Peloro v. FBI

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Precedential or Non-Precedential: Precedential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.

__________

38