In re Terry
In re Terry
Opinion of the Court
Memorandum
Introduction
On September 29, 2014, the City of Philadelphia (the “City”) filed a Notice of Appeal seeking review of a Consent Order entered by this Court on September 18, 2014 (the “Consent Order”). The Consent Order resolved a dispute between Otis W. Terry (the “Debtor”) and 2013 N. 16th Street, LLC (“2013 LLC”) regarding their respective interests in certain real estate located at 7128 Mount Airy Place, Philadelphia, Pennsylvania (the “Property”) following a tax sale conducted by the Sheriff of Philadelphia (the “Sheriff’). The Order was issued in accordance with the Court’s July 21, 2014, bench ruling. This Memorandum Opinion is submitted pursuant to Local Rule 8001-1(b) to further expound upon the reasons for the ruling.
Factual and Procedural Background
On September 19, 2012, the Sheriff conducted a tax sale to collect unpaid taxes due on the Property (the “Sheriffs Sale”). 2013 LLC was the successful bidder and paid $120,000 to the Sheriff. On December 11, 2012, the Sheriff signed and delivered a deed evidencing the transfer of the Property to 2013 LLC (the “Tax Deed”). The Tax Deed evidencing the sale was recorded on January 5, 2013. Shortly thereafter, 2013 LLC filed in the Philadelphia Court of Common Pleas a Complaint in Ejectment dated January 10, 2013, Case ID: 130100821 (the “Ejectment Action”), against the Debtor and Patricia Terry, the Debtor’s sister and co-owner of the Property. After no answer was filed in the Ejectment Action, 2013 LLC filed a Prae-cipe for Entry of Default Judgment dated April 2, 2013. On the next day, April 3, 2013, 2013 LLC filed a Praecipe for Writ of Possession. On May 30, 2013 (the “Petition Date”), the Debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (the “Bankruptcy Code”) thereby staying the Ejectment Action. In re Terry, 505 B.R. 660, 661-62 (Bankr.E.D.Pa. 2014).
Shortly after the Petition Date, 2013 LLC filed a motion dated June 4, 2013, requesting relief from the automatic stay to allow 2013 LLC to continue the Ejectment Action. The Debtor objected and, with the aid of the parties’ briefing of the issues, this Court held a hearing on June 27, 2013, to address the request for relief. This Court entered an order dated August 14, 2013 [Docket No. 27] (the “First Lift-Stay Order”). In the First LifNStay Order, this Court addressed whether the Debtor held any interest in the relevant property. As elaborated by the First Lift-Stay Order, this Court determined that the Debtor held an unexpired right to redeem the Property that, upon his filing for Chapter 13 relief, inured to the benefit of his estate.
After this Court denied 2013 LLC’s first request for relief, 2013 LLC filed a second motion dated October 7, 2013 [Docket No.
The issuance of this Court’s decision appeared to end the dispute between the Debtor and 2013 LLC and an amicable resolution of their dispute appeared on the horizon. To this end, the Debtor filed a Stipulation of Settlement dated June 25, 2014 (the “Stipulation”). Pursuant to the Stipulation, the Debtor, Patricia Terry, 2013 LLC and Todd Joseph
On July 21, 2014, this Court held a hearing (the “Hearing”) to address the relief requested by the Settling Parties pursuant to the Stipulation. Prior to the Hearing, the City filed its Objection. In the Objection, the City purported to state two arguments in support of its request that this Court deny the relief sought by the Settling Parties. However, this Court read the Objection to assert three arguments. First, the City argued that the Debtor lacks standing to enter into the Stipulation or otherwise obtain the relief effectuated by the Consent Order. Second, the City argued that application of the Rooker-Feldman Doctrine divests this Court of jurisdiction to grant the relief sought by the Stipulation. Third, the City
With regard to the City’s third argument, this Court shared the City’s misgivings about the language of the proposed consent order attached to the Stipulation that ordered the Sheriff, a nonparty, to take specific actions. For this reason, this Court provided line-by-line comments as to how the proposed consent order should be amended to remove any language directed to the Sheriff. This Court specifically instructed the Debtor to remove language directing the Sheriff to pay the Overbid Amount (defined below) to the Debtor. Audio recording of Hearing 7/21/2014 @ 1:27 p.m. (2:06:49 to 2:08:17) Bky. No. 13-14780MDC (instructing parties to remove language directing the Sheriff to take specific action).
In addition, the Settling Parties agreed to amend the consent order to address the City’s concerns regarding the continued validity of the Sheriffs Sale. For example, the Settling Parties expressly conceded that the language of an amended consent order would make clear that the occurrence of the Sheriffs Sale was not to be avoided. Rather, any amended consent order would indicate that the exercise of the Debtor’s § 544 powers was limited to the avoidance of the interest held by 2013 LLC as a result of the Sheriffs Sale and as evidenced by the Tax Deed. Audio recording of Hearing 7/21/2014 @ 1:27 p.m. (2:13:15 to 2:13:43) Bky. No. 13-14780MDC.
Based upon this Court’s instructions and the concessions offered by the Settling Parties, this Court concluded that the City’s concerns that motivated its filing of the Objection were satisfied. Audio recording of Hearing 7/21/2014 @ 1:27 p.m. (2:23 to 2:25) Bky. No. 13-14780MDC. To ensure everyone understood the Court’s ruling and instructions, this Court ordered the Settling Parties to prepare an amended consent order and circulate it among all parties to insure that all parties, inclusive of the City, consented to its language. If the parties had any unresolved issues that could not be resolved on a consensual basis, this Court stated that the parties should schedule a telephonic conference to enable the Court to address those concerns. Audio recording of Hearing 7/21/2014 @ 1:27 p.m. (2:22:50 to 2:23) Bky. No. 13-14780MDC.
After the conclusion of the Hearing, nearly two months passed before any par
The Turnover Adversary Proceeding
Concurrent with this Court’s adjudication of the Settling Parties’ interest in the Property, this Court has also presided over an adversary proceeding filed by the Debtor against the Sheriff and the City (together with the Sheriff, the “City Parties”). On June 20, 2014, the Debtor filed a complaint naming the City Parties initiating an adversary proceeding seeking turnover of the Debtor’s property in the possession of the City Parties. Specifically, the Debtor’s seeks an order compelling the Sheriff to deliver $65,667.07 that consists of the proceeds of the Sheriffs Sale after the payment of all hen holders (the “Overbid Amount”). The Debtor contends that despite his demands and the Sheriffs apparent § 542(a) obligations,
After the Sheriff filed his answer, this Court held on August 27, 2014, a pre-trial hearing (the “Pre-Trial Hearing”). At the Pre-Trial Hearing, the Debtor’s counsel and the Sheriffs counsel
Legal Discussion
As stated, this Court ultimately granted the City’s Objection with regard to its argument that this Court lacks the authority to issue an order addressed to a non-party. Because this Court’s analysis of the City’s own standing to file the Objection is intertwined with this Court’s analysis of whether the Sheriff was a necessary party, this Court will first address its reasoning on both issues concurrently. Second, this Court will elaborate upon its reasoning with regard to the application of the Rooker-Feldman Doctrine.
The City’s Standing and Whether the Sheriff was a Necessary Party
At the Hearing, this Court raised whether the City had standing to object to the Stipulation. See, e.g., Audio recording of Hearing 7/21/2014 @ 1:27 p.m. (1:52 1:54) Bky. No. 13-14780MDC (asking counsel for the City how his clients have standing to object to the Stipulation). Mann v. Leslie, 337 Fed.Appx. 217, 219 (3d Cir. 2009) (stating courts are required to raise questions of standing); Addiction Specialists, Inc. v. Twp. of Hampton, 411 F.3d 399 (3d Cir. 2005) (same). As recognized by the Third Circuit, “Article III standing and standing under the Bankruptcy Code are effectively coextensive.” In re Global Indus. Technologies, Inc., 645 F.3d 201, 210 (3d Cir. 2011). Therefore, to have standing to assert its Objection, the City must allege “a specific, identifiable trifle of injury.” In re Global Indus. Technologies, Inc., 645 F.3d 201, 210 (3d Cir.
Although the City is a creditor of the Debtor
That being said, the original consent order proposed by the Settling Parties did have one paragraph directed to the City Parties’ potential interests. In relevant part, the proposed consent order attached to the Stipulation provided:
9. The Sheriff of the City of Philadelphia is hereby ORDERED to forthwith turnover to counsel for the Debtor such funds as are in his possession remaining from the Tax Sale of 7128 Mount Airy Place so that they can be paid out in accordance with the aforementioned Stipulation of Settlement.
Stipulation, Exh. 1, ¶ 9.
Admittedly, this language is directed at the Sheriff who is, technically speaking, a nonparty to the dispute between the Settling Parties. However, it is hard to imagine how the City’s or the Sheriffs legally-protected interests are impacted by this controversy. The City does not appear to dispute whether the Sheriff is obligated to deliver the Overbid Amount to the Chapter 13 trustee. This obligation is self-executing and, and assuming the Overbid Amount is the Debtor’s property,
Arguably, the original relief sought by the Stipulation could be said to have varied the Sheriffs existing obligations because the proposed consent order provided for the delivery of the Overbid Amount to the Debtor, and not the Trustee. On this basis, the Sheriff and the City may be said to have a trifling interest in the adjudication of the matters presented by this Court’s consideration of the Stipulation. Despite this Court’s doubts as to the City’s ability to bootstrap the Sheriffs possession of the Debtor’s property
Application of the Rooker-Feldman Doctrine
The Rooker-Feldman Doctrine
Determination of the first prong of the Great Western test is made murky by the absence of a “plaintiff.” Arguably, the Debtor is the “plaintiff’ in that the Debtor has, in effect, sued 2013 LLC and Joseph to enforce the Debtor’s “unexpired right to redeem the Property.” Terry, 505 B.R. at 662 (stating “this Court determined that the Debtor held an unexpired right to redeem the Property.”). In this light, this Court considered the Debtor to be the “plaintiff’ for purposes of addressing the Great Western test.
Whether the “Plaintiff’ Lost in State Court?
The Debtor unquestionably lost in state court as his interest in the Property was sold pursuant to the Sheriffs sale. As a result, the first prong was satisfied.
Whether the “Plaintiff’ Complains of Injuries Caused by the State-Court Judgment?
The City argued that the relief contemplated by the Stipulation was improper because it proposed to void the Sheriffs Sale that occurred on September 19, 2012. On its face, it appears that the Plaintiff is complaining of injuries caused by the Sheriffs Sale. However, a closer look shows that the opposite is true. This Court did not read the Stipulation as requesting, and does not read the Consent Order as providing for, the avoidance of the Sheriffs Sale or the cancellation of its results. By entering the Consent Order, this Court intended to give effect to the Sheriffs Sale.
Through the procedure envisioned by the Stipulation, the Court was enforcing 2013 LLC’s interest in the Property. This Court read the Stipulation as seeking an order to avoid the publicly-recorded ownership interest in the Property, as evidenced by the Tax Deed, acquired by 2013 LLC pursuant to the Sheriffs Sale. 2013 LLC’s prepetition interest was then to be replaced by an allowed claim secured by the Debtor’s restored ownership interest in the Property. 2013 LLC would therefore retain rights that originated as a result of the Sheriffs Sale.
Similarly, the Debtor is not attempting to escape the consequences of the prior state court action. The Debtor was attempting to exercise his right of redemption that he held as a natural consequence of the occurrence of the Sheriffs Sale. The Debtor, by filing the Stipulation, was fulfilling the obligations imposed by the Sheriffs Sale. Further, the Court found that the Stipulation was in compliance with Pennsylvania state law which provides that if property sold at tax sale is redeemed, the purchaser must take action to void the deed and restore record ownership to the owner. See, e.g., 72 P.S. § 5971o (if an owner redeems her real estate interest ... “thereafter said deed shall be void and of no effect”).
With this understanding in mind, this Court did not find that the Stipulation or
Whether the Judgment was Rendered Prior to the Debtor’s Bankruptcy?
The parties do not dispute that the Sheriffs Sale occurred prior to the Debt- or’s bankruptcy. As a result, the third prong was satisfied.
Is the Plaintiff Seeking Review of a State Judgment?
To determine whether the Debtor is seeking review of a state judgment and the Sheriffs Sale in particular, this Court must determine whether the adjudication of the Debtor’s hypothetical §§ 544(a) or 548(a) claims would require this Court to review the merits of a prior state court adjudication. In no way may it be said that this Court’s approval of the Stipulation would entail the review of any prior state court determination. See, e.g., 72 P.S. § 5860.601; Hunter v. McKlveen, 361 Pa. 479, 483, 65 A.2d 366 (Pa. 1949) (recognizing that the validity of a tax sale is “necessarily dependent on a valid assessment”). To enter the Consent Order or to otherwise confirm that the Debtor has the authority to enter into the agreement embodied by the Consent Order, this Court is not required to revisit any finding the Sheriffs Sale was contingent upon. For example, this Court was not required to address the valuation of the Property as determined pursuant to the Sheriffs Sale or the fact that some unpaid amount was owed to the City which entitled it to sell the Property.
Accordingly, this Court determined that the fourth prong, along with the second prong, was not satisfied and this Court confirmed that the Rooker-Feldman Doctrine did not divest this Court of its jurisdiction to grant the relief sought by the Stipulation.
Conclusion
Consistent with this Court’s foregoing analysis, this Court determined that its consideration of the Stipulation and subsequent entry of the Consent Order did not implicate the Rooker-Feldman Doctrine. The relief sought by the Settling Parties and granted by this Court did not negate a prior state court judgment. To the contrary, the Consent Order simply represented the Settling Parties’ resolution of the dispute arising from the Debtor’s exercise of his right of redemption and the effect that this act had upon the rights of 2013 LLC that it obtained pursuant to the Sheriffs Sale.
. In re Terry, 505 B.R. 660 (Bankr.E.D.Pa. 2014).
. Joseph is the principal of 2013 LLC.
.The Stipulation provides that 2013 LLC’s lien shall be imposed pursuant to § 550(e)(1).
. This Court summarily denied the City's argument that the Debtor lacked standing to request the relief sought by the Stipulation. In arguing that the Debtor lacks standing to assert §§ 544 or 548 claims, the City overlooked § 522(h). In relevant part, § 522(h) provides:
The debtor may avoid a transfer of property of the debtor or recover a setoff to the extent that the debtor could have exempted such property under subsection (g)(1) of this section if the trustee had avoided such transfer, if—
(1) such transfer is avoidable by the trustee under section 544, 545, 547, 548, 549, or 724(a) of this title or recoverable by the trustee under section 553 of this title; and
(2) the trustee does not attempt to avoid such transfer.
11 U.S.C. § 522(h). After this Court directed the City's attention to this section of the Code, this Court understood the City to have withdrawn its challenge to the Debtor's standing.
. The actual scope and existence of these obligations remains to be decided.
. The Sheriff and the City are represented by the same counsel.
. On June 25, 2014, the City filed a Proof of Claim evidencing a "Municipal Claim" against the Debtor in the amount of $816.63. The Proof of Claim states that entirety of the City's claim is entitled to priority pursuant to § 507(a)(8) as relating to taxes or penalties owed to governmental units. In addition, the Proof of Claim contains no reference to the Property and states explicitly that the City’s claim is not secured. Accordingly, it appears that the City’s claim against the Debtor is wholly unrelated to the matters addressed by the Consent Order.
. "Courts have held that the test to determine whether an entity is a party in interest is whether the prospective party in interest has a sufficient stake in the outcome of the proceeding so as to require representation.” In re Stone & Webster, Inc., 373 B.R. 353 (Bankr.D.Del. 2007) (addressing motion to intervene premised on § 1109(b)).
. Chapter 13 does not include a definition of the term "party in interest.” For guidance, courts addressing the issue in the Chapter 13 context have relied upon Section 1109(b) of the Bankruptcy Code which provides:
A party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.
11 U.S.C. § 1109(b); In re Jensen, 369 B.R. 210, 230 (Bankr.E.D.Pa. 2007) (observing § 1109, for purposes of Chapter 13 proceedings, "provides guidance in understanding who Congress meant to encompass within the phrase 'a party in interest.' ”).
. Had the City not filed its Objection, there would be no implication that the Consent Order or any other order effectuating the relief requested by the Settling Parties would preclude the relitigation of this issue. Raytech Corp. v. White, 54 F.3d 187, 190 (3d Cir. 1995) (acknowledging that issue preclusion requires the party to have been a party or in privity to a party to the prior case).
. This Court expressly refrains from addressing whether the City is entitled to retain the Overbid Amount. See, e.g., United States v. Whiting Pools, Inc., 462 U.S. 198, 205, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983) (recognizing that a creditor who has possession of property in which a debtor has an interest at the time a bankruptcy petition is filed has an obligation to immediately return the property
. The Rooker-Feldman Doctrine is named for Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983).
. Reiter v. Washington Mut. Bank, 455 Fed.Appx. 188, 191 n. 4 (3d Cir. 2011) (recognizing that, although district court reached the correct result, its discussion of whether the plaintiff's claims were “inextricably intertwined with the state court adjudications” was, as a result of Great Western, an incorrect statement of the Rooker-Feldman doctrine); In re Stewart, 473 B.R. 612, 633 (Bankr.W.D.Pa. 2012) (recognizing that in Great Western the Third Circuit "exchanged the 'inextricably intertwined’ language associated with Rooker-Feldman in favor • of the four part test”).
.This Court notes that it does not intend to suggest that application of the Rooker-Feld-man Doctrine is co-extensive with the application of issue or claim preclusion. See, e.g., Lemonds v. St. Louis County, 222 F.3d 488,
Reference
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- In re Otis William TERRY, Debtor
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