Kevin Potter v. David Newkirk ( 2020 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 19-1728
__________
KEVIN POTTER;
MARGUERITE POTTER, Delmarva Enterprise,
Appellants
v.
DAVID NEWKIRK; ROBERT ROBBINS; JOSE RODRIGUEZ;
DARRELL MEYERS; ROBERT A. AUSTINO; NORMAN FRANKEL, JR.;
DENNIS D'AUGOSTINE; ARNALDO ESCOBAR; SHARRON BURNETT;
THOMAS PERROTTI; PATRICIA SCHIERI; EVELYN NAVARRO;
TRACY MARGUGLIO; JOHN BRUNO; REX MOORE;
SIZEMORE MORRISSEY; CURTIS SHAFFER; JEFFREY MAYHEW;
PAULA STEWART; CARL TOZER; ADAM MILLER; WESTON WILLS;
MICHAEL MERCOGLIANA; JAMES SABELLA; JAMES MARTINE;
JOHN SCHWEIBINZ; CURTIS SHAFFER, II; MICHAEL GRECO;
DARRYL ELDRIDGE; CHRISTOPHER CARELLA; NICHOLAS MOORE;
ELIZABETH HOFFMAN; JOSEPH DRAGOTTA; MATTHEW JONES;
MILTON PERKINS; SCOTT UHLAND; KEITH COMER; TIMOTHY WOODS;
ERIK KELLY; MARK DILLON; MARIA MENDOZA-PERKINS;
BEVERLY DRAGOTTA; CRAIG JOHNSON; MICHAEL PANZINO;
RONALD CUSANO; BROCK HOWGATE; VINCENT SOLAZZO;
LAUREN TESORONI; HEATHER BOEHM; JACKIE READ;
KAREN CIFALOGLIO; BEVERLY ZOTTER; CHERI MANNO;
CHIARA CLEMENTE; SUZANNE TOBOLSKI; WILLIAM NARVAEZ;
CUMBERLAND SHERIFF'S DEPARTMENT;
CUMBERLAND COUNTY PROSECUTOR'S OFFICE;
JON REILLY; BRUCE J. DUKE; BRUCE J. DUKE LLC,
also known as THE DUKE LEGAL GROUP;
VITALITY GROUP, LLC; GEORGE R. LOOSE; DONNA L. LOOSE;
DOUGLAS J. GRANT; LANDIS TITLE CORPORATION
JANE DOES 1-10; JOHN DOES 1-10
____________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 1-17-cv-08478)
District Judge: Honorable Robert B. Kugler
____________________________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
January 27, 2020
Before: SHWARTZ, RESTREPO and RENDELL, Circuit Judges
(Opinion filed: February 4, 2020)
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O P I N I O N*
___________
PER CURIAM
Pro se appellants Kevin Potter and his mother, Marguerite Potter (the Potters),1
appeal from the District Court’s order dismissing their complaint for lack of subject
matter jurisdiction and from an order denying their motion for reconsideration. For the
following reasons, we will vacate the District Court’s judgment.
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
1
Although Marguerite Potter purports to proceed in this appeal on behalf of plaintiff
Delmarva Enterprises, a “designated and recorded sole proprietorship” she claims to own,
she may not do so because she is a pro se litigant, not an attorney. See Simbraw v.
United States, 367 F.2d 373, 373 (3d Cir. 1966) (per curiam). We dismiss Delmarva
Enterprises’ appeal for failure to prosecute.
2
In 2007, Kevin Potter filed a Chapter 7 bankruptcy petition in the Bankruptcy
Court for the Middle District of Florida in which he claimed that he had no assets and
that “his former residence,” real property located at 13104 West Buckshutem Road,
Millville, New Jersey (“the New Jersey property”), had been “deed[ed] to” Delmarva
Enterprises. In March 2010, in a collateral adversarial proceeding, the Bankruptcy Court
entered an order setting aside the transfer of the property as fraudulent; it found that the
property was part of the bankruptcy estate and that Marguerite Potter and Delmarva
Enterprises had no interest in, or lien claim on, the property. See Appellee Cumberland
Cty. Prosecutor’s Office and Jon M. Reilly’s Suppl. App. (SA) Vol. I at 1-2. In an order
entered July 11, 2011, the Bankruptcy Court granted the bankruptcy trustee’s motion to
compel Kevin Potter and his family to vacate the New Jersey property, directed “the
Debtor, Mrs. Potter, and anyone claiming an interest by, through, or under them, to
vacate the property within thirty days,” and directed that the order “shall be enforced
through the courts of the state of New Jersey.” Id. at 11.
The Potters failed to vacate the property, and, in August 2011, the bankruptcy
trustee filed an ejectment action in the Superior Court of New Jersey. On October 19,
2011, the day before the scheduled eviction, Marguerite Potter filed a Chapter 13
bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey.
The Potters were evicted from the property on October 20, 2011.
Six years later, the Potters brought this action in the District Court alleging that the
New Jersey property was part of Marguerite Potter’s Chapter 13 bankruptcy estate and
that the defendants violated an automatic bankruptcy stay issued pursuant to 11 U.S.C.
3
§ 362(a)(1) and conspired to “conduct an armed home/business invasion and seizure of
[their] entire estates.” The complaint named over 60 defendants and also included state
law claims for conversion, trespass, tortious interference with contractual relationships,
unlawful interference with prospective economic advantage, malicious prosecution and
breach of contract. As a basis for their action, the Potters asserted jurisdiction pursuant to
28 U.S.C. §§ 1331, 1334, 1337, and supplemental jurisdiction pursuant to 28 U.S.C.
§ 1367.
The District Court, noting the Potters’ long and vexatious litigation history,2
entered a show cause order directing them to substantiate the legal and factual basis for
their claims by presenting competent evidence that, inter alia, they owned the property at
issue at all relevant times, and the alleged “raid” was not a proceeding taken pursuant to
an order of a court of competent jurisdiction. After the Potters responded, the District
Court sua sponte concluded that it lacked subject matter jurisdiction over their claim,
brought pursuant to 11 U.S.C. § 362(k), for a willful violation of the automatic
bankruptcy stay; such a claim, it determined, was in the exclusive jurisdiction of the
bankruptcy court. The District Court, declining to exercise supplemental jurisdiction
2
The District Court noted that the Potters were subject to pre-filing injunctions in three
different states, and that Kevin Potter had recently “frivolous[ly]’” sued 144 defendants
in New Jersey,” that he was “judgment proof” because of a bankruptcy, and, therefore,
not deterred by sanctions, and that he had spent 30 days in jail for harassing, among
others, defendant Jon Reilly. S.A. Vol. I at 20-21.
4
over the remaining state law claims, dismissed the complaint for lack jurisdiction. The
District Court also denied the Potters’ motion to amend the complaint, and, in ruling on a
motion for a preliminary injunction, cited their abusive litigation history and directed
the Potters to show cause why they should not be enjoined from filing any further
lawsuits relating to the New Jersey property without prior approval from the Court. The
Potters filed a timely post-judgment motion for relief and a motion to compel the District
Court to transfer the matter to the Bankruptcy Court. In the same order, the District
Court denied the post-judgment motion, which it construed as a motion for
reconsideration pursuant to Fed. R. Civ. P. 59(e), and the motion to compel. This timely
appeal ensued.
We have jurisdiction pursuant to 28 U.S.C. § 1291. We exercise de novo review
over the District Court’s dismissal of the complaint for lack of subject matter jurisdiction.
See U.S. S.E.C. v. Infinity Grp. Co., 212 F.3d 180, 186 & n.6 (3d Cir. 2000). We
generally review the denial of a motion for reconsideration for abuse of discretion, but, to
the extent that the denial is predicated on an issue of law, we review de novo. See Max’s
Seafood Cafe ex rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 673 (3d Cir. 1999).
The filing of a bankruptcy petition triggers the automatic stay – a hallmark of
bankruptcy protection – which operates to prevent creditors from taking any collection
actions for pre-petition debts against the debtor or property of the debtor’s estate. See 11
U.S.C. § 362(a). When an individual is injured by a willful violation of an automatic
stay, 11 U.S.C. § 362(k) provides a cause of action for damages. As the parties note on
appeal, federal courts disagree as to whether district courts have subject matter
5
jurisdiction over § 362(k) proceedings. Compare Houck v. Substitute Trustee Servs.,
Inc., 791 F.3d 473, 481-82 (4th Cir. 2015) (“A claim under § 362(k) for violation of the
automatic stay is a cause of action arising under Title 11, and as such, a district court has
jurisdiction over it.”), Justice Cometh Ltd. v. Lambert, 426 F.3d 1342, 1343 & n. 2 (11th
Cir. 2005) (per curiam) (same), and Price v. Rochford, 947 F.2d 829, 832 n.1 (7th Cir.
1991) (same), with Eastern Equip. & Servs. Corp. v. Factory Point Nat’l Bank, 236 F.3d
117, 121 (2d Cir. 2001) (per curiam) (holding that § 362(k) claim “must be brought in the
bankruptcy court” because the district court “only has appellate jurisdiction over
bankruptcy cases”) and In re Aleckna, 543 B.R. 717, 719-20 (Bankr. M.D. Pa. 2016).
The District Court relied on Aleckna in concluding that a § 362(k) action is within the
exclusive province of a bankruptcy court, and that it only has appellate jurisdiction over
such a claim.
Congress has provided district courts with “original and exclusive jurisdiction of
all cases under Title 11,” and “original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to cases under title 11.” 28
U.S.C. § 1334(a), (b). While a district court is authorized to refer matters to a bankruptcy
court, see 28 U.S.C. § 157(a), that provision is not jurisdictional. See Stern v. Marshall,
564 U.S. 462, 480 (2011) (noting that § 157 “allocates the authority to enter final
judgment between the bankruptcy court and the district court” but that it “does not
implicate questions of subject matter jurisdiction”).3 We have recently held that an action
3
For this reason, a standing referral order entered pursuant to § 157(a) automatically
referring bankruptcy matters to the bankruptcy court (such as the one issued by the
6
under § 362(k) for violation of an automatic stay is an independent private cause of
action which need not be litigated as part of the bankruptcy proceeding. See In re
Healthcare Real Estate Partners, LLC, 941 F.3d 64, 70-71 (3d Cir. 2019). In so holding,
we cited with approval the Eleventh Circuit’s opinion in Justice Cometh Ltd., for the
proposition that “district courts have original jurisdiction over § 362(k) actions because
they are ‘cases’ under title 11, which then could be referred to the bankruptcy court under
§ 157(a).” Id. at 70. As we concluded, “a § 362(k) action no matter when instituted is a
case under title 11.” Id. As such, a district court has jurisdiction to entertain it. The
District Court lacked the benefit of In re Healthcare when it determined that it lacked
subject matter jurisdiction to consider the Potters’ § 362(k) claim.
We have considered whether the § 362 claim is too insubstantial to invoke federal
jurisdiction, as Appellees Landis Title, Inc., and Douglas J. Grant argue. See Hagans v.
Lavine, 415 U.S. 528, 536-37 (1974). While the issue is close,4 we cannot say that the
District Court) does not affect the District Court’s subject matter jurisdiction over cases
or proceedings arising under Title 11. See Houck, 791 F.3d at 482-83 (noting that the
Supreme Court has observed that Ҥ 157 is little more than a traffic regulator, directing
where adjudication of bankruptcy matters can take place” and that any breach of § 157
would ‘not implicate questions of subject matter jurisdiction.’”) (quoting Stern, 564 U.S.
at 480); see also United States District Court for the District of New Jersey, Standing
Order of Reference, dated July 23, 1984, amended September 18, 2012.
4
The mainstay of the Potters’ claim – that the defendants violated the automatic stay by
seizing the New Jersey property – is foreclosed by the orders of the Florida Bankruptcy
Court discussed supra. See Hannis Distilling Co. v. Baltimore, 216 U.S. 285, 288 (1910)
(noting that a claim is insubstantial if previous decisions “foreclose the subject and leave
no room for the inference that the questions sought to be raised can be the subject of
controversy”). As the District Court noted, the Potters “grossly mischaracterize[d]” those
orders which make clear that the New Jersey property was part of Kevin Potter’s
bankruptcy estate, not Marguerite’s.
7
District Court lacked subject-matter jurisdiction on this basis. See Kulick v. Pocono
Downs Racing Ass’n, 816 F.2d 895, 899 (3d Cir. 1987) (recognizing that “[d]ismissal for
lack of jurisdiction is not appropriate merely because the legal theory alleged is probably
false”) (citation omitted). In particular, assuming it was timely filed, the complaint can
be read to allege that defendants violated the automatic stay with respect to personal
property belonging only to Marguerite Potter,5 a claim which is not insubstantial on its
face. See generally Houck, 791 F.3d at 484.
The existence of subject matter jurisdiction, however, does not mean that the
Potters are entitled to relief. For example, if Marguerite Potter’s bankruptcy petition was
filed in bad faith in an effort to thwart both the Florida Bankruptcy Court’s orders and
foreclosure of the New Jersey property, any actions taken in violation of the automatic
stay would be void. See In re Myers, 491 F.3d 120, 128 (3d Cir. 2014). Under those
circumstances, a court could “retroactively ratify violations of the automatic stay by
annulling the stay.” Id. However, that possible eventuality does not mean the complaint
was subject to dismissal for lack of subject matter jurisdiction under Rule 12(b)(1).
Finally, the District Court, accurately noting that the Potters had engaged in
abusive, groundless, and vexatious litigation “up and down the Eastern seaboard,”
contemplated using its equitable powers to enjoin them from filing any future litigation
with respect to the New Jersey property without prior authorization. See District Court’s
July 3, 2018 Op. at 7; see In re: Oliver, 682 F.2d 443, 445 (3d Cir. 1982). But, despite
5
See, e.g., Amended Complaint at ¶¶ 61, 66(d), (e).
8
the show cause order, no anti-filing injunction was entered, and Appellants have waived
any argument regarding the propriety of the show cause order by failing to raise it in their
brief. See Kost v. Kozakiewicz, 1 F.3d 176, 182-83 & n.3 (3d Cir. 1993); Simmons v.
City of Philadelphia, 947 F.2d 1042, 1065-66 (3d Cir. 1991).
Based on the foregoing, we conclude that the District Court erred in sua sponte
dismissing the complaint and denying the motion for reconsideration. We will vacate the
District Court’s judgment6 and remand the matter for proceedings consistent with this
opinion.7
6
We also vacate the District Court’s decision to deny the Potters’ motion to compel
transfer of the matter to the Bankruptcy Court, which was based on its erroneous
conclusion that it lacked subject matter jurisdiction.
7
The motions filed by Appellees’ Cumberland County Prosecutor’s Office and Jon M.
Reilly, and Appellees’ Landis Title, Inc., and Douglas J. Grant for leave to file a
supplemental appendix are granted and, to the extent that the motions sought to expand
the record on appeal pursuant to Fed. R. App. P. 10(e), they are denied as unnecessary.
9