Healthcare Real Estate Partner v.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 18-3267
______________
IN RE: HEALTHCARE REAL ESTATE PARTNERS, LLC,
Debtor
HEALTHCARE REAL ESTATE PARTNERS, LLC,
Appellant
v.
SUMMIT HEALTHCARE REIT, INC.; JOHN JACOB
SPECKMANN; ARNOLD GOLDENBAUM; MARK
SAULIC; BRYAN TAYLOR; RICHARD G. PETERS, AS
TRUSTEE OF RICHARD & DARLENE PETERS TRUSTS;
LEROY J. BLAKE, AS TRUSTEE OF LEROY J. BLAKE &
LINDA J. BLAKE FAMILY TRUST; ROXIE M. BYBEE,
AS TRUSTEE OF ROXIE M. BYBEE TRUST, DATED
JULY 5, 2012; JAMES D. FRANKLIN, AS TRUSTEE OF
JAMES D. FRANKLIN TRUST; JOHN BAIKIE, AS
TRUSTEE OF JOHN THOMAS BAIKIE REVOCABLE
TRUST
______________
On Appeal from the United States District Court
for the District of Delaware
(D.C. Civ. No. 1-17-cv-01555)
Honorable Malachy E. Mannion, District Judge
______________
Argued June 27, 2019
BEFORE: CHAGARES, GREENAWAY, JR., and
GREENBERG, Circuit Judges
(Filed: October 22, 2019)
______________
Robert P. Goe
Goe & Forsythe
18101 Von Karman Avenue
Suite 1200
Irvine, CA 92612
Christopher D. Loizides [Argued]
Loizides
1225 King Street
Suite 800
Wilmington, DE 19801
Counsel for Appellant
2
Stuart M. Brown
R. Craig Martin [Argued]
DLA Piper
1201 North Market Street
Suite 2100
Wilmington, DE 19801
Counsel for Appellees
______________
OPINION
______________
GREENBERG, Circuit Judge.
I. INTRODUCTION
This matter comes on before this Court on an appeal by
appellant Healthcare Real Estate Partners, LLC, (“Healthcare”)
challenging the District Court’s order affirming a bankruptcy
court’s dismissal under Fed. R. Civ. P. 12(b) of Healthcare’s
adversary proceeding filed under 11 U.S.C. § 362(k) seeking
damages for violation of the automatic stay that arose by reason
of the institution of the bankruptcy proceedings. See 11 U.S.C.
§ 362(a). Healthcare contends that neither the District Court nor
the bankruptcy court had a valid reason to dismiss its § 362(k)
action without addressing its merits. For the reasons stated
below, we agree with Healthcare, and thus we will reverse the
District Court’s order and remand the case to that Court to
reinstate Healthcare’s § 362(k) action.
3
II. FACTUAL BACKGROUND
We rely on the District Court’s recitation of the facts in
its opinion affirming the order of the bankruptcy court
dismissing the § 362(k) action. See Healthcare Real Estate
Partners, LLC v. Summit Healthcare Reit, Inc., No. 17-1555,
2018 WL 4500880, at *1-2 (D. Del. Sept. 19, 2018) (“HREP”).
Nevertheless, we summarize the relevant facts. Healthcare was
the manager of certain investment funds. On September 16,
2015, the investors in the funds, petitioning creditors in the
bankruptcy court, filed an involuntary bankruptcy petition
against Healthcare with the intention of seeking its removal as
the fund manager. Because Healthcare had not been served with
process in the bankruptcy case, it did not receive notice of the
filing of the petition which consequently was uncontested and
the bankruptcy court entered an order for relief on the petition.
Subsequently, Healthcare was removed as the fund manager,
and the investors installed Summit Healthcare Reit, Inc.
(“Summit”) as the new fund manager. Summit then dissolved
the funds. The petitioning creditors and Summit are the
appellees on this appeal.1
About a month later, obviously having learned what had
transpired, Healthcare filed a motion with the bankruptcy court,
seeking to vacate the bankruptcy court’s order for relief on the
petition due to the faulty service of process on it. The
bankruptcy court held an evidentiary hearing on the motion
which it then granted, vacating its prior order for relief. Then,
1
The clerk of this Court entered an order on November 6, 2018,
providing that Summit’s attorney shall be the designated filer for
all appellees.
4
having achieved their objective, appellees moved to voluntarily
dismiss the petition. Healthcare opposed dismissal asserting that
it had claims for damages against appellees under 11 U.S.C. §
303(i) because it contended that the petitioning creditors had
filed the petition in bad faith.2 The bankruptcy court granted the
motion for voluntary dismissal, but retained jurisdiction in the
order of dismissal in which it included a provision stating that
“nothing herein shall limit [Healthcare’s] right to seek damages,
including without limitation, fees and costs, pursuant to 11
U.S.C. § 303(i) or otherwise.” HREP at *2. The court,
however, did not explain what it meant by “or otherwise.” The
parties treat the meaning of this term as the major issue on this
appeal though, as will be seen, we take a different approach.
Thereafter, Healthcare filed a motion in the bankruptcy
court seeking § 303(i) damages. It also instituted an adversary
proceeding against appellees asserting § 362(k) claims for
2
Healthcare contends that it informed the bankruptcy court of its
intention to assert claims under 11 U.S.C. § 362(k) for violation
of the automatic stay provision of the bankruptcy code. After
the investors removed Healthcare as the fund manager and
installed Summit as the new fund manager, the fund was
dissolved without the bankruptcy court’s knowledge. On the
appeal, the District Court rejected Healthcare’s assertion that it
had made its intentions regarding § 362(k) known to the
bankruptcy court. HREP, 2018 WL 4500880, at *1
(“[Healthcare] did not state in its objection that it would also
seek damages under § 362(k).”). Because we need not resolve
this factual dispute, we will assume, as the District Court found,
that Healthcare did not reveal its intentions about § 362(k)
claims during its opposition to the voluntary dismissal of the
petition.
5
violation of the automatic stay that arose in the bankruptcy
proceedings when the petition was filed because of the removal
of Healthcare as the fund manager and the installation of
Summit in that role without an order of the court. The appellees
moved to dismiss the § 362(k) action, arguing that it was outside
of the scope of the bankruptcy court’s order dismissing the
petition which they asserted allowed Healthcare to seek only §
303(i) damages. The bankruptcy court agreed, stating that “the
Court [has] authority to limit you for what you can bring after
dismissal of the case, and that’s what I intended to do.” HREP,
2018 WL 4500880, at *5. That court made clear that when it
dismissed the petition its intent was to allow Healthcare to bring
a claim for damages only under § 303(i). Therefore, the court
dismissed the § 362(k) action on October 19, 2017, and, on
Healthcare’s appeal, the District Court affirmed on September
19, 2018, largely by adopting the bankruptcy court’s reasoning.
This appeal followed.
III. DISCUSSION
In dismissing Healthcare’s § 362(k) action, the
bankruptcy court, and thus the District Court in reliance on the
bankruptcy court’s reasoning held that (1) the bankruptcy court
lacked jurisdiction over the § 362(k) claims because when it
dismissed the petition, it retained jurisdiction only over the §
303(i) claims, and (2) even if it could have retained jurisdiction
over the § 362(k) claims, it had discretion to limit the claims
Healthcare could assert before it following the dismissal of the
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petition. We disagree in both respects.3
We start our discussion by addressing an argument that
appellees advance that we lack jurisdiction over this appeal.
Under their argument because the bankruptcy case will be
ongoing until the § 303(i) claims are resolved, which so far as
we are aware has not happened, the order dismissing the §
362(k) claims was not a final appealable order, as not all claims
asserted in the bankruptcy court have been resolved. See H.E. v.
Walter D. Palmer Leadership Learning Partners Charter Sch.,
873 F.3d 406, 411 (3d Cir. 2017). However, that argument
presumes that the § 362(k) claims must be part of the
bankruptcy case. But because, as we explain below, § 362(k)
actions are separate and apart from the related bankruptcy cases
in which they arise and thus stand on their own, we reject that
argument. After all, if Healthcare’s § 362(k) action is
independent of the overall bankruptcy proceedings, the dismissal
of the § 362(k) action would constitute a final order in both the
bankruptcy court and the District Court and thus would be
appealable to us, even if the underlying bankruptcy proceedings
are still pending in either of those courts. See 28 U.S.C. §§
3In the motion to dismiss filed with the bankruptcy court,
appellees did not specify what federal rule they were moving
under, nor did the bankruptcy court articulate which rule formed
the basis of its dismissal order. The District Court, on appeal,
categorized the motion as a Rule 12(b) motion, without
explicitly stating which subsection of Rule 12(b) applied. While
we believe the motion could have been filed under Rule 12(b)(1)
or 12(b)(6), ultimately the distinction is not significant here, as
we would exercise plenary review in either case. See In re
Schering Plough Corp. Intron/Temodar Consumer Class Action,
678 F.3d 235, 243 (3d Cir. 2012).
7
1291 & 158(d)(1).
Section 362(k) states, in relevant part, that “an individual
injured by any willful violation of a stay provided by this section
shall recover actual damages, including costs and attorneys’
fees, and, in appropriate circumstances, may recover punitive
damages.” 11 U.S.C. § 362(k)(1). That statute, at least not in
terms, does not require an action brought pursuant to it to be
filed in an existing bankruptcy proceeding. Though we have not
clearly addressed the question of whether § 362(k) actions must
be filed in an existing bankruptcy proceeding, other courts of
appeals have held that § 362(k) actions are separate and apart
from any related bankruptcy cases, and thus stand on their own.
In re Johnson, 575 F.3d 1079, 1083-84 (10th Cir. 2009); see
Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 481 (4th Cir.
2015); Price v. Rochford, 947 F.2d 829, 830-31 (7th Cir. 1991);
Pettitt v. Baker, 876 F.2d 456, 457-58 (5th Cir. 1989).
In reaching its conclusion that recognized the separate
status of § 362(k) actions, the Court of Appeals for the Tenth
Circuit in Johnson reasoned that:
It is particularly appropriate for bankruptcy courts
to maintain jurisdiction over § 362(k)(1)
proceedings because their purpose is not negated
by dismissal of the underlying bankruptcy case.
They still serve (a) to compensate for losses that
are not extinguished by the termination of the
bankruptcy case and (b) to vindicate the authority
of the statutory stay . . . . Requiring the dismissal
of a § 362(k)(1) proceeding simply because the
underlying bankruptcy case has been dismissed
would not make sense. A court must have the
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power to compensate victims of violations of the
automatic stay and punish the violators, even after
the conclusion of the underlying bankruptcy case.
Johnson, 575 F.3d at 1083 (citations omitted). The court went
on to explain that:
Nothing in the Bankruptcy Code mandates
dismissal of the § 362(k)(1) proceeding when the
bankruptcy case is closed . . . . No part of §
362(k)(1) suggests that a claim exists only while
the bankruptcy case remains pending. And when
Congress listed the effects of dismissing a
bankruptcy case, it included nothing about
automatically terminating the court’s jurisdiction
over all adversary proceedings or mooting
questions regarding § 362(k)(1) sanctions . . . .
[C]ontrary to [the creditor’s] assertions, we see no
basis for requiring a bankruptcy court to state
explicitly that it is retaining jurisdiction over a §
362(k)(1) adversary proceeding when it dismisses
an underlying [bankruptcy] case, or for requiring
[the debtor] to move to reopen the [bankruptcy]
case to pursue the § 362(k)(1) adversary
proceeding.
Id. at 1084 (internal quotations and citations omitted). We agree
with the Johnson court’s reasoning, and except in one respect
that we set forth below adopt it here. We do not discern any
9
reason why a determination of whether an automatic stay had
been violated must be litigated as part of the bankruptcy
proceedings.
We, however, question Johnson to the extent it can be
construed as stating that § 362(k) actions only can be “core
proceedings” under the bankruptcy code. Id. at 1083. The
jurisdictional statute for bankruptcy courts states that
“[b]ankruptcy judges may hear and determine 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).
The statute clearly differentiates between “cases” under title 11
and “core proceedings” under title 11. This distinction is
unsurprising, as bankruptcy cases are unique in the federal
system. Courts in bankruptcy cases routinely adjudicate
contract, probate, property, and other state-law claims without
regard for the diversity of the parties’ citizenship if the
resolution of matters in dispute is appropriate in the disposition
of a bankruptcy case. Thus, the “core proceeding” clause of §
157(b)(1) vests jurisdiction in a bankruptcy court to adjudicate
claims over which it otherwise would not have jurisdiction. See
§ 157(b)(2) (listing examples of core proceedings); Halper v.
Halper, 164 F.3d 830, 836 (3d Cir. 1999). Indeed, appellees rely
on this point to argue that the bankruptcy court could not have
jurisdiction over the § 362(k) action because its jurisdiction over
any claim necessarily derives from the existence of a bankruptcy
case and the bankruptcy court dismissed the bankruptcy case
prior to the institution of the § 362(k) proceeding.
While the statutes certainly allow a bankruptcy court to
adjudicate § 362(k) claims as “core proceedings,” they do not
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require plaintiffs to bring such claims in that fashion. As we
stated above, nothing in § 362(k) requires that an action filed
under that provision be part of an existing bankruptcy
proceeding. Instead, a § 362(k) action is an independent private
cause of action, meant to vindicate the right of a debtor to an
automatic stay during a bankruptcy proceeding. Therefore, even
if a bankruptcy court’s jurisdiction over a § 362(k) action is not
predicated on the “core proceeding” clause of § 157(b)(1), its
jurisdiction can be based on the express grant of jurisdiction to
the bankruptcy courts in § 157(b)(1) that they “may hear and
determine all cases under title 11[.]” As the Court of Appeals
for the Fifth Circuit explained,
We are cognizant that there are scant primary or
secondary authorities applying or discussing [§
362(k)]. Nor is there a plethora of enlightening
references in the relevant legislative history. We
do not consider such essential, however, to
today’s task. To hold that [§ 362(k)] does not
create a private right of action would require us to
ignore its plain and express language. As we read
that language, we cannot but conclude that
Congress established a remedy for an individual
injured by a willful violation of a section 362(a)
stay.
Pettitt, 876 F.2d at 457-58. See Justice Cometh, Ltd. v.
Lambert, 426 F.3d 1342, 1343 (11th Cir. 2005) (finding 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)).
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Our result should not surprise anyone. After all, other
courts of appeals have held that § 362(k) creates independent
private causes of action. See, e.g., Houck, 791 F.3d at 481
(“Congress created a private cause of action for the willful
violation of a stay, authorizing an individual injured by any such
violation to recover damages.”); Price, 947 F.2d at 830-31 (“We
hold that 11 U.S.C. § 362([k]) creates a cause of action that can
be enforced after bankruptcy proceedings have terminated.”);
see also Garfield v. Cowen Loan Servicing, LLC, 811 F.3d 86,
91-92 (2d Cir. 2016) (indicating that § 362(k) creates a cause of
action for violations of the automatic stay provision). Put
another way, while the institution of a bankruptcy proceeding at
some point is necessary for the institution of a § 362(k) action,
the institution of a new or the continuation of an existing §
362(k) action does not depend on the continued existence of that
proceeding.
It is also notable that even though the court indicated in
Johnson that § 362(k) actions are core proceedings, in a
subsequent opinion the same court made clear that a § 362(k)
action brought while a bankruptcy proceeding was pending may
be continued after the dismissal of the related bankruptcy case.
In re Cowen, 849 F.3d 943, 947-48 (10th Cir. 2017). Curiously,
the Johnson court also stated that “[c]ore proceedings are
proceedings which have no existence outside of bankruptcy.
Actions which do not depend on the bankruptcy laws for their
existence and which could proceed in another court are not core
proceedings.” 575 F.3d at 1082. Therefore, while it is unclear
how the Court of Appeals for the Tenth Circuit would treat a §
362(k) action brought after the dismissal of the underlying
bankruptcy proceeding, it in no way held that a bankruptcy court
would not have jurisdiction in that scenario. In any event, as we
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have indicated the bankruptcy court had jurisdiction over
Healthcare’s § 362(k) adversary action even if a § 362(k)
proceeding is not a core proceeding because a § 362(k) action no
matter when instituted is a case under title 11. As such, the
District Court erred in finding that the bankruptcy court did not
have jurisdiction over Healthcare’s § 362(k) action.
Of course, our conclusion that § 362(k) creates a private
cause of action leads us to conclude that the bankruptcy court
and the District Court erred in holding the bankruptcy court had
the authority to limit what claims Healthcare could bring in the
bankruptcy court after the dismissal of the bankruptcy petition.
As a rule, federal courts must hear matters within their
jurisdiction. Sprint Commc’ns v. Jacobs, 571 U.S. 69, 77, 134
S.Ct. 584, 590-91 (2013). That rule applies to bankruptcy
courts. Congress authorized bankruptcy courts to exercise
jurisdiction based on referral from the district court. See 28
U.S.C. § 157(a). “When a case is referred under § 157(a),
Congress surely intends that all jurisdiction otherwise vested in
the district courts be exercised by the bankruptcy judges,” unless
§ 157 expressly provides otherwise. William L. Norton III, 1
Norton Bankr. L. & Prac. § 4:36 (3d ed. 2019); cf. Stern v.
Marshall, 564 U.S. 462, 480, 131 S.Ct. 2594, 2607 (2011)
(“Section 157 allocates the authority to enter final judgment
between the bankruptcy court and the district court. That
allocation does not implicate questions of subject matter
jurisdiction.” (citation omitted)). Hence, “[w]here a bankruptcy
court has jurisdiction but is not in a position to avail itself of
statutory or nonstatutory abstention, it must exercise its
jurisdiction,” In re Johnson, 346 B.R. 190, 194 (B.A.P. 9th Cir.
2006), assuming, of course, that the bankruptcy’s authority to
adjudicate the matter is constitutional under Stern.
13
Even if we view the bankruptcy court’s reasoning as
essentially being based on claim preclusion, on the theory that
because Healthcare did not assert its § 362(k) claims in the
bankruptcy case while those proceedings were pending it cannot
raise the claims in a later case, that observation would not lead
us to uphold the dismissal of the § 362(k) action. After all,
federal claim preclusion requires “(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.” In re Mullarkey, 536 F.3d 215, 225 (3d Cir. 2008)
(citation omitted). Here, the substantive issue to be decided in
the § 362(k) action was not litigated in the bankruptcy case.
Thus, even if we found that the § 303(i) claims are based on the
same cause of action as the § 362(k) action, which we certainly
do not,4 those claims are still pending and no final judgment on
their merits has issued. Accordingly, we cannot affirm the
District Court’s order finding that the bankruptcy court had
authority to bar Healthcare from filing its § 362(k) action on
claim preclusion grounds.
We have not ignored the fact that as we noted above, the
order dismissing the petition provided that “nothing herein shall
limit [Healthcare’s] right to seek damages, including without
4
Beyond the obvious fact that the § 303(i) and § 362(k) claims
arose from separate statutes, a determination of whether the
bankruptcy petition was initiated in bad faith, the issue on the §
303(i) motion, is completely different than a determination of
whether there was a violation of the automatic stay provision by
reason of Healthcare’s removal. While some of the same
underlying facts may be significant in both determinations,
proof of one does not necessarily constitute proof in the other.
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limitation, fees and costs, pursuant to 11 U.S.C. § 303(i) or
otherwise.” The bankruptcy court interpreted the order to
preserve Healthcare’s right to bring a motion for damages under
§ 303(i) but not its right to bring an action under § 362(k) for
violation of the automatic stay. On appeal the District Court
held that the bankruptcy court did not abuse its discretion in
coming to this conclusion. Consequently, that Court held that
the bankruptcy court did not err when it dismissed the § 362(k)
action. But we are not going to decipher the meaning of
“otherwise”, as it is immaterial.
In their brief, appellees recite that “[t]he sole issue on this
Appeal is whether the bankruptcy court has the power to
interpret its own orders.” Appellee’s br. at 8. This statement of
the issue is incorrect because we do not have to consider what
the bankruptcy court meant when it preserved Healthcare’s right
to seek damages “pursuant to § 303(i) or otherwise” inasmuch
as the dismissal of the bankruptcy proceedings in the bankruptcy
court did not foreclose a subsequent § 362(k) action by
Healthcare no matter what the bankruptcy court intended when
it dismissed the bankruptcy petition.
Our final observation is that the District Court in
reaching its result may have been relying in part on its view that
the § 362(k) action and the § 303(i) claims seek recovery for the
same injury. But that possibility does not affect our result for
the Court on the remand that we are ordering will be able to bar
a double recovery for the same injury even if Healthcare is able
to establish appellees’ liability on both bases. Furthermore, the
Court has the discretion to consolidate the two proceedings
under appropriate circumstances which seem to be present here.
An additional point is that even if a plaintiff can establish that a
defendant is liable for a single injury on two different bases that
15
does not mean that it can recover on both bases. After all, it is
axiomatic that a plaintiff may assert multiple claims for the same
injury; indeed, Healthcare may be able to establish liability on
one theory, but not the other. See Int’l Refugee Assistance
Project v. Trump, 883 F.3d 233, 258 (4th Cir. 2018) (“[T]he
same injury can provide Plaintiffs with standing for multiple
claims.”), rev’d on other grounds, 138 S.Ct. 2710 (2018).
IV. CONCLUSION
In summary, we conclude that the District Court erred in
affirming the bankruptcy court’s dismissal of Healthcare’s §
362(k) action. Accordingly, we will reverse the District Court’s
September 19, 2018 order, and will remand the matter to that
Court to reinstate the § 362(k) action. We do not preclude the
District Court from further remanding the case to the bankruptcy
court.
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