the
Trustee could not qualify as conversion under New Jersey law.
27
Thus, if the District Court was correct in finding itself
bound by the Bankruptcy Court’s determination that the
certificated securities were customer property, then the District
Court was also correct in granting summary judgment in favor
of the Trustee and R.H. We now consider whether the District
Court was correct in finding that issue preclusion barred
relitigation of the customer property issue.
(iii)
Issue preclusion, or collateral estoppel, prevents parties
from relitigating an issue that has already been actually litigated.
“The prerequisites for the application of issue preclusion are
satisfied when: ‘(1) the issue sought to be precluded [is] the
same as that involved in the prior action; (2) that issue [was]
actually litigated; (3) it [was] determined by a final and valid
judgment; and (4) the determination [was] essential to the prior
judgment.’” Burlington Northern Railroad Co. v. Hyundai
Merch. Marine Co., 63 F.3d 1227, 1231–32 (3d Cir. 1995)
(quoting In re Graham, 973 F.2d 1089, 1097 (3d Cir. 1992));
see also Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5
28
(1979).11 In its classic form, collateral estoppel also required
“mutuality”—i.e., that the parties on both sides of the current
proceeding be bound by the judgment in the prior proceeding.
Parklane Hosiery, 439 U.S. at 326–27. Under the modern
doctrine of non-mutual issue preclusion, however, a litigant may
also be estopped from advancing a position that he or she has
presented and lost in a prior proceeding against a different
adversary. See Blonder-Tongue Labs., Inc. v. Univ. of Ill.
Found., 402 U.S. 313, 324 (1971); Parklane Hosiery, 439 U.S.
at 329. For defensive collateral estoppel—a form of non-mutual
issue preclusion—to apply, the party to be precluded must have
had a “full and fair” opportunity to litigate the issue in the first
action. See Parklane Hosiery, 439 U.S. at 328, 332; Blonder-
Tongue Labs, 402 U.S. at 331, 333.
11
We “follow the federal rule that the law of
the issuing court—here, federal law—determines
the preclusive effects of a prior judgment.”
Paramount Aviation Corp. v. Agusta, 178 F.3d
132, 145 (3d Cir. 1999); see also Burlington
Northern Railroad, 63 F.3d at 1231 (“[W]e apply
federal common law principles of issue preclusion
since we are examining the issue preclusive effect
of a prior federal court action”).
29
Ms. Peloro objected to the Trustee’s denial of her claim,
and the Bankruptcy Court decided against Ms. Peloro, finding
“that the two securities at issue here, [the Ashland and Coleman
securities,] were properly customer property under SIPA.”
Bankr. Ct. Op. 15, App. 392a. The District Court found that, as
to the Trustee, Ms. Peloro was barred from relitigating the
question of whether the bonds were “properly customer
property,” because she had litigated the same issue against the
same party in the earlier bankruptcy proceeding. Applying the
doctrine of non-mutual issue preclusion, the court further found
that “[b]ecause no facts indicate that Ms. Peloro did not have a
full and fair opportunity to litigate this issue in the prior
bankruptcy proceeding, preclusion of claims against R.H. is
appropriate in this case.” D. Ct. Op. 14, App. 16a. We agree.
All of the “prerequisites for the application of issue
preclusion” identified in Burlington Northern Railroad are
present here. Cf. Katchen v. Landy, 382 U.S. 323, 334 (1966)
(“The normal rules of res judicata and collateral estoppel apply
to the decisions of bankruptcy courts.”); cf. also Bd. of Trustees.
30
v. Centra, 983 F.2d 495, 505–506 (3d Cir. 1992) (giving issue
preclusive effect to bankruptcy court order in subsequent district
court preceding). The issue “sought to be precluded” in the
District Court was the same as that in the Bankruptcy Court
proceeding—whether, at or before the time that the Trustee and
R.H. allocated the securities to Ms. Peloro’s joint account, they
were already “customer property under SIPA.”12 Further, the
issue was “actually litigated” by Ms. Peloro before the
Bankruptcy Court, and she had a full and fair opportunity to
12
Although only the Ashland and Coleman
securities were at issue in the Bankruptcy Court
proceedings, Ms. Peloro does not advance any
argument for treating the Brevard security in a
different manner. We find that the issue decided
by the Bankruptcy Court—whether the
certificated securities delivered by Ms. Peloro to
FIEC and seized by the FBI were “properly
customer property under SIPA”—is broad enough
to preclude relitigation of the issue as to all of the
certificated securities, including the Brevard
security. See Restatement (Second) of Judgments
§ 27, cmt. c (1982) (providing that, in considering
the “dimensions of an issue” for purposes of issue
preclusion, a court should ask, inter alia, “Is there
a substantial overlap between the evidence or
argument to be advanced in the second
proceeding and that advanced in the first?” and
“How closely related are the claims involved in
the two proceedings?”).
31
present her claims. See supra Part II.A. Following a hearing,
the Bankruptcy Court entered a “final and valid judgment” in
the form of an order affirming the Trustee’s determination of
claim. See In re A & P Diversified Techs. Realty, 467 F.3d 337,
341 (3d Cir. 2006) (bankruptcy court orders allowing or denying
claims are final and appealable).13 Finally, we find that the
customer property issue was essential to the Bankruptcy Court’s
judgment. Because the filing of a SIPA claim form would only
be required in regard to customer property, the determination
that the bonds were customer property was a necessary
ingredient of the Bankruptcy Court’s further holding that Ms.
Peloro’s claim form was untimely. See Bankr. Ct. Op. 13, App.
390a (“Ms. Peloro’s threshold argument and a decisive point
here is that the bonds in question are not customer property
under SIPA.”); see also Bankr. Ct. Op. 15, App. 392a (“[The
securities at issue] were properly customer property under SIPA,
and as such, a SIPA claims form was required to be submitted
13
As noted above, see supra Part II.A, Ms.
Peloro did not appeal the Bankruptcy Court’s
decision.
32
on or before November 19, 1997 in order . . . to assert a timely
SIPA claim.”).
In sum, the District Court correctly found that Ms. Peloro
is not entitled to another bite of the apple on the customer
property issue and that the settled status of the certificated
securities as customer property forecloses Ms. Peloro’s claim for
conversion against the Trustee. In addition, because Ms. Peloro
was bound by the Bankruptcy Court’s decision after receiving
a full and fair opportunity to litigate the status of the bonds, the
principle of defensive non-mutual issue preclusion bars her from
relitigating the issue against R.H. as well. See Blonder-Tongue
Labs, 402 U.S. at 349; Lynne Carol Fashions, Inc. v. Cranston
Print Works Co., 453 F.2d 1177, 1182 (3d Cir. 1972).
B.
We now turn to Ms. Peloro’s claim that the District Court
erred in dismissing her claim against the federal defendants
seeking the return of the certificated securities pursuant to
Federal Rule of Criminal Procedure 41(g). The District Court
granted the federal defendants’ motion to dismiss Peloro’s Rule
33
41(g) claim, finding that there were no provable circumstances
under which relief could be granted, “[b]ecause the United
States cannot return the Bearer Bonds or be sued for money
damages under Rule 41(g).” D. Ct. Op. 16, App. 18a.
Rule 41(g) provides that “[a] person aggrieved by an
unlawful search and seizure of property or by the deprivation of
property may move for the property’s return.” Fed. R. Crim. P.
41(g).14 However, while the district courts have jurisdiction to
hear claims brought under Rule 41(g), see supra Part III, the
remedies available under that rule are limited. Because it
14
The full text of Rule 41(g) is as follows:
(g) Motion to Return Property. A
person aggrieved by an unlawful
search and seizure of property or by
the deprivation of property may
move for the property’s return. The
motion must be filed in the district
where the property was seized. The
court must receive evidence on any
factual issue necessary to decide
the motion. If it grants the motion,
the court must return the property
to the movant, but may impose
reasonable conditions to protect
access to the property and its use in
later proceedings.
Fed. R. Crim. P. 41(g).
34
“provides for one specific remedy—the return of property,” we
have held that Rule 41(g) does not constitute consent by the
United States to be sued for money damages. Bein, 214 F.3d at
413 (“Sovereign immunity protects the Government from suit
except insofar as it has waived that immunity. A waiver must be
expressed unequivocally in statutory text and will not be
implied.”).
Nevertheless, we have emphasized that “[t]he question of
remedies should arise only after the district court has
investigated the status of the seized property.” United States v.
Albinson, 356 F.3d 278, 283 (3d Cir. 2004), and that therefore
“a motion for return of property is not rendered moot merely
because the government no longer possesses the seized
property.” United States v. Chambers, 192 F.3d 374, 377 (3d
Cir. 1999). Rather, “[i]f . . . the government asserts that it no
longer has the property sought, the District Court must
determine, in fact, whether the government retains possession of
the property; if it finds that the government no longer possesses
the property, the District Court must determine what happened
35
to the property.” Albinson, 356 F.3d at 281 (quoting Chambers,
192 F.3d at 378).15
Although Rule 41(g) provides that “[t]he court shall
receive evidence on any issue of fact necessary to the decision
of the motion,” the two-part inquiry described in Chambers does
not require that “a district court . . . necessarily conduct an
evidentiary hearing on every Rule 41(g) motion.” Albinson, 356
F.3d at 281. A hearing is required only if needed to determine
a “disputed issue of fact necessary to the resolution of the
motion.” Id. at 282 (quoting Chambers, 192 F.3d at 378).
In Albinson, we remanded because—while it was
undisputed in that case that the government no longer possessed
the property in issue—the district court “did not address the
15
We have explained that even where the
ultimate availability of court-ordered relief is
highly unlikely, this two-part Chambers inquiry
“offers certain beneficial effects” in that (a) it
may result in a finding that the government does,
in fact, possess the property in question; or (b) it
may result in other benefits to movants,
individually and as a class—such as uncovering
violations by government officers, identifying
third parties in possession of the property, and
encouraging accurate inventory-keeping by the
government. See Albinson, 356 F.3d at 283, 284.
36
remainder of the Chambers inquiry regarding ‘what happened
to the property.’” Id. (quoting Chambers, 192 F.3d at 378). We
held that an evidentiary hearing—or at least the receipt of
affidavits or other “verified documentary evidence”—was
required in those circumstances and thus remanded the case to
the district court for further factual determination. By contrast,
in this case not only is it undisputed that the federal defendants
no longer have possession of the certificated securities, but it is
equally clear “what happened to the property.” Ms. Peloro has
repeatedly acknowledged in court filings that “[o]n or about July
24, 1997 the Certificated Securities were returned by the FBI to
R.H. Research Inc. who was retained by the Trustee for the
liquidation of the FIEC.” Am. Compl. ¶ 26, App. 36a; Pl.’s
Resp. to Def.’s Statement of Mat. Facts ¶ 21, App. 408a. The
District Court adopted this language almost verbatim in its
findings of fact. See D. Ct. Op. 6, App. 8a.
Because there was no dispute as to the fact that the
certificated securities had been transferred by the federal
defendants to R.H. and/or the Trustee more than six years before
37
Ms. Peloro filed suit under Rule 41(g), the District Court was
within its discretion to determine these facts without a hearing,
and the determination of these facts satisfied its responsibility
under Chambers. Further, having made this determination, the
District Court correctly concluded that—because the federal
defendants could neither return the securities nor be sued for
money damages under Rule 41(g)—no set of provable facts
existed under which Ms. Peloro would be entitled to a remedy.
The District Court therefore properly dismissed Ms. Peloro’s
Rule 41(g) claim against the federal defendants.
V.
For the reasons stated, we will affirm the District Court’s
October 14, 2004 order granting the Trustee’s and R.H.’s
motions for summary judgment, granting the federal defendants’
motion to dismiss, and dismissing all claims with prejudice.
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38