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IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA FOURTH
DISTRICT JULY TERM 2000
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CASE No. 4D99-2888
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Keywords: malicious prosecution, involuntary bankruptcy, preemption |
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September 13, 2000
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JOLIE MULLIN,
APPELLANT,
V.
JAMES B. ORTHWEIN, JR., AND PERCY J. ORTHWEIN,
APPELLEES.
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Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; James T. Carlisle, Judge; L.T. Case No. CL98-2325AE.
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Susan B. Yoffee of Fleming, Haile & Shaw, P.A., North Palm Beach,
for appellant. Bard D. Rockenbach of Sellars, Marion & Bachi, P.A.,
West Palm Beach, for appellees.
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The opinion of the court was delivered by: Per Curiam.
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We reverse the summary judgment entered in favor of appellees on the
authority of R.L. LaRoche, Inc. v. Barnett Bank of South Florida, 661
So. 2d 855 (Fla. 4th DCA 1995). Based on this record and
the rules pertaining to summary judgment, the bankruptcy court did not
consider the issue of a bad faith filing or damages, punitive or
otherwise, associated with that issue. See Londono v. Turkey Creek,
Inc., 609 So. 2d 14, 18 (Fla. 1992); Faircloth v. Garam, 525 So. 2d 474,
476 (Fla. 5th DCA 1988).
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STONE and POLEN, JJ., concur.
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GROSS, J., concurs specially with opinion.
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GROSS, J., concurring specially.
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I concur with the majority based on existing precedent. However, I
believe that R.L. LaRoche, Inc. v. Barnett Bank of South Florida, 661
So. 2d 855 (Fla. 4th DCA 1995), was wrongly decided so that this court
should recede from that decision en banc.
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This appeal arises from a final summary judgment rendered in favor of
James and Percy Orthwein on Jolie Mullin's claims of malicious
prosecution and intentional infliction of emotional distress. Absent
LaRoche, I would agree with the trial court that Mullin's claims were
preempted by the Bankruptcy Code.
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On March 13, 1998, Mullin filed her complaint in this case seeking
damages for malicious prosecution and intentional infliction of
emotional distress. Her complaint followed the bankruptcy court's
dismissal of the Orthweins' involuntary petition for bankruptcy against
her. Mullin's malicious prosecution count stated, in part:
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8. That on March 12, 1996, Case No.: 96-30959-BKC-SHF, in the United
States Bankruptcy Court for the Southern District of Florida was
commenced by the filing of the involuntary petition by James B. Orthwein,
Jr. and Percy J. Orthwein.
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1.The prior proceeding was terminated in favor of the present
Plaintiff by that certain Order on Petitioners' Motion for New Trial,
Rehearing or Reconsideration of Order Dismissing Involuntary Petition
and on Motion to Tax Fees and Costs dated March 7, 1997. . . . This
Order was affirmed on appeal pursuant to a Judgment of Judge Daniel T.K.
Hurley of the United States District Court for the Southern District of
Florida entered on January 12, 1998.
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10.That the Court's Order dated March 7, 1997 stated that
"dismissal of the instant involuntary petition nevertheless is
warranted on the basis that the involuntary petition has been commenced
and prosecuted in bad faith and for an inappropriate purpose."
There was an absence of probable cause for prosecution of the prior
proceeding by James B. Orthwein, Jr. and Percy J. Orthwein.
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11.The Defendants . . . instituted the prior proceeding with legal and
actual malice.
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12.That as a result of Defendants' actions and actual malice, the
Plaintiff Jolie Mullin is entitled to compensatory damages and to
punitive damages upon the requisite showing under Chapter 768, Florida
Statutes.
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The Orthweins' motion for summary judgment, filed on June 16, 1999,
asserted that the circuit court did not have jurisdiction due to
preemption by "the U.S. Bankruptcy Court's exclusive jurisdiction
over any claims arising out of the alleged improper filing of the
involuntary bankruptcy petition." In opposition to the motion, the
affidavit of James Telepman, Mullin's bankruptcy counsel, stated:
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4. At no time did Plaintiff, in the Bankruptcy Court, request or plead
for punitive damages or any other damages associated with the bad faith
filing by the Orthweins of the involuntary petition for bankruptcy,
other than for attorney's fees and costs.
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A court should not grant a motion for summary judgment unless the
moving party conclusively shows the absence of any genuine issue of
material fact. See McDonald v. Florida Dep't of Transp., 655 So. 2d
1164, 1167-68 (Fla. 4th DCA 1995). When reviewing a motion for summary
judgment, the trial court must draw every possible inference in favor of
the party against whom a summary judgment is sought. See Albelo v.
Southern Bell, 682 So. 2d 1126, 1129 (Fla. 4th DCA 1996). Summary
judgment should not be granted "unless the facts are so
crystallized that nothing remains but questions of law." Sanzare v.
Varesi, 681 So. 2d 785, 786 (Fla. 4th DCA 1996) (citation omitted). This
case presents a pure question of law.
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The trial court based its final summary judgment on the finding that
Mullin's "claims were available in the previous bankruptcy action
pursuant to 11 U.S.C. § 303." Section 303(i) of Title 11 of the
Bankruptcy Code provides:
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If the court dismisses a petition under this section other than on
consent of all petitioners and the debtor, and if the debtor does not
waive the right to judgment under this subsection, the court may grant
judgment-
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(1) against the petitioners and in favor of the debtor for-
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(A) costs; or
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(B) a reasonable attorney's fee; or
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(2) against any petitioner that filed the petition in bad faith, for-
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(A) any damages proximately caused by such filing; or
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(B) punitive damages.
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The notes to section 303 provide that "`[o]r' is not exclusive in
this paragraph. The court may grant any or all of the damages provided
for under the provision." 11 U.S.C. § 303 (2000) (historical and
statutory notes).
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During the bankruptcy proceedings, Mullin sought a dismissal of the
involuntary bankruptcy petition filed by the Orthweins, based in part on
the Orthweins' failure to establish that she was not generally paying
her debts as the debts became due. In the bankruptcy court, Mullin did
not request or plead for punitive damages or any other damages
associated with the bad faith filing by the Orthweins, other than for
attorney's fees and costs. The Orthweins contend that since section
303(i) allows attorney's fees and costs as well as compensatory and
punitive damages, Mullin's decision to seek only attorney's fees and
costs in the bankruptcy court precludes her ability to seek punitive
damages in state court.
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In LaRoche, this court held that a Florida state circuit court has
subject matter jurisdiction over a debtor's malicious prosecution claim
against his or her creditor for a bad faith filing of an involuntary
petition for bankruptcy. See 661 So. 2d at 861. As LaRoche framed the
issue:
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The question directly raised here is whether either the district court
and the bankruptcy court validly have any jurisdiction, after the
dismissal of the bankruptcy case, to hear and determine a debtor's state
law abuse of process and malicious prosecution action against a
petitioning creditor for damages relating to the bad faith filing of a
petition under § 303 of the Bankruptcy Code. Id. (emphasis omitted).
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After very extensive analysis, the LaRoche panel held that
"because there is no express grant of exclusive jurisdiction for
these claims to the bankruptcy court . . . the causes of action asserted
here may be brought as ordinary common law actions in a competent state
court." Id. at 864 (footnote omitted). Under the decision in
LaRoche, subsequent to the dismissal of an involuntary bankruptcy
petition by the bankruptcy court, a debtor has the choice of pursuing in
state court a malicious prosecution claim based on the creditor's bad
faith filing of the petition or seeking relief in the federal forum
under section 303 of the Bankruptcy code. See id. Thus, according to
LaRoche, while Mullin could have sought punitive damages in the
bankruptcy court, she was not required to do so; and once the bankruptcy
court dismissed the involuntary petition, Mullin was free to pursue
common law remedies in state court.
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Significant to the decision in LaRoche was the recognition that
"no clear authority [exists] in the federal courts directly on
point." Id. at 859. Since we decided LaRoche, the judicial
landscape in this area of law has considerably developed.
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As recently recognized by the Superior Court of Pennsylvania in Shiner
v. Moriarty, 706 A.2d 1228, 1238 (Pa. Super. Ct. 1998), the few cases
now holding that the Bankruptcy Code permits state law remedies for
abuse of its provisions, "stand in stark contrast to the
preponderance of federal and state decisions." (Citing MSR
Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996);
Gonzales v. Parks, 830 F.2d 1033 (9th Cir. 1987); Raymark Indus., Inc.
v. Baron, No. 96-7625, 1997 WL 359333 (E.D. Pa. June 23, 1997); Koffman
v. Osteoimplant Tech., Inc., 182 B.R. 115 (D. Md. 1995); Mason v. Smith,
672 A.2d 705 (N.H. 1996); Sarno v. Thermen, 608 N.E.2d 11 (Ill. App. Ct.
1992); Idell v. Goodman, 273 Cal. Rptr. 605 (Cal. Ct. App. 1990)).
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Shiner held that the plaintiffs' state tort claim for wrongful use of
process arising from the filing of certain papers in the bankruptcy
court was pre-empted by the remedies available under the Bankruptcy
Code. See 706 A.2d at 1238. In reversing the lower court, and rejecting
its reliance on LaRoche and Paradise Hotel Corp. v. Bank of Nova Scotia,
842 F.2d 47 (3d Cir. 1988), Shiner held that "the Bankruptcy Code
permits no state law remedies for abuse of its provisions" and the
plaintiffs' claim "being based upon the defendants' conduct in the
bankruptcy proceedings, is pre-empted by the Bankruptcy Code." Id.
(citation omitted).
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Having reviewed the law in this area, I believe it appropriate to
recede from our opinion in LaRoche and adopt the ninth circuit's
reasoning in MSR Exploration, 74 F.3d at 912. In that case, a debtor
brought a tort action for malicious prosecution against a creditor in
federal district court on the basis that the creditor maliciously
pursued claims against the debtor in the underlying Chapter 11
bankruptcy proceeding. See id. The debtor did not pursue sanctions or
any other remedy in the bankruptcy court. The Ninth Circuit Court of
Appeals framed the issue before it as "whether state malicious
prosecution actions for events taking place within the bankruptcy court
proceedings are completely preempted by federal law." Id. In
analyzing the issue, the MSR Exploration court reasoned that:
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Congress has expressed its intent that bankruptcy matters be handled
in a federal forum by placing bankruptcy jurisdiction exclusively in the
district courts as an initial matter. 28 U.S.C. § 1334(a). The mere
fact that exclusive jurisdiction over a particular action is in the
district courts would not necessarily mean that a later malicious
prosecution action must be brought there. However, it does militate in
that direction
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[I]n a related vein, a mere browse through the complex, detailed, and
comprehensive provisions of the lengthy Bankruptcy Code, 11 U.S.C. §§
101 et seq., demonstrates Congress's intent to create a whole system
under federal control which is designed to bring together and adjust all
of the rights and duties of creditors and embarrassed debtors alike.
While it is true that bankruptcy law makes reference to state law at
many points, the adjustment of rights and duties within the bankruptcy
process itself is uniquely and exclusively federal. It is very unlikely
that Congress intended to permit the superimposition of state remedies
on the many activities that might be undertaken in the management of the
bankruptcy process.
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[Otherwise], the opportunities for asserting malicious prosecution
claims would only be limited by the fertility of the pleader's mind and
by the laws of the state in which the proceeding took place.
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In short, the highly complex laws needed to constitute the bankruptcy
courts and regulate the rights of debtors and creditors also underscore
the need to jealously guard the bankruptcy process from even slight
incursions and disruptions brought about by state malicious prosecution
actions. To put it another way, the problem here is not only one of
state courts deciding issues of federal law in one manner or another.
That is not an entirely unique situation, even when uniformity is
required. The difficulty here goes much deeper. It is a question of
state courts, in effect, interfering with the whole complex, reticulated
bankruptcy process itself.
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Bankruptcy law does require uniformity, and that need persuaded the
framers of the United States Constitution to expressly grant Congress
the power "to establish . . . uniform Laws on the subject of
Bankruptcies throughout the United States." Art. I, § 8, cl. 4.
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It is true that in many circumstances state courts can, and do,
resolve questions of federal law "with no difficulty."
Nevertheless, the unique, historical, and even constitutional need for
uniformity in the administration of the bankruptcy laws is another
indication that Congress wished to leave the regulation of parties
before the bankruptcy court in the hands of the federal courts alone. Of
course, Congress did provide a number of remedies designed to preclude
the misuse of the bankruptcy process. See, e.g., Fed. Bankr. R. 9011
(frivolous and harassing filings); 11 U.S.C. § 105(a) (authority to
prevent abuse of process); 11 U.S.C. § 303(i)(2) (bad faith filing of
involuntary petitions); 11 U.S.C. § 362(h) (willful violation of
stays); 11 U.S.C. § 707(b) (dismissal for substantial abuse); 11 U.S.C.
§ 930 (dismissal under Chapter 9); 11 U.S.C. § 1112 (dismissal under
Chapter 11). That, too, suggests that Congress has considered the need
to deter misuse of the process and has not merely overlooked the
creation of additional deterrents. Id. at 913 - 915 (citations and
footnotes omitted).
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The ninth circuit declined the debtor's invitation "for a world
where the specter of additional litigation must haunt virtually every
actor in a bankruptcy proceeding," holding that the debtor's
malicious prosecution action "is completely preempted by the
structure and purpose of the Bankruptcy Code." Id. at 916; see
Lowenschuss v. Whitney, No. 94-35833, 1997 WL 103438, at *3 (9th Cir.
1997); Saks v. Parilla, Hubbard & Militzok, 79 Cal. Rptr. 2d 120,
121 (Cal. Ct. App. 1998) (citing MSR Exploration, 74 F.3d at 910);
Pauletto v. Reliance Ins. Co., 75 Cal. Rptr. 2d 334, 340 (Cal. Ct. App.
1998) (holding that cause of action for malicious prosecution is
preempted by the Bankruptcy Code because "state-law tort claims
impermissibly intrude upon exclusive federal authority over bankruptcy
proceedings and threaten the uniformity of federal bankruptcy law
regardless of the nature of the underlying proceeding"); Raymark,
1997 WL 35933, at *11 (holding that allowing state tort claims
"based upon exclusively federal conduct such as the filing of a
bankruptcy petition, when Congress has created a comprehensive
Bankruptcy Code to address any misuse, would unnecessarily interfere
with the scheme created by Congress"); Rogers v. Credit Fin. Serv.
Corp., 233 B.R. 98, 109 (Bankr. N.D. Cal. 1999) (applying MSR
Exploration reasoning); Bessette v. Avco Fin. Serv., Inc., 240 B.R. 147,
162 (Bankr. D. R.I. 1999).
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The recent cases of Prince v. MacDonald, 602 N.W.2d 834 (Mich. Ct.
App. 1999), appeal denied, 611 N.W.2d 795 (Mich. 2000), and In re Tan,
No. 95B 25570, 1999 WL 253108, at *3 (Bankr. N.D. Ill. Apr. 26, 1999),
found no preemption of state law claims. However, Prince is
distinguishable from this case and MSR Exploration; in Prince the
plaintiff's cause of action did not arise from the defendant's
"misuse of the bankruptcy proceeding." 602 N.W.2d at 838.
Similarly, Tan is distinguishable because the causes of action for fraud
and breach of fiduciary duty pursued under state law in that case were
based on acts committed outside of the bankruptcy proceedings,
"before the Debtor sought relief in bankruptcy." 1999 WL
253108 at *3. Other cases where preemption has not been found typically
involve state statutory causes of action. See, e.g., Sears, Roebuck
& Co. v. O'Brien, 178 F.3d 962, 967 (8th Cir. 1999) (holding that
bankruptcy law did not preempt a claim under an Iowa statutory cause of
action, but on the basis that the area impacted by the statute was an
"arena . . . of local concern" and "the state law
present[ed] no obstacle to the full enjoyment of . . . federal
rights"); Sturm v. Providian Nat'l Bank, 242 B.R. 599, 602 (Bankr.
S.D. W.Va. 1999) (holding that claim under West Virginia statute was not
preempted by the Bankruptcy Code based on reasoning of Sears, Roebuck).
In contrast, Mullin's claim, like the plaintiff in MSR Exploration and
its progeny, arose from actions the defendant allegedly committed during
the bankruptcy proceeding itself.
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Because allowing Mullin to pursue her claim of malicious prosecution
in state court would unnecessarily infringe on the uniformity envisioned
by the Bankruptcy Code's vast array of remedies, and would contribute to
"a world where the specter of additional litigation must haunt
virtually every actor in a bankruptcy proceeding," MSR Exploration,
74 F.3d at 916, I would prefer that this court en banc recede from our
decision in LaRoche and hold that Mullin's state tort law claim is
preempted by the Bankruptcy Code.
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