Rosenberg v. DVI Receivables XVII, LLC
| Citation | 835 F.3d 414 |
| Decision Date | 29 August 2016 |
| Docket Number | No. 15–2622,15–2622 |
| Parties | Sara Rosenberg, Individually and as Trustee of the Douglas Rosenberg 2004 Trust, Separately and as General Partner of The Pennsylvania Limited Partnerships 209 Chestnut St. Assoc., LP; 1501 Edgemont Associates, LP; 1538 Dekalb Associates, LP; 1561 Medical Drives Associates, LP; Imaging Properties of Illinois, LP; Imaging Properties of Philadelphia, LP; Imaging Properties of Roxborough, LP; Lane Limited Partnership, IV, Appellants v. DVI Receivables XVII, LLC; DVI Funding, LLC; Jane Fox; Lyon Financial Services Inc, d/b/a U.S. Bank Portfolio Services ; U.S. Bank NA, a National Association Organized In Minnesota |
| Court | United States Courts of Appeals. United States Court of Appeals (3rd Circuit) |
Lewis J. Pepperman (ARGUED), Stark & Stark, 993 Lenox Drive, Building 2, Lawrenceville, NJ 08648, Tucker H. Byrd, Scottie N. McPherson, 180 Park Avenue North, Suite 2A, Winter Park, FL 32789, Counsel for Appellants
Craig A. Hirneisen, Stacey A. Scrivani, Stevens & Lee, 111 North Sixth Street, P.O. Box 679 Reading, PA 19603, Peter H. Levitt (ARGUED), Jack C. McElroy, Shutts & Bowen, 200 South Biscayne Boulevard, Suite 4100, Miami, FL 33131, Counsel for Appellees
Before: AMBRO, JORDAN and SCIRICA, Circuit Judges
AMBRO
This appeal presents a question of federal preemption law. In November 2008, DVI Funding, LLC and several entities known as DVI Receivables filed involuntary bankruptcy petitions against Maury Rosenberg and his affiliated businesses. After the Bankruptcy Court dismissed the involuntary petitions, Rosenberg recovered attorney's fees, costs, and damages under § 303(i) of the Bankruptcy Code
. Now Rosenberg's wife and several limited partnerships associated with Rosenberg—persons and entities not named in the bankruptcy—have brought a tortious interference claim under state law for damages allegedly caused by the filing of the involuntary petitions. The District Court concluded that this claim was preempted by the Bankruptcy Code and dismissed the complaint. For the reasons that follow, we reverse and remand, as we conclude that § 303(i) does not preempt the state law claims of non-debtors predicated on the filing of an involuntary bankruptcy petition.
It is an understatement to say that the factual background and procedural history lurking behind this case are complex. Our appeal is but one fragment of more than a decade of ongoing litigation between Maury Rosenberg and his medical imaging centers on the one side and U.S. Bank and its affiliated entities on the other. By our estimate, that litigation has produced 27 written opinions at almost every level of the federal judiciary. But lucky for us (and our readers), this case turns on a narrow question of federal preemption law.
Rosenberg is the “principal architect” of National Medical Imaging, LLC (“NMI”) and National Medical Imaging Holding Company, LLC (“NMI Holding”). NMI and NMI Holding are affiliated with various limited partnerships (“NMI LPs”) that operate medical imaging centers. To finance the purchase of medical imaging equipment, the NMI LPs entered into leases with DVI Financial Services, Inc., who transferred the leases to DVI Funding, LLC. DVI Funding then held onto some of the leases directly and securitized the rest, transferring them to various entities with DVI Receivables in the name. DVI Financial was the initial servicer of the leases and U.S. Bank acted as trustee. When DVI Financial entered bankruptcy in 2004, Lyon Financial, a subsidiary of U.S. Bank, acquired the servicing contracts.
During litigation in state court over money the NMI LPs owed under the leases, DVI Funding and five DVI Receivables entities filed involuntary bankruptcy petitions against Rosenberg, NMI, and NMI Holding in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Rosenberg transferred his case to the Southern District of Florida, where the Bankruptcy Court there dismissed the involuntary petition because, among other things, DVI Funding and the DVI Receivables were not Rosenberg's creditors. In re Rosenberg , 414 B.R. 826, 840–41 (Bankr. S.D. Fla. 2009)
, aff'd , 472 Fed.Appx. 890 (11th Cir. 2012) (per curiam). The petitions against NMI and NMI Holding remained in the Eastern District of Pennsylvania, where its Bankruptcy Court gave collateral estoppel effect to the Florida decision and dismissed the petitions. In re Nat'l Med. Imaging, LLC , 439 B.R. 837, 854 (Bankr. E.D. Pa. 2009), aff'd , 648 Fed.Appx. 251, No. 15–1996, 2016 WL 1743475 (3d Cir. 2016).
Rosenberg then filed in the Southern District of Florida Bankruptcy Court an adversary action under 11 U.S.C. § 303(i)
against DVI Funding, the DVI Receivables entities, Lyon, and U.S. Bank. He sought to recover costs, attorney's fees, and damages for the bad faith filing of the involuntary bankruptcy petition. The Court awarded Rosenberg fees and costs after a bench trial, In re Rosenberg , No. 09–13196, 2012 WL 3990725 (Bankr. S.D. Fla. Sept. 11, 2012), aff'd in part , 779 F.3d 1254 (11th Cir. 2015), cert. denied , ––– U.S. ––––, 136 S.Ct. 805, 193 L.Ed.2d 713 (2016), and transferred the claim for damages to the District Court for a jury trial. After trial, the jury awarded Rosenberg $1.1 million in compensatory damages and $5 million in punitive damages. The District Court initially overturned the punitive damages award in its entirety and limited compensatory damages to $360,000, but the Eleventh Circuit held that U.S. Bank's post-trial motion was untimely and reinstated the jury's verdict. Rosenberg v. DVI Receivables, XIV, LLC , No. 12–22275, 2014 WL 4810348 (S.D. Fla. Sept. 29, 2014), rev'd in part , 818 F.3d 1283 (11th Cir. 2016).
With the stage set, we turn to the litigation currently on appeal. In August 2013, Sara Rosenberg (Maury's wife), the Rosenberg Trust, and several NMI Real Estate Partnerships (together with Mrs. Rosenberg and the Rosenberg Trust, the “Rosenberg Affiliates”) brought suit to recover damages stemming from the involuntary bankruptcy petitions filed against Maury Rosenberg, NMI, and NMI Holding. All of the plaintiffs are affiliated with Maury Rosenberg, but none of them were parties to the involuntary bankruptcies.
The complaint stated a single claim of tortious interference with contracts and business relationships. The NMI Real Estate Partnerships owned the medical imaging facilities subject to mortgages with various lenders. The Rosenberg Affiliates alleged that the DVI Receivables entities, DVI Funding, Lyon Financial, Jane Fox (an agent for Lyon who signed the involuntary bankruptcy petitions), and U.S. Bank (collectively, the “Defendants”), orchestrated the filing of the involuntary bankruptcy petitions with the intent to cause the NMI Real Estate Partnerships to default on their underlying mortgages. As a result, the Partnerships were declared in default, all but one of the properties have been lost, and Sara Rosenberg lost her interest in one of the Partnerships. The Rosenberg Affiliates also alleged that the Rosenberg Trust suffered losses on investments in the Partnerships and life insurance for Maury Rosenberg.
The case was initially filed in the District Court for the Southern District of Florida, but it transferred the case to the Eastern District of Pennsylvania on the motion of the Defendants. They then moved to dismiss, arguing that the Rosenberg Affiliates' state law tortious interference claim was preempted by the involuntary bankruptcy provisions of the Bankruptcy Code. The District Court agreed and dismissed the complaint. Rosenberg v. DVI Receivables, XIV, LLC , No. 14–5608, 2015 WL 3513445 (E.D. Pa. June 4, 2015)
. This appeal followed.
The District Court exercised diversity jurisdiction under 28 U.S.C. § 1332(a)
, and we have appellate jurisdiction to review its order dismissing the complaint under 28 U.S.C. § 1291. Our review of the District Court's grant of a motion to dismiss based on preemption is plenary. New Jersey Carpenters v. Tishman Constr. Corp. of New Jersey , 760 F.3d 297, 302 (3d Cir. 2014). We accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiffs. Id.
governs involuntary bankruptcy cases. In an involuntary bankruptcy case it is the creditors, not the debtors, who start the proceedings by filing an involuntary petition under either Chapter 7 or 11 of the Code. 11 U.S.C. § 303(b). Important for our purposes is that § 303(i) provides that if an involuntary bankruptcy petition is dismissed, the debtor may recover attorney's fees, costs, and even damages from the creditors. It reads:
As they were not debtors, the Rosenberg Affiliates cannot recover damages from the Defendants under § 303(i)
. See, e.g. , In re Miles , 430 F.3d 1083, 1093–94 (9th Cir. 2005) ; In re Mike Hammer Prods., Inc. , 294 B.R. 752, 755 (9th Cir. BAP 2003) ; In re VII Holdings Co. , 362 B.R. 663, 668 (Bankr. D. Del. 2007) (Shannon, J.); Collier on Bankruptcy ¶ 303.33 (16th ed.). Shut off from a remedy under the Bankruptcy Code, the Rosenberg Affiliates are instead pursuing a state law tortious interference claim for damages caused by the involuntary bankruptcy petitions filed against Maury Rosenberg, NMI, and NMI Holding. The question for us is whether § 303(i) preempts this state law claim.
Federal preemption of state law is a “necessary but precarious component of our system of federalism under which the...
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